Buyer and Seller Concentration in Global Commodity Markets Reza Oladi and John Gilbert* Abstract In recent years there has been an increased incidence of export restrictions applied by developing countries to commodities and raw materials. Commodity markets may be characterized by concentration on the buyer side, with a small number of transnational intermediary firms purchasing from supplying countries and distributing to the market, and recent work has suggested that export taxes may be an optimal policy to recapture monopsony rent. However, in many commodity markets there are also a limited number of large supplying countries.This paper considers a situation where an oligopsonistic intermediary industry purchases from a small number of supplying countries, the governments of which act strategically in their policy choices both with respect to the intermediaries and any competing suppliers. In the resulting two-stage game, the paper shows that an export subsidy, rather than an export tax, may arise as the optimal intervention. 1. Introduction Viewed purely from the perspective of the theory of commercial policy, one of the most perplexing aspects of international trade law is the disparate treatment of import and export restrictions.While protection from imports is subject to a plethora of regulations under World Trade Organization (WTO) rules, and is the target of most trade nego- tiations, export restrictions are not subject to the same degree of regulation (Karapinar, 2010a). Export taxes are not illegal, excepting outright bans which are prohibited under Article XI unless they support an environmental protection or food security objective. Moreover, they are generally not disciplined. The only exceptions are for some of the newer members of the WTO, such as China, that were required to commit to stricter rules than existing WTO members, including binding of export taxes in some cases, as part of their accession agreements. Export restrictions have, however, come under increased scrutiny at the WTO in recent years as a result of a number of recent high profile developments in commodity markets. First, during the period 2007–8, world prices of staple food commodities rose dramatically, leading to social unrest in numerous developing economies. A large number of countries, including Argentina, Brazil, and India, responded to the “food crisis” by imposing export restrictions on food staples (Karapinar, 2010b). Second, in 2009, a WTO panel was formed to review complaints brought by the USA and the EU against China for imposing both export quotas and export taxes (in the range of 20–30%) on various raw materials including bauxite, magnesium, silicon, and zinc. In mid-2011 the WTO ruled against China. Similar issues have arisen in the markets for other rare metals, in particular the “rare earth” minerals, a group of elements that are used in critical components of numerous high-technology products. Export taxes have been imposed on these materials by China, the Russian Federation, Ukraine and * Oladi: Department of Applied Economics, Utah State University, 3530 Old Main Hill, Logan, UT 84322- 3530, USA. Tel: +1-435-797-8196; Fax: +1-435-797-2701; E-mail: reza.oladi@usu.edu. Gilbert: Department of Economics and Finance, Utah State University, Logan, Utah, USA. E-mail: jgilbert@usu.edu. Review of Development Economics, 16(2), 359–367, 2012 DOI:10.1111/j.1467-9361.2012.00667.x © 2012 Blackwell Publishing Ltd