Safeguarding poor farmers from import surges: Towards a "middle ground"?

14 July 2016

Negotiators appear to lack clarity on how best to resolve the impasse over the Special Safeguard Mechanism (SSM) at the WTO. Identifying “middle ground” between exporters and importers could help them to move forward.

Last December, trade ministers at the WTO’s conference in Nairobi reaffirmed the right of developing countries “to have recourse to a special safeguard mechanism.” However, talks since then in Geneva have merely seen a repetition of entrenched and polarised positions, without fresh ideas or possible compromises.

Since the Uruguay Round, 38 developed and developing countries have been allowed to use a Special Safeguard (SSG) to impose remedial duties on selected agricultural products, on top of regular tariffs, if import volumes surged or prices suddenly fell. Furthermore, SSG duties could be imposed without governments having to prove that imports had caused harm to domestic producers.

In the Doha negotiations, the G33 developing country bloc pushed for the SSM so that they could impose safeguards on a larger array of agricultural products, including those not covered by SSG in the past. The group furthermore proposed simplifying WTO rules to make it easier for governments to access the remedy, and to ensure its effectiveness in addressing emergencies. However, the proposal was strongly opposed by exporting countries, which fear that the SSM will be abused, effectively disrupting free trade in international markets.

This article aims to pinpoint countries’ major concerns about the SSM, and present new options for addressing them at the WTO.

When would safeguards be triggered?

Exporters remain concerned that the SSM could disrupt normal trade for numerous products and for long periods. WTO members can address this by allowing SSM duties only when cumulative imports in a given year exceed a pre-determined volume trigger.

SSM duties could be triggered when import volumes exceed their average level in the preceding three years. Alternatively, safeguards could be allowed when imports surpass an “Olympic average” ­­– an average for the preceding five years, but discounting the years of highest and lowest import volumes. Countries could also add a “growth margin” reflecting changes in domestic consumption, as for the SSG, or simply a percentage increase in imports over historical levels.

G33 members could also help allay exporting countries’ concerns by allowing price-based safeguards to be imposed only when prices fall at the same time as import volumes surge. In current proposals, no such precondition exists – meaning that even the first shipment of products in a given year could be hit by additional safeguard duties.

Even so, extremely cheap imports might still enter a country and severely undermine domestic prices before volume triggers are breached. Negotiators could agree that governments would be allowed to address this by exceptionally allowing safeguards when the price of a given shipment falls significantly below the price trigger, without subsequent shipments automatically being affected.

Towards an accessible and effective SSM?

However, if new safeguard rules do ensure continued market access in this way, they must also ensure that importing countries can rely on an accessible and effective SSM if severe market disturbances do occur. A price-based safeguard duty is arguably a more effective way to address these emergencies, whether caused by import volume surges or sudden price depressions.

The G33 has proposed that additional safeguard duties to address volume surges could take the form of a percentage of bound tariffs or a number of percentage points, with heavier duties imposed on larger surges. However, such remedies are imprecise and often prove to be either an inadequate or excessive response to a given volume surge. 

Frequently, it is not the surge itself that harms producers, but rather its effect on domestic prices. If local prices remain stable despite growing imports, local producers will not be harmed: the import growth may just signal domestic supply shortages or increased demand. However, if imports are unduly depressing domestic prices, importing countries should be able to apply remedies that control further entry of cheap imports.

What kind of duties should be allowed?

Applying a price-based safeguard duty that seeks to bridge the gap between import prices and domestic prices, on a shipment-by-shipment basis, will obviate wrangling in the WTO over the duration of SSM duties, rules on their extension into succeeding years, and limits on successive applications of safeguards.

While recent G33 proposals would allow governments to respond to a drop in import prices, they take no account of the levels of countries’ maximum permitted “bound” tariffs at the WTO, or of their actual “applied” tariffs: governments can raise import duties to bound levels before SSM duties are added on. However, countries with high bound tariffs will be more able to defend domestic producers from import surges and price depressions than those with lower tariffs. Furthermore, current proposals provide producers with no assurance that import prices will be significantly higher than domestic prices after safeguards are applied.

Instead, governments might agree that safeguards could be triggered when import prices (inclusive of regular tariffs) drop below domestic wholesale prices in a representative period by a predetermined percentage. The safeguard duties would be a percentage of the price gap – an option that could be more precise in addressing the adverse effects of price depressions. However, this approach would require governments to collect and promptly update domestic price data on specific farm products.

As with the safeguard for volume surges, governments could agree to apply price-based safeguards only when the volume trigger is breached simultaneously, except in extreme cases. 

Exporting countries might also find the SSM more acceptable if proponents revisit demands that all agricultural products ought to be able to benefit from its protection. Importing countries only actually need to protect a set of sensitive products for which they usually already have high bound tariffs. Restricting the coverage of the SSM to a predesignated sets of products or a percentage of total tariff lines seems a more desirable approach.

Exporters have also proposed excluding trade among countries with preferential trade agreements from imposition of the SSM. However, WTO rules should apply uniformly to all countries and set standards for disciplines in preferential deals, including on safeguards. If safeguard rules within existing preferential agreements are more restrictive, WTO negotiators could agree to preserve them even if the SSM is adopted. Governments would consider all imports, whether or not from preferential trading partners, when calculating volume triggers and price-based safeguard duties; but safeguards would only actually be applied to preferential imports if this was allowed by the rules of the preferential trade deal concerned.

The proposal to cap safeguard duties so that they do not exceed bound rates at the start of the Doha Round will effectively render the SSM inutile and will defeat its very purpose as a trade remedy. At the same time, however, it will be unreasonable to expect consensus on the SSM outside of the wider negotiations on market access. Exporting countries may demand more market access and tariff reductions, and other countries may accede only if they are given a tool like SSM to address market disruptions.

Finding a middle ground

The stalemate over the SSM continues to stymy progress in WTO negotiations. This standoff benefits nobody: both developed and developing countries merely expend considerable negotiating effort without achieving gains. Allowing countries to use safeguards as a protection from market disturbances is not an unreasonable request. In fact, data shows that developed countries have used the SSG heavily in the past, and have publicly avowed the need for such a remedy even for their well-subsidised sectors. WTO members now must strike a balance between countries which want to export more products and those that need to protect their producers during emergencies. Finding a middle ground should not be impossible.

Raul Montemayor iNational Business Manager and Program Officer at the Federation of Free Farmers Cooperatives, Philippines.