An hedonic spatial equilibrium model of the European Union dairy sector is used to evaluate the interregional impacts of eliminating milk production quotas under a variety of domestic policy (intervention prices and domestic production/consumption subsidies) and trade policies (tariff rate quotas and export subsidies). The simulation results indicate that the removal of the EU milk production quotas is welfare improving both only with substantial liberalization of trade. Hence, production quota removal by itself is not a desirable policy alternative for either the EU or the world. Rather, policy reform should involve the joint consideration of domestic and trade policy instruments.