THE WTO, SAFEGUARDS,

AND TEMPORARY PROTECTION FROM IMPORTS

Chad P. Bown, Editor

For inclusion in the

Critical Perspectives on the Global Trading System and the WTO series
Edited by Kym Anderson and Bernard Hoekman
Edward Elgar Publishing

27 May 2005

Department of Economics and International Business School, MS 021, Brandeis University, Waltham,
MA 02454-9110 USA tel: 781-736-4823, fax: 781-736-2269, email: [email protected], web:
http://www.brandeis.edu/~cbown/. I am grateful for the Okun-Model Fellowship in Economic Studies at
the Brookings Institution, which provided the financial support and hospitality while I compiled this
volume. Thanks to Bernard Hoekman for helpful comments and suggestions. All remaining errors are my
own.

TABLE OF CONTENTS
1. Introductory Chapter (by Chad P. Bown, editor)
Collected Papers

History and Institutions

Jackson, John H. (1997) Safeguards and Adjustment Policies (chapter 7) in John H.

Jackson, The World Trading System: Law and Policy of International Economic Relations
(2e) Cambridge, MA: The MIT Press.

Deardorff, Alan V. (1987) Safeguards Policy and the Conservative Social Welfare
Function, in Henryk Kierzkowski (ed.) Protection and Competition in International Trade:
Essays in Honor of W. M. Corden, Oxford and New York: Blackwell

Finger, J. Michael. (2002) "Safeguards: Making Sense of GATT/WTO Provisions Allowing

for Import Restrictions," in Bernard Hoekman, Aaditya Mattoo, and Philip English (eds.),
Development, Trade and the WTO: A Handbook. Washington, DC: The World Bank.

Economic Theory: Difficulties to Making the Case for Import-Restricting Safeguard

Policies

Bhagwati, Jagdish (1976) Market Disruption, Export Market Disruption, Compensation and
GATT Reform, World Development 4(12): 989-1020.

Mussa, Michael (1978). "Dynamic Adjustment in the Heckscher-Ohlin-Samuelson Model,"

Journal of Political Economy 86(5): 775-91.

Staiger, Robert and Guido Tabellini (1987) Discretionary Trade Policy and Excessive
Protection, American Economic Review 77(5): 823-837.

Economic Theory: Safeguard Provisions and Design

Bagwell, Kyle and Robert W. Staiger (1990) A Theory of Managed Trade, American
Economic Review 80(4): 779-795.

Fischer, Ronald D. and Thomas J. Prusa (2003) WTO Exceptions as Insurance, Review of
International Economics 11(5): 745-57.

Bagwell, Kyle and Robert W. Staiger (2005) Enforcement, Private Political Pressure and the
GATT/WTO Escape Clause, Journal of Legal Studies 34(2): __

Economic Theory: Safeguards and Adjustment

Miyagiwa, Kaz and Yuka Ohno (1995) "Closing the Technology Gap Under Protection,"
American Economic Review 85(4): 755-770.

Hillman, Arye (1982) Declining Industries and Political-Support Protectionist Motives,

American Economic Review 72(5): 1180-1187.

Brainard, S. Lael and Thierry Verdier (1997) "The Political Economy of Declining Industries:
Senescent Industry Collapse Revisited," Journal of International Economics 42(1/2): 221237

Davidson, Carl and Steven Matusz (2004) An Overlapping Generations Model of Escape
Clause Protection, Review of International Economics 12(5): 749-68.

Empirical Analysis of Safeguards

Berry, Steven, James Levinsohn and Ariel Pakes (1999) Voluntary Export Restraints on
Automobiles: Evaluating a Trade Policy, American Economic Review 89(3): 400-430.

Hartigan, James C., Philip R. Perry and Sreenivas Kamma (1986) The Value of
Administered Protection: A Capital Market Approach, The Review of Economics and
Statistics 68(4): 610-617.

Baldwin, Robert E. and Jeffrey W. Steagall (1994) An Analysis of ITC Decisions in

Antidumping, Countervailing Duty and Safeguard Cases Weltwirtschaftliches Archiv 130(2):
290-308

Hansen, Wendy L. and Thomas J. Prusa (1995) "The Road Most Taken: the Rise of Title VII
Protection," The World Economy 18(2): 295-313.

Bown, Chad P., (2004) "Trade Disputes and the Implementation of Protection under the
GATT: An Empirical Assessment," Journal of International Economics 62(2): 263-294.

Staiger, Robert and Guido Tabellini (1999) Do GATT Rules Help Governments Make
Domestic Commitments? Economics and Politics 11(2): 109-144.

Bown, Chad P. and Rachel McCulloch (2004) "The WTO Agreement on Safeguards: An
Empirical Analysis of Discriminatory Impact," pp. 145-168 in Michael G. Plummer (ed.),
Empirical Methods in International Trade: Essays in Honor of Mordechai Kreinin. London:
Edward Elgar.

Policy Use, Legal Process and Dispute Settlement

Irwin, Douglas A. (2003) Causing Problems? The WTO Review of Causation and Injury
Attribution in US Section 201 Cases, World Trade Review 2(3): 297-325

Sykes, Alan O. (2003) "The Safeguards Mess: A Critique of WTO Jurisprudence," World
Trade Review 2(3): 261-295.

INTRODUCTORY CHAPTER
I.

An Introduction to Safeguards in the GATT/WTO System

Temporary protection from fairly traded imports under the World Trade Organization (WTO)
typically refers to a national governments use of a safeguard tariff, quota or tariff rate quota.1
The founders of the WTOs predecessor the 1947 General Agreement on Tariffs and Trade
(GATT) - placed such an escape clause provision squarely into the original text through the
treatys Article XIX. 2 Since the WTOs 1995 inception, the Agreement on Safeguards has taken
the place of Article XIX to cover temporary import protection for trade in goods covered under
the traditional agreement.3
Safeguard provisions are the primary mechanism through which a WTO members
national government is authorized to establish a statute describing the conditions which permit it
to investigate whether a domestic industry is injured because of fairly traded, but imported goods;
and then impose a temporary unilateral import restriction that would otherwise be in violation of
market access commitments implied by its explicit Article II tariff bindings.4 The safeguard
provisions may also provide guidance on the form of the trade policy being imposed whether a
tariff, quota or demands to voluntarily restrain exports; whether applied selectively or against
imports from all countries; the duration over which it may last before requiring removal; and
finally, the terms of any compensation to adversely affected exporting countries.
While the safeguard exception to liberal trade has long been an element central to the
architecture of the GATT/WTO system, its use has only periodically garnered attention outside of
1

To clarify, this volume focuses on the re-application of temporary trade barriers that had previously been
removed. It does not address temporary protection for infant industries, though there is some overlap
between the insights of the two research literatures. This volume also does not examine application of
(temporary or permanent) trade barriers against unfairly traded imports, i.e., through antidumping or
countervailing duty measures, though we will discuss the substitutability between the policy instruments
below. For an explicit and focused discussion of antidumping, see the volumes by Nelson and
Vandenbussche (forthcoming) in this series.
2

Under the GATT, in addition to Article XIX, Contracting Parties could also seek trade policy flexibility
under Article XXVIII (for permanent import protection), on the grounds of national security or other
general exceptions (Articles XX and XXI), under unusual circumstances when granted a waiver (Article
XXV), or when suffering balance-of-payments crises under Articles XII or XVIII:B. For a discussion see
Finger (1998, 2002).

Bown (2002a) describes many of the fundamental reforms embodied in the WTOs Agreement on
Safeguards in comparison to the GATTs Article XIX.
4

A tariff binding is a negotiated limit or maximum tariff rate that a country is permitted to impose under
its GATT/WTO obligations.

GATT/WTO circles. One such occasion was March 2002, when a substantial international
political outcry and media attention accompanied the United States use of its safeguard statute to
erect a massive set of tariff and quota barriers on steel product categories that had covered $5.5
billion in imports the previous year. At the time, six other WTO members quickly followed the
US policy by imposing import-restricting safeguards on similar steel products, and at least two
more countries initiated procedures to investigate whether to do the same. Furthermore, nine
WTO members filed formal dispute settlement proceedings challenging the US steel safeguard
under the WTOs Dispute Settlement Understanding (DSU). A combination of domestic and
international political pressure associated with the WTO dispute eventually culminated in the US
removing the steel safeguard in December 2003, making more temporary (20 months) an importrestricting policy that the US had indicated would be fairly temporary (36 months) even from the
date of the original policy announcement.
Despite a lack of much publicity, scholarly researchers have developed a thorough
literature examining the structure and use of such temporary import protection programs.
Furthermore, understanding the effectiveness and limitations of such policies is increasingly
important with the proliferation of new safeguard regimes, proposals and provisions across many
different subtexts of the WTO agreements. In addition to the authorized use of temporary trade
restrictions under the Agreement on Safeguards reported to the WTOs Committee on Safeguards
(WTO, various issues), the WTOs 1995 inception added safeguard provisions covering areas of
trade newly integrated into the system. Examples of new safeguards are found in the Agreement
on Agricultures Article 5, the General Agreement on Trade in Services (GATS) Article X, as
well as a China-specific safeguard associated with its 2001 WTO accession.5 Furthermore, during
the 1995-2004 period of the WTOs Agreement on Apparel, Textiles and Clothing (ATC), which
transitioned such trade from outside of GATT rules under the Multi-Fibre Arrangement (MFA)
system to trade fully covered by WTO rules and disciplines, there was also a separate, ATCspecific transitional safeguard regime in place under that Agreements Article 6.6
While the GATTs Article XIX escape clause provision was only invoked in 150
instances between 1947 and 1994 (WTO, 1995), temporary restrictions under the Agreement on
Safeguards have already been imposed upwards of 75 times between 1995 and 2004 (WTO,
5

See the Transitional Product-Specific Safeguard Mechanism found in the 2001 Accession of the
Peoples Republic of China of Section 16, Part 1 (WTO document WT/L/432). For an analysis of the
China-safeguard, see Messerlin (2004).

For a discussion of the use of safeguards under the WTOs temporary Agreement on Apparel, Textiles
and Clothing, see Kim, Reinert and Rodrigo (2002).

various issues). Furthermore, safeguard trade restrictions under the separate provisions on
agriculture and textiles have been the subject of hundreds more trade restrictions. Finally, WTO
members have formally challenged upwards of 25 different safeguard actions through formal
dispute settlement proceedings at the DSU,7 further raising the policys profile and generating
questions associated with the appropriate conditions and evidence necessary for its WTOconsistent use. While much of this relative increase in safeguard use is certainly associated with
the dramatic expansion in WTO membership to over 140 countries, relative to the GATTs
original 23 Contracting Parties, as well as an increase in global trade covered under the
agreements, the safeguard policy instrument has nevertheless taken on increased visibility, and
political demands for its use may increase going forward.
This volume presents a collection of scholarly research from the economics of
international trade policy and law that examines a number of fundamental questions regarding the
design and use of temporary import restricting regimes. The first and foremost question
confronting researchers is, why include such a safeguard clause into trade agreements in the first
place, as it is otherwise antithetical to the liberal market access framework of the GATT/WTO
system? Why allow for it ex ante if, ex post, national governments use it to impose barriers
against fairly traded imports that lead to well-known economic inefficiencies, distortions and
welfare losses to the overall economy? Second, what are the consequences of various potential
forms of the safeguard policy i.e., tariff, quota or voluntary export restraint; nondiscriminatory
or country-specific protection; temporary or permanent measures; compensation or no
compensation to adversely affected countries? Third, how do the changing economic conditions
generated by a safeguard affect the adjustment incentives facing workers, firms and industries?
Fourth, what factors determine how a safeguard law is used and/or abused by domestic actors in
the political-economy process? Fifth, what are the actual economic conditions under which a
safeguard can legally be used under WTO rules? Finally, how does safeguard use interact with
related WTO provisions such as antidumping and the dispute settlement procedures?
The research in this volume is emblematic of a growing theoretical, empirical and policy
literature on the topic of temporary protection from imports. In a limited collection there are
important contributions that must be omitted, thus we do not attempt here to provide a
comprehensive assessment of the subject. Furthermore, there is still much to the use and structure
of temporary protection from imports that is the topic of ongoing and future research endeavors.

See the WTO website Dispute Settlement: The Disputes, Index of Disputes Issues at
http://www.wto.org/english/tratop_e/dispu_e/dispu_subjects_index_e.htm, last accessed on 15 May 2005.

After a discussion of the papers and topics included in the volume in the next section, I return to
unresolved questions in the conclusion.
II.

The Literature on Temporary Protection from imports

A.

History and Institutions

The first three papers in the volume present historical and institutional perspectives on safeguards
under the GATT/WTO system.8 The chapter by John H. Jackson (1997) presents an accessible
description of the institutional and legal framework written by one of the GATT/WTOs foremost
legal scholars and historical participants in the formulation of the evolving system. The second
paper by Alan V. Deardorff (1987) uses Cordens (1974) conservative social welfare function
framework to describe one income maintenance rationale for using such protection from imports.
Finally, the chapter by J. Michael Finger (2002) describes how the use of safeguards has changed
over time, and how the policy fits in with the use of substitutable policy instruments to achieve
similar trade-restricting outcomes in the GATT/WTO system.
B.

Economic Theory: Difficulties to Making the Case for Import-Restricting Safeguard

Policies

Before motivating the use, existence or design of safeguard and adjustment policies, it is
worthwhile to discuss a second set of papers whose purpose is to describe some of the
fundamental problems arising with the existence of such policy availability.9 First is a paper by
Jagdish Bhagwati (1976) that considers the phenomenon of a market disruption along with a
safeguard threat by the importing country. This paper focuses on the endogenous impact on the
exporting countrys own trade policy, as well as GATT rules in existence at the time for dealing
with these phenomena.10
The contribution by Michael Mussa (1978) describes the basic efficiency case against
activist adjustment policies when expectations are rational and there are no distortions in the
underlying economy under examination. One implication of the Mussa result was to highlight the

Bown and Crowley (2005) provided an additional survey treatment of the research literature on
safeguards.

See also the discussion in Sykes (1991) which presents a view of the safeguard as import protection and
whose use generates the standard economic efficiency problems.
10

The theory behind the ideas expressed in the paper (and presented succinctly in the appendix) is more
formally developed in Bhagwati and Srinivasan (1976).

demand that future research undertake modeling clarity so as to identify either what market
distortions are present that can lead to an efficiency-enhancing role for an adjustment policy such
as a safeguard, and/or how such a temporary restriction from imports may be a second-best policy
due to the unavailability of a first-best policy instrument.
Finally, suppose the purpose of the GATT/WTO agreements is to provide an external
enforcement device allowing a domestic government to commit its private sector to a reform
program of trade liberalization. In a third paper, Robert W. Staiger and Guido Tabellini (1987)
develop a model to illustrate how the presence of a safeguard clause in such a trade agreement
can make even an optimal policy of liberal trade a time- inconsistent policy.
B.

Economic Theory: Safeguard Provisions and Design

A second set of theoretical papers in the volume examines questions such as: why include such a
clause into the original negotiated agreement; and, if included, how should such a clause be
designed? In their political-economic text on the WTO system, Hoekman and Kostecki (2001,
chapter 9) characterize inclusion of a safeguard clause as having two potential roles with respect
to the underlying agreement as insurance and as a safety valve.
The safety valve rationale for a safeguard provision is that governments may desire a
temporary escape from the agreement in the presence of heightened political or economic
pressure. The idea is that governments would like the option to temporarily suspend certain
elements of the agreement when the appropriate set of circumstances arise, without having to fear
that the entire agreement will fall apart and that countries will resort to non-cooperative behavior.
A theoretical paper in the collection by Kyle Bagwell and Robert W. Staiger (1990) shows how,
in a self-enforcing agreement and in the presence of terms-of-trade shocks, such a safeguard
provision can preserve the integrity of the overall agreement by allowing countries to deal with
temporary surges in trade volumes by cooperatively raising import protection.
On the other hand, the insurance motive relates to the idea that, when the policymakers
are signing the original agreement, they would like to hedge against the possibility that certain
unforeseen events may occur. Ronald D. Fischer and Thomas J. Prusa (2003) develop this idea in
a model in which a safeguard clause can act as insurance for import-competing sectors affected
by adverse price shocks. Under the assumption of incomplete markets so that agents cannot
privately contract insurance, they show that sector-specific contingent protection, such as a resort
to a safeguard, is a superior policy option to uniform tariffs.
Furthermore, Bagwell and Staiger (2005) consider the efficiency properties associated
with including a safeguard provision within a self-enforcing trade agreement between

governments that acquire private information over time.11

Their model also provides an

interpretation of a key feature of the WTOs Agreement on Safeguards, which is the limited
duration of the temporary trade restriction that prevents it from being re-imposed by the same
industry.
C.

Economic Theory: Safeguards and Adjustment

The language surrounding use of the safeguard policy in practice is frequently tied to the loose
and ambiguous topic of adjustment whether the adjustment is at the level of the individual
worker, firm, or industry that has been affected by increased import competition.12 There are
numerous theoretical papers that examine how safeguard policies affect the adjustment
response of economic agents. This research documents that a temporary import-restricting policy
might operate on many margins, and thus it identifies the need to identify the intended purpose of
the policy ex ante. We return to this issue in the concluding section where we present a discussion
of the failure of policymakers to adhere to this principle when implementing trade-restricting
safeguard policies in practice.
One potential purpose for a safeguard policy is to give the domestic industry the
opportunity to adjust to increased competition in order to increase its competitiveness. For
example, Kaz Miyagiwa and Yuka Ohno (1995) explore the impact of different forms of import
protection on firm-level adoption of new technology that is required in order for it to catch-up
with foreign rivals. One important result of their paper is that temporary contingent protection,
i.e., the tariffs or quotas that remain in place until the firm adopts a new technology, always delay
the timing of the firms technology adoption decision. Other papers and results from this
literature explore how such incentives change with the form of protection i.e., tariffs versus
quantitative restrictions, nondiscriminatory policies versus country-specific policies, etc.13
On the other hand, a number of papers use economic theory to examine how a safeguard
provision may provide a declining domestic industry with a more efficient adjustment out of the
marketplace through exit. The article in the collection by Arye L. Hillman (1982) illustrates how,
in a political economy model, a government may use a safeguard trade policy to slow the decline
11

Another paper in this spirit is Rosendorff and Milner (2001)

12

The preamble to the WTOs Agreement on Safeguards states, Recognizing the importance of structural
adjustment and the need to enhance rather than limit competition in international markets
13

Other papers in the literature include Matsuyama (1990), Miyagiwa and Ohno (1999), and Crowley
(2002).

of an industry for purely selfish (political support) motives. In a later paper, S. Lael Brainard and
Thierry Verdier (1997) use the interaction between industry adjustment, lobbying, and the
political response to explain the persistence of import protection.14 Their political-economic
model illustrates how the process of current adjustment diminishes future lobbying intensity. The
insight from the perspective of a safeguard policy is that import protection reduces adjustment
which leads to the failure to diminish future lobbying intensity; i.e., current import protection
raises future protection. Their model has interesting dynamic properties in that declining
industries contract more slowly over time in the presence of a safeguard policy and never fully
adjust.
Carl Davidson and Steven Matusz (2004), furthermore, examine the impact of temporary
import protection on labor market activity.15 They consider a two-sector overlapping-generations
model in which workers trade off the potentially higher wage that the export sector has to offer
with a lower job acquisition rate in that sector. The lower acquisition rate is due to the assumption
of congestion externalities that arise in the export sector as the pool of potential workers
increases. They show how temporary protection can smooth out the adjustment process following
an unexpected, permanent improvement in a countrys terms of trade. From the perspective of
the safeguard policys purpose, this paper is aligned with questions concerning the efficient
facilitation of resources out of an industry (e.g., the Brainard and Verdier/Hillman line of
research), as opposed to technological catch-up and inducing additional resource investment in
an industry (e.g., the Miyagiwa and Ohno approach).
D.

Empirical Analysis of Safeguard Use

Much like other areas of international trade research, the empirical literature examining the
economic implications of safeguard use is much less developed than the theory. This stems from
a number of reasons, including the relative historical infrequency of the policys use. Another
important factor is that researchers have only recently gained access to the product- or industrylevel international trade data necessary to assess critical elements of such policies. With few
exceptions, the empirical literature that has evolved thus far has focused almost exclusively on
United States use of its Section 201 safeguard law. This is explained by the fact that Section 201
has been used with some frequency, its use has been relatively transparent and easy to document,

14

See also Brainard (1994), Brainard and Verdier (1994), Kohler and Moore (2001), and Magee (2002).

15

See also Gaisford and Leger (2000).

10

and there exists a relatively long time series of high-quality, product-level US trade data that has
been made publicly available to researchers.
The first two empirical papers in the volume examine the impact of US temporary import
protection policies on key indicators of domestic economic performance. First, while the US
International Trade Commission did investigate a 1980 safeguard petition for import protection
filed by Ford and the United Auto Workers (UAW) union, it failed to find a causal link between
any injury to the domestic automobile industry and imports. Nevertheless, in 1981 the US
government implemented a temporary trade restriction on automobiles by negotiating a voluntary
export restraint with the Japanese automobile manufacturers. Steven Berry, James Levinsohn, and
Ariel Pakes (1999) rigorously examine the effect of this policy on the US economy through an
analysis of its impact on consumer welfare, firm profits, and foregone tariff revenue. James
Hartigan, Philip R. Perry and Sreenivas Kamma (1986) provide an alternative approach to
examining the impact of a temporary trade restriction on economic activity by using the event
study methodology to assess whether safeguard protection decisions in the United States between
1975 and 1980 affected capital markets and stock prices.16
The next two papers examine the US use of its safeguard policy in relation to other,
substitutable policies of contingent import protection its antidumping and countervailing duty
provisions. The first paper by Robert E. Baldwin and Jeffrey W. Steagall (1994) examines
determinants of the US International Trade Commissions decisions on whether or not to find
injury in administered protection investigations.17 Another paper using the data on US actions by
Wendy L. Hansen and Prusa (1995) examines the differential requirements for obtaining
protection across these laws as well as the impact of these alternative US laws on the productlevel import flows subject to the trade restrictions.
The article by Chad P. Bown (2004a) takes the perspective of alternative policy
instruments one step further by examining data on international use of safeguards under Article
XIX over the 1973-1994 period. The paper investigates determinants of a countrys use of a
GATT-legal safeguard versus a GATT-illegal import restriction that resulted in a trade dispute.18
The analysis provides evidence in support of the theory that, when a government imposed an

16

See Dohlman (2001) for an additional discussion of the capital markets approach.

17

See also the discussions in Finger, Hall and Nelson (1982), Takacs (1981), Baldwin (1985) and Hansen
(1990).

18

Bown (2002b) develops the theory behind this question.

11

import-restriction, it was more likely to utilize a GATT-consistent safeguard when it sought to

shield itself from the retaliation capacity of exporters adversely affected by the proposed policy.
The empirical paper by Staiger and Tabellini (1999) tests a key proposition of their
theoretical paper (Staiger and Tabellini, 1987) in the volume. They use an empirical analysis to
examine whether GATT rules help a national government make trade policy commitments to a
domestic industry that it could not have made in the absence of these rules. To test this behavior
they examine the United States use of its safeguard policy, where it did not have access to such
GATT rules to help it commit, in comparison to the US governments determination of sectoral
exclusions in the Tokyo Round of GATT negotiations.
Finally, Bown and Rachel McCulloch (2004) assess the discriminatory nature of various
safeguard policies applied since the WTOs 1995 inception. While the WTO provisions mandate
that a country is to apply a nondiscriminatory safeguard on all imports, irrespective of their
source, the evidence is that explicit and implicit nuances to the safeguard rules allow
governments to undertake substantial discretion in how they apply the policy. The results indicate
that such discretion can lead to quite discriminatory application of safeguard measures in
practice.19
E.

Policy Use, Legal Process and Dispute Settlement

Finally, there are a number of additional questions related to how the WTOs Agreement on
Safeguards allows for temporary protection from imports in practice. Researchers have written a
number of papers providing policymakers with economic frameworks to ascertain from a
petitioning domestic industry whether it has truly been injured from imports in a way that is
consistent with the textual agreement.
A paper by Douglas A. Irwin (2003) in this volume describes and applies one such
approach developed originally by Kelly (1988). The basic idea is to use minimal data and prior
information on market elasticities to examine whether changes in equilibrium conditions in the
domestic market are consistent with the domestic industrys injury being caused by imports. This
approach is useful as either a low-cost, first pass at the question, or an alternative to a more
rigorous econometric approach that may be mandated because of data limitations. Irwin also
illustrates the approach by applying it to public data from a number of recent US safeguard
investigations that were formally challenged through dispute settlement at the WTO. In each case
WTO panels found the US safeguard to be inconsistent with its WTO obligations, largely because
19

See also the presentation of Bown and McCulloch (2003).

12

the US policymakers did not provide sufficient evidence attributing the domestic industrys injury
to imports, as they could have done by following the Kelly, or an alternative, approach.20
Finally, Alan O. Sykes (2003) combines cogent legal and economic analysis in a paper
that is part of a growing literature examining WTO jurisprudence on dispute settlement decisions
related to safeguard use.21 Sykes provides an important critique of the lack of guidance being
provided by WTO panel and Appellate Body decisions, as well as the potential implications of
such failure for the overall agreement. His analysis suggests that such decisions have failed to
clarify to national governments how they can legally utilize the Agreement on Safeguards.
III.

Conclusions

This volume contains a collection of theoretical and empirical research papers that have
contributed to understanding the challenges associated with the temporary imposition of import
protection i.e., the use of safeguards in the WTO system. While the existing literature
addresses a number of important questions and provides a template for examining this trade
policy, there is still much about the impact of such policies that is unknown.
First, the theory on temporary import protection has far outpaced empirical work on the
subject. More empirical research is required to inform on the relevance of the existing competing
and complementary theories. There is evolving empirical research examining questions
associated with safeguards use in practice, including recent papers examining the 2002 steel
safeguards. Such research empirically evaluates whether an effect of the policy wasnt simply to
raise the costs of domestic (in addition to foreign) rivals within the US steel industry, as well as to
mimic the discriminatory nature of earlier implementation of antidumping measures, despite the
nondiscriminatory requirements of the safeguard statute and provisions.22 Required are additional

20

When there is sufficient, high quality data available, it may be preferable to use an econometric approach
to investigate the causal link between imports and injury. Such an approach is beneficial if it can hold the
impact of other factors that may also be affecting injury constant. Actual econometric approaches to doing
so in the safeguard context, as well as applications to specific cases include Grossman (1986), as well as
Pindyck and Rotemberg (1987). See also the similarities for simultaneous equation regressions used in
antidumping investigations described in Prusa and Sharp (2001). WTO (2005) details how such evidence
has been utilized by formal DSU panels examining the WTO-consistency of safeguards use.
21

See also Horn and Mavroidis (2003), Bagwell and Sykes (2004), Sykes (2004) and Grossman and
Mavroidis (2005).

22

See empirical papers on the US steel safeguard such as Durling and Prusa (2003) and Bown (2004b).

13

industry-level studies addressing the safeguard policys impact on firm-level productivity,

resource allocation and adjustment.23
An additional question is whether the substantial textual ambiguity within the safeguard
provisions gives policymakers too much discretion, thus eroding the effectiveness of any
adjustment policies.24 As the discussion in section C above attempted to illustrate, a domestic
industrys adjustment to increased import competition could mean one of two diametrically
opposed outcomes that a policymaker could be attempting to target: 1) generating an environment
conducive to encouraging competitiveness of the domestic industry and technological catch-up
with foreign rivals; versus the polar opposite of 2) creating incentives to facilitate the rational and
efficient exit of resources out of an industry that cannot compete with foreign rivals. The insight
from the targeting principle (Bhagwati and Ramaswami, 1963) suggests that it is not possible for
a single trade restricting safeguard policy to be the most efficient instrument at inducing both
resource exit and resource entry (i.e., investment).
The research literature also lacks a more critical assessment of those safeguard policies
that have been implemented, as well as appraisals of policy performance relative to the policies
stated goals. For example, have policymakers implied that a policy intention was to facilitate
resource exit from an industry, and yet imposed policies that discourage exit and encourage the
status quo? The ambiguity of the ex ante meaning of adjustment makes it increasingly
important to hold policymakers accountable for matching policy rhetoric with policy choices.
Finally, there is no empirical analysis investigating how the use of a safeguard import
restriction as an adjustment policy fits into the broader adjustment policy environment. I.e.,
governments have many alternative (domestic) policy instruments with which they might target
different facets of the adjustment process. How do countries with differential access to the nontrade policy instruments that more effectively target adjustment i.e., the flexibility/rigidity of
domestic labor laws, trade adjustment assistance programs, bankruptcy laws, subsidy and
industrial policies, etc. adjust differently when safeguards are imposed? What are the
implications of these differences for safeguard design and rules for its use?
As globalization continues, comparative advantages shift, domestic industries decline,
preferences are eroded, technologies improve and consumer preferences change - economies face
increasing adjustment pressure and political demands to use the safeguard and related policy
instruments. As new safeguard provisions are proposed as required political components of new
23

One paper that has begun to address these questions from the perspective of antidumping (and not
safeguards) protection is Konings and Vandenbussche (2005).

24

See the discussions found in Bown and McCulloch (2005a, b).

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agreements, their appropriate design is essential. As safeguard laws are adopted and used by
developed and developing countries alike, an improved understanding of the policys role in the
trading system, as well as its limitations, is increasingly critical.
Chad P. Bown
Brandeis University, Waltham, MA USA

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