Trade in Natural Resources Poses Unique Challenges: WTO

28 July 2010

Governments must recognise the special challenges of trade in natural resources and work together to ensure the sustainability of their use, according to the WTO's 2010 World Trade Report, which was launched on Friday.

Natural resources made up 24 percent of world merchandise trade in 2008, WTO economists said in the report, the equivalent of US$ 3.7 trillion. And that figure is growing precipitously. Natural resource trade increased by some 20 percent per year over the last decade, according to Michele Ruta of the WTO Economics Research and Statistics Division.

Ruta, who spoke at an official launch of the report at the WTO's Geneva headquarters on Friday, noted that opening up trade in natural resources can have both positive and negative effects on the sustainable use of natural resources. While there are efficiency gains from trade, he said, the WTO is concerned that trade might increase pressures for natural resources to be exploited unsustainably.

The report noted that some of the policy interventions that governments use to manage their natural resources could have unintended adverse effects. For instance, trade policies can have distortionary effects, altering terms of trade so as to benefit one country at the other's expense. Also, the WTO noted that domestic laws and regulation can often be more effective than trade policies in ensuring the sustainable management of natural resources.

Ruta was joined at the launch by WTO Deputy Director General Alejandro Jara, Joost Pauwelyn of the Graduate Institute for International Studies in Geneva, and Jaime de Melo of the University of Geneva, who debated the report's merits and flaws. The discussants spoke highly of the report overall, although they criticised a handful of its findings.

de Melo, a professor of economics at the University of Geneva, asserted that the report could have looked more closely at the "natural resource curse" -  the seeming paradox that developing countries with rich reserves of natural resources tend to have worse development outcomes than nations with fewer such resources.

Recent evidence, de Melo said, shows that countries need to "revise [their] national income accounting to reflect depletion of natural resources" because their current growth paths might not be sustainable. He added that many people who live on ecologically fragile land depend on natural resource exports, especially in low- and middle-income countries.

Ruta explained that regions rich in natural resources tend to export their resources to industrialised countries and do little trade in the sector with their neighbours. Many of the problems that plague resource-rich countries have come from the high volatility of prices in this sector, he added - a volatility that can either be reduced or exacerbated by trade, depending on market conditions.

Do WTO policies apply to natural resources?

Pauwelyn, a professor of international law, called attention to the "urban myth" that natural resource trade falls outside of WTO rules. He said this common misconception can be partially blamed on the fact that many policy measures designed to protect natural resources are excused by Article XX of the General Agreement on Tariffs and Trade (GATT). Article XX is more commonly known as the "exemptions clause."

Pauwelyn clarified that the existence of Article XX does not mean that standard trade rules cannot be used when dealing with natural resources, even taking into account sector-specific issues of exhaustibility and negative externalities. Instead, he urged exporters and importers "to look at the current rules and see where they apply." He added that negotiators should do the same, clarifying or expanding the rules as necessary.

Pauwelyn also brushed off the suggestion that the WTO should adopt a GATT-style agreement on energy or natural resources. Giving energy and natural resources special treatment could set a risky precedent for other controversial topics, such as agriculture, to demand similar special treatment, he said.

Fisheries subsidies another source of concern

The report also found that global fisheries subsidies amount to between US$25 and US$29 billion annually - which is substantially higher than previous estimates of US$14 to US$20.5 billion per year.

Chilean Ambassador Mario Matus asked the discussants at Friday's launch whether these subsidies should be blamed for the depletion of global fisheries stocks - especially since the United Nations Food and Agriculture Organization estimates that 80 percent of fisheries are overfished.

Ruta responded by explaining that fisheries tend to suffer from open access problems, particularly from fisheries tending to have poorly defined property rights. For these reasons, he said, fisheries could still be overfished even if governments provided no subsidies to support the industry. Ruta also suggested that subsidies could be used as a tool to decrease this overfishing and protect fish stocks.

WTO disciplines on fisheries are being debated in the organisation's struggling but ongoing Doha Round of trade talks. The options under discussion include a prohibition of certain types of fisheries subsidies, such as subsidies for operating costs and for the construction of new fishing vessels.

Chile is currently a member of the informal "Friends of Fish" negotiating group, along with Argentina, Australia, Colombia, New Zealand, Norway, Iceland, Pakistan, Peru, and the US. The group has criticised subsidies for their adverse effects on fisheries.

More information

For more information, or to download a copy of the report, please see http://www.wto.org/english/res_e/publications_e/wtr10_e.htm.

ICTSD reporting.

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