China launches anti-subsidy probe into EU dairy imports

China has launched an an anti-subsidy investigation into dairy imports from the European Union in a move that is likely to escalate its trade tensions with the continent.

Announced by China’s Ministry of Commerce on Wednesday, the probe will scrutinize subsidies related to dairy products produced in the EU from April 2023 through March 2024.

The anti-subsidy investigation will primarily focus on specific dairy items, including fresh and processed cheese. The inquiry is expected to conclude within a year.

It was prompted by a complaint submitted by the Dairy Association of China and the China Dairy Industry Association on July 29 on behalf of the domestic dairy industry, the ministry said.

China will examine 20 subsidy schemes from across the 27-strong bloc, specifically those from Austria, Belgium, Croatia, Czech Republic, Finland, Italy, Ireland, and Romania, it said in a statement, as reported by Reuters.

The state-backed Global Times had in June reported that Chinese companies planned to ask authorities to open an "anti-subsidy" investigation into imports of some dairy products from the European Union.

A tit-for-tat move by China?

The decision to probe EU dairy products follows the EU's recent revision of countervailing duties on Chinese electric vehicles, which China strongly opposed.

The European Commission unveiled the latest draft of its investigation into alleged subsidies for Chinese EVs on Tuesday. It continued to assert that that Chinese EV manufacturers have received substantial subsidies.

As a result, it has proposed imposing tariffs of up to 36.3% on Chinese auto companies. This proposal marks a slight adjustment from the initial planned maximum duty of 37.6% set in July.

The China Association of Automobile Manufacturers (CAAM) has expressed strong opposition to the European Union’s revised draft.

In mid-June, China initiated an anti-dumping investigation into the EU pork industry, a sector where China is a major export market. This too was widely seen as retaliation for the EU’s imposition of steep tariffs on electric vehicles (EVs) imported from China.

China-EU dairy trade and implications of the probe

China is home to the world’s second-largest market for dairy products after the United States. The EU, on the other hand, is a major exporter of dairy products and is the biggest cheese and skimmed milk powder (SMP) exporter in the world. 

Milk production takes place in all EU countries and represents a significant proportion of the value of EU agricultural output.

Total EU milk production is estimated to be around 155 million tonnes per year. The main producers are Germany, France, Poland, the Netherlands, Italy and Ireland. Together they account for almost 70% of EU milk production.

The EU exported 1.7 billion euros ($1.84 billion) in dairy products to China in 2023, down from 2 billion in 2022, according to data from the European Commission's Directorate-General for Agriculture and Rural Development which cited Eurostat.

1The EU supports its dairy industry by providing financial aid to dairy farmers and producers through several mechanisms, including a Common Agricultural Policy (CAP) as well as market intervention tools, such as public storage and intervention buying, to stabilize dairy prices and support producers in times of market volatility.

China’s latest action against EU dairy imports illustrates how food and agricultural products are frequently singled out in trade disputes.

The outcome of the investigation could further influence trade dynamics between China and the EU, impacting both regions' agricultural sectors and broader economic relations.