POSSIBLE MODALITIES FOR 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)

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

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

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

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 Most developing countries had no SSG option or did not invoke SSG

MAJOR LIMITATIONS OF SSG Complicated formulas – the case of price- based SSG

SOURCE: FAO (Ramesh Sharma)

MAJOR LIMITATIONS OF SSG Complicated formulas – the case of price- based SSG Biases against developing countries – the case of SSG volume triggers

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

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

SOURCE: FAO (Ramesh Sharma)

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

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

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

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

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

VOLUME TRIGGER-BASED SSM DUTY Excess Imports (E)SSM Duty (whichever is higher) As Percent OverAs Percent ofAbsolute Trigger VolumeBound TariffPercentage Points E < X00 X1 < E < XYZ X2 < E < X1Y1Z1 E > X2Y2Z2

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

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

OTHER PROPOSED SSM MODALITIES Temporary re-imposition of quantitative restrictions (QRs) Simplified countervailing measure Konandreas maximum contingency level (MCL) proposal

SIMPLIFIED COUNTERVAILING DUTY MEASURE (SDCM) Product- Specific AMS Product Output Value Non-Product- Specific AMS Total Agricultural Output Product- Specific Export Subsidy Total Exports of Product 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

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

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?