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EXECUTIVE
SUMMARY OF THE REPORT The
world has seen faster human and economic development during the past
half century than during any previous comparable period in history.
Almost everywhere, literacy rates are up, infant mortality is down,
and people are living longer lives.
But
some very real challenges remain. Over a fifth of the world’s
population still lives in abject poverty (under $1 a day), and about
one-half lives below the barely more generous standard of $2 a day.
One-quarter of the population of developing countries are still
illiterate. The 2.5 billion people who live in the world’s
low-income countries still have an infant mortality rate of over 100
for every 1,000 live births, compared with just 6 per 1,000 among
the 900 million people in the high-income countries. Illiteracy
still averages 40 per cent in low-income countries. Population
growth, although slowing, remains high. Sadly,
increasing polarization between the haves and have-nots has become a
feature of our world. Reversing
this shameful trend is the preeminent moral and humanitarian
challenge of our age. For people in the rich world, elementary
self-interest is also at stake. In the global village, someone
else’s poverty very soon becomes one’s own problem: of lack of
markets for one’s products, illegal immigration, pollution,
contagious disease, insecurity, fanaticism, terrorism. There
are several hopeful signs that the international community has begun
to acknowledge this reality. In
September 2000, the meeting of the U.N. General Assembly concluded
on an historic note, with the adoption of the Millennium
Declaration. This Declaration collectively committed their
governments to work to free the world of extreme poverty. Towards
that end, it endorsed the following International Development Goals
for 2015: to cut in half the proportion of people living in extreme
poverty, of those who are hungry, and of those who lack access to
safe drinking water; to achieve universal primary education and
gender equality in education; to accomplish a three-fourths decline
in maternal mortality and a two-thirds decline in mortality among
children under five; to halt and reverse the spread of HIV/AIDS and
to provide special assistance to AIDS orphans; and to improve the
lives of 100 million slum dwellers.
Unlike
many previous undertakings, the Millennium Declaration also
highlighted the task of mobilizing the financial resources
needed—to achieve the International Development Goals and, more
generally, to finance the development process of developing
countries. The upcoming Conference and Summit on Financing for
Development, to be held in March 2002, will be a key event in
agreeing a strategy for better resource mobilization. Key
Issues Domestic
Resource Mobilization.
The primary
responsibility for achieving growth and equitable development lies
with the developing countries themselves. This responsibility
includes creating the conditions that make it possible to secure the
needed financial resources for investment. It is the actions of
domestic policymakers that largely determine the state of
governance, macroeconomic and microeconomic policies, the public
finances, the condition of the financial system, and other basic
elements of a country’s economic environment.
A sound fiscal policy, responsible social spending, and a
well-functioning, competitive financial system are crucial to
economic and social development.
Finally, a good pension scheme is essential.
To have the greatest social impact, a defined contribution
scheme should be complemented by a tax-financed scheme, to provide
for a minimum pension that has a progressive redistributional impact
and safeguards the poor. Private
Capital Flows.
The
bulk of the saving available for a country’s investment will
always come from domestic sources, whether that country is large or
small, rich or poor. But foreign capital can provide a valuable
supplement to the resources a country can generate at home.
Nowadays, large sums of capital cross national borders in the form
of foreign direct investment (FDI), and the international capital
markets constitute a further vast pool of funds on which countries
can draw. Developing
countries can undertake various measures to increase their share of
FDI, including policy changes that treat foreign investors no less
favorably than domestic investors, upgrading accounting and auditing
standards, improving corporate governance, infrastructure and the
efficiency of delivery of services. Industrial countries
need to remove artificial constraints on investment in emerging
markets, and refrain from imposing severe restrictions on access to
credit. While private
capital cannot alleviate poverty by itself, it can play a
significant role in promoting growth, but its provision needs to be
organized in a way that reduces vulnerability to crises.
Trade.
Thanks to eight
rounds of multilateral negotiations, much has been done in half a
century to dismantle tariff and non-tariff barriers to trade. But by
far the main beneficiaries of trade liberalization have been the
industrial countries. Developing countries’ products continue to
face significant impediments in rich country markets. Basic products
in which developing countries are highly competitive are precisely
the ones that carry the highest protection in the most advanced
countries. These include not only agricultural products, which still
face pernicious protection, but also many industrial products
subject to tariff and non-tariff barriers.
Therefore,
there is an urgent need to initiate a new round of multilateral
trade negotiations. Although
some panel members felt it was crucial that developed countries
first rebuilt confidence in the WTO by delivering on both the spirit
as well as the letter of previous agreements, the Panel as a whole
strongly endorses the launching of a new round of trade
liberalization at the next WTO ministerial meeting, to be held in
Qatar next November. The
Panel recommends that the following issues be addressed: The
implementation of the Uruguay Round.
This issue concerns not only full compliance with the commitments
that industrial countries made under the Uruguay Round but also a
responsible review—open and generous but consistent with free
trade principles—of some regulations that developing countries
have found either extremely hard to implement or outright
counterproductive. Chief among these are standards (technical
barriers to trade), anti-dumping, trade-related intellectual
property rights (TRIPS), trade-related investment measures (TRIMS),
subsidies, customs valuation, and phase-in periods for developing
countries. §
Liberalization
in agriculture.
In this field, it is vital for developing countries to discuss and
get from industrial countries a significant improvement in market
access, an elimination of export subsidies, and a tightening of
support to domestic producers. §
The
total elimination of remaining trade barriers in manufacturing.
Existing barriers in this sector are mostly at the expense of
developing countries. An obvious, but sadly not unique, example of
this injustice is protection on textiles and clothing.
Some panel members consider that welfare gains for all
parties would be even greater if the new round also liberalizes
trade in services. International
Development Cooperation.
Even
if great strides are made in trade liberalization, domestic policy
reform, and capital inflows into developing countries, international
development cooperation will retain four vital roles in which it has
essentially no substitute: §
Helping
to initiate development
in countries and sectors that do not attract much private
investment, and that cannot afford to borrow extensively from
commercial sources. This is the traditional role of official
development assistance and of lending by the multilateral
development banks. §
Coping
with humanitarian crises. §
Providing
or preserving the supply of global public goods.
Goods that fall in this category include peacekeeping; prevention of
contagious diseases; research into tropical medicines, vaccines, and
agricultural crops; the prevention of CFC emissions; limitation of
carbon emissions; and preservation of biodiversity. No individual
country has an incentive to pay for these goods and thus collective
action is needed if they are to be supplied in sufficient quantity. §
Confronting
and accelerating recovery from financial crises.
The
Panel urges the Financing for Development Conference to obtain a
commitment by the industrial countries to implement the aid target
of 0.7 percent of GNP. It
also recognizes
that International Development Goals are unlikely to be achievable
unless public opinion in the developed countries comes to recognise
the moral and utilitarian case for treating them as a priority.
Accordingly, it calls for the initiation of a public campaign for
the International Development Goals, to be focused especially on
countries that have fallen furthest behind the aid target.
Finally, donors must invest in better coordination and
delivery of aid, via the common pool approach.
Systemic
Issues.
It is clear,
however, that the challenges of globalization today cannot be
adequately handled by a system that was largely designed for the
world of 50 years ago. Changes in international economic governance
have not kept pace with the growth of international interdependence.
The
Panel endorses the
proposal of the Commission on Global Governance to create a global
council at the highest political level to provide leadership on
issues of global governance. The proposed council would be more
broadly based than the G7 or the Bretton Woods institutions. It
would not have legal binding authority but through its political
leadership it would provide a long-term strategic policy framework
to promote development, to secure consistency in the policy goals of
the major international organizations, and to promote consensus
building among governments on possible solutions for issues of
global economic and social governance.
As much the Panel perceives the need for the proposed
council, it acknowledges the enormous political difficulty of
launching it. To pave the way, it supports a Globalization Summit
to discuss this issue.
Despite
its youth, the WTO is in urgent need of reform and support in
certain critical aspects. The necessary changes are unlikely to be
achieved from within. What may be needed is a bigger political
impulse, stemming from the construction of global economic
governance. In that endeavor, at least the following aspects of the
WTO should be addressed: §
its decision-making system, which many developing countries
perceive, with reason, as selective and exclusionary; §
its capacity to provide technical assistance to developing
countries, so they can participate more effectively in multilateral
trade negotiations, trade opportunities, and the dispute settlement
mechanism; §
attached to the latter, the WTO’s evident underfunding and
understaffing. The
issues of labor and environmental standards need a stronger focus in
the international arena than they presently have. In the case of
labor standards, the most natural solution would be to strengthen
the International Labor Organisation (ILO).
In the environmental domain, the sundry organisations that
now share policy responsibility should be consolidated into a single
Global Environment Organisation with standing equivalent to that of
the WTO, the IMF, and the World Bank.
The
international community should consider whether the common interest
would be furthered by providing stable and contractual resources for
these purposes. Politically, taxing for the solution of global
problems will be much more difficult than taxing for purely domestic
purposes. If only out of self interest, new sources of finance
should be considered without prejudice by all parties involved.
In particular, a currency transactions tax (otherwise known
as the Tobin tax) have often been proposed as a new source of
finance. The Panel
believes that further rigorous technical study is needed before any
definitive conclusion is reached on the convenience and feasibility
of the Tobin tax. There
is likely to be more promise in a carbon tax—a tax on the consumption of fossil fuels, at rates that
reflect the contribution of these fuels to CO2 emissions. The
Panel proposes that the Conference and Summit consider the potential
benefits of an International Tax Organization (ITO) to: §
At the least,
compile statistics, identify trends and problems, present reports,
provide technical assistance, and develop international norms for
tax policy and administration. §
Maintain surveillance of tax developments in the same way
that the IMF maintains surveillance of macroeconomic policies. §
Take a lead
role in restraining tax competition designed to attract
multinationals with excessive and unwise incentives. §
Slightly more
ambitiously, develop procedures for arbitration when frictions
develop between countries on tax questions. §
Sponsor a
mechanism for multilateral sharing of tax information, like that
already in place within the OECD, so as to curb the scope for
evasion of taxes on investment income earned abroad. Immigration
policies must protect individual nations’ economic and social
interests. But it is time for governments, without risking the
national interests they must promote, to start working together to
develop forms of international cooperation to optimize collectively
the benefits of the movement of labor across national borders. The
time may be ripe to start seeking an international agreement on
“the movement of natural persons”. Principal
Recommendations 1.
Every
developing country needs to set its economic fundamentals in order. No
country can expect to achieve equitable growth, or to meet the
International Development Goals, unless it focuses on building
effective domestic institutions and adopting sound policies
including:
2.
The
WTO should launch a Development Round. The
industrial countries should take the lead in proposing that the WTO
ministerial meeting to be held in Qatar in November 2001 launch a
Development Round of trade negotiations, with the principal
objective of fully integrating the developing countries into the
global trading system. The agenda for this round should include:
3.
The
least developed countries need some immediate help in improving
their position in the world trading system.
These countries cannot wait for the outcome of a new trade round.
The Panel recommends:
4.
Developing
countries should create an attractive environment for foreign
investment, especially FDI. 5.
The
Panel urges the Financing for Development conference to obtain a
commitment by the industrial countries to implement the target of
providing ODA equal to 0.7 per cent of their GNP.
Achieving
the aid target will require rekindling political support in the
donor countries for aid. That in turn will require a Campaign for
the Millennium Goals, launched by a consortium of those
organisations that successfully fought for debt relief, together
with the professional expertise of the key international agencies
and the financial support of private foundations.
It is also imperative to separate finance for development and
humanitarian assistance from finance for global public goods and to
provide adequate finance for each of these countries. 6.
Donors
should distribute ODA across countries according to two criteria:
the depth of poverty in a country, and their assessment of
the extent to which the country’s policy is effectively directed
to reducing poverty.
7.
The Panel recommends
that aid be voluntarily and prudently shifted to a common pool basis
that would finance the recipient’s announced development strategy.
8.
The Panel endorses the
proposal of the Commission on Global Governance to create a global
council at the highest political level to provide leadership on
issues of global governance. This
Panel proposes a Globalization Summit to discuss this issue further.
The summit
would convene a group of heads of state, large enough to be
representative but small enough to be efficient, to address the key
governance challenges of globalization through a structured but
informal discussion. 9.
The WTO should be
better funded, and its governance should be reformed to enable small
countries to play a more effective role in decisionmaking. The ILO
should be given teeth and should be prepared to use them. The sundry
organisations that currently share responsibility for environmental
issues should be consolidated into a Global Environmental
Organisation. 10.
The
Financing for Development conference should explore the desirability
of securing an adequate international tax source to finance the
supply of global public goods.
It
has been suggested that a currency transactions tax might provide
such a source, but the Panel concluded that further rigorous study
would be needed to resolve the doubts about the feasibility of such
a tax. A better possibility would be for all countries to agree to
impose a minimum level of taxation on consumption of fossil fuels (a
carbon tax) as a way of combating global warming. 11.
The IMF should recommence SDR allocations. 12. The Panel proposes that the international community should consider the potential benefits of an International Tax Organisation. This could address many needs that have arisen as globalization has progressively undermined the territoriality principle on which traditional tax codes are based. Developing countries would stand to benefit especially from technical assistance in tax administration, tax information sharing that permits the taxation of flight capital, unitary taxation to thwart the misuse of transfer pricing, and taxation of emigrant income.
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Prepared by the Information Technology Section, DPI © United Nations 2001