Special safeguard tariff impacts on the Brazilian sugar exports
| Pages | 70-85 |
| Date | 15 June 2015 |
| DOI | https://doi.org/10.1108/JITLP-05-2015-0010 |
| Published date | 15 June 2015 |
| Author | Cinthia Cabral da Costa,Heloisa Lee Burnquist,Joaquim José Martins Guilhoto |
| Subject Matter | Strategy,International business,International business law |
Special safeguard tariff impacts
on the Brazilian sugar exports
Cinthia Cabral da Costa
Brazilian Agency of Agricultural Research (EMBRAPA), São Carlos,
Brazil, and
Heloisa Lee Burnquist and Joaquim José Martins Guilhoto
University of São Paulo, Piracicaba, Brazil
Abstract
Purpose – This paper aims to present a critical analysis of special safeguards (SSGs) and a simulation
of their effects on Brazilian sugar exports to countries such as the US and the European Union (EU) bloc.
Design/methodology/approach – The rst stage involved the identication of tariff lines for the EU
and the US sugar imports from Brazil between 1995 and 2013. Next, notications of World Trade
Organization about SSGs were examined to identify the years when the measure was applied on the
sugar trade by these countries. For the years when SSGs were applied, the values of these additional
tariffs were calculated. This information was used, along with price elasticities, to obtain the effects of
an increase in Brazilian sugar exports in the absence of SSG and also the overall impact on the Brazilian
economy, using its input-output matrix.
Findings – Results indicated that the estimated value of the direct, indirect and income effects of SSG
tariffs on Brazilian sugar exports to the EU and the US markets through the period 1995 to 2013 could
amount to BRL 22 billion in terms of the exporting country GDP. This suggests that this policy can be
highly perverse, as it translates into lower domestic production for both, the exporting and the
importing countries. This issue is relevant for discussions on the global sugar market, given the facts
that it is one of the markets which have been most distorted by protectionism.
Originality/value – This issue is relevant for discussions on the global sugar market, given the facts
that it is one of the markets which have been most distorted by protectionism.
Keywords USA, European union, Sugar, Input-output matrix
Paper type Research paper
1. Introduction
The use of safeguards as temporary trade restriction in response to import surges was
among the issues selected for the agenda of the Uruguay Round of Trade Negotiations
of the General Agreement on Tariffs and Trade (GATT) that lasted from 1986 to 1994
(Sykes, 2007). With the successful conclusion of the Uruguay Round, the World Trade
Organization (WTO) replaced the GATT. The WTO regulates and supervises the
implementation of measures adopted by governments of Member countries and is
responsible for arbitrating trade disagreements through a Dispute Settlement Board
(DSB).
We gratefully acknowledge the critical review by professor Dr James Hartigan on an earlier
version of the manuscript. We also acknowledge the nancial support provided by São Paulo
Research Foundation (Fapesp) to elaborate this work.
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1477-0024.htm
JITLP
14,2
70
Received 4 May 2015
Revised 22 July 2015
19 August 2015
14 September 2015
Accepted 14 September 2015
Journalof International Trade Law
andPolicy
Vol.14 No. 2, 2015
pp.70-85
©Emerald Group Publishing Limited
1477-0024
DOI 10.1108/JITLP-05-2015-0010
The GATT introduced, in 1994, a WTO Agreement on Safeguards (ASG) to improve
and strengthen the international trading system, with the general provision to establish
rules for the application of safeguard measures, as stated in its Article 1. Sykes (2006)
presents a political economy approach to evaluate the safeguard clause. Among his
major conclusions, the author stressed that despite of the existence of a specic ASG,
many important and interesting questions about legal and economic issues associated
with the use of safeguard measures in the WTO system remained unanswered. More
specically, a major impetus for the safeguard negotiations during the Uruguay Round
resulted from the need to eliminate “grey-area” measures – meaning that these were
similar to safeguard measures in many respects, but escaped formal legal discipline
under the GATT. As indicated by the WTO ASG, this instrument should be restricted to
situations that required an “emergency” action against increased imports of particular
products when these caused or threatened to cause serious injury to the importing
Member’s domestic industry. Hartigan (2011) explained that trade negotiators decided
that the WTO ASG became necessary due to the intensication of the use of extralegal
measures to restrict imports that were causing injury to domestic producers. Sykes
(2006), however, views safeguards as a response by governments to the political
pressure from domestic interest groups and that declining industries are more likely to
meet the two main conditions for a safeguard measure, i.e. a surge in imports and
substantial injury. Therefore, he considered that “the main motivation behind the
safeguard clause is to allow governments to dissipate political pressures from declining
industries for protection”.
The importance of the impacts caused by import surges at low prices for agriculture
led to the development of a safeguard clause (Article 5) for charging additional duties
under the Uruguay round of Agreement on Agriculture (URAA), identied as Special
(Agricultural) Safeguard or SSG. It is important to note, however, that there are aspects
specic to the SSG mechanism that differentiates it from the ASG WTO safeguards as
discussed in the following.
Although there have been important changes in international trade relations, the
basic rules of the SSGs were not updated since its introduction in 1994. A very
distinctive characteristic of the SSGs is that they apply only to some agricultural
products that were subject to quantitative restrictions – or import quotas – before the
Uruguay Round (FAO, 2002).
In general, the URAA introduced additional provisions (Article 5) on safeguards
applied to this product category. These were identied as “SSG” Special (Agricultural)
Safeguard and include the measures focused by this work. Under the SSG, additional
duties in the form of tariffs apply when imports exceed a trigger level or when import
prices fall below a trigger price on safeguards applied to agricultural products. Contrary
to safeguards under the WTO ASG, these can be automatically “triggered” without
proof that it can be justied as a response to “unfair trade” (Brown and Stern, 2009)[1].
The additional tariff due to SSG is higher, the greater the difference between the
observed value (price or volume imported) and the established triggers (Hartigan, 2000).
Therefore, the SSG remains irrelevant when prices are high, and becomes signicant
when international prices are sufciently low to trigger safeguards through prices or
volumes.
This analysis explores the hypothesis that over time, the negative economic effects of
these safeguards are signicant in periods when international prices are low, such that
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