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“Safeguards” as a Safeguard Against the Harshness of Globalization Elizabeth Ferris US Global Trade October 23, 2008.

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Presentation on theme: "“Safeguards” as a Safeguard Against the Harshness of Globalization Elizabeth Ferris US Global Trade October 23, 2008."— Presentation transcript:

1 “Safeguards” as a Safeguard Against the Harshness of Globalization Elizabeth Ferris US Global Trade October 23, 2008

2 Safeguard Provisions Since 1995 the WTO has provided the framework for countries to pursue greater trade liberalization. Since 1995 the WTO has provided the framework for countries to pursue greater trade liberalization. Safeguards existed under GATT (article 19) but they were infrequently used Safeguards existed under GATT (article 19) but they were infrequently used Governments had been protecting domestic industries using “grey area” measures. Governments had been protecting domestic industries using “grey area” measures. They persuaded exporting countries to restrain exports “voluntarily” They persuaded exporting countries to restrain exports “voluntarily”

3 What are safeguards? A safeguard is a temporary restraint that is used to protect a domestic import- competing industry from foreign competition. A safeguard is a temporary restraint that is used to protect a domestic import- competing industry from foreign competition. Safeguard measures are included within the WTO’s legal texts as a means to protect signatories from unexpected fluctuations in trade and industry. Safeguard measures are included within the WTO’s legal texts as a means to protect signatories from unexpected fluctuations in trade and industry.

4 Consequences of International Trade Primarily positive Primarily positive Stimulated economic growth Stimulated economic growth Reduction in overall living costs Reduction in overall living costs Increase in quality and quantity of goods available to consumers Increase in quality and quantity of goods available to consumers Negative Aspects: Negative Aspects: Countries can come under unintentional economic assault from its trading partners Countries can come under unintentional economic assault from its trading partners Safeguards can protect domestic industry against “serious injury” Safeguards can protect domestic industry against “serious injury”

5 Characteristics of Safeguards: Not the same as Antidumping and countervailing duty actions- they are intended to deal with unfairly traded imports Not the same as Antidumping and countervailing duty actions- they are intended to deal with unfairly traded imports They have a time limit of 4 years as long as it is “consistent with the agreements provisions” They have a time limit of 4 years as long as it is “consistent with the agreements provisions” Affected exporting partners can retaliate against the safeguard by withdrawing substantially equivalent tariff concessions. Affected exporting partners can retaliate against the safeguard by withdrawing substantially equivalent tariff concessions. This ensures that the country imposing the safeguard has an incentive to abide by the time limits. This ensures that the country imposing the safeguard has an incentive to abide by the time limits. Generally, safeguard measures cannot be targeted at imports from a particular country. However, the agreement does indicate how quota can be allocated among supplying countries. Generally, safeguard measures cannot be targeted at imports from a particular country. However, the agreement does indicate how quota can be allocated among supplying countries.

6 Benefits of Safeguards The Safeguard option in a trade agreement facilitates greater tariff reductions during the negotiation of a trade agreement. The Safeguard option in a trade agreement facilitates greater tariff reductions during the negotiation of a trade agreement. Sovereignty- Allows each country leeway Sovereignty- Allows each country leeway A government has an “escape valve” if a tariff reduction causes pain to its producers. It has more freedom to make larger and more risky tariff reductions. A government has an “escape valve” if a tariff reduction causes pain to its producers. It has more freedom to make larger and more risky tariff reductions.

7 2002 US Safeguard on Steel Price of steel was at a 20 year low Price of steel was at a 20 year low US International Trade Commission found that a surge in imports to the US market was causing serious injury to the domestic steel industry. US International Trade Commission found that a surge in imports to the US market was causing serious injury to the domestic steel industry. The safeguard measures gave the US government the opportunity to restructure and consolidate the steel industry. The safeguard measures gave the US government the opportunity to restructure and consolidate the steel industry. President Bush argued that the safeguard action made the global “playing field…fair and level” President Bush argued that the safeguard action made the global “playing field…fair and level” Safeguards can be viewed as an insurance payout during a period when the volume of imports is unexpectedly high Safeguards can be viewed as an insurance payout during a period when the volume of imports is unexpectedly high The intent of this action was to The intent of this action was to 1.protect the vital steel industry 2.Ensure growth in productivity 3.Job creation 4.Regain competitiveness in the global market

8 Globalization Often equated with “Americanization” or “Westernization” Often equated with “Americanization” or “Westernization” Has been viewed in an increasingly negative light Has been viewed in an increasingly negative light Argument that safeguards can prevent the harshness of globalization, because it is a form of regulation/intervention Argument that safeguards can prevent the harshness of globalization, because it is a form of regulation/intervention Safeguards are protectionist Safeguards are protectionist Implementation reduces the rate of globalization because it prevents complete integration and Implementation reduces the rate of globalization because it prevents complete integration and A defining feature of globalization is an international industrial and financial business structure. A defining feature of globalization is an international industrial and financial business structure. What if Bush did not have the authority or ability to enact the 2002 safeguards on stee? What if Bush did not have the authority or ability to enact the 2002 safeguards on stee?

9 McCain and Obama Little information regarding their stance on safeguards. Information available indicates their stances on free trade and globalization McCain McCain Supports WTO Supports WTO Has conceded that globalization will not benefit every American but creates opportunity for Americans to work today and in the future Has conceded that globalization will not benefit every American but creates opportunity for Americans to work today and in the future Obama Obama Openly criticized NAFTA Openly criticized NAFTA Voted “no” on CAFTA Voted “no” on CAFTA Recognizes that we cannot turn back globalization and its affects, and we need to reinvest in communities that are burdened by globalization Recognizes that we cannot turn back globalization and its affects, and we need to reinvest in communities that are burdened by globalization

10 The Problem with Safeguards They tend to favor the bigger, more powerful countries They tend to favor the bigger, more powerful countries Many low-income countries have argued that they cannot remain competitive in a global market- there needs to be flexibility to invoke a special safeguard mechanism when faced with a volatile commodity market Many low-income countries have argued that they cannot remain competitive in a global market- there needs to be flexibility to invoke a special safeguard mechanism when faced with a volatile commodity market REMEMBER: countries must prove serious injury to a domestic market in order to enact safeguard. However, poorer countries do not generally have the financial and technical resources to prove that serious damage to one of their sectors is the result of foreign competition. REMEMBER: countries must prove serious injury to a domestic market in order to enact safeguard. However, poorer countries do not generally have the financial and technical resources to prove that serious damage to one of their sectors is the result of foreign competition. Their voices aren't being heard Their voices aren't being heard

11 Special Agricultural Safeguard As a result SSGs were made available to member countries in the Uruguay Round or trade negotiations. As a result SSGs were made available to member countries in the Uruguay Round or trade negotiations. Was designed to counter import surges and sharp declines in import prices. Was designed to counter import surges and sharp declines in import prices. The rules for its application are transparent and it requires neither injury test, nor the provision of compensation The rules for its application are transparent and it requires neither injury test, nor the provision of compensation

12 Negative Aspects of Safeguards Reduce the credibility of a trade agreement. If governments are not fully committed to liberal trade, the productive factors in their economies may not efficiently reallocate because firms expect their governments to utilize safeguards in the future. Reduce the credibility of a trade agreement. If governments are not fully committed to liberal trade, the productive factors in their economies may not efficiently reallocate because firms expect their governments to utilize safeguards in the future. Inherently Protectionist Inherently Protectionist Safety net Safety net

13 Policy: keep Safeguards intact. But Why? They do have a valuable role within the international trade arena They do have a valuable role within the international trade arena The Special Agricultural Safeguard in as indication that poorer countries will not be overlooked. The Special Agricultural Safeguard in as indication that poorer countries will not be overlooked. They are an attractive policy tool They are an attractive policy tool Transparent Transparent Easy to use Easy to use Mechanisms that automatically control trade Mechanisms that automatically control trade

14 THANK YOU THANK YOU

15 SOURCES Crowley, Meredith. “Why are Safeguards Needs in a Trade Agreement?” Federal Reserve Bank of Chicago. December Crowley, Meredith. “Why are Safeguards Needs in a Trade Agreement?” Federal Reserve Bank of Chicago. December Grant, Jason and Meilke, Karl.”Import Safeguards: Protectionist Measures or a Liberalization Strategy.” Department of Agricultural Economics Purdue University Grant, Jason and Meilke, Karl.”Import Safeguards: Protectionist Measures or a Liberalization Strategy.” Department of Agricultural Economics Purdue University Globalization101.org. “What is Globalization?” Globalization101.org. “What is Globalization?” International Monetary Fund. 20 October International Monetary Fund. 20 October On the Issues. Senator McCain, Senator Obama. 20 October On the Issues. Senator McCain, Senator Obama. 20 October Costantini, Peter. “What’s Wrong with the WTO?” November Costantini, Peter. “What’s Wrong with the WTO?” November World Trade Organization. 21 October World Trade Organization. 21 October United States Trade Agreements. 21 October United States Trade Agreements. 21 October


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