Related to the issues we have been discussing on this Blog: what are the most important gaps in the rules with respect to trade in these sectors?
This question already assumes that there are gaps in the rules, which is probably a defensible assumption. Many issues come to mind here, such as the imbalance in the rules between import restrictions and export restrictions (i.e. the fact that they make it less difficult for governments to impose export restrictions compared to import restrictions – unlike for example the even-handed approach to such measures under EU law), dual pricing (in the sense of internal prices in producing countries lower than export prices), the application of WTO rules to internal taxes, e.g. excise taxes on fuel in countries with little domestic fuel production, and so on.
In this connection, I was reading the WTO working paper written by Professors Paul Collier and Anthony Venables, which I found truly refreshing. (available here: http://www.wto.org/english/res_e/reser_e/ersd201006_e.pdf) I liked particularly the fact that it is written in very original language (e.g. WTO rules and disciplines are called “commitment technologies”) and free of our traditional conceptual boundaries. Many of the issues they address are what many of us might easily exclude as outside the WTO system – many of their trade issues are our investment law issues, competition law issues, and so on. However, there is nothing in this conceptual compartmentalization that prevents members from bringing any of these into the WTO system.
While I do not intend to summarize their paper here – not least because I would not be able to; there is even a graph! – Collier and Venables start by identifying what they call the “distinctive features” of the natural resource sector that give rise to “non-standard arguments for trade policy and for the design of international rules: … the fixed location of resource endowments, the presence of resource rents, the fact that resource stocks are finite, issues to do with the long run discovery and development of resources, and the fact that resources are a predominant share of economic activity in some producing countries.” (p. 3) After an explanation of each feature, they identify the trade policy implications and how new rules could be designed within the WTO to address them. Let me mention a couple of examples, which I put under my own headings:
Investment? Investment dispute settlement?
On natural resource projects, they argue that “investors enter a long term relationship with the host country government. The relationship is based on contracts signed when the licenses to explore and extract are granted, and on the accompanying fiscal regime under which investors operate. This relationship means that trade policy is not just about the market for the resource, but is also about the market for licenses – their terms and their allocation.” (p. 7) They then discuss the challenges that arise in the management of relations between investors and governments, often following the ups and downs in the price of commodities on the world market.
A possible “commitment technology”:
“the internationalization of contract enforcement through ad hoc approaches such as foreign courts and arbitration arrangements is already common. However, they are often mistrusted by the governments of low-income countries, while lacking enforcement mechanisms that reassure investors. There may be scope for the WTO to extend its role in the enforcement of agreements between sovereign governments to enable governments to commit themselves to resource extraction agreements. Sometimes these would be between a government and a company, as with ALCOA, and sometimes they would be intergovernmental, as with Guinea and Liberia.” (p. 13)
Further down, they also identify the current fear of “peak oil”, which they argue, could be mitigated if resource rich countries were to allow investment in exploration and development. On this, they suggest: “As a near-global organization the WTO has the authorizing space in which to codify rules and standards that might mitigate these political impediments to investment.” (p. 16)
Possible competition law issues?
Discussing the interests of importing countries particularly in supply risk situations, they fear that “the international trading system is going to be bypassed by secretly negotiated bilateral deals between importing and exporting governments that withdraw huge blocks of the earth’s surface from the international market.”
A possible “commitment technology”:
“There is a reasonable basis for the WTO to require that future sales of the rights to extraction and related exploitation of natural assets should not lock-in the sale of output to particular markets. The sale of output can be detached from the exploitation of the resource, and conducted according to normal commercial practices for the sale of products.” (p. 16)
Taxes and subsidies
They also discuss the effect of taxes and subsidies, using the petroleum sector as an example: “Heavy permanent taxes in most importing countries reduce world demand for oil and hence lower the world price, thereby shifting the rents from producers to consumers. In producer countries consumer subsidies or export taxes have an analogous opposing effect, raising demand and tending to increase the world price.”
A possible “commitment technology”:
“because the efficiency losses arise from differences in domestic prices, whereas the shifting of rents arises from the effect on the world price of taxation in some countries and subsidy in others, it is potentially possible to reach a mutually beneficial deal in which the distribution of rents is unaffected while the efficiency losses are eliminated. Reaching such a deal, in which world prices were gradually harmonized, would be entirely analogous to the mutual de-escalation of tariff wars which has been the core function of the WTO since its foundation.” (p. 19)
I wonder what the views of the lawyers would be on such issues: is there a need for any of these to be brought within the WTO? Or do we have other international law rules that take care of such issues adequately?
