Dairy Imports

Pursuant to a legislative requirement, GAO studied the possible circumvention of agricultural quotas on the dry whole milk contained in imported chocolate block of 10 pounds or more, focusing on: (1) changes in the volume of imported chocolate block in recent years, and the relationship of the dry whole milk contained in the block to domestic dry whole milk production and the dairy price-support program; (2) U.S. Customs Service efforts to enforce dairy limits in imported chocolate blocks; (3) the status of investigations of whether the imported chocolate block interfered with the dairy price-support program; and (4) the use of foreign trade zones to bring imported chocolate block and dry whole milk into the United States.

GAO found that: (1) imports of chocolate block increased more than 1,600 percent from 3.8 million pounds in 1978 to 67.4 million pounds in 1988, due to the use of lower-priced foreign sugar and dairy ingredients; (2) imported chocolate block could contain up to 32 percent milk solids, since it was a nontariff, nonquota import item; (3) the amount of dry whole milk contained in imported chocolate block represented an estimated 3 to 8 percent of domestic dry whole milk production and could have cost the dairy price-support program from $4.1 million to $11.4 million in additional purchases; (4) Customs conducted limited analyses on imported chocolate block samples to determine whether the samples exceeded the 32-percent milk content limit; (5) although it found that 6 of the 101 samples it reviewed exceeded the limit, Customs either reclassified the shipments as other items or retested the samples and found them to be within acceptable limits; (6) although Customs did not consider imported chocolate block a high-risk item for extensive inspection, it increased its visual inspection and sampling due to congressional interest; (7) the Department of Agriculture had not initiated the requested investigation concerning possible chocolate block interference with the dairy price-support program, but continued to review the issue, focusing on the sugar content rather than the dairy content; and (8) although about 87,000 pounds of chocolate block and 6,500 pounds of dry whole milk went into foreign trade zones in 1987 and 1988, there were no restrictions on sending it into zones because the chocolate was not subject to U.S. tariffs and quotas and the entire 6,500 pounds of dry milk was mixed with other ingredients and exported.