SOUTH BULLETIN Published by the South Centre ● www.southcentre.int ● 17 March 2017, Issue 98 A new protectionist threat: the US "border adjustment" tax

A new protectionist device, the US “border adjustment” tax, is being planned that could devastate the exports of developing countries and cause American and other for- eign companies to relocate. The Images Somodevilla/Getty Chip first article explains the complexi- ties and implications of this propo- sed measure. The major question of whether such a measure will vio- late the rules of the WTO is exam-

ined in the second article.

Launch of the tax proposal “A better way” at the US Congress by Paul Ryan, speaker of the House of Represent-  Pages 2-7 atives. Border tax proposal, WTO South Centre Brief- rules and how developing ing on Global Eco- countries could respond nomic Trends and Geneva Multilateral  Pages 8-9 Processes Some simple criteria for examin-  Pages 10-14 ing WTO compatibility of certain South Centre and Indonesia hold policies and measures  Page 9 inaugural forum for South-South cooperation on tax Challenges and policy issues Opportunities  Pages 17-20 for the Next South Centre co-organises retreat WHO Director- for governments on Financing for General Development in New York  Pages 15-16  Pages 21-22 Beware of the new US protectionist plan, the border adjustment tax A new protectionist device is being planned in the United States The plan is a key part of the Ameri- that could devastate the exports of developing countries and ca First strategy of US President Don- ald Trump, with his subsidiary policies cause American and other foreign companies to relocate. The of “Buy American” and “Hire Ameri- complexities and implications of the proposed border adjust- cans.” ment tax are explained in this article. This is the first of a two The border adjustment tax is part of part series on the US border tax plan. a tax reform blueprint “A Better Way” whose chief advocates are Republican leaders Paul Ryan, speaker of the House of Representatives and Kevin Brady, Chairman of the House Ways and Means Committee. President Trump originally called the plan “too complicated” but is now considering it seriously. In a recent address to congressional Republicans, Trump said: “We’re working on a tax reform bill that will reduce our trade deficits, increase American exports and AP Photo/Zach Gibson Gibson APPhoto/Zach will generate revenue from Mexico that will pay for the (border) wall.” The proposal has however generat- ed a tremendous controversy in the US, with opposition coming from some

Congress members (including Republi- cans), many economists and American companies whose business is import- intensive. The border adjustment tax is part of a tax reform blueprint “A Better Way” whose chief advocates are Republican leaders Kevin Brady, Chairman of the House Ways and Means Committee (left), and Paul It however has the strong support of Ryan, speaker of the House of Representatives (right). Republican Congress leaders and some version of it could be tabled as a bill. By Martin Khor On the other hand, if adopted, it Whether it will be passed remains to be would significantly reduce the com- seen. new and deadly form of protec- petitiveness or viability of goods and A tionism is being considered by services of countries presently export- Trump had earlier threatened to Congress leaders and the President of ing to the US. The prices of these impose high tariffs on imports from the United States that could have dev- exports will have to rise due to the countries having a trade surplus with astating effect on the exports and in- tax effect, depressing their demand the US, especially China and Mexico. vestments of American trading part- and in some cases make them unsala- This might be a more simple meas- ners, especially the developing coun- ble. tries. ure, but is so blatantly protectionist And companies from the US or that it will trigger swift retaliation, and The plan, known as a border adjust- other countries that have invested in would almost certainly be found to ment tax, would have the effect of tax- developing countries because of violate the rules of the World Trade ing imports of goods and services that cheaper costs and then export their Organization. enter the United States, while also products to the US will be adversely providing a subsidy for US exports The tax adjustment plan may have a affected because of the new US im- similar effect in discouraging imports which would be exempted from the port tax. tax. and moreover would promote exports, Some firms will relocate to the US. but it is more complex and thus diffi- The aim is to improve the competi- Potential investors will be discour- cult to understand. tiveness of US products, drastically aged from opening new factories in The advocates hope that because of

reduce the country’s imports while the developing countries. In fact this the complexity and confusion, the promoting its exports, and thus narrow is one of the main aims of the plan – the huge US trade deficit. measure may not attract such a strong to get companies to return to the US. response from US trading partners.

Page 2 ● South Bulletin ● Issue 98, 17 March 2017 ports cannot be deduct- Under the new plan, the export ed and would form part sales of $10,000 is exempt from tax, so of the new taxable total the company has zero tax. Its profit of $8,000. With a 20% after tax is thus $3,000. The company tax rate, the tax would can cut its export prices, demand for be $1,600 and the after- its product increases and the company tax profit $1,400. can expand its sales and export reve- nues. Given this scenario, if the company wants to At the macro level, with imports retain his profit margin, reduced and exports increased, the US it would have to raise its can cut its trade deficit, which is a ma- price and revenue sig- jor aim of the plan. nificantly, but this in On the other hand, the US is a ma- turn would reduce the jor export market for many develop- volume of demand for ing countries, so the tax plan if imple- the imported goods. mented will have serious adverse ef- For firms that are more fects on them. import-dependent, or The countries range from China with lower profit mar- and Mexico, which sell hundreds of gin, the situation may billions of dollars of manufactured be even more dire, as products to the US; to Brazil and Ar- some may not be finan- gentina which are major agricultural cially viable anymore. exporters; to Malaysia, Indonesia and Take the example of a Vietnam which sell commodities like company with $10,000 palm oil and timber and also manufac- The report, “A better way,” produced in June 2016, is now the sub- revenue, $7,000 imports, tured goods such as electronic prod- ject of intense discussion in Congress and in the public. It is not clear $2,000 wages and $1,000 ucts and components and textiles; Ar- whether it will be adopted by Congress. profit. With the new ab countries that export oil; and Afri- Moreover they claim it is permitted by plan, the taxable total is $8,000 and the can countries that export oil, minerals the WTO and are presumably willing tax is $1,600, so after tax it has a loss of and other commodities; and countries to put it to the test. $600 instead of a profit of $1,000. like India which provide services such as call services and accountancy ser- The company, to stay alive, would In the tax reform plan, the corporate vices to US companies. tax rate would be reduced from the have to raise its prices very significant- present 35% to 20%. The border ad- ly, but that might make its imported American industrial companies are justment aspect of the plan has two product much less competitive. In the also investors in many developing main components. Firstly, the expenses worst case, it would close, and the im- countries. The tax plan if implemented of a company on imported goods and ports would cease. would reduce the incentives for some of these companies to be located services can no longer be deducted The economist Larry Summers, a abroad as the low-cost advantage of from a company’s taxable income. former Treasury Secretary, gives a sim- the foreign countries would be offset Wages and domestically produced in- ilar example of a retailer who imports by the inability of the parent company puts purchased by the company can be goods for 60 cents, incurs 30 cents in to claim tax deductions for the goods deducted. labour and interest costs and then imported from their subsidiary com- earns a 5 cent margin. With 20% tax, The effect is that a 20% tax would be panies abroad. applied to the companies’ imports. and no ability to deduct import or in- terest costs, the taxes will substantially Perhaps the most vulnerable coun- This would especially hit companies exceed 100% of profits even if there is try is Mexico, where many factories that rely on imports such as automo- some offset from a stronger dollar. were established to take advantage of biles, electronic products, clothing, toys tariff-free entry to the US market un- On the other hand, the new plan and the retail and oil refining sectors. der the North American Free Trade allows a firm to deduct revenue from Agreement. President Trump has The Wall Street Journal gives the its exports from its taxable income. warned American as well as German example of a firm with a revenue of This would allow the firm to increase and Japanese auto companies that if $10,000 and with $5,000 imports, $2 000 its after-tax profit. wage costs and $3,000 profit. Under they make new investments in Mexico, the present system, where the $5,000 The Wall Street Journal article gives their products would face high taxes imports plus the $2,000 wages can be the example of a firm which presently or tariffs on entry, and called on them deducted, and with a 35% tax rate, the has export sales of $10,000, cost of in- to invest in the US instead. puts $5,000, wages $2,000 and profit company’s taxable total would be After the implications of the border $3,000. With the 35% corporate tax $3,000, tax would be $1,050 and after- adjustment plan are understood, it is rate, the tax is $1,050 and after-tax prof- tax profit would be $1,950. bound to generate concern and out- it is $1,950. Under the new plan, the $5,000 im- rage from the United States’ trading

Page 3 ● South Bulletin ● Issue 98, 17 March 2017 nies including giants Walmart and Ap- ple are strongly against the border tax plan, and an influential Republican, Steven Forbes, owner of Forbes maga- zine, has called the plan “insane.” It is not yet clear what Trump’s final position will be. If he finds it too diffi- cult to use the proposed border tax, because of the effect on some American companies and sectors, he might opt for the simpler use of tariffs. In any case, whether tariffs or bor- der taxes, policy makers and compa-

Gettty Images Gettty nies and employees especially in devel- oping countries should pay attention to the trade policies being cooked up in Washington, and voice their opinions.

Otherwise they may wake up to a Companies like Walmart that sell a lot of imported goods in the US will be affected by the proposed world where their products are blocked tax bill and are protesting against it. from the US, the world’s largest mar- ket, and where the companies that partners, in both South and North, if trade and trade relations. were once so happy to make money in implemented. They can be expected to There are many critics of the plan. their countries suddenly pack up and consider immediate retaliatory Lawrence Summers, a former US return home. measures. Treasury Secretary, warns that the tax A former undersecretary for interna- change will worsen inequality, place tional business negotiations of Mexico punitive burdens on import-intensive (2000-2006), Luis de la Calle, said in a sectors and companies, and harm the Martin Khor is the Executive Direc- media interview: “If the US wants to global economy. tor of the South Centre. move to this new border tax approach, The tax plan is expected to cause a Contact: [email protected] Mexico and Canada would have to do 15-20% rise in the US dollar. “This the same….We have to prepare for that would do huge damage to dollar scenario.” debtors all over the world and pro- In any case, it can be expected that voke financial crises in some emerg- countries will take up complaints ing markets,” according to Summers. against the US at the WTO. The pro- While export-oriented US compa- ponents claim the tax plan will be de- nies are supporters, other US compa- signed in a way that is compatible with the WTO rules. But many international trade law experts believe the tax plan’s measures will violate several of the WTO’s prin- ciples and agreements, and that the US will lose if other countries take up cases against it in the WTO dispute settle- ment system. This prospect may however not de- cisively deter Trump from champion- ing the Republicans’ tax blueprint and signing it into law, should Congress decide to adopt it.

The President and some of his trade AP Marquez, Felix advisors have criticised the WTO’s rules and have mentioned the option of leaving the organisation if it prevents or impedes the new America First strat- egy from being implemented. If the US leaves the WTO, it would of course The sale of cars imported into the US will be much affected by the equivalent of a 20-25% tax if the cause a major crisis for international Republican tax plan is adopted.

Page 4 ● South Bulletin ● Issue 97, Issue 98, 17 March 2017 The planned US border tax would most likely violate WTO rules

As the US Congress and President consider whether to intro- Their general view is as follows: duce a border adjustment tax, a major question is whether such Firstly, the inability to deduct import expenses from a company’s tax (while a measure will violate the rules of the World Trade Organization. allowing deductions for locally Experts have good reason to believe the tax in several ways go sourced products and services and counter to the WTO. But there are also shortcomings in the WTO wages) discriminates against imports system that could limit its usefulness in stopping the US if it is vis-à-vis domestic products, and vio- lates the national treatment principle determined enough. This is the second of a two part series on of the WTO and the rules of the Gen- the US border tax plan. eral Agreement on Tariffs and Trade (GATT) which specify that imports must be treated no less favourably than similar locally produced goods. Secondly, the exemption of export revenues from the taxable income would be most likely assessed as a prohibited export subsidy under the WTO’s subsidies agreement. The renowned international trade expert, Bhagirath Lal Das, says that there are two separate issues to be considered: firstly, the differential treatment of a domestic product used as input and a like imported product used as similar input in domestic pro- duction; and secondly, the differential tax treatment of income based on whether the product is domestically Reuters consumed or exported.

On the first issue, Das says: “Some reports indicate that the proposal is to The WTO, based in Geneva, will most likely hear cases against the US if the border adjustment tax deduct the cost of domestic input proposal is adopted. (product) from the income while com- By Martin Khor The tax on US imports, without the puting the tax, whereas there is no same being applied to US-made prod- such deduction if a like imported in- s American lawmakers and the ucts, discriminates against foreign put (product) is used in A Trump administration prepare products, and US exports being ex- the production. If this be the case, such the ground for introducing a border empted from taxes is tantamount to a provision will clearly violate the adjustment tax, many controversial being an export subsidy. principle of national treatment con- issues have emerged, including wheth- tained in Article III of the GATT er they go against the rules of the How will this be taken at the WTO, 1994.” World Trade Organization. the guardian of the multilateral trading system? [Article III.4 reads: "The products The border tax is part of the over- of the territory of any contracting par- haul of the US corporate tax system US Congressman Kevin Brady, ty imported into the territory of any proposed by Republican Congress chairman of the House Ways and other contracting party shall be ac- leaders and appears to have the sup- Means Committee, and the plan’s main corded treatment no less favourable port of President Donald Trump. advocate, is convinced the plan is WTO than accorded to like products of na- -consistent, but has yet to explain why. tional origin in respect of all laws, reg- If adopted, the tax measure is sure ulations and requirements affecting to attract the opposition of the United On the other hand, many trade and their….use."] States’ trading partners, as their ex- legal experts think the plan violates the ports to the US will have the equivalent principles and rules of the WTO, alt- Adds Das: “If the "use" of the do- of a 20% tax imposed on them, whereas hough they caution that a final opinion mestic product results in tax reduction the exports from the US will be ex- is possible only when the language of whereas the "use" of the like imported empted from a 20% corporate tax. the law is known. Page 5 ● South Bulletin ● Issue 98, 17 March 2017 If some countries do take up cases, it takes as long as three to four years for a case in the WTO to wind its way through panel hearings and to a final verdict at the Appellate Body, and for the winning Party to get the go-ahead to take retaliatory action. During that period, the US can continue with its laws and practices. If the US loses, it need not pay any compensation to the successful Party for having suffered losses. Moreover, in the past, when it loses cases at the WTO, the US has typically not com- plied with the orders made on it. Even if it does comply, it needs to do so only in respect of the Parties that brought the action against it; it need not do so

NYT for other Parties.

If it does not comply, the complain- US President Donald Trump meeting US business sector representatives. The business community ant countries are allowed to take retali- in the US is split with some companies opposed to and some supporting the border tax plan. atory action by blocking US goods and services from entering their markets up product does not get similar treatment, Das was formerly Chairman of the to an amount equivalent to the losses clearly the imported product will get General Council of GATT, Indian they have suffered. This retaliatory "less favourable" treatment. And that Ambassador to GATT, and subse- action can only be taken by those coun- will violate the principle of national quently Director of Trade in the UN tries that successfully took up the cases. treatment contained in Article III. Even Conference on Trade and Develop- without going into the fine print of the ment, and has written many books on Thus, the US may decide to imple- provisions of subsidy, such a provision the WTO and its agreements. ment the border adjustment taxes and can be successfully challenged in the wait two to four years before a final According to another eminent WTO on this ground.” judgment is made at the WTO, and for expert on the WTO, Chakravarthi retaliatory action to be allowed by the On the second issue, Das comment- Raghavan, whether the US law is con- WTO. It can meanwhile reap the bene- ed: “Some reports indicate that the sidered “legal” depends on the lan- fits of its border tax measures. proposal is to differentiate between the guage of the law and its actual effects. earning from domestic sale and that Another possibility is that Trump “There is little doubt that the "pith from export in the matter of taxation in may make good his threat to leave the and substance" of the Republican bor- respect of a product. Here it would WTO, if important cases go against it. der tax proposal or ideas will be in appear that the exemption of the tax is That would cause a major crisis for the violation of Articles II and III of conditional on export. Thus some reve- WTO and for international trade. GATT and Article 3.1 of the Subsidies nue is forgone conditional on export. Agreement.” With regard to the WTO process, This practice will clearly qualify for Raghavan said: “Apart from the diffi- being categorised as export subsidy Raghavan, Chief Editor Emeritus culties of taking up cases in the WTO, which is prohibited under Article 3 of of the South-North Development including costs, the lengthy process the WTO’s Subsidy Agreement.” Monitor, followed and analysed the and no retrospective damages when negotiations of the Uruguay Round Das cites a case of an American any WTO member, raises a dispute, the and of the WTO on a daily basis ever company, the Domestic International onus of proving the violation is on since. Sales Corporation (DISC). A portion of them. its profit which was engaged in export Countries can challenge the US at “To the best of my knowledge, in was tax free. The EEC, the predecessor the WTO and if they succeed the US none of the rulings against US, requir- of EC, raised a dispute in the GATT in has to change its law or face retaliato- ing changes in law or regulations, has 1973. The matter was delayed for a ry action. The winning party can the US implemented them, and even long time until in 1999 a panel at the block US exports to it equivalent in major trading partners have been chary WTO ruled that the US practice was in value to the loss of its exports to the of taking retaliation action. fact an export subsidy and was prohib- US. ited. “Countries that are affected, could However, there are many short- act to unilaterally deny the US some “This case may not be exactly the comings with the WTO dispute sys- rights; but they cannot justify that this same as the currently anticipated pro- tem. Few countries have the courage is retaliation, until there is a ruling in posal, but it does point to the fallibility or financial resources to take up cases their favour.” of providing government bene- against the US. fit contingent on export,” says Das. American advocates of the border

Page 6 ● South Bulletin ● Issue 98, 17 March 2017 adjustment tax plan have claimed that it They said: “U.S. trading partners ors all over the world and provoke is similar to a value added tax (VAT) are likely to be hurt in several ways. financial crises in some emerging mar- which is considered by the WTO to be a The effects of the wage deduction ren- kets.” legitimate measure; and thus that the der the corporate cashflow tax differ- From the above, it is clear that a border adjustment tax would also be ent from a VAT, and these differences border tax measure by the US would compatible with the WTO. have the net effect of increasing the have terribly adverse, if not horren- incentive to operate in the United Almost all major developed coun- dous, effects on the economies of its States. tries have instituted the VAT system, trading partners, the world trade sys- with the notable exception of the US. “In addition, such a tax system tem and even the stability of global The Republican Congress leaders and would exacerbate the profit shifting finance. Trump have argued that this places the problems of our trading partners, Using the WTO’s dispute system to US at a disadvantage in its trade rela- since the United States will appear like discipline the US would be a useful tions because the VAT system imposes a a tax haven from their perspective.” way of countering such an action, but tax on imports, whilst allowing compa- Economists also agree that the bor- this will have limited effect if the US nies to obtain a refund for taxes paid on der tax will raise the value of the US administration is determined to pur- their exports. dollar but there is a debate as to how sue its new protectionist device, and They claim the border tax would long this will take and by how much it will also involve a lengthy process, correct this disadvantage that the WTO will rise. and thus damage will be done for sev- should similarly recognise the border eral years. If the dollar appreciation is signifi- tax as legitimate. cant, this may have an adverse effect Some countries, like Mexico, are However, several well-known econo- on countries that hold debt in US dol- already considering more immediate mists and lawyers are of the opinion counter-actions, matching a unilateral lars, as they would have to pay out that there are important differences be- more in their domestic currency to US measure with a similar unilateral tween the VAT and the border tax. service their loans. This would include counter-measure. Making these inten- many developing countries with sub- tions known may get the US admin- There are two parts of their argu- stantial dollar-denominated debts of istration and the Congressional Re- ments. Firstly, the VAT imposes taxes the public or private sectors, and some publicans to think twice. on both imports and locally produced of them may tip into new debt and goods and services and therefore does Prevention is better than cure, es- financial crises. not discriminate against imports; pecially if the cure involves a trade whereas the border tax system imposes According to former US Treasury war of giant proportions. How to a tax on imports whilst excluding do- Secretary Lawrence Summers: succeed in prevention is the really big mestic inputs and wages from tax, “Proponents of the plan anticipate a question. which therefore discriminates against rise in the dollar by an amount equal imports. Secondly, the VAT system to the 15 to 20 per cent tax rate. This does not subsidise exports, whereas the would do huge damage to dollar debt- border tax system does. In a 1990 paper, Martin Feldstein and Paul Krugman found that the VAT does not improve the trade competitiveness of countries using it. They said: “The point that VATs do not inherently affect international trade flows has been well recognised in the international tax liter- ature…A VAT is not a protectionist measure.” Krugman, in a recent blog, reiterated that “a VAT does not give a nation any kind of competitive advantage, period.” But a destination-based cash flow tax like the border adjustment tax has a subsidy element that “would lead to expanded domestic production.” In another paper, Reuven Avi-Yonah and Kimberly Clausing from Michigan Law School and Reed College respec- WTO tively analyse the difference between the VAT and the proposed border ad- justment tax and why the former is WTO-consistent whereas the latter The WTO's Appellate Body in session: There are many shortcomings with the WTO dispute system that could limit its usefulness in stopping the US if it is determined enough. would violate WTO rules.

Page 7 ● South Bulletin ● Issue 98, 17 March 2017 Border tax proposal, WTO rules and how developing countries could respond

In the article below, the well-known international trade expert from domestic sale and that from ex- and author of several books on the WTO agreements BL Das port in the matter of taxation in respect provides a comment on why the US proposal on introducing a of a product. Here it would appear that border adjustment tax system would violate the rules of the the exemption of the tax is conditional World Trade Organization, and what responses the developing on export. Thus some revenue is for- countries could consider should the proposal be put into effect. gone conditional on export. This prac- tice will clearly qualify for being cate- gorised as export subsidy which is pro- hibited under Article 3 of the Subsidy Agreement. In fact the US has gone through a similar exercise once earlier. That is the famous DISC case, the case related to the Domestic International Sales Cor- poration (DISC). Here a portion of the profit of DISC which was engaged in

Mike Segar / Reuters Reuters / MikeSegar export was tax free. EEC, the predecessor of EC, raised a dispute in the GATT in 1973. The US went on delaying this matter as was possible in the GATT those days, including giving

a new shape and name to the organisa- tion (Foreign Sales Corporation, FSC). The whole framework of international trade will change quite drastically if the US eventually adopts the border adjustment tax. Finally, when the WTO came into being, a panel ruled in 1999 that the US By Bhagirath Lal Das (product) is used in the production. If practice was in fact an export subsidy this be the case, such a provision will and was prohibited. Thus the matter proper examination of the im- clearly violate the principle of nation- which was dragging on for about 26 A pending US action can be done al treatment contained in Article III of only after the US issues the order. Right years got finally settled. This case may the GATT 1994. not be exactly the same as the currently now there is a lot of confusion on what anticipated proposal, but it does point is coming. Besides, many terms in the Article III.4 reads: "The products US trade parlance have local connota- of the territory of any contracting to the fallibility of providing govern- ment benefit contingent on export. tion; hence some of them can be fully party imported into the territory of understood only through specific US any other contracting party shall be Possible responses by devel- examples. However we should be pre- accorded treatment no less favourable oping countries pared with our views based on whatev- than accorded to like products of na- er provisional information is available tional origin in respect of all laws, The main problem with the current at present. regulations and requirements affect- proposal lies in the motive behind it. ing their….use." Some members of the present US ad- As I see, there are two separate is- ministration stated at some stage that If the "use" of the domestic prod- sues to be considered: they would consider policies and uct results in tax reduction whereas measures even at the very edge of the i. differential treatment of a domes- the "use" of the like imported product WTO or by stretching the WTO to the tic product used as input and a like does not get similar treatment, clearly extent possible. Thus what we should imported product used as similar input the imported product will get "less be anticipating are policies and in domestic production; favourable" treatment. And that will measures with questionable WTO com- violate the principle of national treat- ii. differential tax treatment of in- patibility and perhaps clearly violating ment contained in Article III. Even come based on whether the product the WTO rules. is domestically consumed or exported. without going into the fine print of the provisions of subsidy, such a pro- The main problem in that situation Let us take the first issue. Some re- vision can be successfully challenged is that the other countries will have to ports indicate that the proposal is to in the WTO on this ground. launch a series of disputes in the WTO deduct the cost of domestic input which will be very burdensome for the Now the second issue. Some re- (product) from the income while com- developing countries. Besides, the dis- ports indicate that the proposal is to puting the tax, whereas there is no such pute process can take up to deduction if a like imported input differentiate between the earning

Page 8 ● South Bulletin ● Issue 98, 17 March 2017 about twenty-seven months in getting final relief and that too without any ret- Some simple criteria for examining rospective relief. Then a chain of such disputes in the WTO against the US WTO compatibility of certain policies may have a political cost for the devel- oping countries and that will weigh heavily while they decide to initiate the and measures disputes. The US proposal on imposing a border tax on its imports whilst exempt- These appear to be the problems ing its exports from corporate tax has led to increased interest on wheth- which need the thinking and attention er certain measures being considered by the US or other countries are of developing countries. Perhaps, in- compatible with the rules of the World Trade Organization. In this article, an expert on the WTO agreements Mr. B.L. Das gives a simple explana- stead of going to the dispute process or tion of criteria that can be used to determine if a policy or a measure is in along with going to the dispute process, violation of three relevant WTO rules -- on national treatment, domestic some countries may consider taking subsidy and export subsidy. some action of their own in the area of goods, services, IPRs and even other By Bhagirath Lal Das tic production (by the import of such product from the subsidizing country), or areas. But that needs determina- National Treatment tion. Here are some illustrative exam- the subsidy prejudices this country’s If a country gives some benefit to a do- ples of the possible actions the develop- export interest in a third country (for mestic product and does not give such ing countries could take. example, by competition in the third benefit to a like imported product, it vio- country market). In the area of goods, many of them lates the provision of national treatment have comparatively high contained in Article III of the GATT 1994. If a country gives a subsidy to indus-

"bound" tariffs, particularly in the agri- try in general (i.e., not limiting it to a [An exception is that a country may specific unit or to a specific industrial culture sector. They could select some give subsidy to a domestic product with- sector), such subsidy is not actionable items and raise their MFN tar- out giving it to a like imported product. and thus it does not violate WTO Subsidy iffs anywhere up to the bound tariffs. But subsidy has its own discipline as giv- rules. For example, a country may pre- Such raising of tariffs in the agriculture en later.] scribe that it will exempt a part of income sector is likely to be effective in the case Thus if a manufacturing firm gets a from tax in the case of all industrial firms of the US where agriculture is a sensi- tax benefit for using a domestic interme- with a maximum annual turn over of US$ tive issue. And raising of MFN tar- diate product in the manufacture and 50,000 or those employing at least 10 iffs unto the level of "bound" tariff will such benefit is denied when the manufac- physically handicapped persons . It will be fully in conformity with the WTO turer uses a similar imported intermedi- not violate WTO Subsidy rules. rules. ate product, such measure/policy will Subsidy is also permissible for some violate the national treatment principle. In the area of services, the develop- specific reasons and purposes, e.g., those For example, if the taxable income of the ing countries could select such services for research and development, for devel- firm is reduced by deducting the cost of a on which they have not taken obliga- opment of disadvantaged regions, for domestic intermediate product and such adaptation to environmental standards tions under the GATS. Here they could deduction is not done when a similar etc. Specific criteria and limits have been prescribe some high restrictions for en- imported intermediate product is used, prescribed for such subsidy. try, for example, prescribing entry fees the national treatment principle will be etc. Even where they have taken obliga- violated. Export Subsidy tions under the GATS, they could select A country can impose import duty on If a benefit is given by a country to a firm some sectors and some conditions and an imported product up to the level of its or for a product, making it conditional on apply restrictions to the full in case they commitment of bound duty. export, such benefit is treated as export have not done so earlier. They could subsidy. Export subsidy is prohibited select services which may be sensitive A country cannot impose any other under WTO Subsidy rules. for the US. charge on the imported product if it does not impose such charge on a similar do- Thus if a country exempts the export In the area of IPRs, they could apply mestic product. income of a firm from taxation, it violates the provisions of "compulsory license" the WTO Subsidy rules. Domestic Subsidy liberally in order to encourage domestic Refund of (or exemption from) taxes If a manufacturing firm or a specific man- producers and discourage foreign pro- and other charges imposed in the pro- ufacturing sector gets direct transfer of ducers, particularly those from the US. duction process of the export product funds from the government or if the gov- Naturally this should be done in accord- (including such taxes and charges appli- ernment forgoes some tax which would ance with their domestic laws which cable to the prior stage production) is not have been normally imposed on it, such they have formulated on the Patent. export subsidy. Also, refund of import measure/policy will be treated as domes- duty imposed on the intermediate prod- Bhagirath Lal Das is the author of tic subsidy.

ucts used in the manufacture of the ex- several books on the WTO and on inter- A domestic subsidy, by itself, does not port product is not export subsidy. (The national trade. He is a former Director violate WTO Subsidy rules. Violation basic idea is that internal taxes and charg- of International Trade at the UNCTAD, occurs when another country is able to es are meant for the people who reside in and a former Ambassador of India to prove that: this country and not for the residents of the GATT and Chairman of the GATT other countries.) General Council. the subsidy causes injury to its domes-

Page 9 ● South Bulletin ● Issue 98, 17 March 2017 South Centre Briefing on Global Economic Trends and Geneva Multilateral Processes

Developing country delegations filled a conference room at the UN especially the developing world”, he building, the Palais des Nations, in Geneva on 13 February 2017 to said. reflect on the challenges of the current global political and eco- Ambassador Kumar pointed out nomic environment. They also discussed prospects for Geneva that developing countries will now multilateral processes, including in the WTO, UNCTAD, WIPO and have to live with a “new normal” that WHO. The South Centre organized the briefing in cooperation with relies on boosting domestic demand the Group of 77 and China and the Group of 15. This article reports and national industrialization and to on some of the key messages of the briefing. rely on each other through expanding and strengthening South-South Coop- eration. Ambassador Kumar also noted that, “as we have often reiterated at this forum, South-South Cooperation cannot be a substitute for North-South Cooperation and it cannot be looked through the glass of a measuring flask”. The full statement is available here. Panel Session 1: “Global eco- nomic conditions and pro- spects” The first panel session on “Global eco- nomic conditions and prospects” was chaired by Ambassador Tehmina Janjua, Permanent Representative of Pakistan in Geneva and Vice Chair of the G77 and China (Geneva Chapter), and featured a keynote presentation by Dr. Yılmaz Akyüz, Chief Economist of the South Centre. Opening panel: from left to right -- Dr. Yılmaz Akyüz, Chief Economist of the South Centre; Ambassador Tehmina Janjua (Pakistan), Vice Chair of the G77 and China (Geneva Chapter); Ambassador Ajit Kumar (India), Vice Conven- or of the Council of Representatives of the South Centre; and Mr. Vicente Yu, Deputy Executive Director of the Ambassador Janjua is the newly South Centre. appointed Foreign Secretary of Paki- stan, the first woman to hold this im- he South Centre held a briefing on erty. He spoke on the linkages between portant diplomatic post in the coun- 13 February 2017 at the Palais des the achievement of the SDGs and the T try’s history. In her prefatory remarks Nations in Geneva for developing new challenges that are now facing to Dr. Akyüz’s presentation, Ambassa- countries on global economic trends developing countries, especially in- dor Janjua said that “Dr. Akyüz is an and their linkages to multilateral pro- creasing protectionism and populism in economist whose analysis and insights cesses. After welcome remarks by Mr. developed countries. have influenced the thinking of devel- Vicente Paolo Yu III, Deputy Execu- “The 2030 Agenda for Sustainable oping countries on international eco- tive Director of the South Centre, Mr. Development envisions ending the nomic and trade issues”. She also re- Ajit Kumar, Permanent Representative scourge of poverty within our lifetime; called that as the principal author of of India to the UN in Geneva, opened it is a charter for development that the UN Conference on Trade and De- the briefing, speaking in his capacity as comes with common but differentiated velopment’s (UNCTAD) annual Trade the Vice-Convenor of the Council of responsibilities”, he highlighted. and Development Report for many Representatives of the South Centre. years, and in his subsequent writings, “The world we entered in 2017 is Ambassador Kumar presented a Dr. Akyüz has consistently questioned marked by unevenness, possibilities, broad outline of the emerging global economic orthodoxy and encouraged uncertainties, known and unknown economic scenario and how it may af- developing countries to push for policy unknowns” he said. “The return of fect developing countries. He stressed options that would lead to more just economic nationalism with resulting the importance of South-South Cooper- and equitable economic outcomes. She prospects of rising protectionism may ation as well as the Sustainable Devel- added that Dr. Akyüz’s writings influ- satisfy some disgruntled political con- opment Goals and their relation to the enced the views and perspectives of stituencies but is sure to have an ad- right to health, the right to develop- many developing countries. verse impact on the global economy, ment, innovation and intellectual prop-

Page 10 ● South Bulletin ● Issue 98, 17 March 2017 Ambassador Janjua flagged three ment still high and not falling”, he stat- ment”, he said. challenges which increasingly preoccu- ed. Since Trump won the election in py developing countries. First, the per- Developing countries had an excep- the US there is a concern among de- sistent challenge of managing capitalist tional growth until 2009 but from 2011 veloping countries about the US re- economies in order to maintain growth, onwards lost momentum and there is a treating from globalisation, disman- in the face of domestic and external feeling that the crisis is moving in a tling FTAs like TPP or NAFTA. TPP pressures, and addressing political and third phase to the South. “The reason is was not about trade, said Akyuz. “It economic inequalities that affect global that our exceptional growth perfor- was more about TNCs finding a free stability. This also means looking at mance before 2008 and rapid recovery space to enter without any interfer- financial resource flows and the role of from the crisis were due not so much to ence from national or international policy space for developing countries. our improved economic growth funda- bodies in their operations”. Second, managing of the global trade mentals (investment and productivity) On NAFTA, Dr. Akyüz said that system which is now under attack. as to exceptional global conditions, “everybody seems to be unhappy. The Third, addressing the challenges that both in finance and commodity prices. US is unhappy, Mexico should be un- emerging technologies pose and what When these disappeared, growth fell happy because it has had a very poor developing countries should do to ben- and converged to the depressed levels performance in growth, wages, efit from these technologies. of developed countries”. Today growth productivity and poverty under In his presentation, Dr. Yılmaz in the South is half of what it was on NAFTA”. Akyüz focused on three main issues. the eve of the crisis, he concluded. Akyuz added: “The question is First, the recent trends in the world Dr. Akyüz also addressed three often posed on whether trade or in- economy (GDP, trade, trade balances, policy issues for developing countries vestment is a zero sum game among commodity prices, capital flows, re- in their efforts to face major turmoils - nations but I do not think that nations serves, currencies and markets in the macroeconomic policy, global integra- are the correct focus here. I do not South). Secondly, and more important- tion and global govenance. ly, he highlighted medium term pro- think it is nations that lose or gain. It spects, taking into account some struc- “There is a need for some kind of is people, corporations, workers, farm- tural systemic problems, mainly ine- solidarity. A common reflection may ers, banks etc. So, perhaps we should quality, the demand gap and financial be needed among developing countries focus more on different segments ra- fragility and uncertainties in three key about the policy response against the ther than nations as a whole. In other economies – the US, EU and China, next major turmoil”, Dr. Akyüz said. words, we should move from a na- issues covered in the South Centre’s tions-based analysis of globalisation to “Many developing countries have recent research paper Inequality, Fi- a class-based analysis of globalisation” become enthusiastic about globalisa- nancialization and Stagnation he argued. tion”, he recalled, and referred to (available for download here). Finally UNCTAD’s first report on this topic Panel Session 2: “Linkages and briefly, the policy issues for devel- released in 1997 which concluded that oping countries in three key areas: between key Geneva multilat- “globalisation would create two things: macroeconomic policy response to eral processes and the greater inequality and instability”, and shocks in the South; rethinking global South’s development inter- in fact this is what is happening. economic integration; and rethinking ests” “We also said that “it is likely that global economic governance. The second panel was chaired by Am- the North may walk away out of it as The world economy is in a bad bassador Ravinatha Aryasinha, Per- the South”. Dr. Akyüz was the Director shape. Global growth is the lowest manent Representative of Sri Lanka to of the UNCTAD Division responsible since the financial crisis, Dr. Akyüz the UN in Geneva and Chair of the for the above referred report at that highlighted. Advanced economies are Group of 15. It had two presentations. time. See the Trade and Development in bad shape mainly because of mis- The first presentation on the “Outlook Report 1997 here. guided policies in response to the crisis for WTO MC11 and key issues for de- which included fiscal orthodoxy, credi- “We (developing countries) left our veloping countries” was by Ms. tor bailouts, imposing austerity on development too much to global mar- Aileen Kwa, Coordinator, Trade for debtors, and exceptional, ultra-easy ket forces”, Dr. Akyüz stated, mention- Development Programme, South Cen- monetary policy. ing the reliance on TNCs and interna- tre and the second presentation on tional financial firms, and excessive “Outlook for innovation and health “Economic recovery in the US has dependence on foreign capital and for- issues and implications for developing been faster then in Europe but weak eign markets. “In some cases we have countries” was by Dr. Viviana (GDP growth of 2% since 2009 against one of the worst income distributions. Muñoz-Tellez, Coordinator, Develop- historical 3%) and there is growing Income is heavily concentrated but we ment, Innovation and Intellectual inequality and fragility. The Eurozone have one of the lowest savings and Property Programme, South Centre. was unable to resolve its financial crisis investment rates and we expect foreign Three ambassadors also took part in let alone economic and social crisis. investment to come and give us a the panel: Dr. François Xavier Nga- The Greek debt problem is still unre- boost”. rambe, Permanent Representative of solved. Recovery as a whole was com- Rwanda; Mr. Xavier Carim, Perma- “We need rebalancing, and I am not pleted in the Eurozone only in 2016 but nent Representative of South Africa to suggesting autarky, but strategic inte- income is still below the pre-crisis lev- the WTO and Mr. Guilherme Patriota, els in many countries with unemploy- gration that will support your develop- Page 11 ● South Bulletin ● Issue 98, 17 March 2017 our investment in WTO. Africa has been asked to liberalise, without first being competitive. “We have been ex- cited to trade before producing”. He said that this is leading to ‘a survival approach’, where Africa has depended on extracting its resources in order to match its growing imports. Aid is used to fill the gaps. In this way, Africa has become very vulnerable to external shocks, the price of commodities, and international finance. On the digital economy and digital trade, he noted that we all need to quickly get on board and participate. However, we cannot make the same

mistake again and put the cart before the horse. We first need to cover our countries with electricity, develop in- frastructure, IT, customer protection The second panel in progress. From left to right: Ms. Aileen Kwa, Coordinator, Trade for Development Programme, South Centre; Mr. Xavier Carim, Permanent Representative of South Africa to the WTO; Dr. François Xavier Nga- rules etc. We first need to have the con- rambe, Permanent Representative of Rwanda; Mr. Ravinatha Aryasinha, Permanent Representative of Sri Lanka ditions to participate before we can talk and Chair of the Group of 15; Mr. Vicente Yu, Deputy Executive Director of the South Centre; Dr. Viviana Muñoz- Tellez, Coordinator, Development, Innovation and Intellectual Property Programme, South Centre; and Mr. Guil- about new rules. herme Patriota, Deputy Permanent Representative of Brazil. For Africa to have a voice in the Deputy Permanent Representative of making power in light of growing multilateral trading system and push Brazil. dependency on external sources of its development agenda, it is important financing. The election of a new head to focus on those determining factors of Ms. Kwa focused on the emerging for the WHO is an opportunity. At productivity, diversification and com- trends in relation to the Fourth Indus- the WIPO the main challenges are to petitiveness which are mainly the fol- trial Revolution and the digitization of advance a development agenda for lowing: reliable, effective and efficient the global economy – the ease of physi- policy space in the design and imple- infrastructure; well governed institu- cal goods delivery; the rise of artificial mentation of intellectual property tions; innovation, skills development to intelligence and implications for mar- rules to balance protection and ac- fill the technology gap. keting; the use of platforms across sec- cess, and to stir WIPO’s technical as- tors; automation; the ‘servicification’ of Ambassador Carim of South Africa sistance towards this goal. goods; and 3D printing; and how these stressed that African Trade Ministers in trends are radically disrupting existing Ambassador Ngarambe of Rwan- their last meeting emphasized that in business models. da spoke of the need for developing any discussion at the WTO, reaffirma- countries to rethink what globaliza- tion of the development mandates of On the other hand, developing tion and neoliberal trade liberaliza- the Doha round remains essential and countries are lagging far behind, still tion have meant for them, especially that any discussion in the WTO should trying to adapt to the 2nd and 3rd in- for Africa which did not benefit not adversely affect Africa’s continental dustrial revolutions. They could suffer enough from the commodities boom integration ambitions. He said that at adverse impacts due to job losses and and whose share in global trade and the recent meeting of selected Ministers lack of competitiveness as a result of in global manufacturing essentially in Oslo and Davos, there were diver- low skill levels and inadequate infra- remained stagnant or even contract- gences regarding the Doha mandate. structure. The economic advantages ed. At the same time, at the WTO, the that automation and digitization cur- Some framed issues within the Doha cost of accession is known to all and rently bring to developed countries are mandates, others wanted the Doha is expressed in onerous concessions being sought to be solidified by them- Round to be consigned to history, and especially on tariffs; but what are the selves and some others through their to deal instead with new issues. Whilst benefits for a developing country to proposals on e-commerce in the WTO. there were overlaps in possible deliver- be a Member of the WTO? Our per- ables for the next Ministerial, there was Dr. Muñoz-Tellez assessed the state manent engagement is time, re- no unanimity. of play at the World Intellectual Prop- sources and it is energy consuming, erty Organization (WIPO) and the at the detriment of other needed en- There is also uncertainty as to the World Health Organization (WHO). gagements in areas which are more policy orientation of some key Mem- She noted the work of these agencies connected to development. bers in light of changes in political falls under the framework of the UN leadership around the world. Hence, he He added that twenty years after SDGs that agree to bring good health to said, it is very difficult to see a clear our massive and enthusiastic acces- all and facilitate access to technology path forward for deliverables at the sion to WTO, it is high time to con- and knowledge. Both organizations Buenos Aires Ministerial in December. duct an impact assessment of that face governance challenges, including There is a general understanding that accession and evaluate the return of maintaining member states’ decision Members will engage and look at the Page 12 ● South Bulletin ● Issue 98, 17 March 2017 ate a positive entry point to consider alternative non-intellectual property based innovation models and issues of delinking research and development from prices. Ambassador Patriota also noted that the Foreign Policy and Global Health (FPGH) initiative launched by

the foreign ministers of Brazil and others will be promoting at the UN GA a new resolution on the issue of vulnerable groups and health of mi- grants. Ambassador Aryasinha of Sri H.E. Mr. Ajit Kumar, Permanent Representative of India to the UN in Geneva, opened the briefing, Lanka in his closing remarks stressed speaking in his capacity as the Vice-Convenor of the Council of Representatives of the South Centre. the key role played by Geneva in the His speech is found in the next page. implementation of the outcomes of various multilateral development- areas convergence can be found, yet as cludes the establishment of a new pil- related processes. “Three years ago it now stands, it is not clear they will be lar for preparedness and response to when the G15 and South Centre held a successful. health emergencies. This poses a chal- meeting on the discussions on SDGs, lenge for the WHO to deliver on its On E-commerce, he noted that it is the Executive Director of the South traditional mission, focused on the de- undeniably a significant development Centre, Mr. Martin Khor said that velopment of global standards and which Members need to understand while most of the discussions take guidelines. The new emergency pillar better. It is transforming the global place in New York, most of the cook- is expensive and hard to fund. The economy but it is a very uneven pro- ing and the working and implementa- agenda on addressing antimicrobial cess. Many countries do not have the tion actually happen in Geneva” he resistance (AMR) is also taking in- infrastructure to participate effectively said. Ambassador Aryasinha stressed creased prominence in the WHO. This and the digital divide is very evident. the important and major role that rep- is part of a larger agenda outside He noted that Members will have to resentatives of developing countries WHO. The issue of AMR links animal engage to understand the very pro- have to ensure fairer and more mean- use and human use. Ambassador Patri- found implications for their industrial ingful outcomes for developing coun- ota cautioned that the AMR agenda (if development and employment before tries in the multilateral discussions not properly handled) may unduly being in a position to negotiate new and negotiations. place constraints on access to medi- rules at the multilateral level. In this cines, through the emphasis on control context, it would not be far fetched to of sale of antibiotics and creating suspi- consider that an outcome at the Minis- For more information on this South cion of generic medicines. He also not- terial simply carrying on the existing Centre event, please go here: ed that the WHO agenda on AMR in- work programme could not be consid- https://www.southcentre.int/south- cludes promoting innovation in new ered a success. centre-conference-13-february-2017/ antimicrobials, having recognized that Ambassador Patriota, Deputy Per- intellectual property is not providing manent Representative of Brazil, gave the incentive. This discussion may cre- an overview of the trends and challeng- es affecting the WHO. He noted that the increased outsourcing of financial contributions in the WHO as in many other agencies, and bilateralization, as opposed to multilateralism, are not positive trends. This has a huge impact on intergovernmental governance and the capacity of governments to be the main stakeholders. There is a risk of agenda capture from excessive out- sourcing of funding. A framework for engagement of non-State actors (FENSA) has now been put in place, but the question is open as to whether it will help or make it more difficult for the WHO to fund certain activities. The WHO is undergoing a reform process, said Mr. Patriota. This in- Developing country delegations filled the conference room during the South Centre briefing.

Page 13 ● South Bulletin ● Issue 98, 17 March 2017 The important issues in 2017 for multilateral action The following is the opening speech at the South Centre Briefing Session on for affordable access to medicines will 13 February 2017 made by Ambassador Ajit Kumar of India, in his capacity as continue, as public frustration spills Vice Convenor of the South Centre’s Council of Representatives. beyond the manageable regarding the growing prices of patented medicines in- By Ambassador Ajit Kumar globalisation looks vulnerable. The re- cluding those used for the treatment of turn of economic nationalism with re- HIV-AIDS, hepatitis C, tuberculosis and llow me to thank the South Centre sulting prospects of rising protectionism various kinds of cancer. We cannot overs- for organizing this interactive ses- A may satisfy some disgruntled political tate the need to rein in the excesses of sion on global trends and issues that will constituencies but is sure to have an some global pharma companies, within continue to occupy our attention in 2017. I adverse impact on the global economy the policy space available to each country, am as curious as you are in reading the especially those of the developing world. in order to streamline the affordability of vectors and valances of the multilateral Developing countries would now need public healthcare. This is a fundamental compass in order to get a sense of the di- to set a new normal for their develop- issue of global concern and does not leave rection in which we are sailing in terms of ment strategies, relying more and more much space for appeasement of global global multilateral policies and processes. on generating domestic and regional pharma giants. I speak today in my capacity as a Vice-

demand and investments, including Convener of the Council of Representa- through expanding and strengthening Antimicrobial Resistance (AMR) is tives of the South Centre but several of South-South cooperation. However, as another important issue of public health these ideas and stands also reflect my we have often reiterated at this forum, that calls for concerted and coordinated country’s national position. South-South Cooperation cannot be a efforts both here in Geneva and elsewhere. AMR was recognised by political leaders I would like to present a broad outline substitute for North-South Cooperation in New York last year to be arguably the of the emerging global economic scenario; and it cannot be looked through the gravest threat to global health. WHO how it might affect developing countries; glass of a measuring flask. needs to take a leadership role and the role of South-South Cooperation; and Linked to this is an important con- strengthen itself as the multilateral forum the on-going discourse on Sustainable cept that remains both underappreciated within the UN system to address these Development Goals, health, innovation, as well as misunderstood: the right to global health challenges. intellectual property. development. Those who portray this On the issue of Intellectual Property, it The recent past has been one of hope right as a charity of the global North has been our considered view that deve- and optimism for multilateralism. In this towards the global South do a great dis- loping countries need to design their IP regard 2015 was a momentous year when service to this idea. While it is accepted laws and policies in a manner that facili- the global community managed to reach that the primary responsibility for the tates the assimilation and dissemination of agreement on four crucial issues that will realization of right to development lies knowledge to support the growth of do- guide our course of action in those fields on States, owing to well-documented mestic industries. Making full use of the for many years to come. That year we historical reasons, States also have a TRIPS flexibilities in national IP laws will adopted the Sendai Framework for Disas- duty to cooperate with each other in continue to be critical for developing coun- ter Risk Reduction, the Addis Ababa Ac- eliminating obstacles to development tries. Full and effective implementation of tion Agenda on Financing for Develop- and creating a more conducive interna- the WIPO Development Agenda and re- ment, the 2030 Agenda on Sustainable tional economic order based on sove- form of WIPO’s technical assistance, Development, and finally the Paris Agree- reign equality, interdependence, mutual whereby WIPO is supportive of the ove- ment on Climate Change. 2016 saw the interest and genuine cooperation. In rarching objectives of the developing finalisation of the UNCTAD Nairobi Man- other words, as a complement to the world, are crucial in this regard. In the date. These decisions and commitments efforts of developing countries, effective context of normative work on Intellectual together constitute a roadmap for global international cooperation is essential in Property, there has been progress in the partnership with the objective of advan- providing these countries with appro- discussions on the Protection of Genetic cing peace and security; development in- priate means and facilitating their com- Resources & Traditional Knowledge. cluding humanitarian interventions; and prehensive development. Renewal of the mandate of the IGC with a promoting and protecting human rights. Unilateral measures especially those focus on concluding the text-based nego- Strong political will, diplomatic dexterity, emanating from populist perceptions of tiations and to convene a Diplomatic Con- the spirit of multilateralism and consensus what ails global economy can have de- ference will be critical in the WIPO Gene- building at all levels will be required to vastating consequences. The memories ral Assembly this year. translate these commitments into tangible of financial shock are still fresh in many outcomes. developing countries and history can Given the role that Geneva plays in economic and social multilateral affairs it Sustainable Development Goals are indeed repeat itself if there is a sudden would be impossible to even fleetingly universal, integral and indivisible. The flight of hot money in this prolonged cover everything of importance in this mainstreaming of the SDGs in the work of downturn phase of the boom-bust cycle short time. Let me just say that given the the UN and other international organisa- of capital flows. Currency depreciation present state of the world and the turn it tions based in Geneva would be critical to will increase the cost to domestic firms seems to be taking, it is important that the achieving our objective of turning our for servicing loans contracted in foreign developing world gets its act together in decisions into concrete action and favou- currencies and may lead to a rapid rise the Geneva multilateral processes to suc- rable outcomes. in prices of imported goods. The recove- ry from the global financial crises of 2008 ceed. There is too much at stake for us to The world we entered in 2017 is is still at a nascent stage and can be ea- pursue our separate agenda. We all need marked by unevenness, possibilities, un- sily reversed. to work together in the spirit of collabora- certainties, known and unknown un- tion and cooperation for convergence. The knowns. Suddenly the gallant march of On global public health, the struggle choice is ours. Page 14 ● South Bulletin ● Issue 98, 17 March 2017 Challenges and Opportunities for the Next WHO Director-General

should be public. Similarly, to preserve its independence, any contributor to the budget of the organization should not give more than 15 or 20% of the overall budget. The dilemma for the member coun- tries of WHO and the new Director- General is clear - they will have to choose between: an office to manage projects financed by the private and philanthropic sector, or rebuild a public and independent international agency to watch over public health. The in- crease of the regular budget is the only way to ensure that WHO continues do-

ing its core work without having to in- cessantly follow donor-driven agenda priorities. Closely linked to the loss of control of the regular budget was the difficult negotiations on the Framework of En- The three candidates for the post of the next Director-General of WHO in a debate organized in Ge- gagement with Non-State Actors neva in March 2017. From left to right — Dr. Sania Nishtar (Pakistan); Dr. Tedros Adhanom (FENSA) finally adopted by the 69th Ghebreyesus (Ethiopia); and Dr. David Nabarro (United Kingdom). Whoever wins will have many World Health Assembly (2016). serious issues to handle. The adoption of FENSA is the con- By Germán Velásquez The dilemma between the pub- clusion of a process initiated 5 years lic / private role of WHO he World Health Organization ago, as part of the WHO reform in 2011. T (WHO) is in the most critical The main and most serious issue fac- The FENSA process was at the heart of crossroad of its history but actions can ing the WHO has been the progressive the debate on the nature of the organi- and should be taken, to ensure its pub- loss of control of the regular, public zation. What will be the future role of lic health mission. This is the challenge and compulsory budget. An increasing the different categories of non- for the new Director-General to be privatization of the organization has governmental organizations (NGOs) elected in May 2017. This year is the been taking place. In less than 20 years that are non-commercial and non- last year of the mandate of the current the WHO’s budget went from more profit, NGOs working for profit, the Director-General, Margaret Chan, who than 50% financed through public private industry, and the philanthropic fought for 9 years, to maintain a public funds, constituted by assessed contri- foundations? agenda for the organization, that a butions, to currently only 18 to 20%. Instead of developing a comprehen- small group of industrialized countries WHO is currently in the hands sive conflict of interest policy, as the and philanthropic foundations had (approximately 80% of its Budget) of majority of developing countries want- difficulty in accepting and supporting. philanthropic foundations such as the ed , the resolution requests the Director- Bill and Melinda Gates Foundation, a For the next DG, good intentions General “to include in the Guide to small number of industrialized coun- and tireless work, as shown by the staff, measures that pertain to applica- tries that provide voluntary earmarked current Director-General, would not tion of the relevant provisions con- funds and big pharma. These volun- suffice. The commitment of all mem- tained in the existing WHO policies on tary contributions are channelled to ber countries, to uphold a public and conflict of interest, with a view to facili- health priorities decided by the fun- independent agency, that will be able tating the implementation of FENSA”. ders and not the governments, who are to set up the rules to guide the global However, it is not clear that WHO cur- the members of the organization. public health challenges for the next 20 rently has such policies, except for the years, will be fundamental. It is very strange that an organiza- existing and often criticized form for tion such as WHO does not have a phi- the declaration of conflict of interest to Some of the problems/challenges losophy and clear rules between public members of the various committees of that the new Director-General will and private. WHO should be defined experts currently used by the organiza- have to face are as follows. as an international public agency and tion. therefore at least 51% of its budget Page 15 ● South Bulletin ● Issue 98, 17 March 2017 The resolution also requests the Di- sary to secure appropriate funding and tries. But with its financial resources rector-General to conduct an evalua- coordination to promote R&D that is being so limited and with much of this tion of FENSA implementation in 2019 needed to address the diseases that coming from voluntary funds rather and submit the results of the evaluation disproportionately affect developing than the regular budget, it will be dif- along with any revisions to FENSA to countries.”3 ficult for the WHO to get the balance the January meeting of the Executive However, the main recommenda- right. The danger is that the norm- Board in 2020. tion of the CEWG to kick-start negotia- setting and standard-setting role of the WHO will be more and more margin- The dilemma for the next Director- tions on an international biomedical alised; while it would still be lacking General will be to wait until January R&D agreement has not been consid- adequate resources to take on its oper- 2020 for the result of the evaluation to ered by the WHO Member States ational role. see if the FENSA agreement represent- (including in the deliberations and ed a progress to the present “status resolution discussed during the 69th The dilemma more than ever is quo” or to start from the beginning of WHA), owing to political opposition between what a few donors of the or- his/her mandate to clarify what is the from developed countries. ganization want, what the organiza- nature of the organization. This is unfortunately a historical tion does, and what the world needs The dilemma between volun- missed opportunity for WHO to take today from a United Nations agency devoted to health. tary resolutions or binding in- the lead on the important subject of struments access to medicines in the present eco- nomic and social global environment. In May 2012, a resolution adopted by End notes: 1 The dilemma between priori- the World Health Assembly in Geneva 1 65th WORLD HEALTH ASSEMBLY ties for standard setting ver- represented a first step towards a WHA65.22 “Follow-up of the report of change in the dominant model of WHO sus humanitarian aid the Consultative Expert Working operations, that is to say: promoting Another important problem, to be Group on Research and Development: health through voluntary resolutions. faced by the new Director-General, Financing and Coordination” , 26 May This resolution follows up on the that would need to be addressed is the 2012. report of the "Consultative Expert dilemma of the WHO being a norma- 2 Article of the WHO Constitution Working Group on Research and De- tive agency in charge of formulation which grants the organization the pos- velopment: Financing and Coordina- and creation of international standards sibility of adopting binding interna- tion" - known under the acronym of and being responsible for the admin- tional conventions or treaties. This CEWG -, which recommended starting istration of the international health article was used only once since the negotiations on a binding internation- regulations and the creation of binding existence of WHO with the adoption al convention to promote research and agreements in global health; versus of the convention on tobacco control development on drugs. being a humanitarian agency that im- adopted in 2003. plements projects that have been fi- 3 South Centre, Innovation and Access Relying on a binding global treaty nanced by the international communi- to Knowledge Programme Back- or convention, negotiated in WHO, ty often competing with and some- ground Note on the Sixty-Ninth Ses- could allow sustainable financing of times duplicating the efforts of other sion of the World Health Assembly, 23 the research and development of useful agencies. Ideally the WHO should -28 May 2016 and safe drugs at affordable prices for play its important normative role and the population and the public social much better too; as well as an opera- security systems. The adoption of a Germán Velásquez is the Special tional role to prevent and respond to convention of this sort, within the Adviser on Health and Development emergencies, new and emerging dis- framework of the WHO, based on arti- of the South Centre. eases and health crises in poor coun- cle 19 of its constitution2, would also allow global health governance to be rethought. The negotiation of "global and binding instruments in health is- sues of global concern" is perhaps the most promising clue of the role WHO could take on in the future.

The CEWG recommended in 2012 Tylleskar UserThorkild CC Wikimedia for WHO Member States to start nego- tiations on a binding international in- strument on health R&D under Article 19 of the WHO Constitution, as the best way to create an appropriate frame- work to ensure priority setting, coordi- nation, and sustainable financing of affordable medicines for developing countries. The CEWG stated that “… a binding instrument on R&D is neces- The WHO headquarters in Geneva: Whoever becomes the next Director General will have to face big challenges.

Page 16 ● South Bulletin ● Issue 98, 17 March 2017 South Centre and Indonesia hold inaugural forum for South-South cooperation on tax policy issues

Taxation issues have become more and more a priority issue in officials a perspective on the im- the global agenda. However there is little space for developing portance of the outcome of their work. countries’ tax officials to discuss and cooperate on tax issues, Ambassador Triyono Wibowo, Per- as a result of which their views are marginalized in the interna- manent Representative of the Republic tional discussions and decisions. The South Centre and the In- of Indonesia whose Mission in Geneva donesian government organized an inaugural forum on develop- had worked very hard and closely with ing country tax policies and cooperation at the end of 2016 with the South Centre in organizing the Fo- the aim of starting a process of South-South cooperation on tax rum thanked the delegations for partic- policy issues. Below is a report of what happened at this inau- ipating and encouraged everyone to gural forum. work hard to have a substantial out- come from the Forum for the benefit of all developing countries and future meetings. In his message to the Forum, Martin Khor, Executive Director of the South Centre, remarked that the international tax regime is a legacy of colonial trad- ing blocs and outdated. Developing countries need to be actively involved in the fundamental reforms required, otherwise the resulting system will reinforce the dominant position of de- veloped countries and their multina-

tional companies and sustain obstacles to development. Dr. Manuel F. Montes, South Cen- tre’s Senior Advisor on Finance and Development, explained that the annu- Tri Rismaharini, Mayor of Surabaya, Indonesia (right), greeting A.M. Fachir, Vice Minister of Foreign al forum is aimed at creating a network Affairs of Indonesia (left), at the welcoming ceremony of the forum. with a strong international identity and leading-edge technical capacity among By Manuel F. Montes mobilize the financial resources need- developing country tax officials. This ed for Agenda 2030. One element network will assist tax authorities with ltogether 67 delegates, coming present in all the discussions was the standards of tax cooperation suitable from 33 countries, participated in A issue of how international agenda for developing countries. When in full the Inaugural Annual Forum on Devel- and processes of tax cooperation operation, such a Forum will be held oping Country Tax Policies and Coop- could be restructured to sufficiently every year, will support working group eration for Agenda 2030 in Surabaya, incorporate the interests of develop- meetings and efforts toward negotiated Indonesia on 30 November to 2 Decem- ing countries. outcomes among its members and be ber 2016. It was organized by the supported by a network of tax experts. South Centre and the Government of In opening the Forum, Ambassa- Dr. Montes proposed the following Indonesia. dor Abdurrahman Mohammad Fachir, Vice-Minister of Foreign Af- three main objectives of the Forum and For the participants, what was at fairs of Indonesia, called on develop- its associated activities: stake was no less than the feasibility of ing countries to expand their efforts (1) To assist country authorities in achieving the transformational goals of to strengthen their tax laws and ad- undertaking better research, upgrading Agenda 2030. Agenda 2030 calls for the ministration and to take up the lead- local capacity and in designing effec- realization of sustainable development ership in setting the agenda and tax tive tax policies for their own countries everywhere, leaving no one behind. norms in the international sphere. drawing on lessons and experiences The ambitious agenda will require that from the developing country context; developing countries be leading actors Madame Tri Rismaharini, Mayor in mobilizing the financial resources. of Surabaya, welcomed the partici- (2) to strengthen and better coordi- pants and explained the programs of nate developing country engagement

Officials and experts engaged in the the city in building infrastructure and with and negotiations in international sharing of experiences and ideas on expanding critical social services and tax cooperation activities such as in the what would be needed to ensure that programs, giving the international tax OECD-G20 processes, the UN tax coop- national authorities would be able to

Page 17 ● South Bulletin ● Issue 98, 17 March 2017 tion behind and the main features of the United Nations’ Committee of Ex- perts on International Cooperation in Tax Matters’ proposed new approach to the taxation of technical services.

Developing countries are highly dis- advantaged by the conventional treat- ment that services transacted between related foreign entities do not create a taxable base unless these have the fea- tures of a “permanent establishment.” The proposed UN approach seeks to amend the tax treatment consistent with the principle that foreign corpo- rations are subject to tax where the economic activity takes place. Because trade in services is an increasingly major component of the international economy, overcoming this develop- Ambassador Triyono Wibowo, Permanent Representative of Indonesia to the UN in Geneva, giving his ment obstacle is urgent. opening remarks at the forum. Mutual Administrative Assis- eration work, and regional cooperation Managing Tax Competition and tance and Evolving Tax Archi- activities where there are operating Investment Incentives: From tecture fora in Latin America and Africa, but National to Collaborative Ap- Jahanzeb Akhtar, Commissioner of not in Asia; and facilitate mutual action proaches Income Tax, Ministry of Finance of at the regional and global levels; and Providing tax incentives to attract in- India, presented on the deficiencies, (3) To establish international tax vestment is a sovereign right and can power and technical imbalances, and cooperation mechanisms among devel- be an important part of an effective practical constraints in the area of mu- oping country authorities, for arriving industrial development toolkit. How- tual administrative assistance, ex- at agreed norms and mutual action at ever, authorities have to try to ensure change of information, and country by the regional and global levels. that their fiscal costs are justified by the country reporting. The role of devel- benefits received. oping countries in these international Global Tax Norms and the Pro- efforts have evolved from exclusion to cess of Agenda Setting Inter- Mr. Astera Primanto Bhakti, Assis- “half-hearted” consultation, to current nationally and in the South tant to the Minister of Finance for State efforts toward a multilateral system of Revenue Policy, Indonesia, presented In the session on “Global Tax Norms country-by-country reporting. These Indonesia’s highly selective tax incen- and the Process of Agenda Setting In- proposals are undermined by issues of tive system for foreign investors, tak- ternationally and in the South”, Ms. the legitimacy of a developed country- ing into account that tax benefits are Kim Jacinto Henares, former Commis- led project and non-reciprocity in only one and sometimes not the most sioner of the Bureau of Internal Reve- practice. There are also material con- important consideration for the invest- nue of the Philippines, delineated the straints in the cost developing coun- ment decision. He also discussed Indo- challenges and obstacles facing devel- tries have to absorb in developing a nesia’s efforts in regard to minimizing oping country tax authorities in influ- data generation method to participate. harmful tax practices where the deci- encing the global agenda on interna- sion to relocate an investment is main- Mr. Abdul Gafur, Head of Section tional tax cooperation. Not being ly a function of the tax advantages. for Exchange of Tax Information, Di- member countries of the OECD, devel- Mr. Thulani Shongwe, Specialist, Mul- rectorate General of Taxes, Ministry of oping countries have experienced tilateral Cooperation, African Tax Ad- Finance of Indonesia, discussed the many difficulties getting their sugges- ministration Forum (ATAF) presented operations of the tax intelligence unit tions and innovations recognized un- the features of the ATAF Agreement on and the interest in the Asian region to der the G20 Base Erosion and Profit Mutual Assistance in Tax Matters set up more practical approaches and Shifting project - even when these are (AMATM). mechanisms for sharing tax infor- more appropriate to their circumstanc- mation. es. The session highlighted the need The Taxation of Technical Ser- for developing country officials to vices in Developing Countries In the breakout group on the top- begin to develop standards and rules ics, the difficulties experienced by spe- more suitable to their needs and for In a session moderated by Muhsin cific developing countries in obtaining cooperative work among developing Syihab, Director for Economic Devel- timely information from developed countries in support of their alterna- opment and Environmental Affairs, countries, the prohibitive cost of set-

tives. Ministry of Foreign Affairs of Indone- ting up computer systems to comply sia, Mr. Ignatius Mvula, Assistant Di- with the OECD information standards, rector at the Zambia Revenue Authori- an abiding interest among developing ty, presented (via Skype) the motiva- countries to set up standards and Page 18 ● South Bulletin ● Issue 98, 17 March 2017 court case initiated by his organization which questions whether such treaties should be allowed to come into force if they undermine the public interest. Mr. Asrifal Hardi Rangkuti, Head of Planning and Evaluating of Intelli- gence Operation, Directorate General of Taxes, Ministry of Finance of Indo- nesia presented on the challenges of e -commerce. Developing countries need to invest in upgrading their capa- bilities, undertake domestic legal re- forms, and be active in international discussions to avoid being disadvan- taged by the growth of e-commerce. Mr. Rangkuti outlined Indonesia’s step-by-step approach to defining the area and the policy changes required. Overall, the challenge of effective taxa- tion consists of three topics: (1) identi- Manuel Montes, Senior Advisor on Finance and Development of the South Centre, at the forum. fication of e-commerce players, (2) determination of taxing rights, and (3) mechanisms to exchange information effort toward a broad consensus design of taxing mechanisms. emerged. among them. Tax Havens and Illicit Finan- Transfer Pricing: How Can De- Mr. Achmad Amin, Deputy Direc- cial Flows: From National Ef- veloping Countries Cooperate tor for Prevention and Settlement of forts to International Coopera- on the Issue? International Taxation Disputes, Direc- tion torate General of Taxes, Ministry of Mr. Tri Purnajaya, Director of Trade, Argentine economist Veronica Grondo- Finance of Indonesia, discussed the Industry, Investment, and Intellectual na, Advisor on Tax Justice, Panama challenges Indonesian authorities faced Property Rights, Ministry of Foreign Papers Inquiry Committee, European using standard transfer pricing ap- Affairs of Indonesia, moderated a live- Parliament, reviewed Argentina’s rec- proaches. Particularly in the case of ly session on tax havens and how de- ord of utilizing an alternative method intangibles, the identification of the veloping countries can cooperate to of examining transfer pricing actions “comparable uncontrolled price” can become active players in shaping the among related companies, including be difficult. Mr. Amin explained Indo- standards and the rules, instead of the experiences in applying the stand- nesia’s rule-of-thumb approach in leaving it to developed countries. ard OECD methods. Argentina’s so- monitoring intellectual property charg- called “sixth method” involves using es. He highlighted the potential and Mr. Alexandre Akio Lage Martins, prices observed in commodity markets challenges of collaboration among de- Tax Auditor, International Taxation to set transfer pricing benchmarks as veloping countries in transfer pricing Division Government Unit, Federal opposed to the OECD method of trans- methodology with the onset of country Tax Unit, Ministry of Finance, Brazil, a c t i o n - by- transaction use of -by-country reporting. presented the long-standing Brazilian “comparables” as a benchmark. Tax Treaties, Allocating Taxing system in classifying particular tax Dr. Vinay Kumar Singh, Director of jurisdictions as tax havens and treat- Rights, and E-commerce: A ing transactions between Brazil and the FT&TR-I, Central Board of Direct Challenge to South-South Co- Taxation, Dept. of Revenue, Ministry of these jurisdictions differently, includ- Finance of India, presented on the prin- operation ing imposing a higher withholding ciples and their implications in the Mr. Gunawan Pribadi, Head of Inter- tax. The Brazilian system is a trans- practice of India’s transfer pricing ap- national Tax Policy, Centre for Reve- parent system based on evolving proach. He emphasized that a reliance nue Policy, Fiscal Policy Agency, Min- (since 1996) legislation and adminis- on an OECD approach involves judg- istry of Finance, Indonesia, moderated trative procedures which draw on Bra- ment and discretion on the part of both this session ,which started by examin- zilian experience and on international authorities and taxpayers since meth- ing the role of tax treaties. Mr. Alvin analyses (including the work on harm- odology does not generate a single Mosioma, Director, Tax Justice Net- ful tax practices effort in the OECD in price as a benchmark. The application work – Africa highlighted how many the late 1990s). For example, it has an of a functions, assets, and risks (FAR) developing countries are “giving effective definition of “substantial eco- analysis is inadequate because it ig- away” their taxing rights under tax nomic activity” of a corporation in its nores demand side factors behind price treaties, particularly those that follow residence jurisdiction when it has the determination. Dr. Singh proposed that OECD principles. This kind of prob- appropriate operational capacity developing countries consider further lem would arise even when the treaty (qualified employees, physical work toward an internationally accept- is between two developing countries; facilities) to fulfill its objectives. The ed method of profit attribution and an Mr. Mosioma gave an example of a categorization is thus not based on Page 19 ● South Bulletin ● Issue 98, 17 March 2017 politics or participation in a forum, Ministry of Foreign Affairs and 3. Experts and officials that were such as that involved in determining Human Mobility of Ecuador called on involved and served as presenters in non-cooperative jurisdictions under the developing countries to work together the inaugural Forum could be encour- OECD. Developing country and invest time and resources to take aged and supported to visit other de- participants also expressed the the lead in international tax veloping countries to share their possibility that the current EU cooperation and to ensure that the knowledge and experience. The South intention to create a tax havens list more representative body of the UN Centre can facilitate these activities. could result in non-EU members being becomes the venue for this effort. 4. There is solid support to contin- categorized as such while EU members Closing Session and Major ue the Forum as a venue for the inter- are exempt from evaluation. Conclusions governmental discussions of tax policy Ms. María Carola Iñiguez and cooperation among developing Zambrano, Undersecretary of Mr. Arko Hananto Budiadi, Director country officials. It should draw on International and Subregional for Socio-Cultural Affairs and Interna- expertise of interest to these officials Organizations of the Ministry of tional Organizations of Developing including from academics and civil Foreign Affairs and Human Mobility of Countries, Ministry of Foreign Affairs, society analysts, as was the case in the Ecuador, responsible for the Indonesia and Dr. Manuel Montes of inaugural Forum. presentation of the Ecuadorian the South Centre moderated the clos- 5. While there was a broad regional proposal on tax justice in the ing session. Among the key aspects of representation in the Forum, there is a multilateral system, spoke about the inaugural forum that were high- need to continue to expand and diver- Ecuador’s agenda in tax cooperation lighted in the final session were the sify the number of developing country and efforts in the UN General following: participants and experts. Assembly. Ecuador will seek the UN’s 1. The Forum covered many issues expanded involvement in combatting of interest to developing countries but 6. In the future, to save costs, mid- illicit financial flows and in decision- there were other issues, such as the tax dle income countries could fund their making on tax cooperation at the treatment of extractive industries and delegations and the funds for the Fo- intergovernmental level. Ecuador’s in services, which were not covered in rum can be for LDC participants. view is that raising the participation of detail. Consideration should be given 7. A big debt of gratitude is owed developing countries and ensuring to collaborative work before the next to the Government of Indonesia, in- their access to setting the international Forum and the next Forum can be de- cluding the mission in Geneva, for the agenda in tax cooperation is a matter of voted to these issues not adequately extensive support and the investment good governance and justice in line covered. of staff time in organizing the Forum. with achievement of Agenda 2030 and A big debt is also owed to the City of leaving no one behind. 2. For the topics that were actually included in the Forum, there is a need Surabaya for generously hosting the Dra. Lorena Freire Guerrero, to expand collaboration and coopera- welcome dinner and the memorable Undersecretary for Tax Compliance, tion among developing country tax cultural show. Internal Revenue Service, Ministry of authorities to undertake research and 8. There was a strong spirit of Finance, Ecuador, discussed her publication (particularly on actual South-South solidarity during the Fo- government’s efforts in combatting country cases and experience) and in rum and, as it ended, participants illicit flows in and out of the country. sharing of analyses and practices, pos- looked forward to expanded coopera- Ecuador has a well-articulated tax sibly through exchange of visits or tion and collaboration. haven regulatory framework, including small meetings at the regional level. listing of jurisdictions considered to be The South Centre can facilitate these Manuel F. Montes is Senior Advi- tax havens. activities. sor on Finance and Development of the South Centre. Expanding South-South Tax Cooperation in the Coming 12 Months Mr. Toufiq Islam Shatil, Counsellor, Permanent Mission of Bangladesh in Geneva, outlined the challenges in in- ternational tax cooperation in discharg- ing commitments from the financing for development outcome and in the work programme of the UNCTAD as articulated in the outcome of UNCTAD XIV in Nairobi. As Ecuador assumes the presidency of the G77 and China in 2017, Ms. María Carola Iñiguez Zambrano, Undersecretary of International and Subregional Organizations of the Participants at the forum.

Page 20 ● South Bulletin ● Issue 98, 17 March 2017 South Centre co-organises retreat for governments on Financing for Development in New York

The South Centre co-organised (with the Friedrich Ebert Force and Member States of the UN. Stiftung) an interesting retreat and expert meeting on Financ- The meeting was convened to (i) ing for Development near New York in January 2017. The inform Member States on status of meeting, attended by 34 governments and many international preparations of the 2017 Task Force report and its online annex; (ii) present agencies, discussed the work of a task force that includes UN findings from substantive Task Force agencies, the IMF and the World Bank, and gave an opportunity work streams and thematic work, and for the UN Member States to dialogue with the task force. Be- (iii) elicit Member States’ views on the low is a report of the meeting. 2017 report and medium-term work programme for the Task Force, and on how to make the Task Force’s findings most useful and relevant to the inter- governmental process. The meeting was organized around the proposed structure of the Task Force Report, including a session on the

global context and its implications for implementation of the agenda, a quick overview of follow-up on the nine chapters of the Addis Ababa Action Agenda, including an introduction to the on-line annex, and a series of break- out sessions on thematic issues. The IMF, UNCTAD, DESA/DPAD, and WTO presented their respective institutions’ views on the current eco- nomic environment and its impact on the FfD outcomes and the means of im- DESA plementation of the SDGs. There was

agreement across the four institutions that the international environment has Participants at the retreat. become more challenging, risking de- railing progress toward the SDGs. Two By Manuel F. Montes ba, to report annually on progress in issues highlighted by speakers were implementing the financing for de- risks and challenges emanating from ore than 50 US-based attendees, velopment outcomes and the means the global environment and the poten- M augmented by government ex- of implementation of the post-2015 tial role of investment in macroeconom- perts coming from their capitals partici- development agenda. ic recovery. While the AAAA embod- pated at The South Centre and the Frie- ies very strong reliance on the private The task force also has the respon- drich Ebert Stiftung-organized retreat sector to play a leading role in econom- sibility to advise the intergovernmen- and expert group meeting on financing ic recovery and long-term investments, tal follow-up, including the identifi- for development held in Glen Cove, the evidence, so far, shows weak pri- cation of implementation gaps and New York on 12-13 January 2017. vate investment demand, despite the recommendations for corrective ac- low levels of interest rates. The meeting was to brainstorm on tion. Led by the Financing for Devel- one aspect of the Financing for Devel- opment Office (FFDO) of the UN De- Participants at the retreat expressed opment process---to have representa- partment of Economic and Social Af- their strong support for an analytical, tives of countries understand and give fairs, the task force includes major evidence-based report as a key input to inputs into the work of the Inter- institutional stakeholders notably the the success of the ECOSOC Forum on agency Task Force (IATF) on Financing IMF, UNCTAD, the World Bank, the the follow up to Financing for Develop- for Development. WTO, and UNDP plus funds, pro- ment (FFD). Many of them requested The IATF is the task force mandated grams and specialized agencies of the that the report provide a range of policy by the Addis Ababa Action Agenda UN system. The enthusiastic engage- options for consideration by Member (AAAA), which was adopted by the 3rd ment of the participants provided an States. Many also noted that case stud- UN Conference on Financing for De- opportunity for substantive discus- ies would be useful to highlight what velopment held in 2015 in Addis Aba- sions between the Inter-agency Task works in which circumstances, which

Page 21 ● South Bulletin ● Issue 98, 17 March 2017 could be used as a way to frame policy issues (public-private financing of in- opment, participants suggested that advice. frastructure and financing of social the Task Force can deepen the analysis protection floors), and sessions on illic- of the incentives in the investment 47 representatives from 34 Member it financial flows, aligning capital mar- chain, and also noted that discussions States attended the retreat, including kets with sustainable development, on this topic at the FfD Forum could be 12 participants from capitals, with de- accounting for international public enhanced by including representatives veloped and developing countries well finance and debt and systemic issues. of the private sector. represented. The Inter-agency Task In each session, IATF members and Force was represented by the major The discussion on systemic and country delegations debated the con- institutional stakeholders of the FfD debt issues emphasized ongoing work, ceptual issues involved, the practical process, the IMF, the World Bank, and called on the Task Force to take use of indicators that could be devel- UNCTAD, UNDP and WTO, as well stock of what was happening at nation- oped, and the possible part these top- as the Financing for Development Of- al levels and to bring that together in a ics could play in the outcome of the fice, which coordinates the Task Force. coherent report for Member States. next FFD follow up forum. Several other Task Force members and Finally, at the session on measure- four external experts served as moder- Participants in the break-out session ment issues in international develop- ators and resource persons. on infrastructure finance and public- ment cooperation and the proposed private partnerships discussed a set of The IATF also presented progress measure of Total Official Support for “Addis Principles” on PPPs, as well as in constructing the online annex of its Sustainable Development (TOSSD), the a framework for analyzing the role of report. FFDO staff demonstrated how discussion emphasized both potential infrastructure in the agenda. the website will contain the full set of benefits from additional efforts to in- data and analysis across FFD action Participants at the session on fi- crease transparency and comparability areas. Participants made a number of nancing social protection floors noted of data, but also the political risks and suggestions to make the report and the that a scoping paper on the full land- mis-incentives that could be set by new online annex most useful for Member scape of quick disbursing international measurement tools. Participants sug- States. Member States emphasized the credit lines would be a useful contribu- gested that the Task Force should con- potential value of country case studies tion by the Task Force, and also called tinue to provide updates on efforts to and ways in which the online data for further work on state-contingent develop new tools. could encourage peer learning. A rep- debt instruments – building on exist- At the concluding session, Member resentative from the Finance Ministry ing work in other fora such as the G-20 States expressed appreciation for the of Ethiopia presented Ethiopia’s na- and the IMF – to help countries ensure opportunity to have informal dia- tional development strategy and asso- sustainable financing for social protec- logues with each other and with Task ciated financing plans in response to tion. Force members. They noted that the Agenda 2030 and the AAAA. It pro- The discussion on illicit financial discussions set a positive tone, and vided a useful case study and opened flows emphasized the importance of called for follow-up discussions with the potential for developing countries taking action, finding a solution on a the Task Force. Task Force representa- to present to the process not only on definition of the term, and agreed that tives promised to keep Member States the scale of financing, but what kind of the Task Force’s work on component- updated on progress in the Task financing, they would require to meet by-component estimation and analysis Force’s work, including through brief- their development goals. would be useful. ings and other opportunities for dia- The breakout thematic sessions in- logue and engagement. At a break-out session on aligning cluded two sessions on cross-cutting capital markets with sustainable devel- SOUTH BULLETIN EDITORIAL COMMITTEE Chief Editor: Martin Khor Managing Editor: Vice Yu Assistants: Anna Bernardo, Adriano José Timossi The South Bulletin is published by the South Centre, an intergovernmental think-tank of developing countries.

South Centre website: (in English, French and Spanish) www.SouthCentre.int DESA

South Centre Tel: +41 22 791 8050 The retreat was held in Glen Cove, New York on 12-13 January 2017. Email: [email protected]

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