The U.S. Withdraws from the Extractive Industries Transparency Initiative (EITI). What’s Next?

Monday, January 8th, 2018 at 1:41 pm, by Victoria Jimenez

On March 19, 2014, the United States became the first G8 country to join the Extractive Industries Transparency Initiative (EITI). On November 2, 2017, the United States withdrew from the EITI. In the letter from the Director of the U.S. Office for Natural Resource Revenue to the EITI Board of Directors, the Director stated the withdrawal would be effective immediately. The EITI issued a statement shortly after receiving the letter saying, “[t]his is a disappointing, backwards step. … It’s important that resource-rich countries like the United States lead by example. This decision sends the wrong signal.”

What is the EITI?

The EITI promotes the “open and accountable management of oil, gas, and mineral resources.” It is a voluntary initiative through which countries commit to publishing reports on how the government manages the oil, gas, and mining sectors. These reports include information from when the resource is extracted, to “how the revenue makes its way through the government, to how it benefits the public.” It also includes how the licenses and contracts are allocated and registered, who the owners of those operations are, how much is produced, how much is paid, where are those revenues allocated, and what the contribution to the economy, including employment, is.

Why is it important?

The main purposes of the EITI are to help fight corruption, provide more transparency between government and company systems, and inform the public on their interactions. The EITI combines more than 53 countries, more than 80 large corporations (including ExxonMobil and Chevron), and more than 30 civil society groups and international organizations like the World Bank. All of these countries and organizations have a similar mission – to “adher[e] to standards to increase transparency around payments made to governments in oil, gas and mining activities.” Since there is more transparency, it makes it more difficult for corruption to flourish and thrive in many parts of the world.

Why did the U.S. Withdraw?

The U.S. Department of Interior said the U.S. withdrew because the EITI disclosure requirements may violate business confidentiality, some of the U.S. companies did not want to participate in the initiative, and there were legal obstacles. However, others argue that the U.S.’ decision to withdraw from the EITI serves to favor the large oil companies such as ExxonMobil. The Natural Resource Governance Institute (NRGI) argues that “… no legal obstacle exists. Companies’ unwillingness to disclose taxes paid to the U.S. government (a cornerstone of EITI implementation) has been a major challenge in the U.S. since it became an EITI candidate country in 2014.”

Although the U.S. withdrew, the State Department, now headed by former ExxonMobile CEO Rex Tillerson, says they will continue to “lead the U.S. commitment” as a “supporting country,” but all its decisions with regard to the pact’s standards will be done unilaterally. Several leaders who disagree with the U.S.’ decision, like EITI Chairman Fredrik Reinfeldt called the decision “a disappointing, backwards step.” He argued that the main principal functions the EITI is to “combat transnational crime and terrorist financing,” and it is “important that resource-rich countries like the United States lead by example.” Another leader, Corinna Gilfillan, head of the U.S. office of Global Witness, said the group also helped focus on curbing environmental and human rights abuses tied to oil and mineral extraction.

Impact/What’s Next?  

The EITI’s legal framework requires implementing countries to “disclose a description of the legal framework and fiscal regime governing the extractive industries. This information must include a summary description of the fiscal regime, including the level of fiscal devolution, an overview of the relevant laws and regulations, and information on the roles and responsibilities of the relevant government agencies.” By withdrawing, the U.S. is sending a message that it is acceptance for other countries, companies and organizations to opt out as well. If many countries opt out, this can increase potential for conflict and put U.S. troops at risk in countries where oil, gas, and mineral resources are prevalent. Gilfillan argues that the U.S. had been a “leader in getting the rest of the world’s energy companies to be more transparent about their revenues.” However, now countries who are part of the EITI will be less inclined to follow this legal framework and disclose their activity. If more countries, especially powerful countries like the U.S., continue to withdraw, the progress of EITI in holding countries accountable for their dealings with oil, gas, and mineral resources will be reversed.

Additionally, not only does this withdrawal send a signal to countries that have already joined, it also sends a message to countries the EITI is trying to convince to join. For example, Bartlett said the “move could make it harder for the EITI to make the case for other countries, such as South Africa, Brazil, and Russia, to join.” As a global leader, the U.S. is a symbolic country in establishing accountability for countries’ dealings with oil, gas, and mineral resources. If the U.S. is not a member, resource rich countries will think twice about joining the EITI. Since the U.S. is no longer a member and will not be held accountable for its dealings in the oil, gas, and mineral resources industries, other countries may have similar sentiments and withdraw.

The U.S.’ decision to withdraw from the EITI is a great setback to the U.S.’ leadership, especially with regards to sustainable global energy effort. As a very powerful country in this initiative, by withdrawing, the U.S. has undercut collective efforts to help deal with corruption in the oil, gas, and mineral resources industries.