Mineral exports: Is there a lesson for India from China's experience?

As the country grapples with issues of big ticket projects like Posco getting stalled due to local resistance with the attendant potential transfer of scarce raw material like iron ore to the parent company in South Korea or the illegal mining of strategic raw material like iron ore in Karnataka by private mining companies in connivance with the political dispensation, the question of conserving this precious raw material and its use for domestic development comes to the fore.

Even as well-meaning policy pundits and civil society organisations including Parliamentarians have questioned the policy of reckless mining of iron ore, the authorities at both the Centre and in the States, where such mining quarries abound, do not see the need to address the fundamental concern of conserving these minerals or regulating their exploitation for the overall development of the country.

Their move to invite foreign companies to build steel projects by bringing in foreign direct investment and technology and allowing them to ship partly some of the ores for their parent company (as in the case of Posco) has been widely criticised.

The authorities' indifference towards the fast depletion of illegal mining by dubious companies that have political nexus to continue with their predatory industry is also causing concern.

The Chinese case

Against this backdrop, China has demonstrated some original ideas on using its sovereign power to prevent large-scale squandering of vital raw materials such as bauxite, coke, fluorspar, magnesium, manganese, silicon carbide, yellow phosphorous and zinc and rare earth (materials), where it is a monopoly supplier, by subjecting them to export restraints in 2009.

China is a leading producer of each of the raw materials which are used to produce quotidian items as well as technology products. The export restrictions mainly consist of quotas, export duties, a minimum export price as well as additional requirements and procedures for exporters.

But major trading partners of China such as the US and the European Union, followed by Mexico brought this to the WTO Dispute Settlement which clarified its rules on export restrictions.

While its findings do not question a country's right to set environmental standards or to conserve natural resources and said such objectives could justify trade restrictions under certain circumstances, the WTO panel is nevertheless convinced that export restrictions on trading these materials are not effective.

Presumably, the panel arrived at this conclusion because the production of these materials is not similarly restricted to ensure environmental protection.

Rightly, the WTO panel ruled that in the absence of effective domestic measures to manage the supply of the natural resources in a sustainable and environmentally-friendly way, a country cannot rely on the exceptions allowed under the WTO law.

The panel pertinently said that such exceptions cannot vindicate measures that shield domestic producers from foreign competition in the name of conservation.

It is another issue that the same US in the 1980s slapped export restraints on Japan, faced with imports imperilling its then flourishing Detroit auto industry.

The clear implication of this ruling, according to trade experts, is that there are much more efficacious environmental protection measures that do not discriminate against foreign industry.

These include investment in more eco-friendly technologies, raising environmental standards, pollution control and effective production and consumption restrictions, as well as promoting recycling.

No doubt, China could always appeal against this ruling to the Appellate Body of the WTO, the final arbiter of the dispute, albeit the plausible defence by the complainants that a trade barrier is a case where you are limiting exports!

The obverse side of the dispute is that India can either process the ores to add value thereby ramping up its domestic manufacturing capacity of its much-needed steel industry or indiscriminately squander its extant mineral resources for pittance either by its state-owned trading companies which are in the iron ore export business or let private miners scratch the reserves to the bottom to batten themselves on for super profit both to themselves or to their political patrons as has been the case in Karnataka.

But it would be a pity if Indian authorities do not see the underlying implications of the Chinese export restraints on raw materials in the right spirit.

Experts caution that what is at stake is not only the loss of precious mineral wealth of the country but also the grim possibility that when India really needs these minerals for its own development, they would either be prohibitively costly or simply be not there in the years ahead.

> geeyes@thehindu.co.in