2.1 The Task: Ensuring a Functional Commodity Sector
2.1.2 Economic, Political and Technical Circumstances
Commodity activity constitutes the precondition for economic production—without a primary commodity, no goods can be produced.53Where exhaustible commodity deposits are concerned,54they frequently constitute important economic assets for the state that owns them.55 Taken together, these factors raise important issues of
48See already Oehl (2019), p. 6, n 20.
49Cf. Schrijver (1997), pp. 14–15; Oehl (2019), p. 6, n 20.
50WTO (2010), p. 46. This is not surprising given that Article XX(g) GATT refers to‘natural resources’, thus departing from the terminology introduced by Article 56(1) HC.
51The fact that the definition exhibits the mentioned inconsistencies yet again shows that it was mainly created in order to economically assess effects to items that are subject to like circumstances.
The qualifications of scarcity and economic usefulnesshere, however, are compelling since they allow excluding such‘natural resources’that are not traded in markets, e.g. air and seawater, from the scope of the notion, WTO (2010), p. 46. On the definition of‘commodity’in the same report, cf. already Sect.2.1.1.4above.
52Oehl (2019), p. 6, n 20; cf. in more detail Sect.5.1.1.3below.
53On the so-called Commodity Value Chain, cf. Sect.3.2.2.1below.
54As has been pointed out, the notion ofsustainabilityhas to be different for exhaustible commod-ities compared to renewables since the balancing exercise regarding economic, social and environ-mental concerns may differ, Bellmann (2016); cf. also the distinction between non-renewable
‘stock’and renewable‘flow’resources portrayed i.a. by Schrijver (1997), pp. 13–4.
55Calder (2014), p. 2. In the case of exhaustible commodities,‘a key opportunity cost of extracting today is the future extraction foregone’, which can be particularly problematic, where the extraction
global economic equity between an economic centre, in which commodities are being turned into end products, and a commodity-exportingperipherythat seeks to make use of its commodity export revenues for its own industrialisation, which naturally requires corresponding technology.56
From the perspective of CDDCs, commodity governance is a crucial develop-ment factor: Commodity export revenue for some of these countries may be the only opportunity to grow and industrialise their national economies.57Their needs appear to frequently clash with the paradigm of trade liberalisation, which is dominant in the global trade system still today. Whereas for instance the US developed their own economy relying i.a. on infant industry protection measures,58 the paradigm of liberalised trade today substantially limits countries’ policy space to implement such measures, including ones e.g. fostering so-called Import Substitution Industrialisation.59 The same holds true for the‘structural adjustment’programs (SAPs) maintained by the World Bank.60
Furthermore, several factors, including high capital intensity, high sunk costs, long development and operating periods, need for imports of expertise and technol-ogy, volatile markets, and overall economic uncertainty and risks, particularly in the extractive industries, contribute to the significant dominance of large TNCs—most of them headquartered in the economic centre—in the commodity sector.61
and corresponding economic benefits cannot be turned into SD. On the various efforts UNCTAD is undertaking in order to tackle pervasive commodity dependence—a key challenge to the SD of the Global South, UNCTAD (2018), pp. 6–8.
56On his‘centre-periphery analytics’, which‘open[] a window onto the structures of power and hierarchy in a larger system and onto the continuation of war in times of peace through the dynamics of domination and reciprocal influence among unequal actors in such a system[]’, fundamentally Kennedy (2013), pp. 77–86. On thePrebisch-Singer hypothesis, for instance, cf. Sect.2.2.3below;
Toye and Toye (2003), pp. 437–438; cf. also Arezki et al. (2013). Furthermore, the need for CDDCs to industrialise relates to the challenges of creating sufficientlinkagesbetween commodity opera-tions and the respective host economy, such as capacity building, technology transfer, and other local contentmeasures.
57Instead of many, Morris and Fessehaie (2014).
58Tickner (1990), pp. 69–70.
59Gale and Haward (2011), p. 5; cf. Hirschman (1968) with a comprehensive account of the origins of ISI and respective policies in Latin America.
60On ‘[t]he IMF’s neo-classical emphasis on liberalization and macroeconomic stabilization’as well as the ensuing repercussions for borrowers, Schlemmer-Schulte (2014), paras. 4–5. It may be due not least to these liberalisation requirements that resource-endowed states, particularly in Sub-Saharan Africa are increasingly relying on so-called resources for investments (RFI) deals.
On the latter, focusing on the DRC-Sicomines deal, Landry (2018).
61Calder (2014), pp. 2, 6, who points to the fact that‘risk is not unique to natural resources, but the magnitude and pervasiveness of natural resource risks are exceptional’; IMF (2012), p. 10; cf. also AU (2009), p. 8; on the challenge of regulating TNCs instructively Muchlinski (2007). Apart from private TNCs, also state-owned commodity enterprises have evolved as major players, notably in the oil and gas sector. The governance of SOEs can pose particular challenges, especially where these entities manage largeflows of public revenue and/or assume multiple government functions (e.g. project financing, operation, oversight, accounting) at once, thus often conferring a
2.1 The Task: Ensuring a Functional Commodity Sector 17
Correspondingly, much of commodity activity occurs transnationally, thus giving rise to additional governance challenges, such as benefit sharing62 as well as information asymmetries between the commodity-endowed state and the foreign corporate.63Also, in view of the pervasive economic risks associated with commod-ity projects, maintaining a stablefiscal regime including reliable legal underpinnings may be of particular importance for attracting foreign investment.64
Apart from the great economic risks associated with commodity activity, it also entails significant environmental and social risks and can potentially cause i.a., air, water and land pollution, energy and water waste, land alteration and deforestation, public health risks, the disruption of existing ecosystems, the displacement of local communities and exploitative labour practices affecting vulnerable population seg-ments such as children.65Moreover, where commodity extraction is taking place in areas that had hitherto been used for farming, hunting or fishing, commodity activities not only concern land rights, but also a variety of HR, including cultural rights of indigenous peoples in view of role the natural environment can play in their rites and beliefs.66 Due to the high social sensitivity of commodity activities, commodity companies are said to require asocial license to operate—in addition to the formal license issued by the state government—in order to carry out their desired projects.67
Many of the risks caused are particular to the type of commodity activity, such as mining, oil and gas exploitation, or agriculture.68 The detrimental effects on the
disproportionately strong position onto the SOE within the government apparatus, which may jeopardise constitutional checks and balances and therefore make the entire governance system prone to corruption, cf. e.g. EITI (2019) Role of state-owned enterprises, https://eiti.org/role-of-stateowned-enterprises(last accessed 14 May 2021).
62IMF (2012), p. 10. From a government perspective, a non-standard, commodity-directedfiscal regime is generally advised in order adequately capture commodity profits and rents, cf. Calder (2014). In view of their large volumes, managingfinancialflows resulting from commodity activity and maintaining respective transparency are two equally important and intricate challenges of commodity governance. On EITI, PWYP, and other transparency standards, cf. Sect.4.2.2.2.1.1 below.
63Especially Commodity-Dependent Developing Countries (CDDCs), on their definition cf. UNCTAD (2017), p. x, often do not dispose of the necessary funds to carry out exploration activities—which can be very capital-intensive, particularly in the mining sector—and correspond-ingly determine relevant geological data themselves. Instead, they need to rely on the information that commodity companies gather, which may put them at a disadvantage when negotiating the economic terms of the exploitation of a respective deposit, cf. AU (2009), pp. 15–17.
64On stabilisation clauses in the commodity sector, see instructively Hauert (2016); on investment protection in the commodity sector, cf. Sect.4.3.1below.
65Espa and Oehl (2018), p. 5; Bellmann (2016); Bürgi Bonanomi et al. (2015).
66Cf. Sects.4.2.1.1and4.2.2.1.1below.
67NRGI (2014), p. 11; cf. Moffat and Zhang (2014).
68Mining for instance can cause severe environmental repercussions. Since minerals are contained in a matrix, it typically requires the unearthing of huge volumes of rock. Once these have been brought to the surface, the ore is being separated from waste rock and treated i.a. with leaches such as alkaline cyanide solutions or sulphuric acid solutions in order to liberate the desired metal from
environment that are specifically caused by commodity exploitation can potentially affect all spaces of planet Earth, including mining in the Deep Sea as well as drilling activities in the Arctic. Again the risks associated with commodity activity may be similar to the risks associated with other economic activity, yet they are exceptional in their‘magnitude and pervasiveness’.69In fact these risks may at times be of such overwhelming nature that states fail to adequately manage them—a scenario, which has become known under the notion‘resource curse’.70