Bridges Weekly Trade News Digest • Volume 14 • Number 19 • 26th May 2010

Special Safeguard Mechanism Could ‘Seriously Impede’ Normal Farm Trade, Say Exporters

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A new informal paper from Canada and Australia argues that an unconstrained agricultural safeguard mechanism for developing countries could “seriously impede” normal trade, if stripped of various proposed curbs on its use.

The paper has received a cool reception from the G-33 developing country group, which favours a simple, easy-to-invoke ’special safeguard mechanism’ (SSM) to enable developing countries to raise duties beyond bound ceiling levels to protect farmers in the event of a surge in import volumes or a price depression.

“It’s re-packaging”, said one G-33 delegate, who suggested that the paper essentially re-stated ideas from an Australian paper circulated last December.

The new submission warns that an “unconstrained SSM” could be triggered on “a large majority” of tariff lines. Unless it is targeted to “a specific problem of import surges”, normal trade growth could be seriously impeded, the sponsors argue. They further claim that “for some agricultural products… an SSM could trigger almost every year.”

The latest draft WTO farm trade deal and an accompanying paper by the chair of the agriculture negotiations, both of which date back to December 2008, include a raft of proposed constraints aimed at curbing potential abuse by import-sensitive developing countries. These would condition the imposition of safeguards on the co-existence of a volume surge and price depression, for example, or limit the number of tariff lines on which safeguard duties can be imposed in any given year. The exporters’ latest draft examines how the safeguard might affect trade in the absence of these constraints.

“They’re assuming that the SSM is one hundred percent effective, but it’s not”, cautioned one G-33 negotiator, who pointed out that, even if additional safeguards duties are ‘triggered’ by higher-than-average import volumes, they may still be insufficient to raise import prices to levels that are close to domestic prices. WTO members are also negotiating over the maximum size of additional safeguard duties that countries will be allowed to impose under the SSM.

Soybean, palm oil, bananas

The Canadian-Australian paper simulates the possible effect of applying safeguard duties to soybeans, palm oil and bananas, and concludes that “the SSM could trigger every year and result in significant trade losses”. The exporters examine how often import duties would be imposable if the safeguard were triggered by import volumes that are 10, 20 or 40 percent higher than average levels in the preceding years.

According to the paper, for India between 2003 and 2008, a 20 percent increase threshold could have triggered SSM duties covering 40.2 percent of tariff lines and some 57.9 percent of farm imports. Over that period, 85 percent of tariff lines could have been triggered at least once.

In comments to Bridges, G-33 officials questioned why these high-growth products had been selected for the analysis. They suggested that sustained high domestic demand for these commodities would make them unlikely candidates for safeguard duties.

“These are highly-traded products - ones that exporters are most concerned about”, retorted an official from an exporting country. Rules to prevent abuse needed to be built into the planned safeguard, said the negotiator, who warned that exporters could not simply be expected to ‘trust’ that developing countries would only apply the extra duties in particular circumstances.

Growth in normal trade would be maintained, argue G-33 representatives: according to the group’s proposal, safeguard duties would only be applied if import volumes exceed a threshold that is higher than the previous three-year rolling average. Furthermore, imports would continue to enter the developing country concerned in the period up until safeguard duties are actually applied.

Exporting countries nonetheless warned that, unless the calculation of average import volumes is ‘pro-rated’ so as to discount months in which safeguards had been imposed, the SSM could still affect growth in normal trade. The G-33 had previously argued against pro-rating import calculations in this way (see Bridges Weekly, 10 March 2010, http://ictsd.org/i/news/bridgesweekly/71997/).

“We need to start talking to each other, not past each other” sighed one negotiator, bemoaning the slim chances of making progress on technical issues in the absence of political leadership in the WTO’s faltering Doha Round.

“I think you need some sort of momentum, potentially leading up to a bigger decision-making point”, said the official.

A major high-level push to conclude the round is widely considered to be unlikely ahead of US Congressional elections this November.

ICTSD reporting.