UN Must Reclaim Multilateral Governance from Pretenders

By Jomo Kwame Sundaram

KUALA LUMPUR, Malaysia, Aug 24 2023 (IPS) - International governance arrangements are in trouble. Condemned as ‘dysfunctional’ by some, multilateral agreements have been discarded or ignored by the powerful except when useful to protect their interests or provide legitimacy.

Economic multilateralism under siege

Undoubtedly, many multilateral arrangements have become less appropriate. At their heart is the United Nations (UN) system, conceived in the last year of US President Franklin Delano Roosevelt’s presidency and World War Two.

The 1944 UN conference at Bretton Woods sought to build the foundations for the post-war economic order. The International Monetary Fund (IMF) would create conditions for lasting growth and stability, with the World Bank financing post-war reconstruction and post-colonial development.

The Bretton Woods agreement allowed the US Federal Reserve Bank (Fed) to issue dollars, as if backed by gold. In 1971, President Richard Nixon repudiated the US’s Bretton Woods obligations. With US military and ‘soft’ power, widespread acceptance of the dollar since has effectively extended the Fed’s ‘exorbitant privilege’.

This unilateral repudiation of US commitments has been a precursor of the fate of some other multilateral arrangements. Most were US-designed, some in consultation with allies. Most key privileges of the global North – especially the US – continue, while duties and obligations are ignored if deemed inconvenient.

The International Trade Organization (ITO) was to be the third leg of the post-war multilateral economic order, later reaffirmed by the 1948 Havana Charter. Despite post-war world hegemony, the ITO was rejected by the protectionist US Congress.

The General Agreement on Tariffs and Trade (GATT) became the compromise substitute. Recognizing the diversity of national economic capacities and capabilities, GATT did not impose a ‘one-size-fits-all’ requirement on all participants.

But lessons from such successful flexible precedents were ignored in creating the World Trade Organization (WTO) from 1995. The WTO has imposed onerous new obligations such as the all-or-nothing ‘single commitment’ requirement and the Agreement on Trade-related Intellectual Property Rights (TRIPS).

Overcoming marginalization

In September 2021, the UN Secretary-General (SG) issued Our Common Agenda, with new international governance proposals. Besides its new status quo bias, the proposals fall short of what is needed in terms of both scope and ambition.

Problematically, it legitimizes and seeks to consolidate already diffuse institutional responsibilities, further weakening UN inter-governmental leadership. This would legitimize international governance infiltration by multi-stakeholder partnerships run by private business interests.

The last six decades have seen often glacially slow changes to improve UN-led gradual – mainly due to the recalcitrance of the privileged and powerful. These have changed Member State and civil society participation, with mixed effects.

Fairer institutions and arrangements – agreed to after inclusive inter-governmental negotiations – have been replaced by multi-stakeholder processes. These are typically not accountable to Member States, let alone their publics.

Such biases and other problems of ostensibly multilateral processes and practices have eroded public trust and confidence in multilateralism, especially the UN system.

Multi-stakeholder processes – involving transnational corporate interests – may expedite decision-making, even implementation. But the most authoritative study so far found little evidence of net improvements, especially for the already marginalized.

New multi-stakeholder governance – without meaningful prior approval by relevant inter-governmental bodies – undoubtedly strengthens executive authority and autonomy. But such initiatives have also undermined legitimacy and public trust, with few net gains.

All too often, new multi-stakeholder arrangements with private parties have been made without Member State approval, even if retrospectively due to exigencies.

Unsurprisingly, many in developing countries have become alienated from and suspicious of those acting in the name of multilateral institutions and processes.

Hence, many in the global South have been disinclined to cooperate with the SG’s efforts to resuscitate, reinvent and repurpose undoubtedly defunct inter-governmental institutions and processes.

Way forward?

But the SG report has also made some important proposals deserving careful consideration. It is correct in recognizing the long overdue need to reform existing governance arrangements to adapt the multilateral system to current and future needs and requirements.

This reform opportunity is now at risk due to the lack of Member State support, participation and legitimacy. Inclusive consultative processes – involving state and non-state actors – must strive for broadly acceptable pragmatic solutions. These should be adopted and implemented via inter-governmental processes.

Undoubtedly, multilateralism and the UN system have experienced growing marginalization after the first Cold War ended. The UN has been slowly, but surely superseded by NATO and the Organization for Economic Cooperation and Development (OECD), led by the G7 group of the biggest rich economies.

The UN’s second SG, Dag Hammarskjold – who had worked for the OECD’s predecessor – warned the international community, especially developing countries, of the dangers posed by the rich nations’ club. This became evident when the rich blocked and pre-empted the UN from leading on international tax cooperation.

Seeking quick fixes, ‘clever’ advisers or consultants may have persuaded the SG to embrace corporate-dominated multi-stakeholder partnerships contravening UN norms. More recent SG initiatives may suggest his frustration with the failure of that approach.

After the problematic and controversial record of such processes and events in recent years, the SG can still rise to contemporary challenges and strengthen multilateralism by changing course. By restoring the effectiveness and legitimacy of multilateralism, the UN will not only be fit, but also essential for humanity’s future.

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https://www.ipsnews.net/2023/08/un-must-reclaim-multilateral-governance-pretenders/

World Bank Climate Finance Plan Little Help, Unfair

By Jomo Kwame Sundaram and Khoo Wei Yang

The World Bank plans to use public funds to subsidize private finance, ostensibly to mobilize much more capital to address the climate crisis. But the new plan is likely to be a distraction, not the solution it purports to be.

KUALA LUMPUR, Malaysia, Aug 16 2023 (IPS) - Rich nations have contributed most to the current climate crisis. They are primarily responsible for the historical emissions and greenhouse gas (GHG) accumulation of the last two centuries.

Developing countries, especially in the tropics and sub-tropics, are the main victims of global warming today. Most need finance and other means to build resilience and to develop in the face of the climate crisis. But the rich have resisted major efforts to help developing nations better cope with the crisis.

Climate finance lacking

But recent international climate finance flows fall far short of developing countries’ needs, not only in the aggregate, but also due to their restrictive terms. Nonetheless, increasing demands have been made of the global South to stem the growing crisis.

Meanwhile, climate finance has become increasingly commercial, not concessional. After all, most international agreements tend to be poor compromises reflecting corporate and political power in the world. They fail to address the crisis, let alone advance climate justice.

Rich nations have fallen far behind on their $100 billion annual finance commitment for the 2009 Copenhagen climate conference. This modest commitment was supposed to increase significantly after 2020, but there have been no signs of progress, e.g., at French President Macron’s recent summit.

Instead of helping developing countries cope with more funds for adaptation, most available resources have been earmarked for mitigation. Finance for mitigation is over ten times more than the $56bn (8.4%) available for adaptation in 2020.

Meanwhile, official development assistance (ODA) has long fallen short of the promise of 0.7% of rich nations’ national incomes made over half a century ago. This fell further after the end of the first Cold War, over three decades ago, to barely 0.3%!

Much ODA has gone to climate finance, resulting in double counting. As concessional finance – especially its grant content – declines, developing countries have no choice but to turn to commercial loans as ‘debt-pushers’ gain influence the world over.

Meanwhile, the USA, the dominant World Bank (WB) shareholder, has blocked increasing WB capitalization, to avoid China gaining more influence with a greater capital share.

WB subsidizes private finance

The WB has revised its earlier failed ‘playbooks’ as global warming accelerates, with worsening consequences, especially for the global South. Its new plan – Evolving the World Bank Group’s Mission, Operations, and Resources – was issued in early 2023.

Eurodad warns, while it “seeks to incorporate climate considerations, the Roadmap does not address the continuing contradictions in its operations”. Most worryingly, ever more private commercial finance is being touted as development and/or climate finance.

Despite being among the world’s largest public lenders, the WB has been slow to provide climate finance, and is already years behind schedule. It is not even aligned with the non-binding 2015 Paris Agreement goals, with new operations only scheduled to become aligned from mid-2023!

Worse, WB subsidiaries – the International Finance Corporation and the Multilateral Investment Guarantee Agency – will only become aligned from mid-2025, a decade after Paris! Also, its climate finance definition, data and corporate strategy remain controversial and unhelpful.

Meanwhile, the WB has worsened the climate crisis, e.g., by providing $16 billion of project finance for fossil fuels since 2015. Its involvement in Clean Development Mechanism projects involves a ‘serious conflict of interests’, profiting from the climate crisis while worsening it!

The WB Group (WBG) intends to mobilize private capital with de-risking strategies, such as blended finance. Instead of using public finance to provide concessional terms to the deserving, public funds will thus make commercial finance more profitable.

Despite much cause for concern and caution, the WB’s problematic 2017 Maximizing Finance for Development promotes commercial finance as the main source of development and climate funding.

The WBG claims to want greater development and climate impacts from private commercial finance. This is undoubtedly in line with the WB creed that only the private sector can overcome the climate crisis despite being its major enabler, if not cause.

Such initiatives by former WB president Jim Kim and former Bank of England governor Mark Carney are considered ‘much ado about nothing’ by many in the global South. Enabling profit-seeking businesses to call the shots can hardly be the solution, and may instead worsen the problem.

Way forward?

Developing country leaders have long appealed for a new ‘international financial architecture’ to better address development and climate challenges, drawing support from civil society, especially in the global South.

Without any agreed multilateral definition of climate finance, governments and corporations are ‘greenwashing’ their financial abuses by labelling their financial operations as constituting climate and development finance.

As poor nations in the tropical zone suffer the worse consequences of accelerating global warming, only multilateral recognition of the need for financial reparations to address historical and contemporary losses and damages.

It is unlikely the needed climate financing will be voluntarily provided by those most responsible for the climate crisis. At the very least, rich nations should support regular issue of IMF Special Drawing Rights in the near term within the constraints imposed by likely US Congressional disapproval.

These should be urgently reallocated for concessional climate finance in the coming years prioritizing the adaptation needs of developing nations, prioritizing cumulative losses and damages due to the climate crisis.

Meanwhile, Eurodad urges penalizing “the private sector of the developed global north for failure to meet its carbon emission reduction” promises as it is responsible for over 90% of excess GHG emissions.

It has also called for “providing developmental space for developing countries” to progress, and re-orienting “the bank’s developmental model towards climate reparations”, especially for Africa, the least developed countries and small island developing states.

But the WB plan offers no major improvements, only more of the same. Instead, the WB should help the UN design and implement a comprehensive monitoring and reporting framework for all development and climate finance, including private finance.

By recognizing the international and intergenerational inequities of global warming, the WB can become far more equitable by ensuring all nations develop sustainably while addressing the climate crisis.

To do so, it will need to uphold ‘polluters pay’ and ‘common, but differentiated responsibilities’ principles, enshrined in international climate agreements.

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·World Bank Financialization Strategy Serves Big Finance

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·Much more climate finance now!

https://www.ipsnews.net/2023/08/world-bank-climate-finance-plan-little-help-unfair/

Mining Revenues Undermined

By Jomo Kwame Sundaram

KUALA LUMPUR, Malaysia, Aug 9 2023 (IPS) - The primary commodity price boom early this century has often been attributed to a commodity ‘super-cycle’, i.e., a price upsurge greater than what might be expected in ‘normal’ booms. This was largely due to some minerals as most agricultural commodity price increases were more modest.

This minerals boom improved many developing country growth records, not least in Africa. With growing pressures to act urgently in response to accelerating global warming, mitigation efforts have been stepped up, promising energy transitions to reduce greenhouse gas emissions.

These require major shifts from fossil fuel combustion to renewable energy and complementary (e.g., transport) technologies. This energy transition requires more of specific minerals like lithium, copper and cobalt. This increased demand for minerals offers resource-rich economies more opportunities for greater domestic resource mobilization for development.

The Intergovernmental Forum on Mining, Minerals, Metals and Sustainable Development (IGF) and the African Tax Administration Forum (ATAF) report, The Future of Resource Taxation: 10 policy ideas to mobilize mining revenues, reviews major problems faced by African and other governments trying to greatly increase revenue from mining.

Great expectations, little taxation

Colonial and neo-colonial mining arrangements have rarely delivered the revenue needed by post-colonial governments. Weak governance, overly generous tax incentives, poor fiscal policies, bad contracts, as well as tax avoidance and evasion have all eroded mineral revenues for developing countries.

Resource-rich countries have been rethinking how to benefit more from mining in the face of the Covid-19 pandemic, worsening developing country debt crises, and increasingly uncertain government revenues and expenditures.

Mining royalties and taxation have remained largely unchanged for decades, while corporate income tax is hard to collect, vulnerable to profit shifting and often minimized with the aid of tax professionals and corrupt officials.

Improving taxation

Taxing transnational corporations has long posed major challenges. Poor laws and enforcement as well as limited funding and staff mean most developing countries are poorly equipped to apply complex international tax norms, such as the ‘arm’s-length principle’ and ‘double taxation treaties’.

Developing nations are especially vulnerable to tax base erosion and profit shifting (BEPS). International Monetary Fund staff estimate African countries have lost annual mining revenue up to $730 million annually due to BEPS.

Many developing countries identified ‘transfer pricing’ as the greatest challenge to taxing mining. The problem has been made worse by mining tax regimes and investment agreements favouring investors, especially from abroad.

Such agreements often contain fiscal incentives making mining revenue collection difficult. Worse, many governments believe generous tax incentives are necessary to attract mining investment. But these typically undermine effective tax administration, causing significant revenue losses.

Also, policy conditionalities typically ‘lock in’ poorly designed fiscal conditions and mining contracts, often required or recommended by the IMF or World Bank. These tend to benefit investors, potentially resulting in costly disputes for host governments.

Generating substantial government revenue from artisanal and small-scale mining (ASM) is difficult. As ASM induces more local spending, rather than extraction or export taxes, indirect taxes and wealth taxes are probably better for such incomes.

Governments of resource-rich developing countries require finance and reliable personnel for successful implementation, to ensure accountability and curb corruption. Sufficient financial and technical assistance can greatly improve mining revenue collection, ensuring companies pay all royalties and taxes due.

Effective implementation needs to be well supported by international agreements and organizations, development partners, and civil society. Tax incentives undermining government policy objectives and legal systems should be avoided.

Taxing better not easy

More access to information and expertise can greatly improve mining tax administration. Information, particularly from other jurisdictions, is critical for tax administrations to better collect taxes due. Sadly, progress has been painfully slow in many developing countries.

Instruments designed to improve information exchange include bilateral investment and tax treaties, tax information exchange agreements, the Organization for Economic Co-operation and Development (OECD) Convention on Mutual Administrative Assistance in Tax Matters, and the ATAF Multilateral Agreement on Assistance in Tax Matters.

Mining revenue collection needs to be able to verify the quantity and quality of mineral reserves and extracts. Key challenges include enhancing tax audit capacity and getting up-to-date knowledge of mining, including implications of changes in mining techniques.

Better inter-agency cooperation is often necessary for better regulation and to avoid an incoherent, fragmented approach. Many mining revenue BEPS problems are due to capacity constraints, e.g., whether governments can effectively verify the costs of goods and services and mineral prices.

Many transactions also require tax auditors to have detailed knowledge of the mining value chain. Many aspects of mining operations allow inflating actual costs to evade taxes. Valuing intangibles, such as intellectual property, is also difficult. Many countries also lack regulations to tax the sale of offshore indirect mining assets, often losing much revenue as a consequence.

Related IPS Articles

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·How France Underdevelops Africa

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·Out of Africa: Rich Continent, Poor People

Mining Revenues Undermined