Transparency in trade negotiations

Transparency in Trade Negotiations

In the past, mistrust and false pretence in matters of subsidies, hidden tariffs, and environmental issues between countries have caused trade negotiations to be delayed and even fail. In an increasingly globalized marketplace, further use of transparency mechanisms and openness is required in order for future international trade negotiations to fully succeed. The purpose of this study is to demonstrate through a critical review of the relevant and peer-reviewed literature precisely how the implementation of a stronger role by organizations such as the UK-backed Extractive Industries Transparency Initiative and Dispute Settlement Bodies will enhance global economic growth, and contribute to the reduction of poverty. A summary of the research and important findings are provided in the conclusion.

Review and Discussion

Beyond the innovations in transportation and communications that have fueled the enormous growth in international trade, there have been some international agreements reached in recent years that have contributed to the process as well. For instance, international trade regulation has grown increasingly prominent since the World Trade Organization (WTO) was created in 1994 by reference the General Agreement on Tariffs and Trade (GATT), which had been in use since 1947 (Lindsy, 2003). According to Cohen (2002), "The Legal Texts, called 'GATT 1994,' established the WTO as a legal organization to administer the new mechanism for dispute settlement and the many new trade agreements and rules adopted during the eight years of negotiations" (p. 188). The author also notes that GATT 1994 gave the WTO the ability to enforce its decisions, which the original 1947 version lacked (Cohen, 2002). Not surprisingly, GATT 1994 has been met with some mixed opinions in the international community because of this new ability to compel a country to abide by policies and regulations that may be incongruent with their existing practices. For instance, "In joining the WTO," Cohen notes, "a country cedes some sovereignty for making trade policy in that it might receive what it considers undue pressure from an international organization, the WTO, to change its trade policy" (p. 189). Despite these constraints, the economic advantages of participation in the WTO have made such participation sufficiently attractive to many countries that any required changes are made willingly, or at least made with a minimum of objections. In other cases, though, some developing countries may perceive their competitors gaining an unfair trade advantage through tariffs or unilateral policies that adversely affect their ability to compete on a level international field. In this regard, Crook (2006) suggests that the answer to these types of conflicts is pure and simple: "The real mystery is why complex rounds of reciprocal trade-policy promises - 'We'll concede this if you concede that' - should ever have been necessary in the first place. The standard answer is politics" (p. 30).

In this regard, Crook points out that even though the U.S. has largely opened its domestic market to the international community, it is still able to wield undue influence because the U.S. can exploit its prominence in the international marketplace to the benefit of its enormous domestic market by "wringing bigger concessions from its trading partners" (2006, p. 30). Likewise, developing nations continue to protect their domestic markets through comprehensive tariffs and other import barriers, all of which add to the cost of international trade because of the conflicts that inevitably result (Crook, 2006). According to this author, "Up to now, the World Trade Organization has acted as an obstacle to backsliding, by policing the promises made by members and arbitrating frequent disputes. Its ability to do that is not yet in question, but it soon might be. At a minimum, the use of global treaties to spur further liberalization looks unlikely at the moment" (p. 31).

One approach to avoiding mistrust and false pretence in trade negotiations advocated by some civil society groups is the Extractive Industries Transparency Initiative (EITI). This initiative calls on multinational enterprises to publicly release contractual terms that reveal how much money is paid to government entities, depending on increased transparency and public pressures to force appropriate allocation policies and avoid the rampant corruption that characterized business practices in many developing countries (Kline, 2005). The need for this initiative was made clear by a recent Statement of the Pontifical Council of the WTO that stated, "Commercial negotiations should always take into account the impact of such negotiations upon the human family and the dignity of each and every human person" (p. 1). The statement also included the following criteria that must be included in such negotiations:

The imperative of transparency and "truth in numbers"; and,

The guarantee of full participation of all member States in the negotiations (Statement of the Pontifical Council, 2006, p. 2).

In spite of this need for a more comprehensive approach to trade negotiations, the Extractive Industries Transparency Initiative is limited to consideration of the control of revenues and payments. For instance, according to Youngs, "The high profile Extractive Industries Transparency Initiative -- launched by Tony Blair at the Johannesburg summit on sustainable development and grouping over 100 companies, governments, and NGOs -- limited its focus to the control of MNC payments and revenues" (2004, p. 87). Despite these constraints on focus, though, the EITI has enjoyed considerable support from the international community. In fact, today, approximately 130 NGOs including the Open Society Institute and Global Witness participate in the new EITI (Maxwell & Stone, 2005).

An increasing focus of the participating agencies in EITI is to address the continuing disparities that exist between the economic have and have-nots, disparities that continue to be exacerbated by the politically motivated restrictive traffics and other trade restrictions that exist in the marketplace today. These policies have historically affected the ability of developing nations to create the competitive advantage they need to be able to reinvest in their infrastructures and address the profound constellation of social issues facing them today. According to Stradiotto (2004), "Since natural resources provide a great source of income, and this revenue can be converted to capital improvement projects such as infrastructure modernization and education and health services, there is no obvious reason why natural resources frustrate economic growth, as has been experienced by many resource-rich countries" (p. 4).

The EITI has made addressing these issues a priority in recent years; for example, according to its organizational literature:

The EITI supports improved governance in resource-rich countries through the full publication and verification of company payments and government revenues from oil, gas and mining. Many countries are rich in oil, gas, and minerals and studies have shown that when governance is good, these can generate large revenues to foster economic growth and reduce poverty. However when governance is weak, they may instead cause poverty, corruption, and conflict - the so called 'resource curse.' The EITI aims to defeat this 'curse' by improving transparency and accountability. (About EITI, 2006, p. 1)

The term, "resource curse," was first coined by Auty (1993) in his essay, "Sustaining Development in Mineral Economies: The Resource Curse Thesis," by which he described a phenomenon in which countries that are naturally endowed with resources, primarily in the developing world, have failed to achieve their full economic potential because of disparate trade policies with developed countries such as the United States. In this regard, Auty reports that, "The conventional view concerning the role of natural resources in economic development has been that the resource endowment is most critical in the early low-income stages of the development process. It assumes that, as development proceeds and a population acquires more and more skills, those skills are deployed with increasing effectiveness to counteract any resource deficiencies" (1993, p. 1). Today, a number of sub-Sahara African nations fall in this category, and Nigeria in particular represents such a country. All of these resource-rich developing countries have inherited a legacy of a colonialist past that has adversely affected their current capacity to compete in the international marketplace while simultaneously attempting to cope with the effects of poor weather conditions, a range of diseases, and a lack of foreign direct investment (Auty, 1993).

According to their organizational literature, the intended beneficiaries of the EITI initiatives are the governments and citizens of resource-rich countries: "Resource-rich countries implementing EITI can benefit from an improved investment climate by providing a clear signal to investors and the international financial institutions that the government is committed to strengthening transparency and accountability over natural resource revenues" (About EITI, 2006, p. 2). The EITI Secretariat adds that both the public and private sectors in developing nations stand to gain by supporting EITI because it can help mitigate investment risk: "Corruption creates political instability, which in turn threatens investments which are often capital intensive and long-term in nature. Civil society can benefit from an increased amount of information in the public domain about those revenues that governments manage on behalf of citizens, thereby increasing accountability and improving transparency" (About EITI, 2006, p. 3). Complex problems require complex solutions, and the EITI represents a comprehensive approach to a longstanding and complicated set of challenges facing resource-rich developing countries today. The criteria established by the EITI for control of revenues and payments are follows:

Regular publication of all material oil, gas and mining payments by companies to governments ("payments") and all material revenues received by governments from oil, gas and mining companies ("revenues") to a wide audience in a publicly accessible, comprehensive and comprehensible manner.

Where such audits do not already exist, payments and revenues are the subject of a credible, independent audit, applying international auditing standards.

Payments and revenues are reconciled by a credible, independent administrator, applying international auditing standards and with publication of the administrator's opinion regarding that reconciliation including discrepancies, should any be identified.

This approach is extended to all companies including state-owned enterprises.

Civil society is actively engaged as a participant in the design, monitoring and evaluation of this process and contributes towards public debate.

A public, financially sustainable work plan for all the above is developed by the host government, with assistance from the international financial institutions where required, including measurable targets, a timetable for implementation, and an assessment of potential capacity constraints (The EITI criteria, 2006, p. 2).

There has in fact been some progress as made as well by virtue of the operation of these NGOs around the world in improving transparency in trade negotiations, but they have managed to do so without any substantive regulatory authority or enforcement power. These organizations have also enjoyed a degree of flexibility in achieving such progress that is not typically seen between countries during trade negotiations. For instance, none of the NGOs involved in the EITI are restricted to or confined by regulations within states; for example, Transparency International, the most successful international anti-corruption NGO, is not itself a statutory body (Kuper, 2004). Nevertheless, this agency's measures and recommendations have been incorporated into governmental regulatory regimes both within and beyond borders (Kuper, 2004).

In their chapter, "Political Globalization," Short and Kim (1999) report that," Transparency International has promoted numerous national chapters combating corruption around the world. In this context, corruption in Nigeria, the most corrupted country in the world, is a problem that the whole world has to be concerned about and one that the international community should continually request the Nigerian government to correct" (p. 113). In fact, Nigerian President Olusegun Obasanjo has been an enthusiastic supporter of the new Extractive Industries Transparency Initiative, as demonstrated at a top-level meeting held on Transparency and Accountability in Resource Management on January 27, 2005 (Nation with a new image, 2005). "This early fruit of the New Partnership for Africa's Development (NEPAD) is widely seen as a pattern for other African oil (and solid minerals) producers lacking Nigeria's clout to follow" (Nation with a new image, 2005, p. 33). The results of these initiatives has been extremely positive. According to Siddiqi (2005), "Africa's most populous country is finally putting its house in order and the strength of economic revival has exceeded expectations. The favourable external environment continues to underpin economic activity, however, buoyant domestic demand along with private consumption and business investment are equally behind sustained real GDP growth, averaging 5.9 per cent/year between 2001-05 -- the best performance for decades" (p. 27). Nevertheless, Transparency International continues to tank the levels of corruption in Nigeria among the highest in the world. According to Goodling (2003), "Pervasive corruption appears to permeate many levels of Nigerian society. The current Nigerian government, however, has taken great steps to combat this problem through cooperation with the U.N. Global Programme" (p. 997).

The implications of the EITI initiative on Nigeria and other developing nations have been profound and relatively quick to be felt by the countries involved. For instance, "Countries such as India which have been suffering from trade diversion due to being excluded from major regional trading agreements (RTA) should have reason to cheer now as a new WTO transparency mechanism for all RTAs is now in place. The new transparency mechanism provides for early announcement of any RTA and notification to the WTO" (WTO transparency mechanism for RTAs, 2006, p. 2). In addition, the report also suggests that this latest initiative, currently being implemented on a provisional basis, will help achieve unanimity among the WTO representatives and streamline the existing conflict resolution procedures to reduce backlogs of cases and improve the responsiveness of the process (WTO transparency mechanism for RTAs, 2006).