promoting food security, equity and environmental

sustainability in agricultural trade

ICTSD Programme on
Agricultural Trade and
Sustainable Development
1
 IMPLICATIONS OF THE
PROPOSED MODALITIES FOR THE
SPECIAL SAFEGUARD MECHANISM (SSM)

(Based on TN/AG/W/4/Rev.4 and

TN/AG/W/7 Issued in December 2008)
 Background
• Rev 4 issued on 8 December 2008 as most
recent negotiating text on agricultural trade
rules, including SSM
• SSM text copied en toto from Rev 3
• Paragraph 142 of Rev 4 provided that SSM
remedies plus current bound tariffs could not
exceed Doha starting bound rates
• Bracketed Paragraphs 144-145 allowed for
“over the bound rate” application of volume
SSM under certain conditions
• W7 issued on 6 December 2008 as possible
replacement for Paragraphs 144-145 of Rev 4
 Objectives of the Study

• Assess the impact of proposed

modalities and parameter
settings indicated in Rev 4 and
W7 on the SSM
• Determine areas or modes of
compromise that could lead to a
mutually acceptable agreement
on SSM provisions
 SSM Simulation Model
• Will the SSM be accessible?
– “Accessibility” measured as frequency (in %
of total months) by which SSM can be invoked
• Will the SSM be effective?
– “Problematic month” - month during which
import price (CIF+MFN tariffs) falls below
domestic wholesale price by more than 10%
– “Effectiveness” measured as frequency (in %
of problematic months) by which SSM is
invokable and is able to bring import prices
(CIF+MFN tariff+SSM duty) to within 10% of
domestic wholesale prices
 Frequency Plot of Volume SSM Access
Rates
7,000

6,000
METRIC TONS

5,000

4,000

3,000

2,000

1,000

0
01

03
00

02

04
A

A
O

O
J

J
20
20

20

20

20
YEAR/MONTH

Frequency Plot of Price SSM Access Rates

90

80

70
Price Per Kilo

60

50

40

30

20

10

0
00

01

02

03

04
J

J
20

20

20

20

20
YEAR/MONTH
Frequency Plot of SSM Effectiveness Rates
120

100

80
Price Per Kilo

60

40

20

0
J

J
00

01

03
02

04
20

20

20

20

20
YEAR/MONTH
 Scope and Limitations of
Study
• 27 agricultural products from
Philippines, Indonesia, Ecuador,
China (RAM), Fiji (SVE), and
Senegal (LDC)
• Data mostly for 2000 to 2005 (2002
to 2007 for Philippines)
• Monthly import data used as
proxies for individual shipments
• Results should be treated as
indicative, not conclusive
VOLUME SSM
 VOLUME SSM
• Product Scope
– All products
– But only 2 to 6 products in any given period
(Rev 4) or 2.5% of tariff lines in any 12-month
period (W7) for “above the bound” applications
• The Volume Trigger
– Trigger is average annual import volume in
preceding 3 years
– If SSM was imposed in preceding 3 years,
previous year trigger will be carried over if
current year trigger is lower
– W7 introduced new pro-rating modality for
computing triggers to preserve normal trade
access notwithstanding SSM application
 VOLUME SSM:
Remedies and Remedy Caps
 VOLUME SSM
• Cross-Check
– Domestic price must at the same
time be declining (W7)
• Imposition Period
– [4/8] months imposition
– Equivalent period as holiday period
– [2/4] months spillover to next year
 BASELINE SETTINGS-Rev 4
• Carryover of previous year trigger
• Para 133 remedy matrix applied
• No caps on allowable SSM duties
• 12 month imposition period, no holiday
and spillover constraints
• Products classified as SPs with 111%
tariff reduction
• No cross-checks
• All imports taken into account
 Baseline Volume SSM Access
and Effectiveness Rates
under Rev 4 and W7
Bas eline R ev 4 Rev 4 Ca ps W7 Caps
C OU N - A cc es s E ffec ti ve n ess R ate Ac ce ss Effe ctiv en es sA cc es s E ffec ti ve ne ss
TRY Ra te Prob l A va il Effe ct R ate Av ai l E ffec t Ra te Ava il Effe ct
C h in a 1 4% 47 % 21 % 21 % 10% 1 0% 0% 6% 11 % 11 %
E cuad o r 3 7% 21 % 33 % 21 % 37% 3 3% 2% 1 9% 19 % 8%
F iji 3 3% 68 % 28 % 14 % 33% 2 8% 2% 1 6% 12 % 3%
Ind o n e sia 4 1% 41 % 27 % 15 % 41% 2 7% 2% 1 0% 8% 7%
P hi lipp ine s 3 7% 48 % 43 % 17 % 37% 4 3% 1% 1 8% 24 % 4%
S eneg a l 4 3% 65 % 46 % 35 % 43% 4 6% 3 5% 2 4% 26 % 20 %
T o ta l 3 3% 49 % 34 % 21 % 32% 3 2% 8% 1 6% 17 % 9%
 BASELINE SETTINGS-W7
• Carryover of previous year trigger
• Para 133 remedy matrix applied
• W7 caps on allowable SSM duties
• 4 month imposition period, no holiday
and spillover constraints
• Products classified as SPs with 111%
tariff reduction
• No cross-checks
• All imports taken into account
Sample Pro-Rating Simulation
(Annual Pro-Rating)
Sample Pro-Rating Simulation
(36-Month Proxy)
Volume SSM Access Rates
Under Various Trigger
Modalities
20%
18%
15.9% 16.2%
16% 15.2%
14.4%
14%
12%
10%
8%
6%
4%
2%
0%
Baseline No Carryover Pro-rating (annual Pro-rating(36-
proxy) month proxy)
 Volume SSM Access Rates
Under Various Cross-Check
20%
Modalities
18%
16% 16% 16%
16%
14%
Baseline (No Cross-Check)
12% Domestic Price (YTD vs. 3-Yr Average)
Import Price (YTD vs. 3-Year Average)
10% Import Price (YTD vs. Same Period Last Year)
7%
8%
7%
6% 6% 5%
4%
4% 4%
3%
2%
1%
0% 0%
0% (Threshold) 10% 20%
Volume SSM Access Rates Under
Various Imposition and Holiday
Periods 29%
30%
X/0/12 X/X/12
25%
21%
20%
20% 19%
16% 16%
15%
15%
11%
10%

5%

0%
x=4 x=6 x=8 x=12
Imposition/Holiday/Spill-Over Period (Months)
 Volume SSM Access Rates
Under
Various Imposition, Holiday
30%
and Spillover Periods 29%
X/0/12
X/0/2
25% X/X/2
21%
20% 19%
16% 16% 16%
16%
15%
15% 13%
11% 12% 12%
10%

5%

0%
x=4 X=6 X=8 X=12
Imposition/Holiday/Spill-Over Period (Months)
 Volume SSM Access and
Effectiveness Rates under
Various Remedy Cap Threshold
20%
Settings
Access
17%
18% Effectiveness
16%
16%
15%
16%
14%
13%
14% 12% 12%
12%
10% 9%
10% 9%
8%
7% 7%
8%
6% 6%
6%

4%

2%

0%
115/135 Baseline 130/150 140/160 115/135 Baseline 130/150 140/160

Remedy Cap Thresholds (% Of Trigger)

 Volume SSM Effectiveness
Rates Under Various
Percentage Point Remedy Cap
Settings
12% 11.4% 11.5%
11.1%
10.7%
9.9%
10%
8.9%

8% 7.5%

6%

4%

2%

0%
4/6 8/12 12/18 16/24 20/30 24/36 40/50
Percentage Point Remedy Cap Per Tier
 Volume SSM Effectiveness
Rates Under Various Percent
of Bound Tariff Remedy Cap
12%
Settings
10.4%
10.0%
10%

8% 7.7%
6.6%
5.7%
6% 5.3%

4%

2%

0%
25/33 33/50 50/75 75/100 200/200 250/250
(Baseline)
Percent of Bound Tariff RemedyCap per Tier
MAXIMUM REMEDIES FOR
VARIOUS BOUND TARIFFS
SUMMARY OF MAJOR FINDINGS
• Rev 4 remedy caps effectively render
volume SSM inutile (except for LDCs)
• W7 “above the bound” caps produce
better, but still low, effectiveness rates
• Pro-rating does not significantly affect
access rates
• Cross-checks more than halve access
rates; using domestic price
comparisons particularly deleterious
SUMMARY OF MAJOR FINDINGS
• Strong correlation between access
rates and imposition periods
• Holiday period significantly reduces
access rates
• Spillover limit evens out access rates
• SSM conspicuously affected by
remedy cap threshold settings
• Remedy caps in percentage points
yield better results than caps in
percent of bound tariffs
PRICE SSM
 PRICE SSM
• The Price Trigger
– 85% of average monthly import
price in preceding 3 years
converted to local currency
• Remedy
– 85% of difference between import
price and price trigger
• Remedy cap
– Cannot breach pre-Doha bound
rates (Rev 4)
 PRICE SSM
• Cross-Check
– Volume of imports must be
“manifestly declining” in the
current year
• Imposition Period
– Shipment-by-shipment
 WHY PRICE SSM?
• Price SSM an integral part of Doha
mandate
• Prices of imports have more direct
effect on domestic markets
• Price SSM remedy more precise
• Price SSM application may not be
unnecessarily prolonged
• Price SSM affects only cheap
(subsidized) imports
 Baseline Access and
Effectiveness Rates for Price
SSM
Baseline Rev 4 Rev 4 Caps
COUN- Access Effectiveness Rate Access Effectiveness
TRY Rate Probl Avail Effect Rate Avail Effect
China 1% 47% 1% 0% 0% 0% 0%
Ecuador 20% 21% 47% 19% 20% 47% 1%
Fiji 24% 68% 35% 6% 24% 35% 1%
Indonesia 41% 41% 23% 11% 41% 23% 0%
Philippines 14% 48% 24% 4% 14% 24% 0%
Senegal 24% 65% 33% 6% 24% 33% 5%
Total 18% 49% 27% 6% 18% 27% 1%
 Price SSM Access Rates
under Various Trigger
35%
Threshold Settings
30.1%
30%

25%
21.5%

20% 18.1%
15.5%

15% 13.0%

10%

5%

0%
100% 90% 85% (Base) 80% 75%
Trigger Thresholds (as % of 36-Month Price Average)
 Price SSM Effectiveness
Rates under Various Remedy
Level and Trigger Threshold
Settings
14%
11.8%
12% 11.1%
10.0%
9.5%
10%

8% 6.4% 6.1% 6.0%

5.3%
6%

4%

2%
85% Trigger Threshold 100% Threshold

0%
100% 90% 85% 80%
Remedy Levels (as % of Difference Between CIF Price and Price Trigger)
 Price SSM Access Rates
Using Cross-Check Modalities
20% 18.1%
18%

16%

14% 12.1%
12% 10.4%
9.0%
10%

8%

6%

4%

2%

0%
Base 0% 10% 20%
Cross-Check Thresholds (YTD Volume X% More Than YTD Volume in Previous Year))
 Price SSM Effectiveness
under Various Percentage
Point
8%
Remedy Cap Settings
7%
5.7% 5.8% 5.8% 5.8%
6% 5.4%
4.7%
5%

4%
2.9%
3%

2% 1.5%

1%

0%
No Breach 4/6 8/12 12/18 16/24 20/30 24/36 40/50
Remedy Caps per Tier in Percentage Points
 Price SSM Effectiveness
Rates Under Various Percent
of Bound Rates Remedy Cap
Settings
8%

7%

5.5% 5.6%
6%

5% 4.5%
4.0%
4% 3.2%
2.6%
3%

2% 1.5%

1%

0%
No Breach 25/33 33/50 50/75 75/100 200/200 250/250
Remedy Caps per Tier as a Percent of Bound Tariffs
SUMMARY OF MAJOR FINDINGS
• Rev 4 caps also effectively
render price SSM worthless
• Trigger thresholds more crucial
than remedy settings in
determining SSM effectiveness
• Cross-checks significantly
reduce access to price SSM
• Remedy caps in percentage
points more useful in enhancing
price SSM effectiveness
COMBINED VOLUME
AND PRICE SSM
 Baseline Low Medium High
Volume SSM
Yes, 36- Yes, 36- Yes, 36-
Pro-rating No
month proxy month proxy month proxy
Cross Check No Import Price No No
Imposition/Holiday/Spillover 6-0-12 4-4-2 6-0-2 6-0-2
Price SSM
Trigger Threshold 100% 85% 100% 100%
Yes, 0%
Cross Check No No No
Threshold
Remedy Level 85% 85% 85% 85%
Remedy Caps
Percentage Points
First Tier none 8 20 50
Second Tier none 12 30 50
% of Bound Tariff
First Tier none 33% 33% 50%
Second Tier none 50% 50% 50%
 Combined Volume and Price SSM
Access and Effectiveness Rates
under Various Parameter and
45%
Modality Settings
38.9%
40% 36.6% 36.6%
35%

30%
Access Effectiveness
25%

20% 16.5% 16.7%

13.6% 14.4%
15%

10%
4.8%
5%

0%
Baseline Low Medium High
Parameter Settings
 RECOMMENDATIONS
• Pro-rating may be win-win: no
major loss in access to SSM
while exporters retain normal
trade access and growth
• SSM shows limited
effectiveness; hence, imports
could continue despite SSM
application
 RECOMMENDATIONS
• Hence, unduly restrictive provisions may
not be necessary
– Impose simple cross-checks only for re-
imposition of volume SSM; cross-checks for
price SSM not necessary
– Shorten imposition period for volume SSM but
allow for re-imposition based on simple
conditions (i.e., if surge aggravates)
– Apply holiday period only if imposition spills
over to next year
– Adjust Rev 4 remedies instead of imposing an
additional layer of remedy caps under W7
– Adjust price trigger thresholds and remedy
caps
– Increase percentage point remedies provided
they do not exceed x% of bound tariffs
 RECOMMENDATIONS
• Clarify “en route” shipment
rules for price SSM
• Include all imports (MFN and
non-MFN) in SSM application
• Consider special flexibilities for
SVEs