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What should a Doha Round SSM look like? Discussion on SSM triggers and remedy Ramesh Sharma

What should a Doha Round SSM look like? Discussion on SSM triggers and remedy Ramesh Sharma Trade and Markets Division FAO, Rome ICTSD/World bank Institute seminar on Breaking the Deadlock on the Special Safeguard Mechanism Geneva, 1 December 2008. Inputs to discussion.

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What should a Doha Round SSM look like? Discussion on SSM triggers and remedy Ramesh Sharma

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  1. What should a Doha Round SSM look like? Discussion on SSM triggers and remedy Ramesh Sharma Trade and Markets Division FAO, Rome ICTSD/World bank Institute seminar on Breaking the Deadlock on the Special Safeguard Mechanism Geneva, 1 December 2008

  2. Inputs to discussion • Some numbers behind the proposals and positions • Mostly, on volume-based SSM triggers and remedy, in view of the intense discussions on this subject • Very briefly, price-based SSM trigger and remedy

  3. Volume-based SSM • Trigger – main issue – what would be the appropriate level of threshold for the SSM trigger? • Analysis is based on frequency of triggers (counting number of triggers for various thresholds using historical import data) • A total of 131 cases (countries/commodities) • Implicit assumption – historical import trends are good guides for future trends

  4. Data used - 131 cases (9 products and 23 countries, import trends for 1992-2004 period, FAOSTAT)

  5. Pattern 1- flat import trend with 1-2 surges (i.e. 10-20% of the time)(MA-3 with 10% threshold)Tanzania, soy oil imports (2 triggers)

  6. Pattern 2- some trend, with larger fluctuations3-4 surges (i.e. 30-40% of the time)(MA-3 with 10% threshold)Philippines, beef and veal imports (4 triggers)

  7. Pattern 3- steady and strong positive import trend 7-9 surges (i.e. 70-90% of the time)(MA-3 with 10% threshold)Honduras, rice imports (9 triggers)

  8. Import surge: how a threshold determines the number of times a SSM is triggered (shown as % of times)

  9. How assumption about “holiday” changes the number of triggers for various levels of thresholds(numbers in table are % times a SSM is triggered)

  10. Quantifying remedy levels for volume-based SSM • Very difficult problem to solve ..... • But there is a way to get some rough guidance

  11. How much extra (SSM) tariff is required to contain a given level of surge?This depends on import demand elasticity for a product in question

  12. The corresponding formula .... ∆t/t0 = - [(1+t0)/t0)]*[1/ ηm] * ∆M/M0 Relationship between % change in tariff (∆t/t0) and intensity of a surge (∆M/M0) is not one-to-one, but is determined by: • current applied tariff (t0); and • import demand elasticity (ηm).

  13. Remedy .. very difficult problem to solve ... • Depends on import elasticity, which is product and country-specific (there are 90 or so products in 90 or so developing countries) • Depends on initial applied tariff – could range from 0% to say 80% • Also size of surge matters – therefore, desirable to have tiers – say, two tiers, if not three, for different levels of surge (e.g. 10-30% surge, and above 30% surge)

  14. Yet, some guidelines for remedy level and caps from model simulations • The first option for SSM duty “x% of bound rate” is useful only for high bound rates (=>80%) • With import elasticity in the range of 1-2, • 15percentage points of extra tariff (on current bound rates) mostly covers a surge of 20% (table) • 30percentage points of extra tariff (on current bound rates) mostly covers a surge of 40% (table) • As these extras are needed, these are also the caps (i.e. max = current bound + extra) • Results fairly close to proposals in July 10 text

  15. 15percentage points of extra tariff (on current bound rates) mostly cover the needs for a surge of about 20%Numbers on right are 15% points+ bound rates)

  16. 30percentage points of extra tariff (on current bound rates) mostly cover the needs for a surge of about 40%Numbers on right are 30% points+ bound rates)

  17. Price-based SSM Threshold and triggers

  18. Price-based SSM - Counting number of triggers using world market prices and MA-3 (analysis for 19 years, 1986-2004, for 10 products – poultry, beef, dairy SMP, dairy WMP, sugar raw, sugar refined, palm oil, soya oil, rice and wheat) Example – refined sugar, MA-3 and 10% threshold

  19. Price SSM: how a threshold determines the number of times a SSM is triggered(shown as % of times, MA-3 reference) (e.g. 10% threshold triggers SSM 29% of the time)

  20. Finally ........ real “holiday” - in Kathmandu

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