US proposal would make SSM useless for developing countries

Original Publication Date: 
27 April, 2006
The United States has submitted its position on a Special Safeguard Mechanism (SSM) in the WTO agriculture negotiations that would provide only a very limited use by developing countries of what they consider to be a crucial mechanism to safeguard against adverse effects of liberalization of their agricultural imports.

Commenting on the US proposal on 25 April, Indian Commerce Minister Kamal Nath said it was 'very retrograde and is against the very spirit of the mandate agreed upon, as it will adversely impact on the interest of developing countries,' according to a news agency report from Hannover, which Nath visited.

The Chairman of the WTO agriculture negotiations, Ambassador Crawford Falconer of New Zealand, has also on Wednesday issued a Reference Paper on SSM. It suggested that the basis for negotiations be the proposals of the Group of 33. The Chairman's paper does not specifically refer to the US paper, perhaps because this paper was only submitted a few days ago.

The US paper (JOB906)/120 dated 24 April contradicts in many areas the proposal by the Group of 33 (comprising 42 countries) which are the main proponents of a SSM for use by developing countries. The US position can be expected to raise strong adverse reactions from developing countries at the agriculture talks on Wednesday to Friday, which are focusing on SSM and the related subject of special products.

As the agriculture talks began Wednesday afternoon, an African diplomat, speaking outside the hall, remarked that the US proposal was so bad that it may be even better not to have an SSM at all, since even the current GATT safeguard provisions would be easier to use.

These GATT provisions are so difficult to use that a special safeguard provision was placed in the Agreement on Agriculture, which is easier to make use of. But this can only be used by members that undertook 'tariffication' of their quantitative restrictions during the Uruguay Round. The majority of developing countries are not eligible.

The G33 proposal is for establishing a new SSM, for use only by developing countries, and it seeks to make it easier for them to take remedial measures (increasing the import duty) when there is an increase in volume or a decrease in price of an imported agricultural product, beyond certain levels to be agreed upon.

However, the new US proposal contains so many limitations and impose so many conditions that a developing country facing an import surge (or a potential surge) would find it very difficult if not impossible in practical terms to take advantage of the SSM mechanism.

Firstly, the US says that the SSM will be only a 'transitional tool' used to 'aid in the reform process.' It states the SSM shall be used as a transitional tool which will be eliminated by the end of the Doha implementation period.

This US view marginalizes the duration and context of the SSM, which the G33 and many other developing countries view as being a permanent mechanism, to be used not only during the reform process, but over the long term to address their needs of food security, livelihood security and rural development.

If the US proposal is adopted, the developing countries will no longer have recourse to what they see as a vital safeguard after only a few years (the implementation period may be 10 or less years).

Secondly, the US wants the SSM to be only available to a limited number of products, and only to some categories of products: (I) 'a percentage of tariff lines that take the full tariff cut as specified by the general tariff reduction formula for developing countries which result in new bound tariffs below current applied tariffs' and (ii) products that are produced domestically or are close substitutes of products produced domestically.

These are extreme limitations. Only products that are affected by the full formula cut, and only in instances where the cuts affect the present applied tariffs, are eligible; and even then only a percentage of these can enjoy the SSM.

This goes totally against the G33 position that the SSM mechanism is available for all agricultural products, and that there should not be any limitations like the ones suggested by the US.

The other condition, that only products produced locally are eligible, is also restrictive as agricultural products can be easily displaced by other products; for example a significant price decline in an imported cereal could displace the demand for another, locally-produced, cereal or even non-cereal food product. In the US proposal it is not clear how a 'close substitute' will be defined.

Thirdly, the US proposal severely restricts the conditions under which the SSM can be used, i. e. the 'triggers' which indicate that a country can take action to raise duties. The Hong Kong Declaration mandate is widely interpreted to mean that either a volume-based or a price-based trigger will enable action. However, the US proposal indicates that both the volume and price must be sufficiently affected before action is allowed.

The US proposal says: 'If the price-based trigger is met, a market test will be used to ensure that imports are rising, before the SSM remedy is applied. If the volume-based trigger is met, a market test will be used to ensure that domestic prices are falling, before the SSM remedy is applied.'

This very significantly restricts the conditions under which a developing country can use the SSM.

Moreover, the parameters of the US-suggested triggers are also very stringent. On the price-based trigger, the US implies that only if there is a price fall of 30% or more can action be taken. In fact the proposal is even more stringent, as 'the reference level for the price-based trigger shall be equal to the smaller of 70% of the average MFN c. i. f. import price over the most recent 36 month period, or 70% of the 2002-2004 average MFN c. i. f. import price, as expressed in terms of the domestic currency.'

On the volume-based trigger, the US proposal is also stringent, as the reference level shall be the larger of 130 percent of yearly average MFN imports over the most recent 36 month period, or 130 percent of the yearly average 2002-2004 MFN imports.

The 'market tests' referred to are as follows. When the price-based trigger is met, the SSM can be invoked only if a market test finds that imports over the previous six months are [x] percent larger than imports over the same six month period in the preceding 12 months.

And when the volume-based trigger is met, a market test shall be checked to ensure that domestic prices are falling, i. e. the SSM may be invoked when the average domestic prices over the previous six months are [x] percent lower than the average domestic prices over the same six month period in the preceding 12 months.

Thus, the US proposal links the price trigger to a volume test, and the volume trigger to a price test, in effect requiring that both the price and volume of an import has to be affected to a certain degree (to be determined by the negotiations) in order that the SSM can be used. This constrains the conditions for using the SSM.

Fourthly, the remedy proposed by the US (in terms of the additional duty that can be imposed) is very inadequate. If the trigger and market test conditions are met, an additional duty can be imposed, but it shall be 'no greater than 50 percent of the difference between the Uruguay Bound Rate and Current Bound Rate.'

The extent of additional duty will thus be low; for example, if the Uruguay Round bound rate is 50% and the rate falls to 30% because of the Doha commitments, then the additional duty can be only 10%, and the new rate after using the SSM will be 40%. Such a low extent of additional duty will hardly be adequate to deal with the problem of import surge.

In contrast, the G33 had proposed that the trigger price would be the average monthly price of that product for the most recent three-year period, and the trigger volume would be equal to the average annual volume of imports for the most recent three-year period. Additional duty can be imposed if the import volume trigger level is exceeded, or if the import price falls below the trigger price.

The G33 has proposed much more significant additional duties that can be imposed as follows: Where imports during a year do not exceed 105% of the average import volume, no additional duty is imposed; where imports in a year exceeds by 105-110% of the average import volume, the additional duty can be up to 50% of the bound tariff or 40 percentage points (whichever is higher); and where imports exceeds by 110-130% of average import volume, the additional duty can be up to 75% of bound tariffs or 50 percentage points (whichever is higher); and where imports exceed 130% of average import volume, the additional duty can be up to 100% of the bound tariff or 60 percentage points (whichever is higher).

The G33 proposal also has provisions on the additional duties that can be imposed when a price-based trigger comes into force.

Fifthly, the US proposal also contains very cumbersome 'transparency' conditions. Triggers and market test conditions must be notified and made publicly available. Any use of the SSM must be notified immediately to the Committee on Agriculture and must include adequate documentation that all triggers have been met. Any use of the SSM is subject to review by the Committee on Agriculture, and all Members have the right to consult with a Member that is imposing the SSM.

The present agriculture special safeguard provisions have transparency provisions but they are not so obligatory. The G33 proposal also contains transparency provisions similar to the ones in the present agriculture special safeguard. However, the US paper goes further. Its proposed measures include documentary evidence that all the triggers are met, and the use of the SSM is 'subject to the review' of the Committee. What this review entails, and what are the consequences of the review, are not spelt out.

In all, the existence of so many constraints and conditions in the US paper mean that if they are adopted, the SSM would be not only user-unfriendly but of no practical use to developing countries. They would thus be deprived of the benefits of one of the two key instruments (the other being 'special products') they are fighting for in the current negotiations to address the concerns that further import liberalization should not impact adversely on livelihoods of small farmers, on rural development and food security.

(* Goh Chien Yen contributed inputs to this report.)

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G33 Proposal on SSM March 06