China has announced that it will investigate whether the European Union’s dairy industry receives state subsidies and whether this justifies imposing tariffs on dairy products. Estonian dairy producers have varying assessments of the potential impact of China’s tariffs.
The day after the European Commission announced final tariffs on Chinese electric vehicles, China declared that it would investigate subsidies provided to the European Union’s dairy products.
“Half-jokingly – if you were to ask my Chinese counterpart, they’d tell you that these matters are absolutely unrelated. However, it’s true that as soon as the European Union began discussing potential tariffs on Chinese electric cars, there was an immediate threat of possible countermeasures,” said Jüri Seilenthal, director of foreign trade policy at the Ministry of Foreign Affairs.
To impose tariffs, China would need to prove, according to World Trade Organization rules, that the EU provides unfair subsidies to its dairy industry. The EU maintains that this is not the case. If China were to justify the tariffs, a situation similar to the one ten years ago could arise, when the dairy industry lost the Russian market.
“The dairy sector was in crisis for 22 months. Milk prices became unbearable for the sector, and farmers went bankrupt, which in the long run leads to economic decline in the country,” said Jaanus Murakas, chairman of the board of E-Piim.
This time, the impact would likely be indirect, according to dairy producers, as Estonia exports very few dairy products to China.
“Prices in Europe would fall, which would also affect the Estonian dairy market, but I see this effect as short-term,” said Maido Solovjov, managing director of Valio Eesti.
“Exports to China from the European Union vary by product group: maybe 10 percent of skimmed milk powder, 10 percent of butter and perhaps 20 percent of whey powder. If restrictions are imposed, they will likely be local. Certainly, there are companies that have built their business on the Chinese market, and this could affect them,” said Ülo Kivine, CEO of Nordic Milk.
Other dairy producers are less concerned about losing the Chinese market than Murakas. European companies could find new markets within a year or so.
“If Europe stops exporting to China, China will have to import those products from somewhere else,” Solovjov said.
China has previously launched similar investigations into French cognac and European pork, but they are unlikely to pressure the EU into dropping tariffs on electric vehicles.
“Having read 118 pages of justifications on how the European Commission has identified China’s subsidies – I must say that such practices should not be allowed, as they represent a significant blow to the European automotive industry. While cars are not manufactured in Estonia, there is plenty of automotive subcontracting here. We shouldn’t create the illusion that these companies would find other markets for their products if the automotive industry in the EU significantly shrinks or disappears altogether,” Seilenthal remarked.
In October, member states will decide whether the tariffs on electric vehicles will remain in place for five years.
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