ictsd - implications of the proposed mod ali ties for the special safeguard mechanism (ssm)

8/9/2019 ICTSD - Implications of the Proposed Mod Ali Ties for the Special Safeguard Mechanism (SSM)

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ICTSD Programme onAgricultural Trade andSustainable Development

promoting food security, equity and environmentalsustainability in agricultural trade

1


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IMPLICATIONS OF THEPROPOSED MODALITIES FOR THE

SPECIAL SAFEGUARD MECHANISM (SSM)

(Based on TN/AG/W/4/Rev.4 andTN/AG/W/7 Issued in December 2008)


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Background

Rev 4 issued on 8 December 2008 as mostrecent negotiating text on agricultural traderules, including SSM

SSM text copied en toto from Rev 3

Paragraph 142 of Rev 4 provided that SSMremedies plus current bound tariffs could notexceed Doha starting bound rates

Bracketed Paragraphs 144-145 allowed forover 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


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Objectives of the Study

Assess the impact of proposedmodalities and parametersettings indicated in Rev 4 andW7 on the SSM

Determine areas or modes ofcompromise that could lead to amutually acceptable agreementon SSM provisions


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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 whichimport price (CIF+MFN tariffs) falls belowdomestic wholesale price by more than 10%

Effectiveness measured as frequency (in %

of problematic months) by which SSM isinvokable and is able to bring import prices(CIF+MFN tariff+SSM duty) to within 10% ofdomestic wholesale prices


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0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2000 A J O

2001 A J O

2002 A J O

2003 A J O

2004 A J O

YEAR/MONTH

METRIC

TON

0

10

20

30

40

50

60

70

80

90

2000 J

2001 J

2002 J

2003 J

2004 J

YEAR/MONTH

PricePerKil

Rates

Frequency Plot of Price SSM Access Rates


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Frequency Plot of SSM Effectiveness Rates

0

20

40

60

80

100

120

2000 J

2001 J

2002 J

2003 J

2004 J

YEAR/MONTH

PricePerK

ilo


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Scope and Limitations ofStudy

27 agricultural products fromPhilippines, Indonesia, Ecuador,China (RAM), Fiji (SVE), and

Senegal (LDC) Data mostly for 2000 to 2005 (2002

to 2007 for Philippines)

Monthly import data used asproxies for individual shipments

Results should be treated as

indicative, not conclusive


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VOLUME SSM


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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-monthperiod (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 tradeaccess notwithstanding SSM application


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VOLUME SSM:

Remedies and Remedy Caps


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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


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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 holidayand spillover constraints

Products classified as SPs with 111%tariff reduction

No cross-checks

All imports taken into account


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Bas eline R ev 4 Rev 4 Ca ps W7 Caps

COU N- Acces s E ffec tiveness Rate Ac ce ss Effe ct ivenes sAccess E ffec tivene sT RY Ra te Prob l A va il Effe ct R ate Av ai l E ffec t Ra te Ava il Effe ct

C hina 1 4% 47 % 21 % 21 % 10% 1 0% 0% 6 % 11 % 11 %

E cuador 3 7% 21 % 33 % 21 % 37% 3 3% 2% 1 9% 19 % 8 %

Fiji 3 3% 68 % 28 % 14 % 33% 2 8% 2% 1 6% 12 % 3 %

Indone 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 enega l 4 3% 65 % 46 % 35 % 43% 4 6% 3 5% 2 4% 26 % 20 %

Tota l 3 3% 49 % 34 % 21 % 32% 3 2% 8% 1 6% 17 % 9 %

Baseline Volume SSM Access

and Effectiveness Ratesunder Rev 4 and W7


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BASELINE SETTINGS-W7

Carryover of previous year trigger

Para 133 remedy matrix applied

W7 caps on allowable SSM duties

4month imposition period, no holidayand spillover constraints

Products classified as SPs with 111%tariff reduction

No cross-checks

All imports taken into account


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Sample Pro-Rating Simulation(Annual Pro-Rating)


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Sample Pro-Rating Simulation(36-Month Proxy)


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Volume SSM Access RatesUnder Various Trigger

Modalities

15.9% 16.2%

14.4%15.2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Baseline No Carryover Pro-rating (annual

proxy)

Pro-rating(36-

month proxy)


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Volume SSM Access RatesUnder Various Cross-Check

Modalities

16% 16% 16%

1%0%

5%

4%

7%

4%3%

6%

7%

0%

2%

4%

6%

8%

10%

12%14%

16%

18%

20%

0% (Threshold) 10% 20%

Baseline (No Cross-Check)Domestic Price (YTD vs. 3-Yr Average)Import Price (YTD vs. 3-Year Average)Import Price (YTD vs. Same Period Last Year)


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Volume SSM Access Rates UnderVarious Imposition and Holiday

Periods

16%

19%

21%

29%

11%

15%

20%

16%

0%

5%

10%

15%

20%

25%

30%

x=4 x=6 x=8 x=12

Imposition/Holiday/Spill-Over Period (Months)

X/0/12 X/X/12

Volume SSM Access Rates


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Volume SSM Access RatesUnder

Various Imposition, Holidayand Spillover Periods

16%

19%

21%

29%

15%16%

16%16%

12%12%13%

11%

0%

5%

10%

15%

20%

25%

30%

x=4 X=6 X=8 X=12

Imposition/Holiday/Spill-Over Period (Months)

X/0/12

X/0/2

X/X/2

V l SSM A d


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Volume SSM Access andEffectiveness Rates under

Various Remedy Cap ThresholdSettings17%

16%

14%

12%

16%15%

13%12%

10%9%

7%

6%

9%8%

7%

6%

0%

2%

4%6%

8%

10%

12%

14%

16%

18%

20%

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

Remedy Cap Thresholds (% Of Trigger)

Access

Effectiveness

Volume SSM Effectiveness


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Volume SSM EffectivenessRates Under Various

Percentage Point Remedy CapSettings

7.5%

8.9%

9.9%

10.7%11.1%

11.4% 11.5%

0%

2%

4%

6%

8%

10%

12%

4/6 8/12 12/18 16/24 20/30 24/36 40/50

Percentage Point Remedy Cap Per Tier

Volume SSM Effectiveness


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Volume SSM EffectivenessRates Under Various Percent

of Bound Tariff Remedy CapSettings

5.3%5.7%

6.6%

7.7%

10.0%10.4%

0%

2%

4%

6%

8%

10%

12%

25/33 33/50

(Baseline)

50/75 75/100 200/200 250/250

Percent of Bound Tariff Remedy Cap per Tier


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MAXIMUM REMEDIES FOR

VARIOUS BOUND TARIFFS


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SUMMARY OF MAJOR FINDINGS

Rev 4 remedy caps effectively rendervolume SSM inutile (except for LDCs)

W7 above the bound caps producebetter, but still low, effectiveness rates

Pro-rating does not significantly affectaccess rates

Cross-checks more than halve accessrates; using domestic price

comparisons particularly deleterious


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Strong correlation between accessrates and imposition periods

Holiday period significantly reducesaccess rates

Spillover limit evens out access rates

SSM conspicuously affected byremedy cap threshold settings

Remedy caps in percentage pointsyield better results than caps inpercent of bound tariffs


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PRICE SSM


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PRICE SSM

Cross-Check Volume of imports must be

manifestly declining in the

current year Imposition Period

Shipment-by-shipment


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WHY PRICE SSM?

Price SSM an integral part of Dohamandate

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

B li A d


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Baseline Access andEffectiveness Rates for Price

SSMBaseline Rev 4 Rev 4 CapsCOUN- 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%

P i SSM A R


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Price SSM Access Ratesunder Various Trigger

Threshold Settings30.1%

21.5%

18.1%

15.5%

13.0%

0%

5%

10%

15%

20%

25%

30%

35%

100% 90% 85% (Base) 80% 75%

Trigger Thresholds (as % of 36-Month Price Average)

r ce ec veness


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r ce ec venessRates under Various RemedyLevel and Trigger Threshold

Settings

6.4% 6.1% 6.0%5.3%

11.8%11.1%

10.0%9.5%

0%

2%

4%

6%

8%

10%

12%

14%

100% 90% 85% 80%

Remedy Levels (as % of Difference Between CIF Price and Price Trigger)

85% Trigger Threshold 100% Threshold


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Price SSM Access RatesUsing Cross-Check Modalities

18.1%

12.1%

10.4%

9.0%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Base 0% 10% 20%

Cross-Check Thresholds (YTD Volume X% More Than YTD Volume in Previous Year))

r ce ec veness


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r ce ec venessunder Various Percentage

PointRemedy Cap Settings

1.5%

2.9%

4.7%5.4%

5.7% 5.8% 5.8% 5.8%

0%

1%

2%

3%

4%

5%

6%

7%

8%

No Breach 4/6 8/12 12/18 16/24 20/30 24/36 40/50

Remedy Caps per Tier in Percentage Points

r ce ec veness


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r ce ec venessRates Under Various Percentof Bound Rates Remedy Cap

Settings

1.5%

2.6%

3.2%

4.0%

4.5%

5.5%

5.6%

0%

1%

2%

3%

4%

5%

6%

7%

8%

No Breach 25/33 33/50 50/75 75/100 200/200 250/250

Remedy Caps per Tier as a Percent of Bound Tariffs


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Rev 4 caps also effectivelyrender price SSM worthless

Trigger thresholds more crucial

than remedy settings indetermining SSM effectiveness

Cross-checks significantlyreduce access to price SSM

Remedy caps in percentagepoints more useful in enhancingprice SSM effectiveness


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COMBINED VOLUME

AND PRICE SSM


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RECOMMENDATIONS

Pro-rating may be win-win: nomajor loss in access to SSMwhile exporters retain normal

trade access and growth SSM shows limited

effectiveness; hence, imports

could continue despite SSMapplication


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RECOMMENDATIONS Hence, unduly restrictive provisions may

not be necessary Impose simple cross-checks only for re-

imposition of volume SSM; cross-checks forprice SSM not necessary

Shorten imposition period for volume SSM butallow for re-imposition based on simpleconditions (i.e., if surge aggravates)

Apply holiday period only if imposition spillsover to next year

Adjust Rev 4 remedies instead of imposing anadditional layer of remedy caps under W7

Adjust price trigger thresholds and remedycaps

Increase percentage point remedies providedthey do not exceed x% of bound tariffs


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RECOMMENDATIONS

Clarify en route shipmentrules for price SSM

Include all imports (MFN and

non-MFN) in SSM application Consider special flexibilities for

SVEs

ictsd - implications of the proposed mod ali ties for the special safeguard mechanism (ssm)

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