China targets EU dairy in probe as trade tensions intensify

China has launched an anti-subsidy investigation into dairy imports from the European Union, the latest development in a tit-for-tat trade dispute between the two sides. 

The probe will target several dairy products including fresh and processed cheese, China’s Ministry of Commerce said in a statement Wednesday. Beijing announced an anti-dumping investigation into EU pork exports in mid-June.

The latest move escalates a growing tussle over subsidies that started with EVs and has spread to pork and cognac. Earlier this year, the EU determined that Chinese subsidies had given the country’s carmakers an unfair cost advantage over local companies, and moved forward with added tariffs on battery-electric vehicles shipped from China. 

The bloc said Tuesday that it intended to move forward with the import levies, and also announced tariffs on Tesla Inc. cars made in China.

The dairy probe, initiated at the request of industry groups in China, will review 20 EU subsidy programs, including some under the Common Agricultural Policy and others available in Italy and Finland, the ministry said. The investigation is expected to be completed within a year, and can be extended for another six months under special circumstances, it added.

EU dairy exports to China were valued at 1.7 billion euros last year, official figures show.

China imports dairy products from European nations including the Netherlands and France, but New Zealand is its top supplier. The Asian nation’s dairy purchases have fallen in recent years due to rising domestic production and an economic downturn. 

The European Commission has noted China’s investigation and plans to “firmly defend the interests of the EU dairy industry,” according to spokesman Olof Gill. It will intervene as appropriate to ensure the investigation complies with relevant World Trade Organization rules, Gill said.

“We trust that the EU and China will find a constructive way to resolve any bilateral disputes, as has happened in the past over other matters,” said Alexander Anton, secretary general of the European Dairy Association.

EU leaders have stepped up efforts to defend the bloc against what they view as unfair trade practices, bringing their China policy closer to that of the US. Beijing’s relationship with the bloc has soured in recent months as a result.

“Following the move of an anti-dumping probe on the EU pork industry announced in mid-June, to some extent some market participants in the EU dairy industry anticipated that this could happen,” said Jose Saiz, a senior analyst at market intelligence provider Expana. 

He added that the EU was not expecting strong demand from China this year and had already begun to seek out alternative markets for products.