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WTO Working Papers

WTO working papers usually represent research in progress. Such research may be conducted in the preparation of WTO Secretariat reports, studies or other material for WTO members. The papers are circulated for comment because the WTO considers critical review of professional research to be extremely important.

English

Natural Resources and Non-Cooperative Trade Policy

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.

English

Keywords: Prisoner's Dilemma, WTO, Tariff Escalation, Natural Resources, Export Taxes
JEL: Q34: Agricultural and Natural Resource Economics; Environmental and Ecological Economics / Nonrenewable Resources and Conservation / Natural Resources and Domestic and International Conflicts; F13: International Economics / Trade / Trade Policy; International Trade Organizations; F59: International Economics / International Relations, National Security, and International Political Economy / International Relations and International Political Economy: Other
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