Wednesday, 28 November 2012

Global Peacebuilding II: High time for environmental diplomacy in the Caribbean

Antonio Archbold, an old fisherman from Providence Island in the Caribbean, whom I have known for a long time, woke up a few days ago without sea. On 19 November, the International Court of Justice (ICJ) ruled that from now on Nicaragua has rights over a significant area of the Caribbean Sea that formerly belonged to Colombia.

The dispute over the maritime border between Colombia and Nicaragua dates back to 1928, when both countries signed the Esguerra –Barcenas treaty to define their territorial sea borders. This treaty established Colombia’s sovereignty over the San Andres and Old Providence archipelago. In 1980, Nicaragua unilaterally annulled the agreement, arguing that it had been signed under US pressure. 

In 2001, Nicaragua submitted the case to the ICJ. The court has now decided that the group of disputed islands belong to Colombia, but drew a demarcation line in favour of Nicaragua in the adjacent waters. The ICJ’s ruling is binding and cannot be appealed. And so, Antonio and the local community of this archipelago have lost their beloved sea.

Colombian islands without sea

Losing an area almost equal in size to that of Austria (approx. 85,000 km²) has tremendous implications for the Colombian archipelago. The local communities, whose livelihoods depend on fishing in those waters, will clearly be the most affected. Traditionally, fishing has been their basis of subsistence. It is part of the islands’ way of being.

In addition, fishing is one of the remaining licit economic activities on the islands. Drug trafficking has become an economic mainstay in this region, partly because of its strategic location on the maritime cocaine trafficking routes to the US and partly because of a lack of economic opportunities for young islanders.

The impact of the ICJ’s decision will be equally disastrous for the pristine marine ecosystems. Nicaragua has already made public its plans for exploring the seabed for oil in an area which has the third largest coral reef in the world. The protection and sustainable management of this coral reef was the main reason for UNESCO to designate, in 2000, the Seaflower Biosphere Reserve (BR). From the outset, the implementation of the BR has been backed not only by the local community but also by a broad range of international stakeholders, such as the Global Environmental Facility (GEF), and the United Nations Environment Programme (UNEP).

Environmental diplomacy: protecting the interests of the fishing communities and the environment

Colombia did not expect the ICJ to rule the way it did. Accompanied by Foreign Minister Holguín, President Santos immediately visited the islands to meet with local authorities and representatives of a very concerned and disappointed community. A heated debate about the issue is raging in Bogotá. Viewed from a distance, it seems that the Colombian government lacks a clear strategy to deal with this serious issue.

But what choices does Colombia have? I suggest focusing on quick and effective environmental diplomacy, pursuing a three-pronged strategy:

  1. Colombia should draw international attention to the potential environmental impact of the ICJ’s decision on the unique marine ecosystem. This global campaign should involve internationally renowned environmental organizations that in the past have supported Colombia’s conservation efforts, such as The Prince’s International Sustainability Unit, GEF, the World Wildlife Fund, UNESCO, and Sea Shepherd
  2. Colombia should approach Nicaragua on good terms and propose the creation of an international Peace Park. Peace Parks are transboundary protected areas dedicated not only to the protection and maintenance of biological diversity and its associated cultural resources, but also to the promotion of peace and cooperation. Such efforts have been adopted successfully around the globe since 1932, when the first park was declared by Canada and the US: Waterton Lakes Glacier International Peace Park. In Latin America a successful example is the Cordillera del Condor Peace Park. It was established in 1998 by Ecuador and Peru on the basis of the peace treaty that ended a short but bloody international conflict and settled a long-standing territorial dispute.
  3. Both countries should use the ample experience in negotiating Peace Parks of organizations such as the South African Peace Park Foundation and the Institute for Environmental Diplomacy and Security to transform the Seaflower BR into the first ever Caribbean Peace Park. The objective should be to establish a collaborative management regime for the sustainable management and conservation of the disputed marine area. Participation of local communities is imperative to give them back their sense of belonging.
Let’s remember that oceans, coral reefs and marine resources do not recognize political boundaries. This fact as well as the need to secure local communities’ access to marine resources should be Colombia’s and Nicaragua’s priority in looking ahead. 

*Julia Gorricho is a PhD candidate at the Institute of Forest and Environmental Policy, Albert-Ludwigs-Universität Freiburg, Germany.

Tuesday, 20 November 2012

After the Arab Spring – the birth of a new political model?

by Josie Stewart*

The power and promise of Tahrir Square has given way to a slower, less dramatic process of change in Egyptian politics and society – but one that will have at least as much impact on the country, the region and the world. As the democratically-elected Muslim Brotherhood begins to define its role in political leadership, the nature of Islamist democracy is on the table and the stakes are high.

This blog is based on a synthesis of a recent Sussex Development Lecture by Mariz Tadros, author of The Muslim Brotherhood in Contemporary Egypt: Democracy Redefined or Confined? The lecture illuminated the current transformation in Egypt’s political system and proposed the need for more robust debate and challenge regarding the emerging model of Islamic democracy.

Democracy on the move in Egypt

Back in June, Mohamed Morsi rode a wave of popular support to become Egypt’s first democratically-elected president. The Western world cheered the democratisation of the Arab world’s biggest and in many ways most influential country. And there was much to cheer about: the Egyptian people had expressed themselves through the ballot box and had given power to a moderate Muslim party. The Brotherhood had mass popular support, did not condone violence and played by the democratic rules of the game.

But in what direction?

As the initial euphoria wears off, it is only now that serious questions are emerging regarding the type of democracy that is filling the space that Tahrir Square created. In her work on this, Mariz points out that on the ground many of those who initially supported the Muslim Brotherhood’s sweep to power are beginning to wonder what they have let themselves in for as executive power grabs accompany restrictions on the media, limitations of minority rights and constraints on individual choice.

As the new Egyptian democracy uses religion to legitimise and enforce what could turn into a new form of tyranny, the democratic rhetoric of the Muslim Brotherhood sits in sharp contrast to their authoritarian reality. This raises the question: what is happening to Egypt’s infant democracy?

What does the new political order mean for the Egyptian people?

Egypt has democracy, but it is a heavily qualified democracy. It is an attempt to do something new: to merge liberal democratic systems and institutions with traditional Islamic substance and values; to carve out a path somewhere between theocracy and secularism.

Should the Muslim Brotherhood be given time to show that they can consolidate their many promises and contradictions into one new order, and deliver the revolutionary dreams identified by Mariz: dignity, freedom and social justice? Will the substance of Egypt’s infant democracy develop to come into line with its structures and processes, providing a better overall fit with the liberal Western understanding of democracy? Or will the attempt to anchor democracy within a stringent Islamic ideological framework result in the creation of a wholly new kind of political order? And what would such a system mean for the Egyptian people, and for the many others that will be influenced by what happens in Egypt?

The imperative to engage with the Muslim Brotherhood

There is a current window of opportunity to influence the direction of Egypt’s emerging political system. The Muslim Brotherhood as a legitimate political party is still new, and its approach is meeting resistance from some elements of Egyptian society. Its approach is not yet fully embedded in politics or society, and the shape of the democracy that they currently represent is not yet fully defined. Policy-makers and practitioners now need to listen to academics and engage in constructive analysis, and where appropriate criticism, of the political developments underway in Egypt.

It is not enough to feel grateful for a supposed ‘lesser of two evils’; the fact that the Muslim Brotherhood are not Al Qaida does not mean that all is alright in Egypt. As Mariz argues, it is not acceptable to self-censor for fear of being seen to criticise Islam. It is also not enough to assume that the current political transition will build on the positive foundations of the revolution, or to apply the label of ‘democracy’ to smooth over a much more complex reality. Those with power and influence – the US, the UK and closer neighbours such as Turkey – need to immediately engage with the Muslim Brotherhood, to understand, to challenge, and to help shape a positive future.

Is there enough political will to engage in robust debate with the Muslim Brotherhood? Would this engagement be constructive? Could it threaten a delicate relationship between Islam and the West? The most important question is: can we afford to miss this opportunity?

* Josie Stewart is a student on the MA Governance and Development course at IDS, 2012 - 2013.

Friday, 16 November 2012

Better coordination key to more tax and less aid

By Mick Moore

In August of this year, the UK Parliament’s International Development Select Committee published a report on its investigations into DFID's work on tax and development. The process was in some ways impressive. A number of MPs on the Committee showed a real interest in the topic. A visit to Zambia brought them right up against what some people regard as the scandal of gross under-taxation of foreign-owned mining companies.

The report was notable too for the way in which it addressed what many of us believe are the central tax and development policy issues for the UK government: how do the tax policies and practices of the UK, EU, OECD countries and the UK Crown Dependencies (some of them tax havens) impact positively or negatively on the capacity of the revenue authorities of developing countries to tax transnational business?

The most radical single proposal was that the UK Government should undertake "an analysis of the likely financial impact of the revised Controlled Foreign Companies rules on developing countries. Depending on the results of this analysis, the Government should consider whether to drop its proposals."

UK Government responds to the committee's recommendations

The UK Government has now published its response to the 16 recommendations in the Committee's Report. The general pattern of responses is predictable. Four of the recommendations were for what the governments of developing countries should do – or what the UK Department for International Development (DFID) should urge them to do. The government response is 'Agree' to all four of these recommendations.

The other 12 recommendations were about what the UK Government itself should do – or what it should be encouraging the OECD or the Crown Dependencies to do. Here the response is far less positive: 'Disagree' on 3 points; 'Partially agree' on 5 points; and 'Agree' on 3 points. Of those points of agreement, two are for DFID to spend more money on tax and development issues. And you can guess the response to the suggestion for a review of the impact on developing countries of our revised Controlled Foreign Companies rules.

The outcome is no surprise. The Committee that produced the report is appointed to "examine the expenditure, administration, and policy of the Office of the Secretary of State for International Development." International tax issues are the responsibility of HM Treasury, and the International Development Select Committee has little influence on Treasury policy. So, no big changes, but a brave effort and some useful nudges in the right direction.

Tax and development policy - something for donors to ponder 

One final thought for DFID and other donors in relation to tax and development policy. As I outlined in my evidence to the committee, donor activity and funding in the field of tax and development is on the rise. DFID itself is committed to spending more money in this area. However increased resources must be targeted and coordinated effectively and at the moment this is not happening. An influx of new donors, doing their own thing, means that there is a real danger of fragmentation and that money and efforts are being wasted. If systems of taxation in developing countries are to improve and dependence on overseas aid reduced, donors (and government departments) must work together much more closely.

Monday, 5 November 2012

Are You Getting Excited about ‘Formulary Apportionment’?

I thought not. And, by the way, formulary apportionment is not directly connected to children’s milk food formulae – although more of it in our lives should ensure that more under-nourished babies are better fed.

Formulary apportionment is all about taxation of transnational corporations. It is very complex. But the principles are quite straightforward.

The reality of transnational corporations’ cross-trading

Transnational corporations have subsidiary companies in more than one country. Some have them in dozens of countries, and some have hundreds of subsidiaries. They inevitably do much of their international business with one another. Unilever does not manufacture all of its enormous range of foods, beverages, cleaning agents and personal care products separately in each of the many countries in which it operates. Nor does it brand and market completely separately in each country. Its many subsidiaries and affiliates trade with one another across international borders – in market-ready products, in components, in packaging, in management expertise, in the right to use its 400+ separate brands, in intellectual property, and in capital (i.e. inter-company loans).

Two possible ways of taxing Unilever Worldwide

How should Unilever Worldwide be taxed? There are two main possible answers. The first and most logical is unitary taxation: Unilever could be taxed on its total worldwide profits, allocated according to the location of its activities. It could present annually to the tax authorities of the countries in which it operates a single set of accounts. These would include profits for the firm as a whole, and identify the proportion of its activities (number of employees and wage bill, assets, and sales) in each country where it does business. Its tax bill could then be apportioned among all those countries according to an internationally agreed formula based on a weighting of these factors. That is formulary apportionment.

The second way of taxing Unilever is to disregard that it is a Worldwide entity. In this approach, each subsidiary would report to, and be taxed by, the revenue authorities in the country in which it is located. And the parent company would report to the tax authority in the country in which it is formally head-quartered. But there it would need to report only the income it actually receives from the other parts of the whole Unilever group, usually as dividends. Other income could be transferred through a chain of intermediaries to holding companies in countries where it is not taxable, either because the country has no income or profits tax, or it exempts foreign source income. But Unilever does not have to submit accounts for the whole of Unilever Worldwide to any one tax authority.

The latter is sort-of what happens at present – although tax law is much more complex, and national tax rules vary enormously. What is wrong with the current system? It is not that it is a bit messy. Any system for taxing transnational corporations is likely to be messy. It is rather that the current system disregards the economic reality of Unilever as a worldwide business, and also provides very strong incentives for the managements of transnational corporations to shift their profits around the world through pure accounting devices. It diverts valuable management, accounting and legal skills into gaming the tax man. It is unfair between countries, because some get much less in tax revenue than they have earned by hosting transnational businesses. And it is a major source of business for tax havens, where little or no tax is paid (Palan,R., et al., 2010). If transnational corporations were not using tax havens for this purpose, it would be easier for global authorities to crack down on their more nefarious uses, including money laundering and tax evasion by wealthy individuals.

If we had a system of formulary apportionment, there would be little reason for transnational corporations to put so much effort into shifting profits around the world on paper, and much less incentive to use secret tax havens.

How transnational corporations get around paying taxes

How do transnational corporations less scrupulous than Unilever shift their profits around the world in an accounting sense? Easy. Here are three widely used devices that might be used, for example, by a transnational corporation in the business of distilling, brewing and selling alcoholic drinks. First, it might sell its finest scotch whisky at an artificially high price to a retailing subsidiary in a country where it does not want to be seen to be making profits – or at a low price if to wants to show profits. Second, it might charge unreasonably high (or low) rates for subsidiaries for the right to use such famous brand names as Moores Pale Ale for beer they were brewing in-country. Third, it might organise a large number of inter-company loans among its many subsidiaries, charging lower or higher interest rates than those available from local banks, according to the central plan about where profits should finally appear to be ‘earned’.

If you are with me so far, you need to know where the excitement is. A couple of years ago, I would have said that formulary apportionment was pie in the sky. Although over 20 American states actually use such a system to share out income tax from US companies the rest of the world has gone in another direction, and the political resistance from the world’s transnational corporations appeared fierce and apparently insurmountable. But the wind seems to be changing. The European Union is considering introducing such a system internally. A few transnational companies seem to be signalling that formulary apportionment would not be a big problem globally, and would perhaps be a reasonable price to pay for cleaning up their image.

Tax avoidance of international corporations in the UK

And, on Saturday 20 October, responding to the campaign around the alleged failure of Starbucks to pay significant taxes in the UK on its profitable UK activities, an editorial in the Financial Times, one of the world’s leading business newspapers, urged that the European Union proposal for introducing formulary apportionment should be “keenly pursued”. 

We are quite some years away from any global adoption of formulary apportionment. But it is worth fighting for. The governments of many developing countries would get more tax revenue, and could be more realistically held to account for infant under-nutrition, and many other things. And the bun-fight over the actual formulae through which the global revenues of transnational corporations are allocated among countries offers real opportunities. Instead of giving aid, we might calibrate the system such that the governments of the poorest countries would automatically get a revenue supplement. Even better, we could make that supplement conditional on their running effective direct cash transfer programs for their own poor citizens. We would then have a global welfare state. You will forgive my excitement?