International Trade in Natural Resources: Practice and Policy

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 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 the exploration and development of natural resources. Properly coordinated policy reforms offer an avenue to resource-exporting and resource-importing countries to overcome these inefficiencies and to obtain mutual gains.