Australia-Dairy farmers threaten trade war with European Union.

AUSTRALIA-TRADE WAR LOOMING WITH EUROPEAN UNION OVER DAIRY SUBSIDIES.

Trade Minister Simon Crean must step in immediately to protect Australia’s interests with the threat of a full-blown trade war between the European Union and the United States over dairy exports.

The warning comes from the Leader of The Nationals and Shadow Trade Minister, Warren Truss.

"The likely subsidy war over dairy could devastate Australian exports," he says.

"It could begin an outbreak of widespread trade protectionism in response to global economic turmoil.

"The G20 nations which met last year made clear that the erection of new trade barriers will only worsen the world’s financial plight, as we saw during the Great Depression.

"Only a couple of months ago, Mr Crean was telling everyone that a breakthrough Doha free trade deal was assured.

"It is now obvious that the Europeans were only ever giving lip service to fair trade.

"They are recalcitrant subsidisers."

With prices for dairy products slumping after the highs seen in 2007-08, the EU is now offering subsidies of up to 50pc on its milk powder, butter and cheese exports.

Federal Minister for Trade, Simon Crean, and Minister for Agriculture, Tony Burke, this week fired off a letter to their European Union counterparts outlining their opposition to the reintroduction of export refunds and the damage this does to progress on liberalising world trade. (See separate story).

"The EU’s move will kill off any hopes of a recovery in world dairy prices, locking in unsustainably low prices for its own farmers and everyone else," Mr Truss says.

"In Australia, our dairy farmers cannot hope to compete at what effectively will be a capped price far lower than today’s market price.

"The damage to our exports will be profound, at a time when we can hardly afford to lose more markets.

"Rudd Labor is always talking up its contacts in Europe and in the new Obama Administration.

"Now is the time to use them - Australia is sending its largest ever ministerial contingent to Davos for the World Economic Forum.

"In between the expected photo-ops with celebrities, it is critical that Mr Crean and Deputy Prime Minister Julia Gillard get the EU to see sense and stop the US from taking retaliatory action.

"If the subsidies become entrenched Australia should seek relief and compensation for our loss of exports through the WTO disputes process.

"The importance of this issue cannot be over-estimated.

"We will all be worse off if EU dairy subsidies are allowed to snowball into a full-on trade war.