January 30, 2011 / 10:04 AM / 7 years ago

Analysis: Export curbs move into trade policy spotlight

DAVOS, Switzerland (Reuters) - As World Trade Organization members intensify efforts for a new trade deal, soaring food and raw material prices have raised a question that is not even on the Doha round agenda: export restrictions.

While WTO members are haggling over the extent to which tariffs come down, countries spooked by the memory of the 2008 food crisis that sparked riots around the globe are slashing import duties to let food come in as cheaply as possible.

Food inflation has been one of the hot topics at the annual meeting of the World Economic Forum in Davos. French President Nicolas Sarkozy, who currently chairs the G20, called for more regulation to curb speculation and volatility.

The latest surge in food prices was fueled by export restrictions on grain imposed by Russia -- not yet a member of the WTO -- and Ukraine to deal with a severe drought last year.

Just as in 2008, trading partners have asked whether you are allowed to halt exports without regard to the rest of the world.

But the rules-based trading system built up since World War Two and umpired by the WTO concentrates primarily on removing barriers to imports.

"In the WTO import restrictions are better disciplined than export restrictions," WTO Director-General Pascal Lamy said.

CONFRONTATION

It's not just about food.

Industrialists in Japan and Germany were terrified when China cut back supplies last year of rare earths -- the minerals used in high-tech goods from hybrid cars and mobile phones to defense products, of which China is a near-monopoly supplier.

The European Union will issue a strategy document on Wednesday on raw materials, Trade Commissioner Karel De Gucht told Reuters. According to a draft seen by Reuters, the EU will consider stockpiling raw materials and confront any country that restricts supplies [ID:nLDE7001JH]

For the EU the issue is not just curbs on the physical amount of exports, but the practice in some states of imposing export duties. These create dual pricing, making industry inputs cheaper for domestic manufacturers than for foreign competitors.

Brussels has insisted Russia scrap export duties on lumber if it wants to join the WTO and, together with the United States and Mexico, has challenged Chinese duties and restrictions at the global trade body.

Trade officials say there is no reason why exports could not be regulated in the same way as imports. Barriers to exports would be illegal, but countries would have safeguards -- a safety valve allowing them to block exports temporarily to ensure vital food supplies at home.

During the 2008 crisis Japan proposed introducing some tentative rules along those lines. But developing country food exporters shot down the idea.

Now it is time to look at the question again, said Anabel Gonzalez, foreign trade minister of Costa Rica -- a small developing country that exports tropical products like bananas, pineapples and coffee but relies on imports for staples such as wheat and soybeans.

"This is a pending issue for a future agenda that certainly needs to come into play," Gonzalez told Reuters." All of the provisions of the WTO are more concerned with imports and whatever you have on export restrictions is very limited."

Indonesia's trade minister, Mari Pangestu, agrees. The huge Indonesian archipelago is Southeast Asia's biggest economy and is a major commodity producer. But as well as growing rice, it imports the staple to ensure steady food supplies and keep prices down for its millions of poor.

Indonesia is one of the promoters of the special safeguard mechanism -- an instrument that would allow developing countries to raise tariffs temporarily to block a flood of food imports that could hurt their local farmers.

Pangestu, a respected economist, says the current high level of food prices does not invalidate the proposal. "Commodity prices have a way of up quickly and also going down quickly."

Financial investment in commodities has fueled this volatility and created uncertainty for farmers.

The long-term answer must include better investment in agriculture, not least to deal with the impact on production of climate change, rural credit, and hedging possibilities for farmers through well-functioning futures markets, she said.

But export restrictions need to be looked at too.

"We have to have a balanced discussion on this. A country's need to safeguard their stocks, that's a given. How do they do it in a way that doesn't lead to an impact on global markets?"

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