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Trade & Investment

Commodities Trade Haven Faces Protests

ZUG, Switzerland, Apr 14 2013 (IPS) - The powerful Swiss commodity sector is under fire here, as citizens fed up with government inaction on charges of corporate corruption, tax evasion and lack of transparency gear up for major protests.

Switzerland is anything but a country rich in raw materials but it is, nevertheless, a major hub for international commodity trade, hosting some of the world’s biggest commodities companies such as Glencore (which specialises in power generation, steel production, oil and food processing); Xstrata (copper, zinc, aluminium, nickel and coal-fired electricity), Vitol (which ships oil products like gasoline, diesel, jet fuel and metals, as well as ethanol and chemicals) and Mercuria (dealing in oil and energy products).

Swiss-based companies are estimated to have a share of 15 to 25 percent of the global commodities trade.

Data provided by the industry reveals that 60 percent of the global metals and coffee trade is done in Switzerland. In sugar, the Swiss sector has a market share of 50 percent and in crude oil and grains it makes up 35 percent of global trade.

Against this backdrop, Swiss critics are preparing for a chance to voice their grievances with these massive commodities giants at the second annual Financial Times Global Commodities Summit to be held in the city of Lausanne, about 60 kilometres northeast of Geneva, on Apr. 15.

Voluntary Regulations “Inadequate”

BD Media Director Oliver Classen says these companies also put Switzerland's reputation at risk. “The negative image of Glencore, Vitol or Mecuria affects Switzerland the same way that the misconduct of the Union Bank of Switzerland (UBS) and Credit Suisse have in the past.” UBS alone has coughed up 1.5 billion dollars in fines for its part in the fraudulent fixing of the Libor rate (the benchmark for short-term interest rates).

The Swiss Federal Council’s recently published “background report” dedicated to Switzerland's commodity sector has been criticised as “inadequate” for failing to suggest serious measures for solving or preventing fraudulent or criminal activity, though it does identify “challenges” such as human rights violations or fighting corruption.

“The report proposes only voluntary corporate initiatives, which is politically naïve,” the Bern Declaration claims.

For example, the Federal Council highlights the importance of the international Extractive Industries Transparency Initiative (EITI), which promotes revenue transparency on a local level by asking companies to publish their transactions with governments of member states, who in turn are expected to disclose how much they receive.

Calling the initiative “necessary, but insufficient”, Classen laments that the EITI is voluntary, with only 20 member states.

“Many important mining countries – such as Angola or Colombia -- where Swiss-based companies are very active, aren't EITI-members,” explains Classen.

Furthermore, the transparency initiative only deals with commodities extraction, but not with trade.

“Misconduct such as Glencore's aggressive tax avoidance in Zambia is neither covered, nor sanctioned by the EITI,” according to the Berne Declaration.
Organisers describe the official conference as an “unparalleled” opportunity for executives of the world’s biggest investment banks, trading houses and natural resource entities to come together and debate, network and strategise about the future of world trade.

But protestors say the summit “is a symbol of exploitation and speculation”.

“While the companies’ profits increase, the local population in mining countries suffers from environmental damage, expulsion, tax avoidance and anti-trade union measures,” Yvonne Zimmermann of MultiWatch, a broad coalition of NGOs, trade unions and anti-globalisation organisations, tells IPS.

An alliance of two-dozen organisations is calling for a demonstration to coincide with the arrival of businessmen in Lausanne on Apr. 15. Speaking on behalf of the protest organisers, Alwin Egger tells IPS the march, which is expected to draw hundreds, will move towards the Hotel Beau-Rivage Palace, where the summit takes place.

A member of the anti-globalisation Association for the Taxation of financial Transactions and Aid to Citizens (ATTAC), Egger says, “In our opinion, it’s the people who should have control over extraction and trade of raw materials, not profit-oriented companies.”

Over the last decade, the commodities business has grown exponentially in Switzerland. In 2011, its net receipts from trade added up to 20 billion Swiss francs (or 21 billion dollars), contributing 3.5 percent to the country’s gross domestic product (GDP). While some corporations are only involved in either commodity trade or extraction, most of them offer services throughout the entire supply chain.

For more than a century, commodity companies have flocked to Switzerland to avail themselves of the country’s low tax rates and the privileged corporate taxation system. Holding companies, for example, are exempt from corporate income tax on cantonal and communal levels as long as they own shares in foreign companies only. Besides, Switzerland offers strong banks, political stability and a high standard of living.

That the country wasn’t a member of the United Nations until 2002 was another factor behind its popularity, as it allowed Switzerland-based companies to avoid U.N. embargoes and sanctions.

The commodities business is known for its discreetness. But as of late, that peace has been disturbed by NGOs such as the Berne Declaration (BD), which published a groundbreaking book in 2011 to shed light on some of the dubious practices the sector constantly engages in.

Accusations range from human rights abuses, ecological destruction, exploitation, to corruption and tax avoidance in developing countries. In 2012, for instance, NGOs accused Glencore of buying copper from intermediaries in the Democratic Republic of Congo that was extracted partly using child labour and under precarious conditions.

Entitled “Commodities – Switzerland’s Most Dangerous Business”, the book found that “trade in oil, gas, coal, metals and agricultural products – particularly via deals made in Geneva and Zug – has grown by an incredible 1,500 percent since 1998…The result: Seven of the twelve corporations with the highest turnover in Switzerland trade in…or mine commodities.”

“As more information becomes available, attentiveness to the issue grows” — and so does criticism, observes Zimmermann, adding that a media spotlight on these practices has dealt a harsh blow to the industry’s public image.

But Economics Minister Johann Schneider-Amman opposes specific, national regulations for the commodities sector. “We don’t want to treat our companies any stricter than other, competing locations do,” he said at a press conference, echoing the standard argument issued every time the corporate tax system is in the line of fire: that Switzerland cannot afford to have companies relocate elsewhere.

For critical experts like Classen, this excuse is not valid since “there are no unregulated alternative business locations” anywhere else in the world.

The Swiss Federal Council has proposed a consultation draft for a transparency regulation similar to the 2010 Dodd-Frank Act in the United States, section 1504 of which obliges companies to disclose their payments to governments for access to oil, gas and minerals. It is still unclear, though, whether payments of commodity trading companies will be included in the Swiss draft regulation.

Fearing new regulations, the Swiss commodities sector has ramped up its lobbying efforts. Associations representing the industry have popped up in the main commodity trading hubs of Geneva, Zug and Lugano.

Glencore recently invited Swiss parliamentarians to hear an explanation of its “engagement for sustainable business, for the health and safety of its employees and for the environment”. Media and NGOs were denied access to the closed-door meeting.

“The sector is concerned that it has become the subject of attentiveness and debates,” says MultiWatch’s Zimmermann, who protested against the recent lobby event.

“As a reaction to criticism, these companies have started to publish sustainability reports”, she said, which whitewash their practices and portray themselves as charities.

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  • Chakravarthi Raghavan

    the article needs corrections: for e.g. Libor, as google search will show is London Inter-Bank Offer Rate, the rate that banks charge when borrowing from each other. It is not an exchange rate at all.

  • Kim_jenna

    Thanks, Chakravarthi. Our editors are looking into this. Best, KJ

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