An Analysis of the Special Safeguard Mechanism with Particular Reference to India

The Special Safeguard Mechanism (SSM) is intended to provide contingent protection to poor farmers in developing countries from negative shocks to import prices or from surges in imports. The effects of stochastic import prices and volumes are analysed in a partial equilibrium framework to illustrate the issues involved. The simplicity of the mechanisms for contingent protection illustrated through geometry are contrasted with the modalities that were proposed in July 2008. These are the choice between an import price trigger or an import quantity trigger. The triggers have been incorporated into a computable general equilibrium (CGE) model by Hertel et al. (2010) and stochastic simulations conducted in order to compare their effects on the levels and volatility of key variables. The conclusion is that the quantity trigger is less effective in achieving the principal objective of the SSM.