All actors within the international community have an important role in enabling resource-rich countries to realize the potential from extractive revenues. This includes advocating, supporting, monitoring and enforcing international best practice.
Enhancing transparency in payments to governments is an important starting point. However, companies and their home countries have a valuable role to play in requiring and enforcing best practice across as much of the value stream as possible.
Auctions and competitive processes should not be undermined by government-to-government deals that are outside of competitive processes. Governments under the jurisdiction of which the parent companies of resource extraction entities reside have often acted in ways that undermined the good governance of resource extraction. For example, some governments have used their influence to lobby for special deals for their own companies, undermining the integrity of the fiscal system and the process by which extraction rights are awarded. Such use of diplomatic influence is far in excess of that wielded in normal tax treaty negotiations and other trade discussions. Where the governments of resource-rich countries have decided to use transparent procedures, such as auctions, to award extraction rights, companies and the governments in which the parent companies of extraction entities reside should not use their influence to circumvent or to otherwise compromise these procedures.
Similarly, transparency of extraction revenue streams is vital to effective public oversight. Home governments should require that parent companies and all related entities over which they have jurisdiction report their payments to governments in a form that enables public oversight. In addition, they should support the Extractive Industries Transparency Initiative (EITI), and meet EITI reporting standards themselves. Considerable progress has already been made in this area, notably with the Cardin-Lugar Amendment’s reporting requirements for U.S.-registered companies. But in order to universalize disclosure and to level the playing field for extraction companies, home governments should support an international accounting standard for reporting such payments and for reporting production and revenues on a country-by-country basis. The latter would also make it easier for producing countries to administer resource taxes effectively.
International Financial Institutions (IFIs) and national government export credit and political risk insurance agencies provide major financial support to extractive projects. Such agencies should use their leverage (and technical assistance) to support resource-producing authorities in meeting the highest standards of public accountability, transparency, and social and environmental protection. IFIs and export credit agencies should work together to develop common standards to avoid a race to the bottom. The G-20 can play an important convening role here.
In recent years international competition for access to natural resources has intensified bringing with it the potential for a standards 'race to the bottom', particularly in countries which are not well-integrated into the international system. Competition for access to natural resources is often motivated by an economic rationale; however, the economic benefits of such a strategy are likely overstated. The commodities typically sought will often have close substitutes that are internationally traded. Thus importing countries can generally pay market rates without the requirement for preferential access to extraction or long-term contracting. Cross-border oil and gas pipelines are a potential exception as their fixed physical nature restricts supply and off-take points, though products may be shipped to world markets. Where host governments of extraction companies recognize that competition for access to fungible commodities is not a zero-sum game there is potential for them to agree a minimum set of international standards applicable to all international extractive industry investments. The international community should seek to improve the standards set by international bodies while enforcing existing standards in countries which are not well integrated into the international system.
The major financial centers should help to limit the leakage of public resources through illicit channels, which is prevalent in some resource rich countries. The international supervisory authorities in major financial centers should ensure that the banks they regulate do not engage in transactions that involve looted assets. Due diligence requirements for transactions which could reasonably be suspected of constituting the diversion of resource revenues from their proper uses should be as strict as those that apply to the laundering of drug money or financing of terrorist organizations. Effective limits on the flow of looted assets through the international banking system require the cooperation of the major financial centers, which already coordinate on drug and terrorist financing through the Financial Action Task Force and the Basel Committee on Banking Supervision.
A concerted policy shift towards the tightening of regulation of illicit financial flows, coordinated through the G-20, would have the greatest impact. The first steps beyond voluntarism have already been taken. These successes must be secured and build upon. Extractive companies claim the greatest constraint on disclosure comes from the governments in producing states. Comprehensive home country regulation or an international accounting standard would protect companies from retaliation or discrimination and level the international playing field in the industry.
International NGOs should act as the advocates of international best practice, lobbying for policy change through direct contact with policymakers and by raising public awareness. They can monitor the implementation of international policy, making governments, firms and capital markets accountable for their actions.
Capacity building in resource-rich countries, whether in host governments, local NGOs or national extraction companies, is an area in which the international community can make a substantial contribution. Resources can be provided, training conducted and staff seconded in both directions in order to build skills and institutional capacity.
