Trade in raw materials

trade policy brief

Trade in raw materials

February 2019

No country is self-sufficient in key raw materials.

How revenue from the mining sector is spent is as important as how much is collected.

Export restrictions are not the best way to support or create a downstream processing industry.

What’s the issue?

Almost all consumer goods today contain raw materials from the mining sector; for example, a mobile phone can contain 50 different minerals and metals. While no country is self-sufficient in these materials, mineral resources represent a vast stock of wealth in some countries where exports of such products dwarf all other exports.

But the mining sector often provides little employment in the countries where extraction occurs. Some countries have implemented export restrictions to try to increase

the value added of their natural resources and create jobs in processing industries. The rationale is that restricting exports of minerals will help to foster a downstream processing industry through lower input prices, thereby creating more jobs domestically. Other countries use such restrictions to generate revenue, control illegal exports or the export of illegally mined products, enhance environmental protection, or offset exchange rate impacts caused by the export of few commodities. These are all legitimate policy goals to be determined in each country by its citizens’ preferences.

Most restricting measure on exports of minerals and metals, 2014

No restrictions Non-automatic licensing other export measures Export tax Export quota Export prohibition

Source: OECD Inventory of Export Restrictions on Industrial Raw Materials

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Trade in raw materials Export restrictions often do not achieve desired objectives

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The research is clear that export restrictions are generally not the best way to regulate the mining sector, and often do not achieve their desired objectives. Indeed, in some cases they have the opposite effect.

The impacts of export restrictions are exacerbated when commodities are produced in only one or two countries.

For example, platinum group metals are produced in a small number of countries but are necessary to produce many electronics – from computers, to mobile phones, to catalytic converters. If countries that control global production of raw materials restrict their exports, global markets can be heavily impacted – prices of those commodities rise sharply, and their consumers may not have access to the materials they need.

In a study estimating the effect of removing all export barriers on steel and steelmaking raw materials, OECD found a positive impact on global welfare and in those countries that use export restrictions on those materials.

These results therefore suggest that export restrictions are not an appropriate policy instrument to respond to the challenges of regulating the extractive sector for economy-wide, sustainable growth. Despite this, exportrestricting measures are prevalent on many raw materials such as minerals and metals (see figure).

What should policymakers do?

If trade policies such as export restrictions do not achieve their objectives, what are the alternatives? Some countries have been successful in leveraging their mineral resources for sustainable, economy-wide growth. They have shown the viability of alternatives to export restrictions. OECD analysis points to some successes and shares lessons from their experiences: •

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Regulatory stability is of prime importance to mining firms, as they are obliged to make long-term capital investments; stable tax frameworks are particularly important.

Good fiscal rules that encourage spending minerals tax revenues in a counter-cyclical fashion help contain exchange rate volatility. It is important to reach a balance between spending and investment of minerals revenues, taking account of domestic absorptive capacity.

Mining intensive countries can diversify their economy by creating clusters around their mining sectors. Services are particularly important in creating jobs throughout the mining value chain.

Controls on illegal mining and support for sustainable mining practices help mitigate negative externalities and potential harm to other industries.

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Raw materials are essential to everyday life - did you know that your mobile phone is made using 50+ different minerals and metals?

Watch the video at https://youtu.be/3bSLYw_HYdU

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Providing high-quality, detailed geological information is of prime importance for minerals-rich countries wishing to attract investment. Such information is a public good and can enhance the efficiency of mining and prospecting operations.

Further reading • OECD Inventory of Restriction on Exports of Industrial Raw Materials. http://qdd.oecd. org/subject.aspx?Subject=ExportRestrictions_ IndustrialRawMaterials • OECD (2014), Export Restrictions in Raw Materials Trade: Facts, fallacies and better practices, OECD Publishing, Paris. https://issuu.com/oecd. publishing/docs/oecd-export-restrictions-rawmateri • Korinek, J. (2013), “Mineral Resource Trade in Chile: Contribution to Development and Policy Implications”, OECD Trade Policy Papers, No. 145, OECD Publishing, Paris, https://doi. org/10.1787/5k4bw6twpf24-en.

• Korinek, J. (2014), “Export Restrictions on Raw Materials: Experience with Alternative Policies in Botswana”, OECD Trade Policy Papers, No. 163, OECD Publishing, Paris, https://doi. org/10.1787/5jzb6v86kz32-en.

• Korinek, J. (2015), “Managing the Minerals Sector: Implications for Trade from Peru and Colombia”, OECD Trade Policy Papers, No. 186, OECD Publishing, Paris, https://doi. org/10.1787/5jrp6wrc2r7l-en.

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