By Parthapratim Pal

Special Products (SP) and Special Safeguard Mechanisms (SSM) are key concerns of developing nations involved in WTO negotiations. By using SP and SSM, these nations hope to ensure food security and protect small farmers and the rest of the poor from the vagaries and pressures of international trade in agriculture commodities. However, as we will see below, negotiations in the areas of SP and SSM are mired in complexities. How SP and SSM will be implemented remains a grey area.

What are Special Products (SPs)?

Special Products (SPs) are agricultural products of particular importance to farming communities in developing countries for reasons of food security, livelihood security and rural development.

It was decided at the Doha Development Round of WTO negotiations that SPs would attract lower levels of tariff reduction commitment than other agricultural products. The rationale is that higher levels of protection on SP will allow developing countries to sustain and develop domestic production of these products, thereby allowing them to protect and enhance livelihoods and food security in their domestic agriculture.

SP is a component of the WTO’s Special and Differential (S&D) provision and is available only to developing country members of the WTO.

Why is the SP category needed?

While agriculture accounts for 2% of GDP, and less than 4% of employment in developed countries, its share in the GDP of low-income countries is as high as 24%. Agriculture provides over 60% of total employment in South Asia and sub-Saharan Africa. Agriculture thus plays an extremely important role in developing countries, in providing livelihood and rural development.
In most developing countries, agriculture is dominated by small and marginal farmers who are engaged in subsistence farming. Agriculture plays a major role in providing food security for the bottom rung of the population. Developing countries consider domestic self-sufficiency in foodgrain as an important element of food security. For all these reasons, sustained growth in agriculture is considered essential for ensuring food security and alleviating poverty.

During the Uruguay Round it was expected that the WTO Agreement on Agriculture (AoA) would bring about a structural change in global agricultural trade, and that more efficient agricultural producers would benefit from the WTO agreement. As many developing countries are low-cost producers of agricultural goods, it was expected that these countries would significantly benefit from a more open and less distorted global agricultural trade regime.

However, actual experience shows that though the AoA has succeeded in reducing the widespread use of quantitative restrictions in agricultural trade, agriculture remains a distorted sector. Some large developed countries have managed to bypass the WTO rules regarding subsidy reduction. Using loopholes in the agreement, these countries have retained the overall level of subsidy given to their farm sectors. Countries have also devised ways to comply with the rules of the AoA and still maintain a fairly high level of import restrictions. As a result, developing countries’ gains from agricultural trade liberalisation have been less than expected.

On the flip side, opening up of the agriculture sector to international trade has made farming communities in developing countries more vulnerable. They now face the problem of protecting their domestic markets from cheap and subsidised exports from developed countries.

Farm subsidies artificially depress international prices of agricultural goods and consequently lower the incomes of farmers in developing countries. Subsidised and artificially cheap exports from developed countries can also displace domestic production in developing countries and hence have a negative impact on the farming community in these countries. For example, commodities like wheat, coarse grains, sugar, dairy products and cotton attract high levels of subsidies in developed countries. These commodities are of great significance for livelihoods and food security in developing countries. Exposing farmers to unfair competition in these sub-sectors could threaten the livelihoods of millions of farmers in developing countries.

Given the importance of agriculture in developing countries and prevalent distortions in international farm trade, many developing countries feel that commodities, which have implications for food security, livelihood security and rural development, should be treated differently from other agricultural products. Consequently, a number of WTO member countries have suggested that:

• Developing countries should be allowed to give priority to non-trade concerns like food security and livelihood issues over trade liberalisation.

• As exposing farmers to artificially cheap exports from developed countries could have disastrous consequences for domestic agriculture, developing countries should be allowed to maintain an appropriate level of tariff protection for some agricultural commodities, including some staple foods.

How did the SP concept evolve?

Prior to the Doha Ministerial Meet, developing country members floated different ideas to tackle non-trade concerns like food security and rural development. For example, India proposed a ‘Food Security Box’, while a group of developing countries introduced a similar concept of ‘Development Box’. The basic idea was that measures taken by developing countries for poverty-alleviation, rural development, rural employment and diversification of agriculture should be viewed as essential developmental activities and these measures should be exempted from any WTO disciplines. In other words, these measures should not attract reduction commitments.

Although these concepts were not adopted in subsequent negotiations, they were precursors of the idea of ‘Special Products’.

The Doha Ministerial Declaration recognised the non-trade concerns of developing countries and explicitly mentioned that the Doha Development Round of trade talks would include concessions that will “enable developing countries to effectively take account of their development needs, including food security and rural development”.

To tackle the non-trade concerns of developing countries, the concept of ‘Special Products’ was first introduced by Stuart Harbinson, Chair of the WTO Committee on Agriculture, in February 2003. These products were first called ‘Strategic Products’; they were named ‘Special Products’ in a subsequent revision.
Harbinson proposed offering flexibility to developing countries to declare a certain number of products as Special Products. He proposed the creation of a separate category of products for developing countries that have strategic importance for food security, rural development and/or livelihood security. He proposed that for this category of products, developing countries would be allowed to undertake lower levels of tariff reduction commitments.

The July Framework endorses the concept of Special Products:

“Developing country members will have the flexibility to designate an appropriate number of products as Special Products, based on criteria of food security, livelihood security and rural development needs. These products will be eligible for more flexible treatment. The criteria and treatment of these products will be further specified during the negotiation phase and will recognise the fundamental importance of Special Products to developing countries.”

Since the introduction of the concept of SP, discussions are going on about their selection and treatment.
Essentially, the discussion centres on two issues:

• The number of products (or percent of products based on HS lines) to be given SP status.

• The modalities to select SPs.

So far there has been no agreement on coverage, but country positions on the issue indicate that developing countries will be allowed to assign around 10-15% of their HS lines as Special Products. However, to reiterate, there has been no formal agreement on this till date.

On the selection of SPs, there are two views. According to one group there should be international indicators for selecting SPs, and these indicators should ensure that products given SP status should meet the criteria of food security, livelihood security and rural development. The alternative view suggests that member countries be given the flexibility to choose SPs based on the three criteria suggested in the Harbinson text and the July Framework.

At the recently concluded Hong Kong Ministerial in December 2006, progress was made in the area of Special Products. In the Hong Kong Ministerial Declaration, developing countries have been allowed to “self-designate an appropriate number of tariff lines as Special Products”. This implies that SPs will be chosen by developing countries themselves based on the criteria of food security, livelihood security and rural development. The ‘self-designation’ of SPs will allow developing countries enough options to identify and protect some of their important and potentially vulnerable crops.

How SPs will help developing countries

Developing countries will have to undertake lower levels of tariff reduction commitments on Special Products. In the agricultural market access negotiations of the current Round, the negotiators have agreed that unlike the formula tariff cut approach of the Uruguay Round, in this Round tariff cuts will be on a line-by-line basis. To achieve progressive tariff cuts, it has been proposed that there will be four bands for tariff cuts with tariffs in the higher band attracting a higher level of tariff reduction.
However, there has been no convergence on thresholds and the range of cuts. This is evident from the tentative tariff reduction schedule for developing countries.

Tariff reduction framework agreed in negotiations so far

As far as the treatment of Special Products is concerned, there are two divergent views. Some countries are of the opinion that SPs should not attract any reduction commitments whereas other members think that for each threshold or band, SPs should be subject to lower tariff reduction commitments than other agricultural products. For example, if it is decided that for SPs, tariff reduction will be one-third of what is applicable to normal products, then it will imply that for the first band, tariff reduction commitment for SPs will be between 5-8%.

Note that in the WTO framework, tariff reduction is always done from the bound tariff level and not the applied tariff level. In most developing countries, the gaps between bound and applied rates are quite high. For example, for India, the average bound rate is around 115% for agricultural products whereas the average applied rate is around 35%. Moreover, if 10% of HS lines is allowed to be designated as SPs, India can have around 68 Special Products (as India has around 680 agricultural products at six-digit HS level).

Given the ‘overhang’ or difference between bound and applied tariff rates, lower reduction commitment on Special Products will help developing countries protect their domestic market. Further, if WTO members are allowed to designate 10% of HS lines as SPs, developing countries will get considerable latitude in protecting their vulnerable products. 

However, there are two major concerns about Special Products. There is an apprehension that if developing countries are going to have a long list of Special Products, they will have to concede something in return, to developed countries. It is possible that developed countries will try to negotiate for an overall lower level of subsidy reduction and opening of markets. This quid pro quo could be disadvantageous for developing countries in the long run.

Secondly, in a country like India, selection of SPs may run into political problems. India is a vast country and different regions are dependent on different crops. Therefore, each region and state will have its own opinion about Special Products. Providing higher levels of protection for a small set of crops could raise the issue of bias and discrimination. Unless a long list of SPs is prepared it will be difficult to satisfy farmers from different regions and sub-regions.

On the other hand, a long list of Special Products could significantly lower a country’s negotiating leverage.

Therefore, SPs pose an awkward situation for developing countries. While the concept of Special Products is a useful one it will be tricky to implement. Unless a careful balance between defensive and offensive interests of developing countries can be struck, the larger objective of removing distortions in agricultural trade might suffer. 

Special Safeguard Mechanisms (SSMs)

Special Safeguard Mechanisms or SSMs are a set of provisions through which a WTO member country can temporarily impose higher than bound tariff rates on the import of a particular product if there is a sudden surge in imports of that product into the country. A similar provision called ‘Special Safeguards’ (SSG) was available in the Uruguay Round AoA but only a handful of WTO members were given the right to use it. The new SSM provisions will be available to all developing and least developed country members of the WTO.

SSM is a trade defence mechanism to essentially counter the volatility of international commodity prices. In a tariff-only regime, the instability of international commodity prices is likely to be transmitted directly to domestic markets. Sudden and sharp declines in the international price of an agricultural commodity could lead to an import surge which, in turn, could damage the viability of domestic production. Even with the available headroom between bound and applied tariff rates, countries may find it difficult to check these surges. In these cases, a temporary measure like SSM will allow developing countries to tide over crises. SSM will allow countries to raise tariffs above their bound levels for a limited duration. Also, SSMs are particularly useful for tariff lines where the tariff overhang is minimal or zero.

The Hong Kong Ministerial text allows developing countries the right to impose SSMs based on both price and volume triggers. This means that developing countries will have the option of temporarily imposing higher tariff rates on the import of an agricultural product if there is either a surge in its import volume or a sharp dip in its import price. However, the exact mechanisms of the implementation of SSMs have not been spelt out. It is also not clear what legal provisions member countries will have to follow to use this safeguard mechanism.

To conclude, Special Products and Special Safeguards Mechanisms together can provide a reasonable level of protection to the agriculture sector of developing countries. However, some questions remain about how these measures should be implemented. A clearer picture may emerge once the modalities of negotiations on agriculture are finalised, which, according to the Hong Kong Ministerial Declaration, should be done by the end of April 2006.

March 2006