Raw materials: The role of trade in dealing with pressures in commodities markets

EU The EU Commissioner for trade issued the following statement on the occasion of the Bureau of European Policy Advisors (BEPA) conference “Commodities and Raw Materials: Challenges and Policy Responses”: The role of trade in dealing with pressures in commodities markets is straightforward: raw materials are widely distributed around the globe, but not all of them are equally present within each country. Thus, our economies must rely on international trade to supply the raw materials they need. And as the global economy grows, more raw materials are needed: the 2010 WTO World Trade Report shows that trade in natural resources represents a significant and growing part of world trade, representing about 24% of total merchandise trade in 2010.

In order to start thinking of responses, let me first address two misperceptions:

Some say that security of supply is simply a North/South issue or one of the rich consuming countries versus the often poorer supplying countries. Or: that this is about rare earths and China versus the rest of the developed world. I do not share this view: there is not a single country in the world that is fully self-sufficient for all the raw materials it needs to sustain its economic growth. We are all interdependent, developed, emerging (or should we say: emerged!) and developing nations. Rare earths is but one of the many raw materials we need. China is dependent on imports of iron ore. Most African countries need to import raw materials.

The second perception is that trade policy is going to sort it all out alone. True, the interdependence between consumers and producers of raw materials, be they rich or poor, will increase with rising trade flows. The key to avoiding unnecessary shock waves is to maintain well functioning, open markets. I am thus all in favour that we all play according to the same rules and that there is a trusted implementation of the rules.

However, as the challenges are multifaceted, next to trade two equally important policy fields should be integrated: development and environment.

We need to address development needs. Defining responses to the challenges of minerals coming from conflict regions is an important priority. But development touches on a whole range of issues such as transparency, good governance, economic diversification or responsible mining all of which are going to be inextricably linked to an effective and acceptable policy response in the raw materials field.

We also need to respond to the environmental aspects that arise out of the production and trade of raw materials. The EU is working hard internally to tackle issues such as recycling and conservation head on in order to improve its efficiency in the use of raw materials. Moreover, the environmental dimension of mining and some extraction activities (tar sand, shell oils) deserves more attention. International action in this field is somewhat limited at present. Hence, we should address it more widely and improve in an area which has a lot of good potential.

In a nutshell, the EU does not pretend to have all the answers to the challenges that the raw materials market presents. But we are convinced that no country, or even a limited group of countries, can provide adequate solutions on their own. Our response must include a proper framework to deal with an increasing international trade: increased transparency to understand better the economics and how supply and demand works, better and enforceable trade rules, integrated solutions to development needs, multilateral responses to the environmental challenges.

Now where to do that? We are developing, as part of the EU’s overall Raw Materials Initiative, a wide range of bilateral activities, ranging from trade agreements to policy dialogues. But bilateral activities can only be complementary: this is a true global challenge, requiring global responses, in the form of an international framework and enhanced cooperation that takes care of concerns of all players.

We are encouraged that a wide range of institutions have already looked at one or more of the key aspects. The WTO, OECD, World Bank, various UN bodies to name a few, have done research or started political discussions. We also think that the G20 is a well-placed body to foster mutual understanding and have a presented a non-paper on the issue in April this year at Sherpa-level.

So for us what seems to make sense is to identify what actions existing international institutions can take in the field and increase the cooperation between these institutions so that gaps are filled and the international work is taken forward coherently. The EU welcomes this debate and intends to be a full and constructive participant in identifying the best response to the challenge.

As this afternoon’s discussion has shown we are certainly not starting from scratch when thinking about the policy responses to the challenge that the changes in the raw materials market present.

We have individual countries already taking concrete steps to formulate and implement holistic strategies to face the changing conditions in the raw material market. We are also starting to see a number of international institutions standing up to the challenge of what necessarily has to be a common effort at resolving the difficulties that the new situation presents.

We have a number of actors, be it the World Bank, the OECD, G20 or even the EU itself, but while no single entity can take the lead on all the issues which are related to the field, we can certainly work at ensuring greater coherence in order to make a global approach possible and more effective. The G-20 in particular may have a privileged position to enhance current coordination in decision making.

In any case, we must recognise that there is unfortunately no quick fix to the challenge and our first aim should be to make sure that we are adequately addressing the various policy strands that affect raw materials use and trade and that whatever actions are taken, do not end up in piece-meal, beggar-my-neighbour positions but rather increase commonality and coordination to increase our overall chances of effectively meeting this policy challenge.

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