TWN Info Service on WTO and Trade Issues (Feb10/03)
8 February 2010
Third World Network

G33 submission refocuses debate on SSM
Published in SUNS #6856 dated 4 February 2010

Geneva, 3 Feb (Kanaga Raja) -- The Group of 33 (G33) developing countries in the World Trade Organization (WTO) has submitted a comprehensive paper aimed at shifting the focus of the debate on the Special Safeguard Mechanism (SSM) to the development dimension of the Doha Round.

The new 14-page paper (TN/AG/GEN/30) was introduced by Indonesia, on behalf of the G33, at the WTO on Monday.

The agriculture negotiations have commenced a two-week session, devoted mainly to continuing work on data and templates. The Chair of the negotiations, Ambassador David Walker of New Zealand, is also expected to hold consultations on issues "bracketed or otherwise annotated" in the December 2008 draft modalities text and accompanying documents, said trade officials.

The G33 considered it necessary at this stage to recall the rationale for the SSM as originally mandated and from this, derive some conclusions regarding its structure and design. The G33 submission highlights some of the key concepts that have been raised in the discussions on SSM over time, including issues such as "normal trade", prorating, seasonality, cross-check, duration and spillover.

According to the G33 paper, recent discussions on the SSM have highlighted the gulf that persists in perceptions on the rationale, structure and the design of the instrument. The proponents of the SSM have highlighted the need for an effective, easy-to-operate instrument which addresses their development needs, in line with the mandate in paragraph 13 of the Doha Ministerial Declaration.

(In paragraph 13 of the Doha Ministerial Declaration, the Ministers agreed that special and differential treatment for developing countries shall be an integral part of all elements of the negotiations and shall be embodied in the Schedules of concessions and commitments and as appropriate in the rules and disciplines to be negotiated, so as to be operationally effective and to enable developing countries to effectively take account of their development needs, including food security and rural development.)

However, says the paper, some members have focused on its possible disruptive impact on trade flows. Based on this, they have sought to circumscribe the functioning of the SSM by proposing disciplines which would prevent it from disrupting "normal trade". The concept of normal trade has never been defined in the debate.

The G33 paper notes that recent global developments have highlighted the need for policy reform in developing countries to strengthen food security and to address livelihood concerns of the poor, the bulk of whom depend on agriculture for sustenance. For these reform initiatives to be successful, it is necessary to ensure a stable policy environment. The SSM is an essential element for this purpose.

The paper argues that for the SSM to be successful in providing the required stability, "it has to be simple, non-burdensome."

The analysis of the SSG (special safeguard) usage clearly establishes that developing countries (unlike developed countries) have been extremely restrained in their use of the instrument. There are various reasons why such restraint can also be expected in the case of the SSM, the paper says. Apart from the difficulties that most developing countries have in generating on-time data, many developing countries import agricultural products to manage critical shortages, it adds.

According to the paper, two factors are central to the rationale of the SSM. The first concerns the objective reality of agriculture in most parts of the developing world where the central preoccupation of the hundreds of millions of people engaged in agriculture is that of survival, not trade. There are an estimated 1.1 billion agricultural workers and about 1.5 billion food-insecure people worldwide living on approximately 500 million agricultural holdings of less than 2 hectares. This accounts for 85% of the total world agricultural holders.

The second factor has to do with the distortions that characterize agriculture in most developed countries and which constitute the principal subject matter of the negotiations mandated in Article 20 of the Agreement on Agriculture and Paragraph 13 of the Doha Ministerial Declaration.

It is important that the SSM is not viewed primarily through the prism of commerce, says the paper, pointing out that the correct perspective is to view it as an instrument which allows developing countries to address their central concerns of food and livelihood security and rural development while undertaking liberalization commitments.

Subsistence agriculture is deeply mired in the vicious cycle of low investment and growth. Such agriculture is also deeply connected with issues of poverty alleviation, as about 75% of the world's poor live in rural areas where agriculture is the main economic activity.

Greater openness to international markets has brought incessant price fluctuations which adversely impact on the food security of the poorest sections of the population. The World Bank has estimated that due to high food and oil prices in 2007 and 2008, the number of people living in extreme poverty may have increased by 130-150 million. Greater reliance on imports has also led to large-scale displacement of local crops in several countries with the attendant impact on rural employment and food security. Several crops which are environmentally well-suited to particular agro-climatic zones have also been displaced by cheaper imports.

The paper recalls that trade in agriculture was kept out of the ambit of disciplines in the GATT for seven Rounds preceding the Uruguay Round. The Uruguay Round made a modest beginning to introduce disciplines and recognized that "the long term objective of substantial progressive reductions in support and protection resulting in fundamental reform is an ongoing process".

Despite attempts at reducing Trade Distorting Support in the context of the Doha Round of negotiations, these have yielded minimal results, the paper says, drawing attention to the fact that loosely defined Green Box disciplines have created the possibility of box shifting. In market access, developed countries have been able to secure carve outs through Sensitive Products, the retention and creation of TRQs (tariff rate quotas), and non-application of a Swiss formula to tariff reductions. Key issues such as tariff capping and tariff simplification remain to be negotiated.

"Based on the current draft modalities, it is realistic to assume that the Doha Round will not make a serious dent into the removal of distortions in agricultural trade," the paper contends.

"Developing country governments need a robust SSM that would permit them to address the volatility in global markets leading to import surges or price declines. In fact, drawing from the lessons of the food and financial crises - the impacts of which are still ongoing - the architecture and modalities for the SSM need to be further strengthened," the G33 adds.

The crisis in developing country agriculture is exacerbated by the severe distortions that persist in global agriculture trade. Most of these distortions are related to the huge support given to agriculture in developed countries. The OECD estimates that its members spend more than US$375 billion every year on agricultural support.

According to the paper, opponents of an operationally effective SSM have sought to introduce more and more conditions, including for example, higher volume triggers, which they claim are intended to prevent the disruption of "normal trade". The paper however points to the fact that the issue of "normal trade" does not figure in the mandate for the SSM.

Neither is there any reference to "normal trade" in other Agreements such as the Agreement on Safeguards, Agreement on Subsidies and Countervailing Measures and the SSG in the Agreement on Agriculture. These Agreements seek to offset the harm to local producers from import surges, price declines and subsidies. Thus, the principle on which they are based is to minimize the damage by restricting imports on a temporary basis. Such measures imply that business cannot continue as usual. The fact that some disruption to trade would occur due to application of these measures is inbuilt in these Agreements.

"That the concept of 'normal trade' is being raised in the context of the SSM, which is meant only for developing countries, is therefore, a matter of concern to the G33."

The paper highlights an examination of the top ten globally traded products by quantity for the year 2007.

For these products, for the period 1987 to 2007, data is available only for six products, the paper notes and finds that the annual compounded import growth rates for these six products during the period are in single digits. In fact for the staple products which are the main requirements of developing countries, the growth is 0.8% for barley; 0.9% for wheat; 1.8% for milled rice; 2.6% for maize; and 4.8% for soybeans.

The paper also examines the annual compounded import growth rate for the same period for the LIFDCs (Low Income Food Deficit Countries), which consist of 77 developing countries. The import growth of these six products for the LIFDC's also shows similar trends of single digit growth (except soybeans). The growth is 5.3% for barley; 1.0 % for wheat; 4.8% for milled rice; 3.6% for maize; and 21.2% for soybeans.

Furthermore, the annual compounded production growth rates for these six products for the period 1987 to 2007 are also in single digits. The data reveals growth of -1.4% for barley; 1.0% for wheat; 2.8% for maize and 4.0% for soybeans, says the paper, adding that the data highlights that there is some correlation between growth in agricultural trade and growth in agriculture production.

Thus, the paper concludes, the arguments for tighter disciplines on the SSM on the basis of products which have short term high growth which cannot be sustained over a period of time, are therefore faulty as they overlook the global trends in agriculture production and trade growth over a reasonable period of time. Country and product variations are also not considered while seeking tighter disciplines.

Further, it adds, the arguments rely on value of agriculture products to project the growth rather than the quantity of products exported. The value of an agricultural product depends on a number of factors including currency fluctuations, demand and supply and opportunity cost while agriculture production is based on what is possible and can be grown and sustained over a period.

"The G33 believes that the discourse around normal trade' is therefore a distraction from a SSM that supports food security, livelihood security and rural development."

The paper also examines the functioning of the SSG, on whose provisions the SSM is broadly structured. It finds that out of the 39 countries that have access to the SSG (those countries who under the AoA had tariffied their non-tariff measures), 22 were developing countries. A WTO compilation shows that the SSG could be invoked on a total of 6,156 tariff lines.

The paper finds that during the period 1995-2008, a total of 2,433 SSG measures were notified. Out of this, developed countries accounted for 1,906 SSG measures
(around 78%) as compared to 527 applications by developing countries (22%). Between 2001 and 2008, developing countries used it only 465 times. The SSG measures were invoked during 1995-2008 only by six out of the 22 participant developing Members.

An examination of the SSG usage by four developing Members (Barbados, Costa Rica, Nicaragua and the Philippines) shows that while they could have used the volume-based SSG 29 times during the period 2000-2004, they actually invoked it only on one occasion.

"The above facts make it abundantly clear that most developing countries, for various reasons, are not in a position to frequently use the SSG even though the necessary technical conditions may be met," the paper stresses.

Based on the above empirical behaviour trends of developing countries in the usage of the SSG, it can be safely predicted that developing countries will not be "trigger happy" while using the SSM, as a mere breach of the trigger cannot be presumed to mean invocation of the measure, it adds.

According to the paper, the above analysis raises a number of issues regarding the structure and design of the SSM. While over the last 15 years the SSG has been an instrument regularly used by a number of developed countries to protect the commercial interests of their agriculture sectors, the SSM has to perform a qualitatively different function of protecting the livelihoods and food security interests of developing countries by preventing damaging import surges and price declines. Therefore, its design has to be much simpler than that of the SSG.

A comparison of the SSG and the SSM on the basis of the proposals in the Chair's text (Rev. 4 and W/7) clearly illustrates how the SSM provisions proposed are far more stringent than those of the SSG (Annex-2), says the paper, highlighting a number of major concerns.

Amongst others, these include limit on products and tariff lines on which the SSM can be triggered for above the pre-Doha bound rates - in the SSG, there is no such limitation; data requirement of imports of preceding three years for the volume based SSM - in the SSG, the data requirement is much more flexible; capping of remedies relative to pre-Doha bound levels and rates bound at the Doha Round; more constraints on duration of use of the SSM than the SSG; and trigger price, remedy available and remedy ceiling for the price based SSM are much more stringent.

Also of concern are the cross-check mechanism for the volume-based SSM, which does not exist for the volume-based SSG. There is also a cross-check for the price-based SSM, which is more stringent than that for the price-based SSG. The SSG is silent on preferential trade, meaning that it can also be applied to preferential trade.

"It is remarkable that an instrument meant to address the development concerns of most developing country members is sought to be burdened with conditions far more restrictive than those on the SSG which is mainly being used by developed countries," says the paper, adding that the G33 has always advocated for the SSM to be more flexible than the SSG.

The dynamic nature of agricultural production and trade makes it necessary for developing countries to have access to a measure that is easy to implement and is responsive to the heterogeneous situations of different crops across different countries. The SSM remedies need to be timely and sufficient to stop the import surge that is taking place.

Apart from the issues of triggers and remedies (which the G33 said it will address separately), a number of proposals in the Chair's texts will require developing countries to fulfill certain conditions before they can apply these remedies, says the paper, pointing out that these conditions like prorating, seasonality, cross-check, duration and spillover will obviously have an impact on the ease with which the measure can be invoked.

On the issue of pro-rating, the paper notes that two concepts of pro-rating have been introduced in the Chair's texts (TN/AG/W/4/Rev. 4 and TN/AG/W/7), both of which ensure the use of triggers which are always higher than would otherwise have obtained. Either of the two proposed concepts can facilitate the continued increase in the triggers to very high levels over a short period of time. Therefore, prorating substantially inhibits any subsequent use of SSM.

The G33 reiterates that pro-rating is an additional layer of restriction for the SSM and therefore, rejects the concept.

On the issue of seasonality, the paper says that the request of the G33 on "Seasonal and Perishable Products" was for treatment identical to that which obtains in the SSG. It must be noted that in the SSG, the seasonal product provision relate to seasonal products from the perspective of importers. It is the importing member that is entitled to use a "shorter time period" in calculating the base period for volume based SSG, and "different reference prices for different periods" for price based SSG.

On the other hand, the Chair's text (TN/AG/W/7) looks at seasonality from the perspective of exporters and stipulates a shorter duration of application. The G33 said its examination of export figures from several exporters found that while seasonality in production may be the norm for certain products, it is not the norm for all products from all countries. Thus, "seasonality in production" does not necessarily translate into "seasonality in trade".

The G33 is of the view that the current seasonality language for the SSM must be re- examined. Retaining the language as it is in the Chair's texts not only fails to accurately reflect the current trading patterns, but would unnecessarily complicate the use of the SSM.

Turning to the issue of "cross-check", the paper underscores that the introduction of a mandatory cross-check would make it difficult for developing countries to apply the SSM as they would need to first establish the "proof" of domestic price or volume changes. There may be considerable time lags between import surges and its impact on domestic markets. Further, most developing countries have difficulty in capturing real time price data. Moreover, establishing the domestic prices for each corresponding tariff line is very difficult. As a result, the SSM would be unworkable for many developing countries.

The G33's view is that a mandatory cross-check will seriously hamper the use of the SSM and limit its effectiveness and timeliness of application in addressing a temporary import surge.

The paper notes that the Chair's text imposes conditions on the duration of remedies and how soon the SSM can be re-invoked after its termination. In the context of duration, certain restrictive elements have been proposed, in the event of the need for remedies to "spillover" beyond the end of the year in question.

"The G33 believes that the duration of remedies should be sufficient to ensure that the import surge or price decline has been addressed. The duration should not be constrained to a calendar, financial or market year."

The paper also highlights a number of other conditionalities in the Chair's texts which have implications for the effectiveness and timeliness of the SSM. Some of these include that the price-based and volume-based triggers shall be on the basis of MFN trade only; the volume-based SSM cannot be applied if rolling average of imports in the preceding three-year period is not available; the level of triggers and remedies; the exclusion of negligible trade from SSM coverage; limiting the SSM remedies to two consecutive periods; and the SSM application limited by an "off" period.

As regards the issue of price-based SSM, the paper draws attention to the fact that as agreed in the Hong Kong Ministerial Declaration, developing countries shall have recourse to both volume-based and price-based SSM. However, since the issuance of the Chair's second draft modalities in May 2008, discussions on the SSM have mainly centered on the volume-based SSM.

The G33 complained that although it has submitted its concerns on the price-based SSM, there has been little or no discussion on this issue. Further, several additional burdensome requirements and restrictions were included in the third and fourth drafts of the Chair's modalities text which would render the SSM an ineffective mechanism.

The G33 notes that WTO data reveals that the price-based SSG has been used much more frequently (74%) than the volume-based SSG (26%), by both developed countries and developing countries. The G33 said that the price-based SSM is an essential measure for developing countries, adding that it will be submitting a separate and more comprehensive technical paper on the elements of the price-based SSM including the triggers, the reference price, remedies, pre-Doha cap, ad valorem duties and preferential trade.

The G33 reiterated that while a majority of developing countries face development challenges due to their under-developed agriculture sectors, these challenges are even more acute for the smallest developing countries. Additional constraints that the Small and Vulnerable Economies (SVEs) face include limited resources, higher transaction costs due to poor infrastructure, limitations in crop diversification, etc.

The Group emphasized that the Least Developed Countries (LDCs) in the WTO are the poorest and most vulnerable amongst Members. As such, these economies deserve the most flexible treatment on all elements of the SSM, including unlimited product coverage, and unlimited remedies beyond the pre-Doha bound rate.

The G33 fully supports LDCs' access to a simple, effective and operational mechanism that takes into account the challenges faced by these countries.

It is clear from this analysis that much of the architecture proposed for the SSM in the Chair' text and W/7 needs to be revisited. It is necessary to recall the mandate for the SSM, and to note that this instrument was intended to be one tangible way of operationalizing S&D (special and differential treatment).

The SSM must be easy to use and allow developing countries to respond swiftly to market disruption. A strong, effective SSM is essential to the achievement of a balanced outcome for many developing countries, the G33 paper concludes. +