Research Reports
Analysis of the Current Issues in Special Safeguard Mechanism
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AuthorKim, Taehun
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Publication Date2010.03.01
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Original
The purpose of this study is to analyze the recent discussions regarding the 4th revised modality draft for the Special Safeguard Mechanism (SSM) on trade in the DDA. Empirical data was used to examine several outstanding issues in the SSM negotiations. The analysis results are as follows.
First, since the SSM is not yet operational, the concerns for its frequent use can only be assessed by examining the similar instrument SSG (Special Safeguard). If the import volume during SSG-invoked months is compared with that of non-SSG months in Korea, Japan, and the U.S. under the Uruguay Round, the import volume during SSG-invoked months did not show any decisive evidence of a decline. In this context, the exporting countries' argument that the invocation of the SSM would inhibit trade growth is unfounded. It would be unreasonable to analyze the impact of the SSM on the assumption that import would be zero if the SSM is invoked.
Secondly, pro-rating has been analyzed. The simulation result indicates that introduction of pro-rating in calculating the 3-year rolling average of import volume increases trigger levels by a significant amount, thus limiting the chance of invocating the SSM. If import volume is assumed to be zero under an invoked SSM, the effect of pro-rating would be significant. But if import volume is assumed to decline by 25% under the SSM, then the effect of pro-rating becomes smaller.
Thirdly, the existence of seasonality for agricultural products was analyzed using monthly data of U.S., Brazil and Australia. The results show that seasonality might exist in production and export of some commodities in some countries, but it is very different country by country and product by product. From the importing countries' point of view, import volume might not change during a given year. Thus, seasonality is not a pattern that is prevalent in all products and thus should not be accepted in the modalities for the SSM.
Fourth, the application of cross check would restrict the chance of the SSM being invoked and thus severely undermine the purpose of introducing the SSM in the DDA. There may be considerable time lags between import surges and its impact on domestic markets. Also establishing domestic prices for each tariff line will be very difficult, thus making the SSM unworkable for many developing countries if cross check becomes a mandatory condition.
Lastly, regarding the duration and/or spill-over of remedies, it is found that the longer the period, the stronger the impact on import on average. However, it did not show a consistent sign. The reason might be explained by the trade-offs between duration/spill-over and x-month on/off.
Researchers: Tae-Hoon Kim, JooHo Song, Dae-Hee Chung
Research period: Jan 2010 ~ March 2010
E-mail address: taehun@krei.re.kr, jhsong@krei.re.kr, dhchung@krei.re.kr
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