Inter Press Service » Trade & Investment http://www.ipsnews.net News and Views from the Global South Sat, 29 Apr 2017 23:38:47 +0000 en-US hourly 1 http://wordpress.org/?v=4.1.17 World Bank Must Stop Encouraging Harmful Tax Competitionhttp://www.ipsnews.net/2017/04/world-bank-must-stop-encouraging-harmful-tax-competition/?utm_source=rss&utm_medium=rss&utm_campaign=world-bank-must-stop-encouraging-harmful-tax-competition http://www.ipsnews.net/2017/04/world-bank-must-stop-encouraging-harmful-tax-competition/#comments Wed, 26 Apr 2017 14:33:16 +0000 Anis Chowdhury and Jomo Kwame Sundaram http://www.ipsnews.net/?p=150163 Anis Chowdhury, a former professor of economics at the University of Western Sydney, held senior United Nations positions during 2008–2015 in New York and Bangkok.
Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007. ]]>

Anis Chowdhury, a former professor of economics at the University of Western Sydney, held senior United Nations positions during 2008–2015 in New York and Bangkok.
Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007.

By Anis Chowdhury and Jomo Kwame Sundaram
SYDNEY and KUALA LUMPUR, Apr 26 2017 (IPS)

One of the 11 areas that the World Bank’s Doing Business (DB) report includes in ranking a country’s business environment is paying taxes. The background study for DB 2017, Paying Taxes 2016 claims that its emphasis is “on efficient tax compliance and straightforward tax regimes”.

The World Bank has been promoting tax cuts and tax competition as magic bullets to boost investment. As a result, tax revenues in developing countries continue to fall. Credit: IPS

The World Bank has been promoting tax cuts and tax competition as magic bullets to boost investment. As a result, tax revenues in developing countries continue to fall. Credit: IPS

Its ostensible aim is to aid developing countries in enhancing the administrative capacities of tax authorities as well as reducing informal economic activities and corruption, while promoting growth and investment. All well and good, until we get into the details.

Tax less
First, the Report advocates not only administrative efficiency, but also lower tax rates. Any country that reduces tax rates, or raises the threshold for taxable income, or provides exemptions, gets approval.

Second, it exaggerates the tax burden by including, for example, employees’ health insurance and pensions and charges for public services like waste collection and infrastructure or environmental levies that the businesses must pay. The IMF’s Government Financial Statistics Manual correctly treats these separately from general tax revenues.

Third, by favourably viewing countries that lower corporate tax rates (or increase threshold and exemptions) and negatively considering those that introduce new taxes, DB is essentially encouraging tax competition among developing countries.

Thus, the Bank is ignoring research at the OECD and IMF which has not found any convincing evidence that lower corporate tax rates or other fiscal concessions have any positive impact on foreign direct investment.

Instead, they found net adverse impacts of tax concessions and fiscal incentives on government revenues. According to the research, factors such as the availability and quality of infrastructure and human resources were more important for investment decisions than taxes.

The World Bank’s Enterprise Surveys also do not find paying taxes to be high on the list of factors that enterprise owners perceive as important barriers to investment. For example, the Enterprise Survey for the Middle East and North Africa found political instability, corruption, unreliable electricity supply, and inadequate access to finance to be important considerations; paying taxes or tax rates were not.

Yet, the World Bank has been promoting tax cuts and tax competition as magic bullets to boost investment. Not surprisingly, thanks to its still considerable influence, tax revenues in developing countries are not rising enough, or worse, continue to fall. According to some estimates, between 1990 and 2001, reduction in corporate taxes lowered countries’ tax revenue by nearly 20%.

Instead of encouraging tax competition, therefore, the World Bank should help developing countries improve tax administration to enhance collection and compliance, and to reduce evasion and avoidance. According to OECD Secretary-General Angel Gurria, “developing countries are estimated to lose to tax havens almost three times what they get from developed countries in aid”.

Global Financial Integrity has estimated that illicit financial flows of potentially taxable resources out of developing countries was US$7.85 trillion during 2004-2013 and US$1.1 trillion in 2013 alone!

Conflicts of interest

However, the Bank’s Paying Taxes and DB reports do little to strengthen developing countries’ tax revenues. This should come as no surprise as its partner for the former study is Pricewaterhouse Cooper (PwC), one of the ‘Big Four’ leading international accounting and consultancy firms. PwC competes with KPMG, Ernst & Young and Deloitte for the lucrative business of helping clients minimize their tax liabilities. PwC assisted its clients in obtaining at least 548 tax rulings in Luxembourg between 2002 and 2010, enabling them to avoid corporate income tax elsewhere.

How are developing countries expected to finance their infrastructure investment needs, increase social protection coverage, or repair their damaged environments? Instead of helping, the Bank’s most influential report urges them to cut corporate tax rates and social contributions to improve their DB ranking, contrary to what then Bank Chief Economist Kaushik Basu observed: “Raising [tax] allows developing countries to invest in education, health and infrastructure, and, hence, in promoting growth.”

How are they supposed to achieve the internationally agreed Agenda 2030 for the Sustainable Development Goals in the face of dwindling foreign aid. After all, only a few donor countries have fulfilled their aid commitment of 0.7% of GNI, agreed to almost half a century ago. Since the 2008 financial crisis, overseas development assistance has been hard hit by fiscal austerity cuts in OECD economies except in the UK under Cameron.

The Bank would probably recommend public-private partnerships (PPPs) and borrowing from it. Countries starved of their own funds would have to borrow from the Bank, but loans need to be repaid. Governments lacking their own resources are being advised to rely on PPPs, despite predictable welfare outcomes – e.g., reduced equity and access due to higher user fees – and higher government contingent fiscal liabilities due to revenue guarantees and implicit subsidies.

Financially starved governments boost Bank lending while PPPs increase the role of its International Finance Corporation (IFC) in promoting private sector business. Realizing the Bank’s conflict of interest, many middle-income countries ignore Bank advice and seek to finance their investments and other activities by other means. Thus, there are now growing demands that the Bank stop promoting tax competition, deregulation and the rest of the Washington Consensus agenda.

Bank must support SDGs
However, nothing guarantees that the Bank will act accordingly. It has already ignored the recommendation of its independent panel to stop its misleading DB country rankings. While giving lip service to the International Labour Organization (ILO) and others who have asked it to stop ranking countries by labour market flexibility, the Bank continues to promote labour market deregulation by other means.

If the Bank is serious about being a partner in achieving Agenda 2030, it should align its work accordingly, and support UN leadership on international tax cooperation besides enhancing governments’ ability to tax adequately, efficiently, and equitably. In the meantime, the best option for developing countries is to ignore the Bank’s DB and Paying Taxes reports.

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Reclaiming the Bandung Spirit for Shared Prosperityhttp://www.ipsnews.net/2017/04/reclaiming-the-bandung-spirit-for-shared-prosperity/?utm_source=rss&utm_medium=rss&utm_campaign=reclaiming-the-bandung-spirit-for-shared-prosperity http://www.ipsnews.net/2017/04/reclaiming-the-bandung-spirit-for-shared-prosperity/#comments Mon, 24 Apr 2017 07:17:03 +0000 Noeleen Heyzer and Anis Chowdhury http://www.ipsnews.net/?p=150094 Noeleen Heyzer, former Executive Secretary of UN-ESCAP and Under-Secretary-General of the UN. She was also special advisor to the UN-Secretary-General for Timor Leste.

Anis Chowdhury, former professor of economics at the University of Western Sydney, held senior United Nations positions during 2008-2015 in New York and Bangkok.]]>

Noeleen Heyzer, former Executive Secretary of UN-ESCAP and Under-Secretary-General of the UN. She was also special advisor to the UN-Secretary-General for Timor Leste.

Anis Chowdhury, former professor of economics at the University of Western Sydney, held senior United Nations positions during 2008-2015 in New York and Bangkok.

By Noeleen Heyzer and Anis Chowdhury
Bangkok and Sydney, Apr 24 2017 (IPS)

“The despised, the insulted, the hurt, the dispossessed—in short, the underdogs of the human race were meeting. … Who had thought of organizing such a meeting? And what had these nations in common? Nothing, it seemed to me, but what their past relationship to the Western world had made them feel. This meeting of the rejected was in itself a kind of judgment upon the Western world!.”

—Richard Wright, The Color Curtain [University Press of Mississippi, 1956].

This is how Richard Wright, a novelist saw the gathering of leaders from 29 African and Asian nations at Bandung (Indonesia) on 18-25 April, 1955 of 29.

Noeleen Heyzer

Noeleen Heyzer

The leaders, prominent among them Jawaharlal Nehru (India), Kwame Nkrumah (Ghana), Gamal Abdel Nasser (Egypt), Chou En Lai (China), Ho Chi Minh (Viet Nam), and Adam Clayton Powell (Congressman from Harlem, USA), considered how they could help one another in achieving social and economic well-being for their large and impoverished populations. Their agenda addressed race, religion, colonialism, national sovereignty, and the promotion of world peace. In opening the conference, the President of Indonesia, Ahmed Sukarno asked,

“What can we do? We can do much! We can inject the voice of reason into world affairs. We can mobilize all the spiritual, all the moral, all the political strength of Asia and Africa on the side of peace. Yes, we! We, the peoples of Asia and Africa, …, we can mobilize what I have called the Moral Violence of Nations in favour of peace.

The Bandung declaration

The final communiqué expressed, “general desire for economic co-operation among the participating countries on the basis of mutual interest and respect for national sovereignty”; “agreed to provide technical assistance to one another”; “recognized the vital need for stabilizing commodity trade”; recommended that: “Asian-African countries should diversify their export trade by processing their raw material, wherever economically feasible, before export”; promote “intraregional trade”; and provide “facilities for transit trade of land-locked countries”.

The rise of the Third World and demand for a New International Economic Order

Anis Chowdhury

Anis Chowdhury

It was the beginning of what came to be known as the “non-aligned” movement and the “Third World” and within the United Nations, the Group of 77 plus China. With this confidence they called for the establishment of a New International Economic Order (NIEO) recognized at the 1974 General Assembly, based on equity, sovereign equality, interdependence, common interest and cooperation among all States, to correct inequalities and redress existing injustices; to eliminate the widening gap between the developed and the developing countries; and to ensure steadily accelerating economic and social development and peace and justice for present and future generations.

The NIEO declaration was, in effect, a call for shared and differentiated responsibility for equitable development.

Unfortunately, many aspects of the NIEO were never implemented. While the developing countries sought strategic integration with the global economy using trade and industry policies, they were advised to accept unfettered liberalization and privatization, which saw increased volatility and financial crises often disproportionately disadvantaging them. The aid conditionality of the International Monetary Fund (IMF) and the World Bank included straight-jacketed package of so-called “sound policies” that emphasized deregulation and a diminished role for the State. This drastically reduced state capability and developing countries’ policy space to deal with crises, pursue their developmental aspirations and achieve structural transformation.

Through the experience of the Latin American debt crisis in the 1980s and the Asian financial crisis of 1997-98, the countries of the South have realized that they have to create their own policy space and craft out policies based on their own circumstances. Thus, they managed to grow steadily over the last two decades and were able to weather the 2008-2009 Great Recession remarkably well to anchor the global economic recovery.

The Global South is no longer a collection of “despised, the insulted, the hurt, the dispossessed—in short, the underdogs”; they are the drivers of global economy.

Global South’s fault-lines

However, the issues facing developing countries are more complex now. They are faced with issues of inequalities and insecurities which affect social cohesion; climate change and uneven competition in global markets when key global negotiations on trade and climate change have broken down. They also face the potential danger of weakening of solidarity as the members of the Global South seek different interests.

It does not help when governance failure occurs in a number of the developing countries; when some are ripped apart by violent internal or regional conflicts, or manipulated because of rising extremisms of many sorts. Corruptions, lack of accountability and trembling of human rights are affront to the aspirations of independence and hinder the fulfilment of development and dignity for all. The governance failures and divided societies within have also weakened the developing South’s ability to deal with issues of international governance in the globalizing world, and our common future even with “Rising Asia”.

Reclaiming the Bandung spirit

Time has come for the rising Global South to collectively work for the unfinished business of a new international economic order that today has to take a more integrated and universal approach for people, planet and prosperity as highlighted in the Agenda 2030 for sustainable development goals (SDGs); to stabilize commodity prices; to improve export incomes; to ensure food security; to demand improved access to markets in developed countries; to put a stop to siphoning off capital through dubious transfer pricing arrangements of multinational corporations and international tax havens; to eliminate the instability of the international monetary system; to ensue full and effective participation in all decision-making in all global bodies, including the IMF and the World Bank, and in formulating an equitable and durable monetary system.

However, the developing South must lead by putting its own house in order; improve democratic governance, respect human rights especially women’s human rights, and ensure wider freedom of its own citizen to re-establish legitimacy and trust through a new social contract that responds to the needs and hopes of all citizens, not just in form but in substance.

In the spirit of Bandung, they have to work together for the prosperity of their people and to protect humanity’s common good, especially our planet. They should recall the message, “All of us … are united by more important things than those which superficially divide us. … And we are united by a common determination to preserve and stabilize peace in the world. . . .”

It is time to come together and advance together to address the risks and challenges that confront our world and harness the opportunities to build a more inclusive and sustainable future of shared prosperity. Only then can we sing:

A cry of defiance, and not of fear,
A voice in the darkness, a knock at the door,
And a word that shall echo for evermore! (Longfellow; from President Sukarno’s opening speech).

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Dispute Settlement Becomes Speculative Financial Assethttp://www.ipsnews.net/2017/04/dispute-settlement-becomes-speculative-financial-asset/?utm_source=rss&utm_medium=rss&utm_campaign=dispute-settlement-becomes-speculative-financial-asset http://www.ipsnews.net/2017/04/dispute-settlement-becomes-speculative-financial-asset/#comments Wed, 19 Apr 2017 14:46:24 +0000 Jomo Kwame Sundaram http://www.ipsnews.net/?p=150047 Jomo Kwame Sundaram was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007.]]> Investor-state dispute settlement (ISDS) will thus strengthen perverse incentives for foreign investors at the expense of local businesses and the public interest. Credit: IPS

Investor-state dispute settlement (ISDS) will thus strengthen perverse incentives for foreign investors at the expense of local businesses and the public interest. Credit: IPS

By Jomo Kwame Sundaram
KUALA LAMPUR, Apr 19 2017 (IPS)

Investor-state dispute settlement (ISDS) provisions in bilateral investment treaties (BITs) and free trade agreements (FTAs) have effectively created a powerful and privileged system of protections for foreign investors that undermines national law and institutions.

ISDS allows foreign corporations to sue host governments for supposedly causing them losses due to policy or regulatory changes that reduce the expected profitability of their investments. Very significantly, ISDS provisions have been and can be invoked, even when rules are non-discriminatory, or profits come from causing public harm. ISDS will thus strengthen perverse incentives for foreign investors at the expense of local businesses and the public interest.

New opportunity for speculation
In recent years, ISDS provisions of investment treaties, free trade and other agreements have increasingly provided an investment opportunity to make money by speculating on lawsuits, winning huge awards and forcing foreign governments, and taxpayers, to pay. Financial speculators have increasingly purchased corporations deemed capable of profitably bringing winnable ISDS claims, sometimes using ‘shell companies’.

Some hedge funds and private equity firms even finance ISDS cases as third parties, with ISDS itself the raison d’etre for such investments. Such ‘third-party funding’ of ISDS claims has been expanding quickly as financing such claims has proven to be very lucrative.

Third-party financing reduces litigation costs to the corporations themselves, making it easier, and thus encouraging them to sue. Foreign corporations typically do not have to declare receiving third-party funding for an ISDS case. Not surprisingly then, the ISDS claims-financing industry is booming as different types of investors have been attracted by and drawn into financing lawsuits, treating ISDS claims as speculative assets.

The International Council for Commercial Arbitration estimates that at least three fifths of those considering ISDS claims have inquired about possible third-party financing before pursuing them. Financing firms provide clients with litigation packages from the outset, advising on what treaties to exploit and which law firms to hire, even recommending arbitrators.

While bondholders do not actually develop productive capacities or sell services in a host country, they too can resort to ISDS arbitration to maximize returns to their debt purchases. Thus, bond-holders who have lost value can use the ISDS back door to sue countries for compensation, thus encouraging a new speculative investment option for ‘vultures’. Hence, ISDS allows investors with little connection to the ‘aggrieved’ initial investment to benefit financially as well.

Ripe for the picking
ISDS advocates claim that case outcomes remain uncertain, with foreign corporations only winning about a quarter of the cases they initiate. But this proportion does not include settlements agreed to before arbitration proceedings are concluded when the foreign corporations secure huge gains. ISDS arbitration is very attractive, even tempting to foreign investors who would otherwise not pursue claims in national courts against host governments.

Recent ISDS arbitrations have seen much greater delegation of authority to arbitrators in interpreting and applying agreements, without any option to appeal or otherwise challenge the arbitrators’ decisions. There is no way to ensure that arbitration tribunals will interpret and apply treaty provisions in ways consistent with governments’ understandings of what treaty obligations imply.

Those investing in ISDS cases recognize that the most vulnerable governments for investors to sue are typically those already in some trouble. For example, when a country resorts to emergency economic measures to protect its citizens, investors can easily claim that these undermine earlier understandings of international agreements. Ensuing lawsuits typically hurt the country’s credit rating, raising capital costs and undermining its ability to attract investment.

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Economic Recovery Crucial to Sustainable Developmenthttp://www.ipsnews.net/2017/04/economic-recovery-crucial-to-sustainable-development/?utm_source=rss&utm_medium=rss&utm_campaign=economic-recovery-crucial-to-sustainable-development http://www.ipsnews.net/2017/04/economic-recovery-crucial-to-sustainable-development/#comments Tue, 11 Apr 2017 14:08:49 +0000 Anis Chowdhury and Jomo Kwame Sundaram http://www.ipsnews.net/?p=149903 Anis Chowdhury, a former professor of economics at the University of Western Sydney, held senior United Nations positions during 2008-2015 in New York and Bangkok. Jomo Kwame Sundaram, a former economics professor and United Nations Assistant Secretary-General for Economic Development, received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007. ]]> The World Economic Situation and Prospects (WESP) was the only such report to identify risks to the global economy before the 2008-2009 global financial crisis, while both the International Monetary Fund (IMF) and the Organization for Economic Cooperation and Development (OECD) largely ignored them. Credit: IPS

The World Economic Situation and Prospects (WESP) was the only such report to identify risks to the global economy before the 2008-2009 global financial crisis, while both the International Monetary Fund (IMF) and the Organization for Economic Cooperation and Development (OECD) largely ignored them. Credit: IPS

By Anis Chowdhury and Jomo Kwame Sundaram
SYDNEY and KUALA LUMPUR, Apr 11 2017 (IPS)

More than eight years after the global financial crisis exploded in late 2008, economic growth remains generally tepid, while ostensible recovery measures appear to have exacerbated income and other inequalities. Yet, despite the G-20 group of the world’s largest economies raising the level, frequency and profile of its meetings, effective multilateral cooperation and coordination remains a distant dream.

Little reason to cheer
The United Nations’ recent World Economic Situation and Prospects (WESP) 2017 offers little cause for comfort:
• the world economy has not yet emerged from the protracted slow growth following the 2008 financial crisis;
• significant uncertainties and risks weigh heavily on its projected modest global recovery for 2017-2018;
• despite modest economic growth, global carbon emissions have not declined in the last two years;
• more alarmingly, new investment in renewable energy dropped sharply in the first half of 2016, as progress in emissions mitigation in recent years could easily be reversed;
• growth in the least developed countries (LDCs) will remain well below the sustainable development goals (SDGs) target in the near term; and
• below-target growth and tax revenue threaten critical public expenditure on healthcare, education, social protection, and climate change adaptation.

Credibility
Unfortunately, the WESP does not attract as much media attention or fanfare as other similar global reports, such as the International Monetary Fund’s (IMF) World Economic Outlook or the OECD’s Global Economic Outlook. Nevertheless, WESP was the only such report to identify risks to the global economy before the 2008-2009 global financial crisis, while both the IMF and OECD largely ignored them.

Even after US sub-prime housing debt problems became apparent and Lehman Brothers had collapsed, both remained optimistic, predicting a soft-landing in the US at worst, which they suggested would be off-set by robust growth in Europe. Both supported the turn to ‘fiscal consolidation’ as soon as ostensible ‘green shoots of recovery’ were spotted in 2019. Despite greater consideration of ostensibly Keynesian policy options since, seriously Keynesian macroeconomic analysis remains largely off-limits.

Global recovery?
WESP 2017 identifies policy paralysis and lack of policy coordination as among the main factors holding back global economic recovery. Over-reliance on unconventional monetary policy and fiscal consolidation in major economies, especially in Europe, are contributing not only to policy uncertainty, but also to growing inequality.

Protracted weak global demand – due to fiscal contraction, high household debt and growing inequality – has reduced incentives for firms to invest. Political and policy uncertainties, due to events such as ‘Brexit’, have also discouraged private investment. Thus, investment has slowed significantly in major developed and emerging economies. The extended period of weak investment is driving the slowdown in productivity growth.

Meanwhile, international trade expanded by just 1.2 per cent in 2016, the third-lowest rate in the past three decades. Slow world trade growth is both contributing to and symptomatic of the global economic slowdown.

What needs to be done?
Thus, WESP 2017 calls for a more balanced policy mix – moving beyond excessive reliance on monetary policy – to restore a healthy growth trajectory over the medium-term for the global economy as well as to tackle some social and environmental dimensions of sustainable development.

Government support for public goods, such as combating climate change, remains crucial, as private investors tend to evaluate risk and return over short-term horizons and under-invest in public priorities. Investment in research and development, education and infrastructure would promote sustainable development as well as social and environmental progress, while supporting productivity growth.

WESP 2017 also calls for greater international coordination to ensure complementarities among trade, investment, and other public policies, and to better align the multilateral trading system with the 2030 Agenda for Sustainable Development to ensure inclusive growth and decent work for all.

Global Green New Deal

Any recession or economic crisis also offers the opportunity to weed-out lagging activities or obsolete practices, and to restructure the economy to put it on a more sustainable path. Thus, to tackle the global financial crisis, in early 2009, the UN proposed a Global Green New Deal (GGND) comprising of public work programmes and social protection, including in developing countries. This bold proposal remains relevant as the global economy struggles to recover, and achievement of the SDGs is threatened.

Most critically, public works programmes should be launched, not only in developed countries, which can resort to deficit financing, but also in developing countries, where resources are more limited and policies are generally more hostage to the global financial system. Thus, GGND can not only accelerate economic recovery and job creation, but also address sustainable development challenges more generally. To be more effective, GGND should be part of a broader international counter-cyclical effort comprising three main elements:
1. Financial support for developing countries, provided through the multilateral system, to prevent their economic slowdown.
2. National government-led investment packages in developed and developing countries to revive and ‘green’ national economies.
3. International policy coordination to ensure that developed countries’ investment packages not only create jobs in developed countries, but also have strong developmental impacts in developing countries. These should involve collaborative initiatives among governments of developed and developing countries.

The window of opportunity to restructure the global economy towards a more sustainable path has been closing as governments procrastinate, adopt self-defeating fiscal consolidation policies, and give up economic management responsibility to the monetary authorities. ‘Quantitative easing’ has not only failed to ensure a robust recovery, but has also exacerbated the inequalities and disparities breeding ethno-chauvinist populism. Bold, internationally well-coordinated actions are needed now more than ever.

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Feast and Famine in Africa’s Dubaihttp://www.ipsnews.net/2017/04/djibouti-looks-to-the-stars-but-risks-forgetting-those-at-its-feet/?utm_source=rss&utm_medium=rss&utm_campaign=djibouti-looks-to-the-stars-but-risks-forgetting-those-at-its-feet http://www.ipsnews.net/2017/04/djibouti-looks-to-the-stars-but-risks-forgetting-those-at-its-feet/#comments Wed, 05 Apr 2017 00:02:17 +0000 James Jeffrey http://www.ipsnews.net/?p=149809 Djibouti’s strategic and commercial relevance at the junction of Africa, the Middle East and Indian Ocean is further bolstered by its increasing network of ports. Credit: James Jeffrey/IPS

Djibouti’s strategic and commercial relevance at the junction of Africa, the Middle East and Indian Ocean is further bolstered by its increasing network of ports. Credit: James Jeffrey/IPS

By James Jeffrey
DJIBOUTI CITY, Apr 5 2017 (IPS)

As balmy night settles over Djibouti City, the arc lights come on at its growing network of ports as ships are offloaded 24 hours a day and trucks laden with cargo depart westwards into the Horn of Africa interior.

Not that long ago Djibouti was known for little more than French legionnaires, atrocious heat and its old railway line to Addis Ababa in Ethiopia. Nowadays, however, this tiny republic of only about 900,000 people on the Horn of Africa coast has big plans, including turning its capital into the Dubai of Africa.Befitting a crossroads nation, a heady melting pot culture exists: cafés brewing coffee in the traditional Ethiopian style, Yemeni restaurants serving the specialty poisson Yemenite, and haggling at open-air markets in rapid-fire Somali.

Since gaining independence from France in 1977, Djibouti has steadily carved out a regional role through its strategic and commercial relevance at the junction of Africa and the Middle East, and at the confluence of the Red Sea and the Gulf of Aden, overlooking a passage of water used by 30 percent of the world’s shipping transiting from and to the Suez Canal.

“It’s a weird place, really,” says an Addis Ababa-based foreign diplomat. “Djibouti’s also important strategically. I don’t know why more isn’t reported about it.”

Recently-acquired Chinese investment totaling more than 12 billion dollars is funding the building of six new ports, two new airports, a railway, and what is being touted as the biggest and most dynamic free trade zone in Africa, potentially giving the capital, Djibouti City, an edge over its rivals.

“About 2 million African customers travel to Dubai each year,” says Dawit Gebre-ab, with the Djibouti Ports and Free Zones Authority overseeing the city’s commercial infrastructure development. “We know what is on their shopping lists, and they could be coming here instead.”

Helping secure such ambitions is the fact that Djibouti is viewed as offering some of the most prime military real-estate in the world, both to counter piracy threatening that key shipping lane—since peaking in 2011, when 151 vessels were attacked and 25 hijacked, piracy has steeply declined—and to shore up regional stability.

Another foreign diplomat referred to Djibouti as “an oasis in a bad neighbourhood”.

In 2014, the US military agreed a 10-year extension to its presence—with an option to extend for another 10 years—centered on Camp Lemonnier, its African headquarters.

US president Barack Obama described the camp as “extraordinarily important not only to our work throughout the Horn of Africa but throughout the region.”

A similar perspective happens to be held by China, also. In addition to its Djibouti investments, having invested huge amounts in the rest of East Africa—especially in neighboring Ethiopia, one of the world’s fastest growing economies, and 90 percent of whose imports come through Djibouti—it wants to secure those interests and others throughout sub-Saharan Africa.

On a beach in Tadjoura locals play a traditional Afar game—Djibouti’s population consists mainly of ethnic Somali and Afar—on the sand. Credit: James Jeffrey/IPS

On a beach in Tadjoura locals play a traditional Afar game—Djibouti’s population consists mainly of ethnic Somali and Afar—on the sand. Credit: James Jeffrey/IPS

Furthermore, ever thirsty for crude oil, China wants to shield its heavy dependence on imports from the Middle East that south of Djibouti pass from the Gulf of Aden into the Indian Ocean and then on to the South China Sea.

In 2016 China finalized plans for a new base in Obock, a small port a couple of hours by ferry from Djibouti City northward across the Gulf of Tadjoura. About 10,000 Chinese personal will occupy the base once complete.

Foreign military already stationed in Djibouti—including from France, Germany, Netherlands, Spain and Japan—number around 25,000, according to some estimates.

But behind all the construction cranes, flashy hotels and military camps, there still exists a very different side to Djibouti.

Every morning in the small town of Tadjoura, about 40km west of Obock along the coastline, local Djiboutians queue to collect their daily quota of baguettes—a scene repeated across the country.

Djibouti’s former existence as colonial French Somaliland has left an indelible Gallic stamp. Along with Somali, Afar and Arabic, French remains one of the main languages used.

Locals in Tadjoura, a small town across the Gulf of Tadjoura from Djibouti city, buying their daily baguettes, a legacy of French colonial rule. Credit: James Jeffrey/IPS

Locals in Tadjoura, a small town across the Gulf of Tadjoura from Djibouti city, buying their daily baguettes, a legacy of French colonial rule. Credit: James Jeffrey/IPS

A constant stream of Bonsoirs greet the visitor during an evening wander around Djibouti City’s so-called European quarter and its focal point: Place du 27 Juin 1977, a large square of whitewashed buildings and Moorish arcades named for the date of independence.

South of the quarter’s French-colonial-inspired architecture and orderly avenues and boulevards, lies the dustier and more ramshackle African quarter.

Here, befitting a crossroads nation, a heady melting pot culture exists: cafés brewing coffee in the traditional Ethiopian style, Yemeni restaurants serving the specialty poisson Yemenite, and haggling at open-air markets in rapid-fire Somali all adds to the surprising melting pot within this small capital city.

But whether that lively cultural mix can withstand the brash new modernizing development is a concern for some locals, proud of the country’s past and heterogeneous mix of traditions.

“My fear is not about cultural change, because we need that as this is an ultra-conservative society,” says an elegant Djiboutian professional in her early thirties, her hair covered in the Muslim style, and a cigarette clasped in her slender fingers as the sun dips behind the original old port in the distance.

“It is more about the effects on our customs, such as traditional clothing, food and decorations that symbolize our identity.”

While Djibouti’s maritime commerce and government’s ambitions continue apace, for the average local Djiboutian everyday life remains unaffected by dreams of an African Dubai. Here a lady makes fresh juices on the street to slake the thirsts of sun-blasted pedestrians in Djibouti city’s African quarter. Credit: James Jeffrey/IPS

While Djibouti’s maritime commerce and government’s ambitions continue apace, for the average local Djiboutian everyday life remains unaffected by dreams of an African Dubai. Here a lady makes fresh juices on the street to slake the thirsts of sun-blasted pedestrians in Djibouti city’s African quarter. Credit: James Jeffrey/IPS

Others are more outspoken in their criticism of Djibouti’s current strategic and economic upswing—a healthy 6 percent a year, and likely to surpass 7 percent amid the construction boom.

Some locals talk of a country run by a business-savvy dictatorship that has reaped profits from its superpower tenants while not doing enough to relieve widespread poverty; having signed an initial 10-year lease for the base, China will pay 20 million dollars per year in rent. The US pays 60 million dollars a year to lease Camp Lemonnier.

“The government only cares about how to collect the country’s wealth,” says a Djiboutian journalist previously arrested for reporting domestic issues. “They do not care about freedom of expression, human rights, justice and equal opportunities of people.”

Dreams of a Dubai-type future don’t appear to have much relevance for most local Djiboutians, 42 percent of whom live in extreme poverty, while up to 60 percent of the labor force are unemployed, according to current estimates.

“Now I can’t stay here,” says Mohammed, a marine engineer, who left Iraq after the 1991 war for Djibouti where he married a local woman. “My three children won’t be able to get good enough jobs. I’m hoping my brother in the US will be able to get us a green card.”

A 2014 US State Department human-rights report on the country cited the government’s restrictions on free speech and assembly; its use of excessive force, including torture; as well as the harassment and detention of government critics.

Even the hugely popular use of khat by locals is manipulated by government officials as a means of repression, critics claim. It’s alleged government affiliates facilitate its sale in the country as a money maker and means of keeping a potentially frustrated populace calm, while handing it when campaign season rolls around to win favor.

Meanwhile, ships endlessly glide to and from the ports, where cranes offload containers to waiting trucks late into the night under the arc lights.

In early 2017, the new Chinese-built 4-billion-dollar railway officially opened linking Djibouti to the Ethiopian interior—the original railway has lain abandoned for years—and which could eventually connect to other Chinese-built railways emerging across the African continent.

Djibouti’s location has always been its most precious resource—devoid of a single river or the likes of extractable minerals, it produces almost nothing.

Nevertheless, for nearly 150 years it has attracted armies, mercenaries, smugglers, gunrunners and traders: anyone and everyone concerned with the movement or control of merchandise. And that trend only seems set to increase.

“Ethiopia has a population 100 times larger than Djibouti’s but it only imports and exports six times as much,” says Aboubaker Omar, chairman and CEO of Djibouti Ports and Free Zones Authority. “Imagine the day that demand matches Ethiopia’s population size.”

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Positive Signs as Asia-pacific Moves Towards Global Development Goalshttp://www.ipsnews.net/2017/03/positive-signs-as-asia-pacific-moves-towards-global-development-goals/?utm_source=rss&utm_medium=rss&utm_campaign=positive-signs-as-asia-pacific-moves-towards-global-development-goals http://www.ipsnews.net/2017/03/positive-signs-as-asia-pacific-moves-towards-global-development-goals/#comments Fri, 31 Mar 2017 16:13:01 +0000 Shamshad Akhtar http://www.ipsnews.net/?p=149735 Dr. Shamshad Akhtar is an Under-Secretary-General of the United Nations (UN) and the Executive Secretary of the Economic and Social Commission for Asia and the Pacific (ESCAP). ]]>

Dr. Shamshad Akhtar is an Under-Secretary-General of the United Nations (UN) and the Executive Secretary of the Economic and Social Commission for Asia and the Pacific (ESCAP).

By Shamshad Akhtar
BANGKOK, Thailand, Mar 31 2017 (IPS)

With just over a year since the adoption of a historic blueprint to end poverty and protect the planet, positive signs have already started to emerge among countries in the Asia-Pacific region as they push ahead with the implementation of the 17 Sustainable Development Goals (SDGs).

Shamshad Akhtar

Shamshad Akhtar

It is encouraging to note that most countries in the region have made serious attempts to domesticate the landmark global action-plan by developing national sustainable development strategies– a first and crucial step if we are to fully realize the ambitious targets set out in the landmark agreement.

Steady economic growth over the past year has seen a decline in poverty and an improvement in the quality of life. A bright spot worth highlighting is the progress on gender equality. Gender parity has been achieved in primary education, and maternal mortality rates have been brought down across the region with the exception of certain pockets. For example, maternal mortality dropped by 64 per cent in South Asia from 1990 to 2015 and by 57 per cent in the Pacific over the same period.

Notwithstanding these incremental gains, a number of outstanding challenges remain which if not effectively addressed may scuttle our collective efforts.

A joint study undertaken by the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), the Asian Development Bank (ADB), and the UN Development Programme (UNDP) reveals that some 400 million people in Asia and the Pacific continue to live in extreme income poverty and more than one in four people experience poverty in multiple dimensions that impact their health, education, and standard of living. South Asia is the worst affected with 15 per cent of the population living in extreme poverty, and 86 per cent residing in rural areas where income diversification opportunities are limited and challenges of poor natural resource management persist. Of equal concern is the rise in income inequality within countries. The challenge is to ensure that prosperity is felt by all, and not just a fortunate few.

With 12 per cent of the population, or 490 million people, still undernourished in our region, ending hunger and poverty will heavily depend on introducing sustainable food production systems and more resilient agricultural practices. Despite reductions in infant mortality rates, children in low income countries are still nearly nine times more likely to die before reaching the age of one than those in high income countries.

Enhancing the health of citizens will also require expansion of coverage of health services in many countries. This means increasing government spending on health, as per capita government spending is as low as $4 per person in low income economies of our region.

Despite progress in gender equality and women’s empowerment made in Asia and the Pacific on several fronts, significant gaps still remain. Women continue to be paid less and are more likely to find themselves in vulnerable employment with low wages, no formal contracts or labour rights and minimal social protection. In 2015, the gender pay gap in the region as a whole reached an astounding 20 per cent.

As a whole, the region has also experienced declining biodiversity levels – a major source of distress for Pacific island economies – where the value of fish caught in the territorial waters of some small island developing States is worth up to three times their GDP. Future risks to ocean resources are further underscored by the fact that 40 per cent of our oceans are heavily affected by unsustainable practices.

Finally, the Asia-Pacific region faces a high infrastructure deficit. At the same time, demand pressures will grow as the urban population will swell by 50 million each year, aggravating congestion, air pollution and waste management.

Needless to say, these challenges must be urgently addressed. Strong continued leadership, knowledge sharing and UN system collaboration, are pivotal tools that will move us all closer to realizing the aspirations set out by the 2030 Agenda. The dynamism and development track record of our region lends us hope that we can achieve balanced economic, social and environmental development by pursuing the right blend of rebalancing to revive domestic and regional demand.

ESCAP remains committed to strengthening the capacity of countries, so that they can embrace integrated strategies to confront the multidimensional facets of poverty, and promote the opportunity for prosperity for all.

This week ESCAP held the Asia Pacific Forum on Sustainable Development (APFSD 2017) in Bangkok from 28-31 March, which brought together senior representatives from across the region to define a road map that will support member States’ implementation of the 2030 Agenda over the next 15 years.

We are all working to come up with concrete measures that will enhance the region’s achievement of the SDGs to deal with multidimensional poverty, which when considered raises the level of the vulnerable population in Asia and the Pacific region to 900 million. Forums like these are key to marshalling the international support required to achieve this ambitious agenda. Progressing the SDGs in Asia and the Pacific is central to achieving the global 2030 Agenda. We have the opportunity for action now.

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Can the SDGs be financed?http://www.ipsnews.net/2017/03/can-the-sdgs-be-financed/?utm_source=rss&utm_medium=rss&utm_campaign=can-the-sdgs-be-financed http://www.ipsnews.net/2017/03/can-the-sdgs-be-financed/#comments Wed, 29 Mar 2017 14:26:28 +0000 Anis Chowdhury and Jomo Kwame Sundaram http://www.ipsnews.net/?p=149701 Anis Chowdhury, a former professor of economics at the University of Western Sydney, held senior United Nations positions during 2008-2015 in New York and Bangkok. Jomo Kwame Sundaram, a former economics professor and United Nations Assistant Secretary-General for Economic Development, received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007. ]]> The United Nations Conference on Trade and Development's 2014 World Investment Report estimated that developing countries would need US$2.5 trillion annually until 2030 to achieve their SDGs. Credit: IPS

The United Nations Conference on Trade and Development's 2014 World Investment Report estimated that developing countries would need US$2.5 trillion annually until 2030 to achieve their SDGs. Credit: IPS

By Anis Chowdhury and Jomo Kwame Sundaram
SYDNEY and KUALA LUMPUR, Mar 29 2017 (IPS)

Investment in the least developed countries (LDCs) will need to rise by at least 11 per cent annually through 2030, a little more than the 8.9 per cent between 2010 and 2015, in order for them to achieve the Sustainable Development Goals (SDGs). The United Nations’ World Economic Situation and Prospects (WESP) 2017 focuses on the difficulties in securing sufficient financing for the SDGs given the global financial system and current economic environment.

Big financing gaps
The United Nations Conference on Trade and Development (UNCTAD)’s 2014 World Investment Report estimated that developing countries would need US$2.5 trillion annually until 2030 to achieve their SDGs. According to UNCTAD’s 2016 Development and Globalization: Facts and Figures, to close the large infrastructure deficit in developing countries, spending must reach US$1.8–2.3 trillion per year by 2020, compared with the current US$0.8–0.9 trillion.

These UN estimated financing gaps have been corroborated by others, such as the World Bank, OECD and World Economic Forum (WEF). For example, the estimated annual investment needed to attain the SDGs, according to the WEF, is US$3.9 trillion against the current average of US$1.4 trillion, a shortfall of US$2.5 trillion yearly.

Avoidable financing gaps
Unfortunately, the financing gap is not due to global shortages, but rather, to problems of allocation due to global economic governance and geopolitics, influencing investors, donor and developing countries. The current global environment – characterized by weak economic growth, slow trade expansion, soft commodity prices and volatile international capital flows – has made things worse.

If rich countries had met the 0.7% aid target from 2002, developing countries would now been at least US$2 trillion better off. But overall aid has never ever reached even half the target since the 1960s and currently stands at 0.30%. The aid gap for 2014 alone was more than US$192 million. Furthermore, refugee spending is reducing country programmable aid.

Meanwhile, developing countries are losing a great deal to tax havens, and transfer pricing, or trade mis-invoicing, by transnational corporations (TNCs). As the Panama papers revealed, tax-havens not only enable TNCs to evade taxes, but also launder ‘dirty money’.

Illicit financial flows (IFFs) from developing and emerging economies between 2004 and 2013 were estimated at US$7.8 trillion, greater than combined aid and FDI flows to poor countries. Between 2010 and June 2012, OECD countries froze US$1.4 billion of corruption-related assets, but only returned US$147 million to the countries of origin! Thus, preventing or even reducing IFFs and returning the confiscated resources can help close the funding gap.

Generating revenue
Imposition of a small tax on short-term capital flows – known as the ‘Tobin tax’ – can not only reduce their volatility, but also the risk of financial crises. This can reduce the need for holding foreign reserves for protection, and enhance the development impact of capital flows. A global Tobin tax could generate between US$147 billion and US$1.6 trillion annually depending on the rate and coverage. Similarly, a global financial transactions tax (FTT) system could generate very significant resources, at least as much as aid, if not more. .

Institutional investors hold trillions of dollars in liquid assets, instead of investing in long-term projects. For example, pension funds hold around US$34 trillion in assets, with the largest ones holding 76 per cent of their portfolios in liquid assets. Meanwhile, sovereign wealth funds hold most of their funds in liquid financial assets in developed economies, with less than 5 per cent in direct investments. Rising political risks have made raising long-term investments particularly challenging.

The only bright spot is improvements in developing countries’ domestic resource mobilization. Developing countries have increased tax revenue collection over the last 15 years as tax incidence has become more regressive. The largest increases in revenues were in LDCs, economies in transition and countries in Latin America and the Caribbean. But their domestic resources still remain far short of development finance needs.

Debt crisis threat
As most types of capital inflows decline, more developing countries are borrowing externally, resulting in a rising foreign debt-GDP ratio, reversing the trend in the last decade. Although modest, the recently rising external debt-GDP ratio is more pronounced in low-income countries, increasing from 31 to 35 per cent of GDP during 2014-2015.

Twenty low-income countries are at high risk of debt distress, compared to 13 in April 2015; three of them are considered to actually be in debt distress. The sharp fall in commodity prices, rising US interest rates and protracted slow growth are likely to worsen the situation, particularly for LDCs and small island developing states.

Greater vulnerability to climate change and natural disasters will further exacerbate their sovereign debt problems. Developing countries often get stuck in debt crises because there is no internationally agreed framework for timely, orderly and fair sovereign debt work-outs.

UN response
It has also supported developing countries’ call for an internationally agreed legal framework for timely, orderly and fair sovereign debt work-outs. It endorses developing countries’ call to strengthen international efforts to combat illicit financial flows, and continues to remind developed countries to meet their aid commitment.

The UN has long argued for the reform of global economic governance in line with changing global economic circumstances and to better serve developing countries’ interests. It has also called for a truly international reserve currency (e.g., Special Drawing Rights, or SDRs) not linked to any country’s currency, and for the fair allocation of newly issued SDRs for international development finance.

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The Challenge Ahead: Harnessing Gene Editing to Sustainable Agriculturehttp://www.ipsnews.net/2017/03/the-challenge-ahead-harnessing-gene-editing-to-sustainable-agriculture/?utm_source=rss&utm_medium=rss&utm_campaign=the-challenge-ahead-harnessing-gene-editing-to-sustainable-agriculture http://www.ipsnews.net/2017/03/the-challenge-ahead-harnessing-gene-editing-to-sustainable-agriculture/#comments Wed, 29 Mar 2017 12:51:15 +0000 Nteranya Sanginga http://www.ipsnews.net/?p=149694 Nteranya Sanginga is the Director General of the International Institute of Tropical Agriculture ]]>

Nteranya Sanginga is the Director General of the International Institute of Tropical Agriculture

By Nteranya Sanginga
IBADAN, Nigeria, Mar 29 2017 (IPS)

The role of genetic engineering in agriculture and food has generated enormous interest and controversies, with large-scale embrace by some nations and wholesale bans by others.

Nteranya Sanginga, Director General of the International Institute of Tropical Agriculture (IITA). Courtesy of IITA

Nteranya Sanginga, Director General of the International Institute of Tropical Agriculture (IITA). Courtesy of IITA

Many studies have been done and much research remains to be done on the impact genetically modified organisms (GMO) can have on broader food systems.

Fast-moving developments, however, suggest that lines drawn in the sand both for or against the broader use of GMOs risk becoming a distraction, particularly in Africa.

The major novelty is the emergence of CRISPR, which stands for “Clustered regularly interspaced short palindromic repeats” and is popularly called “genome editing”, which amounts to a much faster way to alter genomes. The method sharply lowers costs and amounts to a revolution for seeds.

The second development springs from the first: Genetic engineering can now be deployed on a far vaster array of organisms, and with more bespoke goals such as drought resistance or nutritional enhancement. Many GMOs in the market are for insect and/or herbicide resistance, as has been the case for many biotechnology products of the past.

While formulating national policies on GMOs is the responsibility of governments, informed debate entails that we recognize these developments change the game.

The International Institute of Tropical Agriculture,– and the Food and Agriculture Organization considers biotechnologies as potential tools in the toolbox, meaning they may be appropriate. Our primary interest is in boosting food production, food security, nutrition, climate resilience, and rural employment.

At any rate, vast monocultures of cash crops such as maize, soy and cotton – the main GMO varieties in the world today – are not our utmost priority. But CRISPR and related new approaches open the door to many more applications.

To cite a few examples, all very recent: Researchers have developed a transgenic maize variety that keeps aflatoxin out of kernels, thus tackling one of the world’s single-largest food problems and source of farm-based agriculture loss.

Elsewhere, scientists in Ghana have developed a GM cowpea that survives pests – or needs less pesticide – is advanced and might be available at a commercial scale as early as next year. Currently, the Maruca pod-borer destroys a hefty share – often more than half – of cowpeas grown in West Africa.

Or take cassava, which is one of IITA’s favorite crops and is the second-most important source of calories consumed in sub-Saharan Africa. A recent exploratory review found 14 potential genetic pathways that could improve the crop’s yield which has proven stubbornly stable for decades. One of them involved optimizing the plant’s photosynthesis in the same way that has worked well with tobacco and other plants. The goal is to adjust the plant’s canopy so that more of its energy goes into actual storage roots rather than stems. Another potential path is to tweak the cassava so that it can thrive better in soils with lower phosphorus, to which it is notably more sensitive than other major staple crops.

Working with Nigeria’s National Root Crop Research Institute, IITA is conducting research on a disease-resistant cassava with higher vitamin A content. Nigeria is also running confined field tests for GMO sorghum fortified to produce more iron, zinc, protein and vitamin A and to demonstrate greater nitrogen efficiency while growing. These and other hypothetical developments – think salt-tolerant rice, or zinc-enhanced cassava, or zinc and iron-fortified pearl millet – may warrant pursuit.

Similarly several confined field trials of GMOs are occurring in Malawi, Mozambique, Kenya, Ethiopia, and Uganda

African governments are taking cautious steps. South Africa grows GMO corn and soybeans, while non-food crops are legally cultivated in Sudan.

Last month, Kenya’s parliament authorized local crop researchers to start growing GMO cotton, although instructed not to let related by-products enter the human and animal food chain. Lawmakers also welcomed experimental genetic trials aimed at solving endemic national problems affecting sweet potato and cassava crops, and suggested they’d look at legalization on a case-by-case basis. Ghana recently authorized GMO guidelines – a bill allowing them is not yet law – and other countries including Nigeria and Burkina Faso have moved even further.

Opposition in the past has come for a host of reasons, including fears that GMO crops required expensive inputs provided by multinationals and posed environmental risks as they were often designed to be resistant to herbicides. Many of the new proposals come without such baggage, suggesting the policy debate will change.

Norway has adopted an interesting regulatory approach to genetic engineering, which requires safety reviews, farmer consultations, and a litmus test of whether alternatives contribute better to sustainable agricultural practices. That’s a far cry from the usually binary debate – stoked by stories about creating designer human babies – about GMOs.

The subject matter is complex and the science even more so. It appears we are on the brink of a deluge of new discoveries – engineering beneficial soil microbes may soon be a booming research arena – many of which may not need the kind of capital-intensive agricultural operations where GMOs were first developed and can instead directly address the needs of smallholders in developing countries and the specific food and nutrition security and climate change challenges they face.

Genome editing can now economically be applied to the crop cultivars that farmers in a given locale prefer, consisting of highly targeted interventions that can address specific challenges, and don’t take years of breeding to consolidate.

It’s a new world. Let’s have a new debate, not the old one.

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Investing in Zimbabwe’s Smallholder Farmershttp://www.ipsnews.net/2017/03/investing-in-zimbabwes-smallholder-farmers/?utm_source=rss&utm_medium=rss&utm_campaign=investing-in-zimbabwes-smallholder-farmers http://www.ipsnews.net/2017/03/investing-in-zimbabwes-smallholder-farmers/#comments Wed, 22 Mar 2017 12:24:21 +0000 Sally Nyakanyanga http://www.ipsnews.net/?p=149534 Women do demonstrations during a Food and Agriculture Organization (FAO) Farmer Field Schools training in Zimbabwe. Credit: Sally Nyakanyanga/IPS

Women do demonstrations during a Food and Agriculture Organization (FAO) Farmer Field Schools training in Zimbabwe. Credit: Sally Nyakanyanga/IPS

By Sally Nyakanyanga
HARARE, Mar 22 2017 (IPS)

To take his mangoes to Shurugwi, 230 kms south of Harare, requires Edward Madzokere to hire a cart and wake up at dawn. The fruit farmer sells his produce at the nearest “growth point” at Tongogara (the term for areas targeted for development) where the prices are not stable.

“As a fruit grower, I have been forced to sell the fruits for very little rather than let them rot,” he told IPS.“LFSP is improving farmers’ ability to buy inputs and sell their products by strengthening farmer groups, improving farmers’ access to financial services, connecting farmers to national and regional markets.” -- FAO's Ali Said Yesuf

The poor performance of the economy has not made life easier for Madzokere, who struggles to provide for his family’s basic needs.

“I wish to have knowledge to make mango fruit jam or to be able to dry fruits for selling,” he said. Madzokere believes with better information and the creation of links to outside markets for his produce, he can go a long way in this sector.

The U.N. Food and Agriculture Organisation (FAO) has highlighted the concentration of smallholder farmers in subsistence farming rather than farming as a business, which means they have low demand for inputs, resulting in few incentives for input suppliers to reach the farmers.

For Elias Matongo, an agribusiness dealer in Shurugwi, it’s the same story. Matongo has been struggling to convince financial institutions to give him enough capital to expand his business. So far he has only managed to raise 2,500 dollars, which isn’t enough.

“Agricultural inputs are very expensive, I need to get a loan for 5,000 dollars and more to be able to make farming inputs available and closer to farmers,” Matongo told IPS.

FAO notes that 68 percent of Zimbabweans live in rural areas, where the economy is dominated by agriculture. In 2012, 76 percent of rural households were found to be poor. The agency further states that smallholder farmers often live in remote locations where infrastructure is poor and where input suppliers and buyers do not travel.

Ali Said Yesuf, FAO’s Chief Technical Advisor, told IPS that his organization, with financial support from the United Kingdom’s Department for International Development (DFID) of 72 million dollars, has launched the Livelihood and Food Security Program (LFSP) to increase agricultural productivity, increase incomes, improve food and nutrition security, and reduce poverty in rural Zimbabwe. The project, which commenced in 2015, will ultimately be implemented in eight districts in the country.

“LFSP will actively address the specific constraints that smallholder farmers face in raising the productivity of their farms and creating markets for their farming produce,” says Yesuf.

More than 349,000 Zimbabweans are expected to be reached by 2018, selected based on poverty levels, food uncertainty and potential for market development.

“LFSP is improving farmers’ ability to buy inputs and sell their products by strengthening farmer groups, improving farmers’ access to financial services, connecting farmers to national and regional markets,” Yesuf said.

Another key player, the World Food Program (WFP), is also working with FAO to support 5,389 smallholder farmers with the production of drought tolerant small grains, in order to strengthen their resilience. Last December, 93 percent of the planned 646 hectares were planted in selected areas in the country, including extension services, as WFP and FAO provide farming inputs such as seeds and fertilizers to small-scale farmers.

Eddie Rowe, WFP Country Director, said integrated strategies for reducing and mitigating risks are essential to overcome hunger, achieve food security and enhance resilience.

“Building resilience before, during and after disasters is necessary for supporting the government of Zimbabwe to achieve food security and adequate nutrition for all people by 2030, in line with the Sustainable Development Goals,” Rowe told IPS.

FAO believes smallholder farmers play a critical role in food and nutrition security in Zimbabwe as they account for the bulk of the food that is produced in the country. Zimbabwe’s has since put in place its Country Strategic Plan (2017-2021) to enable smallholder farmers to have increased access to well-functioning markets by 2030 supporting initiatives that promote efficient and profitable marketing.

In Manicaland Province, the Extended Nutrition Impact for Positive Practice (ENIPA) has been introduced. The program is a nutrition behaviour change methodology for promoting identified good nutrition and health practices. The approach encourages the participation of men to so that they become the change agents and champions in the communities.

“Men’s participation is transformative as it transforms the household decision-making dynamics. It’s turning out that a man who understand the importance of consuming nutritious food will support his wife to purchase/grow the same,” Yesuf said.

The project is providing training in nutrition-sensitive agriculture through modules such as healthy harvest where there is selection, production, processing and preparation of diversified food types.

Supporting small holder farmers in the country is a certain path to sustainable production, with farmers like Madzokere already learning new concepts, broadening their horizons and focusing on outside markets. In this context, investing in agriculture simply makes good business sense.

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Secret Tax Deals Increased Dramatically After Luxleakshttp://www.ipsnews.net/2017/03/secret-tax-deals-increased-dramatically-after-luxleaks/?utm_source=rss&utm_medium=rss&utm_campaign=secret-tax-deals-increased-dramatically-after-luxleaks http://www.ipsnews.net/2017/03/secret-tax-deals-increased-dramatically-after-luxleaks/#comments Mon, 20 Mar 2017 15:39:43 +0000 Ida Karlsson http://www.ipsnews.net/?p=149493 European Commission Building. Credit: Ida Karlsson

European Commission Building. Credit: Ida Karlsson

By Ida Karlsson
STOCKHOLM, Mar 20 2017 (IPS)

Despite the LuxLeaks scandal, the number of secret tax deals is skyrocketing. Such deals between companies and governments across Europe increased by almost 50 percent the year after the scandal broke.

Despite the controversy, the number of these individual secret agreements drawn up between European governments and multinational corporations in the EU have soared from 545 in 2013, to 1444 by the end of 2015, according to official data from the European Commission. It is an increase of 160 percent in just two years.

“This is obviously deeply concerning and shows that reforms in Luxembourg and elsewhere are a bit of a mirage, in particular since there is still no public scrutinity of these rulings yet,” Fabio De Masi, a politician from Die Linke in Germany and a Member of the European Parliament, told IPS.

The LuxLeaks scandal erupted in 2014 and sparked a major global push against generous deals handed to multinationals, which grew even stronger with new revelations such as the Panama Papers.

The two whistleblowers who exposed the profit-shifting of some multinationals such as Apple, Ikea and Pepsi were convicted again last Wednesday by Luxembourg’s court of appeal, but with reduced sentences compared to the first verdict. Antoine Deltour, a former PWC employee was given a 6-month suspended sentence and a 1,500 euro fine and Raphaël Halet, another PWC employee, was given a 1,000 euro fine.

“It is scandalous that those who did an invaluable service to society, risking their careers, have again been found guilty while the rich and powerful rob hundreds of billions of euros from citizens,” Fabio de Masi said.

Luxembourg’s finance minister, Pierre Gramegna, has described the leak as “the worst attack” his country has ever experienced.

EU Competition Commissioner Margrethe Vestager appeared to back the whistleblowers in comments last week.

“I think it was a good thing (the leaks),” she told a news conference in Brussels last Wednesday.

“I think it is important when people tell if they find that something is not the way it should be. Then authorities, law enforces, can do their job and do that in a better way. I think that a lot of people actually have benefitted from them telling what they knew.”

Developing countries lose an estimated 1,000 billion dollars annually to corporate tax dodging according to Global Financial Integrity.

For the first time, the group of countries in Europe in favour of transparency around the true owners of businesses is larger than the group against, according to the report “Survival of the Richest” by the European Network on Debt and Development, Eurodad. But there are still more governments against measures to show what multinationals are paying in taxes in the countries they operate in than those in favour.

Eurodad, the coalition of civil society organizations campaigning for greater tax transparency, analyzed European Commission data for 18 countries.

Eurodad also warned that European governments were signing controversial tax treaties with developing countries. The treaties were undermining taxations in those countries, it said. On average these treaties lower tax rates in developing countries by 3.8 percent, according to the coalition.

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Argentina and UAE Agree to Strengthen Economic Tieshttp://www.ipsnews.net/2017/03/argentina-and-uae-agree-to-strengthen-economic-ties/?utm_source=rss&utm_medium=rss&utm_campaign=argentina-and-uae-agree-to-strengthen-economic-ties http://www.ipsnews.net/2017/03/argentina-and-uae-agree-to-strengthen-economic-ties/#comments Fri, 17 Mar 2017 23:01:25 +0000 Daniel Gutman http://www.ipsnews.net/?p=149473 Argentine Foreign Minister Susana Malcorra and her counterpart from the UAE, Sheikh Abdullah bin Zayed Al Nahyan, give a press conference after their working meeting in the foreign ministry in Buenos Aires. Credit: Daniel Gutman/IPS

Argentine Foreign Minister Susana Malcorra and her counterpart from the UAE, Sheikh Abdullah bin Zayed Al Nahyan, give a press conference after their working meeting in the foreign ministry in Buenos Aires. Credit: Daniel Gutman/IPS

By Daniel Gutman
BUENOS AIRES, Mar 17 2017 (IPS)

Argentina and the United Arab Emirates (UAE) agreed Friday Mar. 17 to explore the possibility of this South American country receiving investment from the Gulf nation, particularly tourism and health, while they pledged to strengthen bilateral relations and increase trade.

This was reported by Argentine Foreign Minister Susana Malcorra and her counterpart from the UAE, Sheikh Abdullah bin Zayed Al Nahyan, during the latter’s official visit to Buenos Aires.

The two ministers held a working meeting at the San Martin Palace, the headquarters of Argentina’s foreign ministry, then gave a brief press conference before having lunch with Argentine Vice President Gabriela Michetti.

“This week started and ended for us with the United Arab Emirates, which shows the importance that both countries put on this relationship and the shared interest in reinforcing our friendship,” Malcorra said.

She was referring to the visit to Argentina early this week by a high-level delegation from the Abu Dhabi Investment Authority (ADIA), considered the second-largest sovereign wealth fund in the world, headed by Sheikh Hamed bin Zayed al Nahyan, that came to learn about the present economic situation and business climate in the country.

The delegation was received in the Casa Rosada, the seat of the central government, by President Mauricio Macri. The members of the delegation also met with Malcorra, Michetti, the president of the Central Bank, Federico Sturzenegger, and the ministers of the treasury, finance and energy and mines.

In addition, they held meetings with business representatives from different sectors of the economy: oil, steel, agriculture, food, real estate, energy and finance, among others.

A broad UAE delegation headed by UAE Assistant Minister of Foreign Affairs and International Cooperation Mohammed Sharaf also visited Argentina this week.

Malcorra wore black at Friday’s meeting to commemorate the 25th anniversary of the Mar. 17, 1992 terrorist attack on the Israeli Embassy in Buenos Aires, which left 22 dead and dozens injured.

During the news briefing, Minister Al Nayhan expressed his solidarity referring to the incident and said he hoped nations “will work more effectively to put a stop to terrorism.”

He had a message of political support for President Macri, congratulating the government on its determination “to take the very brave steps it has been taking to ensure that Argentina becomes the country it deserves to be, generating openness, not only for tourists but also for investors and for its different partners and allies.”

Since Macri, of the centre-right Cambiemos alliance, took office in December 2015, one of his priorities has been to generate the conditions for drawing foreign investors to Argentina and improving the country’s access to global credit markets.

The measures he has taken to that end include an agreement to pay 4.65 billion dollars to holdout hedge funds, creditors that have been in conflict with Argentina since the late 2001 default declared in the midst of the severe economic crisis that led to the resignation of then president Fernando de la Rúa.

This is the second time that the UAE foreign minister has visited Buenos Aires since Macri became president. The first visit was in early February 2016, when the main aim was to meet the new authorities here.

In November 2016, an Argentine delegation headed by Vice President Michetti visited the UAE and held several meetings, with the aim of “attracting investment and generating jobs for our countries,” as the vice president stated at the time.

In the trade balance between the two countries Argentina – which mainly sells food to the Gulf nation – has a surplus of 133.6 million dollars.

“Although it is true that trade between our countries has not yet reached the levels that we would like, our presence will help it grow and will bring about a greater presence of the United Arab Emirates in terms of investment in Argentina. We have also been exploring opportunities to reach cooperation accords involving third parties, and we are optimistic,” said the Emirati foreign minister.

For her part, Malcorra referred to the sectors in which Argentina could receive investment from the UAE.

She especially mentioned “tourism, not only to draw a significant number of visitors from the Emirates, but also as an opportunity for investment in the hotel industry,” and “health, since the Emirates has become a model health centre, which draws people from the entire region; we are looking at the possibility of exchange and complementarity in this area.”

The Argentine minister also reported that a memorandum of understanding was signed regarding visas, “to facilitate the exchange between the two countries.”

During the visit, Malcorra gave Minister Al Nahyan a letter from Macri in which the president promised that Argentina would take part in the Expo 2020, the world fair to be held in Dubai between October 2020 and April 2021, which is expected to be visited by 25 million people, 70 percent of them from abroad.

The Emirati minister came to Argentina from Brazil, the other leg of his current South America tour, where he signed three agreements on Thursday Mar. 16 with his Brazilian host and counterpart, Aloysio Nunes. Al Nahyan will return from Buenos Aires to Brazil, where he will inaugurate the UAE consulate-general in São Paulo on Tuesday Mar. 21.

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From Barriers to Bridges: Transformation of the Kenya-Ethiopia Border Regionhttp://www.ipsnews.net/2017/03/from-barriers-to-bridges-transformation-of-the-kenya-ethiopia-border-region/?utm_source=rss&utm_medium=rss&utm_campaign=from-barriers-to-bridges-transformation-of-the-kenya-ethiopia-border-region http://www.ipsnews.net/2017/03/from-barriers-to-bridges-transformation-of-the-kenya-ethiopia-border-region/#comments Fri, 17 Mar 2017 14:02:24 +0000 Siddharth Chatterjee http://www.ipsnews.net/?p=149471 Siddharth Chatterjee is the United Nations Resident Coordinator to Kenya. ]]> President Kenyatta of Kenya and Prime Minister Hailemariam Desalegn lay the foundation for the Kenya-Ethiopia cross border program in the border town of Moyale on 07 Dec 2015. Photo Courtesy of PPS

President Kenyatta of Kenya and Prime Minister Hailemariam Desalegn lay the foundation for the Kenya-Ethiopia cross border program in the border town of Moyale on 07 Dec 2015. Photo Courtesy of PPS

By Siddharth Chatterjee
NAIROBI, Kenya, Mar 17 2017 (IPS)

Consider this. The communities around the Kenya-Ethiopia border in Moyale-Borona area, have long been associated with internecine violence, extreme poverty, and environmental stress. These have led to disastrous societal consequences, including displacement, criminality and violent extremism.

Siddharth Chatterjee

Siddharth Chatterjee

The 2012-2013 intercommunal clashes in Moyale town, claimed the lives of over 200 people, destroyed thousands of properties, including schools and other social amenities. The region has been viewed as largely peripheral, both economically and politically, and therefore attracted limited public and private resources.

However, an innovative, comprehensive and integrated cross-border programme initiated by the Kenyan and Ethiopian governments, in partnership with the Intergovernmental Authority on Development (IGAD) and the United Nations (UN) is changing this narrative.

During the recent visit to Kenya by the UN Secretary-General, António Guterres, President Uhuru Kenyatta specifically mentioned, the Kenya-Ethiopia cross-border programme and noted the importance of this innovative area-based development programme, which he said has the potential of being replicated elsewhere.

President Kenyatta hoped that the initiative would help transform the region. “The programme will see Moyale being turned into the Dubai of Africa,” he said.

The strong commitment of the two governments is reflected in an article the Foreign Ministers of Kenya and Ethiopia, co-authored. Kenya and Ethiopia: A cross-border initiative to advance peace and development.

President Kenyatta and UN Secretary-General meet at the State House on 08 March 2017. Photo @StateHouse

President Kenyatta and UN Secretary-General meet at the State House on 08 March 2017. Photo @StateHouse


The initiative is driven by the need to foster peace and sustainable development in the cross-border area of Marsabit County, Kenya, and the Borana/Dawa Zones, Ethiopia. It was launched in December 2015 by President Uhuru Kenyatta of Kenya and Prime Minister Hailemariam Desalegn of Ethiopia.

The European Union Ambassador to Kenya, Dr Stefano Dejak remarked, “I am seeing positive signs of change and therefore the European Union has decided to partner with the UN and IGAD, to expand the cross-border programme to include Mandera Triangle (Kenya-Ethiopia-Somalia), the Omo (Kenya-South Sudan) and Karamoja (Kenya-Uganda) clusters”.

President Uhuru Kenyatta and Ethiopian Prime Minister Hailemariam Desalegn witness as former Foreign Minister Ethiopia, Tedros Adhanom and Foreign Minister Kenya, Amb Amina Mohamed sign an MOU to create jobs, reduce poverty and foster trade in their restive borderlands, where conflict had intensified in recent years. Photo: UN Kenya

President Uhuru Kenyatta and Ethiopian Prime Minister Hailemariam Desalegn witness as former Foreign Minister Ethiopia, Tedros Adhanom and Foreign Minister Kenya, Amb Amina Mohamed sign an MOU to create jobs, reduce poverty and foster trade in their restive borderlands, where conflict had intensified in recent years. Photo: UN Kenya


Among the positive signs is a determination to establish peace as the basis for integration. Local peace committees, comprising of different ethnic groups, have been working relentlessly to maintain the peace and promoting harmonious coexistence. The elders also testified to the fact that the number of young people getting radicalised and tempted to join extremist/terror groups had declined significantly.

Devolution has also empowered local authorities and communities, and has contributed to poverty reduction and effective service delivery in Marsabit County. The Isiolo-Merille-Marsabit-Moyale road, is now complete; and it will be a transformational as it will link the region to Ethiopia, the second most populous country in Africa, and promote cross-border trade. In addition, this completes the Trans-Africa highway linking South Africa to Egypt.

The Isiolo-Moyale-Borona highway has had a massive positive impact on the region’s security, having opened up an area that was previously viewed as “marginalized”. Photo media commons

The Isiolo-Moyale-Borona highway has had a massive positive impact on the region’s security, having opened up an area that was previously viewed as “marginalized”. Photo media commons


The region’s socio-economic development potential is great. The large numbers of livestock can be harnessed for leather, meat and dairy industries. The cross-border trade between the border communities could generate tremendous revenue for both countries. The region’s diverse and rich culture and heritage, evidenced by its historical and geographical sites, present huge tourism potential. There is also a latent resource for clean and renewable energy exploitation, as proven by the recent launch of the Lake Turkana Wind Power Project that is expected to generate 310MW into the national grid and power one million households.

The UN is collaborating with development partners to tap this enormous potential to reduce poverty and spur development in various ways. This will especially benefit women who are significantly involved in cross-border trade. The UN will soon launch a “HeforShe” initiative/campaign to empower women and address the problem of gender inequality, and enhance women’s participation in the development process in both regions.

Lake Turkana Wind Power Project. Photo Media commons

Lake Turkana Wind Power Project. Photo Media commons


A UN supported “Biashara Centre” – a business incubation centre – was opened in Marsabit Town to empower the youth and address the problem of youth unemployment, and promote small and medium enterprises.

Studies carried out, in collaboration with the communities, are helping to understand the causes, drivers, dynamics and impacts of conflict in the cross-border areas, and possible factors or stakeholders that could contribute to sustainable peace in the region. This is an important parameter of the African Union vision on peace and security in the first plan of action under the progressive Agenda 2063.

A UN supported Biashara center.Photo Credit: @undpkenya

A UN supported Biashara center.Photo Credit: @undpkenya


The UN has worked with Marsabit County to review and mainstream the Sustainable Development Goals (SDGs) into the County Integrated Development Plan (CIDP). The revised CIDP aims at improving the living standards of the people of Marsabit County through employment creation, reduction of poverty and creation of wealth and expanding public service delivery in general.

Though integration and trade along the border is still in nascent stages, there is reason for optimism that it will have long-term positive macroeconomic and social ramifications such as food security and income generation, particularly for populations who would otherwise suffer from social exclusion.

Ms Ruth Kagia, in the Office of the President of Kenya who coordinates the programme says, “This initiative if properly executed may well be a game changer by turning cross border barriers into bridges of opportunity. Especially among the marginalized and poor communities to expedite the achievement of a core goal of the SDGs and ending poverty by 2030”.

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Brazil and the UAE Determined to Explore New Bilateral Frontiershttp://www.ipsnews.net/2017/03/brazil-and-the-uae-determined-to-explore-new-bilateral-frontiers/?utm_source=rss&utm_medium=rss&utm_campaign=brazil-and-the-uae-determined-to-explore-new-bilateral-frontiers http://www.ipsnews.net/2017/03/brazil-and-the-uae-determined-to-explore-new-bilateral-frontiers/#comments Thu, 16 Mar 2017 23:00:49 +0000 Doris Calderon http://www.ipsnews.net/?p=149459 The UAE’s foreign minister, Sheikh Abdullah bin Zayed Al Nahyan (2nd-L), and his Brazilian counterpart Aloysio Nunes (3rd-R) sign agreements in Itamaraty Palace, Brazil’s foreign ministry. Credit: Doris Calderón/IPS

The UAE’s foreign minister, Sheikh Abdullah bin Zayed Al Nahyan (2nd-L), and his Brazilian counterpart Aloysio Nunes (3rd-R) sign agreements in Itamaraty Palace, Brazil’s foreign ministry. Credit: Doris Calderón/IPS

By Doris Calderon
BRASILIA, Mar 16 2017 (IPS)

The foreign minister of the United Arab Emirates (UAE), Sheikh Abdullah bin Zayed Al Nahyan, made his fifth visit to Brazil Thursday, Mar. 16, in search of new opportunities to exploit the enormous potential in relations between the two countries.

In statements to reporters in the Itamaraty Palace, the headquarters of Brazil’s foreign ministry, after a working meeting with his Brazilian counterpart Aloysio Nunes, Al Nayhan said he was “very pleased about the strengthening of ties of friendship between the two countries seen year by year.”

“There are great opportunities between the UAE and Brazil, not only in the economy and trade, but also in other sectors, like tourism. We are particularly interested in increasing the presence of Brazilian nationals in our country,” he added.

He said he was pleased that 60,000 Brazilians a year visit the UAE, making the Persian Gulf country the third destination for tourists from Latin America’s giant. “Brazil is opening up and finding new horizons in other parts of the world,” he said.

Al Nahyan, who has been foreign minister since 2006, commented that the Middle East currently finds itself in a complex moment, making it necessary to jointly take on challenges like fighting violence and terrorism.

Brazil’s foreign minister said they discussed a wide variety of questions on the regional and global agenda, as well as bilateral issues.

Nunes stressed that the latest visit by Al Nahyan, who also came to Brazil in 2009, 2010, 2012 and 2014, “shows the high priority that the two countries put on bilateral relations and cooperation.”

The Brazilian official was referring to the mutual interest of the private sector in the two countries in long-term projects in strategic areas like infrastructure, industry and services, and to investment in Brazil by the Abu Dhabi Investment Authority (ADIA), considered the second-largest sovereign wealth fund in the world, worth nearly one trillion dollars.

The two ministers signed three bilateral accords during the meeting. Two of them were visa waiver agreements, and another involved the strengthening of air travel services between the two countries.

The UAE is home to the largest community of Brazilians in the Gulf: 4,500.

Al Nahyan’s agenda also included meetings with Brazilian President Michel Temer, Senate head Eunicio Oliveira, and the ministers of defence, Raul Jungmann, and industry, trade and services, Marcos Pereira.

The Emirati minister will visit Argentina on Friday Mar. 17, before returning to Brazil on Mar. 21, to participate in the inauguration of the new UAE consulate-general in São Paulo.

Relations between the two countries were formally established in 1974. The Brazilian Embassy in Abu Dhabi opened in 1978, and in 1991 the UAE opened its first embassy in Latin America, in Brasilia.

Ties grew stronger in recent years thanks to the number of visits by high-level Brazilian officials to the UAE: 31 ministers and 14 state governors since 2007, it was noted on Thursday.

The new emphasis on bilateral ties began in December 2003, with the visit to the UAE by then president Luiz Inácio Lula da Silva (2003-2011), at the head of a broad delegation of government officials and business leaders.

Ten years later, in 2013, then vice president Temer made an official visit to the Emirati cities of Abu Dhabi and Dubai.

Since 2008, the UAE haaçs become Brazil’s second-largest trading partner in the Middle East, after Saudi Arabia, in terms of bilateral trade.

The UAE is currently one of the biggest Middle Eastern importers of Brazilian goods, such as chicken, refined sugar, aluminum oxides and hydroxides, and cast-iron pipes.

Brazil imports from the UAE products like sulphur and electrical control panels and distribution boards.

More than 30 Brazilian companies have offices in the UAE, a business hub which re-exports products to third countries and large markets, such as Saudi Arabia, India, Iran and Pakistan.

Bilateral trade soared from 300 million dollars in 2000 to three billion dollars in 2015.

In 2014, the two nations reached a defence accord that included the exchange of technology, cooperation in military instruction and training, weapons, crisis management, and logistical support in United Nations peacekeeping missions.

It was the first treaty of its kind signed by Brazil with a Middle Eastern country.

A new phase has now been launched in the promotion of trade and the exchange of people to make Brazil the UAE’s main ally in Latin America.

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Most Financial Inflows Not Developmentalhttp://www.ipsnews.net/2017/03/most-financial-inflows-not-developmental/?utm_source=rss&utm_medium=rss&utm_campaign=most-financial-inflows-not-developmental http://www.ipsnews.net/2017/03/most-financial-inflows-not-developmental/#comments Tue, 14 Mar 2017 15:11:01 +0000 Anis Chowdhury and Jomo Kwame Sundaram http://www.ipsnews.net/?p=149410 Anis Chowdhury, a former professor of economics at the University of Western Sydney, held senior United Nations positions during 2008-2015 in New York and Bangkok. Jomo Kwame Sundaram, a former economics professor and United Nations Assistant Secretary-General for Economic Development, received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007. ]]> The World Economic Situation and Prospect report 2017 calls for a complete revamp of the international financial system to address development finance issues and ensure needed resource transfers to developing countries. Credit: IPS

The World Economic Situation and Prospect report 2017 calls for a complete revamp of the international financial system to address development finance issues and ensure needed resource transfers to developing countries. Credit: IPS

By Anis Chowdhury and Jomo Kwame Sundaram
SYDNEY and KUALA LUMPUR, Mar 14 2017 (IPS)

Recent disturbing trends in international finance have particularly problematic implications, especially for developing countries. The recently released United Nations report, World Economic Situation and Prospects 2017 (WESP 2017) is the only recent report of a multilateral inter-governmental organization to recognize these problems, especially as they are relevant to the financing requirements for achieving the Sustainable Development Goals (SDGs).

Resource outflows rising
Developing countries have long experienced net resource transfers abroad. Capital has flowed from developing to developed countries for many years, peaking at US$800 billion in 2008 when the financial crisis erupted. Net transfers from developing countries in 2016 came close to US$500 billion, slightly more than in 2015.

Most financial flows to developing and transition economies initially rebounded following the 2008 crisis, peaking at US$615 billion in 2010, but began to slow thereafter, turning negative from 2014. Such a multi-year reversal in global flows has not been seen since 1990.

Negative net resource transfers from developing countries are largely due to investments abroad, mainly in safe, low-yielding US Treasury bonds. In the first quarter of 2016, 64 per cent of official reserves were held in US$-denominated assets, up from 61 per cent in 2014.

High opportunity costs

By investing abroad, developing countries may avoid currency appreciation due to rising foreign reserves, and thus maintain international cost competitiveness. But such investment choices involve substantial opportunity costs as such resources could instead be used to build infrastructure, or for social investments to improve education and healthcare.

The African Development Bank estimates that African countries held between US$165.5 and US$193.6 billion in reserves on average between 2000 and 2011, much more than the infrastructure financing gap estimated at US$93 billion yearly. The social costs of holding such reserves range from 0.35% to 1.67% of GDP. Investing about half these reserves would go a long way to meeting infrastructure financing needs on the continent.

This high opportunity cost is due to the biased nature of the international financial system in which the US dollar is the preferred reserve currency. As there is no fair and adequate international financial safety-net for short-term liquidity crises, many developing countries, especially in Asia, have been accumulating foreign reserves for ‘self-insurance’, or more accurately, protection against sudden capital outflows or speculative currency attacks which triggered the 1997-1998 Asian financial crisis.

Foreign capital inflows falling
Less volatile than short-term capital flows, foreign direct investment (FDI) in developing countries was rising from 2000, peaking at US$474 billion in 2011. But since then, FDI has been falling to US$209 billion in 2016, less than half the US$431 billion in 2015.

Most FDI to developing countries continues to go to Asia and Latin America, while falling commodity prices since 2014 have depressed FDI in resource rich Sub-Saharan and South American countries. Falling commodity prices are also likely to reduce FDI flows to least developed countries (LDCs), which need resource transfers most, but only receive a small positive net transfer of resources.

Bank lending to developing countries has been declining since mid-2014, while long-term bank lending to developing countries has been stagnant since 2008. The latest Basel capital adequacy rules also raise the costs of both risky and long-term lending for investments.

Portfolio flows to developing countries have also turned negative in recent years. Developing countries and economies in transition experienced net outflows of US$425 billion in 2015 and US$217 billion in 2016. The expected US interest rate rise and poorer growth prospects in developing countries are likely to cause further short-term capital outflows and greater exchange rate volatility.

Aid trends disappointing
Although aid flows have increased, aid’s share of GDP has declined after 2009. The recent increase has been more than offset by counting expenditure on refugees from developing countries as aid. When refugee expenditures are excluded from the aid numbers, the 6.9 per cent increase in 2015 falls to a meagre 1.7 per cent. In five DAC countries, aid numbers fell once refugee costs were omitted. Thus, WESP 2017 emphasizes the importance of decomposing aid components and of separately tracking country programmable aid (CPA).

At 0.30 per cent of the gross national income (GNI) of OECD DAC members, official aid falls far short of the 1970 commitment by developed countries to provide aid equivalent to 0.7 per cent of GNI. Only six OECD countries – namely Denmark, Luxembourg, Netherlands, Norway, Sweden and the United Kingdom – met or exceeded the UN target in 2015. But aid to LDCs has been declining since 2010; even bilateral aid declined by 16 per cent in 2014.

Meanwhile, disbursements by multilateral development banks only increased marginally in 2015 while new commitments declined. Commitments by the World Bank’s concessional lending arm, the International Development Association (IDA), which relies on donor contributions to provide concessional credits and grants to low-income countries, declined in real terms during 2014-2015.

Reversing resource outflows
Developing countries also lost an estimated US$7.8 trillion in illicit financial flows (IFFs) between 2004 and 2013 through tax avoidance, transfer-pricing, trade mis-invoicing and profit shifting by transnational corporations (TNCs). Over the past decade, IFFs were often greater than combined aid and FDI flows to poor countries.

Hence, WESP 2017 calls for a complete revamp of the international financial system to address these development finance issues and ensure needed resource transfers to developing countries. Failing to do so will put the SDGs at risk.

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At 60, Ghana Looks to a Future Beyond Aidhttp://www.ipsnews.net/2017/03/at-60-ghana-looks-to-a-future-beyond-aid/?utm_source=rss&utm_medium=rss&utm_campaign=at-60-ghana-looks-to-a-future-beyond-aid http://www.ipsnews.net/2017/03/at-60-ghana-looks-to-a-future-beyond-aid/#comments Thu, 09 Mar 2017 02:00:08 +0000 Kwaku Botwe http://www.ipsnews.net/?p=149337 A graffiti artist in Accra creates an image of the leader of Ghana’s struggle for independence, Dr. Kwame Nkrumah. Credit: Kwaku Botwe/IPS

A graffiti artist in Accra creates an image of the leader of Ghana’s struggle for independence, Dr. Kwame Nkrumah. Credit: Kwaku Botwe/IPS

By Kwaku Botwe
ACCRA, Mar 9 2017 (IPS)

Ghana turned 60 years old this week. The West African country gained independence from Britain on Mar. 6, 1957, and remains a study in contradictions.

At 60, Ghana is viewed by many as a beacon of democracy and stability. But its current growth rate is just 3.6 percent — the lowest in 20 years — and its tax revenue to GDP ratio is 18 percent, which is one of the lowest among middle income economies.

At 60, it has a debt to GDP ratio of over 73 percent, one of the highest in the sub-region; the country is bedeviled with an erratic power supply, which has caused many businesses to collapse; and its informal sector is still not formalized enough to be able to widen the tax net.

At 60, Ghana still has schoolchildren who study under trees. 

Some of these economic indicators have sparked a national debate about whether it was prudent for the country to set aside 4.3 million dollars to celebrate the day. Many are of the view that such an amount could be better spent on projects that would bring some economic dividend than, as they describe it, to waste it on pomp and pageantry, parade and fanfare.

These criticisms may have informed President Nana Akufo-Addo when he announced that the budget for the commemoration would not be borne by the taxpayer but by corporate Ghana. The chairman of the 30-member committee planning the anniversary was quick to add that committee members would be doing their work on voluntary basis.

But there are some who take all this with a pinch of salt, perhaps taking a cue from what many perceive to be misappropriation of funds and plain corruption during the organization of the event ten years ago (the Ghana at 50 commemoration committee spent over 60 million dollars).

The head of the Centre for Economic Governance and Political Affairs at the policy think tank Imani-Ghana wants government to make public the names of all companies who committed and how much they committed, to ensure accountability and transparency. Patrick Stephenson believes this is “the only way we can ensure that a corporate body is not getting some undue advantage in the award of contracts just because of their affiliation to this event”.

The independence event is always commemorated with marching parades performed by security personnel, workers unions, traders and school children among others. The event, which typically starts with the lighting of a flame, also sees the president inspecting a guard mounted in his honour.

Stephenson wants organisers to think outside the box and use innovative means to project and develop certain aspects of the country’s economy and culture. “For instance, cocoa, one of our biggest cash crops, could be the year-long theme of one of the commemorations in which we will look at the history, the challenges, the current situation and set targets be achieved as to how to improve on its production,” he said.

It is a view shared by communications academic Dr Ete Skanku. He writes: “The parades are exciting but you don’t need to stand and take a salute. Spare the kids the unnecessary dehydration. Engage them in another way. They can be out there promoting a major nationals initiative practically or give a meaning/breathing life to a national project.”

The day is observed as a national holiday but most people within the informal sector, especially traders, couldn’t afford to stay at home. At the central business district in the capital, Accra traders were busily going about their business. But the traders believe that the day is worth celebrating as the budget statement given by the finance minister some four days ago seems to give some hope.

The Government has already abolished nine taxes, including a duty on importation of spare parts and the excise duty on petroleum, saying these are nuisance taxes that have “low revenue yielding potential and at the same time impose significant burden on the private sector and on the average Ghanaian”.

“These measures introduced by the government will help businesses a lot and the one-district-one-factory policy by the new administration, if implemented, will enable some of us to go back home for jobs because in Accra here we use a good part of our incomes on rent. If I were in my hometown I wouldn’t have to pay rent. I can use that rent money for something else,” says Francis Agyei, a 32-year-old second-hand clothing seller at Accra.

But a lecturer at the economics department of the University of Ghana, Owusu Adu Sarkodie, says Francis’s hopes and aspirations can only be achieved if managers of the economy and resources do things differently. He believes politicians should increase the revenue tax net to cover majority of people and move away from the borrowing mindset.

“We don’t have to keep borrowing for borrowing sake. Even if we have to borrow we need to use the money prudently. If you look at the public debt right now, the greater part of it was for consumption. For example, last year we borrowed 17 billion cedis, we only invested 7 billion, where did the rest go? Consumption,” he added.

If words were action then these words uttered by the President Nana Akufo-Addo in his maiden State of Nation address to parliament some two weeks ago should offer some hope to Ghanaians:

“We will put in place policies that will deliver sustainable growth and cut out corruption. We will set upon the path to build a Ghana that is not dependent on charity; a Ghana that is able to look after its people through intelligent management of the resources with which it has been endowed.

“This Ghana will be defined by integrity, sovereignty, a common ethos, discipline, and shared values. It is one where we aim to be masters of our own destiny, where we mobilise our own resources for the future, breaking the shackles of the “Guggisberg” colonial economy and a mind-set of dependency, bailouts and extraction.

“It is an economy where we look past commodities to position ourselves in a global marketplace. It is a country where we focus on trade, not aid, a hand-up, not a hand-out. It is a country with a strong private sector.

It is a Ghana beyond aid.”

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Half a Century of Struggle Against Underdevelopmenthttp://www.ipsnews.net/2017/03/half-a-century-of-struggle-against-underdevelopment-2/?utm_source=rss&utm_medium=rss&utm_campaign=half-a-century-of-struggle-against-underdevelopment-2 http://www.ipsnews.net/2017/03/half-a-century-of-struggle-against-underdevelopment-2/#comments Fri, 03 Mar 2017 10:00:53 +0000 Pablo Piacentini http://www.ipsnews.net/?p=149227

This oped was written by the Argentinian journalist Pablo Piacentini, cofounder of IPS to commemorate the 50th anniversary of the agency in 2014. IPS is republishing it now to celebrate his life. Piacentini passed away in Rome on March 1.

By Pablo Piacentini
ROME, Mar 3 2017 (IPS)

The idea of creating Inter Press Service (IPS) arose in the early 1960s in response to awareness that a vacuum existed in the world of journalism, which had two basic aspects.

Firstly, there was a marked imbalance in international information sources. World news production was concentrated in the largest industrialised countries and dominated by a few powerful agencies and syndicates in the global North.

By contrast, there was a lack of information about developing countries in the South and elsewhere; there was hardly any information about their political, economic and social realities, except when natural disasters occurred, and what little was reported was culturally prejudiced against these countries. In other words, not much of an image and a poor image at that.A journalist specialised in development issues must be able to look at and analyse information and reality from the “other side.” In spite of globalisation and the revolution in communications, this “other side” continues to be unknown and disregarded, and occupies a marginal position in the international information universe

Secondly, there was an overall shortage of analysis and explanation of the processes behind news events and a lack of in-depth journalistic genres such as features, opinion articles and investigative journalism among the agencies.

Agencies published mainly ‘spot’ news, that is, brief pieces with the bare news facts and little background. Clearly this type of journalism did not lend itself to covering development-related issues.

When reporting an epidemic or a catastrophe in a Third World country, spot news items merely describe the facts and disseminate broadcast striking images. What they generally do not do is make an effort to answer questions such as why diseases that have disappeared or are well under control in the North should cause such terrible regional pandemics in less developed countries, or why a major earthquake in Los Angeles or Japan should cause much less damage and fewer deaths than a smaller earthquake in Haiti.

Superficiality and bias still predominate in international journalism.

While it is true that contextualised analytical information started to appear in the op-ed (“opposite the editorial page”) section of Anglo-Saxon newspapers, the analysis and commentary they offered concentrated on the countries of the North and their interests.

Today the number of op-eds that appear is much greater than in the 1960s, but the predominant focus continues to be on the North.

This type of top-down, North-centred journalism served the interests of industrialised countries, prolonging and extending their global domination and the subordination of non-industrialised countries that export commodities with little or no added value.

This unequal structure of global information affected developing countries negatively. For example, because of the image created by scanty and distorted information, it was unlikely that the owners of expanding businesses in a Northern country would decide to set up a factory in a country of the South.

After all, they knew little or nothing about these countries and, given the type of reporting about them that they were accustomed to, assumed that they were uncivilised and dangerous, with unreliable judicial systems, lack of infrastructure, and so on.

Obviously, few took the risk, and investments were most frequently North-North, reinforcing development in developed countries and underdevelopment in underdeveloped countries.

Pablo Piacentini

Pablo Piacentini

In the 1960s, those of us who created IPS set ourselves the goal of working to correct the biased, unequal and distorted image of the world projected by international agencies in those days.

Political geography and economics were certainly quite different then. Countries like Brazil, which is now an emerging power, used to be offhandedly dismissed with the quip: “It’s the country of the future – and always will be.”

At the time, decolonisation was under way in Africa, Asia and the Caribbean. Latin America was politically independent but economically dependent. The Non-Aligned Movement was created in 1961.

IPS never set out to present a “positive” image of the countries of the South by glossing over or turning a blind eye to the very real problems, such as corruption. Instead, we wished to present an objective view, integrating information about the South, its viewpoints and interests, into the global information media.

This implied a different approach to looking at the world and doing journalism. It meant looking at it from the viewpoint of the realities of the South and its social and economic problems.

Let me give an example which has a direct link to development.

The media tend to dwell on what they present as the negative consequences of commodity price rises: they cause inflation, are costly for consumers and their families, and distort the world economy. Clearly, this is the viewpoint of the industrialised countries that import cheap raw materials and transform them into manufactured goods as the basis for expanding their businesses and competing in the global marketplace.

It is true that steep and sudden price increases for some commodities can create problems in the international economy, as well as affect the population of some poor countries that have to import these raw materials.

But generalised and constant complaints about commodities price increases fail to take into account the statistically proven secular trend towards a decline in commodity prices (with the exception of oil since 1973) compared with those of manufactured goods.

IPS’s editorial policy is to provide news and analyses that show how, in the absence of fair prices and proper remuneration for their commodities, and unless more value is added to agricultural and mineral products, poor countries reliant on commodity exports cannot overcome underdevelopment and poverty.

Many communications researchers have recognised IPS’s contribution to developing a more analytical and appropriate journalism for focusing on and understanding economic, social and political processes, as well as contributing to greater knowledge of the problems faced by countries of the South.

Journalists addressing development issues need, in the first place, to undertake critical analysis of the content of news circulating in the information arena.

Then they must analyse economic and social issues from the “other point of view”, that of marginalised and oppressed people, and of poor countries unable to lift themselves out of underdevelopment because of unfavourable terms of trade, agricultural protectionism, and so on.

They must understand how and why some emerging countries are succeeding in overcoming underdevelopment, and what role can be played by international cooperation.

They also need to examine whether the countries of the North and the international institutions they control are imposing conditions on bilateral or multilateral agreements that actually perpetuate unequal development.

World economic geography and politics may have changed greatly since the 1960s, and new information technologies may have revolutionised the media of today, but these remain some important areas in which imbalanced and discriminatory news treatment is evident.

In conclusion, a journalist specialised in development issues must be able to look at and analyse information and reality from the “other side.” In spite of globalisation and the revolution in communications, this “other side” continues to be unknown and disregarded, and occupies a marginal position in the international information universe.

An appreciation of the true dimensions of the above issues, the contrast between them and the information and analysis we are fed daily by the predominant media virtually all over the world – not only in the North, but also many by media in the South – leads to the obvious conclusion that there is a crying need for unbiased global journalism to help correct North-South imbalance.

To this arduous task and still far-off goal, IPS has devoted its wholehearted efforts over the past half century.

Pablo Piacentini, born in Buenos Aires, cofounded IPS-Inter Press Service in 1964. Having served as Editorial Director, Chief Editor and then Director of the Economics Service, until six months ago Piacentini headed the IPS Columnist Service.

 

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Another Town in El Salvador Votes No to Mininghttp://www.ipsnews.net/2017/03/another-town-in-el-salvador-votes-no-to-mining/?utm_source=rss&utm_medium=rss&utm_campaign=another-town-in-el-salvador-votes-no-to-mining http://www.ipsnews.net/2017/03/another-town-in-el-salvador-votes-no-to-mining/#comments Wed, 01 Mar 2017 22:31:23 +0000 Aruna Dutt http://www.ipsnews.net/?p=149184 Voter at Cinquera Consultation, Feb 26. 2017. Credit: Aruna Dutt

Voter at Cinquera Consultation, Feb 26. 2017. Credit: Aruna Dutt

By Aruna Dutt
Cabañas, El Salvador, Mar 1 2017 (IPS)

The citizens of Cinquera municipality in Cabañas delivered a resounding vote against mining, on Sunday February 26th, when 98 percent of residents voted in favour of becoming El Salvador’s fifth “territory free of mining.”

“Mining companies have a wide field with major extension in other countries, and often they need to use the comparative law of other countries to be able to apply their practices here in El Salvador. But the truth is that El Salvador is a country so small that industrial mining is not viable,”Attorney for the Defense of Human Rights, William Iraheta told IPS.

El Salvador is the smallest country in Central America, but also has the highest population density, with 300 people per square kilometer. It is also the fourth most vulnerable country to climate change according to GermanWatch, with 95% of the population living in a high-risk zone.

(ANA MARINA ALVARENGA, diputada FMLN departamento de Cabañas, speaking at Cinquera mining consultation) Credit: Aruna Dutt

Ana Marina Alvarenga, FMLN, speaking at Cinquera mining consultation. Credit: Aruna Dutt

Last year, the national government declared a water emergency. The Ministry of the Environment and Natural Resources (MARN) concluded that only two percent of the country`s surface water is fit for human consumption and for the growth of aquatic life. Currently, those living in rural areas pay to have bottled water shipped by private companies. El Salvador’s environmental crisis and contamination of the population’s water, two-thirds of which comes from the Lempa River, has also been caused by the disparaging practices of metal mining in northeastern El Salvador.

The case of the Canadian mining company, Pacific Rim, and San Sebastian River pollution are the most visible examples of this destructive legacy.

(Acid Drainage from Abandoned mine in San Sebastian River, Credit: Aruna Dutt

Acid Drainage from Abandoned mine in San Sebastian River, Credit: Aruna Dutt

Between 1998 and 2003, 29 exploration licences were granted to mining companies, the most prominent being the Canadian company, Pacific Rim – now OceanaGold. When the government of El Salvador refused to provide mining permits to Pacific Rim’s proposed El Dorado mine because it failed to meet the government’s environmental requirements, the company sued the Salvadoran Government in 2009 for $77 million through a World Bank trade tribunal, the International Centre for the Settlement of Investment Disputes. Such demands are based on provisions of the Central American Free Trade Agreement (CAFTA) and the Salvadoran Investment Law. The Salvadoran Government won the lawsuit last October after spending millions on defense, but Pacific Rim/Oceana Gold has yet to pay up.

Even though the State of El Salvador recently won the case against the Canadian/Australian mining company, Oceana Gold, the struggle of the Salvadoran people for the defense of their environment continues.

“Currently it is the executive government, the president, who has been refusing mining projects, but there is no guarantee that these projects will be stopped in the future without a law,” said Ana Marina Alvarenga, FMLN (Farabundo Martí National Liberation Front) congresswoman for the department of Cabañas at the Cinquera consultation.

“The position of our FMLN party supports the creation and passing of a law at the national level that definitely prohibits mining in our country. It is part of the legislative agenda or of the legislative platform for the FMLN 2015 to 2018 period to approve this law of prohibition of the metallic mining.”

International Observers at Cinquera Consultation, Feb 26th, 2017. Credit: Aruna Dutt.

International Observers at Cinquera Consultation, Feb 26th, 2017. Credit: Aruna Dutt.

As a way to pressure the Salvadoran government to implement a law definitively banning mining in El Salvador, social movements together with organised communities have been organizing to bring community consultations.

“Cabañas is located in the upper basin of the Lempa River, and in this sense any mining project that is in Cabañas, unfortunately will bring negative consequences for all departments through which the river Lempa runs, which is the majority,” said Alvarenga.

Since 2005, coinciding with the emergence of opposition to mining in Cabañas, the El Dorado Foundation has been operating in Cabanas as the public face of Pacific Rim/OceanaGold in El Salvador.

The foundation makes donations to local schools, sponsors health clinics, offers computer and English classes, and promotes business training for women, among other activities allowing the mining company to act as a benefactor to the surrounding communities.

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“Mining Contaminates and Kills” Mural in Cinquera. Feb 26, 2017. Credit: Aruna Dutt

 

“The communities understand the impacts of mining but have become dependent on these services they provide,” says Vidalina Morales, President of the Association of Economic and Social Develop (ADES), who is also a member of the National Round-table against Metal Mining in El Salvador (La MESA) and has worked directly on mining issues as an organiser in Cabañas communities since 2006.

The foundation’s work is intended to enhance the company’s public reputation and cultivate support for the proposed El Dorado mine project.

Of particular concern is the threat of angry and potentially violent reprisals from people or groups receiving benefits, or who expect to receive benefits, should the mining project proceed. As determined by the regional court, Pacific Rim has been responsible for violence in Cabanas which has already claimed five lives, including three environmentalists: Marcelo Rivera, Ramiro Rivera, Dora Sorto and her unborn baby, and Juan Francisco Durán. The climate of fear resulting from these assassinations and other threats of violence is still palpable in the communities today.

“Although these companies may have financial and resource capital, the capital we have is community organising” said Pedro Cabezas, a representative of International Allies Against Mining, and the Association for the Development of El Salvdador (CRIPDES).

Attorney for the Defense of Human Rights, Wulan Iraheta, overseeing the Cinquera consultation process. Feb 26th, 2017. Credit: Aruna Dutt

Attorney for the Defense of Human Rights, William Iraheta, overseeing the Cinquera consultation process. Feb 26th, 2017. Credit: Aruna Dutt

The election on Sunday was historic for the municipality of Cinquera, being  the first municipality of Cabañas, a largely agricultural territory bordering Honduras,  that initiated this process of popular consultation (consulta popular). Organised by the mayor’s office, along with the social organizations of the municipality of Cinquera, the direct vote resulted in 52% participation and 98% of votes against mining.

Community consultations (consultas) are a new phenomenon in El Salvador, but not a new phenomenon in Latin America. There have been consultas all through Mexico, Central America, South America, and there are different legal figures which communities utilise to hold consultas. A figure in El Salvador’s municipal code allows local municipalities to hold referendums to consult with communities on issues that truly affect them in their personal or family life.

Counting the votes, Cinquera, Feb 26. 2017. Credit: Aruna Dutt

Counting the votes, Cinquera, Feb 26. 2017. Credit: Aruna Dutt

Consultations are also a strategy to keep communities engaged and maintain the debate on both a national and local level. They involve an extensive organising process including petitions, campaigns, and work in every community in the municipality Said Cabezas.

It is also a process of educating the population at the grassroots level and keeping them informed about the issue of mining and involved in the process of using local democracy tools to defend their territory.

Vidalina Morales, ADES, at Cinquera Consulta, Feb 26, 2017. Credit: Aruna Dutt

Vidalina Morales, ADES, at Cinquera Consulta, Feb 26, 2017. Credit: Aruna Dutt

“The subject of mining is seen to bring development to the communities. If the companies come, it’s true, they bring it as a profit: by units of work, development to the communities,” Attorney for the Defense of Human Rights, William Iraheta told IPS.

“But that is only the beginning – and at the end is a disaster. They deplete natural resources and at the end, only leave disaster for the communities. Since this directly affects communities, they must take into account, and have information on both sides of the argument to be able to decide what is viable for the community. ” Iraheta said.

Bernardo Belloso, President of CRIPDES which was part of the preparation of the popular consultation, said that it is not enough to have this municipal ordinance.

“We hope that this experience will also serve for other municipalities, ” said Belloso, “We want a more secure society for our future generations. It is important that the entire Salvadoran population take a position in order to defend the territory and defend the few natural resources that remain and our sovereignty, ” he said.

Correction: An earlier version of this article included a misspelling of William Iraheta’s name.

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Avoid Patent Clauses in Trade Treaties that can Kill Millionshttp://www.ipsnews.net/2017/02/avoid-patent-clauses-in-trade-treaties-that-can-kill-millions/?utm_source=rss&utm_medium=rss&utm_campaign=avoid-patent-clauses-in-trade-treaties-that-can-kill-millions http://www.ipsnews.net/2017/02/avoid-patent-clauses-in-trade-treaties-that-can-kill-millions/#comments Mon, 27 Feb 2017 14:12:29 +0000 Martin Khor http://www.ipsnews.net/?p=149133 Credit: Bigstock

Credit: Bigstock

By Martin Khor
PENANG, Feb 27 2017 (IPS)

Recently a very interesting article on why there are inequalities in access to health care and how  medicine prices are beyond the reach of many people was published in The Lancet, one of the most prestigious medical journals in the world.

The authors, who are eminent experts in development and public health, pinpointed trade and investment agreements for being one of the greatest health threats.

Reading their powerful commentary leads one to think:  What’s the point of having wonderful medicines if most people on Earth cannot get to use them?   And isn’t it immoral that medicines that can save your life can’t be given to you because the cost is so high?

The article picks on the Trans-Pacific Partnership (TPP), together with the Transatlantic Trade and Investment Partnership (TTIP) as the worst culprits.  It says the TPP’s chapter on intellectual property is “particularly intrusive to health and restricts access to the latest advances in medicines, diagnostic tools and other life-saving medical technologies.”

Martin Khor

Martin Khor

This agreement, say the authors, contains many provisions that “strengthen patent protection that provides monopolies and inevitably leads to high prices.”   They mention provisions that extend the patent terms beyond 20 years required by the WTO; lower the criteria of what can be granted  patents; and “data exclusivity” provisions that put up barriers to generic manufacturers entering markets after the expiry of patents.

This viewpoint article was co-authored by Prof Desmond McNeill (University of Oslo), Dr Carolyn Deere (Oxford University); Prof Sakiko Fukuda-Parr (The New School, New York, and formerly the main author of the UNDP’s Human Development Report for many years), Anand Grover (Lawyers Collective India and formerly the Human Rights Council’s Special Rapporteur for the Right to Health); Prof Ted Schrecker (Durham University, UK) and Prof David Stuckler (Oxford University).

They said that growing evidence suggests that the agreements “will have major and largely negative consequences for health that go far beyond earlier trade agreements.  This situation is particularly disturbing since the agreements have created blueprints for future trade agreements.”

The Nobel Peace Prize winning medical group, Medecins Sands Frontieres (MSF), is even more scathing in its criticism.  “The TPP represents the most far-reaching attempt to date to impose aggressive intellectual property standards that further tip the balance towards commercial interests and away from public health….  In developing countries, high prices keep lifesaving medicines out of reach and are often a matter of life and death.”

This condemnation is just as relevant despite President Donald Trump withdrawing the United States from the TPP. There are efforts underway for the remaining 11 countries to put the TPP into effect without the US.

Moreover, these countries have prepared changes to their laws and policies to comply with the TPP’s provisions, and may implement these even if the TPP actually never comes into effect.

This would be an immense tragedy for public health, because most of these countries did understand that the chapter on intellectual property would have negative effects, but they accepted it as part of a bargain for getting better market access, especially to the US.

Since the TPP is now in suspension, it does not make any sense for the countries to change their patent laws when the benefit of market access is no longer available.

During the TPP negotiations, the other countries managed to dilute some of the very extreme demands of the US, but only to a small extent.  The final intellectual rights chapter still reflects the extreme proposals of the US.

With the TPP in limbo and perhaps in perpetual suspension, there is really no reason why the provisions that have adverse effects should be implemented in the countries that had negotiated the TPP, when there are no benefits to be obtained to offset them.
Moreover, the major developed countries can be expected to make use of the TPP’s intellectual property chapter to inject into negotiations for new trade agreements, for example the RCEP, the Asian regional agreement.

Negotiators, especially from developing countries, and civil society groups should thus be vigilant that the TPP’s provisions that have adverse effects on health are not reproduced in other trade agreements.

Members of the World Trade Organisation are required to implement its intellectual property agreement, known as TRIPS, but they are not obliged to take on any additional obligations.

There are many provisions in TRIPS that allow a country to choose policies that are pro-health.  The TPP has clauses that prevent a country from making use of many of these options because they are “TRIPS-plus”, going beyond what the TRIPS obligations.

First, there is a TPP provision that lowers the standards a country can adopt to grant a patent.  Some patent applications are not for genuine inventions but are only made to “evergreen” a patent, to enable its term to continue after it expires.  Under TRIPS, a country can choose not to grant secondary patents for modifications of existing medicines.

The TPP (Article 18.3) requires countries to grant patents for at least one of the following modifications:  new uses of a known product, new methods for using a known product or new processes for using a known product.  Examples include a drug used for treating AIDS is now granted a new patent for treating hepatitis, or a drug in injection form is given a new patent in capsule form.

Second, a provision that enables extending the patent term beyond the 20 years required by TRIPS.   Most countries now count this 20 years from the date of filing the patent application.

The TPP requires the patent term to be extended beyond that if there are “unreasonable” delays in issuing the patents (Article 18.46) or if a delay is caused by the marketing approval process.”  (Article 18.48).     Extending the patent term means delaying affordable treatment for patients for so many more years.

Third, a provision (Article 18.50)  to create “data exclusivity” or “market exclusivity”, that prevents drug safety regulators from using existing clinical trial data to give market approval to generic drugs or biosimilar drugs and vaccines.   Under TRIPS, the clinical test data of a company can be used by a country’s drug regulatory authority as a basis to give safety or efficacy approval for generic drugs with similar characteristics, thus facilitating the growth and use of generic drugs.

Under the TPP, the data of the original company is “protected” and approval of similar drugs on the basis of such data is not allowed.  The period of “exclusivity” is at least 5 years for products containing a new chemical entity, or 3 years for modifications (a new indication, new formulation or new method of administration) of existing medicines.

Fourth, a provision on Biologics (Article 18.51).  For the first time in a trade agreement, the TPP  obliges its members to undertake data protection obligations for “biologics”, a category of products for treating and preventing cancer, diabetes and other conditions.  They are very expensive, some priced above $100,000 for a treatment course, and the clause will enable the prices to remain high for longer periods.   The exclusivity for biologics is for at least 8 years, or 5 years if other measures are also taken.

These provisions on exclusivity give drug companies extra protection, even if the product is not patented or if the patent has expired.  The drugs will be out of reach except for the very wealthy for longer periods.

Fifth, a provision (Article 18.76) that requires TRIPS-plus extra enforcement of intellectual property.  Countries are obliged to provide that the right holder can apply to detain any imported product that is suspected to be  counterfeit or having “confusingly similar trademark”.

This can block legitimate generic medicines from entering the country.   There have already been many cases of drugs being detained and later released when no infringement was found, thus needlessly delaying treatment to patients. The provision will increase the incidence.

All in all, these TRIPS-Plus TPP obligations would make it more difficult for patients to obtain cheaper generics. If these clauses are widely adopted in other trade agreements and made into national laws, this would shorten the lives of millions of people who would be denied treatment.

For example, many millions of people worldwide are afflicted with Hepatitis C, which can lead to liver failure and death. They need the new medicines that have nearly 100% cure rates close but the prices are over $80,000  for a 12-week treatment course.  Even with discounts, very few can afford this.

Some developing countries, making use of TRIPS flexibilities, are able to provide treatment with generic drugs at around $500 per patient, a very small fraction of the original drug’s price. But if the TPP clauses are translated into domestic law, this access could be blocked.

People in the developing countries are the most affected by patent over-protection, but patients in developed countries are not spared. The mainstream Time magazine in October 2016 listed the need to “Reform the Patent Process” as one of the issues the US Presidential election should address.

The Time article commented that many people believe drug companies are “gaming” the system.  “Instead of focusing on developing new cures, they are spending millions tweaking the way existing drugs are administered or changing their inactive ingredients.  Those moves have the effect of extending a drug’s patent and upping the amount of time it can be sold at monopoly prices, but they don’t necessarily help consumers.”

It is high time for a re-think to the system of drug patents.  At the least the situation should not be allowed to worsen further, which would happen if TRIPS-Plus measures are adopted.

The lives and health of millions are at stake.  Sometimes this is forgotten or put as a low priority when pitted against the promise of getting more exports in a free trade agreement.

But with the TPP in limbo and perhaps in perpetual suspension, there is really no reason why the provisions that have adverse effects should be implemented in the countries that had negotiated the TPP, when there are no benefits to be obtained to offset them.

More generally, in all countries, policy makers and people should be on guard not to agree to TRIPS-plus clauses in the trade agreements that they negotiate or sign.

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Tax Evasion Lessons From Panamahttp://www.ipsnews.net/2017/02/tax-evasion-lessons-from-panama/?utm_source=rss&utm_medium=rss&utm_campaign=tax-evasion-lessons-from-panama http://www.ipsnews.net/2017/02/tax-evasion-lessons-from-panama/#comments Tue, 21 Feb 2017 14:44:28 +0000 Jomo Kwame Sundaram http://www.ipsnews.net/?p=149048 Jomo Kwame Sundaram, a former economics professor and United Nations Assistant Secretary-General for Economic Development, received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007. ]]>

Jomo Kwame Sundaram, a former economics professor and United Nations Assistant Secretary-General for Economic Development, received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007.

By Jomo Kwame Sundaram
KUALA LAMPUR, Feb 21 2017 (IPS)

Unlike Wikileaks and other exposes, the Panama revelations were carefully managed, if not edited, quite selective, and hence targeted, at least initially. Most observers attribute this to the political agendas of its main sponsors. Nevertheless, the revelations have highlighted some problems associated with illicit financial flows, as well as tax evasion and avoidance, including the role of enabling governments, legislation, legal and accounting firms as well as shell companies.

US President Obama criticized ‘poorly designed’ laws for allowing illicit money transfers worldwide. He noted that “Tax avoidance is a big, global problem…a lot of it is legal, but that’s exactly the problem”.

US President Obama criticized ‘poorly designed’ laws for allowing illicit money transfers worldwide. He noted that “Tax avoidance is a big, global problem…a lot of it is legal, but that’s exactly the problem”.

The political tremors generated by the edited release of 1.1 million documents were swift. No one expected Iceland’s prime minister to resign in less than 48 hours, or that the then British prime minister would soon publicly admit that he had benefited from the hidden wealth earned from an opaque offshore company of his late father.

Panama Papers
The Panama Papers help us understand how shell companies and trusts operate. The documents, from the law firm Mossack Fonseca, involved 210,000 legal entities. The Panama-based law firm has worked with some of the world’s biggest banks — including HSBC, Société Générale, Credit Suisse, UBS and Commerzbank — to set up thousands of offshore companies to circumvent tax and law enforcement authorities worldwide.

The accounts enabled by just one law firm in Panama is the tip of a massive iceberg still hidden from public view as many other such firms in different locations provide similar services. High net-worth individuals and corporations have a far greater ability to evade taxes by paying tax advisers, lawyers and accountants, and by opening undeclared companies and financial accounts in low-tax jurisdictions. The expose shows that the firm aided public officials, their cronies and large corporations to avoid taxes.

Not surprisingly, Mossack Fonseca claims it has never been accused or charged in connection with criminal wrongdoing. This only underscores the fact that Panama’s financial regulators, police, judiciary and political system are very much part of the system. Similarly, many clients believe that they have not violated national and international regulations.

‘Offshore’ tax havens

Total global wealth was estimated, by a 2012 Tax Justice Network (TJN) USA report, entitled The Price of Offshore Revisited, at US$231 trillion in mid-2011; this was roughly 3.5 times the global GDP of US$65 trillion in 2011. It conservatively estimated that, of this, US$21 to US$32 trillion of hidden and stolen wealth has been stashed secretly, ‘virtually tax-free’, in and ‘through’ more than 80 secret jurisdictions.

According to Oxfam, at least US$18.5 trillion is hidden in undeclared and untaxed tax havens worldwide, with two thirds in the European Union, and a third in UK-linked sites. After the Panama Papers leak, Oxfam revealed that the top 50 US companies have stashed US$1.38 trillion offshore to minimize US tax exposure. The 50 companies are estimated to have earned some US$4 trillion in profits across the world between 2008 and 2014, but have only paid 26.5 per cent of it in US tax.

In a 5 April 2016 speech, following the US Treasury’s crackdown on corporate tax ‘inversions’, US President Obama criticized ‘poorly designed’ laws for allowing illicit money transfers worldwide. He noted that “Tax avoidance is a big, global problem…a lot of it is legal, but that’s exactly the problem”.

It was also estimated that this costs poor countries over US$100 billion in lost tax revenues every year. Oxfam also found that tax dodging by transnational corporations alone costs the developing world between US$100 to US$160 billion yearly. If ‘profit shifting’ is taken into account, about US$250 to US$300 billion is lost. After all, many countries and institutions actively enable—and profit handsomely from—the theft of massive funds from developing countries.

More so now than ever before, the term ‘offshore’ for tax havens refers less to physical locations than to virtual ones, often involving “networks of legal and quasi-legal entities and arrangements”. Private banking ‘money managers’ provide all needed services — including financial, economic, legal, accounting and insurance services — to facilitate such practices, making fortunes for themselves by doing so. Thousands of shell banks and insurers, 3.5 million paper companies, more than half the world’s registered commercial ships over 100 tons, and tens of thousands of ‘shell’ subsidiaries of giant global banks, accounting firms and various other companies operate from such locations.

Reforming tax havens?
In recent years, amid increased public scrutiny, the global tax haven landscape has changed. The Organization of Economic Cooperation and Development (OECD), the Paris-based club of rich nations, has been developing a global transparency initiative to crack down on tax haven secrecy. But Panama is refusing to participate seriously, with the OECD tax chief calling it a jurisdiction “that welcomes crooks and money launderers”.

To qualify for the OECD’s ‘white list’ of approved jurisdictions, almost 100 countries and other jurisdictions have agreed, since 2014, to impose new modest disclosure requirements for international customers. Hence, the Swiss government has now relaxed confidentiality-cum-secrecy provisions, allowing information sharing about illegal or unauthorized deposits with other countries, subject to certain conditions. Consequently, the world of illegal and unaccounted cash has moved in response.

Facilitating tax evasion
Only a handful of nations have declined to sign on. The most prominent is the US. Another is Panama. As Panama has dodged, delayed and diluted compliance with OECD regulations, many accounts moved to Panama from other signatory tax havens. As Bloomberg noted earlier in 2016, “Panama and the U.S. have at least one thing in common: Neither has agreed to new international standards to make it harder for tax evaders and money launderers to hide their money.”

Rothschild, the centuries-old European financial institution, is now moving the fortunes of wealthy foreign clients out of offshore havens subject to the new international disclosure requirements, to Rothschild-run trusts in Nevada, which are exempt.

It has acknowledged that the US itself is the world’s single greatest tax haven, while the UK plays a disproportionately greater role as a tax haven, considering the smaller size of its population and economy. A TJN study found that the US continues to facilitate financial secrecy and tax evasion. “Due to lax requirements…, it is far easier to set up an anonymous shell company in the US than it is in well-known tax havens”, according to the Financial Transparency Coalition.

The US does not accept a lot of international standards, and can get away with it because of its economic and political clout, but is probably the only country that can continue to do that. It has taken steps to keep track of American assets abroad, but not of foreign assets in the US.

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The Planned US Border Tax Would Most Likely Violate WTO Rules – Part 2http://www.ipsnews.net/2017/02/the-planned-us-border-tax-would-most-likely-violate-wto-rules-part-2/?utm_source=rss&utm_medium=rss&utm_campaign=the-planned-us-border-tax-would-most-likely-violate-wto-rules-part-2 http://www.ipsnews.net/2017/02/the-planned-us-border-tax-would-most-likely-violate-wto-rules-part-2/#comments Fri, 17 Feb 2017 15:52:20 +0000 Martin Khor http://www.ipsnews.net/?p=148999 The tax on US imports, without the same being applied to US-made products, discriminates against foreign products, and US exports being exempted from taxes is tantamount to being an export subsidy. How will this be taken at the WTO, the guardian of the multilateral trading system? Credit: Amantha Perera/IPS

The tax on US imports, without the same being applied to US-made products, discriminates against foreign products, and US exports being exempted from taxes is tantamount to being an export subsidy. How will this be taken at the WTO, the guardian of the multilateral trading system? Credit: Amantha Perera/IPS

By Martin Khor
PENANG, Feb 17 2017 (IPS)

As American lawmakers and the Trump administration prepare the ground for introducing a border adjustment tax, many controversial issues have emerged, including whether they go against the rules of the World Trade Organisation (WTO).

The border tax is part of the overhaul of the US corporate tax system proposed by Republican Congress leaders and appears to have the support of President Donald Trump.

If adopted, the tax measure is sure to attract the opposition of the United States’ trading partners, as their exports to the US will have the equivalent of a 20% tax imposed on them, whereas the exports from the US will be exempted from a 20% corporate tax.

The tax on US imports, without the same being applied to US-made products, discriminates against foreign products, and US exports being exempted from taxes is tantamount to being an export subsidy.

How will this be taken at the WTO, the guardian of the multilateral trading system?

US Congressman Kevin Brady, chairman of the House Ways and Means Committee, and the plan’s main advocate, is convinced the plan is WTO-consistent, but has yet to explain why.

On the other hand, many trade and legal experts think the plan violates the principles and rules of the WTO, although they caution that a final opinion is possible only when the language of the law is known.

Their general view is as follows: Firstly, the inability to deduct import expenses from a company’s tax (while allowing deductions for locally sourced products and services and wages) discriminates against imports vis-à-vis domestic products, and violates the national treatment principle of the WTO and the rules of the General Agreement on Tariffs and Trade (GATT) which specify that imports must be treated no less favourably than similar locally produced goods.

Secondly, the exemption of export revenues from the taxable income would be most likely assessed as a prohibited export subsidy under the WTO’s subsidies agreement.

The renowned international trade expert, Bhagirath Lal Das, says that there are two separate issues to be considered:  the differential treatment of domestic and imported materials, and the differential tax treatment of income based on whether the product is domestically consumed or exported.

Martin Khor

Martin Khor

Says Das:   “It appears that the proposal is to deduct the cost of domestic input (product) from a company’s income while computing the tax, whereas there is no such deduction if a like imported input is used in the production.

“If this be the case, such a provision will clearly violate the principle of national treatment contained in Article III of the GATT 1994.”     Under that article, imported products must be accorded treatment no less favourable than that given to similar domestic products in respect of laws and regulations.

Added Das:  “If the use of the domestic product results in tax reduction whereas the use of the like imported product does not get similar treatment, clearly the imported product will get “less favourable” treatment. And that will violate the principle of national treatment, and it can be successfully challenged in the WTO on this ground.”

On the second issue, the proposal is to differentiate between the earning from domestic sale and that from export in the matter of taxation in respect of a product.

Commented Das:  “Here it would appear that the exemption of the tax is conditional on export. This practice will clearly qualify for being categorised as export subsidy which is prohibited under Article 3 of the WTO’s Subsidy Agreement.”

Das cites a case of an American company, the Domestic International Sales Corporation (DISC).  A portion of its profit which was engaged in export was tax free.  The EEC, the predecessor of EC, raised a dispute in the GATT in 1973. The matter was delayed for a long time until in 1999 a panel at the WTO ruled that the US practice was in fact an export subsidy and was prohibited.

“This case may not be exactly the same as the currently anticipated proposal, but it does point to the fallibility of providing government benefit contingent on export,” says Das.

Das was formerly Chairman of the General Council of GATT,  Indian Ambassador to GATT, and subsequently Director of Trade in the UN Conference on Trade and Development, and has written many books on the WTO and its agreements.

According to another eminent expert on the WTO, Chakravarthi Raghavan, whether the US law is considered “legal” depends on the language of the law and its actual effects.

“There is little doubt that the “pith and substance” of the Republican border tax proposal or ideas will be in violation of Articles II and III of GATT and Article 3.1 of the Subsidies Agreement.”

Raghavan, Chief Editor Emeritus of the South-North Development Monitor, followed and analysed the negotiations of the Uruguay Round and of the WTO on a daily basis ever since.

There are many shortcomings with the WTO dispute system. Few countries have the courage or financial resources to take up cases against the US.
Countries can challenge the US at the WTO and if they succeed the US has to change its law or face retaliatory action.  The winning party can block US exports to it equivalent in value to the loss of its exports to the US.

However, there are many shortcomings with the WTO dispute system.  Few countries have the courage or financial resources to take up cases against the US.

If some countries do take up cases, it takes as long as three to four years for a case in the WTO to wind its way through panel hearings and to a final verdict at the Appellate Body, and for the winning Party to get the go-ahead to take retaliatory action.  During that period, the US can continue with its laws and practices.

If the US loses, it need not pay any compensation to the successful Party for having suffered losses.   Moreover, in the past, when it loses cases at the WTO, the US has typically not complied with the orders made on it.  Even if it does comply, it needs to do so only in respect of the Parties that brought the action against it; it need not do so for other Parties.

If it does not comply, the complainant countries are allowed to take retaliatory action by blocking US goods and services from entering their markets up to an amount equivalent to the losses they have suffered.  This retaliatory action can only be taken by those countries that successfully took up the cases.

Thus, the US may decide to implement the border adjustment taxes and wait two to four years before a final judgment is made at the WTO, and for retaliatory action to be allowed by the WTO.   It can meanwhile reap the benefits of its border tax measures.

Another possibility is that Trump may make good his threat to leave the WTO, if important cases go against it.  That would cause a major crisis for the WTO and for international trade.

With regard to the WTO process, Raghavan said:   “Apart from the difficulties of taking up cases in the WTO, including costs, the lengthy process and no retrospective damages when any WTO member, raises a dispute, the onus of proving the violation is on them.

“To the best of my knowledge, in none of the rulings against US, requiring changes in law or regulations, has the US implemented them, and even major trading partners have been chary of taking retaliation action.

“Countries that are affected, could act to unilaterally deny the US some rights; but they cannot justify that this is retaliation, until there is a ruling in their favour.”

American advocates of the border adjustment tax plan have claimed that it is similar to a value added tax (VAT) which is considered by the WTO to be a legitimate measure;  and thus that the border adjustment tax would also be compatible with the WTO.

Almost all major developed countries have instituted the VAT system, with the notable exception of the US.  The Republican Congress leaders and Trump have argued  that this places the US at a disadvantage in its trade relations because the VAT system imposes a tax on imports, whilst allowing companies to obtain a refund for taxes paid on their exports.

They claim the border tax would correct this disadvantage that the WTO should similarly recognise the border tax as legitimate.

However, several well-known economists and lawyers are of the opinion that there are important differences between the VAT and the border tax.

There are two parts of their arguments.  Firstly, the VAT imposes taxes on both imports and locally produced goods and services and therefore does not discriminate against imports;  whereas the border tax system imposes a tax on imports whilst excluding domestic inputs and wages from tax, which therefore discriminates against imports.  Secondly, the VAT system does not subsidise exports, whereas the border tax system does.

In a 1990 paper, Martin Feldstein and Paul Krugman found that the VAT does not improved the trade competitiveness of countries using it.  They said:  “The point that VATs do not inherently affect international trade flows has been well recognised in the international tax literature…A VAT Is not a protectionist measure.”

Krugman, in a recent blog, reiterated that “a VAT does not give a nation any kind of competitive advantage, period.”  But a destination-based cash flow tax like the border adjustment tax has a subsidy element that “would lead to expanded domestic production.”

In another paper, Reeven Avi-Yonah and Kimberly Clausing  from Michigan Law School and Reed College respectively analyse the difference between the VAT and the proposed border adjustment tax and why the former is WTO-consistent whereas the latter would violate WTO rules.

They said:   “U.S. trading partners are likely to be hurt in several ways. The effects of the wage deduction render the corporate cashflow tax different from a VAT, and these differences have the net effect of increasing the incentive to operate in the United States

“In addition, such a tax system would exacerbate the profit shifting problems of our trading partners, since the United States will appear like a tax haven from their perspective.”

Economists also agree that the border tax will raise the value of the US dollar but there is a debate as to how long this will take and by how much it will rise. If the dollar appreciation is significant, this may have an adverse effect on countries that hold debt in US dollars, as they would have to pay out more in their domestic currency to service their loans. This would include many developing countries with substantial dollar-denominated debts of the public or private sectors, and some of them may tip into new debt and financial crises.    According to former US Treasury Secretary Lawrence Summers:  “Proponents of the plan anticipate a rise in the dollar by an amount equal to the 15 to 20 per cent tax rate.  This would do huge damage to dollar debtors all over the world and provoke financial crises in some emerging markets.”           

This article is the second in a two-part series on the border adjustment tax, which would have the effect of taxing imports of goods and services that enter the United States, while also providing a subsidy for US exports which would be exempted from the tax. You can find Part 1 here

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