Export bans: Wrong way, go back

Watching Australian Prime Minister Anthony Albanese rush to Singapore and other trading partners in Asia to secure fuel supplies has been jarring. Is Australia really that vulnerable to fuel supply disruptions? Apparently, yes.

Export controls have been the third most common policy response to the disruption to global energy supplies caused by the US-Israeli attack on Iran, behind the use of domestic subsidies and direct increases to oil supplies.

China announced a ban on exports of refined fuels soon after the war commenced. Thailand and South Korea also introduced restrictions. Australia imports refined fuels from all these countries.

Given the International Energy Agency has described this as the largest oil supply shock in history, it is understandable that governments are scrambling to respond.

And it’s more than just the Iran war. According to Global Trade Alert, the number of distortive export restrictions and bans has increased dramatically since the pandemic. Before Covid, an average of 22 export restrictions were being introduced a year. Since 2020, that average has shot up to 228.

In a sign of diplomatic dividends paying off, Australia’s trading relationships in Southeast Asia look resilient. The leaders of Singapore, Malaysia and Brunei committed to put no restrictions of refined fuel exports to Australia. These are essential trading partners for Australia – Singapore alone is responsible for a quarter of refined fuel imports.

It appears Australia’s own role as a food and energy supplier gave Albanese leverage to negotiate. Nevertheless, that should not detract from the joint commitments to open supply chains that were obtained.

But this experience leaves uncomfortable questions about the potential for Australia to lose access to essential imports even without supply lines being directly disrupted.

Export restrictions and bans lower the domestic price of a good relative to the international price. This can protect households from an international price shock. However, the move also hurts import-dependent economies, adding to global market disruptions and price volatility. This problem was well documented after cascading food export restrictions in 2007–08 caused international food prices to rise more than necessary.

If governments that move to impose restrictions prompts others to respond in kind, it can negate any benefits to domestic consumers. Everyone ends up worse off.

Australia and Singapore, in recognition that cascading restrictions are in no one’s interests, are going further than just confirming ongoing trade of essential energy products. A joint leaders statement committed to:

“a legally binding [p]rotocol … to facilitate cooperation on economic resilience challenges and trade in essential supplies.”

Australia, Singapore and Brunei notably called on others to join them in ensuring energy supply chains were “kept open” – a riposte aimed at others in the region that chose to restrict exports. They are justified in pressing other governments to not go down this road.

World Trade Organisation rules prohibit the use of export restrictions and bans. However, exceptions are given to “essential goods” and national security motivations, and this loophole has been exploited.

Governments have always been willing to distort trade in pursuit of national objectives. In the 6th century BCE, ancient Athens under Solon restricted grain exports to keep food prices low. For the same reason, India restricted or banned rice exports in 2007 and 2023. The United States has sought to constrain China’s access to advanced semiconductor technologies using export controls and Beijing’s critical mineral export restrictions have sought to punish the United States.

This is nothing new. However, the use of such measures is intensifying.

Russia’s invasion of Ukraine caused a surge in sanctions activity, which contributed to a rise in export controls announced by Europe, the United States and its allies. Even when excluding these, the rise in export restrictions is substantial, as shown in the chart above. A recent report found China has tripled the number of export controls it deployed over the last five years.

Even when removing great powers and allies involved in geopolitical brinksmanship, conservative estimates suggest that the average number of export controls has still increased in the post-Covid period.

Singapore and Australia have set a welcome example by pushing back. This provides a tangible template for embedding secure supply arrangements under binding protocols within bilateral and plurilateral trade agreements. Singapore has now inked a “world first” supply chain guarantee on essential goods with New Zealand off the back of these efforts.

Refined fuel exports will potentially start flowing again from China in May, with Australia’s diplomatic pressure playing a role.

Helping push incremental innovations to buoy the international trading system at a time of acute pressure – and after a failed WTO negotiating round in Cameroon last month – is needed now more than ever.