The Safeguard Instrument

POSITION | EXTERNAL ECONOMIC POLICY | SAFEGUARDS

The Safeguard Instrument Effective and Balanced Application in Compliance with WTO Rules and under Differentiated Criteria

February 2021 Recommendations ▪

In the context of the Trade Policy Review initiated by the European Commission in the summer of 2020 and in the discussion on European open strategic autonomy,23. this Oktober previously 2017 littleknown and relatively rarely used instrument is increasingly moving into the focus of the trade defense debate.

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In light of growing challenges in international trade for some industries (increasing global protectionism, increasing overcapacities, redirection of supply to the European market), BDI proposes that the European Commission examines the use of safeguards without prejudice to the outcome. If the conditions for the use of the instrument are met, it must be applied consistently after a detailed, balanced investigation, provided that a respective complaint has been lodged.

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As a matter of principle, compliance with the requirements of the WTO Agreement on Safeguards must always be ensured. The interests of producing as well as importing economic operators and downstream users, i.e. the Union interest, must always be adequately taken into account.

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The European Commission must carefully examine whether the criteria required for the introduction of safeguards are met before they are imposed.

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In third countries, safeguards are not always imposed in accordance with WTO rules. The EU must take rigorous action against such protectionist tendencies.

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Some industries report that they are regularly confronted with safeguard investigations or measures, sometimes of a retaliatory nature, in third countries.

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BDI considers the notification of safeguards to the WTO to be crucial. It is in fact problematic that not all countries comply with their notification obligation. A more effective enforcement mechanism including stronger incentives for notification should be implemented by the WTO.

Anna Kantrup | External Economic Policy | T: +49 30 2028-1526 | a.kantrup@bdi.eu | www.bdi.eu Katherine Tepper | External Economic Policy | T: +49 30 2028-1499 | k.tepper@bdi.eu | www.bdi.eu Matthias Krämer | External Economic Policy | T: +49 30 2028-1562 | m.kraemer@bdi.eu

The Safeguard Instrument

EU Safeguards and their Multilateral Context 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. 1 Thus, a comparable trend is evident for safeguards as for the other trade defense instruments, anti-dumping and anti-subsidy instruments.2 In recent years and months, the discussion on safeguards has also reached the broader public in the European Union. In the context of the Trade Policy Review initiated by the European Commission in the summer of 2020 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.

Aim of Safeguard Investigations and Safeguards 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.3 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.

WTO Agreement on Safeguards 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.

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

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 24 July 2020), BDI analysis.

2 For further information, please check the BDI positions on these instruments: Anti-Dumping Measures of the European Union (August 2020) and Reform of the WTO Agreement on Subsidies and Countervailing Measures (June 2020) 3 European Commission, Safeguards, <https://ec.europa.eu/trade/policy/accessing-markets/trade-defence/actions-againstimports-into-the-eu/safeguards/> (accessed 30 July 2020).

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The Safeguard Instrument

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.4 Within the WTO, 27 members initiated 61 cases against 13 countries by the end of 2019 on the grounds that their safeguards violated the WTO Agreement. Most cases were filed against the United States (26, including eight related to the 2002 steel tariffs and nine related to the 2018 steel tariffs), followed

by Argentina and Chile, with eight cases each against them. With seven cases, the EU initiated the highest number of these cases, followed by Argentina (5) and the United States (4). Most of the safeguard cases concerned measures against steel products (25, including 21 against the United States). The remaining cases included agricultural products such as sugar, dairy, meat and fish, as well as footwear, polypropylene and solar panels. In total, 185 safeguards were imposed by the end of 2019. Overall, a total of 33 percent of all safeguards had complaints filed against them.

Number of Disputes Filed with the WTO Against Safeguards, by Respondent

Diagrammtitel

30

27

25 20 15 10

8

8 5

5

4 2

2

1

1

1

1

1

1

0

Source: World Trade Organization, Dispute Settlement Gateway, <https://www.wto.org/english/tratop_e/dispu_e/find_dispu_cases_e.htm> (accessed 8 January 2021).

4

World Trade Organization, Agreement on Safeguards, <https://www.wto.org/english/docs_e/legal_e/ursum_e.htm#lAgreement> (accessed 30 July 2020).

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The Safeguard Instrument

Number of Disputes Filed with the WTO against Safeguards, by Complainant Diagrammtitel 8 7 7 6 5 5 4

4

4

4 3

3

3

3

3 2

2

2

2

2

2

2

2

2 1

1

1

1

1

1

1

1

1

1

1 0

Source: World Trade Organization, Dispute Settlement Gateway, <https://www.wto.org/english/tratop_e/dispu_e/find_dispu_cases_e.htm> (accessed 8 January 2021).

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.

EU Safeguards 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,

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The Safeguard Instrument

such as the steel duties taken in 2018, provisional measures may also be imposed if evidence of clear injury has been provided.5

Comparing Safeguards of the G20 Countries6 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.

Total Number of Safeguard Investigations Initiated among G20 Countries Diagrammtitel October 2008 - mid-October 2020 140 123 116

120 104 96

100 79 80

83

89

66 59

60 42 33

40 21 20 3 0 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.

5

European Commission, Measures, <https://trade.ec.europa.eu/doclib/docs/2013/april/tradoc_151032.pdf> (accessed 30 July 2020).

6 Here, we focus primarily on investigations and actions taken by the G20 between 2008-2020, as this indicates the time period in which the WTO and UNCTAD comprehensively monitored of trade-promoting and trade-restrictive measures.

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The Safeguard Instrument

Total Number of Safeguard Investigations Initiated among G20 countries, by Country Total October 2008 - mid-October 2020 45 40

39

35

33

30 25 20 15 15 10

10

8 6 4

5

2

2

1

1

1

1

0

0

0

0

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.

Total Number of Definitive Safeguards Imposed Among G20 Countries Measures October 2008 - mid-October 2020 70 63

63

2019

2020

57

60 51 50

45 40

42

40 34 30 30 22 17

20 10 10 2 0 2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

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.

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The Safeguard Instrument

German Industry Experiences and 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.

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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.

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Concerns of both producing and importing economic operators, i.e. the Union interest, must be adequately taken into consideration.

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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.

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The existence of the criteria required for safeguards should be examined on a productspecific basis. Terms such as "unforeseen increase of imports" should be defined more precisely.

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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.

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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.

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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.

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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.

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The provisions in the EU Regulation on safeguards, describing in which cases safeguards are to be applied to imports from developing countries, should be

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The Safeguard Instrument

implemented consistently. However, the EU should take into account both the Union interest and development policy considerations throughout the decision-making process.

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Safeguards in third countries are not always imposed in accordance with WTO rules.

Some industries report that they are regularly confronted with safeguard investigations or measures, sometimes of a retaliatory nature, in third countries. The EU should closely monitor the use of safeguards by third countries in consultation with industry and, in the event of new investigations, support the EU companies concerned in taking decisive action against obviously illegal and improper measures (for example, dispute settlement procedures).

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The notification of safeguards to the WTO and the transparency this creates is of great importance to allow foreign trade to adapt to the changed situation and, if necessary, to participate in investigation proceedings as early as possible. BDI considers the notification of safeguards to the WTO to be necessary. It is in fact problematic that not all countries comply with their notification obligation. A more effective enforcement mechanism including stronger incentives for notification should be implemented by the WTO.

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The Safeguard Instrument

Imprint Bundesverband der Deutschen Industrie e.V. (BDI) Breite Straße 29, 10178 Berlin www.bdi.eu T: +49 30 2028-0 Authors Anna Kantrup T: +49 30 2028-1526 a.kantrup@bdi.eu Katherine Tepper T: +49 30 2028-1499 k.tepper@bdi.eu Matthias Krämer T: +49 30 2028-1562 m.krämer@bdi.eu

Document Number: D 1334

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