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Distortion Effects of Export Quota Policy: An Analysis of the China - Raw Materials Dispute

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  • Christophe Charlier
  • Sarah Guillou

Abstract

The China - Raw Materials dispute recently arbitrated by the WTO opposed China as defendant to the US and the EU as claimants, on the somewhat unusual issue of export restrictions. For the claimants, Chinese export restrictions on various raw materials of which the country is a major producer create shortages in foreign markets. This scarcity does not prevail in the Chinese market and the price in the foreign markets increases, providing a cost advantage to the Chinese industries using these raw materials. China defends export limitations using Article XX of the GATT 1994 on possible exceptions to the prohibition of quantitative restrictions to conserve natural resources. This paper offers a theoretical analysis of the dispute with the help of a model of a monopoly extracting a non-renewable resource and selling it on both the domestic and foreign markets using Fischer and Laxminarayan (2004)'s framework. The theoretical results focus on the e ects of imposing an export quota on quantities, prices and ecacy, and are used to comment on the claims of the parties and on the ndings of the Panel and Appellate Body. Given the crucial importance of demand elasticities in this theoretical understanding of the con ict, the empirical part of the paper provides estimates of import demand elasticity of the claimants as well as of China { for each product concerned in the case, de ned at the HS6 level. The empirical results show that among the products concerned in the dispute, two groups can be di erentiated depending on China's export position. When China is a major or rst exporter, there is no evident sign of the distortionary e ect of an export quota. When China is a weak exporter, but a strong producer and consumer, there is evidence coherent with the model according to which China is imposing a quota export restriction that is inefficient.

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File URL: http://www.gredeg.cnrs.fr/working-papers/GREDEG-WP-2013-07.pdf
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Bibliographic Info

Paper provided by Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis in its series GREDEG Working Papers with number 2013-07.

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Length: 36 pages
Date of creation: Apr 2013
Date of revision:
Handle: RePEc:gre:wpaper:2013-07

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Keywords: Export restrictions; WTO; exhaustible natural resources; price discrimination; Article XX of the GATT 1994.;

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  1. Carolyn Fischer & Ramanan Laxminarayan, 2004. "Monopoly extraction of an exhaustible resource with two markets," Canadian Journal of Economics, Canadian Economics Association, vol. 37(1), pages 178-188, February.
  2. M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers dp0007, Centre for Economic Performance, LSE.
  3. Baris Karapinar, 2012. "Defining the Legal Boundaries of Export Restrictions: A Case Law Analysis," Journal of International Economic Law, Oxford University Press, vol. 15(2), pages 443-479, June.
  4. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  5. Gordon H. Hanson, 2012. "The Rise of Middle Kingdoms: Emerging Economies in Global Trade," Journal of Economic Perspectives, American Economic Association, vol. 26(2), pages 41-64, Spring.
  6. Baltagi, Badi H. & Wu, Ping X., 1999. "Unequally Spaced Panel Data Regressions With Ar(1) Disturbances," Econometric Theory, Cambridge University Press, vol. 15(06), pages 814-823, December.
  7. William Hauk, 2012. "U.S. import and export elasticities: a panel data approach," Empirical Economics, Springer, vol. 43(1), pages 73-96, August.
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