Trade and Aid: a Balancing Act
One of the wishes of the Fair, Green and Global Alliance (FGG) members was recently fulfilled by the Rutte II Cabinet: the trade and global development portfolios have been brought under a single Minister, the Minister of Foreign Trade and Development Cooperation.
Forging policy coherence between these dossiers is key to sustainable and socially just development. In order to allow trade and aid to complement one another, the Minister will have to engage in a balancing act in the coming four years.
Balancing aid and trade and thus assuring policy coherence, is a major challenge in times when policy makers are rather concerned with fostering economic growth as the solution to the current economic crisis. Social and environmental aspects of sustainable development are falling off the agenda.
In fact, Dutch development cooperation policy is increasingly directed toward enhancing the role of private corporations in development, convinced somehow that the private sector, via trade and investments, will bring sustainability and fair development components in its wake.
The everyday reality, however, reveals that the international business community is also the cause of many of the problems that exist in the areas of sustainability and fair development. Despite numerous initiatives in the area of transparency and corporate social responsibility (CSR), that same business community is, in large parts of the world, still not held accountable for the negative impact of its actions on people and the environment.
The world saw a horrifying example of this late 2012, when two fires in clothing factories in Pakistan (September) and Bangladesh (November) ravaged facilities of clothing manufacturers, killing over 400 workers. Both factories had been subjected to numerous factory audits by brands or so-called 'independent' social audit firms. The factory fires reflect systemic flaws on the level of government protection of human rights, a deathly reliance of international brands on a failed auditing model where even the absence of a fire exit remains unaddressed, and a gross disrespect shown by the garment industry for workers’ rights.
In order to effectively adjust policies geared towards socially just development, specific attention needs to be paid to the role of women. The informal sector, where women play an essential role, represents some 75% of total employment in developing countries. Many small business owners and farmers are women. At the same time, women are most directly affected by the results of unfair growth, the destruction and expropriation of their land and damage to water sources.
Meanwhile, women’s voices mostly go unheard. Women are seldom directly involved in policy development or in related negotiations. Thus, the course of trade and investment not only benefits just one part of society, it continues to weaken the position of women.
Global Public Goods have attracted a great deal of attention worldwide but threaten to further weaken the participation of local actors. Recent examples of this are the UN High Level Panel for the post-2015 development agenda, and the new Green Climate Fund, both of which fail to include any local actors and civil society representatives. Equally exclusive of local actors is the so-called Green Economy. The concept is being developed by people working from office buildings in urban areas located far from the realities of local sustainable development. Its central assumption that natural resources can be conserved by simply putting a price tag on them, exemplifies this. While market mechanisms may look very attractive on paper, the monetization of nature already causes the expropriation of forest, fishing grounds and land in what may be seen as Green Grabs.
The Minister for Foreign Trade and Development Cooperation should not merely facilitate market-based growth but take the lead in setting standards for sustainable business practices; promote binding international regulation of trade, investments, taxation, and financial markets; and strengthen the crucial role of civil society organizations as watch dogs and wardens of the public interest. Together with our Southern partners, we are proposing in each of these areas concrete policies for the Minister to apply in support of sustainable and fair global development.
Innovation as the basis for sustainable and fair economies
A key challenge for the Dutch government involves finding answers to the climate, financial and food crises. If we truly want to transcend the dominant business-as-usual mentality, we have to pursue innovations that can be applied to the trade and aid sectors that go far beyond mere adjustments.
In reaction to the negative impacts of the crisis, Southern civil society organizations have come up with innovative initiatives that ingeniously combine inclusive socio-economic development with the wise use of nature. In these initiatives local actors serve as the initiating parties and planning, decision-making, implementation and monitoring are participatory.
To allow these initiatives to grow, and to realize their potential to engender green and just economies, the FGG Alliance calls for active support by governments through the implementation of existing laws and regulations in the area of participation and decentralization. Also, we call for a broadening of research agendas and strategic innovation support in order to expand the scope of existing initiatives.
Business, CSR and human rights
Multinational corporations are barely being held accountable for their contribution to the current financial, environmental and food crises. Without measures that hold companies accountable for the detrimental effects of their business practices, and without binding international social and ecological standards, a positive contribution of the business community to sustainable development is tenuous at best.
The Dutch Government should support and adopt EU proposals that oblige companies to report on the social, environmental and human rights risks and repercussions of their activities and relationships, and to provide adequate compensation for damage resulting from their activities. European companies should be held legally liable for damage they cause outside the EU. In addition, the impacts of companies’ activities should be measured to ensure that the effects of CSR policies on both men and women become clear. Including gender equality in their policies and monitoring these will contribute to increased equality in the workplace.
While the trend is to increasingly support companies with public funds, subsidies, loans and insurances, these should be available only to those companies that can demonstrate that they are not involved in human rights or environmental violations; that they will not engage in tax avoidance; and that their activities make a noticeable and measurable contribution to sustainable development and serve the public interest. The Ministry itself should actively monitor compliance, amongst others through the establishment of an accountability fund to foster the reporting and watchdog functions of civil society organizations (CSOs) and stimulate participation of civil society in its monitoring and evaluation activities.
International trade and investment
Fair multilateral, regional and bilateral trade and investment relations deserve a central place on the agenda of the Minister if she truly pursues inclusive prosperity and well-being. The current free trade model is undermining international cooperation in these regards as it eschews the establishment of social safety nets, international wage and labour standards, environmental regulation, and consumer protection. In sum, it endangers the space of governments to implement policies in the public interest, particularly through the investor to state dispute settlement enshrined in investment treaties.
The FGG Alliance advocates an alternative model. Key elements of this model include human rights, environmental protection and the promotion of social equality within and between nations.
The FGG Alliance calls for the democratization of trade negotiatons, which should allow civil society to be well represented during any negotiations of trade agreements. The Ministry should follow the protocol established by the EU Directorate-General for Trade (DG Trade) and create open and transparent civil society dialogues regarding international trade issues.
It is crucial that the Dutch government speaks out for the inclusion of binding environmental, human rights, and social clauses in EU Investment Agreements and Free Trade Agreements (FTAs). Likewise, in the design of the EU’s new common investment policy, the Dutch government should not advocate implementation of comprehensive safeguards for investors, but should include a broader range of sustainability considerations. This includes cancelling the EU biofuels targets in order to ensure the protection of the right to food.
Dutch fiscal policies have made the Netherlands a tax haven for multinationals, allowing companies to avoid paying billions of Euros of taxes annually. To shed our reputation as a tax haven once and for all, the actual economic activities a company engages in within the Netherlands should be included as part of the so-called “substance” requirements demanded of companies that want to set up shop here. At the moment, around 23,500 mailbox companies are incorporated in the Netherlands. These companies do not have any real economic activities here. The Dutch Bank uses a different definition and counts almost 14,000 ‘special financial institutions’. These institutions were used by foreign companies to channel around 4.000 billion euros through the Netherlands. This, in turn, means that the governments of developing countries miss out on tax revenues that should finance basic services like education, infrastructure and health care.
The government should also make it known to the public which companies it has provided with a tax deal.The Dutch government should be mindful of the effects of its fiscal policies and the tax treaties it maintains with developing countries. Dutch tax treaties with developing countries should be reviewed for their negative impact.
To shed our reputation as a tax haven once and for all, the actual economic activities a company engages in within the Netherlands should be included as part of the so-called “substance” requirements demanded of companies that want to set up shop here. The government should also make it known to the public which companies it has offered a tax deal.
Regulating financial markets
The financial crisis has shown that the liberalization of financial markets without proper regulations and monitoring can have a very negative effect on developed and developing economies alike. Yet research by TNI shows that this same crisis is being used to further entrench liberalisation and push privatisation, despite the proven negative effects.
European banks and other financial service providers are able, via trade treaties and the WTO, to increase their investment and trade activities in financial services in developing countries. In some countries this is leading to a situation where international players are taking over the entire financial sector. For instance, 87 % of Uganda’s banking sector (2010) is in foreign hands. Moreover, foreign banks are often not interested in serving small farmers or local small and mid-sized businesses, thus undermining economic development. In Uganda, only 28% of the population, living in towns, is served by banks, while 30% is completely cut off from financial services of any kind, and 42% of Ugandans are dependent on informal financial services.
The FGG Alliance recommends that the Dutch government support the regulation of futures markets and other price guarantee systems , including measures to limit speculation in food and natural resources in developing countries, and that the Ministry of Foreign Trade and Development Cooperation promotes universal access to basic financial services, preferably by local financial service providers under proper supervision.
Role of civil society: Expose, Propose, Practice
Civil society organizations worldwide are working hard toward the reestablishment of a healthy balance between economic growth, sustainable and fair development by giving a voice to those who feel the direct impact of our globalized economy. They operate in a fairly hostile climate, tenaciously maintaining their agenda of justice, human rights, sustainability, and democratization. Unions, women’s organizations, environmental groups and local communities all know that the paper reality of international actors does not reflect the actual realities on the ground. These organizations serve as watchdogs or as a countervailing force, demanding attention for human rights, and the social and environmental consequences of global trade and production.
Global networks such as the FGG Alliance are very valuable when it comes to the balancing act between trade and aid. Without such civil society actors there would be no fundamental motivating force for change at either the local or global level. FGG Alliance members have years of experience with international policy processes, and are pioneers in the area of analyzing trade and aid. The Alliance unites organizations with a set of attributes and capacities that are highly relevant in the creation of the necessary balance between trade and aid.
Southern organizations that work on issues pertaining to sustainable and fair development consider the Netherlands a key player in the implementation of the global sustainable development agenda. Together we introduce our innovations into the political debates and bring new perspectives to the table. Therefore, it is important that the Ministry continues to serve as a reliable supporter of these organizations.
 ActionAid, Both ENDS (lead agent), Clean Clothes Campaign, Milieudefensie/Friends of the Earth Netherlands, SOMO, and the Transnational Institute (TNI).
 Read more here.
 From the report “The private sector’s contribution to development is not guaranteed” (Bijdrage private sector aan ontwikkeling niet gegarandeerd,” ActionAid, Somo, Both ENDS 2012) it seems evident that within the current business tools, despite a number of important improvements, the impact of development and active due diligence are not sufficiently guaranteed to prevent negative impacts.
 For more information in Dutch, see: Aanbevelingen voor een duurzamer, evenwichtiger en ontwikkelingsvriendelijker handelsbeleid: SOMO, TNI, Both ENDS, as members of the FGG Alliance, February 2013.
 T. Mulder, “Brievenbusfirma onder vuur in Kamer”, Het Financieele Dagblad, 24 January 2013.
 De Nederlandsche Bank, ‘Ontwikkelingen van Nederlandse BFI’s in 2011’, 30 January 2013. (available at http://www.dnb.nl/nieuws/nieuwsoverzicht-en-archief/statistisch-nieuwsbericht/dnb284531.jsp) Total transactions in 2011 were 8.000 billion euros, combining in- and outflow, which means a total of 4.000 billion euros was routed through the Netherlands.
 See more here: http://www.tni.org/article/profits-and-loss-eu-crisis
 See more here: http://www.tni.org/briefing/privatising-europe
 See more example: http://somo.nl/publications-nl/Publication_3934-nl and http://somo.nl/themes-en/trade-investment?set_language=en for analyses of trade and investment; http://www.actionaid.org/nl/nederland/wat-doen-wij for ActionAid’s work on food security, extractives and tax justice.
Image by Clean Clothes Campaign