Trade in natural resources hasn’t had an entirely happy history. Much of modern trade, indeed much of the world’s economic history, grew from trade in the so-called drug foods. Ponder the legacy of coffee, tea, sugar, opium and other natural commodities. Such substances have caused extreme happiness and extraordinary despair as trade forced adjustments by both buyers and sellers, including slavery for millions and environmental changes in many countries. But try to imagine a modern world without coffee shops, sugar to put in that coffee, or Italian food without tomato sauce or pasta. Trade is bad – and good.

The WTO’s Economic Research & Statistics Division has issued a new paper: International Trade in Natural Resources: practice and policy. I’ll caution you – don’t read it unless you enjoy a deep dive into economic theory and jargon. While some of us get off on the Dutch Disease or the Heckscher-Ohlin theory, you might want to save this one for your weekend reading. I imagine that the paper is part of the WTO’s preparations to participate in the Rio+20 meetings on sustainable development in Brazil this June. And that I posted about last week.

Natural resources make up about 20% of world trade – if you define them as non-renewable resources plus forestry and fishery products. The authors exclude agricultural products, so oil and oil products are two-thirds of the flows of natural resources. The suppliers of natural resources in world trade have not changed that much over the years. It tends to be the big oil countries supplemented by a few others. Russia, Saudi Arabia, Canada, the European Union (all 27 of them), the United States, Norway, Australia and the United Arab Emirates all push more than $100 billion each into trade channels. The demand side is seeing changes. While the European Union, United States and Japan remain at the top of the table, they are now followed by China, South Korea, India, Singapore and Taiwan.

The authors stress a key difference between supplying countries. While suppliers such as the EU or the United States have diversified economies, with natural resources making up perhaps 20% or less of their exports, many other resource exporters are very heavily concentrated on a single natural resource, leaving them open to wide fluctuations in wellbeing as export prices rise and fall. 74% of Middle Eastern exports are natural resources (guess what?), Africa’s exports are 73% natural resources, and Russia depends on resources for 70% of its exports (no, it’s not vodka). These concentrations are caused by geographic accident and lead to huge differences in trading regimes, politics, property rights and entire societies.

I have pointed out many times that the WTO/GATT system of trade rules was born in a different world, one in which trade problems and their solutions focused on the import side and on developed countries recovering from war. Magnificent progress was made in talking down customs duties, import quotas and technical barriers to imports, but we increasingly need to focus on the export side of the transaction. To what extent can or should a country control access to its resources? To what extent should other countries be able to force access to resources they need? We have seen answers ranging from total control of exports (OPEC, for example) to 19th Century imperialism. Neither of these extremes are acceptable, but how do we construct the resource flows that will be necessary to support global sustainable development?

Neither the authors, nor this pundit, offer any easy solutions for how to build a new structure for natural resources trade. My guess is that a wholesale restructuring of WTO rules will be needed, or at least a parallel group of rules and agreements governing exports. Left to their own, the nations of the world can be relied upon to screw it up reach sub-optimal solutions. Witness India’s flip-flop last week on controlling exports of cotton.

While national interests conflict on some of the issues, the inefficiencies are such that properly coordinated policy measures (on export taxes, fuel prices, contract stability, and revenue transparency) offer the potential of gains for all.

- International Trade in Natural Resources: practice and policy, March 2012