Bulletin 09 May 10

To: Organizations addressing Trade-Finance Linkages 1) Tax justice compromised by trade and investment liberalization 2) Deadline May 13: Registration for World Conference on Financial and Economic Crisis 3) Draft Outcome Document for Conference on Financial and Economic Crisis available 4) WTO questions impact of GATS on financial crisis 5) Incipient but worrisome trends on trade protection, says World Bank 6) London Summit anti-protectionist pledges rapidly become dead letter 7) OECD claims mandate to follow up on G20 trade-finance commitments

1) Tax justice compromised by trade and investment liberalization "The fiscal impacts of trade liberalization", a chapter in the recently published book "Tax Justice: Putting Global Inequality on the Agenda," seeks to offer guidance and insights for governments to review the rules of trade - within or outside agreements - that are in their interest to implement, having very especially in mind the impacts on public finances. The new book features contributions by several members of the Tax Justice Network and was edited by Matti Kohonen and Francine Mestrum. In a chapter devoted to the tax justice perspective in trade and investment liberalization, author Aldo Caliari argues that structural adjustment programmes, which became prevalent in most of the developing world from the early 1980s, were based on an export-led growth paradigm that went hand in hand with the downsizing of the state and, correlatively, its finances. But this model predicated, at the same time, fiscal austerity, that is, states should spend within their means. This philosophy lingered on as structural adjustment policies were crystallised in a growing number of trade and investment agreements.

However, developing countries typically rely on trade-related tariffs and taxes to finance an average of 30 per cent of their budgets. As these sources of revenue became a target in processes of trade and investment liberalisation in countries that have limited capacity to collect the same revenue from other taxes, contradictions began to emerge. Just as it seemed the export-led growth was heading towards solidification, the contradiction between such policies and the objectives of fiscal soundness became more marked. The author makes its case by giving a thorough review of the impacts of a number of trade and investment policies and rules contained in agreements on the income and expenditure aspects of public finances. The concluding section states "There is certainly a critique of export-led growth and fiscal austerity policies on bases other than their internal logic - for instance, their impact on workers' rights, the environment, or even growth effectiveness itself. But while the model offered a solid internal logic the challenging voices in the debate were hard to hear. The emerging internal contradictions have, thus, played a critical role in helping trigger calls for a full re-examination of the model and its eventual unravelling." Read the book's Table of Contents at http://www.coc.org/system/files/Tax+Justice-Table+of+contents.pdf See the cover at http://www.coc.org/system/files/Tax+Justice-Cover.pdf To order the book visit http://us.macmillan.com/taxjustice A free copy of the full chapter contributed by Rethinking Bretton Woods Project is available at http://www.coc.org/system/files/Tax+JusticeChapter+6.pdf (this contribution is being provided separately and free of charge with permission by the copyright owners. Its reproduction is permitted as long as it is appropriately quoted.)

2) Deadline May 13: Registration for World Conference on Financial and Economic Crisis (communication circulated on behalf of NGLS)

Dear Colleague,

NGLS has launched the registration process for civil society participation in the UN Conference on the World Financial and Economic Crisis and its Impact on Development which will take place at UN Headquarters in New York from 1-3 June 2009. All civil organizations previously accredited to the Financing for Development process or in consultative status with ECOSOC are allowed to

attend. In order to attend, please complete the registration form as soon as possible as the Conference is fast approaching.

The registration deadline is 13 May 2009. The form can be found at: http://www.un-ngls.org/juneconference

More information on the background of the June Conference can be found in the first issue of the NGLS Bulletin here: http://www.unngls.org/spip.php?article950

Other useful information can be found on the website of the President of the General Assembly at: http://www.un.org/ga/president/63/interactive/uneconference.shtml

Kind regards, NGLS

3) Draft Outcome document for Conference on Financial and Economic Crisis available

At a session convened last Friday the President of the General Assembly introduced first draft of the Outcome Document of the World Conference on Financial and Economic Crisis, to be held in June 1-3. (document is available at http://www.un.org/ga/president/63/interactive/financialcrisis/outcomedoc.pdf)

The statement by the President of the General Assembly when introducing the document is available at http://www.un.org/ga/president/63/statements/onprepconference80509.shtml

4) WTO questions impact of GATS on financial crisis The article below first appeared in the issue number 6678 of SUNS (April 8 2009), and is reproduced here with the kind permission of its editors. Trade: Financial crisis not due to GATS liberalisation, says WTO official

Geneva, 8 Apr (Kanaga Raja) - The root causes of the current financial crisis are not due to market access and national treatment commitments, but rather due to a set of factors ranging from macro-economic imbalances, market innovation and development of sophisticated complex financial products, and regulatory shortcomings that did not address these, according to Mr. Hamid Mamdouh, Director of the Trade in Services Division of the World Trade Organization. Mamdouh told a media briefing Monday that this was among the points that emerged out of the discussions at a workshop commemorating the tenth anniversary of the 1997 Financial Services Agreement. The workshop was among the cluster of meetings in the services week from 30 March to 6 April held at the WTO. The agenda of the cluster of meetings, Mamdouh said, had been broadened to bring into focus issues other than the request-offer and rule-making negotiations within the Doha Development Agenda. At the media briefing to report on the week of talks, Mamdouh said that Members started focusing more and giving more attention to the regular work of the Council for Trade in Services and its subsidiary bodies. For the regular Council, he said, Members saw that it was time to start looking again at the policy and regulatory issues in various sectors and have agreed that the Council would conduct a series of sectoral discussions based on Secretariat background notes. The Secretariat will be producing around twenty background notes looking at the various sectors. As to the Special Session of the Council which met on 6 April, the WTO official said that Members were of the view that this cluster of meetings was extremely useful. It was more of a GATS cluster than a Doha Development Agenda (DDA) cluster. There was considerable will to pay more attention to the regular services agenda of the WTO. Mamdouh also said that Members welcomed the programme of sectoral discussions which will be taking place in the regular Council on the basis of background Secretariat papers and submissions from delegations focusing on policy and regulatory issues in various services sectors. Members at the Special Session also welcomed the monitoring function which WTO Director-General Pascal Lamy initiated in December and stressed the importance of that function in relation to trade in services-related measures. They also stressed the importance of agreeing on a mechanism to extend preferences to the Least Developed Countries. Providing some background to the current situation in the services negotiations, Mamdouh said that there hasn't been any negotiating meetings on services since July 2008 and that the approach to the services negotiations

continued to be one of anticipation for the agriculture and non-agricultural market access (NAMA) modalities to be adopted. He said that after the Signalling Conference last July and the services negotiations Chair's text, it was very difficult to take things forward without progress on the other fronts of the Doha Development Agenda. However, with the start of the new year, there was a sense among Members that silence on the services negotiations in relation to the Doha Development Agenda has been continuing for too long. And that was why it was decided that a cluster of services meetings would take place, beginning on 30 March. On the Secretariat producing some twenty background notes, Mamdouh said that it was an exercise that took place about ten years ago, and in that time, a lot has happened. Members feel that this is an appropriate time to do that exercise again, as a lot has happened in terms of developments in the various sectors, ways of doing business, and developments on the technological front. He added that the role of government is now coming increasingly under focus, in terms of the regulatory responsibilities of governments and how best they should be performed. This kind of debate was raised mainly in the financial sector, in the second half of 2008, but it is a perspective that is expanding beyond the financial sector within the services sphere. He was of the view that this is going to provide the services Council with a very substantive programme of work for the coming year. He also noted that there is a lot of attention being given to the monitoring function - in terms of monitoring measures taken by governments in the wake of the financial and economic crisis - that the WTO Director-General has been emphasizing since December. According to the WTO official, although this is a Trade Policy Review Body (TPRB) function and the Director-General's report on measures taken by the Members is discussed in the TPRB, it was emphasized that the fact that it is discussed in the TPRB should not prevent any subsequent discussion within the services Council or its subsidiary bodies of any of the measures. He said that there was also the feeling that Members wanted to make sure that the regular functions of the services Council and its subsidiary bodies were brought back to focus and revived again - which has not been getting a lot of attention over the past few years because of the almost exclusive focus on the Doha Development Agenda. At his briefing, Mamdouh also referred to the workshop that took place last week to commemorate the tenth anniversary of the fifth protocol to the GATS, which was the outcome of the financial services negotiations that was extended beyond the Uruguay Round and was concluded in December 1997,

and entered into force on 1 March 1999. He described it as a particularly significant event as it provided a lot of perspective for what is happening now, and said that it reminded Members of the achievement framed in that fifth protocol, particularly since the negotiations were concluded in December 1997, six months after the financial market crisis had erupted in South East Asia in July of the same year. It was a period during which a lot of discussions had taken place internationally about the root causes of the crisis and the relationship between the reasons for the crisis and the liberalisation and opening of financial markets. "And at that time, most of the conclusions came out highlighting that the financial crises were due to the lack of adequate regulations, or where regulations existed, they were not enforced rigorously." The conclusion also came out then, Mamdouh said, "that opening financial markets for competition was a factor of stability", and not instability due to the confidence that liberalisation brings to financial markets. "It was very interesting to see those perspectives repeated last week (in the workshop)," he added. While we are experiencing new financial crisis of a different magnitude and there are some qualitative differences also between the financial market crisis ten to twelve years ago and this crisis, there are also similarities, particularly when it comes to relating the crisis to the GATS negotiations and the interface between the two sets of issues, Mamdouh said. He highlighted a couple of points that he said emerged from the workshop. First was that the root causes of the crisis this time around actually lie mainly in a set of conditions ranging from macro-economic imbalances to financial and monetary policies, to market innovation and the development of sophisticated complex financial products, to rating agencies and how they performed. And most importantly was the regulatory shortcomings which did not address effectively the way risk was managed in financial markets, and the way in which products were approved and rated. "There was also the point that making commitments under the GATS on market access and national treatment would not stand in the way of addressing the root causes of the financial crisis," said Mamdouh. "Market access and national treatment commitments were not one of the root causes of the crisis... This is one of the points that emerged out of the discussion in the workshop," he maintained.

Mamdouh said that liberalisation as defined in the GATS has a very specific meaning, and doesn't mean deregulation. This point, namely that liberalisation under the GATS does not mean deregulation, was stressed (in the workshop). As you liberalise, you need to regulate more. That was one thing on which there was universal agreement, not just in this workshop, but in general. Liberalisation under the GATS means two things, explained the WTO official, in that you grant access to foreign financial service suppliers and you don't discriminate against them. But you grant them access under exactly the same conditions that you allow your own financial operators to operate. Giving them access on a non-discriminatory basis does not in any way restrict your ability to regulate your financial markets with respect to how risk should be managed, how products should be approved, how products should be rated, how financial institutions should spread their risk and manage their investments. All these regulatory functions are not restricted or inhibited in any way by your commitments under the GATS, he said. Mamdouh said that the bottom line to all this is also that even if you need to take actions that would contradict with your GATS commitments, there is what is called the "prudential carve-out", which is a specific exception in the GATS that allows Members to deviate from their obligations and commitments in order to take measures for prudential reasons - measures designed to protect depositors, policy holders, any person to whom a fiduciary duty is owed. According to Mamdouh, that was one of the interesting features highlighted in the workshop. He added that there was no finger pointing at the workshop or analysis of any particular country on what it is doing. Asked whether the notion that market access commitments did not trigger the financial crisis was challenged by any delegation, Mamdouh maintained that nobody challenged the conclusion that liberalisation as defined in the GATS was not one of the root causes of this crisis. "And nobody challenged that conclusion." Trade experts noted that under the DSU, signatories to the Fifth protocol have obligations to abide both by GATS rules and their commitments, in terms of the Financial Services agreement and their schedules. It was not clear from Mamdouh's comments and explanations whether his remarks (about liberalization, market access and national treatment and that these did not preclude regulations) applied only to the provisions of the GATS, or also to the market access, provided under the Fifth protocol, by some 30 (developed) WTO members who signed on to the 'Understanding on Commitments in Financial Services', in scheduling commitments. In the current Doha negotiations, and in its financial services talks, a number of Members (like Switzerland etc) have asked developing countries to

undertake commitments in accordance with the Understanding. Among others, the Understanding provides for a Standstill, requiring that any conditions, limitations and qualifications to the commitments are to be limited to "existing non-conforming measures." The commitments referred to include those on supply through commercial presence and introduction of new financial services - a term that seems to cover a variety of derivative instruments that has brought the US financial systems to this pass, including the collapse of Lehman Brothers, the current efforts to rescue AIG insurance, and through it, several of the big-name Wall Street and European banks that are counter-parties. It was not clear from the media briefing whether at the workshop, or at the cluster of meetings, these issues had been discussed.

5) Incipient but worrisome trends on trade protection, says World Bank The World Bank has released "Trade Protection: Incipient but Worrisome Trends," a Trade Policy Note. The Note, number 37 in the series and written by Richard Newfarmer and Elisa Gamberoni, addresses the rising protectionism tendencies around the world. Summary: With the current global economy crisis, political pressures demanding protection are surfacing with increasing intensity around the world. Even though G-20 leaders signed on November 15, 2008 to avoid these protectionist measures, the trend in protection is increasing. Several countries have adopted new protectionist measures. According to the World Bank's monitoring, the trade effects of these measures are difficult to evaluate because of the prevalence of non-tariff border measures, subsidies and contingent protection. A remarkable trend emerging from these actions is the reliance of developed countries on subsidies rather than border barriers, while developing countries have deployed all forms of protection. Increasing anti-dumping actions is another trend in the current economic crisis. Developing countries accounted for the majority of initiations, though developed countries accounted for the greatest number of duty impositions. Trend in agriculture, finance and labor movement also deserve watching. Protection to agriculture may not require new measures because existing laws automatically provide increases in subsidies with declines in agricultural prices. Also, in the financial sector, all nations have focused their financial subsidies on domestically-owned banks rather than subsidiaries of foreign

banks. In addition, workers in some countries have campaigned for increased restrictions on foreign labor. The "Buy America" clauses attached to the US stimulus bill also generated a storm in this global downturn. In late January, the US House of Representatives passed a stimulus bill that would provide a 25 percent competitive margin for US iron and steel for all expenditures under the bill and several governments objected forcefully to the provisions. However, several factors have clearly muted protectionist pressures, and distinguish this global downturn from the pressures of the 1930s. Because of the quite different political economy today, a few proposed restrictions have been rejected or not enacted. Similarly, the more egregious forms of the Buy America provision appear to have been circumvented. Moreover, changes in trade policies involved steps toward greater liberalization, mostly related to free trade agreements. In order to cope with further protectionism, forceful leadership is required. The Bank argues that the G-20, for its part, could adopt additional measures that would strengthen the fragile consensus against protectionism. Full paper is posted at http://siteresources.worldbank.org/NEWS/Resources/Trade_Note_37.pdf

6) London Summit anti-protectionist pledges rapidly become dead letter The World Bank has developed a Fact sheet on Trade Protectionist actions by G20 countries since April 2 (and up to April 23). For being an account only of measures after such date, the list is surprisingly long. In fact, the period excludes the more than 47 protectionist measures that 17 G20 members had implemented after their previous pledge in November 15, and shows the new commitment made in London has not made much of a difference. It is worth noting that, in the spirit of the G20 commitment by all members to avoid implementing new trade barriers, the note seems to attribute equal weight to protectionist measures by both developing and developed countries that are part of the group. This is in spite of the fact that there are huge differences in the capacity of G20 members to respond to the crisis. While some countries are able to resort to issuing large amounts of debt to subsidize industries and sectors affected by continued openness of markets, the capacity of others to protect such stakeholders through financial measures and subsidies is limited in a credit-constrained environment (not the smallest constraint is the issuance of debt by large industrialized countries !) The full fact sheet is available at

http://www.worldbank.org/html/extdr/financialcrisis/pdf/G20TradeFactSheet.pdf

7) OECD claims mandate to follow up on G20 trade-finance commitments On April 24, OECD members that provide official export credit, alongside some non-OECD countries (e.g. Estonia, Brazil and China) and multilateral financial institutions (including IFC, the World Bank, the IMF and the WTO) issued a statement on "The global financial crisis and export credits." The statement, among other things, welcomes the G20 communique commitment "to ensure availability of at least $250 billion over the next two years to support trade finance through export credit and investment agencies and through the Multilateral Development Banks" and says that a recovery of world trade flows is a vital component in the broader recovery of the international economy and achieving sustainable growth. The governments and participating institutions recognise the need for a coordinated approach to implementation and agreed to meet regularly in the OECD to exchange information on the measures they are taking in support of the G-20 trade finance initiative. The full statement can be found at http://www.oecd.org/dataoecd/51/22/42624233.pdf

Aldo Caliari Director Rethinking Bretton Woods Project Center of Concern