RESEARCH AND ANALYSIS

Trade in natural resources and the business community: what is at stake?

Adrian van den Hoven, Director International Relations, BUSINESSEUROPE &
Anka Schild, Adviser International Relations, BUSINESSEUROPE

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Introduction

Trade in natural resources (e.g. energy, minerals, plants, animals and forestry) is an important and growing share of world trade; in value terms its share increased by 20% annually in the past ten years. Although the overheated situation on raw materials market of 2008 has disappeared, pressures will mount as economic activity starts up again, but also as a result of an expected 20% increase in the world population by 2025.

Although access to raw materials is crucial for the sound functioning of the world economy, the number of restrictions imposed on the export of natural resources has increased significantly over the past few years. An OECD Workshop on Raw Materials in October 2009 demonstrated that these restrictions distort the global market and have a negative impact on both developed and developing countries. The WTO is well placed to endorse a global response to this issue. It should promote free trade in natural resources by removing existing distortions and developing and administering rules and disciplines in support of open markets.


Companies’ concerns over distortions to trade natural resources

For industrial consumers, access to raw materials under non-discriminatory and market-based conditions is crucial for their competitiveness. Increasingly however, countries are pursuing strategic policies to secure access to raw material deposits worldwide, while at the same time restricting access to their domestic raw material markets at the expense of raw materials importers. This is for instance the case for highly specialised metals and minerals, such as rare earths, lithium and platinum group metals (platinum, palladium and rhodium). These materials are needed for the development of technologically sophisticated products, which are critical for low-carbon / ‘green’ technologies.

Typical measures which distort the global market include:

  • Export taxes and restrictions such as: export duties, export quotas, non-automatic export licences;

  • Discriminatory taxation systems to prevent the export of raw materials or to favour domestic sales;

  • Dual pricing or price-fixing of energy and raw materials;

  • Strategic raw materials sourcing through state owned enterprises;

  • State aid or unfairly subsidised export credits;

  • Restriction of investments, including through unfair use of the definitions such as strategic sectors and national security;

  • State interference on local commodities exchange to lower prices for domestic industry.


Proliferation of restrictions and their economic impact

Recent data suggests that there has been a sharp increase in the number of restrictions. BUSINESSEUROPE is concerned about the economic impact of these restrictions, as they lead to higher international prices and increase price volatility. In 2007, the European Commission identified around 450 export restrictions on raw materials, which were applied by roughly one-third of WTO members.

It should also be noted that the effectiveness of export restrictions in achieving their desired objectives, such as the development of downstream industries or generating fiscal revenue is uncertain. This is in particular the case when restrictions implemented by one country are followed by other exporters. Strategic raw materials policies can also have sub-optimal environmental results as cheap domestic supplies of energy and raw materials sustain low consumption efficiency and weak technological development.

While not contesting the right of resource-holders to decide on the exploration of natural resources, European industry is concerned about the proliferation of trade distortions in the global market for extracted raw materials. BUSINESSEUROPE therefore objects to any policy that leads to price manipulation or that significantly and unfairly distorts the operation of market forces in the global industrial market. BUSINESSEUROPE has asked the European Union to take all necessary multilateral legal action as well as unilateral countermeasures to prevent the escalation of these distortions.


Towards disciplines and good governance

Industrialized and emerging countries have a common interest to establish common rules that safeguard a predictable and open global raw materials market.

The WTO should:

  • Examine and clarify the rights and obligations of WTO members in this area;

  • Broaden the analysis and understanding of the use of export restrictions;

  • Call on governments to discuss the issue in appropriate fora, such as the G20;

  • Identify best practices for natural resource management.

As regards least developed resource-holding countries, authorities and institutions responsible for raw materials management should be strengthened. Development agencies, governments in resource-holding countries and business can, with adequate participation from local stakeholders, work together to promote an effective and sustainable raw materials policy, investment framework and taxation regime. The WTO could contribute to this work through targeted trade capacity building courses that address the specific trade policy needs of resource-holders.

 

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