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

Christophe Charlier () and Sarah Guillou ()

No 2013-07, GREDEG Working Papers from Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France

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.

Keywords: Export restrictions; WTO; exhaustible natural resources; price discrimination; Article XX of the GATT 1994 (search for similar items in EconPapers)
JEL-codes: F13 F18 F51 K33 Q37 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2013-04, Revised 2014-10
New Economics Papers: this item is included in nep-cwa
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Forthcoming in China Economic Review

Downloads: (external link)
http://www.gredeg.cnrs.fr/working-papers/GREDEG-WP-2013-07.pdf Revised version, 2014 (application/pdf)

Related works:
Journal Article: Distortion effects of export quota policy: an analysis of the China-Raw Materials dispute (2014) Downloads
Working Paper: Distortion Effects of Export Quota Policy: an Analysis of the China - Raw Materials Dispute (2014) Downloads
Working Paper: Distortion Effects of Export Quota Policy: an Analysis of the China - Raw Materials Dispute (2014) Downloads
Working Paper: Distortion effects of export quota policy: an analysis of the China-Raw Materials dispute (2014)
Working Paper: Distortion effects of Export quota policy: an analysis ofThe China - Raw materials dispute (2013) Downloads
Working Paper: Distortion Effects of Export Quota Policy: An Analysis of the China - Raw Materials Dispute (2013) Downloads
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