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USDA has announced a Final Rule implementing the Dairy Import Assessment (DIA), effective August 1, 2011, which will require importers to pay an assessment on dairy products containing cow’s milk solids imported into the U.S. on and after that date. The issuance of this Final Rule follows a nine year period since the Dairy Import Assessment was initially passed by Congress as part of the 2002 Farm Bill, which set the assessment rate at 15 cents per hundredweight. Prior to passage of the 2002 bill, CIAA and industry allies noted that some provisions of the proposed import assessment violated requirements of other U.S. trade agreements. Working with other groups, we were able to successfully obtain provisions in the final 2002 bill that required the Secretary of Agriculture to consult with the U.S. Trade Representative to ensure that any implementing order was “consistent with the international trade obligations of the Federal Government.”

In the 2008 Farm Bill, Congress changed the law to remove some of the inconsistencies between the Dairy Import Assessment and other trade obligations, but it appears not all the issues were resolved. CIAA and several industry organizations, located both in the U.S. and abroad, are analyzing the order to determine what challenges might merit pursuit, including possible litigation and trade protests. Additionally, in the 2008 Farm Bill, the assessment rate was cut in half, reduced from 15 cents per hundredweight to 7.5 cents.

The new order now implements the assessment on imported dairy products containing cow’s milk solids, as well as some food products such as cocoas and doughs, and it covers 265 categories under the Harmonized Tariff Schedule. Given the many elements in the order that importers need to be made aware of, the following is a brief summary of the implementing order and identifies some of the more troublesome areas. The full order can be viewed here.

Procedure for Payment
On August 1, importers will be required to pay 7.5 cents per hundredweight of milk, or the equivalent thereof, for dairy products imported into the U.S. containing cow’s milk solids. The importer will pay the assessment to U.S. Customs and Border Protection (CBP) as a condition of product entry at the time of entry summary. CBP will remit the assessment directly to the National Dairy Board (NDB).

Assessment Methodology and Rate
Earlier in the proposed rule, USDA had two different ways to calculate the amount of the assessment. If an importer could provide adequate documentation concerning milk solids content, the importer would have had to pay an assessment based on that documented milk solids content. Without adequate documentation, the importer would have paid a default rate set at the maximum milk solids content for any product included in the applicable HTS code. However, in the Final Order, there are no default rates.

Instead, USDA will require importers to pay based upon the cow’s milk solids content of the imported dairy product. However, the order is vague as to how this will be determined if the documentation is not satisfactory. Since the assessment rate is 7.5 cents per hundredweight of milk or the equivalent thereof, the final rule establishes the assessment rate per volume of imported milk solids as $0.00602 per pound ($0.075/12.45 lbs.) or $0.01327 per kg (1 kg = 2.2.04623 lbs.)

The administrative paperwork and reporting requirements remain in the final rule. Importers will be required to obtain documentation concerning the milk solids content of the imported dairy products. What is particularly troublesome about this requirement is the administrative burden placed upon importers, especially those who import specialty cheeses. USDA states that where the documentation of cow’s milk solids content is not presently available, importers should ask the seller or manufacturer to provide such information.

However, one recommendation advocated by the CIAA that was adopted by USDA involves verification of milk solids reporting. In light of confidentiality concerns raised by importers, the Secretary of Agriculture, rather than the NDB, will be the one to verify such documents. If asked, importers will be required to submit books and records to the Secretary for verification that milk solids content requirements are being calculated correctly, but instead of the NDB reviewing the documents, it will be done by the Secretary’s staff.

National Dairy Board Representation
The order states that importers will initially be represented by two members on the NDB, which currently consists of 36 members; this apportionment of two seats is consistent with the proposed rule. Until importer representatives are named to the Board, importers’ assessments will be held in escrow. The terms of the two representatives will be staggered with one importer serving until October 31, 2013, and the other serving until October 31, 2014.

Once every three years, USDA will reapportion importer representation based on a review of the average volume of domestic production of dairy products compared to the average volume of imports. In comparing domestic production to imports, USDA will use estimated total milk solids.

In the future, USDA plans to issue a separate Federal Register notice seeking nominations for importer representatives. Nominations may be submitted by individual importers of dairy products and by organizations representing dairy importers. Since all nominees must be importers of dairy products and subject to the assessment, CIAA members are eligible to submit nominations. From the nominations received, the Secretary will then appoint the initial two importer representatives to the NDB.

Contribution to the National Dairy Board
Of the 7.5 cents per hundredweight importers pay, 5 cents will go directly to the NDB, while the importer can designate 2.5 cents to go to a qualified program of their choice. Once an importer designates a qualified program, the NDB will then remit that 2.5 cents to the qualified program, which until now, have been state and regional organizations controlled by dairy producers.

Members should note that in the final rule there remains a disparity in the proportion paid by domestic producers and importers to the NDB and that amount retained for contribution to a qualified program under the order. Milk producers are required to send only one-third of their assessment to the NDB, whereas importers are required to contribute two-thirds of their assessment to the NDB. The CIAA, along with other industry allies, had advocated for importers to have discretion over two-thirds of their assessment (5 cents) to direct to a qualified program and only one-third (2.5 cents) to the NDB, but this recommendation was rejected by USDA.

Qualified Promotion Programs
The final order allows for the continuation of state and regional qualified promotion programs, but it also provides for the creation of importer-specific qualified promotion programs. Under the proposed rule, only qualified programs which had been in existence at the time of the original act in 1983 or programs created by a state would be eligible to receive assessment monies. However, under the final order, importers now have the option to create their own program. In the CIAA’s comments to USDA on the proposed rule, the CIAA asked that assessments collected on imported products be held in escrow pending establishment of rules and procedures for creating a qualified program for importers. While this proposal was not adopted by USDA, the final rule does provide that importer organizations that conduct dairy promotion, research, or nutrition education programs can seek to become a qualified program through an application to the Secretary.

The CIAA is investigating development of a cheese importer qualified program to receive assessment monies. Such a program could be a valuable tool for importers because it would allow cheese importers to direct a portion of their assessment to an organization which serve their direct interests.

Neutral Promotion with Respect to Country of Origin
The NDB funds major domestic programs, such as the REAL Seal and “3-A-Day” programs. However, in the final rule, USDA states that by the effective date of the assessment, all activities and promotion materials of the National Dairy Promotion and Research Program will be consistent with respect to neutrality and country of origin.

With neutral promotion of all dairy products, importers will have access to use of the REAL Seal on their products and will also be able to receive research and information conducted by the National Dairy Promotion and Research Program.

There will be no producer or importer referendum before implementation. Although there was an initial referendum in 1985 when the producer checkoff was first implemented and another voluntary referendum was held subsequently in 1993, USDA said it is not required to conduct a referendum before implementation. Yet, if ten percent or more of “producers and importers subject to the order request a referendum, the Secretary of Agriculture shall conduct a referendum to determine whether the producers and importers subject to the order favor the termination or suspension of the order.”

With the DIA set to be implemented in a few months, the CIAA will keep members abreast of any new information involving the assessment. CIAA members with further questions on the DIA may contact Tip Tipton and/or Katey Price at the Tipton Group.

PDF Key Elements of the Dairy Import Assessment (221 K)