EconomicsTHIRD WORLD

TRENdS & ANAlySiS

Published by the Third World Network KDN: PP 6946/07/2013(032707) ISSN: 0128-4134 Issue No 589 16 – 31 March 2015 Divisions appear ahead of development financing meet

Intergovernmental talks are underway at the UN to draft the out- come document of the third International Conference on Financing for Development, to be held in Addis Ababa this July. Member states have thus far found themselves at odds over various issues to be addressed by a conference expected to chart the basis for securing resources to fund the development process.

l Gaps open up in run-up to FfD3 – p2

Also in this issue:

Development and taxes a vital Inequality: The Acapulco piece of post-2015 puzzle p8 paradox p14

WTO members discuss Cairns Study: Financial tax would pay Group paper on domestic support off big p11 p15

No 589 Third World Economics 16 – 31 March 2015 1 CURRENT REPORTS Financing for development THIRD WORLD Economics Gaps open up in run-up to FfD3 Trends & Analysis Significant differences have emerged among the world’s governments over 131 Jalan Macalister 10400 Penang, Malaysia how best to finance the development process, as they engage in UN Tel: (60-4) 2266728/2266159 discussions leading up to a major international meet on this subject in Fax: (60-4) 2264505 July. The following is an extract from a document – prepared by the non- Email: [email protected] Website: www.twn.my governmental organizations Regions Refocus 2015, Third World Network and Development Alternatives with Women for a New Era (DAWN) – Contents which looks at the key areas of contention and presents recommendations from regional workshops convened in collaboration with South-based civil CURRENT REPORTS society networks. 2 Gaps open up in run-up to FfD3 In July 2015 in Addis Ababa, Ethiopia, Union, the United Kingdom, the United 8 Development and taxes a vital the governments of the United Nations States and Japan assert that all countries piece of post-2015 puzzle will negotiate an important political have to take responsibility and that 10 Chairs report on their consultations agreement on how to finance, support CBDR only applies to issues related to on post-Bali work and enable the new sustainable develop- the environment and climate change. ment agenda. The third International This fissure is at the very centre of the 11 WTO members discuss Cairns Conference on Financing for Develop- geopolitical dynamics at the United Na- Group paper on domestic support ment, or FfD3, follows a trajectory that tions, not only in the FfD3 discussions OPINION began in the late 1990s in recognition of but echoing throughout the negotiations 14 The Acapulco paradox the need for global attention and action towards the Sustainable Development to address and overcome systemic in- Goals (SDGs). 15 Study: Financial tax would pay off equalities and the achievement of devel- One of the essential tasks of FfD3 is big opment. to meaningfully address the means of The conference will be an arena for implementation of the new sustainable a timely and foundational agreement on development agenda. MoI consist of how to finance development through both financial resources (e.g., aid, public and private means, and through concessional lending) and non-financial domestic and international policies and measures including technology transfer THIRD WORLD ECONOMICS programmes. It will result in an intergov- and capacity building, as well as inter- is published fortnightly by the Third World ernmental negotiated and agreed out- national systemic issues of finance and Network, a grouping of organisations and individuals involved in Third World and come, which will lay the groundwork for trade. From the perspective of develop- development issues. this landmark year of global agreements, ing countries, the G77 emphasizes the Publisher: S.M. Mohamed Idris; Editor: particularly the two major intergovern- importance of action-oriented and time- Chakravarthi Raghavan; Editorial Assistants: Lean Ka-Min, T. Rajamoorthy; Contributing Edi- mental negotiations that follow it: the bound MoI to support the achievement tors: Roberto Bissio, Charles Abugre; Staff: Linda UN summit to define the post-2015 sus- of each of the SDGs, as well as address- Ooi (Administration), Susila Vangar (Design), Evelyne Hong & Lim Jee Yuan (Advisors). tainable development agenda, and the ing the systemic obstacles that prevented 21st Conference of the Parties to the UN the achievement of previous internation- l Annual subscription rates: Third World coun- tries US$75 (airmail) or US$55 (surface mail); In- Framework Convention on Climate ally agreed development goals. 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The Group review the progress of the Financing for l Orders from Australia, Brunei, Indonesia, Phil- ippines, Singapore, Thailand, UK, USA: Please of 77 and China (G77) (comprised of 134 Development agenda as defined in the pay by credit card/cheque/bank draft/interna- developing countries), the African first FfD conference in Monterrey in tional money order in own currency, US$ or euro. If paying in own currency or euro, please calcu- Group, the least developed countries 2002, but also reinvigorate its follow-up. late equivalent of US$ rate. If paying in US$, please (LDCs), Brazil, India, and other states FfD3 must identify obstacles, commit to ensure that the agent bank is located in the USA. and blocs consistently defend the right actions to overcome these obstacles, and l Rest of the world: Please pay by credit card/ to development, the guiding principle of create or strengthen mechanisms to en- cheque/bank draft/international money order in US$ or euro. If paying in euro, please calculate common but differentiated responsibili- sure predictable and secure resources for equivalent of US$ rate. If paying in US$, please ensure that the agent bank is located in the USA. ties (CBDR) as contained in the Rio Prin- development. ciples of 1992, and the need for means of Visit our web site at http://www.twn.my. implementation (MoI) that reflect these Faultlines emerge in FfD3 process Printed by Jutaprint, No. 2, Solok Sungei Pinang principles. 3, Sungai Pinang, 11600 Penang, Malaysia. Taking an opposing view, devel- Significant sticking points as re- © Third World Network oped countries including the European vealed in the FfD3 discussions so far are

2 Third World Economics 16 – 31 March 2015 No 589 CURRENT REPORTS Financing for development examined below, following the seven “reiterate[s] the need for gender erty must be reversed, as part of a thematic headings of the Zero Draft of mainstreaming in the formulation and broader shift in fiscal policy at the na- the Addis Ababa Accord, which was re- implementation of financial and eco- tional level to address inequalities. leased in mid-March. The structure of nomic policies and agree[s] to implement Focusing on the international and this document does not signify acquies- transformative actions to ensure structural dimensions of domestic re- cence to the shift away from the original women’s equal rights, access and oppor- source mobilization, the G77 has empha- FfD agenda as outlined in Monterrey and tunities for participation and leadership sized the primary importance of inter- Doha. Along with the G77 and a major- in the economy” (paragraph 6). national public finance for development. ity of civil society, we call for the FfD3 During the FfD3 negotiations, Tonga The G77 has also linked domestic re- process to affirm and adhere to the origi- and Uruguay have stressed the need for source mobilization to the need for in- nal structure of the Monterrey Consen- the Addis outcome to centre on gender ternational cooperation to stem illicit fi- sus and Doha Declaration. equality and women’s rights, in line with nancial flows (IFFs), calling for the un- a statement delivered by Iceland at the conditional return of stolen assets to A. Domestic public finance: Primary first drafting session on behalf of 20 gov- countries of origin and taking on board source of development, or ernments. These governments warn that many of the proposals of the recent Af- complement to aid? domestic budgets are “generally not gen- rican Union High-Level Panel on IFFs. der-responsive,” and recommend bud- Widespread practices of tax evasion, While the FfD3 discussions have fo- get transparency around “expenditure trade and services mispricing as well as cused more on private finance than on allocated to tackling gender inequalities transfer pricing abuses by transnational public, developed countries in particu- and appropriate and inclusive mecha- corporations account for the bulk of il- lar emphasize the importance of domes- nisms for the participation of women and licit outflows from developing countries. tic resource mobilization as a primary the inclusion of gender concerns in bud- According to the aforementioned High- vehicle for development. The EU, along geting and spending policies.” The state- Level Panel, the African continent re- with the US, Australia and Japan, dispro- ment calls attention to women’s dispro- cently lost $50-60 billion a year in illicit portionately place the onus of achieving portionate lack of access to financial ser- financial outflows. This is more or less development on the individual state, vices, an important point that must be equal to the total foreign direct invest- thereby deflecting attention from the his- addressed while simultaneously reori- ment (FDI) and more than the total offi- torical responsibility of European and enting the financial sector towards equi- cial development assistance (ODA) that other Northern countries to contribute to table and sustainable development. the continent receives annually. global development. This disproportion- While the increased attention to gen- In the context of the discussions on ate emphasis by European and other der equality in FfD3 is welcome, the domestic public finance, one of the key Northern states on domestic resource Addis outcome must avoid further en- achievements of FfD3 would be to retain mobilization also evades a discussion of trenching the instrumentalization of and reaffirm a decision to upgrade the the need for these states to reaffirm – and women, particularly apparent in the UN Committee of Experts on Interna- fulfil – their promises to provide aid. “smart economics” approach of the tional Cooperation in Tax Matters into In the context of the post-2015 de- World Bank and the International Mon- an intergovernmental committee, as cur- velopment agenda, the Rio principle of etary Fund (IMF). Also crucial is the rently outlined in the Zero Draft (para CBDR strives towards balancing univer- analysis that women are disproportion- 28). Along these lines, many developing sality of objectives within the reality of ately impacted by austerity programmes, countries use the FfD3 process to call at- the deeply imbalanced and asymmetric the inequitable outcomes of public-pri- tention to the undemocratic nature of the world in which we live. Throughout the vate partnership projects, and the vari- international system around tax stan- SDG negotiations in 2013-14, developing ous dysfunctions of the international dards. countries repeatedly asserted that while trade and financial architectures, from Decrying the dominance of the rich- the goals are universal to all countries in rigged trade rules to financial specula- country Organization for Economic Co- terms of their nature and relevance, the tion. operation and Development (OECD) degree of national responsibility in the The statement delivered by Iceland over international taxation and the IFFs implementation of the goals should be on behalf of 20 governments also ad- discourse (through the new Base Erosion differentiated in accordance with the dresses the gender dimensions of taxa- and Profit Shifting, or BEPS, initiative), varying capacities, realities and develop- tion policy, which are also reflected in the G77 requests a UN process where mental levels of countries. the Zero Draft (para 18). Regions Refo- each country has an equal seat at the As part of a broader frame of “gen- cus 2015 shares this focus, arguing that table. This call is in line with the G77’s der-responsive public management,” the tax equity and curbing illicit capital flows repeated emphasis on the uniquely Doha Declaration (2008) reiterated the should garner additional resources for democratic and legitimate role of the need to allocate resources to promote financing gender equality and sexual United Nations in carrying out multilat- gender equality. Governments from all and reproductive health and rights, and eral coordination of systemic policy is- regions have mentioned the importance thereby fulfil states’ obligations to com- sues that are crucial for all countries, but of gender equality and women’s empow- mit the maximum available resources to especially developing countries. erment during the FfD3 preparatory pro- fulfilling women’s human rights. The Additionally, states including Benin cess. This welcome development is re- disproportionate burden of taxation on (on behalf of the LDCs) and Guatemala flected in the current Zero Draft, which people and communities living in pov- call for a halt to the “race to the bottom”

No 589 Third World Economics 16 – 31 March 2015 3 CURRENT REPORTS Financing for development in tax rates for multinational corpora- the maximum available resources to fulfill- their affirmation of the primary role of tions. Benin explained: “Private sector ing women’s human rights. (Latin America public finance in ensuring sustainable agents, particularly those representing Feminist Statement) development. transnational corporations, should be An intergovernmental accountabil- discouraged and prevented from seek- B. Domestic and international ity mechanism for UN partnerships with ing deep or long-lasting tax concessions private business and finance: the private sector is urgently needed. when investing in LDCs.” The African Warning signs This mechanism must be rooted in the Group added a call for country-by-coun- international human rights framework try reporting for transnational corpora- The FfD3 arena – as well as that of and existing obligations in all three di- tions, to be made public and accessible post-2015 – has witnessed an intense pro- mensions of sustainable development to developing countries’ tax administra- motion of the role of private finance in (economic, social and environmental). tions and local civil society. The Zero achieving development, led primarily by The central objective of the framework Draft includes this language, agreeing to the EU, along with the US, the UK, Aus- would be to ensure accountability and “work together to strengthen transpar- tralia and Switzerland. According to the ex ante assessment of partnerships. Clear ency and adopt pending policy innova- EU, “there is a case for international ac- criteria should be applied to determine tions, including: public country-by-coun- tion and strong partnerships to leverage whether a specific private sector actor is try reporting by multinational enter- additional private finance – DFIs, fit for a partnership in pursuit of the post- prises; public beneficial ownership reg- blended finance platforms, deploying 2015 goals. UN member states would be istries; and multilateral, automatic ex- equity, loans and guarantees can mobi- at the helm of formulating the frame- change of tax information, with assis- lize private sector finance and incentivize work, including the criteria, the over- tance to developing countries, especially long-term investment in critical infra- sight and monitoring process based on the poorest, as needed to upgrade their structure sectors in developing coun- due diligence reporting, and indepen- capacity to participate” (para 25). tries.” The EU especially highlighted the dent third-party evaluations. potential of blended finance – which One key objective would be to elimi- Regional civil society proposals combines grants with loans and equity nate potential private donors whose ac- from public and private sources – to cata- tivities are antithetical or contradictory l Raise the tax proportion, through lyze public and private investments in to the UN Charter, the Universal Decla- shifting of indirect and consumption-based partner countries. ration of Human Rights and the SDG taxes to progressive taxation of income and The use of scarce ODA resources, agenda. Such a framework could be situ- capital, based on an analysis of the implica- essentially public funds, for private sec- ated within the High Level Political Fo- tions of taxation on equity and the dispro- tor contracts and investments has long rum (HLPF), which would restructure portionate burden borne by people living in been a contentious issue. Public aid flows the HLPF into a meaningful locus for poverty. (Arab States) are distinct from private sources because accountability and governance of the l Implement progressive tax systems their purpose is to finance the pursuit of post-2015 development agenda. that shift the burden from people living in the public goods (such as health services) Regions Refocus 2015 also directly poverty, women and other marginalized funded by money collected by the state, challenges the embrace of the corporate groups to those with higher incomes, espe- for example through taxation (see Sec- sector by the UN secretariat along with cially corporations, the financial sector and tion A above). Further, the track record member states and even some large civil extractive industries. (Africa Feminist State- of private sector financing by multilat- society organizations. Regulation and ment, Latin America Feminist Statement) eral and national financial institutions safeguards must replace laxity and low l Address corporate tax evasion reveals that funds are most often given taxes, so that the prevailing paradigm through a resurgence of state responsibility to companies domiciled in donor coun- benefits developing countries rather than towards regulation and taxation rather than tries rather than in developing countries. the corporations that invest in them. All policies that spur competitiveness in global This finding raises questions as to negotiations in the UN, including markets regardless of social cost. (Arab whether international financial institu- Rio+20, SDGs, and FfD3 and the post- States) tions are actually directing their finan- 2015 development agenda this year, have l Reverse the “race to the bottom” and cial support to the most credit-con- witnessed developed countries placing combat tax evasion and avoidance and their strained companies in the world’s poor- exceptional focus on an enabling envi- impacts on the ability of states to guarantee est countries, or whether their invest- ronment for business. Developing coun- human rights. (Latin America Feminist ment patterns are simply following mar- tries, on the other hand, have repeatedly Statement) ket trends. called for an international enabling en- l Strengthen state legislation and in- Cautioning against a wholesale em- vironment for development. These dif- stitutions to challenge multinational corpo- brace of public-private partnerships fering perspectives frame the larger de- rations that use trade mispricing, (PPPs) and the serious issues inherent bate about whose development the post- misinvoicing, tax havens and other tax-evad- within them of contingent liabilities, fis- 2015 agenda is about. ing tactics. (Africa Feminist Statement, Arab cal risks and debt burdens, the G77 em- States) phasizes that private corporations are Regional civil society proposals l Tackle illicit capital flows to garner primarily profit-focused and therefore additional resources for financing gender should not be relied upon to achieve l Require public disclosure of trade and equality and sexual and reproductive rights, development. Instead, developing coun- investment agreements, PPP contracts, cor- thereby fulfilling their obligations to commit tries are using the FfD3 process to voice porate payments to governments (including

4 Third World Economics 16 – 31 March 2015 No 589 CURRENT REPORTS Financing for development taxes), government subsidies, and environ- ODA, is to facilitate and maximize other, moval of non-tariff measures with dis- mental and human rights impacts. (South- larger flows of finance for development,” criminatory restrictive impact. ern Africa, Arab States) expressed Australia, the UK and Den- While the EU and other Northern l Ensure fair and appropriate sharing mark. This emphasis, also expressed in states also indicate the importance of of risks between the public and private sec- the Zero Draft (paras 55, 58), must be expanding market access to developing tor and disclose such risk-sharing arrange- challenged in subsequent negotiations countries, they highlight as well the re- ments to elected officials and the public. towards the Addis agreement, lest the sponsibilities of emerging economies (Southern Africa) original global partnership for develop- and the importance of South-South and l PPP agreements should include a ment dissolve into a proliferation of pub- triangular cooperation. The G77, the Af- clause that requires foreign investors to pro- lic-private partnerships and rican Group and other developing-coun- mote beneficiation in the communities where “multistakeholder” governance. try blocs in turn assert that South-South they operate, along with local-content poli- Through FfD3, Brazil and other de- and triangular cooperation are comple- cies that empower citizens (West Africa) veloping countries are challenging this mentary to, but cannot substitute, the l Regional initiatives must move be- push by OECD countries to use ODA to principle of international development yond voluntary, uncoordinated mechanisms “mitigate” risks of private investment, cooperation along North-South lines (see of corporate social responsibility and trans- insisting that this actually entails trans- Section F below). parency, towards binding corporate account- ferring the bulk of the risk of private in- The African Group calls on FfD3 to ability. (Pacific, Southern Africa, West Af- vestment to the public sector. Civil soci- address issues of trade barriers and rica) ety has also been raising red flags on the trade-distorting subsidies, especially for documented trend of the socialization of developing countries. The intellectual C. International public finance: risks and privatization of profits inher- property rights (IPR) regime has also Additional commitments or ent in much of private sector financing surfaced as an area of concern for devel- subsidizing the private sector? and PPPs, particularly in the infrastruc- oping countries, which call for the ture sector. The G77 upholds the impor- amendment of the WTO’s Agreement on In addressing the financing needs of tance of ODA commitments, stressing Trade-Related Aspects of Intellectual the sustainable development agenda as that “public funding should always take Property Rights (TRIPS) through a UN well as the continuity of commitments precedence over private financing” and process and the full use of TRIPS made in Monterrey and affirmed in that “these two concepts cannot be put flexibilities. The TRIPS Agreement di- Doha, developing countries continually on equal footing.” rectly impacts the ability of developing refer to additionality as the fundamen- countries to meet urgent public health tal criterion for aid. A legal commitment D. International trade for sustainable needs, and thus the social pillar of sus- under the three “Rio conventions,” the development: Can the UN level the tainable development. Various measures principle of additionality requires that playing field? across multilateral, plurilateral and bi- developed countries pledge new and lateral trade treaties dangerously tighten additional funding towards climate and In the FfD3 discussions, Australia, and increase intellectual property stan- sustainable development, while fulfilling Canada and the US frame trade and in- dards, which push smaller and cheaper their original commitments to provide vestment as the most significant con- producers in developing countries out of ODA as a separate funding entity. The tributor to development, extolling the production while also raising costs of Monterrey Consensus reaffirmed devel- benefits to developing countries of free essential medicines and health care, ag- oped countries’ commitment to 0.7% of and open trade in particular. Many Latin ricultural inputs and therefore food gross national product (GNP) as ODA to American and African governments, on prices. The Zero Draft commits to “work developing countries and 0.15-0.20% of the other hand, raise concerns that trade to assure policy environments conducive GNP to least developed countries. does not automatically lead to develop- for technology development and dis- In accordance with the concept of ment and that conditions should be es- semination as well as balanced IPR re- climate justice and climate debt, devel- tablished to ensure that trade rules pro- gimes, including the application of oped countries must commit new and duce positive social, economic and en- TRIPS flexibilities fully consistent with additional funding to developing coun- vironmental impacts rather than exacer- sustainable development strategies and tries that experience adverse effects of bating inequalities and unfair competi- the necessary consideration of knowl- climate change without having benefited tion. edge and technologies in the public do- from the industrialization that caused it. The G77 calls for expanding the main and under compulsory and public According to the G77, Bangladesh and market access of developing countries, licences” (para 114). Colombia, “Assistance for climate including through the provision of duty- Additionally, the EU, the African change adaptation programmes should free, quota-free access. The Caribbean Group and CARICOM voice their sup- be additional and absolutely outside the Community (CARICOM) and the Pacific port for “Aid for Trade” provisions of computation of ODA.” small island developing states repeat the the WTO, though CARICOM specified Taking a different approach, the UK, call of many developing countries for an that trade should be viewed primarily as the EU and other power centres of the open, non-discriminatory, equitable an instrument for sustainable develop- Global North emphasize increasing the multilateral trading system, of special ment. The embrace of “Aid for Trade” fungibility of the same pool of traditional importance to island economies and has been openly challenged by several aid and “leveraging” ODA. “The most other states that rely on trade. Similarly, Latin American governments. El Salva- effective use of public money, including the African Group is calling for the re- dor, for example, cautioned against the

No 589 Third World Economics 16 – 31 March 2015 5 CURRENT REPORTS Financing for development promotion of trade liberalization as an tion worldwide. Most developing-coun- and must not allow infringement by corpo- end in itself, highlighting historical in- try governments lose these cases due to rate actors on human rights or on national equalities in the trade system and the lack of financial resources to fight. More policy space. Multilateral mechanisms must need for overarching structural change than 50% of these cases are in the area of subject investors and transnational corpora- to amend this trajectory. natural resources, threatening access to tions to legally binding norms and standards. The G77 points out that the WTO clear water, air and land, and prevent- (Pacific Joint Statement) and bilateral and plurilateral trade and ing environmental sustainability and l Trade regulations must be reformed investment agreements are adversely conservation. They also disproportion- to amend global rule-setting that favours affecting people’s rights, including the ately punish women and children, indig- major trading countries to the detriment of right to development, through various enous and local communities, and the economic policy and development in the Car- means: tariff cuts in key sectors like ag- elderly. The Zero Draft includes a wel- ibbean and elsewhere. (Caribbean) riculture, infant industries and essential come commitment to “strengthen safe- l Prohibit trade and investment agree- services; unfair agricultural subsidy guards in investment treaties, especially ments and PPP contracts that handicap the rules; requiring financial investments in by proper review of investor-state-dis- capacity of the state to regulate foreign in- natural resources, sensitive goods and pute-settlement (ISDS) clauses, to ensure vestors in the best interest of the government services; and a longstanding refusal to the right to regulate is retained in areas and its people. (Southern Africa) grant full special and differential treat- critical for sustainable development” ment to developing countries and LDCs. (para 81). It must be noted that the UN E. Debt and debt sustainability: Agricultural subsidies disbursed by de- Conference on Trade and Development Multilateral restructuring or vulture veloped countries have negatively af- (UNCTAD) is already organizing con- culture? fected food producers across the devel- sultations with member states to review oping world, and have threatened pro- investment agreements with a view to On external debt, developed coun- ductivity and agricultural growth espe- bringing them in line with sustainable tries, especially the US, argue that the cially for small farmers. development objectives. The FfD3 con- UN as an institution is an “inappropri- The harmful impacts of trade agree- ference should give this UNCTAD man- ate” venue for discussing structural is- ments and investment treaties on the date a boost, particularly since the next sues, preferring instead to keep the debt regulatory ability of states – including session of UNCTAD, UNCTAD XIV, is discussion squarely within the remit of the ability to prevent and manage crises, coming up in 2016. the IMF and the OECD, institutions regulate capital flows, protect the right An enabling international environ- marked by undemocratic governance to livelihoods and decent jobs, enforce ment for development is one that allows where developing countries have little fair taxation, deliver essential public ser- every country to pursue development voice and the US has veto power (in the vices and ensure sustainable economic objectives according to its own priorities IMF). and social development – have been with policies of its own choice. To have Japan and Singapore oppose the le- well-documented. The Zero Draft pro- this policy space, it is necessary to reform gal framework for sovereign debt re- vides for a commitment to “carry out multilateral and bilateral arrangements structuring that is being discussed by the negotiation and implementation of trade to allow developing countries to use as UN General Assembly. The G77, and investment agreements in a trans- many economic policies as developed CARICOM and the African Group, on parent manner to ensure that trade and countries used during their own eco- the other hand, highlight the urgency of investment treaties do not constrain do- nomic growth, social development and establishing an international debt reso- mestic policies to reduce inequality, pro- industrialization. lution mechanism: a multilateral legal tect the environment or ensure adequate According to Regions Refocus 2015, framework to guarantee just and equi- tax revenues” (para 81). In light of this trade should provide developing coun- table treatment for creditors and debt- urgency, governments must undertake tries with the tools and policy space to ors. mandatory human rights impact assess- enhance their economic capacity through The FfD3 outcome document should ments of multilateral, plurilateral and generating greater value-added, diver- ensure that developing countries achieve bilateral trade and investment agree- sification, employment, gender equality, debt sustainability through debt financ- ments, especially North-South agree- public services and sustainable develop- ing, debt relief and debt restructuring. ments, focusing in particular on the right ment. An equitable trading system must Goal 17 on means of implementation in to development and the specific rights address the structural impediments em- the SDG outcome document addresses to food, health and livelihoods, taking bedded in existing trade agreements that debt sustainability in exactly this way, into account marginalized groups. limit developing countries’ policy space and adds the need to address highly in- The severity of development chal- to equally compete with developed debted poor countries (HIPC) as well. lenges imposed by bilateral investment countries. Rather than espousing open The link between developing countries’ treaties and free trade agreements is market policies without safeguards or ability to implement the SDGs and debt acutely highlighted by the investor-state specificity, governments must advance servicing should be made explicit in dispute settlement clause in such agree- strategic regional integration in trade FfD3, in that debt sustainability analy- ments. This clause allows transnational agreements. ses should incorporate the impact of debt corporate investors to sue host-country servicing on the realization of the SDGs governments in closed-door interna- Regional civil society proposals as well as the public financing necessary tional arbitration tribunals for extraor- to fulfil the SDGs in developing coun- dinary financial sums. This phenomenon l Trade agreements must not super- tries. This would constitute a core aspect is freezing public interest policy regula- sede national constitutions and legislation, of MoI for the post-2015 agenda, and is

6 Third World Economics 16 – 31 March 2015 No 589 CURRENT REPORTS Financing for development consistent with the Monterrey Consen- growth and access to credit markets. brought under regulation and supervi- sus (para 49). If the Addis Ababa outcome is to be sion of an independent multilateral The UN General Assembly has part of the means of implementation for agency. Speculation in the commodities adopted by majority vote a resolution to the Sustainable Development Goals, then markets must be controlled and regu- discuss debt restructuring through an ad it should incorporate the means by lated, including through ensuring hoc debt committee, which must be ex- which growth and renewed access to favourable terms for commodity-depen- plicitly recognized by the FfD3 outcome external finance can be afforded to coun- dent developing countries in contracts document as a legitimate forum already tries in a situation of sovereign insol- with transnational corporations to enable underway. The current language in the vency. There should also be an explicit them to add more value to commodities Zero Draft, which “take[s] note of the reference to the UN General Assembly and obtain more revenues from com- ongoing work at the IMF, UNCTAD, and resolution on sovereign debt workout in modity-related activities. the UN in this area”, is very problematic order to stress this important initiative. The G77 repeatedly advocates for and must be rectified. It must specifically It is also very important to ensure that the reform of international financial in- mention the work of the UN General debt sustainability analysis takes into ac- stitutions to increase the voice and rep- Assembly on the multilateral framework count what needs to be done by govern- resentation of developing countries. for debt restructuring. Further, there ments and their capacity to meet the Additionally, the international monetary must not be a new call for an expert com- SDGs. This is particularly crucial given system must be reformed, including by mittee or process within the UN on sov- that many developing countries are now addressing the shortcomings in the ex- ereign debt, without first recognizing the going through or will be entering into a change rate and international reserves General Assembly process that already debt crisis and turning to the IMF for cri- systems through increased and strength- exists and that is already discussing and sis loans. ened international monetary coopera- formulating proposals for debt restruc- tion, establishing mechanisms to bring turing with the inclusion of debt experts, F. Systemic issues greater stability to exchange rates of re- lawyers and academics across all sectors, serve currencies (e.g., the dollar, euro including civil society. The Monterrey Consensus explicitly and yen), and preventing competitive An international legal mechanism agreed on the need “to strengthen the devaluations and currency wars such as for orderly debt restructuring is urgently United Nations leadership role in pro- those seen during the recent financial needed in the wake of devastating sov- moting development” as a means to “en- crisis. ereign debt crises that are triggered by hance coherence, governance, and con- The allocation of Special Drawing boom-and-bust financial crises. The aim sistency of the international monetary, Rights (SDRs) should occur on a regular of debt restructuring is to accord a “fresh financial and trading systems” (para 52). basis and be increased in quantum ac- start” to the burdened country, so that The FfD3 process has yet to reaffirm this cording to development need rather than financial meltdown and protracted bal- agreement, however, with countries in- IMF quota. Having SDRs as the main ance-of-payments problems can be pre- cluding the US and Japan questioning international reserve asset would not vented in that country. The aim is also the “appropriateness” of the UN as a only be less expensive and more effec- to replace ad hoc, disorderly and often venue to reform global economic gover- tive compared to the dollar, but could chaotic negotiations between insolvent nance. This push to confine the design also provide a buffer to stabilize foreign debtors and their creditors in order to of global macroeconomic rules to spaces exchange reserves and secure macroeco- safeguard the interests of both sides and such as the Bretton Woods institutions nomic stability in times of financial cri- to remove the legal vacuum that allows is being strongly contested by the G77 sis. the so-called vulture funds to seek un- and individual countries of the Global Regions Refocus 2015 asserts that justified benefits at the expense of both South. the post-2015 sustainable development debtors and other creditors. Financial markets and institutions agenda must integrate transformative During the first session of the ad hoc must be regulated to ensure global finan- changes to global governance systems committee on debt restructuring in Feb- cial stability and to contribute to finan- and to national policy choices, to achieve ruary 2015, the G77 stressed that a mul- cial stability, inclusivity and optimal development and to overcome the chal- tilateral legal framework for sovereign functioning at national levels. This in- lenges of inequality, exclusion and vul- debt restructuring is the missing link to cludes allocating finance to local devel- nerability. This necessitates a shift to- facilitate increased efficiency, stability opment needs, in particular essential wards a model centred on enhancing and predictability of the international fi- social services, along with regulating national productive capacities that re- nancial system, which is critical for capital flows to prevent or minimize de- quire an enabling trade and investment achieving sustained, inclusive and equi- stabilizing and volatile cross-border architecture, a revision of redistribution table economic growth and sustainable flows of short-term capital, including by policies and the adoption of social poli- development, in accordance with na- encouraging reserve-issuing developed cies that put people’s economic and so- tional circumstances and priorities. A countries (e.g., the US, the EU and Japan) cial rights at the forefront. key objective of a multilateral debt re- to impose controls over their destabiliz- structuring mechanism should be to pre- ing capital outflows to developing coun- Regional civil society proposals vent liquidity crises from turning into tries. solvency crises. In an insolvency situa- Systemically important financial in- l Reform the international financial tion, a key objective should be to ensure stitutions (e.g., large international banks architecture to bring the Bretton Woods in- that outcomes restore the basis for future and credit rating agencies) must be stitutions back under the oversight of the UN

No 589 Third World Economics 16 – 31 March 2015 7 CURRENT REPORTS Financing for development and thereby address financial volatility, debt cooperation on technology and IPRs, cess, governments of North and South and austerity policies in the aftermath of the “sustainability” may risk becoming a must work together to arrive at an agree- recession. (Arab States) proxy for developing countries’ in- ment that responds to a reality where l Harmonize multilateral economic creased dependency on technology im- action, including responses to the finan- and trade arrangements, and democratize ports and purchases (see Section D cial crisis, have so far been too little and global governance to expand space for Afri- above). too piecemeal. The outcome document can states’ decision-making. (Southern Af- Technology provisions in FfD3 must adopted in Addis Ababa needs to ensure rica) not disproportionately refer to develop- concrete deliverables in financial re- l Strengthen the language of develop- ing countries’ ability to procure medi- sources, technology and capacity build- ment economics and economic governance, cines from developed countries. Rather, ing. International systemic and develop- against the continued emphasis on foreign the Addis outcome must support re- ment financing reforms are fundamen- direct investment and a deliberate blindness search and development (R&D) and in- tal to facilitating the urgent work of regarding global structural inequalities that novation incentives in developing coun- structurally transforming a world en- prevent adequate mobilization of domestic tries. Stakeholder initiatives for technol- trenched in economic inequalities, social resources in Global South countries. (Carib- ogy must not turn the UN into a injustices and environmental degrada- bean) multistakeholder forum; rather, technol- tion into one that can start healing to- wards equity, justice and life.ÿÿÿÿÿÿÿÿÿÿÿÿÿÿp ogy platforms should be developed in G. Technology, innovation and consultation with member countries. capacity building The above is extracted from “A Geopolitical Analysis of Financing for Development (FfD3)”, Towards the Addis Ababa Accord produced by Regions Refocus 2015, Third World An additional section in the Zero Network and Development Alternatives with Women for a New Era (DAWN). The full paper is Draft focuses on technology, innovation Over the final stages of the FfD3 pro- available at http://bit.ly/FfD3GeopoliticalAnalysis and capacity building, and monitoring, data and follow-up. Many countries, es- pecially developed ones, welcome the Development and taxes a vital piece of inclusion of these two sets of issues, which were not addressed as separate post-2015 puzzle elements in the Monterrey Consensus, emphasizing the potential of data to en- The need for intergovernmental cooperation to tackle corporate tax able collective action and spur innova- dodging is set to figure prominently in the FfD talks. tion. Despite reservations about shifting away from the original FfD agenda as by Lyndal Rowlands outlined in Monterrey and Doha, several developing countries welcome this re- NEW YORK: Public funds are vitally havens in wealthy countries. newed emphasis on the transparency important to achieving the Sustainable Two reports out in mid-March, from and accountability of data and reporting Development Goals (SDGs), making cor- Oxfam and the Tax Justice Network, both from corporate actors, in particular mul- porate tax avoidance trends a pressing look at the impacts of corporate tax tinational corporations with subsidiaries issue for Financing for Development dis- avoidance on global inequality. in developing countries. cussions. Catherine Olier, Oxfam’s European Technology transfer is a major A draft agenda circulated in the Union policy advisor, told Inter Press means of implementation and has been week of 16 March for the FfD Conference Service (IPS), “Corporate tax avoidance a pillar of global partnership and coop- to be held in Addis Ababa in July places is actually a very important issue for eration. This is also recognized in the domestic public finances as a key action developing countries because according Rio+20 outcome document and its pre- agenda item. The agenda acknowledges to the International Monetary Fund, the decessors, the Johannesburg Programme the need for greater tax cooperation con- poor countries are more reliant on cor- of Action and Agenda 21. In the SDG sidering “there are limits to how much porate tax than rich countries.” negotiations, the G77 emphasized that governments can individually increase Olier said that considerable funds public financing and transfer of appro- revenues in our interconnected world”. are needed to make the SDGs possible. priate technology by developed coun- Over 130 countries, represented by “If we look at what’s currently on the tries to developing countries are key the Group of 77 (G77), called for greater table in terms of official development components of means of implementa- international tax cooperation to be in- assistance (‘international aid’) or even tion. Affordable access to and transfer of cluded on the agenda, in recognition of leveraging money from the private sec- the appropriate technology is required the increasingly central role of tax sys- tor, this is never going to be enough to for almost all the SDGs. tems in development. finance the SDGs,” she said. With regard to intellectual property These calls come in light of the Lux- “Tax is definitely going to be the rights, developing countries need ex- embourg Leaks and Swiss Leaks, which most sustainable and the most important emptions or amendments to IPR rules in have revealed in recent months how source of financing,” Olier said. order to be able to develop endogenous some of the world’s biggest multina- Oxfam’s report called on European technologies, innovations and services tional corporations avoid paying billions institutions, especially the European related to sustainability. Without such of dollars of taxes through deals with tax Commission, to “analyze the negative

8 Third World Economics 16 – 31 March 2015 No 589 CURRENT REPORTS Financing for development impacts one member state’s tax system can have on other European and devel- The Third World in the Third Millennium CE oping countries, and provide public rec- The Journey from Colonialism Towards Sovereign Equality ommendations for change.” and Justice Wealthy elites vs. everybody else By Chakravarthi Raghavan The development path traversed by the countries Nicholas Shaxson from the Tax Jus- of the Third World since emerging from the tice Network told IPS that tax havens are colonial era has been anything but smooth. Their predominantly wealthier countries, but efforts to attain effective economic sovereignty that they negatively impact both rich and alongside political independence, even till the poor countries. present day, face myriad obstacles thrown up on the global economic scene. This drive to improve “This is no longer an issue about the conditions of the developing world’s population developing countries versus rich coun- has seen the countries of the South seek to forge tries. I think you have to get beyond ge- cooperative links among themselves and engage ography and start thinking about this as with the North to restructure international relations a battle between wealthy elites and ev- on a more equitable basis – not always with erybody else,” he said. “That’s where the success. SBN: 978-967-5412-83-7 368pp battle line is, that’s where the dividing In this collection of contemporaneous articles written over a span of more than three 14 cm x 21.5 cm Year: 2014 line is.” decades, Chakravarthi Raghavan traces the course He added that corporate taxes were of dialogue, cooperation and confrontation on the global development front through particularly important to developing the years. The respected journalist and longtime observer of international affairs countries, in part because it was more brings his inimitable blend of reportage, critique and analysis to bear on such issues difficult to leverage tax revenue from a as South-South cooperation, corporate-led globalization, the international financial poorer constituency. system, trade and the environment-development nexus. Together, these writings “In pure justice terms, in terms of a present a vivid picture of the Third World’s struggle, in the face of a less-than- conducive external environment, for a development rooted in equity and justice. large wealthy multinational extracting natural resources or making profits in a Price Postage developing country and not paying tax, Malaysia RM40.00 RM2.00 I think that nearly everyone in the world Third World countries US$13.00 US$6.50 (air); US$3.00 (sea) would agree in their gut that there’s Other foreign countries US$18.00 US$9.00 (air); US$3.00 (sea) something wrong with that situation,” Orders from Malaysia – please pay by credit card/crossed cheque or postal order. Shaxson said. Shaxson is the author of the Tax Jus- Orders from Australia, Brunei, Indonesia, Philippines, Singapore, Thailand, tice Network’s report “Ten Reasons to UK, USA – please pay by credit card/cheque/bank draft/international money order in own currency, US$ or Euro.If paying in own currency or Euro, please calculate Defend the Corporation Tax”, published equivalent of US$ rate. If paying in US$, please ensure that the agent bank is located in the week of 16 March. The report ar- in the USA. gues that trillions of dollars of public spending is at risk, and that if current Rest of the world – please pay by credit card/cheque/bank draft/international money trends continue, corporate headline taxes order in US$ or Euro. If paying in Euro, please calculate equivalent of US$ rate. If paying in US$, please ensure that the agent bank is located in the USA. will reach zero in the next two to three decades. All payments should be made in favour of: THIRD WORLD NETWORK BHD., Meanwhile, Oxfam reported in 131 Jalan Macalister, 10400 Penang, Malaysia. Tel: 60-4-2266728/2266159; Fax: January that the “combined wealth of the 60-4-2264505; Email: [email protected]; Website: www.twn.my richest 1 percent will overtake that of the I would like to order ...... copy/copies of The THIRD WORLD in the Third other 99 percent of people next year un- Millennium CE: The journey from colonialism towards sovereign equality and less the current trend of rising inequal- justice. ity is checked.” Oxfam is calling for a ministerial I enclose the amount of ...... by cheque/bank draft/IMO. roundtable to be held at the FfD Confer- Please charge the amount of US$/Euro/RM ...... to my credit card: ence to help facilitate the establishment of a UN intergovernmental body on tax American Express Visa Mastercard cooperation. Olier told IPS that while developing A/c No.: Expiry date: countries have expressed support for Signature: greater tax cooperation, there has so far been less support from Organization for Name: Economic Cooperation and Develop- ment (OECD) member countries, includ- Address: ing European countries and the United States. (IPS)ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿp

No 589 Third World Economics 16 – 31 March 2015 9 CURRENT REPORTS WTO Chairs report on their consulta- The Chair highlighted that more flexible approaches in the negotiations tions on post-Bali work are important, as is having a more level playing field. The chairpersons of the WTO agriculture, NAMA and services negotia- According to trade officials, Winzap tions updated member delegations on the state of play in the talks at an said that members also want the issues of tariff peaks and tariff escalation to be 18 March informal meeting. addressed. There has not been much progress by Kanaga Raja on the issue of non-tariff barriers, which will be hard to address until there is a GENEVA: An informal meeting at the well as a proposal for average tariff cuts deal on cutting tariffs, the Chair added. level of heads of delegation (HOD) on or a combination of these. He said that According to trade officials, the 18 March heard progress reports from the concerns over the request-offer ap- Chair said that he will continue with his the chairs of the agriculture, non-agricul- proach are that it is too time-consuming consultations, as well as working with tural market access (NAMA) and ser- and difficult to manage and that it could the D-G. There has to be a balanced ap- vices negotiations on their consultations be disadvantageous to small economies proach that would deliver results, he so far with the membership. that are unable to keep an eye on every- added. The meeting was convened by WTO thing. (The WTO secretariat has also put Director-General (D-G) Roberto On export competition, in reference out some figures on the average tariff Azevedo to review the progress made so to eliminating all forms of export subsi- reduction approach in NAMA, high- far in the negotiations on the post-Bali dies by 2013, the Chair said that every- lighting what it says is its simplicity, work programme for concluding the one seems to go along with its terms, but comparability and flexibility. It said that Doha Round. the question now is the timetable. this approach can be complemented by He also stressed that the cotton is- Balance across pillars request-offer and that there is a possibil- sue remains very important and is some- ity to align the schedules of regional thing which is obviously part of the blocs. It also said that there would be less In his report, the Chair of the Spe- wider negotiations. need for special provisions under this cial Session of the Agriculture Commit- On the issue of public stockholding approach.) tee, Ambassador John Adank of New for food security purposes, Adank said The Chair of the Special Session of Zealand, said that he has been holding there is a wide gap between the G33 the Council for Trade in Services, Am- many consultations principally on do- grouping and other members who do bassador Gabriel Duque of Colombia, mestic support and on agricultural mar- not accept the G33 proposal that is on said that a session was held on 24 Feb- ket access. Clearly, there has to be bal- the table. According to him, the latter ruary and what the Chair wanted was a ance across these two pillars and the ex- have concerns about the G33 proposal, discussion of what members’ aspirations port competition pillar, he said. particularly about putting in place a were in these negotiations. It is also clear that the interests of all mechanism that could be trade-distort- According to trade officials, an in- members need to be taken into account, ing. formation session was also held on and that decisions will be taken by the In his report at the informal HOD where members are with respect to the full membership, he added. meeting, the Chair of the Negotiating negotiations and how they have evolved. On the issue of trade-distorting do- Group on Market Access for Non-Agri- mestic support, the Chair said that there cultural Products (NAMA), Ambassador Steady progress are significant divergences over the use- Remigi Winzap of Switzerland, said that fulness of the Rev.4 draft agriculture a couple of things have emerged in the According to trade officials, D-G modalities text. According to him, there consultations. Azevedo said that members are a bit be- are many delegations that like the archi- The first is a negotiation that affects hind on services, which is an area where tecture of this even if various elements formula-applying members. The Chair they need to catch up. The whole notion of it need to be looked at more closely. also said that the Swiss formula for tar- of sequencing (of issues) is important, On the notion of overall trade-dis- iff reductions is extremely difficult for but if members wait too long, then they torting domestic support, many mem- some members and that there is a cer- will never get back to services and this bers like this as a concept, the Chair said, tain willingness among members to be- will boomerang back and drag down adding that it gives an idea of what the gin to explore alternative approaches. In agriculture, he added. level of trade-distorting domestic sup- this context, he mentioned the proposal The D-G also said it is clear that the port is and also prevents “box-shifting”. by Argentina on a request-offer ap- three pillars in the agriculture negotia- With respect to the discussions on proach, saying that members had quite tions are important and that trade-dis- market access, Adank said there have a good discussion but they are still a dis- torting domestic support is very chal- been alternative approaches proposed on tance apart on this. lenging. Market access is not easy either, tariff reduction. According to the Chair, some mem- and there is a need to establish what is According to trade officials, the bers stressed the need for less than full possible. Chair mentioned the request-and-offer reciprocity and special and differential Azevedo said he is going to leave it approach (proposed by Argentina) as treatment. to the chairs to begin to set the stage for

10 Third World Economics 16 – 31 March 2015 No 589 CURRENT REPORTS WTO the more political discussions. He wants with the D-G’s comments. Union, China, Brazil, Canada, Japan, In- this process (by the chairs) to carry on a According to trade officials, the EU dia, the Russian Federation, Indonesia little bit longer. It is also important that said that it is beginning to see progress and Australia. the development issues including the on market access in agriculture and (The Cairns Group comprises Ar- LDC issues and cotton be taken up as NAMA. The proposals that were put for- gentina, Australia, Bolivia, Brazil, well, he said. ward were very useful. There is a need Canada, Chile, Colombia, Costa Rica, According to the WTO website, the to find a way to make adjustments, it Guatemala, Indonesia, Malaysia, New D-G told the meeting that members are added. Zealand, Pakistan, Paraguay, Peru, the continuing to make steady progress in There is also the need to find a way Philippines, South Africa, Thailand, Uru- terms of understanding the issues and for an agreement on public stockhold- guay and Vietnam. A footnote in the each other’s aspirations and limitations. ing for food security purposes, but it paper notes that Argentina does not sup- This is critical if they are going to ad- needs to see more proposals than what port the paper while Indonesia and the vance these negotiations. has come from the G33. In this context, Philippines are still completing their He said it was particularly encour- the EU said that it is not acceptable to domestic clearance processes in capitals.) aging that new ideas are being put for- put certain types of trade-distorting sup- According to the Cairns Group, the ward in some areas in the form of vari- port into the Green Box. data set presented in an annex to its pa- ous papers and proposals. “Of course Progress should also be made on is- per focuses on the top 10 global traders this doesn’t diminish what we already sues of importance to the least developed of agriculture products in 2012, the most have on the table in terms of texts, but it countries, said the EU. recent year for which data is available. does provide some new and creative The D-G said there is a need to make The ranking is based on total trade turn- approaches that we can further explore.” sure that the simulations are done in- over (i.e., the sum of imports and ex- He however said that while mem- volving numbers. Members need to see ports) measured in dollars. bers are making progress, this does not the kinds of average tariffs and what The annex shows levels of Green yet mean they are converging. There re- their impact would be, both offensively Box support (Annex 2 of the Agreement main many challenges to overcome be- and defensively. on Agriculture – AoA), “special and dif- fore solutions can be found. According to trade officials, Japan ferential treatment” support (Article 6.2 Speaking at the informal meeting, voiced support for the D-G’s comments of the AoA), Blue Box support (Article the European Union voiced agreement on this issue. (SUNS7986)ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿp 6.5 of the AoA) and Amber Box support (including product-specific and non- product-specific support) from 2001 (the WTO members discuss Cairns Group year the Doha Round of WTO negotia- tions was launched) to 2012 for each of paper on domestic support these members. Based on this methodology, the pa- A paper depicting trends in domestic farm support provided by the major per found that the United States’ level agricultural trading nations brought forth differing views from member of current total aggregate measurement states at a meeting of the WTO’s agriculture body. of support (CTAMS) declined dramati- cally from 2001 to 2011, from $14.5 bil- by Kanaga Raja lion (7.2% of VOP) to $4.7 billion (1.2% of VOP), and then rebounded to $6.9 bil- GENEVA: A formal meeting of the regu- 14.2% of VOP in these countries in the lion (1.7% of VOP) in 2012. lar Committee on Agriculture of the last year reported (see below). This was accompanied by a com- World Trade Organization on 4 March According to trade officials, the mensurate increase in Green Box support discussed, amongst others, a revised pa- Cairns Group paper elicited some di- from $50.7 billion (25.3% of VOP) in 2001 per by the Cairns Group of agricultural verging views, with different members to $127.4 billion (32.1% of VOP) in 2012. exporters that compiled the latest data drawing different conclusions from the The US did not use any Blue Box on domestic support by the top 10 glo- data. Some members were of the view support during the sample period. Total bal traders of agricultural products. that the figures cited overlook the dif- support (sum of all other types includ- Among the paper’s findings are that ference between the large amounts paid ing AMS that are de minimis) increased in the last year reported, the average per farm in commercial agriculture and from $72.2 billion to $139.6 billion. Rela- level of total support relative to value of the considerably smaller amounts paid tive to VOP, total support remained rela- production (VOP) was 19.3% in devel- per head to poor farmers. tively stable, hovering between 34.1% oped countries and 12.4% in developing and 39.7% (except for 2007). countries. Domestic support trends The European Union’s level of It also found that in most (but not CTAMS also declined dramatically over all) developed countries, reductions in The Cairns Group paper on trends the sample period (2001 to 2010) from Aggregate Measurement of Support in domestic support presents domestic $35.3 billion (13.5% of VOP) to $6.5 bil- (AMS) have been accompanied by sig- support data from 2001 to 2013 for the lion (2.0% of VOP). nificant increases in Green Box support, top 10 global traders of agriculture prod- This was accompanied by a com- which now accounts for an average of ucts – the United States, the European mensurate increase in Green Box support

No 589 Third World Economics 16 – 31 March 2015 11 CURRENT REPORTS WTO from $18.5 billion (7.1% of VOP) to $88.7 $6.4 billion in 2012 (7% of VOP). creased from zero to $1.9 billion, rang- billion (20.8% of VOP). Green Box support followed a simi- ing from zero to 2.7% of VOP, and ap- Blue Box support decreased from lar pattern, decreasing from $23.4 billion pear to be on an upward trend. $21.3 billion (8.2% of VOP) to $4.1 bil- (28.7% of VOP) in 2001 to $15.1 billion Total support increased from $241 lion (1% of VOP), while total support (22.2% of VOP) in 2007, and then gradu- million in 2001 to $5.4 billion in 2010, increased from $75.9 billion (29.1% of ally rebounding to $19.9 billion in 2012 from 1.1% to 4.4% of VOP. VOP) to $103.1 billion (24.2% of VOP). (21.5% of VOP). According to the paper, Australia’s According to the paper, China has a After reaching a low of $213 million level of CTAMS decreased from $158 nil AMS commitment and does not have in 2009, Blue Box support increased million (0.7% of VOP) in 2001 to zero in recourse to Article 6.2 of the AoA (in re- sharply to $3.1 billion in 2010 (3.7% of 2010. lation to investment subsidies and agri- VOP) and then fell to around $1.6 billion Over the same period, Green Box cultural input subsidies in developing in each of 2011 and 2012 (1.8% of VOP). support increased from $722 million to countries). Total support decreased from $30.7 $1.8 billion, ranging from 3.2% to 7.1% Green Box support more than billion in 2001 to $19.6 billion in 2007 and of VOP. doubled during the sample period from then steadily increased to $30.3 billion Total support increased from $887 $30.6 billion to $86 billion. However, in 2012. However, relative to VOP, total million in 2P001 to $1.8 billion in 2010. relative to VOP, levels of Green Box sup- support decreased from 37.6% in 2001 to Relative to VOP, total support fluctuated port remained fairly constant between around 32.8% in 2012. between 3.9% and 7.8%. 8.7% and 11.7%. According to the paper, India has a Total support increased from $30.9 nil AMS commitment. Its levels of prod- Increased support billion in 2001 to $99.8 billion in 2008. uct-specific trade-distorting domestic Relative to VOP, total support remained support increased steadily from 2001 to Summarizing these trends in domes- relatively stable, hovering between 9.7% 2010, with the former shifting from nega- tic support, the paper said that in abso- and 13.6%. tive to positive in 2007. lute terms, the total support levels of all Brazil’s reported level of CTAMS “Special and differential treatment” members in the sample increased from increased from zero in 2001 to $520 mil- support (Article 6.2) increased sharply 2001 to 2012, growing more rapidly in lion in 2008 and then dropped back to from $8.3 billion (8.1% of VOP) to $31.6 developing countries but starting from zero by 2013. From 2001 to 2013, the ra- billion (13.7% of VOP). a much lower base. tio of CTAMS to VOP remained below Green Box support increased nearly A similar trend can be seen when 1%. fivefold in absolute terms from $4 billion looking at total support as a percentage Green Box support increased from to $19.5 billion and increased from 4.2% of VOP. Total support levels relative to $1.5 billion to $6.2 billion, fluctuating to 8.4% of VOP. VOP remained relatively stable in devel- between roughly 1.7% and 4.8% of VOP. Total support increased quite dra- oped countries while they increased in Similarly, “special and differential matically from $12.3 billion in 2001 to developing countries. treatment” support (Article 6.2) in- $53.2 billion in 2010. Relative to VOP, However, said the paper, it should creased from $332 million to $1.1 billion, total support increased from 13.0% to be underlined that in the last year re- fluctuating between 0.7% and 1.6% of 23.1%. ported, the average level of total support VOP. The Russian Federation’s CTAMS relative to VOP was 19.3% in developed Total support increased from $2.8 increased from $2.9 billion in 2001 to $5.5 countries and 12.4% in developing coun- billion in 2001 to $9.7 billion in 2012. billion in 2009, but relative to VOP de- tries. Relative to VOP, total support remained creased from 8.8% to 6.9% of VOP. The CTAMS has declined in most relatively stable, fluctuating between Green Box support displayed a simi- (but not all) developed countries, in 4.5% and 9.8%. lar trend, increasing from $1.1 billion to some cases very significantly. This has The paper said that Canada’s re- $2.2 billion and generally staying be- created a considerable amount of over- ported levels of CTAMS decreased from tween 2.4% and 3.6% of VOP. hang between the Final Bound Total $1.9 billion (8.3% of VOP) in 2001 to $513 Similarly, total support increased AMS (FBTAMS) and CTAMS for some million in 2011 (1.0% of VOP), although from $4.2 billion in 2001 to $7.8 billion members. it fluctuated up and down in the inter- in 2009, but decreased from 12.7% to Among developing countries, only vening years. 9.8% of VOP. Brazil has a FBTAMS and CTAMS has Green Box support more than The paper noted that Indonesia has remained low. Reported AMS levels doubled in absolute terms from $1.1 bil- a nil AMS commitment, and that it is have increased steadily in India and lion to $2.7 billion, but fluctuated be- currently working to fill in certain gaps China, but remain below de minimis. tween 5.0% and 12% of VOP. in its domestic support notifications re- Among the three members in the Total support increased from $3.1 lating to AMS, including providing in- sample eligible to report certain input billion in 2001 to $5.7 billion in 2011. formation on its public stockholding and investment subsidies under Article Relative to VOP, total support fluctuated programmes. 6.2 (Brazil, India and Indonesia), this between 11.5% and 22.1%. Green Box support increased from type of support seems to be emerging as Japan’s reported level of CTAMS $241 million (1.1% of VOP) in 2001 to $3.6 an increasingly favoured policy tool. decreased from $6.1 billion (7.5% of billion (2.9% of VOP) in 2011. Article 6.2 support has grown very rap- VOP) in 2001 to $3.3 billion (4.9% of VOP) Levels of “special and differential idly, at least tripling in all cases, and also in 2007, and then increased steadily to treatment” support (Article 6.2) in- accounting for a growing proportion of

12 Third World Economics 16 – 31 March 2015 No 589 CURRENT REPORTS WTO

VOP, said the paper. Only the EU and Japan reported The Management of Capital Flows in Asia Blue Box support. In the EU’s case, sup- port levels declined significantly and Edited by Yilmaz Akyüz now account for less than 1% of VOP. In THE 1997 Asian financial crisis brought Japan’s case, support levels declined home to the region’s economies the gradually from 2001 to 2009 and then importance of managing capital flows in began to increase dramatically, far ex- order to avert financial shocks. This book ceeding earlier levels in 2010, 2011 and looks into whether and how this lesson 2012. was taken on board by policy makers in The paper said that in most (but Asia, and, accordingly, how capital again not all) developed countries, re- account regimes in the region evolved in the post-crisis period. ductions in AMS have been accompa- The early years of the new nied by significant increases in Green millennium saw a strong surge of capital Box support. Among these countries, flows into Asian emerging markets amid Green Box support now accounts for an conditions of ample global liquidity. In average of 14.2% of VOP in the last year response to the influx of funds, these ISBN: 978-967-5412-50-9 240pp reported. countries generally chose to keep their 16.5 cm x 24 cm Year: 2011 Although it started from lower lev- capital accounts open to inflows, dealing els, Green Box support also increased with the attendant impacts by liberalizing among developing countries and ac- resident outflows and accumulating foreign exchange reserves. While this counts for an average of 7% of VOP in approach enabled them to avoid unsustainable currency appreciations and external deficits, it did not prevent the emergence of asset, credit and investment the last year reported. bubbles and domestic market vulnerability to external financial shocks – as the Members’ reactions events following the 2007 subprime crisis would prove. This book – a compilation of papers written in 2008 for the first phase of a Third World Network research project on financial policies in Asia – examines According to trade officials, Argen- the above developments in relation to the region in general and to four major tina, Indonesia, the Philippines, Bolivia, Asian developing economies: China, India, Malaysia and Thailand. India, China and Brazil said that the pa- Price Postage per was unbalanced, as it played down Malaysia RM30.00 RM2.00 the differences in the scale of support, Third World countries US$14.00 US$7.00 (air); US$3.00 (sea) which remains much higher in devel- Other foreign countries US$20.00 US$10.00 (air); US$3.00 (sea) oped countries. Orders from Malaysia – please pay by credit card/crossed cheque or postal order. India and China said that the sup- port in developed countries is for large- Orders from Australia, Brunei, Indonesia, Philippines, Singapore, Thailand, scale commercial farming while in their UK, USA – please pay by credit card/cheque/bank draft/international money order countries it is for millions of poor farm- in own currency, US$ or Euro.If paying in own currency or Euro, please calculate equivalent of US$ rate. If paying in US$, please ensure that the agent bank is located ers. in the USA. According to trade officials, India recalculated the compiled numbers to Rest of the world – please pay by credit card/cheque/bank draft/international money order in US$ or Euro. If paying in Euro, please calculate equivalent of US$ rate. If show that support figures per person paying in US$, please ensure that the agent bank is located in the USA. produce a different picture. These range from hundreds of dollars per person per All payments should be made in favour of: THIRD WORLD NETWORK BHD., year in the developing countries, to thou- 131 Jalan Macalister, 10400 Penang, Malaysia. Tel: 60-4-2266728/2266159; Fax: 60-4-2264505; Email: [email protected]; Website: www.twn.my sands or tens of thousands each in the developed countries, it said. I would like to order ...... copy/copies of The Management of Capital Flows The US presented some graphs in Asia. showing the different trends over the I enclose the amount of ...... by cheque/bank draft/IMO. years in the 10 countries, with increases in distorting subsidies in the developing Please charge the amount of US$/Euro/RM ...... to my credit card: countries. American Express Visa Mastercard However, Brazil said that the US should have presented the graphs to the A/c No.: Expiry date: same scale in order to show the differ- ence between the amounts of support Signature: given by richer and poorer countries. Name: Paraguay, Mexico and Uruguay said Address:

(continued on page 16)

No 589 Third World Economics 16 – 31 March 2015 13 OPINION Inequality

The Acapulco paradox net. We should pity the US lawmakers, There are two very different ways of viewing economic reality, writes the 22 richest of whom have only an av- erage of $124 million (70% of the sena- Roberto Savio. tors are millionaires anyhow) and make up only 4% of the US Congress, while The world is clearly splitting into two 100,000 people in 2005 to 13 seven years 4% of the richest Chinese lawmakers are parallel worlds, with each going its own later. In the time it takes to read this ar- the 203 billionaires. way, in what we could call the Acapulco ticle, six Americans will have tried to kill Statistics in Europe also open the paradox. themselves and in another 10 minutes way to illuminating reflections. Take Take the official version of the im- one will have succeeded. More than Spain, for example, where billionaires age of Acapulco – a splendid Mexican 40,000 Americans took their own lives in are in decline. In the Forbes list of the resort, with horse riding on the beaches, 2012, more than died in car crashes, says richest men in the world, Spain now has a place blessed by nature and enriched the American Association of Suicidol- 21, five fewer than last year. Their com- by beautiful villas, gourmet restaurants, ogy. bined wealth is $116.3 billion, and they a place of bliss and relaxation. increased their wealth in a year by only Now take the version of the people The growth of finance $500 million, against the $3.2 billion of living there – a place torn by criminal the richest man in the world, Bill gangs with several deaths every day, If you start looking into the macro Gates. where locals live in fear and total inse- data, things become clearer. Profits from Yet, $500 million is the equivalent of curity. the financial sector are now over 20% of 35,714 average yearly salaries, close to In the same way, there are now two the total, double the level from the Sec- the population of the sunny town of ways to look at global reality. ond World War to the 1970s, and since Teruel in eastern Spain (around 36,000), One is the macroeconomic approach 1970 productivity has grown by less than and $116.3 billion is the equivalent of 8.3 based on global data, according to which, half. What this means is that the real million yearly salaries, equal to the com- for example, Greece has been doing bet- economy has grown by half that of fi- bined population of Andalusia, the larg- ter along with Italy, Portugal and Spain. nance. est Spanish region, and the Balearic Is- In those countries, macroeconomic data It is now clear that it is growth of lands. are improving. Spain is even being the finance industry which is really hold- The problem is that those two touted as the example of how a country ing back the rest of the economy, and far worlds are supposed to meet and relate which swallowed the bitter pill of aus- fewer people are employed in the finan- through political institutions: parlia- terity now has growth at the same level cial sector than in production and ser- ment, which represents everybody, and as Germany. vices. government, which is supposed to regu- Then, speak with young people, These data come from nothing less late society for the good of every citizen. among whom unemployment is close to than the Bank for International Settle- Well, a good case study comes again 40%, or with pensioners, or with those ments, the Gotha of the banking world, from Spain, where it is possible to be- working in the hospital and education which also reports that brilliant people come a Spanish resident without going sectors, and you get a totally different are trying to move into the financial sec- to Spain. picture. According to Caritas, the num- tor, to the detriment of other sectors of It is sufficient to buy €2 million ber of people living in misery has the economy. worth of the country’s public debt, or €1 doubled in the last seven years. Looking into the figures opens up million worth of shares, or buy a house The alternative model is the United fascinating analyses. One set of numbers that costs at least €500,000 plus taxes, to States, which invested in growth and not from Hong Kong, published in the New become a Spanish resident. Since Sep- in austerity like Europe. Its growth is York Times in the first week of March, tember 2013, 530 foreigners have ob- running at 2.4% against an anaemic 0.1% deals with the personal wealth of law- tained that right. for Europe. Again, the positive macro makers from China and the United It is probable that the experience of data do not coincide with the people’s States. obtaining a Spanish residence permit data. The NYT reported that according to differs greatly for the tens of thousands Let us take the latest example of eco- the Shanghai-based Hurun Report, of the who crossed the Mediterranean at risk nomic recovery: the decision of the 1,271 richest people in China, a record of their lives (it is estimated that over Walmart retail chain, one of the largest 203 – nearly 16% – are in the parliament 20,000 have died up to now). employers in the United States, to in- or its advisory body. Their combined net And many European countries have crease the hourly wage from $8.90 to $10. worth is $463.8 billion, which is more taken a similar path, including the This looks like very positive news, but than the annual economic output of Aus- United Kingdom, Cyprus and Portugal. the fact is that 60% of Walmart staff do tria. In the United Kingdom, there is now not work sufficient hours to make a liv- By comparison, American lawmak- a debate on a law from 1914 which ex- ing – some work just two days a week, ers are poorer. Eighteen of the Chinese cludes “non-domiciled” residents (“non- and with $640 a month you are still in lawmakers have a net worth greater than doms”) from paying taxes on their for- poverty. the 535 members of the US Congress, the eign income or assets. It is enough to Maybe it is just a coincidence, but nine members of the US Supreme Court have a domicile abroad, usually by de- the suicide rate rose from 11 per and US President Barack Obama’s cabi- claring permanent home in a tax haven.

14 Third World Economics 16 – 31 March 2015 No 589 OPINION Inequality/Financial sector

The number of “non-doms” surged by of an improvement in the UK economy larger participating countries and came 22% between 2000 and 2008 (year of the by the European authorities has been up with revenue estimates of €14-36 bil- last available data) to reach 130,000 taken at face value. lion for France, €3-6 billion for Italy, and people. This is part of an effort to reduce Barclays, for example, is increasing €700 million-1.5 billion for Austria. taxation on the wealthy, by creating salaries by 40%, and a 25% increase is For these four European countries loopholes and new regulations, to attract expected all over the City this year. A combined, the total potential revenue as many rich people as possible. young financial analyst just out of uni- estimate comes to considerably more President Francois Hollande in versity could expect to take home the than a previous European Commission France has learnt at his expense what it equivalent of $100,000 per year. projection of up to €31 billion for all 11 means to speak of taxing the rich and had While this will be good for statistics participating governments. to make a quick turnaround. Obama is on average incomes, the yearly incomes doing the same, and the only ‘leader’ of the poorest 10% of British citizens will Industry pressure who is now speaking about taxing the keep them only at survival level. It is rich is Pope Francis. likely that their view of economic recov- These impressive revenue numbers However, one of the best examples ery will be different from those in the could shrivel, of course, if the European of the Acapulco paradox comes from the City. (IPS Columnist Service)ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿp governments cave in to pressure from City financial district in London. the financial industry. After several years After all the popular discontent over Roberto Savio is founder and president emeritus of trying to kill the initiative altogether, the disproportionate salaries of bankers, of the Inter Press Service (IPS) news agency and European financial institutions have had with public declarations from the UK publisher of Other News. The views expressed in this article are those of the author and do not nec- to accept the inevitability of a financial government, the Church of England and essarily represent the views of, and should not be transactions tax. Their focus now: push- the Bank of England, the announcement attributed to, IPS. ing for exemptions that would render a new financial transactions tax virtually meaningless. Study: Financial tax would pay off big In particular, the big banks would like to exclude from the tax all trades in A levy on financial trades would net even more revenue for European derivatives, the potentially highly lucra- governments than earlier projected, recent research from Germany tive financial instruments that played a estimates. major role in the 2008 financial crisis. The DIW study offers powerful am- by Sarah Anderson munition for those on the other side pushing for a broad-based tax. If deriva- Elected leaders in Washington are head- how the tax affects trading levels, accord- tives are exempted, DIW notes, “most of ing into another season of wrangling ing to DIW. That translates into a poten- the potential revenue from [the tax] is over the same old federal budget rev- tial benefit of about $48 billion in an lost.” Germany and France would lose enue shortfalls. But a number of Euro- economy one-fifth the size of the United about 90% of the expected revenues. It’s pean countries are looking forward to a States. not just that derivatives make up a large revenue injection from a fresh and de- The Joint Committee on Taxation of share of financial market activity. Trad- serving source: high-flyers in the finan- the US Congress has produced a revenue ers would respond to the exemption by cial markets. score for only one of several financial shifting into derivatives to circumvent Eleven EU governments are now transactions tax bills pending before the tax. working out the final details of a plan Congress, coming up with a far lower The new DIW study also comes at a for a regional financial transactions tax, number: $350 billion over 10 years. key moment in the US debate. The House with a January 2016 deadline for imple- The major difference lies in the tax Democratic Leadership recently an- design. DIW estimates are based on the mentation. nounced support for a financial transac- Applying a small tax to each trade European Commission’s proposed rates tions tax, and these House leaders are of stocks and derivatives would discour- of 0.1% on stock and bond trades and right now in the process of developing age short-term, purely speculative trad- 0.01% on derivatives. The Joint Commit- the details of their proposal. ing while generating significant revenue. tee on Taxation estimate is based on a It’s a shame that the United States And according to a just-released study, tax of 0.03% on trades of those same in- still stands so far behind Europe in em- those revenues are likely to run even struments. bracing a financial transactions tax, a higher than originally projected. DIW also assumed that the 11 gov- The German Social Democratic ernments would adopt the European policy that would do so much to make Party commissioned the study from the Commission’s double-barrelled anti- our economy more equitable and stable. prestigious German Institute for Eco- avoidance mechanism. Traders would On the positive side, the Europeans have nomic Research, more commonly known have to pay the tax if they or the other generated valuable analysis that helps by its acronym DIW. The results are eye- party to a transaction reside in one of the make the case for significantly taxing ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿp popping. 11 participating EU member states and Wall Street speculation. Germany alone can expect any- also if the instrument they’re trading was where from €18 billion to nearly €45 bil- issued in one of those countries, even if Sarah Anderson directs the Global Economy Project at the Washington-based Institute for lion per year from a serious regional fi- it is traded elsewhere. Policy Studies. This article is reproduced from nancial transactions tax, depending on DIW analyzed three of the other Inequality.org under a Creative Commons licence.

No 589 Third World Economics 16 – 31 March 2015 15 CURRENT REPORTS WTO

(continued from page 13) Standing in the Way of Development? A Critical Survey of the IMF’s Crisis Response that the amount of trade distortion cre- ated is a concern, irrespective of where in Low-Income Countries that distortion comes from. By Elisa Van Waeyenberge, Hannah Bargawi Australia said India’s per capita fig- and Terry McKinley ures were interesting, but it remains con- cerned about the impact of support in The International Monetary Fund (IMF), which has been criticised for the rigid economic policy India, which it said overtook Australia conditionalities attached to its lending as the seventh largest trader. programmes, says it now provides borrower According to trade officials, the EU states greater flexibility to adopt expansionary said that the data reflect the reforms it policies. Standing in the Way of Development? assesses this claim in the context of the IMF’s has undertaken to move support out of central role in dealing with the effects of the the distorting Amber Box to the mini- global financial crisis in low-income countries mally distorting Green Box. (LICs). Argentina, however, pointed out This paper evaluates the general that the scale of Green Box subsidies in macroeconomic policy scheme promoted by the Fund and closely examines the nature of developed countries is so large now that its engagement during the crisis in a it must be causing distortion. representative sample of 13 LICs. The authors ISBN: 978-967-5412-60-8 96 pp The EU and New Zealand said that find that, despite some relaxation of policy some notifications are not up to date and restraints, the IMF essentially remains wedded that keeping up-to-date data is necessary to its longstanding prioritisation of price stability paper outlines the broad and low fiscal deficits over other contours of an alternative for transparency. macroeconomic goals. macroeconomic policy In response to comments that the Such a policy stance, it is argued, could framework geared towards paper is either simplistic or unbalanced, undermine not only LICs’ prospects for a quick supporting long-run equita- Canada, which had presented the paper, recovery from the crisis but also their longer- ble growth and poverty term development outlook. In light of this, this reduction. and New Zealand said it is designed to allow countries to draw their own con- Price Postage clusions from the data. (SUNS7977)ÿÿÿÿÿp Malaysia RM11.00 RM2.00 Developing countries US$7.00 US$3.50 (air); US$2.00 (sea) Others US$10.00 US$5.00 (air); US$2.00 (sea) Orders from Malaysia – please pay by credit card/crossed cheque or postal order. Orders from Australia, Brunei, Indonesia, Philippines, Singapore, Thailand, UK, USA – please pay by credit card/cheque/bank draft/international money order in own currency, US$ or Euro.If paying in own currency or Euro, please calculate equivalent of US$ rate. If paying in US$, please ensure that the agent bank is located in the USA. Rest of the world – please pay by credit card/cheque/bank draft/international money order in US$ or Euro. If paying in Euro, please calculate equivalent of US$ rate. If paying in US$, please ensure that the agent bank is located in the USA. Third World Economics is also available in Spanish. All payments should be made in favour of: THIRD WORLD NETWORK BHD., 131 Jalan Macalister, 10400 Penang, Malaysia. Tel: 60-4-2266728/2266159; Fax: Tercer Mundo Economico 60-4-2264505; Email: [email protected]; Website: www.twn.my is the Spanish edition of I would like to order ...... copy/copies of Standing in the Way of Third World Economics, edited Development?: A Critical Survey of the IMF’s Crisis Response in Low-Income and published in cooperation Countries. with Red del Tercer Mundo, I enclose the amount of ...... by cheque/bank draft/IMO. Uruguay. Please charge the amount of US$/Euro/RM ...... to my credit card: For subscription details, American Express Visa Mastercard please contact: A/c No.: Expiry date:

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16 Third World Economics 16 – 31 March 2015 No 589