“Safeguards” as a Safeguard Against the Harshness of Globalization

1. “Safeguards” as a Safeguard Against the Harshness of Globalization Elizabeth Ferris US Global Trade October 23, 2008

2. Safeguard Provisions • Since 1995 the WTO has provided the framework for countries to pursue greater trade liberalization. • Safeguards existed under GATT (article 19) but they were infrequently used • Governments had been protecting domestic industries using “grey area” measures. • They persuaded exporting countries to restrain exports “voluntarily”

3. A safeguard is a temporary restraint that is used to protect a domestic import-competing industry from foreign competition. Safeguard measures are included within the WTO’s legal texts as a means to protect signatories from unexpected fluctuations in trade and industry. What are safeguards?

4. Primarily positive Stimulated economic growth Reduction in overall living costs Increase in quality and quantity of goods available to consumers Negative Aspects: Countries can come under unintentional economic assault from its trading partners Safeguards can protect domestic industry against “serious injury” Consequences of International Trade

5. Characteristics of Safeguards: • Not the same as Antidumping and countervailing duty actions- they are intended to deal with unfairly traded imports • They have a time limit of 4 years as long as it is “consistent with the agreements provisions” • Affected exporting partners can retaliate against the safeguard by withdrawing substantially equivalent tariff concessions. • This ensures that the country imposing the safeguard has an incentive to abide by the time limits. • Generally, safeguard measures cannot be targeted at imports from a particular country. However, the agreement does indicate how quota can be allocated among supplying countries.

6. The Safeguard option in a trade agreement facilitates greater tariff reductions during the negotiation of a trade agreement. Sovereignty- Allows each country leeway A government has an “escape valve” if a tariff reduction causes pain to its producers. It has more freedom to make larger and more risky tariff reductions. Benefits of Safeguards

7. 2002 US Safeguard on Steel • Price of steel was at a 20 year low • US International Trade Commission found that a surge in imports to the US market was causing serious injury to the domestic steel industry. • The safeguard measures gave the US government the opportunity to restructure and consolidate the steel industry. • President Bush argued that the safeguard action made the global “playing field…fair and level” • Safeguards can be viewed as an insurance payout during a period when the volume of imports is unexpectedly high • The intent of this action was to • protect the vital steel industry • Ensure growth in productivity • Job creation • Regain competitiveness in the global market

8. Globalization • Often equated with “Americanization” or “Westernization” • Has been viewed in an increasingly negative light • Argument that safeguards can prevent the harshness of globalization, because it is a form of regulation/intervention • Safeguards are protectionist • Implementation reduces the rate of globalization because it prevents complete integration and • A defining feature of globalization is an international industrial and financial business structure. • What if Bush did not have the authority or ability to enact the 2002 safeguards on stee?

9. McCain Supports WTO Has conceded that globalization will not benefit every American but creates opportunity for Americans to work today and in the future Obama Openly criticized NAFTA Voted “no” on CAFTA Recognizes that we cannot turn back globalization and its affects, and we need to reinvest in communities that are burdened by globalization McCain and Obama Little information regarding their stance on safeguards. Information available indicates their stances on free trade and globalization

10. The Problem with Safeguards • They tend to favor the bigger, more powerful countries • Many low-income countries have argued that they cannot remain competitive in a global market- there needs to be flexibility to invoke a special safeguard mechanism when faced with a volatile commodity market • REMEMBER: countries must prove serious injury to a domestic market in order to enact safeguard. However, poorer countries do not generally have the financial and technical resources to prove that serious damage to one of their sectors is the result of foreign competition. • Their voices aren't being heard

11. Special Agricultural Safeguard • As a result SSGs were made available to member countries in the Uruguay Round or trade negotiations. • Was designed to counter import surges and sharp declines in import prices. • The rules for its application are transparent and it requires neither injury test, nor the provision of compensation

12. Reduce the credibility of a trade agreement. If governments are not fully committed to liberal trade, the productive factors in their economies may not efficiently reallocate because firms expect their governments to utilize safeguards in the future. Inherently Protectionist Safety net Negative Aspects of Safeguards

13. Policy: keep Safeguards intact. But Why? • They do have a valuable role within the international trade arena • The Special Agricultural Safeguard in as indication that poorer countries will not be overlooked. • They are an attractive policy tool • Transparent • Easy to use • Mechanisms that automatically control trade

14. THANK YOU

15. SOURCES • Crowley, Meredith. “Why are Safeguards Needs in a Trade Agreement?” Federal Reserve Bank of Chicago. December 2007. • Grant, Jason and Meilke, Karl.”Import Safeguards: Protectionist Measures or a Liberalization Strategy.” Department of Agricultural Economics Purdue University. 2004. • Globalization101.org. “What is Globalization?” • http://www.globalization101.org/What_is_Globalization.html • International Monetary Fund. 20 October 2008. • www.imf.org • On the Issues. Senator McCain, Senator Obama. 20 October 2008. • http://www.ontheissues.org/default.htm • Costantini, Peter. “What’s Wrong with the WTO?” November 2001. • http://www.speakeasy.org/~peterc/wtow/wto-biz.htm • World Trade Organization. 21 October 2008. • www.wto.org • United States Trade Agreements. 21 October 2008. • www.ustr.gov