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COPYRIGHT 2004 Berkeley Electronic Press
Abstract
It is now well accepted that far from being a positive, possessing an oil industry generally has a negative effect on developing countries. 'Resource curse', 'paradox of plenty' and 'Dutch Curse' are related theories explaining oils pernicious effect on economic development. The consensus has emerged that transparency is a key requirement for sterilizing oils propensity to harm developing countries. Momentum to introduce transparency into the international oil industry has increased over the last two years, starting with the signing of the Extractive Industry Transparency Initiative (EITI) in July 2002; this is an agreement among state parties to 'work together voluntarily to develop a framework to promote transparency of payments and revenues'. Other recent developments include the EU amending the 'Transparency Obligations Directive', and introduction into the US senate of two bills to tackle the problem of corruption in oil producing developing states. This convergence of thinking raises the possibility that a new international legal orthodoxy regarding the responsibility to transparency may be evolving.
However, while there is a consensus on the necessity of transparency, a pluralistic contest between a 'Publish What You Pay' civil society movement wanting EITI to be mandatory, and the international oil TNCs, which wants industry self regulation, is still being waged. Oil TNCs maintain that modality problems over contract sanctity and the inability of international economic law to provide for a globally level playing field preclude a mandatory approach. The oil TNC's arguments' also stem from a fear of an international liability being created if EITI was to morph into international hard law. This seeming impasse is illustrative of an imbalance in the dichotomy of international economic law, as TNCs gain increasing rights without incurring any of the reciprocal responsibilities that constitute a legal system. However, insiders in the international oil industry also admit that 'larger forces at work' are driving the introduction of transparency into the international resource industries. In this essay I will utilize interactional legal theory to both explain these 'larger forces' and to analyze the efforts of the PWYP coalition in terms of 'norm articulation' and legal regime creation. The essay will also look at the symmetries of interactional legal theory and the institutional economics of Terry Lynn Karl's 'Paradox of Plenty' thesis.
Finally the essay will offer a potential treaty solution, combining mandatory and voluntary measures, and examine if the nascent conditions for a customary international law regarding transparency are forming.
KEYWORDS: Oil, transparency, international law, interactional legal theory, institutional economics, oil industry regulation, resource curse, customary international law
Introduction
It is now well accepted that far from being a positive, possessing an oil industry has generally had a negative effect on developing countries economic trajectories. (1) Possessing an indigenous oil industry, in particular, has proved to be consistently harmful to developing nations. A number of phrases, such as 'resource curse (2), paradox of plenty' (3) and 'Dutch Disease' (4) have been coined to encompass the phenomena explaining why oil production in the developing world has seldom (5) led to positive long-term outcomes. Rather the introduction of oil revenue into developing countries has been uniformly damaging; sabotaging their economic development, corrupting governing institutions, stunting civil societies and in some cases directly facilitating conflict and civil war.
What has emerged from study on this seemingly economic paradox, has been the commonality that oil has an adverse affect in countries in which the propensity for oil to feed corruption and cause structural anomalies has not been ameliorated by revenue flow transparency and a government policy of strict financial prudence of its oil wealth expenditure. (6) This convergence of thinking regarding the importance of extractive revenue transparency to a nations development trajectory has coincided with a number of recent events and trends to raise the distinct possibility that a new international legal orthodoxy regarding the responsibility to transparency may be evolving.
One of the primary reasons for the relatively sudden appearance of the underpinnings of an international consensus on introducing increased revenue transparency to the oil industry has been the recent discovery of accessible oil fields off the West Coast of Africa, estimated to be worth around 200 billion $US. (7) This has significantly the regions strategic importance to the West, which is eager to exploit alternative sources of oil, post 9/11. (8) It is estimated that the US will draw a quarter of its oil from West Africa by 2015 putting billions of dollars into the treasuries of some of the poorest nations on earth. (9) The potential for this to fund much needed development for one of the worlds most improvised regions has occurred at the same time as a number of high profile scandals and court cases involving transnational corporations (TNCs) implicated in corruption or covertly paying dictators. (10) This confluence has stimulated the NGO sectors interest and influence in lobbying for extractive industry reform, which in turn has resulted in Governmental recognition of the vast social costs of extractive industry facilitated corruption and potential perversion of states institutional well-being. In June of 2003 at the Evian summit, the G8 for the first time formally addressed the topic in a statement, 'Fighting Corruption and Improving Transparency'. (11) Subsequently, over the last two years there has been an increased effort, both on a supranational and national level, by governments to design coordinated efforts introducing transparency and accountability into the international oil industry.
The increasing velocity of legal developments regarding revenue transparency for the international extractive industry is noteworthy. The major achievement to date has been the 'Extractive Industry Transparency Initiative' (EITI), a scheme launched by the UK Government following the 2002 Johannesburg World Summit on Sustainable Development. At the EITI inaugurating Conference in London, June 2003, a hard won consensus was attained when a broad alignment of governments, the major players in the oil international oil industry and an NGO 'Publish What You Pay' Coalition signed a 'Statement of Principles and Agreed Actions (12). The Initiative is an agreement among state parties to "work together voluntarily to develop a framework to promote transparency of payments and revenues" (13). The centerpiece of the initiative is the agreement to use reporting guidelines consistent with EITI principles in pilot countries.
Since then the focus has switched to individual governments, as either countries hosting TNCs or countries home to TNC headquarters. Four countries: Ghana, Nigeria, Azerbaijan and the Kyrgyz Republic are actively implementing EITI templates, with World Bank and IMF assistance, to codify revenue disclosure regulations into their economies. (14) There are several other countries that are working towards the EITI implementation such as: Chad, Angola, Gabon, Sao Tome e Principe, Timor-Leste, and Trinidad & Tobago. In total 51 countries currently have civil society groups and governments using the EITI model, in varying degrees, to develop a national approach to increasing transparency within their extractive industry. (15)
Developed countries that are home to the major trans-national oil companies (TNCs) have also sought legal solutions to this issue. On March 30th 2004, the EU parliament became the first parliamentary institution to pass legislation dealing with the issue of revenue transparency in mainstream financial services legislation. (16) An amendment to the 'Transparency Obligations Directive' reads, "EU states should promote public disclosure of payments to governments by extractive companies listed on European stock exchanges". (17) Also in March 2004 the "Publish What You Pay Act", was launched in the U.S. House of Representatives. (18) The proposed legislation likewise intends to use stock market disclosure rules to mandate that American extractive companies publish what they pay foreign governments. A few months later in May, the "United States Economic Assistance Conditionality Act of 2004" was launched in the U.S. Congress. (19) Were this bill to be enacted, it would amend the 'U.S. Foreign Assistance Act of 1961' and would "require the governments of low income oil-producing countries to meet certain requirements relating to their oil revenues in order to be eligible to receive economic and development assistance." (20)
The PWYP coalition admits that the 'Publish What You Pay Act, 2004' will have to be combined with other legislative efforts being formulated for the 2005 legislative calendar if it is to gather the strong bipartisan support it would require to have a chance of being passed. (21) Although both acts have the odds against them given the present distribution of power in Washington, this flurry of legislative activity from both sides of the Atlantic, regarding the issue of transnational extractive industry revenue disclosure, merits examination as to what larger legal trends may be at work.
What should be appreciated are that efforts to constitute national laws on revenue disclosure in the home countries of trans-national oil companies are one half of a highly contested process to define and control the introduction and codification of a revenue transparency paradigm, between the NGO community and the trans-national oil industry. Somewhat in the middle are the relevant state governments, vacillating between the valid concerns of both camps.
Mandatory vs. voluntary revenue disclosure models
The NGO stance, most vigorously put forth by the 'Publish What You Pay Campaign', a coalition of around 230 NGOs world wide, is that extractive industry transparency must be made mandatory, comprehensive and should be ensured through revenue disclosure laws in both host and home states. (22) The trans-national extractive industry, while agreeing overall with the need for a new concerted effort to achieve greater transparency of revenue flows in the developing world, contend that the practicalities of contract sanctity and state sovereignty preclude mandatory industry wide regulation. (23) They argue instead that the onus rests with host country governments to introduce transparency laws. (24) At the heart of the debate then is whether international law can, and should be used to impose ethical considerations on the international extractive industry. Framing the debate are what potential precedents, which may alter the terrain of international economic law, are being established as the two sides vie for control over the issue's evolution.
Certainly there has been a stated concern from some oil company executives that were current internationally coordinated efforts to promote transparency to become mandatory, they could form a law of nations, that is, international customary law. (25) Some oil TNC executives assert this make international oil companies unacceptably vulnerable to legal liability for events beyond their control, from such legal mechanisms as the 'U.S. Alien Tort Claims Act'. (26)
Although the general tactic of oil the industry has been to avoid talking specifics regarding potential regulatory measures, executives within the oil TNCs acknowledge that increasingly effective pressure for regulatory evolution in the oil industry is likely to continue. What is at question is its form--industry governed self-regulation or an externally imposed system invoking international law for legitimacy. Indicative of the attitude of the TNCs, is the statement by Peter J. Robertson, Vice Chairman, Chevron Texaco, to a convention of asset management companies on EITI on February 25th 2004.
"I know that some organizations aren't willing to accept a voluntary approach to transparency. They should recognize that a heavy-handed approach would most likely alienate ... countries toward other partners who are not inclined to support transparency ... Despite the drama of the debate, this is not a stalemate. True, change will come slower than many of us would like. But it will come because the transparency initiative itself is a reflection of much larger forces at work." (27)
Given that important voices within the international oil industry, conventionally considered as highly committed to the status quo, believe that fundamental changes are afoot in the oil international oil, is reason aplenty to ponder what these 'larger forces at work' are? And, where they come from?
Part II of this comment outlines the diverging views of the TNC oil industry and some governments, as compared to civil society NGO groups, on the best methods for regulating transparency of oil revenues and payments. The schism hinges as to whether oil industry regulation should be voluntary or mandatory. Part II also addresses the modality difficulties in instituting international regulation on a global industry.
Part III locates EITI in the theoretical light of the Interactional legal theory of Lon Fuller. This contextual analysis of transparency illustrates how the complexities of implementing a revenue transparency regime can be progressed through the prism of 'Interactional Legal Theory'--by merging the agendas of all stakeholders to avoid a zero sum game. This approach emphasizes the need for norm creation through a 'managerial' rather than dictatorial (positivistic, is that the right word) treaty regime.
Part IV addresses the question inadvertently posed by Peter J. Robertson, "what are the larger forces at work" that EITI reflects? Are they an indication of lex fecunda for international resource law, such as some crystallizing responsibility to transparency? Does this give arise to a valid fear for TNCs of universal liability?
Part II
First it should be noted that the EITI agreement constitutes international law, only in the softest sense. The EITI's founding statement describes the initiatives objective as: "The initiative encourages governments, publicly traded, private and state owned extractive companies, international organizations, NGO's and others with an interest in the sector to work together voluntarily to develop a framework to promote transparency of payments and revenues" (28)
Given the complexity of introducing transparency measures, and the need for any system to be global in its reach to ensure industry wide adherence, all sides agree that EITI is only a starting, rather than finishing point for extractive industry transparency reform. Where PWYP and the oil TNCs disagree is whether EITI is the final mechanism for accomplishing this reform.
The oil TNCs and official government stances, both maintain that introducing extractive revenue disclosure is a task to be approached one host state at a time, something that EITI is now theoretically capable of facilitating. The U.S. government has been less demonstrative than its European counterparts on the issue, and has generally kept its support for extractive industry revenue disclosure reform at arms length. It favors a gradualist, ad-hoc proliferation of EITI. U.S. State department official, Janice Bay, when speaking about the revenue transparency measures, said: "We support an approach based on compacts between willing 'pilot project' countries and the companies and civil society in those countries. We think successful 'pilot projects' in countries committed to fighting corruption could evolve into a model for others" (29)
The PWYP coalition also assumes a country by country approach is optimal, however it also posits that the EITI is only a prototype agreement for a more comprehensive future international regime. Henry Parham, Coordinator of the PWYP coalition stated:
"The EITI is simply a catalyst. It will not exist forever. It will convene companies and governments over the coming years to implement transparency standards and build capacities. It is taking a country-by- country approach so the question of how the process will evolve is too difficult to predict on an international level. It will probably involve some mandatory and voluntary solutions." (30)
The EITI has already achieved some notable successes. As well as serving as a guiding document for a number of mineral rich developing states to install extractive revenue disclosure templates, it's influence should also be credited with recent reforms initiated by prime offenders from the past, as in the case of Angola's latest contract with ChevronTexaco. (31) Although not as transparent as NGOs would want, the contract does include major revenue disclosures and a commitment from the Angolan Government as to the importance of transparency to the nations development.
However, the fault lines of philosophical disagreement between the oil TNCs and the PWYP coalition, that EITI briefly managed to reconcile, have widened over the last year. Frustration has grown amongst the PWYP grouping that EITI, in its present voluntary form, is not propagating transparency fast enough through the international oil business, nor is it suitably designed to effect those governments that need it most--corrupt dictatorships who rely on misallocated oil revenue as a prop for their continued misrule. (32) Furthermore, advocates of a mandatory model assert that a transparency regime--ensuring that all states are affected--is urgently needed. This is in contrast to the gradualist timeframe expounded by the TNC oil community at the 2003 EITI conference. (33) The argument for the urgency of introducing transparency to Africa's...
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