Raw Materials Protectionism: The Present State of Affairs. Gordon Peeling, President and CEO Chair, BIAC Raw Materials Committee

Transcription

1 The Present State of Affairs Gordon Peeling, President and CEO Chair, BIAC Raw Materials Committee OECD Workshop October 30, 2009

2 Agenda Current Economic Context Export Barriers Other Considerations OECD Path Forward

3 Context: Tough Economic Times World Bank 2009 global growth forecast of negative 3% US residential construction activity 35% below historical levels and light vehicle 09 sales forecast 25% below historical levels Global decline of 15% in industrial production World stock markets off by 50% World trade decline of 20%

4 Context: The Global Steel Scene US weekly steel production declined 40% over the course of 2008 World steel capacity increased 600 Mt (55%) between China was net steel importer until Became a net exporter in 2006/7, shifting from 30 Mt deficit in 2003 to 40 Mt surplus in 2007 Chinese capacity exceeds Chinese demand by 33, 17, 8, 6, and 3 Mt in hotrolled, plate, wire rod, rebar and galvanized steel respectively in 2008 NAFTA imports from Korea, Ukraine, Russia, India have also grown Memories of 1998 steel crisis remain - with NAFTA markets as a dumping ground for excess offshore steel

5 Context: China as a Long-Term Driver Consumed 5% of world s base metals in 1980s versus >25% today Urban population: growing from 560M in 2005 to 940M in 2020 Shift toward feed-intensive diets (potash), nuclear power (uranium), infrastructure and manufacturing (base metals), middle-class (diamonds, gold) Decades of consumer/metals growth ahead Following a raw materials strategy (export barriers, inward investment barriers, aggressive outward investment) that distorts trade and investment flows Stimulus spending (US$ 586B) could provide further impetus to mineral prices Brazil, Russia, India future growth will also be significant

6 Context: Supply Side Constraints Declining mineral reserves down 50% in Canada s case Increasing regulatory and environmental assessment rigour Remote regions, inadequate infrastructure Increased cost/declining success rate of exploration? Geopolitical realities in high-risk countries Human Resource/skills constraints All of above make supply response to price signal slow!

7 Export Barriers: Why Use Them? Traditional economic model involved erecting import barriers to protect domestic industries An export barrier strategy is arguably more effective. It allows countries to move along the valueadded continuum - increasing employment and enhancing value of exports Export barriers serve to increase domestic supply of primary, secondary and/or tertiary raw materials, thereby reducing domestic prices and providing cost subsidy for value-added producers Example China s domestic coke price of USD 395/tonne versus export price of USD 680/tonne, a 72% advantage (Metal Expert, Global Trade Atlas, Sept 08) Example China s domestic tungsten APT price index of 150 versus export price index of 200, a 33% advantage Barriers also serve to deny global access to raw materials, thereby increasing cost of competing value-added producers on world markets

8 Export Barriers: What are the Tools? Export taxes and tariffs China 15% tax on moly, copper, nickel exports Tax refunds on imports China VAT refunds on copper imports Export quotas China quotas on bauxite, coke, rare earths Export and import licensing systems Venezuela permits for scrap exports Abolishing VAT rebates for exports China for alum, nickel, moly, rare earths Tariffs on scrap exports Russia 15% tariff ferrous and 50% non-ferrous

9 Export Barriers: Concept of Mineral Criticality A critical mineral is: i) essential in use; and ii) subject to risk of supply restriction Recent analysis from the US National Academy of Sciences used a risk matrix to plot these two dimensions and rated indium, platinum, palladium, rhodium, rare earth elements and manganese as highest criticality Used as catalysts, to control pollutants, to optimize industrial applications, in medical imaging, in computer monitors and electronics, in steel hardening, in aircraft engines. Production is concentrated in a few countries.

10 Export Barriers: Chinese Examples ITS Global report documents 20 policy measures in the space of two years ( 05-06) that serve to reduce exports of minerals and metals. Measures included export licenses, tariffs, quotas, and abolished VAT rebates Affected raw materials included aluminum, antimony, bauxite, nickel, scrap, iron ore, coal, coke, platinum, copper, tungsten, zinc, manganese, moly, rare earths Non-ferrous raw materials cover 63 customs lines, of which 49 are affected by China s export restrictions and of which 36 are not protected by its WTO Accession Protocol

11 Export Barriers: China is Not Alone Vietnam tariffs of 5-10% on iron, nickel, zinc, moly, antimony, coal, others Russia 15% tariff on ferrous scrap exports and 50% on non-ferrous Tanzania past bans on exports of scrap aluminum, brass, iron, steel Venezuela compulsory permits for exporters of copper and ferrous scrap Zambia, Colombia banned scrap metal exports

12 Export Barriers: Investment Tools Restrictions on Foreign Direct Investment also distort trade and raw materials supply State-Owned Enterprises (SOEs) and Sovereign Wealth Funds (SWFs) are emerging as significant actors on the international scene, pursuing State objectives China has used SOEs and SWFs to make important raw materials investments in Australia, South Africa, Canada and numerous African countries in recent years

13 Other Considerations: China as Partner China is among world s largest and fastest growing markets for metals and minerals it holds over US$2 trillion in foreign exchange reserves Some Canadian companies have received investment inflows from China and have strategic interests in Chinese market opportunities Numerous examples of Australian companies with strategic partnering and market interests in China China is helping improve African infrastructure by investing billions in schools, hospitals, roads

14 Other Considerations: An Ineffective WTO In theory, WTO/GATT can help resolve the raw materials protectionism issue GATT Article XI articulates the general principle of elimination of export restrictions, while Article XX permits export restrictions on products in general or local short supply US, EU launched a WTO challenge in June 2009 regarding China s restraints on the export from China of various forms of bauxite, coke, fluorspar, magnesium, silicon carbide, silicon metal, yellow phosphorus and zinc. Mexico has joined this challenge. Canada has joined as a third-party The challenge alleges that the measures at issue cause marked distortion in the availability and international prices for those materials and in the price of products manufactured from them Effectiveness of the WTO in dispute resolution is limited. Processes can require several years and are expensive. Countries can then make modest policy refinements in response. Retaliatory measures are rarely used Given the importance of China as partner, a dedicated, sustained and coordinated pursuit of trade actions and other remedies by western countries is not a certainty

15 What Can the OECD Do? Develop an approach for critical materials; build upon work of U.S. National Academies OECD Trade Committee to continue/expand work on export restrictions affecting the movement of raw materials Develop a registry of export restrictions Deeper analysis of the effects of these distortions on industry competitiveness and investment Analysis of other possible remedies and solutions Enhance dialogue and cooperation between consumer and producer countries