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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