The European Community's (EC's) self-sufficiency in milk rapidly increased during the last decade as production rose faster than consumption. As a result, dairy surpluses have burgeoned, and became a major problem for the EC. Although the EC relies heavily on export markets to dispose of its dairy surpluses, large stocks of dairy products accumulated. Supporting this important and productive sector is costly to the EC. In 1984, the EC introduced milk quotas to more effectively control dairy surpluses and program costs. This report examines the EC's production, consumption, and trade of milk and dairy products, and changes in dairy policies. It also surveys the impact of the EC's new dairy-quota policy on U.S. agricultural exports.