By David Hillman (Stamp out Poverty, UK) and
Peter Wahl (WEED - World Economy, Ecology and Development, Germany)
Stamp out Poverty and WEED July 26, 2006
Background
In marked contrast to Paris, Brasilia felt much more like a working meeting. It was smaller - there were about 150 people as opposed to the 400 in Paris. There was far less pomp and ceremony – Paris was opened by President Chirac and UN Secretary General Kofi Annan and attended by 70 Ministers. In Brasilia, representatives from governments were at a senior departmental level rather than Ministers or dignitaries. Unlike Paris it was not, therefore, a Ministerial meeting. The outcome was, at one level, less spectacular – because Paris clearly marked the official beginning of a new chapter in development financing – however Brasilia was a positive and constructive continuation of on-going work on the Air Ticket Levy (ATL) and on-going discussion of further ideas for innovative financing.
Main Outcomes
1. The number of countries participating in the Air Ticket Levy has increased from 13 in Paris up to 18, with the addition of Cambodia, Guatemala, Guinea, Mali and South Korea. The latter announced that they will implement the tax in 2007 - this is an important step since South Korea is an OECD country.
2. Although the contribution of the developing countries will be small in quantitative terms (Chile expects $5-6 million as revenue, Brazil: $10-12 million) the political-symbolic value is high, as it underlines the character of the project as a North-South partnership.
3. There is strong pressure to move into the implementation phase of the International Drug Purchasing Facility (IDPF) with a planned launch in mid-September at the UN General Assembly meeting in New York.
4. Norway is to become the chair of the core group from September (for 6 months) and to organise the follow-up conference to Brasilia – likely to take place in February 2007. It is promising that the Norwegian government is keen to keep up the momentum and play a strong role in pushing the process forward.
5. Although civil society participation was, due to geographical reasons, quantitatively weaker, than in Paris, the space to participate and the readiness to listen to the NGOs was far greater. The representative of the Brazilian NGO-Network, ABONG, made a detailed statement in the opening session. Brasilia was more inclusive for NGOs than Paris - an opportunity that was enjoyed with contributions made in all sessions. As well, NGOs made several presentations in the working groups, including on the Currency Transaction Tax (CTT), Tax Justice and the International Finance Facility (IFF).
6. The proposal from civil society to improve the on-going work on the CTT and Tax Justice by separating them and giving them stand-alone status (in Paris and Brasilia the issues of ‘Financial Transaction Taxes' and ‘Tax Havens' were combined into one workshop session) was agreed. From now on ‘the CTT' and ‘Tax Avoidance and Tax Havens' will command their own sessions. The tax justice network had a strong presence, which helped move their agenda forward. Responding to this, the German Ministry for Development announced a study to identify which actors avoid what taxes, where they do this and how. It was also positive that some progressive NGOs and not only mainstream organisations were present.
7. Looking behind the diplomatic rhetoric, it seems as if the large-scale International Finance Facility (IFF) – to create $50 billion per year via a borrowing mechanism - is effectively being taken off the table. It is clear that no major players will join this initiative. Instead, a mini-version of it (due to generate about 10% of the original projected income), a so-called ‘pilot IFF', will be launched this year, with revenues going to immunisation programmes.
8. The CTT appears to be winning ground. The leading governments are choosing to keep the CTT on the agenda – there were a number of presentations in favour of the proposal in Brasilia. The audience comprise some of the most interested, well-placed, Government officials from countries that are involved in the ‘Innovative Financing' process. The idea was firmly planted that it is now time for a ‘pilot CTT'. Some countries, such as Norway and France, have sent positive signals that they are interested in seeing the CTT progress.
9. Breaking new ground: It became clear during the conference that the innovative theme is not only about new funding mechanisms creating sustainable revenues but also about an innovative and inclusive process with i) both developed and developing countries being donors (see point 2, above) and ii) the opportunity for new and better drug purchase practice to be introduced. The potential, therefore, is that by creating better practice the IDPF brings far more than $200 - 300 million pa to the table.
10. Numerous pilots: It is worth noting that over $1 billion will be generated through pilot schemes launched in 2006: $200 - 300m from the ATL, $500m from IFF Immunisation (IFFIm) and $400m from a Global Lottery to fund the World Food Programme. (As well, although migrant remittances are not strictly an "innovative source" of development finance, Spain is piloting a scheme to facilitate the flow of remittances from some of its migrant communities to Morocco, Ecuador and Senegal).
There are some important points to reflect about this. Firstly, all initiatives that have moved forward have been clearly linked to outcomes ie ATL for drug treatment, IFFIm for immunisations, Global Lottery to the World Food Programme.
Secondly, the concept of ‘complementary' mechanisms is now accepted and has prevailed over the idea of one massive initiative (such as the large-scale IFF), which operated as ‘competitive' to all other initiatives.
Thirdly, we can identify three different strands of financing. The first, and most close to the heart of NGOS, is the ATL, which is a tax; the second, IFFIm, is a borrowing mechanism and the third, the Global Lottery, is a voluntary contribution.
Fourthly, there is a growing realisation that the innovative financing initiative is more than about aid quantity. It is also crucially about aid quality - secure on-going revenue streams provide predictability of finance, essential for development planning. As well, the ATL may provide ‘innovation' in the area of drug procurement (see Challenges section, below, point 1) – the potential to create precedents that improve the culture of drug purchase.
Challenges
1. Effectiveness of the IDPF – clearly it is critical that IDPF is a success or it will undermine all efforts for other future innovative 'tax' initiatives, such as a CTT. Specialist NGOs working in developing countries with people affected by diseases like HIV/AIDS, Malaria and TB, such as 'Medecins Sans Frontieres' (MSF), brought important expertise to the table, especially concerning drug sourcing and disbursement. There is a major worry about IDPF revenue simply serving the profit interests of pharmaceutical trans-nationals from the North.
MSF identified two key areas where we need to see urgent progress. Firstly, the true value of the IDPF rests in its potential to be an 'innovative' instrument for the purchase of effective drugs. The facility must, therefore, be able to purchase generic copies of drugs and ensure that intellectual property (IP) and patent issues are robustly dealt with to ensure that the funds stretch as far as they can, thus treating as many people as possible. The target is to reduce the cost of various fixed-dose combinations. Secondly, the current blueprint for the governance structure of the IDPF does not include civil society. Given the expertise that civil society has to offer, especially specialist NGOs, it is crucial that there is a formal civil society presence in the IDPF's Managing Council (MC).
(Note: there has been a clear willingness of the core group of countries to listen to NGOs. Subsequent to Brasilia, we have been informed that there will be a civil society presence on the MC, but as yet we do not know how large this will be. As well, they have been listening to the concerns over IP and patents and have said that these issues will be addressed in the detailed business plan, which is currently being prepared).
2. Participation
Some important actors have not yet joined into this process. Italy, for instance, after their change of Government (and given that some ministers have supported the CTT in the past) ought to be pressured to participate as a leading player.
There is also concern over the absence of certain Northern European countries such as Sweden, the Netherlands and Denmark and some G8 countries, such as Canada and Japan.
More widely, there is potential for wider involvement of civil society including the environment movement, which is not yet locked into the process.
3. Concerns
Although the German study on tax avoidance was highly appreciated both by the Government delegations and NGOs, the German Ministry for Development Cooperation does not have the power to break the blockade by the Finance and Trade Ministries against the Air Ticket Levy.
The UK has still not made a financial commitment to the IDPF, though its existing Air Passenger Duty raises more than $1 billion per year. At the same time France has committed $2 billion over 20 years to the, UK-driven, IFF Immunisation. The UK Treasury insists that it cannot support the IDPF until the scheme is more thoroughly developed but this failure to reciprocate will grow more problematic as we approach the IDPF launch date in September. (See below for extract from G8 Russia communiqué, annex: France and UK).
There is an overarching concern that, even though the principle of additionality was emphasised by many Governments during the conference, that revenue from innovative instruments would be used to consolidate national budgets. An example is the recent announcement by Austria to consider financing the EU with a CTT. The agreed principle for innovative finance is that it is ring-fenced, additional to 0.7% and dedicated to a development outcomes.
Next steps
Urgent issues exist concerning the very rapid timetable for the launch of the IDPF, most importantly concerning intellectual property & patent issues and the extent of civil society presence in the IDPF's Managing Council. Specialist NGOs, such as MSF, will take the lead on this. It should be urgently considered how civil society finds a way to best organise to maximise input into the IDPF business plan. Our European Network, which concentrates on Innovative Finance, could potentially play a lead role in this.
Next occasions to plan for are the UN General Assembly in September and the Norwegian 'Innovative Finance' conference early next year.
