New Zealand is to seek World Trade Organisation permission to take action against Canada for its failure to conform to international trading rules related to its subsidised dairy exports, Minister for Trade Negotiations Jim Sutton said today.

In 1999 Canada lost a case brought against it by New Zealand and the United States under the WTO's dispute settlement system over its programmes for subsidising dairy exports without counting these against allowed limits - the "Special Milk Class" programmes.

Canada has had a year to implement the decision, but instead seemed to put a lot of effort into devising a new system to get round the ruling, Mr Sutton said. New Zealand and America would now contest the new system as well.

"WTO rules enable us to seek the right to retaliate against Canada. It is important we demonstrate to Canada our determination that it should meet its commitments."

Mr Sutton said he had instructed officials to seek authorisation to impose penalty tariffs on Canadian products up to the value of about US$35 million dollars a year, which is the damage caused to New Zealand by these illegal exports.

The earliest a WTO decision is expected is late this year.

"I'm confident Canada would not fail to heed the WTO's rulings a second time, and that New Zealand will not actually have to follow through with its action," Mr Sutton said.

"While we don't want or expect to have to retaliate, should we be left with no choice in the end but to do so, we will select the areas which best suit New Zealand's overall interests, and choose an appropriate value of sanctions within the overall limit approved by the WTO."

QUESTIONS AND ANSWERS:

Canada is a Cairns Group member ?
aren't we on the same side?

Canada is, of course, a member of the Cairns Group and we are working together to promote the cause of agricultural trade reform. Agricultural trade remains highly distorted with export subsidies and excessive tariffs. But the Cairns Group must be seen to practice what it preaches. We cannot let Canada let the side down nor be seen to go easy on our friends. We are sure that Canada, when the WTO shows its new measures still provide export subsidies, will be the first to agree that they (and all other export subsidies) should be eliminated.

Does this mean money in the hand for New Zealand farmers?

No. The right to retaliate relates to a withdrawal of concessions that New Zealand made to Canada in earlier trade negotiations. We withdraw these concession by putting higher tariffs on Canadian exports to New Zealand. But it does not mean any more money for New Zealand farmers and it is not designed to ? it is designed to illustrate to Canada the seriousness of the issue and to create an environment for change in Canadian policies. Those current policies are hurting our dairy farmers right now.

Why shouldn't Canada help its dairy farmers? We are not opposed to Canada helping its dairy farmers or any other farmer. But we are opposed to the fact that at present the New Zealand dairy industry bears some of the cost through additional distortions ? and lower prices ? on world dairy markets. There are other ? non trade-distorting ? ways Canada can help its dairy producers maintain their income. I would also note that the Canadian consumers are penalised by the current mechanism which helps to force up domestic dairy prices.

Wouldn't these penal tariffs hurt the New Zealand economy?

Imposing these kinds of measures does no good for Canada or New Zealand. They would simply increase the costs of imports to New Zealand businesses and consumers. They are a last resort, and I don't think it will ever come to this. For now, we have to reserve our rights. And if in the end we find that we have no other means of demonstrating our determination that the rules should be abided by, we will make careful decisions about the imports we should target so as best to meet our interests.

When will the New Zealand and US challenge against the new system be heard?

We are filing the request for a new panel in Geneva tonight, along with the request to retaliate. I expect the panel will hear our case in April, and if there is an appeal that would be heard after the European summer break. So sometime before the end of the year I would expect Canada to be in a situation where it must decide either to bring its programmes into line with the rules, or face retaliation from New Zealand and the United States. Should it decide on the latter route, it will still have the right to challenge the amount of retaliation sought submitted to arbitration.

How much is the United States claiming?

We don't know yet.

Office of Hon Jim Sutton

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