A Need for Caution in Applying the Volume-Based Special Safeguard Mechanism

The proximate cause of the collapse of the Doha Agenda negotiations in 2008 was disagreement over the volume-based Special Safeguard Mechanism (SSM). This measure would provide a right, but not an obligation, for developing countries to impose a duty when imports increase. While many simulations of its impact on domestic prices are available, there appear to be no analyses of its potential impacts on the welfare of poor households. Whether such a safeguard will increase or reduce poverty can only be determined empirically—if there are enough small, poor farmers who are net sellers of the commodity when the duty is imposed, then imposition of a safeguard duty may reduce poverty. If, by contrast, most small, poor farmers are net buyers of the products subject to the duty, then it is likely that poverty will rise. Empirical analysis for twenty-eight countries finds that poverty is generally increased following the imposition of a safeguard-type measure. The adverse poverty impact of the safeguard-induced increase in prices is typically larger when the safeguard can be triggered, because the adverse output shocks typically giving rise to import surges when import prices have not declined reduce the benefit to poor producing households from higher prices.