Modalities for an SSM:product eligibility and

alternative triggers

Informal ICTSD Dialogue on Special Products and SSM25 November 2005Geneva

Jamie Morrison and Ramesh Sharma

Food and Agriculture Organisation

Why is an SSM needed? Vulnerability to external shocks

– Climatic; subsidized production/exports; anti-competitive trading behaviour

– Particular concern to countries developing/diversifying their agriculture sectors

Phenomena against which trying to protect– Volume surges– Price depression

FAO studies show increasing incidence of surges in imports since mid 1990s, with negative impacts on local production

– Frequent for meats and vegetable oils

Concern that this will intensify as tariffs are reduced further

Features of the SSG Assumption that current SSG will influence design of SSM

Experience with use of the SSG– Of 22 eligible developing countries, only 6 users

– Ratio of actual to potential use only about 1%

– Why has use been limited? Complex formula? High tariff bindings? - internal and external constraints Cost of application > benefit?

Widespread application/misuse unlikely

Building blocks of an SSM

Country eligibility

Product eligibility

Triggers

Remedy

Duration

Product eligibility

Criteria for eligibility are difficult to define & operationalize

Development related criteria Relation to depth of tariff cuts or level of bound tariff

Instrument to offset price/income risk Limited alternatives

Should not be limited to selected product groups Should not be limited to products produced in-country

– issue of substitutes and “like products”

But should there be a limit on number of products for which SSM can be triggered simultaneously?– Enforceability?

Price Trigger SSM should be effective in responding to

sharp, short term price depressions

Key parameter = Reference price

Alternative reference prices – Fixed reference price– Moving average– Others...

Criteria– Simplicity– Effectiveness

Fixed reference price

Simplicity Known in advance No need to update/ less difficult to compute

– Key attribute if extending to all products

Effectiveness But no information on price trends

– can inappropriately trigger if base is period of high prices

Choice of base year is critical

Simulated number of SSG price triggers for various base periods for reference prices

8378

60

27

17 2025

42

0

10

20

30

40

50

60

70

80

90

1995-97 1996-98 1997-99 1998-00 1999-01 2000-02 2001-03 2002-04

Fixed, three-year base periods for SSG reference price

# of triggers

The total number of potential triggers is 160 (16 products covered times 10 years, 1995 to 2004).

Moving average

Simplicity Data requirements Choice of period

Effectiveness Better reflection of recent trends When price is rising, reference price remains below - desirable But can get inconsistent outcomes due to nature of fluctuations

of prices The shorter the “memory”, the more sensitive to sharp drops,

but not where prolonged period of depressed prices MA-3 misses about 20% of cases of depressed prices MA-5 triggers in these cases

Example: Raw sugar

MA-3 doesn’t trigger in 2001 or 2003 because 1999 and 2000 already depressed

Sugar, raw

200

300

400

500

600

1983 85 87 89 91 93 95 97 99 2001 2003

Fixed vs MA 3 vs MA5

Total number of triggers Percent of triggers (%) - reference price - - reference price -

1986-88 1986-88Products average MA-3 MA-5 average MA-3 MA-5

Buckwheat 3 8 7 14 38 33Wheat flour 0 5 8 0 24 38Sugar, raw 13 7 9 62 33 43Sugar, refined 1 6 10 5 29 48Groundnuts in shell 5 4 7 24 19 33Groundnuts shelled 0 5 7 0 24 33Rice, milled 2 8 9 10 38 43Rice, husked 1 6 8 5 29 38Rice, paddy 7 11 10 33 52 48Wheat 1 8 8 5 38 38

All products 33 68 83 16 32 40

21 years, 10 products, 10% “de minimis”

Volume triggerSSG Formula

MT = (Mavg * x) + ∆C

Bias against countries with lower level of openness

Scaling factor greater for less open economies Imported food less than 10% total consumption in

countries with 15% undernourished compared to 25% of total in countries with better nourished populations

Bias against countries where consumption is rising or consumption data is not available (increased scaling factor)

Sensitivity to e.g. drought

Nicaragua - SSG formula

100150200250300350

1994 1996 1998 2000 2002

Prod, cons 000

tonnes

20406080100120140

Import 000 tonnes

Production Consumption Imports

N ic a ra g ua - M A -3 fo rm u la

10 015 020 025 030 035 0

19 9 4 19 96 1 99 8 2 00 0 2 00 2

Prod, cons 000

tonnes

2040608010 012 014 0

Import 000 tonnes

P rod uc tio n D om u s e Im po r ts

Volume trigger

SSG and G33 both have MA component– Similar issues to price trigger relating to “memory”

E.g. effect of drought 2 years in past can prevent trigger now Don’t always trigger when there is a clear surge

– G33 triggers more than SSG (latter includes consumption)– 4 countries for 10 yrs: SSG 13% of cases; MA-3 43%

G33 removes biases against lower income countries

Is it possible to simplify further?– “actual import need” based on production data (Early

Warning) and consumption trend?