Economies of Conflict

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Mark Taylor (ed.)

Report of the expert consultation on conflict economies and development

Economies of Conflict

The Next Generation of Policy Responses

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Mark Taylor (ed.) Josefine Aaser Anne Huser

Kathleen Jennings

Economies of Conflict

The Next Generation of Policy Responses

Report of the expert consultation on conflict economies and development. Oslo, 4 November 2003

Fafo-report 436

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Cover page: Agneta Kolstad Cover photo: © Rune Eraker

Printed in Norway by: Interface Media

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Innhold

Preface ... 5

Executive Summary ... 7

... 9

1 Central Features of Economies of Conflict ... 10

2 The Present State of Policy ... 13

3 The Next Generation of Policy Responses ... 26

Appendix A: Norwegian Policy ... 33

Appendix B: Participants ... 40

Appendix C: Relevant Policy Instruments and Options ... 43

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Preface

Throughout the world, the economic dimensions of civil and armed conflict are increasingly recognised as significant sources of insecurity for both people and states.

In response, governments, multilateral organisations, businesses, and civil society have launched a range of initiatives aimed at sectors associated with economic activity in conflict zones – from extractive industries such as oil, diamonds, and timber, to illicit commodities such as narcotics, small arms, and human trafficking.

Taken together, these initiatives form a patchwork of policy in which a number of regulatory gaps remain. In reality, of course, ‘gaps’ don’t exist; they are always filled with something. The United Nation’s Global Compact and other initiatives orient- ed towards corporate social responsibility are trying to constructively tackle the voids.

Notions of benchmarking, voluntary measures, and peer review, among others, are attempts to promote changes in company behaviour to ensure that businesses do not contribute to conflict or human rights abuses. But these initiatives are new and largely untested.

This is not surprising. As an area of policy, the economics of conflict is relative- ly young. It includes the political economy of civil and armed conflicts – in particular, the dimensions of conflict trade that help sustain armed conflict, as well as the role of local and external economic actors in conflict zones. Although aspects of this issue have occasionally surfaced near the top of the policy agenda in the immediate post-Cold War period, the issue as a whole was not taken up by governments until the late 1990s. This is, in part, because it is unusually complex. The manifestations of the problems, and the responses intended to solve them, cut across a number of policy areas, from social and economic development to international peace and security to trade and private sector regulation. Each has its own set of actors, many of whom are only beginning to understand the full scale of the challenges they face.

The policy problems presented by the economics of conflict are devastating and resilient. Private sector activities – both licit and illicit – that are linked to conflict contribute to the loss of sovereign control over natural resources, undermine social and economic development, and enable the outbreak or continuation of war and crippling levels of corruption. In Africa, for example, conflict economies helped sustain conflicts that, in the 1990s, claimed millions of lives. Where peace processes have since appeared to take hold – for example, in Angola and Sierra Leone –

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peacemakers must confront the fact that the conflict trade that helped prolong the wars continues uninterrupted by their cessation. Economies of conflict also reinforce impunity by making human rights abuses and war profitable. Indeed, according to an unpublished appendix filed by the UN Experts Panel (in December 2003) to its recent report on the Democratic Republic of the Congo (DRC), the elite networks that have plundered the DRC since 1998 continue to do so with impunity, despite the fact that their activities have been the subject of numerous UN reports.

The Expert Consultation on Conflict Economies and Development, held 4 November 2003 in Oslo, sought to address the problem of conflict economies by convening leading experts from several disciplines and policy areas and relevant Norwegian stakeholders. The Consultation was organised as a roundtable with a policy focus. Accordingly, this report dedicates the majority of its pages to the discussion of policy responses described and debated by the participants. Consensus was not achieved on every issue; where there were debates and disagreements, we have tried to reflect these in the text. Yet the Consultation did manage to bring some coherence to a complex policy agenda, and for this I am grateful to all participants for bringing their particular expertise to bear in such a concentrated and forthright manner. In particular, I would like to thank State Secretaries Vidar Helgesen (For- eign Affairs) and Olav Kjørven (Development) for their clear and thoughtful pres- entations of Norwegian policy, which we have reproduced below.

The Consultation was organised by Fafo’s Christian Ruge, in cooperation with the Norwegian Ministry of Foreign Affairs. Christian was ably assisted by Josefine Aaser, who also acted as rapporteur for the meeting. Kathleen Jennings, Karen Bal- lentine, and Anne Huser all provided important editorial comments and input. Our work on the Consultation benefited from strong cooperative relationship with the Ministry of Foreign Affairs, for which Ole Andreas Lindeman, Acting Assistant Director General, UN-Section, deserves our thanks. The Consultation would not have been possible with the financial support to Fafo AIS from the Government of Norway.

Finally, it goes without saying that none of the participants bear any responsibility for the contents of this report; and that all recommendations, and any errors, are the authors’ own.

Mark Taylor

Series Editor, Economies of Conflict Deputy Managing Director Fafo AIS

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Executive Summary

The Consultation addressed three major themes: the central features of economies of conflict; the state of current policy in this area and its limitations; and the next generation of policy responses. A strong view emerged that, in the absence of cohe- sive domestic and international regulatory regimes, substantive progress in curtail- ing economic involvement in sustaining armed conflict will remain unfocused. To address the gaps in regulation, it is necessary for individual states and multilateral organisations to elaborate clear and general norms as the basis for standard-setting processes for economic actors in conflict zones. Once standards have been agreed, the role of domestic governments in strengthening regulation and enforcement will be vital. Other significant findings include:

Central Features of Economies of Conflict:

• By funding and prolonging civil and armed conflict, economies of conflict are directly linked to unacceptable levels of human suffering, which are in turn linked to sources of national, regional, and global insecurity.

• Conflict trade is integrated into the global economic system, making it hard to distinguish licit from illicit economic activity.

• Participants in these economies operate in an environment of impunity – actors involved in abusive or conflict-related economic activity are rarely, if ever, held accountable for their actions – and there are currently few incentives for those invested in conflict areas or repressive regimes to change detrimental economic practices.

The Present State of Policy:

• Economies of conflict are cross-cutting, with political, economic, social, legal, developmental, security, environmental, and health ramifications. Accordingly, the issue has no single inter-governmental policy ‘home,’ with different aspects of the issue dealt with across a range of policy areas and jurisdictions.

• A regulatory gap consists in the absence both of universally accepted standards and robust mechanisms of enforcement. States in conflict have little capacity to

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enforce their own laws, and there is little tradition for regulating these kinds of activities at the international level. The coping mechanisms of affected communities remain largely unknown and under-researched.

• A consensus on regulatory standards and norms is beginning to coalesce around ethical values of production. Emerging norms view corporate involvement in sustaining armed conflict as unacceptable and conflict commodities, or the revenues from those commodities, as tainted. Companies operating or commodities produced in contravention of this norm risk being labelled as rogue companies or conflict commodities. However, the implications for companies, communities, and states of such stigmatisation have not been fully considered.

• To date, a reliance on voluntary codes of corporate responsibility suggests that business police itself while allowing states to avoid responsibility on this issue.

State regulation of economic activities in conflict zones is needed.

• Development of viable control regimes is undermined by insufficient political will. The problem is not a lack of awareness among private and public organisations and institutions, but chiefly indifference at a substantive policy level. As one participant noted, ‘Everyone knows, yet nothing is done.’

The Next Generation of Policy Responses:

• The ultimate targets for policy should be to end impunity resulting from an absence of regulation and to change the behaviour of economic actors.

• Ensuring that companies and other economic actors ‘do no harm’ will require the development of best practices, the standardisation of rules and procedures across sectors, monitoring, and the creation of market-based incentives.

• The emerging agenda for control and regulation must be balanced by work on the social dimensions of war economies, not least the extent to which informal economies and the coping mechanisms of affected communities are integrated and vulnerable to conflict trade.

• Making progress will require a concerted effort by three sets of actors: private sector institutions, domestic (i.e., ‘home state’) governments, and multilateral institutions.

• Domestic jurisdictions are the most immediately relevant legal and institutional framework for private sector activity, and ultimately it will fall to governments to define conflict-related regulations and/or frameworks in which their companies can operate.

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• Governments can lead by setting minimum standards, creating incentives for the implementation of best practices, reviewing their own development assistance and procurement policies. In particular, governments must consciously seek to bridge the various policy arenas relevant for economies of conflict, and pursue agenda items across ministerial divides, and with the private sector, other governments, and multilateral organisations.

• Multilateral efforts should focus on providing norms, reconsidering and/or for- tifying existing policy mechanisms, targeting elite and/or criminal networks that control conflict economies, and moving beyond volunteerism in compliance measures towards mixed incentives that tighten the policy framework relevant for economies of conflict.

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1 Central Features

of Economies of Conflict

A war economy can be seen as an alternative economic system in which production and distribution depend on violence. Since the end of the Cold War, belligerents in civil war or other forms of intrastate conflict – who formerly depended on state patronage – have had to become self-financing. Looting, informal taxation, and resource extraction generate the income needed for salaries, patronage, and arms;

coercion is often a component of trade or production processes. Lootable goods, including diamonds, illegal narcotics, and timber, are an especially salient problem.

They are easily accessible, labour intensive, portable, valuable, and difficult to regulate, all of which facilitate their undetected entry into the legitimate trade system.

To understand the conflict economy, it is important to view the conflict zone as a social and economic space.¹ Conflict zones pose market dynamics similar to non- conflict situations, but they involve different actors and are informal in nature: supply moves to meet the demand of the factions, international demand for commodities—

both licit and illicit – and household demand.

Weak states are especially prone to the problem of conflict economies. Because weak states cannot provide economic security, their citizens tend to be highly reli- ant on informal economies—which in turn remove economic life further from state regulation, reduce state revenues, and so reinforce the state’s inability to provide basic security guarantees. One participant suggested that an economy of conflict is composed of three overlapping sub-economies:²

• A combatant economy, controlled by warlords and fighters.

• A shadow economy, controlled by actors who exploit state weakness to unlaw- fully divert funds for their own benefit.

1 Bøås, M., Ruge, C., and Taylor, M., New Security Manifesto, www.fafo.no/msp (2004).

2 Cooper, N., Goodhand, J., and Pugh, M., War Economies in a Regional Context: The Challenge of Transformation (Lynne Rienner, 2004).

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• A coping economy, consisting of households participating in whatever economic activity is available for them to survive.

Economies of conflict often take on a regional dimension. In many parts of the world, and particularly in conflict areas, smuggling and other illicit transborder economic activity is a common survival strategy. These networks do not emerge from nowhere; they build on existing structures. Understanding social practices and traditional structures is therefore a prerequisite for understanding how illicit networks come into being and how they work, and should also inform policy responses to the challenges created by conflict economies.

A vexing characteristic of economies of conflict is that they effectively undermine or exploit many of the traditional policy mechanisms and approaches used towards the developing world, including development assistance, loans, and grants, security assistance, and the promotion of trade and economic liberalisation. For example, trade networks can spread the destabilising effects of a conflict economy to the wider region; while bilateral state-centric attempts to regulate a conflict economy can simply displace the illicit economic activity to adjacent regions or sectors, as seen in the narcotics industries in Colombia and Afghanistan.

Similarly, although the establishment of state and public security is required for the stabilisation of a post-conflict territory—and law enforcement agencies and territorial security arrangements have to be strong enough to reassure former belligerents that they do not need to provide their own security and return to armed violence—an excessive emphasis on security can, at least in the short term, be detrimental to development and does little to break up conflict economies.

Additionally, heavy-handed security arrangements can easily give way to abuses of power, complicating the tasks of governance and the establishment of the rule of law and threatening peace and reconciliation processes.

Development funds and aid to governments can likewise be problematic. Giv- en that the state is typically a party to hostilities in internal conflicts, it can be coun- terproductive to a peace process for donor governments and institutions to provide funds to the state during the conflict resolution phase. Indeed, a steady cash flow can enable the survival of formally legitimate regimes that use office for personal enrichment but neglect the needs of the population at large. Although institution building is an important element in conflict resolution and development strategies – considering that the ultimate goal of aid is stability and self-sufficiency – supporting a government that the civilian population perceives as illegitimate can exacerbate the potential for conflict and undermine the credibility of international efforts to alleviate the situation.

Lack of follow-up and audit by donors also allows the abuse of development funds to occur. Although conditionality is often attached to loans and grants – with

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the objective of ensuring that money is spent according to donor intentions and avoiding corruption and other malpractices – recipients are often weak or failed states, and state institutions may not have the capacity to comply with scores of detailed conditions. One unintended result has been that recipients conduct affairs off-budget to circumvent conditions, thus running counter to the goal of transparency associated with aid and conditionality. Conditionality can also pro- hibit a recipient state from setting the agenda for its own processes, thereby discour- aging a sense of ownership. Finally, reliance on conditionality and other anticorrup- tion measures elides the fact that corruption is a phenomenon that assumes its shape and colour from its environment, and that measures developed and imposed from elsewhere are unlikely to be effective over the long term.

Another core element of international assistance to peace and development processes – economic liberalisation – can be a means of positively engaging many sectors of society and is not by definition destructive in a peacebuilding context. Again, however, it can be problematic in the context of conflict economies. Economic liberalisation presupposes a well-functioning, responsible state with regulations that are enforced. Privatisation, for example, requires the rule of law – minimally a basic, functioning court system and judicial bureaucracy – lest it become predatory instead of value-generating. Similarly, although re-starting extractive industries ap- pears to be a simple way to promote economic growth, it can be a mistake: it often means re-engaging the actors and practices that ran the conflict economy, thus per- petuating the effects of their activity. In the DRC, for example, legal reforms actu- ally facilitated the diversion of timber revenues, and the privatisation of state companies resulted in asset-stripping by local and international investors linked to the

‘elite networks’ of the conflict economy.

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2 The Present State of Policy

The effort to hold private sector actors responsible for the impact of business activities on society and the environment has moved through several phases. The notion of private sector accountability began to take hold in industrialised countries in the late 1970s, and was furthered in the 1980s by work on labour standards and efforts to regulate the environmental impacts of industrial activity. Since then, developments have been inconsistent and vary by country, in part because of the move by governments to privatise increasingly large shares of national economies and the focus on facilitating international commerce by lowering regulatory barriers to trade. By the mid 1990s, however, standard-setting in additional areas was underway by companies, governments, and intergovernmental organisations, with a particular emphasis on the issue of corruption. More recently, the human rights and conflict impacts of the private sector activities have come under close scrutiny, likewise resulting in a proliferation of standard-setting exercises.

In the past few years, multinational corporations (MNCs) operating in conflict zones have begun to acknowledge that their activities can adversely affect the country and/or community in which they operate. Accordingly, many large companies now conduct corporate social responsibility programs (CSR); multi-stakeholder initiatives have been initiated to address specific problems; and multilateral organisations have become engaged on the issue. Today, existing initiatives can be mapped along a continuum of compliance measures, from purely voluntary approaches based on company self-regulation at one extreme to legally-based, governmental or intergovernmental, mandatory regulation and enforcement on the other.³ The spectrum of compliance measures includes:

• Voluntary measures and initiatives implemented by companies and/or industry associations, absent any involvement from governmental bodies (e.g., company codes of conduct, Wolfsberg Principles).

• Voluntary initiatives convened by national or international public bodies, in which governments see their role primarily as a convenor, facilitator, and moti- vator but do not formulate and implement more substantive policy measures

3 Lunde, L. and Taylor, M., with Huser, A., Commerce or Crime? Regulating Economies of Conflict (Fafo report 434, October 2003).

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(e.g., Global Compact, the Organisation for Economic Co-operation and De- velopment (OECD) Guidelines for Multinational Enterprises, U.S.-U.K. Vol- untary Principles on Security and Human Rights).

• Public-Private Partnerships (PPPs), in which governmental bodies play more active roles and have specific policy objectives with regard to companies (e.g., Chad-Cameroon pipeline, Extractive Industries Transparency Initiative (EITI)).

• Government-based regulation, with compliance measures that vary from voluntary to quasi-mandatory and concomitant monitoring mechanisms (Financial Action Task Force, Kimberley Process).

• Pre-emptive voluntary agreements between governments and industry sectors and associations, in which companies commit to specified actions in order to pre- empt proposals for governmental regulation (Environmental Voluntary Agree- ments).

• Conditionality by public or private, domestic or international financial institutions.

• Legally-binding regulations at national and/or international levels, including sanctions authorised by the UN Security Council targeting natural resource commodities linked to conflict trade.

The unifying theme of the initiatives along this spectrum is their attempt to lever- age corporate self-interest in support of moral imperatives against profiting from conflict or conflict commodities. Corporate self-interest is engaged primarily through the notion of risk to the company’s bottom line – for example, the risk to safety of company staff and installations, the risk of legal action, the risk to brand value or company reputation, and the risk of shareholder action.

While these attempts have not always been successful, the cumulative effect of the activities across the continuum nevertheless suggests an emerging norm that views private sector activity that helps sustain conflict as unacceptable. This has been re- inforced recently by the Norms on the Responsibilities of Transnational Corpora- tions and Other Business Enterprises with Regard to Human Rights, formulated by the UN Sub-Commission on the Promotion and Protection of Human Rights in August 2003. These norms are part of a larger attempt to clarify human rights obligations for non-state actors, in this case business entities. However, while some conflict-related activities are covered under the Sub-Commission norms, the norms are a normative human rights instrument and do not specifically target conflict- related behaviour of economic actors.

In fact, there is no universal set of clear standards that has been applied to businesses operating in conflict zones or conflict-prone situations, leaving open the

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question of what affected communities can expect of companies and creating com- plications for private sector actors that wish to ‘do no harm’ or develop conflict- mitigating strategies. This lack of clarity is an obstacle to assessing the effectiveness of voluntary measures such as industry or company codes of conduct, creating insecurity for companies and investors.

Indeed, although the ongoing emphasis on voluntary measures has done much to clarify the problems of conflict economies, raise awareness, and foster momentum and commitment within the business community, it is nevertheless clear that progress by the private sector has been uneven. Certainly some companies have found their niche in the grey areas between licit and illicit economic activity. Ultimately, it will fall to governments to define the conflict-related regulations that will distinguish the two, and to delineate the institutional framework in which the private sector can operate. Business should not be asked to do the job of government, and government should regulate where appropriate. This implies the need for cooperation between public and private sector institutions and civil society, in order to develop both a common set of rules applicable across the board and the mechanisms to apply those rules.

As part of its discussion, the Consultation examined several existing initiatives.

Conflict Impact Assessments

A number of constructive, collaborative measures have developed between business, NGOs, and the government in Azerbaijan, with the aim of mitigating the potential negative effects of petroleum wealth and preventing conflict from arising concomitant to massive oil investment. For example, a Business Development Alliance works to strengthen Azeri businesses and promote economic diversification, so as to reduce the potential negative effects of petroleum wealth (the so-called ‘Dutch disease’). An Oil Information Resource Centre has also been established to provide journalists and civil society with information about the oil industry in the country.

These locally-grounded initiatives are intended to complement official efforts to engage the Azeri government in the Extractive Industries Transparency Initiative (described below).

Building on this work, the London-based nongovernmental organisation (NGO) International Alert is developing a research-based Conflict Risk and Impact Assess- ment (CRIA) ‘toolbox’ for companies, in the form of a Business Guide, to provide a methodology for risk assessment that can be applied prior to investment. This methodology will enable companies to:

• Achieve a clear understanding of their operating environment;

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• Identify flashpoint issues that could trigger local conflicts or increase the likelihood of conflict emerging from the structural impact of natural resource exploitation;

• Make more informed decisions;

• Design mitigating strategies if crisis does occur.

The overall objective is to ensure more viable investments for businesses while generating sustainable development for national and local beneficiaries.

The Extractive Industries Transparency Initiative.

Abundant supplies of natural resources can be a curse for a country, particularly when governance is weak. The UK government-sponsored Extractive Industries Transpar- ency Initiative attempts to improve governance in resource-rich developing countries by increasing transparency and accountability over the investment flows of extractive companies and the government revenues derived from them. A second- ary aim is greater stability for companies operating in situations of volatility or weak governance.

The EITI grew out of the NGO campaign, “Publish What You Pay,’ and was launched by the British government at the World Summit on Sustainable Devel- opment in South Africa (2002). It is a simple framework of principles and guidelines for businesses investing in foreign countries, including mechanisms for reporting financial flows. It is based on reciprocity: the reporting and eventual publication of payments and revenues by both companies and host governments, so as to provide reliable information that enables people to hold governments responsible for policy and expenditure priorities.

Participation by governments and companies is voluntary; however, when a host government joins EITI, it can decide that companies operating within its jurisdiction must follow the reporting regime. Flexibility is a prominent feature of the framework. Because the circumstances and incentives for joining vary, each country seeking to join is given individual consideration. Discussions are currently being conducted with several countries considering joining the EITI, including Ghana, Nigeria, and Georgia; other states – including Azerbaijan, Kazakhstan, Angola, and the DRC – have also expressed interest.

The EITI is currently the highest-level political process underway on an issue of importance for addressing the economic dimensions of conflict. However, most participants recognise the EITI as a necessary, but insufficient, measure. Because membership is voluntary, countries where the governance of natural resource flows is particularly problematic may opt out: Angola, for example, has the capacity to

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participate in the EITI but has shown little inclination to do so. Moreover, although the EITI engages both governments and the private sector, some critics maintain that it downplays corporate responsibility for poor revenue governance and the negative social and political ramifications of extractive industry operations.

To develop the EITI, the British government convened a multi-stakeholder group – comprising developed and developing states, public- and state-owned companies, industry bodies, investors, and NGOs – that announced a Statement of Principles and Agreed Actions in June 2003. Additionally, an EITI trust fund is expected to be established at the World Bank. Efforts are also underway to practically integrate the EITI principles into the operations of the International Monetary Fund.

Certification Regimes: the Kimberley Process.

The role of diamonds in sustaining conflict has become well known, in part because important sources of diamonds are located in some of the most conflict-torn countries of the world, including Sierra Leone, Liberia, and the Democratic Republic of the Congo (DRC). The Kimberley Process is an effort to sever the links between the trade in rough diamonds and armed conflict or, more precisely, arms acquisi- tions, using a certification process to track every transaction involving diamonds from the point of extraction to consumer markets.

The Kimberley Process was initiated by some diamond-producing countries and the diamond industry following considerable pressure by NGOs such as Global Witness and Partnership Africa Canada. Although initially reluctant to enter a transparency regime, the prospect of a consumer boycott ultimately persuaded the diamond industry to participate lest their product become tainted as a ‘conflict commodity.’⁴

Because the United Nations Security Council imposed sanctions on specific groups known to trade diamonds to finance their armed activities, rough diamond buyers need to know where their purchases are produced in order to avoid acting in violation of UN decisions. Attaching a certificate of origin and a chain of war- ranties to each package of rough diamonds is intended to ensure that diamonds extracted and sold illicitly do not enter the legal market.

Progress in agreeing on the certification regime has been encouraging: the diamond industry in general is more open now than before, and the process has been held up as an example of a successful intergovernmental voluntary regime. Howev- er, the Kimberley Process on its own is insufficient. Membership in the process is

4 The diamond industry is unique. While the product is not rare, it is expensive and a luxury item;

thus, consumer demand is both elastic and crucial to price. The diamond industry is also differenti- ated by extraordinary secrecy and monopoly.

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open to any country prepared to issue valid certificates of origin, but no control mechanism exists to verify that certificates are issued only for licit products. Because the peer review monitoring process is voluntary, it is difficult to verify state compliance.

This lack of independent monitoring and verification undermines the effectiveness and, to a certain extent, credibility of the attempt to regulate the trade in rough diamonds. Yet at a plenary meeting of Kimberley Process participants in Sun City, South Africa in October 2003, no agreement could be reached on enacting mandatory reviews of all member states.

Moreover, the same approach that has been applied to the diamond industry will not automatically work for other sectors, in part because of the dominant presence of a single actor (DeBeers) in the rough diamond trade. The Consultation was told that efforts to replicate the Kimberley Process in other commodity sectors would need to consider the corporate structure of the sector before being able to evaluate the likelihood of success.

The OECD Guidelines for Multinational Enterprises.

The OECD Guidelines for Multinational Enterprises are a set of quasi-voluntary principles and standards for responsible business conduct in areas such as human rights, the environment, corporate transparency, labour relations, and consumer protection. While the Guidelines are voluntary for business, OECD governments are obliged to promote the principles among their companies and ensure adherence to them. The Guidelines are designed to serve as benchmark standards for companies in their investment and business strategies across operations worldwide, and to foster dialogue between business, labour, and government. At present, they are not specifically keyed to conflict prevention and conflict economies.

The Guidelines express the shared values and recommendations of the thirty OECD member states plus eight non-member states.⁵ OECD countries are the sources of most of the world’s foreign direct investment (FDI) and home to most of the world’s large multinational enterprises. To date, the Guidelines are the only multilaterally-endorsed Code of Conduct for multinationals to which governments are bound. For these reasons, the Guidelines have the potential to make a differ- ence. Indeed, the OECD Guidelines are formulated in a language that makes them easily adaptable to policy statements and internal guidelines of companies and institutions.

Most of the activity carried out under the Guidelines – from information tasks to investigations – is conducted by the National Contact Points (NCPs). These are

5 Argentina, Brazil, Chile, Estonia, Israel, Latvia, Lithuania, and Slovenia.

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located in member governments. The Guidelines’ procedures contain a facility called a ‘specific instance,’ through which any interested party can report a company’s al- leged non-observance of the Guidelines to the NCP. The NCP is then obliged to investigate the matter and decide whether the allegations should be further pursued.

From the time the revised Guidelines were adopted in 2000 until June 2003, sixty- four specific instances have been followed up by NCPs. An important aspect of the specific instance process is that the threshold to start an NCP process is considera- bly lower than to begin a domestic legal process.

The Guidelines have facilitated an enhanced flow of information from the various business localities to respective home governments. Furthermore, the NCP lo- cation within government structures helps to ensure access to decisionmakers.

Some NGOs in developing countries – including Zambia and Myanmar – have brought cases to the attention of NCPs regarding the actions of developed countries’ companies. These cases have often concerned human rights and labour standards. In the Myanmar case, trade unions made allegations of unlawful practices against TotalFinaElf in 2001. After making enquiries and facilitating meetings between the parties, the French NCP issued a set of recommendations for companies in the fight against forced labour. These recommendations are intended to supple- ment government measures.

The UN Expert Panel on the Illicit Exploitation of Natural Resources in the Democratic Republic of Congo chose to use the Guidelines as its benchmark standards when evaluating companies’ activities in the DRC. This brought the Guide- lines to the fore of the international debate on the issue of corporate involvement in conflict zones, but it also exposed the inadequacy of existing enforcement and regulation. In the wake of the Expert Panel Report a discussion followed on the relevance and scope of the Guidelines and the need for a revision to make them better suited for companies operating in troubled countries. Although the OECD Guide- lines have helped focus attention on what home governments can do – instead of loading the burden of measures onto host governments – there remains a discon- nect between member states’ commitment to international conflict resolution and the commitment to enforcing the OECD Guidelines. This lack of commitment is reflected in the varying performance of the NCPs, and the indifference shown by some governments towards companies that fail to respond to allegations of non- observance. Therefore, the utility of the Guidelines has yet to be fully realised.

United Nations Responses.

When discussing responses available to the United Nations, it is important to keep in mind that the United Nations is not a unified actor. Primary responsibility at the UN for peace and security issues lies with the Security Council (UNSC), which,

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under the auspices of Chapter VII of the UN Charter, has the unique authority to make decisions that are binding on all member states. Below the level of the Secu- rity Council, UN agencies have their own mandates, interests, and priorities, and are often not coordinated with each other when implementing activities.

Notwithstanding the institutional intricacies of the United Nations, the main obstacle to the effectiveness of existing UN instruments in dealing with economies of conflict is the apparent impunity for abuses committed by economic actors.

Significantly, there is no agreed definition of ‘conflict commodity’ that might per- mit its regulation.

Sanctions

The use of sanctions underwent a change during the 1990s. From comprehensive trade embargoes aimed at exerting economic pressure for political change, sanctions are now primarily targeted at decisionmakers – including political leaders and key regime supporters – and have specific instrumental objectives, such as political iso- lation or the interdiction of resources. Targeted, or ‘smart,’ sanctions are designed to minimize unintentional negative consequences for the wider society; they include arms embargoes, commodity bans, travel restrictions, and the freezing of financial assets. Additionally, sanctions are now often directed at non-state actors – for example, to curtail the resource flows to rebel forces engaged in the illicit trade of natural resources for arms.

Although sanctions do not have a record of conflict resolution, they have been known to affect military balances. For example, the ban on conflict diamonds in Angola, Liberia, and Sierra Leone seems to have disrupted trade routes and affected combatants’ marginal costs of procuring arms for diamonds, ultimately weak- ening their military capacity. In many cases, however, the effectiveness of sanctions has been undermined by the fact that their implementation is incomplete and that there is no adequate action to enforce them within the international community.

Many states – both developed and developing – ignore sanctions, and there has been little concerted effort by the UNSC or UN member states to address the problem of sanctions busting.

Over the past few years, efforts to improve the design, implementation, and effectiveness of targeted sanctions have been undertaken. In particular, a series of international processes – consisting of the Interlaken Process, the Bonn/Berlin Proc- ess, and the Stockholm Process – have issued recommendations regarding targeted financial sanctions, arms embargoes and travel/aviation sanctions, and capacity- building for sanctions implementation and monitoring, respectively. These processes underline the fact that smart sanctions are inherently more difficult to success- fully design and enforce - but potentially much more effective - than the blunt instruments previously relied upon.

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The major recommendations from the Stockholm Process include the establishment of a Sanctions Coordinator or Special Advisor within the UN to facilitate coordi- nation among Sanctions Committees, Expert Panels, monitoring mechanisms, as well as the development of national training and capacity-building programs for sanctions implementation and reporting by member states. If followed these developments could create a much-needed focus for sanctions implementation within the UN, improving the efficacy with which targeted sanctions are applied and enabling the consideration of sanctions within the UN’s mandate for conflict prevention. Other alternatives considered by the Stockholm process include combin- ing peacekeeping and sanctions as complementary tools for post-conflict peacebuilding as well as the use of sanctions by regional organisations, with UN authority.

Any incentives for compliance offered by UN Member States, including aid programs and other economic resources, will require the support and participation of regional actors to be effective, and regional organisations are sometimes able to adapt sooner to changing circumstances affecting a sanctions regime.

Ultimately, of course, the success of sanctions depends upon the willingness of states to enforce them. The recommendations formulated by the various international processes are useful primarily to the extent that they are integrated into the practices of member states in their domestic law enforcement as well as their participation in multilateral efforts. Independent expert panels, monitoring, verification and investigation mechanisms are an important part of such multilateral efforts, and the UN is well situated to play a central role in this regard.

Expert Panels

Independent ad hoc panels of experts, reporting to the Security Council or one of its sanctions committees, have been used to provide the UNSC with information about the economic dimensions of conflict in specific situations and to monitor sanctions busting. Expert Panels have been invaluable in improving the international community’s understanding of how economies of conflict work in practice; helped identify beneficiaries of illicit practices; and contributed to the ‘naming-and-shaming’ of rogue economic actors.

The positive and constructive role civil society can play in economies of conflict issues has to a large degree been legitimised by the Panels, as civil society actors have often helped Panel members obtain necessary intelligence. It was an Expert Panel that evaluated the situation in the Democratic Republic of Congo and found eighty-five companies to be in breach with the OECD Guidelines on Multination- al Enterprises (see below, ‘A Case Study: The Democratic Republic of Congo’).

There are problems with Expert Panels, however, which at times have compromised their credibility:

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• Panels’ mandates can be unclear.

• Panels’ findings and recommendations have not been rigorously followed up by member states or the Security Council.

• The documentation requirements are arguably not stringent enough. Documen- tation gathered by the Panels is often not publicised – either because of the need to protect confidentiality of sources, because evidence is circumstantial, or because the Security Council urges a panel to be discrete – which makes it difficult to assess standards of evidence. This creates verification problems and re- duces the credibility of the Panels’ reports.

• There are no unambiguous and accessible criteria for ‘naming and shaming’

actors involved in illicit trade in conflict zones, or for their de-listing by the panels. The latter point in particular is a problem for actors who wish to change their ways and comply with UN recommendations and regulations.

• The UN is not a neutral actor, but a collective of individually-biased states. Panels have been pressured by actors and states to avoid embarrassing them in their reports, leaving the Panels open to accusations of bias.

• ‘Naming and shaming’ is applied by the Panels for lack of another instrument.

However, this approach has inherent limitations in that it can only modify the behaviour of those with reputational concerns at stake.

A Case Study: The Democratic Republic of Congo

Attempts to control the conflict economy in the Democratic Republic of Congo demonstrate the need for sufficient and determined political will in order to make progress in this area. They also illustrate some of the limitations currently faced by policymakers and practitioners.

Since 1998 to the present, the DRC has been ravaged by violent conflict. Bel- ligerents have included government forces, different militia and rebel forces, and at least six neighbouring states’ forces. The numbers of civilians killed and displaced are in the millions, and non-combatants have systematically been victims of violence, including sexual violence. Although a transitional government is now in place and there are cautious positive signs for the future, fighting is still occurring in the east of the country.

There are several causes of the conflict in the DRC, but it is widely recognised that natural resources have been a key factor in sustaining the fighting. Although the DRC is endowed with an array of valuable natural resources – including oil, gold, timber, diamonds, coltan, and other minerals – these riches have not produced a stable and fortunate economic or political situation for the country and its citizens.

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Instead, during the recent war belligerents established control over resource-rich areas and used troops and/or forced labour to extract the resources, which they then sold for arms to sustain their military capacity.

In 2000, a UN Expert Panel was established to investigate whether and how Congolese conflict commodities affected the conflict. The Panel concluded that illicit trade and exports were indeed fuelling the conflict; that there were links in this respect to governments, rebels, local and regional companies, and some international companies; and that exports escaped sanctions through sophisticated networks of fighters and businessmen in porous border regions, out of which illegal goods even- tually emerged as legal. A subsequent Panel report, released in 2002, listed eighty- five international companies found to be in violation of the OECD Guidelines for Multinational Companies. However, as noted above, the OECD Guidelines provide standards for evaluating company performance but do not specifically address business activity in conflict zones or war economies. Accordingly, considerable con- fusion erupted, in large part because the report did not spell out exactly how and why each company was in breach of the Guidelines. This, combined with intense campaigning for de-listing by implicated companies and, in many cases, their respective governments, led to the final report of the Panel (released in October 2003) being significantly watered down with respect to company involvement in the DRC conflict.

Indeed, the effect of the companies’ advocacy and UN member states’ pressure was conspicuous: a large number of the previously-listed companies were effectively cleared, many without a stated reason. Furthermore, under pressure from certain UN member states for the 2003 report to focus on the progress made – so as not to upset the nascent peace process – an entire section of the report was dropped from the public version and given confidentially to members of the UN Security Coun- cil. The section described how the elite networks involved in laundering conflict commodities have remained active and adapted themselves to post-conflict circumstances and increasing international scrutiny.

By invoking the OECD Guidelines for Multinational Enterprises, the UN Panel report launched a process centred on the Guidelines’ National Contact Points (see above, ‘The OECD Guidelines on Multinational Enterprises’). Unfortunately, the DRC experience with NCPs demonstrates that technicalities often get in the way of substance, and that resources and attention tend to get focused on process issues rather than the situation on the ground. Essentially, the lack of real political will to deal with companies that profit from the conflict economy in the DRC – despite its horrific consequences – has limited the potential utility of the NCPs.

The success of the transitional government and international mediation efforts may in the future hinge on whether it is possible to control the exploitation of the country’s natural resources. However, the current peace process addresses the resource

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situation of the DRC only rhetorically. Given the ample evidence that natural resources have directly contributed to the conflict, this void constitutes a threat to the peace process.

Ultimately, although the situation in the DRC engaged both the existing UN and OECD instruments, neither was particularly effective in disrupting the DRC’s conflict economy or building accountability for private sector actors purported to be involved in it. The whole was decidedly less than the sum of its parts. As if in recognition of this failure, the Chief Prosecutor of the International Criminal Court (ICC) has stated that he is exploring grounds for an indictment for complicity of economic actors in the DRC. An indictment by the ICC may clarify the potential liability for companies that operate in these situations. Legal action may also help generate some momentum to deal with the problem in a more substantive way.

However, it remains the case that governments are unlikely to move very far until companies themselves recognise that their interests lie in supporting regulatory measures to deal with economies of conflict. To date, it is civil society actors – in both the Kimberley process and the EITI – that have taken the lead in communi- cating this point, while government officials have largely confined themselves to facilitating roles. Nevertheless, progress on this policy agenda will only occur if real political will is brought to bear.

Towards a New Policy Agenda

In light of the present state of policy, the Consultation discussed some of the major priorities for new policy development, including:

• Integrating measures to control conflict trade as part of the policies and practices of promoting human security and the protection of civilians;

• Integrating specific measures aimed at the transformation of war economies as part of post-conflict peace-building strategies;

• Ensuring that control or regulatory measures do not undermine the economic basis of survival and coping strategies of affected communities;

• Supporting voluntary measures with monitoring and developing clear rules and standards (benchmarks) against which company behaviour can be measured;

• Protecting private sector actors in jurisdictions subject to regulation (such as OECD member states) from short-term competitive disadvantages that may arise in specific global sectors;

• Promoting regulation as a solution to the collective action problems within certain (all except monopolised) industrial sectors;

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• Ensuring that regulation in general does not disadvantage the economies of developing countries, particularly those dependent upon natural resource exports;

• Ensuring that regulation is perceived as legitimate by all, and not an attempt by Northern industrialised economies to impose their standards of doing business on economies and countries in the global South.

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3 The Next Generation of Policy Responses

The Consultation’s discussion reflected a clear sense that economies of conflict as a set of policy issues will continue to impose themselves on the agendas of practitioners worldwide. The policy agenda will move forward simultaneously at several points along the continuum of enforcement, from voluntary measures to regulation backed by the rule of law. However, one constant will be the need for national governments to advance this agenda in several policy areas – including security, trade, economic regulation, development assistance, and law enforcement – across their own bureauc- racies, and in their relations with the private sector, counterpart governments, and multilateral institutions.

To bring some coherence to this policy agenda, the Consultation discussion identified three broad areas of policy focus: governments, multilateral institutions, and the private sector. Following are policy objectives and recommendations for each group.

Governments should define the incentive structure

Domestic jurisdictions, while at present inadequate, are the most relevant legal and institutional framework for business entity activity and for law enforcement. Con- tracts specify the country of applicable contract law. Companies look to the com- mercial legislation or regulations of host states to guide their activities. Home states also maintain jurisdiction over criminal violations, as well as over some activities of their companies working abroad. Accordingly, home governments should:

• Lead investment standard-setting at home. Home governments should convene multi-stakeholder dialogue to develop standards or benchmarks for private sector investment in countries in conflict, or in countries governed by repressive regimes, in order to determine on what basis companies could invest in such situations.

• Create incentives for their private sector. Companies that implement influen- tial mitigation strategies – such as banks which implement ‘on-shore’ practices

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in their offshore jurisdictions – should be awarded a preference in the competi- tion for government contracts.

• Require transparency of impact mitigation strategies. Companies that oper- ate in conflict prone areas, or in industrial sectors affected by the trade in conflict commodities, should be required to have in place strategies to mitigate company involvement in economies of conflict. These should be open to peer review and/or assessment by affected citizens or communities.

• Review Overseas Development Assistance and procurement policies. Donor governments should integrate impact assessments or reviews to their lending (including export credit) and overseas development assistance policies and procurement practices. The objective is to ensure that such assistance is not con- tributing to conflict directly or indirectly, via multilateral agencies or government imports.

• Use conflict prevention assistance to build domestic capacity to regulate.

Development assistance and/or conflict prevention and peacebuilding assistance should be provided to affected countries where it can be effective. For conflict prevention purposes, particular attention should be paid to building capacity for transparent and accountable governance of trade (customs departments), fiscal affairs (finance ministries), and the rule of law (judicial systems).

• Assist local civil society. Political and financial support should be provided by governments to indigenous ‘watchdog’ organisations operating locally in affected countries. Locally-based information can provide effective insight into the work- ings of the conflict economy and help avoid unintended consequences of development assistance.

• Prosecute for sanctions busting. Sanctions busting is rarely prosecuted, and may require member states to promulgate enabling legislation. Even then, the willingness to prosecute is low. A clear signal needs to be sent concerning the importance of the private sector to issues of international peace and security. In- dictments for sanctions busting would consitute such a signal. Governments should create inter-departmental tasks forces involving officials from foreign affairs, trade, industry, justice and law enforcement to consider the status of their sanctions busting implementation.

• Integrate international law to domestic legal systems. In a number of jurisdictions it is possible to bring charges against individuals for the commission of, or complicity in, acts of genocide, crimes against humanity, or war crimes committed abroad. Complicity could potentially include individuals acting on behalf

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of business entities and, in some jurisdictions, this could conceivably include the company itself. States should ensure that legal reforms prioritise the integration of international criminal law to domestic penal codes, thus enabling domestic jurisdictions to try cases of corporate complicity in criminal conduct in conflict or in countries governed by repressive regimes.

International policy should provide norms, reconsider existing mechanisms In recent years, the UN Security Council expert panels and sanctions committees have established the significance of the economic dimensions of international peace and security. The Council’s work on wars in Africa and terrorism has helped generate a focus on this policy area in other regions and sub-regions that are in conflict.

At present, policy and practice in the security sector is centred on aspects of global trade related to specific threats, such as weapons of mass destruction or terrorist financing.

In short, the international norms and principles already exist to respond to economies of conflict; what is missing is the administrative mechanism, the institutional locus, for policy responses to be negotiated and elaborated. In this regard, global policymaking at the United Nations could be of immeasurable assistance to governments, companies and affected communities by clarifying the procedures for responding to these problems.

• Develop a complaints mechanism. Member states should seek consensus on the best way to handle complaints against companies operating in war zones. The Security Council has proven itself to be flexible in dealing with these issues and would, at present, be the most effective place to authorize a complaints proce- dure or mechanism. This mechanism, established under Council authority, could refer complaints of illicit conflict trade to domestic authorities or regional organisations, and could be integrated into the policy framework of peace operations as part of attempts to transform economies of conflict into economies of peace.

• Integrate the economic dimension to conflict prevention and peace operations.

Conflict prevention, as a core mission of the United Nations, should include development-sensitive peace and security policies and peace and security-sensitive development policies, in recognition that economic issues are integral to successful peace processes. Policies should be based on the realisation that war economies are functional, viable, and provide the basis for household survival and coping in conflict zones, in addition to sustaining factions and spoilers.

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• Integrate independent monitoring to peace operations and regional partners.

The UN expert panels authorised by the Security Council, while at times im- perfect, have provided crucial information upon which to base policy decisions.

Because their ability to report openly would be compromised by integration into the Secretariat, the panels should remain independent. However, they require much greater institutional support. The Security Council should consider locating the institutional support (including databases and logistics) for independent panels within regional organisations or specific peace operation mis- sions, and matching this with the appropriate financing.

• Strengthen sanctions implementation. The Interlaken Process, Bonn/Berlin and Stockholm Processes have moved consideration of sanctions forward in recent years. Member States of the UN should support efforts to improve the implementation of targeted sanctions – such as the creation of a UN Sanctions coordinator - as part of efforts to curtail the financial resources available to belligerents and improve the integration of sanctions to conflict prevention and peacebuilding operations.

• Move the Global Compact toward minimum standards. The Global Compact (GC) has played an important role in setting the agenda for corporate responsibility. However, in order to keep the threshold low for more companies to join, the GC has not yet developed an assessment mechanism for members’ implementation of the GC principles. As long as there is no such mechanism, the GC’s work on best practices will be increasingly overshadowed by those cases of corporate complicity in human rights abuse or economies of conflict. With no way for the GC or its members to distinguish between acceptable and unacceptable behaviour, the credibility of the UN and the Secretary-General will suffer, and the Compact’s ability to provide legitimacy to companies will diminish over time.

Member state supporters of the GC should therefore advocate for a mutual-self- assessment mechanism that will ensure that member companies are meeting minimum standards of corporate responsibility.

• Support the Sub-Commission Norms. The UN Sub-Commission draft Norms on the Responsibilities of Transnational Corporations and Other Business Enter- prises provide a normative basis upon which to develop voluntary codes and additional mechanisms, and member states should support them when they come to the UN Commission on Human Rights for consideration. It should be recognised that the UN Business Norms represent a soft-law instrument and do not create binding rules on companies. They do, however, help to provide precisely the universal normative starting point that companies require as they work towards dealing with the collective action problems inherent in the

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implementation of CSR policies. Member states should engage with the Norms to improve and sharpen them, including urging the Commission to develop more fully the implementation and reporting mechanisms suggested in the Norms.

• Review and integrate the OECD conventions and guidelines. The Organisa- tion for Economic Co-operation and Development is working to integrate its approach to its various conventions and other instruments, including the Guide- lines on Multinational Enterprises, and to explore their combined implications for companies wishing to conduct business with integrity in weak governance zones (including those that are experiencing violent conflict). Member states should work with the OECD to review what elements of the OECD instruments are relevant and how they might be developed to reduce business’ role in sustaining violent conflict in host societies. The Guidelines’ unique implementation procedures should also be enhanced. The capacity of National Contact Points (NCP) to help companies with mitigation - and to intervene when breach- es are apparent - could be strengthened through a number of measures. These include: ensuring NCP engagement with civil society organisations; expanding the role for the business community vis-à-vis NCPs; and including international peace and security issues in their remit.

• Support the work of the International Criminal Court in prosecuting economic actors. The Chief Prosecutor of the International Criminal Court (ICC) has indicated a willingness to investigate allegations of economic actor complicity in crimes against humanity and war crimes. Given that domestic prosecutions of such violations are unlikely - due to war or state repression in a number of relevant countries - such a court of last resort would be crucial in addressing impunity for economic actors that aid or abet grave violations of international law. Such cases would also clarify the normative basis for private sector activity in armed conflicts or repressive states, thus helping to clarify for all concerned the universally applicable principles underlying notions of economic complicity in international criminal activities.

Business entities should ‘do no harm’

Policy with regard to business entities should be designed to affect company behaviour and ensure that companies ‘do no harm’⁶. While voluntary measures and guidelines are helpful, for many companies the implementation of transparency and conflict mitigation practices will require the developments of regulatory standards, independent monitoring, and the creation of market-based incentives.

6 This approach has been elaborated by Collaborative for Development Action, http://www.cdainc.com/dnh/.

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• Companies should lead the challenge to mitigate their impact on conflict.

Companies operating abroad should partner with their domestic industry associations and home governments to develop standards and peer review mechanisms (mutual self-assessment) in each industrial sector, with the objective of evaluating the utility of conflict impact assessments and other conflict mitigation tools in their operations abroad. These standards and mechanisms should go beyond the OECD Guidelines and Global Compact principles, neither of which deals significantly with conflict situations.

• Banks should commit publicly to ‘on-shore’ practices in off-shore jurisdictions.

The international financial sector has developed the principles and tools to deal with money laundering, but tend to apply these only in jurisdictions that require best practices. These practices need to be globalised across the operations of the international banks – to include their operations in off-shore jurisdictions – in order to combat regulatory arbitrage.

• Institutional investors should create an expanded market for ‘Socially Respon- sible Investment’ services. Large institutional investors (such as government- managed petroleum funds, trade unions, and pension funds) should press investment houses to evaluate corporate practice with regard to operations in conflict zones or under repressive regimes. This will require an expansion and deep- ening of the monitoring frameworks presently used by SRI firms. Through expanding the market for ‘socially responsible investment’ (SRI) services, the monitoring capacity – and transparency – of the private sector can be enhanced, without overburdening individual companies with reporting requirements.

• Stock markets should integrate the ‘do no harm’ principle to listing policies.

All of the above suggestions would be strengthened by their integration into the requirements for listing on national stock exchanges. Mandating adherence to the standards and monitoring/ reporting requirements in order to be listed will help set industry practices across the board.

A Research Agenda

To date, policy research has helped in identifying the core problems of conflict economies, suggesting policy options, and bringing some coherence to a diverse policy agenda. In support of the next generation of policy response, policy research should:

• Focus on the mechanisms and structures of economic opportunity in situations of armed conflict, in particular the role of coercion and criminality in exploit- ing such opportunities.

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• Deepen the understanding of the ways in which informal economies are integrated into global markets; how survival and coping mechanisms of affected communities are integrated into these economies; and the role of criminal networks in sustaining them. Explore the policy mix that can encourage informal economies to move into formal regulation.

• Assist in the development and testing of common definitions and norms, including the development of tools, benchmarks, and approaches to the problem of economies of conflict.

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Appendix A: Norwegian Policy

Successive governments in Norway have cooperated with business and labour in a tripartite relationship designed to ensure effective domestic economic governance.

Perhaps because of this history, Norway was one of the first countries to develop a mechanism to engage its private sector and civil society in a dialogue about the human rights and environmental implications of their work abroad. Called KOM- pakt, this initiative has led to an ongoing dialogue to help create a precedent for its international sister, the UN’s Global Compact.

Through its support to policy research, Norway has helped shape the international agenda on economies of conflict. Norway has provided support to the Inter- national Peace Academy’s Economic Agendas in Civil War (EACW), the World Bank and PRIO’s Economics of Political and Criminal Violence, and Fafo’s Economies of Conflict: Private Sector Activities in Armed Conflict. With their different approaches and methodologies, these projects have together laid the foundation for understanding the interrelationships between different policy arenas, such as peace and security, development, and the roles of the private sector. As a member of the United Nations Security Council (2001-2002), Norway drew on this network of organisations and expertise to organise a symposium on Economic Agendas in Armed Conflict: Defining and Developing the Role of the United Nations (March 2002) for members of the Security Council. The meeting, co-organised by IPA and Fafo AIS, issued a range of policy recommendations for action by or in support of the United Nations. Some of these recommendations – such as a ‘global financial white list’ and the development of concrete legal definitions relevant for private sector activity in conflict zones – have since been further developed in partnership between the International Peace Academy and Fafo AIS.

In sponsoring the Expert Consultation on Conflict Economies and Develop- ment, held in Oslo on 4 November 2003, the Royal Norwegian Ministry of For- eign Affairs was, in effect, bringing the results of this international body of work to the Norwegian stakeholders concerned with policy in this area. The statements to the Consultation made by State Secretaries Vidar Helgesen (Ministry of Foreign Affairs) and Olav Kjørven (Ministry of Development) outline the policy priorities of the current Norwegian government, as well as their own analysis of the problems involved.

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Statement by Vidar Helgesen, State Secretary, Ministry of Foreign Affairs

Fafo International Expert Consultations, Oslo 4 November 2003 Ladies and gentlemen,

In its foreign and development policy, Norway is paying increasing attention to the causes and consequences of conflict. When we seek to assist in preventing, managing and resolving conflicts we do that in order to protect human lives. But our efforts are also based on a determination to fight poverty and support economic growth and peaceful development. In March last year we hosted a conference in New York on the political economies of armed conflict together with the International Peace Academy. This was done during our Presidency of the Security Council, because we wanted to highlight what we saw as one of the main challenges to achieving peace.

Since the conference, new advances have been made in terms of both research and policy. Therefore, these follow-up expert consultations on the economies of conflict are timely – and I would like to express my gratitude to Fafo for organising this event. The expert consultations will have a bearing on four inter-related Nor- wegian policy aims:

• First, we want to explore the practical implications for concrete conflict resolution where Norway has a role as facilitator, as in Sri Lanka, or where we are supporting a peace process, as in Sudan.

• Second, we want to promote development by identifying effective strategies to support peace efforts. Sustainable development requires durable peace and security, and cannot be achieved in the absence of the rule of law or political and economic equity.

• Third, we want to help strengthen the conflict prevention capacities of the UN, including programmes to fight corruption and promote good governance. We want to enhance the normative function of the UN as well as its operational role by forging partnerships with the OECD, the World Bank, civil society and the private sector.

• Fourth, we want to facilitate a deeper partnership with Norwegian extractive industries operating in developing countries and conflict zones around the world.

We want to assist in developing multilateral and voluntary frameworks for standards, guidelines and legislation.

Any armed conflict causes terrible human suffering. Conflict leads to refugee flows, trafficking in arms and people, and a rise in crime and the level of violence in society. Natural resources like diamonds, oil, minerals and timber give opportunists a