Ensuring flexibility: A survey of safeguard measures in regional and bilateral trade agreements
Safeguards, anti-dumping measures and countervailing duties are classified as trade defence instruments or trade remedies, intended to protect domestic production against foreign imports. However, safeguards differ from anti-dumping measures and countervailing duties in an important respect: while the latter are actions against unfairly traded imports, safeguards can be implemented on products imported under fair trade conditions.
When domestic industries cannot compete with a surge in foreign imports, safeguards allow governments to temporarily rescind commitments made in trade agreements, providing the domestic industry with the time to adjust and improve its competitiveness.
Traditionally, safeguard measures were only available for application under World Trade Organization (WTO) rules; however, with the proliferation of trade agreements in recent years, safeguards have also been included at a regional and bilateral level. Global safeguards-governed by the General Agreement on Tariffs and Trade (GATT) Article XIX and the WTO Agreement on Safeguards-apply on a multilateral level. In contrast, regional and bilateral safeguards address distortions as a result of increased regional or bilateral liberalisation and are only applicable between the contracting parties.
The types of safeguards in regional trade agreements
Safeguard measures in regional trade agreements can be divided into four categories based on the individual characteristics of the provisions:
- ‘WTO type' safeguard mechanism: These safeguards have the same characteristics as the WTO Agreement on Safeguards, containing rigid and detailed conditions for the invocation and application of the provided measures. Detailed domestic and international proceedings are also provided for in these agreements. At a minimum, these agreements refer member countries to the Agreement on Safeguards for the implementation of a safeguard measure. Examples of trade agreements which contain this type of safeguard are the Southern African Development Community (SADC) Trade Protocol and the US-Chile and Australia-Thailand free trade agreements.
- ‘GATT type' safeguard mechanisms: The characteristics of these safeguard measures resemble the flexible approach in GATT Article XIX. These safeguard provisions have largely unspecific and sometimes vague conditions for invocation and application with domestic and international proceedings of a political nature. The safeguard provisions in the Association of South East Asia Nations (ASEAN) and Common Market for Eastern and Southern Africa (COMESA) agreements display these characteristics.
- ‘NAFTA type' safeguard mechanisms: Agreements containing this type of safeguard have comprehensive provisions on domestic investigations and rigid, detailed requirements for implementation with well-developed and extensive procedures. With some notable exceptions, the ‘NAFTA type' provisions are quite similar to the WTO Agreement on Safeguards. One such exception is the lack of a dispute-settlement mechanism concerning the application of safeguard measures. This safeguard type is found in the North American Free Trade Agreement (NAFTA) and the Canada-Chile and Canada-Costa Rica free trade agreements.
- ‘European type' safeguard mechanisms: This type of safeguard provides broad conditions for implementation. Apart from the more common requirement to demonstrate "serious injury", a safeguard measure can also be implemented in the case of "serious disturbances in any sector of the economy or difficulties which could bring about serious deterioration in the economic situation of a region of the importing party". Although these types of agreements feature more comprehensive, and hence more flexible, conditions for invoking safeguards than the categories described above,they still contain detailed and strict provisions regarding the manner in which safeguards can be applied. Agreements displaying this type of safeguard include the Trade, Development and Cooperation Agreement between the European Community and South Africa (TDCA) and all the Economic Partnership Agreements.
Recommendations for designing of safeguard measures
In all cases, safeguard clauses should strive to maintain a balance between allowing countries to apply safeguards to prevent serious economic disruptions and the assurance that safeguard measures do not defeat the purpose of trade liberalisation. Tradeoffs between providing producers with a safety net and the risk of undermining the trade liberalisation process by retaining safeguards in an agreement will always exist; however, these tensions can be alleviated by demanding that countries make a valid case for implementation.
For developing countries, it is particularly important to set out clear developmental benchmarks and strategies prior to trade negotiations taking place. Developing countries should then negotiate special flexibilities, permitted under safeguard clauses, to protect sectors in relation with these goals. This will enable developing countries to temporarily exclude key domestic industries from trade liberalisation.
Trade agreements between developed, developing and least developed (LDCs) countries should also allow for asymmetry in the application of safeguard measures, which better enables developing countries and LDCs to clearly identify developmental objectives and ensure liberalisation in accordance with these goals. Moreover, LDCs should automatically be exempt from the implementation of safeguards by developed member countries.
Finally, developing countries must pay special attention to their sensitive sectors, most notably agriculture, when negotiating and drafting safeguard clauses. Agricultural commodity markets are pivotal to the economies of most developing countries, yet also more sensitive to external shocks. As such, developing countries face the challenge of drafting special safeguards which help stabilise domestic prices in the face of short-term price swings.
Considering the options
Broadly speaking, countries have two options when drafting safeguard clauses. The first is simply to indicate that the implementation of safeguards must be in accordance with the Agreement on Safeguards and GATT Article XIX. However, these provisions have extensive procedural requirements and conditions. Currently most developing countries do not have the legal, institutional and financial capabilities to utilise these measures or the required national legislation to regulate safeguard implementation.
The second option is to specify the conditions and requirements for implementing safeguards in the agreement. However, these provisions need to be clear and transparent. The agreement must also clearly identify the necessary procedures for implementing safeguards, the type of measures that can be implemented, the requirements for investigating an allegation of a surge in imports, the notification of an investigation and preliminary and final findings to interested parties, the required consultation process among trade partners and the available dispute resolution process. At the same time, simplifying the required conditions, prerequisites and process involved in implementing a safeguard measure can reduce the cost of implementing safeguards, which is particularly important for ensuring that developing and least developed countries have access to this trade defence instrument.
The aim of trade agreements is to eliminate trade barriers between contracting parties. However, the recent trend in drafting agreements is to retain safeguard provisions in both regional and bilateral agreements, providing the necessary flexibility to protect domestic industries against temporary trade distortions.
Author: Willemien Denner is a Researcher with the Trade Law Centre for Southern Africa (TRALAC). This article is based on a recent paper published by the International Centre for Trade and Sustainable Development, "Comparing Safeguard Measures in Regional and Bilateral Agreements", available here: http://www.ictsd.org/themes/agriculture/comparing-safeguard-measures-in-regional-and-bilateral-agreements