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TWN Info Service on WTO and Trade Issues (Feb08/13)

20 February 2008


Below is an article on some key aspects of the issue of Special Safeguard Mechanism which is shaping up to be one of the most contentious of the agriculture issues now being discussed at the WTO.

It was published in the SUNS on 18 Feb 2008.  Any reproduction requires permission of the SUNS (sunstwn@bluewin.ch).

Best wishes
Martin Khor
TWN


Background to the Agriculture Special Safeguard Mechanism issue
Published in SUNS #6416 dated 18 February 2008

By Martin Khor (TWN), 15 Feb 2008

One of the most problematic aspects of the WTO's revised agriculture modalities paper issued on 8 February by the Chair of the agriculture negotiations, Ambassador Crawford Falconer of New Zealand, is his perception and treatment of the special safeguard mechanism (SSM).

The SSM is one of two new instruments that many developing countries with mainly defensive interests in agriculture are advocating in order to defend their triple concerns of food security, farmers' livelihoods and rural development. (The other instrument is the concept of "Special Products").

Both instruments emerged from the concern that increased imports and import surges are affecting the livelihoods of local farmers as many of their products have been overwhelmed by cheaper imports.

The adverse impact of cheap imports on farmers in developing countries is well documented in many studies by researchers, NGOs, the media, and by international agencies. A FAO paper in March 2003 shows very high incidences of import surges in 1984-2000 for 8 key products in 28 developing countries, with the incidence rising after 1994.

For example, Kenya experienced 45 cases of import surges, in wheat (11 cases), rice (3), maize (5), vegetable oils (7), bovine meat (4), pig-meat (6), poultry meat (5), milk (4). Philippines had 72 cases of import surges, Bangladesh 43, Benin 43, Botswana 43, Burkina Faso 50, Cote d'Ivoire 41, Dominican Republic 28, Haiti 40, Honduras 49, Jamaica 32, Malawi 50, Mauritius 27, Morocco 38, Peru 43, Uganda 41, Tanzania 50, and Zambia 41.

The import surges documented by the FAO were also accompanied in some cases by domestic production shortfall. For example, in Kenya, in wheat there were 11 cases of import surges and 7 cases of production shortfall; in maize, there were 5 cases of import surge and 4 cases of production shortfall. This indicates that the import surges were often linked to declines in output by the farmers in the importing countries. The rise in imports led to the decline in output and incomes of the farmers, affecting their livelihoods.

The FAO study also cites that many import surges are due to unfair trade practices (e. g. dumping), export subsidies, domestic production subsidies. It says: "Indeed, import surges seem to be more common in product groups that are subject to high levels of subsidies in exporting countries, notably dairy/livestock products (milk powder, poultry parts), certain fruit and vegetable preparations and sugar."

Action Aid has pointed out that more developing countries have moved from being net food exporters to becoming net food importers. According to its study, developing countries had an overall agricultural trade surplus of US$7 billion. With rising imports, this surplus fell to $1 billion in the 1970s. This turned into a deficit of $11 billion in 2001. By 2030, the FAO predicts, the developing world will import $50 billion worth of food.

The SSM is a tool to enable developing countries to raise their tariffs above the bound rates in the event of a fall in price of the imported product or an increase in volume of the imported product, beyond certain levels. The increase in tariffs is meant to result in maintaining the import price (or at least to ensure that the increase will be moderated) so that the local agricultural products will not be adversely affected (or at least not affected to the full degree if no action is taken).

The G33, with more than 40 developing countries, is leading the SSM advocacy in the WTO, and they have been supported in principle by the ACP Group, the African Group and the LDC Group.

However, although all WTO members have in principle accepted that a SSM will be established, some developed countries (particularly the United States) and some developing countries with an export interest in agriculture (such as Thailand, Argentina, Paraguay, and Uruguay) have sought to restrict the use of the SSM, for example, by limiting the number of times it can be used, and by limiting the remedy (i. e. the degree to which the SSM import tariffs can be raised).

The G33 argues that the SSM must be simple to use and effective in that it can provide an adequate remedy to the threat of import surges, but the proposals of the opposite camp would seriously limit the ability of developing countries to make use of the instrument (and when they do make use of it, to limit the extent to which it can be useful in terms of controlling the import price fall or the import volume surge).

A major imbalance of the WTO's agreement on agriculture is that the special safeguard (SSG) mechanism is not allowed for use except in cases where a country has "tariffied" a product in the Uruguay Round. Only 20 developing countries are eligible. Thus, most developing countries have no proper instrument to counter import surges. The FAO study also found that during the period 1995-2001, only 2 developing countries made use of the SSG.

The G33 proposal on SSM (March 2006) deals with the conditions that enable the use of the SSM (when either of the two triggers of increased import volume or depressed import price comes into effect), the duration of use allowed (12 months after the triggering), the products eligible for use (all agricultural products) and the remedy (the amount of additional duty allowed).

Other proposals have been made by the United States and by a group of three countries (Argentina, Paraguay and Uruguay) which would like to have far more restrictions than the G33 proposal on the use of the SSM.

A major point of departure seems to be in the understanding of the term "special" in SSM. The chair's paper seems to take the position that "special" means that the SSM can and should be used only in "special circumstances", and thus should be restricted in frequency or reserved only for rare and abnormal conditions.

In fact, when developing countries initiated their move and called for an SSM, even in the run-up to the WTO's Seattle Ministerial Conference in 1999, it was on the basis that this safeguard measure in agriculture for developing countries was needed and was "special" in that normal safeguards as established in the WTO Agreement on Safeguards are inadequate to take care of the special circumstances of agriculture in developing countries. A special safeguard mechanism was required in order to enable them to invoke it and use it more easily and effectively for agricultural products.

The rationale for having a safeguard in the trading system is a recognition of the need to protect domestic producers from injury or threat of injury resulting from imports.

The use of the normal safeguard requires the fulfilment of several conditions, including that the authorities undertake investigation procedures to determine that there is injury or threat of injury to domestic producers.

Recognizing that circumstances in agriculture are different from those for industrial products, the Uruguay Round established a clause for a special safeguard (SSG) in the WTO Agreement on Agriculture.

The SSG makes it easier for the safeguard to be used in agriculture; for example, the normal safeguard requires evidence of injury before action can be taken, while the SSG in the AoA does not require such evidence.

However, the SSG was available for use only by those countries that undertook the exercise of "tariffication" in the Uruguay Round. This included many of the developed countries but only a small proportion of the developing countries (only 22). To redress this, the developing countries are now insisting that a new SSM be established which can be used by developing countries.

Agriculture in developing countries requires such a special safeguard because of factors such as the following:

(1) It is a very important sector economically and socially in most developing countries, which thus have to address the needs of food security, livelihood security and rural development.

(2) There are many thousands or millions of small producers - unlike in the case of industry where there are only a few producers - and also vast diversity among them located in vastly diverse regions. Thus, injury is easier to demonstrate in the case of industry than it is for agriculture.

(3) There can be very strong fluctuations and swings in prices of agricultural products and imports, and these can take place more suddenly and more frequently than in the case of industrial products, hence the need for quicker action.

(4) It is important to prevent social and economic damage wrought by imports in agriculture in developing countries, rather than be allowed to act only after the serious damage happens. Therefore, a special safeguard is needed that enables action to be taken upfront (when there are initial signs of import surge or price decline sufficient to trigger a possible SSM measure) rather than a normal safeguard that requires serious injury to take place before action is allowed. This is especially because of special circumstances in agriculture in developing countries. For example:

(a) Unlike in industry, the production cycle in agriculture does not allow for sudden stopping and restarting of production; if agricultural production is halted or reduced because of a fall in sales, and demand picks up again after some time after a normal safeguard action remedy is applied, the farmers have to wait till the next planting season to expand output. Moreover, if the decreased demand persists for some time, the farmer may have to switch to another crop, and it would be difficult for him to return to the original crop even after the normal safeguard is applied because too much time has elapsed. Thus, prevention or quick action through the SSM is needed.

(b) Also, if demand for the domestic product is reduced (because of increased imports), the small farmer in developing countries finds it difficult to increase storage of his product due to lack of storage facilities and to the perishability of agricultural products (unlike in industry, where the factory can increase its inventory, which it can then run down when there is an increase in sales after the normal safeguard remedy is applied). Thus, preventive action through the SSM is required as the normal safeguard would not be sufficient to address the problem.

Because of these and other special circumstances in agriculture, a "special" safeguard is needed. The term "special" should therefore not be interpreted to mean that the modalities should seek to restrict the use or treatment of the SSM to "special cases" or that it should only be used in special circumstances.

Unfortunately, the Chair's modalities paper takes the second and mistaken interpretation of what is "special" in a SSM. It firstly restricts the conditions under which the SSM can be used, and then it severely restricts the remedy, i. e. what countries can do (in placing additional duties) to prevent an import surge or price decline. (See separate article on Chair's treatment of SSM). +

 


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