House of Commons - Aid under Pressure - International Development Committee

Aid under Pressure - International Development Committee Contents

5 Trade and Taxation

106. Vital though it is for poor countries to receive support from the developed world, it is also essential that they are assisted to derive the maximum benefit from their own resources. We discussed in Chapter 3 the steps DFID has taken to support trade in Africa through the North-South Corridor and to boost trade finance in support of small and medium-sized businesses in developing countries. In this Chapter, we will explore how the international trade and taxation systems could be improved to benefit developing countries.

Trade

107. As we have described in Chapter 2, international trade has already been affected by the financial crisis, through both a reduction in the availability of trade credit and reduced demand for goods and services from the developed world.

108. We have repeatedly pressed for a successful outcome to the Doha round of World Trade Organisation negotiations which was intended to be a "development" round, aimed at boosting the ability of poor countries to trade with the developed world.[185] We have emphasised that the establishment of a fair and free world trade system would do at least as much to boost development in poor countries as aid funding. This point was echoed by the G20 which estimated that bringing the negotiations to a successful conclusion could boost the global economy by $150 billion a year.[186] In oral evidence to us, the Chairman of the OECD Development Assistance Committee estimated that sums generated for developing countries through an effective world trade system would be worth three and half times as much as development assistance. He said that donors were "handcuffing" themselves by pursuing "false policies" on trade at the same as devoting large sums to aid.[187]

109. The Doha round of WTO negotiations began in November 2001. The most recent stage of negotiations in July 2008 broke down after disagreements between India and the US about the Special Safeguard Mechanisms which were designed to protect poor farmers by allowing countries to impose a special tariff on certain agricultural goods in the event of an import surge or price fall.[188]A meeting scheduled for the middle of December 2008 was cancelled. Pascal Lamy, WTO Director-General, said that this was because it "would be running an unacceptably high risk of failure, which could damage not only the round but also the WTO system."[189]

110. The G20 communiqué restated the international community's intention to reach "an ambitious and balanced conclusion to the Doha development round which is urgently needed" and said that renewed focus and political attention would be brought to this.[190] However, similar aspirations were expressed at the Doha Financing for Development Conference in December 2008 without result.[191] Moreover, concern has been expressed that the downturn may push developed countries in the opposite direction—towards increased protectionism rather than opening up their markets. The G20 communiqué stated:

192

The Chairman of the OECD Development Assistance Committee similarly warned against this type of knee-jerk reaction from developed countries.[193]

111. The intention to press for a pro-development trade agreement was supported in oral evidence by Mr Maciej Popowski, Director of EU Development Policy of the European Commission, who emphasised that the negotiations needed to be brought to a successful outcome as soon as possible.[194] The Secretary of State told us that the UK was already engaged with the Director-General of the WTO and others to see whether progress could be made at the G8 meeting in July. He stressed that the Government had "worked hard to get the language in the G20 communiqué around Doha" and to raise the issue with the new US Administration at the earliest opportunity "to reaffirm the fact that we do regard the global trade deal as being important."[195] Ron Kirk, the US trade representative, recently reaffirmed the new Administration's commitment to achieving a "successful and speedy conclusion" of the Doha negotiations and to securing a "balanced and ambitious agreement with meaningful market access gains for all involved."[196]

112. The developed world, represented at the G20 meeting in London, accepted that a new global agreement on trade could boost the global economy by $150 billion. A successful outcome to the Doha round of World Trade Organisation negotiations could generate three and a half times as much revenue for poor countries as they receive in aid. Unfortunately, acknowledging these facts does not seem to bring a new world trade agreement any closer. We believe that the rich world should show its commitment to economic growth in developing countries by resisting protectionism, offering access to its markets to poor countries and by finally concluding the pro-development Doha round of WTO negotiations. Failure to do this could negate much of the good work which has been done to assist developing countries to cope with the recession. The UK has taken a strong position in trying to encourage other countries to resolve their differences on trade and should continue to engage the US and the EU on this at every opportunity with a view to making real progress at the G8 meeting in July.

Taxation

113. Tax revenue provides a long-term and sustainable source of funding. Taxation also facilitates financial planning, and plays an important role in strengthening good governance. Building the capacity of countries to raise their own revenue through taxation is therefore essential if they are to reduce their dependence on aid.

114. Tax evasion is a major problem faced by developing countries in attempting to raise tax revenue. Tax havens facilitate tax evasion by operating lax regulations; providing companies with anonymity through bank secrecy; and by failing to co-operate on tax matters with authorities from the country in which the funds originated.

115. There are varying estimates of the value of revenue lost to developing countries through tax evasion: Oxfam have estimated it to be $120 billion[197] while Christian Aid has stated that poor countries lose $160 billion a year in tax evasion by corporations.[198] When we questioned the Secretary of State about this in January he said that "the veracity of some of these figures was […] open to dispute", but that the Department was "already working with the Treasury to see whether we can get to a clearer evidence base to establish figures in which we would have confidence."[199] When he appeared before us again in April, Mr Alexander told us that he still could not give us a figure for the taxes lost to developing countries but that "real progress has been made".[200]

116. Tax evasion was one of the issues addressed at the G20 summit. The final communiqué contained a commitment to "take action against non-cooperative jurisdictions, including tax havens."[201] The accompanying Declaration on Strengthening the Financial System stated that "We stand ready to take agreed action against those jurisdictions which do not meet international standards in relation to tax transparency" and set out a "toolbox of effective counter measures" which countries could consider using. The G20 countries committed themselves to developing proposals by the end of 2009 "to make it easier for developing countries to secure the benefits of a new cooperative tax environment."[202] The Secretary of State emphasised that the G20 agreement represented "an opportunity which I think we must seize […] to ensure that more of those revenues are kept within developing countries".[203]

117. The OECD recently published a report indicating that all countries had now made a commitment to implement internationally agreed standards for tax information exchange, but found that 42 signatories had not substantially implemented them.[204] Of these, seven are British Overseas Territories (Anguilla, Bermuda, British Virgin Islands, Cayman Islands, Gibraltar, Montserrat and the Turks and Caicos Islands).[205] While some of these 42 countries, including Austria and Switzerland had only recently signed up to the standard, others, including Anguilla, Montserrat and the Turks and Caicos Islands had committed to implement the standard in 2002 but had yet to sign a single bilateral agreement. Concern has been raised that, for some jurisdictions, agreeing to the standard has been little more than a delaying tactic.[206] The OECD has acknowledged that some small tax havens lack the resources to enter into negotiations with large countries. It says that it outlined in 2002 how countries could tackle the process of arranging multilateral tax information exchange agreements and that it intended to revisit this shortly.[207]

118. Written evidence from Global Witness provided an example of a UK tax haven being involved in the loss of revenue by developing countries. They claim that:

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119. The UK Government has a responsibility to ensure that British Overseas Territories comply with international agreements. DFID officials explained that the FCO was now working with HM Revenue & Customs to assist UK Overseas Territories to meet the OECD standards.[209] The Secretary of State believed that the FCO's co-ordinating role marked a real change in the UK Government's approach and that the Prime Minister's chairmanship of the G20, where international consensus was achieved, was a clear indication of the UK's commitment to tackling tax havens.[210] Indeed, we were told that, since the summit, Gordon Brown had written to the Overseas Territories concerned urging them to comply with OECD standards.[211]

120. Developing countries suffer disproportionately from the existence of tax havens which prevent them receiving much-needed tax revenue which they should derive from economic activity within their borders. The ending of tax havens is necessary, not only for reasons of justice but also to promote good governance and robust management of public finances in poor countries. We believe that the consensus reached at the G20 represents an important milestone on the way to reforming and fully implementing international taxation standards. The UK Government deserves credit for ensuring this issue was given appropriate priority at the London summit. Momentum now needs to be maintained. The UK has an opportunity to make amends for its previous failure to address this issue by taking urgent steps now to ensure that British Overseas Territories cease to be tax havens. We do not believe that the Prime Minister writing to the territories concerned is sufficient; more direct action must be taken. We request that, in response to this Report, the Department provides us with an update on progress with the FCO's work with Overseas Territories towards their achievement of the OECD's taxation standards.

185 See for example Third Report of Session 2005-06, The WTO Hong Kong Ministerial and the Doha Development Agenda, HC 730-I; Fifth Report of Session 2006-07, EU Development and Trade Policy: An Update, HC 271; and Second Report of Session 2007-08, Development and Trade: Cross-Departmental Working, HC 68 Back

186 G20 communiqué, para 23 Back

187 Q 189 Back

188 "Dismayed powers plea to salvage WTO talks", Agence France-Presse, 30 July 2008 Back

189 "WTO chief drops plans to press ministers for outline Doha deal", Financial Times, 13 December 2008 Back

190 G20 communiqué, para 23 Back

191 Doha Declaration, para 32 Back

192 G20 communiqué, para 22 Back

193 Q 189 Back

194 Q 226 Back

195 Q 286 Back

196 "US backs new approach to Doha negotiations", The Financial Times, 14 May 2009 Back