Roaming in a Minefield: the CITES Decision-Making Mechanism for Trade in Ivory

by Alejandro Nadal @anadaloficial

When it comes to deciding the future of the ivory trade, the governing bodies of CITES are walking a tightrope – between countries wanting to trade it and others wanting to ban it.

As yet they have not decided to fully liberalize the trade. So why would they think that in the midst of the current poaching crisis it is a good idea to devote time to negotiating a decision-making mechanism for trade in ivory?

The only plausible explanation is so they can be ready to hit the ground running if and when that decision is made. But while preparedness makes sense in many cases, hitting the ground running is not the best tactic if you are going to fall off the tightrope and land in a minefield.

In 2007, as part of a compromise deal which included the sale of 108 tonnes of ivory to China and Japan followed by a 9-year moratorium on further trade proposals, the CITES Conference of the Parties, or CoP, directed the Standing Committee to propose a decision-making mechanism for a process of trade in ivory under the aegis of the CoP. One year later, the Standing Committee issued the terms of reference (TOR) for an independent study.

That study was carried out by a group of consultants and delivered in July 2012. Many Parties and NGOs were dissatisfied and criticized the consultants’ report for failing to comply with the TOR set down by the Standing Committee. That’s an accurate assessment, and further critique of the study would be tantamount to beating a dead horse. But that’s not the only issue.

The biggest problem is that the terms of reference were deeply flawed to begin with. Their shortcomings reveal something is intrinsically wrong with the way in which the debate around the “decision-making mechanism” (and on ivory trade, for that matter) has been framed.

The TOR failed to include an economic analysis of the structure and dynamics of the market for ivory. Dominated by a management perspective (as if the problems in setting up a legal trade in ivory were simply administrative in nature) the TOR turned a blind eye to everything that is relevant when discussing markets. They ignored the fact that markets are not self-regulating mechanisms, and overlooked the fact that traders are not passive agents. They disregarded the dynamics of price formation processes in real-world markets. In fact, they paid no attention to the role of prices in transferring profitability throughout the value chain, overlooking the complex relations between legal and illegal markets. They failed to consider the role of entry barriers, scale and scope economies, as well as vertical and horizontal integration, all of them key drivers of market power and price/profit formation. And finally, they left out of the picture demand dynamics, its development and the evolution of consumer preferences.

Making policy decisions on ivory trade without understanding these issues is a dangerous exercise for at least three compelling reasons.

First, it is not possible to guarantee that ivory prices will behave as planned. Typically, proponents of a market-based solution assume that prices will go down as supply increases and stabilizes and the legal market outcompetes illegal trade. Nothing guarantees this result. Market power along the supply chain can prevent prices falling in intermediate and final markets. Ignoring market structures and the dynamics of price formation makes it impossible to predict the outcome of a renewed legal supply of ivory, much less to control it.

Second, a market-based arrangement requires adequate control of supply. Without this, the legal trade will not be able to discipline the illegal market. If, for example, official supply is based on four or five countries in Southern Africa but alternative supply sources persist in another ten or fifteen African countries, the illegal market will remain well sourced and traders there will enjoy a high degree of autonomy in their market development strategies. Strong asymmetries in terms of capabilities and the status of elephant populations suggest that supply control will most likely fail, hurting the most endangered populations.

Third, there is no reliable information on the size and dynamics of demand. In fact, persisting to this day is a huge gap in information on the formation of consumer preferences, not to mention the key question of the response of demand to changes in prices and legal status of ivory in Asian markets. This is one of the most menacing aspects of a policy designed to lower prices and thus reduce poaching incentives. The risk of feeding the expansion of demand through lower ivory prices and the perception of a steady supply is real and may lead to a legal market overrun by chronic excess demand.

These problems should not be minimized. Working them out should be a top priority for CITES.

In the final analysis, a trade-based policy for ivory as a means for conserving elephants is pure folly. If it succeeds in reducing prices, demand may expand dangerously with ugly consequences, but if prices do not drop, incentives to poaching will remain high. The policy result will remain trapped between the Scylla and Charybdis of high and low prices as the market for ivory develops and elephant populations continue to be decimated.

Elephants – and wildlife – deserve something better than being transformed into commodities in a pointless profit-seeking venture. Today’s poaching crisis has sparked off a heated policy debate. Encouraging and adopting market-based policies without adequate information is equivalent to letting elephants roam in a minefield of vested economic interests.

Notes:

The international trade in ivory for commercial purposes was banned by the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) in 1989. Since then, there have been two “one-off” sales of stockpiles from Southern Africa – the first in 1999 and the second in 2008.

CITES has 180 member Parties. Its executive governing body, the Standing Committee, will meet in the coming week in Geneva, from 7-11 July. Among the issues for discussion will be the Decision-Making Mechanism for a process of trade in ivory.

See Notification to the Parties No. 2011/046 in www.cites.org/eng/notif/2011/E046.pdf

ABOUT THE AUTHOR: Alejandro Nadal is a Professor at the Centre for Economic Studies, El Colegio de México and Chair of the Theme on the Environment, Macroeconomics, Trade and Investment (TEMTI) of CEESP-IUCN. The usual disclaimers apply.

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