Originally published on March 24, 2017

Markets are all about signals – they send messages to investors about the future. In the four months since the United States Presidential election, global markets have generally risen. Investors see opportunities in the President’s plan to build infrastructure and cut taxes.  However, market actors crave predictability, transparent regulatory processes, and evenhandedness — norms underpinning the rule of law. Some of the President’s recent actions signal a decline in the rule of law and as a result of this signaling, foreign and domestic investment in the US is likely to decline.

In countries with strong rule of law, government officials and agents, as well as individuals and private entities, are held to account. Laws and regulations are clear, publicized, stable, and just, applied evenly, and protect fundamental rights. Policymakers enact, administer, and enforce the laws and regulations in an accessible, fair, and efficient manner, while the court system provides a timely and even-handed approach to justice.  Market actors know that although policies may change, these norms of good governance will persist.  Thus, in the U.S., corporate investors presume that they will not be discriminated against because they hire Muslims, favor climate change accommodation, or choose to move their operations overseas.

President Trump has used his words and actions in ways that undermine confidence that companies and individuals will be treated in a transparent, equitable, and accountable manner.   In early December, Trump stressed that rather than applying the same tariffs to all companies, he would use punitive tariffs to punish some companies that source overseas.  First, under the Constitution, trade policymaking is a shared responsibility between the Executive and legislative branches.  Congress has not indicated that it wants to single out specific companies for their production and employment decisions.  Hence, this approach is undemocratic, undermines longstanding U.S. mores of evenhandedness, and violates trade commitments under the WTO, the international trade organization created by the U.S. to discipline such practices.   While it is laudable that the President elect wants to preserve jobs, executives may hear that the Trump Administration will act in an arbitrary or discriminatory manner.  Secondly, Trump-affiliated companies are not modeling positive behavior.  Trump subsidiaries and licensees make eye­glasses, perfume, cuff links and suits in Bangladesh, China, Honduras and other lower-wage countries, not in the USA.  Executives may read into his actions that he is above the law and not fully committed to his own policies.

In a similar manner, Trump’s refusal to put his family’s assets in a blind trust or to be fully transparent about his taxes and investments signals the wrong message about the rule of law. Without a blind trust, he risks conflicts of interest and raises questions about whether Executive Branch decisions are made in the public interest or the interest of his firm or cronies.  Executives may read into this behavior that it is ok to have such conflicts of interest.  Moreover, the U.S. may find it hard to promote good governance overseas when our new president’s approach to governance is opaque, unpredictable, and unaccountable.  Trump signals that his interests take precedence over the public’s right to know or the interests of other investors, who will not have the same access he and his family have to make good market decisions. Here again, his actions convey that the U.S. will not adhere to the same levels of transparency, accountability, and evenhandedness investors have long expected.

Trump’s executive order on immigration provides another example of his failure to act in an evenhanded manner.  The President did not widely consult with immigration experts and agencies; his Administration did not consider that many American firms employ individuals with green cards from many of the countries he targeted.  The general counsel of Microsoft, Brad Smith, noted that the company was led by an immigrant and had some 76 employees blocked from entry to the U.S. for 90 days under the executive order.  Meanwhile, top officials from Apple, Facebook, and other companies also spoke out against the order noting that it may undermine the Constitution’s long-standing principle of nondiscrimination among individuals of different religions.

Investment is not only about policy choices; it is also about signaling.  President Trump has indicated that he (and hence the US) are less committed to longstanding mores of good governance such as transparency, accountability, and evenhandedness.   Investors, especially foreign investors, may send a signal in return by reducing their investments in U.S. markets.

Susan Ariel Aaronson is Research Professor and Cross Disciplinary Fellow at the George Washington University, where she teaches corruption and good governance.

Originally published on March 2, 2017

This week, the Trump Administration issued its first report on the Trade Agreements Program, which also contains a short overview of how the Trump Administration views trade and will use trade agreements and protectionism to shape the trade environment.

I have three broad comments.

1. First, I think that we are the recipients of a head fake. Many analysts have described the Trump Administration as torn between economic nationalists like Navarro and Bannon, trade professionals (who are inclined towards a rule of law/sovereignty approach like Lighthizer), and the investment bankers like Wilbur Ross at Commerce or Gary Cohn who are likely supporters of market opening measures and trade agreements. However, this divide is a side show to the real play. The President’s trade policy approach – the focus on protectionism rather than market opening trade agreements – will enable him to centralize trade policy making in the White House. Just as he is taking power from the Department of State to make foreign policy he is taking power from the Congress, the USTR, and the Department of Commerce with this focus on protectionism. I see this as not only a form of breaking down the Administrative State, per Bannon, but taking more of the shared authority from Congress. It would be interesting to compare pp. 13-14 with the objectives delineated in Trade Promotion Authority 2015.

2. I found it shocking to see no mention of digital trade (the fastest growing sector of trade) and the importance of information flows to trade on pp. 13-19-of the report. President Trump and his posse have a distorted view of the US economy perhaps based on his experience and connections (steel matters to real estate and casinos matter to hotels) and his donor base. Steel and casinos are a minor component of the US economy and certainly not going to grow and create many jobs. The Internet and digital trade will create many more jobs, new professions, and much more economic growth. Internet companies are, however, not part of his worldview.

As Kimberly Ann Elliott of the Center for Global Development and I have written, “The truth is, bilateral trade talks simply would not be useful in negotiating rules to govern cross-border information flows, one of America’s most important exports. The platform for facilitating information flows–the internet– is designed to be universal, open, and global. Hence, the system of rules governing trade in information flows needs to be global as well.” So digital trade doesn’t fit his trade paradigm.

3. Finally, the President issues his agenda as part of the annual report on the “trade agreements” program. Since 1934, Congress has required the president to report on what he/she is doing to use trade agreements to open markets overseas, create jobs, and further the rule of law on trade. I fear these 7 pages are evidence that economic nationalism will trump the economic interest of the American people and the companies they have created.

Originally published on January 27, 2015

Like many trade junkies, I am listening to the Senate Finance Committee hearing.  Unfortunately, it is a dance around the key questions.
Here’s some things USTR should do.

1. USTR needs to address how it (or the USG) can use trade agreements to help the middle class.  USTR must provide clarity on whether trade agreements really create or destroy jobs.. the current mercantalist language is not helpful.   Our tax system favors investment in technology, not people. We never link US trade policy to the larger context of tax, education and social welfare policies.  We have to explain these links in order to explain why individuals can’t and shouldn’t hold trade policy responsible.
2. USTR must clearly explain that trade agreements can’t directly include actionable provisions to address income inequality but that trade agreements may indirectly affect income inequality within and among nations.   Everyone now understands that globalization has made it easier for businesses to rely on workers from other countries who are willing to work for lower pay, while technologies such as robots and computers have rendered many jobs obsolete. But policymakers also made some decisions that perhaps without intent facilitated economic inequality and economic insecurity.  In recent years, some countries (and US states) have made it harder or less attractive for workers to organize and bargain collectively.  At the same time, some workers have turned against unions an organization working in their interest.  In the wake of these developments, unions have declined and worker bargaining power has decreased. At the same time, corporate officials have focused on quarterly results rather than investing in the skills and long term productivity of their employees.  Some people blame trade policies and agreements for these problems and do not believe that trade creates jobs or raises wages.   Scholars have determined that while trade plays a role, the most important factor contributing to rising income inequality is not trade, but rapid technological growth in exportable sectors.  However, technological change, while scary and threatening to jobs, is essential to productivity and economic growth.  The US must find ways to encourage technological change while making sure that trade agreements are not written in ways that could foster further income inequality by favoring certain interests at the expense of the broad interest.  So as example, agricultural subsidies or export subsidies, while politically necessary, do not help us use trade agreements to ensure that we do not foster income inequality.
3. What is USTR doing to involve the American public (not Wash representatives of civil society, business and labor) in developing and understanding trade?
4. What changes can USTR make to trade policymaking to involve more Americans more directly?  Why not experiment? Why not ask Americans to suggest language related to the free flow of information?  Perhaps this brainstorming could yield new ideas?
5. USTR must rethink its template for trade agreements. If these agreements are to promote “middle class” jobs, employment and labor issues must be embedded throughout the agreement.  The agreement also addresses labor issues in the services chapter; in the chapter on regulatory coherence; and indirectly through language related to investor state dispute settlement. The services chapter could be helpful to individuals who want to move to other countries to sell services over borders, although most such chapters generally address skilled labor such as architects.  However, critics of TTIP raise concerns about proposed language in the investment and regulatory coherence chapters; they fear it might lead to a labor rights “race to the bottom.”  They argue that these chapters are designed to reduce regulatory burdens by eliminating alleged unnecessary or costly regulations.  But one man’s costly regulation is another man’s much needed job protection. Since the US and EU have relatively similar labor costs and productivity, firms may choose to produce and invest in the venues with less or less expensive regulations.  Since the US has not ratified the same ILO conventions related to health and safety as has the EU, generally US workers have fewer protections and employers have relatively lower costs (despite an appreciating dollar). Moreover, the US and the EU have not clarified how they will achieve regulatory coherence given different approaches and levels of regulations, nor have they explained how higher standards can be maintained in the venues that have such higher standards. Activists are concerned that in the interest of achieving regulatory convergence and reducing administrative costs, policymakers could undermine domestically determined regulations. But we do not know how much convergence policymakers want to achieve or if the main threats to higher labor standards are within EU member countries and between US states, rather than between the two trade giants as a whole
6. USTR needs to be more transparent about how trade agreements affect Internet openness and freedom and how USTR might use trade agreements to challenge filtering and censorship.  But the exceptions here are key: when can nations limit the free flow of information to protect privacy and national security?

Originally published on July 2, 2014

Tim Berners-Lee, the architect of the World Wide Web, taught us that the Internet we have is a function of the choices we (users, companies, policymakers etc…) make about information flows. As an example, in 1995, Berners Lee chose not to patent his work on the World Wide Web because he feared patenting could limit the universality and openness of the web. He continues to advocate. In March 2014, he called for an online bill of rights and created a new organization to ensure that the web would remain the “web we want”—open, free and neutral. With his actions, Tim Berners-Lee has shown us that it is not easy to set information free.^[1]

Policymakers also must make tough choices about information flows. On one hand, they want to encourage the free flow of information in the interest of educational, technological and scientific progress. On the other hand, they need to control and at times limit the free flow of information, in order to achieve important policy objectives including maintaining Internet resiliency; preventing spam, piracy, and hacking; protecting national security and privacy; and protecting intellectual property. They struggle to balance, let alone achieve these goals.^[2]

In my research I examine how the U.S. and the EU tried to use trade policies to advance the free flow of information while simultaneously taking other steps to control or block the free flow of information. Policymakers turned to trade rules because information often flows across borders; moreover trade agreements are binding and enforceable.

However, the free flow of information affects many other policies beyond trade, including human rights. In 1946, the UN General Assembly adopted Resolution 59 (I); members stated that “freedom of information is a fundamental human right and…the touchstone of all the freedoms to which the United Nations is consecrated.” Under international human rights law, states are obligated to take practical steps to give effect to the right of freedom of information, but may also restrict freedom of information in order to respect the rights or reputations of others, protect national security and public order, and protect public health or morals.^[3] Hence, the free flow of information is also a security,^[4] trust, foreign policy, and governance issue.

Information is also a global public good that governments should provide and regulate effectively. Because the benefits of a public good are available to everyone (no one can be excluded), private companies and individuals often need incentives to provide new information. Moreover, everyone is hurt when individuals, companies or governments horde or hide information (Maskus and Reichman: 2004, 284-285; Kahn: 2009). The Internet has made it cheaper and easier to trade information (such as digital news, data, and entertainment); to collaborate and work across borders; and to fund and sell goods and services across borders (McKinsey: 2014). If governments and their citizens could devise shared rules to encourage the free flow of information, more people would have greater access to information, and more information would be created and exchanged (McKinsey: 2014, Tietje: 2011).

Since the first years of the 21^st century, business leaders, policymakers and activists have tried to create shared principles to encourage information flows. They began by developing principles to guide their behavior at the OECD, APEC and other venues. But these principles are voluntary and not universal. Meanwhile, some academics and companies began pushing for very specific language in trade agreements; they wanted to promote the free flow of information and limit trade barriers to the free flow of information (Kommerskollegium: 2014).

Today, data flow issues are key components of 3 ongoing negotiations: The U.S. and the 27 nations of the EU have been negotiating T-TIP (the Transatlantic Trade and Investment Partnership; the U.S. and 10 other nations bordering the Pacific have been negotiating the Trans-Pacific Partnership (TPP); and some fifty members of the WTO (including the 27 EU) are negotiating the Trade in Services Agreement of the WTO (TISA). However, many governments have not responded positively to U.S. and EU efforts to set information free. Officials and citizens from these governments worry about their ability to control or limit information flows as well as their dependence on U.S. companies to provide web services (which often must comply with U.S. rules on privacy and national security.) Some scholars note that the U.S./EU approach appeared hypocritical and inconsistent. The U.S. controls the free flow of information to protect intellectual property and national security but labels it protectionist when others do so. The EU controls the free flow of information to protect intellectual property, to protect privacy, and to prevent holocaust denial and hate speech (Aaronson and Townes: 2012, Aaronson and Maxim: 2013). Moreover, neither the U.S. nor the EU link policies to promote the free flow of information with policies to advance Internet freedom; both seemed to develop policies in bureaucratic silos, without weighing how such policies might affect the Internet as a whole. In June 2013, after important media outlets publicized the revelations of former NSA analyst Edward Snowden (Davies: 2014), internet activists began to point out the contradictions in U.S. and EU policies.

As of this writing, June 2014, the EU, the U.S. and their negotiating partners have been unable to find common ground regarding how to promote the free flow of information; limit information flows in the name of national security; and protect privacy. The U.S. and the EU are also divided over when to restrict (or censor) information; whether localization of servers is protectionism; and whether U.S. and EU firms should export Internet related technologies (from servers to malware) that could be used to undermine the human rights of information online, while allowing exceptions to protect national security; public information, while allowing some exceptions to the free flow in the interest of protecting national security, public morals; or public health.^[5] But in 2013, we learned that the U.S. National Security Administration (and those of several other countries) had taken steps that limited, hijacked or transformed information flows. Some states including several EU countries found in the Snowden revelations an opportunity to wrest greater market share from U.S. internet dominance. Hence, although these states generally support free flow, they also adopted policies that some labelled data protectionist or data nationalism. Consequently, I argue that trade agreements have yet to set information free and may in fact be making it less free.^[6]

Nonetheless, U.S. and EU trade policies are a work in progress; you and I can still have significant influence over their direction. We can encourage trade officials to think more holistically about the balance between the free flow of information and the need to control information flows in the name of privacy and national security. Policymakers should begin by developing shared principles for maintaining the One Global Internet and to delineate steps to take when countries do not live up to these principles. Secondly, governments should include language in trade agreements that relate to the regulatory context in which the Internet functions including free expression, fair use, the rule of law, net neutrality, and due process. Finally, when they negotiate trade agreements, policymakers should use language to encourage interoperability.

For more information about trade and information flows, view the Prezi at http://www.gwu.edu/~iiep/governance/taig

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2011112

Susan Ariel Aaronson is Research Professor of International Affairs at GWU, where she directs the Trade and Internet Governance Project. She also directs a fellowship program-the eBay Policy Scholars. Her current research looks at government creation, purchase, and use of malware and its implications for economic growth, trust, and human rights.

[1] Joe Mullin, “Tim Berners-Lee Takes the Stand to Keep the Web Free,” Wired, 2/08/12,

http://www.wired.com/2012/02/tim-berners-lee-patent/, last searched 6/15/2014; on Lee in 2011, see Tim Berners-Lee: Spies’ cracking of encryption undermines the web,”

and Jemima Kiss, “An online Magna Carta: Berners-Lee calls for bill of rights for web,” The Guardian, http://www.theguardian.com/technology/2014/mar/12/online-magna-carta-berners-lee-web,

Last searched 6/18/2014.

[2] Tietje notes that this challenge is not new; nations had to collaborate to deal with Morse code, the telegraph and the first transatlantic cable from 1858-1866 (Tietje:2011).

[3] Toby Mendel, “freedom of Information as an Internationally Protected Human Right, ND, http://www.article19.org/data/files/pdfs/publications/foi-as-an-international-right.pdf.. The limitations on freedom of expression are spelled out in Article 19 (3) of the International Covenant on Civil and Political Rights of the Universal Declaration of Human Rights. See Article 19, “Limitations,”   http://www.article19.org/pages/en/limitations.html, last searched 6/24/2014.

[4] Tim Berners Lee, an engineer widely credited with creating the concept and protocols of the Internet has outlined the security risks to the Internet. http://www.w3.org/Security/faq/wwwsf1.html#GEN-Q1

[5] NA, “US Tables New TISA Proposal to Ensure Free Flow of Data,” 5/15/2014, http://insidetrade.com/Inside-US-Trade/Inside-U.S.-Trade-05/16/2014/us-tables-new-tisa-proposal-to-ensure-free-flow-of-data-network-access/menu-id-710.html. On TTIP, see http://ec.europa.eu/trade/policy/in-focus/ttip/. On TISa negotiations, pl. see Department of Foreign Affairs and Trade, Australia, “Trade in Services Agreement (TiSA),” https://www.dfat.gov.au/trade/negotiations/services/trade-in-services-agreement.html#membership; and on TPP, see https://www.dfat.gov.au/fta/tpp/, all last searched 6/18/2014.

[6] Much of the initial research in this article was based on a study funded by the Ford and MacArthur Foundations, as well as the Minerva Initiative, “Can Trade Policy Set Information Free? Trade Agreements Internet Governance and Internet Freedom: 2012).

Originally published on July 1, 2014

GWU’s Institute for International Economic Policy has long been involved on Internet foreign and economic policy issues where officials must work with other governments and multiple stakeholders to achieve policy balance.  (http://www.gwu.edu/~iiep/governance/taig/ )

We work at the intersection of the Internet, economic growth and trade, and human rights.  We are currently researching government use of malware across borders; and the evolution of U.S. and EU trade and digital rights. Please visit the site and review our publications and conferences.

This summer we are proud to host IGF-USA 2014 at GWU on July 16th, 2014. In the wake of the Snowden revelations digital rights are key concerns for IGF-USA attendees. One panel at IGF-USA will focus on these human rights concerns.

The panel will include:

Scott Busby, Deputy Assistant Secretary of State for Democracy, Human Rights and Labor;
Avri Doria, an expert on human rights, ethics and technological change;
Deborah Brown, from the Association for Progressive Communications; a long time internet rights activist;
Alberto Cerda, Professor of Law at the University of Chile and also a Fulbright Commission scholar pursuing a doctoral degree in law at Georgetown University;
Ben Blink of Google’s Free Expression team;
Carolina Rossini of Public Knowledge will moderate

Panelists will address the following and other topics:

-How can U.S. stakeholders help reinforce the continued preeminence of human rights concerns in global Internet governance conversations and meetings?

-How does the U.S. government understand its obligations to protect the human rights of non-Americans in the digital realm?

– Given the dominance of the U.S. government in the realm of global communications surveillance, how can the U.S. role model best practices with respect to protecting human rights in the digital realm?

-Should activists work towards an enforceable system of human rights online?

Dr. Susan Aaronson (saaronso@gwu.edu) is pleased to answer any questions about IGF-USA 2014 and/or specifically this panel. Follow IIEP on Twitter (@IIEPGW). Follow IGF-USA on Twitter (@IGFUSA2014) and Facebook.

Originally published on April 28, 2014

Netmundial, the multistakeholder meeting organized by the government of Brazil, was an inspiring mess. On one hand, it was the place to be–a Woodstock for internet activists and innovators. The Brazilian government paid tribute to these individuals and used the opportunity to signal that it intended to play a leading role in global Internet governance. On the other hand, the Brazilian government did not clarify the objectives, strategy, and desired outcomes for the April meeting. They did make it clear that the conference would yield a declaration with two sections: principles and a road map… But attendees were unclear as to how will policymakers use these principles and road map? Did the organizers intend to create a road map that could ensure that governments and business adhered to those principles?

On the day before the conference as well as conference day 1, I asked everyone I could: Are we creating norms or just a process to move Internet governance forward? Do governments sign the final document or do they nod in assent? How will assent be determined and by whom? Are we (representatives of business, academia, and civil society) speaking for ourselves or for groups we supposedly represent? I received a multitude of different answers. Fellow attendees—representatives of business, government, technical groups, academia, and civil society were diverse, opinionated, and divided.

By day one, it became quite clear that governments were playing a leading role in determining the language of the final principles and roadmap. And representatives of some governments such as the U.S., Kenya, Brazil, the Netherlands, and Germany as example, seemed very effective in working both the process and outcomes. Government delegates from these countries spoke frequently, issuing positive comments regarding NGO concerns, and suggesting language that facilitated consensus.

As in any formal negotiation, attendees moved in and out. Groups of NGOs, governments and businesses gathered in rooms near to but outside of the main conference room, massaging the documents.

NGOs were divided on what the final declaration should say. Some insisted on language that would ban surveillance; but they didn’t seem to recognize that the government officials present didn’t represent surveillance agencies or their legislatures and hence could not make such commitments. Others seemed content to have some language, albeit vague—The final declaration states on p. 11 “Mass and arbitrary surveillance undermines trust in the Internet and trust in the Internet governance ecosystem. Collection and processing of personal data by state and non-state actors should be conducted in accordance with international human rights law. More dialogue is needed on this topic at the international level using forums like the Human Rights Council and IGF.” But the declaration did not prod member states to commit to initiating such dialogue. Hence, we will all need further direction to find our way home towards an Internet where some governments constantly monitor our every keystroke.

The delegates also achieved vague language on cybersecurity. They agreed “It is necessary to strengthen international cooperation on topics such as jurisdiction and law enforcement assistance to promotecybersecurity and prevent cybercrime. Discussions about those frameworks should be held in a multistakeholder manner.” But here again, they could not agree on how because Netmundial could not commit government officials to any actions.

The preamble of the Netmundial final document says it all. “This is the non-binding outcome of a bottom-up, open, and participatory process involving thousands of people from governments, private sector, civil society, technical community, and academia from around the world. The NETmundial conference was the first of its kind. It hopefully contributes to the evolution of the Internet governance ecosystem.” ^[1] Notice the use of the words “nonbinding” and hopefully contributes. However, here’s what gives me hope. I met a lot of people—young and old, technically savvy and human rights literate from all corners of the globe. These people have significant expertise in cooperating to make the Internet safe, open, evenhanded and stable. They deserve our admiration, patience, and feedback as they work to maintain a multistakeholder approach to Internet governance in a world where governments (supposedly representing us) set the rules and can commit to action.

Susan Ariel Aaronson is Research Professor of International Affairs at GWU and the author of several studies on trade, internet governance and human rights. She is currently studying government purchase and use of malware as a trust, economic, and human rights issue.

1http://netmundial.br/wp-content/uploads/2014/04/NETmundial-Multistakeholder-Document.pdf

Originally published on February 7, 2012

The World Bank extractives governance web site (GOXI) asked me  and others to set up a discussion on the new transparency initiatives and whether or not they are supportive of development. I focused on  Dodd Frank and EITI.  I think they are a good start, but only a start.  Comments much appreciated.

It is too early to assess the impact of EITI and Dodd-Frank transparency initiatives on development.  Nonetheless, enquiring minds such as GOXI readers understandably wonder if these initiatives have had unintended consequences for their supposed beneficiaries.  While we have case study evidence about EITI, we have limited data on its impact on development, quality of governance or other factors.  Meanwhile, the SEC has yet to issue Dodd-Frank regulations.

Instead, herein I critique both initiatives for their strategy and indirect effects.  I argue that both strategies focus on the supply side of governance—they do not empower individuals to demand their rights; nor do they help these societies achieve accountability or trust between the government and the governed.

Let’s begin with EITI.  EITI is a limited partnership-with a confused purpose and strategy. EITI doesn’t say this explicitly, but it is aimed at prodding resource rich developing countries to create a feedback loop between the government and the governed.  The people should monitor government and act as a counterweight to corrupt policymakers who may pocket or misuse the revenues from resources.  But EITI is incomplete because it does not require a public debate on the use of extractive industry revenues which belong to the people.  It calls for adopting states to develop a multistakeholder group to monitor the government’s reportage of royalties.  But that group is not required to educate legislators or to hold public hearings.  Moreover, more recently, the EITI Secretariat now promotes EITI as a “standard” for resource revenue management. Supposedly, some policymakers want to get Chinese, Indian and other state run firms to act responsibly regarding governance of extractives. Hence Norway, the US and several other industrialized countries have announced they are adopting EITI, but it is unclear how that will influence other countries such as China or Indonesia.

EITI seems to work best in countries like Liberia and Ghana where policymakers want to achieve better governance and where civil society, a free press, and democratic debate are respected.  Nonetheless, in countries like Azerbaijan, policymakers have used EITI to signal better governance and perhaps to attract more diversified investment.

In a study of EITI partner views (out of date now); it was clear that EITI supporters have widely divergent views as to what EITI should do, what it should ask adopting states to do, and how it should be monitored and assessed.[1]  Developing country policymakers like EITI-because it is voluntary, relatively cheap and supported by WB/EITI+. Many industrialized country policymakers like EITI because it can help them change conditions in some countries without direct conditionality. EI executives generally like EITI because it is not a mandate. And finally, many developing country NGOs like EITI because it stimulates governance learning and training and best practices information. However, some implementing governments have not allowed civil society to fully participate in EITI or provided civil society with the information to hold governments to account. In many implementing countries, the public and legislators may not be aware of EITI. Hence, the public is a silent partner in EITI. Without an empowered public, citizens cannot act as a counterweight to resource corruption.  I believe EITI is too focused on NGOs rather than educating and empowering the broad citizenry, and it is not helpful in nations where civil and political rights are not respected.

Let me now move to Dodd-Frank’s conflict mineral provisions.  These provisions requires firm where “conflict minerals are necessary to the function of the product” to disclose steps they and their suppliers are taking to ensure that revenues from trade in conflict minerals don’t finance conflict in the Manu Basin. We may look back on this strategy in ten years and wonder why US (and perhaps soon European policymakers) used corporate governance rules to deal with the problem of ethnic tension, inequality, and inadequate governance in the Manu Basin.  Certainly, how, where and what firms source matters and such information should be disclosed to investors. Such information is material, and so the idea behind this provision makes sense. But it is not the best way to address this problem.  U.S. policymakers and activists failed to weigh the trade spillovers of this strategy.  Congolese activists, diplomats, and UN experts have reported that many tech firms are sourcing outside of DRC and nearby countries.  So far, the strategy has resulted in less trade for people of the region and less access to opportunities. The UN Group of Experts admitted Dodd Frank has already had mixed results. While a “higher proportion of conflict minerals are not funding conflict,”  the Group also  admitted the people of the Manu Basin are experiencing more economic hardship, smuggling, criminalization of minerals trade and less government revenue.[2]  Meanwhile, US security lawyers are laughing all the way to the bank as they debate what “necessary to the functioning of the product” means.

Like EITI, Dodd-Frank conflict minerals does little to empower people of the Manu Basin to demand and monitor good governance. But there are ways to supplement this initiative. Why not provide funding to the public to monitor on the ground activity?  As example, AID donors could provide cell phones with apps or platforms such as Ushahidi or community that allow users to anonymously report corruption or illicit trade.

In sum, although these 2 initiatives have brought some rays of light to inadequate governance of extractives, they have done little to empower the public and to build trust between the government and the governed. Such trust is an essential component of the feedback loop necessary to achieve better governance. Hence the designers of EITI and Dodd-Frank should think a little more about how to work with more of the people they hope to help.

[1] Aaronson 2011, at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1739912

[2] Letter Fred Robarts, Coordinator, Group of Experts on the DRC,  to SEC/ Ref S/AC.43/2011/GE/OC.86, at http://www.sec.gov/comments/s7-40-10/s74010-346.pdf

Originally published on January 31, 2012

President Obama has proposed a new cabinet agency to subsume the Commerce Department, the US Trade Representative and the Small business Administration. He has justified this new department as creating greater efficiencies, enhancing business results, and saving taxpayer money. Although the President has outlined his strategy, he has not made an effective case to Congress for this change in structure. His ideas are especially worrisome regarding trade. Congress created the USTR to take control over trade negotiations out of the Department of State, which was seen as favoring international interests over domestic needs.

Although Congress and the executive share responsibility for trade policymaking, Congress sets the direction for trade policy and exerts oversight on how the executive branch implements and enforces trade laws. Congress holds the Executive on a tight leash, because it forces the President to seek Congressional approval to negotiate trade agreements (trade promotion authority). Congress needs a consistent, effective staff to advise members as they weigh trade policy. Why not embrace the idea of Senator Max Baucus who has long called for a Congressional Trade Office, to help members address the increasingly broad array of issues, from internet freedom to food safety, that are currently trade issues? This office would provide Congress with independent, nonpartisan and neutral trade expertise, enable more members of Congress to meet their trade responsibilities, and play an important role in monitoring trade negotiations and trade enforcement.

Members of Congress are more likely to embrace a structural change in the executive branch if they have the staff and expertise to monitor what the Executive is doing.
Susan Ariel Aaronson, Associate Research Professor, IIEP and Visiting Fellow, Quality of Governance Institute, Gothenberg, Sweden. She teaches courses in trade issues and in corruption/good governance. She is interested in the relationship between respecting human rights and economic growth.