The Meek May Inherit the Earth, but not the Mineral Rights
The Asia Pacific Economic Cooperation forum – APEC ‑ has
lost its way so badly that apart from its annual silly-costume photo-opportunity
summit, it seldom rates more than a yawn. Its 21 member economies, stretching
from Canada and Peru to New
Zealand via Russia,
China, Japan, Hong Kong
and ASEAN, are so disparate that few believe cooperation can go much beyond
minor trade facilitation.
But last week a meeting in Perth, Australia,
suggested that the group just might have found a rather bigger trade niche. The
event passed almost unnoticed by regional and global media but it might end up
being more significant than the much-ballyhooed APEC November summit in Vietnam.
Mining ministers from APEC member countries agreed to
explore establishing free trade in metals and minerals among members. They
agreed that free trade and open and predictable investment policies are in the
interest of both exporters and importers and would help minimize price swings.
If it comes to pass it would amount to the world’s largest
single FTA (free trade agreement). It would “dwarf every other FTA in existence,”
according to Australian Resources Minister Ian Macfarlane.
The obstacles are many. Translating a multinational agenda
into national policies will be difficult. However, it is not impossible. The
APEC membership may be disparate but it dominates global production of most
non-oil energy and minerals. Look at the list: Australia
and Canada, with coal, iron
ore, copper, nickel, aluminum, zinc, uranium, lead, gold and platinum, plus Russia
with a similar long list and a host of lesser minerals from antimony to zirconium.
The US, too, has a wide range of natural resources, some of
which are exported, and even the South American APEC members weigh in with big
contributions to global output of minerals such as copper from Chile and silver
from Mexico and Peru. ASEAN members and Papua New Guinea continue to play
major roles in copper, tin, nickel and lesser minerals like tantalum and
dominates global coal production and is big in various rare-earth minerals. Indeed,
apart from South Africa and Brazil,
the APEC group includes almost every major exporter of every major metal and
APEC is not quite so big a player on the import side. But
the advanced economies of East Asia – Japan,
Korea and Taiwan – are
almost wholly dependent on imports of almost every mineral. As a group they vie
with the EU as the world’s biggest importers. China, of course, is the new
elephant on the block with a voracious appetite for raw materials. And the US
remains a big minerals importer as well as exporter.
So can this group find common ground? Is it in their
interest to cooperate on free trade, not to mention more difficult areas such
as common environmental practices and freedom to invest?
Would an FTA actually make much difference anyway? The
importing countries generally have zero or very low tariffs on minerals, and
mostly low ones on metals. As for the exporting nations, some use export
tariffs as a means of raising revenue so they are going to be reluctant to
abolish them. However, many countries already use production royalties, sliding
tax rates and other revenue raising devices rather than tariffs.
Some exporters impose volume restrictions for a variety of
reasons ranging from national security to fears of depressing global prices.
(In the first flush of opening up, China’s output of various minerals
soared, causing prices of some, for example wolfram, to collapse.) But the Perth meeting did agree
that export restrictions should only be employed in “exceptional circumstances”
and according to World Trade Organization rules.
The biggest problem looks to be the determination of some
larger countries to keep import tariffs high so as to prevent domestic mineral
production from being swamped by imports from lower-cost regions. Another
obstacle is the use of energy and other subsidies to protect output for export
from foreign competition. Russia
is a case in point where energy costs are held far below international levels.
There is plenty of reason for skepticism about the group’s
chances of moving to a minerals FTA. Russia, for example, has yet to
join the WTO and its minerals sector is still far from being driven by open
market principles. Despite this, it will chair a Working Group to advance
Nor will freer trade necessarily lead to freer investment
flows. Indeed, after a period when resource nationalism was on the wane almost
everywhere, there are signs of resurgence. China’s
search for mineral investments in Africa has already resulted in some negative
local reaction and the same might be expected in countries such as the Philippines, Peru
Meanwhile foreign investors are barred from China’s
mineral sector and face obstacles in Russia.
meeting also aimed to raise environmental standards – though this is likely to
prove difficult given varied mining conditions and the vulnerability of the
environment to mining and ore treatment.
However, the APEC push for free minerals trade and
investment is a reminder that after years of relative neglect the benefits of
mineral exploitation for developing countries are being again recognized as
prices move higher due to the surge in global demand caused by rising living
standards in China, India and other developing regions.