24th June 2010

New trade safeguard only partially shields poor farmers, study finds

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A controversial new tool to safeguard poor countries from surges in farm imports or price depressions would only provide partial protection to poor producers, a new study finds.

Exporting countries have repeatedly warned that the proposed ’special safeguard mechanism’ could block any growth in trade resulting from market opening under the WTO Doha Round of trade talks – with tension over the issue sparking a collapse in negotiations two years ago. Importing developing countries have argued that an effective and workable safeguard is critical to protecting their farmers.

The study, commissioned by the International Centre for Trade and Sustainable Development (ICTSD) and written by farm trade expert Raul Montemayor, finds that developing countries would be able to impose additional safeguard duties during one-third of the time when import volume surges occurred, under the draft deal currently under negotiation at the WTO - so long as countries’ safeguard duties are not prevented from exceeding the maximum ‘bound’ tariffs that are due to be agreed upon at the end of the Doha Round.

Additional rules currently under consideration, such as more stringent caps and other requirements, could further limit poor countries’ access to the mechanism to one-sixth of all import volume surges, the study finds.

Even when the draft rules allow countries to access the mechanism, additional safeguard duties would often fail to substantially narrow the price gap between domestic and import prices: the study shows that they would only do so one quarter of the time in which import volume surges occurred, so long as no caps on allowable duties were applied. Additional proposed caps on safeguard duties could further reduce the effectiveness of safeguard duties to one-tenth of all import surges.

During price depressions, the safeguard was essentially useless if the rules set out in the draft Doha deal were applied, unless countries were allowed to exceed their pre-Doha bound tariff rates. If this constraint was lifted, the price-based safeguard was still only available half as often as during volume surges.

“The special safeguard mechanism had limited effectiveness even under ideal conditions” noted study author Raul Montemayor, “indicating that imports would generally continue even if safeguard duties were imposed”.

“The price safeguard has not been tackled as intensively as its volume counterpart in the negotiations – despite its potential value in effectively and fairly addressing price depressions”, noted Montemayor.

The study is available online at: http://ictsd.org/i/publications/77761/

Notes:

1. The World Trade Organization (WTO) is an organisation based in Geneva, Switzerland, which is responsible for liberalising and regulating international trade in goods, services and other areas. It has 153 Members.

2. The WTO Doha Round of trade negotiations was launched in Doha, Qatar, in 2001. It seeks to reduce trade barriers to a variety of goods and services, but has been plagued by repeated missed deadlines and breakdowns. In agriculture, it aims at “substantial improvements in market access; reductions of, with a view to phasing out, all forms of export subsidies; and substantial reductions in trade distorting domestic support.”

3. The International Centre for Trade and Sustainable Development (ICTSD) is a nongovernmental organization, based in Geneva, which – by empowering stakeholders in trade policy through information, networking, dialogue, well targeted research, and capacity building – seeks to influence the international trade system such that it advances the goal of sustainable development. www.ictsd.org

4. The special safeguard mechanism currently under negotiation at the WTO is intended to allow poor countries to impose additional safeguard duties to protect domestic producers from a sudden surge in import volumes, or a price depression. Controversy over the safeguard was a major factor in contributing to the collapse of a ministerial level meeting in Geneva in July 2008: talks have subsequently remained deadlocked over this and other issues.

5. The study by Raul Montemayor examines whether the draft WTO farm trade deal would provide developing countries with a safeguard that is accessible when they need it, and whether it is effective in addressing market emergencies by substantially narrowing the gaps between domestic and import prices. The study analyses proposed rules set out in the WTO’s latest draft agriculture accord from December 2008 (TN/AG/W/4/Rev.4), as well as additional rules suggested at the same time by the chair of the farm trade talks in an accompanying working document (TN/AG/W/7). Both documents are online at http://docsonline.wto.org. The study examines historical data on 27 products, from 6 different developing countries: China, Ecuador, Fiji, Indonesia, Philippines and Senegal. It does not examine the implications for exporting countries.

6. The views expressed in the study are those of the author and are not necessarily endorsed by ICTSD.