Brussels launches WTO action over China's dairy probe

The European Commission has initiated a formal challenge against China’s anti-subsidy investigation into European dairy products, signaling a new flashpoint in the escalating trade tensions between the two economic powerhouses.

Brussels has taken the issue to the World Trade Organization (WTO), arguing that the Chinese investigation is based on “questionable allegations and insufficient evidence” and calling for its immediate cessation.

This challenge, announced Monday, marks the first step toward consultations under the WTO framework, an attempt to resolve the dispute before it escalates into a full-blown trade war. China’s investigation, initiated in late August, targets subsidies linked to the production of fresh and processed cheese, blue cheese, and other dairy products in eight European Union (EU) member states, including Austria, Belgium, and Ireland.

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Many see the move as retaliatory, coming just hours after the European Commission proposed new tariffs of up to 36.3% on Chinese-made electric vehicles (EVs), accusing Beijing of unfairly subsidizing its EV industry to gain an advantage over European manufacturers. These proposed duties aim to restore balance in the EV market and safeguard European producers from what Brussels views as predatory pricing tactics.

China has fiercely contested the Commission’s EV probe, dismissing it as a “naked protectionist act” and accusing the EU of exaggerating the extent of Chinese subsidies. In response, China has expanded its own investigations into sensitive EU exports, including dairy, pork, and brandy, stoking fears of a broader trade conflict.

Despite the rising tensions, both sides have kept diplomatic channels open. Last week, Valdis Dombrovskis, the EU’s executive vice president in charge of trade, met with China’s Commerce Minister Wang Wentao in Brussels. Although no breakthrough was achieved, the meeting underscored the urgency of finding a solution to the looming EV tariff dispute. EU member states are set to vote on the tariff proposal by the end of October.

Meanwhile, the Commission remains firm in its position on the dairy issue. In its press release, Brussels condemned Beijing’s “abuse of proceedings” and reaffirmed its commitment to defending the EU’s Common Agricultural Policy (CAP), a vital subsidy program for European farmers. Dombrovskis stressed the need for China to end its investigation:

“The Chinese investigation on EU dairy is based on questionable allegations and insufficient evidence, therefore we will continue to challenge it vigorously in all available venues, while calling on China to bring it immediately to an end.”

This is the first time the EU has requested WTO consultations in the initial phase of an anti-subsidy investigation, highlighting the high stakes involved. The European Dairy Association (EDA) also expressed support for the Commission’s move, with its secretary general, Alexander Anton, lamenting the impact of the Chinese probe:

“For European cream and cheese, we’re once more a ‘hostage’ of a non-related trade dossier. We count on the EU Commission to make sure that we will not become collateral damage of the trade tensions between our Union and the People’s Republic of China.”

The EU’s dairy exports to China reached €1.76 billion last year, a decrease from €2.08 billion in 2022, with Ireland leading in exports. As tensions simmer, the coming weeks will reveal whether diplomacy or escalation will dominate the EU-China trade relationship.