Following the Global Commodities Summit hosted by The Financial Times
between April 15 to 17 in Lausanne to highlight the role of Switzerland as the world leader in commodity trade, many insinuations remain regarding the opacity of financial flows handled by the titans of agricultural trade, and the needed measures to regulate markets that are structurally volatile and unstable.
The Berne Declaration Association attended the Summit1
, a few days after its reaction to the Swiss Federal Council’s “background report” on commodities that was published on March 272
Its analysis of the report is very clear: While this initiative can be commended, the acknowledgement of the risks presented by commodities is completely inadequate. None of the recommended steps it supports––such as the Berne Declaration Analysis3
––are enforcing binding regulation measures, but are instead favoring the willingness of businesses.
A legal regulation system for commodity markets––especially agricultural markets––is essential, notably because it affects mankind and entails risks for global food security. For that reason, it is extremely important to regulate financial markets in the framework of renewed global cooperation, to prevent as much as possible the development of unethical and erratic behavior.
momagri Editorial Board
General need for regulation
The real disappointment of the report, however, is in Recommendation 1 and Recommendation 2, which in anticipation put the entire package of proposed measures into perspective. In them it says that “Switzerland’s regular practice is that of not pursuing sectoral economic policies”. It remains unclear whether this refers merely to the location policy (as the creation of specific incentives) or also to regulation.
The fact that sectoral regulations are absolutely normal for sector-specific risks is evident with banks and insurance companies (which even have their own regulatory board in the shape of Swiss Financial Market Supervisory Authority FINMA) just as with private military and security companies (PMSC). In view of the sector’s unique position with regard to the volume of business transactions in and with fragile states as well as to corruption and human rights risks, Switzerland needs a specific policy for a responsible commodity hub. This can be formulated by means of a comprehensive commodity act or a coherent package of legislative adaptations. Recommendation 2 at least records that Switzerland should not only support multilateral standards but also implement them (but it is still a long way from doing this13). It is, however, unacceptable as a precondition for any regulation “that they do not negatively influence overall conditions for companies based in Switzerland, as compared with those in competing business locations”. This attitude is scandalous and misjudges both the reality of international regulatory dynamics and also Switzerland’s responsibility. Recommendation 2 therefore resembles a “licence to do nothing”.
The report refers pointedly to the lower regulation costs of Asian locations such as Singapore and Hong Kong. According to the report transparency rules are “not foreseen at present” in Singapore. On the other hand, there is no mention that the Hong Kong stock exchange has a pioneering role in this. Listing rules which contain disclosure requirements for newly listed exploration and extractive companies have been in force there since 2010. Although there are still unresolved questions regarding implementation, the scope is nevertheless amazing: risks for the environment, health and security in addition to payments to governments must be disclosed, broken down country by country. Even Singapore is more transparent than Switzerland: shareholders and annual reports, even of non-listed companies, are publicly retrievable in the commercial register.
Hence, the danger, often highlighted in the political debate, that the sector would leave the country is already highly questionable simply because there is no absolutely unregulated alternative location: in addition, according to the report, the companies are not even contemplating doing this. Either way, however, the global competition between locations must not be used as an argument against minimum ethical standards. A national regulation would additionally provide Switzerland with the opportunity to credibly promote similar regulations on the international level. As a result the level playing field readily promoted by the Swiss Federal Council would finally come closer.
But instead of using legislative means, the sector is supposed to be brought back onto the virtuous path by means of a multi-stakeholder process. Such processes, however, are extremely demanding: if they are to be effective, they are preceded by long-term NGO campaigns which create pressure to act among the companies. Successful multistakeholder processes also involve particularly exposed brand name companies that react especially sensitively to public pressure. Neither of these prerequisites is met in the commodities business. Also required is a basis of trust between all the parties involved and a target-oriented Memorandum of Understanding which clearly sets out the goals and procedures. In this respect too, the Swiss commodities sector is not yet ready.
The Kimberley Process for the diamond business, which is often quoted as a prime example, is unique on a number of points and is therefore unsuitable as a model for the commodities sector: it dealt with only one commodity which is retraceable back to the region of origin; there were only a few extractive companies and a few production countries; it dealt with an emotionally charged product used in the luxury segment and the pressure to act was very high due to the direct funding of conflicts (blood diamonds).
Even the international transparency initiative EITI, repeatedly put forward as exemplary by Federal Councillor Schneider-Ammann and FDFA State-Secretary Rossier when launching the report, is no example for the voluntary action of companies. While participation in the EITI is voluntary for producing countries, companies operating in EITI member countries must disclose their payments to the government. Furthermore, important producing countries such as Equatorial Guinea, Colombia or the Philippines are not members of the EITI. However Swiss companies are very active in these countries which is why - supplementary to the EITI - there is a need for disclosure requirements in Switzerland.
1 The Berne Declaration calls on Swiss political and economic decision-makers to address inequalities worldwide and the standoffs that prevent the advancement of poor people throughout the planet.
2 The background report is available from: http://www.news.admin.ch/NSBSubscriber/message/attachments/30136.pdf
3 The full analysis is available from: http://www.evb.ch/cm_data/130402_Berne_Declaration_-_Analysis_of_Swiss_commodity_report.pdf