Think Piece

Export Restrictions in Relation to Extractive Industries

November 2015
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The use of export restrictions in relation to extractive industries at the multilateral level has gained prominence in the international trade debate in the last few years due to their proliferating use on non-fuel minerals and metals and, to a lesser extent, energy commodities. Concerns arose in particular at the end of the 2000s, when the number of newly introduced and/or increased export restrictions peaked, representing the fastest-growing component of trade restrictions introduced during the economic and financial crisis according to the World Trade Organization (WTO). The use of export restrictions in the extractive sector has proved particularly controversial due to their ambivalence. On the one hand, they could in principle mitigate, under certain conditions, the negative environmental externalities linked to extractive activities by slowing the pace of extraction, and, consequently, the rate of depletion of finite resources. On the other hand, they may also serve industrial purposes inasmuch as they de facto subsidise domestic downstream producers to the detriment of foreign competitors. Due to this inherent duality, export barriers have been firmly contested by affected countries as beggar-thy-neighbour instruments distorting trade and competition. In contrast, resource endowed developing countries have defended the right to use such instruments as legitimate economic and sustainable development tools.

Recent trends show that export barriers are to remain critical for extractive industries. Sector-specific challenges make them particularly exposed to the “perverse” effects associated with export restrictions. Yet, current WTO rules on the export side are overall fragmented and deficient, and at times (in the case of selected developing country Members assuming WTO-plus obligations on export duties in post-1994 accession protocols) not coherent with the basic principle of the General Agreement on Tariffs and Trade (GATT) system, according to which tariffs are the preferred and acceptable form of protection. Against this backdrop, the paper explores some avenues for improving multilateral disciplines on export restrictions in the direction of greater transparency, predictability, and flexibility. Although acknowledging that reform attempts may encounter much scepticism, when not open resistance, it is argued that traditional opponents would actually be the first to gain from more comprehensive and balanced disciplines re-establishing a level playing field among all WTO Members. Further, a multilateral solution remains essential if one considers that the countries more actively engaging in the use of export restrictions (for example, China, the Russian Federation), at least for what concerns the extractive sector, have not yet concluded free trade agreements with those players, such as the EU, that systemically pursue a WTO-plus strategy based on the complete removal of export duties that systemically pursue a WTO-plus strategy based on the complete removal of export duties in addition to QRs, matched with fewer exceptions than in the WTO, in their bilateral and regional trade agreements.

The solutions proposed have the potential to be implemented independently from each other. At the same time, they are incremental in the sense that they could mutually reinforce and complement each other. In this respect, a reform addressing all three “dimensions” of transparency, predictability, and flexibility would have better chances to reach higher levels of commitment in each of the dimensions than if it tackled any of them individually. For these reasons, a new agreement, either focused on export barriers as such or more generally on extractives, and including disciplines on export restrictions, remains the first-best solution to raise the ambition of any reform of WTO disciplines on the export side. Under such an agreement, WTO Members could establish a centralised regime for administering notification and consultation requirements, clarify the applicability of the scheduling and binding procedure under Article II:1(b) GATT to export duty concessions and commit to use it across-the-board to negotiate export tariff bindings on a system-wide basis. They could also envisage flexibilities that go beyond those already available to export restrictions under the GATT. An agreement of this kind could represent a workable compromise between net-importing WTO Members and resource-endowed developing country Members, and dissipate the inconsistencies emanating from the WTO accession regime on export duties as revealed in China – Raw Materials and China – Rare Earths. Finally, by creating the conditions for the launch of multilateral negotiations on export duty concessions, and limiting the availability of additional flexibilities to export tariff bindings included in GATT schedules, it would provide WTO Members with the right incentives to privilege export taxes over more trade-restrictive quantitative restrictions, in keeping with the spirit of the multilateral trading system.

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