Discussion Paper No. 69 of 2007 on Effectiveness of Triggers and Remedy for Special Safeguard Mechanism: A Case for Kenya's Agricultural Sector

Abstract

This paper provides an analysis of the effectiveness of the proposed reference price and volume triggers in the on going WTO negotiations on “Special Safeguard Mechanism” (SSM). The SSM is to be used by developing countries as per paragraph 1 (b1) of Article II of GATT 1994 or Article 4 of the Hong Kong Declaration. The paper provides evidence of import surges and production short falls in selected agricultural products in Kenya (wheat, rice, milk and sugar) in the period 1995 to 2005 and analyses the effectiveness of the proposed import volume and Cost, Insurance, Freight (CIF) price moving averages (MVA) as reference for invoking an SSM in case of serious injury to the domestic industry. The paper notes that the 3-year MVA for CIF import prices and import volume trigger references will not be able to trigger all cases of increased import volumes and depressed prices. While the 3- year MVA can trigger many cases of import surges, the 5-year MVA is very important when there are persistent depressions in prices, even when the 3-year MVA is unable to trigger. The size of the level of thresholds or de minimis is important as the triggers may be ineffective in cases of small deviations of current import prices and import volume trends from the reference moving averages. The 5-year moving average tends to rise above the 3-year moving average when prices are falling and can therefore provide a higher trigger. A 5-year moving average is more effective in safeguarding low prices when world market prices are persistently depressed. Some deviations from moving averages are quite small from the proposed de minimis, but may cause great impact to domestic production. In some products, there are cases where increase in imports does not depress domestic prices or domestic production. This implies that other factors also play a role in increase in imports. The paper recommends that Kenya should negotiate to have flexibility of using both the 3 and 5 year moving averages and apply both the price and volume triggers as it may deem appropriate.