Milk is produced worldwide, but dairy trade is dominated by manufactured dairy products. Only about 5 percent of total world milk production is traded internationally. If freer trade existed, there would likely be higher international dairy prices but the effects on international price stability and trade volumes would be uncertain. The European Community would likely face the greatest changes in adapting to liberalized trade. The United States would likely remain a minor but potentially more active participant in international dairy markets. This is report describes international dairy production, consumption, and trade; trade policies of dairy trading nations; and examines market adjustments that might occur under agricultural trade liberalization.