Policy recommendations

  • The European Union should allow ACP countries to maintain their sovereignty and policy space in relation to the appropriate use of their own natural resources. They should be able to use investment regulations, tariff barriers and export restrictions to promote equitable, local and sustainable economic development.
  • The European Commission through its development policy should stimulate resource-rich developing countries to implement their own industrial policies, to protect their infant industries by using legitimate barriers to trade, and by introducing environmental measures. This should allow resource-rich developing countries to move up the value chain, so that the added value to (semi) processed products will remain in the country of origin and would thus stimulate economic development.
  • Within its development budget the EU should allocate sufficient resources to the building of energy and environmental infrastructure to enable developing countries to stimulate economic development.
  • The EU should use its political and economic power to set clear rules in relation to the extraction of raw materials. Like suggested in the February 2011 RMI update an EU code of conduct for EU companies operating in third countries should be developed and measures should be taken to enforce such a code of conduct.
  • In order to provide for more transparency in the supply chain and to minimize the role of European companies in fuelling conflicts over resources, the EU should implement Country by Country reporting, following the US example of the Dodd Frank Act.
  • Within the EPA negotiations the EU should be more flexible as suggested in the RMI update and make sure developing countries can demonstrate the use of export taxes as a policy tool and therefore keep using them.
  • In all policy initiatives and actions elaborated on the basis of the strategy laid down in the Raw Materials Initiative that affect developing countries, DG Development should be closely involved, and ACP partner countries and civil society organisations should be consulted.

 

 

Case: Raw Materials Initiative

13-12-2010 Collier: ‘Brussels was build on the plunders of Congo, and should not make the same mistakes again!’

On the 6th and 7th of December the 5th edition of the European Development Days (EDD) were organised in Brussels by the European Commission and the Belgian presidency. During the EDD many high level meetings and side events were organised by the European Commission and civil society on current topics in relation to developing countries. On the afternoon of the 6th Fair Politics contributed to the EDD by the organisation of a side event on Policy Coherence towards the good governance of natural resources. We organised this side event together with the Belgian Natural Resources Network, the Alternatrade project and Forum Syd.

In order to make the participants of the EDD come to our event, during lunch time two volunteers walked around dressed up as mobile phones and handed out flyers to participants of the EDD. Raw Materials like Cobalt have been defined by the European Union as critical in the sense that they are highly needed for the European industry but more and more difficult to import, due to high export taxes. Cobalt is being used in the battery of mobile phones, phones which we all possess, but we hardly ever realise that the social and environmental conditions in which Cobalt has been extracted, by often Western mining companies, are very poor. Plus in the case of the Democratic Republic of Congo (DRC) these raw materials are often related to conflict.

Paul Collier, the Director of the Centre for the Study of African Economies at the University of Oxford introduced the topic of our side event, by stating that the good management of natural resources is key to the development of resource rich developing countries. Collier continued his introduction by saying that African countries should be able to transform their natural resources into prosperity. “Brussels was built on the plunders of Congo” said Collier, the biggest challenge for Europe will be, to not make the same mistakes of the 19th century. Only by ensuring coherence we can make sure this will not happen, and therefore the EU must know what both its left and right hand are doing in terms of policies in relation to raw materials.

Madelaine Tuininga, of DG Trade (European Commission), provided an introduction to Europe’s raw materials strategy. The Raw Materials Initiative (RMI) consists of an internal, external and a recycling pillar. Policy coherence is needed to achieve the development part of the external pillar. Some achievements have been made according to Tuininga, like the ongoing public consultation for country-by-country reporting. Also during a meeting in November 2010  between the EU and African countries a Joint African EU Strategy (JAES) was agreed upon to create a coherent vision on development and mining in African developing countries. Furthermore Tuininga mentioned that export taxes are not only making it more difficult for the EU to import raw materials from around the world, but developing countries themselves are also negatively effected, as export taxes also influence South- South trade.

Collier challenged this remark by stating that resource-rich countries need to tax the export of the materials and should be able to use these revenues to diversify their economies. That is what happened in for instance Indonesia and Norway. Export taxes might not be the most ideal way of taxation, however it is currently the only way for developing countries to tax their raw materials. In addition, Claude Kabemba, the Director of Southern Africa Resource Watch, spook about the weak negotiation position of the governments of resource-rich developing countries compared to the Multinational Companies (MNCs). Contract negotiations leave room for confidentiality clauses, which are being misused by MNCs. Kabemba continued by stating that the focus has been too much on Foreign Direct Investments (FDI), instead of natural resources. Governments gave up control of their national resources in order to gain FDI. Yet these investments did not lead to the promised growth figures.    

Alfred Hickey M’sichili spook on behalf of Comhlámh as part of the Alternatrade Project, who recently published a report on the topic of export taxes and raw materials. In the report, it was concluded that the effects of development are being threatened by restrictions on export taxes. Through trade liberalisation many trade taxes have already been abolished. However the revenue loss is not being replaced by other governmental income. Export taxes are the only way for developing countries to tax the materials as they are leaving the country. Yet the RMI is focusing on the abolishment of all trade restrictions, including export taxes. 

Vanessa Herringshaw, the Director of the London office of the Revenue Watch Institute, presented a first step for a possible solution. Transparency would be highly increased if companies would disclose their financial information country-by-country and project-by-project. This will not change the situation, but provide governments, citizens, and investors with the necessary information to tax the extractive companies. Country by country reporting can be done via accounting rules, but Herringshaw believes that listing regulations is the best option at the moment. After the introduction of the Wall Street Reform Act in the US, all extractive companies enlisted at the New York Stock Exchange have to disclose payments made to governments. The European Parliament already approved a resolution for country-by-country reporting in 2007 (B6 0437/2007), and Herringshaw is disappointed that the only action taken by the Commission was public consultation so far. 

 

Fair Politics would like to thank all the speakers for their participation, and we are looking forward to the upcoming communication of the Commission on the RMI. We hope the development objectives will be taken into account in the updated strategy, as is required under articles 21 and 208 of the Treaty of Lisbon. Fair Politics believes that export taxes in resource-rich developing countries are needed to achieve diversification of the economy. This way, eventually these resource-rich countries will be able to move up the value chain and to decrease their dependency on exports. Instead of a curse, the EU can help to make natural resources a true blessing for developing countries. 

-Please see our policy case study on the Raw Materials Initiative
-Please see the reports published by the Alternatrade Project (The New Resource Grab: How EU Trade Policy on Raw Materials is Undermining Development (November 2010)) and Forum Syd (The Raw Materials Race (December 2010)).
-For more pictures click here