Transcript Trade and Development Report 2014

TRADE AND DEVELOPMENT REPORT 2014
Global governance and
policy space for development
EMBARGO
The contents of this presentation and the related Report
must not be quoted or summarized in the print,
broadcast or electronic media before
10 September 2014, 17:00 GMT
http://unctad.org/en/PublicationsLibrary/tdr2014_en.pdf
The world economy in 2014: still in the doldrums
Output growth, selected country groups, annual percentage change, 2010–2014
Developed countries: insufficient demand
• Advanced countries avoided a great depression, stabilized
their financial markets and gained back most of the output
lost to 2008-2009 crisis
• But continued weak employment conditions, stagnant
wages, high household indebtedness and low real
investment cannot be accepted as “new normal”
• Reliance on monetary expansion spurs asset price bubbles,
while fiscal austerity and wage containment dampen
demand
The roots of the crisis are not addressed
There is an alternative
• Breaking with the protracted period of low economic growth
requires stronger aggregate demand, especially in surplus
developed economies, through:
– Reflation (fiscal and credit policies)
– Regulation (ring fence bank activities and control of capital
flows)
– Redistribution (form profits to wages and from creditors to
debtors)
The main developing regions are set to maintain
their recent growth performance …
Output growth, selected developing regions, annual percentage change, 2010–2014
… but risks are in the horizon:
Developing country exports and developed country
imports remain far from their pre-crisis dynamism
Volume of export and imports, selected country groups, 2005–2014 (index numbers, 2005–100)
Export-oriented policies
are becoming less effective …
GDP and import volume growth, developed economies, 2001–2013 (Annual average percentage
change)
600
500
… commodity prices are
likely to remain high but
unlikely to grow as prior
to 2007 …
400
300
200
100
0
2002
2004
2006
2008
2010
2012
2014
All commodities
All commodities (in euros)
Minerals, ores and metals
Crude petroleum
400
300
200
100
0
2002
2004
2006
2008
2010
2012
Food
Tropical bev erages
Vegetable oilseeds and oils
Agricultural raw materials
2014
The main challenge for
commodity producing
countries remains
appropriating a fair share
of the resource rents and
using the revenues to
reduce income inequality
and spur manufacturing
… and financial instability remains a real threat
• The global financial cycle is driven mainly by developed countries’ policy
decisions guided by the needs of their own domestic economies
• Given their volume and instability, international capital flows frequently
have disruptive effects on developing countries’ macroeconomic variables
and financial systems, and should be managed according to prudential
and developmental goals
Capital inflows, 2007 Q1–2013 Q3 (Billions of current dollars)
Developing countries need new growth drivers …
• Developing countries recovered from the financial crisis
faster than developed countries, by supporting domestic
demand with counter-cyclical policies and in some cases
helped by rising commodity prices. But they have not
decoupled and vulnerabilities remain:
– Countercyclical policies and gains from terms of trade are
important but insufficient to drive a development process
– Developing countries need to rebalance growth strategies with
less emphasis on exports to developed countries and a greater
role of domestic and regional demand (TDR 2013)
– Structural transformation is the big challenge everywhere
… which will require greater policy ambition …
• Addressing structural weaknesses and ensuring
inclusive growth, in a less favourable external economic
environment, will need:
– Industrial policies – supported by macroeconomic policies – to
stimulate productive investment, develop local markets and
diversify the economy
– Public investment in infrastructure and human capital
– Stable and long-term capital inflows
– Greater fiscal space to finance more ambitious policy agenda
… and greater policy space
• Skilful use of policy space that remains under existing
trade and investment agreements to pursue proactive
policies with a view to fostering structural
transformation and rebalancing growth strategy
– Refocus on multilateral agreements which recognize the
legitimate concerns of developing countries
– Eliminate pro-investor-biased mechanisms embedded in
International Investment Agreements that reduce policy space
– Carefully consider loss of policy space when engaging in
bilateral and regional trade and investment agreements
– Joining global value chains should not simply mean aligning
policy measures to interests of lead firms
Need for policy space in trade agreements
• Policy space to ensure food security and other
crucial national objectives
• Policy space is needed to induce investment
innovation and employment growth
– Sector-specific modulation of applied tariffs
– Applying preferential import duties
– Providing long-term investment financing through
development banks
– Using government procurement to promote local
suppliers
Managing the capital account
• A global financial cycle is driven by developed countries’ economic
conditions and decisions; resulting capital flows not necessarily
aligned with developing countries needs and may have disruptive
economic effects
• Capital account management measures are needed for managing
amount, composition and direction of foreign capital flows; they
should be considered normal instruments in the policymakers’
toolkit, not exceptional devices to be employed only in critical
times
• Multilateral rules allow governments to manage their capital
accounts, but some bilateral trade and investment agreements
introduce commitments to financial liberalisation that may impede
such regulations
Policy space needs matching fiscal space
• Governments need to finance the investment and other public spending
required for development: mobilizing domestic fiscal revenues is key
• “Tax optimisation” (now part of normal business practices) and tax
competition have constrained fiscal revenues
• Foregone revenue difficult to assess but probably big number:
– 8–15 per cent of the net financial wealth of households is held in tax havens,
resulting in a loss of public revenue amounting to $190−$290 billion per year
($66−$84 billion in developing countries)
– The main vehicle for corporates’ tax avoidance or evasion is the misuse of
“transfer pricing” and “thin capitalization” for shifting accounting profits to low(or no-) tax jurisdictions; developing countries may be losing over $160 billion
annually
– Tax competition and privatizations in the 1990s reduced the share of natural
rents captured by many primary exporting economies; between 2004 and
2012, 17–34 per cent of the rents generated in extractive industries
dominated by private firms; but much higher where public firms dominate
A taxing challenge at national and international
levels
• Rising commodity prices allowed governments – from developed and
developing countries – to renegotiate or cancel existing contracts,
increased tax or royalty rates and changed the degree of State ownership
of extractive projects
• Recent efforts for improving transparency are positive steps, but bigger
role for developing countries and better surveillance of private companies
is needed
• A possible UN-led multilateral framework could include: (i) an
international convention against tax avoidance and evasion; (ii) rules of
unitary taxation of TNCs, making the firms pay taxes in the countries
where they generate their profits (iii) making mandatory and extending
international initiatives such as the Transparency Initiative in Extractive
Industries (EITI)
• Yet, governments can also apply measures at the national level, including
a general anti-avoidance rule in legislation and preventing the misuse of
transfer pricing
Key points
• Need for greater policy ambition in both rich and poor
countries to get global economy out of the doldrums and
moving towards a more inclusive and sustainable future
• Current policy mix in the developed economies combining
monetary expansion with fiscal austerity and wage restraint
is ineffective – it just produces slow growth with weak
employment and asset bubbles
• Developing countries need sufficient policy space to
advance post-2015 development agenda in a less
favourable external economic environment
• Greater policy ambition needs greater public resources;
need to reduce fiscal haemorrhaging via tax havens and
transfer mispricing, as well as tax competition
Thanks for your attention!