Last month, the Trump Administration announced that the United States would be withdrawing from the Extractive Industries Transparency Initiative (EITI). The decision was not wholly unexpected, especially since the Department of the Interior announced last spring that it would no longer host regular talks among a group of U.S. stakeholders that included representatives from the industry as well as activists and government representatives — one of the requirements of membership in the EITI. Nonetheless, the U.S. decision to withdraw from the EITI is a significant setback to the fight against corruption and misgovernance in the resource sector.
To understand the likely impact of the U.S withdrawal from the EITI, it’s useful first to review what the EITI is—both its mechanics and its objectives.
Established in 2002, the EITI is a voluntary initiative that, as its name implies, is meant to foster greater transparency in the extractive sector—that is, in oil, natural gas, mining, and other resource extraction industries. Countries that join the EITI agree to adhere to the “EITI Standard,” a set of disclosure guidelines, and each year must publish an “EITI Report.” This report—which is made publicly available—must contain two sets of disclosures: First, firms in the extractive sector report details about the taxes and fees that they paid to any government in connection with resource extraction activities. In order to be an implementing country, all companies operating in that country are required to publish what they have paid to governments. Second, participating governments report any incoming payments from resource extraction companies. Countries that join the EITI must create a multi-stakeholder committee—made up of representatives from the government, private sector, and civil society groups—to oversee implementation of the EITI in that country. Countries are also subject to the “validation” process, under which an independent auditor ensures that the country is EITI-compliant. The EITI also has a reconciliation feature that tracks and matches government disclosures of payments they’ve received with disclosures of what companies have paid.
The EITI’s principal rationale is that, by publicizing both company payments and country receipts connected to resource development, citizens, media, and civil society are empowered to compare accounts and potentially identify misappropriation of funds. For example, if there were a discrepancy between payments made by a company and fees reported by the government, civil society groups could mobilize and demand an investigation of possible corruption. More generally, the EITI’s publicity requirement facilitates accountability, as citizens can demand that the government publicly explain how it used the funds that extraction companies paid to them. In addition, the EITI serves to create more stable environment for both foreign and domestic investment by increasing financial transparency. The hope is that this increased transparency and accountability in the extractive sector will help combat the “resource curse” — when resource wealth ends up enriching a small group, rather than promoting broader economic development.
In addition to EITI membership, countries may also have mandatory disclosure legislation—so-called “Publish What You Pay” (PWYP) rules—for companies in the extractive sector. These disclosure regulations are distinct from the EITI reporting requirements; however, they serve as complements to the EITI. In the U.S., Section 1504 of the Dodd-Frank Act requires the Securities and Exchange Commission to adopt a PWYP rule, but the rule that the SEC had adopted late in the Obama Administration was rescinded shortly after President Trump’s inauguration. The U.S. withdrawal from the EITI is of a piece with, but distinct from, the decision to scrap the Section 1504 rule, which industry critics charged would unfairly disadvantage American companies—even though many of the U.S. companies’ foreign competitors, such as the UK, EU, and Canada, have reporting requirements that mirror those implemented in the now-defunct PWYP rule. Ironically, the American Petroleum Institute’s president argued the PWYP rule was unnecessary because transparency goals could better be served through the EITI—from which the U.S. has now also withdrawn.
The U.S.’s decision to leave the EITI is misguided. True, some have expressed skepticism about the EITI’s impact, and the quantitative empirical assessments so far been mostly inconclusive. It’s also true that the initiative has had its share of setbacks (for example, the suspension of Azerbaijan’s membership due to concerns about a crackdown on civil society groups). Nevertheless, the EITI, while no panacea, seems to have been effective in institutionalizing transparency—including strong reporting and auditing standards—as a global norm in the resource sector, and for laying the groundwork for more transparency in countries like the Democratic Republic of the Congo and Ghana. Furthermore, the disclosures mandated by the EITI have the potential to complement the enforcement of anti-bribery laws, including the U.S. Foreign Corrupt Practices Act (FCPA), by making illegal payments to foreign government officials easier to detect. (For that reason, the argument that the EITI and the PWYP rules are duplicative of the FCPA is misguided.)
But the U.S.’s withdrawal from the EITI does not mean the end of the group. The EITI has a strong foundation, and the international community will forge on without the U.S. But the U.S. withdrawal is nonetheless a blow to the legitimacy of the group, and overall the EITI will suffer from the absence of U.S. leadership. (In that regard, the impact of the U.S. withdrawal from the EITI may be similar to the impact of the Trump Administration’s decision to withdraw from the Paris Climate Accords.) The EITI has great potential to both create stronger economies and more transparent societies for many developing nations. Even notoriously guarded countries such as Russia and China are disclosing these types of payments. Holding a prominent role in the group furthers U.S. interests, and their withdrawal amounts to a wasted opportunity to be on the forefront of fighting corruption.