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The Diffusion of Oil Income Transparency

September 27, 2012

This is a guest post by Jeff Colgan, an assistant professor in the School of International Service at American University.

Policy responses to the resource curse are diffusing in the international community. In August, the U.S. enacted rules that could reduce corruption, promote political accountability, and maybe even reduce the probability of war. The decision was encouraged transnationally by actors from developing countries. Now the European Union and other countries are taking up the torch. All of this points to an intriguing transnational pattern of policy diffusion of which scholars ought to take note.

Some background: in August, the Securities and Exchange Commission (SEC) finally enacted long-overdue regulations stemming from the Dodd-Frank Act which will require any oil company that is publicly listed on a U.S. stock exchange to report its tax, royalty, and other payments to foreign governments. Previously, companies were able to conceal this information, making it difficult for civil society in developing countries to hold their leaders accountable, thereby exacerbating the resource curse.

Intriguingly, the campaign for transparency on oil revenues is transnational, and often includes actors in developing countries that want help in binding the hands of their own governments. Policymakers in developing countries are demanding transparency, as a recent NY Times op-ed by a Libyan official shows. This seems to follow a pattern of transnational advocacy described by Keck and Sikkink.

Now the U.S. policy is being copied by other countries. The European Parliament recently held a committee vote that would require oil, gas, mining and forestry companies listed on EU stock exchanges to disclose their payments to foreign governments, country by country and for each project. Canada is also considering transparency rules for its mining industry that mimic the SEC rules, though the oil industry does not seem to be included (yet?). Interestingly, it is some of the leading mining firms that are pushing for the rule changes in Canada, in contrast to the general industry opposition seen in the U.S. So in addition to transnational advocacy, we now have the kind of policy diffusion noted by Simmons and others.

This policy proliferation is good news. As I argued in Foreign Policy, the rule change is not just beneficial for development, but also for international security. If oil money is not managed well, it often gets used to fund civil and international wars. In particular, oil-producing states led by revolutionary governments are more than three times as likely to instigate militarized interstate disputes as a typical state. Oil income can make petrostates aggressive, which leads to wars like Iraq’s invasion of Kuwait and Libya’s various battles with Chad and other neighbors. Those wars often draw in the United States  (My book on this subject, Petro-Aggression: When Oil Causes War, is forthcoming in 2013).

Still, transparency is not a panacea. I view transparency as a “probably necessary, and certainly not sufficient” condition for promoting good governance in the extractive industries. But we’d also like to know what else a country needs to do to avoid the resource curse. I think there’s an opening here to study the extent that transparency actually enables the kind of political accountability and good governance that advocates hope it does. (Some work on this issue is already underway: see Gillies and Dykstra in Cheng and Zaum, 2011)

There is also, it appears, an increasingly important opportunity to study the proliferation of resource-income transparency rules as an exemplar of transnational advocacy and diffusion.

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Daniel H. Nexon is a Professor at Georgetown University, with a joint appointment in the Department of Government and the School of Foreign Service. His academic work focuses on international-relations theory, power politics, empires and hegemony, and international order. He has also written on the relationship between popular culture and world politics.