Elaboration of a Feasible Proposal
for a Special Safeguard Mechanism
for Developing Countries
Trócaire Research Paper
November 2005
This research paper has been produced by Trócaire, the Irish Catholic Agency for World
Development. Trócaire is a member of CIDSE and Caritas Internationalis.
The paper researched and written by Francis A.S.T. Matambalya* and Stephen Muyakwa**
Executive Summary written by Michael O’Brien, Trócaire.
*Dr. Francis A.S.T. Matambalya is a Professor of International Marketing and Economics,
and Lead Researcher/Trade Consultant of the Trade and Integration Studies Programme
(TRISP) of the University of Dar es Salaam, Tanzania. His contacts are P.O. Box 35046
University of Dar es Salaam, e-mail: [email protected], Mobile Tel. No. ++255
748 610 470.
**Mr. Stephen Muyakwa is a Development Consultant and Interim Co-ordinator of the
Civil Society Trade Network of Zambia (CSTNZ). P.O Box 51347, Lusaka, Zambia. Email: [email protected]. Tel: 260-1-293416/ 266234
Cover photo: Nigasty Kindeya (30) a single mother of four from Ethiopia with her herd of goats.
Photo: Noel Gavin/AllPics
Designed and printed by Genprint Ireland Ltd. Tel: 847 5351
Contents
Acronyms
Table of Contents
GATT
General Agreement on Tariffs
and Trade
GDP
Gross Domestic Product, a
measure of national income
LDCs
Least Developed Countries
LIFDCs
Low-Income Food-Deficit
Countries
2 Methodology Used to
Generate the SSM Proposal 4
NTBs
Non-Tariff Barriers
QRs
3 Architecture of the
Proposed SSM Mechanism
Quantitative Restrictions (on
imports, for example)
SDT
Special and Differential
Treatment envisaged for
developing and least
developed countries under
WTO rules
SPs
Special Products – products on
which developing countries
farmers depend for food
security, livelihood security and
are key to rural development.
SSA
Sub-Saharan Africa
SSG
Special Safeguard provisions
under the WTO Agreement on
Agriculture
SSM
Special Safeguard Mechanism
for developing countries
envisaged – but not elaborated
– under the WTO July
Framework
TRQs
Tariff Rate Quotas, under
which a country or region may
offer tariff preferences for
selected products for limited
groups of developing countries
List of Acronyms
1
Executive Summary
2
1 Context
4
5
3.1 Country Eligibility
5
3.2 Criteria for Selection
of Products
5
3.3 Triggers for
Safeguard Actions
6
3.4 Preconditions for
Initiating Safeguard
Actions
11
3.5 Geographic Coverage
11
3.6 Permitted Trade
Remedies
12
3.7 Restrictions on the
Use of Trade Remedies
under SSM
12
3.8 Time Scale
13
3.9 Other Rules Governing
the Use of SSM
13
4 Conclusions
14
Appendices
15
WTO
World Trade Organization
1
Executive
Summary
Like aid, trade has the potential to
be a powerful catalyst for human
development. Under the right
conditions trade could provide a
major impetus for progress
towards the Millennium
Development Goals (MDGs), but
the human development potential
of trade is diminished by unfair
trade rules and structural
inequalities between countries.
The Least Developed Countries
(LDCs), most of which are in SubSaharan Africa (SSA), have become
increasingly marginalised from the
international trading system. The
689 million people of SSA now
account for a smaller share of the
world’s exports than Belgium,
with 10 million people.1
2
1
markets, with negative effects on local
production in many cases3.
In the WTO, relevant trade remedy
measures allow importing countries to
take remedial measures – raising duties,
for example – when certain specified
conditions are met. However, use of the
Special Safeguard (SSG) is restricted and
excludes the majority of developing
countries.
In a more liberalised agricultural system,
developing countries must have the
means to protect their vulnerable
producers against import surges and/or
disastrously low import prices. The fact
that LDCs will not have to undertake
further tariff reduction commitments
under current arrangements does not
mean that they do not need a Special
Safeguard Mechanism (SSM).
LDCs are vulnerable to import surges
arising from subsidised competition and
under normal conditions of competition.
The need to deal effectively with the
threat that import surges pose to
vulnerable small farmers, food security
and rural economies makes the
availability of SSM a policy imperative for
developing countries.
With two-thirds of all those people who
survive on less than a dollar a day living
and working in rural areas (74% of the
total labour force in LDCs are engaged in
agriculture2), the livelihoods of the very
poor are directly affected by the rules
governing agricultural trade. Unfair trade
practices systematically undermine the
livelihoods of smallholder farmers,
agricultural labourers and their families,
hampering progress towards the
Millennium Development Goals.
It is within this context that the Group of
33 at the WTO talks has led an advocacy
campaign for the establishment of an
SSM for developing countries. Such a
mechanism must be responsive to the
particular needs of the most vulnerable
agricultural economies, particularly the
LDC agricultural economies. An SSM for
developing countries must, therefore,
build on the flexibilities embedded in
existing safeguard provisions – the SSG, in
particular.
Since the mid-1990s there have been
increasing reports of developing countries
experiencing surges in food imports.
These tend to disrupt local markets,
through for example the transmission of
depressed world prices to domestic
This paper supports the correction of
imbalances in existing WTO safeguards,
on the premise that they do not
adequately address the needs of
developing countries.
UNDP Human Development Report, 2005
2
UNCTAD (2002), Least Developed Countries Report 2002 –
Escaping the Poverty Trap
3
FAO Committee on Commodity Problems, Sixty Fourth Session,
Rome 2003
The WTO July 2004 Framework states that
‘A Special Safeguard Mechanism (SSM)
will be established for use by developing
countries’. The absence of detail on how
the concept of SSM is to be developed to
meet the needs of developing countries,
and LDCs in particular, encouraged this
study. This paper underlines the
importance of establishing an effective
mechanism at the Hong Kong Ministerial,
and details how the concept of SSM
might be operationalised to best meet
the needs of developing countries.
In late 2004, Trócaire commissioned two
studies in Tanzania and Zambia to explore
what the architecture of a feasible, prodevelopment and pro-poor SSM, which
would add value to the negotiations on
effective trade remedies to deal with
import surges and price falls, might look
like. This paper contributes to these
discussions by elaborating on nine key
dimensions of the technical framework
for SSM and making concrete
recommendations in relation to each.
The key dimensions address: country
eligibility, treating the countries that may
apply the instrument; product coverage,
treating the products that may be
eligible; reasons for safeguard action;
addressing the triggers that would allow
the use of safeguard action; and
preconditions for the application of
safeguard measures, treating the
measures that a country should comply
with before taking safeguard action.
They also include: geographic coverage,
outlining countries against which
safeguard action may be taken; type of
remedies, addressing the remedial
measures that might be taken; restrictions
on the use of those trade remedies
permitted under an SSM; the time scales
involved; and other feasible rules that
would make the safeguards particularly
practical and effective.
Among the key proposals advanced in
this paper are that:
• The SSM should be available to all
developing countries.
• The criteria for product selection
should include both market
stabilisation and the significance of the
product to food security, livelihood
security and rural development.
• The SSM should provide differentiated
treatment of LDCs and non-LDCs in
relation to proportion of products that
can be protected.
• Import surges and/or a drop in prices
should trigger safeguard action, with
the price trigger representing the best
trigger option for developing
countries.
• Safeguard action should be applicable
to developed and developing countries
alike, focussing on whatever countries
are causing the problem.
• The permitted remedies should include
both tariff-type measures and
quantitative restrictions.
A concise summary of the paper’s
proposals is presented in Appendix 2.
3
1. Context
There is a consensus among
member states of the World Trade
Organization (WTO) regarding the
need for the establishment of a
Special Safeguard Mechanism
(SSM) for use by developing
countries. This consensus is
enshrined in both the July (2004)
Framework and the Decision of
the General Council of the WTO.
Generally, it is postulated that the
foreseen agricultural safeguard
measures shall address serious
injury to domestic production and
safeguard food security, livelihood
and rural development. However,
though firmly endorsing the idea
of SSM, the July (2004) Framework
does not provide specific
guidelines concerning the possible
architecture of this trade policy
instrument.
4
Considering their special interests in the
instrument, developing countries,
including Least Developed Countries
(LDCs) are keen to ensure that the
negotiations produce SSM with practical
utility in stimulating pro-poor and
sustainable development.
This paper sets out to contribute to the
debate on SSM. A first version of this
paper was presented at a workshop of
civil society representatives at the June
2005 Ministerial Meeting of LDCs in
Livingstone (Zambia), as well as at a
special session of the representatives of
the Africa Group of nations in Geneva in
July 2005. This revised version endeavours
to include observations made by the LDC
civil society group and representatives of
the Africa Group.
Building on Trócaire sponsored studies in
Tanzania and Zambia, the paper outlines
a template for the architecture of a propoor, pro-development SSM that could be
used as a toolkit for other developing
countries, and elaborates on nine main
dimensions of an SSM.
Given that the selection of special
products (SPs) is directly related to the
SSM debate, the paper proposes as SP
criteria the contribution of the targeted
products to food security, livelihood
security, and rural development.
2. Methodology
Used to
Generate the
SSM Proposal
The proposal for the architecture
of SSM presented here is a product
of a combination of review of a
substantial body of policy and
scholarly literature on safeguards
(including proposals for SSM),
consultation of subject experts
from various parts of the world,
and collection of ideas from state
actors as well as non-state actors.
In developing the ideas proposed here for
SSM, the authors conducted field work in
Tanzania, Zambia and Switzerland
(Geneva). Experts from other parts of the
world were contacted by telephone or
email.
3. Architecture
of the
Proposed
SSM
Mechanism
3.1 Country Eligibility
As noted earlier, the architecture
of the SSM centres around nine
key dimensions:
Moreover, the ability of developing
countries to address the risk to farming
communities, associated with surges in
imports and/or declines in prices is limited
by a combination of factors, such as
openness of markets due to multi-track
liberalisation processes6, insufficient
development of domestic markets and
institutions of a market economy, and
lack of fiscal options to compensate or
protect the farming community.
Consequently, there is ample evidence of
liberalisation-induced import surges in
both LDCs and non-LDC developing
countries. (cf. Matambalya 2005,
Muyakwa 2005).
• Country eligibility
• Criteria for selection of products
(product coverage)
• Triggers for safeguard actions
• Preconditions for initiating safeguard
actions
• Geographic coverage (in terms of targeted countries)
• Permitted trade remedies (safeguard
actions)
• Restrictions on the use of trade
remedies under SSM
• Time scale
• Other rules governing the use of SSM.
Appendix 1 presents a detailed summary
of the proposed framework for the architecture of concrete dimensions of SSM.
Further elaboration of these dimensions is
contained in Tables 1, 2, and 3, in the
main body of the proposal. Appendix 2
presents a concise summary of the major
negotiations issues, and Appendices 3 and
4 demonstrate the comparable changes
of import duties for SSG4 and SSM.
4
Special Safeguard (SSG) provisions under the WTO Agreement on
Agriculture
5
UNCTAD 2002, Least Developed Countries Report 2002-Escaping
the Poverty Trap, New York and Geneva, United Nations
6
Notably, apart from multilateral, regional, and bilateral
liberalisations, most developing countries have very substantially
liberalised as part of their commitments with the World Bank and
the International Monetary Fund.
7
The FAO classification of Low Income Food Deficit Countries
(LIFDCs) provides invaluable information for determining the
eligible products for individual developing countries, but should
not be used to discriminate overall eligibility among countries.
In most developing countries, agriculture
is the largest sectoral contributor to GDP
and a major source of livelihood security
and employment/income security. Fifty
seven percent of the labour force in all
developing countries is employed in
agriculture, with 71% of the Zambian
labour force and 81% of Tanzania’s
employed in this sector. 5
It is, therefore, reasonable to make SSM
available to all developing countries,
regardless of their level of development,
though a differentiated treatment of LDCs
and non-LDC developing countries should
be made on the basis of the proportion of
products that can be protected under SSM
(cf. subsection 3.2 below). 7
Another reason why SSM should be
available to all developing countries is
that SSG (for which several developed
countries are eligible) does not
discriminate between countries. In
addition, the July (2004) Framework
simply stipulates that an SSM will be
established for use by developing country
members, and does not discriminate
between them.
3.2 Criteria for Selection of
Products
In WTO language, product selection is
usually discussed under the term
5
coverage (alongside geographic coverage,
and nature of safeguard action). Product
eligibility is one of the areas where
innovations are feasible. In this regard,
there are two key options. The first is to
use SSM for all agricultural products, as
advocated by the G33 Group of smaller
developing countries at the WTO
agriculture session from 30 May to 3 June
2004.8
Under the second option, safeguards
would not be used in blanket form to
cover all agricultural products. Instead,
they would be used when justified by
both the economic significance of the
product (for stabilisation of markets and
promotion of economic transformation)
and socio-economic significance of the
product (for livelihoods, rural
development, poverty alleviation).
A selective application of SSM is more in
line with promoting international trade
as well as more consistent with WTO
principles of liberalisation (under which
the blanket protection of a sector is
discouraged).
6
While the primary motive for the use of
SSM should be to stabilise markets, the
products targeted should include those
that are strategically important for
production, consumption and trade.9
Consequently, in determining whether or
not a country should take recourse to
SSM with respect to a particular product,
the following additional elements should
be considered:
(a) Evidence of a critical mass of the
contribution of the product to exports
(say 3 percent);
(b) Evidence of a critical mass of the
contribution of the product to GDP
(say 1.5 percent);
(c) Evidence of a substantial number of
people directly dependent on the
product for their livelihoods (say 1.5
percent of population);
8
G33 comprises 42 countries, mainly developing countries, which
are concerned about food security, livelihood security and rural
development needs
9
Although sustainable stability depends on horizontal and vertical
diversification of production and trade, this development target
cannot be pursued by SSM under the current framework of WTO
rules.
(d) Evidence of substantial proportion of
contribution of the product to calorie
intake.
Invariably, the indicative percentages
underline the need to set feasible
thresholds for each criteria for product
selection.
FAO classification of low-income fooddeficit countries (LIFDCs) provides a good
basis for determining the eligible
products for individual countries.
However, a differentiated treatment of
LDCs and non-LDC developing countries
should be made not on the basis of
LIFDCs, but by allowing the LDCs to
protect a larger proportion of their trade
using SSM than non-LDCs.
A simple rule could be to allow LDCs and
non-LDC developing countries to protect
up to ρ1 percent and ρ2 percent of their
total agricultural trade, where ρ1 > ρ2.
3.3 Triggers for
Safeguard Actions
The primary triggers for SSM are those
that apply to SSG, namely surges in
volumes and/or declines in prices.
However, innovations are possible with
respect to the specific thresholds. Hence,
in the concrete architecture of SSM, the
following are proposed:
SSM should allow a lower volume trigger
than specified for SSG;
SSM should allow a higher price trigger
than specified for SSG.
3.3.1 A Simple Model for Estimating
the Volume Trigger
In the SSM, the volume of imports should
trigger safeguard action. However, due
consideration should be given to the fact
that the practical value of the volume
trigger, used in the conventional manner,
is eroded by at least two factors:
• Eligible countries must have complex
systems for the management of trade
data to be able to use the volume
trigger.
• Considering that imports do not enter
the country at the same time, the
application of the volume trigger will
de facto result in the discrimination
between exporters – by punishing the
“late” exporters, i.e., those businesses
exporting their product to a country
after the specified volume trigger has
been surpassed.
Nevertheless, innovations can be made to
minimise the caveats associated with the
volume trigger and ascertain its
practicality. Feasible innovations can be
made with respect to time unit of
measurement, length of interval historical
data, and actual method used to compute
the reference average import volume. In
this regard, time unit of the measurement
for the trigger level of volumes should be
a shorter period than a year.
Concretely:
Safeguard action shall be taken, if the
actual volume of imports (MQ) in any
quarter of the year exceeds the trigger
level. The quarterly trigger level shall
be calculated as the average import
volume (MAV) of the same quarter for
the base period, say the five preceding
years, plus a proportion of the annual
change in domestic consumption
estimated by the normal share of
imports in domestic consumption;
inflated by a coefficient, say α, where
α is set at different levels depending
on the (normal, expected) share of
imports (S) in domestic consumption.
Table 1 presents the various levels of α set
out in the SSG, compared to levels of α
proposed for inclusion in SSM, where γ is
the absolute annual change in domestic
consumption. Expressed in simple
mathematical terms, this means that
safeguard action shall be taken, if in a
given quarter,
MQ > α ∗ [MAV + S ∗ γ]
The length of the interval of historical
data used for estimating the trend, as
well as the actual method used to
(1)
compute the reference figure pose
important issues, which need further deliberations. A longer time interval shall
offer a better forecast, while the selected
method should not isolate domestic
producers from long-run changes in
world prices.
Table 1: Computation of Volume
Trigger Levels for SSG and SSM
α
S/N
S
SSG
SSM
1.
S ≤ 10%
125%
105%
2.
10% < S ≤ 30%
110%
103%
3.
S > 30%
105%
102%
Source: Matambalya 2005.
Therefore, it is recommended that a fiveyear moving average be computed using
the exponential smoothing method. This
is because exponential smoothing gives
more weight to the more recent
observations, in generating the forecast.
The merit of this approach is that more
recent observations contain the
information about what is likely to
happen in future. Accordingly, the fiveyear moving average shall be computed
as follows:
MAV = ω1MQt-5 + ω2MQt-4 + ω3MQt-3
+ ω4MQt-2 + ω5MQt-1
(2)
where ω1 + ω2 + ω3 + ω4 + ω5 = 1; and
MQt-5, MQt-4, MQt-3, MQt-2, and MQt-1 are the
quarter’s import volumes in years t-5, t-4,
t-3, t-2 and t-1 respectively (i.e., the last
five years).
Usually, ω1 < ω2, ω2 < ω3, ω3 < ω4, and
ω4 < ω5. However, in a modified computation, it is also possible to allocate the
same weight to some (consecutive) years.
The essence of the recommended volume
trigger for SSM is that:
(a) Developing countries should be
allowed substantially lower volume
trigger levels, considering that even a
7
1 percentage point change in imports
will usually affect many small
producers. This is taken care of by
having lower levels of α for SSM,
compared to the one for SSG (cf.
tables 1 and 2).
(b) Increases in domestic demand should
not be interpreted as surges in
imports. This is taken care of by the
inclusion of γ in the model.
(c) Domestic producers should not be
isolated from long-run changes in
world prices. This is taken care of by
using exponential smoothing to
estimate MAV. The transmission of
long-run changes in world prices
enhances international trade,
consistent with the main objective of
the WTO.
The following simple example
demonstrates the manifestation of a
lower volume trigger for SSM compared
to SSG.10 Suppose in a given quarter,
MQ = 10,000 metric tonnes, the quarterly
import average of the past five years =
8,000mt, the absolute annual change in
domestic consumption γ = 3,200mt (i.e., it
rises by 2 percent), and the normal
(expected) share of imports (S) in domestic consumption = 5 percent. The
computation and recommendation for
safeguard action will be as indicated in
Table 2.
Thus, the Safeguard Action Trigger Level
(SATL) in the case of SSM = 8,568mt. This
means that the increase in domestic
consumption of 3,200mt will be shared as
follows: 568mt (equivalent to 17.75
percent) to foreign producers and
2,632mt (equivalent to 82.25 percent) to
domestic producers.
3.3.2 A Simple Model for Estimating
the Price Trigger
The price trigger presents the best trigger
option for developing countries. This is
because the use of the price trigger is
relatively easy. In order to be able to
invoke safeguards action an eligible
country needs to have in place trade data
management systems that facilitate the
availability of systematically updated
price data for the targeted products at
import entry points. Invariably, this means
that a longer time period can be taken as
a base period in estimating the shift from
the domestic price trend. Therefore, even
an LDC can readily use this facility, since
data for the purpose can be easily
extracted from national trade statistics.
Concretely:
Safeguard action shall be taken, if for
a given consignment, the border
import price plus ordinary tariff falls
below the trigger standard price. The
trigger standard price shall be set as
Table 2: Example of Computation of Volume Trigger Levels for SSG and SSM
8
S/N
Data
SSG
1.
SATL*
MQ > [α ∗ MAV] + γ
MQ > α ∗ [MAV + S ∗ γ]
2.
MQ = 10,000
MAV = 8,000
γ = 3,200
S = 5%
TDC = 160,000
[α ∗ MAV] + γ =
α ∗ [MAV + S ∗ γ] =
[1.25 ∗ 8000] + 3200
1.05 ∗ [8000 + 0.05 ∗ 3200]
= 13200
1.05 ∗ [8000 + 160] = 8568
3.
Findings
MQ < [α ∗ MAV] + γ
MQ > α ∗ [MAV + S ∗ γ]
4.
Recommendation
No safeguard action
Initiate safeguard action
* SATL is the Safeguard Action Trigger Level.
Source: Matambalya 2005
10
Expressed algebraically, for SSG, safeguard action is taken if
MQ > [α ∗ MAV] + γ where MQ is the Safeguard trigger level of
imports, and α depends on the expected share of imports S in domestic consumption (computed as the average of the three
preceding years). Thus, S ≤ 10%, α = 125%; if 10% < S ≤ 30%,
α = 110%; and if S > 30%, α = 105%. (cf. also table 1).
SSM
the average domestic price during the
preceding five years.
Overall, in this case as well, innovations
are required with respect to length of
interval of historical data, actual method
to be used to compute the reference
average price, proportion of
surchargeable price difference and actual
level of surcharge.
3.3.3 Setting the Trigger Price
The length of the interval of historical
data used for estimating the trend, as
well as the actual method used to
compute the reference figure raise
important decision issues. Commensurate
with the arguments in the previous
subsection, a longer time interval shall
offer a better forecast, while the selected
method should not isolate domestic
producers from long-run changes in
world prices. Therefore, in this case too, it
is recommended that a five-year moving
average be computed using the
exponential smoothing method.
Along the line of arguments presented
here, the five-year moving average shall
be computed as follows:
PAV = v1Pt-5 + v2Pt-4 + v3Pt-3
+ v4Pt-2 + v5Pt-1
(3)
where v1 + v2 + v3 + v4 + v5 = 1; and
Pt-5, Pt-4, Pt-3, Pt-2, and Pt-1 are the computed
Cost, Insurance and Freight (CIF) import
prices plus standard tariff TS; in years t-5,
t-4, t-3, t-2 and t-1 respectively (i.e., the
last five years).
In this case as well, usually, the different
years carry different weights (i.e., v1 < v2,
v2 < v3, v3 < v4, and v4 < v5) though the
same weight can be allocated to some
(consecutive) years.
Expressed in simple mathematical terms,
this means that price-based safeguard
11
For instance, safeguard action can be applied to less than 100
percent of the difference between the trend and the actual price.
This means that if the 100% difference between the trend and
actual price is D, safeguard action will be applied to only a
predetermined proportion of D. Thus, if a surcharge rate of 10
percent is used and safeguard action is applicable to only 90
percent of D, safeguard action will be 10 percent of 90 percent of
D, which is equivalent to only 9 percent of D.
action shall be taken, if in a given year,
PM + Ts < PAV
(4)
where Pm = actual CIF import price and
Ts = standard tariff.
3.3.4 Determining the Proportion of
Surchargeable Price Difference
Another important decision that should
be made with respect to the price trigger
is the proportion of the price for which
safeguard action (e.g., surcharge) can be
applied. Generally, Ta, the additional
duty above bound rate can be applied on
either [PAV - (Pm + Ts)], i.e., the entire
difference between the trend price and
the actual price; or λ[PAV - (Pm + Ts)], i.e.,
part of difference between the trend
price and the actual price, where
0 < λ < 1.
Though other options are viable11,
considering the vulnerability of
developing countries, safeguard action
should be applied to 100 percent of the
difference between the trend and the
actual price. This means that if D is the
absolute price difference (i.e., 100 percent
difference between the trend and actual
price) = [(Pm + Ts) - PAV], safeguard action
will be applied to D. If a surcharge rate
Ta = 10 percent is used, safeguard action
will be 10 percent of D.
Optionally, a differentiation between
LDCs and non-LDC developing countries
may take the form depicted in Table 3.
Table 3: Determining of Price
Difference for Using Surcharges
Computation of
additional duty
LDCs
Non-LDC
Developing
Countries
Ta ∗ D
Ta ∗ λ ∗ D
where D = [PAV - (Pm + Ts)] and 0 < λ < 1.
The example in Table 3 shows that while
for LDCs, the surcharge is applied on 100
percent of D, for non LDC developing
countries, the charge is applied on a
9
certain percentage of D, determined
through coefficient λ.
3.3.5 Determining the Level of
Surcharge
As in the case of SSG, it is recommended
that the surcharge be decided dependent
on δ = D/PAV = percentage fall of import
price below price trigger.12 Notably, Ta is
computed by multiplying δ by a fixed
coefficient (Φ), and adding the product to
a preset percentage (ranging from 10 to
100).
Table 4 shows the additional duty above
bound tariff, depending on proportion of
price decline below trigger level, with the
Φ coefficient increasing as δ increases.
Thus, the higher the price gap, the higher
the coefficient Φ.
Considering the vulnerability of
developing countries, it is proposed that
Φ ranges from 0.5 percent to 5 percent,
depending on the level of δ (cf. table 4).
In line with paragraph 5 of Article 5 of
the Agreement in Agriculture SSG, the
additional duty, expressed in ad valorem
equivalent (Ta), may be imposed
according to schedule presented in the
column for the SSG in Table 4.
The column for SSM presents the author’s
proposal of the formula for computing
the level of surcharge for SSM. Note that
the formula for determining the level of
surcharge for SSM approach has 10
ranges, compared to the five ranges for
SSG. Note also that the formula for
computing Ta for SSM, in this form, is
much simpler.
Suppose, PAV is the trigger price for SSM
(computed as the quarterly moving
average of the past five years); and that
PAV = US $ 100.13 Following a fall in import
price, the corresponding shifts in import
price before additional duty and the
additional duty are graphically presented
in Appendix 3.
Furthermore, using simulations in which
the same level of CIF import price plus
ordinary duty is assumed (note that the
computation of is different), Appendix 4
Table 4: Formulae for Determining the Level of Surcharge for SSM and SSG
SSM1
Range
No.
10
SSG2
δSSM
Computation
of Ta
1.
δ ≤ 10%
10% + (0.5 ∗ δ)
2.
10% < δ ≤ 20%
3.
Range
No.
δSSG
Computation
of Ta
1.
δ ≤ 10%
0
20%+(1.0 ∗ δ)
2.
10% < δ ≤ 40%
0.27(PAV/Pm) - 0.3
20% < δ ≤ 30%
30%+(1.5 ∗ δ)
3.
40% < δ ≤ 60%
0.39(PAV/Pm) - 0.5
4.
30% < δ ≤ 40%
40%+(2.0 ∗ δ)
4.
60% < δ ≤ 75%
0.47(PAV/Pm) - 0.7
5.
40% < δ ≤ 50%
50%+(2.5 ∗ δ)
5.
δ > 75%
0.52(PAV/Pm) - 0.9
6.
50% < δ ≤ 60%
60%+(3.0 ∗ δ)
7.
60% < δ ≤ 70%
70%+(3.5 ∗ δ)
8.
70% < δ ≤ 80%
80%+(4.0 ∗ δ)
9.
80% < δ ≤ 90%
90%+(4.5 ∗ δ)
10.
δ > 90%
100%+(5.0 ∗ δ)
Notes: 2. Computed according to a formula derived from paragraph 5 of Article 5 of the WTO Agreement on Agriculture 1.
Authors’ proposal.
Source: Matambalya 2005.
Note however, that the computations for δSSM and δSSG differ. This
is because, in determining the SATL for SSM, the Ta is taken into
account while the determination of SATL for SSG is restricted to CIF
import price.
12
13
Assume a level of Ts, say Ts = 5 percent, the import prices after
additional duty can also be computed.
presents the expected changes in
additional duty triggered by decline in
import prices under the SSG instrument.
A comparable presentation of the SSM
and SSG instrument is made in Appendix
5.
3.3.6 Summary Remarks on Volume
and Price Triggers
Overall, a model for estimating the
volume trigger for SSM should achieve
the following:
(a) Developing countries should be
allowed substantially higher price
trigger levels. This is taken care of by
having lower level of δ trigger SSM
action, compared to the one for SSG
(i.e., safeguard action is allowed at
δ ≤ 10%); plus a fixed coefficient Φ,
where 0.5 ≤ Φ ≤ 5.
(b) At any level of price drop, the formula
should give Ta for SSM > Ta for SSG.
(c) It should be possible to use the price
trigger on consignment-byconsignment basis.
(d) Domestic producers are not isolated
from long-run changes in world prices.
Invariably, the model should allow
reasonable transmission of world price
shifts to domestic prices. This is taken
care of by using exponential
smoothing to estimate PAV.
3.4 Preconditions for
Initiating Safeguard
Actions
The preconditions for initiating safeguard
action present another area where
innovations intended to improve the
practicality and practical utility of SSM are
possible. Thus, proof of injury to a
country, or the threat of injury, due to
import surges, should be replaced by
proof of dependency on the product.
In order to underline economic
dependence and a product’s significance
for market stabilisation, eligible countries
should give evidence of critical mass of
the share of the product in exports14, and
critical mass of the share of the product
in GDP. In both cases, the average of the
representative three years should be
taken as the threshold.
Additionally, in order to establish a
product’s socio-economic significance, the
eligible countries should give proof of
number of people dependent on the
product for their livelihood (average of
past representative 3 years), and the
contribution to calorie intake (average of
past representative 3 years).
3.5 Geographic Coverage
Geographic coverage (as a dimension of
coverage alongside product coverage and
the nature of safeguard action) specifies
the countries that can be targeted by
safeguard action. Traditionally, safeguard
measures have been applied in a nondiscriminatory manner. Moreover, import
surges can often be traced to a few
countries.
An innovation in the form of selective
coverage should, therefore, be considered
in the SSM architecture. In this regard,
selective coverage means that SSM
measures should target only those
countries that cause the problem. This
will allow developing countries invoking
SSM to deal with a few countries causing
the problem in a manner that does not
distort international trade, and also
reduces the administrative burden in
terms of human resources and costs.
Countries invoking safeguard action
within the framework of SSM should
apply it to developed countries which are
the causes of import surges. Regarding
the treatment of other developing countries, there are two feasible options.
In the first option, the instrument should
be applied to developing countries
provided they are the sources of import
14
The reason for using this criteria is that many developing
countries are both exporters and importers of some products of
interest to them. A surge in imports may permanently damage the
country’s export base. Besides, this criteria enables developing
countries to use SSM for broader development goals.
11
surges. This is because, in practice, import
surges in one developing country can be
caused by exports of another developing
country.
In Tanzania in the 1990s, the production
subsidies extended by Bangladesh
(another LDC) to jute led to the surge of
imports of jute bags. This exacerbated the
challenges facing Tanzania’s sisal industry
in general, and caused huge losses to
factories producing sisal bags in
particular.
Initial surveys in Mwanza, Tanzania’s
second largest city and the commercial
centre of gravity of the Lake Victoria
Zone, also show that surge of imports of
eggs from neighbouring Kenya (a nonLDC developing country) seriously
damaged domestic producers in the late
1990s. Though no study has been
undertaken, the same can be said about
several agricultural imports from South
Africa.
The second option would be where
safeguard action is not applied at all to
other developing countries. This appears
to be a less realistic option, since it is
regularly the case that import surges in
developing countries come from other
developing countries.
3.6 Permitted Trade
Remedies
12
The permitted remedies should include
both tariff-type measures and
quantitative restrictions(QRs). The tarifftype measures should be flexibly
interpreted so that, in addition to the
built-in situation, where countries are
unconditionally allowed to raise duties up
to bound rates to certain thresholds, they
should also conditionally allow duties to
be raised beyond bound rates. However,
the second proposal is predicated on the
willingness of developing countries to
lower their bound rates and should only
be used to prevent severe injury to
domestic producers due to import surges
and price declines.
Also, although QRs are not allowed under
SSG, they should form part of the
architecture of SSM. This is because,
compared to tariff-type measures, the
QRs offer more reliable instruments in
restricting imports. In simple terms, the
import ceiling may be set at the SATL =
[MAV + S ∗ γ]. However, this may prove to
be too restrictive.
A possible scenario is one in which
domestic supply response cannot sufficiently cover a rise in domestic
consumption. If this happens, the
importing country may need to restrict
imports at a higher level. Thus, the
importing country may set an import
volume ceiling υ, beyond which the
import volume should not grow in a
given quota. υ is the tolerable proportion
of imports, by which import volume is
allowed to deviate from the reference
trend value. It should allow smooth
evolution of trade, without abruptly
ruining domestic production. This could
be computed as:
υ = [MAV + S ∗ γ] + [(MAV + S ∗ γ)]κ
(5)
where κ is the tolerable percentage rise
over 100 percent of [MAV + S ∗ γ]. In this
case, a greater share of increase in
domestic consumption may end up being
captured by exporters, without harming
domestic production.
Equation (5) can be simplified and be rewritten into,
υ = [MAV + S ∗ γ] ∗ [1 + κ]
(6)
3.7 Restrictions on the Level
of Use of Permitted
Trade Remedies
3.7.1 Restriction on SSM remedies
triggered by Volume
Any restrictions of the application of
permitted trade remedies should not be
open-ended. Instead, it should reflect
import demand, given domestic supply,
and therefore offer the required
protection effectively.
low prices, which have in practice been
observed for commodities.
In order to balance the situation, and
although an unlimited surge of imports is
undesirable, imports should be allowed to
grow beyond previous levels. Moreover,
an appropriate formula can also be
developed in order to restrict the import
volume, consistent with arguments in
previous section, so that:
Moreover, if a longer time scale is taken
(say, 24 to 36 months), repeated used
should only be permissible after a
reasonable period (say, 2 years) has
lapsed.
MQ ≤ α ∗ [MAV + S ∗ γ] ≤ υ
(7)
where υ is the upper import volume limit.
3.7.2. Restrictions on SSM remedies
triggered by Price
With respect to the price trigger, any
restrictions should ensure that either the
entire price difference or its proportion is
covered. Overall, the extra levy imposed
should only seek to strike a balance
between the prices of domestically
produced and imported products. The
concrete suggestion is that:
The additional duty should fully or
partially cover difference between the
nominal price of the shipment concerned
in domestic currency and the reference
price fixed as the average value of the
product over the period.
3.8 Time Scale
The time scale should take into
consideration the salient features of the
products and markets in question. Due
consideration should also be given to the
fact that developing economies tend to
take a longer time to recover from a
disturbance.
Thus, in the architecture of SSM, a time
scale of 12 to 36 months is proposed.
Where a shorter time scale is taken (up to
12 months, for example), immediate
repeated use of SSM should be allowed,
as long as there is evidence of import
surges and vulnerability of importing
country. This recommendation is
important, considering the prospects of
3.9 Other Rules Governing
the Use of SSM
Concerning the other rules to govern the
application of SSM, the following are
proposed:
(a) Safeguard action within the context
of SSM should not be concurrently
undertaken with another trade
remedy for the same product.
(b) Eligible countries invoking safeguard
actions should be excluded from
compensation requirements.
(c) The targeted countries and the WTO
Secretariat should be notified of the
intended invocation of safeguard
actions. The notification should
include evidence of dependence and
requirement for safeguard action.
Thus, relevant data and information
on production, trade and consumption
should be presented.
(d) Countries taking safeguard action
within the framework of SSM should
not be subjected to any kind of
retaliation action by targeted
countries.
(e) The application of SSM should not be
subject to dispute settlement
mechanism. However, consultation as
may be requested by the affected
exporting country should be
permitted, without jeopardising the
right of the eligible country to invoke
safeguard actions.
13
4. Conclusions
This paper has demonstrated the
technical feasibility of SSM for use
by developing countries, which
should be an integral part of the
trade rules of the Multilateral
Trading System.
The advanced model of SSM delineates
the underlying requirements for a prodevelopment and pro-poor trade policy
instrument with a view to informing the
various stakeholders (i.e. decision makers,
policy managers, advocacy institutions
represented by many trade networks,
etc.) in an objective manner.
In the long term, vulnerability to import
surges can be overcome by instituting a
profound structural transformation of the
agricultural sector in particular and the
national economy in general. This
transformation of the economy is, in turn,
a subject of a country’s performance in
terms of horizontal and vertical
diversification of production and trade.
14
In order to pursue more sustainable
development and reduce their
vulnerability, developing countries should
negotiate for innovative instruments
within the context of Special and
Differential Treatment (SDT), in order to
foster horizontal and vertical
transformation of their economies.
Criteria for
Selection of
Products
II
Reason for
action
(triggers)
Preconditions
for the
application of
safeguard
measures
III
IV
(Product
coverage)
Country
Eligibility
I
S/N
Item/
parameter
1. Import surges
2. Drop in prices
3. Revised thresholds
1. Import surges
2. Drop in prices
1. No need to prove injury or threat thereof to
local production.
2. Automatically triggered (volume trigger and
price trigger)
Import surges
1. Prove through an investigation
based on objective evidence,
injury to domestic industry
caused by increased imports
2. Prove through an investigation
based objective evidence,
threat to injury to domestic
industry caused by increased
imports
1. Prove economic dependence on the product through:
< Proof of critical mass of proportion of exports (average of
past 3 years)
< Proof of critical mass of proportion of GDP (average of
representative past 3 years).
2. Prove dependence on the product for livelihood and food
security through:
< Proof of number of people dependent on product for their
livelihood (average of representative past 3 years)
< Proof of contribution to calorie intake (average of past
representative 3 years)
1. Blanket coverage or
2. Country to identify SPs on the basis of:
< Critical mass of proportion of exports (at least 3%)
< Number of people dependent on product for their
livelihood (1.5% of population)
< Critical mass of proportion of GDP (at least 1.5%)
< Contribution to calorie intake
1. Country identifies Special Products
2. Concrete criteria for selecting SP not
specified
Proposed Additional Elements of SSM
for Tanzania and Zambia
Give access to all developing countries, LDCs and non-LDCs
Special Safeguards
Article 5 Agreement on Agriculture
Non discriminatory in terms of eligibility,
provided country has converted NTBs into tariffs
Non discriminatory in terms of
eligibility
Article XIX GATT 1994
and Safeguards Agreement
Appendix 1. Detailed Summary of Proposed Framework for the Architecture of SSM (Page 1 of 3)
Appendices
15
Geographic
coverage
Type of
relief/remedy
measures
(Scheme of
actions)
VI
Item/
parameter
V
S/N
1. Tariff measures: additional
duties beyond bound tariff
rate: Surcharges, Surtaxes,
Compensatory taxes, Tariff
Rate Quotas (TRQs)
2. Non-tariff measures:
quantitative restrictions:
Global import quotas,
Discretionary licensing, Import
authorisation and similar
measures, Import deposit
schemes
The de minimis provisions provides
that no safeguards shall be taken
against imports from developing
countries, as long as the individual
and joint share of imports of the
product in the importing country
do not exceed 3% and 9%
respectively.
Non-discriminatory
Article XIX GATT 1994
and Safeguards Agreement
1. Additional duties for volume -triggered
safeguard
2. Additional duties price-triggered safeguard.
Non-discriminatory
Special Safeguards
Article 5 Agreement on Agriculture
Appendix 1. Detailed Summary of Proposed Framework for the Architecture of SSM (Page 2 of 3)
16
1. Allow the raising of duties beyond bound rates.
2. Allow QRs, consistent with Article XIX and Safeguard
Agreement.
1. Allow selective use, focusing on countries which cause the
problem
2. Aim: to reduce administrative burden and costs
SSM should apply to developed and developing countries alike
Proposed Additional Elements of SSM
for Tanzania and Zambia
Other Rules
IX
Source: Matambalya 2005, prepared from various sources
Some rules pose compliance
difficulties to developing
countries
Safeguards are temporary
measures
Time Scale
VIII
Article XIX GATT 1994
and Safeguards Agreement
Restrictions on
1. In case of tariffs: no specific
the use of
restrictions as to the level of
reliefs/ remedies
the additional duties to be
imposed
2. In case of quantitative
restrictions: ensure that
quantity of imports is not
reduced below the average of
the last three representative
years (i.e., previous
representative period) for
which data is available. Global
quota may be determined by
importing country and
allocated among exporting
countries.
Item/
parameter
VII
S/N
Some rules pose compliance difficulties to
developing countries
3. Safeguards are temporary measures.
4. Use of SSG is permitted during the reform
process as per Article 20 of Agreement on
Agriculture
Volume trigger: the additional duty shall not
exceed approximately 30 per cent of the applied
rate in effect the year the measure is triggered.
Price trigger: The additional duty can only
compensate for a fraction of the difference
between the nominal price of the shipment
concerned in domestic currency and the
reference price fixed as the average value of the
product over the period 1986-1988
Special Safeguards
Article 5 Agreement on Agriculture
Appendix 1. Detailed Summary of Proposed Framework for the Architecture of SSM (Page 3 of 3)
17
Other rules to govern the application of SSM should be more
flexible and less stringent, without causing the erosion of the
predictability of the multilateral trade rules. Developed countries
to provide technical assistance to manage the SSM.
1. Take into consideration the salient features of specific
products and markets.
2. Allow time scales of 12 to 36 months.
3. Permit immediate repeated use of safeguards (for
shorter time scales).
4. Permit repeated use after a reasonable break (for longer
time scales)
5. Make SSM integral part of WTO rules on permanent
terms
[Additional duty should fully or partially cover difference between
the nominal price of the shipment concerned in domestic currency
and the reference price fixed as the average value of the product
over the period]
1. Volume trigger: should reflect import demand, given domestic
supply; and hence offer effective protection (safeguard action
should not distort total demand, given domestic supply
capacity).
2. Price trigger: should cover the price difference and hence offer
effective protection.
Proposed Additional Elements of SSM
for Tanzania and Zambia
Appendix 2: Concise Summary of SSM Proposal
S/N
Negotiations Issue
Proposal
I
Country Eligibility
Give access to all developing countries
II
Criteria for
Selection
of Products
1. Selective coverage of products
2. Country to identify Special Products on the basis of:
< Contribution to trade: set a (low) minimum threshold for contribution
to product to exports
< Contribution to agricultural production: set a (low) minimum
threshold for contribution of product to agricultural production
< Contribution to GDP: set a (low) minimum threshold for contribution of
product to GDP
< Link to Livelihood: set a (low) minimum threshold of number of people
directly and indirectly dependent on product for their livelihood
< Link to Food security: set a (low) minimum threshold of the product’s
contribution to calorie intake.
(Product coverage)
III
Reason for action
(trigger)
1. Import surges
2. Drop in prices
3. Revised thresholds to allow:
< Lower volume triggers than specified for SSG
< Higher price trigger than specified for SSG
IV
Preconditions for
the application of
safeguard
measures
1. Prove economic dependence on the product through:
< Setting a low export dependency threshold
< Setting a low GDP dependency threshold
2. Prove dependence on the product for livelihood and food security through:
< Set a low livelihood dependency threshold
< Set a low calorie dependency threshold
V
Geographic
coverage
Allow selective use, focusing on countries which cause the problem
Apply to developed and developing countries alike
VI
l Tariffs:
Type of relief/
remedy measures
< Unconditionally allowing the raising of duties up to bound rates
(Scheme of actions)
< Allow the raising of duties beyond bound rates.
l Quantitative Restrictions
< Allow QRs, consistent with Article XIX and Safeguard Agreement
VII
Restrictions as to
the level of
compensation
admissible
1. Volume trigger: should reflect import demand, given domestic supply;
and hence offer effective protection.
2. Price trigger: should cover the price difference and hence offer effective
protection.
VIII
Time Scale
1.
2.
3.
4.
5.
IX
Other Rules
1. Allow automatic recourse to SSM
2. Allowed usage to be more flexible and less stringent
3. Should not cause erosion of the predictability of the multilateral trade rules
18
Take into consideration the salient features of specific products and markets.
Allow time scales of 12 to 36 months.
Permit immediate repeated use of safeguards (for shorter time scale).
Permit repeated use after elapse of reasonable time (for longer time scale)
Make SSM an integral part of WTO rules on permanent terms
Source: Matambalya 2005, prepared from various sources
Appendix 3. Additional Duty with a Fall in Import Price for Price-Triggered SSM
500%
% Increase in Import Duty
450%
400%
% Increase in
Import Duty
under SSM
350%
300%
250%
200%
150%
100%
50%
0%
0%
20%
40%
60%
80%
100%
% Fall in Import Price
Source: Matambalya 2005
Appendix 4. Additional Duty with a Fall in Import Price for Price-Triggered SSG
300%
% Increase in Import Duty
250%
% Increase in
Import Duty
under SSG
200%
150%
19
100%
50%
0%
0%
20%
40%
60%
% Fall in Import Price
Source: Matambalya 2005
80%
100%
0%
50%
100%
150%
200%
250%
300%
350%
400%
450%
500%
0%
Source: Matambalya 2005
% Increase in Import Duty
20%
60%
% Fall in Import Price
40%
% Increase in
Import Duty
under SSM
% Increase in
Import Duty
under SSG
80%
100%
Appendix 5. Comparable change in Additional Duty with a Fall in Import Price for Price-Triggered SSM and SSG
20
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