After the Collapse: Rethinking the Special Safeguard Mechanism for Developing Country Agriculture

in the current environment of high world prices on important food commodities – the FAO terms the situation a crisis – it is ironic that the latest attempt to keep afloat the good ship Doha Round finally foundered on the shoals of the dreaded Special Safeguard Mechanism.
The fundamental idea of the SSM, an improved substitute for the old Special Safeguard Clause (SSG), is to permit developing countries to raise tariffs beyond bound levels to protect farmers from falling domestic prices arising from import competition. But the question of what should be the exact design of an acceptable SSM stalemated the debate.
On one side of the argument are many developing countries, sensitive to the vulnerability of their numerous and mostly poor farmers; on the other side are agricultural exporting countries, both developed and developing, seeking market access and predictability in trade rules. Much of the debate has focused on the circumstances under which the SSM could be evoked and how high safeguard duties could rise.
Most countries accept the idea of using a surge in import quantities as a trigger for activating the mechanism, but then disagree on exactly how large the surge should be. As WTO head Pascal Lamy noted, “those who feared that the safeguard would lead to a disruption of normal trade wanted this safeguard as high as possible. Those who feared that the safeguard would be not operational if it was too burdensome wanted a lower trigger.” (See page 8 for details on Lamy’s SSM proposal.)
Perhaps there are deeper problems with the Doha Round, but the SSM was certainly the proximate cause of the failure of the negotiations in July. It will have to be addressed if the talks are to be salvaged. While various governments ponder their next SSM positions, we would like to offer some commentary on the basic idea.
It is curious to us that in the latest negotiations ministers focused almost exclusively on an import-volume trigger; even Pascal Lamy left the price-based SSM out of is compromise proposal. For developing country farmers, however, a price-based SSM would seem to be more appropriate to guard against exceptionally low world price episodes. After all, the very idea of a safeguard for low-income countries – where agriculture often employs nearly three-quarters of the labour force and fiscal resources are limited– was proposed in order to limit their exposure to possible steep and ruinous world agricultural price declines that otherwise could ensue through the lowering of high bound tariff levels.
Volume triggers for the SSM are ex-post – regardless of whether the trigger is high or low – and many developing countries lack the resources to monitor import flows or surges in real time. Furthermore, imports can be unrelated to low prices, for instance in case of a domestic harvest shortfall. A trigger based on an increase in imports would be inconsistent with the principle of protecting potentially competitive sectors.
What should worry policy makers is not ‘sticking it’ to consumers, but cushioning potentially severe damage to the revenues of otherwise competitive farmers and to poor farmers in countries without the fiscal resources and institutional capability to offer relief. In a drought, for example, domestic prices could rise while imports also increase. Would this justify the imposition of additional duties on the basis of maintaining a price floor to protect a viable industry? A volume trigger would not reliably indicate the harm to the industry, which is – at least in principle – the ultimate event to be verified. International prices fall in anticipation of greater world supplies that might compete with domestic production, even if imports are ‘manifestly negligible’. Border price declines could lead to domestic price drops even prior to – and, in fact, even without – import surges.
Shift Focus to Price Trigger
A price trigger would seem better to address the question of harm to farmers in developing countries, but it does carry some technical difficulties – especially with regard to the credibility and transparency of a widely-applied SSM – that would have to be hammered out in negotiation. We have discussed the possible design of a price-based SSM in more detail elsewhere,1 but to summarise: the rules triggering safeguards would have to be specified in terms of well-defined low price events, and should be uniform for all countries and subject to monitoring by the WTO.
Unlike the old SSG, a price-triggered special safeguard mechanism would not be conditional on Uruguay-Round tariffication, and not linked to a reference price at a specific date. Instead, under a price-triggered SSM specific reference prices should be revised periodically by the WTO secretariat to follow long-term changes in world market price conditions. There should be detailed notification to the secretariat indicating the selection of products and the database used in the determination of reference prices.
Where the price trigger would be placed – at 10, 15 or some other percentage below a long-run world price trend reference – would have to be negotiated. As long as the reference price updating mechanism is transparent and faithful to long-term market trends, the exact percentage triggering gap between the reference and border price is less critical.
Nevertheless, the lower this gap, the more frequently would the SSM switch on and off, and the more it would resemble the outlawed ‘variable levy’. In addition, frequent variation would make the SSM more burdensome to administer, both at the country level and by the WTO secretariat.
To further increase transparency, the WTO secretariat should assist every country planning to use the safeguard in establishing a system of computing reference prices and surcharges, including the possibility of outsourcing operations to third parties. We have concluded – although there is room for alternatives – that a statistically estimated reference price trend would avoid most of the difficulties associated with moving averages or the use of an arbitrary base period. Nevertheless, of course, an estimated trend retains the problem of all reference prices: it is an inexact predictor of long-term future market conditions.

Product Coverage
Regardless of a volume or price trigger, there would have to be agreement over product coverage. Practically speaking, and in the spirit of freeing trade, the application of the SSM should be restricted to a limited number of products in any period, although the instrument could be available to any product.
While a country could set its own priorities with respect to the definition of ‘sensitive products’, the simultaneous application of the SSM to a large number of products per country would be impractical in terms of WTO monitoring and data management by individual countries.
As a general rule, a limited number of products for which the SSM could be applied simultaneously would help avoid its misuse and keep its focus on politically sensitive products where a lack of protection would otherwise be an obstacle for trade liberalisation. The recent proposal by the G-33 for an unlimited number of products for least-developed countries – and 30 percent for ‘small and vulnerable’ countries – would seem to exceed what appears to us to be a reasonable set of politically sensitive products and would stretch the monitoring capacity of the WTO, as well as undermine the credibility of the whole SSM system.
Reducing the Heat
The price trigger offers an additional advantage in the context of the key divisive issue in the recent negotiations. The intensity of the debate over whether the SSM tariff should be allowed to breach pre-Doha Round tariff limits would likely subside, particularly if a price-based remedy only allows countries to compensate a portion of the price decline. This was proposed in the 10 July Falconer text. Exporters would have some assurance that they would maintain market opportunities in times of normal and high prices while still protecting import-competing farmers from exceptional price declines.
Safeguard tariff increases could be implemented virtually automatically – and transparently – and, as negotiators have already agreed with respect to any new SSM, without the need to test injury or negotiate compensation (as under the old general safeguard). Some countries might want to insist on adhering to the principle that no tariffs in a post-Doha world should exceed pre-Doha bound rates, and so might still wish to insist on a limit on tariffs hikes triggered by import volumes or border prices. But there is certainly a quantitative, if not qualitative, difference in exceeding pre-Doha bound rates in an exceptionally low world price episode and surpassing those limits during normal market conditions.
And, unlike volume triggers, a restriction on the length of time a price-triggered SSM could apply would also seem contradictory to its purpose. For import volume triggers, a limit on the safeguard’s duration would make sense to assure the transmission of long-run world price trends and to avoid distorting the natural evolution of trade. Time limits would allow normal trade conditions to reveal themselves during transition periods. But for a price trigger, which (credibly) follows world price trends, these problems are minimised. A price trigger, while providing a temporary cushion against low-price episodes, would adjust to long-run trends. So, the right to apply a price-triggered SSM could be unrestricted in duration, maintained as long as world prices are exceptionally low. If a sharp world price decline were really a part of a longer term trend, the evolution of the reference price would eventually reflect this and the SSM would no longer apply.
The current wisdom in Geneva, as we understand it, is that a volume-trigger is preferred. Even in the presentation of a price-triggered SSM, import volumes come into play to block application of the safeguard if their levels are ‘manifestly negligible’ compared to domestic production and consumption.2 This seems to us a peculiar restriction if the purpose of the SSM is to protect domestic farmers from exceptionally low prices transmitted from world markets. Domestic prices could follow downward border prices without any contemporaneous change in imports: prices may fall on the potential of imports, whether or not import volumes have ‘manifestly’ increased. To put an observed volume-related condition on a price-triggered SSM is to maintain a type of ex-post injury test, which in our opinion is an invalid restriction on what should be a low-price insurance policy for farmers in poorer countries.
Adjusting the Course of Negotiations
From the perspective of those familiar with dealing with legal evidence, and from the perspective of viewing safeguards as akin to anti-dumping measures, volume-triggers are indeed easier to understand. They are attractive to negotiators. They are, however, only applicable after the fact. Price-triggers aimed at mitigating exceptionally low world price episodes, on the other hand, are better suited both for addressing the underlying purpose of special safeguards for poorer countries and for following world markets. One thing to think about during this hiatus in negotiations is how to present a price-trigger mechanism that, while attractive to economists usually less well-versed in diplomacy, lacks charisma to negotiators. But we believe a good case can be made that puts a price-based SSM in the context of protecting the ‘subsistence and livelihoods’ of developing country farmers – so ardently defended by Minister Kamal Nath from India – and in a manner that ministers might find more convincing.
Alberto Valdés is an independent consultant and research associate at the Pontificia Universidad Católica de Santiago de Chile. William Foster is Professor of Agricultural Economics at the same institution.

endnote
1 A. Valdés and W. Foster. July 2005. The New SSM: A Price Floor Mechanism for Developing Countries. ICTSD Issue Paper No. 1. Geneva
2 WTO Secretariat. 5 August 2008. An Unofficial Guide to Agricultural Safeguards. Geneva