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The Safeguard Instrument
The Safeguard Instrument25
Since 2008, the number of safeguards investigations initiated by the G20 countries has increased steadily. A similar trend can be observed regarding the number of measures imposed.26 Thus, a comparable trend is evident for safeguards as for the other trade defense instruments, anti-dumping and anti-subsidy instruments. In recent years and months, the discussion on safeguards has also reached the broader public in the European Union. In the context of the EU’s Trade Policy Review and in the discussion on European open strategic autonomy, this previously little-known and relatively rarely used instrument is increasingly moving into the focus of the trade defense debate.
The G20 countries initiated a total of 123 safeguard investigations between October 2008 and midOctober 2020. Definitive measures were imposed in 63 of these cases (51 %). With 39 investigations, India initiated the most, followed by Indonesia (33), Turkey (15) and Russia (10). Argentina, Japan, and South Korea did not initiate any Safeguard investigations during the period covered, and Brazil, Canada, China, and Mexico initiated one investigation each.
Diagrammtitel Total Number of Safeguard Investigations Initiated among G20 Countries October 2008 - mid-October 2020
140
120
100
80
60
40
20
0
3 21 33 42 59 66 79 83 89 96 104 116 123
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: World Trade Organization (2008-2020), G20-Trade Monitoring Reports, <https://www.wto.org/english/news_e/news20_e/g20_annex_bis_jun20_e.xls> (accessed 12 February 2021), BDI analysis.
25 BDI has published a more detailed position on the safeguard instrument. The paper is available via the following link: https://english.bdi.eu/media/publications/#/publication/news/the-safeguard-instrument/. 26 World Trade Organization (2008-2020), G20-Trade Monitoring Reports, <https://www.wto.org/english/news_e/news20_e/g20_annex_bis_jun20_e.xls> (accessed 12 February 2021), BDI analysis.
25
Measures Total Number of Definitive Safeguards Imposed among G20 Countries October 2008 - mid-October 2020
70
60
50
40
30
20
17 22 30 34 40 42 45 51 57 63 63
10
0
2 10
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: World Trade Organization (2008-2020), G20-Trade Monitoring Reports, <https://www.wto.org/english/news_e/news20_e/g20_annex_bis_jun20_e.xls> (accessed 12 February 2021), BDI analysis.
Status quo
Unlike the more common trade defense instruments (TDI) – antidumping and countervailing measures – safeguards do not focus on “whether trade is fair or not” but are applied when European economic operators are affected by an "unforeseen, sharp and sudden increase of imports.” The instrument aims to provide "temporary breathing space" for the affected industry to adjust to a significant increase in imports. Thus, safeguards do not stem from wrongdoing by third parties (such as dumping or illegal subsidies). Therefore, third countries affected by safeguards are entitled to receive equivalent trade compensatory measures (for example, tariff reductions in other areas). Another difference between safeguards and the other two trade defense instruments is that they are not applied to imports from a specific country or countries, but to imports from all countries.27 Moreover, the investigation is not limited to like products but can also cover directly competing products. Although the EU completed a reform of anti-dumping and anti-subsidy instruments in 2018, no reform of the EU safeguards is currently planned.
The framework for EU safeguards is found in the WTO Agreement on Safeguards (Article XIX, GATT). The Agreement allows WTO members to adopt safeguards to protect a particular domestic industry from an unforeseen surge of imports of a product that causes or threatens to cause serious injury to that industry.
The Agreement sets forth the requirements for safeguard investigations, including public notice of hearings, the opportunity for interested parties to present evidence, and the possibility of provisional measures where serious injury has already been determined. The criteria for serious injury and the factors to be considered in determining the effect of imports are also specified in the Agreement.
27 European Commission, Safeguards, <https://ec.europa.eu/trade/policy/accessing-markets/trade-defence/actions-against-imports-into-the-eu/safeguards/> (accessed 30 July 2020).
26
Measures should be applied only to the extent necessary to prevent and remedy serious injury and to facilitate the adjustment of domestic production. If a quantitative restriction on imports is imposed as a result of an investigation, the measure should not reduce the volume of imports below the annual average of the previous three years. Measures should not exceed four years. In special cases, they may be extended to a maximum of eight years.
Certain developing countries are excluded from the measures if two criteria are met simultaneously, specifically when
1. the share of imports of the product from a developing country does not exceed three percent of the total imports of that product, and
2. imports of the product from developing countries accounting for less than three percent of total imports together account for less than nine percent of total imports.
Developing countries can extend their own safeguards by up to two years beyond the normal maximum, to up to ten years. Finally, the Agreement established the Safeguards Committee to oversee the application of safeguards.28
EU Safeguard Investigations
The hurdles set by the WTO for the use of safeguards are very high. For instance, the European Commission must demonstrate that the increase in imports of affected products or product groups has been significant, is due to unforeseen developments, and causes or threatens to cause serious injury to the EU market. Thus, a higher injury risk than for anti-dumping or countervailing duties is required. In addition, beyond the obligations under the WTO Safeguards Agreement, the Commission must demonstrate that these measures (for example, duties or import quotas) are in the interest of the European Union.
Both EU producers as well as the Commission itself can initiate safeguard investigations. On the part of producers, this requires a duly substantiated request to the authorities in one or more EU Member States. If the Commission, after consulting the national authorities, considers that there is sufficient evidence, it opens such an investigation by publishing a notice in the Official Journal of the EU.
The investigations will examine import trends, the conditions under which they occur, and the threat or cause of serious injury to EU producers. They must be completed within nine months.
Safeguards can be imposed in a variety of ways, for example through increased tariffs or import and tariff quotas. If import quotas are imposed, they are usually set at least at the average level of imports over the last three representative years. In the past, the Commission has imposed tariff quotas, which means that additional tariffs are imposed on imports that exceed the quota. In special circumstances, such as the steel duties taken in 2018, provisional measures may also be imposed if evidence of clear injury has been provided.29
28 World Trade Organization, Agreement on Safeguards, <https://www.wto.org/english/docs_e/legal_e/ursum_e.htm#lAgreement> (accessed 30 July 2020). 29 European Commission, Measures, <https://trade.ec.europa.eu/doclib/docs/2013/april/tradoc_151032.pdf> (accessed 30 July 2020).
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Recommendations
▪ To ensure fair international competition, German industry relies on effective and balanced trade defense instruments that ensure a fair and global level playing field for EU-based manufacturers, importers and consumers.
▪ Generally, German industry considers the WTO Agreement on Safeguards to be adequate. In any case, compliance with the requirements of the Agreement must always be ensured.
– Concerns of both producing and importing economic operators, i.e. the Union interest, must be adequately taken into consideration.
– Criteria enabling the application of safeguards must be defined as differentiated and practice oriented as possible.
▪ The (EU) safeguard is an (particularly sharp-edged) instrument intended to avert massive and sudden external shocks and is only to be used in situations of trade policy emergency. Thus, before safeguards are imposed, the European Commission must carefully examine whether the criteria required for this are met.
– The existence of the criteria required for safeguards should be examined on a product-specific basis. Terms such as "unforeseen increase of imports" should be defined more precisely.
– For safeguards to be imposed, there must have been an unforeseen and sharp increase of imports. This together with verifiable negative economic consequences should be the focus of the investigations.
– Interaction with existing EU anti-dumping measures should be prevented, as these may jeopardize supply security at competitive prices in a highly dynamic market environment.
▪ Within the European Union, the safeguards instrument has so far played an only minor role in trade defense. In view of the growing challenges in international trade for some sectors (increasing global protectionism, increasing overcapacities, redirection of supply to the European market), the European Commission should carefully review the use of safeguards to determine when their application can help to secure a level playing field internationally.
– If (for example, after lodging a complaint) the conditions and criteria for the use of the instrument are met, it must be applied consistently following a precise and balanced investigation.
– There must be a certain flexibility in the monitoring of the safeguards in order to be able to react to changing conditions at short notice. Some interested parties have suggested that the European Commission should monitor developments on the import side more closely. At the same time, however, the necessary degree of predictability for economic operators needs to be ensured.
– The provisions in the EU Regulation on safeguards, describing in which cases safeguards are to be applied to imports from developing countries, should be implemented consistently. However, the EU should take into account both the Union interest and development policy considerations throughout the decision-making process.
