RESEARCH AND ANALYSIS

Six months of debate on trade in natural resources

By Michele Ruta & Joelle Latina, Economic Research and Statistic Division, WTO

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The discussion forum on trade in natural resources has been running for six months and it is now the time for the World Trade Report 2010 to be released. The announced goal of this webpage was to promote an open debate on themes relevant to the Report and allow people from different backgrounds to interact and express their views. We received and uploaded more than 40 articles; from academia (44 per cent), international institutions (33 per cent) and the business community and non-governmental organizations (23 per cent). Contributions from academia included experts from Harvard, Oxford, Johns Hopkins, the London School of Economics. International organizations, such as the World Bank, the International Monetary Fund, the OECD, the United Nations and the Energy Charter Secretariat, took part in the discussion. Finally, the private sector and NGOs (the International Electrotechnical Commission, the World Energy Council, Steptoe & Johnson LLP, Oceana, among others) gave us their views.

We would like to take this opportunity to thank all the participants for their insights into this complex and fascinating topic. One of the main aims of this discussion forum was to shed some light on the priorities and concerns of the community active in trade in natural resources. In the rest of this article, we would like to briefly summarise the broad issues raised by those contributions.

Articles submitted can be classified according to four main themes: development, energy, access to resources and environment. Obviously articles can relate to more than one theme. However this categorization (presented in the figure below) gives a quick overview of the issues that emerged.

Figure 1: Articles published by theme

  

Development: Over the last 50 years or so, one of the main themes concerning development issues was the discussion of the Prebish-Singer hypothesis. It  predicted a secular decline of the terms-of-trade for commodities-exporting countries. According to a number of articles we received, the focus of the scientific and policy community seems now to have shifted to new issues, in particular to the natural resource curse: “a complex phenomenon through which an abundance of resource revenues can translate into stagnation, waste, corruption and conflict” (Daban & Hélis, 2010). Indeed, more than five articles discussed this subject, which represents about one eighth of the total number of articles for this sub-theme alone. The other concerns were: adequate management of natural resources revenues; managing price volatility and aiming at export diversification; resources management and valorisation. Particularly, reference was made to institutions and possible fixes such as the EITI,1 the Extractive Industry Transparency Initiative, establishing governance and production standards for oil, gas and mining industries.

Energy was the second most discussed topic with 26 per cent of related articles. Concerns about multilateral regulation (and lack thereof)2 were frequently raised. In this context, it was pointed out that the very characterisation of energy, as a good or as a service, had important implications for its treatment in international regulation.3 In a similar vein, several contributions argued that transparency and energy security (mainly safe transit) should be better enforced at an international level. Oil price volatility together with its causes and effects were also debated. It was noted that “shocks to the flow demand for oil associated with the global business cycle have been responsible for long swings in the real price of oil” (Lutz Kilian, 2010). Furthermore, energy received substantial attention from the business community that brought a pragmatic perspective to the table; for example, the International Electrotechnical Commission defended electrification and diffusion of technical standards as a means of promoting the “virtualisation of trade” — i.e. the reduction of physical transactions — that could preserve “the economic benefits of trade, while mitigating the (negative) side-effects of physical trade” (Ahmit, 2010).

A number of contributions related to the problem of access to resources. In this context, trade policy and its implications were discussed. In particular, the issue of export restrictions and their impact on domestic and foreign firms were examined. The question as to whether such measures can bias competition was debated. For instance, Collier and Venables (2010)[ 04/02/2010] pointed out the economic equivalence between several trade and domestic measures, such as an export tax and a subsidy to the downstream sector. On a different level, Karapinar (2010) argued that “restrictions are highly relevant in the context of environmental protection”, because they could help achieve a more sustainable resource management in preventing rapid depletion and reducing “the negative externalities caused by pollution associated with mining or processing” (Van Tongeren et al., 2010). The role of the WTO was also subject to debate; should there be more international discipline regulating export restrictions? Business associations that participated in the debate tended to give a positive answer to this question. Finally, supply security issues and import dependence were considered. It was pointed out that a domestic supply is not necessarily more secure than a diversified international supply (Davis, 2010).

In some cases, trade in natural resources can affect negatively the environment. Those cases were discussed in the articles classified under this theme. The main environmental concerns were: depletion of resources such as drinking water or fish; deforestation and climate change. Water, oil and fisheries were the most discussed sub-themes. For renewable resources (such as fish, water, forestry), one recurrent issue was the open access problem that induces rents to be dissipated and resources to be overused. For instance, overfishing can, at least partially, be attributed to open access (see Sumaila, 2010). On water, the relatively new concept of water footprint4 was reviewed and applied to the footwear industry, where progress has been made in terms of water consumption for the past 30 years. Although environmental problems are widely recognised, best solutions and practices seem to be still on-going research: “researchers are still discussing whether trade sanctions can be used for environmental purposes” note Robalino & Herrera (2010) and, for fisheries, “there is still much debate about the effectiveness of different management types and the resulting impacts on biological and economic outcomes (Ashe and Smith, 2010). Issues like “climate change mitigation and creating an effective incentive mechanism to reduce CO2 emissions” were reviewed as well (Cottier et al., 2010).

More on these issues can be found in the brand new World Trade Report 2010.

  

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Notes:

1. EITI back to text
2. “Although WTO Agreements do not contain rules that are specifically aimed at energy trade, it is without doubt that the general rules of the multilateral trading system cover trade in energy” (Selivanova, 2010)  back to text
3. See Marceau, 2010   back to text
 4. “The water footprint is an indicator of freshwater use that looks at both direct and indirect water use of a consumer or producer” Waterfootprint  back to text