Economy

Addis Agreement Shows Rich Countries Still Call the Shots

Rich country recalcitrance means the Addis agreement falters on the sole meaningful reform that could make a difference to global development

The three-day Financing For Development Conference was held in Addis Ababa from July 13-16, 2015. Credit: UN Photo

The three-day Financing For Development Conference was held in Addis Ababa from July 13-16, 2015. Credit: UN Photo

ADDIS ABABA: The United Nations has announced a “historic” and “groundbreaking” foundation for a new global development paradigm spanning the next 15 years, even as developing country negotiators described the Addis Ababa Action Agenda as little action and all agenda.

At the international Conference on Financing Development, which ended here Thursday, representatives from the G77, a group of 134 developing countries including India and China, pushed hard to create a more inclusive global tax architecture to allow poor nations to raise domestic tax revenues to pay for much-needed roads, hospitals, schools, drinking water and power plants.

However, stiff resistance from the OECD – a club of the world’s wealthiest nations and home to the world’s richest multinational companies – has meant, G77 representatives said, that developing nations shall continue to lose more money from tax avoidance and illicit money transfers, than they receive as official development assistance (ODA) from rich countries.

“Unless we can capture tax revenues that should be there in the developing world, the developing world genuinely cannot progress,” said Jayant Sinha, India’s Minister for State for Finance, in a press conference after the outcome document was finalised.

The global nature of multinational capital, Sinha said, made it “vitally important for the developing world that we are able to establish the protocols that enable us to capture the tax that belongs effectively to our people.”

A G77 proposal to establish an inter-governmental tax body under the aegis of the UN was stymied by Russia, the European Union and Japan, as representatives of the OECD nations, who currently make global tax rules.

Instead, the Addis outcome document seeks to strengthen an International Committee of Experts, whose members shall “reflect an adequate equitable geographical distribution”. It is unclear if the recommendations of this panel shall carry any weight. “We will have to wait and see,” Sinha said, when asked if the committee had any real power.

“An enhanced tax committee just means the committee will have more meetings – and that’s unacceptable,” said Winnie Byanyima, Executive Director of Oxfam International, pointing to clause 29 of the agreement that notes that the committee shall “increase the frequency of its meetings to two sessions per year, with a duration of four working days each.”

“The document reveals the hypocrisy of the western nations when it comes to the development agenda,” said the G77 negotiator, noting that the document called on poor nations to finance their own development, acknowledged that their tax bases were eroding, but stopped short of tax reform.

Background conversations with representatives of both groups, the G77 and OECD, reveal that the ultimate document was a compromise forged in realpolitik and bare-knuckle power play.

In a background briefing, United States officials said they were surprised that negotiations over tax reform had garnered so much attention, and said the issue had been blown out of proportion. Officials said the US opposed the G77 proposal because the OECD was already working on tax issues, and the US did not want a duplication of existing work. The official said the G77 was not united in its demand for an intergovernmental tax body at the UN. The US, the official said, worked very closely with the African Union to ensure AU interests were protected.

The official claimed the agreement was about a lot more than the tax body, but a perusal of the document reveals little of substance beyond pushing countries to rely on the private sector and their own resources to achieve development targets that shall be defined at a conference in September this year.

A UN press release announcing the agreement, for instance, highlights the following section as an example of a landmark agreement on health: “We recognise, in particular, that, as part of a comprehensive strategy of prevention and control, price and tax measures on tobacco can be an effective and important means to reduce tobacco consumption and health-care costs, and represent a revenue stream for financing for development in many countries.”

Days into the conference, the US, UK, Germany, the Netherlands and Ethiopia unveiled the Addis Tax Initiative (ATI), in which “each country takes ownership of mobilising its domestic revenue” in return for improved access to development assistance and technical assistance to improve their ability to collect tax. The countries that have signed on to this initiative are wealthy nations like Belgium, Denmark, Finland, France, Italy, Germany, Luxembourg, Netherlands, Norway, Sweden, Switzerland, United Kingdom, and the United States, with a smattering of developing nations like Liberia, Sierra Leone, Ethiopia and Malawi.

“The US put a lot of pressure on African countries that receive aid,” said the G77 negotiator, claiming that Ethiopia – the host, and one of the largest recipients of US aid – was very keen that the meeting ended with consensus document, “We have got some of what we wanted into this agreement and now can keep pushing for reform in other fora.”

The OECD too has launched a programme called “Tax Inspectors Without Borders” in which poor countries can ask for an OECD-approved auditor to help them catch tax evaders.

Civil society activists met these proposals with some skepticism. “Such programs allow OECD countries to claim that tax rules are not the problem, it is just that developing nations don’t have the capacity to implement them. This is clearly not the case,” said Pooja Rangaprasad, Policy Coordinator for Financial Transparency Coalition, “It is also patronising because developing countries are demanding a place on the table to discuss tax reform, but are being offered aid for capacity building instead.”

While welcoming the OECD-backed ATI, Oxfam International warned that it “should not divert energy from the drive to create an inclusive intergovernmental process on tax cooperation. Developing countries must have an equal say in the updating of global tax rules that have held them back in filling their public coffers.”

 

Editor’s note: The Wire is covering the Conference on Financing for Development at the invitation of the United Nations