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* Curbs on key commodity exports increasing
* Countries seek to ensure supplies for domestic use
* More appeals seen to WTO to challenge export curbs
By Krittivas Mukherjee
NEW DELHI, July 20 Countries from India and
Indonesia to Russia are tightening their grip on natural
resources as they limit exports to build up domestic industry in
a trend that will spawn many challenges to World Trade
Export barriers are tightening on commodities ranging from
food and coal to iron ore and coveted rare earths that have
critical roles in high-tech devices as countries harden
positions on what they see as a sovereign right to development.
The WTO ruled this month that China broke trade laws when it
curbed exports of coveted raw materials, a verdict that seemed
to cast a doubt over nations' right to control and use raw
materials on their soil.
Between October last year and April 2011, at least
30 new export curbs were imposed by countries such as China,
India and Vietnam, up from 25 slapped on during the previous 12
months, the WTO said in a report in June.
"Every country is trying to conserve its resources," R.N.
Patra, head of India's state-run rare earths company, IREL, told
Reuters. "It is their right how they want to use them."
Indonesia had raised the floor price of coal, Australia had
a levy on a minimum price, and even the United States had
restrictions on the export of 10 elements, Patra added.
"This did not exist a few years ago. But in the future there
will be greater competition for resources."
ECONOMIC RECOVERY TO DRIVE BATTLE
As the world economy recovers from its slowdown, that battle
for resources will only intensify, analysts said, although, for
now, many producing countries need the income from exports to
plug large fiscal deficits.
Export curbs run the gamut from taxes to restrictive quotas
and outright bans.
For example, India has a 20 percent export tax on iron ore
and controls grain exports; Indonesia's curbs include giving
priority to domestic demand for gas and coal and export taxes on
cocoa and palm while Mongolia, a potential source of rare
earths, is talking about an export tax on ores.
Increased export curbs by developing countries stem from
short-term protectionist motives rather than long-term
industrial policy, said Razeen Sally, director of the European
Centre for International Political Economy, a think-tank based
"There is a trend and a copying effect going on -- when
China does it, other will do it too -- but I do not think this
makes economic sense at all," Sally told Reuters.
"We can expect more cases to come to the WTO as we see many
more of these restrictions. The case against China is important
in the sense that it sends a signal that countries don't have
carte blanche when it comes to export restrictions."
BUILDING DOMESTIC INDUSTRY
China has faced pressure over export limits on rare earth
minerals, which have key applications in high-tech appliances
ranging from fibre optics to mobile phones.
The country controls 97 percent of world supplies of the
metals and has cited environmental concerns and resource
depletion for trimming back exports in the WTO row.
"The WTO dispute opens a larger debate on the changing
dynamics of global trade in which developing countries, like
China or India, are slowly looking at moving away from the model
of exporting raw materials to the developed world to produce
value-added products," said T.S. Vishwanath, an adviser with
APJ-SLG Law Offices, a firm specialising in trade issues.
Conserving resources could give downstream producers just
the edge they need to stay ahead of the curve in fiercely
competitive international markets.
In extreme cases, a country which is a monopoly supplier of
a commodity with limited substitution may drive out whole
industries in a competing import-dependent country.
That is why China's curbs on rare earth metals have drawn
so much attention, despite involving low trade volumes. But one
analyst said the country was also looking to support its
manufacturers and the military.
"The Chinese equate rare earths with their own stability,
not just in the manufacturing sector but also the military
sector," said Ben Simpfendorfer, managing director of business
consultancy Silk Road Associates, which is based in Hong Kong.
While natural resources are vital for the industrial
development of Asia's fast-developing economies, for now, many
Asian nations are primarily concerned with food security at a
time of potentially acute, destabilising inflation and
fluctuating supply and demand, Simpendorfer said.
In the developing world, where land has traditionally been
the only source of livelihood for hundreds of millions of
indigenous people, forest and mountain dwellers and farmers,
conserving natural resources is an explosive political issue.
Rising industrial activities fuel the demand for land,
feeding conflict between firms and vast populations living in
the countryside who form the core support base of governments.
Such protests scatter across the developing world from
Brazil to Indonesia, and governments have damped the unrest with
the strategy of getting investors to devote some of their income
to the development of local communities.
India is framing a law to force private miners to share
profits or make royalty payments, so generating funds to aid
local communities' development in a bid to win popular approval
for projects and undermine support for a Maoist rebellion.
"There is a trend of a huge outcry in producing countries
and the view is people there should benefit from their own
resources," said Paranjoy Guha Thakurta, a political commentator
in New Delhi. "Governments cannot ignore the protests anymore."
As growing environmental concern piles pressure on
developing countries to cut carbon emissions, they are likely to
hold on to resources key to building clean energy equipment.
In the context of global climate talks, developing economies
could use an export tax to counter or preempt border adjustment
measures that developed countries set on imports.
"Energy security and concerns over carbon emissions will
mean more and more countries will want to conserve their
resources to build their alternative energy capacity or
energy-saving equipment," said IREL's Patra.
"For so long the West has been taking the cheap
resources of the East. Going forward we will see that will not
(Additional reporting by Neil Chatterjee and Alfian in JAKARTA
and James Pomfret in NEW DELHI Editing by Clarence Fernandez)