Swiss Miss: Switzerland Soft-Pedals on Transparency in Commodities Industry

Transparency in commodity trading is crucial

Source: Alexandra Gillies, Head of Governance, Revenue Watch Institute. Read more here www.revenuewatch.org

Swiss companies dominate global physical commodity trading. This places a unique responsibility on the Swiss government to require these companies operate in a transparent and responsible manner. Bloomberg reports Switzerland is "the world’s leading commodities trading hub, accounting for about 35 per cent of global physical oil trade and a 60 per cent of metals and minerals." This amounts to more than $3 trillion in world trade, according to Al-Jazeera.

The government of Switzerland recently ducked an important opportunity to protect against the potentially damaging effects of opaque deals between its companies and commodity-producing countries. On March 27, 2013, following months of debate within government, a cross-departmental body finally issued its report to the Federal Council on the country’s commodity sector. The report was meant to outline the associated risks and suggest appropriate policy responses. Instead (as explained further by Swiss NGOs), it offered vague suggestions and placed too much confidence in voluntary international mechanisms rather than binding national regulation.

Swiss trading companies—which include energy giants Trafigura, Glencore and Vitol—have attracted scrutiny of late, due to the sector's explosion in size over the last 10 years, the Iraq Oil-for-Food scandal, and, as the Financial Times reports, "increasing public resentment in Switzerland towards highly paid executives and bankers."

The poverty, corruption and weak governance prevalent in many resource producing countries has led transparency advocates like RWI to call for stricter reporting standards of commodity sales. For example, Glencore was just awarded the license to buy oil from the government of Chad. In late January, the company lifted its first cargo of 950,000 barrels. This single sale would net at least $80 million. This may be a small- or medium-sized deal for Glencore, but for a poor country like Chad, this is a massive transaction. The revenues from this single sale are enough to pay for half of the country’s yearly education budget.

Without the disclosure of basic information around commodity sales, corruption risks increase, and there is little chance for citizens, journalists and parliaments to know how much their country receives for its public resources.

In its announcement Wednesday, the Swiss government said it would rely on global standards such as the Extractive Industries Transparency Initiative (EITI) and various U.N. mechanisms to police its commodity companies. These standards are useful, but insufficient. The report heralds the EITI, and frames Swiss support for the initiative as the major plank of its efforts to promote transparency. But EITI is only a voluntary initiative and not implemented by many resource-producing countries with major corruption and governance problems, like Angola, Equatorial Guinea and Turkmenistan.

To promote consistent transparency, governments which host extractive companies should regulate reporting by the companies based within its borders. The U.S. and the EU are taking such steps through Section 1504 of the Dodd-Frank Act and forthcoming EU regulations respectively. The Swiss, rather than follow suit, said they would revisit this issue later. Should this occur, commodity trading (rather than just extraction) must be at the center of the discussions. Otherwise, such a law would be a largely symbolic gesture that avoids the biggest part of the Swiss sector. 

Requiring companies to operate in a transparent and responsible manner does not constitute unfair or uncompetitive treatment. Trading companies are huge global players that buy billions of dollars of oil and minerals from poor countries. Wherever they are headquartered in the world, they should be the subject of robust oversight and scrutiny. Ensuring this is the case is a basic responsibility of the home government, and one which the Swiss should not avoid.

**Stephen Yeboah participated in the Swissaid workshop in Geneva this year on Transparency in the Extractive Sector: the role of Commodity Superpower Switzerland.