POSSIBLE MODALITIES FOR THE SPECIAL SAFEGUARD MECHANISM (SSM)

1
POSSIBLE MODALITIESFOR THE SPECIAL SAFEGUARD
MECHANISM (SSM)

• By Raul Q. Montemayor
• National Business Manager
• Federation of Free Farmers Cooperatives, Inc.
  (FFFCI) Philippines
• Chairman, Asian Farmers Committee
• International Federation of Agricultural
  Producers (IFAP)

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OUTLINE OF PRESENTATION

• Background
• Limitations of UR AoA Special Safeguard (SSG)
  Duty Provisions
• Proposed Special Safeguard Mechanism (SSM)
  Modalities
• Related Issues

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THE NEED FOR TRADE REMEDIES

• Developing countries forced to open up markets in
  Uruguay Round despite uncompetitiveness of
  sensitive products
• Developed countries maintained most support and
  protection to sensitive sectors
• Available trade remedies were inadequate and
  difficult to use

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THE GATT-UR AoA SPECIAL SAFEGUARD DUTY (SSG)

• UR-AoA required tariffication of products
  previously protected by import restrictions
• Lower in-quota tariffs imposed on imports of
  tariffied products within tariff rate quota
  (TRQ) imports in excess of TRQ charged higher
  out-quota tariff
• Additional SSG duty could be imposed on imports
  of tariffied products if
• import volumes exceeded a trigger volume, or
• Import prices fell below a trigger price

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DATA ON SSG USAGE

• Only 39 WTO member-countries had SSG privileges
  for 6,156 tariff lines
• Only 22 were developing countries who accounted
  for half of SSG tariff lines
• Only 10 countries invoked SSG between 1995-2001
• Most developing countries had no SSG option or
  did not invoke SSG

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MAJOR LIMITATIONS OF SSG

• Complicated formulas the case of price-based
  SSG

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SOURCE FAO (Ramesh Sharma)
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MAJOR LIMITATIONS OF SSG

• Complicated formulas the case of price-based
  SSG
• Biases against developing countries the case of
  SSG volume triggers

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SSG Volume Trigger Volume Trigger V (I
x S) C I - Average Historical Imports (in
last 3 years where data is available) S -
Scaling factor (based on ratio of imports to
consumption) C - Change in consumption
(C) (between 2 years where data is available)

• Scaling factor S ranges from 100 to 125 S is
  higher if historical import/consumption ratio is
  smaller
• Developing countries usually have smaller
  import-to-consumption ratio and end up with
  higher S and larger V, making it more difficult
  to breach trigger
• Developing countries often lack data on
  consumption at specific tariff line level if no
  data, S is set to maximum of 125
• Consumption of basic foods normally rising in
  developing countries, resulting in higher C and V

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MAJOR LIMITATIONS OF SSG

• Complicated formulas the case of price-based
  SSG
• Biases against developing countries the case of
  SSG volume triggers
• SSG duties often not enough to control import
  surge or price decline
• SSG duty based on applied, not bound, tariff
• Volume SSG cannot exceed 1/3 of applied rate
• Price SSG disproportionate to price variance

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SOURCE FAO (Ramesh Sharma)
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MAJOR LIMITATIONS OF SSG

• Volume-based SSG can be applied only up to end of
  current year
• Only products tariffied in the UR and marked
  with SSG could be given SSG protection
• Least-developed countries (LDCS) exempted from
  tariffication, and therefore had no SSG privilege

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OTHER CONSTRAINTS TO USAGE OF SSG BY DEVELOPING
COUNTRIES

• Inability to promptly enact necessary domestic
  legislation and regulations
• Lack of administrative capacity to implement SSG
  rules
• Phobia against WTO disputes in case of erroneous
  application of SSG rules
• Lobbying by influential importers and users
• Weak counteraction by producer groups

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SPECIAL SAFEGUARD MECHANISM (SSM)

• Part of proposed special and differential
  treatment (SDT) package for developing countries
  under Doha Development Round
• Exclusive for developing countries
• Improved version of UR SSG

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PROPOSED SSG IMPROVEMENTS IN SSM PROPOSALS BY G33

• Expanded coverage
• All listed products (criteria-based?, limits?)
• All developing countries (including LDCs)
• Simplified and more developing country-friendly
  formulae and rules for triggers and safeguard
  duties
• Longer and more flexible period and method for
  applying special safeguards
• Higher levels of special safeguard protection

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VOLUME-BASED SSM MODALITIES

• Volume trigger set to average annual import
  volume during most recent three (3) preceding
  years for which data is available
• SSM duty can be imposed if cumulative import
  volume during a year exceeds volume trigger
• Additional SSM duty can be maintained for up to
  12 months from imposition
• SSM duty to depend on degree of import surge and
  will be a percentage of bound tariff, or absolute
  percentage points, whichever is higher

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VOLUME TRIGGER-BASED SSM DUTY VOLUME TRIGGER-BASED SSM DUTY VOLUME TRIGGER-BASED SSM DUTY
     
Excess Imports (E) SSM Duty (whichever is higher) SSM Duty (whichever is higher)
As Percent Over As Percent of Absolute
Trigger Volume Bound Tariff Percentage Points
E lt X 0 0
X1 lt E lt X Y Z
X2 lt E lt X1 Y1 Z1
E gt X2 Y2 Z2
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PRICE-BASED SSM MODALITIES

• Price trigger is average monthly price of product
  for most recent three preceding years for which
  data is available
• SSM duty can be imposed if C.I.F. price of import
  of product (in local currency) exceeds price
  trigger
• Price of import can be adjusted in case of
  significant currency depreciation
• SSM duty can last a maximum of 12 months

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PRICE-BASED SSM MODALITIES

• Price-based SSM can be imposed on
• A shipment-by-shipment basis, with the SSM duty
  not exceeding the difference between the import
  price of each succeeding shipment and the trigger
  price or
• An ad valorem basis, with the SSM duty not
  exceeding the difference between the import price
  of subsequent shipments and the trigger price,
  expressed as a percentage of the trigger price
  (or bound tariff?)
• A country may shift from ad valorem to
  shipment-by-shipment SSM duty if import prices of
  at least two subsequent shipments fall below
  trigger price by certain percentage

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OTHER PROPOSED SSM MODALITIES

• Temporary re-imposition of quantitative
  restrictions (QRs)
• Simplified countervailing measure
• Konandreas maximum contingency level (MCL)
  proposal

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SIMPLIFIED COUNTERVAILING DUTY MEASURE (SDCM)
Product- Specific Export Subsidy --------------
Total Exports of Product

• Product-
• Specific
• AMS
• ------------
• Product
• Output
• Value

Non-Product- Specific AMS ------------ Total Agri
cultural Output
SDCM in



Figures for product and non-product specific AMS
and export subsidies shall be based on preceding
year bound commitment levels in the absence of
formal notifications of actual usage from
exporting country
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MAXIMUM CONTINGENCY LEVY

• Countries start year with an MCL allowance per
  product computed as a percentage of value of
  3-year historical imports
• Countries can impose price or volume-based SSM
  based on SSM triggers and modalities
• Cumulative value of total SSM tariffs imposed
  must not exceed MCL allowance for the year

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RELATED SSM ISSUES

• Can developing countries use SSM instead of SSG
  for sensitive products previously enjoying SSG
  privileges under UR-AoA?
• Can special products (SPs) automatically enjoy
  SSM privileges?
• To what extent will SSM and other SDT privileges
  deter South-South and total trade?