Global Norm Compliance: A Study on the Implementation of the Extractive Industries Transparency Initiative (Norm Research in International Relations) 3030414515, 9783030414511

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Norm Research in International Relations Series Editor: Antje Wiener

Aliya Tskhay

Global Norm Compliance A Study on the Implementation of the Extractive Industries Transparency Initiative

Norm Research in International Relations Series Editor Antje Wiener, Institut für Politikwissenschaft, University of Hamburg, Hamburg, Germany

This book series offers an outlet for interdisciplinary research on norms in the context of international relations and global governance. It features scientific and scholarly studies which examine the way norms are created and re-created through interactions between actors at the international level, taking into account the reflexive nature of governance relationships and their impact on state behaviour through the re-constitution of norms. Norms in international relations are defined as ideas of varying degrees of abstraction and specification that concern fundamental values, organising principles or standardised procedures. They resonate across states and global actors in the form of official policies, laws, treaties and agreements, while their meaning may be stable or contested. Norm Research in International Relations (NRIR) welcomes proposals for research monographs, edited volumes and handbooks from a variety of disciplines that seek to advance theories and applied research in international relations and to arrive at a better understanding of the role and impact of norms. Relevant topics include, but are not limited to, issues of international justice, research on contestation, human rights, international treaties in areas such as energy, environment or security, and constructivist norm research in international relations theory, recognition theory and international law.

More information about this series at http://www.springer.com/series/15646

Aliya Tskhay

Global Norm Compliance A Study on the Implementation of the Extractive Industries Transparency Initiative

123

Aliya Tskhay University of St. Andrews St. Andrews, UK

ISSN 2522-8676 ISSN 2522-8684 (electronic) Norm Research in International Relations ISBN 978-3-030-41451-1 ISBN 978-3-030-41452-8 (eBook) https://doi.org/10.1007/978-3-030-41452-8 © Springer Nature Switzerland AG 2020 This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

Acknowledgements

This book came together under a tremendous amount of events, stress, and changes: from moving to another country, to weddings, and to the loss of a very close family member. Especially because of these reasons, this book has such a big importance for me. Yet, I share the accomplishment of it with so many people without whom I (and, hopefully, the many readers) would never hold this copy. This book is based on my doctoral thesis defended at the University of St. Andrews in 2016. I thank my supervisors Prof. Sally N. Cummings and Prof. Rick Fawn, as well as my examiners Dr. Luca Anceschi and Dr. William Vlcek for their guidance and encouragement. The book also benefited significantly from the intellectual inputs of my colleagues in St. Andrews. Parts of this book were presented at International Studies Association and Central Eurasian Studies Society annual conventions. First and foremost, my deep appreciation and gratitude go to the Norm Research International Relations Series editor, Prof. Antje Wiener. Her belief in this project and encouragement meant a lot to me and made it a better book. My many thanks go to the Springer team, and especially Johannes Glaeser, who mentored this book since our first meeting in Prague where I pitched the idea. Empirical data for this book were gathered over extended fieldwork periods in Azerbaijan, Kazakhstan, Kyrgyzstan and Norway, where many individuals (deliberately not named here) provided their knowledge, opinions and experiences. My family was constantly encouraging me to finish this endeavour and I believe that the final product is making my grandparents proud. Most importantly, my deep gratitude goes to my loving husband, who stood by me in the darkest moments and the most challenging times and without whose support this book would never be accomplished.

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Contents

1 Introduction. Presenting the Extractive Industries Transparency Initiative as a Norm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 Defining a Norm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2 Norm Diffusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3 Norm Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4 Research Puzzle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5 Case Study Selection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.6 Research Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.7 Chapter Breakdown . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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2 The Theory of Norms: Norm Emergence, Implementation and Diffusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 Norm Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 Norm Emergence and Actors Involved (Norm Entrepreneurs) 2.3 Norm Diffusion Models . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3.1 World–Polity Model . . . . . . . . . . . . . . . . . . . . . . . . 2.3.2 Finnemore and Sikkink’s Norm Life-Cycle . . . . . . . . 2.3.3 ‘Boomerang Effect’ Model . . . . . . . . . . . . . . . . . . . . 2.3.4 ‘Spiral’ Model of Norm Implementation . . . . . . . . . . 2.4 Norm Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4.1 Sanctions and Norm Non-compliance . . . . . . . . . . . . 2.5 Legitimacy and Norms . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.6 Norm Contestation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.7 Domestic Norm Implementation . . . . . . . . . . . . . . . . . . . . . 2.7.1 Critical Junctures . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.7.2 Norm Commitment . . . . . . . . . . . . . . . . . . . . . . . . . 2.7.3 Norm Internalisation . . . . . . . . . . . . . . . . . . . . . . . . 2.8 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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3 EITI as an Emerging Global Norm . . . . . . . . . . . . . . . . . . . . . . . 3.1 Introduction: A Definition of Transparency and a History of Transparency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1.1 Definition and Emergence of Transparency . . . . . . . . . 3.2 Transparency and Civil Society Advocacy . . . . . . . . . . . . . . . 3.3 Resource Curse and Transparency . . . . . . . . . . . . . . . . . . . . . 3.4 Good Governance and Transparency . . . . . . . . . . . . . . . . . . . 3.5 International Initiatives to Promote Transparency in Extractive Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.5.1 Criticism of Transparency . . . . . . . . . . . . . . . . . . . . . 3.6 Theoretical Implications for the Study of the Transparency in Extractive Industries Norm . . . . . . . . . . . . . . . . . . . . . . . . 3.7 The EITI as a Pillar of Institutional Support for the Transparency in Extractive Industries Norm . . . . . . . . . . . . . . 3.7.1 History of the EITI . . . . . . . . . . . . . . . . . . . . . . . . . . 3.7.2 Supporters of the EITI . . . . . . . . . . . . . . . . . . . . . . . . 3.7.3 The Stages of the EITI Process . . . . . . . . . . . . . . . . . . 3.8 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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4 Norway: Leading by Example . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2 The Importance of the Oil Sector for Norway . . . . . . . . . . . . 4.2.1 Norwegian Government Pension Fund: An Instrument for Oil Revenues Management . . . . . . . . . . . . . . . . . . 4.3 EITI Process in Norway: From Endorsement to Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3.1 Norm Emergence: Norway as a Transparency Norm-Setter and Follower . . . . . . . . . . . . . . . . . . . . . 4.3.2 Norm Commitment: Actions to Achieve Compliant Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3.3 Norm Internalisation: Sustaining Compliant Status and the Future Prospects of the EITI in Norway . . . . . 4.3.4 Actors Involved, Transnational Networks, and Norm Entrepreneurs . . . . . . . . . . . . . . . . . . . . . . . 4.4 Outcomes of the EITI’s Implementation in Norway . . . . . . . . 4.4.1 Access to Information and the EITI . . . . . . . . . . . . . . 4.4.2 The EITI as a Mechanism to Support Extractive Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4.3 The EITI as a Mechanism to Create Links Between Civil Society, Government and Private Sector . . . . . . . . . . .

Contents

Challenges and Debates Relating to EITI Implementation in Norway . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5.1 Sustainability of the EITI Process in Norway . . . . 4.5.2 Limited Interest Inside Norway . . . . . . . . . . . . . . . 4.5.3 Reverse Legitimacy: Domestic Implementation for International Benefits . . . . . . . . . . . . . . . . . . . 4.5.4 The EITI as Part of the Norwegian Foreign Policy Agenda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.6 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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5 EITI Implementation in Kazakhstan: Overcoming Hurdles to Reach Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2 Elites and the Internal Structure of the Extractive Industry Sector in Kazakhstan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2.1 The Relationship Between Business and Political Elites in Kazakhstan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3 Extractive Industry Sector in Kazakhstan . . . . . . . . . . . . . . . . 5.3.1 Legislative Base of the Extractive Industry Sector in Kazakhstan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3.2 Management of Revenues from Natural Resources: National Fund of the Republic of Kazakhstan . . . . . . . 5.4 Critical Juncture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5 The EITI Process in Kazakhstan . . . . . . . . . . . . . . . . . . . . . . 5.5.1 Pre-candidacy Period . . . . . . . . . . . . . . . . . . . . . . . . . 5.5.2 Candidacy Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5.3 Compliance Period . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5.4 Sub-national-Level Implementation of the EITI . . . . . . 5.6 Outcomes of EITI Implementation . . . . . . . . . . . . . . . . . . . . . 5.6.1 Access to Information on Resource Revenues . . . . . . . 5.6.2 Government Responsibility . . . . . . . . . . . . . . . . . . . . . 5.6.3 Interaction Between the Government and Business Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.6.4 Corruption and Government Accountability . . . . . . . . . 5.6.5 Interaction Between Government and Civil Society Organisations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.7 Challenges in the EITI’s Implementation in Kazakhstan . . . . . 5.7.1 Popularisation of the EITI in Kazakhstan . . . . . . . . . . 5.8 Sustainability of the EITI Process in Kazakhstan . . . . . . . . . . 5.9 EITI Implementation to Gain External Legitimacy . . . . . . . . . 5.10 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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6 Kyrgyzstan: Capacity Constraints and Failed Compliance . 6.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2 Overview of Kyrgyzstan’s Economy . . . . . . . . . . . . . . 6.2.1 Kumtor Gold Mine . . . . . . . . . . . . . . . . . . . . . 6.3 Beginning of the EITI Process . . . . . . . . . . . . . . . . . . . 6.4 Implementation of the EITI: Challenges and Outcomes . 6.4.1 EITI Governance in Kyrgyzstan . . . . . . . . . . . . 6.4.2 Cooperation with International Donors . . . . . . . 6.4.3 Beneficial Ownership . . . . . . . . . . . . . . . . . . . . 6.4.4 Engagement with the General Public . . . . . . . . . 6.5 Suspension and the Way Forward . . . . . . . . . . . . . . . . 6.6 State Capacity and Norm Compliance . . . . . . . . . . . . . 6.7 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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7 EITI Implementation in Azerbaijan: The Role of Internal Factors in the Norm’s Internalisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2 The Importance of the Oil and Gas Industries for the Domestic and Foreign Policy of Azerbaijan . . . . . . . . . . . . . . . . . . . . . 7.2.1 History of Azerbaijan’s Oil Industry and the Politicisation of Oil . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2.2 Role of Foreign Investors in Azerbaijan’s Energy Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2.3 Establishment of the State Oil Fund of Azerbaijan . . . . 7.3 Critical Juncture and Turning Point in Azerbaijan’s Decision to Join the EITI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.4 The EITI’s Beginning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.4.1 The Role of External Actors in the EITI’s Implementation in the Early Stages . . . . . . . . . . . . . . . 7.4.2 Role of Internal Actors in the EITI’s Implementation . . 7.5 The EITI’s Implementation in Azerbaijan . . . . . . . . . . . . . . . . 7.5.1 Pre-candidacy Period . . . . . . . . . . . . . . . . . . . . . . . . . 7.5.2 Candidate Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.5.3 Compliant Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6 Outcomes of the EITI’s Implementation in Azerbaijan . . . . . . 7.6.1 The EITI Process as a Platform for Dialogue . . . . . . . . 7.6.2 Reputational Concerns . . . . . . . . . . . . . . . . . . . . . . . . 7.7 Challenges in Azerbaijan’s EITI Implementation . . . . . . . . . . 7.8 Downgrade of Azerbaijan’s EITI Status and Withdrawal: Clash of Rhetorics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.8.1 The Unique Case of an EITI Status Downgrade . . . . . 7.8.2 The Process of Azerbaijan’s EITI Status Downgrade . .

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Second Critical Juncture—External Factors that Influenced the Withdrawal from the EITI . . . . . . . . . . . . . . . . . . . . . . 7.9.1 Internal Legitimacy from the Oil Rents and External Legitimacy from Transparency Implementation . . . . 7.10 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8 Elements of Norm Implementation . . . . . . . . . . . . . . . . . . . . 8.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.2 The Special Case of the EITI . . . . . . . . . . . . . . . . . . . . 8.3 Critical Junctures and Norms . . . . . . . . . . . . . . . . . . . . . 8.4 Domestic Structures’ Influence on Norm Implementation 8.4.1 The Circle of Decision-Makers and the Nature of the Decision-Making Process . . . . . . . . . . . . . 8.4.2 State–Society Relations . . . . . . . . . . . . . . . . . . . 8.4.3 Personality Factor . . . . . . . . . . . . . . . . . . . . . . . 8.4.4 Existing Norms . . . . . . . . . . . . . . . . . . . . . . . . . 8.5 Legitimacy of a Norm . . . . . . . . . . . . . . . . . . . . . . . . . . 8.6 Norm Implementation Model . . . . . . . . . . . . . . . . . . . . . 8.6.1 Norm Commitment Stage . . . . . . . . . . . . . . . . . . 8.6.2 Norm Internalisation Stage . . . . . . . . . . . . . . . . . 8.6.3 Norm Compliance Stage . . . . . . . . . . . . . . . . . . . 8.6.4 Norm Diffusion Stage . . . . . . . . . . . . . . . . . . . . 8.7 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1 Major Contributions of the Book to the Study of Norms . 9.1.1 Critical Juncture and Norms . . . . . . . . . . . . . . . . 9.1.2 Norway’s EITI Implementation . . . . . . . . . . . . . . 9.1.3 Kazakhstan’s EITI Implementation . . . . . . . . . . . 9.1.4 Kyrgyzstan’s EITI Implementation . . . . . . . . . . . 9.1.5 Azerbaijan’s EITI Implementation . . . . . . . . . . . . 9.2 Essential Elements of Norm Implementation . . . . . . . . . 9.2.1 Interests and Norms . . . . . . . . . . . . . . . . . . . . . . 9.2.2 Identifying Factors for Norm Implementation— Domestic Structures and International Norms . . . 9.2.3 Role of Actors in Norm Implementation . . . . . . . 9.2.4 Norm Contestation . . . . . . . . . . . . . . . . . . . . . . . 9.2.5 Reasons for Compliance . . . . . . . . . . . . . . . . . . . 9.3 Areas for Further Research . . . . . . . . . . . . . . . . . . . . . . 9.4 Future of the EITI . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Abbreviations

ACG AIOC BG BP BTC CAFOD CNPC CoE CPI DFID EITI ENRC EU FATF FOI GDP GIZ IAEA IDP IMF INGO IO KPO MDTF MOU MSG NGO NORAD NPT

Azeri-Chirag-Guneshli Azerbaijan International Operating Company British Gas British Petroleum Baku-Tbilisi-Ceyhan Catholic Agency for Overseas Development China National Petroleum Corporation Council of Europe Corruption Perception Index Department for International Development Extractive Industries Transparency Initiative Eurasian Natural Resource Consortium European Union Financial Action Task Force Freedom of Information Gross Domestic Product Deutsche Gesellschaft für Internationale Zusammenarbeit (German Corporation for International Cooperation) International Atomic Energy Agency Internally displaced person International Monetary Fund International Non-governmental organisation International organisation Karachaganak Operating Company Multi-Donor Trust Fund Memorandum of Understanding Multi-stakeholder group Non-governmental organisation Norwegian Agency for Development Cooperation Treaty of the Non-Proliferation of Nuclear Weapons

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xiv

NSC PACE PSA SDFI TAI TCO UK UN USA USAID VAT WB WTO

Abbreviations

National Stakeholders Council Parliamentary Assembly of the Council of Europe Production sharing agreement State’s Direct Financial Interest Transparency and accountability initiative TengizChevroil United Kingdom United Nations United States of America United States Agency for International Development Value added tax World Bank World Trade Organisation

Chapter 1

Introduction. Presenting the Extractive Industries Transparency Initiative as a Norm

Transparency in extractive industries is a phrase which tends to get a rather sceptical response, largely due to the sector long holding a reputation for its lack of openness. Indeed, extractive industries for many years have been secretive, especially when it comes to information about the awarding of contracts and making of payments to governments (Rosenblum & Maples, 2009; Global Witness, 2014). The revelations of the files leaked from the law firm Mossack Fonseca, better known as the Panama Papers, indicated vast tax evasion and money laundering schemes deployed by companies all across the world, including those in the extractive industries sector (Publish What You Pay, 2016). Activists are now calling for greater transparency in companies’ reporting of country-by-country payments, and for disclosure of the names of companies’ beneficial owners in order to tackle corruption (Reinfeldt, 2016). The Extractive Industries Transparency Initiative (EITI), a multi-stakeholder international standard, is at the forefront of the discussion on issues of openness, anti-corruption efforts and good governance in resource-rich countries. Although some of these issues will be discussed in general terms throughout this book, its main focus is on resource-rich states (in particular, Azerbaijan, Kazakhstan, Kyrgyzstan and Norway). Countries voluntarily decide to disclose information related to extractive industries, once they become a member of the EITI. So, how do states come to the idea that they would like to be part of the EITI and open their resource revenues to global scrutiny? If we look at Azerbaijan, Kazakhstan and Kyrgyzstan, countries with substantial natural resource reserves, both rank very low in the latest edition of the Corruption Perceptions Index: Azerbaijan was ranked 152nd, Kazakhstan 124th and Kyrgyzstan 132nd out of 180 countries (Transparency International, 2019). Both Azerbaijan and Kazakhstan have been involved in corruption scandals related to extractive industries, and yet these two countries have ended up implementing the EITI, together with Norway. Since the EITI was founded in 2003, it has attracted 52 countries to publish data on their extractive industries, with USD 2.54 trillion of government revenues disclosed so far (The EITI, 2019a). © Springer Nature Switzerland AG 2020 A. Tskhay, Global Norm Compliance, Norm Research in International Relations, https://doi.org/10.1007/978-3-030-41452-8_1

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The literature on international norms has undertaken analysis to investigate the shift in state behaviour (from non-disclosure to disclosure) and to see how the decision to implement the EITI has come about for each country. It is important here to make a distinction between the EITI process (a multi-stakeholder mechanism for revenue disclosure) and the transparency in extractive industries norm. The transparency in extractive industries norm is an umbrella term for disclosure of information in the sector, including in relation to contracts, the production chain (exploration, extraction, trade of natural resources), beneficial ownership, payments relevant to the industry and spending of revenues. This book only covers the implementation of the EITI since, compared to other similar initiatives in extractive industries, it covers a broader spectrum of issues. For instance, the Kimberley Certification Process is another transparency mechanism but this exclusively targets the diamond industry,1 while the Santiago Principles address the issue of transparency but only in the work of sovereign wealth funds.2 Thus, relatively speaking, the EITI presents a more comprehensive approach to the mechanism of information disclosure on extractive industries. So, if transparency in extractive industries is a norm, then the EITI represents its institutional framework, much in the same way that nuclear non-proliferation and peaceful use of nuclear energy is a norm and the International Atomic Energy Agency is its institutional form. A more detailed discussion on the differences between the EITI and other transparency initiatives can be found in Chap. 2. Before entering into a discussion of the concept of norms, their diffusion and their implementation, it is first useful to present the reasoning behind the approach adopted for this book. It follows the so-called return to norms in international relations literature, which indicates an increased interest among scholars in the study of norms and also alludes to the reassessment of the role of international norms in international politics (Finnemore & Sikkink, 1998, p. 889). International norms often come at a cross-point between transnational and domestic political contexts and can have various effects on both of these spheres (Wiener, 2007b). Thus, norms not only assist in relations between states3 and are diffused among them (Finnemore & Sikkink, 1998), they are also part of the domestic political decision-making process (Cortell & Davis Jr., 2000; Wiener, 2007b). Thus, norms are useful when it comes to understanding state behaviour and navigating political decisions. Therefore, for the purposes of this book, the international relations literature on norms gives access to the presentation of the EITI process not only as a normative idea (as a way to improve governance and government accountability), but also as a way of analysing how an international multi-stakeholder voluntary initiative took effect in countries with no 1 For

more information on the Kimberley Certification Process, see https://www.kimberleyprocess. com/en/about. Accessed on July 28, 2016. 2 For more information on the Santiago Principles, see http://www.ifswf.org/santiago-principleslanding/santiago-principles. Accessed on July 28, 2016. 3 Scholars have written on the role of norms in reduction of transactions costs (Krasner, 1983a), communication of international politics (Kratochwil, 1989), and state identity (Finnemore, 1996; Katzenstein, 1996b).

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prior transparency experience and how this process has been interpreted within the domestic political contexts.

1.1 Defining a Norm The following question is relevant in this regard: why study the transparency in extractive industries as a norm? To answer that question, it is useful to establish a definition of a norm. A more detailed discussion of the intricacies of defining norms will be provided in Chapter 1; however, before that, two issues should be brought to light here. First, norms are referred to as standards of behaviour for states; in other words, they define the rights and obligations of states (Krasner, 1983b, p. 3). Yet, Björkdahl (2002, p. 15) summarises a view shared among constructivists that norms are ‘a set of intersubjective understandings and collective expectations regarding the proper behaviour of states and other actors in a given context or identity’. Intersubjectivity is an important point here, since it distinguishes norms from ideas, the latter of which can be held by one individual only. Norms, by definition, have to be shared, recognised and implemented among different states and actors (Finnemore, 1996; Yee, 1996; Björkdahl, 2002). Meanwhile, one of the distinctive features of norms is the presence of the notion of oughtness in them. To put it differently, this refers to a moral perspective of how states ought to behave (Florini, 1996, p. 364). In essence, norms create the notion of what is ‘normal and desirable’ behaviour and, inadvertently, what is also ‘abnormal and undesirable’ (Towns, 2012, p. 180). The moral aspect of a norm is infused by the work of transnational advocacy networks or norm entrepreneurs (Finnemore & Sikkink, 1998; Keck & Sikkink, 1998; Price, 2003; Carpenter, 2007). Transnational advocacy networks help to problematise a given issue and integrate the suggested norm into political agendas (Simmons, 2009; Zwingel, 2012, pp. 124–125). Thus, to tie in these two notions of normal and abnormal, one should approach the transparency in extractive industries norm as a standard of behaviour with a moral connotation. Thus, the transparency in extractive industries norm requires certain obligations in terms of the disclosure of information related to this particular sector. The EITI Standard ‘requires information along the extractive industry value chain from the point of extraction, to how the revenue makes its way through the government, to how it benefits the public’ (The EITI, 2019b). Thus, essentially, countries adopting the transparency in extractive industries norm commit to the disclosure of information ranging from the revenues received from natural resources by governments to how such revenues are spent. The moral aspect of the transparency in extractive industries norm is inspired by the perception that the disclosure of information on resource revenue management would contribute to the economic growth and well-being of citizens in resourcerich countries. Therefore, the advocates for implementing transparency in extractive

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industries believe that openness in the natural resource sector will bring public benefit.4 Transparency in extractive industries is associated with the dogmatic values of democracy, accountability and good governance. Since the EITI emerged as a response to the challenges in natural resource management, the allocation of revenues and the thriving corruption in resource-rich countries, it has been promoted to countries who wish to improve the governance of their extractive industries sector and to bring benefits to their citizens (Eigen, 2007; Ernst, 2013; Mejía Acosta, 2013). The function of norms has been subject to debate between proponents of rationalist and constructivist approaches. The rationalist approach understands norms as the intermediary tools connecting national interest, power and political outcomes (Krasner, 1983b; Mearsheimer, 1994, p. 13). Meanwhile, the constructivist approach maintains that norms explain the behavioural choices of states (Klotz, 1995; Finnemore, 1996; Katzenstein, 1996a). Thus, depending on one’s approach to the function of norms, one could establish different causal links between norms and state decisions. This leads us to the related matter of how norms are diffused among states.

1.2 Norm Diffusion The discussion of international norms should also include how norms are spread among states and why particular norms are preferred over others (Björkdahl, 2002, pp. 18–19). As noted above, an international norm is considered to have been implemented if it can be linked to existing norms or, as Acharya (2004, p. 241) noticed, the norm is localised in existing beliefs and practices. This suggests that international norms, in order to be diffused, have to be associated with local norms, beliefs and practices. It will be argued later in the case studies that international norms cannot only be associated with existing practices, but they are also valid with respect to domestic purposes. In other words, international norms should be perceived as legitimate for domestic implementation. There are diverse views among scholars on how international norms are diffused between countries. Norms could be linked to domestic political change due to socialisation, learning and propaganda (Yee, 1996). Elsewhere, Krook and True (2010, pp. 106–109) have divided norm diffusion strategies into four different models. The first, known as the world–polity model, refers to the idea that states are embedded in a global society which promotes international norms as universalistic world models (Meyer et al., 1997). The second, norm life cycle, dictates that norms could be taught and are spread through increasing endorsement by other states (Finnemore, 1996; Finnemore & Sikkink, 1998). The third, known as the boomerang effect model, focuses on the role of domestic and, especially, transnational advocacy networks, which disseminate information on international norms and put pressure on states to 4 ‘More

openness and public scrutiny of how wealth from a country’s extractive sector is used and managed is necessary to ensure that natural resources benefit all’ (EITI International Secretariat, 2016).

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adopt particular norms (Keck & Sikkink, 1998, p. 13). The fourth, known as the spiral model, claims that international norms are internalised, and looks at the domestic implementation of norms (Risse, Ropp, & Sikkink, 1999, 2013). The pitfall of all four of these models is that none of them capture the complex nature of norm implementation comprehensively. The world–polity model does not take into account the flexibility of interpretation of a norm and, thus, also presents norms as something desired that create an environment where ‘states comply as a means to increase or enhance their international reputation and identity as “modern” states’ (Krook & True, 2010, p. 107). Martha Finnemore and Kathryn Sikkink’s norm life cycle model captures the criticality of norm diffusion in the ‘tipping point’ and ‘norm cascade’ analysis, yet it only focuses on the interstate spread of norms. Although, the boomerang effect and spiral models do look at the intricate relationships between transnational and domestic advocacy groups and governments on norm implementation, they lack an understanding of domestic structural conditions and how these can accommodate the proposed change in state behaviour. Moreover, these models deal with established norms but are not fully applicable to emerging norms.

1.3 Norm Implementation Lastly, the study of norms should also focus on the notion of norm implementation. An understanding of how the decision to implement a norm was taken, of what critical factors and motivations led a state to implement a norm and of what actors are involved in this process will further add to the discussion on how norm implementation relates to the impact of international norms on domestic politics. In other words, an analysis of the motivating factors in norm commitment in the first place might give us a better insight into how a norm is subsequently implemented by a state. Cortell and Davis Jr. (1996, p. 453) have argued that governments and societal actors adopt a norm to push their own interests and agendas. Similarly, domestic and international advocacy groups can put pressure on governments to comply with international norms (Risse et al., 1999, 2013; Price, 2003; Grugel & Peruzzotti, 2010). Cortell and Davis Jr. (1996, p. 454) have also claimed that international norms can enter domestic politics through the actions and interests of a state and state actors, or through the integration of an international norm into national legislation. However, they also asserted that the impact of international norms on domestic policies would depend on the domestic salience of the norm and the prevailing domestic structure at the time of the norm’s implementation (Cortell & Davis Jr., 1996, p. 454). Thus, this book will also look at whether the decision to implement the EITI stemmed from the interests of state actors and/or through integrating it into national law. In addition, through a comparison of three countries’ implementation of the EITI, this book will look at how different domestic structures and the presence of various domestic actors have an effect on norm implementation.

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Domestic structures are especially important in this study, due to the comparison of presumably diverse countries (high-income vs. upper middle-income, constitutional monarchy vs. presidential republics, former communist countries vs. Western capitalist countries). More specifically, domestic structures are understood as structures of political institutions, state–society relations and decision-making processes in each country (Risse-Kappen, 1995a, p. 23; Cortell & Davis Jr., 1996). In the study of the domestic implementation of international norms, one should have a clear idea of how decision-making takes place (consensual versus polarised), the circle of decision-makers (parliamentary democracy versus presidential system) and whether the decisions could be influenced by and/or taken with the help of non-state actors. According to Risse-Kappen’s (1995a, pp. 22–23)5 categorisation, Azerbaijan and Kazakhstan are countries with state-controlled domestic structures, meaning a strong executive branch, a close circle of decision-makers, and a civil society lacking the strength/power to counterbalance the state. In the same categorisation, Norway is characterised as corporatist with consensus-based decision-making between different political parties and with civil society and other non-state actors having a strong influence. Risse-Kappen (1995a, pp. 26–27) claimed that as long as transnational actors find a way to get access to decision-makers in the state-controlled structures and penetrate through the political and societal institutions in corporatist structures, their policy impact could be significant. Risse-Kappen’s study focused on the policy impact brought by transnational actors in countries with various forms of domestic structures. The question here is whether the process of norm implementation and its sustainability also differs, depending on the domestic structures. Ikenberry and Kupchan (1990) claimed that states can adopt a norm if it is promoted by a hegemonic power through a socialisation process. de Nevers (2007) discussed the different approaches utilised by great powers to promote international norms, from persuasion to forceful coercion. These two scholarly works argued that norm implementation depends, at times, on the power of an actor promoting the norm. In addition, the discussion of norm implementation could not be complete without considering how the norm was introduced to a state (either through socialisation or by coercion). As the EITI is a voluntary multi-stakeholder organisation, forceful coercion is not present in this case. However, it is still crucial to investigate how the organisation induces states to implement its initiative, as well as to ensure compliance with it thereafter. Another debate among international relations scholars is whether norms are static or flexible in their meaning. On the one hand, norms are perceived as fixed, and thus, they are diffused among states (Krook & True, 2010, p. 104). On the other hand, some scholars admit that the meaning of norms could be different depending on the practice thereof and the actors interpreting them (Wiener, 2004, 2007a; Sandholtz, 2008; Wiener & Puetter, 2009; Krook & True, 2010). Norm implementation could 5 In

the edited volume, Bringing Transnational Relations Back In, Risse-Kappen (1995b) has also described other forms of domestic structures, stalemate and state-dominated, however, they were considered irrelevant to the case studies discussed in this book, since these concepts refer to domestic structures relevant to other countries beyond the scope of this study.

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also depend on the vagueness of the norm since the flexibility of the interpretation of a norm allows an actor to similarly interpret compliance with it freely (Van Kersbergen & Verbeek, 2007, p. 221). Hence, the importance of whether norms are fixed or dynamic comes into play in the discussion on norm compliance. If a state or an actor is delegated with the freedom to interpret the norm differently, it can result in contestation or conflict regarding the meaning of the norm and, ultimately, compliance and non-compliance with it (Shannon, 2000). Norms change due to tensions between competing norms and between norms and state behaviour (Sandholtz, 2008, p. 103). This book will attempt to derive empirically whether transparency in extractive industries is a fixed norm or if its meaning has been lost through change and has rather been forged through practice and implementation. Thus, upon reflection of the above-mentioned four models of norm diffusion, this book will endeavour to revise the suggested patterns of norm implementation and proliferation through the empirical research on the EITI’s application. The book traces the process of the introduction of the transparency in extractive industries norm in Norway, Kazakhstan, Kyrgyzstan and Azerbaijan. This approach entails reviewing the factors contributing to, and the actors involved in, making the conditions necessary for norm implementation. Therefore, the book seeks to provide a more comprehensive method through which to study norm implementation and to fill the gaps in the literature on norms. This book emphasises the role of the actors involved in norm diffusion and implementation. As mentioned above, they set the agenda and frame the norm to persuade others to follow suit (Finnemore & Sikkink, 1998, pp. 898–899; Gest et al., 2013, pp. 155–156). As an emerging international norm, it is necessary to explore whether the transparency in extractive industries norm has also been prone to contention and has experienced a change in its meaning. Van Kersbergen and Verbeek (2007, p. 235) suggested that contestation over a norm would happen ‘if the international norms adopted in their application are expected to affect the power relations between the major actors involved’. Therefore, the aspect of norm contestation should also be incorporated into the study of the role of actors in norm implementation.

1.4 Research Puzzle This book reflects on the broader literature on international norms and addresses some of the major debates, indicated previously, through an empirical study of the EITI’s implementation. In order to meet the objectives of this study, the following research questions will be addressed. The central question of this book concerns the investigation of the process of how international norms are integrated into the domestic political structure, using the case study of the EITI’s implementation. This research puzzle predisposes the author to challenge certain ideas on how norms, especially emerging norms such as the one in this case, are implemented. With a substantial amount of the literature on the nature of norms and various models of norm life cycle and norm diffusion, there

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is, nevertheless, a gap in the literature regarding how the same norm is applied in different countries. A comprehensive tracing of the EITI’s implementation process presents an opportunity to fill this gap in terms of understanding: the reasons for implementing the norm and the critical conditions under which to do so; how norm internalisation works; and how sustainable the process of norm implementation is. In addressing the main research question, this book also addresses the following sub-questions: – At what particular time does norm implementation happen? – What factors have led to the internalisation of transparency in resource-rich states, especially when they have had no prior interaction with this norm? – What are the reasons for complying with transparency as a norm? – What actors and social structures are involved in the process of norm implementation? These research questions demarcate the scope of this study and focus it towards: – understanding the process of transparency internalisation and a state’s decision to do so; – compliance with the transparency norm; – the main actors involved in these processes. The sub-questions in particular are important in unpacking the intricate process of norm implementation and internalisation in the case of the EITI’s implementation in Norway, Kazakhstan, Kyrgyzstan and Azerbaijan. As all four countries joined the EITI at different times, it is interesting to look at the differences in their respective timelines of norm implementation and at the factors that pushed their subscription to the EITI at a particular moment. This will be discussed through the concepts of critical junctures and turning point (for more on these, see Chapter 1). By looking at the factors that led to the commitment of each state to the EITI, an opportunity emerges to explore the stages of norm commitment and norm internalisation. As will be highlighted in Chaps. 3, 4, 5 and 6, each country here had its own unique combination of factors that prompted its government to commit to and implement the EITI. Such discussion would be inadequate without taking a closer look into the nature of political decision-making in each selected country (this will be discussed in detail in Chapter 1), as there is quite a contrast between post-Soviet trio Azerbaijan, Kazakhstan and Kyrgyzstan and Western European Norway. More importantly, as the case studies reveal, actors not only play the role of norm entrepreneurs in the case of transnational advocacy groups, but they are also essential when it comes to domestic norm implementation itself. The interaction between local actors and international actors is crucial to understanding how the idea of the EITI was introduced to a country, and even more so when analysing the process of norm implementation. In the case of Azerbaijan, the limited interaction between government and local civil society has resulted in the downgrading of the country’s EITI status (discussed in detail in Chap. 6 Sect. 7). In Kazakhstan and Kyrgyzstan, support from donor organisations and grants from international civil society organisations has helped to build the

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capacity of local NGOs and provided technical support to move the EITI process forward. In Norway, the advocacy of local civil society groups has resulted in the government being persuaded to implement the initiative. Lastly, the issue of norm compliance will be discussed throughout this book, in terms of how each country accommodates norm compliance and what challenges they face in doing so. As a voluntary initiative, compliance with EITI rules does not come automatically; states can opt out of the initiative whenever they see fit or in some cases there might be factors preventing them from delivering what is required of an EITI member state. As Azerbaijan’s case will demonstrate, norm compliance might be threatened by internal factors (state–society relationship), and in both Kazakhstan and Norway, the sustainability of the EITI’s implementation depends on numerous factors (interest in the EITI, benefits from implementation and prospect of changing EITI rules like the introduction of a beneficial ownership clause). Meanwhile, in Kyrgyzstan’s case, such compliance depends on funding availability and state capacity. Thus, this book will challenge some of the existing conceptions of norm compliance.

1.5 Case Study Selection There are three main factors to be taken into consideration regarding the case study selection process for this book. First, all four countries, to varying degrees, have had involvement with the EITI, which is crucial since this book focuses only on countries involved in this initiative. Second, all four countries joined the EITI at different times. Thus, one of the puzzles to be solved in this book is to address the criticality of timing in the norm implementation and compliance processes. In other words, this particular puzzle entails looking at whether norm implementation happens at a particular point in time and whether this is due to particular factors. Third, one of the intriguing issues investigated in this book is whether the norm implementation process is different or similar depending on the political and economic background of the given country. The case studies present some variation in the degree of compliance from beyond-compliant (Norway), to compliant (Kazakhstan), to temporarily suspended (Kyrgyzstan) and to non-compliant (Azerbaijan). This book also compares developing Azerbaijan, Kazakhstan and Kyrgyzstan, with developed Norway, and looks at the implementation of one norm in each country and investigates this from the stage of state norm commitment to norm compliance. Such a comprehensive comparative approach presents an in-depth analysis of the norm implementation patterns in different political structures.

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1.6 Research Methodology The study of norms presupposes the study of state actions with regard to norms. Due to the nature of norms as ideas, it is empirically challenging to recognise their existence, unless a trace of the norm through communication or action can be identified (Risse, 2000; Björkdahl, 2002, p. 13; Muller, 2004). This comparative study of norm implementation in four different countries fills a gap in the broader field of research into how norms emerge since there has thus far been much more emphasis on single case studies than on comparative analysis (Gest et al., 2013, p. 155). For the purposes of this book, a closer look at the complex process of the transparency norm implementation and compliance in the extractive industries of the selected countries is required. Therefore, the data collection included multiple sources, such as interviews, secondary sources and analyses of news releases, country reports and energy and economic data published by international organisations. Thus, this book includes data gathered from primary sources juxtaposed with secondary sources of information. Analysis of reports and scholarly works on the topic provide the basis for the construction of the norm dynamic model (Fig. 2.1 in Chap. 2). As this book is driven by theory-generating case study, and after a rigorous review of existing models of norm diffusion and implementation, a new model is devised to capture the intricacies of the process of evolution of norm implementation in each country. Having this in mind, each country’s case is analysed on the basis of what factors constitute a critical juncture that influences norm commitment. Then, the analysis follows a three-stage process from norm commitment, to norm internalisation, to norm compliance. Each stage includes three sets of constituent elements: norm legitimacy, state actions and domestic and international pressures.

1.7 Chapter Breakdown This book is organised as follows. Chapter 2 reviews the literature on the concept of norms and discusses various perspectives on the definition of a norm, norm compliance and various models of norm diffusion. It thus lays the foundation for the subsequent discussion on the EITI’s implementation. This chapter also presents an existing gap in the literature in relation to understanding the domestic implementation of norms, the reasons for states doing so and how the implementation process evolves. Chapter 3 builds on these theoretical notions of a norm and presents the context of the transparency in extractive industries norm in terms of the history of the EITI, from its emergence to the present-day technicalities of the initiative. It discusses how the notion of transparency has penetrated the extractive industries sector. The chapter also points out the distinctive features of the EITI process that sets it apart from other transparency and accountability initiatives.

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This book then proceeds with detailed case studies, ordered chronologically according to the date of the country’s commitment to the EITI’s implementation. Thus, Chaps. 4, 5, 6 and 7 are dedicated, respectively, to the analysis of the EITI’s implementation in Norway, Kazakhstan, Kyrgyzstan and Azerbaijan. These chapters describe the importance of the extractive sector to each country, trace the process of the EITI’s implementation (from the moment of commitment to compliance) and elucidate the motivations and actors involved in the EITI’s implementation. Chapter 4 on Norway’s EITI implementation serves as a good example to juxtapose against the case studies of Azerbaijan, Kazakhstan and Kyrgyzstan. As the only Organisation for Economic Cooperation and Development (OECD) country to comply with the EITI, it presents an interesting case of how foreign policy motivations to ‘lead as an example’ pushed the domestic implementation of the EITI. Chapter 5 demonstrates that although Kazakhstan had similar incentives to implement the EITI and, indeed, followed the example of Azerbaijan, the process of the EITI’s implementation took a different course. The chapter presents the main hurdles in the EITI’s implementation and how they have been overcome. It also presents how the initiative has been taken to a deeper level of sub-national implementation. Chapter 6 discusses Kyrgyzstan’s perilous path to implementation and compliance with the EITI including political turmoil, revolutions and regime changes. It also reflects on the limitations in state capacity to implement the EITI with respect to data collection methods, the training of civil servants and civil society to analyse the data and challenges in finding the financial resources to fund this process. Chapter 7 examines Azerbaijan’s experience as the pilot country for EITI implementation. The chapter argues that close interaction with Western companies and the eagerness of the authorities to attract foreign investment prepared the ground for the country to subscribe to the initiative. Azerbaijan’s EITI status downgrade is also analysed, as well as how it challenged the sustainability of the process’s implementation in the country. Chapter 8 brings together the empirical findings and reflects back on the theoretical puzzle of how norms are implemented domestically. It argues that the critical juncture, which motivates the decision to implement the EITI, affects the way the initiative is applied as well as its sustainability. The chapter points out the role of actors, domestic structures and the legitimacy of the norm in the implementation process. The concluding chapter highlights the essential elements of domestic norm implementation and underlines the necessity of a comprehensive approach to the study of norm implementation. It also suggests avenues for further research, based on the findings of the present book.

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Krasner, S. D. (1983b). Structural causes and regime consequences: Regimes as intervening variables. In S. D. Krasner (Ed.) International regimes (pp. 1–21). Cornell University Press. Kratochwil, F. V. (1989). Rules, norms, and decisions: On the conditions of practical and legal reasoning in international relations and domestic affairs. New York: Cambridge University Press. Krook, M. L., & True, J. (2010). Rethinking the life cycles of international norms: The United Nations and the global promotion of gender equality. European Journal of International Relations, 18(1), 103–127. https://doi.org/10.1177/1354066110380963. Mearsheimer, J. J. (1994). The false promise of international institutions. International Security, 19(3), 5–49. Mejía Acosta, A. (2013). The impact and effectiveness of accountability and transparency initiatives: The governance of natural resources. Development Policy Review, 31(1), 89–105. https://doi.org/ 10.1111/dpr.12021. Meyer, J. W., et al. (1997). World society and the nation-state. American Journal of Sociology, 103(1), 144–181. https://doi.org/10.1086/231174. Muller, H. (2004). Arguing, bargaining and all that: Communicative action, rationalist theory and the logic of appropriateness in international relations. European Journal of International Relations, 10(3), 395–435. https://doi.org/10.1177/1354066104045542. Price, R. (2003). Transnational world civil society and advocacy in world politics. World politics, 55(4), 579–606. Available at: http://journals.cambridge.org/production/action/cjoGetFulltext? fulltextid=7610884. Publish What You Pay. (2016). Panama papers reveal secret offshore deals deprive Africa of billions in natural resource dollars. Available at: http://www.publishwhatyoupay.org/ pwyp-news/panama-papers-reveal-secret-offshore-deals-deprive-africa-of-billions-in-naturalresource-dollars/. Accessed July 27, 2016. Reinfeldt, F. (2016). Panama Papers, The EITI. Available at: https://beta.eiti.org/node/4727. Accessed July 27, 2016. Risse, T. (2000). “‘Let’s Argue!’”: Communicative action in world politics. International Organization, 54(1), 1–39. https://doi.org/10.1162/002081800551109. Risse, T., Ropp, S. C., & Sikkink, K. (Eds.). (1999). The power of human rights: International norms and domestic change. New York: Cambridge University Press. Risse, T., Ropp, S. C., & Sikkink, K. (Eds.). (2013). The persistent power of human rights: From commitment to compliance. Cambridge: Cambridge University Press. Risse-Kappen, T. (1995a). Bringing transnational relations back in: Introduction. In T. RisseKappen (Ed.), Bringing transnational relations back in: Non-state actors, domestic structures and international institutions (pp. 3–33). Cambridge: Cambridge University Press. Risse-Kappen, T. (ed.) (1995b). Bringing transnational relations back in non-state actors, domestic structures and international institutions. Cambridge: Cambridge University Press. Rosenblum, P. & Maples, S. (2009). Contracts confidential: Ending secret deals in the extractive industries. Sandholtz, W. (2008). Dynamics of international norm change: Rules against wartime plunder. European Journal of International Relations, 14(1), 101–131. https://doi.org/10.1177/ 1354066107087766. Shannon, V. P. (2000). Norms are what states make of them: The political psychology of norm violation. International Studies Quarterly, 44(2), 293–316. Simmons, B. A. (2009). Mobilizing human rights: International law and domestic politics. New York: Cambridge University Press. The EITI. (2019a). Explore the data portal. Available at: https://eiti.org/explore-data-portal. Accessed Aug 28, 2019. The EITI (2019b) How we work. Available at: https://eiti.org/about/how-we-work#degrees-ofprogress-country-status-explained. Accessed Jan 8, 2019. Towns, A. E. (2012). Norms and social hierarchies: Understanding international policy diffusion “From Below”. International Organization, 66(2), 179–209. https://doi.org/10.1017/ S0020818312000045.

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Transparency International. (2019). Corruption perception index 2018. Available at: http://www. transparency.org/cpi2015#results-table. Accessed Aug 5, 2019. Van Kersbergen, K., & Verbeek, B. (2007). The politics of international norms: Subsidiarity and the imperfect competence regime of the European union. European Journal of International Relations, 13(2), 217–238. https://doi.org/10.1177/1354066107076955. Wiener, A. (2004). Contested compliance: Interventions on the normative structure of world politics. European Journal of International Relations, 10(2), 189–234. https://doi.org/10.1177/ 1354066104042934. Wiener, A. (2007a). Contested meanings of norms: A research framework. Comparative European Politics, 5, 1–17. https://doi.org/10.1057/palgrave.cep.6110107. Wiener, A. (2007b). The dual quality of norms and governance beyond the state: Sociological and normative approaches to “Interaction”. Critical Review of International Social and Political Philosophy, 10(1), 47–69. https://doi.org/10.1080/13698230601122412. Wiener, A., & Puetter, U. (2009). The quality of norms is what actors make of it: Critical constructivist research on norms. Journal of International Law and International Relations, 5(1), 1–16. https://doi.org/10.3366/ajicl.2011.0005. Yee, A. S. (1996). The causal effects of ideas on policies. International Organization, 50(1), 69–108. https://doi.org/10.1017/S0020818300001673. Zwingel, S. (2012). How do norms travel? Theorizing international women’s rights in transnational perspective. International Studies Quarterly, 56(1), 115–129. https://doi.org/10.1111/j. 1468-2478.2011.00701.x.

Chapter 2

The Theory of Norms: Norm Emergence, Implementation and Diffusion

To fully understand the emergence of the transparency in extractive industries norm, as well as the implementation of the EITI and compliance therewith, it is necessary to establish a theoretical framework for the analysis. The purpose of this chapter is to define the following three issues: (1) what constitutes a norm; (2) how norms are diffused; and (3) what goes into the domestic application of a norm. In addition, this chapter provides clarifications on the core concepts to be used throughout this book. Using the example of the EITI, one can demonstrate the emergence of the transparency in extractive industries norm, the framing of it by international civil society and its institutionalisation in some countries (to be discussed in detail in Chap. 3). This chapter provides a critique of the norm literature and demonstrates its limitations, especially in dealing with emerging norms. It concludes with a presentation of a norm implementation model that incorporates a nuanced view on how norms come to be introduced to a country and what factors play a role in norm compliance. This model is further used in the analysis of the case studies presented in this book.

2.1 Norm Definition A norm is generally referred to as ‘a standard of behaviour for a given identity’ (Finnemore & Sikkink, 1998, p. 891; Katzenstein, 1996a, p. 5), a ‘legitimate behavioural claim’ (Florini, 1996, p. 365) or ‘intersubjective understandings’ about proper behaviour (Björkdahl, 2002, p. 15). Goertz and Diehl (1992, p. 636) agreed that a norm is a standard of behaviour, but added that it is a patterned behaviour or, more specifically, a repeated replication of a particular action/behaviour by a state. Although these definitions are helpful in identifying norms, there is still some confusion around the somewhat similar yet different concepts of norms, rules and values. Therefore, it is important to distinguish what norms are as they might also fall under the cluster of collective ideas and values. For instance, Finnemore and © Springer Nature Switzerland AG 2020 A. Tskhay, Global Norm Compliance, Norm Research in International Relations, https://doi.org/10.1007/978-3-030-41452-8_2

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Sikkink (1998, p. 891) claimed that scholars tend to identify sovereignty or slavery as norms, even though these are a ‘mix of rules and practices’ and thus the concept of a norm should be carefully used. Therefore, norms alongside values, rules and laws create a cluster that defines a standard of behaviour in international relations. The concept of a norm could be confused with the concept of rules. Thus, Barnett and Finnemore (2004, p. 18) have conceptualised rules as norms, regulations and expectations in relation to world and state behaviour. For Bull (1977), rules were central to the preservation of international order and maintaining international society. Rules demarcate the lines for actions, thereby preventing violence, respecting contracts and avoiding anarchy (Bull, 1977, pp. 64–68). Bull (1977, p. 66) also believed that rules can restrict the behaviour of states and, thus, regulate the conduct of states. Hence, Bull looked at rules as a foundational basis for state interaction and existence, and his ‘notion of rules is similar to the normative or prescriptive character of norms’ (Björkdahl, 2002, p. 14). Moreover, Bull (1977, pp. 66–67) considered pacta sunt servanda1 as a rule, or fundamental principle, of the law of nations. However, from a legal perspective, pacta sunt servanda is a fundamental legal norm (Chayes & Chayes, 1995, pp. 113–115). Therefore, Bull did not specify a particular difference between norms and rules since, for him, these two concepts could be conflated as long as their function is similar: maintaining international order and guiding states’ actions. Finnemore and Sikkink (1998) are among other scholars whose work on the concept of norms is intertwined with rules, and sometimes these concepts are treated synonymously (Barkin & Cronin, 1994; Barnett & Finnemore, 2004; Dessler, 1989; Jepperson, Wendt, & Katzenstein, 1996; Kratochwil, 1989; Onuf, 1989, 2013).2 Rules and norms are taken for granted and, whereas there have been attempts made to define norms, rules are rarely elaborated upon (Goertz, 2003, p. 45). However, there is still a difference between rules and norms. Kratochwil (1989, p. 10) noted that ‘while all rules are norms, not all norms exhibit rule-like characteristics’. Norms entail a moral component or, in other words, a ‘normative’ standard of behaviour for states, and how states would like to appear and be perceived on the global arena (Risse, Ropp, & Sikkink, 1999, p. 8). Thus, although rules define the course of actions, norms as standards of behaviour also entail an evaluation of that behaviour (‘normal’ vs. ‘abnormal’). This brings us to another concept that could be associated with norms: the notion of values. While norms do bear certain values, values themselves are more general concepts than norms or rules, and relate more to the creation of attitudes in actors (Finnemore, 1996b; Katzenstein, 1996b; Kratochwil, 1989, p. 64; Risse et al., 1999). Fawn (2013, p. 6) considered values to represent standards of behaviour and norms as ‘mechanisms to enforce those values’. Values are also an ideational commitment that is embodied in a norm and assists in the promotion of that norm (Finnemore & Sikkink, 1998, p. 898). Another difference between values and norms is that

1 Pacta 2 On

sunt servanda (lat.)—treaties must be observed. rules in legal terms see Kratochwil (1989) and Onuf (2008).

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norms include sanctions, which is not true of values (Morris, 1956, p. 610).3 Hence, values and norms intertwine whenever there is a debate on how state identity is created, or how actors adopt a particular identity (Barnett & Finnemore, 2004; Katzenstein, 1996b; Keck & Sikkink, 1998; Risse et al., 1999). Winston (2018) presented the tripartite structure of international norms, whereby value suggests appropriate behaviour to solve an existing problem. Thus, norms are built upon values that appeal to actors/states and then lead to the creation of a behavioural pattern. The distinction between norms and ideas is also important to identify for the purposes of this book. A norm itself is an idea, but with specific characteristics, which is discussed later on. One of the differences between ideas and norms is that norms are linked with behaviour, whereas ideas do not necessarily have behavioural implications (Finnemore, 1996a, p. 22). Another notion to keep in mind when we think about ideas and norms is the issue of inter-subjectivity. Björkdahl (2002, p. 21) has noted that ‘unlike norms ideas may be held privately, and hence they are subjective not necessarily intersubjective’. It is important to include here a distinction between norms and laws as well. Legal norms are those norms established through ‘formal instruments’ (such as treaties, for instance) and have legally binding obligations by their very nature (Chayes & Chayes, 1995, p. 116). A compilation of legal norms is a law in general terms, whereas a legal system is a system of norms (Chayes & Chayes, 1995, p. 116; Kratochwil, 1989, p. 193). Although law is based on norms, there is a difference between the two. Thus, law is, usually, a written formal instrument authorised by governments or state institutions, and has a legally binding nature (Chayes & Chayes, 1995). The EITI is more than just rules or values, and most certainly is not a law. As a voluntary initiative, the EITI represents a so-called soft law in the form of a nonbinding international agreement. Although the EITI also has a set of rules, the initiative is tailored to go beyond the technical reporting. The initiative has a normative understanding of the governance of the extractive industries sector, particularly on the accountability of revenue flows. Moreover, the EITI is intended to bring wider reforms not only in this sector, but more generally to the good governance and accountability records of states (EITI International Secretariat, 2013).

2.2 Norm Emergence and Actors Involved (Norm Entrepreneurs) Florini (1996, p. 374) suggested that norms emerge and spread based on: (1) the degree of support a norm receives; (2) how the norm interacts with other pre-existing 3 ‘This

perspective follows the early sociological distinction between norms and values’, which holds that ‘values are individual, or commonly shared conceptions of the desirable, i.e. what I and/or others feel we justifiably want – what it is felt proper to want. However, norms are generally accepted, sanctioned prescriptions for, or prohibitions against, others’ behaviour, belief, or feeling – or else’ (Morris, 1956, p. 610).

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non-competing norms; and (3) the specific factors (if any) that oppose the norm. Therefore, Wiener (2003, p. 266) has recognised the necessity to acknowledge that norms emerge and develop in either or both international/transnational and domestic contexts. Both domestic and international contexts can influence the development and diffusion of a norm within and across states. Finnemore and Sikkink (1998, p. 896) argued that, since norms are constructed, there are agents who define the notion of behaviour and its limits, and they named such agents ‘norm entrepreneurs’. The role of norm entrepreneurs is crucial, especially in the early stages of norm emergence. Similarly, Mitchell (2011, p. 1884) pointed out the role of ‘transparency promoters’ in the spread of transparency as a norm. Norm entrepreneurs, thus, play an essential role in the process of norm emergence by signalling issues to be addressed by governments. Moreover, norm entrepreneurs compare a norm with existing norms, locate the norm within the wider normative context,4 and then define the standard of behaviour for the promotion of the norm (Finnemore & Sikkink, 1998). Another important feature of norm entrepreneurs is the construction of not only the norm in general, but specifically the more cognitive components of a norm, such as specific language, naming and interpretation (Finnemore & Sikkink, 1998, p. 897). Similarly, Krook and True (2010, p. 108) conducted a discursive analysis of norm emergence, arguing that norms are defined by agents and, hence, norms bear the meaning assigned to them by agents, and are connected with other normative structures accordingly. For Checkel (1997, p. 476), political elites were ‘gatekeepers’ for political reform and the implementation of a norm. This is particularly true in authoritarian regimes, where the elite group in power dominates political decision-making. Checkel (1997, p. 477) further elaborated that elites could be pressured from within their own society to adopt particular norms. Therefore, both domestic and international driving forces can affect norm internalisation through engaging with the elites. The role of political elites in norm implementation, as well as international actors promoting the EITI’s implementation, is further explored in the following chapters on Azerbaijan, Kazakhstan, Kyrgyzstan and Norway.

2.3 Norm Diffusion Models The literature on norms could be divided into two levels of analysis: international and domestic. The former deals with the spread of norms across countries and their validity in the international system, while the latter looks at the domestic factors affecting norm implementation. Both types of inquiry are important and have progressed significantly. Zimmermann (2017) distinguished two directions of norm research: norm socialisation and norm localisation. The former is occupied with the analysis of norm

4 Relating

norms to the existing norms is defined as ‘logic of appropriateness’, where the norms follow existing standards of behaviour. For details see March and Olsen (1989, 1998).

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diffusion, whereas the latter focuses on norm compliance. Her approach to norm contestation and norm implementation entails taking the middle ground, which is similar to this book’s approach except that Zimmermann looked at established norms of the rule of law, and this book deals with emerging norms. For the purposes of this study of the transparency in the extractive industries norm, it seems appropriate to analyse not only how and by who it was spread, but also what the developments have been inside each country implementing it. Thus, in the following sections, I present a critique of norm diffusion models and tease out elements for norm implementation, which informs the cross-case analysis later in the book. This is demonstrated by a norm implementation model (see Fig. 2.1), which helps in understanding the path of a norm and complements existing norm diffusion models. One issue that is often mentioned by norm scholars, yet not addressed specifically, is when a norm starts to spread and institutionalise. Jackson (1990, pp. 15–16) analysed the spread of the decolonisation norm and argued that there were several factors contributing to it, such as the World Wars, the Cold War, the demise of European colonial powers, and, most importantly, the institutionalisation of the right of selfdetermination in the UN Charter. Thus, such critical conditions have an influence on

Fig. 2.1 Norm implementation model. Source Author

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norm emergence and its spread. In this book, I go further in exploring whether critical conditions or critical junctures are more important in the spread of international norms (to be discussed later in this chapter). Norm conceptualisation could be described as a cycle where ideas solidify within the domestic political realm and then diffuse to the global arena, from where other states can pick them up and internalise them in line with their domestic conditions (Jepperson et al., 1996, pp. 58–59). Moreover, the norm diffusion process requires the existence of formal organisational platforms (Finnemore & Sikkink, 2001; Jepperson et al., 1996; Risse et al., 1999). All norm promoters at the international level need some kind of organisational platform from and through which they promote their norms. Sometimes these platforms are constructed specifically for the purpose of promoting the norm, as are many nongovernmental organisations (NGOs) (such as Greenpeace, the Red Cross, and Transafrica) and the larger transnational advocacy networks of which these NGOs become a part (such as those promoting human rights, environmental norms, and a ban on land mines or those that opposed apartheid in South Africa). (Finnemore & Sikkink, 1998, p. 899)

Similarly, the EITI was created as an organisation to support the spread of transparency in extractive industries around the world. This is discussed in more detail later in Chap. 3. Norm diffusion is a complex multi-stage process that could be analysed from various perspectives. Towns (2012, pp. 184–185) presented norm diffusion as four distinct processes: (1) the process of coercion; (2) the process of persuasion; (3) the process of learning; and (4) the process of mimicry. Whereas coercion and persuasion are more top-down impositions of a norm from big and powerful states to small and less powerful states, the processes of learning and mimicry are those where states can observe the emergence of new norms and then adopt them, or not, accordingly. These processes are especially illustrative in the power relations between states, with a divide between those who can coerce and impose norms and those who cannot. The power dynamics are crucial to point out, as in the case of emerging norms the kind of states that are promoting the norm will determine the pace of norm diffusion. Norms do not necessarily have to rely on the influence of powerful states, as Adam Bower demonstrated in his book (2017). In the case of the EITI, the difference between the Western liberal states promoting the initiative and the non-Western states that are implementing it would be important in the process of assessing the validity of the norm. An important aspect to be mentioned here is the notion of ‘learning’ in international relations. States can learn certain aspects, like norms, particularly from international society or environmental structures, and adopt standards of behaviour (Checkel, 1997; Wendt, 1992). Moreover, state elites are highly engaged in the process of learning, and they are the ones responsible for the adoption and internalisation of norms (Checkel, 1997, p. 477). In order to gain a deeper understanding of the process of norm diffusion, it is important to look at the role of norm entrepreneurs (Finnemore & Sikkink, 1998). Whereas Finnemore and Sikkink saw norm entrepreneurs mainly as states, in the case of the EITI, norm entrepreneurs also include civil society and businesses. Moreover,

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we will see that, in the traditional sense, norm entrepreneurs would be those adopting and then promoting the norm. With the division between those states that support the EITI financially and helped to establish it institutionally, and those that actually implement the initiative and then share their experience with other states, the role of norm entrepreneurs shifts. Krook and True (2010) analysed and compared the following four types of norm models in their study: (1) the ‘world–polity’ model, where norms are universally constructed; (2) the ‘norm cascade’ model of Finnemore and Sikkink (1998); (3) the ‘boomerang effect’ model, where a norm is diffused with the help of transnational advocacy networks; and (4) the ‘spiral pattern’ model, a five-stage model of domestic internalisation of a norm. The world–polity model perceives states as cultural constructions, which are embedded in world society, and are influenced by universalist ideas and is introduced in detail below (Krook & True, 2010, p. 107).

2.3.1 World–Polity Model The ‘world–polity’ model, long propagated by sociologists and more recently by international relations scholars, focuses on the notion of the existence of ‘world culture’ that encapsulates ideas, values and norms which are shared among states globally (Simmons, 2009, p. 61). Nation states are culturally constructed and embedded into a world society that spreads ‘world culture’ (Krook & True, 2010; Meyer, Boli, Thomas, & Ramirez, 1997). At the centre of their argument, world–polity scholars claim that states follow and adopt particular norms, in order to be associated with a certain international ranking, for example ‘modern’ or ‘developed’ status, and that, at the same time, the social structures are more important than their actual cultural components (Krook & True, 2010; Meyer et al., 1997). This model centres its arguments on the states that are willing to adopt international norms by themselves. However, this model does not provide a concrete mechanism of how ideas are picked up and internalised by states.

2.3.2 Finnemore and Sikkink’s Norm Life-Cycle According to Finnemore and Sikkink (1998, p. 896), the development of a norm entails a three-stage process known as a norm life-cycle. The first stage is characterised by norm emergence, where norm entrepreneurs spread the adoption of new norms (Finnemore & Sikkink, 1998, p. 895). According to the norm life-cycle model, norms spread in the international community when they gain support from a ‘critical mass’ of states (Finnemore & Sikkink, 1998; Krook & True, 2010, p. 107). Finnemore and Sikkink (1998) distinguished between the spread of norms by identifying the ‘tipping point’, defined by a ‘critical mass’ of supporters for a particular norm, and an international norm internalisation process. However, this approach does

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not look at why a state decides to implement a norm or to comply with it. Finnemore and Sikkink (1998, p. 901) warned that there is a lack of understanding of when exactly a norm reaches its ‘tipping point’. The question that arises is: how many states should accept a norm for it to be considered as having spread across states and gained authority? Finnemore and Sikkink’s norm life-cycle model, although useful in representing the stages of norm development and spread, has some pitfalls when it comes to analysis. For Finnemore and Sikkink, the meaning of a norm does not change in the process of diffusion, which may not be applicable to all international norms, especially emerging ones (Van Kersbergen & Verbeek, 2007, p. 222). This model also does not address the issue of interaction between domestic political structures and international actors, thus Sikkink (2005, p. 172) pointed out that there is a need to develop a more dynamic model that would encapsulate the interaction between domestic and international actors.

2.3.3 ‘Boomerang Effect’ Model The ‘boomerang effect’ model5 was developed by Margaret Keck and Kathryn Sikkink and looks at norm internalisation in states where there is a resistance to, or disregard of, the norm (Keck & Sikkink, 1998; Krook & True, 2010, p. 107). In this model, the decisive role is played by transnational advocacy networks (Keck & Sikkink, 1998). Thus, domestic groups can connect with transnational advocacy networks to bring attention to the necessity for norm internalisation and to pressure local governments to adopt norms (Keck & Sikkink, 1998; Krook & True, 2010; Risse et al., 1999, p. 18). The ‘boomerang effect’ model serves also as an informative mechanism for domestic groups to access information, funding and leverage from transnational advocacy groups for norm promotion inside a state (Krook & True, 2010, p. 107; Risse et al., 1999, p. 18). The ‘boomerang effect’ mostly looks at how non-state actors can adopt and promote particular norms in the local context when state elites are not keen on norm internalisation (Krook & True, 2010, p. 107). Here, the role of transnational advocacy networks is important, as those networks have the ability to influence domestic politics (Checkel, 1997; Keck & Sikkink, 1998; Krook & True, 2010, p. 107). By reviewing multiple models that analyse norm diffusion and internalisation, it is clear that all of the models serve different purposes. For example, Florini (1996) and Krook and True (2010) focus on the interaction between states on the issue of norm diffusion. Risse et al. (1999) and Keck and Sikkink (1998) pay more attention to transnational advocacy networks and their ability to diffuse norms in states, bypassing governments. Therefore, the dual analysis of norm spread, both international and domestic, is important in presenting a more detailed account of what is a norm and how it is applied. This research thus explores the development of transparency as a 5 See

Fig. 1.2 ‘boomerang effect’ in Risse et al. (1999, p. 19).

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norm in extractive industries internationally and domestically through case studies. By doing this, one can grasp the evolution of transparency as a norm on the global level, and how it was diffused domestically in the taken case studies, which allows us to cover all aspects of the norm life-cycle. Since political authorities are responsible for the implementation of a norm and its internalisation, political leaders are essential players in the study of norms. Political elites provide domestic legitimacy to a norm and can solidify it, even if it is widely supported by the international community (Cortell & Davis Jr., 1996; Goertz & Diehl, 1992). Thus, by examining state actions and political decisions, one can evaluate the level of commitment and legitimacy of an international norm within the domestic context (Cortell & Davis Jr., 1996). Furthermore, international advocacy networks have also been identified as a driving force for norm implementation and internalisation (Checkel, 1997; Finnemore & Sikkink, 1998; Keck & Sikkink, 1998; Risse & Sikkink, 1999). Keck and Sikkink (1998) conducted an extensive study on the role of transnational networks of activists in the promotion of international norms across the globe. Transnational advocacy networks are at the heart of the ‘spiral’ model of norm emergence. Transnational advocacy networks are crucial in the promotion of norms across states and international organisations (Keck & Sikkink, 1998). Members of these networks (individuals, civil society organisations, business firms, etc.) generate, ‘frame’ and provide platforms for the discussion of new ideas and norms (Keck & Sikkink, 1998, p. 3). However, advocacy networks not only initiate the discussion of norms and ideas, but they also put pressure on decision-makers to ensure the implementation of a norm or policy (Keck & Sikkink, 1998, p. 3). Thus, advocacy networks could exert pressure ‘from above’ and ‘from below’ in order to promote the norm (Keck & Sikkink, 1998; Risse & Sikkink, 1999).

2.3.4 ‘Spiral’ Model of Norm Implementation Risse et al. (1999) developed a ‘spiral’ model of human rights change, built upon the ‘boomerang effect’ model, and demonstrating the stages of norm socialisation of non-compliant states by non-state actors. The model describes five stages of norm promotion and socialisation within a state performed by advocacy groups, and includes: ‘domestic repression, state denial, tactical concessions, prescriptive status and rule-consistent behavior’ (Krook & True, 2010; Risse et al., 1999, p. 20). Like the ‘boomerang effect’ model, the ‘spiral’ model relies on the work of advocacy groups, domestic and international, to promote the adoption of norms in states. The ‘spiral’ model not only illustrates behavioural change, but also captures the intertwined relationships between state, domestic society and international society. Norm implementation, thus, is not only a political decision of a state, but also a product of a complex relationship between state and non-state actors (both local and international). Risse et al. (1999, 2013) investigated how actors mobilise and engage local and international networks to persuade a state to grow from commitment to

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compliance. The model, thus, further underlines the importance of actors in the process of norm internalisation, which is also reflected in this book. Although this model refers to human rights change, some of the components are incorporated into this study of a transparency norm. The ‘spiral’ model looks at the interaction and interplay between domestic society, state and international society in the norm diffusion and internalisation process (Risse et al., 1999, 2013). The distinctive feature of the ‘spiral’ model is the representation of movement from norm commitment to norm compliance by the states. Moreover, the model is also illustrative of the role of domestic and international advocacy networks in state socialisation and norm compliance. Thus, Risse et al. (1999, 2013) put much emphasis on the pressures applied by international society, together with domestic civil society, on governments to bring policy change and to ensure compliance. The shortcoming of this model, therefore, is in its understanding of the critical factors and conditions necessary for norm commitment and compliance. Moreover, the model builds on the premise of strong domestic civil society networks and, therefore, the issue of the capacity-building of civil society members should also be reflected in empirical studies. In addition, a given government should have enough technical capabilities to ensure norm compliance (Chayes & Chayes, 1993). The ‘spiral’ model focuses only on the issue of state resistance to a norm and, hence, how transnational advocacy groups could persuade governments to do otherwise. For the purpose of this research, the focus is on the last three stages of the ‘spiral’ model and their relationship with the implementation of the transparency norm. Differentiating between commitment and compliance is crucial when attempting to capture the occasions on which a state agrees to certain terms and yet fails to comply with them fully. Thus, the concepts of critical juncture and tipping point are incorporated into the model, as described later in this chapter.

2.4 Norm Compliance To begin the discussion on norm compliance, it is first advisable to look at compliance with particular behaviour more generally. March and Olsen (1989, 2009), in their study of social institutions, argued that states follow a ‘logic of appropriateness’ and a ‘logic of consequences’, as a way of explaining people’s conformity with certain actions. According to the ‘logic of appropriateness’, states comply with norms because they associate them with the appropriate behaviour essential to the claiming of statehood (Finnemore, 1996a). Hence, this logic refers primarily to the constitutive nature of norms and, thus, norms are implemented because they are considered to be part of a state’s identity (Brigham & Brigham, 2006, p. 361). The ‘logic of consequences’ refers to the rational choice in decision-making driven by the actors (Finnemore, 1996a, p. 29). The ‘logic of consequences’ explains norm compliance by states as being due to the associated benefits in doing so, as well as the furthering of their interests, and the fear of sanctions for non-compliance (Checkel, 1997, p. 475; Cortell & Davis Jr., 1996, p. 452; March & Olsen, 1998, p. 949). Rules

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and norms are created to support actions based on calculated decisions on the costs and outcomes of an action, which more or less aligns with Stephen Krasner’s idea about international regimes (Krasner, 1983b, p. 1). Thus, in other words, rules and norms become instruments in supporting international regimes as social institutions that govern the actions of states (Krasner, 1983b, pp. 16–17; Young, 1983, p. 93). The function of international regimes is then to maintain order (Keohane, 1983) and arranging behaviour in the common interest (Haas, 1983, p. 27). International relations scholars have long tried to answer the question of why states decide to comply with particular norms. From the realist perspective, compliance happens when it is in the self-interest of a state (Waltz, 1979). The international regimes discourse suggests that compliance is achieved through cooperative nature and as a ‘long-term strategy to obtain self-interested goals’ (Hathaway, 2002, p. 1949; Keohane, 1983). These theoretical approaches fall short of explaining why states would be willing to establish a regime and adhere to it, as well as exposing themselves to external oversight and criticism, as is the case with the EITI (Hathaway, 2002, p. 1946). According to Herrmann and Shannon (2001, p. 622), adoption and compliance with norms is based on the following three concepts: ‘(1) material interests, (2) feeling of normative obligation and (3) perception of the situation’. Within this framework, subjective individual attitudes towards a norm are crucial in the study of norm implementation. Thus, for example, the perception of a situation and the feeling of a moral obligation to abide by the norm could be more attributed to political elites rather than the state in general. Thus, again, the role of actors involved in the process of norm implementation and promotion within the state is essential when attempting to uncover the power of norms in domestic and international politics. The counterargument is that states conform with certain behaviour, rules and norms because they consider them to be viable, legitimate and appropriate (March & Olsen, 2009). Compliance, from a legal perspective, is a foundational norm in international law, which could be summarised as pacta sunt servanda (treaties are to be obeyed) (Chayes & Chayes, 1995, p. 8). Compliance with a norm is usually built into the structure that supports that norm. If a treaty supports a norm, then compliance mechanisms would be established in the corresponding treaty. This is done in order to ensure that the treaty is respected by signing parties and to reassure others of their compliance with the treaty (Chayes & Chayes, 1995). Compliance thus requires transparency to create a system of checks and balances (Chayes & Chayes, 1995, p. 23). This also holds true for legally binding treaties and agreements that have sanctioning powers with respect to non-compliant states. Moreover, how compliance with transparency as a norm can be ensured is unclear. Indeed, transparency appears as a norm that requires compliance without a binding legal framework in the example of the EITI. In this case, it is necessary to look at internal mechanisms for ensuring compliance among states as well as the incentives to abide with agreements. These aspects are explored in more detail in the next chapter. The liberalist perspective on norm compliance puts the focus on the domestic rather than the international level, with the idea that states comply with norms due to domestic interests and/or pressure from domestic networks (Hathaway, 2002,

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p. 1954). The role of external actors in compliance has also been recognised, as transnational networks and norm entrepreneurs are attributed to socialising the norm and creating a shared identity (Finnemore & Sikkink, 1998; Koh, 1997). Haas and Bilder (2003, p. 49) recognised the intertwined nature of domestic and international actors in norm spread and compliance: domestic actors push for compliance, while international actors incentivise domestic actors to comply. This intertwined relationship becomes clearer in the analysis of norm internalisation in the domestic political realms later in this chapter. Norm compliance is also attributed to the associated costs and benefits from doing so, according to the rational-choice discourse (Caporaso, 1992; Chayes & Chayes, 1993). Subsequently, material interests could also be used as an explanation for internalisation of a particular norm, and compliance with it, especially if it is in the self-interest of a state (Goertz & Diehl, 1992, p. 637; Herrmann & Shannon, 2001, p. 622). Checkel (1997, pp. 473–474) elaborated on this by saying that norms could be adopted for several reasons, including the rationalist means-ends logic and calculation of benefits and costs. Haas and Bilder (2003, p. 47) linked the likelihood of compliance to the associated costs, whereas Hathaway (2002) argued that states comply with norms that entail limited costs to achieve ‘expressive’ benefits. Such attitudes towards compliance could be linked with the notion of state legitimacy. Simply put, a government commits to an international norm to be endorsed by the international community. Thus, compliance lies within the state’s cost–benefit analysis, and the government then decides whether the associated costs of compliance could be outweighed by the potential benefits. The challenge of such an attitude to norm compliance is the difficulty of quantifying the benefits and costs, and the unpredictability of what costs and/or benefits would arise from compliance (Simmons, 2009). It is also important to look at the nature of the political regime in a state when addressing compliance issues. Moravcsik (2000, pp. 208–209) argued that newly established democracies are more willing to internalise binding international human rights treaties due to the uncertainty of domestic politics and to ‘lock in’ democratic rule. In the case of the EITI’s internalisation, the difference between established and newly formed democracies could also be drawn in terms of the timing of the EITI application. Compliance would, thus, depend on state capacities to internalise and comply with the norm (Börzel & Risse, 2013; Simmons, 2009).

2.4.1 Sanctions and Norm Non-compliance Sanctions play an important role in the formation and diffusion of norms across states (Axelrod, 1986; Goertz & Diehl, 1992). Axelrod (1986) explored the issue of sanctions by attempting to determine who held the power to impose sanctions for misbehaviour. He affirmed that within a state, the central government holds such power. However, in the international society, where power is not centralised, it is hard to tell who can impose sanctions (Axelrod, 1986). Indeed, if one adheres to hegemonic stability theory, one can claim that the hegemon holds the power to impose

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sanctions or, similarly, system theory would claim that ‘core’ states have power over the ‘periphery’.6 Another strand of scholars believes that compliance depends on whether it is ‘managed’ or ‘enforced’ (Chayes & Chayes, 1995; Downs, Rocke, & Barsoom, 1996). The ‘managerial’ model assumes that compliance occurs because of the cooperative nature of states and the obligation to follow the rules, rather than because of norm’s enforceability (Chayes & Chayes, 1995, p. 116; Hathaway, 2002, p. 1956). Sanctions could be one of the instruments applied to make countries comply with the adopted norms, and however, international organisations also create internal mechanisms to keep states accountable to their normative commitments. Internal conditionality is one of the concepts that is applied to studying the compliance of states with values and norms of international organisations (Fawn, 2013). Internal conditionality is applied to counterbalance the significant difference between values of international organisations and that of potential member states. For instance, Fawn (2013) explored the notion of internal conditionality by investigating the work of the Council of Europe (CoE) and the OSCE, and the accession of the former Soviet Republics to these organisations in the 1990s. Internal conditionality was thus employed to reconcile the democratic values of the CoE and the OSCE with the somewhat authoritarian regimes of the former Soviet Republics. Internal conditionality also represents a bargaining process between international organisations and states on the definition of norms and the demarcation of normative behaviour (Fawn, 2013). This process fits in with norm development models and how the norm internalisation process occurs. Internal conditionality explores how states absorb values and norms that were previously alien to them, and what policies states have to apply in order to comply with international organisations they would like to join. It is important to note that internal conditionality is applied when countries have already joined an international organisation and are observed by the given organisation from within the institutional premises. This research looks at the dual forms of conditionality, both internal and external. External conditionality is explored from the point of view of the normative negotiation process when countries are not members of the organisation. The set of conditions imposed by the EITI for newly joined members is explored to identify what values and norms the EITI promotes among countries. In addition, the case studies in the following chapters reveal the internal conditionality applied by the EITI for compliant countries and the practices involved in this process.

2.5 Legitimacy and Norms Another aspect worthy of some attention here is the concept of legitimacy of norms. Florini (1996, p. 365) noted that emerging norms should be recognised as legitimate in order to be accepted by the international community. The sense of norm legitimacy 6 See

‘Leviathan’ by Hobbes (1651), Wallerstein (1974).

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comes from the collective shared idea of what is acceptable, and whether the norm could fit into the existing normative structure (Florini, 1996, p. 376).7 Once a norm has gained legitimacy, the focus moves on to compliance therewith: if states perceive a norm to be legitimate and within the accepted normative structure, it is complied with (Florini, 1996, p. 376; Franck, 1990, p. 24). Hence, the matter of recognition of a norm as legitimate is also crucial. In this regard, states would have to recognise a norm not only as legitimate, but as a reasonable and viable concept. This, in turn, would be linked to the debate on strong and weak states’ endorsement of a norm. The issue of legitimacy is closely linked with international norms in two ways. First, norms have to be legitimate, and recognised as such, to be adopted by states. As mentioned earlier, collective recognition of a norm gives its validity within international society (Onuf, 2013). Florini (1996, pp. 364–365) argued that a norm needs to acquire an ‘aura of legitimacy’ in order to be considered as a norm. Second, in the event of a clash between various norms, the legitimacy of a norm could be challenged. For instance, in the case of colonialism and decolonisation norms, the institutionalisation of the self-determination norm in the UN Charter undermined the legitimacy of European powers’ colonisation of certain countries (Jackson, 1990, p. 16). For Wiener (2007, p. 52), norm validity emerges from the ‘arguing approach’ or, in other words, when states, specifically norm entrepreneurs, engage in discussions on the meaning of a norm (Risse, 2000; Ulbert & Risse, 2005). Thus, Wiener (2007, p. 52) emphasised that norms should be recognised as valid among negotiating actors.

2.6 Norm Contestation Norms are inherently contested since they acquire meaning depending on the context in which they are applied (Wiener & Puetter, 2009). Norm contestation is a significant issue in the study of norms. Contestation relates not only to actual compliance with norms, which is analysed later in this chapter, but also to the meaning of norms, especially the contextual meaning that each norm-follower applies (Wiener, 2004, 2014; Wiener & Puetter, 2009). Wiener (2008) focused on understanding the change of the meaning of a norm once it moves from the transnational to the domestic political arena, by looking at the nature of contestation in norms. Wiener (2007, 2008) suggested that contestation brings two issues: the conflict over a norm and the coordination problem; and the necessity to establish legitimacy in democratic governance. Contestation, for Wiener (2008), is essential for democratic governance as it prompts discussions over the meaning, understanding and agreement of a norm. That said, Wiener focused on democratic political government and norms, thus the question that arises is whether the study of contested norms in non-democratic states would also reveal some of the complexities of norms, especially with respect to compliance therewith. 7 This

is then related to the debate on norms and environment (Bull, 1977; Katzenstein, 1996b; Wendt, 1992).

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Krook and True (2010, pp. 108–109) argued that norms are continuously redefined through ‘internal and external’ processes. The ‘internal’ process means the revision of the definition of a norm, which happens when there is a conflict between competing meanings of a norm, and can result in reformulation of a norm or the emergence of a new one (Krook & True, 2010, p. 109). On the other hand, when norms have to fit into a wider normative structure and engage with other pre-existing norms, this is known as an ‘external’ process (Checkel, 1998; Krook & True, 2010, pp. 110–111). Thus, in the discussion of domestic norm implementation, it is important to pay attention to how a norm is integrated into a domestic political realm and also whether the meaning of a norm changes over the course of its implementation. Krook and True (2010, p. 105) have also argued that differences in the interpretation of the meaning of a norm will affect the diffusion of the norm. In other words, some flexibility in interpreting what a norm constitutes would make a state more willing to adopt a norm. Deitelhoff and Zimmermann (2013) distinguished two forms of norm contestation: norm validity and norm application. In relation to the former, they followed Wiener, Krook and True’s argumentation on contestation over a norm’s meaning. The latter is related specifically to contestation over the implementation of the norm, which is well-demonstrated in the discussion of the demise of the EITI’s implementation in Azerbaijan. As highlighted in the discussion above, the meaning of norms is flexible especially among those that are newly established. In the case of the EITI, this is a significant issue as the initiative is still relatively young and, as the following chapter indicates, the EITI rules have gone through significant revisions over the course of the implementation of the initiative by its member states. Thus, as theoretical work has indicated, contestation over the meaning of a norm is almost inevitable. It is important to keep this in mind in light of the discussion as to what the EITI represents to its implementing countries and to the EITI Board.

2.7 Domestic Norm Implementation The discussion above has highlighted some of the crucial issues to keep in mind regarding norm implementation. The following sections present the model used to analyse the case studies in this book and then assess the varying levels of progress made in the EITI’s implementation. The model (Fig. 2.1) consists of three stages of norm implementation: commitment, internalisation and compliance. It also reflects the conditions of norm legitimacy, state actions towards norm implementation and domestic and external pressures.

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2.7.1 Critical Junctures As mentioned at the beginning of this chapter, norms emerge and are followed when certain critical conditions have been met. These critical conditions should not be disregarded and should in fact be brought into the discussion of norm implementation. I am convinced that the motivations and factors contributing to norm implementation are always present throughout the process of norm internalisation and compliance. These conditions are better explained through the concept of critical junctures. The discourse on critical junctures serves as an additional source in which to trace the process of decision-making and thus supplements the discussion on norm implementation. Capoccia and Kelemen (2007, p. 343) defined critical junctures as: In institutional analysis critical junctures are characterised by a situation in which the structural (that is, economic, cultural, ideological, organisational) influences on political action are significantly relaxed for a relatively short period, with two main consequences: the range of plausible choices open to powerful political actors expands substantially and the consequences of their decisions for the outcome of interest are potentially much more momentous.

A critical juncture, in other words, is a compilation of conditions that results in a change of events producing distinct legacies (Collier & Collier, 2002, p. 29). Critical juncture is used more frequently in the analysis of historical processes, but captures better the criticality of the moment of a change of state behaviour towards norm implementation. Historians have utilised the concept of critical juncture to better apprehend ‘path-dependent’ change (David, 1985, p. 332). This book engages critical junctures to explain states’ shifts to norm commitment and norm compliance. As opposed to the suggested tipping point concept of Finnemore and Sikkink (1998), the critical juncture concept allows for a deeper understanding of the necessary conditions for norm commitment, and of the reasons motivating states to implement a norm, and of pinpointing the moment at which a state decides to commit to a norm. One of the main distinctions between the concepts of tipping point and critical juncture is that the former refers to the point at which a norm goes from being promoted to one that is universally accepted. In terms of this book’s focus, the concept of tipping point neither captures the temporality of domestic norm commitment and internalisation, nor does it explain the reasoning behind norm commitment. More relevant for the purposes of this book is the use of the concept in the analysis of crises, continuity and change in the international political economy (Collier & Collier, 2002; Katzenstein, 1985; Krasner, 1984). As Collier and Collier (2002, pp. 30–31) have put it, the critical juncture concept comes as a response to crisis or external shock and requires a change in political decisions that will have a lasting legacy. Therefore, each country can experience different critical junctures, which vary in terms of duration and speed of political change. Thus, specifically, the concept of critical juncture is utilised in this book to demarcate all of the factors that led up to the change in state behaviour and the expression of commitment to the EITI’s implementation. Drawing such a distinction between the pre-EITI period and post-EITI commitment is crucial in the process of marking

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out the transition period. Although there were no major crises triggering a critical juncture for Azerbaijan, Kazakhstan, Kyrgyzstan and Norway, there was certainly a build-up of factors that pushed the respective governments to commit to the EITI. Therefore, the term ‘critical juncture’ in this book incorporates not only the factors that motivated the states to commit to the EITI, but it is also used to point out the exact timing thereof. The lasting legacy of a critical juncture, in this case is, the EITI’s implementation itself. More importantly, as discussed in detail in Chap. 7 on Azerbaijan’s case, critical juncture can reoccur and alter the process of norm implementation.

2.7.2 Norm Commitment After critical junctures have affected state actors, the first stage of norm implementation happens, namely norm commitment. An important issue to raise here is why states decide to commit to a norm, especially when the norm seems to contradict the political behaviour of a state. For instance, Simmons (2009, pp. 67, 77) posed the question of why states respecting human rights do not ratify human rights treaties, and why states violating human rights sign such treaties. Similarly, why do countries that have not previously disclosed information, and which are considered to be corrupt, implement the EITI, even though states that do disclose information already on resource revenues do not? Thus, the conditions that need to be in place for a state’s decision to comply with norms and the reasons for compliance should be points of inquiry as well. By exploring motivations and critical conditions for commitment to a norm, one can then gain insights on the sustainability of norm internalisation and the nature of compliance therewith. Hathaway (2007, p. 590) claimed that norm commitment and norm compliance are linked. A state calculates the costs and benefits of compliance and, based on that, makes a decision to commit to a norm or not. Essentially, Hathaway’s logic is that norm commitment and compliance would depend on the effects that the norm would bring. The cost–benefit analysis has been discussed in the norm compliance section of this chapter, but it is important to note here that the costs and benefits associated with compliance might not be the same as the ones for norm commitment. In other words, in the course of norm implementation, additional costs and benefits might arise, especially in cases where the norm changes after its adoption in practice. This aspect, which has mostly been ignored by scholars, is more closely explored in the empirical chapters of this book.

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2.7.3 Norm Internalisation The second stage of the domestic norm implementation model is norm internalisation where policies are adopted to imbed further the norm into the given domestic political realm. Checkel (1997, p. 476) has pointed out that the question of how norms penetrate reach the domestic arena has been neglected by scholars. He promoted the concept of ‘norm empowerment’ which highlights the processes of change in behaviour and when a norm enters the domestic discourse. For Checkel, the involvement of domestic political elites is important, as they are the ones in control of political decision-making. With this in mind, norm internalisation is discussed in more detail below. In Finnemore and Sikkink’s norm life-cycle, at the norm internalisation stage, norms acquire a status of ‘taken-for-granted’ and are universally applied (1998, p. 904). Since norms are applied almost automatically, there is either full conformance with a norm or limited discussion around it (Finnemore & Sikkink, 1998, p. 904). For example, slavery or colonialism was once widely practiced norms, but have now vanished and, instead, anti-slavery legislation and self-determination norms have become common on the international arena (Florini, 1996). It is important to keep in mind that not all international norms achieve full norm internalisation. Scholars have conducted investigations to ascertain which norms can be sufficiently influential, and in which circumstances they can be widely accepted by states (Chayes & Chayes, 1995; Finnemore, 1996a; Finnemore & Sikkink, 1998; Goertz, 2003; Katzenstein, 1996b). All of this requires far more elaboration in terms of why particular norms become influential and why others do not. In the norm internalisation stage, international actors, such as norm entrepreneurs, do not play a substantial role, but compliance and verification mechanisms are crucial. Maintaining universal conformance with a norm is the purpose of international society at the norm internalisation stage. It is also important to consider whether a particular norm is implemented in the same way by different countries (Betts & Orchard, 2014, p. 2). The discussion of norm internalisation presented here refers to analysis at the international level. I suggest using the term ‘norm internalisation’ in the domestic political realm. In other words, for this book ‘norm internalisation’ means how the norm is integrated into the domestic sphere, with respect to existing practices and policies.

2.7.3.1

Domestic Structures and Norms

Domestic norm internalisation, that was mentioned in the previous section, will be influenced by the so-called domestic structures. Risse-Kappen (1995, p. 21) distinguished three layers of domestic structures: (1) political institutions—centralised versus fragmented (the nature of the relationship between executive and legislative branches of power; whether the executive power is concentrated in a small circle

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of people; and bureaucratic infighting); (2) demand-formation of civil society— strong versus weak (whether civil society can be mobilised for political causes and whether political ideas correlate with religious, ideological and class cleavages); and (3) policy networks—consensual versus polarised (the nature of political decisionmaking and the relationship between state and society). For Risse-Kappen, the differences in domestic structures would be reflected in the ability of transnational advocacy networks to promote policy changes. Building on the argument developed by Risse et al. (1999, 2013) on the ‘spiral’ model of norm implementation, namely that transnational advocacy groups can persuade governments to introduce policy changes, Risse-Kappen’s work goes deeper in understanding how the relationship between transnational networks and governments is developed. Similarly, Cortell and Davis Jr. (1996, p. 452) argued that since domestic actors make decisions on norm implementation, one should factor in the domestic salience of the norm and the domestic structure of decision-making. The difference between the approach of Cortell and Davis and that of Risse-Kappen is that the former focuses on domestic actors and the latter focuses on transnational ones. However, both pay attention to the interaction between domestic and transnational actors in norm implementation. This book looks not only at the interaction between transnational actors and domestic structures, but also attempts to understand whether the configuration of domestic structures enables norm implementation and compliance.

2.8 Conclusion From the discussion presented in this chapter, it is evident that norms are fundamental building blocks of state interests, identities and policies, as well as international society and systems. This indicates the power that norms can bear, and their essential place in international relations. Norms are instrumental in the relationship between states and organisations. Moreover, norms can stimulate interaction between advocacy networks and governments in order to internalise and adopt norms. Therefore, the study of norms is significant in the endeavour to understand state behaviour, decision-making processes and interstate relationships. This research touches upon various puzzling aspects of international norms in international relations. First of all, this research contributes further to the debate on the constitutive and constraining nature of norms. It argues that the transparency norm, indeed, has the capacity to both constitute of identity and constrain state behaviour. However, this dual effect could result in norm contestation between norm entrepreneurs and normfollowers. In a special issue of the Journal of International Law and International Relations, Antje Wiener and Uwe Puetter introduced the need to refine the theory of norms to reflect on the context of contested norms, and the relationship between norm implementation and norm acceptance (Wiener & Puetter, 2009). Wiener has explored the nature of contestation from the perspective of norm-setter and norm-follower, but the contestation might also happen within a country itself,

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between various actors involved in norm implementation (Wiener, 2004, 2014). Different interpretations of a norm can trigger a conflict within a state, not only between states. Thus, again it is important to look more closely at the process of how a norm is internalised, and what actors are involved in norm implementation based on the selected case studies. The empirical evidence yielded will help to refine our understanding of the various types of norms. Subsequently, the context surrounding norm implementation is important, and Wiener and Puetter (2009) referred specifically to the cultural context. This research pays attention not only to how the domestic context informs the meaning of a norm, but also to how domestic conditions affect norm implementation in general. Deviation in norm interpretation happens across countries and also across communities and sub-communities in the same state, depending on the cultural contexts (Wiener & Puetter, 2009). This research explores deviation in the implementation of the transparency norm, and whether this can happen across different norm-followers. Second, an empirical qualitative study utilised for this research informs the process of norm introduction in the domestic political realm, government commitment and, eventually, norm compliance. It also pays attention to the roles of actors, both domestic and international, involved in the norm internalisation process, following the works of Finnemore and Sikkink (1998). Third, it is important to understand the timing of a norm policy change and, thus, the critical conditions and tipping points are explored and analysed. International regime theory argues that the presence of a major power in supporting a norm will ensure that it is spread among states (Krasner, 1983a). However, Finnemore and Sikkink (1998) argued that a critical mass should be reached first, which does not necessarily imply the involvement of ‘major powers’ in the process of norm cascade. Therefore, it is not yet clear what triggers a norm cascade, as this seems to vary from case to case, with the involvement of ‘major powers’ essential in some cases, but not in others. Fourth, norm compliance receives particular attention in the case of the transparency norm. The study of how governments and international institutions are ensuring compliance with the norm, and what incentives they provide to do so, further informs the discussion of how norms are implemented. In particular, the aspect of sanctions is explored, in the sense of how the absence of hard sanctions (diplomatic or economic) could ensure norm compliance. The comprehensive approach to the study of norms—of how, when and who is involved in norm internalisation and norm compliance—further informs the study of the role norms play in international relations, how states interact with norms and how they behave as a result of norms (Wiener & Puetter, 2009). Thus, this research also contributes to the broader literature on norms by developing a more complex norm-sequencing model that captures all of the above-mentioned issues relating to norms.

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EITI International Secretariat. (2013). The EITI standard. https://beta.eiti.org/sites/default/files/ documents/english_eiti_standard.pdf. Accessed on May 5, 2015. Fawn, R. (2013). International organizations and internal conditionality: Making norms matter. Basingstoke: Palgrave Macmillan. Finnemore, M. (1996a). National interests in international society. Ithaca: Cornell University Press. Finnemore, M. (1996b). Norms, culture, and world politics: Insights from sociology’s institutionalism. International Organization, 50(2), 325–347. https://doi.org/10.1017/S00208118300028587. Finnemore, M., & Sikkink, K. (1998). International norm dynamics and political change. International Organization, 52(4), 887–917. https://doi.org/10.1162/002081898550789. Finnemore, M., & Sikkink, K. (2001). Taking stock: The constructivist research program in international relations and comparative politics. Annual Review of Political Science, 4, 391–416. Florini, A. M. (1996). The evolution of international norms. International Studies Quarterly, 40(3), 363–389. https://doi.org/10.2307/2600716. Franck, T. M. (1990). The power of legitimacy among nations. New York: Oxford University Press. Goertz, G. (2003). International norms and decision making: A punctuated equilibrium model. Lanham: Rowman & Littlefield Publishers Inc. Goertz, G., & Diehl, P. F. (1992). Toward a theory of international norms. The Journal of Conflict Resolution, 36(4), 634–664. https://doi.org/10.1177/0022002792036004002. Haas, E. B. (1983). Words can hurt you; or, who said what to whom about regimes. In S. D. Krasner (Ed.), International regimes (pp. 23–59). Ithaca: Cornell University Press. Haas, P. M., & Bilder, R. B. (2003). Compliance theories choosing to comply: Theorizing from international relations and comparative politics. In D. Shelton (Ed.), Commitment and compliance: The role of non-binding norms in the international legal system (pp. 43–74). Oxford: Oxford University Press. Hathaway, O. A. (2002). Do human rights treaties make a difference? The Yale Law Journal, 111(8), 1935–2042. Hathaway, O. A. (2007). Why do countries commit to human rights treaties? Journal of Conflict Resolution, 51(4), 588–621. https://doi.org/10.1177/0022002707303046. Herrmann, R. K., & Shannon, V. P. (2001). Defending international norms: The role of obligation, material interest, and perception in decision making. International Organization, 55(3), 621–654. https://doi.org/10.1162/00208180152507579. Hobbes, T. (1651). Leviathan. Project Gutenberg. Retrieved from http://www.gutenberg.org/files/ 3207/3207-h/3207-h.htm. Jackson, R. H. (1990). Quasi-states: Sovereignty, international relations and the third world. Cambridge: Cambridge University Press. Jepperson, R. L., Wendt, A., & Katzenstein, P. J. (1996). Norms, identity, and culture in national security. In P. J. Katzenstein (Ed.), The culture of national security: Norms and identity in world politics (pp. 33–75). New York: Columbia University Press. Katzenstein, P. J. (1985). Small states in world markets: Industrial policy in Europe. Ithaca: Cornell University Press. Katzenstein, P. J. (1996a). Introduction: Alternative perspectives on national security. In P. J. Katzenstein (Ed.), The culture of national security: Norms and identity in world politics (pp. 1–32). New York: Columbia University Press. Katzenstein, P. J. (Ed.). (1996b). The culture of national security: Norms and identity in world politics. New York: Columbia University Press. Keck, M. E., & Sikkink, K. (1998). Activists beyond borders: Advocacy networks in international politics. Ithaca: Cornell University Press. Keohane, R. O. (1983). The demand for international regimes. In S. D. Krasner (Ed.), International regimes (pp. 141–172). Ithaca: Cornell University Press. Koh, H. H. (1997). Why do nations obey international law? The Yale Law Journal, 106(8), 2599– 2659. Krasner, S. D. (1983a). International regimes (S. D. Krasner, Ed.). Ithaca: Cornell University Press.

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Krasner, S. D. (1983b). Structural causes and regime consequences: Regimes as intervening variables. In S. D. Krasner (Ed.), International regimes (pp. 1–21). Cornell University Press. Krasner, S. D. (1984). Approaches to the state: Alternative conceptions and historical dynamics. Comparative Politics, 16(2), 223–246. https://doi.org/10.2307/421608. Kratochwil, F. V. (1989). Rules, norms, and decisions: On the conditions of practical and legal reasoning in international relations and domestic affairs. New York: Cambridge University Press. Krook, M. L., & True, J. (2010). Rethinking the life cycles of international norms: The United Nations and the global promotion of gender equality. European Journal of International Relations, 18(1), 103–127. https://doi.org/10.1177/1354066110380963. March, J. G., & Olsen, J. P. (1989). Rediscovering institutions: The organizational basis of politics. New York: The Free Press. March, J. G., & Olsen, J. P. (1998). The institutional dynamics of international political orders. International Organization, 52(4), 943–969. https://doi.org/10.1162/002081898550699. March, J. G., & Olsen, J. P. (2009). The logic of appropriateness. In R. E. Goodin, M. Moran, & M. Rein (Eds.), The Oxford handbook of public policy. Oxford: Oxford University Press. https:// doi.org/10.1093/oxfordhb/9780199548453.003.0034. Meyer, J. W., Boli, J., Thomas, G. M., & Ramirez, F. O. (1997). World society and the nation-state. American Journal of Sociology, 103(1), 144–181. https://doi.org/10.1086/231174. Mitchell, R. B. (2011). Transparency for governance: The mechanisms and effectiveness of disclosure-based and education-based transparency policies. Ecological Economics, 70(11), 1882–1890. https://doi.org/10.1016/j.ecolecon.2011.03.006. Moravcsik, A. (2000). The origins of human rights regimes: Democratic delegation in postwar Europe. International Organization, 54(2), 217–252. Morris, R. T. (1956). A typology of norms. American Sociological Review, 21(5), 610–613. Onuf, N. G. (1989). World of our making: Rules and rule in social theory and international relations. Columbia: University of South Carolina Press. Onuf, N. G. (2008). International legal theory: Essays and engagements, 1966–2006. London: Routledge-Cavendish. Onuf, N. G. (2013). Making sense, making worlds: Constructivism in social theory and international relations. New York: Routledge. Risse-Kappen, T. (1995). Bringing transnational relations back in: Introduction. In T. RisseKappen (Ed.), Bringing transnational relations back in: Non-state actors, domestic structures and international institutions (pp. 3–33). Cambridge: Cambridge University Press. Risse, T. (2000). ‘“Let’s argue!”’: Communicative action in world politics. International Organization, 54(1), 1–39. https://doi.org/10.1162/002081800551109. Risse, T., Ropp, S. C., & Sikkink, K. (Eds.). (1999). The power of human rights: International norms and domestic change. New York: Cambridge University Press. Risse, T., Ropp, S. C., & Sikkink, K. (Eds.). (2013). The persistent power of human rights: From commitment to compliance. Cambridge: Cambridge University Press. Risse, T., & Sikkink, K. (1999). The socialization of international human rights norms into domestic practices: Introduction. In T. Risse, S. C. Ropp, & K. Sikkink (Eds.), The power of human rights: International norms and domestic change (pp. 1–38). Cambridge: Cambridge University Press. Sikkink, K. (2005). Patterns of dynamic multilevel governance and the insider-outsider coalition. In D. della Porta & S. Tarrow (Eds.), Transnational protest and global activism (pp. 151–174). Lanham: Rowman & Littlefield Publishers, Inc. Simmons, B. A. (2009). Mobilizing human rights: International law and domestic politics. New York: Cambridge University Press. Towns, A. E. (2012). Norms and social hierarchies: Understanding international policy diffusion “from below”. International Organization, 66(2), 179–209. https://doi.org/10.1017/ S0020818312000045. Ulbert, C., & Risse, T. (2005). Deliberately changing the discourse: What does make arguing effective? Acta Politica, 40(3), 351–367.

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Van Kersbergen, K., & Verbeek, B. (2007). The politics of international norms: Subsidiarity and the imperfect competence regime of the European Union. European Journal of International Relations, 13(2), 217–238. https://doi.org/10.1177/1354066107076955. Wallerstein, I. (1974). The rise and future demise of the world capitalist system: Concepts for comparative analysis. Comparative Studies in Society and History, 16(4), 387–415. Waltz, K. N. (1979). Theory of international politics. Long Grove: Waveland Press, Inc. Wendt, A. (1992). Anarchy is what states make of it: The social construction of power politics. International Organization, 46(2), 391–425. Wiener, A. (2003). Constructivism: The limits of bridging gaps. Journal of International Relations and Development, 6(3), 252–275. Wiener, A. (2004). Contested compliance: Interventions on the normative structure of world politics. European Journal of International Relations, 10(2), 189–234. https://doi.org/10.1177/ 1354066104042934. Wiener, A. (2007). The dual quality of norms and governance beyond the state: Sociological and normative approaches to “interaction”. Critical Review of International Social and Political Philosophy, 10(1), 47–69. https://doi.org/10.1080/13698230601122412. Wiener, A. (2008). The invisible constitution of politics: Contested norms and international encounters. Cambridge: Cambridge University Press. Wiener, A. (2014). A theory of contestation. Berlin: Springer. Wiener, A., & Puetter, U. (2009). The quality of norms is what actors make of it: Critical constructivist research on norms. Journal of International Law and International Relations, 5(1), 1–16. https://doi.org/10.3366/ajicl.2011.0005. Winston, C. (2018). Norm structure, diffusion, and evolution: A conceptual approach. European Journal of International Relations, 24(3), 638–661. https://doi.org/10.1177/1354066117720794. Young, O. R. (1983). Regime dynamics: The rise and fall of international regimes. In S. D. Krasner (Ed.), International regimes (pp. 93–113). Ithaca: Cornell University Press. Zimmermann, L. (2017). Global norms with a local face: Rule-of-law promotion and norm translation. Cambridge: Cambridge University Press.

Chapter 3

EITI as an Emerging Global Norm

3.1 Introduction: A Definition of Transparency and a History of Transparency The EITI, together with other civil society organisations, is gaining momentum and pushing forward the transparency in extractive industries norm (The EITI, 2019a). This is indicative of the transformative role that civil society plays in international relations, not only by setting agendas for action but also by holding governments accountable and ensuring that policy reforms are actually taking place. The previous chapter established the theoretical framework that will inform subsequent discussions. This chapter looks at the development of the transparency norm in the extractive industries, with particular attention given to the emergence of the EITI and its evolution. The chapter begins with a general discussion of transparency and how it has been defined and then outlines how it relates to extractive industries. It then turns to the EITI and explores what it entails and how it works. Transparency has become a frequently used term in the field of international relations, especially in connection with good governance and development studies (Bianchi, & Peters, 2013; Fung, Graham, & Weil, 2007; Garsten & Lindh de Montoya, 2008; Gupta, 2008; Hood, 2006; Hood & Heald, 2006; Hale, 2008; Hollyer, Rosendorff, & Vreeland, 2011; Stiglitz, 1999). Transparency, or the disclosure of information, is common across various fields ranging from good governance to corporate social responsibility and from business management to environmental policies. The various applications of transparency can be explained by the increased demand from the general public for accessible information on a wide range of topics, which has resulted in increased pressure on governments, corporations and international organisations to oblige (Florini, 1998; Fung et al., 2007). The aim of this chapter is to analyse the successes and shortcomings of the EITI as an initiative. The chapter starts with a discussion of the origins of the transparency in extractive industries norm and looks at the notion of transparency itself, which is useful when it comes to presenting the development of the EITI. The chapter finishes with a juxtaposition of the expectations raised by the EITI upon its inception and the © Springer Nature Switzerland AG 2020 A. Tskhay, Global Norm Compliance, Norm Research in International Relations, https://doi.org/10.1007/978-3-030-41452-8_3

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challenges it faces currently. This aspect is especially crucial to keep in mind when reading the case studies later in this book. The issues that the EITI is dealing with in general are acute for many individual states across the world.

3.1.1 Definition and Emergence of Transparency In order to delve into the details of the transparency in extractive industries norm, an understanding of what transparency actually means seems worthwhile. Defining transparency is a challenge in itself, since there are numerous understandings as to what it means, depending on the sphere in which transparency is being applied (Bianchi, 2013; Hood & Heald, 2006). Thus, transparency could be defined as ‘public access to information’ (Kolstad & Wiig, 2009, p. 522) or, to be precise, access to information held by government (Grigorescu, 2002, p. 469). These definitions refer to the openness of a government or state institutions (e.g. government apparatus), and therefore, such understandings of transparency could be influenced by one’s understanding of democratic governance (Fenster, 2006, 2010). There is an operational understanding of transparency, which refers to ‘governance by disclosure’ or, in other words, opening up the procedures of environmental regimes or international donor organisations to facilitate cooperation among the actors involved (Florini, 2008; Gupta, 2008; Weaver & Peratsakis, 2014). Thus, the operational approach to transparency puts an emphasis on the ‘generation of information, dissemination, accessibility and usability’, to enhance the decisionmaking process, and for the actors involved to be better informed (Gupta, 2008, p. 3). The common feature of transparency, regardless of where it is practiced, is making something open and accessible to a particular audience.

3.1.1.1

Openness—No Secrecy, Open Government

For Florini (1998, p. 50), transparency is the opposite of secrecy, where information is not hidden but is instead made available to the public. This notion of openness goes in line with the emerging concept of open government (Fenster, 2006, 2010; Stiglitz, 1999). Transparency, in general, is connected with the disclosure of information in a ‘timely and reliable manner’ and should be provided by governmental and nongovernmental organisations (such as NGOs, IOs, business companies, media outlets) for a public audience (Bleischwitz, 2014, p. 1). In fact, the link between transparency and democracy has long been recognised by scholars and philosophers (Bentham, 1838; Mill, 1859; Stiglitz, 1999). In this regard, James Madison noted: ‘A people who mean to be their own governors must arm themselves with the power that knowledge gives. A popular government without popular information or the means of acquiring it is but a prologue to a farce or

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a tragedy or perhaps both’.1 This discussion can be located within the discourse on the social contract between citizens and government (Locke, 1764; Rousseau, 1762). Locke (1764) and Jean-Jacques Rousseau (1762) laid the foundations of our understanding of the notion of governance and the contractual terms thereof. Picking up on this, Bentham (1838) and Mill (1859) discussed the aspect of publicity as a mechanism for control of governments and decision-making (Stiglitz, 1999, p. 6). By granting power to the government, citizens reserve the right to hold governments accountable with the help of transparent policies (Bellver & Kaufmann, 2005, p. 2).

3.1.1.2

Information Disclosure

Information disclosure can be represented in the form of freedom of information legislation, which has been applied across a wide range of countries (Berliner, 2014, p. 479). The first such legislation was adopted in Sweden in 1766 as the Freedom of Press Act, which stipulated public access to government records (Berliner, 2014, p. 480; Hood, 2006, p. 8). Whereas complete openness of the government is desirable, in practice transparency and the disclosure of information is balanced with some material of national importance kept unrevealed (Fenster, 2010). Similarly, Backer (2013, p. 4) stated that transparency serves as a communication tool between government and society, or, in other words, as a mechanism for the realisation of a democratic regime. Sharing information is crucial if the public are to be able to scrutinise those they have elected into office.

3.1.1.3

Public Availability

Public availability of information does not necessarily mean sharing information only with ordinary people, and it could also mean information disclosure among states. Relevant examples here could be arms control or nuclear non-proliferation agreements between states. As part of the nuclear non-proliferation regime, countries can be inspected by experts from the International Atomic Energy Agency (IAEA) and, thus, become exposed to international scrutiny (Florini, 1998, p. 53). Fenster (2006, p. 906) argued that open access to information could make a state vulnerable to ‘evil-doers’ who can undermine national security and the well-being of citizens. Etzioni (2010, p. 403) claimed that transparency can only work where information is distilled into a simple and comprehensible form and where the general public’s education level is sufficient to understand and process this disclosed information. Similarly, the implementation of transparency mechanisms would not be effective if state institutions or individuals lacked the technical, financial and administrative capacity to utilise the benefits of the disclosed information (Mitchell,

1 Letter

from James Madison to W. T. Barry, August 4, 1822 in Padover 1953, quoted in Carpenter (1995, p. 1).

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2011, p. 1884). Thus, both Fenster and Etzioni highlighted the challenges in transparency, and specifically that making information available does not come with any assurances as to how and by whom this information will be used. So, to summarise, in attempting to understand transparency application, one should pay attention to what kind of information is being shared and by whom, how this is being shared and who it is being shared with. In the case of the extractive industries transparency norm, the intention is to release information about the industries to combat corruption schemes, improve governance and raise awareness among the public about how natural resources and revenues therefrom are used. The working definition of transparency within the EITI is ‘openness and disclosure of activities’ (The EITI, n.d.). Thus, the EITI emphasises the disclosure of information on revenues from extractive industries for the public to review and use. Yet, to understand why transparency is promoted in extractive industries, it is first useful to look into some of the transparency issues related to natural resource management.

3.2 Transparency and Civil Society Advocacy Much of the advocacy for greater transparency of governments and companies comes from global civil society. Civil society networks, thus, play an important role not only in setting agendas and promoting norms, but also in institutionalising norms and ensuring compliance therewith. In this sense, civil society has two important features: first, to promote norms at the international level; and, second, to work together with governments and companies on norm implementation and compliance. In the case of the EITI, civil society is an indispensable stakeholder with equal weight and power to governments and companies. Therefore, in relation to the first point, civil society functions as a norm entrepreneur (Finnemore & Sikkink, 1998) and a pressure-inducing force to ensure that countries stay committed to and comply with norms (Risse, Ropp, & Sikkink, 2013). Indeed, as will be discussed further, international civil society organisations have long advocated for the introduction of transparency in extractive industries and have highlighted the benefits of doing so. The second point is equally important, as it focuses on the role of civil society in norm implementation. Here, the role of civil society goes beyond the norm itself, but rather becomes itself a part of democratic governance. Active civil society helps to foster public debates, to hold governments accountable and to fill gaps in governance. In that sense, to make the EITI more effective than a mere reporting mechanism, both governments and civil society must ensure that they use the data in a manner that benefits wider society. Thus, in democratic countries like Norway the implementation of the transparency in extractive industries norms is fostered by the constructive public debate that encourages democratic institutions to make use of the norm (Overland, 2018, p. 43).

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3.3 Resource Curse and Transparency Ensuring transparency in extractive industries represents an attempt to improve the governance of the sector and to ensure the accountability of authorities with respect to their use of resource revenues. This is critical for resource-rich states, many of which have been vulnerable to the so-called resource curse whereby profits from natural resources are misused. It, thus, seems appropriate to here locate the development of the EITI in the wider literature on the management of natural resources. The resource curse literature could be divided into two parts. The first refers to the so-called Dutch disease, meaning a macroeconomic impact from the availability of resource rents (Auty, 2001; Beblawi & Luciani, 1987; Usui, 1997). Thus, Dutch disease affects the competitiveness of a country through an appreciation of exchange rates and a shift from non-oil traded goods (in manufacturing and agriculture, for instance) to non-traded goods (such as services and construction) (Dijohn, 2011, p. 169). Dutch disease, thus, affects both developing and developed countries, and the focus of governments is on designing macroeconomic policies to shield countries from its effects (Dijohn, 2011; Holden, 2013; Sachs & Warner, 2001; Usui, 1997). In other words, the discovery of oil and gas reserves leads to an influx of foreign currency, the appreciation of national currency and a rise in unemployment (since the oil and gas sector does not require much of a labour force and, thus, do not open large opportunities for employment in the extractive regions) (The Economist, 2014). The second aspect of the resource curse literature is related to issues surrounding the governance of natural resource sectors, such as corruption, accountability of government spending and patronage systems (Basedau & Lay, 2009; Busse & Gröning, 2013; Karl, 1997). Karl (1997) argued that resource-rich states often experience severe poverty, poor health care, low per capita income, an increasing gap between rich and poor, widespread corruption and poor governance. Moreover, scholars have also claimed, with the support of empirical studies, that the availability of mineral resources and subsequent revenues therefrom create opportunities for undemocratic governments or authoritarian regimes to flourish in resource-rich states (Haber & Menaldo, 2011; Ross, 2001; Smith, 2004; Tsui, 2011). Since the resource curse could have a detrimental effect on a state’s economy, numerous studies have attempted to identify solutions and policies that may be able to prevent or reverse it (Franke, Gawrich, & Alakbarov, 2009; Humphreys, Sachs, & Stiglitz, 2007; Jones Luong, & Weinthal, 2010). So, in order to overcome the negative effects of the resource curse, scholars and experts have suggested the application of the rule of law, transparent revenue allocation, elimination of corruption and enhanced law enforcement as tools to improve the management of natural resources in developing states (Karl, 2007; Ross, 2007). Karl (2007, p. 276) proposed that the first step towards reversing the effects of the resource curse should be ensuring greater transparency in extractive industries. The view that transparency can help in natural resource management is based on the correlation between transparency and governance witnessed in other sectors.

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3.4 Good Governance and Transparency Transparency has also become prominent in the governance and anti-corruption discourse. Governance issues and anti-corruption programmes started to gain the attention of the World Bank in the early 1990s when combatting corruption and promoting good governance were strongly connected with economic development (Caspary, 2012). The International Monetary Fund also highlighted the role of transparency and accountability in financial spheres and economic performance in the wake of the Asian Financial Crisis in 1997 (International Monetary Fund, 1998). Islam (2006) studied the impact of transparency on the good governance records of states and concluded that there is a positive correlation between the disclosure of information and improved governance. Much of the literature has focused on disclosure-based transparency that results in good governance by disclosure or regulatory transparency (Florini, 1998; Fung et al., 2007; Mitchell, 2011). Disclosure-based transparency requires states, or other powerful actors, to reveal information to the general public and wait for their response before adjusting their policies accordingly (Mitchell, 2011, p. 1885). The idea of holding governments accountable for their political decisions is one of the key links between transparency and good governance (Bellver & Kaufmann, 2005; Hale, 2008; Mitchell, 2011; Stiglitz, 1999). Accountability through access to information has two effects: (1) people get access to the decision-making processes; and (2) people can put pressure on governments regarding the decisions they have made (Hale, 2008, pp. 75–76). Furthermore, transparency can improve governance not only at the domestic state level, but also at the international level, through sharing information with other states, international organisations and private companies (Hale, 2008, pp. 90–91). Hale (2008, p. 86) pointed out that transparency can be utilised as a tool of selfreflection, meaning that an individual/institution, by disclosing information about himself/itself, can reflect on his/its behaviour and change it accordingly. Thus, through the implementation of transparency, the secrecy of extractive industries could be alleviated. By releasing information on licence allocation, extracting and operating schemes in the oil and gas fields, and the use of resource revenues in national budgets, the public gains valuable knowledge and can hold governments accountable for any decisions made.

3.5 International Initiatives to Promote Transparency in Extractive Industries The transparency in extractive industries norm emerged through international advocacy efforts of both international civil society and governments. Whereas scholars have identified the effects of the resource curse that hindered the development of resource-rich countries in the 1970s (Auty, 2001; Beblawi & Luciani,

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1987; Humphreys, Sachs, & Stiglitz, 2007; Haber & Menaldo, 2011; Karl, 1997; O’Higgins, 2006; Stevens & Dietsche, 2008), the attention of civil society has been on the revenues earned from extractive industries and their unfair distribution in resource-rich states. The first attempt to hold governments and companies accountable for resource revenues was made by a Global Witness Report, ‘A Crude Awakening’, in 1999, which criticised the Angolan government for corruption and a lack of accountability. ‘A Crude Awakening’ urged companies willing to operate in undemocratic countries like Angola to be fully transparent, meaning having to disclose information on payments to the government and making this information available to the public (Global Witness, 1999, p. 13). In June 2002, a coalition of six civil society organisations (Save the Children, Transparency International, CAFOD, Global Witness, Open Society Foundations and OXFAM) launched a campaign entitled Publish What You Pay in London (Publish What You Pay, 2016a). The campaign pushed for disclosure of information in extractive industries, ranging from information on contracts to payments to governments, and specifically targeted extractive companies (Publish What You Pay, 2016b). International donor agencies have also promoted the implementation of transparency in the management of natural resources (International Monetary Fund, 2007). The efforts of these transnational advocacy networks resulted in the endorsement of transparency in extractive industries by then UK Prime Minister Tony Blair and the subsequent establishment of the EITI. The EITI is not the only transparency initiative in extractive industries, and however, it is the most comprehensive. For the sake of comparison, it would be helpful to give some attention here to the Kimberley Process and the Santiago Principles. The Kimberley Process, launched in 2000, is a multi-stakeholder initiative to monitor and certify the trade and shipment of rough diamonds (Kimberley Process, 2016).2 The Santiago Principles are 24 principles and practices directed to improve the transparency, good governance and operation of sovereign wealth funds, monitored by the International Forum for Sovereign Wealth Funds (International Forum of Sovereign Wealth Funds, 2008).3 Compared with the above-mentioned initiatives, the EITI stands out for covering the whole extractive industries sector and seeking information on all revenue payments. For the purposes of this research, it would be helpful to elaborate on the principles and goals of the EITI, as well as the history of its establishment.

2 It is important to note that Kimberley Process is an initiative to monitor the trade of rough diamonds,

in order to prevent the flow from diamond trade to terrorist organisations. Thus, although, it provides the monitoring and reporting mechanisms and connects civil society, governments and business entities, the nature of Kimberley Process is not to improve transparency of the revenues from the industry, as is the case with the EITI (Smillie, 2012, pp. 216–217). 3 Currently, 30 sovereign wealth funds from 28 countries are participating in the Santiago Principles, yet, it is noteworthy countries provide their own self-assessment and have voluntary option of implementation of the Principles in the development and management of sovereign wealth funds (International Forum of Sovereign Wealth Funds, 2008).

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3.5.1 Criticism of Transparency It is important to emphasise here that transparency is neither the most comprehensive nor the only solution to the resource curse. Increasing transparency would not alone be able to alleviate the macroeconomic effects of Dutch disease, for example. It would also not instantly help with the governance of the natural resources sector and is usually proposed together with a number of other economic policy reforms, such as economic diversification, engagement of civil society to monitor management of natural resources and capacity building of institutions managing the resource sector (Arezki, Gylfason, & Sy, 2011; Busse & Gröning, 2013; Caspary, 2012; Corrigan, 2014). Although transparency is emerging as a crucial concept in extractive industries, with more countries becoming compliant with the EITI and enacting legislation stipulating greater disclosure, it remains a niche solution. Kolstad and Wiig (2009) argued that increased transparency alone would not reduce corruption in resource-rich states, and instead should be implemented alongside other reforms targeted towards reducing corruption. John Gaventa and Rosemary McGee (Gaventa & McGee, 2011) noted that transparency and accountability initiatives should complement other reforms in the context of the purpose they are serving in order to be effective. Similarly, Mitchell (2011, p. 1884) argued that transparency would not be effective in changing a state’s policies if information disclosure is only part of the solution to changing state behaviour. The influence of transparency on changing a state’s behaviour also depends on the domestic context, as well as the actors affected by, and involved in, information disclosure (Mitchell, 2011, p. 1884).

3.6 Theoretical Implications for the Study of the Transparency in Extractive Industries Norm The following section engages some of the theoretical conceptions presented in the previous chapter and applies them to the EITI process, in order to better frame the empirical analysis of the initiative’s implementation contained in the following three chapters. This is also a necessary step towards demonstrating the features of the EITI process that distinguish it from other normative structures. States often prefer soft law agreements to avoid the relatively high costs associated with hard law (Abbott & Snidal, 2000, p. 423; Lipson, 1991; Rose, 2015, p. 18). Whereas hard law generally refers to legally binding agreements, the EITI falls more into the category of soft law (Abbott & Snidal, 2000). The fact that the EITI is not a treaty-based process is important to keep in mind for several reasons. First of all, compliance with the EITI’s rules relies on the interest or willingness of the governments in the initiative to comply, as the sanctions for non-compliance are weak. Second, scholars have put more emphasis on the international norms generated by means of treaties rather than voluntary initiatives like the EITI (Chayes & Chayes,

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1993; Hathaway, 2007; Risse et al., 2013; Simmons, 2009). Another distinctive factor of the EITI process is that it is not promoted under the auspices of big international organisations like the UN, which means the initiative lacks the credibility of the UN’s voluntary initiatives (Bauhr & Nasiritousi, 2012; Harrison & Sekalala, 2015; Sohn, 1964; Schachter, 1977; Utting, Reed, & Mukherjee Reed, 2012). The difference between hard and soft law can be captured by the degree of obligation, precision and delegation.4 Thus, in the case of the EITI, states voluntarily commit to applying the EITI rules (and in some cases incorporate them into domestic law), yet they are not legally bound to comply with them. The EITI rules, as will be discussed later in this chapter, are constantly being updated to make them more precise and reduce ambiguities. The implementing states allow an independent validation mission to monitor their progress with respect to the EITI’s implementation. Let us refer back to the point on the connection between problems, values and norms. In this case, corruption and mismanagement of resources in resource-rich states is the problem, good governance and accountability represents the value and transparency in extractive industries is the norm (Winston, 2018). Accordingly, to solve the issue of corruption and to ensure efficient use of revenues from natural resources, governments and businesses would engage in transparent and accountable behaviour, which would equate to good governance and increase trust among stakeholders. The EITI promotes the transparency in extractive industries norm in the sense that it encourages what it considers preferable behaviour by resource-rich states, particularly the disclosure of information on extractive industries. Moreover, the purpose of the EITI is not only to be a mechanism of reporting but also to raise expectations of wider reforms in the management of the sector and to improve governance and accountability in the implementing states (EITI International Secretariat, 2013). As has been highlighted in Chap. 2 a norm sets a ‘standard of behaviour’, thus the transparency in extractive industries norm sets a certain behavioural path for states to follow. Furthermore, the EITI as an institutional form of the transparency in extractive industries norm creates a mechanism that constrains states, since the implementing countries have to fulfil requirements of information disclosure, publication of reports and popularisation of the initiative. At the same time, as the most comprehensive transparency and accountability initiative in the extractive industries sector, it serves as a benchmark of openness and commitment to transparency for implementing states, thereby constituting a certain ‘transparent’ identity (Broome & Quirk, 2015; Cooley & Snyder, 2015; Seabrooke & Wigan, 2015). As a voluntary initiative with limited power, the EITI should attract states that are interested in and have good reasons for implementing it (Herrmann & Shannon, 4 ‘Obligation

means that states or other actors are bound by a rule or commitment or by a set of rules or commitments. Specifically, it means that they are legally bound by a rule or commitment in the sense that their behavior thereunder is subject to scrutiny under the general rules, procedures, and discourse of international law, and often of domestic law as well. Precision means that rules unambiguously define the conduct they require, authorize, or proscribe. Delegation means that third parties have been granted authority to implement, interpret, and apply the rules; to resolve disputes; and (possibly) to make further rules’ (Abbott et al., 2000, p. 401).

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2001; Hathaway, 2002; Keohane, 1983; Simmons, 2009). Moreover, the EITI should be legitimate and credible if it is to be considered by a state. This is discussed in more detail in empirical chapters later on, with an emphasis on how governments have justified their implementation of the EITI. This brings us to the notion of ‘norm entrepreneurs’ which has been discussed extensively in the present chapter already. The support and direct involvement of major Western European states, international donor organisations and extractive companies have resulted in giving the initiative much needed credibility and importance. Efforts of international civil society organisations have been focused on building a debate in support of transparency in extractive industries and pushing states and companies to disclose more information regarding the extractive sector. Thus, from a constructivist perspective, resource-rich states, companies and civil society organisations build a shared understanding of the need to disclose information in extractive industries (Finnemore, 1996, p. 15).5 The transparency in extractive industries norm could be a constitutive norm in the sense of creating a certain type of identity for states, namely that of an open, or transparent, state. Yet, it is also a regulative norm, since the implementation of the EITI, or any other standard related to transparency in extractive industries, entails a certain level of constraint in state policies and behaviour (Björkdahl, 2002, p. 16).

3.7 The EITI as a Pillar of Institutional Support for the Transparency in Extractive Industries Norm 3.7.1 History of the EITI The EITI is an example of an international trans-governmental network propelled by resource-rich countries around the issue of natural resource management (Cooper & Alexandroff, 2010, p. 9). The EITI has been able to create a mechanism for governments, civil society and extractive companies to collaborate on the issue of transparency. As mentioned before, the EITI’s foundations lie in the work of international civil society organisations like Global Witness, Publish What You Pay and Revenue Watch Institute (Aaronson, 2011, p. 52). These organisations lobbied for many years for the need for a standardised approach to ensuring transparency in extractive industries. Although it is widely believed that Tony Blair laid the foundations of the EITI in 2002, the process actually started a year later at a conference in London organised by the UK’s Department for International Development (DFID), where the EITI’s 12 5 ‘They

[construcivists] are concerned with the impact of cultural practices, norms of behavior, and social values on political life and reject the notion that these can be derived from calculations of interests. They emphasize the importance of intersubjective understandings in structuring the ways in which actors understand what kinds of actions are valuable, appropriate, and necessary’ (Finnemore, 1996, p. 15).

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Principles were agreed (DFID, 2003a). Representatives from 70 countries agreed to cooperate to increase transparency in the extractive industries (DFID, 2003a). As a result of the London conference, a number of countries, including Azerbaijan, Ghana, the Kyrgyz Republic and Nigeria, pledged to implement the agreed principles. Peru, the Republic of Congo, Sao Tome e Principe, Timor-Leste and Trinidad and Tobago then followed suit (The EITI, 2019b).

3.7.2 Supporters of the EITI One of the advantages of the EITI is that it represents an organisation, which unites countries with common challenges in managing natural resources. However, the membership of the EITI is diverse, with each country having its own particular ways of implementing the initiative. The efforts of advocacy groups resulted in the forging of the transparency in extractive industries norm into the EITI, much in the same way that transnational advocacy groups, with a moral emphasis, have transformed national criminal laws into international prohibition regimes (Nadelmann, 1990, p. 482). The roles of different groups as advocates for the EITI are discussed below.

3.7.2.1

Civil Society Organisations6

The EITI is supported by the INGOs that also participated in the initiative’s inception and whose work has galvanised the implementation of transparency in extractive industries. Indeed, organisations such as Global Witness, Publish What You Pay and the Natural Resource Governance Institute stood behind advocacy campaigns raising awareness about transparency in extractive industries. It is important to point out here that George Soros has also been actively involved in the establishment of the EITI and wrote an open letter to Tony Blair, then the UK’s Prime Minister, to bring his attention to the issue of transparency in extractive industries (van Oranje & Parham, 2009, p. 142). In addition, the support of the INGOs to the EITI ties in with their work on engaging governments from developing and developed countries to disclose information on activities in their extractive industry sectors (Aaronson, 2011, p. 53).

3.7.2.2

International Donor Organisations

The EITI Secretariat collaborates with international donor organisations, such as the World Bank (WB) and the International Monetary Fund (IMF), to support the initiative’s implementation in its implementing member countries. Specifically, the WB

6 For the full list of supporting civil society organisations, see https://eiti.org/supporters/civil-society.

Accessed on August 5, 2016.

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together with the EITI created the Multi-Donor Trust Fund in 2003 to provide technical and financial assistance to countries implementing the EITI (The World Bank, 2014). Australia, Belgium, Canada, Denmark, Finland, France, Germany, Japan, Netherlands, Norway, Spain, Switzerland, the UK, the USA and the EU support the Multi-Donor Trust Fund with varying amounts of donation (The World Bank, 2014). Apart from Norway, none of these parties are actually implementing the EITI, which has raised concerns about a possible imbalance whereby the initiative may be more heavily promoted to developing countries (Igwe, 2011). Such concerns would be allayed once Germany, the UK and the USA become compliant countries.

3.7.2.3

Extractive Companies7

The support of extractive companies was crucial to the launch of the EITI, as without their consent to publish information on payments, the initiative could not have materialised. The extractive companies present at the London EITI conference in 2003 agreed on the principles of the EITI, but also emphasised the need for universal application of the EITI among all companies operating in a particular country, and for the given national government’s involvement in the process. Thus, Andrew Swiger, Chairman of ExxonMobil International, underlined that the EITI represents a transparency mechanism that would ensure implementation by all companies, protection of proprietary information and be applied in line with the laws of host countries and with respect to contractual obligations (DFID, 2003d). Indeed, the sanctity of contracts and a ‘level playing field’ were issues of much concern to these companies, who feared that the initiative could potentially undermine their business activities. Thus, an emphasis was placed on the protection of contractual obligations and the voluntary nature of the initiative (DFID, 2003b). John Browne, representing BP, noted that, due to the long-term nature of business relationships between companies and countries in extractive industries, the companies have an interest in the long-term sustainability of the communities in which they operate. Thus, initiatives like the EITI contribute to the establishment of good governance and accountability for the communities in extractive regions (DFID, 2003c).

3.7.3 The Stages of the EITI Process The EITI as an organisation and as a standard has evolved through the years and has expanded its areas of reporting coverage. The London EITI Conference in 2003 stipulated the EITI’s 12 Principles that set out the direction of the initiative and the preliminary work to be undertaken by the pilot countries (DFID, 2003e). By reflecting 7 For

the full list of supporting companies, see https://eiti.org/supporters/companies. Accessed on August 5, 2016.

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on the experiences of the initiative’s implementation in the pilot countries, these EITI Principles have been further reformed into six EITI Criteria, which were supposed to define clearly the rules of implementation (DFID, 2005). Thus, the UK’s Secretary for International Development at the time, Hillary Benn, noted at the London EITI Conference in 2005: Our experience in the four countries that have piloted EITI – Azerbaijan, Ghana, the Kyrgyz Republic, and Nigeria – is that while different countries have taken different approaches to implementation, this needs to be backed up by clear international rules of the game for the initiative to be effective and credible. (DFID, 2005)

The six EITI Criteria outline the focus of the initiative as a disclosure mechanism for resource-rich countries, with the active involvement of civil society, independent auditing, and subsequent public debate on issues related to the spending of revenues from the extractive industries. In 2005, the EITI Source Book was produced to assist implementing countries in the preparation of the EITI reports (The EITI, 2019b). At the Oslo EITI Conference in 2005, the EITI Validation Guide was introduced, which supplemented the EITI Criteria and Source Book, as a guide for the evaluation of a country’s progress in its EITI implementation (The EITI, 2019b). With an increasing number of implementing countries and EITI reports being published, the EITI Board once again reviewed the rules, and at the Doha EITI Conference in 2009, and the Paris EITI Conference in 2011, published updated versions thereof (EITI International Secretariat, 2011). The EITI rules 2011 includes the guidelines for EITI sign up, the information to be disclosed, and the procedures for the EITI’s implementation and validation. The next edition of the EITI’s rules was named the EITI Standard, adopted at the Sydney EITI Conference in 2013. The EITI Standard elaborated further on what is expected from the implementing countries, for example, that contextual information on extractive industries is to be included in each country’s EITI report. Moreover, implementing countries were encouraged to disclose information on beneficial ownership and contractual details as part of the EITI process. In addition, the EITI Standard emphasised the role of civil society and national ownership of the process, and in so doing the initiative pushed for wider reforms to take place to ensure that clear-cut and usable information is made available (EITI International Secretariat, 2013). Initially, the EITI stipulated a gradual progression in membership status, going from ‘candidate’ to ‘compliant’. This was supposed to ensure that the implementing countries would actually fulfil the EITI’s requirements. It is important to point out that the progression in stages did not guarantee norm socialisation, nor did it provide international legitimacy and a level of cooperation as is the case in other international organisations, like the Council of Europe and NATO (Warkotsch, 2007, p. 496). However, the differentiation between ‘candidate’ and ‘compliant’ clarified the path towards the implementation of the EITI and the necessary steps to have either been taken or still to be taken. With the new EITI rules and a more nuanced progress assessment, countries receive more qualitative analysis of not only the implementation of the EITI Standard, but also areas requiring improvement and the status of the norm’s socialisation.

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In 2016, in Lima, the EITI Board revised the EITI Standard and made the disclosure of beneficial ownership of extractive companies obligatory by January 1, 2020 (Ponsford, 2016). Thus, the implementing countries are expected to start working towards gaining information and attempting to disclose information on beneficial ownership before this official deadline. The 2016 EITI Standard also pays attention to the variation of implementing countries and takes into account the diverse implementation paths of countries, reconsidering the evaluation of countries with respect to their compliance by weighing the progress and reforms they have made. Hence, the countries are no longer divided into the candidate and compliant states, but rather they are measured evenly in terms of the progress they have made towards the EITI’s implementation (satisfactory, meaningful, or inadequate). Overall, the various editions of the EITI’s rules and requirements have not only provided useful information and explanations in terms of how to implement the EITI, but they have also shaped the initiative and set out the directions for its development. Over the years, the initiative has expanded the scope of information to be disclosed, outlined the work to be done by multi-stakeholder groups and defined evaluation criteria. The changes of rules have come in response to the challenges and experiences of implementing countries and the need for clarification of ambiguities in the requirements. Thus, at its inception, the initiative was more focused on getting the reporting right, and it has since evolved into a comprehensive approach, which involves wide reforms in extractive industries, enhanced work of multi-stakeholder groups and a range of issues to be disclosed in the reports. The following sections explain in more detail the various stages of the EITI’s implementation and the sanctions for non-compliance that the EITI Board can impose.

3.7.3.1

EITI Implementation Steps

The EITI process begins with the ‘sign up steps’ that a country needs to fulfil in order to apply for membership in the initiative. The steps include an unequivocal public statement of intent to implement the initiative, the appointment of a senior official to lead the process and the establishment of a multi-stakeholder group with a working plan (EITI, 2013). Thus, essentially, a country has to demonstrate the fulfilment of the following five criteria: (1) commitment; (2) engagement of extractive companies; (3) engagement of civil society; (4) establishment of a multi-stakeholder group; and (5) a work plan of the multi-stakeholder group (EITI International Secretariat, 2016, p. 11). Once a country goes through the initial application process, it moves on to demonstrate the progress made in the EITI’s implementation and the publication of EITI reports. It is beyond the scope of this book to provide a full list of requirements, however, for the purposes of general discussion, it is useful to highlight some of them here. The first EITI requirement refers to the work of a multi-stakeholder group. The government is the main responsible body for the EITI’s implementation in a country and thus should be actively involved and should coordinate all related actions through an appointed senior official.

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Civil society is put at the heart of the EITI process and, thus, one of the main requirements is its active engagement in the process. Moreover, requirement 1.3 (c) stipulates: ‘government must ensure that there are no obstacles to civil society participation in the process’ (EITI International Secretariat, 2016, p. 14). The first requirement further elaborates on freedom of discussion on issues related to the extractive industries and the ability to express views in public debate with all stakeholders in the process. Thus, any restrictions imposed by a government on the work of civil society or the construction of public dialogue would go against the EITI’s requirements. As mentioned before, the EITI Standard 2016 made the disclosure of beneficial ownership necessary from January 1, 2020. This means that any country bidding to engage, or already participating, in the exploration and/or extraction of natural resources would be obliged to disclose information on its owners in the EITI report. It is a government’s responsibility to ensure the accuracy of information disclosed by companies in relation to beneficial ownership. This issue presents a challenge for countries that do not yet make information on beneficial owners available to the public, but revealing the identities of individuals gaining from extractive industries would assist anti-corruption efforts.

3.7.3.2

Validation Stage

Countries periodically go through the process of validation, the purpose of which is to ensure that a country is following all of the EITI’s requirements and to identify any irregularities or challenges in the EITI’s implementation process. According to the EITI Standard 2016, the validation process has been entirely reviewed and, at the moment, includes the following steps. At an appropriate time, depending on the country’s membership, the EITI Board will appoint an independent validator who has to verify the fulfilment of all the EITI’s requirements and what progress the country has made in terms of transparency application. The validator meets with all members of the multi-stakeholder group and other involved parties and assesses the status of a country in its EITI process. As a result of the validator’s evaluation, a country could be deemed to have made satisfactory, meaningful, inadequate or no progress. In order to be considered as compliant, a country should have made satisfactory progress, which means that a country fulfils all of the requirements and has achieved broader objectives on top of those required. Meaningful progress indicates that only significant aspects of the requirements have been implemented. Inadequate progress is assigned to a country if it fails to demonstrate that the EITI’s requirements have been implemented, and as a result the country would gain ‘suspended’ status. If a country is suspended, this means that it has to go through a second validation to ensure that progress has been made to address the implementation of the EITI’s requirements highlighted in the first validation. If a country has made satisfactory progress by the second validation it would then be upgraded and reinstated if it had been previously suspended. If it fails, the country would be delisted. Finally, no progress shows that a country has

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failed to demonstrate any progress in the EITI’s implementation and would thus be delisted from the initiative. It is important to note here that validation is a cyclical process and every participating country should go through it, either to prove its compliance or to demonstrate that it continues to follow the EITI’s requirements. Therefore, the validation process is, in a sense, the system that monitors compliance, identifies the challenges met and the progress made by countries, and an independent external observation mission that verifies the EITI’s implementation in countries.

3.7.3.3

EITI Sanctions

With an increasing membership list, by 2007 the EITI Board made the decision to tighten the requirements of the initiative (Aaronson, 2011, p. 53). The voluntary nature of the initiative prevents the use of military or economic sanctions, yet, as has been noted in the previous section, the EITI Board can apply a range of sanctions to ensure compliance with the initiative. Thus, a country could have its status lowered from compliant to candidate, could be denied an upgrade to compliant status, or could be suspended or delisted.8 The degree of sanctions to be imposed on a country is decided by the EITI Board. These sanctions could be classified as ‘membership sanctions’ when an international organisation can expel a state or force it to withdraw for non-compliance with its principles (Chayes & Chayes, 1995, pp. 68–69; Sohn, 1964). ‘Membership sanctions’ could be utilised against a state in response to events outside the scope of the treaty (Chayes & Chayes, 1995, p. 68). In the case of the EITI, for instance, the EITI Board suspended the Central African Republic in 2013, and Yemen in 2015, due to political instability in these countries (The EITI, 2016a, c). More specifically, the EITI Board strives to ensure compliance with the EITI rules. Thus, if a country’s EITI report is not submitted within the set deadline, the country will be suspended. This was the case for Tajikistan, which was suspended in 2015, after it failed to produce its first EITI report within the set deadline (The EITI, 2016b). The EITI Board could also suspend a country because of political instability and conflict in a country (EITI International Secretariat, 2016, p. 34). A country could at any point apply to have its suspension lifted or reapply for membership, if it has been delisted before. It is important to note that the concerns about compliance with the EITI on the basis of its voluntary nature are not justified. After all, a country can choose not to comply with any agreement, even when under strict legal obligations, such as those of the Treaty of the Non-Proliferation of Nuclear Weapons (NPT), for instance. Essentially, states always have ways at their disposal to get out of an initiative if they feel so inclined. Thus, the question of compliance is not a major concern with respect

8 See

more details on the consequences of validation, at https://eiti.org/validation#validationconsequences.

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to the EITI. Rather, the burning question should be what to do next after countries comply with the EITI. The EITI does not provide any tangible rewards, while the intangible rewards it distributes are difficult to evaluate. On this matter, Uganda’s Minister of Finance, Planning and Economic Development Matia Kasaija stated: We believe that initiatives such as the EITI that emphasise transparency have the potential to strengthen the efforts of the Government in ensuring overall transparency in the sector, strengthen tax collection, improve the investment climate, build trust and create a lasting value of petroleum resources, (The EITI, 2019c).

The indirect consequences of the implementation of the EITI are emphasised as benefits. Fighting against corruption, good governance and reputation gains, as well as foreign aid, is all considered as the fruits of EITI implementation, and however, a more elaborate and vigorous study should be done on this to prove that there are more concrete consequences of adhering to the initiative (David-Barrett & Okamura, 2013).

3.8 Conclusion Scholars have explored the use of transparency and its benefits with respect to good governance, anti-corruption and sustainable development. With the engagement of transnational advocacy networks, the issue of transparency has also penetrated extractive industries. Thus, transparency, more specifically, the disclosure of information, has become an emerging international norm (Gillies, 2010). The EITI has become an institution promoting the implementation of transparency in extractive industries with a developed mechanism of reporting and a multi-stakeholder approach to monitoring the process. The EITI still has limited membership with only 48 countries participating so far, meaning there is a long way to go for the initiative to be considered as an international standard of behaviour. At the same time, examining the individual implementation processes of each EITI country would be an interesting research project in itself. Due to the diverse nature of the economic, political and historical conditions of each state participating in the EITI, the processes of the EITI’s implementation vary. Thus, the case studies that follow later in this research give a more in-depth understanding of what the process of the EITI’s implementation looks like in practice. The EITI is not an international treaty, but rather a process where countries voluntarily apply for membership. While scholars refer to international treaties as indicators of norm institutionalisation, one could observe that the EITI itself embodies the transparency in extractive industries norm without being a formal international treaty. The EITI Standard serves as a set of principles and guidelines as to what is required from compliant countries. The EITI is, thus, important in the global promotion of the transparency in extractive industries norm. However, the comparison

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of the implementation of the EITI among different countries is complicated. Each country applies the EITI’s principles according to their own national characteristics and peculiarities and, thus, although reports come out in a similar format and with a similar frequency, their contents vary dramatically (or in the case of Norway reports are no longer published). This is why it is important to go beyond the reporting and implementation stage, and to look at how the process evolved and how it has been shaped and integrated into the political and economic scene of each country studied.

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Etzioni, A. (2010). Is transparency the best disinfectant? Journal of Political Philosophy, 18(4), 389–404. https://doi.org/10.1111/j.1467-9760.2010.00366.x. Fenster, M. (2006). The opacity of transparency. Iowa Law Review, 91, 885–949. Fenster, M. (2010). Seeing the state: Transparency as metaphor. Administrative Law Review, 62(3), 617–672. Finnemore, M. (1996). National interests in international society. Ithaca: Cornell University Press. Finnemore, M., & Sikkink, K. (1998). International norm dynamics and political change. International Organization, 52(4), 887–917. https://doi.org/10.1162/002081898550789. Florini, A. M. (1998). The end of secrecy. Foreign Policy, 111, 50–63. Florini, A. M. (2008). Making transparency work. Global Environmental Politics, 8(2), 14–16. https://doi.org/10.1162/glep.2008.8.2.14. Franke, A., Gawrich, A., & Alakbarov, G. (2009). Kazakhstan and Azerbaijan as post-soviet rentier states: Resource incomes and autocracy as a double ‘Curse’ in post-soviet regimes. Europe-Asia Studies, 61(1), 109–140. https://doi.org/10.1080/09668130802532977. Fung, A., Graham, M., & Weil, D. (2007). Full disclosure: The perils and promise of transparency. Scientific American (Vol. 310). New York: Cambridge University Press. Garsten, C., & Lindh de Montoya, M. (2008). Introduction: Examining the politics of transparency. In C. Garsten & M. Lindh de Montoya (Eds.), Transparency in a new global order: Unveiling organizational visions (pp. 1–24). Northampton. Gaventa, J., & McGee, R. (2011). The impact of transparency and accountability initiatives. Development Policy Review, 31(1), 3–28. https://doi.org/10.1111/dpr.12017. Gillies, A. (2010). Reputational concerns and the emergence of oil sector transparency as an international norm. International Studies Quarterly, 54(1), 103–126. https://doi.org/10.1111/j.14682478.2009.00579.x. Global Witness. (1999). A Crude Awakening. London. https://www.globalwitness.org/ru/archive/ crude-awakening/. Accessed Oct 25, 2017. Grigorescu, A. (2002). European institutions and unsuccessful norm transmission: The case of transparency. International Politics, 39, 467–489. https://doi.org/10.1057/palgrave.ip.8892005. Gupta, A. (2008). Transparency under scrutiny: Information disclosure in global environmental governance. Global Environmental Politics, 8(2), 1–7. https://doi.org/10.1162/glep.2008.8.2.1. Haber, S., & Menaldo, V. (2011). Do natural resources fuel authoritarianism? A reappraisal of the resource curse. American Political Science Review, 105(1), 1–26. https://doi.org/10.1017/ S0003055410000584. Hale, T. N. (2008). Transparency, accountability, and global governance. Global Governance, 14, 73–94. Harrison, J., & Sekalala, S. (2015). Addressing the compliance gap? UN initiatives to benchmark the human rights performance of states and corporations. Review of International Studies, 41(5), 925–945. https://doi.org/10.1017/S026021051500039X. Hathaway, O. A. (2002). Do human rights treaties make a difference? The Yale Law Journal, 111(8), 1935–2042. Hathaway, O. A. (2007). Why do countries commit to human rights treaties? Journal of Conflict Resolution, 51(4), 588–621. https://doi.org/10.1177/0022002707303046. Herrmann, R. K., & Shannon, V. P. (2001). Defending international norms: The role of obligation, material interest, and perception in decision making. International Organization, 55(3), 621–654. https://doi.org/10.1162/00208180152507579. Holden, S. (2013). Avoiding the resource curse the case Norway. Energy Policy, 63, 870–876. https://doi.org/10.1016/j.enpol.2013.09.010. Hollyer, J. R., Rosendorff, B. P., & Vreeland, J. R. (2011). Democracy and transparency. The Journal of Politics, 73(4), 1191–1205. https://doi.org/10.1017/S0022381611000880. Hood, C. (2006). Transparency in historical perspective. In C. Hood & D. Helad (Eds.), Transparency: The key to better governance? (pp. 3–23). Oxford: Oxford University Press. Hood, C., & Heald, D. (Eds.). (2006). Transparency: The key to better governance?. Oxford: Oxford University Press.

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Chapter 4

Norway: Leading by Example

4.1 Introduction Having looked through several theoretical models of norm diffusion and implementation, it is pivotal to observe how norm implementation happened in the case of the EITI and the four case studies. Previous scholarly work on the application of norms assumes that the process is smooth once norm diffusion happens (Finnemore & Sikkink, 1998) or that pressure from domestic and international advocacy networks would ensure norm implementation (Keck & Sikkink, 1998; Risse, Ropp, & Sikkink, 1999, 2013). Such assumptions will be tested in the analysis of EITI implementation in the subsequent chapters on each of the four case studies. Norway stands out among other EITI members as the first OECD country to implement and comply with the EITI.1 By participating in the EITI process, Norway breaks the stereotypical perception of the EITI as a Western idea to be implemented by developing countries (David-Barrett & Okamura, 2013; Haufler, 2010; Van Alstine, 2014). Moreover, as one of the wealthiest nations in the world, Norway has addressed the issue of resource curse by learning from its own experiences, rather than out of the desire to secure energy supplies and to attract foreign investments which often motivates other developed nations (Carbonnier, Brugger, & Krause, 2011). Norway has a long history of democratic institutions and the implementation of democratic values, such as human rights and the rule of law, which also sets it apart from its fellow EITI members (Byrkjeflot, 2001). Moreover, the Norwegian government has a well-functioning political apparatus that could competently manage new industries (Benner & Soares de Oliveira, 2010; Karl, 1997). Thus, it is important to highlight the fact that even prior to oil discoveries Norway in the 1960s was in a different situation compared to developing resource-rich countries. Its democratic values and good institutions would eventually play a role in the Norwegian approach to the petroleum industry in general and to the EITI’s implementation in particular. 1 Currently,

Germany, the Netherlands, and the UK are also among implementing countries. For more details, see https://eiti.org/countries.

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Furthermore, before the discovery of oil reserves, Norway already had a high level of education, economic diversification and industrialisation (Noreng, 1980, p. 23). This has contributed to Norway’s avoidance of the resource curse (Holden, 2013; Larsen, 2005). In light of this, the question that emerges is whether we can observe a similar or different path of EITI implementation in Norway compared to that experienced by other EITI implementing member states. Moreover, what factors have driven the Norwegian government to agree to implement the EITI Standard? Possible factors include avoiding the resource curse (Corrigan, 2014), improving access to information on oil industries (Fung, Graham, & Weil, 2007; Gupta, 2008), supporting Norwegian petroleum companies (Sovacool & Andrews, 2015), or improving its international reputation (Gillies, 2010). This chapter attempts to uncover the reasons behind Norway’s involvement in the EITI, by looking at the petroleum industry in Norway, the emergence of the EITI process and its implementation. This chapter starts with an overview of the petroleum industry in Norway and the use of its revenues. Such background information is essential to understanding how the sector has been shaped, the importance it holds, and the policies of transparency and accountability that have been put in place. The development and management of Norway’s petroleum industry have shaped the foundation of Norwegian foreign policy towards sharing with other countries its experience of resource curse avoidance and management of extractive industries and the revenues thereof. The chapter then proceeds to the EITI implementation process and what this entails. It concludes with remarks on the reasons motivating EITI implementation in Norway and ponders its sustainability in future.

4.2 The Importance of the Oil Sector for Norway The discussion on extractive industries in Norway exclusively concerns the petroleum industry. Thus, the Norwegian EITI report consists only of data from companies related to this industry. The petroleum sector dominates the state economy and significantly contributes to the national wealth (Norwegian Ministry of Petroleum and Energy, 2019b). Currently, Norway has an estimated 14.1 bln standard cubic metres of discovered and undiscovered petroleum reserves on its continental shelf. The petroleum industry contributes 16% of Norway’s GDP and is responsible for 40% of its total exports (Norwegian Ministry of Petroleum and Energy, 2019d). Norwegian oil exploration began in 1962, when American firm Phillips Petroleum Company requested to start exploration on the Norwegian continental shelf (Bayulgen, 2010, p. 183; Ryggvik, 2015, p. 6). Shortly, thereafter, the Norwegian government adopted an act in May 1963 that proclaimed the sovereignty of the Norwegian continental shelf, in order to avoid any legal disputes over the territory once oil was found, and stipulated the process of granting licences before oil production officially started (Bayulgen, 2010, p. 186; Norwegian Ministry of Petroleum and Energy, 2019b; Ryggvik, 2015, p. 6).

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In the beginning, Norwegian participation in oil exploration was limited. However, after its reserves were proven, Norway’s strategy changed completely. Norwegian officials understood the need to expand its presence in oil exploration along the continental shelf, which would lay the foundations for the development of the Norway’s petroleum sector for the years to come (Lie, 2011). Hence, the government started to look for a suitable Norwegian company that could become the national oil producer (Ryggvik, 2015). At the time of its oil discovery, Norway had a robust national industrial base in the form of shipping and hydropower (Ryggvik, 2015). Norsk Hydro, a conglomerate specialising in hydropower production, was the first Norwegian company to enter the domestic petroleum sector (Ryggvik, 2015, p. 8). However, already by 1970, the Norwegian government had bought the majority of its shares, making it a stateowned company (Lie, 2011, p. 270). In 1972, a Norwegian state-owned oil company was established, Statoil, which participated in every stage of production (Ryggvik, 2015, p. 10). The presence of state-owned companies in the majority of oil fields in Norway meant a limited presence of foreign oil companies and, subsequently, there was less pressure on the companies from local politicians (Lie, 2011; Noreng, 1980). Experts argue that Norway’s peak oil production was achieved in 2000, and that production has since fallen (Holden, 2013, p. 871). Work is still ongoing in terms of the exploration and development of new fields. However, these are expected to be smaller in size and would only act as supplements to the major oilfield (Norwegian Ministry of Petroleum and Energy, 2019a). Therefore, the Norwegian government has been putting more and more emphasis on saving for future generations (Norges Bank, 2019), which distinguishes Norway from most countries in which oil was discovered more recently and where the revenues are used to sustain national budgets. A representative of the Norwegian Ministry of Petroleum and Energy noted: ‘The money should be used for the benefit of the population. So it’s very much in line with the general thinking in Norway’ (Representative of the Norwegian Ministry of Petroleum and Energy, personal communication, February 4, 2015). This quote signals how issues of transparency and accountability of government are embedded in Norwegian society, and also highlights the long history of democratic institutions in the country. It is important to note that the Norwegian government, being fully aware of the consequences of Dutch disease, adopted policies to avoid the expected political, economic and environmental problems that the petroleum industry can cause (Noreng, 1980, p. 25). The Norwegian government outlined ten principles of petroleum industry management in 1972 in a parliament act, which emphasised the importance of national industry protection, the preservation of nature and the environment and the protection of Norwegian interests (Holden, 2013, p. 876).

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4.2.1 Norwegian Government Pension Fund: An Instrument for Oil Revenues Management In the 1980s, the petroleum industry in Norway was booming and a steady flow of resource revenues was streaming into the economy. However, wary of the need to spend such revenues responsibly, the Norwegian government started to build safeguards. In 1983, the government established the Tempo Committee that was designed to come up with policies for the future use of revenues from the petroleum industry for the benefit of future generations. The Committee concluded that there was a need to create a sovereign wealth fund and to use only the real returns of the fund’s assets for the domestic economy (Harding & van der Ploeg, 2009, p. 8). Eventually, in 1990, the Government Petroleum Fund was established (Norwegian Ministry of Petroleum and Energy, 2019c), the purposes of which were to invest all of the resource revenues and to save for future generations (Norges Bank, 2019). The Norwegian government created a strict division of responsibilities for the management of the fund, with the central bank (Norges Bank) as operational manager, the Ministry of Finance as formal owner and the Norwegian Parliament as official owner (Holden, 2013, p. 873). Therefore, each investment policy comes under scrutiny from different branches of power and, at the same time, there is a comprehensive approach to wealth management. One of the most distinctive features of the Norwegian Government Pension Fund is that serving the benefit of future generations is at the core of its existence (Representative of the Norwegian Ministry of Petroleum, personal communication, February 4, 2015).

4.3 EITI Process in Norway: From Endorsement to Implementation 4.3.1 Norm Emergence: Norway as a Transparency Norm-Setter and Follower In Norway, the transparency in extractive industries norm is a twofold matter. On the one hand, Norway itself has participated in the framing of the debate around the issue of transparency (Benner & Soares de Oliveira, 2010, p. 292; Gillies, 2010). On the other hand, Norway has implemented the EITI, in order to practise ‘what it preaches’ (Representative of Publish What You Pay Norway, personal communication, February 5, 2015). The link between Norway and the EITI could be traced back to 2007 when the EITI’s International Secretariat settled in Oslo with the support of Norwegian government (The EITI, 2019a). However, discussions about the EITI in Norway had started much earlier. In Johannesburg, at the World Summit on Sustainable Development in 2002, Norway’s then Prime Minister Kjell Magne Bondevik endorsed the idea of

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greater transparency in the extractive industries and recognised the need for global standards (Bondevik, 2002). He claimed: ‘In this context Norway strongly supports the work under way to ensure better accountability and greater transparency in the payment and management of revenues from extractive industries. An international code of conduct is one effective instrument’. (Bondevik, 2002) The idea of the EITI originated at the Johannesburg Summit and was introduced by the UK’s then Prime Minister Tony Blair, which laid the foundations for the necessary work to be done in transparency and accountability issues, to which Bondevik referred. At the London EITI Conference in 2003, then Minister for International Development Ms. Hilde F. Johnson led the Norwegian delegation and expressed the country’s full support for the initiative (DFID, 2003b). Such political commitment showed both recognition of the principle and the value of transparency in the extractive industries and the willingness of Norway to commit to the global efforts to promote it. Ms. Johnson announced that Norway was prepared to contribute to the support of the EITI which further increased the credibility of the EITI following on from the positive statements made by members some of the G8 and the aforementioned efforts made by the UK.2 The aim of the London EITI Conference was to recruit countries to pilot the EITI Standard and to fundraise for the initiative (DFID, 2003a). Therefore, at this point, it was difficult to predict how the initiative would develop and whether it would be successful at all. However, Norway was ready to share its expertise in the management of natural resources for the benefit of the EITI, making this more relevant to Norwegian society (DFID, 2003b). Towns (2012, p. 186) argued that norms serve as tools allowing powerful states to spread their policies globally. The support expressed for the EITI by Norway, especially in the context of an international forum, was important for several reasons. The London EITI Conference was a defining moment for the establishment of the EITI as a mechanism, and for transparency as an emerging international norm. Thus, Norway’s support along with that of other countries was part of a growing international commitment towards the norm. Thereafter, the agreement to establish an EITI Multi-Donor Trust Fund to support the process in developing countries under the management of the World Bank in 2004 served as further evidence that powerful states genuinely sought to promote the transparency norm.3 Moreover, the support of developed countries for the EITI process gave legitimacy to the transparency norm (Florini, 1996). For Norway, domestic commitment to this transparency norm came much later, as discussed further on in this chapter. Ms. Johnson’s speech also created an important link between the EITI process and other similar concepts. Crucially, she stated: 2 The G8 statements mentioned here refer to the G8 summit in Evian in 2003. Retrieved from: http://

www.g8.utoronto.ca/summit/2003evian/corruption_en.html. Accessed on August 3, 2015. EITI Multi-Donor Trust Fund (MDTF) was established to assists World Bank’s programs for EITI implementation. Fifteen donors support the MDTF, including Australia, Belgium, Canada, Denmark, European Union, Finland, France, Germany, Japan, the Netherlands, Norway, Spain, Switzerland, UK and the USA. For more information on MDTF, see http://www.worldbank.org/en/ programs/eitimdtf#2.

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4 Norway: Leading by Example The EITI is not a cure for all ills, but there is strong evidence that transparency creates an environment conducive to sustainable economic growth, fair distribution and social development. Companies, governments and citizens all have a shared interest in this process. Increased transparency reduces corruption and political instability. It strengthens democracy, good governance, and rule of law. It sheds the light of day on dealings aimed at distorting competition and creating benefits for the few. It attracts foreign investment and allows the dividends to be enjoyed by the populations of resource-rich states. (DFID, 2003b)

Thus, by attributing the benefits of transparency to widely-acknowledged concepts like democracy, good governance and sustainable development, it becomes easier to spread transparency as a norm internationally (Towns, 2012, p. 187). The EITI represents a mechanism through which Norway can share its expertise in the petroleum industry and resource revenue management with the rest of the world. Thus, once the link between Norway’s foreign policy agenda and the EITI was established, it created a critical juncture in the implementation of the EITI internally in Norway.

4.3.2 Norm Commitment: Actions to Achieve Compliant Status At the international level, Norway was among the norm entrepreneurs here, supporting the EITI financially, hosting its secretariat and providing guidance to states on how to improve their transparency record and employ good governance with respect to their natural resources. However, it soon became evident that the EITI was essentially entailed rich Western states telling developing countries to implement a new standard on transparency in their extractive industries, without doing so themselves. This, obviously, was undermining the value of the initiative and its attractiveness to developing countries. The trend of developing countries adopting emerging norms faster than their developed counterparts has been recognised before and has been attributed not to the application of double standards, but rather to norm socialisation Advocacy networks would push governments more in developing countries, where certain legislation is lacking, rather than those in developed ones, where the need for new norms is less pressing (Towns, 2012, p. 204). However, this might not be the case when ‘from below’ pressure is applied on developed countries encourages states to adopt norms to avoid being left behind, which was the case with Norway and the EITI. After Norway’s declarations at the London EITI Conference, the link was established between the country and the initiative, and yet the latter did not penetrate the Norwegian domestic political landscape at this stage. It is difficult to establish the exact date on which the EITI process started in Norway, but the debate surrounding the initiative appears to have started in the meetings held between civil society organisations and government officials in 2006. Civil society representatives, particularly Publish What You Pay Norway, were trying to convince the Norwegian government to agree to implement the EITI in the

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country. In a personal interview with the author, a representative of Publish What You Pay stated: ‘The rationale in the beginning was that we [civil society] said that Norway should implement the EITI in order to promote it, using very simple marketing arguments of demonstrating that we [Norway] use the product [the EITI] ourselves if we [Norway] are going to sell it to the whole world’ (Representative of Publish What You Pay Norway, personal communication, February 5, 2015). Similarly, in an interview with the author a member of Industri Energi recollected: ‘The argument has been that Norway should implement this regulation as long as we are telling less developed countries to do the same. So it shouldn’t be a double standard. We tell others to implement but we don’t do it ourselves’ (Representative of Industri Energi, personal communication, February 2, 2015). What these two quotes represent is the ‘framing’ technique that was used to persuade the Norwegian government to decide to implement the EITI (Keck & Sikkink, 1998, p. 3). The demands within developed countries to join the EITI came not only in Norway, but also in Canada, Australia and the USA (Fitzgibbon, 2014). In fact, this alludes to a core puzzle that is rarely addressed in the norm literature. Specifically, if a country already has policies related to the norm in place, does it need to commit to the institutionalisation of the norm? In other words, since Norway was already publishing information on resource revenues across various platforms, was it necessary for it to implement the EITI? This puzzle revolves around both the relevance of initiatives such as the EITI for countries with reporting systems already in place, and what exactly would be achieved by having Norway in the EITI. The presented to the Norwegian government by civil society representatives has cited the need to set an example for other countries to follow, indicating that the EITI is important and relevant to every country, and that developing resource-rich countries like Nigeria and Azerbaijan should not be the leaders in implementing the transparency in extractive industries norm. The lack of understanding among government officials as to the purpose of the EITI for Norway could be explained by the apparently limited relevance of the process in relation to the realities of Norwegian oil management. In a personal conversation with the author representative of the Norwegian Ministry of Petroleum and Energy noted: ‘To be honest, in a way, we have been striving to see how it [the EITI] could add value to Norway, as such as we are still looking for it’ (Representative of the Norwegian Ministry of Petroleum, personal communication, February 4, 2015). Indeed, whereas the establishment of increased transparency and the associated benefits through the EITI process have a significant impact in developing countries, the external benefits to be brought by the EITI to Norway that would tempt the Norwegian government to implement and comply with the EITI were less clear. Eventually, as part of the discussions on the EITI implementation in 2006–2007 closed meetings between civil society organisations and government officials were held in Oslo. Erik Solheim, then Minister of International Development (part of the Ministry of Foreign Affairs), through his engagement in diplomacy and foreign policy-making, understood the role Norway would play in transparency promotion. The above-mentioned meeting, at which Solheim was present, was a critical juncture in the process of the EITI’s implementation in Norway. The ‘framing’ of the EITI’s

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relevance to Norway by advocacy networks, combined with the efforts of Norway to push the EITI’s implementation globally, evolved into an open dialogue between civil society and government, and subsequently to a turning point where a decision to implement the EITI domestically was taken. With the support of the government and the strong will of civil society organisations, the process of Norway’s accession to the EITI started. On October 16–18, 2006 Norway hosted an international conference on the EITI entitled ‘Making Transparency a Global Norm’ (Norwegian Ministry of Foreign Affairs, 2006b). During this conference, Norway’s then Minister of Foreign Affairs, Jonas Gahr Støre, announced Norway’s support for the establishment of the EITI Secretariat in Oslo. On September 27, 2007 Solheim announced Norway’s commitment to implementing the EITI (Norwegian Ministry of Foreign Affairs, 2007). In his statement, Solheim emphasised that Norwegian participation in the EITI would put the country ‘at the forefront of the international effort to combat corruption’ (Norwegian Ministry of Foreign Affairs, 2007). Finally, on December 18, 2008, Norway officially applied as a candidate to the EITI, marking a turning point in the process of the norm’s development (The EITI, 2009).

4.3.3 Norm Internalisation: Sustaining Compliant Status and the Future Prospects of the EITI in Norway After the application to become a candidate in the EITI was sent and accepted, Norway had to fulfil the requirements of the EITI Standard including ensuring that its legislative base could accommodate the process. Norway had introduced amendments to its petroleum law to make sure that relevant information is disclosed. These amendments obliged relevant companies and government agencies to release information on revenues and payments, thereby demonstrating further compliance with the EITI (The EITI, 2019b). Shortly after, in 2009, Norway’s first EITI report for the year 2008 was published. By November 2010, Norway had successfully gone through the validation process and on March 1, 2011 the EITI Board granted the country compliant status. The Norwegian EITI report covers figures for tax payments, the State’s Direct Financial Interest (SDFI), dividends, and area and environmental fees. Payments to the government are reported by the license holder and operators and Statoil and are then compared with the figures from the Norwegian Tax Administration, the Norwegian Petroleum Directorate, the Toll Customs and the Central Bank of Norway (The EITI, 2019b). Norway’s EITI report for 2015 is reconciled figures from 64 licensees and five governmental bodies. Due to the relatively small amount of companies covered, this report was quite concise. Licensees and government agencies report back to an independent auditor on several occasions: first, to send data on payments; second, to explain any discrepancies therein. Although the reports are published on time, there

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are sometimes delays in the information transfer between licensees and government agencies and the auditor (The EITI, 2019b).

4.3.4 Actors Involved, Transnational Networks, and Norm Entrepreneurs The Norwegian example of EITI implementation has shown that despite initial support from government officials for the EITI process, it was actually civil society activists who pushed the EITI agenda forward domestically. Essentially, while the Norwegian government was pushing for international proliferation of EITI implementation, Norwegian civil society was still campaigning for the domestic implementation of the EITI process.

4.3.4.1

Setting Political Agenda

Due to the voluntary nature of EITI membership, there should be political will present in order to implement it regardless of whether the country is democratic or not. Thus, representatives of the EITI International Secretariat have emphasised that the EITI is a national project led by governments (Representatives of EITI International Secretariat, personal communication, January 29, 2015). Therefore, without a political agenda on EITI implementation, the process would not be followed. The UK government established and promoted the EITI during the early stages of its development; however, the EITI Standard was only part of its international outlook with no domestic replication.

4.4 Outcomes of the EITI’s Implementation in Norway It would be useful to explore what outcomes have emerged from the EITI’s implementation in Norway. Discussing the outcomes is particularly informative with regard to identifying which areas of resource governance have improved through the EITI process. As discussed previously, Norway differs from other EITI implementing countries, as it is an OECD country, and thus there is much curiosity as to how the EITI process has affected Norway compared to other implementing countries.

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4.4.1 Access to Information and the EITI The foremost outcome of EITI reporting is the disclosure of information on resource revenues and companies’ payments. This subsequently contributes to the increased information flow between the authorities and ordinary citizens on the issue of resource revenues (Frynas, 2009, p. 145; Transparency International, 2008). Thus, we begin here by looking at how exactly the EITI contributes to information disclosure in Norway, in terms of the tax disclosure and transparency of the Norwegian Global Pensions Fund’s operations. Disclosure of tax revenues is an important practice of the government to ensure tax compliance, accountability and transparency implementation. Access to tax information is stipulated by freedom of information legislation. Norway has been disclosing tax information since the nineteenth century, when individual tax payments were open to the public (Bø, Slemrod, & Thoresen, 2013; Devos & Zackrisson, 2015, pp. 120– 121). The importance of taxation could not be underestimated since it represents the country’s main source of revenue from the petroleum industry. Tax disclosure informs the Norwegian people about the revenues that the government is making out of the petroleum industry, while at the same time provides guarantees for a stable investment climate for foreign companies (Holden, 2013). Thus, the tax information on companies is published by the Norwegian Tax Administration prior to EITI implementation and is available to the public. A representative of the Norwegian Ministry of Petroleum and Energy noted: ‘Tax payments on a company-by-company basis are already collected and then published by the tax authority including the total amount of tax payments and dividends, and the SDFI’ (Representative of the Norwegian Ministry of Petroleum and Energy, personal communication, February 4, 2015). In addition to the information on tax payments within Norway, the government decided to align with the EU legislation on country-by-country reporting. On January 1, 2014, the legislation of country-by-country reporting came into force in Norway, which meant that all registered multinational companies had to report payments to foreign governments in the countries in which they are operating (Publish What You Pay, 2015). Statoil has been providing information on its payments to foreign governments since 2007 (Rubesa, 2013). Country-by-country reporting, hence, is a more in-depth way of providing information to the public on the operations of companies not only within Norway, but also on Norwegian companies’ involvement in foreign industries. It is important to note that the processes of country-by-country reporting and reporting under the EITI are two distinct processes. Another important aspect of information disclosure in the petroleum industry is information related to contract signing, allocation of licences and productionsharing agreements. Norway, as mentioned before, has a licencing system for oil production, which means that the government provides a licence to a company to fulfil a particular stage of production. Disclosure of the process of licence allocation is essential to understanding how the decisions on oil exploration and production are made in the government and therefore are also of interest to the local population.

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Essentially, the EITI reports did not provide any new information that was not previously available. So, as the EITI rules move towards mainstreaming data and making information more accessible, impactful and efficient, Norway decided not to publish EITI reports but to instead provide all information required under the EITI on a governmental portal (www.norspetroleum.no) (The EITI, 2019c). As data reporting is now more digitalised and made available online, Norway has started to demonstrate how the EITI principles could become more than just report-making.

4.4.2 The EITI as a Mechanism to Support Extractive Companies Since the EITI process represents a set of international rules that are applied not only by numerous governments, but also by multinational corporations and national companies, which thus provide a ‘level playing field’ for doing business (Sovacool & Andrews, 2015, p. 184). This is an important dimension of what benefits initiatives like the EITI can bring to companies. Multinational corporations or national extractive companies are more involved than ever before in the process of revenue generation and allocation to local governments, and the significance of their role should not be overlooked (Karl, 2007). Gillies (2010) argued that reputational concerns are driving international oil companies to engage in the EITI process, which to some extent is confirmed by the behaviour of Norwegian companies, especially Statoil. Statoil is very cautious about its international image and has demonstrated significant support for transparency efforts. Thus, for example, it has officially retreated from legal litigation in the USA on Section 1504 of Dodd Frank Act, in order to avoid clashing with its transparency and anti-corruption campaigns (Global Witness, 2013). Commitment to transparency is part of Statoil’s core values, which is manifested in the company’s engagement in participating in transparency and anti-corruption initiatives (such as the EITI, UN Global Compact and the World Economic Forum’s Partnering Against Corruption Initiative) (Fjell, 2003; Statoil, 2015). By involving all extractive companies, the EITI creates a ‘level playing field’ where the efforts regarding information disclosure are brought together under one mechanism; thus, Norwegian companies are not disadvantaged and are not the only ones to support transparency in resource-rich countries (Frynas, 2010; Slack, 2012). Other aspects of importance for oil businesspersons are investment opportunities and having a stable investment climate in resource-rich countries. For Norway, the issue of investments is twofold: it has a large domestic oil market and also has a need to invest abroad through Statoil’s operations. The Norwegian government is concerned with ensuring favourable conditions for Norwegian companies, as noted by a representative of its Ministry of Foreign Affairs who stated: ‘This is important for Norwegian companies, like Statoil to be sure of a stable investment climate in foreign countries. It is also important that other companies participate in EITI

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so it would be a fair playing field’ (Representative of the Norwegian Ministry of Foreign Affairs, personal communication, February 5, 2015). However, although oil companies support the EITI, there is no evidence to suggest that they would not invest in a country that is not part of the EITI (Benner & Soares de Oliveira, 2010, p. 311). Therefore, the investment incentive of EITI implementation is difficult to assess. At the same time, companies themselves see the benefit in transparency mechanisms and acknowledge that the early adoption thereof would be better in the long-term and unavoidable (The Economist, 2014).

4.4.3 The EITI as a Mechanism to Create Links Between Civil Society, Government and Private Sector The EITI is praised not only for its work on improving transparency, but also for the multi-stakeholder mechanism that it promotes. The EITI has been credited for empowering civil society organisations to step up in their role as independent observers in terms of how revenues from natural resources are governed and spent (Caspary, 2012, p. 180). The dialogue between civil society, businesses and government is important in the decision-making processes in extractive industries. Daily debate on the issue of resource revenues in the media, academia and parliament in Norway took place before the EITI framework was implemented, and continue to take place (Representative of the Norwegian Ministry of Petroleum and Energy, personal communication, February 4, 2015). Norway’s approach to governance of their extractive industry is multi-dimensional and covers issues such as debates on the industry, structure of the industry and revenue allocation and many others. This is pointed out by those involved in the industry: ‘the way we [Norway] were doing the [EITI] process, the way that we have been structuring ourselves [the extractive industries sector], the way that we are having dialogue [on issues around resource revenues] and the way we have been producing [EITI] reports [is] used by other countries and some countries we have seen has been making better reports than what they otherwise would have’ (Representative of Publish What You Pay Norway, personal communication, February 5, 2015). However, the multi-stakeholder mechanism cannot operate if the activities of one of the parties, particularly civil society, are challenged, as we have seen in the case of Azerbaijan. Therefore, the high ranking of Norway in terms of political and civil rights and freedoms (Freedom House, 2016) appear to give credibility to the EITI process. As underlined by a representative of the Ministry of Petroleum and Energy (Personal communication, February 4, 2015): ‘But it’s important that data and information are available and that those who are competent journalists or researcher can access the material and get answer to their questions (Personal communication, February 4, 2015)’. The decision to mainstream the EITI process in Norway also resulted in the dissolution of the multi-stakeholder group; however, the government guarantees support for a constructive discussion of resource revenue management

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and transparency and accountability in extractive industries with all stakeholders and the general public. The combination of new EITI rules and Norwegian reforms in the implementation of the EITI Standard shows how norms could be implemented, embedded into political and social life, and how states could be innovative. Yet, this leads to a sensitive assumption that a state should be democratic to be able to reject the reporting and multi-stakeholder group requirements.

4.5 Challenges and Debates Relating to EITI Implementation in Norway As mentioned earlier, Norway had been publishing figures on the petroleum industry before the EITI process started. Thus, it would seem logical that the EITI process would have enjoyed a smooth and quick implementation. Yet, the technicalities and specifics of EITI reporting require considerable knowledge and time to be applied even in a developed country such as Norway. Initially, the EITI’s implementation in Norway was initially met with limited support and understanding from Norwegian officials regarding the purpose it would have in the processes of the country. One member of the Labour Union recollected: ‘People didn’t really see the use of it in Norway. They said we have all the figures - you can go and look them up. They asked why they should use a lot of resources to put together a report. The ministries, I believe, still have the same view on it. Basically, why do we have to do this [implement the EITI]?’ (Representative of Industri Energi, personal communication, February 2, 2015). A representative of the Norwegian Ministry of Petroleum and Energy (Personal communication, February 4, 2015) recalled the period in which Norway applied to join the EITI: ‘We used the petroleum law [to incorporate EITI requirements]; so that’s the reason why we used the ministry of petroleum [which] got the responsibility [to host Norwegian EITI Secretariat] and in a way we [representatives of Norwegian government] spend some time looking at each other [wondering] what’s the point [in EITI implementation in Norway], [and] what should we do. Then, we spend also quite some time thinking how can we do it [implement the EITI] in an efficient way. So it took almost a year before we invited a [multi-stakeholder] group’. Another challenge in the EITI’s implementation in Norway was to make the process relevant to Norwegian society. Thus, for instance, a representative of Publish What You Pay (Personal communication, February 5, 2015) mentioned: Making it [the EITI process in Norway] relevant in itself is a challenge and I think that a challenge is also that internationally you automatically think that anything that is relevant in the developing world or in the Global South or the way contracts are made is kind of the same in Norway and it isn’t. We have a completely different contracting system, we have a licensing system. You know contract transparency as such where you go [and analyse] and do economic modelling of contracts is not very useful when you have the licensing system that we have in Norway, for example.

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Whereas oil companies generally agree on the necessity of applying the principles of transparency in extractive industries, particularly in developing countries, the implementation of the EITI in Norway was not approached with much enthusiasm. Since oil companies in Norway had to provide reports to the government on revenues, taxes and other fees, the preparation of EITI reports was seen as an additional burden. A representative of Norwegian Oil and Gas Association mentioned: ‘The challenge for the companies is double reporting’ (Representative of the Norwegian Oil and Gas Association, personal communication, February 2, 2015). Double reporting could also be associated with the challenge faced by companies to also provide specific information in order to avoid ‘data fatigue’ and to not be overwhelmed by the available figures (The Economist, 2014). In addition, even with its experience in information disclosure and a well-operating political apparatus, it still took some time for Norway to prepare the ground for EITI implementation. As noted by a representative of the Norwegian Ministry of Petroleum and Energy (Personal communication, February 4, 2015): It [the EITI process] is good because in the way that we [Norwegian EITI Secretariat] started doing this work with the report, with the reconciliation; we see that it’s not a quick fix. It takes some work to define what kind of data, what should be in/out [of the EITI report] and even [to prepare] our report [in the way that] you can explain every discrepancy if there are [any]. I mean in the first place, when the company delivers their report and the same [is done by] the authorities, there are also some mismatches [in figures], but they can be explained. But it takes a lot [of work]; it takes some time to figure out why it is [there is discrepancy in figures]. It’s just some misreading of what we [Norwegian government] are supposed to report. It is not a big amount [of work] but it takes time.

Thus, the presence of good institutions being in place for EITI implementation is advantageous but only to a certain degree. The implementation of the process requires a comprehensive approach, even for democratic countries such as Norway.

4.5.1 Sustainability of the EITI Process in Norway The EITI process should feed into the national context and be relevant to it. However, with the work of domestic institutions and other transparency mechanisms, such as country-by-country reporting, it has been harder to find a place for the EITI in Norway. Therefore, the ability of Norway to mainstream the process of making data available on the online website, and its fostering of pubic debates and involving stakeholders, show us how the country is facing the challenges of the EITI. A representative of the Ministry of Petroleum of Norway (Personal communication, February 4, 2015) mentioned: ‘The question is whether we continue or stop, or to do something else’. As the EITI plays an important foreign policy role for Norway and since the country has been a pioneer of the EITI Standard among OECD countries, it is beyond doubt that Norway will remain a member. Moreover, the Norwegian way of implementing the EITI is a reflection of its commitment to the transparency in extractive industries norm.

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Here, it is important to come back to the question of compliance. In particular, why does Norway comply with EITI requirements? We have established that there are limited domestic benefits from EITI implementation for Norway, but at the same time there is an international prerogative for Norway to support the EITI process in order to then promote it globally. Therefore, Norway’s compliance represents a ‘normative obligation’, giving legitimacy to the norm itself in the process (Florini, 1996; Herrmann & Shannon, 2001, p. 622). Thus, as long as the EITI is located within Norway’s foreign policy agenda, it would also stay inside the domestic structure.

4.5.2 Limited Interest Inside Norway The ambiguity regarding the relevance of the EITI process to Norway could be associated with a lack of interest in the process inside Norway, as was noted: ‘If you ask someone on the street if they have heard about the EITI, they would probably say that they don’t know anything about it’ (Representative of Industri Energi, personal communication, February 2, 2015). To popularise the EITI process, for instance, at the initial stage of the EITI’s implementation, the Norwegian government tried to promote the EITI report. However, civil society representatives have criticised the reliance on civil society in this regard and have claimed there should be an interest in exploring other areas of extractive industries that the EITI is not yet covering (Representative of Publish What You Pay Norway, personal communication, February 5, 2015). Thus, for Norway, the biggest challenge is not only to make the EITI process relevant but to get to the point where the public might find it interesting to explore it further.

4.5.3 Reverse Legitimacy: Domestic Implementation for International Benefits Keeping in mind, the limited benefits that the EITI process has brought to Norway, as well as the challenges faced in making the process relevant to Norwegians, it is still not clear why Norway agreed to implement it. At this point, we can revert to the argument on reputational concerns from the perspective of state legitimacy. Every state seeks legitimacy to provide meaning for the political regime in both democratic and undemocratic states (von Soest & Grauvogel, 2015). Political regimes within states gain recognition from their own populations, and then gain wider political recognition from the international community (Caspersen, 2009, 2015; Stoddard, 2015; von Soest & Grauvogel, 2015). Norway neither needs to prove to the international community its commitment to transparency nor does it need to improve its image, whereas developing countries

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may be motivated to apply EITI principles in order to attract foreign aid (DavidBarrett & Okamura, 2013), Norway has implemented the EITI in order to convince others to do the same. For Norway, making sure that other resource-rich countries join the EITI would, it assumes, mean that more countries and companies would follow the same international transparency standards, which again relates to the notion of creating a fair playing field for doing business (Eigen, 2013). Thus, the EITI process in Norway fits into the framework of applying international standards to justify domestic policies. As argued previously, Norway has a long-standing and strong commitment to transparency and anti-corruption policies domestically (Representative of the Norwegian Ministry of Petroleum and Energy, personal communication, February 4, 2015), which should somehow be reflected in the external outlook of the country. Therefore, for Norway, the prospects of international benefits outweigh the limited domestic gains when it comes to EITI implementation. As recognised by a representative of the Ministry of Petroleum and Energy (personal communication, February 4, 2015): ‘In that respect it didn’t represent anything new to Norway and I think both our ministry and also members of this multistakeholder group were looking at Norway implementing the EITI as Norway making an example of the international work of the EITI rather than worrying whether it actually benefits Norway or not’. In essence, Norwegian participation in EITI is far more important for the initiative itself rather than for Norway, since by having Norway on board, the initiative has gained a strong democratic partner. Norway has broadened the geographic reach of the EITI and has marked the path for other developed countries to follow, as outlined by a representative of the Norwegian Ministry of Petroleum and Energy: I think the most important thing about the EITI or Norway implementing the EITI is for it to be an example so that we can use the way we have solved challenges and problems, and the reporting methods as an example to other countries and also if some countries are reluctant to implement the EITI because they think it is only for poor countries, we have shown that we have done it [implemented the EITI] too. We are the only OECD country that so far implemented [the EITI], but the UK, France, and the United States, is working on it [too]. (Representative of the Norwegian Ministry of Petroleum and Energy, personal communication, February 4, 2015)

Another interesting point was raised by a representative of Publish What You Pay Norway (Personal communication, February 5, 2015): ‘So obviously the benefit was [that] it [the EITI process] has been a vehicle in order to globalise the principles of country-specific payments, I think that is the highest benefit’. This ‘globalisation of principles’ is an essential part of the external legitimacy that Norway is seeking to achieve. Having internalised the transparency norm in different formats for many years, the time came to spread the principle of transparency across the globe, which brings us to the next section on how Norway has tried to achieve that aim.

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4.5.4 The EITI as Part of the Norwegian Foreign Policy Agenda Norway is sharing its experience in natural resource management with the rest of the world and is leading by example in transparency standards implementation (The EITI, 2011). There is an assumption that more countries will be willing to join the EITI on the basis of the Norwegian experience. Indeed, a representative of Publish What You Pay Norway (Personal communication, February 5, 2015) claimed: ‘we also knew that some countries might be more inclined to join if Norway joined as the first OECD country. We have had dialogues [on the experience of EITI implementation] also with the UK and the US and so on’. Its cooperation on transparency in extractive industries does not stop at simply being an example for others to follow. Through engagement with partnering countries across the globe, Norway not only shares its own experiences in petroleum management, but it also encourages countries to participate in the EITI. The EITI’s promotion has been in line with the official foreign policy and international development agenda of Norway on transparency and accountability over the last decade or so (Representative of the Norwegian Ministry of Foreign Affairs, personal communication, February 5, 2015). A representative of Norwegian Agency for Development and Cooperation (NORAD) (Personal communication, January 29, 2015) noted: There has been a long history since the 70s. For example, Nicaragua has been receiving help from Norway’s petroleum industry since 1989. So this has been going on but not in the same way as now. In 2005 it [Oil for Development Programme] got the structure, the framework [and] components of the programme. So before you could say that, for example, the environmental part [of cooperation between Norway and countries involved in the programme] was not as strong as it is now. It [the Oil for Development Programme] was more focused on purely petroleum resources and so on.

The Oil for Development Programme is devoted to providing technical and institutional assistance for developing countries to support their efforts in building their petroleum industries (NORAD, 2015). The Oil for Development Programme, being part of the foreign aid branch of the official foreign policy of Norway, goes hand-in-hand with the question of how to make sure that Norwegian taxpayers’ money is not wasted but instead provides substantial change in developing countries. For instance, a representative of Publish What You Pay Norway (Personal communication, February 5, 2015) stated: […] also one of the things is that in Uganda the Norwegian government has been financing the EITI process. But the Norwegian government is also saying that you actually need to deliver something, we’re not just going to give you money if you’re not doing anything meaningful, you need to show that you mean it or else why should you do it. Within the government of Uganda there have been many corruption scandals; there was no meaningful progress, so the government cut the funds from the project. Therefore, international standards, like the EITI, help Norway to hold aid-recipient governments accountable. (Representative of the Norwegian Ministry of Foreign Affairs, personal communication, February 5, 2015)

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The Norwegian government has also been promoting campaigns that would tackle illicit financial flows and tax evasion in the corporate sphere (The Economist, 2014). Norway participates in the Financial Action Task Force (FATF),4 has been a head of a task force on illicit financial flows in the Leading Group on Innovative Financing for Development5 and supports Global Financial Integrity programmes6 (Clough, 2015).

4.6 Conclusion This chapter has introduced the process of EITI implementation in Norway including the benefits and challenges therein. As a final note, we derive several important points to be learned from the Norwegian case. Following the logic of Finnemore and Sikkink (1998), we deconstruct the chapter according to the stages of the norm’s life cycle (Fig. 4.1). First, how did the transparency norm, and particularly that of the EITI, emerge in Norway? This chapter has demonstrated that Norway had already implemented elements of transparency long before the EITI process was internalised, such as through disclosure of tax payments, licences allocation and management of the country’s sovereign wealth fund. In this sense, the benefits of EITI implementation for Norway have been quite limited. However, once the EITI as a mechanism was established, the Norwegian government expressed its support for the initiative and endorsed its principles. In that way, the Norwegian government has acknowledged the presence of EITI as a norm on the international arena. Second, how did the ‘norm cascade’ start in terms of Norway’s commitment to the EITI? With some persuasion from civil society organisations, and in line with the political agenda of the ruling party at the time, EITI implementation became a topic of discussion at a multi-stakeholder level. Debates in this regard eventually led to Norway officially applying for EITI candidacy and then EITI implementation. The announcement of Norway as an EITI candidate state was the first ‘tipping point’ in the norm life cycle. Making the EITI process relevant to Norway, organising multistakeholder groups, and producing EITI reports were all essential elements of the EITI process and were also challenging for Norway. This stage indicated that even with good institutions in place and a well-functioning political apparatus, there were 4 FATF is an inter-governmental body established in 1989 with the aim to combat money laundering,

terrorism funding and other financial crimes. For more information on FATF, see http://www.fatfgafi.org/pages/aboutus/whoweare/. Accessed on September, 20, 2015. 5 Leading Group on Innovative Financing for Development is a platform of 63 countries, international organisations and civil society groups, working on implementation of innovative financing mechanisms in development programs. For more information, see http://leadinggroup.org/rubrique172. html. Accessed on September 20, 2015. 6 Global Financial Integrity (GFI) is a non-profit research and advisory organisation focusing on illicit financial flows. For more information on GFI, see http://www.gfintegrity.org/about/. Accessed on September, 20, 2015.

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Fig. 4.1 Norway’s EITI implementation. Source Author

still obstacles on the path towards EITI implementation. This is not to say that the obstacles were significant enough to thwart the process, however, they did require attention and commitment from the involved parties to be overcome. Third, after Norway was recognised as an EITI compliant country, it was necessary to clarify how it would proceed further. By gaining compliant status, Norway had reached another ‘tipping point’ and now faced the challenge of upholding this status and even taking its commitment further. This is a very uncertain area in which Norway is struggling to find domestic benefits and relevance in applying the EITI. However, with the international outlook of Norway as a leader and an example to others on transparency implementation, it seems likely that Norway will continue to play a role in the EITI process on the international stage. Even though this overview of the EITI process development in Norway has presented a valuable insight into what to expect from a developed democratic country applying a transparency mechanism compared to a developing country that has done the same, there are still several aspects to be fleshed out from this case study. First of all, one should not forget that Norway is a so-called norm entrepreneur in the EITI process. Having been a vocal supporter of the initiative since its inception, the Norwegian government has pushed forward the notion of transparency in the extractive industries agenda. By following the EITI Standard itself, Norway has also set an

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example as the first of the OECD countries to join the EITI. Thus, currently, it not only sets the agenda but also must adhere to the EITI rules. It is important to note the differences that persist between Norway and other EITI members. While in some states the EITI represents the only platform for information disclosure on extractive industries, Norway has additional legislation (for instance, country-by-country reporting), which dilutes the significance of the EITI’s implementation domestically. Norway has completely internalised the transparency norm by first implementing relevant domestic policies, such as the EITI process. Furthermore, Norway has incorporated the discourse of transparency into its foreign policy by promoting it abroad through various international initiatives and programmes. Lastly, Norway supports the implementation of transparency in other countries through its development programmes like the Oil for Development Programme. For Norway, reputational concerns play a motivating role with regards to EITI implementation. Unlike other fellow EITI members that would benefit from improving their respective transparency records, Norway already had a high ranking for transparency and accountability and these did not represent incentives for it to implement the initiative. Yet, what is peculiar in Norway’s case is the fact that the country subscribed to the EITI process in order to sustain its reputation as not only a ‘norm imposer’ but also one that ‘follows what it preaches’. By doing so, Norway plays down the antagonism between developing states that are implementing the EITI, and developed states that are not. Therefore, the EITI as an organisation itself needs to attract more OECD countries and needs to keep Norway as a member to maintain credibility in the initiative itself. In his opening address to the participants of the EITI Oslo Conference in 2006, the Minister of Foreign Affairs of Norway, Jonas Gahr Støre, said: ‘What I see as the truly innovative future of this process is that we are an informal coalition contributing to the formation of global norms and standards. Such work is normally the responsibility of the UN and other organisations with a global membership. But sometimes more diverse alliances are necessary in order to get initiatives off the ground. Ours is one such initiative’ (Norwegian Ministry of Foreign Affairs, 2006a). According to Risse-Kappen’s (1995, pp. 22–23) categorisation, Norway is a corporatist society where the decision-making process is consensus-based and where civil society is heavily influential. In the case of EITI promotion, this chapter has illustrated that a combination of pressure from civil society groups and the willingness of the government has resulted in a decision to implement the initiative. However, the role of the government cannot go unnoticed in Norway’s case. With a push from the aforementioned Solheim, the Norwegian government proceeded to implement the EITI. Thus, the agenda of the ruling party also plays a role in norm commitment and implementation, probably even more so than in authoritarian states, where political agendas tend not to change much. Norway’s case demonstrates another important aspect in the study of norm implementation and compliance. In the examples of evolving voluntary initiatives, like the EITI, countries can be allowed some leverage in terms of the way the main principles and rules are implemented. As Norway opted for the online publication of all relevant data and deemed the production of EITI reports inefficient, the way that

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Norway has implemented the EITI is very different from other countries. However, this is exactly what intrigues norm scholars who look at how the principles and the norm itself are transmitted and guaranteed through specifically designed outputs. Thus, the more data that are published, the more accessible they are to everybody, and the more discussions that are held about the data, through all of which the norm becomes embedded. Some questions still remain as to how to make sure that all of these measures could be demonstrated, verified and actually impactful. In this sense, norm implementation is not different whether it takes place in a democratic state or not.

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Stoddard, E. (2015). Between a rock and a hard place? Internal-external legitimacy tensions and EU foreign policy in the European periphery. Journal of European Integration, 37(5), 553–570. https://doi.org/10.1080/07036337.2015.1019487. The Economist. (2014, December 11). Corporate transparency: The openness revolution. http://www.economist.com/news/business/21636070-multinationals-are-forced-revealmore-about-themselves-where-should-limits. Accessed on October 17, 2016. The EITI. (2009). Norway has applied for EITI Candidate status. https://eiti.org/news/norway-hasapplied-for-eiti-candidate-status. Accessed on July 23, 2018. The EITI. (2011). Norway and USA to share best practice on EITI. https://eiti.org/news-events/ norway-and-usa-share-best-practice-eiti. Accessed on September 2, 2015. The EITI. (2019a). EITI factsheet 2019. https://eiti.org/document/eiti-fact-sheet. Accessed on March 3, 2019. The EITI. (2019b). Norway. https://eiti.org/Norway/implementation. Accessed on June 1, 2019. The EITI. (2019c). The board agreed that Norway has made satisfactory progress overall with implementing the EITI standard. https://eiti.org/BD/2019-22. Accessed on July 26, 2019. Towns, A. E. (2012). Norms and social hierarchies: Understanding international policy diffusion “from below”. International Organization, 66(2), 179–209. https://doi.org/10.1017/ S0020818312000045. Transparency International. (2008). Promoting revenue transparency: Report on revenue transparency of oil and gas companies. http://archive.transparency.org/policy_research/surveys_ indices/promoting_revenue_transparency#2008. Van Alstine, J. (2014). Transparency in energy governance: The Extractive Industries Transparency Initiative and Publish What You Pay campaign. In A. Gupta & M. Mason (Eds.), Transparency in global environmental governance (pp. 249–270). Cambridge, Massachusets: The MIT Press. von Soest, C., & Grauvogel, J. (2015). How do non-democratic regimes claim legitimacy? Comparative insights from post-Soviet countries (GIGA. GIGA Research Programme: Legitimacy and Efficiency of Political Systems No. 277).

Chapter 5

EITI Implementation in Kazakhstan: Overcoming Hurdles to Reach Compliance

5.1 Introduction In 2000, the US Justice Department opened an investigation against James Giffen in relation to his alleged involvement in bribery schemes connected to high-ranking Kazakh officials and foreign oil companies (Ostrowski, 2010, p. 129). This investigation implicated then Kazakh President Nursultan Nazarbayev as well and was subsequently named ‘Kazakhgate’ (Kassenova, 2006; Olcott, 2008; Pleines & Wöstheinrich, 2016). In 2003, Giffen was officially charged with channelling USD78 million in unlawful payments to offshore accounts (Ostrowski, 2010, p. 129). Kazakhgate had tremendously damaging repercussions for Kazakhstan’s image and the legitimacy of the Kazakh authorities, as well as for the investment climate of the country, as it revealed that corruption was thriving in Kazakhstan (Pleines & Wöstheinrich, 2016). The scandal also had domestic implications, leading to a tightening of the political regime (Kassenova, 2006; Ostrowski, 2010). Indeed, it became representative of the negative effects of natural resource endowments on a country. In Kazakhgate, Western oil companies demonstrated a willingness to deal with an authoritarian regime (Schatz, 2006, p. 266). Therefore, we could assume that some foreign investors participate in corrupt practices to achieve their expected results. Ross (2001) argued that natural resource rents create favourable conditions for authoritarian regimes in resource-rich countries and, thus, challenge democratisation processes in them. It may then be construed as puzzling that Kazakhstan’s government opted to commit to implementing the EITI Standard in 2005. Kazakhstan is an example of a state that had no prior experience of the transparency in extractive industry norm but was encouraged into implementing it and has faced some struggles in process thereafter. This chapter starts by raising questions as to why Kazakhstan decided to participate in the EITI and how this participation has proceeded. What roles do external and internal actors play in the promotion of the EITI and its implementation in the country? What have the challenges been in the process of EITI implementation in Kazakhstan, and what results have been achieved so far? © Springer Nature Switzerland AG 2020 A. Tskhay, Global Norm Compliance, Norm Research in International Relations, https://doi.org/10.1007/978-3-030-41452-8_5

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In the study of the EITI’s implementation process, Kazakhstan represents an interesting case for several reasons. First, much like Azerbaijan and Kyrgyzstan, the country did not have prior experience of information disclosure on revenues from extractive industries, so it is important to explore how Kazakhstan changed its approach to such disclosure (Satpayev & Umbetaliyeva, 2014, p. 123; Schatz, 2006, p. 266). Second, Kazakhstan joined the EITI only three years after the initiative was launched in 2005, yet it took seven years for it to become an EITI compliant country, and unlike Kyrgyzstan it did not go through political transformations that might explain such a delay. Thus, Kazakhstan was not among the first countries to implement the EITI and the process of internalisation took considerable time. Yet, over the years, Kazakhstan has shown significant progress in information disclosure in line with the EITI Standard, which represents another good reason for studying this country in particular. In discussing the case of Kazakhstan, the following three main factors should be borne in mind: (1) the importance of national image and international investment attractiveness to Kazakhstan’s government; (2) active participation and promotion by civil society organisations; and (3) the decisive role of President Nazarbayev in Kazakhstan’s commitment to the EITI. The interaction between and within those factors will be key in understanding the country’s path with respect to extractive industry development and especially the EITI’s implementation. One cannot discuss EITI implementation in Kazakhstan without pointing out the peculiarities of the country. Kazakhstan’s economy largely relies on revenues from hydrocarbons (Kalyuzhnova, 2008; Overland, Kendall-Taylor, & Kjaernet, 2010; Pomfret, 2005, 2011; Raballand & Genté, 2008). It is one of the major players in the Caspian Sea with an estimated 55% of oil reserves (Ahrend & Tompson, 2007; Effimoff, 2000; Kalyuzhnova, 2008; Laruelle & Peyrouse, 2013; Raballand & Genté, 2008; Tsalik, 2003). Therefore, oil and gas industry plays an important role in Kazakhstan’s domestic and foreign policy. One of the most important factors in Kazakhstan’s economic growth is its stable political environment. Unlike neighbouring Kyrgyzstan, which has experienced two revolutions and several changes of government since gaining independence, or Azerbaijan with its ongoing conflict with Armenia over Nagorno-Karabakh, Kazakhstan has undergone decades of relative stability. At the same time, Kazakhstan’s landlocked position between two rising powers, Russia and China, creates challenges in terms of political manoeuvring and the export of commodities and goods. Yet, its vast reserves of hydrocarbons and its political stability, as well as its strategic location, make Kazakhstan an important global energy player and this cannot be neglected in the analysis of its extractive industry sector (Ahrend & Tompson, 2007; Nurmakov, 2010). The resource curse literature has addressed the issue of the correlation between the nature of a country’s political regime and its natural resources, by exploring the question of whether the availability of natural resources hinders democracy (Haber & Menaldo, 2011; Ross, 2001). Thus, the relationship between political elites and the extractive industries is important for the analysis of resource management policies. Kendall-Taylor (2011) proposed looking at the political ‘time horizons’ to understand

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their effect on oil resource management. In Kazakhstan’s case, Kendall-Taylor (2011) argued that the lack of a threat to power has allowed Kazakh authorities to spend less oil revenues domestically and to invest them abroad instead. In addition, Kazakhstan’s elite has promoted international engagement with foreign partners, in both economic and political sectors, to build an international reputation and partly also to divert attention away from domestic issues (Cummings, 2003a, p. 139; Schatz & Maltseva, 2012, p. 49).

5.2 Elites and the Internal Structure of the Extractive Industry Sector in Kazakhstan 5.2.1 The Relationship Between Business and Political Elites in Kazakhstan Understanding why Kazakhstan signed up to the EITI would require unpacking the decision-making mechanisms inside the country. Such an endeavour could not be accomplished without an analysis of the political and business elites in the country. Unlike in many of its fellow post-Soviet republics, the political transformation from the Soviet period to independence happened relatively smoothly in Kazakhstan with Nursultan Nazarbayev, Former First Secretary of the Communist Party of Kazakhstan, elected President of Kazakhstan on December 1, 1991 (Cummings, 2005, p. 22). Nazarbayev consolidated power thereafter and built a strong network of political elites around him (Cummings, 2005; Junisbai, 2010; Satpaev, 2007). However, although the leadership position in Kazakhstan has been stable, there have been changes in the composition of its political elites. For the purposes of this research, it is important to outline the relationship between political and business elites and the extractive industries in Kazakhstan. The extractive industries, especially the oil and gas sector, are closely related to Kazakhstan’s political elites and have assisted in the creation of a patronage network. Indeed, the policies related to the development of the extractive industries in Kazakhstan after gaining independence were intertwined with the evolution of the circle of business and political elites loyal to Nazarbayev (Anceschi, 2014; Matveeva, 1999; Ostrowski, 2010; Schatz, 2008). Thus, to understand the decision-making process for extractive industry policies and the relationship between the sector and elites, it is useful to look at the main elite circles. Kazakhstan’s elite structure could be discussed along kinship/clan-based lines or in terms of loyalty towards the president (Collins, 2003; Schatz, 2005). Although the relationships drawn on bloodlines are still very much present in the allocation of power and wealth in Kazakhstan, connections through patronage seem to be a more accurate representation of the elite structures in the country (Junisbai, 2010, p. 236). Thus, three distinctive groups of elites can be found in Kazakhstan: (1) Nazarbayev’s family circle, including his daughters and sons-in-law; (2) institutional

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or technocratic elites, key ministers, top administrative officials and heads of regional administrations; and (3) businessmen, particularly from financial-industrial groups (Cummings, 2005; Peyrouse, 2012, p. 348; Satpaev, 2007). The purpose of this section is to show how these various elite groups are involved in the shaping of policies to develop extractive industries in Kazakhstan. The starting point here should be a discussion on privatisation reform, which was launched in 1993. After the collapse of the Soviet Union, Kazakhstan’s leadership understood the urgent need to revive the country’s industrial base, especially the oil and gas sector, to boost the economy and secure popular support. Privatisation went through three stages from small-scale (1991–1992) to mass and agricultural privatisation (1993–1995) and then to case-by-case privatisation (1994–1997) (Cummings, 2005, p. 29). The privatisation reform is relevant to the discussion on the extractive industries, since it affected the ownership structure of major companies in the sector. The reform itself had become a contested issue with the privatisation of Kazakhstanmunaigaz, a newly established national oil company, in 1993 (Ostrowski, 2010, p. 35). Major contract negotiations with foreign investors had already started by this stage, with the first deals being signed with Chevron, British Gas and Agip (Pomfret, 2005). Therefore, the question of who would lead the negotiations on the matter of the partial privatisation of Kazakhstanmunaigaz with foreign investors became a source of disagreement between the following two ministries: the Ministry of Energy and Mineral Resources and the Ministry of Geology (responsible for issuing licences for the exploration and development of resources) (Ostrowski, 2010, p. 36). The subsequent policies on the development of the oil and gas sector, such as the establishment of the Ministry of Oil and Gas Industry and the Ministry of Energy and the Coal Industry, with Kazakhstanmunaigaz (renamed Munaigaz) to be a separate entity, were an attempt by Nazarbayev to decentralise the oil and gas industry and to create a corporate structure with the national oil company as an independent actor (Ostrowski, 2010, p. 36). The issue of control in the negotiation process with foreign investors also incorporated a struggle between the central government and its peripheries (local oilmen), who were not satisfied with the course being taken in the industry’s reform (Cummings, 2005). The internal ministerial struggles prompted Nazarbayev to take action, and thus, after the appointment of Akezhan Kazhegeldin, who favoured privatisation, as Prime Minister in 1994, Kazakhstan’s oil industry moved towards privatisation (Cummings, 2005, p. 31). On June 8, 1995, Kazhegeldin announced that the government was ready to sell the state’s stakes in Yuzhneftegas, Aktubinskneft and Shymkentnefteorgistez (Ostrowski, 2010, p. 45). Thus, the Kazakh government expressed its willingness to open up its oil and gas industry to foreign investors (˙Ipek, 2007; Ostrowski, 2010; Peyrouse, 2012; Pomfret, 2005). The attraction of foreign investors served two purposes for Kazakhstan’s authorities: to secure the energy interests of the elites and revenue flow and to demonstrate the country’s commitment to economic liberalisation (Anceschi, 2014, p. 4). Privatisation reform has also resulted in the establishment of a class of wealthy entrepreneurs, or in other words oligarchs, who are also referred to generally as financial-industrial groups (Junisbai, 2010; Satpaev, 2007). These financial-industrial

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groups are clusters of individuals, including heads of major extractive companies or businesses, who also have connections with political elites. For instance, it is worth mentioning: the Eurasian group (Aleksandr Mashkevich, Patokh Shodiev, Alidzhan Ibragimov), which controls mineral, metals, energy and coal sectors through the Eurasian Natural Resources Corporation (ENRC); Vladimir Ni and Vladimir Kim, who control metal-producing companies, including Kazakhmys; Timur Kulibayev, Nazarbayev’s son-in-law, who was Vice-President of KazMunaiGas; and heads of oilrelated companies, such as KazTransGaz and KazTransOil. Both the Eurasian group and Ni-Kim’s group were supporters of President Nazarbayev’s policies (Junisbai, 2010, p. 247; Satpaev, 2007, pp. 295–296). A review of the establishment of elites and the economic and political development in Kazakhstan demonstrates not only the complexity of the management of the extractive sector in the country, but also the extent of the network of decisionmakers. Thus, one can observe in Kazakhstan a patronage system comprising different groups, such as the close circle of the president, oligarchs, administrative elites (key government officials), regional elites and local administration (Peyrouse, 2012, p. 348). Changes in the administrative personnel responsible for the management of the extractive industry sector reflected the efficiency of the EITI’s implementation, as demonstrated later on. The publication of the beneficial ownership information that is required by the EITI rules from 2020 onwards will also have an impact on the major business elites, thus leaving a question mark over the sustainability of the EITI process in Kazakhstan.

5.3 Extractive Industry Sector in Kazakhstan After the collapse of the Soviet Union, Kazakhstan was left with unexplored oil and gas reserves which the government sought to utilise for economic growth and development (Kalyuzhnova, 2008; Ostrowski, 2010; Pomfret, 2005). The production of oil underwent a dramatic decline in the early 1990s, and with ageing technology, the prospects of benefiting from oil revenues seemed small in Kazakhstan (Olcott, 2002; Palazuelos & Fernández, 2012; van der Leeuw, 2000). Kazakhstan’s government decided to sell the shares of its oil and gas fields for exploration and production to foreign oil companies under limited state control (Jones Luong & Weinthal, 2010, p. 259). Kazakhstan’s reserves of hydrocarbons are estimated to peak at around 2030 with a subsequent decline in production for the following ten years (Luecke, 2010, p. 39). Kazakhstan’s oil and gas sector comprises a kaleidoscope of events and actors. Major oil and gas contracts were signed between Kazakhstan and foreign oil companies in the period of 1993–1997 (Brauer, 2007; Palazuelos & Fernández, 2012). The concessions made during this period to foreign oil companies were unfavourable to Kazakhstan, and several of them have allegedly still not been disclosed (Nurmakov, 2010; Palazuelos & Fernández, 2012). The major oil and gas fields in Kazakhstan are Tengiz, Karachaganak and Kashagan, with Kurmangazy marked as a potential

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field for development (Kaiser & Pulsipher, 2007). The Tengiz field has been operated by Tengizchevroil (TCO) consortium since 1993 and is estimated to contain 9 billion barrels of reserves (Ministry of Investment and Development of the Republic of Kazakhstan, 2015). The Karachaganak field is operated by the joint venture Karachaganak Petroleum Operating (KPO) with estimated reserves of 9 billion barrels of oil and condensate gas and 1.35 trillion m3 of gas (Ministry of Investment and Development of the Republic of Kazakhstan, 2015).1 Kazakhstan’s economy grew quickly from the early 2000s until the global financial crisis of 2007–2008 due to high oil prices, which resulted in a sizable government revenue surplus (Brauer, 2007; Kalyuzhnova, 2008, p. 10). The steadily increasing production of oil and gas from Tengiz and Karachaganak fields fuelled the country’s economic growth (Palazuelos & Fernández, 2012, p. 29). This period could also be described as a proactive stage where Kazakhstan’s government started to introduce amendments to its tax legislation, to get more involved in oil production and exploration through national companies and to introduce environmental fines for foreign oil companies (Olcott, 2008; Palazuelos & Fernández, 2012, pp. 31–32). To demonstrate the significance of the extractive sector for Kazakhstan’s economy, it is important to bring to light some statistical data from Kazakhstan’s 2016 EITI report. For instance, oil production in 2017 reached 86.2 million tons and gas condensate production of 46.7 billion m3 (Ministry of Investment and Development of the Republic of Kazakhstan, 2017). Extractive industries contribute to almost half of the industrial production and a third of the state budget (Ministry of Investment and Development of the Republic of Kazakhstan, 2017; The EITI, 2019b). These data show not only how significant the extractive industry sector is for Kazakhstan, but also how large a role oil and gas production plays in the state’s economy. Kazakhstan’s multi-vector policy has entailed a balancing act between its partnerships with Russian, Chinese and Western companies (Cummings, 2003b; Ehteshami, 2004; Hanks, 2009; Heinrich & Pleines, 2015; ˙I¸seri, 2007; Palazuelos & Fernández, 2012). Foreign investors play an important role in the economy and politics of Kazakhstan due to the importance of the extractive sector (Bayulgen, 2005; Kalyuzhnova, 2008, p. 7). Thus, for example, only in the period between 2002 and 2007 did Kazakhstan’s export of crude oil to the EU reach 5.18% of total imports from non-EU countries, which represented a 100% increase from the 2002 baseline (Anceschi, 2014, p. 9). The discovery of the Kashagan oil field boosted Kazakhstan’s oil prospects to enter the top ten global oil producers (Brauer, 2007). This discovery of oil reserves is considered the largest in the world in the last 30 years (Nurmakov, 2010, p. 29). In 1993, an international consortium comprising Agip, BG, Mobil, Total, Shell, BP/Statoil and the state-owned company KazakhstanCaspiyShelf was established to develop the Kashagan oil field (Nurmakov, 2010, p. 29). This was followed by a production-sharing agreement (PSA), with the same listed companies all taking an equal stake of 14.28%, signed in 1997 (Nurmakov, 2010, p. 29). In 2005, Kazakhstan’s national oil company KazMunaiGas became a member of the consortium 1 The

ownership structure for Tengiz and Karachaganak fields can be found in Appendix 3.

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(North Caspian Operating Company, 2015). The list of companies involved in the exploration and production of oil in Kashagan has changed over the years, with stakes being bought and sold. As of today, the consortium is called the North Caspian Operating Company and includes Eni (16.81%), Royal Dutch Shell (16.81%), KazMunaiGas (16.81%), ExxonMobil (16.81%), Total (16.81%), CNPC (8.4%) and Inpex (7.56%). Yet, Kashagan’s production, and with it Kazakhstan’s hopes for additional revenues, is constantly being postponed. The development of the field was challenged by lengthy negotiations between stakeholders on production-sharing agreements, difficult geographical conditions for extraction and technological malfunctions, which have all resulted in delays in production and an increase of costs (Chazan, 2013; Michel, 2015). Apart from large oil and gas reserves, Kazakhstan also has significant reserves of metals and minerals, as is the largest producer of uranium in the world (Pomfret, 2006, p. 40). Kazakhstan was an important metal and mineral producer during the Soviet period (Sagers, 1998). Though the mining sector’s contribution to the country’s GDP is significantly smaller than that of the hydrocarbon sector, the increasing amount of reporting companies has increased the difficulty and scope of the work required to compile an EITI report (Ministry of Investment and Development of the Republic of Kazakhstan, 2015). Moreover, the geography of Kazakhstan’s natural resources reserves shows the importance of EITI reporting and implementation when applied at the sub-national level, which is discussed in more detail later.

5.3.1 Legislative Base of the Extractive Industry Sector in Kazakhstan In 2004, changes to the tax code in Kazakhstan took place, which secured the government’s share in PSAs and introduced the rent tax for the export of oil (Nurmakov, 2010, p. 23). The subsequent year saw further amendments to the tax code with additional fines introduced for gas flaring, an increase in royalty payments, the introduction of royalties for gas condensate and an emphasis placed on the state’s priority in stake purchases (Nurmakov, 2010, pp. 23–24). Over the years, Kazakhstan’s government has introduced amendments to its tax legislation, regarded as moves to enhance its bargaining position (Palazuelos & Fernández, 2012). Kazakhstan’s tax legislation in the extractive sector is quite extensive compared to that of Azerbaijan, for instance. Companies are obliged to report their revenue tax, corporate tax, land and environmental fees, bonuses, royalties, transportation fees and other related taxes and fees for the EITI report (Ministry of Investment and Development of the Republic of Kazakhstan, 2015). Such extensive taxation creates another obstacle in the EITI’s implementation in terms of the technical capacity of civil servants to disclose and interpret such information.

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5.3.2 Management of Revenues from Natural Resources: National Fund of the Republic of Kazakhstan The National Fund of the Republic of Kazakhstan was established as a savings and stabilisation fund by Presidential Decree No. 402 on August 23, 2000 (Kalyuzhnova, 2011, 2012). The National Fund was established to alleviate the effects of oil price fluctuations and global economic risks (Schatz & Maltseva, 2012, pp. 53–54). The fund could be used to cover budget deficits and also to accumulate savings (Kalyuzhnova, 2011; Luecke, 2010). Similar to sovereign wealth funds, the national fund also conducts investment policy and is managed by Kazakhstan’s central bank (Kalyuzhnova, 2011). In 2008, a joint-stock company sovereign wealth fund, Samruk-Kazyna, was established by Government Decree No. 669 (Samruk Kazyna, 2019). SamrukKazyna was a merger of the following two funds created two years earlier: Samruk, the aim of which was to reduce corruption in, and make large state companies autonomous from, the administrative apparatus, and the Kazyna Sustainable Development Fund, which was supposed to implement industrial policies, to control the use of funds and to support investments in small- and medium-sized enterprises (Peyrouse, 2012, p. 356). The purpose of Samruk-Kazyna is to manage the state’s shares in national companies and national development institutions, and accumulate savings from these shares. Samruk-Kazyna’s funds were used to stabilise the crippling economy after the 2007–2008 financial crisis and to stabilise the national currency in 2014–2015 (Nazarbayev, 2014a). Samruk-Kazyna includes companies in various sectors such as those in the oil and gas, chemical and nuclear, mining, telecommunication, transportation and energy, and financial sectors. It includes national companies like KazMunaiGas, Kazatomprom, KazakhstanTemirZholy, Kazakhtelecom and Air Astana.2 Peyrouse (2012, p. 358) called Samruk-Kazyna ‘a symbol of Kazakh state capitalism’. In essence, Samruk-Kazyna assists Kazakhstan’s government to attract investments to the state economy and to support it especially in times of financial crisis (Kalyuzhnova & Nygaard, 2011, p. 70). Samruk-Kazyna is also an important element in the control held by political elites over Kazakhstan’s economy, with Timur Kulibayev having held a chairmanship position for a short period in 2011, together with the government apparatus and other financial-industrial groups (Peyrouse, 2012, pp. 358, 365). The transparency of Samruk-Kazyna’s investments and management remains limited. The fund publishes information on its website on the amount of assets, revenues, expenditures and interests received on a quarterly and annual basis with international accounting and auditing standards applied (Kalyuzhnova, 2012, p. 6654). However, information on investment strategies and decision-making is undisclosed, which prevents a public discussion on the management of the fund. Samruk-Kazyna became a member of the International Forum of Sovereign Wealth Funds that promotes the Santiago Principles (for more details, see Chap. 3) only in 2014 (Samruk Kazyna, 2 For

the full list of Samruk-Kazyna’s daughter companies, see http://sk.kz/company/indicators. Accessed on March 10, 2015.

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2014). Thus, the EITI process provides information on transfers to the budget from Samruk-Kazyna’s daughter companies involved in the extractive sector.

5.4 Critical Juncture In the case of Kazakhstan, the critical juncture for EITI implementation could be divided into three elements. First, the attraction of foreign investments and presenting the country as compliant with international transparency standards were essential. Kazakhstan competes with other Caspian Sea states for foreign investments (Kalyuzhnova, 2008; Najman, Pomfret, & Raballand, 2008; Overland, Kjaernet, & Kendall-Taylor, 2010). For instance, Azerbaijan had a more favourable tax regime and due to its geographical location the BTC pipeline had better prospects in the export of hydrocarbons than Kazakhstan. Therefore, Kazakhstan’s government took its commitment to the initiative into close consideration. Second, by the early 2000s, Kazakhstan had launched production from the Tengiz and Karachaganak fields and was preparing to start of extraction from the Kashagan oil field (Campaner & Yenikeyeff, 2008; Kalyuzhnova & Patterson, 2016; Ostrowski, 2010; Pomfret, 2005). This meant not only an increased flow of foreign direct investment, but also an increase of revenue streams to the national budget. The management of resource revenues has attracted significant attention from analysts and civil society in terms of resource curse effects and also the use of revenues for social needs (Jones Luong & Weinthal, 2010; Pomfret, 2012; Tsalik, 2003). Third, Kazakhgate had a negative effect on the image of the country and its attractiveness to foreign investors. The implication of ruling elites in the scandal also put into question the integrity of contracts in the country (Kassenova, 2006; Ostrowski, 2010; Pleines & Wöstheinrich, 2016). The implementation of the international transparency mechanism was supposed to demonstrate Kazakhstan’s willingness to be open about revenue payments.

5.5 The EITI Process in Kazakhstan Kazakhstan officially endorsed the EITI at the London EITI Conference in 2003, where Ambassador Idrissov expressed the Kazakh government’s commitment to support the initiative (DFID, 2003). In his speech, Idrissov also presented a link between transparency and its importance and government strategies for economic and industrial development (DFID, 2003). This was Kazakhstan’s first international declaration of support to the EITI as an idea in general and also of its relevance to the country itself. Yet, the introduction of the EITI to Kazakhstan domestically could be attributed to international civil society organisations that had been involved in the study of Kazakhstan’s extractive industry sector prior to the EITI process starting in the country.

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Thus, as mentioned in the previous chapter, the Open Society Foundations launched a research project Caspian Revenue Watch, which also had a local branch called Kazakhstan Revenue Watch. This is how representatives of the Soros Foundation Kazakhstan described the project: In 2003–2004 in our network of the Open Society Foundation, it was a big network consisting of 70 offices around the world, there was a big project in New York called Caspian Revenue Watch. Subsequently, there was the idea to create a prototype in Kazakhstan and call it Kazakhstan Revenue Watch. Under the auspices of this program we started the work with NGOs and took input of civil society from preliminary meetings and letters written to the president, and the government. Although, the initiative is international in Kazakhstan’s case it was more of a bottom-up approach. The initiative was coming from the people meaning civil society. (Personal communication with representatives of the Soros Foundation Kazakhstan, November 12, 2014)

The Kazakhstan Revenue Watch network included local NGOs and worked on the analysis and potential implementation of transparency in resource revenues in Kazakhstan’s extractive sector. Through financial support from the Soros Foundation Kazakhstan, the coalition ‘Oil Revenues under Control of the Population’ was formed, which consisted of local civil society organisations (Personal communication with representatives of Echo Kazakhstan, March 4, 2015).3 It was this coalition which started discussions with politicians and the government to get Kazakhstan involved in the EITI. This is how these events were described: At this coalition we addressed each parliamentarian with the request for Kazakhstan to join this initiative. We [civil society organisations] were approached by parliamentarian Maral Itegulov, who said that he had read our letter and that he had liked it. He suggested we work together. We started working together and he was lobbying there for us and in 2005, one year into our activities, in June 2005 Nazarbayev signed an agreement for Kazakhstan to join the initiative. (Personal communication with representatives of Echo Kazakhstan, March 4, 2015)

It has to be emphasised that the impetus for Kazakhstan’s involvement in the EITI came from civil society, although with some support from the Soros Foundation Kazakhstan and Open Society Foundations. As discussed in Chap. 3, Open Society Foundations launched a programme in Kazakhstan entitled ‘Oil revenues under control of the society’, which explored ways to increase transparency in extractive industries. Within this programme, discussions with government and other stakeholders were held to advocate for the importance of transparency (Personal communication with representatives of the Soros Foundation Kazakhstan, November 12, 2014). It is important to highlight the involvement of the local NGOs (e.g. Echo, Institute for National and International Initiatives for Development) and global NGOs (Open Society Foundations) in the promotion of the transparency in extractive industry norm. It is this combination of domestic and global advocacy that created an awareness of the norm and framed the discussion thereof in Kazakhstan. In 2005, President 3 ‘We

as foundation starting from 2004 gave a lot of funds to implement this initiative in terms of support to NGOs’ (Personal communication with representatives of Soros Foundation Kazakhstan, November 12, 2014).

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Nazarbayev announced that the country would join the EITI and also compelled all companies working in Kazakhstan to follow the requirements of the initiative (Zakon.kz, 2005).

5.5.1 Pre-candidacy Period After this announcement, on April 14, 2005, a working group responsible for its implementation was formed under the Ministry of Energy and Mineral Resources (Committee of Geology and Subsoil Use, 2005). The working group contacted all stakeholders, business entities, civil society organisations, members of parliament and government representatives. However, the signing of the memorandum of understanding between all stakeholders was preceded by long negotiations with civil society organisations, which contained a provision on the establishment of a national council with equal party representation (Personal communication with representatives of Echo Kazakhstan, March 4, 2015). It is important to note here that members of parliament had been involved in the work on EITI implementation from the beginning, making the EITI process a four-sided one, rather than a three-sided one as was the case in most other EITI countries. Collaboration among stakeholders was essential, as is indicated here: We [NGO coalition] started to work together with the association of oil companies to finish memorandum [of understanding] in which we wrote down the consensus-based decision making. For us it was the most important [issue] for maintaining the balance. Second, we had a very unique event here in Kazakhstan, in that we had a fourth party, which are members of the Parliament. There is nothing like this anywhere. Members of Parliament were interested [in the EITI], in 2005, Dariga [Nazarbayeva] was leader of a very strong party Asar and she was also part of this [EITI implementation]. So Dariga was working hard and got involved [in the promotion of EITI implementation in Kazakhstan]. (Personal communication with representatives of Echo Kazakhstan, March 4, 2015)

Once all issues had been resolved, all interested parties signed the memorandum of understanding on October 5, 2005 (Committee of Geology and Subsoil Use, 2005). Although the Government of Kazakhstan took responsibility for implementing the EITI, it did not have the capacity to do so alone, and thus support from other actors was crucial at the initial stage of implementation. For instance, foreign oil companies also assisted with managing the EITI’s implementation process in Kazakhstan, as is noted by representative of Association KAZENERGY: It is necessary to note that companies especially ExxonMobil, Statoil, Shell, BG, NSUEC, the big international companies that work in Kazakhstan have actively supported this [EITI implementation] process from the beginning at that time when the NSC [National Stakeholders’ Council] was formed and when government agencies were deciding on which government institution will be responsible for this [EITI] process. [During this period] The NSC comprised by companies, which took responsibility for operational activities, reviews, holding meetings and so on [necessary for the EITI implementation]. At this point ExxonMobil was actively participating. (Personal communication with representatives of Association KAZENERGY, March 12, 2015)

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National Stakeholders’ Council (NSC)—The Managing Body of the EITI Process in Kazakhstan

It is important to pay attention here to the actors involved in the EITI process in Kazakhstan and especially to those who signed the memorandum of understanding. As one of the EITI requirement outlines, each state should establish a multi-stakeholder group, consisting of representatives from the government, extractive companies and civil society (EITI International Secretariat, 2016). The memorandum of understanding was signed by members of parliament (such as the above-mentioned Marat Itegulov and Dariga Nazarbayeva) and representatives of 24 oil companies and 56 non-governmental organisations. The collective role of the NSC is based on consensus-made decisions on the EITI’s implementation and overviews the preparation work for EITI reports and other activities related to the process. The NSC previously consisted of three representatives from each of the following: government, extractive companies, civil society organisations and members of parliament. Currently, three members from Association KAZENERGY and AGMP Association represent extractive companies in the NSC. The NSC’s work is coordinated by the national EITI Secretariat represented by staff of the Geology and Mining Committee under the Ministry of Investment and Development.4 The meetings of the NSC are held in Nur-Sultan, which brings additional costs to representatives of any of the above groups who are based outside the city (Personal communication with representatives of Echo Kazakhstan, March 4, 2015). A memorandum of understanding was signed between the World Bank and Kazakhstan’s government in 2006, which stipulated the bank’s technical and financial assistance to the EITI’s implementation in the country (Personal communication with representatives of the World Bank Kazakhstan, March 13 and 31, 2015). The World Bank’s assistance has played a significant role in the implementation of the EITI in Kazakhstan throughout the whole process. The representatives of the Association KAZENERGY recalled: ‘In the beginning there was no support from the government, and the first report was prepared with money from the World Bank. Consequently, the government realised that it was important to implement this programme by ourselves and to make the development process sustainable and therefore money was allocated that is still being used’ (Personal communication with representatives of Association KAZENERGY, March 12, 2015). The somewhat passive attitude towards EITI implementation from the government could be attributed to a lack of understanding about the purpose of the initiative and the potential benefits thereof. Indeed, in 2005, the initiative itself was at a developmental stage; thus, the government took a cautious approach to the process. It appears though that rather than Kazakhstan’s government accepting responsibility for the initiative, it instead made tactical concessions to civil society and the international community (Risse, Ropp, & Sikkink, 1999, 2013). However, the turning 4 For more information on the Geology and Mining Committee, see www.geology.gov.kz. Accessed

on March 10, 2015.

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point towards EITI implementation in Kazakhstan arose once government officials saw how they could utilise the EITI forum for the benefit of the country. The ability to improve the international image of the country and an additional opportunity to negotiate potential investments and collaborations was an attractive feature for government representatives (Personal communication with a representative of ‘Institute for National and International Initiatives for Development’ and member of EITI International Board from Kazakhstan, March 31, 2015). This brings us back to a point made earlier in this chapter, when Ambassador Idrissov referred to the government strategies and the need to integrate transparency. Industrial innovation and economic development programmes could not be fulfilled in the post-independence period without attracting large investments and learning from the experiences of other countries. Therefore, the EITI forum for Kazakhstan’s government represented an additional platform from which to promote the country and to negotiate new agreements (Personal communication with a representative of EITI International Board from Kazakhstan, March 31, 2015).

5.5.2 Candidacy Period The first EITI report was published in November 2007, covering only the oil sector with 38 participating companies (The EITI, 2019b). The relatively small number of companies involved, and the exclusive coverage of the oil sector was attributable to the voluntary nature of the initiative. At this stage, Kazakhstan did not have any leverage to force companies to follow EITI requirements (Personal communication with representatives of Association KAZENERGY, March 12, 2015). The second and third EITI reports expanded the number of reporting companies and included the oil, gas and mining sectors (The EITI, 2019b). On September 27, 2007, Kazakhstan was recognised as a candidate country by the EITI Board (EITI International Secretariat, 2007). The first major challenge in the EITI’s implementation in Kazakhstan was related to validation. Although the validation report was submitted on time, the EITI Board had to grant Kazakhstan an extension for necessary clarifications to be made from the country as required by the validator (EITI International Secretariat, 2010). At the same time, the responsible ministry for the EITI process was changed to the Ministry of Oil and Gas, a shift which stalled the process for some time. This period was described by a representative of the NSC at that time as follows: The validator’s report went to the international secretariat and there were questions from the secretariat and from the validator for the country, but there was no one to respond to them. The ministry changed. We went, me and Krivodanov,5 to meet with the government, they were asking why we needed this [the EITI process], as we have an open budget anyway [in Kazakhstan]. Then Krivodanov said [to the government representatives]: ‘What disrespect!’ and left the meeting. After that [meeting] the [EITI implementation] process stopped for half 5 Krivodanov,

Yuriy—a representative of civil society organisation Azamattyk Kurultai.

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a year [in Kazakhstan]. (Personal communication with a representative of EITI International Board from Kazakhstan, March 31, 2015)

As a result, the EITI Board found Kazakhstan ‘close to compliant’ with remedial actions to be taken by the government to achieve full compliance status (EITI International Secretariat, 2011). The validation report (2010) identified various areas in which Kazakhstan needed to improve in order to obtain compliant status. Primarily, the validator suggested that additional actions be taken in order to adhere to the working plan. The actions included timely updating and publication of information about the EITI process on the local EITI website and not only in English but also in Kazakh language, to expand the number of participating companies (both local and international) and to develop and agree on a new memorandum of understanding, including new extractive companies. Due to a government reshuffle, responsibility for the EITI’s implementation was given to the newly formed Ministry of Industry and New Technologies (The EITI, 2012). This meant that again there was a need to introduce new people to the initiative including educating them on how the process should work, all at a crucial time when follow-up to the remedial actions was required by the EITI Board. The EITI Secretariat did not receive any response from the government throughout July–December 2011 (The EITI, 2012). A new meeting between civil society representatives and representatives of the Ministry of Industry and New Technologies was arranged to facilitate the EITI’s implementation (Personal communication with a representative of ‘Institute for National and International Initiatives for Development’, March 31, 2015). The representatives of the government were quite uncertain about the purpose of the EITI’s implementation in Kazakhstan. After a long discussion and unsuccessful attempts by civil society representatives to persuade government representatives to support the EITI process, it was mentioned by civil society members that President Nazarbayev had personally signed Kazakhstan’s application to the EITI. After this became known, the tone of the meeting changed and necessary concrete steps to realise the EITI process in Kazakhstan were discussed. The appointment of the Ministry of Industry and New Technologies particularly the Geology Committee as the EITI Secretariat required swift and hard work from the members of the committee in order to reinvigorate the EITI process in Kazakhstan (Personal communication with a representative of Kazakhstan’s EITI Secretariat, March 11, 2015). In the same period, Timur Kulibayev, as Chairman of Association KAZENERGY, suggested that his association joined the EITI’s NSC at the 12th meeting of the Council of Association on February 22, 2012 (KAZENERGY, 2012b). Later in 2012, Kulibayev also emphasised that the Association would begin working on the EITI’s implementation, especially in the light of Kazakhstan’s delayed compliant status (KAZENERGY, 2012a). Thus, not only were the responsible government institutions changed in the EITI process in Kazakhstan, but the oil and gas companies were to be represented by the Association KAZENERGY and corporate decisions would be agreed on at the meetings of the Association.

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Another challenge in the validation process was the dissolution of civil society into several coalitions. This situation is described as the following: There are some explanations why Kazakhstan did not become a compliant country last year [2013]. One of them is that in 2009, the NGO coalition was divided into several coalitions or associations. Right now in Kazakhstan there are some big associations of NGOs, the Coalition itself (‘Oil revenues under the control of society’), there is a big association called Azamattyk Kurultai (mostly it includes NGOs from Atyrau oblast, from Western Kazakhstan, head of which is the Director of NGO ‘Blago’ from Karaganda, Yuriy Krivodanov). There is also a small coalition, to be honest I haven’t seen any of its members yet, it is called Aikymdyk. Aziya Kurmanbayeva from Semey, she has a coalition of 20–30 NGOs [that constitutes Aikydyk association], although it is hard to call her a leader. (Personal communication with representatives of Soros Foundation Kazakhstan, November 12, 2014)

So, on the one hand, there was a change to the governmental institution responsible for the EITI process, while on the other, the work of civil society had become uncoordinated. The combination of these two developments prolonged the validation process and delayed confirmation of compliance status for Kazakhstan. One of the interview respondents claimed that Kazakhstan was unfairly treated during the validation process, a view shared by many other respondents: …but when Kazakhstan was going through the validation process the same requirements were interpreted [by the validator] completely differently [in comparison to other EITI countries]. Kazakhstan didn’t get the validation because there were completely different conditions: a big amount of companies, an increased amount of requirements, and a validator who also checked several countries simultaneously. It all spilled over into this [Kazakhstan not passing the first validation]. (Personal communication with representatives of Association KAZENERGY, March 12, 2015)

It is clear that a combination of factors had a profound effect on Kazakhstan’s upgrade to compliant status and the prolonged period of time that was needed for validation.

5.5.2.1

Change of Subsoil Use Legislation

Among the policies adopted by Kazakhstan’s government to ensure its implementation of the EITI were changes to legislation. In 2010, Kazakhstan’s parliament adopted amendments to the Law on Subsoil and Subsoil Use, which obliged all extractive companies operating in Kazakhstan, at both exploration and production stages, to follow the EITI requirements and provide information related to EITI reports (Committee of Geology and Subsoil Use, 2016a, 2016b). This legislative change was significant and showed a more in-depth approach towards the EITI from the government, since the memorandum of understanding was signed only on a voluntary basis and did not have any legal force, but now companies were being pressured into to disclose information. Furthermore, this change in legislation also pointed to Kazakhstan’s government addressing new challenges through its work with initiatives such as the EITI. The interconnection between legislation reforms and the EITI was recognised by experts:

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‘On the contrary, in Kazakhstan legislation was developing together with the EITI. The legislation was developing itself but the EITI was giving it a stimulus, so for Kazakhstan, it [the EITI process] has a greater importance than for Azerbaijan or Norway’ (Personal communication with representatives of Association KAZENERGY, March 12, 2015). In December 2017, a new Code on Subsoil and Subsoil Use was adopted, which simplified the procedures for licence allocation and bidding (The EITI, 2019b). Tweaking of the legal framework reflected a necessary measure to ensure compliance with the technical requirements of the EITI. Moreover, the discussions on the disclosure of information on beneficial ownership started with questions being posed as to the necessary changes to be made to the Code on Subsoil Use.

5.5.3 Compliance Period On October 17, 2013, the EITI Board recognised Kazakhstan as a compliant country, meaning it had reached a level of rule-consistent behaviour, which it would need to sustain until a second validation in 2016 (Risse et al., 1999, 2013). With its compliant status, Kazakhstan had made significant improvements in terms of report production. The changes to the legislation, with more than 100 companies providing information, made Kazakhstan’s report more comprehensive and significant in volume (Personal communication with representatives of the Soros Foundation Kazakhstan, November 12, 2014). In addition, from 2011, Kazakhstan had started to publish disaggregated information on payments by companies in its EITI report, even before the new EITI Standard was adopted in 2013, which made such disclosure obligatory. Moreover, Kazakhstan’s EITI report included innovative items such as information on social investments, transportation costs and dividends (Ministry of Investment and Development of the Republic of Kazakhstan, 2015). It is noteworthy that information on social investments has been discussed among stakeholders for a long time, as well as disaggregation of the reports. Eventually, once the government understood how it would be possible and whether it was necessary to reveal such information, progress was achieved. This how this situation is described by civil society: ‘Social investments were not obligatory, and it [publication of information on social investments] was Kazakhstan’s initiative [to include it in the national EITI report] and know-how in the region. Although, for a long time we [civil society] were working on social investments from 2007. Then they [Kazakhstan’s government] understood that this is an inevitable process’ (Personal communication with representative of ‘Institute for National and International Initiatives for Development’, March 31, 2015). Moreover, the suggestion made by civil society organisations in 2009 to include transportation costs into the EITI report was put into practice as the figures on the transit of oil and gas were published for the first time in the 2012 and 2013 EITI reports of Kazakhstan (Committee of Geology and Subsoil Use, 2015; Radon, 2009).

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5.5.4 Sub-national-Level Implementation of the EITI After improvements to the reporting mechanism were made, Kazakhstan’s government decided to take the EITI process further, to the sub-national level. The subnational-level implementation of the EITI is aimed at the country’s extractive regions and is expected to monitor the allocation of resources to local budgets on social projects, as well as to familiarise the local population with the process. However, yet again the introduction of a new item to the EITI process was not easy in Kazakhstan. Unlike the bottom-up approach of the EITI’s introduction, the sub-nationallevel implementation happened through a top-down approach, as local administration struggled to understand what the EITI is, how it should be implemented and what benefits it would bring (Personal communication with a representative of Kazakhstan’s EITI Secretariat, March 11, 2015). The sub-national implementation of the EITI is supported not only by the government, but also by international donors. The Soros Foundation Kazakhstan lined up a series of events dedicated to this work (Personal communication with representatives of Soros Foundation Kazakhstan, November 12, 2014). The World Bank together with other development agencies, such as USAID and GIZ, also supported seminars and local projects in the regions in which extractive industries are active (Personal communication with representatives of the World Bank Kazakhstan, March 13 and 31, 2015). Moreover, the UK Embassy provided funds towards the local implementation of the EITI in the Atyrau region (British Embassy Nur-Sultan, 2014).

5.5.4.1

EGSU Portal and Online Publication of Information

Kazakhstan has also adopted an online platform for report submission, which is accessible to all interested persons. The Unified State System of Subsoil Use in the Republic of Kazakhstan (EGSU) portal is an online platform that integrates tax codes and reflects on all payments made by companies throughout the fiscal year. The portal was launched not only to make the information available online but also to make the work of the auditor easier, as previously the reports had to be submitted in paper form (Personal communication with a representative of Kazakhstan’s EITI Secretariat, March 11, 2015). The benefits of this electronic portal are highlighted by Kazakhstan’s EITI Secretariat: ‘It [The EITI] is very helpful because anyone interested, especially parties like NGOs and scholars, [among which] there is a target audience of people like you [researchers] for example, for whom it is easier sitting at home to go online to open any report and see it online, rather than spending [time] on traveling and asking everyone [about information on resource revenues]’ (Personal communication with a representative of Kazakhstan’s EITI Secretariat, March 11, 2015).

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Fitting the EITI into Domestic Discourse

One of the most interesting features of EITI implementation in Kazakhstan is that the process has been accommodated into the grand strategy of the country’s development. For instance, in his annual address to the people of Kazakhstan, President Nazarbayev pointed out the necessity of monitoring transfers from the national fund to social projects, especially at the local level (Nazarbayev, 2014b). If you had paid attention to or read this [President’s Annual address to the people of Kazakhstan] message, 10 main directions were declared. In one of them, the 7th I think, he said that the local level government needed to be accountable to the population. This is one of the main tasks. We [Kazakhstan’s government] are aiming for transparency, anti-corruption…we have special anti-corruption programs. There are different plans [in Kazakhstan’s government], the Istanbul plan, for example, some other directions where the EITI occupies a key position. (Personal communication with a representative of Kazakhstan’s EITI Secretariat, March 11, 2015)

Moreover, in the nation’s plan entitled ‘100 concrete steps’ President Nazarbayev outlined five priority directions for the country’s development and institutional reforms, one of which was greater transparency and accountability of the government (Akorda, 2015). Thus, transparency and accountability have become priority directions, and therefore, the EITI process has become part of the domestic discourse. Upon the announcement of Kazakhstan’s willingness to implement the EITI, President Nazarbayev noted that adhering to the initiative would be essential for a healthy and sustainable economy (Zakon.kz, 2005). Accordingly, it was expected that the EITI’s implementation would contribute to a ‘transparent, accountable and responsible economy’ and to the achievement of strategic goals (Kazakhstan 2050, 2015). Thus, as Hathaway (2007, p. 597) argued, states comply with a norm if they gain from it ‘collateral benefits’. In the case of implementing the EITI, improving the international image of the country, the application of greater transparency, improving government accountability, and sustainable economic growth were all key incentives for Kazakhstan. As per the EITI 2016 rules, each state should disclose the beneficial owners of oil, gas and mining companies operating in its territory, starting from 2020, as well as the identity of public officials who hold ownership in oil, gas and mining projects (The EITI, 2019a). For Kazakhstan, this will be the first experience in dealing with such information and disclosing it. The multi-stakeholder group took this project as a step-by-step procedure and issued a road map on how the data will be gathered and how disclosure will be achieved, as well as on the coordination of work between different government bodies (The EITI, 2016). Disclosing information on the identities of beneficial owners would indicate a move towards further internalisation of the transparency in extractive industry norm in Kazakhstan.

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5.6 Outcomes of EITI Implementation As one of several international transparency initiatives, the EITI was established to improve the governance of natural resources, to increase transparency, to empower civil society organisations and to build trust among various stakeholders (Caspary, 2012; Mejía Acosta, 2013; Sovacool & Andrews, 2015). After reviewing the path of EITI implementation in Kazakhstan, we now turn to assess the outcomes that the process has brought to the country.

5.6.1 Access to Information on Resource Revenues Disclosure of information is clearly at the core of the process and a tangible benefit. Every stakeholder identified particular benefits from the EITI process implementation. Thus, for example government representatives look at the following: ‘I think that the project in general is good; it is anti-corruption in nature and attractive for investors. Everything that is disclosed within the framework of this project is necessary, timely and important’ (Personal communication with a representative of Kazakhstan’s EITI Secretariat, March 11, 2015). For the first time in Kazakhstan’s history, information on revenues from the extractive industries was made public (Personal communication with a representative of EITI International Secretariat, January 29, 2015; Personal communication with a member of the EITI International Board from Kazakhstan, March 31, 2015). In addition to this information becoming available to citizens, the comprehensiveness of Kazakhstan’s EITI report is also significant. This is especially noted by members of civil society: ‘If you compare how the report looked before and how it looks now, it has become more comprehensive and understandable. The number of companies has increased as well. Of course, there is progress’ (Personal communication with representatives of the Soros Foundation Kazakhstan, November 12, 2014). Moreover, the information, with the help of the EITI process, is not only provided in a timely manner, but also through the online portal EGSU. ‘And the breakthrough was that we did it…it is accessible online, and access is open to anyone interested’ (Personal communication with a representative of Kazakhstan’s EITI Secretariat, March 11, 2015). The EGSU online portal is another important step with respect to information disclosure that, in addition to the EITI report, Kazakhstan’s government has decided to take. Disclosure of information has long been a recommended tool to reduce corruption in resource-rich countries (Eigen, 2007; Humphreys, Sachs, & Stiglitz, 2007; Kolstad & Wiig, 2009). It is important to ensure that information is not only available but also accessible to the public (Lindstedt & Naurin, 2010, p. 302). Hence, the online platform EGSU is helpful for those interested in searching for details of payments. In addition, the popular version of the EITI report makes the information from the actual EITI report more understandable and thus accessible to the general public. Finally, local seminars and round-tables organised on the topic of sub-national EITI

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implementation in extractive regions by the World Bank and other donor organisations also contribute to raising awareness among the general public about the EITI process and how resource revenues are spent. Yet, there are specific issues related to the impact of information disclosure in Kazakhstan. First of all, Internet coverage is not universal in Kazakhstan so information published online is not accessible to all. Moreover, local seminars, organised by local NGOs, are reliant on funding from donor organisations, are subsequently limited in their capacity and only cover a certain number of extractive regions (Personal communication with representatives of the World Bank Kazakhstan, March 13 and 31, 2015). Therefore, the discussion on the EITI process and resource revenues is restricted to certain regions of the country only.

5.6.2 Government Responsibility For Kazakhstan, as a relatively new state and still undergoing a transition from the Soviet era, the modernisation of government work and state capacity is a work in progress (Cummings & Nørgaard, 2004; Isaacs, 2010; Knox, 2008). That said, the Kazakh authorities are taking under control of the state apparatus and also state revenues. The EITI is a handy tool to monitor the streams of revenues, which was previously a difficult exercise (Personal communication with a representative of the ‘Institute for National and International Initiatives for Development’, March 31, 2015). For instance, a representative of Kazakhstan’s EITI Secretariat reflected on this situation in the following way: ‘So it was very difficult [for the government] to follow their [resource revenues] utilisation and it [the process of revenues allocation] was not transparent, and previously it was a very difficult process to monitor and control [revenue flow from companies to national and local budgets]’ (Personal communication with a representative of Kazakhstan’s EITI Secretariat, March 11, 2015). Thus, through the EITI process, the government attempts to take control of the spending of resource revenues, as well as to identify corruption schemes. On a similar note, it is important to monitor the money flow within national corporations, especially transfers to the national fund Samruk-Kazyna, and that this information is published in the EITI report. Here is how the representative of Kazakhstan’s EITI Secretariat referred to the information disclosure within the EITI process: ‘Of course, we [Kazakhstan’s government] endeavor to reveal more information, in 2012–2013 [EITI report] disclosed [information] on the amount of exploration [in the extractive industries sector], exports, dividends from national stakes [in projects], how the mechanism of payment of dividends from daughter companies to Samruk Kazyna [works], and information on revenues that go to the national fund. It is also very important’ (Personal communication, March 11, 2015). Overall, the EITI process has brought benefits to the government. This is especially disputed by members of the civil society, as is stated here: ‘To be honest they [the government] get more benefits from the EITI than we do as civil society, when we [Kazakhstan’s EITI Secretariat] disclose all information [in the EITI report], people in the regions

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[local government] will use it to make companies accountable’ (Personal communication with a member of the EITI International Board from Kazakhstan, March 31, 2015). The presented image of Kazakhstan as a country that follows and applies international standards and supports the implementation of transparency is clearly beneficial to Kazakhstan’s government. Gillies (2010) pointed out that reputational concerns motivate countries to apply international standards. However, in Kazakhstan’s case the image of the country is also closely related to its investment attractiveness, which is another goal of the government. This has been also noted by civil society members: ‘Yes, it is for image, but also to attract investments…Because, you know, Western companies look at questions of transparency in a country and it is important for them. They have their own procedures on these matters’ (Personal communication with representatives of the Soros Foundation Kazakhstan, November 12, 2014). The EITI is used further as a tool to improve the legislation and business climate for foreign investors. This is how representatives of Association KAZENERGY speak about the topic: ‘First of all, as I said, it is an image that we are trying to improve; that of transparency, and the reform of the taxation system in general. The EITI acts as additional help from the side of the international community as additional expertise can further improve this system. These are the main benefits… and also there is investment attractiveness’ (Personal communication with representatives of Association KAZENERGY, March 12, 2015). However, the implementation of the EITI is not only about creating a particular image, but of an explosion to international practices, as was stated by stakeholders: ‘Plus, because the initiative is international there is also a good opportunity to use the experience of other countries, to use some useful initiatives, and to see what is working’ (Personal communication with representatives of Soros Foundation Kazakhstan, November 12, 2014). Thus, international exposure through the EITI process allows Kazakhstan not only to portray itself as a transparent country, but also to serve as a means through which to learn and adopt best practices in the extractive industries.

5.6.3 Interaction Between the Government and Business Entities One of the most important benefits of EITI implementation in the context of Kazakhstan is the involvement in the process of all companies operating within its territory. Reflecting on the companies’ involvement in the process representatives of Association KAZENERGY stated: ‘Today companies understand that if they work in Kazakhstan and follow the legislation, they should participate in this [EITI] process. They [companies] also understand that it [participation in the EITI process] is a big stimulus for them to be transparent, and subsequently to increase the trust between them, the international community, and of course the government. So this

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project is beneficial for all parties’ (Personal communication with representatives of Association KAZENERGY, March 12, 2015). The relationships between foreign investors and Kazakhstan’s government have been challenged by the former’s complaints about production costs, legislation, environmental and labour rules, and the structure of the PSAs (Chazan, 2013). The introduction of local content rules has also resulted in a re-negotiation of some contracts, while some investors have complained about the allegedly arbitrary and non-transparent implementation of these rules (OECD, 2012; US Department of State, 2014). Although many foreign investors have applauded Kazakhstan’s EITI implementation, it seems rather a small step towards improving the country’s investment climate. Kazakhstan recently signed a memorandum of understanding with the OECD on a two-year programme to support the country’s reforms in policies and institutions directed to improving the business and investment climate (OECD, 2015). It is difficult to assess whether the EITI process has had a profound impact on Kazakhstan’s business environment and investment climate, and a separate study in this area is necessary. However, since foreign extractive companies operating in Kazakhstan are obliged to provide reports on payments to the host government, Kazakhstan’s participation in the EITI adds to the overall reconciliation of numbers on resource revenue payments. However, aspects of beneficial ownership, contractual information and tenders are still kept confidential and thus leave limited information available on the negotiations and bidding processes in the extractive industries in Kazakhstan.

5.6.4 Corruption and Government Accountability As mentioned earlier, Kazakhstan faces a substantial challenge from corruption, especially in the extractive sector (Ostrowski, 2010; Pleines & Wöstheinrich, 2016; Pomfret, 2012; Satpayev, 2014). Hence, it would be helpful to ascertain if the EITI’s implementation has alleviated such corruption in one way or another. The EITI process has evolved to cover a wide range of issues related to the extractive industries. This was noted by civil society members: ‘Also, if you compare 2004 [EITI report] and 2014 [EITI report], it is like comparing land and sky. In Kazakhstan, really, because of the EITI a lot of things were done, like transparency of social investments, disaggregated reporting; also from this year, if you have noticed, the [EITI] reports include [information on] transportation of oil’ (Personal communication with representatives of Soros Foundation Kazakhstan, November 12, 2014). However, it is important to keep in mind that the disclosure of beneficial ownership and contractual details are still not addressed in the EITI report. Moreover, as Satpayev (2014, pp. 13–14) has noted, there is a low level of transparency with respect to local budget allocation during the EITI process, which has allowed corrupt schemes to prevail. Nevertheless, with further implementation of the EITI at a sub-national level there might be some improvement made in preventing corruption in Kazakhstan at the local level.

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However, even the publication of information would not contribute significantly to solving corruption issues in the extractive industries according to Kolstad and Wiig (2009, p. 521) who have argued that transparency should be supplemented by additional reforms to have a tangible impact on corruption reduction. Indeed, once the information is made available to the public, they still have to make sense of it. This issue can be addressed by the capacity building of civil society organisations in their expertise on taxation, revenue streams and fiscal policies, in order to hold governments accountable (Krasner & Risse, 2014; Lindstedt & Naurin, 2010; Risse et al., 1999, 2013). With concerns expressed in the interviews conducted during the fieldwork about the availability of funding for local NGOs in Kazakhstan to attend trainings and seminars, the capacity-building capabilities of civil society are under question. Previously, with the support of the Soros Foundation Kazakhstan, civil society had published an alternative EITI report with recommendations and concerns, and with limited funds available this is no longer produced (Aytenova et al., 2007). One of the respondents from the civil society noted: I could say that work on the report is going, we [civil society representatives in the MSG] are sitting day and night working at our own expense, so to speak, and spending a lot of time. We are practically doing all of the auditor’s work. We take the documents from the auditor, that receives information from companies and government [on revenue payments] and then verify them and put it into a table. We find so many mistakes in these documents. (Personal communication with representatives of Echo Kazakhstan, March 4, 2015)

Thus, the hard work of civil society improves the quality of the EITI report, and yet without the funding and appropriate expertise, Kazakhstan’s civil society is unable to harness the necessary information from the EITI reports and the process in general which would allow it to ultimately hold the government responsible for the allocation of resources.

5.6.5 Interaction Between Government and Civil Society Organisations The nature of the relationship between government and civil society in Kazakhstan has been described as a cooperative one, in which NGOs are not yet at the stage of pressuring the government and lobbying for democratisation reforms; yet, they are able to voice some concerns of the public and serve the public interest to some extent (Knox & Yessimova, 2015; Ziegler, 2010, p. 796). Jones Luong and Weinthal (1999, p. 1276) identified the possibilities of cooperation between local NGOs and international NGOs in particular sectors, with a particular focus on environmental issues, taking into account the restrictions on activities imposed by Kazakhstan’s government. Civil society in Kazakhstan, although lacking the experience and capacity to influence the government’s decisions compared to their counterparts in liberal democracies, can push the agenda in some sectors, as is the case with the EITI’s implementation. With the initial work of the Caspian Revenue Watch and subsequent support from the Soros Foundation Kazakhstan, local NGOs have become

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familiarised with the initiative and have an understanding of what it can give to them and the country as a whole. Regarding the relationship between civil society and government in Central Asia, Ziegler (2010, p. 798) identified the ability of the government to influence and frame NGOs without dominating them. Furthermore, one could claim that civil society in Kazakhstan has achieved a certain compromise with the authorities in terms of their activities and criticisms, as is the case in many other post-Soviet states (Daucé, 2014, p. 240). Such a relationship creates room for cooperation and also enables the government to channel people’s interests and to glean their support for government policies. The relationship between civil society and the government on EITI implementation could be described as cooperative but limited in scope. Indeed, civil society organisations understand the scope of cooperation and the activities necessary for the promotion of the EITI process. Thus, the sensitive area of human rights is avoided, which is in contrast to what has been happening in Azerbaijan (to be discussed in Chap. 7). One member of civil society put it: ‘We never mixed EITI and human rights’ (Personal communication with representatives of Echo Kazakhstan, March 4, 2015). Yet, one could also observe in Kazakhstan’s case the presence of the so-called government NGOs (GONGOs). Thus, Kazakhstan’s government has tried to control the process of EITI implementation and to keep civil society under control. When the first memorandum of understanding between civil society, government and companies was signed, a coalition of NGOs did not agree with the provisions stipulated in the document and refused to sign it. The GONGOS were then called into sign it instead. After criticism from the NGO Coalition and business entities, the memorandum was changed and signed by all parties (Personal communication with representatives of Echo Kazakhstan, March 4, 2015). In the discussion on the interaction between government and civil society on EITI implementation, one should not forget that whereas the government is represented by a unified voice and view, civil society does not have the same unified front. The diverse interests and opinions on how the EITI should be implemented in Kazakhstan held by various NGOs have led to a split in the NGO Coalition, resulting in internal conflict among civil society organisations and stalling in the EITI process in general (see more on pp. 125–126). The limited areas of cooperation between government and civil society have resulted in the promotion of particular agendas by some NGOs through the EITI process. Yet, this has been counterproductive. There is also a division among civil society along geographical lines, meaning those that are based in regions in which extractive industries operate and those in Almaty, for instance. Those in these regions focus on sub-national implementation and assess the local impact of the EITI, whereas those in Almaty monitor the implementation of the process in general and suggest new areas of work within the process’s framework. Due to the pivotal role of civil society in the EITI process and the limited areas of overall engagement of civil society in the decision-making process in Kazakhstan, it is crucial to ensure informed and expert participation of NGOs in the EITI process to be able to counterbalance both government and business entities. Thus, capacity building and the necessary training of civil society members are essential (Knox & Yessimova,

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2015, p. 310). Understanding the technicalities of the EITI report requires knowledge of fiscal policies, the taxation regime and extractive industries. With a rotating system in place in terms of civil society representation at the multi-stakeholder group, there should be enough experts among civil society members to be able to challenge the decisions made on EITI implementation. The ability to access grants from various donor organisations (World Bank, USAID, etc.) and international civil society (e.g. Soros Foundation) has allowed civil society organisations in Kazakhstan to be able to campaign for EITI implementation and to ensure that work on the process is sustained (Jones Luong & Weinthal, 1999, p. 1277). Therefore, such cooperation between international and local NGOs also plays a role in how successful the EITI’s implementation is in Kazakhstan.

5.7 Challenges in the EITI’s Implementation in Kazakhstan Apart from a difficult first validation process, Kazakhstan has been confronted with a range of other challenges in the EITI’s implementation. These challenges could be put into two categories: structural and technical. The structural challenges refer to difficulties in the management of the process itself. Here, it is important to note the internal conflict within the NGO Coalition and the overall lack of capacity and expertise among local civil society to monitor, and be an equal partner in, this process on a sustainable level. Due to the technicalities within the reports, there is a need for a taxation expert to emerge among civil society who could analyse the auditor’s work professionally, as such experts are more or less absent in the existing NGO Coalition (Personal communication with representatives of Echo Kazakhstan, March 4, 2015; Personal communication with a member of the EITI International Board from Kazakhstan, March 31, 2015). Similarly, the change to the governmental institution responsible for the EITI process has resulted in delays in progress and a lack of coordination, which has put the whole process at risk (Personal communication with representatives of the Soros Foundation Kazakhstan, November 12, 2014). Meanwhile, the technical challenges are more related to how the information is made available and how to monitor it. For instance, the World Bank sponsored a scope study to identify the materiality threshold required for companies to be included in the EITI process and to make the reporting more efficient (Personal communication with representatives of Soros Foundation Kazakhstan, November 12, 2014; Personal communication with representatives of the World Bank Kazakhstan, March 13 and 31, 2015). Furthermore, social investment payment disclosure created a technical challenge as to how to follow the money that is paid directly to the local budget or for specific purposes (e.g. payment for children’s education), and since this information is relatively new, it will take more time for a clear picture to be established (Personal communication with a representative of ‘Institute for National and International Initiatives for Development’, March 31, 2015).

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5.7.1 Popularisation of the EITI in Kazakhstan It is noteworthy that the EITI project has also turned into a media campaign for Kazakhstan’s government. This is how a representative of Kazakhstan’s EITI Secretariat described it: ‘There is a media plan on promotion not only inside our own country, but also abroad through our embassies, the Ministry of Culture and the Ministry of Communications. Therefore, everything we do we publish on our website’ (Personal communication, March 11, 2015). Moreover, the EITI session is usually planned during the annual Eurasian KAZENERGY Forum,6 which attracts both local and foreign businessmen from the oil and gas sector, politicians, journalists and experts. Furthermore, there are annual national EITI conferences, usually linked with the launch of the report. These conferences serve as a showcase of the lessons learned and results achieved in the EITI’s implementation in Kazakhstan (Committee of Geology and Subsoil Use, 2016a, 2016b). In addition, the activities of the National Council of Interested Parties are directed towards the further popularisation of the EITI process among the general public. Together with the World Bank, a media strategy has been developed and, as a result, a popular version (which is shorter and contains more infographics) of the EITI report was launched. The purpose of the popular version is to explain the figures and important points in the main EITI report to the general public (The EITI, 2015). Moreover, the popular version of the EITI report could be utilised by local civil society organisations and experts in the creation of trainings and seminars on the issues related to extractive industries (Personal communication with representatives of the World Bank Kazakhstan, March 13 and 31, 2015). As mentioned earlier, Kazakhstan has also launched an online platform on which the figures of each reporting company are demonstrated. Thus, in combination with the different versions of the report, the dissemination of information through the various channels and public conferences, seminars and training sessions, an attempt is being made by NSC to familiarise the public with the process and make it more accessible.

5.8 Sustainability of the EITI Process in Kazakhstan One obstacle potentially affecting the future of the EITI process in Kazakhstan concerns the disclosure of information on beneficial ownership and contractual details. Against the backdrop of the Kazakhgate scandal, beneficial ownership and contracts signed in the early 1990s are sensitive topics for the Kazakh authorities. Prior to the beneficial ownership disclosure being part of the EITI rules, the discussion of this topic was already taking place among stakeholders. This is how a representative of Kazakhstan’s EITI Secretariat described the situation at that time: ‘Preliminarily, I 6 For more details on Eurasian KAZENERGY Forum, see www.kazenergyforum.com. Accessed on

March 11, 2015.

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could say that in relation to the disclosure of beneficial ownership and contractual details, the [extractive] companies that were present [at the last multi-stakeholder group meeting] said they are not ready for that. They [companies] are disclosing the maximum level [that is required] under the legislation, [such as information on] social investments and revenues. They all disclose that [information]’ (Personal communication, March 11, 2015). So far, Kazakhstan’s government has expressed its interest in disclosing such information, and as of 2020, which is the timeline for disclosure of such information by the EITI requirements; we could see how effective and useful such information will be with respect to bringing more accountability and transparency. Regarding other factors that could lead Kazakhstan to suffer the same fate as Azerbaijan, namely a status downgrade, the work of civil society will be a key. The distinction between two countries is discussed by stakeholders in the following way: ‘I think one of the most interesting differences between Kazakhstan’s civil society and that of Azerbaijan’s is who promotes the [EITI] initiative in their [respective] countries. Here [in Kazakhstan], NGOs that position themselves as organisations promoting initiatives for transparency and accountability, place an emphasis on the EITI, social investments or issues around the [extractive industries] sector’ (Personal communication with representatives of the Soros Foundation Kazakhstan, November 12, 2014). Thus, the clearly demarcated boundaries of the work of civil society inside the EITI framework release potential regime security threats, as was the case in Azerbaijan. However, civil society participation in the EITI process in Kazakhstan could also be challenged by financial problems. Taking into account the lack of available funds from international donors, with Kazakhstan now considered an upper–middleincome country, and the inability of the government to provide funds to NGOs due to legislation, altogether could lead to the inability of civil society to travel to the EITI’s NSC meetings in Astana and to work daily on the process (Personal communication with representatives of the Soros Foundation Kazakhstan, November 12, 2014; Personal communication with a representative of ‘Institute for National and International Initiatives for Development’ and a member of the EITI International Board from Kazakhstan, March 31, 2015; Personal communication with representatives of Echo Kazakhstan, March 4, 2015).

5.9 EITI Implementation to Gain External Legitimacy Yet, it is international or external legitimacy that Kazakhstan’s government is seeking. Schatz (2006, p. 270) has claimed that the Kazakh authorities deploy the ‘international engagement’ frame of legitimacy by portraying the country as a reliable partner. It is this international outlook of President Nazarbayev that set him apart from his Central Asian counterparts (Schatz, 2006, pp. 271–272). Schatz (2006, p. 274) continued by stating that the international engagement of Kazakhstan has allowed foreign partners to penetrate society in Kazakhstan more than in other Central Asian

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states. This is important to consider in the discussion of norm socialisation and promotion by international actors (Finnemore & Sikkink, 1998; Keck & Sikkink, 1998; Risse et al., 2013). Keeping this in mind, the EITI as an external concept introduced by civil society could also be framed as another tool to bring international recognition and legitimacy to Kazakhstan’s government. Returning to the notion of image creation and international reputation of Kazakhstan, one could see the importance of an initiative such as the EITI to the government, as is stated in the following quote: ‘Everything should be transparent; all requirements should be fulfilled, not only in the framework of subsoil users in Kazakhstan, but also in terms of Kazakhstan’s obligations in front of the world’ (Personal communication with a representative of Kazakhstan’s EITI Secretariat, March 11, 2015). The sense of international obligation, pointed out in the above quote, is important in generating a national identity, or rather an image, of Kazakhstan for the international community to observe (Cummings, 2003a; Schatz, 2008). Thus, the timing of the EITI’s implementation has also played a role in promoting an image of Kazakhstan as a transparent country. It is recognised by government representatives: ‘…in 2005 we [Kazakhstan] were half way through as an independent country and tried to achieve more and more with [implementation of] new standards and [by gaining] recognition at the international level’ (Personal communication with a representative of Kazakhstan’s EITI Secretariat, March 11, 2015). Kazakhstan’s government takes seriously its international image and invests substantial capital, both human and financial, into ‘image-making’ projects (Fauve, 2015). The OSCE 2010 Chairmanship, Expo 2017 and bids to host Olympic Games are all parts of a wide campaign to put Kazakhstan onto the world map. All of these efforts combined, including the EITI process, contribute to creating an international image of Kazakhstan that the government would like to portray: a strategic partner that is open to international cooperation is transparent and abides by international standards and, more importantly, a state distinguishable from its Central Asian counterparts (Schatz, 2006; von Soest & Grauvogel, 2015).

5.10 Conclusion Much can be learned from this case study of the EITI’s implementation in Kazakhstan. Over the last decade of the EITI process in Kazakhstan, multiple challenges have been overcome and issues have been resolved, suggesting that the initiative could enjoy a more sustainable future in the country. Demonstrating the path of EITI implementation in Kazakhstan, this section follows Fig. 5.1. In doing so, I review the findings of this chapter. It is important to start by saying that Kazakhstan is a resource-dependent country with rich natural resource reserves and is, thus, faced with the challenges of the resource curse (Franke, Gawrich, & Alakbarov, 2009; Jones Luong & Weinthal, 2010; Pomfret, 2012).

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Fig. 5.1 Kazakhstan’s EITI implementation. Source Author

For a developing resource-rich country with no prior transparency mechanisms in place, the motivations for Kazakhstan to implement the EITI were related to the development of its extractive sector. As noted previously, transparency in extractive industries contributes to the increased accountability of governments and companies (Aaronson, 2011; Sovacool & Andrews, 2015). For Kazakhstan, the prospect of the implementation of the EITI also raised some reputational concerns (Gillies, 2010). The Kazakhgate scandal challenged the ability of the government to attract investors and to ensure the integrity of its negotiations (Ostrowski, 2010; Peyrouse, 2012). The EITI, thus, represented an opportunity to prove that Kazakhstan was committed to international standards of transparency and accountability. Although Kazakhstan expressed its support for the EITI at the London Conference in 2003, the country did not officially join the initiative until 2005. The case of Kazakhstan shows how social learning, together with the political will of the government, can result in norm implementation. By following the example of Azerbaijan and learning from its experience in EITI implementation, Kazakhstan’s government pledged its commitment to the initiative (State Oil Fund of the Republic of Azerbaijan, 2005). Moreover, the work of the transnational advocacy network (the Soros Foundation Kazakhstan and local NGOs) has also contributed to the advancement of the EITI agenda in the country. Thus, the decision to implement the EITI demonstrates

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that states can learn about the norm and can be encouraged to adopt it (Finnemore & Sikkink, 1998; Risse et al., 2013). The implementation of the EITI for Kazakhstan was motivated by the attraction of foreign investments, with President Nazarbayev announcing the country’s commitment to the EITI at a business conference in front of major foreign investors. The support from the World Bank and the Soros Foundation Kazakhstan has also played a role in Kazakhstan’s ability to launch the EITI project domestically. It is important to note that coordinated work with a clear understanding of why the EITI is necessary was important to elevate Kazakhstan from a candidate country to a compliant country. The implementation of the EITI is, thus, dependent on the work of the NSC. Kazakhstan’s NSC has taken shape and is a stable operating body that includes experts on the initiative itself from government, civil society and business. What is remarkable in Kazakhstan’s case is the ongoing work being undertaken on the reform of the EITI process, ranging from popularisation projects to the improvement of reporting. Despite there being multiple reshuffles in the government, the steady work over the last five years of the Geology Committee indicates the government’s will to commit to the EITI’s implementation and its coordinated work on the process through the NSC. Another challenge for Kazakhstan in norm internalisation has been its ability to cover the whole extractive sector and to ensure that all companies are providing information for the EITI reports. Therefore, a change to its legislation has been useful, making it obligatory for companies to participate in the EITI process and also demonstrating that the country is taking steps to comply with the EITI. The EITI has been associated with the creation of a certain perception among foreign investors of Kazakhstan as a transparent country that is tackling corrupt schemes. Moreover, since most of the foreign companies operating in Kazakhstan are already reporting figures on payments in their home countries and thus have already endorsed the EITI at the international level, the participation of Kazakhstan in the initiative has created a more level playing field. In terms of norm compliance, the members of the NSC have pointed out that the EITI process has clearly shown how much revenue the government makes out of the extractive sector. The interest of the government in monitoring the flow of revenues from the extractive sector is also demonstrated in its inclusion in its reporting of transportation costs and social investment payments, as well as the sub-national level of implementation. In this case, Kazakhstan has also started to share its experience with other implementing countries and mentions its participation in the EITI through various foreign policy channels. The above-mentioned developments show how the EITI’s implementation has been incorporated into domestic and foreign policy discourses. However, sensitive topics concerning beneficial ownership and contractual agreements are still not disclosed as part of the EITI process. The role of actors and their interaction are crucial in the EITI’s implementation. First of all, the involvement of the president and his inner circle (Timur Kulibayev, Dariga Nazarbayeva and ministers) was crucial to pushing through the EITI’s implementation. The role of civil society, supported by foreign grants and also not being part of any political associations, helped to build the necessary working relationship

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with respect to the EITI process. Similar to Azerbaijan’s case, the EITI process in Kazakhstan has provided a platform for dialogue and discussion on issues related to the extractive sector as well as government, parliament, civil society and business entities. Kazakhstan, thus, demonstrates a case where a critical juncture has occurred, pushing the government to commit to the EITI, fit the initiative into the domestic context and serve domestic needs (e.g. social payments and sub-national implementation) in order to ensure compliance.

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Chapter 6

Kyrgyzstan: Capacity Constraints and Failed Compliance

6.1 Introduction Kyrgyzstan was one of the first countries to join the EITI, yet the initiative’s implementation there has been tainted by revolutions, government changes and financial difficulties leading eventually to a period of limbo as of 2017. The main extractive sectors in the country are the mining of gold, rare earth metals, coal and uranium. Gold production is an especially important source of revenue, contributing substantially to the Kyrgyz economy. One cannot speak about Kyrgyzstan’s economy without referring to the country’s turbulent political history. The corrupt regime of Askar Akayev was removed in the Tulip Revolution of 2005, making way for the even more corrupt Kurmanbek Bakiyev. Bakiyev, in turn, was ousted in yet another revolution in 2010 with a temporary government subsequently formed under President Roza Otunbayeva. Despite initial hopes for democratisation in Kyrgyzstan (Anderson, 1999), political turbulence destabilised the country and affected its economic development, ultimately having a negative impact on the effectiveness of government agencies and indirectly on the EITI’s implementation. Poor economic performance (World Bank, 2019), labour migration and widespread corruption created a challenging climate for the economic growth and foreign investment attraction in the country. In the case of the EITI, such an environment is especially challenging when it comes to data gathering, attracting foreign investment and implementing necessary reforms to improve accountability and transparency. The case study of Kyrgyzstan brings to the overall analysis of international norm implementation and compliance a particular notion that has not been explored by scholars. I argue that state capacity is as important a component of norm implementation as political commitment. Thus, this chapter presents in detail the concept of state capacity, how this impacts upon the norm implementation process and what norm scholars can learn from it.

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The chapter starts with a short overview of Kyrgyzstan’s economy and its extractive industry sector. It pays special attention to the Kumtor mine, which is the main source of revenue in the country’s extractive sector. It then proceeds to discuss the EITI implementation process in the country through the stages of commitment to compliance to suspension. The section on state capacity and norm implementation analyses why the country struggled to meet the required standards of the EITI process and why it was eventually suspended.

6.2 Overview of Kyrgyzstan’s Economy The path to attract foreign investments to Kyrgyzstan was set in 1992, followed by a long-term joint venture involving Canadian mining company Cameco and Kyrgyzaltyn (the national gold company of Kyrgyzstan) (Cooley & Heathershaw, 2017, p. 137). Moreover, Kyrgyzstan was the first post-Soviet country to introduce its own national currency and liberalise exports and tariffs (Engvall, 2007, p. 36). The inflow of FDI coincided with support from the IMF, the EBRD and World Bank in the form of grants and loans, making Kyrgyzstan aid-dependent over the period of 1994–2005 (Cooley & Heathershaw, 2017, p. 138). This is especially important to keep in mind when attempting to understand the financial difficulties that the country encountered when complying with the EITI requirements discussed later on. Kyrgyzstan is rich in gold, coal, rare earth metals and uranium, with the mining industry and exploration studies having been launched during the Soviet Union era. The mining sector in Kyrgyzstan is mixed with a minority of big companies (more than 200 employees) and a majority of small companies (up to 50 employees) (Bogdetsky, Ibraev, & Abdyrakhmanova, 2005). Overall the sector employs approximately 15,000 people, which is much a fraction of the employment figure during the Soviet times (50,000 people) (Honkonen, 2013, p. 6). Precious metals and other resources mined in Kyrgyzstan are mostly exported to either neighbouring countries (China, Kazakhstan, Russia) or Western markets. Overall, the extractive industries contribute around 10% of the GDP of the country and are responsible for 42% of all of its exports (KEITI, 2019). Kyrgyzstan has invested more in the liberalisation of its economy and in political reforms than other post-Soviet countries after gaining independence (Dikkaya & Keles, 2006). It was once referred to as an ‘Island of Democracy’ (Anderson, 1999), on account of its constitutional reforms and economic liberalisation. Yet, regime changes have hindered the development of democracy and instead consolidated semiauthoritarianism (Lewis, 2010; see for example Hanks, 2011). Political instability and the focus of the authorities on power consolidation have resulted in the EITI’s implementation being neglected. Before we delve into a discussion of the EITI’s implementation in Kyrgyzstan, it is important to bring to the attention of the reader the unique features of this country.

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Schlichte (2017, p. 113) argued that Kyrgyzstan is an ‘international state’, referring to its reliance on development aid, the prominence of expatriates in executive positions and a ‘“project” mentality of calls, applications, reports and renewals’. Aid dependence is a significant obstacle affecting economic development and governance issues in Kyrgyzstan. The Kyrgyz government is reliant on the flow of foreign aid, which over the years of independence amounted to USD7 billions (Fumagalli, 2016, p. 361; Schatz, 2006, p. 275). Meanwhile, Kyrgyzstan has an active and vibrant civil society movement, which has been growing ever since it gained independence (Marat, 2005; Schatz, 2006). It is believed that when Kyrgyzstan’s political environment has been relatively free, this has assisted the proliferation of civil society organisations (Hoffmann, 2010, p. 91). The involvement of civil society in matters of governance and accountability is essential in fostering the efficient implementation of the transparency norm specifically and the democratisation process in general. Pétric (2005, p. 327) noted that local civil society organisations were aware of the financial resources available from international donors and would thus tailor their projects and activities accordingly. A culture of ‘chasing money’ by the government and civil society alike has prevented the smooth operation and implementation of the EITI process, as been demonstrated later in this chapter.

6.2.1 Kumtor Gold Mine In the extractive industry of Kyrgyzstan, the Kumtor mine plays a major role in many respects, including revenue generation, foreign investor relationships and labour issues. Kumtor is the largest gold mine currently operating in Kyrgyzstan, owned by Canadian company Centerra Gold and operated by the affiliated Kumtor Gold Company, of which Kyrgyzaltyn owns 26% of the stocks (Kotilainen, Prokhorova, Sairinen, & Tiainen, 2015). The deposits in Kumtor became known during the Soviet period, but due to technical difficulties in gold ore exploration mining here did not develop until after independence (Gullette & Kalybekova, 2014, p. 3). The first major contract between the Canadian Cameco Corporation and Kyrgyzstan’s government was signed in 1992 by Askar Akayev’s administration, which established the Kumtor Gold Project (Fumagalli, 2015). The agreement stipulated that Kyrgyzstan’s government, through the state company Kyrgyzaltyn, would own 67% and Cameco would own 33% of the Kumtor Gold Project. At the same time, Cameco was assigned managerial responsibility for the mine (Pomfret, 2011, p. 22). In 2004, Cameco sold most of its shares to Centerra Gold, which became the operator of the mine and also took 66% of the shares in the mine. Under the newly negotiated deal, the Kyrgyz government took 16% of the shares in the mine (Fumagalli, 2015). The terms of this new deal indicated corruption within Akayev’s administration and triggered the Tulip Revolution in 2005. Thereafter, President Bakiyev renegotiated the deal and increased the government’s share back up to 33%. However,

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the conflict over the ownership structure of the Kumtor mine and company did not end here. Several failed attempts were made to renegotiate the deal, driven by a rise in resource nationalism, but none were successful and instead resulted in litigation, social unrest and delays in production (Voloshin, 2018). Moreover, conflicts between the local population on one side and the authorities and mining companies on the other became frequent in Kyrgyzstan, mostly due to socio-economic issues, poor governance and uneven income distribution (Tiainen, Sairinen, & Novikov, 2014). The antagonistic relations between the local population and mining companies in Kyrgyzstan amplified the need to improve transparency in the extractive industry sector. A clearer understanding among the local population of mining activities and revenue allocation would diminish the potential for conflict situations in the regions of Kyrgyzstan in which extractive industries operate. As Kumtor is a crucial mine in the extractive sector of Kyrgyzstan, its governance has a direct impact on the EITI process. Revenues from Kumtor contribute to 86% of all revenues from extractive companies in the country (KEITI, 2019), making it the largest actor in the sector by far. It is estimated that all of Kumtor’s reserves will have been extracted by 2026 (Gullette & Kalybekova, 2014, p. 2).

6.3 Beginning of the EITI Process President Akayev ensured close cooperation with external partners and the promotion of international norms (Schatz, 2006). This policy resulted in the country’s early accession to the World Trade Organization in 1998, ahead of its neighbouring Central Asian states (Pomfret, 2007). Akayev’s policies were especially targeted to the attraction of foreign investments and to support natural resources development. Socialisation of Western liberal norms, economic liberalisation and commitment to foreign investments created a fertile environment for government officials to engage with the newly emerging EITI process. Kyrgyzstan first expressed its interest in implementing the EITI at the 2003 London EITI Conference. It later announced its commitment to the implementation of the EITI Standard in 2004 at a co-organised conference between the Kyrgyz government, World Bank and the DFID. According to the decree of the Kyrgyz government no. 361 ‘On measures to provide transparency of extractive industries’, the country formalised its commitment to the EITI on May 14, 2004. However, in spring 2005 the Tulip Revolution broke out resulting in the resignation of President Akayev and the formation of a new government. In such circumstances, it was impossible for work on the EITI’s implementation to be executed. The EITI process was relaunched in 2007 when the country became a candidate followed by the establishment of a multi-stakeholder group (The EITI, 2019). In 2009, the first EITI report covering data from 2004 to 2008 revealed the economic contribution of the mining sector in Kyrgyzstan. In the report, data from 26 companies were used (KEITI, 2009). The report included tax, customs and other payments into

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the national budget and went through an independent audit by the firm W. Jacobs— Audit. It is noteworthy that the production of the report was funded by the Kumtor Company (Personal communication with the Kyrgyz EITI Secretariat, February 27, 2017). In April 2010, another revolution broke out in Bishkek, again leading to regime change as Bakiyev fled to Belarus. The ethnic violence that ensued in the south of the country further disturbed the political and social stability in Kyrgyzstan, which consumed most of attention of the interim government, headed by Roza Otunbayeva (Hiro, 2010). The EITI process was again side-lined by the political transformations engulfing the country.

6.4 Implementation of the EITI: Challenges and Outcomes In 2007, the EITI Board awarded Kyrgyzstan candidate status (The EITI, 2019). Although it is difficult to point out who initiated Kyrgyzstan’s commitment to the EITI, it was under Roza Otunbayeva as interim president that much of its progress has been achieved. It is important to note here the role of Otunbayeva in the EITI process in Kyrgyzstan. When the country signed up to the initiative, she was a member of parliament and was actively involved in the promotion of the EITI (Personal communication with a former member of the Supervisory Board, March 3, 2017). It was thus not surprising that after she became interim president, the EITI gained substantial backing from the government. The EITI was considered by the Kyrgyz government as a process that would contribute to investment attractiveness, government accountability and anti-corruption (Personal communication with the Kyrgyz EITI Secretariat, February 27, 2017). Such framing, giving domestic legitimacy to the transparency in extractive industry norm, signified the government’s commitment to it. In the EITI, governments play a crucial role as custodians of the process; thus, without their constant support and engagement, the implementation of the EITI could not be achieved. Moreover, the EITI process became part of the National Strategy for Sustainable Development 2013–2017 (State Committee for Industry Energy and Mining of Kyrgyz Republic, 2019). Since 2010, Kyrgyzstan has imposed a threshold of USD1 million in annual revenues for companies to be selected to be participated in the EITI reporting. This is an important step as it filters out small companies for which reporting under the EITI could be financially burdensome as their revenues are not sufficient. At the same time, this is also done to incorporate data from companies and mines other than Kumtor. After a long period of difficulties, Kyrgyzstan fulfilled all EITI requirements and passed its first validation in 2011. On March 2, 2011, at the fifth EITI Board meeting, the country was pronounced as compliant in recognition of efforts made. In fact, Otunbayeva, on behalf of the government, accepted the EITI Chair’s Award for achieving compliance with the initiative under difficult circumstances (The EITI, 2011). It is

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worth noting that Otunbayeva’s interim government was able to pull through and achieve substantial progress in the EITI’s implementation. Thus, although the revolution of 2010 was clearly disruptive, it was Otunbayeva’s leadership that became a turning point in the EITI process in Kyrgyzstan.

6.4.1 EITI Governance in Kyrgyzstan Initially, the Ministry of Finance was responsible for the EITI’s implementation process. Over the years, and with the changes in the government apparatus, the responsibility for the EITI implementation in the country was given to the State Committee for Industry, Energy and Mining. The EITI process in Kyrgyzstan is monitored by the Supervisory Board (Nablyudatelniy Sovet), which includes five members from each group of stakeholders. Government changes in Kyrgyzstan disturbed its work on the EITI. Introducing new members to the EITI work is time-consuming enough, let alone trying to convince an entirely new government as to why the country should stay in the initiative. One of the most important elements in the EITI’s implementation, especially in countries with no prior experience of information disclosure, is the introduction of changes to the legislation to reflect the EITI requirements. Kyrgyzstan adopted a new Law on Subsoil Use in 2012, which devoted a section specifically to the EITI (Personal communication with the Kyrgyz EITI Secretariat, February 27, 2017).

6.4.2 Cooperation with International Donors International donor organisations play an essential role in assisting Kyrgyzstan with the EITI’s implementation. In fact, overreliance on external assistance is one of the factors that poses a threat to the sustainability of the country’s compliance with the EITI. Over the years, the EITI process in Kyrgyzstan has been supported through several donor organisations and their projects. First and foremost, Kyrgyzstan utilised available funds from the World Bank’s Multi-Donor Trust Fund, which was created specifically for the purposes of supporting low-income countries in implementing the EITI. Kyrgyzstan’s EITI Secretariat applied several times to the World Bank to finance the implementation process. This assistance covered report production, the EITI membership fee among others (Personal communication with the Kyrgyz EITI Secretariat, February 27, 2017). Overall, the World Bank has given three grants to Kyrgyzstan for the EITI’s implementation. According to the conditions of the World Bank’s grant in 2013, Kyrgyzstan worked on a project to create an interactive map of licence locations.1 This interactive map 1 For

the interactive map of licence locations, please refer to http://open.gkpen.kg/lic/f3_rus.aspx? t=637025042819189056. Accessed on June 20, 2019.

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provides detailed information on each licence, the type of work done, the involved mines, the registration number and the date on which the licence was granted. This map is a useful tool not only for visualising the data on licence owners, but it also helps the general public to familiarise themselves with the extractive sector. The World Bank also supported a project led by the Eurasia Foundation of Central Asia entitled ‘Improving civil society awareness and engagement in the EITI process in the Kyrgyz Republic’. Support for civil society was also provided by such organisations as the Soros Foundation Kyrgyzstan and GIZ. Currently, the EITI Secretariat is in negotiations for a grant from the EBRD (Personal communication with the Kyrgyz EITI Secretariat, February 27, 2017).

6.4.3 Beneficial Ownership Despite the challenges faced in implementing the EITI, Kyrgyzstan is a pioneer in one particular area, namely disclosure of beneficial ownership. Kyrgyzstan signed a memorandum of understanding with the organisation OpenOwnership to receive support and technical assistance in data gathering and with work on disclosure of beneficial ownership data (Russell-Prywata & Lord, 2019). In 2014, Kyrgyzstan became involved in a pilot programme to test out the disclosure of the beneficial owners (Sedova, 2014). In 2017, Kyrgyzstan received an award for its legislation that stipulates disclosure of beneficial ownership (The EITI, 2017b). This award was not only recognition of the work done on this topic, but also confirmed Kyrgyzstan as a leader in the disclosure of such information among the EITI’s members. The work on beneficial ownership, which is a comparatively new addition to the EITI requirements, is a fruitful direction for the EITI process to pursue in the country and goes beyond report production. Public registration of beneficial owners, discussion of information disclosure and sharing this experience with other countries could all become focal points in Kyrgyzstan’s domestic and foreign policy.

6.4.4 Engagement with the General Public One of the benefits of the EITI’s implementation is the engagement of the general population on issues related to the extractive industries. As the EITI strives to achieve meaningful change in the way extractive industries are governed and in sustainable development of resource-rich countries, it is essential to involve the population in discussions on issues related to extractives. In the case of Kyrgyzstan, the work in this direction is carried out: (1) through the support of local civil society and (2) through promotion of the initiative and raising awareness among the general public. As mentioned earlier, several internal donor organisations have supported civil society’s participation in the EITI process. Although there has been a proliferation

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of civil society organisations in Kyrgyzstan, it is still crucial to explain the technicalities of the EITI process and the advantages of data disclosure. Therefore, the donor projects involved introductory seminars to explain what the EITI is and what it does, as well as training sessions in data collection and verification and knowledge exchanges with other EITI member states (Personal communication with a representative of international donor organisation in Bishkek, March 3, 2017). Civil society is an essential part of the EITI process, and as Azerbaijan’s case (discussed in the following chapter) demonstrates, it has an important role in monitoring the gathering of data and dissemination thereof to the local population. In Kyrgyzstan, a donor project specifically targets civil society to assist in explaining to local populations in the extractive sector regions about what the EITI is and how the data from it can be useful (Eurasia Foundation of Central Asia, 2013). The open discussions and round-tables allowed representatives of the mining companies and local population to engage in dialogue on the issues related to mining activities. In this way, the EITI process in Kyrgyzstan also serves as a platform that enables further trust-building and open communication between government, mining companies and civil society. Especially given the high likelihood of conflicts in the country in the extractive sector, such dialogue is supplementary to many other conflict prevention measures.

6.5 Suspension and the Way Forward Kyrgyzstan has found a new impetus, especially after its implementation of the 2016 EITI rules was tested (The EITI, 2017a). Notwithstanding some commendation for its renewed work on the EITI’s implementation, the validation report found that Kyrgyzstan had made inadequate progress in complying with most of the requirements. In particular, the report noted the need to increase the transparency of fund allocation at the local level, the challenges in securing funding for the EITI’s implementation as well as legal obstacles encountered. This report resulted in the temporary suspension of the country and a period of rectification, which finished with another validation starting at the end of 2018. The second validation assessed the publication of the EITI reports covering 2015–2017 fiscal years, which was published in May 2019 (KEITI, 2019). The suspension of Kyrgyzstan may appear to be a mere technicality, but it does demonstrate the ongoing challenges in norm implementation. The case of the EITI’s implementation in Kyrgyzstan is a great example of a state being committed to a norm, yet being limited in its capacity to comply therewith. Thus, compliance goes beyond the rationalist (cost/benefit analysis) or constructivist (social learning) framework (Checkel, 1997), and also depends on the ability of the state to comply. Another challenge in the EITI’s implementation in Kyrgyzstan is the financial burden (Furstenberg, 2015, p. 465). The process is costly, as it involves the publication of EITI reports, the hiring of an independent auditor, the dissemination of reports among the general public, the EITI membership fee and others. With the reliance

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on international donors to support this process in Kyrgyzstan, and with no major contributions forthcoming from the state budget, compliance is directly linked to the availability of international funds. Thus, the local EITI Secretariat needs to monitor the timeliness data transfers and should also be alert about any funding calls and keep track of necessary deadlines and paperwork. As the number of the EITI’s members requiring significant financial support increases, the priorities of the World Bank’s MDTF are also shifting. Therefore, the opportunities for funding the EITI process in Kyrgyzstan are tied to the ability of the secretariat to apply for funds and the availability of donor projects through which the EITI process can be implemented. The latter is particularly challenging as the donors have their own foreign policy strategies and seek to cover a wide range of socio-economic issues ranging from health care to education, migration and crime. Adequate training and continuous technical knowledge transfer to stakeholders, especially to the civil servants from the EITI Secretariat and civil society, are essential to ensuring that operations are run smoothly, necessary data are gathered and innovations are introduced. Improving the capacity of stakeholders will have a positive effect on the implementation of the EITI and build the ground for necessary economic reforms to benefit the society.

6.6 State Capacity and Norm Compliance To understand comprehensively why the EITI process in Kyrgyzstan has faced so many challenges over the years and resulted in the suspension of the country, I refer to the concept of state capacity developed by Cummings and Nørgaard (2004). State capacity, and specifically the lack of it, in Kyrgyzstan is the central element in the norm implementation model (see Fig. 6.1) and the one that prevents smooth norm compliance. To start with, Cummings and Nørgaard (2004) divide state capacity into the following three categories: political, technical and implementational. Political state capacity refers to what makes for an effective structure of governance, both horizontally (how individuals and departments work together internally within government) and vertically (how individuals and departments relate to the domestic and international community). (Cummings & Nørgaard, 2004, p. 688)

In terms of political state capacity, there are two issues to pay attention to in horizontal and vertical dimensions. At the time of the EITI’s initial implementation in Kyrgyzstan in 2010, the country was going through a revolution that would lead to government change. Such dramatic political events obviously left their mark on the government apparatus and its functions. The reshuffle of the government and the change of leadership gave a boost to the EITI and at the same time created obstacles as new people were appointed as responsible for the initiative’s implementation. Changes to the responsible ministry and ministers for the EITI’s implementation delayed the process’s implementation in Kyrgyzstan, while the political instability

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Fig. 6.1 Kyrgyzstan’s EITI implementation. Source Author

in the country diverted attention away from complying with the deadlines, as more urgent matters were prioritised instead. Technical state capacity refers to the intellectual and organisational ability to develop policies; hence, it is dependent on the educational and training level of the civil servants (Cummings & Nørgaard, 2004, p. 688). One of the major problems in the post-Soviet space is professionalisation of government apparatuses. Implementing the EITI requires a deep understanding of fiscal policies, extractive industries and contract law, among others. Such technical and specific knowledge can be gained through training programmes organised by the EITI Board. However, going back to the previous point, the change of personnel responsible for the EITI process is detrimental to the process, as new personnel have to be trained again and this delays the process and prevents its effective implementation. At the same time, as Engvall (2014) put it, corruption and nepotism prevent the development of an efficient and professional civil service. For Cummings and Nørgaard (2004, p. 688), implementational state capacity is viewed as the ability to implement state policies. The reliance on foreign aid, specifically the financial support from the MDTF and the World Bank to publish EITI reports, does not allow for full implementation of the initiative. This is a very important notion that is not often paid attention to by norm compliance scholars,

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namely that the state should also have the ability to implement the norm rather than just commit to it. One notable feature of the Kyrgyzstan case is that the lack of state capacity prevents effective norm implementation and, subsequently, compliance. Taking into consideration the state capacity element and norm implementation, one can see that norm compliance does not depend only on norm socialisation, but, rather, that it is a more nuanced issue. Ideational commitment, though crucial, is also interlinked with the technicality of norm compliance, especially in such a policy- and knowledgebased process as the EITI.

6.7 Conclusion To summarise the perilous path of norm implementation in Kyrgyzstan, I refer to Fig. 6.1 and discuss the stages and elements of norm implementation and the lessons that could be learned from this case. First, looking at the critical juncture factors for norm commitment, we can see that the country had started to accept international norms before its neighbouring Central Asian states and also targeted foreign investment, in particular to develop its natural resources potential. The EITI fitted such an agenda, and Kyrgyzstan was among the first countries to implement the initiative. Two revolutions with violent clashes and subsequent regime changes did not provide fertile ground for norm compliance though, so it was only by 2011 that the country became compliant. Second, at the stage of norm internalisation, the work of the multi-stakeholder group was fuelled by the availability of financial and technical support from international donors, such as the World Bank. Local civil society also became actively involved in the process and accomplished substantial work on the popularisation of the EITI process among the general public in the regions in which extractive industries operate. Third, with the refinement of the EITI requirements over the years and delays in report publication due to financial challenges, the work on the initiative became more challenging. Lack of government attention on the EITI process, especially in terms of funding, resulted in uncoordinated work and eventually suspension. Publication of the EITI report 2015–2017 in May 2019 demonstrated the vitality of the norm and showed that the work on meeting the requirements laid out by the EITI Board at the end of the 2017 validation was still continuing. In addition, significant work has indeed been done on beneficial ownership disclosure which can allow Kyrgyzstan to share its experience with other countries and become pioneer on the international stage. However, unlike Azerbaijan (see Chap. 7), it is highly unlikely that Kyrgyzstan will continue publishing reports on resource revenues if it is suspended permanently from the EITI given the lack of financial commitment to the process so far. As such, the process is very much aid-dependent and its sustainability is hard to predict.

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Moreover, the lack of state capacity to finance, gather data and innovate without serious external support raises further questions about Kyrgyzstan’s compliance with the EITI. Kyrgyzstan, thus, is a case that demonstrates that even when the norm is embraced, financial difficulties and a lack of state capacity can lead to norm non-compliance. This is something that conventional norm literature does not account for and something that should have an impact on how we look at norm compliance and norm spread.

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Hiro, D. (2010, April 8). Kyrgyzstan’s second tulip revolution. The Guardian. https://www. theguardian.com/commentisfree/2010/apr/08/kyrgyzstan-second-tulip-revolution. Accessed on January 13, 2019. Hoffmann, K. (2010). The EU in Central Asia: Successful good governance promotion? Third World Quarterly, 31(1), 87–103. https://doi.org/10.1080/01436590903557397. Honkonen, T. (2013). Challenges of mining policy and regulation in Central Asia: The case of the Kyrgyz Republic. Journal of Energy & Natural Resources Law, 31(1), 5–32. https://doi.org/10. 1080/02646811.2013.11435315. KEITI. (2009). Extractive Industries Transparency Initiative report in Kyrgyzstan. https:// resourcegovernance.org/sites/default/files/For_publishing-EITI_Report_for_2008-Kyrgyzstan. pdf. Accessed on August 27, 2018. KEITI. (2019). EITI report of the Kyrgyz Republic 2015–2017. https://keitiweb.wordpress.com/ 2019/06/07/otqet-ipdo-za-2015-16-gg-opublikovan-na-sat/. Accessed on August 27, 2019. Kotilainen, J., Prokhorova, E., Sairinen, R., & Tiainen, H. (2015). Corporate social responsibility of mining companies in Kyrgyzstan and Tajikistan. Resources Policy, 45, 202–209. https://doi. org/10.1016/j.resourpol.2015.06.001. Lewis, D. (2010). Kyrgyzstan. In D. Ó Beacháin & A. Polese (Eds.), The colour revolutions in the former Soviet republics: Successes and failures (pp. 63–79). London: Routledge. https://doi.org/ 10.4324/9780203848951-10. Marat, E. (2005). Civil society in Kyrgyzstan before, during and after the March 24 Revolution. Helsinki Monitor, 16(4), 267–277. https://doi.org/10.1163/157181405775080894. Pétric, B.-M. (2005). Post-Soviet Kyrgyzstan or the birth of a globalized protectorate. Central Asian Survey, 24(3), 319–332. https://doi.org/10.1080/02634930500310402. Pomfret, R. (2007). Lessons from Kyrgyzstan’s WTO experience for Kazakhstan, Tajikistan and Uzbekistan. Asia-Pacific Trade and Investment Review, 3(2), 27–46. Pomfret, R. (2011). Exploiting energy and mineral resources in Central Asia, Azerbaijan and Mongolia. Comparative Economic Studies, 53(1), 5–33. https://doi.org/10.1057/ces.2010.24. Russell-Prywata, L., & Lord, J. (2019). Implementing beneficial ownership transparency in the Kyrgyz Republic extractives sector: Findings and recommendations. OpenOwnership. https:// www.openownership.org/uploads/opo-kyrgyz-republic-scoping-report.pdf. Accessed on August 27, 2019. Schatz, E. (2006). Access by accident: Legitimacy claims and democracy promotion in authoritarian Central Asia. International Political Science Review/Revue Internationale de Science Politique, 27(3), 263–284. https://doi.org/10.1177/0192512106064463. Schlichte, K. (2017). The international state: Comparing statehood in Central Asia and Sub-Saharan Africa. In J. Heathershaw & E. Schatz (Eds.), The paradox of power: The logics of state weakness in Eurasia (pp. 105–119). Pittsburgh: University of Pittsburgh Press. Sedova, T. (2014). Scoping note for the beneficial ownership pilot project. https://eiti.org/sites/ default/files/documents/eng_bo_scoping_note_kyrgyzstan_2014.pdf. Accessed on August 27, 2019. State Committee for Industry Energy and Mining of Kyrgyz Republic. (2019). Extractive Industries Transparency Initiative. EITI report 2015–2017. http://www.gkpen.kg/index.php/home1212-6. Accessed on August 27, 2019. The EITI. (2011). Highlights from the Paris conference: Day 1. https://eiti.org/news/highlightsfrom-paris-conference-day-1. Accessed on August 25, 2019. The EITI. (2017a). Kyrgyz Republic: EITI reawakened. https://eiti.org/news/kyrgyz-republic-eitireawakened. Accessed on August 22, 2019. The EITI. (2017b). Kyrgyzstan receives the first EITI chair’s award for beneficial ownership transparency. https://eiti.org/news/kyrgyzstan-receives-first-eiti-chairs-award-forbeneficial-ownership-transparency. Accessed on August 23, 2019. The EITI. (2019). Kyrgyz Republic. https://eiti.org/kyrgyz-republic. Accessed on June 14, 2019.

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The World Bank. (2019). Kyrgyz Republic. https://data.worldbank.org/country/kyrgyz-republic. Accessed on June 14, 2019. Tiainen, H., Sairinen, R., & Novikov, V. (2014). Mining in the Chatkal Valley in Kyrgyzstan—Challenge of social sustainability. Resources Policy, 39, 80–87. https://doi.org/10.1016/j.resourpol. 2013.11.005. Voloshin, G. (2018). Kyrgyz authorities clash with owners of massive Kumtor gold mine— Jamestown. Eurasia Daily Monitor, 114(15). https://jamestown.org/program/kyrgyz-authoritiesclash-with-owners-of-massive-kumtor-gold-mine/. Accessed on June 14, 2019.

Chapter 7

EITI Implementation in Azerbaijan: The Role of Internal Factors in the Norm’s Internalisation

7.1 Introduction The list of countries that decided to pilot the EITI’s implementation contains an interesting mix. Nigeria, Azerbaijan, Ghana and the Kyrgyz Republic were the first to agree to implement the EITI, shortly followed by Peru, the Republic of Congo, São Tomé and Príncipe, Timor-Leste, and Trinidad and Tobago (The EITI, 2019). Although a separate research project would be useful to explore why all of these states decided to pioneer the EITI, for the purposes of this book it is Azerbaijan that is explored further in order to highlight the specifics of the EITI’s implementation in this country. Öge (2014, p. 1482) argued that for transparency to be implemented in resourcerich countries, there needs to be some political institutions and government accountability practices already in place. Hence, the primary question in analysing the EITI’s implementation in Azerbaijan is: why would a country with no prior transparency record pioneer an international transparency initiative? Thereafter, what role did institutions and actors play in norm implementation? How did the transparency norm penetrate domestic political actions? How and why did the EITI process come under pressure after 10 years of successful implementation? All of these questions form the foundations of this chapter, which explores the process of the EITI’s implementation in Azerbaijan. In a sense, Azerbaijan is a unique case to investigate, as it was the first pilot country to reach complaint status and the only one, thus far, which was suspended due to the situation surrounding the civil society in the country. Thus, Azerbaijan’s EITI implementation presents an opportunity to analyse how the process was introduced and what actors were involved and how it all fell apart. State–society relations were recognised as crucial in the decision-making process (Risse-Kappen, 1995; Checkel, 1999; Cortell & Davis, 2000), and thus, the interaction between Azerbaijan’s government and civil society determined the EITI’s implementation and eventual failure. Although Azerbaijan did not have any prior experience of revenue information disclosure, it nevertheless emerged as a pilot country for the EITI process, thus © Springer Nature Switzerland AG 2020 A. Tskhay, Global Norm Compliance, Norm Research in International Relations, https://doi.org/10.1007/978-3-030-41452-8_7

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in a way becoming a norm entrepreneur and promoted the norm by leading the way in terms of its implementation. Secondly, the international community praised Azerbaijan for its compliance with EITI rules, until the status downgrade happened. Therefore, this case study demonstrates the factors leading to norm compliance and those that can lead to non-compliance.1 Since the EITI is a relatively new initiative and given the fact that Azerbaijan started the implementation process, while the EITI rules were still being formed and reformed along the way, contestation over the meaning and application of the EITI was inevitable. Azerbaijan’s EITI status downgrade and suspension were an application of sanctions towards the Azerbaijani government’s treatment of civil society members and the internal conditionality that the EITI Board exercised to keep the country in the initiative. Thus, the status downgrade is an important point to investigate not only in the study of the EITI’s implementation process in Azerbaijan, but also in an attempt to map out the development of the initiative itself and, more importantly, its sanctions mechanism to ensure compliance. Moreover, understanding the factors that led up to Azerbaijan’s EITI suspension is crucial to analyse the reasons why the sanctions were applied and what happened after the suspension. Moreover, Azerbaijan’s decision to leave the EITI is an indication of norm contestation with respect to its definition, mandate and implementation. The voluntary nature of the EITI and the inability to apply hard sanctions can make it relatively easy for countries to leave. At the same time, the lack of internalisation of the norm and the persisting need for wider reforms, especially in relation to civil society involvement and the political environment in the country, as well as the politicisation of the EITI process, contributed to the demise of the EITI in Azerbaijan. Azerbaijan is located in a geopolitically strategic position, on the shores of the Caspian Sea with transit corridors to Europe. Thus, Azerbaijan is at the crossroads of Europe and Asia, presenting the country’s government with a diplomatic puzzle. Indeed, the involvement of various external actors in Azerbaijan’s oil industry, as well as foreign policy strategies, is a key point of the analysis later in this chapter. External actors are crucial to consider when understanding how the transparency norm was imported into Azerbaijan and when exploring what role foreign actors have played in it, as suggested by Öge (2015). In addition, the domestic situation in Azerbaijan is complicated by the NagornoKarabakh conflict, which still casts a shadow over domestic and foreign policy. The oil industry in Azerbaijan is not only key to its economic growth, but it is also central to its independence and territorial integrity (Olsen, 2004, p. 126). The NagornoKarabakh conflict has left over one million people displaced in Azerbaijan, which has created social and economic problems for the government, in addition to the political and security dilemmas associated with conflict resolution (Olsen, 2004, p. 140). The domestic implications of the Nagorno-Karabakh conflict are taken into consideration in the review of government strategies. Oil-rich countries with weak democratic institutions tend to have limited transparency and public accountability, as well as a propensity to mismanage resource 1 For

more details on the discussion on norm compliance and non-compliance, see Chap. 2.

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revenues (Kendall-Taylor, 2012). Hence, this chapter also explores how the transparency norm was internalised in Azerbaijan, a country where democratic institutions are not well-established. The chapter begins with a description of the petroleum industry in Azerbaijan and its role in the economy and foreign policy of the country, and government strategies with respect to this pivotal industry. Challenging political and economic situations have defined its policies towards the use of revenues from oil industries, and thus, these have a significant impact on the implementation or otherwise of transparency in Azerbaijan. This combination of domestic challenges and foreign policy strategies has a direct impact on the transparency norm’s implementation and the course of the EITI’s internalisation.

7.2 The Importance of the Oil and Gas Industries for the Domestic and Foreign Policy of Azerbaijan 7.2.1 History of Azerbaijan’s Oil Industry and the Politicisation of Oil When discussing transparency in extractive industries in Azerbaijan, the main focus is placed on its oil and gas industries. It is important to note that although the EITI process in Azerbaijan also affects the mining and petroleum industries, attention should be directed towards the oil and gas industries as this represents the main source of income for the country and the sector that has determined how the EITI process in Azerbaijan has progressed. Oil production in Azerbaijan can be traced back to the nineteenth century when the initial oil explorations occurred and the first oil reserves were discovered (van der Leeuw, 2000). Subsequent investments and innovations brought by the Nobel brothers made Baku a ‘world’s oil city’ (Olsen, 2004, p. 127). Azerbaijan contributed significantly to the Soviet petroleum industry, with a 70% share of all oil production in the 1940s (Olsen, 2004, p. 127). With the collapse of the Soviet Union, Azerbaijan, much like Kazakhstan, had to establish an oil industry of its own and incorporate it into new political and economic realities. The oil industry presented Azerbaijan with a clear opportunity to become the source of income in the early independence years (Hoffman, 2000, pp. 56–57). Azerbaijan’s oil production is mainly conducted in the following oil fields: Azeri, Chirag, Gunashli,2 Shah Deniz; and with some potential fields: Inam and Araz, Alov, and Sharg (Raballand and Genté, 2008, pp. 12–13). Despite having approximately 10 billion barrels of proven oil reserves, BP predicted a gradual decline of oil output from 2015 to 2020 in Azerbaijan (Raballand & Genté, 2008; Luecke, 2010; The Economist Intelligence Unit, 2015). In 1992, the State Oil Company of Azerbaijan 2I

use Gunashli, as it is used in official Azerbaijan’s documents. At the same time, the Guneshli spelling is also equivalent.

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Republic (SOCAR) was established with the purpose of operating the state’s oil industry and representing the country in international negotiations (Cornell, 2011, p. 218). The contribution to Azerbaijan’s GDP by extractive industries in 2014 was 34.6%, a decline from 47.3% in 2012 which was attributed to the decline in oil prices. Yet, the share of government revenues made from the extractive industries reached 61.7% in 2014 (The EITI, 2016a). These statistical data indicate the significance of extractive industries for Azerbaijan’s economy. Furthermore, as Daniel Hoffman (1999) described, the oil and gas industries are important for Azerbaijan’s government for three reasons: (1) to boost the economy through resource revenues in the absence of any other viable industries in the early independence period; (2) to gain international support through foreign investors to counterbalance the Armenian diaspora, for instance, in the negotiations on the Nagorno-Karabakh conflict; and (3) to utilise the country’s geostrategic location and forge stronger relations with foreign companies in offshore oil projects. After gaining independence, Azerbaijan’s authorities were presented with a challenge as to how to turn its ‘resource blessing’ into sustainable economic growth and prosperity. On the one hand, with existing oil exploration facilities and potentially vast oil and gas reserves in the Caspian Sea, Azerbaijan’s government needed to stimulate the industry for revenues to subsequently flow. On the other hand, the disputed legal status of the Caspian Sea, diverse external interests from Russia, Iran and the West and weak political and economic institutions in a transitioning Azerbaijan created a complicated picture. Azerbaijan’s authorities needed not only to attract investments to modernise its petroleum sector, but they also had to build corresponding institutions to move from the Soviet market system it inherited to a capitalist and democratic one (Guliyev, 2009). This section discusses how the Azerbaijani government’s strategies have shaped the country’s petroleum industry and defined its development. Azerbaijan’s government quickly understood the need to promote the petroleum industry for economic growth after gaining independence. The Nagorno-Karabakh conflict, together with an overall economic decline due to the collapse of the Soviet system, left a need for substantial financial resources to boost the country’s economy, and this could apparently only be achieved through the trade of oil and gas. After the collapse of the Soviet Union, the Caspian Sea’s energy reserves presented numerous opportunities for investment. Indeed, at the time, the region was being compared to the Middle East in terms of its oil potential (Akiner, 2004, p. 10; Auty, 2004, p. 112; Karayianni, 2004, p. 147). One cannot discuss Azerbaijan’s economic policies without introducing the political environment in the country after the dissolution of the Soviet Union. In the space of three years after gaining independence (1991–1993), Azerbaijan had three different heads of state (Ayaz Mutalibov, Abulfez Elchibey and Heydar Aliyev) (Franke, Gawrich & Alakbarov, 2009; Cornell, 2011). Ayaz Mutalibov was in power during the transition period from the fall of the Soviet Union to Azerbaijan’s independence. However, he made unpopular political decisions in the handling of the NagornoKarabakh conflict which resulted in his resignation in 1992 (Cornell, 2011, p. 63).

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The leader of the Azerbaijani Popular Front Party, Abulfez Elchibey, was elected president in 1992 and although he attempted to reform the political and economic system of the country, he was not able to hold onto power. In 1993, Heydar Aliyev, a prominent political figure during the Soviet period, was proclaimed president after a referendum showed no confidence in Elchibey (Cornell, 2011, p. 78). Political turmoil challenged the country’s ability to attract foreign investments. Thus, concessions to foreign oil companies were one of the few measures Azerbaijan employed to attract foreign investors. Furthermore, a strong Armenian lobby in the West made it difficult for Azerbaijan’s government to find support among foreign partners (Hoffman, 2000, p. 58). Although the negotiations on oil contracts started with Elchibey’s administration, specifically with negotiations with the UK’s government, it was Heydar Aliyev who concluded them (Franke, Gawrich & Alakbarov, 2009; Mehdiyeva, 2011, p. 205). Thus, the oil negotiations and the containment of the Nagorno-Karabakh conflict became crucial for the legitimacy of Heydar Aliyev’s presidency (and subsequently, Ilham Aliyev’s presidency as well), not only domestically but also externally (Hoffman, 1999, 2000; Kendall-Taylor, 2011; Meissner, 2012). It is important to keep in mind the role of the Aliyev family in political decision-making in Azerbaijan and how this has impacted upon its commitment to the EITI and its implementation. In essence, any decision related to extractive industries in Azerbaijan has domestic implications with regard to economic growth and development, and more importantly the legitimacy of the political regime. Thus, such decisions can also be influenced by external relations (such as the situation regarding Nagorno-Karabakh and the involvement of external actors (e.g. Russia)). These factors make Azerbaijan a unique case study with a combination of domestic and external issues. Therefore, the analysis of the EITI’s implementation in Azerbaijan requires a close look at domestic interests (particularly those of the authorities) (Hathaway, 2002), the domestic salience of the norm (Cortell & Davis, 1996) and the costs and benefits of norm implementation (Caporaso, 1992; Chayes & Chayes, 1993). The first major deal on oil exploration in Azerbaijan’s offshore oil fields was struck on September 20, 1994, which established a multilateral consortium, called the Azerbaijan International Operating Company (AIOC) to operate oil exploration in the Azeri–Chirag–Gunashli (ACG) fields (Gillies, 2010; Pomfret, 2011, p. 13). The agreement, also known as the ‘Contract of the Century’, after a long period of negotiations and with Heydar Aliyev’s authority, forged relations between Azerbaijan and the West. It is important to highlight the personal involvement of Heydar Aliyev in getting this deal signed. He himself noted: […] It’s taken three years of negotiations which have been interrupted by both internal as well as external factors. […] That’s why I personally got involved in supervising the second round of talks by issuing a Presidential Decree. We wanted and, I believe, we have achieved a contract that is mutually beneficial to all parties. After all, Azerbaijan’s national interests are directly linked to the success of this extremely important and historic agreement (Blair, 1994).

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7.2.2 Role of Foreign Investors in Azerbaijan’s Energy Sector Upon gaining independence in 1991, Azerbaijan’s oil industry emerged on the radar of Western foreign investors, and thus, a long process of contract negotiations began (Olsen, 2004, p. 128). This period was described by a representative of BP Azerbaijan as: ‘I think in the 1990s the aim was to attract direct investment. Because in the mid-90s after independence [Azerbaijan’s] legislation was not developed that much and that basically, you had to provide some attractive incentives for big companies to come over to the country’ (Personal interview with a representative of BP Azerbaijan, April 13, 2015). This section discusses in detail the involvement of foreign companies in Azerbaijan’s energy sector. In 1992, the USA adopted a Freedom Support Act that prohibited any governmentto-government investment in Azerbaijan (Hoffman, 2000, p. 57). This Act substantially challenged the development of economic relations between the USA and Azerbaijan (Cornell, 2011, pp. 203–204). Through a gradual negotiation process with regard to energy deals, Azerbaijan’s government was able to bring foreign investment into the country. The involvement of BP in the development of Azerbaijan’s oil was pivotal not only for the country but also for the Caspian region in general. By putting the Caspian region on the global energy map, the Azerbaijani government’s oil negotiations also sparked debate on the legal status of the Caspian Sea (Vinogradov & Wouters, 1996). Since BP was the main operator of the ACG fields, the push for the Baku–Tbilisi– Ceyhan (BTC) pipeline intensified and, with support from the USA, the project was eventually launched (Roberts, 2004, p. 80; Cornell, 2011, p. 205). In 1992, after the visit of Margaret Thatcher to Azerbaijan, BP and Statoil were able to sign two contracts on the exploration of the Chirag field and the rights to negotiate exploration of the Shah Deniz field (Olsen, 2004, p. 128). Moreover, the first official visit of Heydar Aliyev to the UK in 1994 provided the basis for further economic cooperation between the two countries and for BP’s role in Azerbaijan’s petroleum industry (‘Heydar Aliyev Heritage’ International Online Library, no date; Mehdiyeva, 2011, p. 212). With the signing of the ‘Contract of the Century’, Azerbaijan’s government created opportunities for foreign investors to establish large consortiums for oil and gas exploration in the Caspian Sea. Between 1994 and 1997, there were five international consortiums signed on oil and gas exploration in Azerbaijan with major Western companies, in addition to several multi-billion dollar contracts (Nassibli, 1999). The intentions of the Western oil companies were clear: to diversify and utilise the newly opened Caspian region and to counterbalance the influence of Russia and Iran (Mehdiyeva, 2011). Heydar Aliyev understood the necessity to balance the interests of Russia, Iran and the West in the energy sector, keeping in mind the fragile political and economic situation in his own country (Cornell, 2011, p. 219). The AIOC, thus, consisted of BP, Amoco, McDermott, Pennzoil, Exxon, Statoil, Ramco, TPAO and LUKoil (Pomfret, 2011, p. 13). The negotiations for the ‘Contract of the Century’ also indicated the

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role of political leadership in Azerbaijan in closing the deal. A multi-vector energy policy not only diversified sources of investment, but also assisted in the development of political ties with foreign partners, which was important in the context of the Nagorno-Karabakh conflict. By drawing Western investors into Azerbaijan’s economy, Aliyev positioned the country as a strategic partner of major Western powers, like the USA and the UK (Mehdiyeva, 2011, pp. 204–205). The ‘Contract of the Century’ paved the way for another 25 production-sharing agreements (PSAs) to be signed, covering various stages of oil exploration, production and transportation (Nassibli, 1999, p. 108; Pomfret, 2011). After oil exploration started under the AIOC, the question of transportation arose, with limited options available at that time. The pipelines through Georgia (Baku-Supsa) and Russia (BakuNovorossiysk) were Azerbaijan’s only transit routes, but both had limited capacity and this meant there was an urgent need to find another route (Olsen, 2004; Sovacool, 2011). The Baku–Tbilisi–Ceyhan (BTC) pipeline project gained economic and geostrategic importance to further boost oil production from the Caspian Sea to the Western markets (Olsen, 2004; Cornell & Ismailzade, 2005; Mehdiyeva, 2011). The BTC pipeline would be an ambitious project and the only politically viable one. Azerbaijan’s authorities understood that the promise of potential oil and gas reserves would not itself seal the deal on multi-billion dollar contracts, as there had to be other incentives for foreign investors to be attracted. The government, thus, pursued two strategies: to create a favourable taxation regime; and to base energy contracts on PSAs (Najman, Pomfret & Raballand, 2008; Jones Luong & Weinthal, 2010). Foreign oil companies were exempt from any types of taxes or fees (such as VAT, export tax, customs fees) with the exception of corporate profit tax, regulated by PSAs (Personal interview with a representative of BP Azerbaijan, April 13, 2015). The structure of PSAs gave foreign investors more confidence in terms of risk alleviation since the newly independent countries of the former Soviet Union struggled to ensure law enforcement and stable policies (Bayulgen, 2005, p. 8). It is important to highlight here that transparency in extractive industries was not among the initial conditions attracting foreign investors to Azerbaijan. PSAs are equal to national laws in Azerbaijan, making the provisions of such agreements legally binding (Personal interview with a representative of BP Azerbaijan, April 13, 2015). Moreover, the PSAs were drafted in a way that would integrate the local expertise of SOCAR and give the company a significant role in the supervision of energy projects (Mustafayev, 2015). Unlike Russia and Kazakhstan, Azerbaijan’s authorities did not seek to renegotiate the terms and conditions of the PSAs, considering this a sign of its reliability as a partner to foreign investors (Cornell, 2011, p. 396). Azerbaijan’s oil negotiations involved a limited circle of people who were actively engaged in the process. This included Heydar Aliyev, his son—then Vice-President of SOCAR—Ilham Aliyev, SOCAR’s President Natik Aliyev, and director of SOCAR’s foreign relations Valekh Alekperov (Bayulgen, 2005) The appointment of Ilham Aliyev secured the continuity in oil deals (Mehdiyeva, 2011, p. 210). The fact that so few people were involved in energy contract negotiations gives an indication that there would be a similarly small group involved in the EITI’s implementation. It also

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highlights the closed nature of political decision-making in Azerbaijan. The limited circle of actors involved in oil negotiations also illustrates how the political system in Azerbaijan operates, with the power centralised in the hands of the President and his loyal network (Bayulgen, 2003; Franke, Gawrich and Alakbarov, 2009; Guliyev, 2009; Pleines and Wöstheinrich, 2016).

7.2.3 Establishment of the State Oil Fund of Azerbaijan Once the oil contracts were agreed and the first streams of revenues started to come into the state budget, the next task for Azerbaijan’s government was to work out how to manage these resources. The State Oil Fund of Azerbaijan (SOFAZ) was established on December 29, 1999 by Presidential Decree № 240 (State Oil Fund of the Republic of Azerbaijan, no date). SOFAZ has been an essential institution in oil wealth management for Azerbaijan as it accumulates profits from the oil trade (Luecke and Trofimenko, 2008, p. 136). All oil revenues, with the exception of profit taxes, go directly into the fund, which are then invested into funds, securities, bonds and other financial instruments with minimum risk and diversification (Luecke, 2010, pp. 50–51). SOFAZ acts not only as a savings fund, but also as an investor both externally and internally. It has funded Azerbaijan’s stake in the BTC pipeline construction project since 2002 (State Oil Fund of the Republic of Azerbaijan, no date). Parliament has to approve the transfers of money from SOFAZ to the national budget and to finance infrastructure projects and educational programmes (State Oil Fund of the Republic of Azerbaijan, no date; Kalyuzhnova, 2006; Luecke, 2010). A portion of the resources available in SOFAZ has been used to support internally displaced people after the escalation of the Nagorno-Karabakh conflict (O’Lear, 2007, p. 210). The creation of SOFAZ raises even more questions about transparency and the use of resource revenues (Olsen, 2004). Indeed, the fund itself should ensure transparent practices, such as regular reporting, external independent auditing, open investment strategies and policies. It is symbolic that SOFAZ was chosen to supervise the EITI process in Azerbaijan since it is an institution that oversees the use of revenues from the oil and gas sector in the country. SOFAZ hosts Azerbaijan’s national EITI Secretariat and, thus, coordinates the work of the multi-stakeholder group on issues related to the EITI’s implementation in the country. The fund itself is actively engaged with the oil industry and the national budget; therefore, it is an ideal mediator between the industry and the government. One of SOFAZ’s functions is to accumulate revenues from extractive industries and to transfer them to the national budget, to be used thereafter accordingly. Thus, it is understandable that the work related to EITI reporting would be monitored by SOFAZ.

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7.3 Critical Juncture and Turning Point in Azerbaijan’s Decision to Join the EITI We now examine what drove Azerbaijan’s government to join the EITI at the very inception of the initiative. As has been previously discussed in Chap. 2, the concepts of critical juncture and turning point are particularly useful to demonstrate the shifts in the decision-making processes regarding norm commitment and implementation. Once all major oil and gas negotiations were settled, and the pipeline projects were set in motion, the most important task for Azerbaijan’s government was to figure out how to manage resource revenues and build strategies to avoid the resource curse, as well as to ensure the sustainability of oil and gas contracts. It is at this time, in the early 2000s, when increased attention was given to issues of resource management, governance and transparency by the government (Olsen, 2004). The creation of favourable investment conditions for foreign partners and the willingness of the government to show its commitment to transparency and good governance represents a critical juncture. The chain of events from signing the first oil deals to setting up pipeline projects and creating an oil fund prepared the ground for the implementation of the new transparency norm. Moreover, Kerem Öge (2015) argued that norms and practices shared by foreign oil companies were eventually transmitted to local governments. It was suggested by one interviewee from the Public Fund for Financial Monitoring that the close interaction between Azerbaijan’s government and Western oil companies gave the impetus for the transparency norm’s implementation: Maybe this [the investment from the US and the UK’s oil companies to Azerbaijan] has played a role; we were on the doorstep of getting big revenues, we should by definition have such kind of initiatives in order to show that we are transparent in all parameters, we are not afraid of anyone and we are open. Of course this played a role, our companies [companies investing into Azerbaijan] were from the start public Western companies, ExxonMobil, BP, Statoil, till recently was present here, Total, Chevron, Shell, so all of these companies, they are world leading companies (Personal interview, June 7, 2015).

There are two issues worth raising from the above quote. First, the Western companies (mainly those from the USA and the UK) involved in Azerbaijan’s oil and gas industries have also brought their corporate values of transparency and accountability to the country. Second, in return, it was important for Azerbaijan’s government to demonstrate its commitment to improving the transparency and accountability of resource revenue flows to maintain good business relationships with foreign investors. The period of oil negotiations could be considered as a critical juncture in the economic and political life of post-Soviet Caspian states (Ehteshami, 2004, p. 68). The signing of the ‘Contract of the Century’ in 1994 created opportunities for Azerbaijan and allowed for the integration of Western values and principles in the early 2000s before this happened in any Central Asian state (Cornell, 2011, p. 394). The country became a member of the Council of Europe (CoE) on January 25, 2001, by which time it had shown its further endorsement of democratic principles and values (CoE, 2016). Cornell (2011, p. 393) believed the period of 1997–2004 to be ‘the pinnacle

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of Western engagement in Azerbaijan and the South Caucasus’. Thus, Azerbaijan started its trajectory towards commitment to Western values and investment in the early 2000s. In addition, apart from the development of oil and gas fields, the construction of the BTC pipeline as a multilateral economic and geopolitical project was an important event in the history of the relationship between Azerbaijan and the West, as described by a representative of expert community: I want to emphasise that 2003 was an important year because BTC started to operate, [which became] the major pipeline for us to which was transport oil. It is not enough to pump oil, you need to be able to deliver it to international markets, therefore the country was already positioned as a partner of the West, and as a trustworthy partner (Personal interview with a representative of Public Fund for Financial Monitoring, June 7, 2015).

The pipeline, hence, connected Azerbaijan ‘physically’ to Western markets and made the country a strategic partner of the West in terms of the flow of hydrocarbons, as well as securing the trade of Azerbaijan’s oil and gas for the years to come (Cornell and Tsereteli, 2005; Starr and Cornell, 2005). Thus, in the light of everything mentioned above, the Azerbaijani government’s engagement in the EITI could be seen as a general continuation of its embrace of Western values and as a means to present Azerbaijan as a reliable partner. The EITI emerged at a stage of Azerbaijan’s history when the country put itself onto the path of reform, modernisation and economic growth due to foreign investment and the political leadership of the Aliyev family.

7.4 The EITI’s Beginning Issues of transparency and the good governance of resource revenues and extractive industries were investigated before Azerbaijan joined the EITI, under the initiative of the research group Caspian Revenue Watch, launched by the Open Society Foundation (Tsalik, 2003). Caspian Revenue Watch was a research group that investigated the possibility of transparency implementation in the extractive industries of Azerbaijan and Kazakhstan. Caspian Revenue Watch’s work built on the studies of other civil society organisations in an attempt to analyse the flow of payments from extractive companies to governments (The EITI, 2019). Caspian Revenue Watch, being part of the Open Society Foundation, became part of the Publish What You Pay campaign which pushed the implementation of transparency in extractive industries to the UK’s government, which then led to the creation of the EITI. In essence, the work of the Caspian Revenue Watch group launched the process of the transparency norm’s socialisation in Azerbaijan. Being a transnational advocacy network, Caspian Revenue Watch could be credited for laying the foundations for future norm implementation in Azerbaijan through extensive research on the topic, and also by making transparency relevant to Azerbaijan’s context (Finnemore and Sikkink, 1998; Keck and Sikkink, 1998; Tsalik, 2003). It is worth mentioning that

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Caspian Revenue Watch pre-empted the creation of the EITI and, hence, the examples of Azerbaijan and Kazakhstan demonstrated the need to implement transparency in both the operation of sovereign wealth funds and resource revenue management (Tsalik, 2003, p. 11). Thus, Azerbaijan and Kazakhstan played an indirect role in the establishment of the EITI. However, the critical juncture for Azerbaijan’s government to start the implementation process for the EITI was the fact that after the initial stage of energy contract negotiations in the 1990s, Azerbaijan’s government needed to launch additional investment incentives and to prove the sustainability of oil contracts. Thus, the focus was placed on the image of the country, and on aspects of good governance. This coincided with the announcement of the EITI process in 2002 and its subsequent endorsement by Western countries and major foreign extractive companies.3 Scholars have claimed that reputational benefits and external incentives motivate states to implement norms, and the Azerbaijani government’s support for the EITI could be explained accordingly (Gillies, 2010; David-Barrett and Okamura, 2013; Öge, 2015). With international pressure on Western oil companies from civil society groups, like Global Witness and Publish What You Pay, the EITI mechanism created a level playing field involving both companies and government (Rose, 2015, pp. 137–138). This is crucial because governments would not threaten companies should they decide to disclose payments, as happened in the case of BP-Sonangol in Angola, and would not put companies at a disadvantage should they decide to disclose information (van Oranje and Parham, 2009). In 2003, Ilham Aliyev, then Vice-President of SOCAR, was heading Azerbaijan’s delegation to the London EITI Conference, where he officially announced Azerbaijan’s willingness to join the process. This was the turning point in the norm’s implementation. After the EITI’s London Conference, Ilham Aliyev reported back to the Government of Azerbaijan, the Cabinet of Ministers issued Ordinance No.224, and a state commission on the EITI’s implementation was formed. The commission’s goal was to set out actions to prepare for the EITI process and to reach out to all interested parties (EITI Azerbaijan, no date). The commission, under the presidency of SOFAZ, included several ministries and government institutions, as well as SOCAR (Personal interview with a representative of SOFAZ, May 6, 2015).

7.4.1 The Role of External Actors in the EITI’s Implementation in the Early Stages It is clear that a country like Azerbaijan on its own could not have implemented a unique and new process, like the EITI. The line between external and internal actors

3 For

more details and statements about London EITI Conference, see https://webarchive. nationalarchives.gov.uk/20031220232855/http://www.dfid.gov.uk/News/News/files/eiti_stat_of_ principles.pdf. Accessed on August 3, 2019.

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should thus be drawn here. External actors are considered as those to originate outside the country of analysis, such as foreign companies, international NGOs, donor organisations and foreign governments. Meanwhile, internal actors are national governments, local civil society organisations and domestic extractive companies (both private and state-owned). There were several external actors that supported Azerbaijan’s efforts in the first steps towards implementing transparency in extractive industries. Since actors had a particular role in promoting and supporting the EITI’s implementation in Azerbaijan, it is worth paying particular attention to each one of them separately. It is noteworthy that external actors in this case are foreign organisations, such as foreign oil companies, international donors and NGOs. However, all of them act inside Azerbaijan and, thus, contribute to the ‘from below’ pressure effect.

7.4.1.1

Foreign Oil Companies

Foreign oil companies have played an important role in supporting Azerbaijan and the EITI process. One of the main foreign oil companies involved not only in the energy sector of Azerbaijan but also in the EITI process as a whole is BP (Gulbrandsen and Moe, 2007). The company has supported the EITI ever since its establishment (DFID, 2003). BP’s efforts towards improving transparency and accountability in the oil industry started with the disclosure of a signature bonus paid by the company to the Angolan government (The EITI, 2019). Major Western oil companies endorsed the initiative at the London Conference in 2003, and, thus, committed to assist local implementation in pilot countries. In Azerbaijan BP paved the way to support the initiative according to a representative of World Bank Azerbaijan: ‘[…] of course, all oil companies, especially BP, played an active role [in supporting the EITI implementation in Azerbaijan]; they were interested in this [EITI implementation] and there was a mutual interest from the government side to be part of this process [the EITI process] and to be among the first countries that joined’ (Personal interview, May 26, 2015). It was in the interest of foreign oil companies to have Azerbaijan involved in the EITI process. The EITI reporting has provided additional verification to the figures that were published by the companies in their home countries. Therefore, with the push for corporate social responsibility, openness in doing business and avoiding corrupt practices of Western companies in resource-rich developing countries, Western extractive companies have endorsed the EITI as an initiative that could be of benefit for companies, not only for governments. A representative of BP Azerbaijan described the country’s interest in the EITI’s promotion as follows: Maybe without the EITI it would be a bit difficult [for Western extractive companies operating in Azerbaijan] to keep that transparency [reporting] required by the home governments. But when the [Azerbaijan’s] government is already part of that international experience [the EITI] it made it easy for BP to follow that. That [the EITI implementation in Azerbaijan] was quite optimistically and pro-actively received by BP and I think at that time BP helped the

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[Azerbaijan’s] government to establish certain NGO community [network] and develop certain standards, and also developing the report, and certain concepts for it (Personal interview with a representative of BP Azerbaijan, April 13, 2015).

Oil and gas contracts are usually long-term investment projects with the potential to last for several decades. Therefore, the engagement of communities on issues around extractive industries and improving the accountability of companies on their activities to the local communities is key to the sustainable work of foreign extractive companies (DFID, 2003). Moreover, Maya Schmaljohann (Schmaljohann, 2013) analysed 81 developing countries and discovered that the implementation of the EITI resulted in an increase in foreign direct investment for the implementing country. Therefore, the participation of a host country in the EITI is not only beneficial for the society of that country, but also for foreign investors. In this sense, the EITI serves as another indicator of a country’s performance, which, combined with other indices, like the Corruption Perception Index (CPI) or Doing Business rating, assists foreign companies in making decisions to invest in a particular country.

7.4.1.2

International Donors

Various international donors were involved in the EITI’s implementation process, such as the World Bank as was noted by its representative: ‘Azerbaijan was the first country that signed up to this initiative. So, obviously, the Bank took part in this and assumed the role of facilitator between the oil companies and the government’ (Personal interview with a representative of World Bank Azerbaijan, May 26, 2015). As mentioned in Chap. 3, the World Bank manages the Multi-Donor Trust Fund (MDTF), which supports the implementation of the EITI. The World Bank, through the MDTF, provides funding to the Natural Resource Governance Institute that organises training workshops for members of the multistakeholder groups, where representatives from Azerbaijan participate actively (World Bank Group, 2015).4 The MDTF also provides direct support to civil society in Azerbaijan. For instance, in the period between August 2014 and April 2015, the World Bank sponsored the translation of the EITI Standard into the Azeri language, workshops on communication strategies and local workshops for raising awareness about the EITI process in extractive regions (World Bank Group, 2015, p. 20). Azerbaijan’s EITI process received support not only from international financial institutions but also from foreign governments. The UK government expressed its willingness to support Azerbaijan’s efforts in the EITI’s implementation as soon as the country announced its commitment to the initiative (Huseynov, 2004b). This was emphasised by a civil society representative: ‘DFID and the British embassy provided a lot of money. There were a lot of donors. Many embassies expressed their willingness to support this process. The Norwegian embassy gave a lot in support 4 The training is facilitated by the Eurasia Regional Knowledge Hub, for more information on which

see http://www.resourcegovernance.org/learning/training/eurasia. Accessed on August 5, 2015.

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to this process’ (Personal interview with a representative of Centre for Support for Economic Initiatives, April 21, 2015).

7.4.1.3

International NGOs

International civil society groups were also part of the popularisation of the EITI in Azerbaijan. A clear example of this was the involvement of the Soros Foundation and its subsidiaries in the promotion of transparency in extractive industries and the EITI. As mentioned earlier, Caspian Revenue Watch, a research group established by the Soros Foundation, pre-empted a discussion on information disclosure and openness in Azerbaijan’s oil and gas industries Caspian Revenue Watch organised a conference on July 18, 2002 in Baku on the establishment and management of oil funds and the importance of transparency implementation in them (Turan news agency, 2002). By the time Caspian Revenue Watch ceased to exist, it had nevertheless laid the foundations for the Revenue Watch Institute, supported by the Open Society Foundation and focusing on issues surrounding extractive industries (van Oranje and Parham, 2009, p. 36). Revenue Watch Institute (renamed the Natural Resource Governance Institute) organises workshops for training civil society members and representatives of the multi-stakeholder groups in Azerbaijan. Thus, the Soros Foundation not only supported the research on transparency in extractive industries, but also supported the EITI’s implementation at different stages in Azerbaijan.

7.4.2 Role of Internal Actors in the EITI’s Implementation The EITI process in Azerbaijan has been massively supported by civil society organisations. Soon after the EITI process was launched in Azerbaijan, civil society organisations established a coalition called ‘NGOs for Improving Transparency in Extractive Industries’ to unite the activities of NGOs and to be represented at the meetings of the multi-stakeholder group (Gardashbayov, 2004). Sabit Bagirov, President of the Fund for Assistance to Market Economy and Business, and former President of SOCAR, was elected as chairman of the coalition. With an initial membership of around 40 NGOs, the coalition amassed 128 members by 2015 (The Coalition of Azerbaijan Non-Government Organisations, no date). The coalition included NGOs working on a wide range of issues from the economy and corruption to democratisation and human rights. The purpose of the coalition is to elect representatives to the multi-stakeholder group and then to discuss, among the members of the coalition, issues related to the EITI. Again, as in the case with external actors, internal actors not only provide functional support to the EITI process, but they also oversee the work of the multi-stakeholder group and the reporting process, and hold the government accountable.

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7.5 The EITI’s Implementation in Azerbaijan The EITI’s implementation in Azerbaijan can be divided into the following separate stages: pre-candidacy, candidate, compliant, status downgrade, suspension and withdrawal. This section will, thus, break down the stages of the EITI’s implementation in Azerbaijan and analyse the processes and actors involved. The discussion on Azerbaijan’s EITI status downgrade and suspension deserves particular focus, and therefore, a whole section is dedicated to this stage later on in this chapter.

7.5.1 Pre-candidacy Period As Azerbaijan pioneered the EITI process, there were no precedents or examples to rely on, and thus, the rules evolved during the process. This puts Azerbaijan as a case study in a special position: it adopted an international initiative from outside and paved the way for others to follow. This particular duality in the nature of the EITI process in Azerbaijan should be taken note of. Azerbaijan became a poster country for the EITI and for how successfully the initiative could be implemented in a country with no experience of transparency. President Ilham Aliyev has claimed that Azerbaijan is ‘the only successful country in the region implementing the EITI’ and that the initiative complements the country’s oil strategy (Huseynov, 2004a). Azerbaijan’s EITI Secretariat initially introduced a system of double reporting: a half-year EITI report and an annual EITI report. Such a system was created to provide more data, to verify information by looking at two time periods, and to make reporting more familiar to the participating groups (Personal interview with a representative of SOFAZ, May 6, 2015). It is important to keep in mind that the EITI as an initiative was still in its development stage and that the rules and principles of the process were created through Azerbaijan’s implementation process. By 2007, Azerbaijan had published four annual EITI reports and became a candidate country (The EITI, 2016a). Candidate status was given to Azerbaijan based on the timely publication of its EITI reports. Since Azerbaijan was the first country to publish EITI reports, the establishment of the EITI Source Book in 2005 was helpful in terms of giving guidance on how to conform to the EITI process. The Azerbaijani government’s dedicated steps towards the EITI’s implementation demonstrated the commitment of the government to the transparency norm. At this point, Azerbaijan had reached the ‘prescriptive status’ stage of the ‘spiral model’. Azerbaijan had not only gone through the EITI candidacy application process, but had successfully passed it, and had also institutionalised the EITI principles by signing a memorandum of understanding among various stakeholders and publicly confirmed the validity of the transparency norm (Risse & Sikkink, 1999, p. 29).

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7.5.2 Candidate Period After being recognised as a candidate country, Azerbaijan’s EITI Secretariat began preparations for the first validation process, which was the first such process in the history of the initiative. Prior to the validation process, a workshop organised by the Revenue Watch Institute gathered representatives of the civil society organisations and parties involved in the EITI’s implementation in Azerbaijan to discuss issues related to the first validation process. One of the outcomes of this meeting was that the demands of the civil society organisations for the establishment of a permanent multistakeholder working group were agreed upon and met by government representatives (Natural Resource Governance Institute, 2009). It is noteworthy that Azerbaijan’s government was an active supporter of the EITI in the international arena. Azerbaijan initiated a resolution on the EITI at the 62nd Session of the UN General Assembly, which was unanimously adopted (UN Resolution, 2008; UN General Assembly Resolution 62/274, 2008). This is an example of where Azerbaijan’s authorities not only tried to promote the EITI inside the country and among its members, but also tried to put transparency in extractive industries onto the international agenda through the medium of a UN Resolution. Indeed, back in 2006, at the EITI conference in Oslo, Shahmar Movsumov urged other states to join Azerbaijan in implementing the initiative (Associated Press Newswire, 2006). Therefore, at this stage, we could see Azerbaijan as a norm entrepreneur that actively attempts to popularise the transparency norm among other states.

7.5.3 Compliant Period It is remarkable that Azerbaijan was able to progress to compliant status in 2009 without any major challenges (Sovacool & Andrews, 2015). Azerbaijan was also the first country to go through the validation process. The EITI Board lauded the country’s achievement in the promotion and implementation of the initiative, as well as the collaborative work of the stakeholders (State Oil Fund of the Republic of Azerbaijan, 2009). Due to the relatively small size of the extractive industries sector in Azerbaijan, the EITI reports contained information on all companies operating in the country. It is important to note that up until 2014, the reports were published in a timely manner and in accordance with the existing EITI rules. The system of double reporting, with half-year and annual reports, was abolished in 2011 and deemed unpractical in the light of the new EITI requirements (Personal interview with representative of SOFAZ, May 6, 2015). Another important point to note here is that all EITI reports contained aggregated information on revenues and, starting with the EITI 2013 report, the information is now disaggregated by companies. Thus, even though the reports gave an overview of how significant the industries are, they still did not give a clear picture of how much each company paid to the government.

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By achieving compliant status, Azerbaijan conformed to the ‘rule-consistent behaviour’ stage and finalised the transparency norm’s internalisation. From this point onwards, the Government of Azerbaijan’s task was to confirm the fulfilment of the EITI requirements and to successfully go through validation.

7.6 Outcomes of the EITI’s Implementation in Azerbaijan In the case of Azerbaijan, being the first country to implement the EITI, an analysis of the outcomes brought by this process may hint at potential outcomes for other participating countries. Furthermore, the information disclosed in the EITI reports was not previously available in Azerbaijan which shows there was an improvement in the accessibility of data for interpretation. The increased access to information was the major achievement of the EITI process (Frynas, 2009, p. 145). Access to information The interviews showed that there is general agreement between all parties to the EITI process in Azerbaijan that the disclosure of information in the EITI reports was a positive step towards improved good governance and accountability. The benefits of the EITI implementation was described by a representative of SOFAZ and simultaneously Azerbaijan’s EITI Secretariat as follows: I would say that for the [Azerbaijan’s] society it [the EITI process] is the new source of information, which opens eyes on some issues [around extractive industries]. It reduces conflicts [between government and companies], reduces bureaucratic moments or corruption cases, and essentially this is why it [the EITI implementation] is done. Civil society, in general, and particularly the NGOs we [Azerbaijan’s EITI Secretariat] work with now, they have additional and very valuable tool in the form of the EITI reports from which they get a big amount of information for their [own] analysis, reports, checks, that subsequently [could be used] to draw some conclusions in order to bring different positive ways for the country’s development (Personal interview with a representative of SOFAZ, May 6, 2015).

In this way, especially in the countries with a more closed political space, the EITI serves as a platform where even sensitive topics related to extractive industries could be discussed on a trilateral basis. The EITI Board recognises the important role of the initiative and mechanism. Therefore, it is insistent on strict application and protection of civil society’s rights. Civil society in Azerbaijan was actively engaged in disseminating information about the EITI through various media platforms, as described by civil society member: For example, civil society got the grants, which were used to organise round-tables, events, and participated in TV programs across the whole country to support this [EITI] process and provide information about this initiative to the public. There were lectures in universities; in different regions of the republic [Azerbaijan] were round-tables and TV and radio programs (Personal interview with a representative of Centre for Support for Economic Initiatives, April 21, 2015).

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These events, dedicated to explaining the process of the EITI and its importance, were crucial not only to popularise the process among the general public, but also to construct a debate about the issues related to resource revenues and extractive industries. Although greater availability of data on resource revenues to the general public is a positive sign, due to the nature of the EITI reports it is still up to the expert community to draw substantial conclusions from them. An interviewee from the expert community stated that: ‘These data may mean nothing to the general public, but for me as an expert they have significant meaning. I can compare these with some other official data, see discrepancies, and write a lot about them. So, in other words, for experts data can give food for thought for publications, research and so on’ (Personal interview with a representative of Public Fund for Financial Monitoring, June 7, 2015). Thus, more-informed civil society members can have a constructive dialogue with state authorities and hold them accountable (Sovacool and Andrews, 2015).

7.6.1 The EITI Process as a Platform for Dialogue Second, an important outcome of the EITI process for Azerbaijan was the platform for dialogue between government, civil society and corporate entities. This trilateral group format was a unique structure for discussions and decision-making on particular issues in Azerbaijan and in other developing countries. As a representative of Azerbaijan’s EITI Secretariat and SOFAZ notes: ‘Also, I want to emphasise that the EITI platform has given an opportunity for the first time in Azerbaijan’s history to bring together at one table [representatives of] civil society, private sector and government to have dialogue and more importantly to come up with something’ (Personal interview with a representative of SOFAZ, May 6, 2015). Therefore, the multi-stakeholder group format allowed civil society members to express their concerns and ideas relating to extractive industries in an open forum with representatives from the government. More importantly, in countries like Azerbaijan where civil society is quite limited in terms of possibilities to engage in constructive debate over the issues concerning economic policies with the government, the EITI process becomes much more than just a report on resource revenues. An interviewee from the Public Fund for Financial Monitoring outlined what the EITI process meant for civil society in Azerbaijan: The main thing is that the EITI was almost the only platform where the government alongside civil society and the companies could sit down together and have a discussion. It was a compulsory platform [multi-stakeholder format of the EITI process, involving government, companies and civil society] even though they [the government] didn’t want to be involved; they were forced to do so. I remember how many heated debates we had; there wasn’t a coalition [of NGOs] yet, but we [representatives from government, civil society and companies] would meet in SOFAZ [since it is the host of Azerbaijan’s EITI Secretariat] and civil society would prepare an alternative report that included our comments, our dissatisfaction, critiques [on the EITI report]. We [civil society representatives] which were rigid, and even

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had an aggressive tone [during the meeting], in return the government [representatives] also reacted aggressively towards civil society, but they understood that everything should be within modest boundaries. It was a real [discussion] platform (Personal interview with a representative of Public Fund for Financial Monitoring, June 7, 2015).

7.6.2 Reputational Concerns The third component that potentially motivated Azerbaijan’s government to join the EITI is reputational concerns, which have been credited for providing incentives for norm compliance (Risse, Ropp and Sikkink, 1999; Gillies, 2010). With the strengthening of ties between Azerbaijan and the West, the former was more willing to present itself as one that follows international standards in order to project a positive image. This was underlined by BP representative as following: ‘I think that [the EITI] was quite critical initiative and the fact that Azerbaijan followed the EITI requirements quite accurately added a lot to create a positive image of the country and the government’ (Personal interview with a representative of BP Azerbaijan, April 13, 2015). From the government’s perspective, establishing a good reputation is crucial to position itself on the global stage, which was confirmed by the SOFAZ representative: ‘Of course, for the country it is a question of image which is also important. The image of a country is growing and the trust in the country is too. Of course, it is not the most decisive factor; but it is a nuance that adds up to make a particular image of any country’ (Personal interview with a representative of SOFAZ, May 6, 2015). Yet, the government utilised the progress in the EITI’s implementation in Azerbaijan for image-making purposes. On the other hand, the EITI process should not be treated only as an image-making campaign, but, rather, it should lead to substantial reforms in the extractive industries sector. These concerns are especially shared among civil society community as described by one of its representatives: ‘I don’t think it was their [Azerbaijan’s government’s] desire to be transparent or open, it [the EITI implementation] was done more for the country to obtain a certain image by supporting a transparency initiative. We [Azerbaijan] also needed to get investments, so that investors would know that our government is open to such initiatives. It gives a certain image and also ranking in international organizations’ (Personal interview with a representative of Centre for Support for Economic Initiatives, April 21, 2015).

7.7 Challenges in Azerbaijan’s EITI Implementation As mentioned earlier, Azerbaijan did not experience any substantial challenges in the process of the EITI’s implementation. However, this is not to say that the whole process suits the country entirely; there is still room for improvement. Civil society

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organisations have been complaining about the amount of information disclosed to the public and particularly the lack of reporting from some of the oil companies involved in the EITI process (BBC Monitoring Caucasus, 2008). Since Azerbaijan’s EITI reports have only included aggregated information up until recently, transparency is still limited, as described by one of the stakeholders in the EITI process: ‘There was a time when countries started to disaggregate [information on resource revenues by companies or projects]. How we [civil society] have tried to promote to do the same [publication of disaggregated EITI reports]. They [Azerbaijan’s government] said it is not possible, due to commercial secrecy and that companies did not agree to report disaggregation. Now it is possible [it is required by the EITI rules to publish disaggregated reports]. So it was possible before’ (Personal interview with a representative of Public Fund for Financial Monitoring, June 7, 2015). Azerbaijan’s government implemented the minimum requirements of information disclosure, but with the satisfactory outcome of becoming compliant Disaggregation of reports only came in after the new EITI rules made it mandatory to publish reports on a by-company or by-project basis. Information on beneficial ownership was also not made available due to national legislation recognising this information as a commercial secret (Azerbaijan’s EITI Secretariat, 2015). Beth Simmons (2009, p. 78) has argued that governments ratify treaties if they do not expect to be pressured on the commitments in future. In a way, Azerbaijan’s government applied the EITI process with limited information disclosed. Such an attitude towards the EITI process indicates not a commitment towards a transparency norm, but rather a concession being made to conform to a certain image. However, the biggest challenge with respect to the EITI’s implementation in Azerbaijan concerned the work of civil society. Azerbaijan’s government has been criticised for its crackdown on civil society activists and its enactment of new legislation that restricts the activities of civil society (CoE Parliamentary Assembly, 2014). A representative of the Centre for Support for Economic Initiatives outlined below the ways in which the new legislation on civil society impacted the work of NGOs, particularly in their activities related to the EITI’s implementation: Starting from 2010 we [civil society] started to have challenges. For example, in the regions [of Azerbaijan] they [the authorities] did not allow [us] to make speeches, or if we [NGOs] wanted to have some events there, like round-tables, they [regional authorities] demanded that they coordinate this [organisation of round-tables] with the Administration of the president. Then the process went further, when they [Azerbaijan’s government] didn’t allow us to participate in TV programs unless the Administration of the president gave permission for that. Then from 2013 even in Baku in hotels or other spaces we [civil society] were not allowed to have events not only related to the EITI, but in general for civil society. We [civil society] couldn’t as a third party hold different promotion campaigns of the EITI. […] Yes, this new law [on civil society] makes it more difficult, or even blocks the opportunity to get grants. It [the] not just creates difficulties, but blocks [the work of NGOs]. [According to the new legislation] there are no [foreign] donors in the country, and only the government can give grants [on NGO projects] and, thus, they will define how to do it [the project] and what to do and you have to follow what they say, this does not allow NGOs to be independent [from the government]. Even the topics [of the projects] they [the government] will choose, what kind of topics you can get grants for (Personal interview with a representative of the Centre for Support for Economic Initiatives, April 21, 2015).

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It is clear that the situation with regard to civil society has deteriorated severely in Azerbaijan, and this has had a clear effect on the EITI’s implementation in the country. This situation eventually led to the downgrade of Azerbaijan’s status, as discussed in more detail in the next section.

7.8 Downgrade of Azerbaijan’s EITI Status and Withdrawal: Clash of Rhetorics The EITI process was quite beneficial for Azerbaijan, bringing disclosure of data, and engagement with civil society, companies and donors. However, the challenging political atmosphere in the country led to contestation over the meaning and implementation of the EITI between Azerbaijan’s government and the EITI Board, which led to the events described below.

7.8.1 The Unique Case of an EITI Status Downgrade Before going into the detail on Azerbaijan’s status downgrade, it would be useful to explain the downgrading process in the EITI process first. The EITI Board reviews compliance with the initiative of each participating country and monitors the work and progress of national multi-stakeholder groups. This is achieved through daily communication between the EITI International Secretariat in Oslo and national coordinators in the respective implementing countries (Personal interview with representatives of the EITI International Secretariat, January 29, 2015). As mentioned previously, the EITI process is based upon eight EITI requirements, which participating countries are expected to fulfil in order to achieve and sustain compliant status. According to point 1.3 of the EITI Standard, a participating country’s ‘government is required to commit to work with civil society and companies, and establish a multistakeholder group to oversee the implementation of the EITI’ (EITI International Secretariat, 2015). Sub-points 1.3 (c and d) further emphasise that governments should not prevent the work of the civil society and put obstacles in the way of public debate on the EITI’s implementation (EITI International Secretariat, 2015). It is important to note that so far Azerbaijan is the only country to have had its EITI status downgraded. Previously, the EITI Board had suspended the membership of the Central African Republic, and that of Yemen, due to political instability in these countries (The EITI, 2016d, 2016b). The EITI Board has also previously suspended Indonesia and Tajikistan for their failure to produce their EITI reports on time; however, their memberships were renewed after the EITI requirements were fulfilled (The EITI, 2014). Guinea voluntarily asked for its membership to be suspended due to the political situation in the country, and after a year requested to have its EITI

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status reactivated (The EITI, 2009; 2016c). As Chap. 6 outlines Kyrgyzstan also was suspended on the grounds of inadequate progress in EITI implementation.

7.8.2 The Process of Azerbaijan’s EITI Status Downgrade In July 2014, the EITI Board sent a fact-finding mission to Azerbaijan to probe concerns over the work of civil society in the country (The EITI, 2016a). During the EITI Board’s meeting in Myanmar in October 2014, it was decided that the situation was severe enough to call for an early validation. The Board agreed on the need for Azerbaijan’s government to reassure its commitment to implementing the EITI, and to actively engage civil society in the process (EITI International Secretariat, 2014). More specifically, the EITI Board emphasised the progress needed regarding free access to funding and grant registration for civil society activities, free expression of opinions on EITI matters and access to the public space with training, meetings and round-tables to be organised by members of the EITI’s NGO Coalition (EITI International Secretariat, 2014). The purpose of the early validation would then be to assess the situation regarding civil society engagement and to analyse Azerbaijan’s 2013 EITI report. The call for early validation from the EITI Board equated to an early signal to Azerbaijan’s government that the situation around the EITI’s implementation was deteriorating and that serious action was required. On May 1, 2015 Shahmar Movsumov, Executive Director of SOFAZ, stated that the authorities were looking at the possibility of leaving the initiative due to pressure from the Board and ‘the change of mandate in the EITI’ (Ahmadov, 2015). Government representatives were similarly uncertain about the future of the EITI process in Azerbaijan in the immediate aftermath of the country’s EITI status downgrade. This is how a representative of SOFAZ described the situation: We [Azerbaijan’s] do not want to stop the process of transparency and the reporting in the oil and gas sectors of Azerbaijan. But the government seriously thinks about its further presence in the EITI, keeping in mind recent changes [new EITI rules], decisions made [Azerbaijan’s EITI status downgrade] and that there are several international organizations with double standards, which are influencing the EITI community (Personal communication, May 6, 2015).

With the dispatch of a fact-finding mission from the EITI to Azerbaijan, the anticipation of possible repercussions concerning the deteriorating situation regarding civil society in Azerbaijan in the EITI process in general was building. It was obvious that the timing of the looming status downgrade would be crucial for both Azerbaijan’s government and its civil society. One of the representatives of civil society in Azerbaijan mentioned in an interview that there was some debate as to what actions the EITI Board should take against Azerbaijan’s government: To be honest, I was against the application of sanctions [by the EITI Board to Azerbaijan]. I proposed to all of them [the EITI Board] and here [in Azerbaijan] as well, let’s leave any

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decision till October, let the [Azerbaijan’s] government feel the pressure if the decision is made in October, it would be harsher than now, and before October to give an opportunity [to the government] to take some steps [to change situation on the EITI implementation] before Parliament elections [taking place in Azerbaijan in October 2015]. This would be more useful, and now the government has the whole year so it can confidently go and prepare a [EITI] report on 2013 and 2014 years and from next year [2016] it [government] can take some steps to improve the situation. I think at the moment this is the best outcome for the government (Personal interview with a representative of Centre for Support for Economic Initiatives, April 21, 2015).

At the 29th EITI Board meeting in Brazzaville, capital of the Republic of Congo, the Board made the decision to downgrade Azerbaijan’s status from compliant to candidate on the basis of the early validation report’s recommendations (29th EITI Board meeting minutes, 2015). It then allowed time for corrective actions to be taken before the next early validation in 2016 (The EITI, 2017b). On October 26, 2016, the EITI Board reviewed the results of the validation and commended the efforts of Azerbaijan’s government and decided that the country had achieved ‘meaningful progress’, yet in relation to civil society engagement the country needed to do more. The EITI Board gave Azerbaijan until March 2017 to address these concerns and confirmed the next validation for July 2017. However, on March 9, 2017, the EITI Board acknowledged the failure of Azerbaijan’s government to improve on its civil society engagement and, thus, was suspended (The EITI, 2017c). The following day, Azerbaijan’s government announced its withdrawal from the initiative (The EITI, 2017a). In its statement of withdrawal, it was written that the suspension decision was ‘an unfair one’ and that ‘the mandate of the EITI has been significantly shifted away from transparency and accountability in extractive sectors’. There was an obvious clash of rhetoric here in the situation around the EITI in Azerbaijan. Whereas the EITI Board tried to voice concerns about civil society and put pressure on Azerbaijan’s government, Baku turned away from this discourse and focused on the EITI’s mandate itself. In a personal interview, a representative of SOFAZ said the following on the matter: We [Azerbaijan’s government] try to explain that there is a wrong mix of different questions. Azerbaijan always respected and will respect all human rights and in no way wanted to have any issues here with human rights abuse. But the question is different here, the EITI is not the platform where these questions [on human rights] should be decided and to mix one issue with another is not right. The EITI is concerned with the question of revenue transparency and Azerbaijan from the beginning [of the EITI implementation] is doing it. As I said before, each year it [Azerbaijan] develops and deepens this [EITI] process, [in terms of] amount of information that is made available to the society. […] There is an official statement by the Chairman of EITI [Secretariat in Azerbaijan], Shahmar Movsumov, that there has been a shift in the EITI’s mandate in recent years on the international arena with which we [Azerbaijan] do not agree (Personal interview with a representative of SOFAZ, May 6, 2015).

This suggests some contestation in the meaning of the EITI between the EITI Board and Azerbaijan’s government. Whereas the authorities in Baku looked at the

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EITI essentially as a reporting mechanism, the EITI Board insisted on a comprehensive approach to the initiative and on the integral role of civil society organisations in the process of the EITI’s implementation. It would be useful here to explain the nature of the relationship between civil society and Azerbaijan’s government, and to understand the insistence of the EITI Board on the freedom of civil society activities. In a political system where the authorities control political decision-making, civil society has limited opportunities to hold the government accountable. After the ‘colour revolutions’ across the post-Soviet space, Azerbaijan’s government retracted from receiving grants from the European Neighbourhood Policy or the US Millennium Challenge programmes, due to their emphasis on democratisation and human rights (Gahramanova, 2009, p. 786). Moreover, new legislation on civil society in Azerbaijan restricted the access to foreign grants for civil society organisations (unless the foreign donor organisation is registered with the Ministry of Justice of Azerbaijan) and forced them to use the resources from the Council on State Support to NGOs instead (The Council on State Support to NGOs under the Auspices of the President of the Republic of Azerbaijan, 2016; The International Center for Not-for-Profit Law, 2016). The restriction on access to grants not only limits the range of activities civil society can partake in, but also restricts their capacity building, which then impacts on their ability to challenge the decisions of the government and hold it accountable (Gahramanova, 2009). In addition, some civil society groups affiliate themselves with political parties that are either ‘pro-government’ or ‘opposition’, in order to get resources for their activities, and thus, some civil society organisations become involved in tense struggles between the authorities and the opposition. Indeed, some members of the multistakeholder group from the civil society side, involved in the EITI’s implementation process, have even been members of opposition political parties (for instance, Gubad Ibadoglu was a Board member of ‘Musavat’ party) (Ann.az, 2015). Thus, civil society is entangled in a political confrontation between the government and the opposition, and thus the EITI process indirectly became ‘politicised’ (Ergun, 2005). Azerbaijan’s status downgrade also indicated the importance of civil society for the EITI. However, this should not have been regarded as sudden support for civil society groups on the part of the EITI Board. The EITI rules adopted in 2011 stated that, in order to prove compliance, the state has to show integration of the multistakeholder group into its decision-making processes, and that civil society has to be actively involved therein (Socarras, 2012). Concerns over the Azerbaijani government’s treatment of civil society members have also been voiced by the UN Working Group on Business and Human Rights, which visited Azerbaijan to investigate the matter further (Turan news agency, 2014).

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7.9 Second Critical Juncture—External Factors that Influenced the Withdrawal from the EITI So why did Azerbaijan’s government dramatically change its attitude towards civil society and the EITI’s implementation? Has a second turning point occurred for Azerbaijan, moving away from the transparency norm’s compliance? If so, was there a second critical juncture that created the conditions for such a turn? In order to answer these questions, one should look away from the EITI itself and focus on present-day domestic politics and the geopolitical situation within and around Azerbaijan. One could observe a change of direction towards Russia, and away from the West, in Azerbaijan from several developments. Svante Cornell attributes such geopolitical shift with a combination of events from declining Western interest, to global political power shifts, to scepticism towards the West in Azerbaijan (Cornell, 2011, p. 393). Similarly, the ‘colour revolutions’ in Georgia and Ukraine and the effects of the Ukrainian crisis of 2014 had a profound impact on the course of Azerbaijan’s foreign policy strategies. Ilham Aliyev, in a speech on the opening session of the Parliament in 2015, expressed strong views on the application of double standards by Western countries (Aliyev, 2015). Indeed, it seems Azerbaijan’s government is establishing its own position by not embracing Western ideals while also not siding too closely with Russia (de Waal, 2014). Supported by oil wealth, Azerbaijan’s elites are trying to both secure their current position and keep any political opposition at bay, including criticism from civil society activists and journalists (Vatanka, 2016). Western countries had previously not criticised the human rights record and democratisation process in Azerbaijan to any significant degree, due to the country’s strategic energy importance, but this has now changed (Langerak, 2014). Then, US President Obama highlighted the issue of government pressure on, and constraint of, activities of NGOs in Azerbaijan (The White House, 2014). Western companies also reconsidered their operations in Azerbaijan, and Total and Statoil have left the country’s market (de Waal, 2014). Therefore, on the one hand the West has started to criticise human rights breaches in Azerbaijan, and Western companies have begun to divert their operations away from the country. On the other hand, the unresolved issue of Nagorno-Karabakh complicates relations between Baku and Moscow. The early years of Heydar Aliyev’s presidency were marked by the escalating Nagorno-Karabakh conflict, internal political instability, economic hyperinflation and social unrest with IDPs, and thus, securing political and economic support of the West against a strong Russia and Iran was important not only to bring legitimacy to his regime, but also to ensure the country’s survival (Hoffman, 2000). The problems with the Nagorno-Karabakh conflict’s resolution pushed Azerbaijan’s authorities away from the West, particularly as it felt it was coming under excessive pressure with respect to human rights and democratisation (Cornell, 2011, p. 395). Geopolitical events around Azerbaijan, the tightening of the political regime domestically, and the growing criticism from the West of Azerbaijan’s human rights

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and democracy record all played a role in how the EITI unravelled in the country (Hoffman, 2000; Cornell, 2011; Sovacool and Andrews, 2015). Thus, when Azerbaijan’s government needed to attract foreign investments it created all of the necessary conditions accordingly, and once the investments were secured the government was able to focus more on the political regime itself and be more selective about the strategies it employed. After accumulating substantial oil wealth, Azerbaijan’s government has focused much more on domestic politics.

7.9.1 Internal Legitimacy from the Oil Rents and External Legitimacy from Transparency Implementation In the light of recent events in relation to the EITI in Azerbaijan, it appears that the EITI process has served as a tool to gain external legitimacy for the country. Furthermore, as previously discussed, Azerbaijan’s government has utilised oil as a tool to attract support from Western countries for the recognition of its territorial integrity. Thus, by internalising Western values and norms, such as transparency, Azerbaijan’s government showed its dedication to reform and democratisation. Therefore, through this lens, the attempted implementation of the EITI by Azerbaijan fitted with its desire to gain external political legitimacy (O’Lear, 2007, p. 214). The EITI process, and its initially successful implementation by Azerbaijan, positioned the country as a leader of the initiative and as one whose example could be followed. This was noted by stakeholders, for example in this quote from civil society representative: ‘Azerbaijan [‘s EITI Secretariat representatives] was in the first years of the EITI’s implementation in different countries, it was like a school for others, representatives from different countries came and take note how we do it [implement the EITI], consulted with our state commission, and also numerous civil society organizations from other countries came to us [Azerbaijan] to learn from our experience’ (Personal interview with a representative from Centre for Economic and Political Research, May 25, 2015). Such international recognition was important to project the country as a ‘norm entrepreneur’ so as to showcase some of the benefits of the EITI. For Azerbaijan’s government, it was still important to show that it was committed to transparency and, therefore, it has continued with the publication of reports on revenues from extractive industries (Extractive Industries Transparency Commission of the Republic of Azerbaijan, 2017). In this way, the government avoids the pressure it faced from the EITI Board and publishes the information that it deems appropriate. At the same time, the disclosure of figures is done to demonstrate its supposed reliability to foreign investors and other interested parties.

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7.10 Conclusion Azerbaijan’s case is important in the analysis of the EITI process for several reasons. The country had evolved over the years as a pioneer of the process and as an example for others to follow in terms of how quickly the process could be launched and implemented in a developing resource-rich country. Azerbaijan’s case demonstrates that commitment and compliance with the norm are very much separate notions though. Whereas the government is still committed to the transparency norm, its compliance therewith has fallen short. More importantly, this chapter has identified that even commitment to a norm still requires certain conditions to be met. Figure 7.1 breaks down the EITI’s implementation in Azerbaijan and offers a helpful summary of this process. As Fig. 7.1 demonstrates, critical juncture precedes norm commitment. In the case of Azerbaijan, the availability of resources, close collaboration with Western oil companies, reputational concerns of the country and external legitimacy of the political regime all contributed to the endorsement of the EITI by Azerbaijan’s government. Azerbaijan’s commitment to the EITI was expressed at the London EITI Conference in 2003, where the country became the pilot country for the initiative. The involvement of Ilham Aliyev in this decision secured support from Azerbaijan’s

Fig. 7.1 Azerbaijan’s EITI implementation. Source Author

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authorities and resulted in instant work being done on the implementation of the EITI. It is important to note, however, that although there had been some research conducted on the theme of transparency in extractive industries in Azerbaijan previously, there had been no pressure from advocacy groups demanding that Azerbaijan join the EITI. The absence of pressure from advocacy networks on Azerbaijan’s government to implement the EITI could be attributable to the country being among the first to join the initiative. Azerbaijan became a pioneer of the EITI process. It was the first country to begin publishing EITI reports, and it was the first to go through the validation process and the first to become compliant. Its work on the EITI’s implementation was supported by the strong will of the government, the involvement of the majority of extractive companies operating in the country (the relatively small size of the extractive sector in Azerbaijan helped to secure support from most companies) and the establishment of the NGO Coalition for the EITI. The EITI’s implementation brought more than just reporting on payments to Azerbaijan; it has created a platform for dialogue between government officials, civil society organisations and companies. In terms of norm compliance, support from external actors, like international donors and NGOs and foreign oil companies, was essential to build the capacity of Azerbaijan to meet and maintain the EITI’s requirements. The relevance of the EITI to Azerbaijan, not only for domestic purposes, but also in terms of international affairs, gave additional value to the initiative for the country. Azerbaijan’s government and the EITI Secretariat promoted Azerbaijan’s experience with respect to the EITI’s implementation as an example to follow for other EITI members. The UN Resolution on the EITI initiated by Azerbaijan is another example of the country serving as a transparency norm entrepreneur. Thus, the EITI’s implementation has improved the international image of the country. The EITI’s penetration was insufficient though, as it was not integrated into the domestic discourse, but only in the country’s foreign policy. However, Azerbaijan’s case also highlighted the vulnerability of the EITI process to internal political factors. These undermined the sustainability of the EITI process in Azerbaijan and resulted in its shift from ‘rule-consistent behaviour’. This is an indication that compliance with emerging norms, like the transparency norm, is not secure and is susceptible to domestic political shifts as well as geopolitical dynamics. In Azerbaijan, oil has long been utilised as a political tool to forge relations with countries and to manipulate the Nagorno-Karabakh conflict’s resolution (Mehdiyeva, 2011; Meissner, 2012, p. 134). In the same way, the EITI process seems to have become politicised in the country and has come to represent the clash of rhetorics between the West and Azerbaijan: one appeals for the integral role of civil society freedoms in the EITI process, while the other insists on the application of double standards and the legitimacy of the laws adopted. Azerbaijan’s progress in implementing transparency was rapid and remarkable at the time; however, so was the regression in its civil society freedoms. Azerbaijan’s case clearly demonstrates the difficult balance to be struck between norm implementation and internal political dynamics for developing countries with weak democratic

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institutions. Moreover, Azerbaijan’s case shows that civil society is an integral part of the EITI process and, thus, by restricting civil society’s activities, Azerbaijan’s government has demonstrated limited capacity to implement the EITI.

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Öge, K. (2014). The limits of transparency promotion in Azerbaijan: External remedies to ‘reverse the curse’. Europe-Asia Studies, 66(9), 1482–1500. https://doi.org/10.1080/09668136.2014. 956448. Öge, K. (2015). Geopolitics and revenue transparency in Turkmenistan and Azerbaijan. Eurasian Geography and Economics, 56(1), 89–110. https://doi.org/10.1080/15387216.2015.1057756. Olsen, W. (2004). The role of oil in the development of Azerbaijan. In S. Akiner (Ed.), The Caspian: Politics, energy and security (pp. 126–146). Abingdon: RoutledgeCurzon. Pleines, H., & Wöstheinrich, R. (2016). The international-domestic nexus in anti-corruption policy making: The case of caspian oil and gas states. Europe-Asia Studies, 68(2), 291–311. https://doi. org/10.1080/09668136.2015.1126232. Pomfret, R. (2011). Exploiting energy and mineral resources in Central Asia, Azerbaijan and Mongolia. Comparative Economic Studies, 53(1), 5–33. https://doi.org/10.1057/ces.2010.24. Raballand, G., & Genté, R. (2008). Oil in the caspian basin: Facts and figures. In B. A. Najman, R. Pomfret, & G. Raballand (Eds.), The economics and politics of oil in the caspian basin (pp. 9–29). Abingdon: Routledge. Risse-Kappen, T. (Ed.). (1995). Bringing transnational relations back in: Non-state actors, domestic structures and international institutions. Cambridge: Cambridge University Press. Risse, T., Ropp, S. C., & Sikkink, K. (Eds.). (1999). The power of human rights: International norms and domestic change. New York: Cambridge University Press. Risse, T., & Sikkink, K. (1999). The socialization of international human rights norms into domestic practices: Introduction. In T. Risse, S. C. Ropp, & K. Sikkink (Eds.), The power of human rights: International norms and domestic change (pp. 1–38). Cambridge: Cambridge University Press. Roberts, J. (2004). Pipeline politics. In S. Akiner (Ed.), The caspian: Politics, energy and security (pp. 77–89). Abingdon: RoutledgeCurzon. Rose, C. (2015). International anti-corruption norms: Their creation and influence on domestic legal systems. Oxford: Oxford University Press. Schmaljohann, M. (2013). Enhancing foreign direct investment via transparency? Evaluating the Effects of the EITI on FDI. Discussion Paper Series No. 538. https://eiti.org/sites/default/files/ documents/Schmaljohann_2013_dp538.pdf. Accessed on January 4, 2017. Simmons, B. A. (2009). Mobilizing human rights: International law and domestic politics. New York: Cambridge University Press. Socarras, M. (2012, April 2). Beyond transparency: EITI stretches “civil society” role. Oil and Gas Journal, 28. https://www.ogj.com/home/article/17227153/commentbeyond-transparencyeiti-stretches-civil-society-role. Accessed on January 5, 2017. Sovacool, B. K. (2011). Cursed by crude: The corporatist resource curse and the baku-tbilisi-ceyhan pipeline. Environmental Policy and Governance, 21(1), 42–57. https://doi.org/10.1002/eet.562. Sovacool, B. K., & Andrews, N. (2015). Does transparency matter? Evaluating the governance impacts of the extractive industries transparency initiative (EITI) in Azerbaijan and Liberia. Resources Policy, 45, 183–192. https://doi.org/10.1016/j.resourpol.2015.04.003. Starr, S. F., & Cornell, S. E. (Eds.). (2005). The baku-tbilisi-ceyhan pipeline: Oil window to the west. Washington, DC: Silk Road Studies Program. State Oil Fund of the Republic of Azerbaijan. (n.d.). About SOFAZ. http://www.oilfund.az/en_US/ about_found/idareetme/uemumi-melumat-2.asp. Accessed on January 15, 2016. State Oil Fund of the Republic of Azerbaijan. (2009). Azerbaijan is a leader in EITI implementation. http://www.oilfund.az/en_US/news/404/127/AZERBAIJAN-IS-A-LEADER-IN-EITI-/. Accessed on February 5, 2016. The Coalition of Azerbaijan Non-Government Organizations. (n.d.). Members of EITI Coalition. http://eiti-ngo-azerbaijan.org/?page_id=155. Accessed on December 20, 2015. The Council on State Support to NGOs under the Auspices of the President of the Republic of Azerbaijan. (2016). Announcements. http://www.cssn.gov.az/en/musabiqeler/elan/. Accessed on August 1, 2016.

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Chapter 8

Elements of Norm Implementation

8.1 Introduction As we move on to the discussion of the transparency norm’s implementation in Norway, Kazakhstan, Kyrgyzstan and Azerbaijan, it is useful to refer back to the mechanism of norm diffusion in international relations. This chapter reflects on the four case studies, which not only provided a diverse picture of norm implementation, but also highlighted the complexity of such a process. As such, this chapter builds upon the issues raised in this book. This chapter reflects on the initial research questions regarding how international norms are implemented and what the factors and motivations are that affect states’ decisions to pursue implementation, as well as identifying specific conditions common to all four cases. In this book, the EITI process was reviewed in the four case studies of countries with varying degrees of compliance and different implementation challenges. Whereas previous chapters have paid closer attention to the EITI’s implementation in each country, this chapter endeavours to draw similarities and differences from the norm’s implementation therein. Thus, this chapter builds upon the literature on norms, the empirical analysis of each case study, and deconstructs the processes of norm implementation. The chapter unfolds with a general discussion on the distinctive nature of the EITI and what the analyses of its implementation have revealed. As a voluntary multi-stakeholder initiative and being relatively young, the EITI has demonstrated not only an ability to attract states to implement it and to apply measures and necessary reforms to ensure compliance with its rules. The chapter particularly attempts to draw attention to the two distinct spheres of international norm lifecycles: the international and the domestic. As Wiener (2003, p. 266) has suggested, norms emerge and develop in both international and domestic contexts. Thus, it is important to acknowledge how the EITI has emerged at the international level and how it has been implemented at domestic levels. The section on the distinct features of the EITI thus discusses how the initiative has emerged and developed at the international level, thus following the

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established scholarly work on international norm diffusion (Finnemore & Sikkink, 1998; Keck & Sikkink, 1998; Simmons, 2009). Yet, the bulk of this chapter is dedicated to domestic norm implementation. States are believed to go through a ‘norm socialisation’ process when they are introduced to international norms (Acharya, 2004; Payne, 2001; Risse & Sikkink, 1999; Risse, Ropp, & Sikkink, 1999, 2013). One of the aims of this chapter is to unveil the common traits revealed in this book with regard to norm implementation. It, therefore, seems logical to begin the discussion on domestic norm implementation with a section on critical junctures. The critical juncture concept has captured the momentum and conditions for norm commitment by governments. Domestic structures, in terms of state–society relations and decision-making processes, have also played a role in the norm’s implementation. In particular, the relationship between government and civil society became a contentious issue in the EITI’s implementation in Azerbaijan. Furthermore, the uncovered personality factor also impacts on decisions made with respect to norm commitment. In all four case studies, the participation of key individuals has moved the EITI agenda forward. The personality factor has not been analysed by scholars focusing on norm diffusion; however, the analysis of the case studies in this book has shown that key politicians have played a crucial role in swaying decisions in the EITI’s implementation. Once the conditions surrounding norm commitment and implementation are explained, the chapter moves on to the presented ‘norm implementation model’. The model, discussed later on, demonstrates the presence of certain elements in each stage, related to the legitimacy of a norm, state actions and internal and external pressures. A combination of elements in one stage moves the norm’s implementation further on to the next stage, for instance from commitment to internalisation, and from internalisation to compliance. The distinctive features of the presented ‘norm implementation model’ are that it covers the development of domestic norm implementation, as well as what or who contributes to the process of norm implementation, ranging from policies to actors involved. By doing this, the model incorporates theoretical conceptions of a norm developed by scholars, along with the empirical data gleaned for the current book.

8.2 The Special Case of the EITI The EITI is a relatively young initiative and unique in extractive industries, as outlined in Chap. 3. As Florini (1996, p. 374) has suggested, a norm’s emergence depends on the support it receives. At the international level, the EITI was established at the London EITI Conference in 2003 and gained much support from norm entrepreneurs (e.g. big extractive companies, governments, the World Bank and international civil society). At the same time, since the initiative required member states to follow the EITI requirements, the pilot states (Azerbaijan included) became norm entrepreneurs; in other words, they had become responsible for promoting the initiative and reporting

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on the benefits and reforms that the implementation brought to them. This point is discussed in much more detail later on in this chapter. The voluntary nature of the EITI makes compliance important but also difficult to ensure. On the one hand, since governments decide themselves whether they want to participate in the EITI process, they commit themselves to complying with the EITI requirements. Yet, at the same time, the EITI Board is relatively limited in the action it can take against countries not abiding by the rules. It is also important to note that previously the EITI Board has suspended a country or downgraded its status due to missed deadlines for report submission or the inability of a state to continue its implementation of the initiative. In the case of Azerbaijan, the EITI Board, for the first time, downgraded a country’s status on account of its treatment of civil society members, and the country subsequently became the first to leave the initiative. Essentially, the EITI Board and Azerbaijan’s government had different understandings of the meanings of the EITI requirements. The EITI rules are constantly changing, and Wiener (2004, 2007, 2014) has predicted that norm contestation can arise where states can interpret the meaning of a norm differently in practice. Therefore, compliance with the norm could be challenging as countries subscribe to the EITI and its set of rules that are liable to change over the course of the implementation process. For instance, when Azerbaijan started implementing the initiative, reports were aggregated by revenue stream, whereas today the EITI requires publication of disaggregated information by companies operating in the country. The introduction of the disclosure of information about beneficial ownership from 2020 may also compromise the willingness of some countries to participate in the initiative. Norm contestation is a crucial point in the development of the EITI and the sustainability of its implementation. For instance, the idea of transparency implementation and free civil society is synonymous with, and promoted by, the EITI Board, yet this is hard to achieve in practice. The intricate relationships between civil society, business entities and governments are factors to be taken into account regarding the EITI’s implementation and its apparent demise. In this situation, both governments and the EITI Board should understand what it takes both to implement the initiative and to maintain the sustainability of its application. The reforms expected by EITI Board might take considerable time and effort in areas way beyond the scope of the initiative, such as in capacity building and the relationship between civil society and government. While the Council of Europe’s secretariat staff believes that member states demonstrate that they share democratic values merely by obtaining membership status, the EITI Board assumes that the relationship between civil society and government is still to be forged over the course of the initiative’s implementation. Yet, as Fawn (2013) pointed out, in reality neither of these assumptions are proved true.

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8.3 Critical Junctures and Norms Understanding the conditions necessary for norm implementation is important to explain why and how particular norms enter the domestic political realm. As was discussed previously in Chap. 2, the concept of critical juncture, which conveys the notion of a compilation of events triggering a state to adopt a norm, would be useful in indicating the timing of and reasoning behind a norm’s implementation. As Chap. 3 indicated, the transparency in extractive industry norm emerged at the turn of the century as a result of several factors. Supported by academic research on the effects of the resource curse, international NGOs, such as Global Witness, have paid attention to the issue of the management of resource revenues and criticised not only governments, but also extractive companies (Global Witness, 1999; Rose, 2015, pp. 136–137). Thus, once an international movement to promote transparency in extractive industries grew, with campaigns and reports from Save the Children, Oxfam, the Open Society Foundations and Publish What You Pay, there was enough international pressure to push forward a transparency in extractive industry agenda. As a result, with support from Tony Blair and his UK government, the EITI process was launched in 2003. In each country, a compilation of critical junctures resulted in its commitment or otherwise to the norm and there are similarities between them to tease out. Addressing these critical junctures is important in order to uncover what factors motivate states and how these might influence norm compliance in future. First, the importance of the extractive sector for the economy of a given country, and also its connections to the government, should be highlighted here. In Azerbaijan and Kazakhstan, the revenues from extractive industries are not only a significant source of state income, but they also support the legitimacy of the government. By increasing transparency on resource revenues, and especially transfers to social projects, such transparent and open behaviour establishes a support network for the authorities from the population (Radnitz, 2012, p. 70). Second, Azerbaijan, Kazakhstan and Kyrgyzstan are keen to attract foreign investments and try to accommodate the interests of potential foreign investors accordingly. For Norway, it is more important to create a ‘level playing field’ with host governments through the disclosure of payments and to avoid corrupt schemes. Thus, the implementation of the EITI can be beneficial for both a government and foreign companies, as the government demonstrates its commitment to international standards, and the companies receive a second source of confirmation on the payments made to the government, which contributes to their corporate social responsibility. Third, the EITI represents an opportunity to contribute to the image of a country as one that is committed to the principles of transparency and accountability. Thus, for Kazakhstan, implementation was especially crucial in the wake of a big corruption scandal. For Norway, however, the aim is to further promote its foreign policy agenda.

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8.4 Domestic Structures’ Influence on Norm Implementation Risse-Kappen (1995, p. 23) analysed the possibilities in relation to norm implementation according to the domestic structures of a state (e.g. corporatist, societydominated, state-dominated, etc.). Thus, in Risse-Kappen’s work, the domestic structures of a state were found to play a role in how the state interacts with transnational actors and how it makes foreign policy decisions. For this book, domestic structures have been found to play an important role in the EITI’s implementation in the four cases.

8.4.1 The Circle of Decision-Makers and the Nature of the Decision-Making Process As the decision to implement the EITI is brought forward by a government to the EITI Board, it is important to understand the circle of decision-makers involved. The four cases have shown the differences in the decision-making processes among countries in the EITI’s implementation. The consensual political decision-making process in Norway resulted in the ruling party officials needing to be persuaded to implement the EITI, with the eventual decision being made after Erik Solheim declared the country’s commitment to do so. In Kazakhstan, the Administration of the President, involving the president himself and the cabinet of ministers, lies at the heart of the country’s political decision-making (Knox, 2008, p. 487). Thus, the decision to implement the EITI would have to have come from the president. In Kyrgyzstan, two Presidents played a key role, with Askar Akayev announcing the commitment to the EITI and Roza Otunbayeva pushing for internalisation which eventually led to compliance. In Azerbaijan, Ilham Aliyev’s role as the First Vice-President of SOCAR and his participation at the London EITI Conference were crucial to the country’s commitment to the initiative. Thus, the nature of political decision-making must be considered in the discussion of norm implementation. Key individuals in the decision-making process, and the reasons for these individuals becoming familiar with the norm, should also be acknowledged. By looking at the case studies discussed above, one could see a pattern of ‘norm socialisation’ among elites, which then resulted in the country’s decision to commit to the EITI (Checkel, 1997).

8.4.2 State–Society Relations Returning to the discussion on transnational advocacy groups and norm implementation, one has to understand how much influence civil society groups have over the

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government. Here, the cases again vary in terms of the relationship between state and civil society organisations. In Norway, for example, civil society organisations occupy a particular place in the societal structure and are well integrated into the system of checks and balances. Hence, civil society organisations can exercise indirect control over decision-making (Bayulgen, 2010, p. 199). As a result of such a relationship, we can observe how some governments agreed to the EITI’s implementation after being persuaded by civil society organisations. In Azerbaijan, Kazakhstan and Kyrgyzstan, civil society has quite limited access to elites and cannot influence much of the political decision-making process (Gahramanova, 2009; Knox & Yessimova, 2015). Thus, it was the governments in both Azerbaijan and Kazakhstan that initiated the decision regarding the EITI’s implementation. However, what is remarkable is that over the course of the implementation, the EITI process allowed civil society organisations to have a platform for dialogue on equal terms with the government. This created additional value for the initiative’s implementation in these countries, on top of the disclosure of revenue information. Civil society in Kyrgyzstan also plays an important role as a trusted actor for the general population and has access to the government and companies. Thus, civil society in this country is entrusted by popularising the EITI.

8.4.3 Personality Factor Koechlin and Calland (2009, p. 92) have argued that primary drivers are required to start or maintain the norm process. Similarly, Finnemore and Sikkink (1998) referred to norm entrepreneurs as essential elements of norm promotion. This book has shown that sometimes whether a state decides to implement a norm can depend on one particular individual. Erik Solheim played a crucial role in Norway’s implementation of the EITI. Solheim promoted anti-corruption initiatives and worked on building Norway’s international reputation in its global efforts with regard to anti-corruption, good governance and sustainable development.1 It was after a meeting with Solheim and civil society organisations that the decision was made on Norway’s participation in the EITI. As the minister responsible for Norwegian foreign aid programmes, Solheim understood the importance of supporting Norway’s EITI implementation and the implications this would have on the promotion of the initiative globally (OECD, 2016). In Azerbaijan, President Ilham Aliyev, who participated in the London EITI Conference in 2003 and announced his country’s decision to become a pilot country for the initiative, played a pivotal role. Importantly, Aliyev was Vice-President of SOCAR at the time of the London EITI Conference. In Kazakhstan, without doubt, President Nazarbayev also moved the EITI process forward when he announced the country’s intent to implement the initiative. Interestingly, the fact that Nazarbayev 1 Under

Solheim’s leadership, Norway has launched its ‘Oil for Development’ Programme as part of its official foreign assistance to developing resource-rich states (discussed in detail in Chap. 4).

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himself put the EITI process in motion in Kazakhstan was used to persuade the government to advance its implementation at a time when it was being delayed. In Kyrgyzstan, the leadership of Interim President Roza Otunbayeva enabled the continuation of work on the EITI’s implementation and its internalisation. The examples from the case studies show the instrumental role played by particular individuals in making the decision to implement a norm. In the political structures of Azerbaijan and Kazakhstan, international norm implementation would require a seal of approval from the political leadership. Thus, although the norm literature has addressed the issue of specific actors and their importance in norm implementation, it did not provide any notion of the aforementioned personality factor.

8.4.4 Existing Norms The presence of existing transparency norms assisted Norway in its EITI implementation. Indeed, having experience of information disclosure made it easier for the Norwegian EITI Secretariat to produce EITI reports. This was not the case for Azerbaijan and Kazakhstan, both of which had to go through training and learning processes in order to establish and sustain a reporting system. The absence of reporting mechanisms also played a role when these countries were faced with the prospect of having to go beyond what was initially required by the EITI rules. A representative of the multi-stakeholder group in Azerbaijan recollected the attempts made by civil society to push for disaggregated reports, which did not receive much support from Azerbaijan’s government. The government argued that disaggregated information of revenues by companies was a commercial secret and that its disclosure would be resisted by the companies themselves, thereby preventing the production of reports containing such information. However, once this was made an EITI requirement, Azerbaijan’s government was able to collect and publish such information (Personal interview with representative of the Public Fund for Financial Monitoring, June 7, 2015). This example demonstrates that although the EITI process gives some opportunity to civil society members to demand more from the government in terms of information disclosure, it still faces substantial resistance. A similar situation was found in Kazakhstan. With no previous transparency experience to refer to, the country also had to gradually adopt new regulations in line with evolving EITI requirements. Thus, the EITI’s implementation does not necessarily depend on the ability of the state to link it with existing domestic norms. However, as Norway’s case has indicated, experience of transparency mechanisms is helpful in the implementation of the EITI. The absence of a link between existing norms and the EITI could also result in delays in the implementation of new rules (i.e. with regard to disaggregated information, company by company).

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8.5 Legitimacy of a Norm The concept of legitimacy has been touched upon in previous chapters, but it is worth reiterating its importance here. Legitimacy is linked to international norms in two ways. First, the legitimacy or ‘right to rule’, as Rose put it (2015, p. 28), of institutions depends on their implementation of certain norms such as democracy and transparency (Bodansky, 1999, p. 61). This is referred to as the normative perspective on legitimacy. Second, one first needs to address the legitimacy of a norm, especially emerging ones. Thus, for example, Cortell and Davis Jr. (2000) studied the way in which international norms are integrated with pre-existing normative structures within the state and, by doing so, acquire legitimacy. In this sense, a norm is considered legitimate or valid once it fits with the existing norms within the given state. Betts and Orchard (2014, p. 15) also stated that new international norms would need to comply with the existing legal norms. In the case of the EITI, transparency in extractive industries becomes a legitimate norm once a state endorses this at international level. However, this does not necessarily translate further into norm implementation. An example here would be the UK, which started the whole EITI process back in 2003 and yet only became an EITI candidate by 2014 (The EITI, 2016). Thus, international endorsement supports the legitimacy of the transparency norm, but only by making the norm relevant domestically does the state truly begin its implementation. Subsequently, if a norm is considered to be legitimate by a state, it is more likely to comply with this norm (Rose, 2015, p. 29). Another important aspect is that the participation of developed countries in the EITI can contribute to the initiative’s legitimacy, and hence, the participation of Norway, the USA and the UK is key in this regard (Rose, 2015, p. 166). Therefore, the involvement of particular Western states is also related to the notion of which states endorse the norm. Finnemore and Sikkink (1998) discussed the ‘critical mass’ notion in reference to when a norm receives enough support to be spread internationally and this is connected to the power structure of the international system: whether great powers can impose international norms or enforce compliance (de Nevers, 2007). Sikkink (2013) investigated the interaction between international norms and powerful states, using the example of the USA and the norm against torture. Returning to the EITI, one of the motivating factors for Norway to implement the EITI was to show other countries that it did not apply double standards by promoting something it did not want to apply itself. Thus, the participation of Norway has not only been inspirational for developing countries, but also encouraged fellow developed countries to join as well, as is evidenced by the USA, Germany and the UK now on the path towards the EITI’s implementation. On the other hand, governments attain legitimacy in return by complying with international norms. This is especially true in the case of Azerbaijan and Kazakhstan, and their implementation of the EITI. The governments of Azerbaijan and Kazakhstan saw the EITI process as a way of pitching to attract foreign investors, since

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the process brought more credibility to these governments. Moreover, by implementing the EITI, the countries also demonstrated their commitment to transparency and good governance. Thus, the EITI process fits into the strategic vision of a country’s development as a credible and progressive partner for Western countries.

8.6 Norm Implementation Model On the basis of what has been previously discussed, the application of the following model (Fig. 8.1) is suggested to demonstrate in detail the elements of the norm implementation process. Due to the fact that each country had a particular path in its EITI implementation, the different variations of the model have been demonstrated in previous chapters. Overall, there are three stages of domestic norm implementation (commitment, internalisation and compliance). Each stage consists of three different elements (norm legitimacy, state actions, and domestic and international pressures). These elements in combination move the norm forward from one stage to the next.

Fig. 8.1 Norm implementation model

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8.6.1 Norm Commitment Stage The critical juncture, in a sense, lays the groundwork for future norm implementation. Hence, the first stage of norm implementation is norm commitment. The central element at this stage is the state’s decision to commit to a norm, specifically the EITI process in this book.

8.6.1.1

Recognition of Legitimacy of the Norm at the International Level

The decision to commit to the EITI first comes from an official statement recognising the legitimacy of the EITI at the international level. Representatives from the governments of Azerbaijan, Kazakhstan, Kyrgyzstan and Norway were all present at the London EITI Conference in 2003, and all of them expressed their support for the initiative. Ilham Aliyev (DFID, 2003b) noted that: Azerbaijan, from the very beginning expressed its support to the initiative of transparency in extractive industries. It corresponds to what we have done in the past and in the future, I am sure this policy will continue. We will promote this initiative inside our country and if it is necessary, we are ready to play an active part in its promotion outside our borders. We have had great experience in creating transparency in the past and we have good will to continue this policy in the future.

In this statement, Aliyev hinted at Azerbaijan’s commitment to implement the EITI. Yerlan Idrissov (then Ambassador of Kazakhstan to the UK), although recognising the importance of transparency for sustainable development, only expressed the ‘support to the principles outlined in the conference papers and [to] confirm that Kazakhstan is ready to continue practical efforts to discuss ways to implement the EITI in the most efficient way’ (DFID, 2003a). Idrissov’s statement underlined that Kazakhstan was not yet committed to the EITI’s implementation, but contemplated the implementation in future, with the country’s support of the initiative at the international level. Norwegian representative Hilde Johnson (DFID, 2003c) stated that: The Norwegian government supports the EITI initiative and endorses the Statement of Principles and Agreed Actions. We commend the commitment stated by the G-8 and the efforts made by the British government to advance it, and stand ready to do our share, as our prime minister also stated at the Summit on sustainable development in Johannesburg last year.

This quote demonstrates that the Norwegian government was already supporting international efforts to promote transparency and the EITI in particular. From these small extracts of official statements made at the London EITI Conference in 2003, it is clear that the levels of commitment to the EITI differed across the three countries (Azerbaijan, Kazakhstan and Norway). Whereas Azerbaijan was

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ready to implement the initiative, Norway was only supporting it at the international level, while Kazakhstan was only discussing the possibility of its implementation. These countries were thus on different trajectories in terms of the EITI’s implementation.

8.6.1.2

Mobilisation of Networks

The case studies investigated in this book have demonstrated the varying ways of interaction deployed by transnational actors and governments in the EITI’s implementation process. This suggests that transnational actors are important in sustaining the norm implementation process (to be discussed later in this chapter), yet they might not play a substantial role in a state’s eventual commitment to a norm. The case of Azerbaijan’s implementation of the EITI illustrates this well. Although the Caspian Revenue Watch conducted a study on the importance of transparency implementation in extractive industries, it did not specifically talk with the Azerbaijan government about the EITI’s implementation. This could be explained by the fact that the EITI did not yet exist as a mechanism and that Azerbaijan was the first country to sign up for it at the London EITI Conference in 2003. Therefore, the decision of Azerbaijan’s government to commit to the EITI was entirely its own. Kyrgyzstan joined in 2004 and joined Azerbaijan as one of the pilot countries for the EITI. The EITI process was heavily supported with the assistance of international donors. Of course, without financial support, the process would inevitably face a demise and non-compliance with requirements would be rife. Civil society organisations also depend on the aid from the donors to receive training and execute projects related to the popularisation of the EITI process among the public. Kazakhstan joined the EITI later, in 2005, when the aforementioned pilot countries had already begun to work on the initiative. Transnational actors encouraged Kazakhstan to join the initiative as the Soros Foundation Kazakhstan started a project bringing together a group of NGOs to analyse the possibility of the EITI’s implementation, and had discussions with the Government of Kazakhstan on this regard. However, the decision to implement the EITI was again initiated by the government and did not come from intense pressure from civil society groups. Crucially, at the time when Kazakhstan stated its commitment to the EITI, the initiative was still relatively new (two years old). There was limited awareness among civil society members about the initiative and the possibilities that might arise from its implementation. In addition, the nature of the domestic structures in Kazakhstan, especially in terms of the state–civil society relationship, affected the responsiveness of Kazakhstan’s government to the demands of civil society (to be discussed in detail later in this chapter). At the same time, the elite socialisation of the norm started when Kazakhstan started to learn from Azerbaijan’s experience of the EITI’s implementation. Thus, transnational advocacy groups did not play a significant role in persuading Kazakhstan’s government to implement the EITI. However, the engagement of elites in

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the events relating to the EITI (e.g. the London EITI Conference in 2003) and interaction with Western oil companies influenced decision-making with regard to the EITI’s implementation in Kazakhstan (Acharya, 2004; Checkel, 1997; Payne, 2001; Risse & Sikkink, 1999; Risse et al., 1999, 2013; Towns, 2012). Norway, meanwhile, underwent a completely different experience from the previous two cases. First of all, Norway was the last among the three cases to join the EITI. The country was a strong supporter of the initiative from its inception; thus, there was no need for the Norwegian government to familiarise itself with the initiative. After continuous efforts, Publish What You Pay Norway was able to persuade the Norwegian government to start the EITI’s implementation. Thus, Norway’s case demonstrates how transnational advocacy groups put pressure on national governments in an attempt to promote the norm’s implementation. The four case studies have illustrated the variation in the power of civil society in each of the countries. Whether the government can be persuaded to implement a norm would depend not only on the mobilisation of networks of advocacy groups (domestic and transnational), but also on the nature of domestic structures (decisionmaking processes and state–society relationships, for instance). The timing of a norm’s emergence and implementation is also crucial to factor into the understanding of network mobilisation. The early timing of Azerbaijan’s subscription to the EITI process meant there was little need for network mobilisation. Therefore, the case studies have also demonstrated that the mobilisation of advocacy networks can produce the conditions for norm implementation and domestic structures to push a state towards implementing a norm.

8.6.2 Norm Internalisation Stage In the discussion on the second stage of the model, namely norm internalisation, the nature of the norm should be mentioned. The EITI process has a defined structure and process of implementation, all laid out in the EITI rules. Apart from the stages of compliance (from candidate to complaint status), there are also guidelines as to what a state should do such as establishing a multi-stakeholder group, publishing the EITI reports and passing validation. One of the questions raised in this book is whether the same process was implemented similarly in different countries. As mentioned earlier, the reasons behind a country’s implementation differ depending on their respective situations. Thus, norm implementation also varies for each implementing country, which will be elaborated upon later. First of all, implementation of the EITI requires support from the government, as representatives of the EITI International Secretariat underlined that the process is a state-led project. Indeed, in all three case studies the government played a significant role in putting the EITI process in motion domestically and also in its implementation overall. In Azerbaijan and Kazakhstan, presidential decrees began the EITI’s implementation, and in Norway it was a government decision. Furthermore, due to the fact that an integral part of the EITI process is the verification of numbers provided by the

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government, the active participation of state authorities is crucial to the implementation of the initiative. Therefore, the involvement of the government is necessary to also give legitimacy to the norm in the domestic context. In Norway’s case, the EITI’s implementation was important to support its global efforts to promote the initiative. For Azerbaijan and Kazakhstan, the EITI’s implementation demonstrated their commitment to international standards, to monitoring the flow of revenues to the state budget and to level the playing field for foreign companies. In addition, it is important to highlight that in Azerbaijan and Norway the responsible government body for the EITI process has not changed since the countries’ commitment to the initiative. In Kazakhstan and Kyrgyzstan, though, there have been changes in the responsible ministries resulting in significant delay in the preparation of reports and necessary documentation to pass validation. Thus, the involvement of the government is important; however, it is also crucial that work-specific EITI is delegated to a particular institution to avoid disruptions in the EITI’s implementation. Second, in all four countries there is a multi-stakeholder group (MSG) that is responsible for decision-making on issues related to the EITI’s implementation and for the overall process in the country. In principle, the multi-stakeholder groups should consist of representatives from the government, extractive companies and civil society organisations. However, each country’s MSGs have their own particular compositions. Thus, in Norway, the members of the MSG are: the Labour Union (which historically plays an active role in Norwegian society), the Norwegian Oil and Gas Association and local branches of international NGOs (e.g. Publish What You Pay Norway). In contrast, Azerbaijan’s MSG consists of local NGOs, extractive companies and government representatives. In Kazakhstan’s case, the MSG includes four component parts: the government, associations of petroleum and mining companies, local NGOs and parliament. The compositions of the MSGs are important in understanding how decisions are made and what actors are involved in the implementation of the EITI process in each country. It is worth mentioning here the significance of the host of the national EITI Secretariat. In Azerbaijan and Norway, the Secretariat, since the beginning of the process, has been in the hands of SOFAZ and the Ministry of Petroleum and Energy, respectively. In Kazakhstan and Kyrgyzstan, the changes to the government institution responsible for the EITI process have led to delays in the implementation of the initiative, which again emphasises the importance of the government’s involvement in this process. A third important element in the EITI’s internalisation is the preparation of the EITI reports. The structure of such reports is fairly straightforward. They should verify extractive companies’ payments to the governments and the amounts of money received. However, each EITI report is tailored according to the taxation policies and extractive industries’ composition in each country. Thus, for instance, the numbers revealed in the EITI reports in Azerbaijan, Kazakhstan, Kyrgyzstan and Norway are influenced by the taxation regimes in these countries. Moreover, the governments are flexible and can include any other relevant information in the report if they deem it appropriate. For example, Kazakhstan decided to include figures on the transportation of oil and gas and social investment payments. The EITI Board notifies countries of the required and recommended items to be included in the report. Therefore, the

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depth of the EITI report also signifies the level of interest of the given government in the EITI process itself. It is important to reiterate here that Kyrgyzstan’s report production is dependent on financial resources from external donors, as the government is hesitant about assigning funds to the EITI’s implementation. Another aspect of the EITI’s internalisation is the preparation of the required legislative basis for the process. Kazakhstan and Norway had to make changes to their legislation in order to oblige all extractive companies to submit figures on payments and also for the government to be able to make those figures available to the public through the EITI report. Azerbaijan did not change, or introduce special, legislation related to the EITI. Instead, a memorandum of understanding signed between extractive companies, civil society organisations and government served as the legal basis for the EITI process in the country. The presence of special EITI legislation solidifies the commitment of a state towards the EITI’s implementation, as it can be challenging to reverse legislation (especially in Norway). It is also interesting to note here that even with the fairly similar political environments in Azerbaijan and Kazakhstan in terms of strong presidential leadership, there is some difference between the two in terms of their attitude towards EITI legislation. One of the explanations for this could be the fact that Kazakhstan’s extractive industry sector (nearly 200 companies) is much bigger than that of Azerbaijan (nearly 30 companies). Thus, introducing legislation may have been a more pressing need for Kazakhstan given its relatively large extractive sector. Political instability in Kyrgyzstan had a direct impact on the implementation of the EITI, and as the country is still freeing itself of socio-economic grievances, the priorities of the government have been focused on sustainability and economic growth. This also showcases that the EITI process does not exist in a vacuum and is very much susceptible to changes in the political environment, as a new government lays out new priorities and may not be as agreeable to the EITI compared to its predecessor.

8.6.3 Norm Compliance Stage Rose (2015, pp. 29, 162) identified three principles motivating states to comply with a norm: self-interest, coercion and legitimacy. It is important to note here that the EITI process is not a binding international treaty, or a so-called hard law, but rather a voluntary initiative with limited sanction capacity. Thus, this creates a particular framework for norm compliance and norm implementation for states. First of all, states are more willing to comply with a norm if they volunteer themselves to do so. Second, states are more willing to comply if there is room for interpretation of a norm (Wiener, 2009). Third, the ‘soft law’ attributes of the EITI process are related to the evolution of the norm itself and the flexibility of states to work with a norm slowly and to develop it further (Rose, 2015, p. 57). As Haas and Bilder (2003) put it, the costs of compliance could be a motivating factor for states: if the costs are high, then compliance is low. This view is linked with

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the rationalist approach to norm compliance founded on cost/benefit calculations, which also takes into account the presence of sanctions for non-compliance (Checkel, 2001, p. 556). In the case of the EITI, at its inception the sanctions for non-compliance were stipulated (downgrade in status or delisting from membership),2 but since the process of the EITI’s implementation was not clearly defined it left countries with some room for manoeuvre and manipulation. Due to the voluntary nature of the EITI process, the threat of sanctions in the form of a downgrade in status, or delisting, might not have an acute effect on states. However, such threats do indicate that the EITI Board pays attention to ensuring ‘rule-consistent behaviour’. The decisive factor arising from such punitive measures could be the effect it has on a state’s reputation after failing to apply an international standard, such as the EITI. As Gillies (2010) noted, reputational concerns motivate states to implement transparency standards. Keeping in mind the point raised by Haas and Bilder (2003, p. 49), domestic pressures are not the only motivating factors behind states’ decisions to implement a norm; international aspects are equally important. Thus, for countries, the implementation of international norms is a matter of prestige and status, especially from a systemic international relation point of view. Norm compliance in the case of the EITI’s implementation refers to not only the production of the EITI reports, but a comprehensive approach to the process. The EITI requirements stipulate the importance of multi-stakeholder groups’ functions (EITI International Secretariat, 2016). Therefore, this provision emphasises active involvement and cooperation among government, business and civil society representatives. Thus, actors play an important role not only in norm promotion, but also in norm compliance in this case. Although multi-stakeholder groups usually comprise three sides (in Kazakhstan’s case, four) with equal rights and powers, the function of each actor is different. In all four cases, extractive companies have a rather technical function, entailing the submission of necessary information related to their extractive activities. The government, on the other hand, is responsible for coordination of the activities related to the EITI’s implementation, through the means of MSGs and necessary technical support (financing the implementation, publication of reports, etc.). Civil society organisations perform a monitoring function, observing the implementation of the process and verifying the reports. Personal interviews in Azerbaijan and Norway have shown that there is some ambiguity as to the understanding of the role of civil society in the EITI process. In both countries, the government expected civil society organisations to take responsibility to promote and popularise the EITI process among the local population.

2 Chayes

and Chayes (1995, p. 30) have referred to such sanctions as ‘membership sanctions – expulsion or suspension of rights and privileges of a party to the treaty’.

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Capacity of a State and Non-state Actors to Implement a Norm

Chayes and Chayes (1995, p. 25) included the notion of capacity building as part of norm compliance for states. They argued that international treaties (such as the Montreal Protocol) stipulated technical assistance to states as being part of norm compliance. Capacity building is an important element in compliance with the EITI’s provisions as well. The technicality of the EITI reports requires expert knowledge of fiscal policies, taxation and extractive industries; thus, in order to harness information from the reports, civil society members need to be capable of understanding and interpreting them (Rose, 2015, p. 146). In other words, the success of the EITI’s implementation in a country would also depend on the availability of local ‘experts’ who could not only participate in the creation of reports, but also in their interpretation and use of data from them (Betts and Orchard, 2014, p. 14). Thus, capacity building refers not only to civil society but also to government officials and business entities. It is therefore a challenge for both developing and developed countries to have enough technical expertise to implement the EITI process. Thus, for instance, the EITI International Secretariat provides special training sessions for MSG members in order to update the groups on the EITI rules and requirements. With a strong emphasis on the role of civil society in the EITI process, it presupposes the fact that civil society is affluent and independent. Thus, in countries where civil society is oppressed, one could observe difficulty in the EITI’s implementation. Börzel and Risse (2013) have claimed that capacity building contributes to norm compliance, together with the willingness of the state to comply. Therefore, the case studies here have demonstrated variations in terms of norm compliance depending on the country’s capacity. Thus, in Norway, strong civil society networks have assisted and promoted the EITI’s implementation in the country. In Kazakhstan, the availability of external funding from donor organisations and international civil society groups (such as the Soros Foundation) has also contributed to building the expertise of local civil society organisations to participate in the EITI process. In Azerbaijan, the limitations in available funding have created a challenging environment for civil society to operate, bringing the whole EITI process in the country into question.

8.6.4 Norm Diffusion Stage The norm diffusion stage is not part of the model on norm implementation, as many scholars have already simulated how the mechanism of norm diffusion works. Yet, the discussion on norm compliance should inevitably lead to norm diffusion, and in a way this returns us back to the starting point on the analysis of norm implementation, with respect to how the EITI was diffused to Azerbaijan, Kazakhstan, Kyrgyzstan and Norway and how these countries themselves promoted the norm further. While in the beginning of this chapter we looked at how norms are diffused to particular states, this section looks at how these states diffuse the norm further. The premise of

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this chapter is based on the notion that international norms could be spread across states through a so-called norm socialisation process (Acharya, 2004; Payne, 2001; Risse & Sikkink, 1999; Risse et al., 1999, 2013). It would be redundant to come back to that discussion again, however, and so the focus of this section is instead on the role of Azerbaijan, Kazakhstan, Kyrgyzstan and Norway in the promotion of the EITI to other countries. There are significant differences in how, and especially when, these states have engaged in norm diffusion. In Norway’s case, the country was already promoting the EITI internationally even before it started implementing the initiative itself. Indeed, Norway agreed to host the EITI International Secretariat and was also among the contributors to the World Bank’s Multi-Donor Trust Fund, which was designed to assist the EITI’s implementation in developing countries. Moreover, Norway’s EITI implementation was supposed to boost the country’s efforts to promote the initiative further by showing its commitment to the cause. Azerbaijan, on the other hand, being among the first pilot countries and the first country to pass the validation process, was in a prominent position to promote the EITI. Not only did the EITI Board itself use Azerbaijan as an example, the country tried to project its experience to other countries who were yet to follow EITI rules, like Kazakhstan, for instance. Moreover, Azerbaijan sponsored the UN General Assembly Resolution on the EITI. Kazakhstan only started to promote the EITI after it was recognised as compliant. Kazakhstan had been sharing its experience with other members of the EITI and thus had limited outreach in terms of norm diffusion. However, at a domestic level, Kazakhstan went further than the other three case studies, in terms of sub-national implementation of the EITI, allowing it to address local issues of revenue spending and budget allocation. Kyrgyzstan’s work on disclosure of beneficial ownership was especially useful to other states implementing the EITI. As the country was selected as a pilot for this EITI requirement, it shared its experiences with others at numerous conferences and workshops.

8.7 Conclusion To conclude this chapter, it would be useful to look back at the EITI’s implementation model. As the case studies have indicated, critical junctures motivate states to commit to a norm. At such points, the country enters the stage of ‘norm commitment’. This stage includes the recognition of the legitimacy of the norm, which occurs at different times through official statements. The commitment to implementing the EITI requires some concessions with respect to meeting the EITI requirements. The mobilisation of transnational and domestic advocacy groups at this stage would very much depend on the timing of the norm commitment. Norm internalisation would also very much depend on the domestic structures as well as the nature of the state–society relationship and the political decision-making

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process. The way that a decision is made in a country and, especially, which individuals or institutions are involved in the decision-making process, would indicate which individuals or institutions should be familiarised with the norm. In addition, the degree to which the government can be pressured by civil society would also determine whether the norm’s implementation could be pushed through by advocacy groups. The norm internalisation stage involves the justification of the norm’s implementation in the domestic context. This is different from the state’s recognition of legitimacy of the norm at the international level, which does not entail domestic implementation of the norm. Legitimisation of the norm for the domestic context, however, is crucial for the norm to be adopted. Norm internalisation would also involve policy changes, such as changes in legislation and the signing of related documents (like memorandums of understanding). This is important since without the necessary policy changes, the implementation of the norm might be challenged. For instance, the adoption of legislation that stipulates obligatory disclosure of information by companies for EITI purposes ensures that the EITI requirements are met. The role of actors, both domestic and international, should also not be underestimated. Transnational advocacy groups were essential in spreading the norm and familiarising domestic actors with the EITI process in the four case studies. At the same time, specific individuals played an instrumental role in putting the EITI process into motion domestically. Thus, again, the combination of the efforts of international advocacy groups, civil society organisations and local actors pushes states towards norm internalisation and compliance. Norm compliance builds upon the ‘rule-consistent behaviour’ of a state. At this stage, the states follow the EITI requirements and adapt to the new rules agreed on by the EITI Board. An important issue at this stage is also the spillover effect of the norm’s internalisation and whether a state is taking additional actions in the application of the norm. For instance, in Kazakhstan’s case such action includes the decision to start sub-national implementation of the EITI. Norms should be integrated into the domestic and foreign policy discourse of the state to be relevant domestically and for the state to be able to spread the norm further internationally. Norm diffusion could happen during the earlier implementation stages and depends on the prerogatives of the government. In Norway’s case, the diffusion of the norm globally motivated the country to implement the EITI domestically. Yet, Azerbaijan and Kazakhstan participated in norm diffusion only after the countries gained experience from the EITI’s implementation, which could then be shared with other countries. The technical nature of the EITI requires constant financial support for trainings, report production, data collection and innovations. Thus, there is a correlation between the financial capabilities of the country and its norm compliance. For lowincome countries like Kyrgyzstan, the availability of funds directly affects EITI compliance. This is an important element to highlight together with state capacity (technical and implementational) in norm compliance. The norm compliance discussion would not be complete without reference to capacity building. The technicality of the EITI process and its implementation

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requires a certain expertise base among the actors involved in the process. Thus, all parties involved in the EITI process should understand the intricacies of the extractive industries, taxation policies and revenue streams, in order to be able to make meaningful progress in the implementation of the initiative. To conclude, the EITI’s implementation in Azerbaijan, Kazakhstan, Kyrgyzstan and Norway has demonstrated that states commit to international norms following a particular compilation of motivational factors and at a particular point in time (critical juncture). Norm internalisation requires the integration of the norm in the domestic political realm through a change of policies and coordinated work of the government and transnational and domestic networks (business entities and civil society included). The specifics of each country determine the course of norm internalisation, for instance what legislative changes should be made, the nature of the relationship between civil society and government and how the information disclosed in the EITI reports can be utilised further. Norm compliance, subsequently, depends on the capacity of the state, civil society and business entities to sustain the process of norm implementation. Norm compliance is also linked with the motivational factors behind norm commitment, and if the reasons for norm commitment are still valid at the stage of norm compliance, one can predict a more sustainable norm implementation in future. Here, it is important to highlight that norm contestation may happen during the course of implementation. The meaning of a norm could evolve through practice, especially in the case of emerging norms. Thus, the applicability of the norm can change over time if the state contests its meaning. Lastly, norm diffusion is not necessarily linked with norm implementation, whereby a state can promote a norm without applying it domestically. All of the above contribute to further deepening our understanding of international norms and how different states interact with them. Looking at the transparency in extractive industry norm, which is an emerging international norm, it presents an opportunity to trace different mechanisms engaged in norm implementation. Thus, this book challenges norm scholars to study in more detail what happens during norm implementation, since we have seen from the case studies that the same norm can trigger different outcomes.

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Chapter 9

Conclusion

9.1 Major Contributions of the Book to the Study of Norms This book has set out to explore how international norms are implemented domestically, and what factors and motivations lead a state to pursue such implementation. In order to address these central issues, this book has focused on the implementation of the EITI in Norway, Kazakhstan, Kyrgyzstan and Azerbaijan. There have been some comprehensive studies conducted on the EITI, usually with a particular focus on the different issues relating to the EITI. For instance: Rose (2015) discussed the EITI within a study on anti-corruption norms; Kantz (2012) studied the EITI in terms of the relationship between business and non-state actors; and various reports of international organisations have examined the impact of the EITI (Aguilar, Caspary, & Seiler, 2011; Ernst, 2013; Liebenthal, Micheliysch, & Tarazona, 2003; Wilson & Van Alstine, 2014). This book supplements the studies listed above by providing an understanding of what motivates countries to implement the transparency norm, the actors involved in this process, and how sustainable the norm’s implementation could be. Raustiala and Slaughter (2002, p. 538) have argued that an understanding of why and when states comply with international law would inform the design of new agreements and institutions. Similarly, this book has investigated, through a comparative case study, when and how states implement a norm on the basis of which assumptions as to the effects of normative structures could be made. The research design for the present book presented an opportunity to compare and investigate the process of the EITI’s implementation in three different countries. Personal interviews with representatives of governments, business entities, civil society organisations and international donor organisations, who are directly involved in the EITI’s implementation process, were helpful in the process of better understanding the motivations and conditions that prompted a given country’s decision to apply the EITI and how this would be done. The comparison of the cases of Norway, Kazakhstan, Kyrgyzstan and Azerbaijan has shown that the differences in the process of norm implementation depend on specific domestic conditions. Although there are © Springer Nature Switzerland AG 2020 A. Tskhay, Global Norm Compliance, Norm Research in International Relations, https://doi.org/10.1007/978-3-030-41452-8_9

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essential elements of norm implementation, which are present in every country, the specifics of domestic structures have a significant impact on norm implementation.

9.1.1 Critical Juncture and Norms Norms are implemented at a particular moment in time. A shift to norm implementation happens after a build-up of critical factors, which results in a critical juncture, as referred to throughout this book (Risse-Kappen, 1994). The term critical juncture, promoted by scholars working on historical institutionalism, suggests a point of dramatic change in history with a lasting impact and, thus, this notion revolves around the study of processes of change, sequencing and timing (Capoccia & Kelemen, 2007; Christiansen & Vanhoonacker, 2008; Thelen, 1999). Although historical institutionalism focuses on the creation of institutions and their trajectories of development, by invoking critical junctures, scholars analyse divergent paths taken by institutions over the course of time (Collier & Collier, 2002; Capoccia & Kelemen, 2007, p. 342; Thelen, 1999). Therefore, critical juncture notion provides an additional tool in the study of the process of norm implementation, its sequencing (from norm commitment to norm compliance) and its timing (Thelen, 1999, p. 388). While the notions of sequencing and timing in norm implementation and norm diffusion have been discussed by Risse et al. (1999, 2013) and Finnemore and Sikkink (1998), they have mainly focused on the role of transnational advocacy groups in the persuasion of governments to adopt a norm. For Risse et al. (1999, 2013), norm implementation happens once a state is pressured into doing so by domestic and international advocacy groups. This limited interpretation does not take into account other external and internal factors that could push a state’s decision to implement a norm, whereas critical junctures could serve as an umbrella concept allowing for the investigation of the several factors affecting norm implementation. Finnemore and Sikkink (1998) have argued that a norm is implemented once it reaches a tipping point, meaning that it gains critical mass support, which again constrains the analysis to the supporters of the norm and overlooks the critical events motivating norm implementation. In John Hogan and David Doyle’s definition (Hogan & Doyle, 2007), critical junctures are ‘trigger events that set processes of institutional or policy change, in motion’ while Gorges (2001, p. 156) stated that they present an opportunity for major institutional change. Thus, critical junctures assist in the identification of changes in the discussion of norm implementation (Hogan, 2006, p. 658). In Azerbaijan, the desire of the government to attract foreign investment and boost the state’s international image influenced the decision to implement the EITI. Kyrgyzstan had similar reasons, with a strong desire to develop further its mining industry. In Kazakhstan, the repercussions of the Kazakhgate scandal also pushed the government to consider options to clean up the country’s image. Meanwhile, the political agenda of the ruling party in 2007 in Norway, together with pressures from civil society groups, accelerated the process of the EITI’s implementation in the country.

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By understanding of events leading to a state’s decision to implement a norm, one can also better predict the sustainability of a norm’s implementation in a given state. As the case of Azerbaijan has shown, changes can also happen in the opposite direction, where critical junctures can lead to a decision to stop, or significantly prevent, the norm’s implementation. Thus, critical junctures could be invoked not only in the linear study analysis of norm sequencing (from norm commitment to norm compliance), but also in understanding how critical conditions could challenge norm implementation.

9.1.2 Norway’s EITI Implementation Norway was already disclosing information on revenues from its extractive sector to the public before the EITI emerged, so its interest in implementing the EITI was initially limited. However, the country was still actively promoting it at the international level, through supporting financially the World Bank’s Multi-Donor Trust Fund and hosting the EITI Secretariat. All these laid the ground for the country to implement the initiative. Moreover, civil society organisations also put pressure on the Norwegian government to implement the EITI, demanding that it lead by example. It is important to note that the political course that the then-ruling party in Norway took, and the interest of Erik Solheim (then Minister for Sustainable Development) in the initiative, made the EITI’s implementation in this country possible. Since Norway already had technical experience of disclosing revenues, the EITI’s implementation did not face significant challenges. The extractive companies were hesitant about participating in the process, as this would mean double reporting of the same figures to the government. Nevertheless, a change in legislation was imposed, making it obligatory for companies to provide information for EITI purposes. The importance of the EITI’s implementation in Norway has been manifested in the sharing of experiences and knowledge with other EITI members and with countries potentially interested in joining the initiative. This correlates with the overall promotion of the EITI, and Norway becoming part of the initiative itself has since made it easier to motivate others to join. The sustainability of the EITI’s implementation in Norway is challenged by the relatively limited domestic impact it has had. In Norway’s case, the publication of the EITI report merely replicates the same information already made available through other government channels (e.g. Norwegian Tax Administration and Norway Statistics), thus, the government is investing money in an initiative that does not produce new information. Nevertheless, as long as the EITI process is part of its foreign policy strategy, and as long as the Norwegian government continues its support for the initiative on a global level, the domestic implementation of the EITI is likely to endure.

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9.1.3 Kazakhstan’s EITI Implementation Similar to Azerbaijan, Kazakhstan also needed to secure foreign investments to advance its extractive sector. Especially after the repercussions of the Kazakhgate scandal, Kazakhstan’s government grew interested in improving the image of the country and proving the sustainability of future investment contracts. Before Kazakhstan joined the EITI in 2005, the Soros Foundation Kazakhstan, being aware of the new initiative, started to study the possibilities of its implementation in the country. Yet, it was President Nazarbayev’s decision to commit to the EITI’s implementation that played a significant role in pushing the initiative forward in the country. The work on the EITI in Kazakhstan was challenged by numerous changes of stakeholders responsible for the implementation of the initiative. The rotation of responsible ministries caused delays in the submission of necessary documentation to pass the first validation. The competing interests inside the NGO Coalition put civil society in a challenging position at a time when coordinated work was required. Moreover, Kazakhstan’s extractive sector is much bigger than those of Azerbaijan and Norway, and not all companies therein were willing to participate in the EITI process. Therefore, the implementation of the EITI in Kazakhstan moved forward only once all of the stakeholders understood the purpose of the initiative, and once the legislation was changed to ensure the involvement of all companies. Although Kazakhstan has also only applied the required items in the EITI report, it has taken a step forward in terms of launching a digital platform where the numbers could be submitted by companies, verified by auditors and seen by the general public. Kazakhstan expanded the application of the EITI to the sub-national level, which represented a new development in the implementation of the initiative in the country. Looking more specifically at the allocation of revenues to the local budgets and social projects, the sub-national implementation of the EITI would supplement further norm internalisation. Kazakhstan’s civil society has also faced difficulties with regard to the knowledge and capacity needed to undertake projects related to the analysis of the EITI’s implementation in the country. Therefore, the country could find itself on the verge of a status downgrade if civil society is unable to obtain enough resources to participate in the process. Moreover, the sensitive issue of beneficial ownership, which was avoided by the government in the EITI process, will become a requirement of EITI reporting from 2020. Therefore, the contestation over this aspect might arise between the government and the EITI Board. The sustainability of the EITI process in Kazakhstan would, thus, depend on the capacity building of civil society and the government’s willingness to follow the new EITI rules.

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9.1.4 Kyrgyzstan’s EITI Implementation After gaining independence in 1991, Kyrgyzstan set out on a path of reforms, both economic and political. It was also very interested in developing its extractive industries sector and attracting foreign investments. Its contract with the Canadian company Cameco in 1992 regarding the exploration in Kumtor gold mine reflected these interests. Benefits from the EITI were expected to improve the governance of the extractive sector, to strengthen relationships with foreign investors and donors and to increase accountability. In 2004, Kyrgyzstan joined the EITI among the first few pilot countries. Compliance with the EITI was met with numerous challenges and was achieved only in 2011. Two revolutions, subsequent violence and socioeconomic grievances prevented the country from smoothly implementing the EITI. On the one hand, the achievements of Interim-President Otunbayeva were remarkable and received the EITI Chair’s Award for complying with the EITI. The continuing commitment of the government to implement the initiative is laudable. On the other hand, while Kyrgyzstan was submerged in domestic political turmoil, the EITI has evolved and refined its requirements. Numerous delays in the publication of EITI reports, shortcomings in pushing the initiative to a sub-national level and challenges with funding all contributed to the temporary suspension of Kyrgyzstan. While the country has championed beneficial ownership disclosure, it still lags behind on other EITI requirements. As such, the EITI process is dependent on state capacity (ability of the state to implement the EITI further) and financial resources.

9.1.5 Azerbaijan’s EITI Implementation As one of the first countries to sign up for the EITI’s implementation, it was particularly interesting to look at the motivating factors behind Azerbaijan’s application to a newly established initiative. By the early 2000s, Azerbaijan secured the ‘Contract of the Century’ and arranged for the exploration and production of oil and gas from the Caspian Sea with foreign investors. Due to the associated risks from the unresolved Nagorno-Karabakh conflict, Azerbaijan’s government needed to represent the country as a reliable business partner and one in which accountability, good governance and transparency values were integral. With global pressure on extractive companies to disclose information on payments to host governments, some of which were investors (like BP), and the emergence of the EITI, it was in the interests both of companies and Azerbaijan’s government to implement the EITI process in the country. It could be said that Azerbaijan’s commitment to implement the EITI in 2003 was a political elite-driven decision, since Ilham Aliyev (current President of Azerbaijan) announced it, and had the support of Heydar Aliyev (then President of Azerbaijan).

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Since the EITI was only recently established, the rules of implementation of the initiative were developed through practise. Thus, Azerbaijan was able to become part of the initiative without disclosing much information or investing significantly into the EITI’s implementation (the reports only included aggregated information on payments to the government). Therefore, as Haas and Bilder (2003, p. 47) have noted, the limited costs motivated states to comply with the norm. Azerbaijan became a poster country for the EITI, as it was the first one to go through the validation process, the first one to become compliant, and it shared its experiences with other members of the initiative. Even with the limited scope of the information disclosed, the EITI process gave civil society organisations a platform for dialogue with the government and access to figures on revenues from the oil and gas sector in Azerbaijan. The contestation over the meaning behind the EITI led to the conflict between the EITI Board and Azerbaijan’s government. The EITI Board insisted on the integral role of civil society organisations in the process of the EITI’s implementation and that the government should not put obstacles in the way of their work. Azerbaijan’s government counter-argued that the country was still fulfilling what is required by the initiative. Essentially, the contestation derives from the attitude of Azerbaijan’s government towards the initiative as a mechanism to disclose information, clashing with the development of the EITI as an initiative that should bring wider reforms to implementing countries. Yet, the motivations leading to the implementation of the norm can push Azerbaijan to comply with the EITI, as was indicated in an interview with the representative of Azerbaijan’s EITI Secretariat.

9.2 Essential Elements of Norm Implementation The analysis of the EITI’s implementation in Norway, Kazakhstan, Kyrgyzstan and Azerbaijan has made three major contributions to the understanding of norm implementation in international relations: (1) interests and norms; (2) factors influencing norm implementation; and (3) the role of actors.

9.2.1 Interests and Norms The transparency in extractive industries norm would only be applicable to countries with natural resources and an extractive sector. Therefore, the implementation of the norm would depend on its relevance to a state. Subsequently, domestic actors create a link between international norms and the domestic political sphere, as they might have personal interests in the norm being implemented (Raustiala & Slaughter, 2002, p. 547). In the case of the EITI’s implementation, the interaction between interests and norms varies in a number of ways. In the cases of Norway, Kazakhstan, Kyrgyzstan and Azerbaijan, the implementation of the EITI was pursued to improve the image of the country and to attract foreign

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investments. Yet, there is no sufficient evidence yet that any of these countries have achieved such goals on account of their involvement in the initiative. Judging from how much the various awards and achievements in the EITI’s implementation have been used by government officials to promote both Azerbaijan and Kazakhstan, reputational concerns clearly played an important role in their signing up to the initiative and subsequent implementation. At the same time, the interests in regime security and control over the political space could prevail over any interest to implement the EITI, as was the case in Azerbaijan. The need of the government to monitor the operation of civil society organisations has resulted in the adoption of new legislation on civil society. With limited options for funding and the persecution of some of the members of the NGO Coalition, the EITI process in Azerbaijan has stalled. Thus, this case demonstrates that wider political interests of the government affect the norm’s implementation. Yet, norms could constitute an interest, driven by the work of advocacy groups (Price, 1998, p. 614), as happened in Norway. In the case of Norway, for instance, the implementation of the EITI was not in the interest of the government but was pushed by civil society organisations as necessary, not for domestic purposes but rather to assist the country’s international efforts to promote the initiative. Thus, in the analysis of interests and norms, one should be careful in understanding where the interests come from and how they are promoted and associated with the norm.

9.2.2 Identifying Factors for Norm Implementation—Domestic Structures and International Norms In the discussion on norm implementation, one should also look at the role of domestic structures (Risse-Kappen, 1995a; Sikkink, 2005). Factors such as the nature of political decision-making (elitist versus collective), relations between the government and civil society, the importance of reputational concerns and the legitimacy of the norm would all affect the norm’s implementation.

9.2.2.1

State-Society Relations

As noted previously, since the EITI, globally, was pushed very much by the advocacy groups, the understanding of state–society relations would also be helpful in analysing domestic norm implementation (Risse-Kappen, 1995b). Indeed, all four case studies have shown that the relationships between the government, civil society and foreign investors have been significant in different ways with respect to norm implementation. Of the four countries studied, only in Norway was the EITI’s implementation pushed by civil society organisations, which could be explained by the comparatively

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long history of democratic institutions and strong dialogue between civil society and the government in that country (Havro & Santiso, 2013; Østerud & Selle, 2006). In Kazakhstan, although civil society was trying to push the EITI agenda, it was the decision of its President to commit to the EITI that would be pivotal. In Azerbaijan, the decision to implement came entirely from political elites with no participation from civil society organisations. The cases of Azerbaijan and Kazakhstan share similarities as they are countries in which the authorities have strong control over political decision-making, and the incentive to implement the EITI thus came from the top for both. Interestingly, the EITI process has presented an alternative and hitherto nonexistent platform for dialogue on equal terms between government and civil society in Azerbaijan, Kazakhstan and Kyrgyzstan. Therefore, the importance of the EITI process in these countries lies not only in the disclosure of information on revenues from extractive industries, but also in the ability it hands to civil society organisations to have a constructive dialogue with the government on the issues raised by the EITI process. Therefore, the importance of state–society relations in norm implementation became more acute with the situation in Azerbaijan. Once the government had adopted legislation restricting the activity of civil society organisations, it had a direct impact on their participation in the EITI process, and, subsequently, has the country’s participation in the initiative has been put into question. Thus, domestic norm implementation also depends on the internal structure of governance and the relationships between stakeholders.

9.2.2.2

Legitimacy and Norms

Here, it is also useful to discuss the legitimacy of a norm. The legitimacy of a norm is linked not only with norm implementation, but also with norm compliance (Franck, 1990; Raustiala & Slaughter, 2002, p. 541). However, the models on norm diffusion have not included norm legitimacy in their frameworks. Whereas at the international level, a norm gains legitimacy with the more followers it has (Finnemore & Sikkink, 1998, p. 901), norm implementation is used to support the domestic legitimacy of the government. Thus, if the implementation of a norm could bring more domestic and public support to the government, it would be more willing to adopt the norm. In Azerbaijan, Kazakhstan and Kyrgyzstan, the ruling political elites have sought to gain external legitimacy. The support of foreign partners (international donors, foreign investors, etc.) is crucial for these governments to portray their countries as reliable international partners (O’Lear, 2007; Schatz, 2006). Kazakhstan’s attempt to popularise the EITI process, through the launch of a special, more accessible, version of the EITI report and an online platform on revenue disclosure, is directed towards integrating the EITI process into the domestic discourse of the government’s accountability to local citizens. Norway’s participation in the EITI brings legitimacy to its efforts to promote the initiative to other countries, both for developing and

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developed ones. Therefore, with the close link between the EITI process and government accountability, the implementation of the EITI introduces an additional tool with which to gain internal and external support for the ruling elites.

9.2.2.3

Reputational Concerns

In addition to the claims made by Gillies (2010), namely that reputational concerns are among the motivating factors behind the implementation of a norm and compliance therewith, the case studies in this book have demonstrated that governments highly regard participation in the EITI as part of their image-making strategies. Interestingly, this applies not only to developing Azerbaijan, Kazakhstan and Kyrgyzstan, but also to the case of developed Norway that has actively promoted the initiative by its own experience of implementation. Van Kersbergen and Verbeek (2007, p. 220) have also argued that a state implements norms and, in doing so, others can have certain expectations of a state’s behaviour, which can affect its reputation in future. All four countries are also concerned about their international image to different extents. Norway would like to portray itself as an example to other developed and developing countries, practising what it preaches. Azerbaijan, Kazakhstan and Kyrgyzstan are trying to improve their international image and gain credibility from the international community (Bayulgen, 2010; Fauve, 2015; Schatz, 2008). The reputational concerns factor is crucial, especially in the case of Azerbaijan, since a downgrade in EITI status can have a distinctly negative effect on the country’s image and thus motivate the government to stay in the initiative.

9.2.2.4

Existing Norms

Compliance with norms depends on existing norms and practices, as well as the domestic context (Acharya, 2004, p. 241; Price, 1998, p. 617). Norms have to fit the existing normative framework in a state in order to be complied with (Raustiala & Slaughter, 2002, p. 541). Wiener (2007, p. 4) argued that actors socialised in different environments tend to interpret norms differently, which leads to contestation in the meaning of a norm. Thus, the existing practice of information disclosure in Norway assisted the implementation of the EITI process in the country. In Azerbaijan, on the other hand, a divergent interpretation of the EITI process has resulted in contestation and an eventual downgrade in status. As Wiener (2007, p. 6) noted, norms get meaning through practice and are, therefore, flexible. Whereas Azerbaijan’s government insisted on a functional approach to the EITI (such as disclosure of information in the reports), the EITI Board pushed for a comprehensive attitude towards the initiative with an emphasis on the work of civil society in the process and wider reforms.

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Capacity Building

The EITI process is a rather technical initiative, which involves specific information related to extractive industries. Therefore, since the interpretation of the EITI reports is supposed to bring tangible reforms to the implementing countries, rather than just mere publication of reports, it is up to the capacity of civil society activists to do this work and put pressure on governments (Caspary, 2012). Thus, the norm’s implementation would depend on the capacity of civil society and technical knowledge of the extractive industries and fiscal policies to ensure that the EITI’s implementation would have an impact. As the cases have demonstrated, it was easier for Norway to implement the EITI since it already had experience of disclosing the information necessary to produce the EITI report. For Azerbaijan, Kazakhstan and Kyrgyzstan, EITI reporting presented challenges with regard to: (1) getting the information from different government institutions and companies; (2) identifying the items necessary for the reporting; and (3) conducting studies and auditing work of the necessary scope. Moreover, with a lack of funding for civil society organisations and the limited technical expertise of their members, the sustainability of the EITI process in Azerbaijan, Kazakhstan and Kyrgyzstan could be questioned. At the same time, state capacity is also very important in norm implementation. The examples of the Central African Republic, Tajikistan, and Yemen have demonstrated that political instabilities in a country have a direct impact on the EITI’s implementation (The EITI, 2016a, b, c). The ability of the state to mobilise government institutions, organise the work of the multi-stakeholder group and support the production of reports is instrumental to the implementation of the EITI.

9.2.3 Role of Actors in Norm Implementation The transparency in extractive industries norm is also an issue related to the international-domestic nexus, whereby an international norm is internalised into domestic policy. The role of norm entrepreneurs is essential in the diffusion of a norm at the international level (Finnemore & Sikkink, 1998, p. 897). In fact, advocacy groups play a role in both persuading governments to adopt a norm, and in participating in international norm diffusion. It has been argued that organised networks of actors on norms participate in lobbying and campaigning for states to implement the norm (Grugel & Peruzzotti, 2010; Risse, Ropp, & Sikkink, 1999, 2013; Simmons, 2009). Although civil society is crucial in the transparency norm’s promotion, it is still up to states to implement the norm. In Azerbaijan and Kazakhstan, a very limited circle of political elites make the major political decisions. Thus, it is important to highlight here that the norm’s implementation would not happen without socialisation of the political elites. Thus, Öge (2015) compared the reasons behind the EITI being implemented in Azerbaijan but not in Turkmenistan, and concluded that the

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interaction of Azerbaijan’s authorities with foreign investors, and the closed political regime in Turkmenistan, led to the two countries having very different attitudes towards the EITI. The case studies of Azerbaijan and Kazakhstan in this book have supported Öge’s claims and stressed that the presence of foreign companies has pushed countries to implement the EITI, among other factors. More importantly, the involvement of the heads of state in Azerbaijan and Kazakhstan also pushed the EITI’s implementation in these countries. Civil society organisations, both domestic and international, have played a role not only in pushing the agenda for states to commit to the norm, but also in the norm’s implementation. Thus, for instance, the Soros Foundation Kazakhstan has helped to build a coalition of NGOs who could promote the EITI’s implementation in the country. In Norway, Publish What You Pay Norway has been active in convincing the government to become a full member of the EITI. This finding echoes previous work on advocacy groups and norms (Carpenter, 2007; Finnemore & Sikkink, 1998; Grugel & Peruzzotti, 2010; Keck & Sikkink, 1998; Price, 2003; Risse et al., 1999, 2013). However, due to the specifics of the EITI process, the government both implements and commits to the norm. Therefore, although civil society did push the agenda with respect to the EITI’s implementation, it was the governments in all four countries that took the decision to implement and chose the rationale for doing so. Thus, this book emphasises the combined importance of governments and advocacy groups in norm implementation, rather than emphasising one over the other, as some have done previously (Krasner, 1983; Keck & Sikkink, 1998; Price, 1998; Risse et al., 1999, 2013). In the discussion on extractive industries, it is important to pay attention to the role of companies. First of all, the extractive companies were involved in corruption scandals, and also objected to the disclosure of information on their payments to governments in the first place (Global Witness, 1999). Second, it took some time to persuade the companies to reveal the information, and also to negotiate on the reports the companies would need to submit within the EITI requirements (Hughes & Pendred, 2014; Healy & Serafeim, 2015). However, the empirical research in this book has demonstrated that business entities have not played an overtly important role in promoting the EITI domestically, but have done at the global level. The companies that played an instrumental role in supporting the efforts to implement the EITI in Azerbaijan and Kazakhstan (BP and ExxonMobil, to name just a few) have done so only after the companies adopted global strategies to implement transparency themselves. The role of international donors must also be noted and, in fact, has been highlighted in this book. Although Azerbaijan and Kazakhstan are ranked as uppermiddle income countries, they lacked the technical experience to produce the EITI reports. Hence, the assistance of the World Bank has been crucial in launching the EITI’s implementation in these countries. This is even more relevant to Kyrgyzstan, where the EITI process has been progressing courtesy of grants from the World

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Bank. International donors, therefore, play an instrumental role in norm implementation by supporting the capacity-building efforts of civil society and government representatives. Therefore, this book has demonstrated the complexity of multi-stakeholder efforts to introduce the norm to states, but also in norm implementation, in contrast to the arguments made by Risse et al. (1999, 2013). It not only takes advocacy groups to persuade governments to implement the norm, but there should be a mutual agreement on norm implementation, since without companies producing the reports or without civil society verifying them, the EITI process could not be maintained. The intricate relationships between actors within the EITI framework could also be treated as a fully fledged research project.

9.2.4 Norm Contestation The situation with regard to Azerbaijan’s status downgrade has provided an exceptional case for the study of norm implementation. Essentially, this situation is the result of a contestation over the norm, which was researched extensively by Wiener (2004, 2007, 2008, 2014). Yet, Azerbaijan’s case demonstrates that the contestation was not so much about the meaning of the norm, but rather what it includes. The Azerbaijani government agreed to the disclosure of information, and to the publication of the EITI reports. However, the EITI Board insisted that the implementation of the EITI also included the active involvement of the civil society and, hence, Azerbaijan’s government could not impose restrictions on the activity of NGOs in the EITI process. As was mentioned before, the transparency in extractive industries norm is an emerging international norm and, thus, the meaning of it would develop over time and through practice (Wiener, 2009). Therefore, it would be beneficial to come back to this point of norm contestation in a separate research project and to explore in more detail why this happens and how it could be dealt with.

9.2.5 Reasons for Compliance Another distinct feature in transparency in extractive industries is that the EITI does not have coercive powers, and nor do states use coercion to ensure compliance with the EITI. The membership sanctions that the EITI Board can use to ensure compliance are its only means to put pressure on a state to comply with the EITI rules. Personal interviews with representatives of the World Bank and the Norwegian government have shown that donor organisations and Western governments encourage developing states to participate in the EITI, yet they do not consider it as a condition for aid distribution.

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The discussion on norms would not be complete without a reflection on states’ reasons to comply with norms. The motivations for compliance do coincide at times with the initial motivations for norm commitment. Thus, by understanding the factors for norm commitment one could also look at the sustainability of norm implementation. In Norway’s case, the EITI’s implementation is instrumental to promote the initiative at the international level. For Norway, being one of the supporters of the initiative, both financially and by hosting the EITI Secretariat in Oslo, is crucial to persuading others to implement the EITI. Norway’s implementation of the EITI has alleviated some of the criticism that the initiative is tailored towards developing resource-rich countries and is not relevant to developed ones (Igwe, 2011). In Kazakhstan’s case, the implementation of the EITI fits into the government’s grand strategy on economic development. As has been noted in this book, President Nazarbayev’s emphasis on the importance of transparent and accountable government coincides with the benefits gained from the EITI’s implementation, and also with the desire to improve the country’s international image. Kyrgyzstan has struggled with the implementation of the EITI due to political turmoil and financial challenges. The support of international donors and commitment of the government to attracting foreign investments and demonstrating compliance with international norms has pushed the process further. Azerbaijan basked in its pilot-country success story only to eventually leave the initiative after a status downgrade. Thus, and partly due to the limited timeframe for this book, it is difficult to say whether the country could reconcile tensions with the EITI Board and re-establish itself as part of the initiative or not.

9.3 Areas for Further Research This book could only cover a limited range of topics. This section identifies some of the areas that, on the basis of the present research’s findings, could be worthy of future research. First, this book has covered countries that have already implemented and complied with the EITI rules. Resource-rich countries, which are not part of the EITI process, were beyond the scope of this book. Hence, it would also be of interest to analyse why these countries are not members of the EITI. Indeed, a further study on countries’ non-compliance with the EITI would deepen our understanding of international norm diffusion and compliance. Together with a comparison between countries that implement the EITI and those that do not (Gulf states, Canada, Australia, etc.), one could point out the differences in norm socialisation and internalisation processes in different contexts, similar to a study carried out by Öge (2015). In terms of case studies, the time limitations did not allow for on some of the issues raised in the preceding chapters to be elaborated upon. In particular, Azerbaijan’s case would benefit from further investigation. A follow-up study would reveal how the country followed the EITI reporting without being its member. Moreover, the status downgrade of Azerbaijan by the EITI Board, as was mentioned earlier, is an

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important event in the history of the initiative itself. For the first time, a country was downgraded on the basis of the limitations it imposed on the work of civil society, rather than for political instability or a missed deadline. Thus, the downgrade would set a precedent for other countries, and would also have a bearing on whether the EITI sanctions are effective in ensuring compliance. Risse, Ropp, & Sikkink (2013) have argued that it requires the work of international advocacy groups to put pressure on governments to comply with norms. Therefore, the analysis of discourses between the EITI Board, Azerbaijan’s government and international advocacy groups aiming to keep the country in the initiative would also inform the work on norm violation and compliance. Kazakhstan has launched the EITI’s implementation at the sub-national level, which represents a step beyond the set requirements, the outcomes of which are yet to be known. At the time of writing, it was too early to state whether the sub-national implementation of the EITI could bring wider reforms in extractive industries and/or greater transparency. Moreover, it would be beneficial to look at how the EITI is popularized locally in extractive regions to identify any link between citizen empowerment through the EITI process. One of the benefits of the EITI’s implementation is that the population is informed about the revenues and situation in the extractive industries, which enables it to put pressure on governments. Thus, the work at sub-national level could potentially foster public debate on issues related to extractive industries. This has yet to be observed in Kazakhstan’s case but will be a topic for future study. Kazakhstan’s case could help to determine how much international norm implementation could trigger change domestically in terms of increasing government accountability and empowering citizens. The implementation of the EITI in Kyrgyzstan is still meeting challenges, as the suspension and subsequent remedial action will have an impact on the overall progress with initiative compliance. The question of funding for the EITI and the support of wider reforms in the extractive industries remain. It will be helpful to revisit Kyrgyzstan’s case to see how such impediments of state capacity to comply with the norm were dealt with. Returning to the point about norms having to fit domestic normative structures, one could ponder the question posed by David-Barrett and Okamura (2013): ‘why do corrupt countries implement the EITI?’ A follow-up inquiry, which could also be raised, is whether the implementation of the transparency norm is different in countries with already existing transparency practices compared to countries that are relatively closed. This book has shown that the process of the EITI’s implementation depends on the specifics of a country and differs on a case-by-case basis. Thus, a further study with a bigger sample of cases could provide more evidence as to whether the process of implementation varies between countries with and without prior experience of transparency implementation.

9.4 Future of the EITI

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9.4 Future of the EITI The EITI Progress Report 2016 emphasised the evolution of the initiative from reconciliation reports to comprehensive disclosure of information on extractive industries (EITI International Secretariat, 2016). Yet, the report also identified one of the challenges facing the EITI, namely to encourage countries to move on from reports to reforms. However, this is not only a future challenge for the EITI, but also something worth reflecting upon with respect to the initiative’s existence to date. How much reform or change has been achieved on account of the EITI’s implementation in member countries? How is an international standard, like the EITI, integrated into domestic political frameworks, and how can it trigger wider reforms in extractive industries in resource-rich countries? The EITI Progress Report 2016 identified eight priority areas where the initiative could assist, and also areas in which the implementing countries should focus their work (EITI International Secretariat, 2016). Much work should be done to improve the reporting systems and make information accessible and understandable to citizens, especially those in remote communities in extractive regions. For instance, Kazakhstan’s EGSU online platform has made a notable contribution in this regard. The EITI Board is also concerned with the system of revenue collection, thus building the technical capacity of the EITI stakeholders in each implementing country is necessary. Disclosure of information on beneficial ownership should tackle the corruption, tax evasion and money laundering challenges that most resource-rich countries face. The above-mentioned areas present both an opportunity and a challenge for the EITI implementing countries and, thus, there is a need to understand how policy change could address the issues raised, what analytical frameworks could be developed to understand government decisions and their motivations for reforms, and how to assess the sustainability and progress of the EITI process in implementing countries. Whilst Koechlin and Calland (2009, pp. 110–111) have questioned how effective initiatives like the EITI could be, this is still an issue deserving of further research. This dissertation has attempted to showcase the different outcomes of the EITI’s implementation. However, the assessment of the impact of the EITI in the states discussed in this research or other participating states is beyond the scope of this study. Thus, an in-depth research project on the impact of the EITI in implementing countries would supplement the current work and enrich our understanding of norm implementation. The EITI process is part of the growing number of Transparency and Accountability Initiatives (TAI) directed towards improving good governance, democratisation processes and economic growth (Gaventa & McGee, 2011; Hale, 2008). Thus, the study of TAIs will expand as long as there is a need to elaborate methodological and empirical analysis on the impact of TAIs and the nature of these initiatives. Future studies seeking to explain the relationships between transparency, accountability, citizens and integration of the TAIs into domestic political frameworks, and their impact on global governance would be beneficial (Gaventa & McGee, 2011;

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Hale, 2008; McGee & Gaventa, 2010; Mejía Acosta, 2013). Thus, with the aim of making the EITI an integral part of governments’ and companies’ accountability to their communities and/or shareholders, bringing tangible policy reforms to improving revenue collection, allocation and reporting mechanisms, comprehensive studies on TAIs would be highly valuable.

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