Developing countries and emergency safeguard measures in world trade law

Abstract: Before going into details and regulations behind the safeguard measures it's important to understand the basic starting point. The members of WTO all agree to have tariffs at a certain level and the member countries are prohibited to raise the tariffs above this level. This makes the system predictable&semic every one knows the tariff levels. Speaking in a broad sense one can say that this is the ultimate and historical goal with the different Rounds, to achieve an agreement on the levels of the tariffs. Safeguard measures give members the opportunity to raise the tariffs above the agreed level. This effect allows members to back pedal and placing restrictions on import for some limited time. This has the effect that one member can break the balance in the agreement. To restore the balance, the member country that activated the safeguard measures, must in another area compensate to set the balance in the agreement back on track. The compensation is achieved by lowering the tariffs in another area or several areas until symmetry is achieved in the agreement. The WTO Agreement, like all trade agreements, has the purpose to push international trade forward. The basic rule applicable in WTO is the MFN rule. MFN is a rule against discrimination found in article I GATT. Every state shall be equally treated as the state you treat best. One effect with WTO is without any doubt increase of import for countries. It seems to be a general agreement that there is a major risk that entirely free trade may favour developed countries. This means that it is very important for the weak party to be able to protect itself in special situations. One form of protection is safeguard measures. This thesis investigates the protection form of safeguard measures with special focus on developing countries. Under the regulations in WTO today, concerning safeguard measures, we find two different areas. These are industry area and agriculture area. For developing countries the question concerning agriculture area is of most importance. Developed countries, dominate trade in agriculture and stand for 70 per cent of import and export. Seth - WTO och den internationella handelsordningen p 187. To get the right perspective it is important to compare with the fact that 96 per cent of world producers in agriculture live in developing countries. The regulations concerning safeguard measures are found in WTO Agreement, GATT, SA and Agreement on Agriculture (AOA). The new agreements under WTO are usually more detailed than GATT. Looking at the relationship between the new agreements and GATT this was the subject in WTO panel case Korea. In this case it concerned article XIX GATT and SA. The panel said ''any safeguard action must conform with the provisions of Article XIX of the GATT 1994 as well as with the provision of the Agreement of Safeguards.'' Appellate Body Report, Korea - Dairy para 77. So article XIX GATT and SA apply together. Safeguard measures under the industry area can be activated if it fulfils the demands of increased import, unforeseen developments and serious injury or threat thereof. In the AOA there were separate rules created concerning safeguard measures. These measures are usually called Special Safeguards Provision (SSG) and are very different from the rules in the SA. SSG is different in the sense that it does not require the importing members to prove serious injury nor causation. There are two different ways to invoke safeguard measures. One is if the volume of imports of the concerned products exceeds a certain trigger level and the second one is if the import price falls below a certain trigger price. Article 5.1 (a+b) - Agreement on Agriculture. To be able to use the SSG provisions countries must designate the SSG products in their Country Schedules. Article 5.1 section 1 - Agreement on Agriculture. 38 member states have done this, the EU counted as one. Since 1990 and especially after the failure in Cancun there has been a global trend toward bilateral and regional trade agreements. Between January 2004 and February 2005 as many as 43 new RTAs have been notified to WTO. Crawford and Fiorentino - The Changing Landscape of Regional Trade Agreements, p 1 - http://www.wto.org.english/res_e/reger_e/discussion_papers_e.htm, 19 March 2006. Factors behind RTAs include economy, politics and security considerations. Since 2005 there are some trends to be seen concerning RTAs. These are that they are increasing, becoming more complex, non-reciprocal relationship and they are in some way becoming cross regional. CU and Free Trade Area (FTA) are both acceptable exceptions from the MFN rule found in article XXIV GATT. Regional safeguard measures are permitted under WTO as long as the parties fulfil the demand of substantially all the trade. In questions concerning interpretation of WTO agreements, developing countries have criticised DSB not to interpret in the right way. The issue involved concerns one of the purposes of WTO. The purpose that developing countries have in mind the concern that one of the objects of the WTO agreements and several RTAs between developed and developing countries is to strengthen and increase the role of the developing countries in the world trade. The rules concerning interpretation are found in VCLT. To make it as simple as possible I used the interpretation triangle when interpreting. In this thesis I used serious injury as an example and proved that this is ambiguous in its conventional language, the first level of the interpretation triangle. In my attempt to reach clarity I reached the second level of the interpretation triangle. This level contains two different means of interpretation. These are object and purpose, which will be in focus now, and context. At some stages different purposes can go in different directions. When talking about huge organisations like WTO and UN they have many different purposes. It's not unusual that these different purposes collide. It is important to remember that the interpretation shall be made in accordance with the conventional language looking at the object and purpose. See chapter 6.4.1 section 3. Using this purpose interpreting serious injury is impossible. To strengthen and increase the role of developing countries would not bring clarity into the words serious injury. At the end of the day if doing it the way developing countries wish there would be even more ambiguity than before the starting point of this process. Then the words serious injury would mean one thing to developed countries and another to developing countries. This is not the right way to interpret according to the rules in VCLT and the interpretation triangle. So the ambiguity remains. Developing countries set their fingers on the preamble to the WTO agreement and say that DSB shall interpret in favour of them because the conventional language use in the preamble talks in their favour. Developing countries uses this part of the preamble and say that according to article 31 §2 VCLT the interpretation shall be made favouring them and that the DSB have so far failed in doing this. The conventional language stops this interpretation to become reality. At the end of the day if doing it the way developing countries wish there would be even more ambiguity than before the starting point of this process. Then the words serious injury would mean one thing to developed countries and another to developing countries. This is not the right way to interpret according to the rules in VCLT and the interpretation triangle. It's difficult in this case to exactly point to a specific issue that solves the ambiguity in this matter concerning serious injury, but looking at it from a bigger perspective there is no doubt DSB have solved similar matters before. WTO Appellate Body Report, WT/DS2/AB/R, US - Standards for reformulated and Conventional Gasoline and WTO Appellate Body Report, WT/DS8-11/AB/R, Japan - Taxes on Alcoholic Beverages. One important factor is also what kind of damage that is at hand in every specific case. This will not make the developing countries happy because in the end there still have to be damage and it's up to every single country to prove this damage. The interpretation process might perhaps, when a developing country faces the risk, help single countries to have damage being seen as serious injury but looking at it in a bigger perspective the criticism against DSB from the developing countries concerning interpretation is not well founded. Of all the members of WTO almost 70 per cent are developing countries. Developing Countries - p 93, www.wto.org/english/thewto_e/whatis_e/tif_e/utw_chap6_e.pdf, 9 March 2006. Looking at these numbers it's somewhat surprising that 30 per cent of the members have much more power. The rules and regulations concerning safeguard measures presented in this thesis are all neutral, when looking at them. This means that it does not matter if it's a developed or a developing country that activates them. At the end of the day all members shall apply the rules the same way. What's it like then in real life? If the rules are neutral then they are used in almost equal share by developed and developing countries? Looking at the numbers presented above, that almost 70 per cent of WTO members are developing countries, this should mean in theory that developing countries use safeguard measures more than developed countries. In real life looking at all the years only 22 per cent of the safeguard measures were taken by developing countries. But in the years after SA was created the numbers have risen to 55 per cent. So with neutral regulations and developing countries in majority, why then do they not use safeguard measures in the way they are expected or supposed to do? Looking at the neutral regulations there should be symmetry between developed and developing countries concerning safeguard measures. Is this true? For new members, China as an example, soft norms create lack of symmetry. If being seen as a troublemaker or even not trade liberal may in the end cause trouble becoming a member. Facing this may, especially for weak parties like developing countries, put them in difficult situations. Behind these soft norms, which can take up very different forms, stands a huge political game not easy to understand. For developing countries other threats can be put on the table. Developed countries may threaten with decreasing aid. This form of threats must also fall under soft norms. This kind of action can be used not only to new members but also present members, when they might be in the process of activating safeguard measures, which some countries don't want to realise. Talking specifically about industry area there is symmetry in the question concerning access. The question of access is symbolic because the question of resources, capacity, question of compensation and fair play makes the asymmetry between developed and developing countries total in this area. Going into the agricultural area the lack of symmetry hits the developing countries even earlier. The current system under the AOA and the SSG are only applicable to those products that were included in the Uruguay Round tariffication process. Most developing countries cannot use these safeguard measures. The reason for this is that they set bound tariffs outside the tariffication mechanism. Valdés and Foster - Special Safeguard for developing country agriculture: a proposal for WTO negotiations, p 6-7. Today 38 members of the WTO have the opportunity to use SSG. Special Agricultural Safeguard - Background Paper by the Secretariat - Committee on Agriculture G/AG/NG/s/9, 6 June 2000, WTO §3, p 1. When talking about resources and capacity, for those countries than can access, the matter gets even worse because in developing countries there is small-scale farming. The small farmers often work alone and not in bigger groups. The possibilities for them to lobby to the government do not exist. They are extremely vulnerable to temporary variations in the market conditions. There is no symmetry between developed and developing countries concerning safeguard measures. Looking at the future there have during the ongoing Round in Doha been many proposals put on the table. What is important to include in the future, for getting the developing countries into the game, is to avoid costly procedures, make sure safeguard measures have short time limits and no compensation has to be given. When talking about RTAs the question of asymmetry between developed and developing countries comes to life. There is no symmetry in the non-reciprocal relationships just because they are non-reciprocal. In the industry area the lack of symmetry is the same as in WTO. Perhaps a little bit smaller than in WTO, because of the smaller investigations that have to be made. WTO has a lot more members than the RTAs. In the agricultural area there has been an interesting development. In the FTAA agreement the asymmetry has been turned around. Developing countries have been favoured. It is important to remember that the FTAA agreement has recently entered into force, December 31 2005. Looking at the regulations concerning agriculture it's easy to find things to improve and criticise especially for developing countries. One must remember that the agreement was born in 1994 after difficult negotiations. It's amazing that they could agree at all. So looking at it from the bright side one can say there is an agreement and this is the starting point. From my point of view this is the starting point of the agriculture regime. When comparing with the industry regime one easily realises that this regime has been in play since 1947. Comparing these two regimes one cannot demand that the agriculture regime has come as far as the industry regime. Even to think this thought is absurd. Most people forget this important fact. So the important thing to keep in mind is that there is an agreement, not the ultimate, most desirable one, but still an agreement. From this point one can renegotiate and take small steps forward towards a better agreement. Perhaps the starting point towards a better tomorrow for developing countries was in Cancun when developing countries went together in a way never seen before. The fact that the whole round has development as a goal is a result of developing countries starting to raise their voice. One thing is sure&semic the road to symmetry between developed and developing countries is going to be long, hard and costly. Then to go even further to favour developing countries, to achieve asymmetry favouring developing countries, when activating safeguard measures, is even longer. So the protection the weak parties need in free trade to increase welfare and export seems far away but not unrealistic.