Behind the rhetoric: Does the WTO need a third ‘safeguard’ against import surges?

And does COVID-19 make it essential even though it was central to the failure to wrap up the Doha Round 12 years ago?

Aerial photo of Japanese bulk carrier Green Power by Mudassir Ali

By Peter Ungphakorn
POSTED AUGUST 30, 2020 | UPDATED AUGUST 31, 2020

On July 29, 2008, an attempt by a group of trade ministers to conclude the Doha Round of World Trade Organization (WTO) negotiations collapsed in acrimony.

Pascal Lamy, who had chaired the talks as WTO director-general, said members had converged towards consensus on 18 out of 20 outstanding topics. They had failed on the 19th, he said: the “special safeguard mechanism”.

India’s representative at the time, Commerce Minister Kamal Nath, was scathing. “The most important thing was the livelihood security, the vulnerability of poor farmers, which could not be traded off against the commercial interests of the developed countries,” he told journalists.

JUMP TO
What are safeguards?
‘GATT’ safeguards — test of injury, negotiated compensation
Special safeguard (SSG) — formula, only for ‘tariffication’
Why can’t some developing countries use the SSG?
What about the proposed SSM?
Two conflicting philosophies
Is this a North-South debate?
Is agreement possible?

Nath added that his position was supported by 100 countries, representing a billion subsistence farmers.

His main protagonist, then-US Trade Representative Susan Schwab hit back. “Every country in the room accepted it except one; subsequently, all of us showed flexibility except one,” she said, meaning India.

(It’s unclear which “room” Schwab meant since meetings ranged from a core group of seven and a larger one of about 30, to the full membership.)

The meeting was “a fiasco that might have been avoided,” wrote Professor Robert Wolfe of Queen’s University, Canada, a year later. An “obscure proposal” blew up a ministerial meeting. It “was both a conceptual and a negotiating failure,” he said. (His comprehensive account of the issue is here, and a non-paywalled draft is here.)

Twelve years later — and 20 years after it was first mooted — the special safeguard mechanism (SSM) is still on the agenda in the WTO agriculture negotiations.

As the talks resume after the summer break, the push to add the SSM safeguard to the WTO rule-book could intensify. Some WTO members argue that the case for it is stronger. Others disagree.

Because of the COVID-19 pandemic, its advocates include the proposed safeguard on their list of responses that developing countries need, the talks’ outgoing chair Ambassador John “Deep” Ford of Guyana reported on July 24, 2020.

But there’s little chance that members will agree on the SSM safeguard any time soon, which means the pandemic could be over first. In any case a new tool to hold back imports might be seen as contrary to the calls from leaders of all the main international organisations — including the WTO — to keep markets open and trade flowing.

The proposal is also now significantly different. Back in 2008, it would have been part of a package of sweeping tariff cuts, included as a confidence-builder for potentially vulnerable countries. With little chance of a broad deal in agriculture, the new safeguard is a stand-alone measure and much more difficult to sell.

As with the proposal on public stockholding in developing countries, the rhetoric camouflages a lot of detail.

Montage of phots from the July 2008 WTO mini-ministerial meeting
Scrap book of a trade scrap | WTO photos (click the image to see it full size)

The 2008 standoff was not about accepting or rejecting the proposal. Nor is the proposal itself needed in general for vulnerable poor farmers. It’s never been the case that developing countries were deprived of the use of an existing form of safeguard supposedly only available to rich countries. The deadlock actually boiled down to one particular situation, which would only occasionally arise.

Protecting poor farmers in general is covered by a number of provisions specially for developing countries, including allowing them generally much higher tariffs than the standard.

As for the “100 countries” (110 was also claimed), that figure built on a merged group supposedly with 90 members (“G90”). In reality it had about 70 WTO members. The inflated figures include some double-counting and some non-members.

And even more than with the stockholding proposal, the special safeguard mechanism is unlikely to be agreed anytime soon. Unless countries drop the rhetoric and focus on reality, they face the prospect of years more, perhaps decades more, wasted on pointlessly talking past each other.

So what is this about?

What are safeguards?Back to top

The WTO rule-book already contains two different types of “safeguard”. The SSM version would be a third. What is it? And how does it relate to the other two?

In trade rules, safeguards are contingency measures, a type of trade “remedy” used to solve a short-term problem. They involve temporarily raising tariffs above their normal levels (or sometimes imposing a quota) in order to shield domestic producers against import surges or price falls on international markets.

Two types of safeguard currently exist in WTO rules: safeguards in general under the General Agreement on Tariffs and Trade (GATT) and the special safeguard (SSG) under the Agriculture Agreement, and therefore only for agricultural products. The special safeguard mechanism (SSM) would be a third, also for agriculture.

‘GATT’ safeguards — test of injury, negotiated compensationBack to top

Any country can restrict imports as a temporary GATT safeguard on any product. This is usually by raising tariffs but sometimes a quota can be used to restrict import quantities. The safeguard must be temporary, and must be to deal with the harmful effects of an import surge. The surge can be accompanied by a price fall, but the GATT safeguard cannot be used on a price fall alone.

Importantly, a safeguard tariff or import restriction can only be imposed if the country has proved the surge causes or may cause injury, requiring an investigation before the safeguard is introduced. The country also has to be prepared to negotiate compensation.

These safeguards are a major cause of trade friction. Over 10% of WTO legal disputes (67 out of the present total of 596 cases) arise from countries’ use of the Safeguards Agreement

(The rules: GATT Article 19, and the Safeguards Agreement.)
.

Special safeguard (SSG) — formula, only for ‘tariffication’Back to top

The “special safeguard (SSG)” applies only to some agricultural products. It involves raising tariffs, but only on products that qualify.

It can be triggered more or less automatically by formulas — without the need to investigate injury — if imports surge beyond a trigger point or prices drop below the trigger.

With the formulas and without the need for an injury test, this safeguard is much easier to use, and so far it has only been the subject of one legal challenge.

(The rules: Article 5 of the Agriculture Agreement.)

The SSG safeguard has produced anomalies. Because it can be triggered by a fall in an international market price, it has sometimes been invoked when there were no imports.

The claim that the agricultural safeguard can only be used by developed countries is untrue.

This is because the SSG safeguard was part of a liberalising deal involving all members, rich or poor.

In the 1986–95 Uruguay Round negotiations, countries agreed to convert their import restrictions, including quotas and outright bans, into tariffs so that trade could flow more smoothly and predictably. The tariffs would start at levels that would have the equivalent effect to the restrictions. The conversion was called “tariffication”. The tariffs would then be cut.

This simpler form of safeguard was agreed so that countries could be confident that in an emergency they could still protect their producers temporarily and within disciplines, but only on products they tariffied.

A number of developing countries did convert their restrictions into equivelant tariffs and were allowed to use the SSG safeguard on those products if necessary (see the list)

61 members can use the SSG agricultural safeguard
(EU = 29) The number of eligible products varies for each

DEVELOPED COUNTRIES


Australia—10
Canada—187
EU—685
Iceland—651
Japan—147
New Zealand—4
Norway—532
Switzerland
/ Liechtenstein—1,193
United States—188

DEVELOPING/
LEAST-DEVELOPED

Barbados—128
Botswana—351
Colombia—202
Costa Rica—87
Ecuador—10
El Salvador—106
Guatemala—99
Indonesia—9
Israel—46
S.Korea—123
Malaysia—48


Mexico—287
Morocco—595
Namibia—350
Nicaragua—44
Panama—6
Philippines—136
South Africa—350
Swaziland—350
Chinese Taipei—107
Thailand—55
Tunisia—145
Uruguay—2
Venezuela—278

NOTE:
1. The WTO has no official list of developed or developing countries. “Developing” nations listed here in practice apply special treatment provisions for developing countries.
2. The products are counted according to “tariff lines” (definitions for customs), which vary by country, so the numbers are not comparable — they show that only some products are eligible in any of these countries.
SOURCE: WTO Secretariat paper TN/AG/S/29/Rev.1, January 11, 2017

(The rules: paragraph 4 and Annex 3 of document MTN.GNG/MA/W/24
from 1993, non-binding but used to draw up binding commitments.)

Sorting fact from rhetoric: developing countries chose an alternative to the special agricultural safeguard
Sorting fact from rhetoric: many developing countries chose an alternative to the special agricultural safeguard | Unsplash CC0
Why can’t some developing countries use the SSG?Back to top

Some developing countries opted out of the SSG by choosing an alternative, which was not available to developed countries. If they agreed to set only tariffs on all agricultural products and to make all those tariffs legally binding in the WTO, then they could set high “ceiling” tariffs across the board.

When they converted restrictions to tariffs, they did not attempt to find tariffs with the equivalent effect (they did not “tariffy”). Many of them simply picked very high tariffs, as this table below shows (much more detail is in this 2005 ICTSD paper from page 18). So they could not use the SSG agricultural safeguard, only the general GATT version.

(The rules: paragraph 14 of document MTN.GNG/MA/W/24
from 1993, non-binding but used to draw up binding commitments.)

Average bound tariffs on agricultural products
Where 80% or above, excluding developed countries

DEVELOPING

Antigua/Barbuda—104.9%
Barbados—111.1%
Belize—101.3%
Cameroon—80%
Colombia—91.5%
Dominica—112.6%
Ghana—96.6%
Grenada—101.2%
Guyana—99.7%
India—113.1%
Jamaica—97.3%


Kenya—100.0%
Mauritius—119.4%
Nigeria—150.0%
Pakistan—96.2%
Saint Kitts/Nevis—108.8%
Saint Lucia—114.6%
Saint Vincent and the Grenadines—114.7%
Trinidad and Tobago—88.7%
Tunisia—116.0%
Zimbabwe—140.9%

LEAST-DEVELOPED

Bangladesh—186.1%
Burkina Faso—97.9%
Burundi—94.9%
Chad—80%
Gambia—105.3%
Lesotho—199.1%
Malawi—121.1%
Mozambique—100%
Myanmar—103.6%
Tanzania—120.0%
Togo—80%
Zambia—112.9%

SOURCE: WTO’s Tariff Profiles for 2020. “Developing” countries as above

When a country “binds” its tariffs in the WTO that sets a maximum for the tariff on each of those goods. The rates they actually apply can be lower.

For example, although India’s average bound rates on agricultural goods is 113.1%, on average the tariffs it actually charges on these imports (the applied rates) is 38.8%. On average, India can raise its applied tariffs by 60–70 percentage points (or triple some tariffs) without violating its binding commitment. An import duty of 100% doubles the price, making that product very expensive indeed.

So why do countries argue that they need an SSM? Those figures are averages. For a some products the actual binding could be lower.

India’s bound rate for wheat is 100%. For milled rice it is 70%. But its bound rates are 40% or less for some dairy products including cheese, some fruit, vegetables and herbs, hides, wool, and animal fats. They are 10% for bulbs, tubers, some live plants, and seeds. (A more detailed analysis of India’s bound and applied tariffs is in Tables 3, 4 and 5 and Annex 2 of this 2006 paper by Parthapratim Pal and Deepika Wadhwa.)

And for other countries, the average bindings can be a lot lower — including countries that negotiated to join the WTO after it was created in 1995, such as China whose bound agricultural tariffs average only 15.7% — although some may be able to use the SSG agricultural safeguard.

What about the proposed SSM?Back to top

The “special safeguard mechanism (SSM)” was proposed as means for developing countries to raise contingency tariffs on agricultural products, using a similar formula for automatically triggering the safeguard, without the need to investigate whether the import surge or price fall was causing injury. They would be able to do this even where the SSG safeguard doesn’t apply.

Like the SSG, the triggering formulas are based either on “volume” (an import surge) or “price” (a price slump).

The latest version is in the 2008 draft deal in the agriculture negotiations (paragraphs 132–146 of document  TN/AG/W/4/Rev.4 of December 6, 2008).

Contrary to a general public perception, the deadlock is not about the SSM itself. Sceptical countries have accepted the concept. The differences are about how high the safeguard tariffs should be allowed to go, and why.

Two conflicting philosophiesBack to top

There are essentially two ways of thinking about the SSM

The SSM as protection for poor and very vulnerable farmers — the SSM safeguard should be freer and easier to use, with smaller triggers and allowing bigger tariff increases. This is related to the argument that prices are depressed because of large subsidies in rich countries.

Graphic of SSM relative to old and new bound tariffs
Problem: when the SSM takes the tariff above the pre-cut bound rate

The SSM as a time-bound means to help cut tariffs (used only within liberalization) — the SSM safeguard’s use should be more restricted, and related to cutting bound tariffs from their present levels. Since the safeguard would only be used to help with the cuts, it would not make sense to allow tariffs to go above their present bound levels. Sceptical countries also argue that the SSM safeguard must not be triggered by normal fluctuations in price or normal trade expansion, and it should only be used while the tariffs are being cut, not once they reach their final levels.

Countries with that second line of thinking also see poor farmers’ ability to export as a way of escaping poverty.

The type of SSM safeguard they were willing to accept would therefore be much more constrained and include transparency obligations such as announcing the tariff increase in advance.

In short, the blockage is about the SSM reaching into a disputed zone — when the safeguard tariff goes above the present bound rate, the base from which cuts would be made in any future agreement. It is no longer about whether or not to have an SSM.

Three types of safeguards
Source: WTO website “unofficial guide to agricultural safeguards” accessed 2020, and old 2008 version (click the image to see it full size)
‘Protecting poor farmers’: Kamal Nath talks to journalists in the WTO lobby, July 29, 2008 | WTO
‘Protecting poor farmers’: Kamal Nath talks to journalists in the WTO lobby, July 29, 2008 | WTO
Is this a North-South debate?Back to top

Not really. The perception that this is a North-South conflict comes partly from the highest profile clashes over the SSM safeguard proposal at the July 2008 meeting, between the US and India, and to a lesser extent China.

The media were most focused on the US and India. They took little notice of press conferences by ambassadors from other countries whose ministers did not attend, such as by Paraguay and Uruguay (recorded in this 35-minute audio file. Audio of all press conferences at that meeting can be found here by scrolling down to July 2008).

Nor had they followed the months and years of lower-profile negotiations before then.

Overall, the advocates of the proposed SSM safeguard — based on that first line of thinking — are the G–33 group of developing countries, currently 47 WTO members. The group’s official coordinator is Indonesia, which has also been a vocal advocate, as have some other members such as the Philippines. But as with the group’s public stockholding proposal, India is a prominent proponent.

G-33 countries in pink
Map of G-33 countries. Source: WTO (Click the image to see it full size)

On the other side of the debate are not only developed countries like the US and Australia, but a number of developing countries particularly in Latin America (such as Argentina, Paraguay and Uruguay) and Southeast Asia (such as Malaysia and Thailand). They — mainly developing countries in the Cairns Group apart from those that are also in the G–33 — repeatedly argued that the SSM safeguard could be used to block South-South trade, which their farmers also need in order to escape poverty.

In years of hard-talking smaller group sessions these countries repeatedly expressed concern about the possibility they wouldn’t be able to export to large G–33 countries. Often the response was “trust us”.

For some time now, countries such as Paraguay have accepted the SSM safeguard in principle, but only on condition it is an aid to liberalisation, part of a package of overall tariff cuts, and that present bound rates are not breached.

Map of G-33 members. Source WTO (Click the image to see it full size)
Map of Cairns Group members. Source WTO (Click the image to see it full size)
Is agreement possible?Back to top

It will be very difficult. Opposition will be particularly strong if the SSM safeguard is to be used as a stand-alone measure without general tariff reductions in agriculture. In his final report, outgoing chair Ford saw little chance of a broad market access deal by next year’s ministerial conference.

If there is agreement on it as a stand-alone, it might be on a tightly constrained version for minimal use, but there are no signs either side can accept that.


P.S. Robert Wolfe’s 2009 paper contains much more detail (or this non-paywalled draft). It’s well worth reading. His response when this blog post was first published was:

There is also a fuller and somewhat technical explanation in this old “unofficial guide to agricultural safeguards”, including more details from the 2008 meeting, no longer available on the WTO website.


Updates:
August 31, 2020 — adding references to Robert Wolfe’s 2009 paper; Parthapratim Pal’s and Deepika Wadhwa’s paper; various edits for clarity and to correct typos

Image credits: Graphics as credited
• Japanese bulk carrier Green Power | Mudassir Ali via Pexels, CC0
• Pulses | Unsplash CC0
• 2008 photos used in montage; Kamal Nath with press | WTO

Author: Peter Ungphakorn

I used to work at the WTO Secretariat (1996–2015), and am now an occasional freelance journalist, focusing mainly on international trade rules, agreements and institutions. (Previously, analysis for AgraEurope.) Trade β Blog is for trialling ideas on trade and any other subject, hence “β”. You can respond by using the contact form on the blog or tweeting @CoppetainPU