The Next WTO Round on Agriculture and EU Enlargement: Pressures on the EU Dairy Sector

The EU dairy sector will be one of the most sensitive sectors to be affected by the outcome of the on-going negotiations for the new WTO round for agriculture. Nevertheless, if the Next WTO Round is going to be along the same lines as the Uruguay Round, the EU may be able to stay within the WTO commitments for export subsidy in the dairy sector without further reforms in the Common Agricultural Policy. Certainly, some minor reforms are needed to relieve the binding commitments for cheese and other milk products. The upcoming reform in the dairy sector under Agenda 2000 starting from year 2005 may help in reforming the dairy sector for the new round. In contrast, a steeper reduction in the export subsidy commitments compared to the Uruguay Round may cause problems for cheese and other milk products because the majority of exports in these products will have to be exported without any export subsidy. After enlargement, in particular with a steeper reduction formula, the EU may face troubles in the categories of butter, skim milk powder, cheese, and other milk products. The reforms under Agenda 2000 may not be sufficient because the difference between the EU internal market price and world market price is still too high for EU dairy products to allow unsubsidised exports to the world market. The EU internal market will have to absorb the dairy products intended for the export market. Consequently, the EU internal market for dairy products will be under pressure for further price reduction, and the EU world market share in dairy products will shrink