Shaky State of North-South Relations

Yves here. Another geopolitical fault line. And notice that one of the big issues is tax avoidance, which happens via how multinationals set transfer prices, as well as powerful insiders using secrecy jurisdictions to hide ownership or launder money.

By Martin Khor, Executive Director of the South Centre, Geneva. Originally published at The Star

The UN’s leading development organisation just got a renewed mandate for its work, but not without difficulty because the developed countries are tighter with their concessions to the developing countries. The process in attaining it shows the not too healthy state of North-South relations.

The United Nations’ leading organisation for discussions on economic issues has recently concluded its conference, held once in four years, by adopting two declarations.

That is seen as another success in international co-operation, this time on trade, development and related issues. However, agreement was reached only after a lot of difficult wrangling between the developed and developing countries.

The process showed up the shaky and not too healthy state of North-South relations.

The 14th session of the UN Conference on Trade and Deve­lopment (dubbed Unctad 14) was held in Nairobi between July 17 and 22.

Formed in 1964, Unctad is the UN’s premier economic development organisation. In its heyday from the 1960s to the 1980s, Unctad was a major trade negotiating centre, specialising in global commodity agreements.

It helped lead the developing countries’ initiative for a “new international economic order”.

It was also designated the UN’s focal point for the integrated treatment of trade and development and with areas of finance, technology and investment.

For over half a century, Unctad has championed the cause of developing countries. But in recent years, under the influence of developed countries, its role was downgraded.

Many important issues were given to other organisations, over which the developed countries have more control, such as the OECD, World Trade Organisation, IMF and World Bank.

The two declarations adopted in Nairobi summarised the countries’ views on trade and economic issues and Unctad’s role in the next four years.

It took many months of negotiations in Geneva, capped by days and sleepless nights in Nairobi, to reach a consensus on what should have been non-controversial issues.

Principles or even phrases that have long been agreed to as part of global co-operation are now challenged or even made taboo by the developed countries.

They had previously been amenable to place on record the need to transfer technology and provide financial resources and special treatment to developing countries.

Now it is almost too sensitive to even propose language on “additional resources”, “technology transfer” and the long-accepted principles of “common but differentiated responsibility” and “special and differential treatment”.

The developed countries have become less secure in their domination over the global economy and thus not willing to maintain the previous concessions to the developing countries.

It was thus a big challenge for the developing countries, led by the Group of 77 and China, to get their developed-country partners to reach a consensus at Unctad 14, as the following illustrates.

First, the developing countries fought to re-state their need for “policy space”.

This concept, agreed to at an earlier Unctad conference, implies that developing countries should be given the right to make use of policies and instruments required for their development, and which should not be eliminated by trade and other agreements.

The developing countries proposed language on policy space in many parts of the document, but they faced resistance.

Eventually, only a mild and conditioned reference was accepted, as follows: “…and respecting each country’s policy space while remaining consistent with relevant international rules and its commitments.” (Para 3)

Second, the developing countries wanted an expanded mandate for Unctad’s important work on debt issues. Unctad has been the UN system’s main organisation on debt; it has championed debt relief and the need for an international debt restructuring mechanism to resolve debt crises.

Developing countries wanted to stress that Unctad has a role in the prevention and resolution of debt crises and not just debt management, but this faced objections.

Further, language was introduced to narrow the scope of Unctad’s debt work to one of complementing the work of the IMF and World Bank, which would have curbed its independence.

At the last minute, developing countries managed to add “as appropriate”, implying that the “complementing” would be at Unctad’s discretion.

Third, the developing countries wanted to mention the need to rapidly conclude the WTO’s Doha Round. This is hardly a radical idea since the need to conclude Doha had been a longstanding mantra for many years in international talks.

However, the developed countries have now decided to give up on the Round and thus work on the Doha Round was not even mentioned in the Unctad 14 outcome.

Fourth, in many other fora, including the UN climate change convention, “technology transfer” has become a taboo phrase, and even its mention has been opposed, especially by the United States.

It is to the credit of developing countries that this term appears several times in the Unctad 14 declaration, including that Unctad should assist developing countries to identify ways to operationalise technology transfer. (Para 40f)

Fifth, the need for international co-operation on tax issues (including how to deal with tax avoidance and tax havens) has become a hot topic recently. The developing countries have tried to get these issues discussed at the UN and not just at the OECD (the club of developed countries) in which they have no say.

They asked during the negotiations for the setting up a UN committee on tax issues at which all countries could discuss and make decisions, but this was not acceptable to the developed countries.

However, the final document mentions taxation a number of times, thus providing Unctad a limited mandate in pursuing the issue.

Finally, Unctad’s role as the main UN organisation dealing with the inter-related issues of trade and development with finance, technology and investment, has been reaffirmed by Unctad 14.

Also reaffirmed is the importance of Unctad’s “Independent development oriented analytical work”, with a fresh mandate given for its work in the next four years.

These were hard-won victories, showing that the standard for success has now gone quite low.

This situation depicts the underlying conflicts, with the South desiring Unctad expand its mission to champion the cause of development and the North attempt­­ing to restrict Unctad’s role to a minimum.

It is to the credit of developing countries, the G77 and China that they succeeded in having many of their main points, albeit in diluted form, in the Unctad 14 outcomes.

Although it may not have the same clout as during its high years some decades ago, Unctad lives on to fight another day.