Many Western governments frame their strategies towards Critical Raw Materials in terms of security of supply and fret about “dependency” on hostile trading partners. Governments of lower per-capita income nations with lots of material reserves see the matter differently. For them, the sharp predicted increases in demand for these materials in the decades ahead is too good an opportunity to miss to develop processing industries as part of the modernisation of their economies. Both groups frequently talk past each other, a practice made worse by the suspicions created by intensified geopolitical rivalry. The ensuing scramble for critical raw materials is the subject of this report.

Many narratives around geopolitics and critical raw materials are misleading

What differentiates this report from others is that:

We assess the pros and the numerous cons of creating lists of raw materials deemed “critical.” Lists can have the merit of being transparent, but they attract the attention of special interest groups.

• We evaluate whether trading patterns in critical raw materials are more volatile than other materials and metals (they aren’t). Central to geopolitical scaremongering about trade in critical raw materials are claims made that China “weaponised” Rare Earths exports against Japan in 2010. Using United Nations’ trade data, we found no evidence that China singled out any G7 member or the EU for reductions in Rare Earth exports.
• We demonstrate that, with the exception of the United States, Western nations have significantly reduced their sourcing of Rare Earths from China since 2010. That was facilitated by a five-fold increase in the quantity of Rare Earths available from other countries in the years 2015 to 2021.
• Another narrative we challenge with data is that Indonesia’s export curbs on nickel ore provided a surefire recipe to develop its downstream processing industry. Increases in Indonesia downstream exports look a lot less impressive when the surge in recent years of Indonesia’s other non-agricultural exports is taken into account. Attributing downstream nickel sector gains solely to the upstream export ban fails to take account of the other measures Indonesia took.
• For all the talk of policy support for sourcing and producing critical raw materials we show that, worldwide, policy intervention affecting other materials occurred more often, was more likely to be permanent, and was more likely to favour local firms than the products deemed critical.
• We show that the weight given in trade policy circles to export restrictions on critical raw materials is probably misplaced. In fact, such restrictions account for small percentages of the measures taken by governments that bear upon markets for critical raw materials. Resort to subsidies is far more frequent.
• Given Western governments frequent reference to securing critical raw materials one might have expected that they would have reduced import restrictions on more critical raw material product lines and larger shares of relevant imports. We show that, when compared to those champions of active industrial policy—the BRICS and Indonesia—they didn’t.

Time to take stock and to face the realities inhibiting capacity growth

It surprised us that much of the trade policy-related narrative concerning critical raw materials has little basis in fact. Analysts and officials need to take stock of the current scramble for critical raw materials—and, ultimately, revisit assumptions about the factors most likely to prevent long-term supply of critical raw materials from growing to meet growing demand.

Even in the absence of geopolitical rivalry, the challenges associated with scaling up supply of raw and processed critical raw materials to meet higher levels of demand would have been formidable. Complicating factors include fundamental uncertainty as to the pace of the digital and energy transitions, with their knock-on effects for both how much material will be needed and, quite possibly, which materials are needed in greater quantities in the first place.

On top of this are geological considerations including the fact that some critical raw materials are byproducts of other less-wanted materials, that long time frames needed to bring some mining facilities online, and the central roles that uncertainty and difficulties in financing play in scaling up production. Without denying the contribution that greater recycling and the adoption of circular economy practices can make, on its current trajectory, supply expansion for most critical raw materials is likely to be sporadic.

One consequence is that periodic outbreaks of market disruption are on the cards. Whichever long-term strategies are adopted by governments need to be designed with this disruption in mind. Opportunists should not be allowed to capitalise on any short-term shortages, price hikes, and the like. Anyone expecting or demanding that markets for critical raw materials unfold over time in a predictable manner simply hasn’t read enough about the mining industry. This is going to be messy. Yet, we do not counsel despair.

The ensuing scramble for critical raw materials is the subject of this report, the 31st prepared by the Global Trade Alert team. Part I of the report examines the very notion of a critical raw material and what factors underlie the expected shortages and volatility in world markets for these goods. The pros and cons of enumerating lists of critical raw materials is discussed, not least given the tendency of some producer groups to claim their materials deserve state largesse. Given the frequent mention of Rare Earth materials in deliberations on critical raw materials, a chapter is devoted to alleged attempts to weaponise trade in them.

Part II of the report provides detailed evidence on the unilateral policy intervention undertaken by governments towards critical raw materials. Here we examine if there is a mismatch between the narratives used by policymakers to characterise their policies towards critical raw materials and the actual policy mix chosen. A subsequent chapter is devoted to steps taken by governments, sometimes in concert, to produce or secure critical raw materials abroad. Having found these approaches wanting, we advocate an approach to thickening over time markets of critical raw materials.

In policy deliberations, it is mistaken to view market structures and international sourcing patterns for critical raw materials as immutable. They can evolve over time guided by market-supportive government intervention. Still, the fundamental uncertainty facing demand for critical materials as societies undertake the digital and energy transitions means that, whatever steps are taken to thicken markets over time, there will be occasional shortages and market disruption. Private and public sector decisionmakers should expect such disruption and take mitigating measures in advance such as, where viable, stockpiling.

The Global Trade Alert team at the St. Gallen Endowment for Prosperity Through Trade contributed to the production and dissemination of this report. This report was written by Simon J. Evenett and Johannes Fritz.

To read the full report, please click here.

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Rising commodity prices went hand in hand with the threat of major supply disruptions. Russia and Ukraine are significant in many commodity markets. Together, they account for over 10% of global wheat and oil production, and more than 20% of the world’s natural gas. Russia also supplies metals used to manufacture aircraft, cars and computer chips (Graph 1, right-hand panel). A shortage of these metals could lead to an intensification of bottlenecks. Already, the war has disrupted agricultural supply chains. Such disruptions could multiply, not least due to the destruction of crops and physical infrastructure. Meanwhile, additional sanctions on Russia could further crimp the supply of energy commodities, at least to some markets.

High and volatile commodity prices pose significant risks to the global economy. The effects will be felt on both inflation and growth, and will fall unevenly across countries, depending on whether they are exporters or importers of affected commodities and how higher prices affect household and corporate income. On net, higher commodity prices are likely to erode growth and lift inflation in the short term. Whether the world economy sees a repeat of the 1970s – when rising oil prices contributed to the most pronounced stagflationary episode of modern times – depends on how long the commodity market disruptions continue, and whether macroeconomic policy manages the fallout more successfully than in the past.

https://www.bis.org/publ/bisbull54.pdf

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The post Annual Report on the EU’s Anti-Dumping, Anti-Subsidy and Safeguard activities and the Use of Trade Defence Instruments by Third Countries targeting the EU in 2020 appeared first on WITA.

The Golden State has been among the strictest states in terms of COVID-19 distancing measures. It was the first state to impose a statewide stay-at-home order and closure of “non-essential” businesses in March 2020, and it reimposed them in December 2020 after never fully reopening in between. Even after the CDC lifted mask requirements, restrictions remained: Masks were still mandated in indoor workplaces for example—even for those who were vaccinated—unless everyone in the workplace was fully vaccinated.2 Small businesses and working-class people have borne the brunt of the state government’s economic shutdown. COVID-19 restrictions on economic activity have also had serious repercussions in Californian ports, hindering international trade responsible for hundreds of thousands of California jobs.

To read the full report from The Heritage Foundation, please click here.

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The economic crisis arising from COVID-19 has led G20 economies to unleash huge volumes of fiscal support. This support has tended to prioritise protection of existing economic structures. As support measures transition into fiscal stimulus, G20 governments must consider the structural impact that measures will have on long-term economic growth. The necessity for fiscal stimulus in the recovery provides a unique opportunity for a sustainable infrastructure strategy aimed at transforming G20 economies into economies fit for the challenges and changes of the twenty-first century.

To read the full report from Bruegel, please click here. 

The post Building the Road to Greener Pastures: How the G20 Can Support the Recovery with Sustainable Local Infrastructure Investment appeared first on WITA.

The post The Ties That Bind: A Helsinki Commission Staff Report on Secure Supply Chains appeared first on WITA.

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The novel Coronavirus Disease 2019 (COVID-19) and its rapid emergence as a pandemic have highlighted issues relating to the production and distribution of personal protective equipment (PPE). PPE refers to worn articles or equipment that help minimize exposure to various hazards, including infectious pathogens. Given the role that PPE plays in mitigating the spread and reducing the impacts of COVID-19, PPE demand has spiked both globally and domestically while supply has been undercut by both rapid consumption as well as supply chain disruptions. According to multiple federal agencies, including the Government Accountability Office, the Food and Drug Administration, and various independent organizations, PPE continues to be in short supply, which has led to broad congressional and public interest in PPE production and distribution issues. The availability of effective PPE is critical to the ongoing pandemic response, but also has broader public health, emergency preparedness, and national security implications.

This report considers aspects of domestic production and distribution of PPE in the context of the COVID-19 pandemic. Specifically, the report considers (1) the availability of PPE supplies, including an assessment of PPE demand related to the COVID-19 pandemic; (2) federal actions and activities undertaken to increase PPE supplies in response to the pandemic, organized by executive agency and program; and (3) other policy options under consideration concerning PPE production and distribution, also organized by executive agency and program.

Overall, this report notes that data limitations and conflicting accounts impede the complete assessment of PPE supply chains, and this may undermine federal (as well as nonfederal) efforts to respond effectively to the COVID-19 pandemic. To the extent that data is available, current PPE production and distribution channels appear to continue to be insufficient compared to reported need. Various mechanisms that may be utilized to increase PPE supply or productive capacity, such as the provisions in the Defense Production Act of 1950 (DPA), appear to be applied selectively, and implemented unevenly, potentially based on narrow experience and limited administrative infrastructure within the federal government to oversee and manage its use in a national emergency context.

To download the full report, please click here.

Michael H. Cecire is the Coordinator of this reports and an Analyst in Intergovernmental Relations and Economic Development Policy for the Congressional Research Service.

Agata Bodie is an Analyst in Health Policy for the Congressional Research Service.

Frank Gottron is a Specialist in Science and Technology Policy for the Congressional Research Service.

Victoria R. Green is an Analyst in Health Policy for the Congressional Research Service.

L. Elaine Halchin is a Specialist in American National Government for the Congressional Research Service.

G. James Herrera is an Analyst in U.S. Defense Readiness and Infrastructure for the Congressional Research Service.

Erica A. Lee is an Analyst in Emergency Management and Disaster Recovery for the Congressional Research Service.

Heidi M. Peters is an Analyst in U.S. Defense Acquisition Policy for the Congressional Research Service.

Andres B. Schwarzenberg is an Analyst in International Trade and Finance  for the Congressional Research Service.

Kavya Sekar is an Analyst in Health Policy for the Congressional Research Service.

Michael D. Sutherland is an Analyst in International Trade and Finance for the Congressional Research Service.

Karen M. Sutter is a Specialist in Asian Trade and Finance for the Congressional Research Service.

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A brighter outlook but recovery will be gradual

Faster vaccine deployment and better cooperation for its distribution would boost confidence and strengthen the pickup but continued uncertainty risks further weakness

The post Turning Hope into Reality: OECD Economic Outlook, December 2020 appeared first on WITA.

LDC exports to Canada in 2017 represented just under $4 billion, around one per cent of total Canadian imports (or, more colloquially, about two hours of Canada-U.S. trade.) Their importance lies in their sector specificity; the majority of manufactured exports are apparel. After the 2003 liberalization, Bangladesh and Cambodia became the second and third largest suppliers of apparel to Canada after China, as much an achievement in import diversification for Canada as in export growth for Bangladesh and Cambodia.

Between 2003 and 2017, Bangladesh’s year-over-year exports to Canada grew at an average rate of 22 per cent, Cambodia’s at 58 per cent, Laos at 17 per cent and Nepal at 10 per cent. On the other hand, Canada’s exports to Bangladesh grew six-fold between 2004 and 2018. Bangladesh is now Canada’s fourth largest importer of pulses.

The 2003 market opening was enabled by of a GATT/WTO rule that facilitates preferential arrangements for countries on the United Nations’ Least Developed Countries list; effectively, the world’s poorest countries. Canada’s initiative was a near-impeccable preferential arrangement. It grew trade in both directions between Canada and some low-cost exporters without the bother of negotiations for bilateral free trade agreements, and without significant trade diversion. Together with the EU liberalization (and subsequent liberalizations in several other countries), it contributed to both export-led growth and poverty reduction in some least developed countries.

Canada’s relationship with these LDCs could change shortly. Along with six developing island countries and mineral-rich Angola, Bangladesh, Myanmar, Laos and Nepal are scheduled for graduation from the UN/WTO list of least developed countries (three were eligible as far back as 2018), and Cambodia has begun to meet the criteria for graduation. Graduation could mean the loss of the preferential tariff treatment that contributed to a rapid increase in exports in the last 17 years. Of the countries that are about to graduate, or have been graduated, the developing island countries export very little to Canada. Angola’s mineral exports enter duty free anyway, but the remaining countries – Bangladesh, Myanmar, Laos, Nepal and at some point Cambodia – are now heavily integrated into the Canadian apparel market. Apparel has become the primary manufactured export for most of these countries. Graduation therefore could have consequences for Canadian consumers, and for economic growth and poverty reduction in the countries concerned. Later, we discuss this problem specifically with reference to Bangladesh.

The earliest date for graduation is 2021; the latest date so far is 2024. Canada may agree to Bangladesh’s request for a three-year deferral from 2021, particularly in light of COVID-19’s impact on the economy, or it could follow the EU, which is reportedly considering a phased-in graduation process of three years, 2021-2024. If LDCs graduate, they will be subject to the tariffs and rules of origin of Canada’s General Preferential Tariff (GPT). Graduation is not restricted to Canada and the EU. During the World Trade Organization’s Doha round of multilateral trade negotiations, several WTO members offered similar concessions; graduation from the LDC list will require WTO members to consider whether to extend or terminate preferential treatment for the graduating LDCs.

Canada can continue duty-free treatment – to grandfather the zero tariff and maintain LDC treatment for as long as it deems desirable. It is also in Canada’s interests to do so; the relationship with the Asian LDCs has been a win-win for both sides. Graduation could cost Canadian consumers and exporters alike and if both the EU and Canada graduate these countries, it could stall economic growth and poverty reduction efforts in the LDCs.

This paper maintains that while COVID-19’s impact makes a short-term deferral likely, it makes more sense to look long term at both the trade and development implications of graduation for both Canada and the LDCs. It recommends that Canada continue preferential treatment for an extended period of time or simply leave the low tariffs in place.

Fauzya Moore is an Ottawa-based consultant and writer. She has worked as a Senior
Economic Advisor at the various iterations of Global Affairs Canada, and also as a Senior Advisor on Governance at the Treasury Board of Canada. She is also a graduate of the Harvard Kennedy School (2009) where she held both a Fulbright scholarship and a fellowship from the Ash Centre for Governance and Innovation. She has worked in both the developed and developing world.

To download the full report, please click here.

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