Making Sense of Safeguards

The ASG was negotiated in response to the use of extralegal measures and inappropriate use of legal measures to restrict imports. More effective disciplines regarding implementation of Article XIX was recognized as an important unilateralism deterrent in policy implementation. These disciplines are subjective and objective. Disciplines that are quantifiable are more effective. Utilizing both balances rules and discretion. A home and foreign producer are used to assess SG in the context of adverse shocks. This framework entails a novel feature appropriate to SG. Firms are permitted to select optimal levels of downward flexibility in output in response to a possible shock. The extent of adjustment is directly related to the cost incurred. Firms choose flexibility in stage one and output in stage two. Without SG, firms will not insulate themselves completely from the conditional expectation of an adverse shock. Introducing the ASG increases the relative adjustment burden for the foreign firm.