This paper provides a background for discussions about liberalizing international trade in dairy products under the current World Trade Organization (WTO) round of negotiations. About half of global 2002 dairy exports originated from New Zealand and Australia. These countries, which account for only a small share of world milk production and do not directly subsidize their exports, would gain substantially from liberalized trade. U.S. dairy imports exceeded exports by $800 million in 2002 and the gap is growing. Cheese is the largest import category and growing the fastest. New Zealand, Canada and the EU supply more than three-quarters of our dairy imports. Principal markets for U.S. exports, mostly cheese, nonfat dry milk, whey products and food preparations, are Mexico, Canada, and Pacific Rim countries.