Our Global Challenges: Improving the Resources Trade

Robert D. Hormats
Under Secretary for Economic, Energy and Agricultural Affairs 
CSIS-University of Miami Council on Foreign Relations Roundtable
Washington, DC
May 18, 2010

As prepared for delivery

Thank you, Andrew, for that warm introduction and for the invitation to join all of you today. It is a pleasure to be back at CSIS which has always been a leading forum for critical study of foreign policy, national security, and public policy.

Today's topic of discussion-- responsible trade of natural resources--is one that deserves much attention. And so I’m very pleased that this new partnership with the University of Miami’s Knight Center for International Media will help spread awareness of this issue, as well as other global challenges, to a new generation of thought-leaders and policy-makers here in the U.S. and around the world.

At no other time has the world been so invested in the growth of a knowledge-based economy. And with good reason. New technology, new ideas, and new means of production have had a dramatic effect on economic growth and job creation and in spreading the benefits of globalization to more communities in more countries than ever before.

But even so, our growth—our progress—even in the knowledge-based economy is supported by natural resources. Oil and gas fuel our cars and heat our homes. Wood, iron and other metals are worked and forged into many of the products we take for granted. And in the developing world, these extractive industries—energy, mining, timber or otherwise—play an overwhelming role in their economies. Such resources can provide enormous benefits to countries-- helping to improve their living standards and strengthen their economic growth.

But in cases where governance is absent or ineffective, corruption frequently fills the void. Where accountability is weak, profit will inevitably trump principle. And where oppression smothers the seeds of opportunity, no investment in development can bear fruit. We all know what can happen in the worst case scenario. In some countries, proceeds from the sale of unregulated diamonds have been used by armed groups to fund their murderous rebellion against their governments.

And today, arguably the most pressing concern is the ongoing crisis in the Democratic Republic of Congo. The illicit exploitation and trade in natural resources has financed armed groups that target civilians and perpetuate widespread human rights abuses in the eastern part of the country. These devastating attacks have cost millions of lives--prolonging the world’s deadliest conflict since World War II.

The crisis has undermined the ability of the Congolese people to benefit from the country’s vast mineral resource wealth and destroyed large swaths of fertile land once used for agriculture. I’m reminded of Gandhi’s prescient statement that poverty is the worst form of violence.

So what is to be done? How do we support extractive industries that can lift people out of poverty and put them on the path to prosperity? How do we insure that the desire for economic growth is balanced by the need to affirm social, political and economic rights?

First, we must accept a simple, but uncompromising truth: there are no quick fixes. Lasting solutions require long term investments of time, energy, and resources.

Second, we must note that the challenge posed by illegal or unregulated extraction of natural resources touches upon a wide-range of issues: human rights, economic stability, good governance, development, trade, state authority, and national security.

Therefore, our response must be equally extensive. We have to promote transparency, accountability, and the rule of law within state authority so that people can trust government to affirm their rights. We have to build the capacity of civil society to demand a future without corruption—one that cements the gains of a meaningful democracy. And we must strengthen the infrastructure for legitimate trade, investment, and economic growth.

This is a tremendous task. But it is an important one. And the State Department— in an effort led by Secretary Clinton, Under Secretary Maria Otero, Assistant Secretary Johnnie Carson and myself—is playing a key role in working with all stakeholders to create a global architecture of cooperation for the responsible trade in resources.

At its core this is a global problem, and it will require a global solution. But this is not the first time we have secured the support of international community, government stakeholders, the private sector and civil society to promote sustainability in extractive industries.

Since 2002, the United States has been a strong supporter of the Extractive Industries Transparency Initiative—an international coalition of nations, companies, NGOs and representatives from civil society which have called for full public disclosure and verification of oil, gas, and mining company payments to host governments.

And we’ve already seen progress. Last year, Liberia became the first African nation to attain EITI compliance and has done an extensive review of its forestry sector, setting a great example for other countries working to promote revenue transparency. But EITI is only one part of our efforts to improve governance.

We also support a multilateral and collaborative approach to creating due diligence guidelines adopted by the Organisation for Economic Co-Operation and Development (OECD) and the UN Security Council-mandated Group of Experts in the DRC. The new OECD due diligence guidelines will provide practical guidance for mining companies doing business in conflict-affected and high risk areas like the DRC.

Another recent USG effort is the Energy Governance and Capacity Initiative (EGCI)—a flexible, dynamic program that complements a number of our other reform efforts. The EGCI aims to strengthen energy sector governance by providing technical support to governments of developing countries that are on the verge of receiving sizable financial windfalls.

As many of you know, the United States has also been a key participant in the development of the Kimberley Process (KP), another multi-stakeholder initiative that certifies the origin of rough diamonds from conflict-free sources. Last year, the U.S. became Chair of the KP’s Working Group on Statistics. By taking on this role, the U.S. has assumed responsibility for the transparency and accuracy of rough diamond trade statistics, which are a linchpin in the KP’s ability to insure conflict-free trade.

Since its inception, the Kimberley Process has reduced the trade in conflict diamonds to less than 1 percent of the world’s total rough diamond trade. With 49 members, representing 75 countries, the Kimberley process shows what can happen when the international community exercises the political will to halt the trade of resources that fuel the cycle of violence.

We are also exploring ways to dovetail efforts with those of the Promines project. Promines is an integrated World Bank and UK Department for International Development funded program which seeks to provide a wide range of technical assistance to build much-needed capacity throughout the DRC’s mining sector.

In order to protect the fundamental needs shared by all individuals working in extractive industry, the United States, the United Kingdom and others have developed the Voluntary Principles on Security and Human Rights to strengthen human rights safeguards in energy and mining companies’ security arrangements.

So we’re taking the lessons we’ve learned from EITI, Kimberley Process and the Voluntary Principles and other programs and applying them towards the issues of conflict resources—especially in the DRC.

But the State Department is also moving forward with a new strategic action plan on conflict minerals as part of our larger strategy on the DRC. It builds on our past and ongoing activities, and has six focus areas:

  1. raising the public profile on this issue;
  2. enhancing diplomatic efforts to target the conflict minerals trade;
  3. encouraging responsible Natural Resources trade;
  4. supporting the UN Mission in the DRC;
  5. building DRC Capacity; and
  6. protecting small-scale artisanal miners and mining Communities.

Two weeks ago, a team of staffers from the Department went to the DRC to meet with representatives from the mining industry, civil society, the private sector, and the Congolese government.

What they found was that artisanal or small-scale mining touches the lives of hundreds of communities in the eastern part of the country. And if we can promote transparency, accountability, security, and professionalization of the industry it can enhance the well-being and self-sufficiency of several thousand men, women and children.

That means more miners will be able to exercise their right to work without coercion. That means more parents will be able to provide for their children without succumbing to debt and indentured servitude. And more boys and girls will be able to go to school and live up to their full potential.

More than anything else we are working with all our partners to setup an infrastructure that can withstand external forces which lead to corruption murder, rape, exploitative child labor, debt bondage and forced prostitution. Because if it works in the mining, it can work for oil, energy, cattle, coffee or any other resource susceptible to exploitation in the region. And if it works in the DRC, we know it can be replicated elsewhere to stem the ill-effects from illegal exploitation of natural resources.

That’s why we’re fashioning cross-cutting relationships here at home and abroad--with lawyers, academics, development activists, NGOs, economists, and private industry. Every sector of society has a role to play. Unions and organizations like the Solidarity Center are helping to teach mine workers their rights under Congolese law. Independent media outlets and international NGOs are raising this issue online and in the traditional press—demanding accountability from their government and ours. Lawyers and law students are taking up pro bono cases on behalf of the poor and the disposed, working to fight the culture of impunity that sustains abuses by the Congolese military and armed militias.

We’re seeing more companies doing well by doing good in the region. Just last week I met with representatives from the electronics, automotive, jewelry and manufacturing industries. First, and foremost they expressed a willingness to tackle this issue head-on.

And I want to acknowledge their efforts to increase transparency in supply chains. Companies from the Electronic Industry Citizenship Coalition (EiCC) and the Global e-Sustainability Initiative (GeSI) are developing new techniques to verify and audit smelters—industrial plants which transform the raw mineral ore into metal for sale or export.

A new joint operation between USAID and the members of the mining industry in the Great Lakes region has secured a new $5 million line of credit for micro lending. Firms are increasing access to education by building schools and supporting teacher training. And a number of federal agencies, including the U.S. Department of Agriculture, are providing technical assistance in agricultural research to promote sustainable agribusiness in areas once ravaged by conflict and war.

The Obama Administration is working to reinforce Congolese leadership and oversight at all levels of government. We are building the capacity of local civil society groups and media that work toward increasing accountability, encouraging responsible natural resources trade, enhancing diplomatic efforts to target the conflict minerals trade, and supporting the United Nations Mission to the DRC (MONUC).

But we have a lot more work to do. This is an issue that calls for moral leadership, extensive public and private sector cooperation, and concerted effort to do more to address this complicated set of problems. This is also an issue that transcends partisanship and profession. Which is why I’m delighted that this event has drawn a cross- section of professions. We all share a responsibility to come to the table to help find solutions. I look forward to what will be a stimulating conversation with my fellow panelists.