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Going Beyond Transparency and Good Governance

A response to “Commodities and Switzerland: Development Policy Challenges and Policy Options” by Werner Thut.
Humberto Campodónico
p. 153-193
This article is a translation of:
Más allá de la transparencia y una buena gobernanza

Index terms

Thematic keywords :

commodities, policy coherence, trade
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1The paper by Werner Thut ‘Commodities and Switzerland: Development Policy Challenges and Policy Options’, from the Swiss Agency for Development and Cooperation, has great relevance as it comes from a country that is key to the extractive and food industries. This relevance does not come as much from Switzerland’s role as a producer, but from the fact that, as demonstrated by the figures given by Thut, it is the world’s largest commodity trading “hub”.

2Furthermore, this paper comes at a time when several developed countries have taken significant measures to promote transparency in the extractive industries. The Dodd-Frank Act of 2010 from the United States requires extractive companies to disclose information regarding the payments they make to states, on an individual and project-by-project basis. Similarly, the European Union just voted to approve a project along the same lines, and the Canadian government has announced an identical measure. The United States is currently implementing the Extractive Industries Transparency Initiative (EITI), of which Norway has been a member since 2011 and the United Kingdom and France will be joining in 2013-2014. In addition, the United Nations is currently discussing a resolution regarding transparency in natural resources.

3The Swiss development cooperation initiative suggests that it is helpful to distinguish between three spheres of action: first, internal development within Switzerland; second, the projects currently in operation around the world, and; third, the agency’s role in ensuring, along other Swiss government agencies, “policy coherence” that facilitates greater transparency, and the equitable end-use, of the production of extractive industries in resource-rich countries.

  • 1  The paper references questions arising as to the coherence for development of some components of S (...)

4It is important to point out from the start that there is a constant conflict, as noted in the paper, between, on one hand, the proposal from the Swiss development cooperation initiative, and the proposal made by other Swiss government agencies, particularly those closely associated with production and trade, on the other.1

5This conflict between proposals, we believe, is illustrated by the Swiss Federal Council’s recent report on Swiss commodities. This report has been strongly criticized by Swiss civil society organizations for its insufficient new data and, as the report merely makes recommendations and voluntary actions, above all, for its lack of concrete measures. We will come back to this subject later.

6In this paper, we will discuss not only the Swiss development cooperation issue, but I will also reflect upon some additional subjects relevant to the Latin American perspective. This will allow us to identify both the strengths and weaknesses of some of our policies.

1. Importance of the “Commodity Trading Hub”

7It is important to stress that, in this area, Switzerland’s key is that of a “broker” or “transit country”, and not a major consumer of raw materials. This is a different approach, for example, than that of Germany and its access to raw materials strategy and campaign.

81. Correspondingly, one of the key points to emphasize is that both extractive and trading companies should be held to the same levels of transparency. In this sense, we must mention that the recent measures implemented by the United States and the European Union have a direct impact on Swiss extractive companies, as they trade on the US and European stock markets.

9The question thus becomes: What will happen to Swiss trading companies? Will they also be subject to the transparency requirements?

10We must not forget that many of these companies are vertically integrated, from production all the way to sales, mediated by shipping and distribution. As a result, in order for such policies to be effective, the entire length of the value chain must be transparent. This issue must be regulated by legal provisions set by the Swiss government.

112. In the paper, Werner Thut states, “While evidence is not conclusive, some analyses have found a connection between the business practices of certain private actors in the financial markets and a trend towards speculative trades, large-scale land grabs and even human rights abuses.

  • 2  That said, in September 2012, in the District Court of the District of Columbia, Judge Robert Wilk (...)

12We believe that there is conclusive evidence of a significant financial capital participation in the commodity markets that, in turn, as indicated by recent works of the United Nations Conference on Trade and Development (UNCTAD), demonstrates speculative intervention. The Dodd-Frank Act of the United States has gone a step further, mandating the Commodity Futures Trading Commission (CFTC) to set limits on the positions companies take in commodity futures markets.2

13We think it is very important that Switzerland recognizes the central role played by Swiss markets and private companies in the price formations of the commodities markets. What we do not seem to have, however, are concrete measures to progress in this direction.

143.Thut’s paper mentions that a merger between two Swiss companies, Glencore (a commodity trader) and Xstrata (a mining company), was imminent, which would make the merged company the fourth largest in the world. This took place in April-May 2013, when the Ministry of Commerce of the People’s Republic of China (MOFCOM) approved the merger. Initially, the Chinese government was concerned, as the dominant market position of Glencore-Xstrata could affect the supply of minerals to China.

15As a condition of the merger’s approval, the MOFCOM required the exclusion of Las Bambas, a Peruvian copper mine acquired by Xstrata in 2004, from the merger. Glencore and Xstrata accepted this restriction without consulting the Peruvian government, which stopped just short of denouncing the deal. Other politicians suggested that a complaint regarding this lack of transparency should be made to the WTO.

  • 3  The “predetermined” selling price must be greater than the total costs incurred by Glencore and Xs (...)

16There is no guarantee, furthermore, that the new company will comply with the environmental standards Xstrata followed in the past. Additionally, as, it has been agreed that the Las Bambas sale must provide a profit to Glencore-Xstrata, the start of production at the mine could easily be delayed.3

17Is this top-down approach consistent with transparency?

184. Finally, the paper also provides important data on illicit financial flows and the need to combat them. We completely agree with this point, but would argue that the same emphasis must be placed on stemming licit financial flows, which results in currency appreciation, a key symptom of Dutch disease.

19In resource-rich countries, in this era of high mineral prices, these licit financial flows are added to the export of natural resources. To combat these licit financial flows, states must possess the tools sufficient to prevent capital inflow. Governments are frequently unable to take such measures, however, due to the fact that even though the IMF now permits them, they are banned under several international instruments, including free trade agreements (see Ocampo and Gallagher, 2013).

20It is important for governments from developed countries, particularly the Swiss government, to take Thut’s words to heart. “A trade policy that works in conjunction with development policy such that development needs of individual countries, particularly the Least Developed Countries (LDC), are taken into consideration” is absolutely necessary. In order to do so, it is important to have a holistic vision of development, as suggested at the 2002 United Nations Monterrey Conference.

2. The Resource Curse: Going Beyond Transparency Towards Production Diversification

21There is empirical evidence that countries with significant natural resource revenue, have, in many cases, lower growth rates, and higher rates of corruption, than those with no natural resources. This is the so-called “resource curse”, the impetus for the increased focus on transparency as a means of fighting corruption. This objective has been taken up by the EITI, and the measures undertaken to pursue it should be strengthened.

22There is also abundant empirical evidence confirming that it is necessary to go one step further, towards the forging of effective overall governance that includes, of course, transparency. In this sense, we agree with Paul Collier’s statement: “Essentially, if a country has decent governance, the long-run effects of high-commodity prices reinforce the benefits of short-run effects. The resource curse is confined to countries with weak governance” (Collier, 2010, 46).

23This issue is underlined in the paper by Thut, wherein he references the examples of Norway, the European Union and parliamentary requests in Switzerland, to name a few.

24Having said that, as indicated by the Resource Governance Index 2013 from the Revenue Watch Institute (RWI), several Latin American countries do, in fact, demonstrate good governance. Brazil, Mexico, Chile, Colombia, Peru and Trinidad and Tobago appeared among the top 11, with a satisfactory rating, while Bolivia, Ecuador and Venezuela achieved a rating of  partial good governance.

3. Issues of importance for Development Cooperation with the Swiss Government

25It is evident that the policies for development cooperation must allow mutual collaboration. The primary objective of good governance initiatives is, firstly, responsibility from resource-rich countries. At the same time, in this area, Latin American countries are able to benefit from the international, including Swiss, cooperation for development.

26Let us take a look at some critical Latin American governance issues.

271. The paper recommends that Switzerland should “support the design and further refinement of the Swiss regulatory framework in so far as relevant to the nexus between commodity issues and the legitimate needs and interests of developing countries”.

28This could be just as, if not more, important than the measures taken in producing countries. It is also important to provide technical assistance to producer states in order to better enable them to fight illegal financial flows, as mentioned above.

292. It is crucial that revenue obtained from natural resources reaches regional and local governments. This is an issue currently under debate throughout Latin America.

30It is not only revenue allocation of revenue that is an important issue, moreover, but so its final destination. Revenue must be directed in such a way that it is able to contribute to the states’ sustainable development. This is a subject of great interest for Latin American countries, and is already being analysed by the Union of South American Nations (UNASUR) and the Economic Commission for Latin America and the Caribbean (ECLAC).

31The Swiss development cooperation could be very helpful in this area, due to its experience in handling decentralized funds and in the quality of the investment to be developed.

323. Even though progress has been made, tax authorities in resource-rich countries often lack the appropriate technical expertise required to effectively tax revenues from extractive companies operating in their states. The same is true of the government agencies charged with promoting competition.

33From this perspective, the Swiss proposals could be more explicit, creating cooperation programs for tax authorities and competition policy-making agencies. Development cooperation is welcome in these cases.

344. Civil society organizations from resource-rich states have contributed to better monitoring of extractive industries, with respect to issues of transparency and governance, as well as environmental conservation (a subject Thut explicitly does not consider in his paper).

35Along these lines, in January 2013, the Latin American Network of Extractive Industries presented the EU/LA parliaments with a proposal containing eight conditions for European-based extractive investments in Latin America at in the EU/Latin America Summit in Santiago. This initiative could be reviewed and updated.4

4. Conclusion

36We need to go beyond the issue of good governance of natural resources and, though it is somewhat outside the scope of this paper, advance towards non-excessive dependence on the export of natural resources. This is particularly important in today’s economic climate, when we seem to be entering the last stretch of the super cycle of commodity prices. This means creating policies to diversify production and promote technological and scientific development. It is therefore essential for governments to have the necessary “policy space” to implement such policies, an area wherein developed states, working through various international organisations (such as the IMF, World Bank and WTO, etc.), could be extremely helpful.

37We are at a time when greater initiatives could be implemented and, above all, important achievements in the transparency and governance of extractive industries could be made. Successfully achieving these goals must be an objective of international organizations, developed countries, the governments of resource-rich states and global civil society. We believe that Swiss development cooperation has set the benchmark for this undertaking. Now is the time for the Swiss government, at its highest levels, to carry out these proposals, in keeping with Switzerland’s status, as the world’s largest commodity trading hub, as one of the most important links in the natural resources value chain.

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Collier, P. (2010) ‘The Plundered Planet’, Cursed by Nature? The Politics of Natural Assets, (Oxford: Oxford University Press).

Ocampo, J.A. and K. Gallagher (2013) ‘IMF’s New View on Capital Controls’, Economic & Political Weekly, 48(2), March 23.

Ocampo, J. A. and B. Erten (2012) Super-Cycles of Commodity Prices Since the Mid-Nineteenth Century, DESA Working Paper No. 110, ST/ESA/, February.

Revenue Watch Institute (2013), Resource Governance Index

Switzerland (2013) Report of the Interdepartmental Platform on Commodities to the Federal Council, Background Report: Commodities, March., (2012) ‘Court Strikes Down CFTC Regulation to Limit Excessive Speculation’,18 October,

UNCTAD (United Nations Commission on Trade and Development) (2012), Development and Globalization, Facts and Figures 2012, Geneva.

UNCTAD (United Nations Commission on Trade and Development) (2011), Price Formation in Financialized Commodity Markets: The Role of Information, June, Geneva.

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1  The paper references questions arising as to the coherence for development of some components of Swiss policy, including trade and international taxation policies.

2  That said, in September 2012, in the District Court of the District of Columbia, Judge Robert Wilkins threw out the U.S. Commodity Futures Trading Commission's new position limits rule, and sent the regulation back to the CFTC for future consideration. The future status of such regulations is thus, at this time, unknown.

3  The “predetermined” selling price must be greater than the total costs incurred by Glencore and Xstrata at Las Bambas, and greater than the market price at which Glencore valued Las Bambas.

4  see

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Bibliographical reference

Humberto Campodónico, « Going Beyond Transparency and Good Governance »,International Development Policy | Revue internationale de politique de développement, 4.2 | -1, 153-193.

Electronic reference

Humberto Campodónico, « Going Beyond Transparency and Good Governance », International Development Policy | Revue internationale de politique de développement [Online], 4.2 | 2013, Online since 06 August 2013, connection on 21 September 2017. URL : ; DOI : 10.4000/poldev.1551

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About the author

Humberto Campodónico

Professor, National University of San Marcos, Lima, Peru

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Creative Commons Attribution-NonCommercial 3.0 Unported License.

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