> Pascal Lamy’s speeches


It gives me great pleasure to say a few words on the occasion of the launch of the WTO's flagship, the World Trade Report. Each year we pick a subject of current trade policy interest and undertake a detailed analysis of salient issues in that particular area. The World Trade Report does not pretend to provide a definitive or prescriptive statement of how an issue should be addressed in an international cooperative framework. Rather, the treatment is exploratory, seeking to identify useful theoretical insights, their practical relevance and policy implications. In this way, we seek to deepen understanding of sometimes complex issues and enrich debate about how to approach them in the policy community.

I will confess, however, to one element of advocacy. It is the advocacy of cooperation over confrontation. This reflects the core rationale for the existence of the WTO — to provide a context for governments to identify and act upon their mutual interests, including where these will entail trade-offs.

In one way or another, natural resources are essential to almost everything we do, to what we have come to rely upon, and to the way we lead our lives. Natural resources are, in effect, essential to human life. That is why the way we manage them, consume them and trade them are such a crucial element of policy. Non-renewable resources such as oil and natural gas are transformed into the energy that is essential for the production of virtually any other good or service. Renewable resources such as forests, fisheries and aquifers are some of the world’s most precious natural assets.

Natural resource markets are changing, primarily reflecting rapid growth and increased demand in certain parts of the world, especially in certain Asian countries. Natural resources represent a significant share of world trade, amounting to around one quarter of all merchandise exports. The volume of natural resource trade has been quite steady over the past decade, but in value terms has grown annually at 20 per cent.

Natural resources embody particular characteristics that may sometimes call for a re-examination basic economic assumptions as well as the shape of current trade rules. A complexity arises from the fact natural resources are essential to many production processes, and yet they are either finite in supply or exhaustible and potentially finite if they are not properly managed. Their extraction and use need to be carefully managed in order to balance the competing needs of current and future generations. Careless use of these precious assets by society today can weigh heavily on society tomorrow.

Some natural resources are by their nature what we refer to as potentially “open access” resources. This means that the resources may be harvested by individuals with scant consideration of the fact that they are finite or exhaustible, and in the absence of a price that reflects true scarcity. In the absence of effective government control or the establishment of an enforceable property rights system, these resources will be over-exploited and extracted at a socially sub-optimal rate.

Negative environmental effects of significant proportions can also result from the way in which natural resources are extracted and consumed. Many natural resources are distributed very unevenly among countries. This can offer the promise of gains from trade but can also generate tension among those that possess the resources and those that want access to them. The prices of natural resources can be highly volatile for a variety of reasons and this can constitute sources of international tension. Volatility can also present challenges for development policy.

Another developmental challenge arises where the economies of small countries are dominated by a single or very few natural resources. This can make it difficult to secure an even pattern of development with less single-sector dependence. The economic rents associated with the extraction and use of such resources can also present serious governance problems in some instances.

As the world emerges from global recession, competing interests in natural resource trade are likely to become a stronger source of policy tension. Adequately designed trade rules, perceived as fair and effective, are particularly valuable in these circumstances. Trade in natural resources will take place regardless of whether the global community has adequate rules, as the needs that motivate these exchanges persist and increase over time.

However, less than adequate rules risk stoking the fires of natural resource nationalism, where power asymmetries across countries and beggar-thy-neighbour motivations dominate trade policy outcomes. It is noteworthy that in trade policy terms, import restrictions tend to be minimal and of little economic consequence. This reflects inherent natural resource scarcity and the interests of importing countries in securing natural resources as inputs into their own production.

It is, rather, export policy that dominates trade debates involving natural resources. We know from economic theory that a range of factors explain why governments may wish to restrict exports of natural resources. Such restrictions may be distortionary in nature, designed to extract a terms-of-trade advantage. Or they may reflect an attempt to rectify market failures and various kinds of external effects that are not taken care of by markets. Governments may wish to diversify economic activity and promote domestic industries by reducing the prices of essential inputs into production — an effect that can be achieved through an export tax or restriction.

Alternatively, governments may wish to reduce extraction rates for environmental reasons or to preserve resources for future generations. Some governments also rely on export taxes for revenue. No mainstream economic doctrine that tells us these are all bad policies that should never be pursued. But it is well known that such polices, if not carefully designed and implemented, can impose undue costs both on the countries applying them and on foreign countries interested in acquiring natural resources that they do not possess themselves.

In touching briefly upon all of these issues surrounding natural resource economics and trade in natural resources, I think I have said enough to demonstrate why international cooperation is at a premium. There are doubtless important differences of interest among nations in this sphere, but I also believe there are mutually beneficial trade-offs to be struck. This is why active efforts to solidify international cooperation in this sphere are so important. It is also why coherence among the various venues that exist for international cooperation is at a premium.

I thank you for your attention.

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