The
US is also blocking the world’s path toward an international rule of
law for debt and finance. If bond markets, for example, are to work
well, an orderly way of resolving cases of sovereign insolvency must
be found. But today, there is no such way. Ukraine, Greece, and
Argentina are all examples of the failure of existing international
arrangements. The vast majority of countries have called for the
creation of a framework for sovereign-debt restructuring. The US remains
the major obstacle.
Private
investment is important, too. But the new investment provisions
embedded in the trade agreements that the Obama administration is
negotiating across both oceans imply that accompanying any such foreign
direct investment comes a marked reduction in governments’ abilities to
regulate the environment, health, working conditions, and even the
economy.
The US stance concerning the most disputed part of the Addis Ababa conference was particularly disappointing.
As developing countries and emerging markets open themselves to
multinationals, it becomes increasingly important that they can tax
these behemoths on the profits generated by the business that occurs
within their borders. Apple, Google, and General Electric have
demonstrated a genius for avoiding taxes that exceeds what they employed
in creating innovative products.
All
countries – both developed and developing – have been losing billions
of dollars in tax revenues. Last year, the International Consortium of
Investigative Journalists released information about
Luxembourg’s tax rulings that exposed the scale of tax avoidance and
evasion. While a rich country like the US arguably can afford the
behavior described in the so-called Luxembourg Leaks, the poor cannot.
I
was a member of an international commission, the Independent Commission
for the Reform of International Corporate Taxation, examining ways to
reform the current tax system. In a report presented
to the International Conference on Financing for Development, we
unanimously agreed that the current system is broken, and that minor
tweaks will not fix it. We proposed an alternative – similar to the way
corporations are taxed within the US, with profits allocated to each state on the basis of the economic activity occurring within state borders.
The
US and other advanced countries have been pushing for much smaller
changes, to be recommended by the OECD, the advanced countries’ club. In
other words, the countries from which the politically powerful tax
evaders and avoiders come are supposed to design a system to reduce tax
evasion. Our Commission explains why the OECD reforms were at best
tweaks in a fundamentally flawed system and were simply inadequate
.
Developing
countries and emerging markets, led by India, argued that the proper
forum for discussing such global issues was an already established group
within the United Nations, the Committee of Experts on International Cooperation in Tax Matters,
whose status and funding needed to be elevated. The US strongly
opposed: it wanted to keep things the same as in the past, with global
governance by and for the advanced countries.
New
geopolitical realities demand new forms of global governance, with a
greater voice for developing and emerging countries. The US prevailed in
Addis, but it also showed itself to be on the wrong side of history.
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