Aid agencies say rich countries are blocking anti-poverty economic action

By agency reporter
September 25, 2008

click hereAs world leaders gather in New York for make or break talks about halving extreme global poverty, international development agencies, including Britain's Christian Aid, warn that progress is being hampered by the activities of rich countries and big business.

Tomorrow’s meeting, a High-level Event organised by the United Nations, will highlight the lack of progress being made in helping the developing world achieve the Millennium Development Goals (MDGs).

Christian Aid says that short-sighted trade liberalisation imposed on poor countries, and the use of offshore havens by transnational corporations (TNCs) to reduce their tax liabilities in the developing world, are grievously undermining international aid efforts.

‘The aims of the MDGs are wholly desirable, but while rich countries discuss how much more aid they can afford, they are missing one very salient point,’ said Christian Aid policy manager Alex Cobham. ‘What they are giving with one hand, they are taking away with the other.’

Eight MDGs to tackle global poverty were agreed in 2000 during a UN Millennium Summit. The first seven include halving by 2015 the number of people living on less than one dollar a day, and the number suffering from hunger, promoting gender equality, achieving ‘full and productive’ employment for all, making primary education universal, and obtaining dramatic cuts in child and maternal mortality rates.

An eighth MDG called for ‘a global partnership for development’ that would address the needs of least developed countries and include an ‘open, rule-based, and predictable non discriminatory trading and financial system’.

The United Nations says that while significant progress has been made in the fight against poverty, ‘urgent and increased efforts’ are needed, particularly in sub- Saharan Africa.

Christian Aid says that the real problem is the failure of the international community to implement MDG 8. ‘The first seven MDGs are being held back by a lack of funds. They are targets that can be met by spending, but to spend, you have to have growth that generates revenue,’ said Mr. Cobham.

‘MDG 8 sets out how that growth can be achieved. It is completely undermined, however, by the insistence on trade liberalisation in economies that are not ready for it, together with the evasion of taxes by big business.’

On trade liberalisation, Christian Aid says that fundamental changes are needed to the manner in which the international community seeks to influence agricultural and trade policies in poor countries.

Based on a doctrinaire belief that ‘free trade’ is always an engine of growth, rich countries have made aid and trade for poor countries conditional on the opening up of their markets, the agency suggests.

It comments: "Forced to remove protective tariffs safeguarding domestic production, developing countries have watched helplessly as their agricultural and industrial sectors have atrophied in the face of cheaper imports from abroad, which in the case of agricultural products are often heavily subsidised in the country of origin.

"Although there is growing recognition of the damage caused by trade liberalisation, it remains firmly implanted as a principle of the Economic Partnership Agreements that the European Union is pressing African, Caribbean and Pacific nations to sign."

‘If the international community is really serious about realising the MDGs, then it must ensure that development is a priority in trade negotiations between rich and poor countries,’ said Mr Cobham.

Towards that end, the World Trade Organisation Doha Development Round talks which collapsed in Geneva earlier this year must be restarted, and completed in accordance with the original intention of being development focused, and of special benefit to lowest income countries, says Christian Aid and its NGO partners.

World Bank economists had concluded that the outlines of the deal being discussed in Geneva would have undermined the economies of the poorest countries, showing just how far the talks were from being a genuine Development Round.

‘Failure to deliver on MDG8 is holding back progress on the other MDGs’, said Mr Cobham. ‘Developing countries should not be forced to sign away their economic policies, but liberalise at their own pace.’

Examples of the negative impact of liberalisation highlighted by the agencies include:

In Jamaica, imports of vegetable oils between 1995 and 2000 were more than double what they were between 1990 and 1994, and domestic production fell by 68 per cent.

Haiti saw rice production slump after trade was liberalised in the 1990’s under pressure from the World Bank and the International Monetary Fund (IMF), precipitating a huge influx of heavily subsidised rice from the United States.

In Ghana, where tomato cultivation was widespread, World Bank and IMF policy conditions led to the import of heavily subsidised processed tomato preserves from the EU increasing by 628 per cent between 1993 and 2003. Two local canning factories were forced to close and tomato growers throughout the country continue to face extreme hardship.

Tax evasion is another serious concern. Earlier in 2008, Christian Aid highlighted the manner in which illegal, trade related tax evasion was also depriving the developing world of badly needed revenue.

It estimated that just two forms of tax evasion alone were costing poor countries US$160bn a year in lost corporation tax. That money, if used according to present spending patterns in the developing world, could have saved the lives of 5.6 million children between 2000 and 2015.

One method of evasion is ‘transfer mispricing’ in which different parts of the same TNC sell goods or services to each other at manipulated prices.

This enables the TNC to claim that the goods sold from the developing world fetched very low prices to reduce their tax liability. The ‘buyer’, another part of the same TNC based in a tax haven, then inflates the price when it sells the produce on, ensuring that the profits accrue off shore where they will not be taxed.

The sums involved in ‘transfer mispricing’ and ‘false invoicing’ - where similar transactions take place between unrelated companies – would be more than enough to meet the extra US$40-60bn the World Bank estimates poor countries will need annually to meet the MDGs.

It is also more than one and a half times the size of the combined aid budgets of the whole rich world in 2007 (US$103.7bn).

‘Steps must be taken to address the obstacles which limit the amount of money developing countries can make from tax revenues. It is far better for countries to rely on tax than aid’, said Mr. Cobham.

‘Part of the solution would be to force corporations to report what they pay in every country where they operate. That way, anomalies could be quickly spotted.’

In the face of widespread tax abuse, he added, it was ironic that big business had been asked by UK Prime Minister Gordon Brown to embark on a set of initiatives to contribute to the achievement of MDGs, including offering employment opportunities, increasing incomes and implementing responsible standards and practices.

’Harnessing the drive to make money to the drive to achieve the MDGs could in principle be very rewarding,’ said Mr Cobham. ‘But some mechanism must be created to monitor that what corporations are doing really is in the interests of the countries where they will roll out these programmes.

‘And without doubt, the biggest contribution some companies could make would be to stop the practice of transfer mispricing.

The Christian Aid spokesperson declared: ‘We welcome Prime Minister Gordon Brown’s demand for greater global financial transparency in his speech this week to the Labour Party conference, and hope that the details of this proposal will deliver the type of structural change that will enable poorer countries to build truly effective taxation systems to support their own development.’

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