Dairy industry relieved after EU & US call five-year tariff truce on aircraft dispute

16 Jun 2021 --- European dairy players are breathing a sigh of relief after a five-year truce has been struck in the long-running trade dispute over subsidies for Boeing and Airbus, which saw them dragged into a conflict that seriously damaged the sector.

Beginning in October 2019, many EU dairy lines have been subject to an additional tariff of 25 percent on arrival in the US. Similarly, since last November, the EU has applied tariffs to certain imports from the US.

But now, both sides will remove taxes on US$11.5 billion worth of goods, including dairy and wine, for five years. Notably, this is not total elimination of the punitive measures but rather a five-year detente, so technically, the issue is still on the table.

However, the agreement has been welcomed by Eucolait, the European Association of Dairy Trade, and the European Dairy Association (EDA). Both organizations have been pushing for an end to the punitive tariffs imposed on the industry, which saw dairy producers and exporters falling victim to a dispute with nothing to do with dairy. So they became the “collateral damage” in the trade spat. 

The additional tariffs imposed on EU dairy exports reached hundreds of millions of dollars and severely impacted EU and US-based businesses alike.“We are incredibly happy that they made it. Together with our US friends, we have been in contact with the EU and US authorities and pushing hard on all fronts,” Alexander Anton, EDA Secretary-General, tells FoodIngredientsFirst. 

“We think that, now that the air-born battle is grounded, a five-year period within the new overall EU-US framework gives more than sufficient time to really reshape and restart our US-EU trade relations,” he continues. 

“We trust that EU Trade Commissioner Valdis Dombrovskis and US trade representative Katherine Tai and their teams will put this dispute into the history books quicker than that.”

How did the dispute impact dairy?
The additional tariffs imposed on EU dairy exports reached hundreds of millions of dollars and severely impacted EU and US-based businesses alike. 

While the US continues to be a significant buyer of EU dairy products, imports of cheese from the EU dropped by 10 percent in 2020 and continued to decline faster in the first quarter of 2021. 

As a result, the US is no longer the first destination for EU cheeses, replaced by Japan which now ranks second behind the UK.

“Five years is a long time, and we would hope that the aircraft subsidy issue can be resolved within that time frame, as part of a broader revival of EU-US relations. From our perspective, this prolonged suspension is almost the same as a total abolition of the tariffs,” Eucolait Secretary-General, Jukka Likitalo, tells FoodIngredientsFirst.

“We do not plan to get involved again unless there is a threat that dairy products might be targeted again further down the line.”

The 25 percent additional tariff was a significant financial burden for businesses engaged in EU-US dairy trade, which also reduced export volumes, he explains. 

“I would expect exports of cheese to gradually increase again following the slow down over the last 1.5 years. In 2020, the difference with the previous year was about 14,000 tons or 10 percent, so we are not talking about a massive change either.”

“For butter, which is the second product group concerned, we may not see a difference in trade flows because EU exports have not really declined as they seem to have been boosted by additional US demand for butter since the beginning of the pandemic,” Likitalo continues. 

“It’s also worth noting that EU-US trade is not free of irritants. Both sides apply tariffs, tariff-rate quotas and have numerous technical and sanitary barriers in place,” he says.The 25 percent additional tariff was a significant financial burden for businesses engaged in EU-US dairy trade, which also reduced export volumes.

Eucolait acknowledges that the five-year relaxation of tariffs falls short of a full and permanent resolution of this trade conflict, however, it’s a promising sign of the willingness to engage in a constructive manner, “heralding the beginning of a new chapter in the trade relations between the EU and the US.”

FoodDrinkEurope has also weighed in on the five-year reprieve.

“This is positive news for EU food and drink manufacturers and supply chains who in recent years have become collateral damage for a dispute originating in a completely unrelated sector and will contribute to restoring more stable trade relations with our transatlantic partner,” says a statement.

“We encourage both sides to maintain the current positive momentum and spirit of cooperation, to permanently remove retaliatory tariffs on agri-food products, and strengthen transatlantic relations.”

What’s driving dairy arena?
Focusing on the current market dynamics and consumer trends currently driving dairy, Anton highlights COVID-19’s impact on the space. 

“During the pandemic, milk and dairy strengthened its positive reputation, both in the US and the EU. Next to these positive trends at the internal consumption level, dairy is searched after in international markets. Frictionless trade on a level playing field helps significantly here,” he notes.

“The EU Free Trade Agreements, for instance, the EU-Japan agreement, is of great value, and the new start of the US-EU dairy relationship will reinforce this trend,” Anton concludes.  

Likitalo also notes how there is a solid demand in the US for European quality cheese and butter. “Global demand for dairy continues to grow, driven by population growth and rising incomes. Asia is the most important region in this regard,” he says. 

By Gaynor Selby