Thursday, December 11, 2008

Doha: a cup half full

The final outcome document from the Follow-up International Conference on Financing for Development (FFD), held in Doha, Qatar, from 29th November to 2nd December, is now available for download here.

This blogger was present in Doha for much of the period of the protracted negotiations during the final days of the conference, and can bear witness to the dedication of the UN team who slogged away, night after night, to find compromise wordings that would bring together widely diverging views, including those of some countries that would have loved to scupper the whole process. The end result shows progress in several areas (though not, regrettably, on debt relief), and the very fact that there was a final document at all was a success in itself. And, as many people at Doha noted, progress on the tax justice agenda was considerable.

As the Conference title implies, this event followed-on from the first FFD conference held in Monterrey in 2002. That conference laid out a new agenda for development - the Monterrey Consensus - which emphasised in its first chapter the importance of using domestic resources as a source for both private and public investment. So far so good, but while many people attending the Monterrey conference had raised concerns about capital flight and tax evasion, their concerns scarcely got a mention in the final Consensus document.

For example, capital flight was mentioned (paragraph 10), but tax evasion was not. Nor had there been any mention of tackling tax practices that undermine development, such as tax competition and tax avoidance, and the role of tax havens in facilitating all of these. Importantly, however, the Monterrey Consensus relating to systemic issues, included the following commitment to strengthening international tax cooperation:

Strengthen international tax cooperation, through enhanced dialogue among national tax authorities and greater coordination of the work of the concerned multilateral bodies and relevant regional organizations, giving special attention to the needs of developing countries and countries with economies in transition; (section F, paragraph 64).

This clause played a part in stimulating the launch of the Tax Justice Network. Those of us with an interest in domestic capital accumulation in poorer countries (and the role of tax havens in disrupting that) saw this as an opportunity to promote global efforts against capital flight and tax evasion. We were heartened in December 2003 when the UN General Assembly agreed to upgrade the obscure and flaccid Ad Hoc Group of Experts on International Cooperation on Tax Matters to Committee status, mandated with the task of advancing the Finance for Development agenda on tax cooperation. TJN was the first genuine civil society organisation to attend the Committee's annual sessions in Geneva, and we see the Tax Committee as the most legitimate agency working in this important area (the OECD plays a powerful role, but it ultimately represents rich countries.)

The TJN team, which right from the start included our colleagues at the Paris-based Plateforme Paradis Fiscaux et Judiciaires, started to focus on the Doha follow-up conference in September 2006. Here we saw an opportunity to galvanise European non-governmental organisations (NGOs) around a short list of clear demands. These included:
  1. Strengthening commitment to tackling illicit financial flows, capital flight, tax evasion and avoidance;
  2. Upgrading the UN Tax Committee to intergovernmental status and rebalancing its composition to include more genuine developing countries and fewer tax haven countries;
  3. Including an explicit commitment to progressive taxation (anathema to anti-state extremists);
  4. Adopting measures to tackle tax practices that undermine the integrity of tax regimes, e.g. the aggressive tax competition of tax havens;
  5. Promoting the UN Code of Conduct on Cooperation in Combating International Tax Evasion.
We made significant progress with items 1 and 2, but not with 3 and 4. But as for raising tax justice up the agenda, which was a broader aim, we certainly put tax issues centre stage - and many allies rallied around: see here and here, for example.

But one thing at a time. On illicit financial flows, the section on systemic issues saw a new, stronger wording emerge, addressing our calls for more transparency and information disclosure: the key sections of paragraph 72 have been emphasised below -

New and highly globalised financial instruments continue to change the nature of risks in the world economy, requiring continuing enhancement of market oversight and regulation. To strengthen the resilience of the international financial system, we will implement reforms that will strengthen the regulatory and supervisory frameworks of financial markets as needed. We will strive to improve key accounting standards to remedy weaknesses and deficiencies, including those exposed by the current financial crisis. National regulators should enhance financial information and transparency at the domestic level. We will further enhance cooperation amongst national regulators from all countries to strengthen international financial standards. These efforts should address timely and adequate risk disclosure standards in order to improve the foundation of decisions of investors. There is also a need for enhanced transparency by financial institutions. Enhanced disclosure practices and transparency should assist efforts to reduce illicit financial flows.

That last sentence came in at the very last moment, apparently with the sponsorship of the German negotiating team. Well done to our friends in Berlin. This provides a suitable hook for much work, including the country-by-country reporting standard, and disclosure of beneficial ownership. The reference to risk disclosure has a strong bearing on off-balance sheet vehicles used in the shadow banking system, which in no small way contributed to the current financial crisis: off-balance sheet financing has no legitimate role in a market economy and must be abolished.

Another key section is paragraph 16, which includes the following:

We will step up efforts to enhance tax revenues through modernised tax systems, more efficient tax collection, broadening the tax base and effectively tackling tax evasion. We will undertake these efforts with an overarching view to make tax systems more pro-poor.

Well that's OK as far as it goes, but for the record the earlier drafts of that final sentence read "more progressive and pro-poor" and the reference to progressive tax was deleted at the insistence of the Americans and their allies. Ho hum. Leopards, Spots, etc. The paragraph continues:

While each country is responsible for its tax system, it is important to support national efforts in these areas by strengthening technical assistance and enhancing international cooperation and participation in addressing international tax matters, including in the area of double taxation.

(Its a shame they can't quite get to the point of explicitly mentioning double NON-taxation, but I digress) and now we get to one of the most hotly contended sections of the entire document

In this regard, we acknowledge the need to further promote international cooperation in tax matters, and request the Economic and Social Council to examine the strengthening of institutional arrangements, including the United Nations Committee of Experts on International Cooperation in Tax Matters.

Now this latter part is hugely important. We had hoped for a stronger wording: explicitly committing the UN to upgrade its Tax Committee, but the agreed formulation provides an opportunity to map out what changes are needed in the way of balanced representation (and that includes not allowing them to shoe-horn a multitude of tax havens into the "developing country" categories), political status, resourcing and staff. We regard this as a vital step towards improving on the current situation, where the interests of poor people from real developing countries are not being effectively served.

Paragraph 20 helpfully refers to strengthening national and multilateral efforts to address the various factors that contribute to capital flight (we, of course, focus especially on the pull factors contributed by tax havens) and to efforts to tackle money laundering and preventing illicit financial flows. As with other parts of the document, the paragraph is weak on the specifics, but the broad commitments are immensely important.

Paragraph 21 elaborates on the fight against corruption "in all of its manifestations" in the private as well as the public sector, and calls for "effective legal and judicial systems and enhanced transparency." We have strong views on corruption (see here, for example) and hope to see tax evasion explicitly listed as a corrupt practice under the UN Convention Against Corruption.

There's much more we could comment on , not least paragraphs 78 and 79 relating to the UN's role in reviewing the international financial and monetary architectures. We do not have a great deal of confidence in the ability of the Group of 20 to carry out this crucial task, and deplore any move that precludes any of the 192 UN member states from participating in this process.

Other positive outcomes from Doha included the launch of a book on the South-South Sharing of Successful Tax Practices Programme (co-organised by TJN in conjunction with New Rules for Global Finance, UN Development Programme and UN Department of Economic and Social Affairs), and the 2008 Social Watch Report, which includes a chapter on tax and development contributed by TJN's Nicholas Shaxson and John Christensen.

Half full? Half empty? We think the former. Sure -- there was strong resistance from the usual suspects, including some tax havens from the G-77 group of countries, but there was also strong support from important allies, and progress on many fronts. Above all, we came away with a strong impression that tax matters have moved from the periphery to the core of the development debate, and we know that TJN played a part in making this happen. That alone makes the efforts of the past two years more than worthwhile.


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2:08 am  

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