Select Committee on International Development First Report


APPENDIX 10

Memorandum from Traidcraft

1.  TRAIDCRAFT

  1.1  The mission of the Traidcraft group is "to fight poverty through trade". The group consists of two parts

    —  Traidcraft plc is a trading company with sales of some £8 million in 1998 that engages in "fair trade" with disadvantaged producers in the developing world (see below for definitions).

    —  Traidcraft Exchange is a charity that aims to raise public awareness of fair and ethical trade, works with Partners in developing countries to build their capacity to trade with the developed world, and seeks to influence mainstream business practice to the benefit of the developing world.

  1.2  We are pleased to have this opportunity to submit evidence to the Committee on the future of the Export Credits Guarantee Department.

2.  FUTURE OF ECGD

  2.1  As the UK's largest independent fair trade organisation with over 20 years experience in trade and development, Traidcraft is keenly aware of the pivotal role of commercial capital and enterprise in the fight against poverty. Working with our partner organisations in Tanzania, Zambia, South Africa, Malawi, India Bangladesh, Pakistan, the Philippines and the Caribbean we are constantly reminded of the disastrous impact of poor infrastructure and government systems upon the economic and physical welfare of those most in need. Transparent and accountable business frameworks and systems, supported by both government and private sector, are necessary if economic uplift is to be equitably and sustainably achieved.

  2.2  We recognise and conditionally support the role of ECGD in supporting trade between the North and the South and more particularly in facilitating large-scale infrastructure projects which would otherwise go unfunded and which seek to improve the quality of life available to the larger community in the South.

  2.3  However our support, and that of others working within development, is substantially tempered by an awareness of the devastating impact misconceived and ill researched infrastructure projects have had upon local communities and the signal failure of the ECGD to undertake any social impact studies at any level prior to any agreement to lend. The strategic importance of such assessments is indirectly related to the decreasing power of the state in many developing countries, which is reliant upon an alliance between commerce and aid to supply basic services, an alliance in which commerce is increasingly the more powerful, if not necessarily the more responsible, partner.

  2.4  Although we understand that the ECGD undertakes environmental impact assessments in accordance with standard insurance practice, we would contend that the failure to undertake either environmental or social impact assessments in a consistent, transparent manner according to established and published guidelines compromises the commercial viability of ECGD lending and prejudices the interests of ECGD's stakeholders in both North and South, specifically the taxpayer and locally affected communities.

  2.5  The long-term sustainability of a project cannot be properly evaluated without an inclusive, consultative prior impact assessment. Such assessments would highlight the appropriateness or otherwise of a major infrastructure project and identify the risks and contrary indications of such a project—including for example the project's links with specific, interested elites which if subsequently replaced would substantially impact upon the recoverability of the debt.

  2.6  The loading of already impoverished states with inappropriate, capital-intensive white elephants resulting in further impoverishment through debt is deemed by key sections of the UK public to be morally and politically unacceptable—as G8 ministers have discovered. The lack of transparency within the ECGD regarding country cover criteria, risk assessment etc is consistent with the lack of transparent, accountable environmental and social development criteria available to assess projects, making commercial and developmental mistakes significantly more likely.

  2.7  This results in a multiple-level, circular burdening of the taxpayer both as underwriter of ECGD's irrecoverable debt and as donor to debt-impoverished third world nations. This point is particularly pertinent given that 95 per cent of third world debt is owed to the UK in the form of Export Guarantees. It also betrays a lack of policy coherence within government and a signal failure to consider stakeholders who are at the heart of the Government's cross-departmental policy agenda.

  2.8  In his speech of 1 August 1999, Stephen Byers, Secretary of State for Trade and Industry, specifically charged the Review of the ECGD to identify "how it could help the Government achieve its wider sustainable development objectives". These objectives include halving the number of people in extreme poverty in the developing world by 2015, as set out in the November 1997 White Paper on International Development. They also include adherence to international environmental and social development commitments made in Rio, Beijing, Cairo and Copenhagen. Policy coherence and co-ordinated action, intrinsic to the effective operation of "joined up Government" are necessary if such commitments are to be fulfilled.

  2.9  The explicit linkage by the Secretary of State of ECGD with the Government's wider sustainable development agenda, including the alleviation of poverty, could and should be reflected in ECGD's mission statement. Public sector bodies have a duty to society at large to promote and support social inclusion, environmental protection, the prudent use of natural resources and social equity for all their stakeholders, wherever located. This has already been recognised and effectively encapsulated by what was previously a statutory corporation, in the Statement of Business Principles and four Policies of the Commonwealth Development Corporation (CDC). CDC has now been transformed into a Public-Private Partnership as a plc wholly in the private sector and is required by its Memorandum and Articles to report publicly on its compliance with these policies and principles.

  2.10  Whilst CDC's mandate differs from ECGD's in its explicit commitment to creating and growing long-term viable business in developing economies, such a long-term view must be in the interests of all ECGD's stakeholders. Certainly the remainder of CDC's mandate, viz to achieve attractive returns and to implement ethical best practice—not least via an express alignment of investment activities within the spirit of the UN Declaration on Human Rights—could usefully be considered by the Review as an example of good practice.

  2.11  The identification of key social impacts assessed and monitored at each of the planning, implementation and operational stages of CDC investment and a commitment to minimum standards in health and safety of employees and environment could be usefully considered by the Review as an existing, worked example of a publicly accountable and responsive investment agent which recognises the linkage between the commercial and social benefits of sustainable development.

  2.12  The OECD Guidelines for Multinational Enterprises provide a more general framework for the operation of international business. The Guidelines are under review but once completed the new Guidelines could be used by ECGD as an additional tool for ensuring that social and environmental impacts of the operations it supports are acceptable.

  2.13  We would therefore recommend:

    —  That ECGD's objectives be extended to specify that the agency's purpose includes contributing to the Government's agenda of sustainable development and poverty eradication in developing countries;

    —  That ECGD adopt formal policies on social and environmental issues, analogous to those of CDC;

    —  That ECGD undertake rigorous social and environmental impact assessment of projects before any decision to support them is taken. These assessments should be conducted according to internationally accepted standards (eg as a minimum those followed by the World Bank). They should include institutionalised safeguards regarding community involvement and consultation on large-scale infrastructure projects;

    —  That whilst ECGD should continue to report to the DTI, the Department for International Development (DFID) should be mandatorily consulted on projects identified as being of significant social impact within a given area and/or above a specific financial threshold to ensure the appropriateness and sustainability of the proposed project;

    —  That as a matter of urgency, ECGD publish in full its existing and proposed criteria regarding its country cover policy, risk assessment and the results and recommendations of the three earlier reviews which impact upon its work viz the Export Finance Review, the Reinsurance Scheme Review and Risk Management Review;

    —  That, once the review of the OECD Guidelines on Multinational Enterprises has been completed, ECGD use the Guidelines as an additional reference point for project appraisal and client company screening;

    —  That in its public reporting ECGD be required to specify the results of the social and environmental impact of its activities and detail its mechanisms for monitoring and implementing its declared policies and guidelines together with details of its proposed framework of compliance.

Traidcraft

October 1999


 
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Prepared 20 December 1999