With a background in mining exploration, Corporate Foreign Policy contributor David Harris discusses government intervention in commodity markets to maintain economic competitiveness and speaks out on the need for a privatized mining sector to have an opportunity to thrive in a fair and healthy environment:

As the world’s developing nations continue to industrialize, global consumption of raw materials is reaching unprecedented heights, dramatically increasing the demand for those materials and creating a more competitive atmosphere in the world’s commodity markets.

Governments across the Earth, particularly in China, India, Russia, and Ukraine, are intervening in commodity markets in order to protect their industries and maintain economic growth.    The voracious appetites of these nations have led to government intervention – albeit a more fascinating kind of intervention that does not seek to keep “competition out” – but “commodities in”.
The American Scrap Coalition determined that in China, for example, a 10 percent export tax on steel scrap exists, as well as a 40 percent tax on coke.  Both of these materials are critical in steelmaking, and China is intent to keep the materials it needs at hand.  China maintains export quotas on an assortment of other raw materials.  Russia subjects almost 450 products related to steel inputs and raw materials to export duties.  Ukraine imposes export taxes and quotas for them, and India operates under a sheltered mining system.

These nations have also prohibited or restricted foreign investment in their raw materials and resources.  China and Russia have particularly strong barriers to foreign investment, outright banning foreign entities from mining certain raw materials.  This presents a particular challenge to western companies, as domestic industrial giants grow under this protection, and continue to compete abroad.  Companies in the United States and other western nations do not enjoy the same advantage.

China has been especially prudent and effective in this regard.  State owned enterprises and a massive sovereign wealth fund have placed the nation in an admirable position.  China has pumped billions of dollars into investments in Africa, Latin America, and Australia, securing itself low-priced raw materials for its domestic needs.  Metals and energy constitute nearly half of Russia’s global investments.

Nobody can fault these nations for being so responsive to the needs of their citizens and domestic industries.  However, in the end, this is a matter of fairness and international law.  Most of these practices violate WTO restrictions.  The key issue here is to find a way to effectively enforce international trade laws in the mining industry.  With rampant price fixing in energy markets – everybody can remember fuel prices in North America last year - it is clear just how easily the marketplace can be manipulated and abused.   It gets even more serious when the market itself can be carved up and closed off.  It may seem impossible or absurd to create a global regulatory agency for mining, but the world has already seen GATT, GATS, and the WTO agreements.

Many believe global regulation will undermine the interests of the consumer or the developing world, but this is not necessarily true.  The very idea of corporate social responsibility and humanitarianism is undermined without stability and the rule of law.  When Canada’s Talisman left the Sudanese energy sector, Chinese companies quickly filled its void.  Talisman was penalized for being socially responsible, and the people of Sudan continued to suffer.  If an international body were in place to regulate the sector, Sudan would be forced to reform. 

In many developing nations, the mining sector dominates the economic landscape.  With international regulation, the mining industry can contribute to the betterment of society.  Nigeria is petroleum rich, yet its citizens have not enjoyed the vast wealth created by its industry.  Regulation can be a mechanism for corporations and governments to create a positive vehicle for change that benefits everybody through productive enterprise and economic development.  It would still make companies money, because stability and transparency make it easier to do business. 

Mining companies provide a vast number of developing nations with the ability to generate revenue and foster development.  They engage in extremely expensive operations, and secure the materials for everything we produce and enjoy.   As such a vital part of the “real” world economy, the mining sector and its stakeholders deserve the opportunity to thrive in a fair and healthy environment.  This would create larger, more stable markets, more fair play, and a better life for the people in undeveloped nations, who have been cut out of the system altogether.