Dairy Tariff-Rate Import Quota Licensing

DEPARTMENT OF AGRICULTURE

Office of the Secretary

7 CFR Part 6

Dairy Tariff-Rate Import Quota Licensing

AGENCY: Office of the Secretary, USDA.

ACTION: Determination on historical license reductions.

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SUMMARY: The Department of Agriculture has determined that provisions

of the Dairy Tariff-Rate Import Quota Licensing Regulation with respect

to the issuance of reduced historical import licenses based on license

surrenders of more than 50 percent will be suspended, in light of

market conditions, and shall not apply for a period of five years.

DATES: Effective March 20, 1998, 7 CFR 6.25(b)(1)(i) and (b)(1)(ii) are

suspended.

FOR FURTHER INFORMATION CONTACT: Diana Wanamaker, Group Leader, Import

Policies and Programs Division, Foreign Agricultural Service, 1400

Independence Avenue, SW., Stop 1029, Washington, DC 20250-1029 or

telephone (202) 720-2916.

SUPPLEMENTARY INFORMATION:

Determination: The Foreign Agricultural Service (FAS), under a

delegation of authority from the Secretary of Agriculture, 7 CFR 2.43,

has determined pursuant to 7 CFR 6.25(b)(2), to suspend the historical

license reduction provisions of 7 CFR 6.25(b)(1)(i) and 6.25(b)(1)(ii)

for a five-year period, in light of U.S. import market conditions for

cheese. At the end of the five-year suspension, beginning in quota year

2004, if more than 50 percent of a historical license is surrendered in

each of the three prior quota years (i.e., 2001-2003), that license

will be issued in an amount equal to the average amount entered in

those years. Beginning in quota year 2006, if more than 50 percent of a

historical license is surrendered in at least three of the five prior

quota years (i.e., 2001-2005), that license will be issued in an amount

equal to the average amount entered in those years. FAS has determined

that a principal underlying cause of changing U.S. import market

conditions is the European Union's (the EU's) progressive

implementation of its Uruguay Round export subsidy reduction commitment

which, in quota year 1997, began to have a direct impact on trade flows

of EU cheese to the U.S. market resulting in reduced U.S. imports and

increased historical license surrenders. FAS has further determined

that a five-year suspension of the historical license reduction

requirement, until the Uruguay Round export subsidy reductions are

completed in the year 2000, is warranted under Sec. 6.25(b)(2) to allow

time for historical licensees to adjust to changing U.S. import market

conditions.

Backgound

The Dairy Tariff-Rate Import Quota Licensing Regulation at 7 CFR

6.25(b)(2) provides that prior to 1999, the Secretary of Agriculture

may determine that the requirements in Secs. 6.25(b)(1)(i) and

6.25(b)(1)(ii) to reduce permanently the quantity of historical license

based on license surrenders of more than 50 percent in three

consecutive quota years or three out of five quota years, ``shall not

apply in light of market conditions.'' The Department requested public

comments in a notice of proposed rulemaking published on October 15,

1997 (62 FR 53580-81 and 62 FR 55184), on possible options for the

implementation of the historical license reduction requirement,

including possible recision, suspension, or delay of this requirement,

and requested comments on current dairy import market conditions that

should be considered with respect to implementation of Sec. 6.25(b)(2).

Public comments were submitted by 37 entities during the comment period

from October 15, 1997, to November 28, 1997.

Historical License Surrenders and Market Conditions: In 1997,

surrenders of historical licenses for cheese, in which the quantity

surrendered exceeded 50 percent of a license amount, reached 12,302

metric tons; compared to 1,980 metric tons in 1996, and 5,163 metric

tons in 1995. Surrenders of historical licenses for EU cheese accounted

for over 60 percent of 1997 historical license surrenders of 12,302

metric tons. In previous years, historical license surrenders were

based, in part, on supply shortages and currency situations. However,

the 1997 increase in historical license surrenders can be attributed

principally to the EU's implementation of its Uruguay Round commitment

to reduce the quantity of cheese exported under subsidy.

Under Uruguay Round export subsidy disciplines, the EU's export

subsidy ceiling for cheese is scheduled to decrease each fiscal year

(FY) from 426,500 tons in FY 1995 (July-June) to 321,300 tons in FY

2000. The EU administers its export subsidy reduction program by

setting monthly export subsidy allocations equal to prorated amounts of

the annual export subsidy ceiling, and issuing export licenses for

subsidized cheese shipments by destination. In October 1997, to avoid

exceeding its export subsidy limit, the EU adjusted subsidies for

various cheeses and lowered subsidies by 20 percent for cheese exports

destined for the United States. EU subsidy cuts during the 1997 quota

year were sufficient to raise EU prices of various cheeses to levels

that impeded EU cheese sales to U.S. historical licenses. In

particular, prices of EU industrial-grade cheeses rose above U.S.

prices for comparable cheese (i.e., domestic barrel Cheddar cheese),

thereby removing the economic incentive to import. In addition to EU

export subsidy reductions, the 1998 merger of the license allocations

for Austria, Finland, and Sweden into an EU-15 allocation added

approximately 21,000 metric tons of EU historical licenses for cheese.

In view of rapid and significant changes in U.S. import market

conditions for EU cheeses beginning in 1997, FAS has determined that

temporary suspension of the historical license reduction requirement is

justified through the year 2000. The overriding purpose of the five-

year suspension is to provide adequate time for historical licensees of

EU cheeses to adjust to changing market conditions, to find alternative

suppliers of cheese in the EU, and to develop new markets to enable

importers to fully utilize their historical licenses for EU cheese. The

suspension is consistent with the intent of the U.S.-EU Uruguay Round

bilateral

[[Page 13482]]

agreement on maximizing utilization of U.S. licenses for EU cheese.

Summary of Public Comments: Comments, views, and recommendations

were submitted by 32 importers holding historical licenses; three

members of Congress; and two trade associations. Submissions by most

historical licensees stressed that substantial business investments

rely on historical import licenses, and permanent reductions can cause

significant harm to employees, distributors, customers, and the

survival of many businesses. Most historical licensees supported

immediate elimination of the historical license reduction requirement.

Certain other historical licensees supported either: (1) the permanent

reduction and reallocation of historical licenses in order to provide

new entrants and growing businesses a greater opportunity to import

cheese; or (2) postponement of the historical license reduction

requirement to provide time for adjustment to and analysis of changing

market conditions. Comments submitted by the members of Congress and

trade associations favored elimination of the historical license

reduction requirement based on market conditions.

With respect to market conditions, the members of Congress stated

that, under current circumstances, surrenders of historical licenses

result from market conditions beyond an importer's control. Historical

licensees and the trade associations identified the following market

conditions as causes of historical license surrenders: (1) lack of

exportable supply; (2) non-competitive foreign prices (resulting in

some cases from foreign export administration decisions, and currency

fluctuations); (3) low-quality or high-priced foreign products; and (4)

foreign export monopolies which can affect license utilization through

supply and price controls.

Signed at Washington, D.C. on March 13, 1998.

Timothy J. Galvin,

Acting Administrator, Foreign Agricultural Service.

[FR Doc. 98-7171 Filed 3-19-98; 8:45 am]

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