Price Volatility, Tariff Structure and the Special Safeguard Mechanism

Agricultural commodity and food price volatility has been a central focus by policy makers around the globe. Following price spikes in 2008, 2011 and 2012, much attention has been given to price fluctuations as poor households are more negatively affected by extreme variation in prices rather than the increasing levels of prices alone. Two key contentious policy measures within the WTO that affect both the levels and potential variability in commodity prices include specific tariffs and the proposed Special Safeguard Mechanism (SSM). Both policies are shown to be discriminatory in nature towards developing countries (Chowdri, 2012 and Hertel et al. 2010). However, while the SSM is expected to increase agricultural price volatility, the use of specific tariffs may be volatility reducing when compared to an ad valorem tariff structure. This research investigates the potential for reduced commodity price volatility in the presence of the SSM, given the use of specific rather than ad valorem tariffs. Our works implements the SSM in a computable general equilibrium modeling framework and finds evidence of decreased variability of producer prices, import prices, and output in most developed and developing countries when specific tariffs are accounted for.