The Emergence of Global Commodity Governance

Abstract

Whereas the challenges of GCG are manifold, its principal task lies in ensuring a functional commodity sector (Sect. 2.1). The ‘balanced’ mode through which it pursues this objective constitutes a departure from historical approaches to regulating transnational commodity activity (Sect. 2.2). The remainder of this treatise will be concerned with the role of the law in fostering the effectiveness of GCG (Sect. 2.3).

Whereas the challenges of GCG are manifold, its principal task lies in ensuring a functional commodity sector (Sect. 2.1). The ‘balanced’ mode through which it pursues this objective constitutes a departure from historical approaches to regulating transnational commodity activity (Sect. 2.2). The remainder of this treatise will be concerned with the role of the law in fostering the effectiveness of GCG (Sect. 2.3).

2.1 The Task: Ensuring a Functional Commodity Sector

International legal scholarship to date has brought about little clarity regarding the scope of the term ‘commodity’—a status that we shall first remedy (Sect. 2.1.1) before approaching the political and economic circumstances of commodity activity (Sect. 2.1.2), which need to be borne in mind when defining what constitutes a functional commodity sector (Sect. 2.1.3) as well as GCG (Sect. 2.1.4).

2.1.1 Defining the Term ‘Commodity’

In international law dealing with the extraction and/or trade of resources, the term ‘commodity’ is quite widely applied. This is not last portrayed by the established term ‘international commodity agreement’,¹ which refers to i.a., agreements covering coffee, sugar, or tropical timber.²

Considering the enormous significance of international commodity trade,³ it is remarkable that the definition of the term ‘commodity’ in much of academic literature either consists of the denomination of a series of commodities⁴ or is simply presumed as clear;⁵ in many cases, an abstract definition is not provided. Furthermore, in order to address a material that originates in the environment, one will mostly make use of the terms ‘commodity’, ‘raw material’ or ‘natural resource’, not uncommonly applying these notions synonymously.⁶ Many publications establish their own definition of the term ‘commodity’ in order to define their objects of investigation. This phenomenon leads to an unclear definitional state of the word ‘commodity’. In order to resolve this ambiguity, hereafter an abstract definition of the notion shall be developed.

2.1.1.1 General Meaning

Standard dictionaries generally define ‘commodity’ as a ‘substance that can be traded, bought or sold’⁷ or ‘any article of commerce’,⁸ whilst some glossaries are more specific by requiring a certain origin of the material, e.g. ‘a raw material or primary agricultural product that can be bought and sold’⁹ or ‘basic items or staple products, as of agriculture or mining’.¹⁰ The latter definitions thus limit the term ‘commodity’ to agricultural and mining products. The Merriam Webster dictionary is providing the perhaps clearest definition. Accordingly, a ‘commodity’ is to be defined as ‘an economic good’ that exhibits one of the following qualities: (a) ‘a product of agriculture or mining’, (b) ‘an article of commerce especially when delivered for shipment’, (c) ‘a mass-produced unspecialized product’.¹¹

Against the backdrop of the objective of this book to specifically deal with legal and governance issues related to certain materials that are first removed from nature and later—typically—subjected to trade, such as coffee, coal, oil, rare earths or the like,¹² the term ‘commodity’ cannot be defined as simply referring to ‘any article of commerce.’ Otherwise GCG would be more or less synonymous to world trade governance.

For the purpose of this book, it would seem more adequate to for instance refer to commodities as ‘raw materials or primary agricultural products that can be bought or sold’ or ‘products of agriculture or mining’. However, these descriptions lack the necessary precision in order to serve as a legal definition. The former, for example, requires another definition—the one of the term ‘raw material’; the latter arbitrarily excludes items of forestry and fishery as well as mineral products.

Also, it would seem methodologically unsound to simply choose a definition provided by a standard dictionary and employ it as a legal definition, especially given their ambiguity. It appears natural to define a legal term according to the purpose it is intended to serve, thus teleologically.¹³ Its definition, furthermore, should respect the historical development of the legal notion (Sect. 2.1.1.2) and their contemporary use (Sect. 2.1.1.3).

Yet, the displayed standard definitions cast the foundation of a practical legal definition by fairly marking the boundaries of the notion. Based on this foundation, we shall now further specify ‘commodity’ as a legal term.

2.1.1.2 Definition According to the Havana Charter

One of the first international law definitions of the term ‘commodity’ had been elaborated in the Article 56(1) of the 1948 Havana Charter (HC). Accordingly, a ‘primary commodity’ was defined as

any product of farm, forest or fishery or any mineral, in its natural form or which has undergone such processing as is customarily required to prepare it for marketing in substantial volume in international trade.

According to Article 56(2) HC this definition is expanded to

cover a group of commodities, of which one is a primary commodity as defined in paragraph 1 and the others are commodities, which are so closely related, as regards conditions of production or utilization, to the other commodities in the group, that it is appropriate to deal with them in a single agreement.

Just as some of the displayed definitions by general dictionaries, the Havana Charter, by applying the term ‘primary commodity’, refers to the state of processing that a certain material has undergone. Only such materials that do not dispose of a degree of manufacturing, which goes beyond one that is necessary for international trade, are meant to fall within the scope of the notion.

Consequently, a tree trunk is as much a ‘primary commodity’ as wood parts that have been debarked and cut into pieces from the original trunk for shipment. To stick with this example, planks treated with a wood preservative in order to reach higher sales prices would presumably already constitute regular ‘commodities’, thus normal articles of merchandise just like even more processed goods such as wooden tables, chairs etc.

Distinguishing between ‘primary commodities’ as defined by Article 56(1) HC and other regular articles of commerce is a compelling approach. It allows narrowing down the term ‘primary commodity’ to such items that are, in their shape and degree of processing, still close to their natural origin; it thus excludes end products, which are the outcome of a more intense manufacturing process.¹⁴

Confining the term ‘commodity’ to these items appears to be indicated when one bears in mind what has been described as ‘commodification’—the observation that today more items than ever are being classified as commodities.¹⁵ Once categorised as such, these items are typically being perceived as economic goods and thus subjected to market forces. As a consequence, their availability is strongly regulated by prices—which potentially may exclude market participants that cannot afford them. This is particularly problematic, where actors are seeking to qualify such items that are indispensable for human survival—like water, or even air—as economic goods.¹⁶

Notably, Article 56(1) HC excludes both of these vital substances from the scope of the notion ‘commodity’.¹⁷ Against this backdrop as well as given that Article 56(1) HC describes the historic origins of coordinated commodity regulation on the global level, its approach in defining the term ‘commodity’ appears to be an apt starting point for our definition.

Further, we need to reflect whether the expansion of the definition along the lines of Article 56(2) HC is conducive to the purposes of our investigation. The norm constitutes a teleological extension of Article 56(1) HC that aims to provide international actors with a comprehensive governance tool, which is not limited to covering only ‘primary commodities’, but also goods that are subject to like economic and political—or governance—circumstances.

This approach is also compelling. The aim of GCG is to address specific challenges that generally occur in connection with the trade of ‘primary commodities’. If one can witness the same issues with regard to other, strongly related items, there is no evident reason, why the same governance strategies and tools should not be applied to these goods as well. By introducing the legal concept of ‘appropriateness’, Article 56(2) HC also delivers a parameter for determining whether or not there is a sufficient comparability of the governance challenges faced. Thus, the definition becomes more and more of a normative concept.

This normativity is also displayed in Article 56(3) HC,¹⁸ which seeks to still further expand the scope of chapter VI of the Havana Charter. Accordingly, the provisions shall in ‘exceptional circumstances’ also apply to agreements that concern items that are not covered by the notion according to Article 56(1), (2) HC. This, however, leaves the definition pursuant to Article 56(1), (2) HC untouched. Article 56(3) HC uses the expression ‘inter-governmental agreements regarding that commodity’ and not the term usually employed in chapter 6 ‘inter-governmental commodity agreements’, thus not expanding the definition of a commodity. Also, the applicability of the provisions was made dependent upon a decision of the ITO that recognises the conditions set forth in Article 62 HC.¹⁹ Article 56(3) HC therefore concerns case-by-case applicability and does not affect the definition provided for in Article 56(1), (2) HC.

2.1.1.3 Use by WTO and UNCTAD

International publications on commodities often employ diverging notions to identify their object of reference. This leads to rather inconsistent usage of the term ‘commodity’ and its neighbouring notions ‘raw material’ and ‘natural resource’ respectively.

For instance, in its 2014 World Trade Report, the WTO defines ‘commodities’ as referring to both

“soft commodities” (predominantly agriculture) and to (…) “hard commodities” (predominantly mining) and “energy commodities” (predominantly oil and gas). Mineral products (including metals) and energy products (coal, oil and natural gas) will fall under the designation of “natural resources”. Agricultural products, in turn, will include traditional products, fresh fruit and vegetables, specialty products and processed products…²⁰

Hence, in this report the WTO provides definitions by naming groups of commodities. In refraining from establishing abstract definitions of the applied terms, this approach is quite exemplary for the practice exhibited in many publications on commodity governance that either presume the existence of a universal definition without (re)stating it or merely describe commodities by referring to various food, mining etc. items. Neither approach is satisfactory from a legal perspective.

The inconsistencies of this approach are being acknowledged by WTO authors in the 2010 World Trade Report, which describes a ‘commodity’ as

a homogeneous product which can be exchanged among consumers and producers. The term “commodities” is often used in the relevant literature to refer to agricultural goods, but it also includes a number of other products that are classified as natural resources in this report. Examples are fuels, forestry products, minerals and metals.²¹

UNCTAD, in its 2012 Commodities and Development Report, defines ‘commodity’ as ‘any homogenous good traded in bulk.’²² This abstract definition is quite vast. It would include e.g. microchips, screws, golf balls etc.²³ Evidently, such a definition does not serve the purpose of addressing specific governance challenges that occur concerning materials, which are being extracted from nature. In the same report, however, UNCTAD presents a clear overview of what it perceives as commodities, whereas industrially processed goods are not mentioned.²⁴ Yet again, the term ‘commodity’ is thus primarily defined by stating a catalogue of items.

The fact that there is no established definition of the term ‘commodity’ at this point, again, demonstrates that the legal coverage of related economic activities and corresponding governance challenges has thus far been quite sparse. The following section is going to fill this gap by formulating an abstract, legal definition of the notion ‘commodity’.

2.1.1.4 Definition for the Purpose of This Book

In this book, we shall establish a definition of the term ‘commodity’ that is largely based on the one provided by Article 56(1), (2) HC.²⁵ This approach is advantageous in that it establishes a methodologically consistent scope, which is grounded on a historically established notion, for GCG and transnational commodity law respectively. Although the Havana Charter never came into effect, it nevertheless represents a multilaterally negotiated document that largely foreshadowed the world economic order after WWII and, moreover, served as one of the main documents of reference during the emergence of the WTO. The authoritative potential of chapter VI of the Havana Charter is illustrated in particular by the fact that, by means of ECOSOC Resolution 30 (IV), the world community in 1947 decided to establish the provisions set forth therein as guidelines for the conclusion of ICAs.²⁶

Consequently, the following abstract definition of the term ‘commodity’ is proposed:

Any product of agriculture, forest, fishery or mining²⁷ and any mineral product in its natural (=raw) form and in such forms that are customarily required for its international trade, especially shipment, in substantial volumes.

This abstract definition is to be supplemented with a ‘normative clause’:

Any item that does not constitute a commodity according to the abstract definition of the term can nevertheless be considered a ‘commodity’ where appropriate (‘normative commodity’). Appropriateness prevails in principle, where the relevant item is similar to a ‘commodity’ as regards conditions of exploitation or utilisation and subject to identical governance challenges.

This understanding of the term ‘commodity’ in the (modified) sense of a ‘primary commodity’ according to Article 56(1) HC clearly contours the field of GCG as the governance frame addressing the exploitation and trade of raw, as well as cultivated, materials and respective materials in a slightly processed state that is necessary for international trade. Hereby, GCG is sufficiently specified in its scope and differentiated from international trade governance.

In elaborating our abstract definition of ‘commodity’, the following changes introduced to the definition provided by Article 56(1) HC deserve further mention: First, products of ‘mining’ were explicitly included. The term is to be understood in its widest possible meaning and was introduced to also cover natural gas. Neither crude oil nor natural gas constitute minerals in a geological sense and thus generally do not fall within the scope of Article 56(1) HC.²⁸ Second, the notion ‘natural’ has been equated with the term ‘raw’, thus identifying ‘raw materials’ as a sub-category of ‘commodities’.²⁹ Third, the definition was supplemented by the phrase ‘especially shipment’. This refers to the practice of international trade that largely relies on shipping.³⁰ The addendum is supposed to establish an additional parameter for the assessment whether an item has been processed only for the purpose of its international trade or whether it already constitutes a more sophisticated product—thus no longer a ‘commodity’, but an ordinary commercial good.³¹

Thus, according to our definition, energy does not qualify as a ‘commodity’. Rather, it is the product of either the combustion of a primary commodity (in most cases of a raw material like oil, coal etc.) or the harnessing of a natural resource (sun, water, wind etc.). Only the trade of energy commodities, not the one of electrical energy itself thus falls within the scope of this book.³²

Concerning the definition of a ‘normative commodity’, the term is quite self-explanatory. This additional clause allows approaching governance challenges that do not concern ‘commodities’ in the actual sense of the term, but items that are highly comparable to them within the framework of and with the instruments provided by GCG.³³

2.1.1.5 Types of Commodities

International literature frequently distinguishes between different types of commodities.

To begin with, a differentiation can especially be made according to the origin (agricultural, fishery, forestry, mining, mineral) or the intended usage (food, industrial, energy) of a commodity.

Further, the distinction according to the ‘texture’ of a commodity, thus between ‘soft’ (livestock, grains, agricultural and industrial crops and fisheries) and ‘hard’ (petroleum products, metals and minerals) commodities, has become more and more popular.³⁴ This is most likely due to the fact that they are subject to at times substantially different production processes (farming or fishing on the one hand, mining or drilling on the other) and therefore may relate to diverging governance challenges.

UNCTAD employs yet another differentiation according to the intended use of a commodity, namely between energy (petroleum products, gas, coal, but also nuclear products and renewables) and non-energy commodities (metals, agricultural and fishery products).³⁵ A succinct overview of the different commodity categories mentioned is displayed in the 2012 UNCTAD Commodities and Development Report (Fig. 2.1).³⁶

Fig. 2.1

Primary commodities classification by categories, UNCTAD (2012), p. ix. (Source: adapted from Farooki and Kaplinsky 2012)

Yet another distinction that has a double meaning is the one between ‘primary’ and ‘secondary’ commodities. The differentiation can refer to either the degree of processing that the commodity has experienced, as in Article 56(1) HC, or to the usage of the commodity for original production (‘primary’) or recycling (‘secondary’), an example for the latter especially being scrap.³⁷

From an economic point of view, commodities constitute factors of production as well as goods in themselves.³⁸ Which of these perspectives one employs can have an effect on the governance strategies she proposes.³⁹

A highly detailed classification of different commodities is provided by the ‘multipurpose international product nomenclature’ elaborated by the World Customs Organisation under the title Harmonised System (HS), which naturally also contains a comprehensive itemisation of commodities.⁴⁰ Also the EU’s Combined Nomenclature is based on the HS.⁴¹

2.1.1.6 Neighbouring Terms

‘Raw material’ is generally defined as a ‘basic material from which a product is made.’⁴² More precisely, it is being described as ‘material still in its natural or original state, before processing or manufacture.’⁴³ In the context of Article 56(1) HC, the notion ‘raw material’ delivers a sub-definition of the term ‘primary commodity’.⁴⁴ It depicts materials in their ‘natural form’. As soon as the materials undergo any form of processing, even as limited as e.g. the debarking and cutting of a tree trunk, they become ‘primary commodities’ but no longer constitute ‘raw materials’. The term ‘raw material’ thus constitutes one of the elements of and complements the definition of Article 56(1) HC of ‘primary commodity’.

‘Natural resources’ are commonly defined as ‘materials or substances occurring in nature which can be exploited for economic gain.’⁴⁵ In more exact terms, Collins Dictionary speaks of ‘an actual or potential form of wealth supplied by nature, as coal, oil, water power, arable land etc.’⁴⁶ Accordingly, the notion ‘natural resource’ also refers to such entities that can be used for economic gain, e.g. the generation of energy, but are at the same time immovable like rivers, forests or the sunlight.

The term thus only refers to the very sources of renewable energy and not to their methods of production or products. In this connection, solar panels do not constitute a ‘natural resource’ since they are a processed good and thus not supplied by nature. Solar energy collected through photovoltaic systems neither is a ‘natural resource’ since it does not occur in nature but is a result of the sun’s radiant light and heat being harnessed as electrical energy by human technology. Only the sunlight or the sun itself is a ‘natural resource’.

The notion is thus both wider and narrower than the term ‘primary commodity’ since on the one hand it also includes non-tradable, immovable entities and on the other excludes processed materials.⁴⁷ The term, consequently, is more strongly related to issues of environmental governance, whereas the term commodity exhibits a stronger economic connotation.⁴⁸

Nevertheless, several authors use the term ‘natural resources’ particularly also in the context of trade.⁴⁹ For instance, WTO authors have defined the term as

stocks of materials that exist in the natural environment that are both scarce and economically useful in production or consumption, either in their raw state or after a minimal amount of processing.⁵⁰

‘Natural resource’ here is used almost synonymously to ‘primary commodity’, except for the qualifications of scarcity and economic usefulness. However, the authors exclude agricultural goods and foods from the scope of the definition, which are items covered by Article 56(1) HC. Fish and forestry products, to the contrary, are defined as ‘natural resources’.⁵¹

Given that verbatim natural resources include immovable entities, it is to my mind more precise and thus preferable to employ the term ‘commodity’ whenever we seek to address challenges that arise from the removal of objects from nature, which are later being employed for economic purposes, particularly trade.⁵²

2.1.2 Economic, Political and Technical Circumstances of Commodity Activity

Commodity activity constitutes the precondition for economic production—without a primary commodity, no goods can be produced.⁵³ Where exhaustible commodity deposits are concerned,⁵⁴ they frequently constitute important economic assets for the state that owns them.⁵⁵ Taken together, these factors raise important issues of global economic equity between an economic centre, in which commodities are being turned into end products, and a commodity-exporting periphery that seeks to make use of its commodity export revenues for its own industrialisation, which naturally requires corresponding technology.⁵⁶

From the perspective of CDDCs, commodity governance is a crucial development factor: Commodity export revenue for some of these countries may be the only opportunity to grow and industrialise their national economies.⁵⁷ Their needs appear to frequently clash with the paradigm of trade liberalisation, which is dominant in the global trade system still today. Whereas for instance the US developed their own economy relying i.a. on infant industry protection measures,⁵⁸ the paradigm of liberalised trade today substantially limits countries’ policy space to implement such measures, including ones e.g. fostering so-called Import Substitution Industrialisation.⁵⁹ The same holds true for the ‘structural adjustment’ programs (SAPs) maintained by the World Bank.⁶⁰

Furthermore, several factors, including high capital intensity, high sunk costs, long development and operating periods, need for imports of expertise and technology, volatile markets, and overall economic uncertainty and risks, particularly in the extractive industries, contribute to the significant dominance of large TNCs—most of them headquartered in the economic centre—in the commodity sector.⁶¹ Correspondingly, much of commodity activity occurs transnationally, thus giving rise to additional governance challenges, such as benefit sharing⁶² as well as information asymmetries between the commodity-endowed state and the foreign corporate.⁶³ Also, in view of the pervasive economic risks associated with commodity projects, maintaining a stable fiscal regime including reliable legal underpinnings may be of particular importance for attracting foreign investment.⁶⁴

Apart from the great economic risks associated with commodity activity, it also entails significant environmental and social risks and can potentially cause i.a., air, water and land pollution, energy and water waste, land alteration and deforestation, public health risks, the disruption of existing ecosystems, the displacement of local communities and exploitative labour practices affecting vulnerable population segments such as children.⁶⁵ Moreover, where commodity extraction is taking place in areas that had hitherto been used for farming, hunting or fishing, commodity activities not only concern land rights, but also a variety of HR, including cultural rights of indigenous peoples in view of role the natural environment can play in their rites and beliefs.⁶⁶ Due to the high social sensitivity of commodity activities, commodity companies are said to require a social license to operate—in addition to the formal license issued by the state government—in order to carry out their desired projects.⁶⁷

Many of the risks caused are particular to the type of commodity activity, such as mining, oil and gas exploitation, or agriculture.⁶⁸ The detrimental effects on the environment that are specifically caused by commodity exploitation can potentially affect all spaces of planet Earth, including mining in the Deep Sea as well as drilling activities in the Arctic. Again the risks associated with commodity activity may be similar to the risks associated with other economic activity, yet they are exceptional in their ‘magnitude and pervasiveness’.⁶⁹ In fact these risks may at times be of such overwhelming nature that states fail to adequately manage them—a scenario, which has become known under the notion ‘resource curse’.⁷⁰

2.1.3 Defining a Functional Commodity Sector

These economic, political and technical realities in which commodity activity occurs need to be borne in mind when considering what constitutes a well-governed or ‘functional’ commodity sector. While there are naturally many ways to approach the definition of a complex term such as ‘functional commodity sector’, we shall characterise the latter by identifying its central policy trade-offs.

In order to identify these policy trade-offs, I first analysed the political objectives associated with commodity activity by studying a considerable volume of inter-, supra-, and national strategic guidance documents; the regulatory objectives of various inter-, trans-, and national instruments applicable to commodity activity; as well as the central individual legal norms governing commodity activity on a transnational level. As a second step, I clustered the objectives expressed in these sources according to five major interests they are associated with—economic gain, development, preservation, control, and participation:

First, many, if not most, actors involved in commodity activity are pursuing the objective of economic gain. The commodity company, which may be involved in exploration, extraction and perhaps processing as well as shipping or trading activities, will typically be looking for profits. The host government, which disposes of natural resources, will generally attempt to capture sufficient resource rents through taxes or royalties. As commonly the case in the oil and gas sector, the host government may also pursue profit-oriented activities itself, usually through state-owned enterprises (SOEs). In addition, various actors along the commodity value chain may be seeking profits, be it suppliers, subcontractors or third-party service providers of any kind. The services and goods they offer may range from highly technical expertise and products, such as the refinement of precious minerals, to services fulfilling the basic needs of e.g., the personnel of the commodity company carrying out the removal process, such as grocers and food suppliers.⁷¹

A second interest, which occurs frequently in connection with commodity activity, is the one of development. For many countries, commodities constitute a major or even the only significant source of income. This is particularly the case for so-called CDDCs.⁷² Frequently, the revenues generated through commodity activity will be the only substantial means available for those states to develop. As a consequence, the respective governments will typically seek to implement policies, which foster the development contribution of the commodity sector to the greatest possible extent. Their actions will oftentimes be monitored and potentially criticised by civil society groups, which likewise demand a ‘fair share’ in commodity export earnings for the respective host population. On the part of industrialised states, security of commodity supply constitutes a central element of continued development.

Both interests introduced so far frequently conflict with the third interest of preservation. Ideally host governments, and typically especially local populations and civil society groups will advocate for an adequate protection of the natural wealth of their country or municipality. This advocacy can be particularly vigorous where local populations, especially indigenous peoples, rely on a particular part of the natural environment for their livelihoods or identify with it culturally e.g., as ‘ancestral land’. The preservation of nature is a challenge, which applies along the entire commodity value chain and involves diverse subject matters, such as the protection of watercourses against waste materials from extraction works, adequate restoration of the natural environment after a removal process has ceased or limiting the emission of greenhouse gas during a refinement or shipping process.

A fourth interest, which is pursued mainly by government actors, is controlling the commodity activity in various respects. The respective authorities on national and subnational levels typically strive to maintain control over what resources are being extracted by whom and under what conditions. This interest can correlate with the one of economic gain but is still separate from it. Control may also relate to enforcing particular labour, anti-corruption or shipping standards, i.e. upholding the general rule of law in regard to commodity activity. Consequently, internal conflicts within the government or between government branches may occur, for instance over the award of exploration or extraction rights to a particular actor by the executive branch, which the judiciary may deem to be a violation of due process. In situations of armed conflict, maintaining the overall control over, and thus security of, commodity operations constitutes a central objective that adversarial actors may be striving for.

Fifthly and lastly, all of the interests outlined so far may conflict with the interest of participation. This interest typically concerns respective host state populations, in particular civil society organisations on national and local levels.⁷³ Given the often large-scale nature of commodity activities,⁷⁴ a removal process may bear on the daily lives and interests of many residents. As a consequence, their proponents frequently voice their demand to participate in decision-making processes at the various levels of government. They want to be involved in the decision, what resources are being exploited by what actor and under what conditions. Potentially, they may claim compensation for temporary or permanent loss of their livelihoods. The demand for participation may also relate to specific activities carried out by commodity companies, such as for instance ways to remedy detrimental side effects of extraction activities. Likewise, commodity companies may seek participation in governmental decision-making.

While each of these five interests can conflict with one another, and thus create various policy trade-offs, some evidently clash more severely than others. For instance, the quest for economic gain, no matter pursued by which actor, frequently creates trade-offs with the objective of preservation and potentially development. Likewise, it will often conflict with the concern for participation. Participation, in turn will typically influence the degree of control that an actor can exercise over a specific activity.

This list of interests creating commodity-specific policy trade-offs is not meant to be conclusive. Yet, it depicts an analytical framework, which helps to aptly categorise the majority of trade-offs that typically occur in relation to commodity activity. Evidently, the remarks made above can only give a rough, exemplary idea of what kind of scenarios may be categorised as conflicts of the five diverging interests; and oftentimes, these scenarios will comprise several trade-offs, not just one. Still, one should generally be able to subsume large parts of the factual scenarios occurring in the commodity sector under the analytical framework presented above.

Moreover, it shall be noted here that qualitative statements about for instance the degree to which the global commodity sector is factually being governed in a functional manner lie beyond the scope of this book. What we can approximate, however, is an answer to our principal research question—how the current legal framework relates to the goal of ensuring a functional commodity sector. In that connection, what shall accompany us throughout the remainder of this book is the analytical parameter of balance between the five major interests associated with commodity activity.

Therefore, for the purposes of this book,

the global commodity sector shall be deemed to be functional when and where it exhibits a balance between the five major interests associated with commodity activity.

2.1.4 Defining Global Commodity Governance (GCG)

It ought to appear relatively clear what the term ‘global’ refers to within the meaning of GCG. Generally, the word is defined as ‘relating to the whole world’ or ‘worldwide’.⁷⁵ Speaking of GCG, it is this exact meaning that the term depicts: commodity governance is to be looked at from a global perspective, thus inspecting its worldwide structures and rules.⁷⁶ ‘Governance’ is generally defined as ‘the exercise of political power to manage a nation’s affair’⁷⁷ or ‘the action, manner, or system of governing’.⁷⁸ More specifically, it is defined as ‘the way that organizations or countries are managed at the highest level, and the systems for doing this’⁷⁹ or ‘the way that a city, company, etc., is controlled by the people who run it’.⁸⁰ It thus refers to the modality of the exercise of governing power.

Within the context of international law, it was the World Bank that originally developed the concept of ‘governance’, when it realised the deficient structures in many of the recipient countries of its programs.⁸¹ No later than in the second half of the 1990s, the governance discourse was taken up by international scholars outside of the World Bank.⁸² Over the course of the years, the notion of governance was elaborated towards a more normative concept, the one of good governance.⁸³ This development is best illustrated by the 2002 Monterrey consensus, which states i.a.:

Good governance is essential for sustainable development. Sound economic policies, solid democratic institutions responsive to the needs of the people […] are the basis for sustained economic growth, poverty eradication and employment creation.⁸⁴

This book will address issues of good governance. However, its emphasis lies on the conceptualisation of the legal framework of GCG. For these purposes, it employs the rather descriptive notion of governance developed by the Brandt commission as

the sum of the many ways individuals and institutions, public and private, manage their common affairs. It is a continuing process through which conflicting or diverse interests may be accommodated and co-operative action may be taken. It includes formal institutions and regimes empowered to enforce compliance, as well as informal arrangements that people and institutions either have agreed to or perceive to be in their interest.⁸⁵

Apart from the normative concept of ‘good governance’, also the concept of governance thus in itself bears a whole set of ‘revolutionary’ approaches that challenge the doctrine of state sovereignty and with it the ‘classical’ system of international law. According to Ladeur, it describes a flexible decision-making process, represents a heterarchical philosophy, and constitutes a product and symbol of transnationalism or transnational law.⁸⁶ It is emblematic of the increasing permeability of legal regimes and challenges the homogeneity and unity of the ‘old system’ of international law.⁸⁷ Furthermore, governance is more comprehensive than ‘government’ as it comprises the ‘informal underpinnings of political decision-making that have always supplemented formal procedures’.⁸⁸ As such, it includes the actions, policies and contributions of other actors of society, such as NGOs etc.⁸⁹ Governance thus constitutes

an open mode of co-ordination of both actors and rules, which presupposes a dynamic and experimental mode of decision-making with “entangled” hierarchies and the reciprocal interference of national and international regulatory structures.⁹⁰

Bearing this in mind, we shall define GCG as follows:

The sum of the ways that public and private institutions and individuals within the worldwide multi-level system manage commodity activities.

2.2 The Historical Emergence of GCG

Before illustrating the disruptive features of GCG (Sect. 2.2.5), we shall briefly revisit historical approaches to governing the global commodity sector, which were motivated primarily by economic objectives and are characterised by five phases: the ‘Anglo-Dutch phase’, the ‘League phase’ (both Sect. 2.2.1), the ‘Havana phase’ (Sect. 2.2.2), the ‘NIEO-UNCTAD phase’ (Sect. 2.2.3), and the ‘phase of post-interventionism’ (Sect. 2.2.4).⁹¹

2.2.1 Commodity Policy Before 1945: The ‘Anglo-Dutch’ and ‘League’ Phases

Global commodity policy before 1945 was dominated by the logics of colonialism.⁹² The exploitation and trade of commodities in colonised states was regulated and controlled by the colonial powers or their associated private producing companies, such as the (British) East India Company and the Dutch East India Company.⁹³ Therefore, regulatory approaches in that era employed the perspective of the colonizers—which then effectively were commodity producers reaping the benefits of their international sale. The international law regulating commodity activity was mainly shaped by ICAs seeking to stabilize prices.

In the Anglo-Dutch phase the two colonial superpowers and great trading nations United Kingdom and the Netherlands introduced a number of agreements, which concerned their principal trade goods, such as sugar, rubber, tin and tea.⁹⁴ They were concluded between producing states and/or their producing companies and thus constituted mere ‘producer agreements’, such as the International Sugar Agreement of 1864 and its succeeding treaties, the 1902 Sugar Convention and the 1937 Sugar Agreement; the 1931 Tin agreement; or the 1933 International Tea Agreement.⁹⁵ Furthermore, similar agreements on petroleum, lead, zinc, copper and wheat were concluded.⁹⁶ Consumers did not participate.⁹⁷ These agreements were different from ordinary producer cartels between private corporations to the extent that public authority was involved.⁹⁸ This government participation was aspired as a ‘corollary’ of economic regulation, and was i.a. supposed to render implementation of the agreements more effective.⁹⁹ All of these treaties were, mostly by the introduction of buffer stocks or quotas,¹⁰⁰ aimed at hindering an overproduction of the commodity concerned and thus at stabilising global market prices¹⁰¹—a vital economic interest for both the UK and the Netherlands.¹⁰² The mechanisms put in place by these early ICAs were, however, only rudimentary and thus proved not to be too effective.¹⁰³

The League phase brought substantial developments in international commodity policy. Although already founded in 1919, it was only under the influence of the Great Depression, which started in 1929 that the League of Nations became a central forum for ‘co-ordination of the production and marketing of certain commodities’.¹⁰⁴ The most crucial changes for international commodity markets and their legal regulation were discussed and later formulated at the 1933 London World Monetary and Economic Conference.¹⁰⁵ In response to the great economic challenges of the 1930s, international commodity policy left the spheres of mere national interest considerations and for the first time evolved to a more global approach. Key to this new approach was the involvement not only of producers, but also of consumer states.¹⁰⁶ Furthermore, in order to build confidence in commodity schemes, the role of governments in these agreements was substantially increased, basically introducing the intergovernmental commodity agreement type that would later dominate the 1970s and 80s. During the conference, the League formulated nine pioneering principles for ICAs, advocated for the conclusion of such treaties and created a link between ICAs and its bureau.¹⁰⁷ Major developments that the League phase brought about include that ICAs were seen as a legitimate exception to the MFN clause and that they evolved to become ‘dual-interest’ rather than ‘single-interest phenomena’.¹⁰⁸ Thus, the League phase cast important foundations for the objective of ICAs to come: creating a ‘win-win’ situation for producers and consumers alike.¹⁰⁹

2.2.2 The Havana Phase

After a devastating WWII, the global community, under the guidance especially of the new Western superpower USA was seeking to restructure the world economy. The innovations this would bring to global commodity policy were already foreshadowed in the 1941 Atlantic Charter. Driven by the liberal idea of free markets, access to commodities worldwide should generally be open for all; producers should renounce protectionism.¹¹⁰

Although the Havana Charter was never ratified, the discussions in Cuba were nevertheless groundbreaking for the new world economic order, including global commodity trade.¹¹¹ This is not least due to the fact that the GATT was separated from the general negotiations on the establishment of an International Trade Organisation, concluded on 30 October 1947 and entered into force on 1 January 1948.

The GATT generally also applies to international commodity trade, however without specifically addressing commodities—apart from a few exceptions.¹¹² Article XX:h GATT constitutes one of these exceptions. Accordingly, a measure that meets the requirements of the ‘chapeau’ of Article XX GATT and is

undertaken in pursuance of obligations under any intergovernmental commodity agreement which conforms to criteria submitted to the CONTRACTING PARTIES and not disapproved by them or which is itself so submitted and not so disapproved

shall not constitute an infringement of the GATT.

In Annex I to the GATT an addendum clarifies concerning Article XX:h GATT:

The exception provided for in this sub-paragraph extends to any commodity agreement which conforms to the principles approved by the Economic and Social Council in its resolution 30 (IV) of 28 March 1947.

The principles put forward by ECOSOC Resolution 30 (IV) concerning commodity agreements are thus included in the GATT. This Resolution

[r]ecommends that […] Members of the United Nations adopt as a general guide in intergovernmental consultation or action with respect to commodity problems the principles laid down in Chapter [VI] as a whole – i.e. the chapter on intergovernmental commodity arrangements of the draft Charter appended to the Report of the First Session of the Preparatory Committee of the United Nations Conference on Trade and Employment… .¹¹³

Accordingly, and pursuant especially to Article 62 HC, the introduction of market-interventionist ICAs is permitted only in a state of emergency. The GATT Contracting Parties, however, were at all times mandated to renegotiate general parameters for ICAs but refrained from doing so. Never has an ICA been presented to the GATT parties for approval—the criteria set forth by Articles 55 ff. HC have thus never been applied in connection with the GATT.¹¹⁴

Developing countries, however, began to raise the issue of price stability in global commodity trade.¹¹⁵ Many former colonies were—and still are today—highly dependent on commodity export revenues. The GATT reacted to the criticism from its developing country members by introducing a new part IV titled ‘trade and development’ to GATT, with its Article XXXVII:1:a obliging the contracting parties to facilitate market access to ‘products currently or potentially of particular export interest to less-developed contracting parties.’ Article XXXVIII:2:a GATT, moreover, sets the parameter that ICAs should benefit developing countries in helping them with global market access. In practical terms, however, also the introduction of its new part IV brought—apart from a few exceptions¹¹⁶—no big turn in GATT’s passive attitude towards ICAs.¹¹⁷

2.2.3 The NIEO-UNCTAD Phase

Not least due to the GATT parties’ passive stance regarding the called-for market stabilisation measures,¹¹⁸ developing countries pushed for the creation of UNCTAD in 1964.¹¹⁹ Not only the emergence of the NIEO movement¹²⁰ and the principle of Permanent Sovereignty over Natural Resources can be perceived as a backlash from former colonies against the free trade doctrine,¹²¹ but also the creation of UNCTAD itself. As such, the Prebisch-Singer hypothesis, according to which ‘commodity prices decline[] over time relative to industrial goods due to the interaction of supply and demand’,¹²² constituted one of the central philosophical pillars of the organisation’s activities from the outset.¹²³ Consequently, UNCTAD became the central actor pursuing commodity price stabilisation measures, i.a. through ICAs.¹²⁴ The latter ‘were considered an important part of the […] [NIEO] in the 1960s and 1970s.’¹²⁵

Paradigmatically, the 1974 ‘Economic Rights Charter’ (ERC) according to its Article 5 particularly emphasises the right for states to form associations of primary commodity producers, i.a. in order to ‘achieve stable financing for their development’.¹²⁶ Moreover, Article 6 ERC touches upon states’ duty to develop international goods trade, i.a. by concluding multilateral commodity agreements and at the same time emphasises that all states ‘share the responsibility to promote the regular flow and access of all commercial goods traded at stable, remunerative and equitable prices…’ Article 14 ERC reflects the complex scenario at the time of a free trade doctrine, which was increasingly faced with price stabilisation measures. On the one hand, it emphasises a duty for states to ‘co-operate in promoting a steady and increasing expansion and liberalization of world trade’ while on the other hand mentioning ‘measures designed to attain stable, equitable and remunerative prices for primary products’.

This normative backdrop quite tangibly describes the situation, in which developing countries—more precisely the ‘Group of 77’ or ‘G77’¹²⁷—mandated UNCTAD with the task of elaborating commodity control agreements.¹²⁸ The efforts to create more balanced world markets by means of ICAs that were supposed to stabilise profits for developing countries eventually paid off, when a breakthrough in the difficult negotiations between global North and global South finally led to the adoption of Resolution 93 and with it to the creation of the Integrated Programme for Commodities (IPC) at UNCTAD’s fourth session in 1976.¹²⁹ The IPC’s objective was mainly to ensure market stabilisation for a group of 18 ‘core commodities’. This objective was to be achieved for one through the comprehensive Common Fund for Commodities (CFC) and by the negotiation of single commodity agreements for the other.

The CFC provided two main ‘accounts’: buffer stocks on the one hand and loans for commodity-specific development projects on the other. The negotiations on the CFC, however, proved to be difficult and therefore lasted until March 1979. Due to many states’ hesitation in ratifying the respective agreement, it was not before 19 June 1989 that the CFC entered into force.¹³⁰ By this point in time, developing countries had already considerably lost faith in the new Fund not least given that most Western states refused to provide an amount of ‘directly contributed capital’ that would allow the CFC to fulfil its mandate.¹³¹ A further reason why the CFC never reached its potential was the lack of dynamics concerning the conclusion of single agreements, the IPC’s second strand. Given i.a. a lack of interest to enter into binding commodity agreements on the part of industrialised nations, only few new ICAs had been negotiated since the beginning of the 1980s.¹³² Yet it came even worse for those that favoured market-interventionist approaches to commodity policy: Due i.a. to falling market prices, several ICAs had to seize the operations of their buffer stocks.¹³³ The International Tin Council (ITC), for instance, collapsed financially in 1985.¹³⁴ This was due for one to tin producers increasingly leaving or refraining from joining the agreement, which resulted in a decrease in the ITC’s market share from 71% in 1981 to 57% by 1985.¹³⁵ Furthermore, several states such as the UK developed techniques on how to circumvent the ITC’s rules and quotas, further weakening the functioning of the scheme.¹³⁶

Additionally—and this applied to almost all buffer stocks—problems originated from the invention of synthetic substitutes such as plastics and aluminium that lead to a further downswing in global market prices.¹³⁷ In order to balance out these developments, the stock manager bought more and more tin—hoping for an increase in tin prices, which would mark the moment to sell the merchandise. However, due to the increased availability of cheap substitutes and the overall increase of global tin production, prices simply would not rise sufficiently.¹³⁸ As a consequence, on 24 October 1985, the ITC declared ‘that it could no longer meet its financial obligations.’¹³⁹ For similar reasons effectively all operating buffer stocks were eliminated by the end of the 1990s.¹⁴⁰ Given that it was especially due to low commodity prices, on their part caused by technological progress and the development of substitute materials, as well as comportment of ICA member states that was undermining the operation of buffer stock that the seizure of their operations occurred, it would, however, be premature to argue that market interventionist approaches as such are ‘out-dated’.¹⁴¹

From their collapse, one cannot infer that market-interventionist mechanisms would be obsolete. In fact, the continued need for CDDCs to stabilise market prices today demonstrates the contrary:¹⁴² the debate on how to adequately control commodity trade is still essential. What the collapse of the buffer stocks between 1985 and the new millennium illustrated instead, was the advent or reoccurrence—and continued dominance today—of the doctrine of (neo)liberalism. The reinforcement of the free trade agenda during the respective eras of ‘Thatcherism’ in the UK and ‘Reaganomics’ in the US,¹⁴³ may well constitute the aggregate root cause for the failure of the commodity policies advocated for by UNCTAD.¹⁴⁴ Under the free trade doctrine, ICAs were seen as improper interference with market forces.¹⁴⁵ Paradigmatically, the world would soon witness the emergence of a new institutional powerhouse of global trade substantially representing the neoliberal economic order: the GATT Uruguay round, which was launched in 1986 eventually lead to the creation of the World Trade Organisation (WTO) in 1995.¹⁴⁶

2.2.4 The Phase of ‘Post-Interventionism’: Shift Towards Cooperative Agreements

As a consequence of abandoning their market-interventionist mechanisms, numerous International Commodity Organisations (ICOs)—the IOs administering respective ICAs—lost their main field of activity. Instead of abolishing these organisations—which over time had gathered substantial commodity-specific expertise–, their respective member states largely decided to keep the ICOs as fora for the exchange of information between producers and consumers. Some ICOs additionally provide services to their members, such as commodity-specific research. The originally market-interventionist ICAs have thus largely been transformed into what might most aptly be described as cooperation agreements.¹⁴⁷ As such, they exhibit more or less exclusively soft obligations and have largely lost their legally binding dimension.¹⁴⁸

It seems obvious that commodity policy-making has shifted largely to other fora and mechanisms, such as the EU-ACP agreements or the WTO.¹⁴⁹ With the ‘ideological shift’ in the 1980s and the ensuing emergence of the WTO, ICOs today have largely become minor, commodity-specific fora that appear to play a rather peripheral role in GCG.¹⁵⁰ At the beginning of the new millennium, the proponents of NIEO thus had to clearly concede defeat in the face of the vigorous reawakening and ensuing institutionalisation of neoliberalism. However, not least due to the history of its emergence, developing countries remained suspicious of the new free trade agenda and the WTO as its primary organ:

…not only had industrialised countries presented them with take-it-or-leave-it positions on agriculture and intellectual property rights but the promised benefits that were to flow from the agreement failed to materialise, perpetuating the organisation’s legitimacy crisis.¹⁵¹

This scepticism on the part of developing countries as well as the continued insistence on trade liberalization by industrialized nations, i.a. while maintaining subsidies for their agricultural commodities, led to what is generally being referred to as the ‘deadlock’ of the Doha Round of negotiations, which was initiated in 2001.¹⁵² Whereas ‘obituary notices’ for the DDA may have been a little premature,¹⁵³ the fate of the talks still remains unclear despite recent advancements with regard to the crucial issue of export subsidies for agricultural commodities.¹⁵⁴ Overall, it appears nebulous still today whether and to what extent the WTO will in the future make use of its mandate to actively shape commodity governance.¹⁵⁵

Reluctance from states to openly pursue commodity governance along the legalistic lines of the WTO system may be due to a general perception of commodities being of too great strategic importance.¹⁵⁶ It is not least against this backdrop that the emergence of GCG, which was driven i.a. by a variety of multi-stakeholder initiatives, can be perceived.

2.2.5 The Appearance of GCG

As the examination of historical approaches to regulating international commodity activity has demonstrated, prior regulation was driven and shaped largely by motives of raising the economic benefits for the actors involved. GCG constitutes a fundamental departure from these approaches. Its disruptive feature lies in perceiving commodity activity not exclusively as an economic issue, but as a comprehensive regulatory challenge, which requires the consideration of its social and ecological prerequisites as well as effects.

Already Principle 2 of the 1972 Stockholm Declaration recognised the need for natural resources to be safeguarded for future generations through ‘careful management or planning’. Gro Harlem Brundtland, who led the efforts of the World Commission on Environment and Development, which had been instituted by the UN General Assembly and mandated with the task to rethink the interrelatedness of the environment and development, already in 1991 pointed to the importance of ‘strengthening commodity markets’ in favour of developing countries in order to boost their SD.¹⁵⁷ In the same publication, then-president of the World Bank, Barber Conable, ‘ushers in the era of sustainable development’ by pointing to the significance of the management of natural resources for that purpose.¹⁵⁸

Based on these developments and not least in view of a lack of comprehensive commodity policies being pursued by global institutions, starting in the 1990s more and more initiatives emerged that were seeking to standardise the commodity sector.¹⁵⁹ These so-called ‘new governance’ arrangements included particularly certification schemes and other voluntary initiatives created by business associations as well as civil society organisations, and partly also involved IOs.¹⁶⁰ Examples of these early initiatives include the Forest Stewardship Council founded in 1993, the Marine Stewardship Council founded in 1996,¹⁶¹ the Kimberley Process established in 2000 or the EITI, which was launched at the World Summit on Sustainable Development (WSSD) in Johannesburg in 2002.¹⁶²

This trend continues until today, with now numerous standards, certification schemes, and other initiatives in place worldwide that are each tackling the commodity sector specifically. One of its most prominent proponents is the Natural Resource Governance Institute, which together with partner institutions in academia as well as civil society advocates vigorously for greater attention to the regulatory necessities in the commodity sector. Paradigmatic for the comprehensive policy approach it postulates, is its signature publication, the Natural Resource Charter, which was first launched in 2010. The Charter sets forth twelve precepts on how the development potential of resource wealth can best be harnessed.¹⁶³

Moreover, in the past decade, one could also witness an increased attention to commodity activities from states and supranational organisations. Given the continued antagonisms between consumers in the global North and producers in the global South, reflected in the deadlock of the WTO negotiations, several Western nations took action on developing new, comprehensive commodity policy programs when China started to introduce restrictions on its commodity exports in 2008.¹⁶⁴ For instance, in 2008 the European Commission launched its Raw Materials Initiative, which is largely based on the three pillars of ensuring access to raw materials; setting the right framework in order to foster sustainable commodity supply from European sources; and boosting overall resource efficiency, i.a. through recycling and therefore decreasing import dependence.¹⁶⁵ The German government introduced its new commodity strategy, which is likewise particularly concerned with supply security regarding non-energetic mineral commodities, in 2010.¹⁶⁶ An update was presented in January 2020.¹⁶⁷ In Switzerland, several government branches joined forces in 2013 in order to compile a comprehensive report on the manifold economic, social, ecological, as well as financial implications of commodity policy.¹⁶⁸

In 2012, the United Nations adopted its Report The Future We Want, in which it recognises sustainable natural resource management i.a. as an ‘overarching objective’ and ‘essential requirement’ for SD.¹⁶⁹ Following these statements the world community in its 2015 resolution titled Transforming Our World: the 2030 Agenda for Sustainable Development envisions

[a] world in which consumption and production patterns and use of all natural resources – from air to land, from rivers, lakes and aquifers to oceans and seas – are sustainable.¹⁷⁰

According to SDG 12.2, the international community has committed to ‘achiev[ing] the sustainable management and efficient use of natural resources’ by 2030. The special advisor to the UN Secretary-General on the SDGs, Jeffrey Sachs, has alluded to the management of the planetary boundaries that exist with regard to commodity activity, and therefore the overall management of the sector, as being at the ‘heart’ of SD.¹⁷¹ The EU has now linked all of its efforts in the context of the Raw Materials Initiative to the SDGs.¹⁷²

Therefore, to my mind GCG can best be perceived as a commodity-directed emanation of the global SD agenda. Thus, it aims to integrate social and ecological challenges associated with economic objectives. This correlates with its principal task of ensuring a functional commodity sector—a task, which requires GCG to balance the interests associated with commodity activity.

2.3 Role of the Law

From a legal perspective, this imposes the question what the law can contribute to mastering the challenge of achieving this balance and thus ensuring a functional commodity sector?

2.3.1 Purpose of the Law

According to Jhering, it is the purpose, which is responsible for the creation of all law. Without purpose, there would be no law. He defines the ultimate purpose of law in its role to safeguard living conditions for human society.¹⁷³ As Green points out, many traditional thinkers formulate constitutive aims of the law—only if a norm pursues such aims, it can be qualified as law. He points to Thomas Aquinas who defined the overall purpose of law, as ‘an ordinance of reason made for the common good’. More recent views define the purpose of law as ‘guiding conduct’, ‘coordinating activity for the common good’, ‘doing justice’ or ‘licensing coercion’.¹⁷⁴

Hart states that he deems ‘it quite vain to seek any more specific purpose which law as such serves beyond providing guides to human conduct and standards of criticism of such conduct.’¹⁷⁵ He thus describes the purpose of the law by pointing to one of its major functions—the provision of guidelines for human behaviour. According to Lauterpacht,

[t]he function of law is to regulate the conduct of persons, natural or juridical, by reference to rules whose formal – as distinguished from their historical – source of validity lies, in the last resort, in a command imposed from outside.¹⁷⁶

It is by this externalisation through law of what is legitimate and what is wrongful that we typically seek to ensure greater discipline of the addressees in their respect for rules. We create law in order to regulate behaviour in the most effective way possible.¹⁷⁷

2.3.2 Law as the Catalyst of a Functional Commodity Sector

As we have learned, in the context of commodity activity human behaviour can be said to be regulated in the most effective way possible, where the five interests associated with it are balanced. This status describes the task—or constitutive aim—of GCG to ensure a functional commodity sector. The law can be a catalyst in this quest if and when it contributes to the balancing of the various interests of the diverse stakeholders of GCG. Thus, in order to be effective towards ensuring a functional commodity sector, the law needs to address the specific policy trade-offs that arise from commodity activity.

The law is effective in contributing to a reasonably managed and thus functional commodity sector, where it provides answers to questions such as: How much to extract? Where to extract? How to extract? How to process or trade? How to make a decision to extract? How much to trade? How much and what to tax? What resources to protect? What land rights to protect? Where it cannot provide these answers, for instance since the privilege of ultimately answering them falls within the political domain, it is effective where it provides guidelines on how these questions should be answered. The type of norms that is required for the law to be a catalyst of GCG and thus of a functional commodity sector are ‘balancing norms’, which guide the balancing decisions in view of the policy trade-offs that arise from the five major interests associated with commodity activity.

2.3.3 The Effectiveness of the Legal Framework of GCG

In order to understand the contribution of the current legal framework of GCG to the goal of ensuring a functional commodity sector, we first need to clarify its scope and content. This will be the subject of our conceptualisation of TCL in Chap. 3 below—which thus shall be in itself a first contribution to fostering the effectiveness of the current framework.¹⁷⁸

In Chap. 4 we will analyse in more detail what can be said about the effectiveness of the current TCL framework overall. A word of caution in this respect shall be shared. While our analysis is based on a comprehensive appraisal of the regulatory instruments and standards applicable to commodity activity, a well-founded quality assessment of this vast body of law would require extensive analysis, e.g. based on the possibilities provided by computational text analysis.¹⁷⁹ The statements on the effectiveness of the TCL framework we provide in Chap. 4 below therefore do not claim to be absolute, but rather constitute an approximation to this complex question.