Third ECONOMICSThird World ECONOMICS No. 729, 16-31 August 2021 World Trends and Analysis

No.729 16-31 August 2021 e-ISSN : 27165388

Differences dog WTO membership

Trade diplomats at the WTO head into the summer break still divided over a host of negotiating issues ahead of the organization’s Ministerial Conference this November. These faultlines were in evidence during discussions at the final WTO General Council meeting before the recess. l WTO members remain divided at General Council — p2

...... Also in this issue ......

Taxing the billionaire bonanza

Central banks must address pandemic challenges

The global minimum corporate : Not high enough, not fair enough

1 THIRD WORLD CurRent Reports I WTO Third World ECONOMICS No. 729, 16-31 August 2021 Economics Tren d s & A n a l y s i s WTO members remain divided at 131 Jalan Macalister 10400 Penang, Malaysia General Council Tel: (60-4) 2266728/2266159 The most recent meeting of the WTO’s governing body revealed Fax: (60-4) 2264505 persistent differences among member states over issues ranging from Email: [email protected] Website: https://twn.my a COVID-19 waiver to preferential treatment for developing countries.

by D. Ravi Kanth C O N T E N T S

CURRENT REPORTS GENEVA: The members of the World the coordinator of the Ottawa Group. He WTO members remain divided at Organization concluded the last said these documents contained a wealth General Council — p2 General Council (GC) meeting before the of information, adding that so far some summer break on a somewhat sombre and 25 documents had been submitted to the divisive note, failing to converge on the GC. Agri chair’s draft ministerial major agenda items that were discussed, The facilitator said that he would decisions could harm interests of said people familiar with the discussions. hold thematic discussions on South — p6 These topics included the TRIPS restrictions, trade facilitation, and reforms waiver, the work programme on involving transparency and notifications, Taxing the billionaire bonanza — p9 electronic commerce and moratorium on suggesting that these issues would be imposing duties on electronic useful to kick off work when members OPINION transmissions, and the WTO’s response return after the summer break. to the pandemic. He further said that he would Central banks must address WTO Director-General Ngozi discuss operationalizing cooperative and pandemic challenges — p11 Okonjo-Iweala spoke during the 27-28 collaboration agreements, the Director- July meeting on how to remain optimistic General’s recent meetings with Big Analysis and focus on three or four areas. The Pharma and the role of the private sector areas included the fisheries subsidies in ensuring access to medicines to tackle The global minimum : negotiations, the agriculture work the pandemic. Not high enough, not fair enough — programme, and special and differential Responding to the facilitator’s p13 treatment. She acknowledged that there report, India’s Ambassador to the WTO were wide gaps and members’ positions Brajendra Navnit expressed concern over remained far apart. She urged members bringing in market access issues as part to accelerate negotiations once they come of the WTO’s response to the pandemic, back in September after the break. said people familiar with the discussions. Ambassador Navnit appears to COVID-19 response have said that there are too many proposed “deliverables”, emphasizing Several developing countries the need to exclude the market access cautioned the facilitator tasked to lead agenda. Such an agenda will deny policy WTO members in finding a multilateral space to developing countries, he is THIRD WORLD ECONOMICS and horizontal response to the COVID- understood to have said. Moreover, the is published fortnightly by the Third 19 pandemic not to bring in market proposed measures impose onerous and World Network (TWN), an independent access issues by including proposals cumbersome obligations that could only non-profit international research and tabled by Singapore and Jamaica, as well serve a few countries in the name of the advocacy organization involved in as from the Ottawa Group of countries pandemic. bringing about a greater articulation of led by Canada, said people familiar with Further, issues like export restrictions, the needs, aspirations and rights of the the development. temporary elimination of tariffs that peoples in the South and in promoting At the GC on 27 July, the GC- becomes a permanent measure, and just, equitable and ecological appointed facilitator, Ambassador David stringent transparency and notification development. Walker from New Zealand, presented an requirements will not address the problem Editor: Chakravarthi Raghavan initial report on his recent consultations of access to vaccines, therapeutics and held with members. He mentioned the diagnostics, nor access to food. Editorial Assistants: Lean Ka-Min, T. Rajamoorthy, Chee Yoke Heong proposal prepared by Singapore and The facilitator’s approach could also Jamaica, as well as that on trade and lead to flight of these finished critical Visit our website at https://twn.my/ health issues as presented by Canada, products to the highest bidder, thereby

2 CurRent Reports I WTO Third World ECONOMICS No. 729, 16-31 August 2021 making them inaccessible to resource- submitted. Notwithstanding the text- worsening pandemic.” poor people all over the world, Navnit is based negotiations, she said that “while He said that “IP rights are not understood to have said. we deal extensively on ‘scope’, ‘duration’, absolute, they are subject to public The Indian envoy stressed that the ‘implementation’ and on protection of interest, and such public interest exists WTO’s response to the pandemic has to information, we must understand that the n ow.” include the TRIPS waiver. He urged the negotiation by itself is not an achievement “The TRIPS waiver should be our facilitator to include the high volume of but rather the outcome of the negotiation way, the members’ way, to uphold public work done on the waiver and food security will be.” interest and the livelihood of so many” due to the growing problem of hunger. Therefore, she said, the African countries, he said. He suggested that a simple, efficient Group calls for “the expediting and Chad on behalf of the least-developed and permanent solution for extending prioritization of solutions-oriented text- countries (LDCs), Bangladesh, Nepal, public stockholding (PSH) programmes based negotiations,” and calls on the Afghanistan and many other developing for food security to new programmes TRIPS Council to “urgently conclude countries supported the call for expediting and new products must remain a major these so as to facilitate the diversification work on the waiver. deliverable at the WTO’s 12th Ministerial of production across different locations India lamented that due to the Conference (MC12), which is due to take and increase production and supply of positions adopted by certain members, place in November. life-saving vaccines and related products. the landing zone on the waiver could It is in global public interest to do so.” not be reached before the summer break. Call for TRIPS waiver “Access to products and technology India is understood to have said that a in the manufacturing of vaccines remains handful of countries continue to oppose During the GC discussion on the critical and the WTO membership must the waiver on grounds that the IP system TRIPS waiver, around 30 out of 39 expeditiously come together to achieve has contributed to innovation and rapid countries that spoke called for an urgent the desired outcome in favour of the development of vaccines. resolution of the issue, according to TRIPS waiver,” she said. The European Union touted the use of people familiar with the discussions. Canbady argued that “the WTO and voluntary licences and the contributions Presenting his report to the GC, the WTO membership need to have a it has made to supporting new technology the chair of the WTO’s TRIPS Council, response to the COVID-19 and the IP hubs in Africa, particularly in South Ambassador Dagfinn Sorli from Norway, [intellectual property] waiver must be a Africa, Senegal and Rwanda. It spoke said that the waiver discussions will be central part of the response.” about BioNTech and ’s agreement continued in September. The report said She called for “policy coherence and with the South African company BioVac, that there are differences over the issues action coherence globally, involving the saying that there are about 300 companies of duration, scope and other elements of WTO, WHO and other international that have entered into voluntary licensing the proposed waiver. organizations to find real solutions to agreements. South Africa’s Ambassador Xolelwa the global pandemic affecting seriously The EU appeared to issue a subtle Mlumbi-Peter made a strong statement developing countries, including African threat to the waiver proponents, saying on the need for the waiver and why the countries which do not have access to that a waiver could undermine voluntary issue of intellectual property has to be a vaccines and therapeutics.” licensing agreements signed with Big main component of any decision on the “This is a real issue for Africa and Pharma, said people familiar with the WTO’s response to the pandemic. the emotion we heard this morning in discussions. She touched on several issues the intervention of the South African The EU claimed that its own proposal including the worsening COVID-19 Ambassador shows the strain that the relating to the use of compulsory licensing situation in Africa and the need to ramp continent is under,” she said. is the best option as compared with the up production of vaccines. She said that all In his statement on the TRIPS waiver, waiver proposal. proposals and initiatives that are aimed at Indonesia’s Ambassador Syamsul Bahri addressing barriers to production should Siregar regretted that though the waiver E-commerce work programme not be seen as a substitute to the waiver discussions were supposed to be in the but should contribute from different context of a text-based process, constant On the 1998 multilateral WTO work perspectives, and should be welcomed repeated questions had slowed down the programme on electronic commerce, with a view to finding landing zones. process. India, South Africa, Indonesia and many Ambassador Usha D. Canbady The Indonesian envoy reiterated other countries called for focused and from Mauritius, the coordinator of the that “for us the TRIPS waiver proposal structured discussions in the run-up to African Group of countries, highlighted is a WTO top priority at this moment.” MC12. the disparities in access to vaccines, with He said that “we consider this proposal In its intervention, India apparently 75% of vaccines having been distributed as a main element of the holistic WTO called for engaging constructively on to only 10 countries. She pointed out that response to the COVID-19 pandemic.” various issues under the work programme, only 2% of the African population have He underlined the need to said people familiar with the discussions. been vaccinated, compared with 45% in “immediately pursue and conclude the India appears to have called for a developed countries. TRIPS waiver to address … IP obstacles clear understanding on the scope of the Canbady expressed concern that and to scale up the production of all existing moratorium on customs duties nine months have now elapsed since COVID-19-related health products and on electronic transmissions in order the waiver proposal was initially technologies to save people from the to allow WTO members to make an

3 CurRent Reports I WTO Third World ECONOMICS No. 729, 16-31 August 2021 informed decision at MC12 on whether At the GC meeting, many developing system that should be preserved and to extend the moratorium. It suggested and least-developed countries called for a reinforced. In order to ensure equity that a reconsideration of the moratorium decision at MC12 on a permanent solution and fairness, S&D must remain an is critical for developing countries to for public stockholding programmes for integral part of WTO agreements preserve policy space to regulate . food security. and be part of any deliverable at It also said that the discussion on the Indonesia said “MC12 should not MC12. e-commerce work programme should leave without a meaningful outcome “2. WTO Members should always remain as a standing item on the GC towards the establishment of a permanent undertake commitments agenda. solution on public stockholding for food commensurate with their level South Africa spoke about the digital security (PSH) and a comprehensive and of development in recognition of divide and the growing need for discussing balanced outcome on special safeguard differences in capabilities, capacities the issues of classification, definition and mechanism (SSM).” and resources. These differences scope. It said “agriculture reform is urgently should not stand in the way of Indonesia reiterated that its needed to create a fair discipline that the application of appropriate and longstanding position on the work addresses the current pandemic challenges effective special and differential programme remained unchanged. and its impact on food security.” treatment. Indonesian Ambassador Siregar said It welcomed “members’ proposals “3. Any COVID-19 invention or other that “while we attach great importance that provide options for the conclusion of technologies must be temporarily to the development of e-commerce, the a permanent solution on PSH, such as the treated as global public goods so WTO should also focus its work on the one submitted by the African Group, to that they can be manufactured and developmental aspect of this sector.” He help provide a common basis upon which distributed with a view to make said “this would ensure that the benefit further negotiations on the development them accessible to all. The TRIPS of this specific area would not only be of new rules on PSH can proceed.” flexibilities and the Agreement offered to a specific group of members Indonesia, which is the coordinator should continue to be interpreted and but also to all WTO members.” of the developing-country G33 coalition, implemented in a manner supportive “Hence, Indonesia fully supports the said the G33 is also going to table a of WTO Members’ right to protect reinvigoration of the multilaterally agreed proposal on a permanent solution for PSH public health and, in particular to 1998 work programme on e-commerce, which it hopes will be seen as a realistic promote access to medicines for all. [and] it is important to complete work and reliable proposal that could work as a “4. WTO rules must give space for on clarifying what constitutes electronic basis of discussion towards MC12. economic actors to grow local transmissions and the moratorium’s India said an outcome on a permanent production capacities, thereby impact on customs duties,” he said. solution for PSH programmes is a sine energizing local, domestic, and Several other countries such as Sri qua non at MC12. regional markets and economies, and Lanka also called for reinvigorating the improving the quality of employment multilateral work on the work programme Special and differential treatment and living standards. SMEs [small because of the growing digital divide and medium enterprises] shall be and the unaddressed issue of digital At the GC on 28 July, South Africa, allowed preferential market access infrastructure. on behalf of the G90 developing-country in local distribution channels and The said it wants grouping, introduced the grouping’s systems. a permanent moratorium, stating declaration on special and differential “5. Sufficient flexibility and policy space that ending the current moratorium treatment, stating that a decision on in the structure should be would create uncertainty. It said tariff- making S&DT simple and effective has maintained to be able to grant the free treatment is essential and that an been pending for 20 years. tariff protection required for infant alternative view is difficult to accept. The South Africa’s Mlumbi-Peter industries, promote the development US delegate pointed to certain procedural expressed concern over the lack of of new industries, including those issues, cautioning that if the moratorium progress in the negotiations on S&DT related to the production of COVID- is discontinued, then the 1998 work in the WTO Committee on Trade and 19 related products. programme could also be blocked. Development. She underscored the “6. Simplification of processes and Brazil said it would support the need for S&DT provisions to be made clarification of conditions to allow extension of the moratorium, adding that more precise, effective and operational for temporary modification of any bad decision or a rollback would be in accordance with paragraph 44 of the concessions in times of crises to embarrassing for the credibility of the Doha Ministerial Declaration to enable promote economic recovery is of WTO. developing countries and LDCs to further critical importance. This includes Singapore, which is one of the three integrate into the multilateral trading the need for the development of coordinators of the Joint Statement system and to address various obstacles clearer guidelines for determining Initiative on digital trade, said it supports to the achievement of this objective, the adequacy of Member’s reserves the continuation of the moratorium. including addressing COVID-19 and its within the context of developing impacts. countries’ economic development Permanent solution for PSH In its declaration, the G90 stated: programmes. programmes “1. S&D is a central tenet of the WTO “7. In view of the impact of SPS [sanitary and phytosanitary] and

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TBT [technical barriers to trade] as an S&D instrument of accession developed country category.” measures on the trade interests of for LDCs. The support measures shall include many developing countries and “12. The revised S&D proposals which the following elements: LDCs, developed countries and were tabled by the G90 in the CTD 1. All special and differential treatment developing countries in a position to SS [Special Session of the Committee measures and exemptions available do so should notify all proposed SPS on Trade and Development] and to an LDC under existing and future and TBT measures to enable early discussed in successive meetings WTO Agreements, Understandings, consultation with affected countries, are critical to increasing trade Ministerial, General Council and prior to adoption of the measure, opportunities of developing countries other relevant Decisions; including providing adequate and LDCs, promoting economic 2. All LDC-specific technical assistance adjustment time and technical and recovery, providing an effective and capacity-building programmes financial capacity for developing response to the current crises and and facilities provided under the countries and LDCs facing capacity building resilience to future shocks, WTO system; constraints. putting developing countries on a 3. Any other relevant measures in favour “8. Introduction of new TRIMs [trade- sustainable development path and of LDCs; related investment measures] for a contributing to the achievement 4. If a decision of the UN General limited period to encourage expanded of the SDG Agenda 2030. We urge Assembly to exclude an LDC production capacity for medical Members to constructively engage Member from the LDC category devices and components and personal in good faith in these discussions enters into force during a transition protective equipment, promote so as not to erode the confidence period for LDCs provided under any domestic manufacturing capabilities, of developing countries in the existing or future WTO Agreements, accelerate industrialization, stimulate multilateral trading system, and Understandings, Ministerial, General the transfer of technology and close agree on meaningful outcomes Council or other relevant Decisions, the digital divide should be allowed. before MC12.” the Member shall be entitled to “9. Flexibilities are required in relation Trade envoys from developing utilize the remaining period of delay to the use of subsidies in the ASCM countries and LDCs endorsed the provided for LDCs; [Agreement on Subsidies and declaration at the meeting, saying that 5. Developed and developing countries Countervailing Measures] contingent the credibility of the WTO hinges on granting unilateral trade preferences upon the use of domestic content whether it produces an outcome at to LDCs shall establish procedures in order to promote resuscitation MC12. Otherwise, the intergovernmental for extending and gradually phasing of ailing industries, upgrade and multilateral trade body will be seen as an out their preferential market access modernize domestic manufacturing organization that serves the interests of scheme over a period of 12 years after capabilities, employment generation, developed countries, said people familiar the entry into force of a decision of support small and medium with the development. the UN General Assembly to exclude enterprises and to promote . However, several industrialized a country from the LDC category; WTO Members should exercise due countries, including the US, raised and restraint with respect to challenging objections that the G90 proposal is an 6. After the transition period provided subsidies provided by developing old proposal and cannot be subjected to under paragraph 1, a graduated LDC countries, in order to achieve further negotiations. Member shall automatically benefit development goals. from the most favourable special and “10. Building resilient economies requires LDC waiver differential treatment granted to other transfer of technology. Members developing country Members. are encouraged to put in place The US also objected to a proposal Many LDCs and developing countries, measures to incentivize the transfer from the LDCs seeking support measures, including the African Group, strongly of technology to achieve their especially special and differential supported the draft GC decision tabled developmental objectives. Members treatment, for a period of 12 years after by the LDCs. should adhere to the implementation they graduate from their current LDC The US, however, objected to the draft of commitments under the TRIPS status. decision, saying that countries such as Agreement. At the GC meeting, the LDCs Bangladesh and Laos cannot be retained “11. In simplification of processes and introduced their proposal for a decision in the same group as their economic with the principles of universalizing thereon at MC12. Chad, which is the status is much higher than that of several the multilateral trading system in coordinator of the LDC group at the developing countries. a balanced manner consistent with WTO, presented the draft ministerial It appears that the developed the level of development, ambition decision for discussion. countries will go to any extent to block and developmental needs of LDCs, The draft decision states that “support the proposals on the LDC waiver and WTO Members are encouraged to measures available to least developed S&DT at MC12, thereby making clear consider sufficient flexibility and countries shall be extended to a least that the concerns of developing and least- fully implement the 2012 General developed country Member for a period developed countries are unlikely to be Council Decision on LDCs Accession of twelve years after the entry into force addressed at the ministerial meeting, said to further strengthen, streamline and of a decision of the UN General Assembly people familiar with the development. operationalize the 2002 Guidelines to exclude the Member from the least (SUNS9397/9398)

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investment and input subsidies, namely Agri chair’s draft ministerial domestic support provided to encourage diversification from growing illicit narcotic crops, is omitted in the draft decisions could harm interests of decision. Separately, the chair alluded to South Amber Box measures by suggesting that “Members agree to address AMS Draft decisions put forward by the chair of the WTO negotiations [Aggregate Measurement of Support] on agricultural trade appear to be weighted against the concerns of above de minimis entitlements with the developing countries. aim of reducing subsidy concentration and to level the playing field”, but did not by D. Ravi Kanth call for any reduction commitments in the AMS, which signifies the most trade- distorting subsidies. All the developed countries and GENEVA: The chair of the Doha A cursory glance at these draft some developing countries have an agriculture negotiating body, Ambassador decisions such as on proposed disciplines AMS entitlement – the US has close to Gloria Abraham Peralta from Costa Rica, on domestic support, market access $19 billion, the EU has more than $70 has issued a 27-page draft text containing and PSH programmes reveals that they billion, as well as billions of dollars of nine draft decisions for the WTO’s 12th appear to be largely aimed at preventing AMS support by Japan and other - Ministerial Conference (MC12) that the developing and least-developed defensive countries. could impose a huge burden and cost countries from pursuing development- China and India have called for the on the developing and least-developed related measures in agriculture, said elimination of the AMS entitlements, countries, said people familiar with the people familiar with the text. but the chair has not adhered to that development. proposal. The draft text, issued as a restricted Domestic support The chair’s reliance on the Cairns document and seen by this writer, is Group proposal could raise some doubts excessively packed with transparency On domestic support, the chair about the integrity of her textual proposals provisions, including a specific draft appears to have lifted the textual proposals on domestic support, said a trade envoy decision on transparency and notification made by the Cairns Group of agriculture who asked not be quoted. requirements apparently proposed by the exporter countries in their draft The chair’s draft ministerial decision United States and the European Union. ministerial statement issued on 15 July. on domestic support contains the The transparency provisions are She has added a few somewhat “divisive” following principles: unprecedented as they are included elements and created more confusion, “1. Members commit to capping and in each of the eight draft ministerial particularly in regard to Article 6.2 of the reducing the sum of current global decisions plus the specific “transparency” WTO’s Agreement on Agriculture (AoA), agricultural trade- and production- decision, and are seen as imposing an which is referred to as the “development distorting domestic support onerous burden on the developing and box” for developing countries. entitlements by at least half by 2030 least-developed countries, said people She has proposed in square brackets [alternatively: Members commit familiar with the text. that “[Developing countries shall to a substantial reduction of trade- The chair presented the draft text be accorded special and differential and production-distorting domestic containing the nine draft ministerial treatment, including for domestic support entitlements] according to decisions at a meeting of the Doha support provided by them to low-income modalities to be negotiated. agriculture negotiating body on 29 July. or resource-poor farmers under Article “2. To this end, these negotiations shall The draft ministerial decisions relate 6.2.]” take into consideration all forms of to: (1) domestic support; (2) elements for The confusion created by the chair’s trade- and production-distorting the continuation of work on market access proposed text on Article 6.2 is over lack of domestic support under Article 6 after MC12; (3) export competition; (4) clarity. For example, it is not clear whether of the Agreement on Agriculture export prohibitions and restrictions; (5) she is referring only to low-income [taking into account the different cotton; (6) special safeguard for developing or resource-poor farmers in regard to potential of each category to distort countries; (7) public stockholding (PSH) investment and input subsidies, which production and trade]. [Developing programmes for food security purposes; are exempt from reduction commitments countries shall be accorded special (8) another draft ministerial decision on under Article 6.2. and differential treatment, including PSH programmes; and (9) transparency A large majority of developing for domestic support provided by and notifications. countries have consistently opposed any them to low-income or resource-poor All these draft decisions will be change in Article 6.2 on grounds that both farmers under Article 6.2.] [Members further negotiated from September to investment and input subsidies are at the agree to address AMS above de November before being presented to heart of their development programmes. minimis entitlements with the aim of trade ministers at MC12, which takes The third form of domestic reducing subsidy concentration and place in Geneva end-November. support covered in Article 6.2 besides to level the playing field.]

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“3. The contributions by individual and their potential impact on global Transparency Members in these reductions will markets, taking into account the need to be proportionate to the size of individual development needs of Apart from proposing transparency those Members’ current entitlements Members, to ensure the global target and notification requirements in the first and their potential impact on is reached by 2030. eight draft ministerial decisions, the chair global markets, taking into account “4. The implementation of existing has created a specific draft ministerial the individual circumstances and notification obligations under Article decision on transparency, which seems to development needs of Members, [to 18 of the Agreement on Agriculture, have been made at the behest of the US ensure the global target is reached by thus strengthening transparency and the EU. This decision proposes the 2030]. with respect to existing domestic following disciplines: “4. LDCs will not be required to support commitments, is imperative, “1. Further to the provisions in Article undertake any new reduction and that utmost effort must be made 18 of the Agreement on Agriculture commitments. to provide all outstanding DS:1 and in document G/AG/2 of 30 June “5. Members note the importance of notifications.” 1995 on ‘Notification requirements and the implementation of existing formats’, Members commit to enhancing notification obligations under Article PSH programmes transparency to improve monitoring in 18 of the Agreement on Agriculture all areas of agriculture. and undertake to make the necessary On the key issue of a permanent “2. The WTO Secretariat is directed to efforts to provide all outstanding solution for public stockholding provide information on a regular basis to DS:1 notifications to enhance programmes for food security, the chair the Committee on Agriculture on available transparency with respect to existing offered two alternative draft ministerial technical assistance, including examples domestic support commitments. decisions. of recent cooperation, in an effort to [Members undertake to provide the The first draft is based on the Buenos assist Members in preparing notifications value of production data as part of Aires draft ministerial decision that was pursuant to document G/AG/2 and their DS:1 notifications.] blocked by the US in December 2017. fulfilling other relevant transparency and “6. [Members shall consider reviewing Perhaps this would be largely acceptable monitoring requirements. and clarifying Annex 2 criteria and to a majority of developing countries “3. Members welcome the related transparency requirements, and LDCs, said people familiar with the development of information technology where necessary, to ensure that development. (IT) tools through the Agriculture relevant domestic support measures However, in an apparent move to Informational Management System (Ag- have no, or at most minimal trade- deny an outcome on the permanent IMS) to facilitate data processing and distorting effects or effects on solution, the chair proposed an alternative on-line data submission by Members production.] text that is seen as being acceptable to the in implementing their notification “7. [Members also commit to simplifying Cairns Group, the US and the EU. This obligations pursuant to document G/ and updating the current transparency second draft, which emphasizes on a AG/2 and other relevant transparency requirements in G/AG/2, taking due work programme, states: and monitoring requirements. account of the capacity constraints of “1. Pursuant to the Nairobi Ministerial “4. [Members agree to establish a some Members.]” Decision (WT/MIN(15)/44 - WT/ work programme under the auspices of the The Cairns Group’s draft ministerial L/979), Members shall continue to Committee on Agriculture to implement decision submitted by Australia, pursue negotiations and make all all revisions and additions to document Argentina, Brazil and several other concerted efforts to agree and adopt G/AG/2 that Members agreed to explore countries proposes the following a permanent solution to the issue of in other Ministerial Decisions adopted disciplines on domestic support: public stockholding for food security as part of the outcome on agriculture at “1. The Members shall commit to cap purposes in dedicated sessions of the the Twelfth Ministerial Conference by and reduce the sum of current global Committee on Agriculture in Special [date].]” agricultural trade- and production- Session (CoA-SS). distorting domestic support “2. [In the interim, Members agree Market access entitlements by at least half by 2030. to extend the Interim Solution “2. To this end, Members shall negotiate established by the Ministerial In a similar vein, the draft decision an agreement to cap and reduce Decision of 7 December 2013 (WT/ on market access excessively focuses trade- and production-distorting MIN(13)/38 - WT/L/913) and the on transparency and notification domestic support entitlements. General Council Decision of 27 requirements while ignoring crucial Such negotiations shall take into November 2014 (WT/L/939) to issues such as tariffication based on ad consideration all forms of trade- public stockholding programmes valorem equivalents, as they are anathema and production-distorting domestic for food security purposes of least to the EU and the G10 farm-defensive support under Article 6 of the developed countries enacted after 7 countries, said people familiar with the Agreement on Agriculture. December 2013.] text. “3. The contributions by individual “3. The General Council shall On market access, the chair has Members in these reductions will regularly review progress in these resorted to a proposal from Australia, the need to be proportionate to the size of negotiations.” US and the EU. The EU does not wish those Members’ current entitlements to enter into market access negotiations,

7 CurRent Reports I WTO Third World ECONOMICS No. 729, 16-31 August 2021 while Australia and the US want greater should apply [at least] one of the best “11. The WTO Secretariat shall maintain transparency and legal certainty over the practices listed in Annex 1 of this a list of practices notified by application of applied tariffs. Decision. Members. The chair’s draft ministerial decision “12. Members facing resource constraints on market access states: “Ongoing Development of Best in meeting this notification shall, Practices: upon request from another Member, “Scope: provide information on the current “6. Members recognize that additional practice(s) used by them. “1. This Decision applies to changes in best practices may be developed MFN applied tariffs in respect of both to improve predictability and “Technical Assistance: agricultural and non-agricultural transparency when an MFN applied goods. tariff rate changes. “13. Upon request, the WTO Secretariat “7. To this end, Members are encouraged shall provide technical assistance “Best practices in the application of to present additional best practices to [developing] Members who changes to MFN applied tariff rates: to the Committee on Market Access encounter challenges in applying (CMA), which will be responsible for a best practice presented in Annex “2. In order to promote predictability in an annual review of this Decision. If 1 to this Decision. In addition, the application of changes to MFN no objections are raised in the annual [developing] Members and LDCs are applied tariff rates, whilst recognizing review, the best practice(s) shall be encouraged to reach out to Members that Members have different added to the list in Annex 1 to this to discuss how to apply the best domestic frameworks and customs Decision. practice(s) or develop a best practice administration practices, Members that fits their domestic system.” agree that the options presented in “Notification: Annex 1 to this Decision represent In a nutshell, never in the recent past best practices in the application of “8. Members [shall] [are encouraged to] has a chair of the agriculture negotiations such changes. notify to the CMA the best practice(s) seemingly shown such blatant bias to “3. Members also agree to examine they use, outlined in Annex 1 to promote the interests of the Cairns Group, options to inform the WTO as soon this Decision, no later than [12] [6] the US, the EU, Japan and Switzerland of as practicable of MFN applied tariff months after the adoption of this the G10, said several members familiar changes as part of broader efforts to Decision. Members [shall] [should] with the text. improve transparency in the WTO. notify to the CMA of subsequent Ambassador Peralta appears to changes to their practices. have destroyed the high standards set “Application of Best Practices: “9. If a Member is not in a position to by the previous agriculture chairs such implement one of the best practices as Ambassador Crawford Falconer “4. Recognizing that Members have presented in Annex 1 to this Decision, and Ambassador Vangelis Vitalis, both different domestic frameworks and the Member [shall][should] notify to from New Zealand. Both Falconer and customs administration practices, the CMA its current practice in this Vitalis created trust and integrity in their Members [shall][should] apply at matter. proposals that were largely acceptable to least one of the best practices listed “10. Members [should][shall] use the both the industrialized and developing in Annex 1 of this Decision. template in Annex 2 to this Decision countries, said a trade envoy who asked “5. Least Developed Country (LDC) to notify their practice(s) to the not to be quoted. (SUNS9399) Members in a position to do so WTO.

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8 CurRent Reports I Inequality Third World ECONOMICS No. 729, 16-31 August 2021

“With a 99% tax on billionaires’ Taxing the billionaire bonanza COVID-19 wealth gains we are calling time on this age of greed,” said Njoki As the wealth divide grows deeper, global advocates are calling for a Njehu, Pan Africa coordinator of the Fight one-time 99% emergency tax on billionaires’ pandemic windfalls to Inequality Alliance. “Billionaire wealth is fund COVID-19 vaccines for the entire world. not earned. Billionaires are profiting from working people’s hard graft and pain. It’s by Chuck Collins their money ‘earned’ by your sweat – and it’s high time that sweat began to pay off. Governments need to tax the rich for us to stand any chance of reversing the The world’s billionaires have seen their Amazon’s Jeff Bezos’s wealth inequality crisis we’re in.” wealth surge by over $5.5 trillion since increased by $79.4 billion during the The Fight Inequality Alliance the beginning of the pandemic in March pandemic, rising from $113 billion in convened the Festival to Fight Inequality, 2020, a gain of over 68%. The world’s 2,690 March 2020 to $192.4 billion on 31 July a virtual gathering of thousands of global billionaires saw their combined 2021. An estimated 325 new billionaires activists from nearly 30 countries, on wealth rise from $8 trillion on 20 March joined the “3-comma club” since the 13-14 August to discuss solutions to 2020 to $13.5 trillion as of 31 July 2021, pandemic began – equivalent to roughly the worsening global inequality crisis, drawing on data from Forbes. one new billionaire minted every day. including taxing the rich. Global billionaire total wealth has Less than 1% of people in low-income “The surge in global billionaire wealth increased more over the past 17 months countries have received a vaccine, while as millions of people have lost their lives of the pandemic than it did in the 15 years the profits made by Big Pharma have seen and livelihoods is a sickness that countries prior to the pandemic. Between 2006 and the CEOs of Moderna and BioNTech can no longer bear,” said Morris Pearl, 2020, global billionaire wealth increased become billionaires. The COVID-19 former managing director at BlackRock from $2.65 trillion to $8 trillion, a gain of crisis has pushed over 200 million people and chair of the Patriotic Millionaires. $5.35 trillion. into poverty and cost women around the “Rich people getting endlessly richer is Billionaires have reaped an unseemly world at least $800 billion in lost income not good for anyone. Our economies are windfall at a time when millions have lost in 2020, equivalent to more than the choking on this hoarded resource that their lives and livelihoods. The pandemic combined GDP of 98 countries. At the could be serving a much greater purpose. has supercharged existing global same time, 11 people are now dying of Billionaires need to cough up that cash inequalities, with the wealthy profiteering hunger and malnutrition each minute, ball – and governments need to make from the shuttering of the main street outpacing COVID-19 fatalities. them do it by taxing their wealth.” economies around the world. Governments have in the past turned to the wealthiest in response to Tax call major crises. After World Wars I and II, one-off wealth were levied in Global equality advocates are calling “The surge in global European countries and Japan to fund on national governments to levy a one- reconstruction. France, for example, taxed time 99% tax on these billionaire windfall billionaire wealth as excessive wartime wealth gains at a rate of pandemic gains, to pay for everyone on millions of people 100% after the Second . More Earth to be vaccinated against COVID- recently, following the global financial 19 and provide a $20,000 cash grant to have lost their lives crisis of 2008, countries including Iceland all unemployed workers. The analysis introduced temporary wealth taxes to and proposal were released on 11 August and livelihoods is a help refill public coffers. by , the Fight Inequality Alliance, Policymakers, leading economists, the Institute for Policy Studies, and the sickness that countries civil society organizations, the UN, the Patriotic Millionaires. The organizations IMF and the World Bank are calling for are calling on governments to tax the can no longer bear.” one-time “solidarity taxes” and longer- ultra-wealthy who profited from the term wealth taxes targeted at the super- pandemic crisis to help offset its costs. rich to mitigate the economic impacts of The one-time emergency COVID- the pandemic and reduce inequalities. In 19 billionaire tax would raise $5.445 December 2020, debt-saddled Argentina trillion and still leave the world’s 2,690 adopted a one-off special levy dubbed billionaires $55 billion richer than before the “millionaire’s tax” that has brought in the virus struck (an average of $37 around $2.4 billion to pay for pandemic million per billionaire). Governments recovery. across the world are massively under- “Billionaire Jeff Bezos could taxing the wealthiest individuals and big personally pay for enough vaccines for corporations, which is undermining the the whole world, yet he would rather fight against COVID-19 and poverty and spend his wealth on a thrill ride to space,” inequality. said Max Lawson, Oxfam International’s

9 CurRent Reports I Inequality Third World ECONOMICS No. 729, 16-31 August 2021

Global Inequality Policy Lead. “COVID- adult population was calculated as Social Outlook 2021 flagship report, 220 19 is turning the gap between rich and follows: two doses at $7 per dose for 5 million people are currently unemployed. poor into an unbridgeable chasm. The billion people, for a total of $70 billion. Of these, 114 million people were made obscene levels of wealth gained from This is based on the average cost per dose. jobless by COVID-19. To give a one-off the pandemic by a handful of mega Oxfam, the Fight Inequality Alliance, the $20,000 cash grant to all workers currently rich individuals should immediately be Patriotic Millionaires and the Institute for unemployed would cost $4.4 trillion. taxed at 99% – enough to fully vaccinate Policy Studies do not endorse such high everyone on Earth and help millions prices for vaccines and are campaigning Chuck Collins directs the Program on of workers who lost their jobs due to for patent-free access to allow generic Inequality and the Common Good at the COVID-19. Only with this kind of radical manufacturers to produce COVID-19 Washington, DC-based Institute for Policy and progressive policy making will we be vaccines to drive down prices. Studies, where he also co-edits Inequality. able to fight inequality and end poverty.” According to the International Labour org. This article is reproduced from The cost of vaccinating the world’s Organization’s World Employment and Inequality.org under a Creative Commons licence.

Green Deals and Implications for the Global South TWN Environment & Development Series No. 20

By Vicente Paolo Yu III

A number of initiatives for a “green economy”, “Green Deal” or “Green New Deal” have been advanced at national, regional and international levels with the stated aim of putting more environmentally friendly economic arrangements in place. Such plans would see policies being crafted to, among others, respond to and other global environmental crises.

Depending on how these response measures are designed and implemented, they may have positive or unintended and adverse economic and social consequences for developing countries’ economies, most often for the poorest and most vulnerable sectors of those economies.

In going “green”, therefore, there is a need to consider equity as well as economic and environmental considerations. Within such a framework, developed countries should support, not impede, developing countries’ efforts to make their economies more environmentally sustainable and climate-resilient, including through provision of financial and technological assistance.

Vicente Paolo Yu III is a Senior Legal Adviser of the Third World Network, Visiting Research Fellow at the United Nations Research Institute for Social Development (UNRISD), and Associate Fellow at the Geneva Center for Security Policy.

Available at https://twn.my/title/end/pdf/end20.pdf

10 OPINION I Central banks Third World ECONOMICS No. 729, 16-31 August 2021

from vigorously promoting policy Central banks must address priorities, such as the latter’s commitment to housing for all. The Bank of England has even pandemic challenges pioneered creating specialized Central banks have a key role to play in financing not only governments’ development institutions, such as the Industrial and Commercial Finance pandemic response but also longer-term development objectives. Corporation, the Finance Corporation for Industry, and the Bankers’ Industrial by Anis Chowdhury and Jomo Kwame Sundaram Development Company. The US Federal Reserve Act is committed to realizing “the economy’s long run potential to increase production, Hopes for an inclusive global economic monetary policy space by enabling so as to promote effectively the goals of recovery are fast fading. As rich countries spending on nationally produced goods maximum employment, stable prices, have done little to ensure poor countries’ and services, investing in productive and moderate long-term interest rates ... access to vaccines and fiscal resources, capabilities, enabling new jobs and in furtherance of the purposes of the Full North-South “faultlines” will certainly occupations, and expanding social Employment and Balanced Growth Act widen. protection. Policy design should ensure of 1948.” While the International Monetary that more liquidity does not generate CBs of Italy, Germany, Japan and the Fund (IMF) has revised rich countries’ excessive inflationary pressures or net Netherlands have used various means to recovery prospects upward, the United imports. finance activities under-served by credit Nations notes formidable challenges, Greater CB independence in recent markets. These include lowering bank especially for developing countries, due decades has undermined macroeconomic reserve requirements and lending for to the pandemic. The UN warns of more policy coordination, preventing them priorities such as housing, agriculture, setbacks for the Sustainable Development from lending directly to governments. exports, small business and under- Goals (SDGs), already behind schedule Keeping inflation low has become developed regions. before the pandemic. Grim recovery paramount, ignoring other policy goals. Well before independence, the prospects have been worsened by debt Supposedly for CB and monetary policy Reserve Bank of India observed “it may distress and dramatic drops in investment credibility, such priorities actually serve be desirable for Central Bank credit to be and trade. financial investors, especially speculators. made available in a larger number of ways Designing appropriate relief, recovery But with “unconventional monetary and with less restrictions”. and reforms well is necessary. For the policies” after the 2008 global financial Hence, development objectives are IMF, growth-enhancing reforms could crisis, CB lending to governments has explicit in many developing countries’ significantly improve growth in emerging become more acceptable. Many rich- CB statutes. market and developing economies over country governments have since turned The statutes of some CBs established the next decade. to CBs for fiscal space and other finance. in the 1970s and 1980s with IMF technical Countries must quickly spend much With little affordable finance available assistance also have specific provisions for more to contain the pandemic and offset from both private and official sources, developmental roles, such as in Bhutan, adverse effects of policy responses. This some developing countries, such as Botswana, Fiji, Maldives, Solomon is needed to protect incomes, jobs and Indonesia, have temporarily suspended Islands, Swaziland and Vanuatu. This is businesses, while paying more attention laws preventing direct borrowing from consistent with IMF Article of Agreement to the most vulnerable. Also, the SDGs CBs. Others, like the Philippines, have IV, under which “each member shall still need more financing. amended legislation to allow CBs to endeavor to direct its economic and Policy choices now will determine directly lend to governments. financial policies toward the objective of chances of a greener, more inclusive and Thus, how countries emerge from fostering orderly economic growth with resilient future. There have to be better recessions in the short term, and transform reasonable price stability, with due regard synergies among short-, medium- and their economies to achieve progress in to its circumstances”. long-term policies through improved the longer term, critically depends on The Bangladesh CB, a financial coordination. effective cooperation between CBs and inclusion pioneer, also adopted a Although public debt is already governments. sustainable finance policy in 2011 to high while has shrunk, promote green investment and sustainable governments need to spend more. Central banks’ developmental role agriculture. Central banks (CBs) must lend more to Ninety developing-country CBs have governments to create more fiscal space. Historically, CBs have played a since signed the Maya Declaration to Better monetary policy support for developmental role, such as financing advance financial inclusion. government spending should strengthen public investment. Borrowing to finance recovery and relief, recovery and reform, not enable Even though many CB statutes are reform has to promote desirable changes, more corporate debt and asset price not explicit about such roles, the two creating new productive capacities, bubbles. oldest CBs – the Bank of England and accelerating digitalization, revitalizing In turn, fiscal authorities can create Sweden’s Riksbank – are not prohibited rural and regional economies, conducting

11 OPINION I Central banks Third World ECONOMICS No. 729, 16-31 August 2021 business and work in new ways, and green technologies. slowdowns threaten not only to become making economies more sustainable. The South Korean CB has also depressions, but also to further set back The European Central Bank (ECB) purchased more government bonds. the modest progress achieved in recent has aligned “quantitative easing” with the Several measures have provided decades. (EC)’s pandemic monetary support for the “Korean The North-South gap between rich response. By indicating that it would buy New Deal”, including pandemic relief, and poor countries is certain to grow newly issued government bonds in the recovery, digital and green investments, again. Recovery prospects have been set secondary market, the ECB has effectively and employment safety nets. back by poor countries’ lack of “fiscal financed government borrowing despite China’s CB’s targeted monetary policy space”. The IMF must help them use the ban on directly lending to the tools are also increasingly aligned with the monetary policy much more creatively, government. Thus, considerable ECB government’s long-term strategic goals. not only to enhance fiscal space but also purchase of government bonds has These include supporting key sectors to complement other policies for relief, lowered borrowing costs for member while preventing asset price bubbles and recovery and transformation. (IPS) states’ pandemic responses. These include “overheating”. the EC’s Next Generation package, Anis Chowdhury, Adjunct Professor at including the European Green Deal and Bolder actions needed Western Sydney University (Australia), held its “digitalization transition”. senior United Nations positions in New York The Bank of Japan is also supporting Over the last year, poorer countries and Bangkok. Jomo Kwame Sundaram, government efforts for relief, recovery, have been condemned to protracted a former economics professor, was UN economic growth, structural change, recessions and delayed recoveries. Vaccine Assistant Secretary-General for Economic Development, and received the Wassily disaster management and global warming and apartheid mean that Leontief Prize for Advancing the Frontiers of mitigation. It is also encouraging their vaccination efforts will be delayed Economic Thought in 2007. companies to invest in digitalization and and limited, if not worse. Extended

Rethinking Global Economic Policy Proposals on Resilience, Rights and Equity for the Global South

By Kinda Mohamadieh, Bhumika in developing countries and, Muchhala, Ranja Sengupta, Celine beyond this, an overhaul of the Tan and Vicente Paolo Yu unjust structures underpinning the global economy. This report The COVID-19 crisis has thrown surveys a myriad of areas – into stark relief the inequities from trade, debt and public and iniquities of an international finance to investment and economic order that consigns the intellectual property rights – Global South to the development where fundamental reform and margins while augmenting the rethink of international policy power of rich countries and firms. regimes is urgently required for Available at https://twn. Redressing this demands a bold the developing world to emerge my/title2/books/pdf/ multilateralism to support public stronger and more resilient from Rethinking%20Global%20 health and economic recovery the present turmoil. Economic%20Policy.pdf

12 Analysis I Taxation Third World ECONOMICS No. 729, 16-31 August 2021

The global minimum corporate tax: Not high enough, not fair enough

What has been touted as a historic international pact on corporate taxation will fall short of raising sufficient resources and fairly distributing them to governments of the developing world. by C.P. Chandrasekhar

Following years of negotiations, most nations in the world This flexibility for multinational firms in deciding where to now appear to be willing to align their corporate tax regimes record their profits matters because rates of taxation of corporate to prevent multinationals from evading taxation in the profits differ significantly between countries. Some that want jurisdictions in which they operate. They have now tentatively to attract multinational firm investments keep taxation rates agreed on the need for a global minimum corporate and deliberately low. There are others that do not attract actual a system of allocating the global profits of multinational firms investment but set themselves up as low-tax havens to serve to the different national markets in which they operate, where as locations where international firms register shell companies they can then be taxed. After the G7 and G20 finance ministers to park their profits and manage their financial transactions. agreed at meetings in London (4-5 June) and Venice (9-10 July) For profit-maximizing multinational firms, evading taxes by on the principal elements of a compact that can address the reporting profits in these jurisdictions and not transferring any to issue, 130 of the 139 countries engaged in talks on an “Inclusive the home country of the parent is the best strategy. This deprives Framework on Base Erosion and Profit Shifting” signed on to the governments of countries in which the multinationals sell the proposal. their goods and services or in which they are headquartered of a share of taxes. Problem of taxation of multinationals by Apple The need for aligning corporate tax regimes through a common global minimum corporate tax rate arises because An egregious instance of this kind of tax avoidance is Apple’s while goods and services are increasingly produced and sold by use of Ireland as a , by locating two of its subsidiaries multinational firms, the markets they serve remain segmented – Apple Sales International (ASI) and Apple Operations Europe and subject to national rules. This creates claims for tax revenues – in that country. Apple Inc, the parent firm in the US, has given by multiple governments from these corporations: in countries ASI the rights to use its “intellectual property” to manufacture where the multinational firms are headquartered, countries and sell its products outside of North and South America. In where their subsidiaries operate, and countries where the global return, Apple Inc receives payments of more than $2 billion firms market their goods and services and earn revenues even if per year. The arrangement implies that any Apple product they do not have a commercial presence. sold outside of the Americas is first acquired by ASI Ireland Corporate taxes allow governments to appropriate a portion from Apple-contracted manufacturers and sold along with of the net revenues or profits of firms from their activities either the intellectual property to buyers. All profits from these sales in a particular jurisdiction or globally. A simple way to do that is accrue to ASI and are recorded in Ireland. These profits are large to tax profits directly where they are recorded. But in the case of because the payments made to Apple Inc for the right to use multinational firms, profits are partly recorded in the accounts intellectual property are a fraction of the net earnings of ASI. of their subsidiaries in other countries and are subject to That helps because corporate tax rates in Ireland are much lower taxation by governments of those countries. Another portion is than in the US and most other countries. often recorded in the accounts of the parent, either as dividend The evasion of taxes potentially payable does not end there. repatriated by the subsidiary or as net revenues from exports The Irish tax authorities have allowed ASI to split its profits of capital equipment and intermediates, or intangibles such as into two parts: one accruing to the Irish branch of Apple and intellectual property or goodwill. the other to a “Head Office”. That “Head Office” exists purely A range of developments have increased the flexibility that on paper, with no formal location, actual offices, employees or multinational firms have of where they can record their profits. activities. Interestingly, this shell office gets the lion’s share of They can shift profits out of a subsidiary as payments for the the profits that accrue to ASI, with only a small fraction going use of intangible assets to the parent or to a third-country to the Irish branch office. An investigation by the European subsidiary, thus depriving the host country of taxes. They can Competition Commissioner found that in 2011, out of ASI’s shift the headquarters out of the country in which the parent was profits of $16 billion, less than $50 million was retained by the originally located. They can focus on cross-border provision of Irish branch. The rest was allocated to the “Head Office” and goods and services rather than local production and earn profits remained untaxed. The effective tax rate on Apple’s aggregate from a national market in which they do not have a commercial profits that were shifted to Ireland was less than 1%. For the presence. books, however, the taxes due on “Head Office” profits were

13 Analysis I Taxation Third World ECONOMICS No. 729, 16-31 August 2021 treated as including a component of deferred taxes, which, it was The new agreement claimed, will have to be paid to the US government when a part of the profits is finally repatriated to the US parent. In practice, In the event, the proposed compact of the “Inclusive though, Apple holds large volumes of surplus funds abroad to Framework on Base Erosion and Profit Shifting” on globally avoid US taxation and the evidence is they take very little of it aligned taxation of multinationals that was finalized in July back to the home country. by the G20/Organisation for Economic Co-operation and Apple is not alone in this regard. According to one estimate, Development (OECD) has two pillars. from Jannick Damgaard, Thomas Elkjaer and Niels Johannesen Pillar 1 of the proposal drafted by the G7 finance ministers of the International Monetary Fund and the University of is meant to appease and win the support of nations where Copenhagen, 40% of foreign direct investment “passes through multinationals earn profits without a physical presence. “The empty corporate shells”, in order to save on tax payments by largest global companies” with annual global turnover of more “locating” in low-tax jurisdictions. than €20 billion and pre-tax profit margins of at least 10% of revenue must allocate around 20% of their global profits, which Case for a global minimum tax are more than that 10%, to countries where they make their sales, thereby allowing the latter to tax that allocation. Allowing multinational firms such opportunities encourages Pillar 2 requires each country to impose a minimum the transfer of profits to low-cost locations, resulting in tax losses corporate tax of 15% on firms registered and recording profits to the parent and/or host country. An agreement on a global in their jurisdiction. minimum corporate tax rate seeks to address this problem. Many features of this still incompletely defined plan have If all countries adopt a corporate tax rate of at least 15%, it is disappointed those who had been campaigning for “unitary presumed there would be no incentive for transnational firms taxation” that would treat a multinational group of companies to shift the location in which they record profits. Moreover, the rather than subsidiaries in different countries as the taxable unit. government in a parent country such as the US, which accounts The G20 proposal does move in that direction by disincentivizing for a disproportionate share of the world’s multinationals, could profit shifting and distributing the tax base across countries. But even set its corporate tax rate above the minimum, since the cost the reasons for disappointment are many. of relocating headquarters and operating from an alternative First, to win agreement, the floor of the proposed common location may outweigh any marginal benefit in terms of tax minimum tax has been set at 15%. That is far below the current saving. average global corporate tax rate of 25% and not very much All this applies only to locations in which multinationals higher than that in the three OECD countries with rates lower have a commercial presence, in the form of either a parent firm than 15% – Ireland (12.5%), Chile (10%) and Hungary (9%). or a subsidiary. There are many jurisdictions where multinational While a 15% minimum tax will hit tax havens with low rates firms do not have a commercial presence but where they record and prevent a , the concerns are that it would significant sales through cross-border provision. The prevalence trigger a “race to the minimum”, with countries seeking to match of this trend has intensified with the growth in digital services tax rates elsewhere for fear of driving foreign investors away. provision, where digital platforms offer a range of services to a Many developing countries currently have tax rates higher large clientele, garnering revenues and profits in jurisdictions than 15%. If they persist with those rates, they will remain in which they do not have a registered office or operation. If the victims of profit shifting to locations where the rate is kept at advanced nations want the right to tax the global profits of firms the minimum. If they lower rates to 15%, they will lose much- that originated in their geographies and grew to global scale, needed tax revenues. then countries where sales by these same firms “contribute” a The EU Tax Observatory estimates that a 15% tax rate would significant share to total profits must also have a right to tax that deliver an additional €500 million, €600 million and €900 million share. to Mexico, South Africa and Brazil, respectively, of corporate It was a principle of that nature that encouraged countries revenues in 2021. In contrast, the Independent such as Austria, India, Italy, Spain, Turkey and the United Commission for the Reform of International Corporate Kingdom, among others, to impose or propose imposition of Taxation estimates that with a minimum rate of 25%, which a tax on digital services delivered across borders. India, for many campaigners had long argued for, the additional revenue example, introduced in 2016 an equalization levy of 6% on for these three countries would be €1.3 billion, €3 billion and payments for online advertisement services to non-resident €7.4 billion, respectively. The US had initially suggested fixing agents. In 2020, the ambit of the levy was extended to include the minimum global rate at 21% and many African countries payments to non-resident e-commerce operators deriving had suggested 20%. revenues from provision of e-commerce services, such as digital With a minimum rate of 15%, the cause of making the platform services, digital content sales and data-related services, world’s most profitable multinational firms contribute a fair with the rate fixed at 2%. share to public revenues to finance a green and inclusive global While the US wanted these taxes rescinded because they recovery is unlikely to be advanced. Moreover, much of the “discriminated against US digital companies, were inconsistent additional revenue would accrue in the advanced nations. The with principles of , and burdened US EU Tax Observatory estimates that a 15% minimum rate will companies”, it has had to accommodate the demand for a share pull in around $100 billion in a year for the US and Europe. of taxes on profits of multinational firms from countries that Second, the proportion of profits for which the right to tax were targets of cross-border supply. is shifted from the place of residence to place of sale has been kept low. That right is restricted to the world’s largest companies

14 Analysis I Taxation Third World ECONOMICS No. 729, 16-31 August 2021 with annual global turnover exceeding €20 billion and pre-tax would disproportionately accrue to governments of developed profit margins of at least 10% of revenue. They will pay tax on countries in which these firms are headquartered. Since only a 20-30% of the profits they make, over and above the first 10% of small share of profits of a few large firms are to be allocated to profits. Developing countries had been demanding reallocation markets where they earn substantial revenues, the tax revenues of 30-50% of residual profits. garnered in those jurisdictions would be low. Restricting the universe of companies to be taxed in foreign jurisdictions and the share of profits allocated for such taxation Conclusion substantially reduces the scope of Pillar 1. The number of firms in the taxable universe may not exceed the top 100. Some of Thus, while the global minimum tax proposal is a step them like Amazon do not even record a profit margin of 10%. forward, that step is disappointingly short of what is needed and Others are likely to resort to accounting devices to reduce their possible. If yet the proposal has caught the media’s attention, it is margins to below 10%. And taxes on one-fifth of the excess because it speaks of a new effort by the richest nations to enforce where profit margins exceed 10% are unlikely to yield much. tax rules on powerful multinationals. Whatever that delivers An estimate by researchers Michael Devereux and Martin would increase their own room for manoeuvre but leave little Simmler places the volume of profit that will be allocated to for the rest of the world. “countries of sale” for taxation at $87 billion. Another from Among the nine of the 139 countries which have not France’s official Council of Economic Analysis (CAE) places the signed on to the Inclusive Framework on Base Erosion and figure at $130 billion. But in return for this “historic shift” away Profit Shifting are, significantly, three OECD members, Ireland, from taxation based on physical presence, countries imposing Estonia and Hungary. The other dissenters are developing or planning to impose digital service taxes would have to give countries: Barbados, Kenya, Nigeria, Sri Lanka, and St Vincent up ambitions to tax firms from abroad that earn revenues and & the Grenadines, with Peru abstaining on the grounds that at profits by providing digital services in their jurisdictions. The the time it was in the midst of electing a government that must resulting loss can be large and significantly more than the gain take the decision. But the views of these countries are unlikely from the new Pillar 1. For example, the office of the US Trade to stall progress to the next stage. Once all required features of Representative estimates that India collects $55 million annually the framework have been spelt out, a version is likely to be soon from the 2% digital services tax it imposes on revenues of foreign available for ratification by national governments. e-commerce companies serving Indian buyers. However, there is no guarantee of ratification by all nations. Third, in return for participation in the final agreement, Ratification is unlikely to be easy even in the US, though the individual countries have negotiated or are in the process of Biden administration’s call for a 21% global minimum corporate negotiating carve-outs. To persuade China, India and some tax rate is what hastened to conclusion talks that have been Eastern European nations to sign up, the OECD has proposed prolonged for years. American participation in a final agreement a carve-out from the global minimum tax plan, based on would require approval of the Senate, where Democrats have a “substance”. The new rules would not apply to corporate majority only when Vice-President Kamala Harris exercises her tax incentives for investment in tangible assets such as tie-breaking vote. However, parts of the global agreement must manufacturing factories and machinery. The global shipping be preceded by revision of US treaties with other nations, which industry has also benefited from an exemption because it is require at least 10 Republican Senators besides 50 Democrats in almost impossible to determine where entities are located. The the Senate to approve the proposal under “filibuster” rules that UK’s case that the financial services industry be carved out of apply. That seems difficult. the proposed new global tax system has been accepted on the For all the hype then, the new agreement is unlikely to grounds that it “profits from ... activities that arise in a particular extract much surplus from multinational firms or provide a fair market jurisdiction [and] will generally be taxed in that market share of whatever is extracted to the poorer countries. location”. Natural resource sectors have also been exempted. Cumulatively such exemptions can significantly reduce the tax C.P. Chandrasekhar recently retired as Professor from the Centre generated globally by the new regime. for Economic Studies and Planning, Jawaharlal Nehru University, Finally, it appears that under the new regime, not only New Delhi. This article first appeared in The India Forum (www. will developing countries give up their option to impose theindiaforum.in/article/global-minimum-corporate-tax-not- taxes on cross-border sales of commercial digital services in high-enough-not-fair-enough). their markets, which can be substantial, but taxes on profits

15