Natural Resources and Non-Cooperative Trade Policy

Posted: 16 Apr 2011

See all articles by Joelle Latina

Joelle Latina

University of Applied Sciences Western Switzerland - Geneva School of Business Administration

Roberta Piermartini

World Trade Organization (WTO) - Economic Research and Analysis Division

Michele Ruta

Economic Research Division, WTO; Columbia Business School - Economics Department; International Monetary Fund (IMF)

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Date Written: April 14, 2011

Abstract

When looking at the conditions of trade in natural resources the world appears upside down: tariff protection in natural resources sectors is generally lower than for overall merchandise trade, while export restrictions are twice as likely as in other sectors. On the other hand, tariff escalation is significant in natural resources sectors, where materials in their raw state face, on average, lower duties than in their processed form. In this paper, we discuss how export taxes and tariff escalation may be the result of an uncooperative trade policy. Specifically, tariff escalation and export taxes can be "beggar-thy-neighbor" policies because governments may be tempted to use them to alter the relative price of exports to their advantage (terms-of-trade effect) or to expand the domestic processing industry at the expenses of foreign production (production relocation effect). In equilibrium, these policies offset each other in a Prisoners' Dilemma situation, where trade is inefficiently low.

Keywords: Natural Resources, Export Taxes, Tariff Escalation, Prisoners' Dilemma, WTO

JEL Classification: F13, F59, Q34

Suggested Citation

Latina, Joelle and Piermartini, Roberta and Ruta, Michele, Natural Resources and Non-Cooperative Trade Policy (April 14, 2011). International Economics and Economic Policy, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1809803

Joelle Latina

University of Applied Sciences Western Switzerland - Geneva School of Business Administration ( email )

7 Route de Drize
CH-1227 Geneva
Switzerland

Roberta Piermartini

World Trade Organization (WTO) - Economic Research and Analysis Division ( email )

Rue de Lausanne 154
CH-1211 Geneva
Switzerland
+41 22 739 5492 (Phone)
+41 22 739 5762 (Fax)

Michele Ruta (Contact Author)

Economic Research Division, WTO ( email )

Rue de Lausanne 154
CH-1211 Geneva
Switzerland

HOME PAGE: http://www.iue.it/Personal/Fellows/MicheleRuta/Welcome.htm

Columbia Business School - Economics Department ( email )

420 West 118th Street
New York, NY 10027
United States

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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