Sustainability of Relationships Between China-Latin America

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A discussion

SuStainability StandardSin China–latin ameriCa trade

and inveStment

Emma BlackmorE, Danning li, Sara caSallaS – 2013



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CitationBlackmore, E. Li, D., and Casallas, S.(2013). Sustainabil ity standards inChina–Latin America trade andinvestment: a discussion. InternationalInstitute or Environment andDevelopment, London.

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Shaping Sustainable MarketsShaping Sustainable Markets is theagship research project or theSustainable Markets Group at IIED.

Can markets be ‘governed’ to betterbeneft people and planet? This projectexplores the individual and combinedimpact o market governancemechanisms on sustainabledevelopment to fnd out what workswhere and why. Some o thesemechanisms are well established.Others are innovative ideas yet to betested in the real world.

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DisclaimerThis paper represents the view o theauthor and not necessarily that o IIED.

AcknowledgementsThe authors would like to thank anumber o people who reviewed thispaper, including representatives romFSC, The Nature Conservancy, BSR,and a number o independentconsultants, as well as colleagues atIIED — Lila Buckley and Bill Vorley.

The authors would also like to thank thepeople who participated in telephoneinterviews or giving their time to us.

This research andpublication wasunded by UK aidrom the UKGovernment,however the viewsexpressed do notnecessarily reectthe views o the UKGovernment.

About the authorsEmma Blackmore is a researcher in theSustainable Markets Group at IIED. Shemanages IIED’s Shaping SustainableMarkets initiative, which explores theuse and impact o market governancemechanisms. Emma has carried outresearch on how sustainabilitycertifcation can beneft the poor, with aocus on Asia, carbon emission labels,contract arming, integrating small-scalearmers into global value chains andChina’s overseas investment. She isparticularly interested in China’s presentand uture engagement withsustainability standards, bothinternational and national, and theimpacts these standards will have on themillions o small-scale producers thatdrive many o China's industries.

Danning Li studied economics atTsinghua University in Beijing andsubsequently worked or AccentureConsulting or almost fve years. In 2011,she worked or The NatureConservancy, China, on a land trustproject in one o the important giantpanda habitats in Sichuan. The projectestablished the frst privately-ownednature reserve in China. More recently,

Danning obtained an MSc inEnvironment and Development at theKing's College, London. For her thesis,Danning studied the notions o nature inChina and their implications orecotourism. Danning is currentlyworking or The Nature Conservancy,Europe, to develop their work oninternational government relations romthe Chinese perspective. One goal othis work is to acilitate environmentallysustainable investment and trade oChinese companies overseas.

Sara Casallas currently works as theassistant or the Americas at the RamsarConvention on Wetlands. She providestechnical support or the region in orderto implement the convention andpromote the wise use o wetlands and onatural resources in general. Sara haspreviously held various researchassistant and intern positions thatocused on natural resourcemanagement and sustainability issues inthe private sector. Beore Ramsar, Sarawas an intern at IIED’s SustainableMarkets Group and collaborated on the

research or this discussion paper whilefnishing her MSc in GlobalEnvironmental Change at King’sCollege London. Sara is particularlyinterested in natural resourcemanagement and environmentallegislation in the Americas region with aspecial ocus on the neotropics.

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aCronymS andabbreviationS

cBrcChina Banking Regulatory CommissioncDB China Development Bank

Cerfor Certifcação Florestal (Forest Certifcation, Brazil)

cErTFor Sistema Chileno de Certifcación de Manejo Forestal Sustentable(Sustainable orestry certifcation Chile)

cFcc China’s Forest Certifcation Council

c EXim B China Export and Import Bank

cnFPia China’s National Forest Products Industry Association

CoC chain o custody

Eia environmental impact assessment

EiTi Extractive Industries Transparency Initiative

Fedefut National Federation o Fruit Producers o Chile

FDi oreign direct investmentFSc Forest Stewardship Council

gri Global Reporting Initiative

icmm International Council or Mining and Metals

iUcn International Union or Conservation o Nature

mEP Ministry o Environmental Protection (China)

moFcom Ministry o Commerce (China)

PEFc Programme or the Endorsement o Forest Certifcation

rSPo Roundtable on Sustainable Palm Oil

rTrS Round Table on Responsible Soy

SFa State Forestry Administration (China)

SFm sustainable orest managementSmE small or medium-sized enterprise

SoE state-owned enterprise

Tnc Nature Conservancy

ZTFc Zhonglin Tianhe Beijing Forest Certifcation Center





1. inTroDUcTion 1

2. growing TraDE anD invESTmEnT BETwEEn china anDlaTin amErica 3

3. SUSTainaBiliTy challEngES anD oPPorTUniTiES inchina–laTin amErica TraDE anD invESTmEnT 7

3.1 Governance and transparency 7

3.2 Environmental concerns 93.3 Employment, livelihoods and community impacts 9

4. STanDarDS To imProvE ThE SUSTainaBiliTy oF china-laTinamErica TraDE anD invESTmEnT 15

4.1 Cross-sectoral standards 154.2 Sustainability standards in mining 224.3 Sustainability standards in orestry 274.4 Sustainability standards in agriculture 35

5. conclUDing rEmarkS 39

rEFErEncES 43

aPPEnDiX 1: liST oF inTErviEwEES 48

caSE STUDiES

Case study 1: Chinalco Mining and its Toromocho mine in Peru 10Case study 2: Shougang mining company in Peru 11Case study 3: Chinese projects to ensure supply o natural resources in Latin America 12Case study 4: Rio Blanco, Zijin Mining Group Ltd, Peru 13

FigUrESFigure 1: Latin America and the Caribbean: origin o oreign direct investment, 2010 4

BoXES

Box 1: China EXIM Bank’s Guidelines or Environmental and Social Impact Assessments 19Box 2: Summary o the Extractive Industries Transparency Initiative 25Box 3: The Round Table on Responsible Soy 36

TaBlES

Table 1: Market coverage o certifcation schemes in China, 2013 33Table 2: Summary o sustainability standards/guidelines relevant to

China–Latin American trade 38

SuStainability StandardSin China–latin ameriCa tradeand inveStmentA discussion

Emma Blackmore, Danning Li, Sara Casallas – 2013



Trade and investment ows are increasingbetween emerging and developing countries.China in particular is becoming a growing orce inglobal investment and trade with developingcountries. This trade and investment oers

opportunities to fnance long-term development incountries where capital is scarce, and orinnovation ‘under the rame o South–Southcooperation and globalization’ (Ren, 2011). Thenew players and potential scale o this trade andinvestment bring new challenges andopportunities or sustainability.

‘Sustainability’ standards and codes, both publicand private, are one way to govern this trade andinvestment, and to enhance its contribution topositive social and environmental outcomes. But

the traditional ocus o sustainability initiatives andmechanisms to date has been on the tradebetween developed and developing countries,rather than between emerging and developingcountries. Indeed, there are a large number oprivate standards, beyond domestic legislation,governing this trade and investment to drivesustainability, especially in the natural resourceand extractive industries. Well-known examplesinclude the International Finance Corporation’sPerormance Standards, the Equator Principles,

the OECD Guidelines or MultinationalEnterprises, the Principles or ResponsibleInvestment, the Extractive Industries TransparencyInitiative (EITI), the Round Table on ResponsibleSoy and Roundtable or Sustainable Palm Oil,(RTRS and RSPO), Forest Stewardship Council(FSC), GlobalGAP and Fairtrade.

However, these standards are not necessarilyappropriate or trade between emerging anddeveloping economies. They do not always suitthe dierent economic, socio-political,environmental and business contexts in which

they may be applied, and may thereore lack locallegitimacy. There are also ears that thesemechanisms could act as barriers to trade. Manyo these ‘international’ codes and standards haveoten been developed without the (meaningul)participation o relevant stakeholders in thesecountries, despite employing multi-stakeholderprocesses.

New types o players — such as Chinese state-owned enterprises, which are now sizeableinvestors in other emerging economies — present

new challenges (and opportunities) or theapplication o private voluntary standards. Thesestandards have been traditionally applied to andimplemented by private enterprises. And whileengaging with state-owned enterprises insustainability eorts is important, there is also avital need to be sensitive to the needs andchallenges aced by small and medium-sizedenterprises (SMEs) in working towardssustainability. When designing and implementingsustainability standards in these new contexts, it

will be important to avoid potential unintendedconsequences, such as the exclusion o smallerplayers and the exacerbation o inequality whichhas resulted rom the design and implementationo standards in trade between developed anddeveloping countries (Blackmore and Keeley,2012).

1

ONE

introduCtion



There is a need to engage with developing- andemerging-economy players in collectivesustainability eorts and to improveunderstanding o current eorts towardssustainability in trade and investment, the drivers

o these eorts, and their impact. What might theinternational community learn rom these eortsand what might the experiences o developed/developing-country trade oer in terms o lessonson the eective use and design o sustainabilitystandards?

The ollowing questions are relevant but at presentthere is insufcient knowledge to answer themappropriately:

• To what degree are ‘international’ sustainability

standards being used by players in developingand emerging economies, and under whatconditions? And why are these being used?

• What ‘local’ mechanisms are being usedinstead o, or in addition to, these standards— and are they harmonised against internationalcodes and standards? To what extent are theselocal mechanisms being applied to tradebetween emerging and/or developingcountries?

• What is the role o China, in particular, as theworld’s astest-growing economy, in driving thedevelopment and use o standards, particularlyin its trade with emerging economies?

• In light o the dominant role o Chinesestate-owned enterprises in investments in otheremerging and developing countries, whatstandards are being developed to shape theirbehaviour?

• What impact are these standards having,particularly in terms o excluding or including

smaller players?

This discussion paper explores initial trends inmining, agriculture and orestry in trade andinvestment between China and Latin Americancountries, ocusing on the implementation osustainability standards. We also explore some o

the public standards and guidelines beingdeveloped in China to shape its overseasinvestment. This paper is based on preliminaryresearch, to serve as a starting point or urtherdiscussion and research. We ocus on three LatinAmerican countries — Chile, Peru and Brazil —recognising that they have diering regulatoryregimes. These countries were selected becauseo their sizeable trade with China. The paper alsoocuses heavily on China’s role in these countries(rather than the role o Latin American countries in

China). This reects the dominant direction otrade and investment at present.

This paper is based on an initial review o theexisting, although sparse, literature, as well as anumber o interviews with employees o selectcompanies based in China and Latin America,industry associations, local NGO workers,government representatives and academicsworking in related felds (see Appendix 1). Itconcludes by identiying a number o urtherresearch questions, particularly around the

eectiveness o tools currently being used anddeveloped and the need to consider the role orSMEs in the development and use o sustainabilitystandards.



Much attention, particularly in the media, has beenpaid to the growing role o China in Arica — orexample over ‘land grabs’ and whether China’spresence will bring benefts or costs or Arica,and its wider implications or the global aid

paradigm (see Buckley, 2012). Seemingly lessattention has been paid to China’s growing role inLatin America, despite it being the secondbiggest recipient o Chinese investment (aterAsia) (Ren, 2011).

Indeed, trade and investment between China andLatin America has increased at unprecedentedrates in the past six years. In 2006, exports romLatin America and the Caribbean to China hadreached a value o US$22.6 billion. By 2010, thecorresponding value had increased to almostUS$72 billion — an annual growth rate o almost34 per cent (ECLAC, 2011b). At a regional level,China is Latin America’s third biggest tradepartner and is expected to be its second biggesttrade partner by 2014 (ECLAC, 2011a).

This trend is expected to continue, driven by theincrease in China’s demand or raw materials anda search or markets that have been less aected

in the economic crisis. China is now a major buyerin the natural-resource-based commodity sectorso mining, agriculture and orestry, predominantlyin Brazil, Chile, Peru and Argentina. China’s ‘goingglobal’ strategy1 is explicitly encouraging Chinese

companies to invest overseas and to increasecooperation with other emerging economies.China is seeking to increase its ‘sot power’ andbuild positive diplomatic relations with othercountries — increasing investment andstrengthening trade ties with particular countries,while not undermining other states’ sovereignty.

The Chinese government has adopted diplomaticand trade measures with Latin America to driveeconomic growth and development, guaranteelong-term supply o raw materials and enhance its

sot power. These measures include dierenttypes o oreign direct investment (FDI) as well asdonations, long-term purchasing contracts and‘fnance or assured supply’ agreements (ECLAC2011a; CBBC, 2011). Between 2002 and 2007,these donations were made up o ‘naturalresource’-related donations (74 per cent),inrastructure2 (25 per cent), aid (1 per cent) and‘other’ (Guo, 2010).

TWO

GrowinG trade andinveStment between

China and latin ameriCa

1. China’s 12th Five-Year Plan approved in March 2011 aims to strengthen the ‘Going Out/Global Strategy’,encouraging Chinese companies to be more competitive and invest overseas (WWF, 2012; Kotschwar et al., 2012).This strategy includes the ollowing components: in agriculture, an aim to have more South–South cooperationespecially in other Asian countries, Arica and Latin America, which includes technology demonstration projects (10centres), dispatching technologists (1350), conducting training, and joint epidemic control. The strategy also mentionsincreased participation in international standards development and a plan to collaborate with other countries orinternational organisations to develop ‘environmental techniques’ or domestic production. The strategy also mentionsthat companies should ‘enhance the management to reach the international standard’ and ‘ulfl corporate socialresponsibilities benefting local people’ (Department o International Cooperation, Ministry o Agriculture, 2011).

2. According to Kotschwar et al. (2012: 3), ‘China has also been active in inrastructure development projects in LatinAmerica. CDB [China Development Bank] has oered a $2.6 billion 10-year loan to revive a reight train systemconnecting Buenos Aires to much o Argentina’s central heartland. In the country’s Rio Negro province, the

Metallurgical Corporation o China has invested $80 million to reactivate an iron ore mine, and China’s BeidahuangGroup has promised $1.4 billion in irrigation inrastructure in exchange or a 20-year contract to grow corn, wheat, soy,and dairy on otherwise dry land or Chinese consumers.’



China’s direct investment (defned asinvestment that does not come rom thefnancial industry) to Latin America was US$11billion in 2010, an increase o 24 per cent romUS$8.9 billion in 2009. This investment makesup almost 19 per cent o China’s directinvestment globally (MOFCOM, 2011a). In2010, exports rom Argentina and Brazil to

China reached a value o US$6.8 billion andUS$38.1 billion, respectively (MOFCOM,2011a). Gallagher et al. (2012) in what they call‘highly imperect’ research, due to challenges odata availability and a lack o transparency byChinese banks, estimate that since 2005Chinese banks have loaned US$75 billion toLatin America.

FiGure 1: latin ameriCa and the Caribbean: oriGin oF ForeiGn direCtinveStment, 2010

Source: ECLAC, 2011b

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O t h e r



While detailed and disaggregated fgures on thesize o investment and trade ows between Chinaand Latin America are lacking, some inormation isavailable on who is investing, in which sectors andhow.3 In 2009, or example, China became Brazil’s

largest trade partner and this was ollowed bymajor investment announcements in 2010(CBBC, 2011). Investments have taken the ormo mergers and acquisitions, joint ventures orgreenfeld4 investments — these types oinvestments are predicted to continue (CBBC,2011). For example, WISCO, a Chinese state-owned mining company, has purchased 21.5 percent o MMX Mineração e Metálicos S.A. (themining company o Brazil’s EBX group) orUS$400 million (CBBC, 2011).

In 2010, 93 per cent o Chinese investment inBrazil was rom the 23 central state-ownedenterprises (SOEs), considered to be the pillarso the Chinese economy (CBBC, 2011). In thesame year, 8 o the 23 SOEs announcedinvestments reaching almost US$22 billion mainlyin the mining and agriculture (especially soy-

related) sectors in Brazil (CBBC, 2011). The trendin Brazil reects broader patterns in China’soverseas investment. In 2008, or example, almost70 per cent o all China’s overseas directinvestment (non-fnancial) was made by SOEs5

(Bulletin o Chinese Outward Foreign DirectInvestment, 2008, cited in Ren, 2011). In thissense, SOEs are ‘leading the way’ in terms oChina’s investment overseas. Consequently, theanalysis in this paper emphasises the role and useo standards by SOEs rather than SMEs, despitethe latter being o equal interest rom adevelopment perspective.

In 2010, a third o the pulp exports rom Brazilwent to China (Bracelpa, 2011). It is estimatedthat 70 to 90 per cent o Brazilian soy will be

exported to China by 2020, mainly rom the stateo Mato Grosso. Brazil is the world’s secondlargest producer o soy ater the US (TNC, 2011).In 2011, soybeans and soybean-related productswere the main export rom Brazil to China, with anestimated value o US$11.7 billion (TNC, 2011).From 2000 to 2010, China displaced the

twoGrowinG trade and inveStmentbetween China and latin ameriCaContinued

3. Kotschwar et al. (2012) have characterised Chinese investment as ollows:

1) Chinese investors take an equity stake in a very large already-established producer, to secure an equity-shareo production on terms comparable to other co-owners

2) Chinese investors take an equity stake in an up-and-coming producer to secure an equity-share o productionon terms comparable to other co-owners

3) Chinese buyers and/or the Chinese government make a loan to a very large already-established producer inreturn or a purchase agreement to service the loan

4) Chinese buyers and/or the Chinese government make a loan to fnance an up-and-coming producer in returnor a purchase agreement to service the loan.

4. A orm o oreign direct investment where a parent company starts a new venture in a oreign country by constructingnew operational acilities rom the ground up.

5. In 2008, 20.1 per cent o China’s overseas investment was made by limited liability companies and 6.6 per cent by‘companies limited by share’ (Bulletin o Chinese Outward Foreign Direct Investment, 2008, in Ren, 2011).



European Union as the main destination oBrazilian soybean exports, its market share risingrom 15 per cent in 2000 to 53 per cent in 2009(TNC, 2011). It has been argued that this demandwill not be met by increased productivity — anexpansion o land under production is thought tobe necessary (TNC, 2011). The BrazilianGovernment predicts that a total agricultural

expansion o 9.7 million hectares will take placebetween 2010 and 2020 — 4–5 million hectareso which is predicted or soybean production(TNC, 2011).

In Chile, the situation is similar. China is nowChile’s largest trading partner with exports, mainlyrom the mining and orestry sectors, totalling overUS$17,356 million in 2010 (DIRECON, 2011). In2010, 23 per cent o Chile’s total exports went toChina, o which 42 per cent was o copper andcopper-related products (ECLAC, 2011a). This

can be partially attributed to the partnershipbetween Minmetals (a Chinese mining SOE) andCodelco (Chile’s national copper corporation).Codelco is the largest producer o copper andassociated products in the world and thispartnership is one o China’s most signifcant inthe region. One-tenth o Chile’s total agriculturaland orestry exports went to China in 2011(ODEPA, 2012a). This trade is expected toexpand urther, particularly in the export oagricultural products such as ruit, as well as wine

and meat (DIRECON, 2011).In Peru, Chinese investment has ocused on themining sector, with one unctional projectoperated by Shougang Hierro Peru and one readyto begin, operated by Aluminium Corporation oChina Limited (Chinalco). Both o these areChinese mining SOEs that have obtained amajority stake in Peruvian companies operatingmines in the regions o Marcona and Morococha,respectively.6 Shougang’s project, in the region oMarcona, is operational and expanding.

Shougang Hierro Peru is China’s frst majorinvestment in Peruvian mining (Kotschwar et al., 2012). Chinalco’s project, in the region oMorococha, has an approved environmentalimpact assessment (EIA) and the project is readyto start. Communities are being moved to a newtown that has been built or communities who hadto be resettled (see Case Study 1).

Additionally, there are fve Chinese projects in theprocess o exploration in Peru.

China is now the most important player in theglobal trade o wood products: it is the largestexporter o value-added wood products (e.g.wood ooring and urniture), and the largestimporter o unprocessed or semi-processedwood (logs and lumber). This is partly because

there is a limited supply o domestic timber due toChina’s logging quota (Ganguly and Eastin,2011). China imports pulp and paper rom Braziland Chile, as well as logs and plywood rom Brazil(Ganguly and Eastin, 2011). Although ‘theproportion o South American timber in theChinese market is vanishingly small’, Chinesedemand is hugely signifcant or Peru — China isnow Peru’s largest timber-trading partner and thebiggest importer o Peruvian timber (Putzel, 2009:1). In 2009, the second, third, and ourth largest

exporters o Peruvian timber were Chinese-ownedcompanies (Peru.com, 2009 in Putzel, 2009).

It is clear that investment and trade betweenChina and Latin America is growing. Thisinvestment and trade takes dierent orms, asdiscussed urther in the rest o this paper. Theseorms in turn shape the adoption o sustainabilitystandards and the nature o attempts to addresssome o the sustainability challenges outlined inSection 3.

While trade with China may be very signifcant orcertain commodities and countries in LatinAmerica, with China being one o the majordrivers o exports (or example, timber exportsrom Peru), these exports may be very relativelysmall in terms o China’s overall consumption andimports. This imbalance poses a challenge interms o researching and ully understanding orappreciating, particularly rom the Chineseperspective, the possible implications andsignifcance o this trade or particular countries

and or sustainability more broadly.

6. Chinalco is owned by central government, governed by SASAC (the State-owned Assets Supervision andAdministration Commission o the State Council, China); Shougang is owned by the Beijing municipal government andgoverned locally. They are both dominant players in their industries o aluminium and steel.

http://localhost/var/www/apps/conversion/tmp/scratch_15/Peru.com

http://localhost/var/www/apps/conversion/tmp/scratch_15/Peru.com



This section presents some o the mainopportunities and challenges posed by thegrowing trade between China and Latin America.It aims to set the scene or better understanding othe potential need or, and value o, existing anduture sustainability initiatives.

Economic growth, inrastructure development and job creation are some o the main benefts o thistrade (TNC, 2011). A urther beneft is access tocredit, possibly otherwise unobtainable or someLatin American countries (such as Venezuela,Argentina and Ecuador) (Downs, 2011 inKotschwar et al., 2012). The development o newacilities such as soy processing and new roadshas been a signifcant beneft.

However, a lack o environmental and sociallegislation and enorcement by nationalgovernments has oten let a ‘governance gap’.This has led to concerns around environmental

sustainability and lax environmental standards,depletion o natural resources (e.g. deorestation),labour exploitation, poor working conditions, andpossible negative ramifcations or localcommunities who may be displaced or experiencea loss o livelihoods — although many o thesechallenges are not unique to trade betweendeveloping and emerging economies. But there isa vital need to balance economic growth withimprovement o livelihoods o the poor as well asprotection o natural resources.

3.1 GovernanCe andtranSparenCyThere are concerns about the impact o Chineseinvestment on local governance standards.Kotschwar et al. (2012: 2) cite UNCTAD’s World Investment Report (2007) which notes that:

non-OECD investors — most prominently Chinese investors, operating under a doctrine

ocially labelled ‘nonintererence in domestic aairs’ — have oten undermined hard-wongovernance standards observed by multinational corporations subject to home country legislationthat conorms to the OECD Convention onCombating Bribery (including the US ForeignCorrupt Practices Act), and ignored or bypassed the best-practice environmental standardsinsisted upon elsewhere. (UNCTAD, 2007 inKotschwar et al., 2012)

Gallagher et al . (2012: 1) argue in relation to

loans that: ‘Chinese banks impose no policyconditions on borrower governments but dorequire equipment purchases and sometimes oilsale agreements’, and ‘Chinese fnance doesoperate under a set o environmental guidelines,but those guidelines are not on par with those oits Western counterparts.’ These concerns arenot always justifed, however, with a recentreport by Irwin and Gallagher (2012: 1) arguingthat ‘high social and environmental costs areendemic to mining in Latin America’ and that

THREE

SuStainabilityChallenGeS and

opportunitieS inChina–latin ameriCatrade and inveStment



Chinese7 companies do not necessarily perormany worse than their oreign and domesticcounterparts. Cerutti et al. (2011) have similarfndings in their research o Chinese companiesin Cameroon, Arica, where the nationality ologging companies (European or Chinese) doesnot have a great impact on sustainability

outcomes. The regulatory context o Cameroonis a ar stronger determinant o companybehaviour than the countries o origin. Chinesedemand or tropical logs, on the other hand (interms o sheer scale), is very signifcant indetermining orest management and locallivelihoods.

China has rejected the Extractive IndustriesTransparency Initiative (EITI) (Kotschwar et al.,2012) and is not a member o any partnership-based sustainability initiatives, such as the

International Council or Mining and Metals(ICMM)8 (Kotschwar et al., 2012), though ChinaMinmetals Corporation9 is a controllingshareholder o the Minerals and Metals Group(MMG), a company headquartered in Australiaand operating globally, which is a member oICMM. Where Chinese companies are operatingin countries that have signed up to EITI (e.g. Peru),China has been criticised or not participating.

Kotschwar et al. (2012) compares the behaviour

o two OECD and two Chinese miningcompanies in Peru. They fnd that the main

Chinese mine in Peru — Shougang Hierro Peru— is not accountable to external shareholders,does not participate in international orums, islacking transparency, and has shown littlewillingness to improve its practices so that theymeet international standards. Irwin and Gallagher(2012) on the other hand, use new government

data and historical archives to demonstrate thatwhile ‘Shougang perormed poorly on manyindicators, [but] when compared to other oreignand domestic mining companies its poorperormance has not stood out in recent years.’They attribute the problem to poor governance inPeru, since ‘the Peruvian government hascontinually ailed to orce mining companies tocomply with their investment commitments,respect government and global standards, ornegotiate with their unions’ (Irwin and Gallagher,2012: 1).

Indeed, a lack o transparency in the operations oChinese SOEs has been an issue in the miningsector in Peru but is seen to be less o a problemin Brazil and Chile where Chinese SOEs havepartnered with well-established local companies(because o host-country oreign-investmentrequirements) and implemented more substantivesustainability agendas, and where legislation isarguably more stringent (and/or better enorced).Evidently nation-states like Peru cannot count on

oreign or domestic frms to sel-regulate (Irwinand Gallagher, 2012: 1).

7. We adopt the same defnition as Cerutti et al. ( 2011: 24) o ‘Chinese companies’: any company headquartered inmainland China, including in the Hong Kong Special Administrative Region. Companies with ethnic Chinese owners oany nationality but without headquarters in China are not considered Chinese companies.

8. Mining companies and associations opt to become members o ICMM. ICMM brings together 21 mining and metalscompanies as well as 31 national and regional mining associations and global commodity associations. These 21member companies employ 800,000 o the estimated 2.5 million people working in the mining and metals sector, withinterests at over 800 sites in 62 countries across the globe, and exploration activities that extend ar beyond this. Aspart o this membership, companies commit to implement the ICMM’s Sustainable Development Framework: a set o 10principles to be integrated into corporate policy and reported on each year. Companies’ progress is evaluated annuallyand published through the ICMM’s website (Kotschwar et al., 2012; ICMM, 2012).

9. A major multinational state-owned enterprise.



3.2 environmental ConCernSEnvironmental concerns associated with growingtrade in natural resources include deorestation,loss o biodiversity and pollution. In Brazil, orexample, China’s growing demand or soy has led

to ears o increased deorestation. While globaldemand or soy has been growing signifcantly, itis Chinese demand that stands out: in 2009China was importing over 50 per cent o Brazil’ssoy, with China predicted to be buying up to 90per cent o Brazilian soy by 2020 (TNC, 2012).This is o particular concern because, at present,the Chinese market appears unconcerned aboutenvironmental ootprints and indierent tocertifcation (TNC, 2012). In a controversialprocess, Brazil’s Forest Code — the legislation

that governs agricultural production and land usein Brazil — is being reormed (New York Times,2012). Under the new code, partially vetoed byBrazil’s president Dilma Rousse, protection osensitive areas and the required amount o orestpreserved along riverbanks will be reduced (TheGuardian, 2012b). While the agribusiness sectoris one o the parties promoting the code (and thissector will ultimately beneft rom the growingmarket or soy in China), the extent to which thesechanges are directly uelled by the increase in

Chinese demand or soy remains unproven.Illegal orestry is generally regarded as asignifcant driver o deorestation (Ganguly andEastin, 2011). ‘China’ as well as ‘Chinese loggers’have been criticised or their role in illegal logging(see Laurence, 2012; Putzel, 2009), althoughsometimes these criticisms are biased orill-inormed (Mawdsley, 2008; Putzel et al ., 2008in Putzel, 2009). One report estimates that 75 percent o logs harvested illegally in Myanmar,Congo, Equatorial Guinea, Gabon, Papua New

Guinea and the Russian Far East end up in China

(Ganguly and Eastin, 2011). Evidence suggeststhat this situation has now improved — with asignifcant decline in Chinese log imports rommost o these countries, whereas log imports romdeveloped countries where illegal logging has not

been a concern (such as New Zealand, Australia,Canada and the US) increased substantially ater2007 (Eastin et al., 2012). This has beenattributed to a ‘more responsible approach tosourcing logs by the Chinese wood productsindustry’, in part driven by the legislative changesto timber sourcing in the US and EU (see Section4.3) (Eastin et al., 2012: 11).

3.3 employment, livelihoodSand Community impaCtS

Evidence rom a number o case studies analysedor this research suggests that the impact o thistrade and investment on employment andlivelihoods is mixed. In general, it is associatedwith increases in overall employment — though the‘quality’ o this employment inevitably varies (seeCase Studies 1–4). Sometimes, labour atparticular levels (managerial or fnancial) may be‘imported’ while local employment at other levels(i.e. non-managerial, manual labour) expands.Other livelihoods may be displaced. This is not to

say that this is necessarily unique to tradebetween Latin America and China — similar trendscan oten be observed in ‘North–South’ trade.

The our case studies in this section exempliysome o the Chinese investments taking place inLatin America, and their impacts on localcommunities and livelihoods.

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SuStainability ChallenGeS and opportunitieS inChina–latin ameriCa trade and inveStmentContinued



10. According to Kotschwar et al. (2012), Chinalco has agreed with the Transport and Communications Ministry(MTC) and Colombian Sociedad Desarrollo Vial de los Andes (Deviandes) to rebuild 10 kilometres along a stretch othe Centro IIRSA highway that is on the Toromocho concession, at a cost o US$20 million.

Chinalco’s Toromocho mine project oers oneexample o Chinese mine development in LatinAmerica. Chinalco Mining is a publicly listedcompany, based in Beijing but listed on theHong Kong stock exchange (Bloomberg, 2013).It is the overseas non-aluminium and non-errousmetals arm o aluminium giant Chinalco — aChinese state-owned enterprise (SCMP, 2013).

Work to construct the mine began in 2012 andas o January 2013, was still ongoing. Full

production is expected to begin in late 2013(SCMP, 2013). The mine is expected to provide5000 new jobs, and involves the relocation othe city o Morococha (population 7890).Chinalco has started the construction o a ‘newMorococha’ where people (mostly workers) willbe able to own their house and, (according toChinalco) will have access to schools, hospitals,churches, etc. It will also be highly accessible— as part o their ‘inclusion’ policy — and allroads will be paved10 (Chinalco, 2012). It was

completed in 2011 (SCMP, 2013). In December2012 some people were moving into the newtown, but several hundreds were still reluctant togo (The Guardian, 2012a).

Chinalco has implemented a consultationprocess with the local community as part o itsenvironmental impact study and implemented acorporate social responsibility programme thatincludes a social und ‘Fondo SocialToromocho’ (Chinalco, 2012; Kotschwar et al.,2012). This appears to signiy recognition by the

company o the need to obtain a social licenceto operate, and lesson-learning rom previousChinese experiences in the region (see CaseStudy 2). This demonstrates a growingrecognition o the need to move towardssustainability or to ‘green’ Chinese investmentand to improve understanding o the social

context in which Chinese frms operate. This isconsistent with China’s policies or FDI, itsdomestic policy goals o ‘green development’,and as reected in the recent development o anumber o guidelines or oreign companiesinvesting in China and or the behaviour oChinese investors overseas, as well as investorrequirements (see Section 4.2, or moreanalysis). Toromocho secured a $21 billion loanrom the China Export and Import Bank (CEIB),subject to the 2007 CEIB Guidelines orEnvironmental and Social Impact Assessments,‘requiring that borrowers ollow host countrylaws and regulations and speciying the need orsocial and environmental assessments oroverseas projects’ (Kotschwar et al., 2012: 14).

However, not all the residents o Morococha aresatisfed with the resettlement plans, and thereare concerns about the eectiveness o theconsultation process. Some communitymembers and the town’s mayors are worried

about the saety and quality o the new town thathas been selected or them, and are dissatisfedwith compensation agreements (BBC, 2008;FT 2011). This has resulted in accusationsregarding the transparency o the resettlement,which led to protests in 2010 (FT, 2011).

Resettlement is being managed by the frm, buthad aced several challenges — including areusal by the regional government to give thecompany a building permit or the new town andan order by the town’s government to stop the

new town’s construction. The frm fled aconstitutional claim and a judicial claim againstthe government. The frm obtained a preliminaryrelie that allowed construction to go ahead butclaims are still pending. I the frm is ruledagainst, the resettlement may be delayed orhalted altogether (SCMP, 2013).

CaSe Study 1: ChinalCo mininG and itS toromoCho mine in peru



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CaSe Study 2: ShouGanG mininG Company in peru

Shougang Corporation, a state-ownedenterprise, is one o China’s largest steelcompanies. The company operates in Peru as

Shougang Hierro Peru (hereater reerred toas Shougang). It operates the Marcona Minein the Marcona District, an open-pit iron mineacquired in 1992.

Shougang has been accused o poor socialand environmental behaviour in Peru rom theoutset, and has been fned numerous times orpolluting the environment, and inattention toworker saety and health. It has been subjectto years o contentious strikes by the Peruvianlabour orce (Kotschwar et al., 2012). The

company is accused o paying ar lower wagesthan its competitors and the lowest in Peru— miners complain that wages at Shougangare among the lowest in Peru’s multi-billiondollar mining industry, at an average $14 a day.The average miners’ salary in Peru is $33 aday, according to Peru’s National Society oMining, Petroleum, and Energy (Kotschwar et al., 2012).

Shougang reportedly reneged on itscommitment to invest $150 million in thecommunity — it spent only US$35 million andpaid a US$14 million fne instead (Kotschwaret al., 2012). Shougang’s sustainabilityagenda is limited to some communityprogrammes which are ocused on monetaryand other donations (e.g. computers orschools) and compliance with local standardso environmental quality. Shougang HierroPeru’s activities have highlighted the lack o

regulation and enorcement in the miningsector in Peru. This has been attributed toinstitutional and regulatory weaknesses (such

as government organisations havingoverlapping duties) and an accusation that thePeruvian government is primarily ocused onattracting investment, rather than asking whothe investors are and regulating themeectively.

Ivan Lanegra, a director o Peru’s independentOmbudsman’s ofce, has argued that: ‘theEnvironment Ministry, not the Ministry oEnergy and Mines, [should be] responsible orapproving environmental impact studies or

these projects. It should be a distinct entitywithin the environment ministry that has ullunding and independence.’ (FT, 2011)

One interviewee rom a Peruvian NGOargues:

There are also a number o systems [In Peru] that make the advancement o legislation very complicated… It is worth mentioning that theMinistry o Energy and Mining uses thenumber o EIA approved per year as an

indicator o success. This refects the ‘quantity not quality’ approach o the current legislation… Furthermore the current systemor Environmental Impact Assessments isobsolete and should no longer be used. It evaluates projects on an individual basis and does not take into account cumulative impactso operations. These assessments are never technically supported or evaluated by third

parties.



CaSe Study 3: ChineSe projeCtS to enSure Supply oF natural reSourCeSin latin ameriCa

In Brazil, the collaboration betweengovernments and Chinese SOEs may be seen

in the case o the Chongqing Grain Group, aChinese SOE, and the government o thestate o Bahia. In 2011, Chongqing GrainGroup announced a US$4 billion investmentor a new 100-hectare soy processing plant tobe built in Barreiras (Bahia) on land donatedby the local authority. In an interview with Valor Economico (2011), a renowned Brazilianbusiness newspaper, Bahia’s Secretary oAgriculture highlighted the importance oassured supply or China and how this projectwould allow Chongqing Grain Group tocontrol its soy supply. This development mayoer greater employment opportunities andallow Brazil to add value to its soy, althoughtangible benefts remain to be seen.

In Chile, in 2006, Minmetals (another ChineseSOE) agreed to pay US$500 million to

Codelco in exchange or a 55,750 tonnesupply o copper per year or 15 years(ECLAC, 2011a). The agreement included theoption or Minmetals to buy up to 49 per cento Codelco’s Gaby mine. In September 2008,ater a wave o local criticism and ears onationalisation, Codelco announced theinterruption o the deal. Minmetals gave up thepurchase o the stakes and did not seek compensation, avoiding uture problems withlocal communities, the workers and theChilean government (ECLAC, 2011a). Thiscase reects some o the challenges anddifculties aced by Chinese investors in Chileand in new environments more broadly.



Peru oers an example o some o the conictsresulting rom Chinese investment in mining andmining operations, and the importance ohost-country legislation in shaping the impacts oinvestment.

The Rio Blanco mining project in Peru is 90 percent owned by Chinese SOE Zijin Mining GroupLtd. From the outset there was strong oppositionto the mine’s development, due to concerns overenvironmental and social consequences or thelocal community. Located in the cloud-orestregion o the Huancabamba mountains, theproject was predicted to have seriousconsequences or important and ragile

ecosystems. It would involve the displacement oagriculture in the area, leading to knock-on eectsor armers and the local economy (OxamAmerica, 2009). The company disregardedconcerns and began explorations without a ‘sociallicence to operate’, either inormal or ormal. Theormal requirement is to satisy the Peruvian lawthat approval should to be obtained rom two-thirds o the citizens o the area (Oxam America,2009). This led to strong opposition romcommunities and NGOs, which resulted inallegations o human rights violations rom RioBlanco and o insufcient support rom thegovernment.

In 2008, Rio Blanco announced that thegovernment had granted it permission to startoperations within 50km o an international border,which is illegal under Peruvian law (OxamAmerica, 2009). In the same year, the companywas fned or starting operations withoutpermission and or polluting water sources. RioBlanco was due to present its environmental

impact assessment in January 2009, which didnot happen, with a view to starting operations in2011 despite a rejection o mining by a number o

communities (in the orm o protests). In 2011,Zijin presented two letters apologising or itsprevious behaviour, hoping that its relationshipwith the community could improve. The localcommunities answered this letter and rejectedZijin’s actions with a document called ‘the 7 truthsabout Rio Blanco’.

In an interview with the Financial Times, DrCynthia Sanborn o Universidad del Pacifcoraised concerns that the government in Peru ismore ocused on encouraging investment than onregulating companies, understanding thecompanies or even preparing communities or thepresence o new mining frms (FT, 2011). Local

communities and civil society have beendemanding more help rom the government todeal with issues with the Chinese miningcompanies and the mining industry in general, butthe government appears to be caught in a conicto interest. The legislation-enorcing body is alsoin charge o attracting Chinese investment.

Ruben Gonzales-Vicente, a PhD student romCambridge University, specialising in Chinesemining and its investments in Latin America,explains the perception that the:

‘Rio Blanco project was sold or ‘cheap’ becauseo the confict associated with it. However, Zijinseems to have paid too much considering all theunrest and confict. When Zijin took over the RioBlanco project, they thought that the Peruviangovernment would be able to deal with the social

part, as the state would have done in China.When this did not happen, they [Zijin] realized...that they would have to deal with the issuethemselves.’ (IIED interview, 2012)

Evidently, the Peruvian context has posed a newchallenge or Chinese companies. Localcommunities and NGOs have played an active

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CaSe Study 4: rio blanCo, Zijin mininG Group ltd, peru



role in making sure that Peruvian legislation isenorced. An interviewee rom a well-knownPeruvian NGO states that ‘The involvement olocal communities has resulted in increasedpressure or the Ministry o Energy and Mines todemand the right and up-to-date permits.’(IIEDinterview, 2012)

Indeed, growing tension between miningcompanies and communities, along withincreased involvement o NGOs in the mediationprocess, has resulted in some arguably positivedevelopments — or example, the law on the Rightto Prior Consultation or Indigenous or NativePeoples was passed by Peruvian Congress in

2010 (Kotschwar et al., 2012). This law requiresthat local communities are consulted on anyregulatory change that may aect them. Inaddition, companies must now present theirmandatory environmental impact assessments atpublic meetings — local people can then ask questions and voice objections, which should betaken into account. It is assumed that, in Peru, aproject that does not obtain a social licence willnot be able to proceed (Kotschwar et al., 2012).

Peru also implemented the Law or Corporate

Social Responsibility in the mining sector in 2006(Kotschwar et al., 2012). This allows 50 per cento the taxes collected rom mining to go back tolocal communities in the orm o investments ineducation and social programmes. Additionally,there is the voluntary initiative Mining Solidaritywith the People (PMSP) where companies donateunds to improve the quality o lie o communitiesin the areas where they operate (Kotschwar et al.,2012).

In conclusion, the social and environmental recordo Chinese mining companies in Latin America ismixed (Kotschwar et al., 2012), but signifcantopportunities exist or improving sustainabledevelopment outcomes.

Research is needed to understand the extent towhich these mandatory and voluntary initiativesare being implemented and being appliedspecifcally to Chinese investors in Latin America.



The sustainability o trade and investmentbetween China and Latin America varies by

country and sector, as do the drivers or theadoption and implementation o sustainabilitystandards. In this section, we present some initialinsights into the mechanisms being used inmining, orestry and agriculture and the drivers ortheir implementation — with a particular ocus onprivate voluntary sustainability standards. Thereare also several cross-sectoral ‘standards’ thatshape Chinese investment in, and procurement o,natural resources in Latin America; we look frst atthese.

4.1 CroSS-SeCtoralStandardSThis section oers a brie overview o some o themajor standards and principles that apply toChinese investment and procurement. These arenot specifc to any particular sector, but have thepotential to aect the behaviour o Chineseinvestors overseas and the Chinese government’spurchasing decisions — and thereore have

possible ramifcations or the nature o investmentand trade with Latin America.

This section looks mostly at the range o nationalinvestment standards in China. However, thereare also some cross-sectoral internationalstandards and initiatives relevant to both LatinAmerican and Chinese investors. Examplesinclude the Equator Principles, OECD Guidelinesor Multinationals, United Nations GlobalCompact, UNEP Principles or ResponsibleInvestment, and the UNEP Finance Initiative.

However, in-depth discussion o these is beyondthe scope o this paper, which ocuses on

Chinese national and private corporatesustainability standards.

Guidelines on Investment OverseasThis series o Guidelines was frst published byChina’s Ministry o Commerce, the NationalDevelopment and Reorm Commission (NDRC)and the Ministry o Foreign Aairs in 2004, buthas been updated annually since 2009:

The guidelines were to make [sic] our enterprisesto adopt the approach o mutual benet, win-win,and mutual development, to combine their ownmultinational operation needs with industrial development goals and development priorities o host countries, avoid blind investment, and ceaselessly improve sustainable development o overseas investment o our enterprises.(MOFCOM, 2011b: 1)

They currently apply to 115 host countries(MOFCOM, 2011b). The Guidelines providedomestic companies with in-depth advice on thelaws, regulations and policies concerningindustrial development in these countries and

encourage enterprises to evaluate their ownstrengths. They provide relevant inormation aboutbilateral investment-protection agreements andtreaties or the avoidance o double taxation

In relation to sustainable development, theGuidelines oer specifc ‘reports’ onenvironmental actors in the countries in whichChinese enterprises may invest. For example, thecountry guide or the Democratic Republic oCongo outlines the country’s environmental lawsand provides tips or establishing good

relationships with the recipient country (Huangand Wilkes, 2011). However, it does not appear to

FOUR

StandardS to improvethe SuStainability oF

China–latin ameriCatrade and inveStment



oer any guidance on sustainable-development-related issues beyond environmental laws. Furtherinormation is required on the extent o use othese Guidelines and the degree to which theyhave shaped the nature o Chinese investments in

Latin American countries.

‘Green Credit’ GuidelinesA more recent development is China’s GreenCredit Guidelines. These were issued in February2012 by the China Banking RegulatoryCommission (CBRC), speciying that Chinese‘banks shall eectively identiy, assess, monitor,control and mitigate environmental and socialrisks’11 and ‘disclose inormation as required bylaws and regulations and subject themselves to

market and stakeholder supervision’. Based onthe CBRC Guidelines, banks will ‘publicly committo adopt international best practices or standardsor overseas projects’ (SynTao, 2012). TheGuidelines are to be applied to policy banks,commercial banks, rural cooperative banks andrural credit unions established within China. It has

been predicted that implementation will bechallenging, but that the move is very signifcant(Zadek, 2012). CBRC is responsible or thesupervision and administration o banks’ greencredit operations, and environment and social risk

management.The China Development Bank (CDB)— one o thebiggest overseas investors in China, and asignifcant investor in Latin America — has beeninvolved in the development and implementationo the Green Credit Guidelines:

CDB participated in the ormulation o the GreenCredit Policy promulgated by CBRC, mapped out its 2011 working plan on loans or environmental

protection, energy conservation and emission

reduction, released the document speciying theindicators or environmental impact assessment or loans, introduced the environmental veto

power into its credit and lending decisions and ensured all loan projects having [sic] passed theenvironmental impact assessments. (Bank Track,2012)

11. The IFC has interpreted the guidelines as ollows: ‘E&S risks as used in the Guidelines reer to potential impact and

risks brought to the environment and communities by banks’ clients and their primary supply chains throughconstruction, production and operational activities, which include such E&S issues as energy consumption, pollution,land, health, saety, resettlement, eco-system protection, climate change, etc’ (IFC, 2012). The guidelines are quitespecifc: ‘Banks shall develop a client E&S risk rating standard to assess and categorize clients’ E&S risks. Theassessment and categorization results shall become important basis or clients rating, credit approval, portoliomanagement and exit decisions. In addition, based on such results, banks shall take dierent risk managementmeasures during the 3 checkpoints o the lending cycle (due diligence, credit review and portolio review), and in loanpricing, setting o risk-adjusted return target and allocation o economic capital. Banks shall develop a list o clients withmajor E&S risks. Such clients shall be requested to develop and implement action plans or major risks involved, put inplace comprehensive and eective stakeholder communication mechanisms and seek risk mitigation measures, orexample through a third party sharing o potential environmental risk. Banks shall create a mechanism that encouragesgreen credit innovation. Banks shall promote innovation in green credit business process, products and services under

the premises o eective control o risks and sound commercial viability. Banks shall improve E&S perormances o theirown operations, put in place relevant systems, emphasise green credit awareness raising, standardize businessconducts, promote green ofce and improve resources efciency.’ (IFC, 2012: 3).



The Guidelines have been well received byChinese civil society representatives12 who havecongratulated the China Banking RegulatoryCommission on: ‘introducing or the frst time [inChina] the idea o risk assessment and

precaution… and the assessment o social risks’(Greenwatershed et al., 2012: 1). They state thatthe Guidelines oer real potential to:

enhance environmental and social risk management o overseas projects beore issuingcredit in order to ensure that the implementers o those projects abide by a country’s or area’srelevant laws and regulations related toenvironmental-protection, land, healthcare,security, etc… and adopt international practicesor international norms or overseas projects

applying or loans. This refects the urgent environmental needs o China’s ‘going out’ strategy and complies with the host countries’ requirements and the call rom local people.(Greenwatershed et al., 2012: 1)

But they argue that the policies cannot be ullyimplemented without public oversight and withoutsupervision o stakeholders such as NGOs andthe general public. Greenwatershed et al. (2012)note that, although the Guidelines mentionassessment o social risks, there is a lack orecognition o the relationship between theborrower and the community concerned.

Borrowers should ensure community involvementand oer a clear channel and mechanism orcomplaints. They suggest that ‘evaluation andaccountability o banks should include opinionsrom impacted people and communities’

(Greenwatershed et al., 2012).Despite this lack o specifcity in some areas, theGuidelines do oer potential in terms o positivelyshaping Chinese investment. To date, to theauthors’ knowledge, no substantive research hasbeen carried out on the uptake and impact o theGuidelines. This will be important in the short andlong term, and as a means o acilitating civilsociety oversight and public participation.

China’s Export–Import Bank Guidelines orEnvironmental and Social ImpactAssessmentsIn 2007, the China Export–Import (EXIM) Bank (one o China’s ‘policy banks’13) issued adocument entitled ‘Guidelines or Environmentaland Social Impact Assessments o the ChinaExport and Import Bank’s Loan Projects’, outlinedin Box 1. The China EXIM Bank is one o China’sbiggest international lenders along with the ChinaDevelopment Bank.14 Gallagher et al. (2012)estimate that since 2005, the China EXIM Bank has made loans o the value o US$9 billion toLatin America. The research by Gallagher et al. is

FourStandardS to improve the SuStainability oFChina–latin ameriCa trade and inveStmentContinued

12. In a letter to the China Banking Regulatory Commission jointly signed by Greenwatershed, Greenovation Hub,Friends o Nature, Green Earth Volunteers, China Development Brie, Global Environmental Institute, Institute o Public& Environmental Aairs, Chongqing Green Volunteer Association and Panzhihua Hengduashan Research Society, inMarch 2012.

13. Meaning the bank is a tool o government, designed to support the government’s policy objectives (Bräutigam,2009, in Gallagher et al., 2012).

14. In 2011, China EXIM Bank’s loans totalled 914,301,463.23 Chinese Yuan Remnimbi in 2011, or approximatelyUS$145 million (based on 2011 exchange rates) but no inormation is given on the geography o these loans and towhat extent they are overseas loans (or related to Latin America).



‘exploratory’ because the China EXIM Bank does

not publish detailed fgures o its loans. ChinaEXIM Banks’ loans in Latin America were heavilyconcentrated in Venezuela, Brazil, Argentina, andEcuador.

While it is reassuring that Chinese investors arerequired to abide by ‘international practices’,should a host country lack legal requirements to

address environmental and social impacts, theGuidelines make no mention o relevant‘international practices’ or give an indication o

how to assess whether a country has a ‘completeenvironmental protection mechanism’. This ispresumably up to the company’s discretion withsome oversight rom the bank. The Guidelinesalso explain that ‘China EXIM Bank, i necessary,can require the inclusion o environmental andsocial responsibilities in the loan contract, in orderto monitor and restrain the behaviour oborrowers’. This implies that, apart rom therequirement to comply with the host country’senvironmental regulations, the bank will not

necessarily speciy that the project has to deliversocial and environmental benefts (though it can iit so decides), and that consultation with localcommunities is required only where impacts areanticipated to be ‘seriously’ negative. It is unclearto what extent the bank requires its borrowers tomeet certain environmental and socialresponsibilities (i.e. number o cases and nature othese responsibilities).

In terms o monitoring compliance with theGuidelines, the bank explains that ‘China EXIM

Bank shall inspect and monitor the project’sconstruction and operation, based on the resultso environmental and social impact assessments’and:

or projects under construction, the borrowers or project owners should regularly report to theChina EXIM Bank the actual impacts on theenvironment and society brought by project construction, and the status o implementationmeasures in eliminating and controlling theseimpacts. I the requirements are not met, China

EXIM Bank has the right to require the borrowersor project owners to take timely measures toeliminate these impacts. I they ail to eliminatethe impacts o the projects, the China EXIM Bank has the right to stop disbursing the loans and demand an early payback o the loan, inaccordance with contract.15

box 1: China exim bank’S

GuidelineS For environmental

and SoCial impaCt aSSeSSmentS

Companies investing/operating overseaswith a loan rom China EXIM Bank shouldabide by the ollowing ‘principles’.

1. Carry out an EIA (this should be doneduring the pre-loan and loan-periodreview period).

2. Adhere to the host country’senvironmental policies and standards…obtain corresponding environmentalpermits. When the host country does nothave a complete environmentalprotection mechanism or lacksenvironmental and social impactassessment policy and standards… reerto our country’s standards orinternational practices.

3. Respect the local people’s rights to landand resources, and properly handle theresettlement problems.

4. For the projects that have seriousnegative impacts on the localenvironment… openly consult the public

in accordance with the host country’srequirements.

Source: International Rivers, 2008

15. The Bank’s annual report has a section on social responsibility. In this, it highlights its key achievements as oering

musical education or younger generations and that it ‘worked jointly with ofcials and people o poverty strickencounties’ as well as donating books and computers to schools (China EXIM Bank, 2011). Interestingly it doesn't reer toits Guidelines at all, or the nature o its lending decisions.




An ofcial o China’s EXIM Bank 16 explained thatthe bank had delayed loans in Indonesia andMalaysia because it lacked a certifedenvironmental impact assessment. The ofcialexplained that companies with raud and/or

environmental problems could be punished byblacklisting, or there would be a permanent delayin the processing o relevant loan applications orrequests or ODA. He also said that China EXIMhad denied a lot o projects in Latin America,Arica and Northeast Asia.

The ofcial explained that in all cases the bank requires environmental impact reports, and unlessthe report is not qualifed or certifed (presumablyby the bank itsel or a third party), they will notapprove the loan. Sometimes, China EXIM will

consult with ‘proessional people’ to get theiradvice on the environmental impacts. A certifedcompletion report is also required at the time oproject completion and an additional report maybe required during project construction. Howeverthe ofcial said that many enterprises object to thecosts o environmental impact reports. ChinaEXIM Bank is also looking to internationalinstitutions to provide more assistance in the areao implementation — suggesting thatimplementation remains a challenge.17

Guidelines on Environmental Protection orChina’s Outbound Investment andCooperationIn March 2013, the Ministry o EnvironmentalProtection (MEP) and MOFCOM published the

Guidelines on Environmental Protection orChina’s Outbound Investment and Cooperation,aiming to ‘standardize the overseas activities oChinese investors on environmental protection’(Qingen, 2013). These were developed inresponse to concerns about the impact oChinese investment overseas and were seen as akey means o dealing with the environmental risksChinese companies might ace when ‘going out’.Yao Jian, spokesman or the Ministry oCommerce, has said that the Guidelines will help

companies ‘strengthen their core competitivenessand sot power in the global market’ (Yao, inQingen, 2013).

At present, these Guidelines are voluntary. Theyare designed to raise the awareness o Chinesecompanies about issues o religion, culture,custom, historical sites and labour rights incountries overseas. The Guidelines encourageChinese companies operating overseas to be‘socially responsible’ — or example by providingtraining and job opportunities or communities,

driving economic growth in the local area, andcommunity development. The Guidelines highlightthe need to balance economic development andenvironmental protection and encouragecompanies to move towards low-carbon

16. In a talk given in 2011 at a meeting about Environmental Policies on Chinese Overseas investments: www.wri.org/event/2011/06/book-launch-environmental-policies-chinas-investment-overseas .

17. The ofcial also explained some o the motivation o China EXIM ofcers to act on environmental issues: on onehand, they need to address environmental issues because ‘it is a rule in our bank’ that the President’s image must not beaected by controversy; on the other hand ‘we are just bankers’ and have many things to do.

http://www.wri.org/event/2011/06/book-launch-environmental-policies-chinas-investment-overseas






development by developing their ownenvironmental management strategy. TheGuidelines encourage companies to comply withlocal regulations and laws concerning theenvironment, but also to incorporate

environmental protection into their own businessstrategies and operational plans (MOFCOM,2013). They also emphasise the importance ointernal training regarding local environmentalregulations and environmental issues.

The Guidelines mention waste management,avoiding water pollution and conservingbiodiversity, which should be done throughcollaboration with local government andcommunities. Ecological restoration isrecommended, according to local regulations or

ollowing best industry practice.The Guidelines recommend that companies carryout due diligence beore investing overseas ormerging with or acquiring companies overseas.This due diligence should include an assessmento environmental risks. Companies should procureenvironmentally sustainable goods wherepossible. The Guidelines emphasise the need tocommunicate with local communities, using avariety o techniques. Finally, the guidanceencourages companies to learn rom internationalorganisations and multilateral fnancialorganisations, regarding environmentalprotection. The Guidelines may be monitoredtogether by MEP and MOFCOM (MOFCOM,2013).

Clearly, these Guidelines are ar-reaching in termso breadth and depth o content — and notablyemphasise the need to strengthen communityrelations, something the Chinese companies inour case studies have struggled with — though the

Guidelines do not explicitly recognise the rights ocommunities and human rights are absent(Bosshard, 2013). Bosshard (2013) has

compared the Guidelines to those o the OECD,and noted that the Chinese Guidelines are notsupported by any compliance mechanism unlikethe OECD Guidelines. A compliance mechanismwould help ensure that the new Guidelines are

actually being implemented. Indeed, theirvoluntary nature and the lack o clarity on how theirimplementation will be incentivised, acilitated andmonitored leaves a large degree o uncertaintyaround the potential extent o their application andeectiveness.

Chinese policies on public procurementAlso relevant to Chinese and Latin Americantrade, and the possibility o inuencing purchasingdecisions, are Chinese policies and standards

concerning public procurement. The Chinesegovernment ofcially incorporated ‘greenprocurement’ into its 12th Five-Year Plan in 2011,‘making an innovative move in the new era oenvironmental protection’ (CCICED, 2011: 23).O relevance here is the 2008 law on the‘Promotion o Circular Economy’ passed by theNPC standing committee which requires that thegovernment should contribute to the objective onational economic and social policy, includingprotecting the environment, supporting

underdeveloped regions and ethnic minorityareas, and promoting SME development.

Despite these intentions, it seems thatgovernment players (regional and local) are onlyadvised to make green procurement decisions,rather than being obliged by law. CCICED’sreport explains that:

China’s government green procurement policieslack continuity and the goals need to be urther claried. Government Procurement Law currently

implemented stipulates that, government procurement should contribute to theaccomplishment o the objectives in national




economic and social policies, includingenvironmental protection. In October 2006, MOF and MEP jointly issued Implementation Opinionson Government Procurement o Environmental Labelling Products and require that state organs,

public institutions and organizations at all levelsgive priority to environmental labelling products inthe procurement with nancial und and not

purchase products harmul to the environment and human health. In comparison, developed countries such as the U.S. and EU have theexplicitly legislation on government procurement o ecological, environment-riendly products and services…. Comparatively speaking, the role o the Chinese Government in leading terminal green consumption is rather weak, and the

mandatory eature o government procurement o environment riendly products is not highlighted [sic]. (CCICED, 2011: 36)

However, the report also explains that the Chinesegovernment is working to improve itsenvironmental credentials to ensure that Chineseproducts are not discriminated against ininternational trade — the adoption o standards isregarded as a way to improve internationalcompetitiveness and avoid ‘trade protectionismdressed in environmental protection’ (CCICED,

2011: 25) and to help avoid environmentallyunsustainable products rom entering China:

To this end, China urther enhances itsenvironmental standards and develops low carbon certication standards, and initially setsup its own green line o deense through mutual recognition with developed countries. (CCICED,2011: 25)

Ensuring that these standards do not excludeSMEs and small-scale producers, both within

China and rom developing countries trading withChina, will be important. Some local governments

(such as Tianjin) have, however, recognised thisneed explicitly, by incorporating a preerence orSMEs in their procurement policies. In Tianjin,eco-riendly, energy-efcient products, innovativeproducts, national industrial products and

products o SMEs are given priority in theprocurement process.

CCICED explains that there is still a great deal oprogress to made on environmental policies:

There is an absence o targeted laws, regulations, policies and specic industry certicationstandards. In a comparison with developed countries, not only did economic incentives and innovative mechanisms relate to green supply chain development, but also appropriate

monitoring and punishment mechanisms have not in place [sic]. (CCICED, 2011: 36)

Enorcement o environmental laws that do existremains a key challenge, since the cost opollution/environmental damage is typically lessthan the costs o sanctions, and less thanchoosing a ‘better’ environmental option.

As the Chinese government works towardsimproving environmental legislation andenorcement, it will be important to ensure that

attempts at ‘greening’ or ormalisation do not havenegative consequences or the inclusion osmall-scale producers who dominate much oChina’s production and processing in agricultureand orestry. The result o not doing so could beincreased inequality and social costs — asevidenced by China’s attempts to green its dairysector by producing ‘cow hotels’ (Mo et al., 2012).Tianjin oers an example o meaningul attemptsto balance environmental and developmentactors, although the extent to which the Tianjin

government has been able to implement itsprocurement policy eectively is unclear.



4.2 SuStainability StandardSin mininGThe mining industry is distinct rom the agriculturaland orestry sectors. The scale o most miningoperations and their impacts (and the need orlarge investments/investors) also means it iseasier in mining than in agriculture to observeoperations and the implementation o standards.Obtaining a social licence to operate isincreasingly important or mines to be able toopen and remain unctional. Implementing socialand environmental standards can be one tool tohelp obtain a social licence to operate (Buxton,2012).

However, a researcher rom a large Peruvian

university has argued that mining frms ‘try toreduce costs and increase proft margins, andavoid international condemnation by complyingwith air standards to the extent it doesn’t costthem too much’ (IIED interview, 2012). Severalactors determine the extent to which standardsare implemented. One Chinese SOE — one o thelargest coal suppliers in the world — has explainedthat price and quality are the overriding decision-making actors in sourcing mineral supplies.Anecdotal evidence18 suggests this is the case orother Chinese companies also. This SOE tends tosource its supplies rom agencies, rather thandirectly rom mines. Presumably it is thereoreunknown or unclear to what extent any standardsare applied at the production stage — and perhapsalso irrelevant i price and quality are mostimportant.

This SOE’s coal exploration projects may have‘environmental certifcates’ where the localgovernment requires it (e.g. in Australia) but this

varies according to national/local legislation. Thistrend has also been observed in Latin America.One interviewee, an expert in Chinese miningcompanies in Peru, explains that

Chinese companies are in the business to try and reduce the cost o their own metals and what they do with the metals. There may be competitionwhen it comes to buying a project but ater that not really. (IIED interview, 2012)

He implies that standards and sustainability morebroadly are not, currently, deciding actors inprocurement and extraction — cost is theoverriding decision-making actor in and the mainbasis on which companies compete (standardsare not yet being used as a point o dierentiation

in terms o companies’ reputations).A number o buyers and representatives romChinese companies interviewed or this research— including a number o large state-owned andprivate companies in the mining and agriculturesectors (see Appendix 1) — reafrm that there is agrowing emphasis on quality in purchasing, butnot much, i any, consideration o sustainability.Some environmental and social standards may bemet incidentally (suppliers are applying thesestandards or other markets or driven by domesticregulation/standards) but not as a direct result oChinese purchasing pressure or decisions. Abuyer rom a leading mining and minerals SEO inChina explains that the

Chinese government has not published any policies regarding sustainability on importing o this [Chromium] product…. Choosing new suppliers does not depend on any sustainablecertication, only price. (IIED interview, 2012)

18. IIED (2012) Interviews with other SOEs and mining companies in China: See Appendix 1.




The case studies in Section 3 demonstrate thatChinese SOEs in the Latin American region aregenerally attempting to maintain and/or improvetheir relationships with relevant stakeholders andvice versa. But they are operating in a very

dierent political, environmental and culturalcontext — both when compared to the Chinesecontext as well as between dierent LatinAmerican countries. Chinese investors are acedwith steep learning curves with respect to localpractices (Kotschwar et al., 2012). Oten theseinvestors need new skills (e.g. communication,managerial) and improved knowledge andunderstanding o the contexts in which they areoperating. This includes knowledge o standards,regulatory context (e.g. a decentralised

government in Peru), and cultural context.Sustainability standards have been shown to playa role in countries where the current legislation isrelatively strong and is enorced, as in Brazil andChile. Multinational corporations in Chile andBrazil are heavily scrutinised by governments andby civil society groups. In Brazil especially,environmental laws are strictly enorced. This thenalso applies to Chinese investors and miningoperations. One observed trend is that whereChinese SOEs are the main investors and are

partnering with well-established local companies,the sustainability agendas o mining projects aremore rigorous and substantive than when Chinesecompanies operate alone or take a majority stake— based on the local legislation as a minimum andcomplemented by local and internationalsustainability standards.

In joint mining ventures between Chinese andChilean or Brazilian companies, compliance withnational and local legislation is usually high,particularly in the case o large corporations thattend to be more heavily scrutinised by civil society

and government. Codelco (Chile) has anagreement or assured supply or 15 years romCodelco’s Gaby mine, with Minmetals (China). Itimplements the same sustainability standards andpolicies across its projects, regardless o the endmarket (Codelco sells to China, Europe and NorthAmerica) (Codelco, 2012). Codelco has its owncorporate social responsibility and sustainabilityinitiatives,19 coupled with international standardssuch as the Global Reporting Initiative (GRI) andthe ISO 14001 standard on Environmental

Management. It utilises the ISO 26000 globalguidance on social responsibility as well as theguidance provided by the global compact and theWorld Business Council or SustainableDevelopment (WBCSD) (Codelco, 2012).

In act the Chinese government has given explicitbacking to ISO 26000 — despite its initial cautiontowards international standards — having beenpart o the lengthy multi-stakeholder process inwhich the content o the standard was negotiated.According to Wang (2011, in Henriques, 2012),

China will not only have published its translation oISO 26000 in 2012, but will begin development oa amily o social responsibility standards that maybe expected to show considerable inuence byISO 26000. However, more recent research byIIED suggests that there is a lack o agreementbetween the ministries on whether this standard

19. The social and environmental impacts o Codelco’s own policies and the impact o these other ‘external’ standardsis not immediately clear, and is outside the scope o this paper.



should be developed in China.20 Anecdotalevidence suggests that some companies in Chinaare using ISO 26000 as a ramework or theirCSR reports (China Business, 2011), orexample, CHALCO — Aluminium Corporation o

China Limited (the SOE CHINALCO is thecontrolling shareholder o CHALCO). Oneinterviewee rom an NGO based in China, whohas been involved in supporting SMEs in China toutilise ISO 26000, suggests that the standard isbeing used only as a ramework or writing CSRreports, rather than in a more substantive way toguide companies’ approach to socialresponsibility (IIED interview, 2012).

The situation is slightly dierent in Peru rom Braziland Chile. Institutional weaknesses (such as a

weak environment ministry and overlaps inresponsibilities between ministries), weak enorcement o legislation and an emphasis onattracting investment regardless o the ‘quality’ othis investment, has meant lower environmentaland social standards being applied in Chineseoperations in Peru (as well as arguably in Peruvianoperations in Peru). The Extractive IndustriesTransparency Initiative (EITI) standard (Box 2) hasbeen applied in Peru very recently (EITI, 2012).21 But China itsel has rejected the EITI (Kotschwar

et al., 2012). An expert on Chinese mining in Peru,rom Universidad del Pacifco in Peru, suggeststhat Chinese stakeholders do not attend EITImeetings in Peru ( IIED interview, 2012). However,Chinese stakeholders do have to disclosepayments where they are operating in a countrythat is EITI compliant, e.g. Peru.

EITI-compliant countries can decide to use eitherthe aggregated or disaggregated reportingstandard (Ghana, Liberia, Guinea and Norway, orexample, use disaggregated reporting). Thecurrent aggregated way in which mining payments

are disclosed in Peru means, however, that it is notpossible or outside observers to analyse howmuch individual companies pay (Kotschwar et al.,2012). Disaggregated reporting would increase transparency and would allow relevantstakeholders to identiy how much Chineseinvestors were paying, and allow a comparison tomade with other investors (Kotschwar et al.,2012).

20. This insight is based on the discussions held in a workshop in Beijing about international standards andcertifcation in June 2012, at which a number o government representatives were present.

21. Brazil and Chile are not as yet involved in EITI and are neither Compliant or Candidate countries. See: http://eiti.org/countries.

http://eiti.org/countries







box 2: Summary oF the

extraCtive induStrieS

tranSparenCy initiative

The EITI seeks to set a global standard ortransparency in oil, gas and mining. TheEITI is a voluntary coalition o governments,companies, civil society groups, investorsand international organisations. Signatorygovernments are required to declare therevenues they receive rom companies, andthe companies operating in those countriesare required to declare what they pay.

The EITI is designed to provide beneftsor: implementing countries (boostingtransparency and promoting good

governance, so giving clear signals toinvestors and international fnanceinstitutions); companies and investors(mitigating political and reputational risks);and civil society (improving transparency).

The EITI has a number o principles andindicators, as quoted here.

• We share a belie that the prudent use onatural resource wealth should be animportant engine or sustainableeconomic growth that contributes tosustainable development and povertyreduction, but i not managed properly,can create negative economic and socialimpacts.

• We afrm that management o naturalresource wealth or the beneft o a

country’s citizens is in the domain osovereign governments to be exercisedin the interests o their nationaldevelopment.

• We recognise that the benefts o

resource extraction occur as revenuestreams over many years and can behighly price dependent.

• We recognise that a publicunderstanding o government revenuesand expenditure over time could helppublic debate and inorm choice oappropriate and realistic options orsustainable development.

• We underline the importance otransparency by governments and

companies in the extractive industriesand the need to enhance public fnancialmanagement and accountability.

• We recognise that achievement ogreater transparency must be set in thecontext o respect or contracts and laws.

• We recognise the enhanced environmentor domestic and oreign directinvestment that fnancial transparencymay bring.

• We believe in the principle and practiceo accountability by government to allcitizens or the stewardship o revenuestreams and public expenditure.

• We are committed to encouraging highstandards o transparency andaccountability in public lie, governmentoperations and in business.



• We believe that a broadly consistent andworkable approach to the disclosure opayments and revenues is required,which is simple to undertake and to use.

• We believe that payments’ disclosure in a

given country should involve all extractiveindustry companies operating in thatcountry.

• In seeking solutions, we believe that allstakeholders have important and relevantcontributions to make — includinggovernments and their agencies,extractive industry companies, servicecompanies, multilateral organisations,fnancial organisations, investors, andnon-governmental organisations.

Countries can either be ‘Complaint’ or‘Candidate’ depending on their verifcationand implementation status. To become aCandidate, a country must achieve fvesign-up indicators. Once these have beenmet, EITI implementation involves a wholerange o activities to strengthen naturalresource transparency, detailed in aworkplan. This workplan is discussed withand agreed by stakeholders. To achievecompliance ull EITI Validation must take

place within 2.5 years. Compliant membersare subject to validation at least once everyfve years, or i the EITI International Boardrequests it. Assessment o compliance isindependent. For ull details o the EITIrules see: http://eiti.org/fles/2011-11-01_2011_EITI_RULES.pd

Market coverageParticipation in EITI has grown signifcantlyover recent years: 37 countries have nowsigned up; 20 are Compliant. Seehttp://eiti.org/countries or a complete list

o Compliant Countries.Background inormationThe Extractive Industries TransparencyInitiative was introduced by Tony Blair inOctober 2002 at the World Summit orSustainable Development inJohannesburg. The frst conerence tolaunch the Initiative was held in London in2003. The secretariat or EITI was openedin Oslo in 2007. A global conerence isheld every two years, with meetings o theboard held between conerences. Theboard is made up o 20 representativesrom all stakeholders: implementingcountries, supporting countries, civilsociety organisations and business. Thereis an elected independent Chair — currentlyClare Short, ormer UK Secretary o Stateor International Development.

FundingThe EITI raises around US$3 million a year

to support its activities. This is unded byvarious partners: private sector (40 percent), supporting countries (37 per cent),Norway (20 per cent), NGOs (3 per cent).

Source: Shaping Sustainable Markets, 2013

http://eiti.org/files/2011-11-01_2011_EITI_RULES.pdf









4.3 SuStainability StandardSin ForeStryThe orestry sector in Latin America appears to bethe most developed sector in terms o theapplication o sustainability standards —particularly in countries such as Brazil and Chilewhere current orest laws are strict and heavilyenorced. This has been partly attributed to thedemand o European and North American endmarkets, which has driven changes across theboard. Indeed, China’s role in the orestry trade isthat o processor and manuacturer rather than anend market, although its domestic consumption ofnal wood products has been increasing (Xiuangand Canby, 2011).

China is now the most signifcant player in theworld trade o wood products — being the world’slargest exporter o value-added wood products(e.g. wood ooring and urniture) and one o thelargest importers o unprocessed or semi-processed wood (logs and lumber) — partlybecause there is a limited supply o domestictimber due to China’s logging ban22 (Ganguly andEastin, 2011). China relies heavily on imports toeed its large trade in wood-related products. Itimports over 50 per cent o its orest products,hal o which ends up in the EU, US and Japan.These markets increasingly require verifcation

that the timber comes rom legal sources andhave increased their environmental and socialrequirements (Xiuang and Canby, 2011).23 Theamendment to the US Lacey Act (2008), and theEU timber regulation (2010), both o which require

all timber to come rom legal sources, are alsodriving changes in the industry in China. Crediblecertifcation is one way in which traceability andlegality can be assured, and due diligence and‘due care’ can be demonstrated.

Very ew orest products are exported rom Chinato Latin America but Chile and Brazil are largesuppliers o wood pulp to China (ranked third andfrst in the world respectively in terms o volumeso wood pulp imports in 2011) and Brazil alsoexports logs and plywood to China. Brazil is the

biggest exporter o pulp and paper products inLatin America. In 2010, 33.1 per cent o the pulpexports rom Brazil went to China (Bracelpa,2011). China is Peru’s biggest timber importer(Putzel, 2009). This trend is likely to continue asthe ability o Chinese timber plantations to meetChina’s aims or quality and production levels hasbeen questioned. Encouraging increasedproduction rom the numerous small-scaleproducers, and low-income orest owners inChina is argued to be vital to guarantee uture

domestic supply (Xiuang and Canby, 2011).

22. The Chinese government has attached great importance to domestic aorestation/reorestation programmes inthe past decades. The central government has spent 233.2 billion yuan (more than US$31 billion) on the 415 million mu(27.7 million hectares) o newly planted orests planted between 1999 and 2009. A third o these lands were armlandsreturned to woodlands. This eort will continue — the State Forestry Administration has announced that China’sgovernment will earmark a total o another 200 billion yuan (US$30 billion) to aorestation schemes to the end o 2021.Such programmes are also considered part o China s̀ commitment to address climate change (Xiuang and Canby,2011).

23. There has been some shit o China’s orest products trade towards the Middle East and Central Asia as they areless demanding than EU and US markets — but the latter still dominate the market (Xiuang and Canby, 2011).



Any eorts to improve the sustainability o orestryand orest trade in China should include ratherthan exclude these smaller players. For the pulpand paper industry in China:

despite shutdowns o small industry players inthe 2000s due to negative environmental impacts (particularly water pollution discharge)and poor energy eciency, the paper industry remains relatively ragmented with the top ve

players accounting or 18% o total market sharein 2008, and the rest producing less than78,000 tonnes per year. (Xiuang and Canby,2011: 29)

There is already evidence that smaller producersare getting orced out o the market, partly due to

the implementation o standards. Closure o smalland medium-sized mills is attributed to theeconomic downturn o 2008 and possibly theinability o these smaller enterprises to complywith the requirements o the ‘big box’ retailerssuch as WalMart and IKEA (Xiuang and Canby,2011). So while multinationals may be driving useo standards, this process is likely to reinorceconsolidation o the industry and lead to theexclusion o smaller players. However, an FSCrepresentative argues that the majority o the2500 FSC chain-o-custody certifcates in Chinaare held by SMEs (IIED interview, 2012).

Chinese national and overseas orestrystandardsThe State Forestry Administration (SFA) and theMinistry o Commerce (MOFCOM) created andpublished a guide on Sustainable OverseasForest Management and Utilization by ChineseEnterprises in 2009 to signal China’s commitment‘to the protection, restoration and sustainabledevelopment o global orest resources’. The

standard was drated by the Forestry ProjectPlanning and Designing Institute o the SFA

Forest Product Industry Planning and DesigningAcademy, in collaboration with the World WildlieFund (WWF), Nature Conservancy (TNC),International Union or Conservation o Nature(IUCN), and Forest Trends (SFA, 2009). The

Guidelines are explicitly recognised as a tool tohelp implement China’s ‘going global’ strategy(SFA, 2009) that ‘will be gradually embraced’.The original impetus or creating the Guidelinescame rom the Chinese NGO, the GlobalEnvironment Institute, which was also involved indrating the Guidelines.

The Guidelines aim to provide the industry with‘management criterion and a sel-discipline basis or the management and utilization activities ooverseas orest resources by Chinese enterprises’

(emphasis added) (SFA, 2009: 12). TheGuidelines’ emphasis is on legality and meetingexisting obligations and regulations (both in thehost country and according to internationalagreements that China has signed up to).

The Guidelines have a series o basic principles(SFA, 2009):

1. respecting national sovereignty o the hostcountry

2. mutually benefcial cooperation (Chineseenterprises making positive eorts to promotelocal economic and community development)

3. integrating ecological, economic and socialbenefts

4. combining government guidance with industrysel-discipline

5. sustainable management and utilisation oorests

6. resource saving (o orest, land and energy

resources).




The Guidelines then oer specifc guidance onlaws and regulations, management and utilisationo orest resources, ecological protection andcommunity development. For communitydevelopment, or example, the Guidelines suggest

that:When conducting the activities related to theorest management and utilisation, the enterprisesconcerned shall give ull consideration to theinterests o local residents and take appropriatemeasures to prevent the said activities romdirectly or indirectly inringing, threatening or undermining the ownership or right o use o local residents toward legal resources. (SFA, 2009:25)

SFA, cooperating with WWF and other NGOsand research institutions, has been promoting theGuidelines in Russia, Gabon, Guyana, andPapua New Guinea (chosen because o theknown presence o Chinese orestry companies).It has conducted demonstrations in nine Chineseoverseas timber companies (both SOEs andprivate companies). Ten Chinese companiesmade commitments to ollow the Guideline in2011 (IIED interview, 2012). The SFA hasattended a number o trade shows andinternational events to promote the use o theGuidelines, with private-sector ‘pioneers’showcasing their experiences o implementingthe Guidelines.

Nevertheless some aspects o the Guidelines arequite vague, or example recommending thatcompanies ensure ‘endangered ora and aunaare marked on a map’ and that ‘correspondingmeasures’ are ormulated, as well as measures orthe protection o ‘typical ecosystems’. TheGuidelines are thereore open to a signifcant

degree o interpretation and do not oer much inthe way o tangible practical guidance. It isunclear i and how ‘compliance’ with, or

implementation o the Guidelines are monitored.Their voluntary nature and the emphasis onsel-discipline presumably means there is noscope or the implementation o the Guidelines tobe enorced. A representative rom IUCN

explained that the Guidelines are quite general, inthat they are designed to apply to any overseascontext in which a Chinese company is operating(IIED interview, 2012). This lack o specifcity canbe a barrier or companies operating in contextswith particular challenges that the company needsto understand — the Guidelines cannot oer thiskind o specifc guidance.

The IUCN representative also explained that themain challenges around implementation o theGuidelines are technical capacity and support orcompanies to apply the Guidelines in particularcontexts, and motivation. She observed that themotivations or large companies and SMEs toimplement the Guidelines are very dierent —SMEs will fnd it harder to implement theGuidelines and cannot necessarily aord thecosts o doing so. NGOs and the SFA have animportant role to play in supporting SMEs toimplement the Guidelines. Companies who areselling or looking to sell to EU and US markets aremore likely to implement the standards than those

selling to other countries. Nevertheless, it isunclear to what extent the EU and US marketsrecognise the Guidelines as a reputable andrigorous verifcation o the sustainability o timberand orestry operations/companies. Credibility,recognition (and market-driven or governmentdemand) are likely to be important determinants inuture use o the Guidelines.

A representative rom the Chinese Academy oForestry explained that there is a gap between

what is stated in the Guidelines and the practiceo companies implementing the Guidelines aspart o the pilot (IIED interview, 2012). This



representative argued that capacity building isrequired or companies:

The extent to which the guide will be implemented in the uture depends on i the government will have more rigorous policies. So ar it is not compulsory but nor have other countries madethis kind o guide compulsory. But the standard should also be market-led, and businessesshould want to apply the guidelines or businessgains related to being more sustainable.

The SFA is recommending that the ‘Green Credit’checks (or example by Chinese banks) use theGuidelines as a reerence point or their lendingdecisions (IIED interview, 2012).

An IUCN representative has explained that

national associations (such China’s NationalForest Products Industry Association) have animportant role to play in encouraging theirmembers to implement the Guidelines. As yet, theyare not explicitly promoting the implementation othe Guidelines. There are political challenges, witha gap between the desires and priorities o theSFA and the Ministry o Commerce, concerningwhich organisation should be the main driver oimplementation o the Guidelines.

China has developed its own national voluntarystandard or orestry — China’s National ForestCertifcation Program or timber and orestproducts. This is administered by China’s ForestCertifcation Council (CFCC). It includes both achain o custody and orest managementstandard. It has 9 principles, 45 criteria and 118

indicators.24 According to Xu Bin rom theChinese Academy o Forestry (IIED interview,2012), who was a key drater o the standard, theFSC was heavily reerenced during drating o theCFCC standard.

Forests are to be certifed against the standardby a third-party certifcation body. According toXu Bin, certifers are frst recommended by thelocal orest bureau, they are then ‘qualifed’ oraccredited by CNCA (China’s NationalCertifcation and Accreditation Administration).To date, only one institute has qualifed to be acertifer o CFCC, the Zhonglin Tianhe BeijingForest Certifcation Center (ZTFC25). Its licenceis due to expire at the end o December, 2016.According to Xu Bin, six or seven institutes are

currently applying to be certifers o thestandard.

According to ZTFC (in July 2012), 10 orestmanagement companies (accounting or aorested area o around 1million hectares in total)and two orestry-product processing companieshave fnished the main assessment or thecertifcation. O these, eight o the orestmanagement companies and the two processingcompanies have been certifed by CFCC. Thosecompanies include leading SOEs and largeprivate companies, or example Asia Pulp andPaper. Some multinationals have alsodemonstrated interest in the standard (ZTFC,2012). In 2010, ZTFC signed a Memorandum oUnderstanding with Walmart (China) andWalmart Global’s sourcing department (reerred

24. The principles relate to: 1) National legal ramework 2) Forest tenure 3) Local community and labourers’ rights, 4)Forest management plan 5) Sivilculture, 6) Biodiversity conservation, 7) Environmental impacts, 8) Forest protection,and 9) Forest monitoring. See http://www.ccs.org.cn/fle/fleup/%E6%A3%AE%E6%9E%97%E7%BB%8F%E8%90%A5%E8%AE%A4%E8%AF%81%E6%A0%87%E5%87%86%E8%8B%B1%E6%96%87080109-Eng.pd or more inormation.

25. See http://ccc-ztc.com

http://www.cfcs.org.cn/file/fileup/%E6%A3%AE%E6%9E%97%E7%BB%8F%E8%90%A5%E8%AE%A4%E8%AF%81%E6%A0%87%E5%87%86%E8%8B%B1%E6%96%87080109-Eng.pdf



http://cfcc-ztfc.com/

http://cfcc-ztfc.com/







to as an ‘environmental sustainable developmentcooperation agreement’) to jointly promote‘worldwide environmental sustainability activitiesand practices, including orest certifcation’(Walmart, 2012: 1). Though CFCC is not

mentioned explicitly, the parties involved couldsuggest that Walmart will be a buyer o CFCCcertifed timber when it becomes available. Aspart o the agreement, all parties involved will‘provide technical consulting and proessionaltrainings on orest certifcation or orestcertifcation assessors, suppliers, managers oorest-related businesses and agencies to becertifed’ (Walmart, 2012: 1).

Once a certifcate is issued, it will last or fveyears, although checks take place every year. I‘anything is ound to be seriously wrong, thecertifcate will be cancelled’ (Xu Bin, IIEDinterview, 2012). Some orestry experts haveargued, based on the certifcation pilots, that thestandard ‘has not been implemented well’ orrather that the standard’s requirements are notparticularly strict — hence the standard having notyet been ofcially recognised by PEFC. Accordingto one interviewee who is an expert in the orestryindustry (but wishes to remain anonymous),certifcation trials have taken place and revealed

that certifcation was relatively easy to achieve —raising some concerns over rigour. However, thepilot phase is designed to test the content o thestandard and orest managers’ ability toimplement it, and changes to the content o thestandard may be made subsequently.

Some parties have expressed concern about theindependence o the standard and its certifcationprocess — and thereore its credibility — since theState Forestry Administration is responsible or

both the standard and certifcation (with theex-head o the SFA having a stake in the certifer).Credibility may be an issue because the standard

is not strictly third-party certifed. ZTFC, the onlycertifer currently in operation, ‘comes under theSFA’ (Walmart, 2012) and is owned by theex-head o the SFA. The SFA is likely to be keen tosee as many orestry operations certifed as

possible.According to Xu Bin rom the Chinese Academyo Forestry (IIED interview, 2012), there are anumber o drivers or the creation andimplementation o CFCC. These include accessto international markets (because domesticdemand and consumption o certifed timberremains limited), and an anticipation thatgovernment procurement policies and policiesmore broadly will demonstrate a preerence orcertifed timber.

CFCC has recently joined the Programme or theEndorsement o Forest Certifcation (PEFC),though has not yet been endorsed by it. Theintention is that joining PEFC will help the CFCCwork towards international recognition o thescheme and endorsement by and harmonisationwith PEFC (Pulpandpaperworld.com, 2012).CFCC will have to meet PEFC’s principles oSustainable Forest Management. Harmonisationwas sought with PEFC, rather than FSC. This isdespite there being a signifcant area o landalready under FSC-certifed sustainable orestmanagement — and a greater number oprocessors and manuacturers having obtainedFSC chain-o-custody certifcates than PEFCequivalents (see below).

PEFC’s model is dierent rom FSC’s in that it isa ramework or mutual recognition o nationalstandards (participating national standards haveto meet PEFC’s sustainability benchmarks). FSCon the other hand has its own standards,

certifcation criteria and process which countrieshave to implement, though appropriate indicatorsor the principles and criteria are created or

http://localhost/var/www/apps/conversion/tmp/scratch_15/Pulpandpaperworld.com




particular countries (e.g. China), throughin-country multi-stakeholder processes. Thisoers some exibility in terms o adapting thestandard or local circumstances. Once these aremet, the national standard can be FSC andlabelled as such. For PEFC, accreditation can becarried out by national accreditation bodies,unlike FSC. With PEFC the national scheme can

maintain its own name and label should it wish,though it can also use the PEFC logo. PEFCcurrently has no orest coverage in Chinabecause the national standard has not yet beenfnalised and met the benchmarks o PEFC.However, there are 99 wood-productmanuacturers in China who are certifed underthe PEFC-Chain o Custody programme in China(Ganguly and Eastin, 2011).

It is also argued that FSC ollows a stricter set oguidelines that allow or less country-specifc

exibility (Ganguly and Eastin, 2011 ), which mayhave been an issue or China.

There have been strong disagreements betweenFSC and the Chinese government regarding thecertication criterions [sic] included in theChinese certication program… related to thesocial and indigenous people’s rights aspects o the Chinese National Forest Certication(CNFC) program. (Ganguly and Eastin, 2011: 6)

However, a representative rom FSC has

explained that communication and dialoguecontinues between FSC and the CFCC and that,despite CFCC’s intention o working towardsharmonisation with PEFC, ‘it is hoped that FSCand CFCC can be as compatible as possible’(IIED interview, 2012).

A representative rom China’s National ForestProducts Industry Association (CNFPIA) sees thekey benefts or companies who get CFCCcertifed as ‘increased market access andcustoms clearance.’ He explains that ‘the majorityo large timber companies in China implementFSC, but the vast majority o smaller companiesdo not and are accused o water pollution andresource wastage’ (IIED interview, 2012).Ganguly and Eastin (2011) also argue that agrowing number o Chinese timber and timber-processing companies, including majorhardwood-ooring manuacturers, are obtainingorest management and chain-o-custody (CoC)certifcations rom FSC-approved certifers.Between 2000 and 2010, the number o

companies in China that have obtained FSC CoCcertifcation jumped rom 12 to 1562 (Gangulyand Eastin, 2011). By 2013, this had risen to 2412companies (FSC, 2013). Despite this positivetrend, this accounts or only a very smallproportion o all wood-manuacturing frms inChina (less than 4 per cent) and ‘only a smallraction o the wood products manuactured by

these CoC certifed frms use certifed wood’(Ganguly and Eastin, 2011).

A total area o 2.59 million hectares has beencertifed under the FSC’s orest managementprogramme in China (FSC, 2013) (Table 1). Mosto the certifed orest area is within state-ownedorests and many are integrated with state-ownedwood-manuacturing operations that have alsoreceived CoC certifcation (Ganguly and Eastin,2011). The lack o availability o FSC-certifedwood, rom both domestic and international

sources, has been cited as the major reason whysuch a low percentage o manuactured woodproducts are produced rom certifed wood inChina — ‘the adoption o FSC Forest Managementcertifcation in China has been slower than CoCcertifcation, primarily due to the act that virtuallyall orests in China are state-owned’ (Ganguly andEastin, 2011: 5).

A representative rom FSC (IIED interview, 2012)explains that are specifc challenges to scaling-upFSC (and certifcation in general) in China and in

determining whether CFCC seeks harmonisationwith FSC or PEFC. These include the ‘politicalchallenges’ in getting state-owned orestscertifed and the choice that needs to be made‘between international and local schemes’ as wellas the quotas or timber production. He arguesthat the State Forestry Administration is notparticularly market-driven, which can be achallenge or the up-scaling o FSC — despite theact the scheme that has captured more o themarket in China (and the market in other demand

and supply countries o FSC) than any otherorestry certifcation scheme.

The FSC representative explains thatmultinationals in China (such as IKEA andWalmart) have been signifcant in driving thegrowth in FSC certifcation, though they havestruggled with challenges o side-selling ocertifed produce (i.e. selling to other buyers thanthose agreed upon) and a lack o supply due toquotas. Demand or LEED-certifed buildings26 has also played a role in driving demand or FSC.

26. LEED certifcation is a recognised standard or measuring building sustainability. See: http://www.usgbc.org/leed

http://www.usgbc.org/leed

http://www.usgbc.org/leed




There are a number o challenges or small-orestmanagers who wish to achieve FSC certifcationin China. An FSC representative explains thatissues remain around land tenure in China andthat some historical tensions have not beenresolved. FSC will not certiy plantations createdthrough conversion o natural orest since 1994,nor genetically modifed trees, and these can bechallenges or small orest operators. Small

operators have also been struggling to achieve theappropriate management capacity to meet theneeds o the FSC standard, although FSC is nowimplementing specifc standards or smalloperators and organising training sessions ororest managers and certifers to help moresmallholders get certifed. Small operators tend toneed to be well-organised and already have amarket link — through which these operators mayobtain co-investment and support. Donors canplay a role in supporting operators but a marketneeds to be identifed to ensure there is demand.FSC explains the importance o maintainingcredibility o the FSC standard, particularly in

China, through international auditors auditing theexternal certifers and by having a complaintsmechanism in place so anyone can raisesuspicions o non-compliance anonymously.

Each industry in China has an Association — theseare not-or-proft organisations that help tomanage a particular market (e.g. timber) andestablish standards therein. The China TimberCirculation Association has a membership o 600

timber enterprises. These members can apply ora credit rating, verifed by the Association, whichis a type o quality assurance; the highest rating isAAA, which 10 companies achieved in 2010. Theidea is that consumers can then choose the ‘best’company. The rating system has ninecomponents, one o which is related to corporatesocial responsibility (e.g. the achievement o ISO14001, whether the timber comes rom certifedsources, and whether the enterprise contributesto aorestation, environmental conservation or

sustainable orests).

table 1: market CoveraGe oF CertiFiCation SChemeS in China, 2013

international ForeSt CoveraGe (millionheCtareS)

Chain-oF-CuStodyCertiFiCateS

FSC 2.59 2412

PEFC 0 (dependent on a national schemebeing established in China)

99

national

CFCC 1.0 (estimated, not third-party data) 2 (estimated, not third-party data)



However, these associations are typically linked togovernment in some way and in some instancesare actually established by the government — thisis dierent rom associations in other counties likeBrazil, which are independent and play an

important role in lobbying government on theneeds and interests o businesses. In somecases, associations may be ‘consulted’ on newpolicies, but in reality consultation is notmeaningul and the associations are regarded asa key vehicle or reinorcing and promotinggovernment policies. One Chinese expert whohas worked with and studied orestry industryassociations around the world has explained thatthe lack o independence among industryassociations is a key barrier to more dynamic

industry growth and can work against the views oSMEs who lack a proper channel or eedback togovernment (IIED interview, 2012).

International and national standards in orestryin Chile, Peru and BrazilIn addition to the international certifcationscheme o the Forest Stewardship Council(FSC), Brazil also has a national scheme:Certifcação Florestal (Ceror), also voluntary.Ceror has been operational since 2003 and is

endorsed by the Programme or the Endorsemento Forest Certifcation Schemes (PEFC), whichmeans that it complies with PEFC’s sustainabilitybenchmarks (PEFC, 2012a). PEFC is the world’slargest orestry certifcation system by hectares.Ceror ollows Brazilian legislation as well as

international conventions recognised by thegovernment27 and is a product o the joint eort ostakeholders — NGOs, producers, governments,consumers, universities and research institutions(PEFC, 2012a). O the total 519 million hectares

o orest in Brazil (FAO, 2010), 7.36 millionhectares are FSC certifed (FSC, 2013)(approximately 1.4 per cent o total orestcoverage, based on 2010 fgures or orestcoverage). The total Ceror certifed area is 1.26million hectares (Inmetro, 2012), or 0.24 per cento total orest coverage.

In Chile, orestry exports (mainly pulp) reachedUS$5177 million in value in 2011 and went mainlyto China and APEC28 countries ollowed by theEuropean Union, other Latin American countriesand the USA (ODEPA, 2012b). The certifcationschemes used in Chile include FSC andCERTFOR Chile. CERTFOR is the Chileannational certifcation system internationallyendorsed by PEFC since 2004 (PEFC, 2010b).CERTFOR includes our certifcation standards(sustainable orest management (SFM) orplantations, SFM standard or native orests, chaino custody standard and group certifcationstandard) and is the main certifcation system inChile (PEFC, 2010b). As o 2010, 82 per cent

(1,911,920 million hectares) o orestry plantationsin Chile was CERTFOR-certifed (PEFC, 2012b).In April 2013, 1.17 million hectares in Chile wereFSC-certifed (FSC, 2013).

27. International conventions and processes recognised and applied by the Brazilian government include theConvention on Biological Diversity, the Convention on International Trade in Endangered Species o Wild Fauna andFlora, the Kyoto Protocol, the Biosaety Protocol and the International Tropical Timber Organization (PEFC, 2012a).

28. APEC is the Asia-Pacifc economic orum. It has 21 members: http://www.apec.org/about-us/about-apec/member-economies.aspx

http://www.apec.org/about-us/about-apec/member-economies.aspx







In Peru, 959,722 hectares o orest are FSC-certifed (FSC, 2013) (1.4 per cent o the totalorested area in Peru — 68,742,000 hectares)(Mongabay, 2012). But historically there havebeen issues with illegal logging and timber trade

due to weak implementation and enorcement othe law. In recent years, changes to andenorcement o the Peruvian Forest Law (passedin 2000) have helped to drive some improvementsin sustainability o the orestry sector (Putzel,2009). This was arguably driven by demands othe US market, because o the signifcant scale oillegal or ‘inormal’ logging in Amazonia (whichreached up to 88 per cent between 2002 and2006, according to Putzel (2009)). A condition othe US–Peru Free Trade Agreement (in eect

since 2009) was the modifcation and increasedenorcement o the Peruvian Forest Law in orderto ulfl the requirement o the US Lacey Act andEurope’s FLEGT licensing scheme,29 which bancommerce in illegally sourced timber and timberproducts (Putzel, 2009).

Though data exist on the extent/market coverageo sustainable orestry certifcation in Chile, Braziland Peru, it is unclear what percentage o certifedtimber rom these countries is actually beingexported to China. Anecdotal evidence suggests

that at present the main markets or certifedtimber remain European and North American(Muthoo, 2009). There is thereore a dual systemdepending on end market — with little or nocertifcation or domestic markets or or marketsthat are as yet ‘non-sensitive’ to sustainabilityrequirements (typically in developing countries).

4.4 SuStainability StandardSin aGriCulture

International and national standards in LatinAmerica

Soy is the most signifcant product in Chinese–Latin American trade in agriculture. There are twohigh-profle mechanisms that have been applied tothe global soy trade: the Soy Moratorium and theRound Table on Responsible Soy (RTRS) (Box3). Attempts are being made to introduce theRTRS certifcate to soy production in SouthAmerica. National interpretations o the standardhave been completed or Argentina, Brazil andUruguay and in June 2011 the frst SouthAmerican producers were RTRS-certifed.

National interpretations or India, Paraguay, Chinaand Bolivia are in progress. However, in astrategic analysis or the production oresponsible soy in Brazil and Argentina carried outby the Instituto de Estudo do Comércio eNegociações Internacionais (2011) or the RTRSAssociation, it is recognised that China, as thelargest soy importer in the world, does notdemand any o its soy imports to be sustainablyproduced or certifed. The increase in Chinesedemand or Brazilian soy (compared to that o theEuropean Union) could thereore entail areduction in incentives or producers to adopt andimplement sustainability standards. This couldresult in a setback in the current trend osustainability standards seen in the agribusinesssector in Brazil — and possibly in other countriesrom which soy is sourced.

29. See http://ec.europa.eu/environment/orests/egt.htm.

http://ec.europa.eu/environment/forests/flegt.htm





box 3: the round table on

reSponSible Soy

The Round Table on Responsible Soy (RTRS)is a multi-stakeholder initiative working tocertiy soy as responsible. Originally, itprovided a orum or dialogue betweenvarious actors in the soy supply chain and civilsociety, but in 2010 it drew up standards orcertifcation o soy products and or thesupply chain (Chain o Custody). In June2011, the frst arm was RTRS certifed. TheRTRS has a Certifcate Trading Platorm,which has acilitated transactions betweencertifed producers and buyers.

The RTRS standard or responsible soyproduction includes requirements to haltconversion o areas with high conservationvalue, promote best management practices,

ensure air working conditions, and respectland-tenure claims. The principles behindthese production standards are:

• legal compliance and good businesspractice

• responsible labour conditions• responsible community relations• environmental responsibility• good agricultural practice.

These guiding principles inorm thedevelopment o ‘national interpretations’

which are drawn up by a technical workinggroup. So ar, Brazil, Argentina and Uruguayhave completed national interpretations withIndia, Paraguay, China and Bolivia in theprocess o doing so. The technical workinggroup consists o representatives romindustry, civil society and producers.

Certifcation against these principles must beundertaken by independent auditors. It is notclear how regularly monitoring must takeplace. A set o supply chain standards havealso been published, aiming to ensuretraceability throughout the supply chain. Anumber o modules describe the variousoptions available. These include

specifcations or a mass-balance model and/or a ully segregated model. In addition, thereare specifcations or non-genetically modifedand multi-site supply chains.

Market coverageAs o 2012, there were 18 certifed producers.In total there was 959,531 tons o certifedsoy produced on 333,956 hectares. Globalproduction o soybeans in 2011 stood at251.5 million tons (USDA, see http://www.soystats.com/2012/page_30.htm ).

Background inormationThe RTRS originated rom the ResponsibleSoy Forum in London, UK in May 2004. TheRTRS was ormalised and registered in Zurichin November 2006. Numerous meetings havetaken place since then and standards havebeen developed and piloted since 2009. Thefrst version o the Standard was published inJune 2010. Membership o the RTRS isvoluntary, multi-stakeholder and grouped

according to sector type (number orepresentatives in brackets): producers (29);industry, fnance and trade (72); civil society(16). In addition there are 28 organisationsthat are ‘observers’. Inormation on unding isnot publically available. RTRS-certifed statusis applicable to all kinds o soybeans includinggenetically modifed produce

Source: Shaping Sustainable Markets, 2012

http://www.soystats.com/2012/page_30.htm







It has been argued that other strategies, i.e. thosethat do not involve certifcation, will be necessaryto improve the sustainability o the soy trade inlight o the Chinese end market, which is regardedas price sensitive and less concerned with

environmental ootprints (TNC, 2011). Possiblestrategies include: ocusing on multinationals andthe reputational risk associated with deorestationand encouraging them to track their sources osoy and its links to deorestation; providingnon-price-premium incentives to producers (suchas subsidised credit, access to extensionservices); and intensiying production on alreadycleared land (TNC, 2011).

In the agricultural sector in Brazil, Chinesecompanies have yet to start any major projects,although several have been announced. Forexample, the China National AgriculturalDevelopment Group Corporation (CNADC) willbe working with the government o the state oGoias in expansion projects o grain plantationsand will invest in the construction o a railroad. Thecurrent major exporters to China rom Brazil arelarge multinationals, such as Cargill, ADM andBunge. These serve Northern markets (i.e. Europeand North America) as well as Southern, and haverelatively well-developed sustainability policies,

particularly in comparison to non-OECDexporters.

In Chile a number o initiatives involving goodagricultural practices have been implemented;this has been attributed to demands or armers tobecome GLOBALGAP, EUREPGAP or USGAPcertifed (ChileGAP, 2012). ChileGAP wasdeveloped in Chile at the request o the ChileanAssociation o Exporters and has achievedequivalence with GLOBALGAP (ChileGAP,2012). There are over 130 companies (arms)

specialised in ruit production that have beencertifed (ChileGAP, 2012) but inormation islacking on how up-to-date this fgure is, and on theimpact o this voluntary scheme.

Another initiative to help armers comply withinternational requirements is that o Federuta –the National ederation o ruit producers o Chile.This helps armers to incorporate goodagricultural practices into their operations byoering audits and training or EUREPGAP andUSAGAP certifcation (Federuta, 2012). Theseinitiatives reect the impact o European andNorth American markets on the Chilean ruitmarket. However, the export o agriculturalproducts rom Chile to China is just taking o, andinormation on the extent o this trade, and

whether any standards are being implemented, isscarce. The Chileans are showing signifcantinterest in selling ruit to the Chinese market, aswell as meat and wine. There is a China–Chiledemonstrative arm in Tianjing near Beijing.

Chinese national standardsThe standards published by the Chinesegovernment or agricultural products are currentlyocused on ood saety and meeting customsrequirements such as or cleanliness, packing and

product quality ( IIED interview, 2012). So ar,there are no Chinese standards related explicitlyto sustainable production or ood imports intoChina or out o China — though the ChineseGreen Food initiative was launched in 1990 by theMinistry or Agriculture or domestic production. Itaims to ‘enhance ood quality and saety, topromote consumer’s health, and to promoteagricultural bio-environment or sustainabledevelopment’ (Green Food, 2012). At present, itappears that sustainability standards are not

being applied to ood imported into China.



However, some o the multinationals operating inChina, such as IKEA, are playing a role in drivingthe market or certifcation. IKEA, which hasstores in China, requires all o its cotton suppliersto be certifed under the Better Cotton Initiative

table 2: Summary oF SuStainability StandardS/GuidelineS relevant toChina–latin ameriCan trade*

CroSS-SeCtoral

mininG aGriCulture ForeStry

International standardsISO 26000 EITI

Global Compact

ISO 14001

GRI

Soy moratorium

Round Table onResponsible Soy

GLOBALGAP

EUREPGAP

USGAP

Better Cotton

Initiative

FSC

(PEFC, see below)

National standards

China Guidelines oninvestmentsoverseas (2009)

Green CreditGuidelines (2012)

Guidelines onenvironmental

protection orChina’s outboundinvestment andcooperation (2013)

Green Food

ChinaGAP

CFCC

Guide onSustainableOverseas ForestManagement andUtilisation byChinese Enterprises(2009)

PEFC chain ocustody

Chile ChileGAP CERTFOR (PEFC)

Brazil Ceror (PEFC)

Peru EITI

*This table is not exhaustive. It reects the major sustainability standards mentioned during IIED research.

(BCI), regardless o where they are in the world.IKEA has been working with villages in Xinjiangprovince to support the application and adoptiono BCI. This is also the case with certifed orestproducts.



Trade and investment between Latin America andChina is booming, particularly in the naturalresource and extractive sectors. This brings with itnew challenges and opportunities or the pursuito sustainable development. The nature o trade

and investment between emerging anddeveloping countries — the behaviour ocompanies, the implementation and developmento standards, and overall sustainable developmentoutcomes — are shaped by a number ogovernance actors. These include:

• the regulatory context in which the trade/investment takes place

• the regulatory (hard and sot) context romwhere the investment comes

• the nature o the investment or partnership• the demands o external investors and

shareholders

• the level o activity o civil society (or exampleNGOs and the extent o press reedom) —related to what the government will tolerate

• the existence o other accountability drivers,such as institutions to provide crediblemonitoring and to push or transparency andeective reporting (such as EITI, GlobalWitness, Publish what you Pay).

In this sense, ‘good’ governance comes rom avariety o dierent directions and sources.

Initial evidence presented in this paper suggeststhat sustainability considerations are increasinglyon the agenda and Chinese companies aremaking eorts to address the social andenvironmental impacts o their operations, as wellas developing constructive relations withstakeholders. A number o international standards

(including the GRI, ISO 26000, ISO 14001, the

Global Compact, and EITI) are being used tomeet the demands o investors, consumers andother stakeholders in Chinese–Latin Americantrade and investment. In some cases, nationalstandards are being developed, such as

ChileGAP, CFCC and China’s ‘Green Banking’Guidelines. This is possibly due to a perception othe limitations or inappropriateness o the existingset o international instruments, though there arealso attempts to see these national standardsachieve equivalence with international standards— presumably to expand market opportunities.

Multinationals can have higher standards overall,driven by requirements rom consumers, investorsand governments in developed countries. Theytypically maintain a more consistent approach to

standards and sustainability across all o theiroperations, regardless o country o operation.These actors may play a role in driving broaderchanges in the market. IKEA, or example, whichoperates in China, requires all o its suppliers tohave achieved FSC certifcation and to becompliant with the Better Cotton Initiative. IKEAChina is having to source hal o its timber romEuropean, US and Australian sources becauseChina’s awareness and production o FSC-certifed timber is low, but IKEA may help to drive

certifed production in China — as it is doing withcotton.

Evidence also suggests that European and NorthAmerican markets are driving adoption osustainability standards in emerging anddeveloping economies. Chinese companieswishing to target these markets may adopt higherstandards, which they then apply to all o theirpractices. But, oten, there is a dual systemdepending on end market, with no certifcation ordomestic markets.

FIVE

ConCludinG remarkS



Unsurprisingly, standards are most likely to beimplemented where there is an eectiveregulatory context. Laws set the minimumstandards required, upon which privatestandards tend to build. In some cases there is a

perception that standards are meaningless untilthe legislation and enorcement is strong enoughto establish a bare minimum which companiesneed to satisy and can then move beyond.Government support or standards is alsoimportant, e.g. the Peruvian government supportor EITI. The orm o investments (mergers andacquisitions, joint ventures or greenfeld)permitted by law in a country, or encouraged bythe government, also aects the adoption ostandards. For example, where Chinese

companies have been able to purchase majoritystakes in overseas companies or set upindependently (as in the case o ShougangHierro Peru), there are ewer external pressuresand accountability mechanisms to drive the useo standards, or standards are not ‘inherited’.

Investors and fnancial markets play an importantrole in driving accountability, and can be inuentialdrivers o behaviour change. As Kotschwar et al.( 2012: 19) explain: ‘Investors that have towithstand scrutiny as they register their equity,

raise capital, and seek multilateral assistance ininternational markets tend to adopt deensiblestandards, or ace reputational risk.’ Initialevidence suggests that investors within China arebeginning to adopt lending practices partlyshaped by CSR considerations. Industrial Bank (China) is the frst (and currently only) bank inChina to have signed up to the Equator Principles(China Dialogue, 2012), despite the Chinesegovernment not ofcially endorsing the principles.Although the exact driver behind the Industrial

Bank’s decision to adopt the Equator Principles isnot known, it appears that the InternationalFinance Corporation played a role in encouragingtheir adoption, and certainly in making ‘strategicsuggestions and technology support or Industrial

Bank to implement the Principles’ (China CSR,2008). The Industrial Bank is regarded as anindustry leader in terms o sustainable fnance andgreen banking (China CSR, 2008). Theseprocesses are not ree rom politics — the topthree banks in China fnancing overseas directinvestment (China EXIM Bank, ChinaDevelopment Bank and Bank o China) have notsigned up to the Equator Principles. China’sGreen Credit Guidelines are likely to play agrowing role in shaping the nature o Chinese

investment both within China and overseas. It willbe important to monitor the implementation othese Guidelines and their impact.

Civil society — and government’s acceptance ocivil society activity — plays an important role inholding companies accountable and inhighlighting bad practice as well as oering orwithholding a ‘social licence’ to operate. In Peru, asocial licence to operate is enshrined in law.Kotschwar et al. ( 2012) argue that ‘supportinggroups that monitor the activity o corporations

helps to shed light on both positive and negativepractices and helps encourage constructivebehaviour’.

Indeed, standards and guidelines ultimately work well only in circumstances where someone can beheld accountable and where there is third-partyauditing and transparency. Investors, or example,may ask questions about environmental and socialstandards beore fnancing a project, orstakeholders may raise complaints with investorsi problems arise. This is more challenging in the



FiveConCludinG remarkSContinued

case o Chinese SOEs, which can be lesstransparent to external stakeholders and/or do notnecessarily have a variety o stakeholders involved(e.g. independent/third-party investors). They canthereore be subject to ewer accountability

drivers/mechanisms in comparison with privateChinese companies (Sanborn, 2012).

Increasingly, Chinese SOEs and privatecompanies are being exposed (either externally bymarket demands or internally by governmentpolicy) to sustainability requirements andstandards. According to Kotschwar et al. (2012),domestic environmental standards have begun tobecome more stringent since the mid-2000s, andthe Chinese government has pushed orcompanies investing abroad to pay attention to

environmental and social actors as well as proft(as part o its ‘green development’ strategy; seeWWF, 2012). Loosely defned corporate socialresponsibility requirements have been put orth(Kotschwar et al., 2012). In addition, ‘Chinese’standards are growing in relevance and use (e.g.CFCC, Green Credit Guidelines, ChinaGAP) andChina’s ‘going global’ strategy explicitlyrecognises the importance o meetinginternational standards. Indeed, as well asdeveloping its own standards, China is also

looking to achieve equivalence and harmonisationwith existing international standards (e.g. PEFC,GLOBALGAP) that best suit the Chinese context— or example a choice o PEFC over FSC.

This trend is also reected in a growing emphasisin China on sustainability reporting. For example,at least 60 major Chinese companies use theinternational Global Reporting InitiativeGuidelines, with the state-owned China OverseasShipping Company securing the GRI’s most

stringent ‘A+’ level rating or its sustainabilityreport (Zadek, 2012). Zadek argues that China’sgrowing emphasis on corporate socialresponsibility is not simply ‘greenwash’ (thoughexamples o this exist — as they do with companies

in the North), but part o a strategic move tobecome the world’s leading green and inclusiveeconomy. The rise o sustainability reporting inChina has been attributed to the State-ownedAssets Supervision and AdministrativeCommission (SASAC) requiring all state-ownedenterprises to publish CSR reports by 2012. By2010, state-owned enterprises accounted or 78per cent o all companies releasing these reports(BSR, 2012).

This paper aims only to stimulate discussion, and

a number o signifcant research gaps remain.Improved understanding o the role o ChineseSOEs — and their adoption o standards — inoverseas investment and trade is clearly importantbecause o their size and dominance and theirregular role as frst movers. From a developmentperspective, however, it is particularly important tounderstand the role o Chinese and LatinAmerican SMEs in this trade and investment, andthe potential or the development and applicationo standards to be inclusive or exclusive o SMEs.

The role o the inormal economy in thisinternational trade is also important. Peru is thesixth-largest inormal economy in the world(Peru21.pe, 2013). In China, or example, theagriood market is dominated by a large number osmall armers, traders and wholesalers, and theinormal economy at the arm level continues todominate with little penetration rom the modernmarket (Jia and Huang, 2011). Initial evidencesuggests that the application o standards in

http://localhost/var/www/apps/conversion/tmp/scratch_15/Peru21.pe




these countries could lead to exclusion o smallerplayers (see, or example, Mo et al., 2012 on theimpacts o government attempts to standardisethe dairy industry in China). Understanding how toinclude these players meaningully in eorts

towards sustainability (and ood saety) will bevital. Understanding how to ensure that China andLatin America’s transition to sustainability is bothgreen and inclusive is an important area o urtherresearch.

A number o questions warrant urther attention:

• What are the attitudes o Chinese companiesand SOEs to certifcation, and how much o thisis inuenced by re-export and how much bydomestic drivers?

• What are the behaviour and attitudes o SMEsinvolved in China–Latin American trade towardssustainability and standards?

• How eective are the tools being developingwithin China and other emerging anddeveloping countries and what impact are theyhaving?

• What sort o tools would be most appropriateor a Latin America–China trade axis to drivesustainable trade and investment, compared to

existing international standards, and how canthese be inclusive, rather than exclusive o small-scale producers and SMEs?

• How will international standards bodies makechanges to their codes and standards, andbring in Southern business stakes?



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This series o interviews was carried outespecially or this report. When cited in the text,these are reerred to as ‘IIED interview, 2012’.

Companies• Forest sector (pulp). Private company, Chinese.

Senior Procurement Manager.

• Cross-sectoral. Multinational retailer withoperations in China. Buyer in upholstery.

• Mining (chromium). State-owned enterprise,Chinese. Buyer.

• Mining. State-owned enterprise, Chinese.Manager o Integrated Business Department.

• Mining. State-owned enterprise, Chinese.

Supply Chain Manager (cement).

• Mining. Private company, Singaporean withChinese subsidiaries. Managing Director.

• Construction (in relation to building materials,i.e. timber). State-owned Enterprise. FlooringDepartment.

Ministries/government organisations• Ministry o Agriculture, China.

• State Forestry Administration, China.

Associations• US Grain Councils, American Soybean

Association.

• China Non-errous Metals Standards Metrologyand Quality Institute.

• China National Forest Products IndustryAssociation (CNFPIA).

• Brazil Mining Association (IBRAM),

Environmental Manager.• China-Brazil Business Council (CBBC).

• Brazilian Rural Society (SRB), Advisor to SRB’sPresident.

Academics and NGOs• Xu Bin, Chinese Academy o Forestry.

• Dr Alvaro Comin, Lecturer at King’s CollegeLondon. Dr Comin is an expert in Labour andDevelopment Studies in Brazil, having worked inthe area or over ten years.

• Dr Cynthia Sanborn, Director o the ResearchCentre at the Universidad del Pacifco (CIUP),Peru.

• Julia Cuadros, Deputy Director, Cooperaccion,a Peruvian NGO that ocuses on promoting

sustainable development in areas with highlevels o natural resources exploitation such asmining and fshing.

• Ruben Gonzales-Vicente. PhD candidate,University o Cambridge. Research ocusing onthe internationalisation o China’s miningindustries and the Chinese state, as well as thedevelopmental impact o Chinese mininginvestment in South America (see http://www.geog.cam.ac.uk/people/gonzalez-vicente/ ).

• WWF China.

• IUCN.

• Ecologia.

• A Chinese national who has worked with andstudied industry associations (especially theorest industry) around the world.

Certifers• Forestry Stewardship Council.

appendix 1: liSt oF intervieweeS

http://www.geog.cam.ac.uk/people/gonzalez-vicente/










The International Institute or Environmentand Development is one o the world’s toppolicy research organisations working inthe feld o sustainable development. Withits broadbased network o partners, IIEDis helping to tackle the biggest issues oour times — rom climate change and citiesto the pressures on natural resources andthe orces shaping global markets.

I t ti l I tit t f

Trade and investment between China and LatinAmerica has increased at unprecedented ratesin recent years. This brings with it new

challenges and opportunities or collectivesustainability eorts. This discussion papersummarises initial evidence on the growing tradeand investment between China and LatinAmerica in mining, orestry and agriculture, with aparticular ocus on Chile, Peru and Brazil. Itexplores the use and impact o sustainabilitystandards, both international and national – orexample, Forest Stewardship Councilcertifcation and China’s national orestrycertifcation scheme. Ater analysing the drivers

and governance actors shaping the design anduptake o standards, it identifes severalimportant questions or uture research, in thisunder-researched but important topic orsustainability.

SUSTainaBiliTy STanDarDS in china–laTin amEricaTraDE anD invESTmEnT

a diSCuSSion