De fi ning a Functional Commodity Sector

These economic, political and technical realities in which commodity activity occurs need to be borne in mind when considering what constitutes a well-governed or

‘functional’commodity sector. While there are naturally many ways to approach the definition of a complex term such as ‘functional commodity sector’, we shall characterise the latter by identifying its centralpolicy trade-offs.

In order to identify these policy trade-offs, Ifirst analysed the political objectives associated with commodity activity by studying a considerable volume of inter-,

the gangue, Spohr (2016), p. 48. The gangue material that is left behind is usually being deposited into tailings, which are often retained by dams or embankments consisting of waste rock. Due to the prior chemical treatment, gangue often exhibits residual concentrations of leaches. As a conse-quence, many tailings contain significant concentrations of these chemicals. Their seepage can lead to ground and surface water contamination as well as other environmental damage. Tailings dam failures can lead to a further proliferation of chemicals in the surrounding environment and, depending on the size of the tailings, destroy entire ecosystems, Spohr (2016), pp. 48–49; cf. the Fundao tailings dam-burst, which caused 19 casualties and polluted a nearby river in Brazil, BBC (2016) Samarco dam failure in Brazil‘caused by designflaws’, 30 August 2016,http://www.bbc.

com/news/business-37218145 (last accessed 14 May 2021), as well as the dam-burst in Brumadinho and Lewis (2019) Second Vale dam burst in Brazil likely to curb mining risk appetite.

Reuters, 26 January 2019, https://www.reuters.com/article/us-vale-sa-disaster-risks/second-vale-dam-burst-in-brazil-likely-to-curb-mining-risk-appetite-idUSKCN1PK0N1 (last accessed 14 May 2021).

69Calder (2014), p. 6. While this claim by Calder is being made with regard to extractive industries, it is also fair to employ it with regard to other commodity sectors, including agriculture and fisheries. In all sectors, large-scale, intensive intrusions into the natural environment are not uncommon, as reflected in for example incidents of large-scale land grabbing and illegal, unreported, and unregulated (IUU)fishing, cf. e.g. Bürgi Bonanomi et al. (2015), pp. 46–47 as well as FAO (2016). On the endeavour of this treatise to identify, instead of focusing on individual commodities, commonalities of governance challenges related to commodities in general and its corresponding conceptualisation of TCL, cf. Chap.2below.

70On empirical evidence for the phenomenon that resource rich states often do not number among developed nations, Sachs and Warner (2001), p. 828; cf. Hauert (2016), p. 33. Cf. also NRGI (2015), p. 1. Comprehensively Frankel (2012); Bonnitcha (2016), p. 43; critically Desai and Jarvis (2012), p. 104. The decrease of productivity in other industrial sectors that commodity exports can bring about has been described as the related phenomenon of‘Dutch disease’, cf. Davis (1995), likewise with a critical view on the‘resource curse thesis’.

2.1 The Task: Ensuring a Functional Commodity Sector 19

supra-, and national strategic guidance documents; the regulatory objectives of various inter-, trans-, and national instruments applicable to commodity activity; as well as the central individual legal norms governing commodity activity on a transnational level. As a second step, I clustered the objectives expressed in these sources according tofive major interests they are associated with—economic gain, development, preservation, control, and participation:

First, many, if not most, actors involved in commodity activity are pursuing the objective ofeconomic gain. The commodity company, which may be involved in exploration, extraction and perhaps processing as well as shipping or trading activ-ities, will typically be looking for profits. The host government, which disposes of natural resources, will generally attempt to capture sufficient resource rents through taxes or royalties. As commonly the case in the oil and gas sector, the host government may also pursue profit-oriented activities itself, usually through state-owned enterprises (SOEs). In addition, various actors along the commodity value chain may be seeking profits, be it suppliers, subcontractors or third-party service providers of any kind. The services and goods they offer may range from highly technical expertise and products, such as the refinement of precious minerals, to services fulfilling the basic needs of e.g., the personnel of the commodity company carrying out the removal process, such as grocers and food suppliers.⁷¹

A second interest, which occurs frequently in connection with commodity activ-ity, is the one ofdevelopment. For many countries, commodities constitute a major or even the only significant source of income. This is particularly the case for so-called CDDCs.⁷²Frequently, the revenues generated through commodity activity will be the only substantial means available for those states to develop. As a consequence, the respective governments will typically seek to implement policies, which foster the development contribution of the commodity sector to the greatest possible extent. Their actions will oftentimes be monitored and potentially criticised by civil society groups, which likewise demand a‘fair share’in commodity export earnings for the respective host population. On the part of industrialised states, security of commodity supply constitutes a central element of continued development.

Both interests introduced so far frequently conflict with the third interest of preservation. Ideally host governments, and typically especially local populations and civil society groups will advocate for an adequate protection of the natural wealth of their country or municipality. This advocacy can be particularly vigorous where local populations, especially indigenous peoples, rely on a particular part of the natural environment for their livelihoods or identify with it culturally e.g., as

‘ancestral land’. The preservation of nature is a challenge, which applies along the entire commodity value chain and involves diverse subject matters, such as the

71Cf. insofar the policy challenge of creating sufficientlinkagesbetween the commodity activity, particularly the removal activity, and the host economy—an issue, which depicts potential policy trade-offs between economic gain and development.

72Cf. definition provided by UNCTAD (2017), p. x.

protection of watercourses against waste materials from extraction works, adequate restoration of the natural environment after a removal process has ceased or limiting the emission of greenhouse gas during a refinement or shipping process.

A fourth interest, which is pursued mainly by government actors, iscontrolling the commodity activity in various respects. The respective authorities on national and subnational levels typically strive to maintain control over what resources are being extracted by whom and under what conditions. This interest can correlate with the one of economic gain but is still separate from it. Control may also relate to enforcing particular labour, anti-corruption or shipping standards, i.e. upholding the general rule of law in regard to commodity activity. Consequently, internal conflicts within the government or between government branches may occur, for instance over the award of exploration or extraction rights to a particular actor by the executive branch, which the judiciary may deem to be a violation of due process.

In situations of armed conflict, maintaining the overall control over, and thus security of, commodity operations constitutes a central objective that adversarial actors may be striving for.

Fifthly and lastly, all of the interests outlined so far may conflict with the interest ofparticipation. This interest typically concerns respective host state populations, in particular civil society organisations on national and local levels.⁷³Given the often large-scale nature of commodity activities,⁷⁴ a removal process may bear on the daily lives and interests of many residents. As a consequence, their proponents frequently voice their demand to participate in decision-making processes at the various levels of government. They want to be involved in the decision, what resources are being exploited by what actor and under what conditions. Potentially, they may claim compensation for temporary or permanent loss of their livelihoods.

The demand for participation may also relate to specific activities carried out by commodity companies, such as for instance ways to remedy detrimental side effects of extraction activities. Likewise, commodity companies may seek participation in governmental decision-making.

While each of thesefive interests can conflict with one another, and thus create various policy trade-offs, some evidently clash more severely than others. For instance, the quest for economic gain, no matter pursued by which actor, frequently creates trade-offs with the objective of preservation and potentially development.

Likewise, it will often conflict with the concern for participation. Participation, in turn will typically influence thedegreeof control that an actor can exercise over a specific activity.

This list of interests creating commodity-specific policy trade-offs is not meant to be conclusive. Yet, it depicts an analytical framework, which helps to aptly

73Today, several civil society organisations/NGOs are active transnationally, thus demonstrating what can be termed the emergence of a‘transnational civil society’. Cf. generally on the challenge of sufficiently involving these transnational actors in the continuously intensifying global regula-tory cooperation and related matters of democratic legitimacy, e.g. Buszewski et al. (2016). On globally active commodity initiatives and organisations, cf. Sect.2.2.5below.

74Cf. Calder (2014), p. 10; also, Sect.2.1.2above.

2.1 The Task: Ensuring a Functional Commodity Sector 21

categorise the majority of trade-offs that typically occur in relation to commodity activity. Evidently, the remarks made above can only give a rough, exemplary idea of what kind of scenarios may be categorised as conflicts of the five diverging interests; and oftentimes, these scenarios will comprise several trade-offs, not just one. Still, one should generally be able to subsume large parts of the factual scenarios occurring in the commodity sector under the analytical framework presented above.

Moreover, it shall be noted here thatqualitativestatements about for instance the degree to which the global commodity sector is factually being governed in a functional manner lie beyond the scope of this book. What we can approximate, however, is an answer to our principal research question—how the current legal framework relates to the goal of ensuring a functional commodity sector. In that connection, what shall accompany us throughout the remainder of this book is the analytical parameter of balance between the five major interests associated with commodity activity.

Therefore, for the purposes of this book,

the global commodity sector shall be deemed to be functional when and where it exhibits a balance between thefive major interests associated with commodity activity.