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

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  • Christophe Charlier

    (Université Nice Sophia Antipolis)

  • Sarah Guillou

    (Observatoire français des conjonctures économiques)

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 oers 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 eects 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, dened at the HS6 level. The empirical results show that among the products concerned in the dispute, two groups can be dierentiated depending on China's export position. When China is a major or rst exporter, there is no evident sign of the distortionary eect of an exportquota. When China is a weak exporter, but a strong producer and consumer, thereis evidence coherent with the model according to which China is imposing a quotaexport restriction that is inecient.

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  • Christophe Charlier & Sarah Guillou, 2013. "Distortion Effects of Export Quota Policy: An Analysis of the China - Raw Materials Dispute," Sciences Po publications 2013-07, Sciences Po.
  • Handle: RePEc:spo:wpmain:info:hdl:2441/f6h8764enu2lskk9p504jih2g
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    Cited by:

    1. Proelss, Juliane & Schweizer, Denis & Seiler, Volker, 2020. "The economic importance of rare earth elements volatility forecasts," International Review of Financial Analysis, Elsevier, vol. 71(C).
    2. Seiler, Volker, 2021. "China-to-FOB price transmission in the rare earth elements market and the end of Chinese export restrictions," Energy Economics, Elsevier, vol. 102(C).
    3. Ronen, Eyal & Dawar, Kamala, 2016. "How Necessary? A Comparison of Legal and Economic Assessments GATT Dispute Settlements under: Article XX(b), TBT 2.2 and SPS 5.6," MPRA Paper 83834, University Library of Munich, Germany.

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    More about this item

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F18 - International Economics - - Trade - - - Trade and Environment
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • K33 - Law and Economics - - Other Substantive Areas of Law - - - International Law
    • Q37 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Issues in International Trade

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