Author: OECD, 2013
Monday 1 April 2013, by Carlos San Juan
Industrial production depends on trade in raw materials such as metals, minerals and natural resources. Prices and quantities of these materials are strongly influenced by global demand but also by policies in the countries that produce and export them.
Prices for many raw materials have increased significantly over the past few years. At the same time, producer countries are making greater use of measures which raise export prices, limit export quantity or place other conditions on exports. Countries use these export restrictions as a way to increase revenue, decrease domestic prices, promote downstream processing industries or conserve natural resources.
Materials affected by these restrictions in recent years include timber from Russia, chromite from India (used in chrome plating and in pigments) and rare earths from China (used to make computers and mobile phones). Food commodity exports have also been restricted; when food prices rose sharply in 2007-08 over 40 countries imposed various forms of export restrictions.
Negative effects of export restrictions Export restrictions have negative consequences for international trading partners and producer countries. By diverting raw materials from export to domestic markets, these restrictions raise prices for foreign consumers and importers. At the same time, by reducing domestic prices in the producer countries and increasing global uncertainty about future prices, export restrictions discourage investment in extracting and producing raw materials - potentially reducing the overall supply of materials in the long term.
Also, export restrictions by a producer country may lead to a spiral of restrictions by other countries, which would mean further trade distortion and global price increases.
Businesses and policy makers alike are concerned by the increasingly restrictive and unpredictable environment of international trade in industrial raw materials. Multilateral disciplines governing the use of export restrictions are weak. There are no rules for using export duties, while policies behind export restrictions often lack transparency. This creates uncertainty for industries that depend on supply of these materials and raises the risk for investment in both mining and processing facilities worldwide.
Instead of restricting exports, many countries have used other policies that meet their objectives without distorting trade. For example, as a response to the food price increases of 2007-08, Brazil and South Africa reduced import tariffs on wheat and maize respectively. Chile, the world’s leading producer and supplier of copper, applied a tax on the operating income of copper mine operators and directed the revenue from this tax towards development and innovation projects in mining and other sectors.
OECD analysis of the economic impact of export restrictions shows that there are more effective and less costly alternatives to export restrictions, and advocates a multilateral framework to discipline export restrictions at the World Trade Organization (WTO).
OECD has also compiled a comprehensive inventory of restrictions on exports of raw materials, which will improve transparency and enable more informed policy dialogue within and across countries.