Potential Implications of a Special Safeguard Mechanism in the WTO: the Case of Wheat

The Special Safeguard Mechanism (SSM) was a key issue in the July 2008 failure to reach agreement in the WTO negotiations under the Doha Development Agenda. It includes both price (P-SSM) and quantity-triggered measures (Q-SSM). This paper uses a stochastic simulation model of the world wheat market to investigate the effects of policy makers implementing policies based on the SSM rules. As expected, implementation of the Q-SSM is found to reduce imports, raise domestic prices, and boost mean domestic production in the SSM regions. However, rather than insulating countries that use it from price volatility, it would actually increase domestic price volatility in developing countries, largely by restricting imports when domestic output is low and prices high. We estimate that implementation of the Q-SSM would shrink average wheat imports by nearly 50% in some regions, with world wheat trade falling by 4.7%. The P-SSM is discriminatory against low price, developing country exporters and tends to contribute to additional producer price instability.