A Special Agricultural Safeguard (SAS): buttressing the market access reforms of developing countries[31]

Comments by Mr Dale E. Hathaway

Agricultural markets are by nature cyclical and subject to wide fluctuations due, among other things, to weather variability. The subsidizing of agricultural production and exports, as well as the anti-competitive behaviour of trading firms (both state-owned and private), also affect the orderly development and flow of trade. As countries reduce tariffs and bind them at low levels, they become increasingly vulnerable to external agricultural market instability and to import surges that could wipe out viable, well-established or nascent, agricultural production activities. Vulnerability to such external shocks is of particular concern to developing countries that are endeavouring to develop their agricultural potential and diversify production in order to enhance their food security and alleviate poverty.

There are numerous instances of the implementation of reduction commitments by developing countries being associated with more frequent import surges which have damaged or threaten to damage or displace viable domestic production.[32] To cope with this situation, some countries have reacted, where applied tariffs are below bound levels, by varying (raising) duties within the limits of their bound levels or imposing or varying other charges.[33] However, as bound rates are brought down, the scope for such action is correspondingly reduced. Indeed, because of the real risk of import surges, many countries that do not have access to an effective safeguard instrument are reluctant to reduce further their bound tariffs, in particular below levels which would impede them from varying applied tariffs as an effective safeguard instrument.

Within WTO there are two safeguard instruments - Article XIX of GATT 1994 (and its elaboration in the Uruguay Round Agreement on Safeguards) and the special safeguard (SSG) provisions under the Agreement on Agriculture (Article 5). Both instruments were designed to address the problem of sudden increases in imports that cause or threaten to cause serious injury to viable domestic producers.[34] The first of these two instruments is concerned with the possibility of a surge in imports following tariff cuts. In such cases, in order to allow domestic producers time to adjust gradually to the increased competition, the importing country may revoke the tariff concession in whole or in part for temporary periods if, after investigations carried out by competent authorities, it is established that the increase in imports is such as to cause serious injury to domestic producers of like or directly competitive products. Such measures should be applied on an MFN basis to imports from all sources for a maximum period of 8 years for a particular product (10 years in the case of developing countries).

The country proposing to revoke its tariff concessions under these provisions is expected to offer trade compensation to countries whose trade interests would be adversely affected. If agreement on adequate compensation cannot be reached, the affected countries may take retaliatory action, normally in the form of suspension of a concession or other obligation to which the country applying the safeguard measure is entitled. Overall, while Article XIX and the Agreement on Safeguards allow safeguard action against a surge of imports threatening domestic producers, in practice there are limitations in resorting to these provisions. Few developing countries have the resources and the institutional and legal capacity to apply such measures which, in addition, require proof of injury and involve a lengthy and costly legal process. Simplifications and improvements in these provisions are necessary if they are to become an effective safeguard instrument for developing countries.

Another possibility could be to improve the present SSG provisions, which are designed to deal with the specific nature and problems of the agricultural sector. Because of the negotiating history of the Uruguay Round, the provisions were agreed to in conjunction with tariffication as a package, and recourse to SSG was limited to those countries undertaking tariffication. However, in the current tariffs-only trade environment faced by all WTO members, there is now the anomaly that some (see annexes I-III) have the right to use the agricultural safeguard to deal with import surges, whereas others, including many vulnerable developing members, do not. The right to make use of the SSG provision has been reserved by 36 WTO Members, and for a limited number of products in each case. As many of the developing countries did not tariffy, offering “ceiling bindings” instead, few of them have access to this provision. Moreover, there are also issues involved in the modalities of its application.

At present there are two types of contingencies for which safeguard action is authorized: a surge in the volume of imports or a sharp fall in import prices. Corresponding quantity and price triggers are defined as well as the amount of additional duties that may be levied above the bound ceiling level.

Under the volume-based SSG, the trigger volume is derived from: i) actual imports averaged over the preceding three years; ii) the share of imports in domestic consumption over the same period; and iii) the absolute volume change in consumption over the most recent year for which data are available (see Box 1). The trigger level is higher (and the probability of using the trigger less), the greater the three-year average level of imports, the lower the share of imports in domestic consumption, and the faster the growth in domestic consumption. The maximum extra duty may not exceed 30 percent of the ordinary level of duty in effect during the year in which the SSG is invoked; it may not be levied beyond the end of the year in which it has been imposed; and it cannot be applied to imports taking place within tariff quotas.

Box 1. Special Agricultural Safeguard: Quantitative Trigger Levels In accordance with Article 5, paragraph 4, of the AoA, an additional duty may be imposed in any year where the absolute volume of imports (M) exceeds the sum of the base trigger level (x) multiplied by the average quantity of imports during the three preceding years for which data are available () and the absolute volume change in domestic consumption of the product concerned in the most recent year for which data are available compared to the preceding year (y). In algebraic terms this is expressed as: where, Mt is the trigger level of imports and x (the base trigger level) is defined according to the following schedule based on the share of imports in domestic consumption during the three preceding years (S). Thus:
	=	125 %,	if S £ 10 %
x	=	110 %,	if 10 % < S £ 30 %
	=	105 %,	if S > 30 %
For example, if the share of imports in domestic consumption during the preceding three years is 7 percent, then x will be equal to 1.25. Thus an additional duty can be imposed if current imports (M) exceed the trigger volume (Mt), i.e. The maximum extra duty shall not exceed 30 percent of the level of the ordinary customs duty in effect in the year in which the action is taken, it shall only be maintained to the end of the year in which it has been imposed and cannot be applied to imports taking place within tariff quotas.

Box 2. Special Agricultural Safeguard: Price Trigger Levels
Let:	PM = current c.i.f. import price of the shipment (expressed in domestic currency)
	PT = trigger price (average c.i.f. price for 1986-88)
	D = (PT - PM)/PT (the percentage fall in the import price below the trigger price).
In accordance with Article 5, paragraph 5, of the AoA, an additional duty, expressed in ad valorem equivalent (t), may be imposed according to the following schedule:
If:	(a) D £ 10%	then t = 0
	(b) 10% < D £ 40%	then t = 0.27 (PT/PM) - 0.3
	(c) 40% < D £ 60%	then t = 0.39 (PT/PM) - 0.5
	(d) 60% < D £ 75%	then t = 0.47 (PT/PM) - 0.7
	(e) D > 75%	then t = 0.52 (PT/PM) - 0.9
Example: Assume a trigger price of US$120 per unit and that the current c.i.f. import price is US$60. Since the import price is 50 percent of the trigger price, case (c) applies. Consequently, an additional duty equivalent to 28 percent of the c.i.f. import price could be levied, which would bring the price of the imported product to US$76.8. The additional duty can only be imposed on the shipment concerned and cannot be applied to imports taking place within tariff quotas.

Under the price-based SSG the trigger price is defined as the average c.i.f. unit value during the 1986-88 base period, expressed in domestic currency. The permitted level of the additional duty depends upon the degree to which the import price falls below this trigger level (see Box 2 and Figures 1 and 2). The greater the decline in the import price below the trigger level, the higher is the duty. However, the additional duty does not completely offset the fall in the import price.[35]

Graphical illustration of the price-based safeguard (SSG)


Figure 1: Additional duty under price-based SSG

Figure 2: Effect on import price of additional price-based SSG, assuming a trigger price of US$ 120

While resort to these provisions has not been widespread so far, the SSG is considered an important safeguard instrument in the agricultural sector in view of the automatic nature of its application. Clearly, one of the reasons for the creation of this sector-specific instrument was the recognition that the general safeguard provision of GATT 1994 did not offer the degree of assurance that countries desired in order to move into a tariff-only regime and to reduce those tariffs over time.

However, the future of the SSG provision, which was intended to remain in force for the duration of the reform process as determined in Article 20 of the AoA, is uncertain. In the context of the continuation of this reform process, some WTO members have called for its elimination, while others have suggested various options for its continuation in a modified form, including the possibility of extending it to all countries (developing and developed) and to all agricultural commodities.[36] However, the implications of such a general application of safeguards need to be carefully considered.[37]

In the consideration of how the SSG might be extended, it is important to bear in mind its original purpose, which was to allow countries to raise their applied tariffs above the bound ceilings in cases where, even if the ceiling was applied, domestic producers would face difficulties. Such difficulties are more likely to arise for commodities with relatively low bound tariffs and than for those where they are relatively high. Consequently, an extended SSG-type instrument might need to be limited in respect of both the breadth of its coverage (commodity eligibility) and its depth (extent of additional duties allowed).

Elements of such a revised Special Agricultural Safeguard (SAS) could include the following:

• The basic criterion for eligibility of a product could be that its bound tariff is below a certain threshold level Alternatively, there could be multiple thresholds, whereby the additional tariff allowed is inversely related to the threshold. For low bound tariffs a higher additional tariff could be possible and vice versa.[38]
• The added advantage of this approach is that it provides the incentive to countries to reduce their bound tariffs knowing that they could apply higher tariffs when needed, i.e. to deal with an import surge or a sudden decline in import prices;
• An additional criterion could relate to a country’s possibilities of supporting domestic producers through government transfers.[39] In order to differentiate between those countries that have other means to support farmers in years of low prices, access to the SAS could be limited to those countries where total domestic support does not exceed a certain proportion of the value of domestic production.

Both of these criteria aim at confining the application of safeguard measures to dealing with the problem they were intended to address, i.e. protect domestic producers from import surges and the threat of very low prices originating from the world market, when protection from existing border and/or domestic support measures is limited.

Annex I - WTO Members eligible to use the Special Agricultural Safeguard

Member	Year of tariff data	Percentage of agricultural tariff lines covered by SSG*
Developed countries
Australia	1988	2
Bulgaria	n.a.	n.a.
Canada	1988	10
Czech Republic	1990	13
EC (12)	1988	31
Hungary	1991	60
Iceland	1988	40
Israel	n.a.	n.a.
Japan	1988	12
New Zealand	1991	n.a.
Norway	1988	49
Poland	1989	66
Romania	1991	7
Slovak Republic	1990	13
Switzerland-Liechtenstein	1988	59
United States	1989	9
Developing countries
Barbados	n.a.	n.a.
Botswana**	n.a.	n.a.
Colombia	1991	27
Costa Rica***	1988	13
Ecuador	n.a.	n.a.
El Salvador***	1989	10
Guatemala	n.a.	n.a.
Indonesia	1989	1
Korea, Rep. of	1988	8
Malaysia	1988	5
Mexico	1988	29
Morocco	n.a.	n.a.
Namibia**	1988	39
Nicaragua	n.a.	n.a.
Panama	n.a.	n.a.
Philippines	1991	13
South Africa**	1988	39
Swaziland**	1988	39
Thailand	1988	11
Tunisia	1989	4
Venezuela	1990	31

* Number of agricultural tariff lines covered by the SSG as a proportion of the number of all agricultural tariff lines.

** Member of the Southern African Customs Union (SACU).

*** Customs Cooperation Council Nomenclature (CCCN).

n.a. = not available.

Source: WTO document G/AG/NG/S/9, 6 June 2000, Table 1.

Annex II - Potential Application of the Special Agricultural Safeguard - Number of tariff items and product groups involved

WTO Member	Number of tariff items	Number of product groups (HS 4-digit headings)
Developed countries
Australia	10	2
Bulgaria	21	9
Canada	150	37
Czech Republic	236	29
Ecuador	7	1
EC (15)	539	72
Hungary	117	117
Iceland	462	121
Israel	41	14
Japan	121	27
New Zealand	4	2
Norway	581	141
Poland	144	133
Romania	175	14
Slovak Republic	114	28
Switzerland-Liechtenstein	961	134
United States	189	26
Sub-total	4 149	1 016
Developing countries
Barbados	37	24
Botswana	161	71
Colombia	56	55
Costa Rica	87	24
El Salvador	84	23
Guatemala	107	35
Indonesia	13	4
Korea, Rep. of	111	34
Malaysia	72	12
Mexico	293	83
Morocco	374	46
Namibia	166	75
Nicaragua	21	14
Panama	6	2
Philippines	118	36
South Africa	166	75
Swaziland	166	75
Thailand	52	23
Tunisia	32	13
Uruguay	2	1
Venezuela	76	63
Sub-total	1 923	679
Total	6 072	1 695

Note: Since Schedules differ in the level of tariff disaggregation, figures in the first column of this table cannot be readily compared among Members. In many cases the right to recourse to the SSG is limited to only part of the HS (Harmonized System) 4-digit heading concerned.

Source: WTO document G/AG/NG/S/9, 6 June 2000, Table 2.

Annex III - Potential application of the Special Agricultural Safeguard - Number of tariff items involved in each product category

WTO member	Product category *
	CE	OI	SG	DA	ME	EG	BV	FV	TO	FI	CO	OA	ALL
Developed countries
Australia	-	-	-	5	-	-	-	-	5	-	-	-	10
Bulgaria	-	-	-	8	4	-	1	-	7	-	1	-	21
Canada	51	2	-	34	43	6	1	-	-	-	7	6	150
Czech Rep.	10	20	7	35	95	-	57	6	-	-	3	3	236
EC (15)	76	11	28	110	192	8	12	45	-	-	4	53	539
Hungary	15	6	3	6	18	2	9	37	3	-	13	5	117
Iceland	63	92	37	24	92	5	2	79	-	-	19	49	462
Israel	1	1	-	1	31	-	1	5	-	-	-	1	41
Japan	41	2	-	29	32	-	0	6	-	2	8	1	121
New Zealand	-	-	-	-	-	-	0	2	-	-	-	2	4
Norway	81	93	22	24	84	6	8	168	-	-	34	61	581
Poland	15	13	4	6	19	2	10	38	3	3	9	22	144
Romania	9	-	-	48	62	-	51	1	1	-	3	-	175
Slovak Rep.	10	8	2	7	70	-	7	6	-	-	1	3	114
Switzerland/
Liechtenstein	263	138	25	48	94	5	35	219	-	-	49	85	961
United States	15	3	16	73	12	-	1	3	-	6	58	2	189
Sub-total	732	409	148	464	891	31	214	656	22	11	168	94	4 142
Developing countries
Barbados	1	1**	1	2	5	1	5	21	-	-	-	-	37
Botswana	37	16	4	6	37	2	19	29	3	-	-	4	161
Colombia	10	24	3	5	6	-	1	1	-	1	-	5	56
Costa Rica	7	3	4	26	32	7	-	1	6	-	1	-	87
Ecuador	-	-	-	7	-	-	-	-	-	-	-	-	7
El Salvador	6	27	15	15	12	-	-	-	9	-	-	-	84
Guatemala	16	16	4	21	22	2	7	10	9	-	-	-	107
Indonesia	-	-	-	12	-	-	-	-	-	-	1	-	13
Korea, Rep of	42	2	-	-	6	1	-	12	-	-	2	46	111
Malaysia	1	-	10	4	38	12	-	1	5	-	1	-	72
Mexico	44	32	24	37	54	9	44	11	10	-	26	2	293
Morocco	98	98	56	77	45	-	-	-	-	-	-	-	374
Namibia	40	18	4	6	37	2	19	29	3	-	4	4	166
Nicaragua	7	3	1	3	6	-	-	1	-	-	-	-	21
Panama	-	-	-	6	-	-	-	-	-	-	-	-	6
Philippines	14	-	2	-	86	-	-	7	-	-	7	2	118
South Africa	40	18	4	6	37	2	19	29	3	-	4	4	166
Swaziland	40	18	4	6	37	2	19	29	3	-	4	4	166
Thailand	4	12	4	4	-	-	1	9	3	1	13	1	52
Tunisia	2	-	4	8	14	-	-	4	-	-	-	-	32
Uruguay	2	-	-	-	-	-	-	-	-	-	-	-	2
Venezuela	26	29	3	6	5	-	-	-	-	-	1	6	76
Sub-total	355	296	143	251	356	37	115	153	51	2	58	28	1 930
All Members	1 087	706	291	715	1 327	74	329	809	73	13	277	371	6 072

* For the definition of the product categories and the codes used, see the appendix to this annex.

** Whole of Chapter 15.

Source: WTO document G/AG/NG/S/9, 6 June 2000, Table 3.

Appendix to Annex III - Definition of product categories

Code Product category		Harmonized System nomenclature
CE	Cereals	1001-08, 1101-04, 1107-09, 1901-05,
OI	Oil seeds, fats and oils and products	1201-08, Ch.15 (except 1504), 2304-06
SG	Sugar and confectionery	1701-04
DA	Dairy products	0401-06
ME	Animals and products thereof	0101-06, 0201-10,1601-02
EG	Eggs	0407-08
BV	Beverages and spirits	2009, 2201-08
FV	Fruit and vegetables	0701-14, 0801-14, 1105-06, 2001-08
TO	Tobacco	2401-03
FI	Agricultural fibres	5001-03, 5101-03, 5201-03, 5301-02
CO	Coffee, tea, mate, cocoa and preparations; Spices and other food preparations	0409-10, 0901-10, 1801, 1803-06, 2101-06, 2209
OA	Other agricultural products	Ch.05 (except 0509), 0601-04, 1209-10, 1211-14, 1301-02, 1401-04, 1802, 2301 (except 2301.20), 2302-03, 2307-09, 2905.43-44, 3301, 3501-05, 3809.10, 3823.60, 4101-03, 4301,

Comments by Mr Dale E. Hathaway

Director
National Center for Food and Agricultural Policy
Washington, D.C.

Rationale is compelling - If you expect to negotiate deep cuts in agricultural tariffs countries must have some way of protecting exposed agricultural industries to import surges or to disastrously low import prices that could permanently damage or eliminate a viable competitive sector. This is a special problem for developing countries that lack fiscal resources to compensate producers.

Dangers - There is a tendency to devise policy measures that are as bad as the problems they cure. TRQs are a prime example. Therefore, one should make certain that the system devised does not end up as a new protectionist device.

Some political realities- Developed countries will not give up their SSGs unless they have access to the newly-devised safeguard for agriculture. Therefore the latter needs to be considered for all products in all countries, with special rules for developing countries regarding some aspect of their use.

Some general principles - Keep the agricultural safeguard simple and easy to use, but set up criteria to limit its use to situations of import surges or very low import prices and to products that have bound tariffs below a specified level. Develop a phase-down period, so that protection gradually returns to the original level. This period could be longer for developing countries. Triggers should be defined and known in advance.