DP8903 International trade in natural resources: Practice and policy

Author(s): Michele Ruta, Anthony Venables
Publication Date: March 2012
Keyword(s): export tax, natural resources, OPEC, tariff escalation, terms of trade, trade, WTO
JEL(s): F1, F13, Q3
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=8903

Natural resources account for 20% of world trade, and dominate the exports of many countries. Policy is used to manipulate both international and domestic prices of resources, yet this policy is largely outside the disciplines of the WTO. The instruments used include export taxes, price controls, production quotas, and domestic producer and consumer taxes (equivalent to trade taxes if no domestic production is possible). We review the literature, and argue that the policy equilibrium is inefficient. This inefficiency is exacerbated by market failure in long run contracts for exploration and development of natural resources. Properly coordinated policy reforms offer an avenue to resource exporting and importing countries to overcome these inefficiencies and obtain mutual gains.