Generating Multilateral Financing through the Implementation of International Standards

Traditional bilateral foreign assistance is often characterized by a misuse of aid for geo-strategic objectives. The negative experience with this kind of aid leads us to the conviction that worldwide aid distribution must be reconsidered. In particular, the responsibility for global resource collection and distribution needs to be shared between creditors and recipients through a new multilateral arrangement.

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Accelerating global structural changes and domestic reforms through financing

Provided that rich countries agree upon major structural changes in the world economic system to allow developing countries equal access to the value-added potential of globalization, and provided that developing countries undertake the reforms necessary to set their countries on a path towards sustainable development, additional financing may accelerate these processes. The EU Enlargement provides at least one example of funds going from richer countries to poorer countries: a combination of socio-economic and political reforms by poorer countries paired with opening markets and decision-making processes by richer countries. This method holds the potential for a more equitable and better quality of life in developing nations, while generating greater prosperity for everyone involved.

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Co-Financing using global standards

There is an obvious need now to link multilateral financing mechanisms to compliance with international standards that have been mutually agreed upon. Broad financing allows poor countries to pursue their development path independent of new standards, and thus facilitates their decision to adopt those standards. The logic of multilateral financing, or Co-Financing, offers an innovative way of tackling global problems. The 1987 Montreal Protocol, in which the international community organized to stop the depletion of the ozone layer, is a valuable precedent. All countries accepted standards for reducing the emission of ozone depleting substances, which were development-dependent or 'softer' for poorer countries. Rich countries supported the poorer countries in meeting these standards by co-financing technologies to avoid the harmful substances via the Protocol's financial mechanism.

The logic of co-financing is reciprocal. To translate it into reality requires rich nations to continue to open their markets and adopt new measures for the multilateral financing of sustainable development. In turn, developing nations must be willing to adopt new social, environmental, and human rights standards and improve local governance. Poor countries should then be compensated by fiscal equalization efforts from the richer countries for the potential loss of competitive advantage.

To reach such a 'global deal', rich countries must enter into equitable dialogue and overcome the temptation to retreat into protectionist policies. This would enable poor nations to overcome their deep mistrust resulting from the long years of unequal treatment they have received through earlier trade and financial negotiations.

This breakthrough agreement would result in a major increase in global financing for sustainable development and thus engage underutilized productive capacity and increase global employment and global economic growth. Significant increases in global income and investment would not create absorption problems for poor nations as long as critical infrastructure in support of human and social development is created in parallel.

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Funds necessary

There are a number of estimates on what is needed to implement the Millennium Development Goals and to address other policy goals like climate protection. On this issue the former Mexican president Ernesto Zedillo, the former British Chancellor of the Exchequer and current Prime Minister Gordon Brown, and global financial strategist George Soros are in general agreement with various UN studies of the early millennium. All of these proposals, adjusted to the ongoing 2000 - 2015 financing timetable, call for more than US$100 billion annually from 2008 - 2015 to supplement current levels of development assistance. Less than half of this amount has been raised.

With regard to halting climate change, the Stern Review called for 1% of world GDP, about US$400 billion, to be spent on climate protection annually during the next several decades. Understandably, some portion of this money would be spent in industrialized countries and not solely channeled through aid budgets to developing nations. However, there are substantial investments that will have to take place in and by developing countries due to their potentials for major efficiency gains.

Taking into consideration these calculations, and the fact that there are many needs for financing beyond the Millennium Goals and climate protection, such as ensuring energy security and promoting biological and cultural diversity, an additional US$100 - 400 billion yearly financing, or roughly 1-2% of annual gross world product, is required. The projected amount of additional resources needed for sustainable development may seem huge, but it is an attainable target, especially when compared with some other key figures of world finances and expenditures from the 2006 fiscal year.

International financial transactions are four thousand times greater than the resources proposed for the Millennium Development Goals and the emerging global environmental goals, and global military expenditures are three times as much. Channeling a small portion of the resources now spent on worldwide military budgets into spending on sustainable development would promote human security and thereby reduce the need for future military spending.

International Finance Transactions	US $1,809,482 bn
Gross World Product	48,145 bn
Military Expenditures Worldwide	1,204 bn
Property Growth of the World's 946 Billionaires	900 bn
Official Development Aid	104 bn
Additional Resources for MDGs and Global Environmental Goals	US $100-400 bn

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Enforcing previously adopted standards

Multilateral financing requires that internationally approved standards, particularly in the area of sustainable development, labor, and human rights, be applied directly to the international economic framework. The implementation of these standards by poorer countries should also be combined with financial support. The following international standards, today largely voluntary, must become mandatory in the new global economy. States can also agree on development-dependent standards or on development-dependent timeframes for the full implementation of standards.

One way to enforce these standards may be through the existing compliance procedures of the WTO, which on paper already include equitable checks and balances in decision-making, efficient dispute settlement procedures, and effective sanctioning mechanisms at the international level.

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Core standards of the International Labor Organization

Social and work standards are articulated in the Core Standards of the International Labor Organization. The Core Labor conventions are summarized below.

Workers everywhere should have the right to organize in trade unions and negotiate their working conditions collectively.
Workers should be free from any form of forced labor, such as slavery, servitude, compulsory labor for political re-education, or debt indenture.
Children, meaning persons below the age of 15 (or as defined by national law), should not work so that they have the opportunity to learn and develop freely.
Discrimination on the grounds of gender, race, nationality, religion, political opinion or social origin is banned, as is discrimination in remuneration on the grounds of gender.

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Multilateral environmental agreements

Commitments under the various multilateral environmental agreements, such as the Kyoto Protocol, the Montreal Protocol, and the Convention on Biological Diversity, to name but a few, constitute part of a global set of standards for sustainable development and an important piece of international environmental governance. These requirements include meeting specific pollution or conservation targets and obligations to conduct environmental and social impact assessments and deliver reports.

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Human rights

The Universal Declaration of Human Rights (UDHR), adopted by the United Nations in 1948, includes civil and political rights as well as economic, social and cultural rights. It constitutes the basic rights and freedoms of every human being. The Declaration includes the freedom of opinion, religion, thought, and expression, as well as specific bans on torture, slavery, servitude, and arbitrary arrest. It also emphasizes the right to an adequate standard of living, including acceptable levels of health and education.

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UNESCO standards

The standards developed by the United Nations Educational, Scientific, and Cultural Organization (UNESCO) further the focus on human and social rights, particularly the rights to education, culture and information. The popular UNESCO World Heritage Convention regulates the protection of both cultural and natural resources of an indigenous and historical character. It includes obligations by nations to ensure the identification, protection, conservation, presentation and transmission to future generations of their cultural and natural heritage.

The UNESCO Universal Declaration on Cultural Diversity includes commitments by states to:

create policies for the inclusion and participation of all citizens,
safeguard the linguistic heritage of humanity by respecting mother tongues and encouraging the diversity of language,
and encourage the role of public radio and television services in providing diversified content of good quality in the media and global information networks.

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Financing mechanisms

Possible ways of generating new global funding for sustainable development programs and the international institutions needed to administer them include the creation of value-added fees or taxes on global transactions, taxes on the use of natural resources, a cap-and-trade climate regime, and unique mechanisms like the Special Drawing Rights of the International Monetary Fund.

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Currency Transaction Tax

A large number of studies have been developed which estimate the potential revenues from a Currency Transaction Tax (CTT). Depending on the scenarios and calculations used in these projections, it is estimated that worldwide revenue from a CTT could range from US$10 billion to over $100 billion annually.

This tax could be collected by established institutions at the national level, provided that these funds are not redirected for governmental purposes. Otherwise, the CTT should be collected through electronic means by a new agency comprised of broad multilateral representation and oversight. For the management of these revenues, a new organization could be established, which might be called the 'Solidarity Fund for Sustainable Development' or 'Global Development and Environment Fund'. Such a Fund would cooperate with national governments and the Bank for International Settlements on the levying of the tax, and with UNDP, UNESCO, and UNCTAD with regard to the distribution of the revenues.

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Tax on World Trade

A global tax on trade, with revenues used for investment in international development, follows the logic of the 'fair trade' movement. All international trade in commodities and goods would be subject to a small surcharge of perhaps 0.5%, resulting in an increase in consumer prices that would hardly be noticeable.

A global tax on trade could be collected by the national customs authorities or national finance administrations and administered by the WTO. Like the CTT, it could also be collected electronically. Tax revenues should be reallocated to the same economic sector from which the funds were raised, so long as this serves development and environment objectives. For example, funds that stem from trade in pharmaceutical products can be spent on world health and disease prevention. Taxes on military sales could be used to help war orphans and the victims of landmines, the clearing of minefields, and the financing of peace research. Taxes on telecommunication transactions might be used to create new infrastructure for telecommunications, particularly in the rural areas of developing countries.

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Global Pollution Tax

Through a small fee on international carbon emissions and/or jet and bunker fuel, the world's heavy polluters would pay their proportionate share for adding to our global environmental problems. For example, a global tax of US$5 per ton of CO2 emission revenues would have amounted to US$110 billion in 2003. A tax on international airline tickets, already introduced by Brazil, Chile, France, Great Britain and several other countries, is a variation of a global pollution tax involving carbon offsets.

Funds that are raised by a global pollution tax should be used primarily to address environmental issues. For example, revenues from environment-specific traffic fees should be designated for the removal of social and ecological burdens resulting from traffic or on measures for the reduction of traffic and the promotion of environmentally friendly technologies in the area of transport and traffic logistics. In similar fashion, funds that are raised through an energy tax would be devoted to enhancing energy security.

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Other global taxes

Other incremental fees on 'global commons transactions' could include small assessments on arms sales, maritime freight, ocean fishing, seabed mining, off-shore oil and gas, satellite orbital parking spaces, electromagnetic spectrum usage, non-sustainable resources, and energy consumption.

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Trade with per capita emission rights

The design of the follow-up process for the Kyoto Protocol has significant potential as a new source of finance. In adopting a universal cap-and-trade regime, global emissions would be restricted to a sustainable level, with emissions allowances allocated according to an equal rights per capita formula. The trading of emission rights would result in rich countries with high per capita emissions buying emission rights from poorer countries with lower per capita emissions, thus generating substantial financial flows from richer to poorer nations. This type of system would also advance the interests of climate justice, requiring industrialized nations to pay for the rights to natural resources which they have taken freely for decades.

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Special Drawing Rights

Special Drawing Rights (SDRs) were created by the IMF in 1969 as an international reserve asset to supplement members' existing reserve assets. They derive value on the basis of a basket of major currencies used in international trade and finance. SDRs are issued to IMF member countries in proportion to their IMF quotas and can be converted into hard currency.

The primary motive for creating SDRs was to promote monetary stability, but this objective lost importance when the Bretton Woods system collapsed and floating exchange rates emerged in the early 1970s. The current interest in SDRs is as a mechanism for financing development. First, this includes a special and one-time SDR issuance of about US$20 billion, a proposal which has been widely approved and requires only US support for implementation. Second, annual issues of SDRs could serve as a permanent contribution to development finance.

Special Drawing Rights have the effect of enhancing the currency reserves of developing nations, which generate new money for credit in support of development. Since they are currently distributed according to each country's quota in the IMF, the majority of SDRs now flow to the rich countries. With the possible expansion of SDR quotas, these countries would donate their stake of the Special Drawing Rights to co-finance programs that benefit development. These could include trust funds for the provision of public goods, as well as matching existing loans or enhancing public/private partnerships for development. SDR donations would not need to pass through government channels. Donor-recipient programs could be implemented through local government channels and civil society organizations and through public-private partnerships.

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Administration of funds

As we have noted, there must be a whole new dimension of global financing and innovative approaches to ensure the multilateral distribution of resources on an independent basis. Administration of these funds would not require the creation of a large new institution; however, it would require transparent and professional management. The administration of funds should be controlled by a representative multilateral body (possibly an 'Economic Council' of the United Nations) in conjunction with democratic parliaments and advised by experienced scientific and civil society organizations. A slim but efficient structure must be established that works in the sole interest of pursuing the agreed development goals of people and countries who are trying to help themselves.

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Potentials >>

Added by Administrator, last edited by Max Minh Tran on Apr 30, 2008 15:55