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TWN Info Service on WTO and Trade Issues (Feb08/14)

20 February 2008


Below please see a critical comment on the treatment of the special safeguard mechanism by the Chair of the WTO agriculture negotiations in his 8 Feb modalities paper.

The SSM issue has become one of the most contentious issues in agriculture in the current negotiations.

This article was published in SUNS on 18 Feb 2008.   Any reproduction requires permission from SUNS (sunstwn@bluewin.ch).

Best regards
Martin Khor
TWN


Chair's proposed treatment of SSM would render it ineffective
Published in SUNS #6416 dated 18 February 2008
By Martin Khor (TWN), 15 Feb 200

The treatment of the issue of special safeguard mechanism (SSM) in the revised agriculture modalities paper (8 February 2008) has come as a shock to those who have been advocating this instrument as a means to defend the food security and farmers' livelihoods of small farmers in developing countries.

The advocates include not only the majority of developing-country member states in the WTO, but also farmers' organisations and other civil society groups around the world.

The paper by the Chair of the agriculture negotiations, Ambassador Crawford Falconer of New Zealand, has imposed such severe conditions before the SSM can be used, and has reduced the remedy (what countries can do to offset the problem when an import surge or price decline takes place) to such a little extent, that the SSM has become an instrument of little use to the affected countries.

Para 126 -- Only 3-8 products: The first restriction is in the paper's para 126, which says that the SSM can only be invoked for up to 3 or 8 products in any 12-month period. A seminar presentation by the FAO (June 2007) showed that there can be many "simultaneous import surges", with a developing country experiencing at the same time an import surge in many products.

For example, one particular country, in 1999, had 15 products where import volumes exceeded the 3-year moving average by 30% (which is an extreme form of import surge). The same country had 11 products in 1998, 9 products in 1987 and 8 products in 1992 and 2002 similarly exceeding the 30% volume surge. In almost all years in the period 1984-2003, the country had above 4 products with this extreme import surge.

Thus, the Chair's restriction on allowing only 3 to 8 products to be eligible for the SSM to be invoked is very restrictive. It should be noted that the SSG does not have such a restriction.

Para 128 -- Volume Trigger: In para 128, the paper has restrictive conditions and remedies on the volume surge. In sub-para (b), where the import volume exceeds [110] [130] per cent but does not exceed [130] [155] per cent of base imports, the maximum additional duty on applied tariffs shall not exceed [75][25] per cent of the current bound tariff, or [50] [25] percentage points, but where this would mean the current bound tariff is exceeded, the additional duty shall be capped at a level no more than halfway between the current bound tariff and the pre-Doha Round bound tariff.

Similarly, in sub-para ( c), where the import volume exceeds [130] [155] per cent, the maximum additional duty on applied tariffs cannot exceed [100] [30] per cent of current bound tariff or [60] [30] percentage points, but the additional duty is capped at a level no more than halfway between the current bound tariff and the pre-Doha Round bound tariff.

Firstly, the "triggers" of the Chair for volume is restrictive, and the remedy also. The G33 proposal (2006) is that if the import volume exceeds 105-110% of the average import volume (of the past 3 years), the country can impose up to 50% of bound tariff or 40 percentage points; if the volume exceeds 110-130%, a maximum of 75% extra duty or 50 points is allowed; and if the volume exceeds 130%, the maximum extra duty should be 100% or 60 points.

There is no limitation in the G33 proposal that the additional duty must be restricted to the pre-Doha level (or the level set in the Uruguay Round). The Chair's text is even more restrictive than limiting the new rate to the pre-Doha level; it only allows the additional duty to be such that the new duty is half-way between the current and the pre-Doha bound rate. This would in many circumstances render the remedy to be of limited use, and to be ineffective.

Para 130 -- Price Trigger: In para 130, the paper deals with the price trigger. The Chair's price trigger is very problematic as the price has to drop by at least 30% (compared to the average monthly price for the most recent 3-year period) before the trigger goes off and the SSM can be applied. This is in contrast to the G33 proposal that the trigger price is the average monthly price for the most recent 3-year period preceding the year of importation.

Then the Chair's proposed remedy (in para 131) is very restrictive as well. It does not allow full offset (to enable the depressed import price to be raised to the trigger price). Instead, the additional duty shall not exceed 50% of the difference between the import price and the trigger price. This contrasts with the G33 proposal that an additional duty can be up to the difference between the import price and the trigger price.

In addition, within brackets, are even more restrictive conditions: (a) that the additional SSM duty must be such that it must not exceed the Uruguay Round tariff rate; (b) alternatively, and worse, that the new SMS duty can only go half way between the pre-Doha and the Doha bound rate.

The restrictiveness of these proposed clauses on limiting the additional duty so as not to exceed the pre-Doha (Uruguay Round) bound rates can be seen in the following examples. Take the example of a product or a tariff line which has a Uruguay Round or pre-Doha bound rate of 110%. The Doha commitment is to reduce the tariff by 9% (perhaps it is a special product). Thus the Doha bound rate is now 100%.

Assume that the applied rate is same as the bound rate. And that the initial import price at the border is 100 cents, and it has been stable at this level for some time. Then with the duty at 100%, the price after duty is 200 cents.

Assume that the price of the same product sold by local farmers is 180 cents. The local farmers can compete, since the import price is higher. In the Chair's text the trigger price is very low, i. e. 70% of the average monthly price. Assume then that the import price at the border falls to 60 cents. As this is below the trigger price of 70 cents, the SSM can be used.

Since duty is 100%, the price after duty is 120 cents. This competes with the local product whose price is 180 cents. The local farmers lose their market and income.

In order to restore the post-duty price of the import, to 200 cents, the duty must be raised to 233%. (Since the import price is now 60 cents, a duty of 140 cents is needed , or 233% of 60 cents). But the Doha Round bound rate is only 100%. So an additional duty of 133% is required to fully offset the fall in import price. This 133% should be the additional SSM rate. With this remedy the post-duty import price will be restored to 200 cents, thus saving the farmers' livelihoods.

But the Chair's proposal (para 131) is that "the additional duty shall not exceed 50% of the difference between the import price of the shipment concerned and the trigger price."

The import price is 60 cents, and the trigger price is 70 cents. So the additional duty can only be 5 cents! And 5 cents is only 8.3% of 60 cents. So the additional SSM duty is only 8.3% and the new duty is 108.3% (the original Doha 100% plus the 8.3%). This is allowed since 108.3% is below the pre-Doha bound rate of 110%. But the SSM duty charged goes up by only very little, from 60 cents to 65 cents.

With this new duty, the new post-duty import price is 125 cents (i. e. the import price of 60 cents plus 108% tariff). Without the additional SSM duty the price would be 120 cents. So the only contribution the SSM is allowed to make is to add 5 cents to the post-duty import price. It would make hardly any difference at all to the local farmers whose products selling at 180 cents would be outsold by the import.

Take another situation where the import price falls from 100 cents to 40 cents. Since the trigger price is 70 cents, the additional SSM duty can only be 15 cents (i. e. 50% of the difference between import price and trigger price).

This 15 cents is 37.5% of 40 cents. So the new duty rate (including SSM additional duty) is 137.5%, instead of 100%. The new duty value is 55 cents instead of 40 cents. And the SSM post-duty price would be 95 cents instead of 80 cents. But this is still a disaster for the local farmers, whose price is 180 cents.

On top of this, there is the extra restriction by the Chair, that the pre-Doha bound rate cannot be exceeded. Since the bound rate is 110%, the new SSM duty can only be 110% of 40 cents, which is 44 cents.

Thus, even if the price falls from 100 cents to 40 cents, the Chair's text allows the additional duty to go up from 100% to only 110%. The actual new duty is 44 cents. The post-duty import's price is 84 cents -- not even the 95 cents which it would be if there was no restriction on not exceeding the pre-Doha rate.

But one alternative of the Chair's restriction goes even one more step further. One option in brackets in para 131 is that the difference between the import price and trigger price also cannot exceed one half of the difference between the pre-Doha and the Doha Round bound tariffs.

This is an extra tremendous restriction. In our example the pre Doha bound rate is 110% and the Doha bound rate is 100%. So the additional SSM duty cannot exceed 2 cents (44 cents minus 40 cents divided by 2).

The new duty is only 105% or 42 cents and the post-duty import price is 82 cents (instead of 80 cents if there was no SSM in place). The SSM is practically useless in preventing the local farmers from losing their income, since their product sells at 180 cents.

These examples show the lack of usefulness of the SSM mechanism, given the Chair's conditions that (1) the trigger price must be 30% below the average price before SSM can apply; (2) the additional duty shall not exceed 50% of difference between the import price and trigger price; (3) the pre-Doha rate cannot be exceeded; (4) alternatively, the additional SSM duty cannot exceed half the difference between the pre Doha and the Doha bound rates.

This makes it almost useless to have the SSM. It is also discriminatory as the present Special Agricultural Safeguard (SSG), to which developed countries have recourse to, does not have such a limitation (that additional duty is restricted to not having the new duty exceed the bound rate of the previous Round); yet in the Chair's paper there is an option for extending the use of the SSG.

This limitation is also not in the normal safeguard agreement. Yet the SSM is supposed to be required because of the inadequacy of the normal safeguard. By imposing so many restrictions on the SSM, it would appear that the Chair's proposal would make it more inadequate than the normal safeguard itself, and this rendering the SSM to be of little or no practical use. The limitation (of the new duty not allowed to exceed the Uruguay Round rate) also means that most special products (which will have no or a smaller reduction in bound tariffs) will not benefit from the SSM.

This is because: (a) Those special products with zero reduction will not benefit at all; (b) Other SPs will have only small tariff reductions, thus when there is a price depression enough to trigger the SSM, the remedy is so limited (it cannot allow the Uruguay Round rates to be exceeded) that the SSM would be almost useless for this category of SPs.

Para 136 -- Duration of volume-based SSM: In para 136, the paper gives options that the volume-based SSM may be either (a) maintained either until the end of the year, or (b) for a maximum of 6 months, or ( c) for a maximum of 12 months.

The G33 position is that when the trigger applies, the SSM can be applied for a 12-month period, i. e. option ( c).

The G33 proposal is more logical compared to the other two options, which are too restrictive. Option (a) is also not very logical or fair. For example, take two hypothetical cases of application under the chair's Option (a). One, where the trigger goes off on 1 January in a particular year, in which case the SSM can then operate for the whole year; two, where the trigger goes off on 1 December, in which case the SSM can operate only for 30 days.

In situation two, the SSM can hardly be used at all. It would then be a matter of luck as to when the trigger goes off. It is more logical, and would also more adequately satisfy the aim of having an SSM, if the SSM can be applied for a period of 12 months following the triggering of the price or volume factor.

Para 138 -- Expiry of SSM: In Para 138, the Chair's paper deals a near-mortal blow to the SSM concept when it proposes that "the SSM shall remain in force for the duration of the Doha Round implementation period, [after which it shall expire]."

In this proposed clause, the SSM, restrictive and limited in use as it is, will only have a lifespan of the Doha implementation period, which could be 5 to 10 years. After that, it will no longer exist.

Given the advocates' rationale of the SSM, that this is a special safeguard needed to defend food security and farmers' livelihoods, it is inconceivable that the problems (import surges or price declines damaging food security and farmers' livelihoods) giving rise to these concerns would somehow vanish after the implementation period.

Such a paragraph would mean that the paper not only renders the SSM instrument of hardly any utility, but that even such an instrument has a death sentence imposed on it even as it is born.

All in all, the Chair's treatment of the SSM issue is grossly inadequate, and the only value it would have is to misleadingly convey to the world that the developing countries' small farmers' concerns have been taken care of, when in fact they have not. +

 


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