Rationalisations for the Safeguards Agreement

1
Rationalisations for the Safeguards Agreement

• Simon J. Evenett
• www.evenett.com

2
Rationalisations of WTO agreements

• Being clear about what we are trying to
  rationalisethe agreement? Nations use of the
  agreement after it was signed?
• Why are rationalisations of agreements important?
• At least five rationalisations can be identified
  for the safeguards agreements.
• Ex post versus ex ante rationalisations.
• Pitfalls of over-rationalisation.

3
Rationalisations offered.

• To remove grey area measures.
• a Member shall not seek, take or maintain any
  voluntary export restraints, orderly marketing
  agreements or any other similar measures on the
  export or the import side. These include actions
  taken by a single Member as well as actions under
  agreements, arrangements and understandings
  entered into by two or more Members.
• Why are voluntary export restraints so bad?
• Other practices in footnote 4 of the agreement on
  Safeguards.

4
Rationalisations offered.

• 2. As a means of recontracting from an incomplete
  contract.
• State-contingent complete contracts.
• Incomplete contracts with recontracting clauses.
• Renegotiation clauses.
• One-sided recontracting clauses.
• Pros and cons of different recontracting clauses.
• To alleviate adjustment costs created by
  international trade.
• What are adjustment costs?
• Not compensation for losers.

5
Rationalisations offered.

• To alleviate adjustment costs created by
  international trade (continued).
• Relationship between safeguards and adjustment
  costs.
• Evaluation of the logic of this argument what
  are the criteria to be applied? What conclusions
  do they lead to?
• To promote investments in restructuring by firms
  so as to make them more internationally
  competitive.
• What is the purpose of the temporary protection
  hereto finance the investments or to facilitate
  their implementation?
• How would you evaluate the logic of this
  argument?

6
Rationalisations offered.

• To facilitate the liberalisation of international
  trade.
• Arguments about the political economy of trade
  liberalisation.
• Safeguard measures as a safety valve.
• How would one assess this argument empirically?
• Evaluation of this argument.
• Safeguards as an insurance.
• How exact is this analogy?
• Is it a useful analogy?

7
Unforeseen developments

• Article XIX.1.a. stipulates that the safeguard
  measure must be taken in response to unforseen
  developments.
• In Korea-Dairy the AB said such events may
  nevertheless be forseeable or predictable in the
  theoretical sense of capable of being anticipated
  from a general scientific perspective.
• So unforeseen is not unforeseeable.
• Is unforeseen equivalent to highly unlikely?
• Unlikely for whom?
• How unlikely does an event have to be to qualify?
• Evaluating the utility of this requirement.

8
Economic approaches to Causation in the
Safeguards Agreement

• Simon J. Evenett
• www.evenett.com

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Preliminary remarks on Causation

• Approach taken subsequently is an economic one.
• This approach has a number of desirable
  characteristics, but that does mean it is the
  only logical method for thinking through
  causation.
• Why is the subject of causation important in the
  context of the agreement on safeguards?
• What guidance does the agreement provide in terms
  of the causal arguments to be employed?
• What do we want or need from a theory of
  causation?
• Why analysts will almost always disagree about
  causal arguments.
• If so, does it render such arguments useless?

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Economic perspectives on Causation

• The role of endogenous and exogenous variables in
  economic theories of causation.
• Characteristics of the economic approach to
  causation
• In principle a clear identification of the
  relevant endogenous and exogenous variables.
• An understanding of the relationships between
  them that (i) takes account of optimality and
  (ii) imposes some basic consistency requirements
  (eg. supplydemand in equilibrium).
• Tools for empirical implementation well developed.

11
The notion of injury and economic perspectives on
Causation

• Agreement provides a tautological definition of
  serious injury.
• Specifies an indicative list of variables that
  might constitute an element of injury.
• Problems with a multi-faceted notion of injury.
• Implications for a coherent economic analysis of
  causation.
• What is the legitimate set of causes of injury to
  be considered?
• Domestic causes.
• Foreign causes.
• Interactions between domestic and foreign causes.

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Economic analyses of Causation

• Standard starting point analysis in a framework
  of perfect competition between importers and
  domestic suppliers.
• Assumptions being made here.
• Demonstrate that imports and indicators of
  domestic industry health/injury are
  simultaneously determined.
• So then how can this approach be applied to
  implementing the safeguards agreement?
• Only causal factors to be considered at those
  which shift the supply curve of imports.
• What are those factors?

13
Methods of attributing Injury

• Why is quantification of the sources of injury
  important in this agreement?
• Two principal methods
• Econometric analyses of measures of industry
  health.
• Injury accounting using elasticities of supply
  and demand.
• Data requirements.
• Expertise required to implement.
• Expertise required to evaluate analyses by
  trading partners and by the WTO Panels and AB.

14
Sources of disagreements over causation analyses

• Disagreement over the set of exogenous variables
  (also recall the discussion earlier about
  unforseen developments).
• Disagreement over the legitimate set of measures
  of injury health/injury.
• Disagreement over the market structures used to
  analyse the relationship between the exogenous
  and endogenous variables.
• Disagreements over implementation of the injury
  attribution analysis.
• Do these various sources of disagreement create a
  fundamental problem?

15
Economic considerations for the design of remedies

• Which aspects of injury are being remedied?
• Choice between tariffs and quotaswhen are they
  equivalent?
• How much remedy is being offered? Trade-offs
  between length versus height of protection
  offered.
• Given the (at best) second best nature of these
  trade measures, what other government measures
  should be put in place?
• What are the implications of the progressive
  reduction requirement?
• What are the implications of the choice of
  remedies for the likelihood and form of foreign
  retaliation?

16
Incentives created by the very existence of
safeguards

• Provisions dont have to be used to have economic
  effects.
• Influence on corporate attitudes towards MFN
  tariff reduction.
• The threat of the use of safeguard provisions by
  domestic firms.
• Credibility of such threats.
• Effectiveness of such threats.
• In what ways, if at all, does foreign firms take
  steps in anticipation of the possible
  implementation of safeguard measures?
• Imposition of tariffs versus quotas.

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The contrast between safeguards, AD, and CVD.

• Reasons for the long-standing economists
  preference for safeguards
• Temporary nature of protection imposed.
• MFN application of measures.
• Dont label imports as unfair.
• Harder injury testand, therefore, more limited
  use.
• Does this logic have to be re-evaluated in the
  light of developments in recent years?
• Arguably yes.