TWN Info Service on WTO and Trade Issues (Feb10/08)
17 February 2010
Third World Network

G33 positions on cross-check, seasonality issues in SSM
Published in SUNS #6861 dated 11 February 2010

Geneva, 10 Feb (Kanaga Raja) -- Following from the recent submission of a comprehensive paper aimed at refocusing the debate on the Special Safeguard Mechanism (SSM), the Group of 33 (G33) developing countries at the World Trade Organization (WTO) has circulated two further papers on specific issues relating to the SSM, namely, price and volume cross-check conditionalities and seasonal products.

The comprehensive 14-page paper on shifting the focus of the debate on the SSM to the development dimension of the Doha Round was introduced at the WTO last week by Indonesia, on behalf of the G33 (see SUNS #6856 dated 4 February 2010).

The WTO is currently hosting a two-week negotiating session on agriculture, devoted mainly to continuing work on data and templates. An open-ended meeting of the Special Session of the Committee on Agriculture is to be held this Friday afternoon where the Chair of the agriculture negotiations, Ambassador David Walker of New Zealand, is expected to provide, amongst others, an assessment of the two week's of talks.

In its paper on price and volume cross-check conditionalities (JOB/AG/3), the G33 argues that subjecting any triggered SSM to a mandatory cross-check is an unnecessary complication on the operation of and access to the SSM; and in its paper on seasonality (JOB/AG/4), the G33 is of the view that there are no grounds for a provision on seasonal products, and that the inclusion of such a concept in the architecture of the SSM would only add to its complexity without providing any additional value.

The G33, in the first paper on price and volume cross-check conditionalities, has said that the Chair's texts (TN/AG/W/4/Rev. 4 and TN/AG/W/7) include provisions that effectively impose a priori conditions for invocation of the SSM. Among others, the texts envisage that: (a) Members will not resort to the volume based SSM if the domestic prices for the concerned products are not declining; and (b) Members will not take recourse to the price based SSM if the volume of imports for the concerned products are "manifestly declining".

The G33 believes that these conditions will constrain the use of the SSM, and limit its availability and effectiveness.

The G33 paper says that while analysing the impact of trade on domestic markets, economic models assume "a single national market for a homogeneous good that embraces all national sales and purchases and in which the good is sold directly by producers to final consumers. The supply of imports and demand for exports are assumed to be perfectly price elastic."

"However," the paper adds, "the reality is different. Most often, markets are neither isolated nor perfect, and price elasticity vary."

The paper explains that the quality of most agricultural products is different depending on the country, the variety of climate, locations of markets, and changes in freshness during transportation. That is why many imported products have separate marketing channels from domestic products.

Agricultural goods are traded in very complex supply chains through a number of intermediaries before they reach retail stores. Along the way, goods may be processed and changed physically. Such conditions will very much affect the competition between imports and domestic products particularly if the markets are inefficient. The nature of relationship between imports and price is also affected by a number of other factors such as demand and supply structure, market structure, and price elasticities.

"Therefore, the relationship between prices and imports may not be as clear-cut as envisaged in the Chair's texts," says the G33.

In its analysis of import surges and prices, the paper finds that the food price index of the FAO (UN Food and Agriculture Organization) increased to 191 in 2008 from its level of 122 in 2006. World cereal price index increased from 145 in 2006 to 349 in April 2008 and decreased to 174 at the end of the year. Similarly, world rice prices increased from $436 per ton in 2007 to $782 per ton in 2008 and down to $545 per ton in 2009. World oilseeds price index of about 140 at the beginning of 2007 increased to 280 in mid 2008 and decreased to around 140 in end of 2008.

The paper further cites a South Centre study that found that 15% price declines were identified in about 3,446 tariff lines while 10% price declines were recorded for 6,413 tariff lines in a sample of 56 developing countries between 2004-2007.

Based on the 1992-2007 data compiled from World Agricultural Supply and Demand Bulletins (WASDE) prepared by the USDA (US Department of Agriculture), it is clear that the world price of certain products have not moved in close proximity with the export volumes. Any export fluctuation seems to have had no direct and significant impact on price movements in the given period, the paper concludes.

In examining three major and worldwide commodities, wheat, rice and maize, the paper reveals that export volumes and price fluctuations are not linked. While world wheat prices fluctuated almost 100% in the last 18 years, the world wheat export volumes did not show significant changes.

Similar cases were also observed in world rice markets during 1992-2007 periods. While rice prices fluctuated over 100% in the given period, the import volume of the rice did not show a significant fluctuation. A similar situation has also been observed in world maize markets - while maize price changed over 90%, the world maize import volume increased by less than 10%.

Analysis of the three major products clearly suggest that movements in both import volumes and prices do not necessarily coincide, the paper underscores.

Similar findings are found in other studies, said the G33, pointing for instance to the South Centre study covering the 2004-2007 period and data from 56 developing countries that showed that for over 85% of volume import surge cases, no price decline (measured in terms of import prices falling below 85% from the preceding three-year import price average) takes place.

"It is obvious that a cross check conditionality will negatively affect access to the SSM," said the G33.

On a country basis with domestic price data, the FAO has also identified several cases where import volumes and prices do not always move in an asymmetric fashion, and in fact, import surges do not directly affect the domestic prices. Some of these cases also point to the existence of decreases in domestic production while domestic prices are not declining.

The paper also cites the above mentioned South Centre study as stating that "when the cross check requirement is imposed, the price-based SSM could not be used for about 20% of cases where there are price declines". In other words, in 20% of the cases, empirically, price depressions did not coincide with the volume surges.

Time is of the essence for the SSM to be effective, the G33 stressed. There will be a considerable time lag between import surge and its impact on both domestic prices and industry. These lags are part and parcel of normal business transactions. The effects of shifts in demand and supply are not instantaneously translated to changes in prices.

These lag effects tend to be more acute in developing countries because of complex and thick layers of distribution chains and inadequate infrastructure. "Therefore, the proposed cross-check mechanisms shall render the SSM unresponsive to practical needs because it relies on contemporaneous data and ignores the dynamics of real business transactions," says the paper.

In addition, it adds, the volume and price cross-check conditions will prevent countries from using the SSM effectively as it will require collection of real time price data for all tariff lines all the time. Most developing countries including Small, and Vulnerable Economies (SVEs) and Least Developed Countries (LDCs) do not have the capacity to meet these data requirements in a timely fashion.

There may also be cases where the SSM cannot be invoked when an import surge takes place because domestic prices increase due to a natural disaster. As import penetration rises during the disaster period, developing countries do not have a chance to recover their production capacity. Their agricultural infrastructure could collapse and finally, they are deprived from achieving food security, livelihood security and rural development as enshrined in the Doha mandate.

In some concluding remarks, the paper notes that the SSM is a temporary emergency measure and is not intended to provide a permanent protection to farmers and producers in the importing countries. It is critical that importing countries must have ready access to the safeguard when needed.

Since prices and volumes do not always move in asymmetry all the time because of the transaction lag effects, mandating a further constraint (through the cross-check) on the SSM will be unrealistic and disproportionate. Either of the mandatory cross-checks can seriously hamper the use of the SSM and limit its timeliness and effectiveness in addressing a temporary import surge or price decline.

Another dimension is that the proposed mandatory volume and price conditions can prevent countries from using the SSM effectively as it will require collection of real time volume and price data for all tariff lines all the time, says the paper, pointing to the fact that it will be very difficult for most developing country Members especially SVEs and LDCs to monitor such data.

Such difficulty can also be seen in the implementation of the SSG (Special Safeguard) which can partly explain the apparent low utilization of both the volume-based and price-based SSG by developing countries.

Finally, says the paper, satisfying/breaching the triggers is already a sufficient condition for justifying the invocation of the SSM. In fact, the Chairman's proposed trigger thresholds both for the volume-based and price-based SSM can effectively bar access to the SSM for most of the agriculture tariff lines. The set thresholds can also significantly hinder/limit triggering of a product in any 12-month period.

Moreover, the utilization of a similar measure, the SSG, strongly suggests that despite frequent triggering, actual utilization of the SSG has been minuscule in terms of frequency of invocation and number of products and countries. Therefore, subjecting further any triggered SSM to the mandatory cross-check is an unnecessary complication on the operation of and access to the SSM.

Providing its perspective on the issue of seasonality, the G33 said that a comparison of the seasonality language incorporated in Article 5, paragraph 6 of the Agreement on Agriculture and document TN/AG/W/4/Rev. 4 and its associated document TN/AG/W/7 highlights how much more restrictive the SSM would be compared to the Special Safeguard provision (SSG).

The seasonal product provision in the SSG relates to seasonal products from the perspective of importing countries. Article 5, paragraph 6 of the Agreement on Agriculture states as follows: "For perishable and seasonal products, the conditions set out above shall be applied in such a manner as to take account of the specific characteristics of such products. In particular, shorter time periods under subparagraph 1(a) and paragraph 4 may be used in reference to the corresponding periods in the base period and different reference prices for different periods may be used under subparagraph 1(b)."

It is the importing Member that holds the authority to use a "shorter time period" in calculating the base period for the volume-based SSG, and "different reference prices for different periods" for the price-based SSG. There is clearly no separate limitation on the duration of application of the SSG remedy for seasonal products, said the G33.

However, says the G33 paper, the texts on the SSM in Rev. 4 and W/7 approach seasonality from the perspective of exporters. They stipulate a shorter duration of application for seasonal products applicable for volume-based SSM. The inherent flexibility available to importers in the SSG has not been reflected.

For reference, the paper highlights the related proposals as follows: (a) The volume-based SSM may be maintained for a maximum period of 12 months from the initial invocation of the measure, unless a seasonal product is involved, in which case the SSM shall apply for a maximum of six months or to cover the period of actual seasonality, whichever is the longer (Rev. 4, paragraph 140); (b) [In the event that the SSM for seasonal perishable product tariff lines is triggered and applied in two consecutive twelve month periods such that its total period of application is 12 months or more, it may not be applied in (or spill-over into) the subsequent twelve month period.] (W/7, paragraph 4).

In view of the above comparisons and in recognition of special and differential treatment provisions in the Agreement on Agriculture and the Doha declaration, the G33 reiterated its call for a more favourable development-oriented SSM vis-a-vis the SSG, and the pressing need to rectify the bias inherent in the current texts.

Noting that the justification for the restrictions on duration for seasonal products, and which can be found in paragraph 4 of W/7 is that "... it is perceived to be the only possible way of allaying even to a small degree anxieties about seasonality effects", the G33 paper examines to what extent seasonality patterns are prevalent in agricultural trade, and whether the existing seasonality pattern provides sufficient support for the inclusion of relevant restrictive conditions in the SSM architecture.

Apart from the fundamental issue of parity with the SSG, the G33 said that its analysis clearly establishes that there is no universal pattern of seasonality that can be established from the exporters' perspective.

It must first be pointed out that a distinction must be made between "Seasonality in trade" and "Seasonality in production". This is because irrespective of whether seasonality in production exists for a certain product, it would have no bearing on the issue at hand if the seasonality pattern is not observed in the trade figures, says the paper.

The G33 examined monthly export figures (in volume) of major cereal/oilseeds, vegetable, and fruit products of export interest to exporting countries from both the Southern and the Northern hemisphere. As a first step, an examination was undertaken to ascertain whether clear seasonality patterns are discernible for products under review for a particular exporting country.

As a second step, for those products in which seasonality patterns were identified in their monthly export figures, one or more of the following examinations were undertaken: (a) whether seasonality patterns are diametrically opposite for the Northern and Southern hemisphere exporting countries; and/or (b) whether seasonality patterns observed in the overall export figures of an exporting country were also observed in its individual Member-to-Member bilateral economic relations.

The G33 paper highlights some findings from its examination of monthly data available. For rice, monthly export figures of the US, Argentina, and Uruguay showed that seasonality patterns either do not exist, or are too weak to be relevant. Similar results were also found for barley when export data from the US and Argentina were compared.

For US wheat, large disparities in year-on-year data suggest that the pattern is not necessarily consistent across the years. As for Argentina wheat, while the case for a seasonal pattern could be more readily made, the available data does not provide a definitive determination.

For soybean, says the paper, seasonal patterns were discernible in US and Argentina's data, although some irregularities seem apparent in Argentina's data. The point to note from soybean, however, is that this pattern is not mirrored in its related products. A further examination of Argentina's monthly export data for soybean by-products such as soybean meal, soybean oil, and soybean pellet showed that the seasonality pattern is not present.

This example would suggest that the seasonality pattern of a group of products cannot be inferred from just one product within its category; therefore, each and every product must be reviewed on its own merit for an accurate picture on the existence of seasonality patterns in a product, notes the paper.

For raw sugar cane, when US monthly data was examined, it was clear that no pattern of seasonality is present in exports. For corn, while the US data showed no seasonality patterns, Argentina's data exhibited a stable seasonality pattern. However, in further reviewing Argentina's export figures to a number of its individual markets, a clear seasonal pattern found in the overall context did not necessarily emerge.

An examination of monthly fruit exports by the US and Argentina showed that seasonality effect is more readily discernible than for cereals. In some products such as pear and apple, for example, the counter-cyclical seasons of the two hemispheres could be deduced through close observation of the export data.

However, except for some products such as grapes, grapefruits, and tangerines in which exports are concentrated in certain periods of the year (and therefore there is minimal level of exports during the remainder of the year), the data suggests that for most of the other fruits, exports are taking place for periods in excess of six months, in some cases throughout the year.

According to the paper, an examination of monthly export data of the US and Argentina for nine vegetable products revealed four different patterns: (a) Counter-cyclical, diametrically opposite seasonality pattern; (b) Seasonality pattern being exhibited in similar periods of the year; ( c) Seasonality pattern exhibited in exports of one country; and (d) No Seasonality Pattern.

Among the nine vegetables reviewed, onion was the only product that exhibited a counter-cyclical seasonality pattern. For black beans, cranberry beans, red beans, potatoes, and chickpeas, the seasonality pattern is apparently visible in only one country but not the other. While for black beans, cranberry beans and red beans, Argentina's export exhibit apparent seasonality trends, the opposite is true for potatoes and chickpeas.

In some conclusions, the paper says that a close examination of monthly export data currently under consideration provides the following findings:

(a) "Seasonality" is not a pattern that is prevalent in all products; i. e., it is not a universal norm;

(b) "Seasonality pattern" in general is not necessarily stable; it varies among countries, and on a year-to-year basis owing to annual fluctuations in monthly exports;

( c) "Seasonality pattern" in overall exports does not necessarily "translate" into individual bilateral trade relations; i. e., the seasonality pattern in the overall context and individual bilateral trade relations are not necessarily synchronous;

(d) A "Seasonality pattern" in one product is not necessarily replicated in related products. As such, it would not be accurate to infer the seasonality pattern of a group of products from just one product within its category; and

(e) There are large variations in period of exports for products exhibiting "Seasonal patterns" complicating what would be the "period of actual seasonality".

According to the paper, these findings clearly indicate that there are no grounds for a provision on seasonal products. The inclusion of such a concept in the SSM architecture would only add to its complexity without providing any additional value.

The G33 re-emphasized that its request is for a simple, operational, effective, and non-burdensome SSM. +