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Resuming Doha: Overcoming the SSM Impasse

Posted by admin on September 16th, 2008

By Mike Gifford

Cross-posted at GMF

The gains from a Doha Round would greatly exceed those of the Uruguay Round. It would be a shame if an inability to find a solution to the SSM on the one hand, and further reduce trade distorting support on the other, derails the Doha Round, Such a failure would reflect a serious lack of political will and could fundamentally undermine the credibility of the WTO.

Background

The "special safeguard mechanism" (SSM) has been cited as the main reason why the July 2008 WTO mini-ministerial meeting negotiations broke down. However, it is not self-evident why differences over the design of the SSM (mainly between the U.S. and India) should be a deal breaker, particularly when it looked like much more intractable issues, such as “sensitive” and “special” products were in the process of being resolved.

Special import safeguards are traditionally used to assure import-sensitive sectors that if tariff reductions result in injurious imports, emergency action will be taken. In the WTO, all members have access to Article XIX of the GATT, which permits additional import duties or quotas to be applied on a temporary basis if injury or threat of injury is formally demonstrated and compensation negotiated.

Some observers claim that the Article XIX procedures are too cumbersome and slow to be used effectively in agriculture.  They argue that simple triggers such as import volumes and prices should be used as a proxy for “serious” injury and that there should be no requirement to provide offsetting compensation, as Article XIX currently stipulates.  Exporters, not surprisingly, are concerned that if special import safeguards are permitted to be too easily triggered, the value of tariff reductions and bindings will be eroded.  They also point out that Article XIX permits provisional action on an emergency basis.

In the Uruguay Round, countries who converted their non-tariff barriers into tariffs ("tariffication") were entitled to apply a "special agricultural safeguard" (SSG), which allows temporary  tariff increases if import volumes exceed or prices fall below certain thresholds and does not require formal determination of injury or negotiation of compensation. Although the permitted remedies (tariff increases only) were relatively modest and rarely if ever would result in the sum of the applied and temporary tariffs exceeding the (relatively few) pre-Uruguay Round bindings,  the establishment of the SSG helped governments "sell" the Uruguay Round results to their import sensitive sectors. The SSG was regarded by many as a necessary "carrot" to encourage countries to tariffy.

Most developing countries could not make use of the SSG because, having relied on unbound tariffs rather than non-tariff barriers prior to the Uruguay Round, they did not tariffy.  Justifiably, import-sensitive developing countries have thus argued that they require access to a SSM that takes into account their development status and the particular vulnerabity of small subsistence farmers to import volume surges or sharp drops in prices.

Many developing countries, i.e. India have high bound tariffs but considerably lower applied tariffs, which gives them considerable flexibility to increase applied tariffs up to the ceiling binding if imports cause or threaten to cause market disruption. However, a few developing countries, i.e. China have relatively low bound tariffs and thus do not have this flexibility, since their applied and bound tariffs are the same.

Principles for Resolving the SSM Impasse

The forgoing background suggests a number of principles that could be used to find a way out of the SSM impasse:

  • Only developing country tariffs reduced in the Doha Round should be eligible for SSM treatment
  • The sum of the SSM remedy and the applied tariff should not normally exceed the pre-Doha tariff binding. In exceptional circumstances, tariff bindings could be exceeded but this would require a formal determination of serious injury
  • Remedies should be applied on a discretionary and not an automatic basis.
  • Remedies should be roughly proportional to the potential for market disruption once a certain threshold is reached. (For example, import volume increases in excess of [30%] could trigger a [30%] increase in the applied tariff or a percentage point increase equal to one-half of the import volume increase, whichever is higher. Similarly, a [40%] import volume increase could trigger a [40%] increase in the applied tariff or a [20] percentage point increase, whichever is higher).
  • The SSM should be a transition measure, which would expire after [20] years but would be subject to review after [5] years. (The case for an end by date is strengthened considerably if the SSM allows Uruguay Round bindings to be broken).

The above principles are predicated on the assumption that in any one year the SSM could not apply to more than a certain percentage of tariff lines, i.e. limited to those tariff lines allowed to be designated “sensitive.”

Many developing countries are worried that developed countries would remain able to increase non-green support, even after the conclusion of a Doha Round, and thus cause price suppression and other trade distortions in world markets. While such post-Doha concerns could arguably be addressed through litigation or trade remedies, many developing countries would prefer clearer disciplines imposed through the Doha Round. This suggests that a deal can be concluded, which would include more significant cuts in overall levels of trade-distorting domestic support in exchange for a SSM that would only allow temporary tariff increases on an exceptional basis.

Only the more advanced developing countries are being asked (for the first time) to make comprehensive tariff reductions in agriculture, since the least developed developing countries will not be required to make any tariff reductions. Tariff cuts for developing countries will be substantially lower than those of developed countries and developing countries will also have access to the "sensitive" and "special" product provisions. As a consequence, the more advanced developing countries will only be required to undertake very modest, and perhaps no, tariff reductions on their most import-sensitive tariffs. A SSM that can be triggered frequently and extensively thus constitutes unnecessary overkill, particularly if developed country non-green domestic support is further reduced below the levels in play in July.

Mike Gifford is a member of the International Food & Agricultural Trade Policy Council (IPC) and served as Canada’s chief agricultural trade negotiator and principal agricultural trade policy advisor to the ministers of agriculture and trade.

A joint initiative of The German Marshall Fund of the United States (GMF) and the International Food & Agriculture Trade Policy Council (IPC), this blog collaboration aims to provide insight on concluding the Doha Round and pursuing trade liberalization in the future. 



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