Economic issues

Tax avoidance

Tax avoidance occurs when companies exploit loopholes and flaws in tax laws in order to pay the least amount of taxes. Tax avoidance and evasion have the potential to adversely affect important policy objectives established by governments. They result in lost revenues and place a disproportionate share of the tax burden on honest taxpayers.

Based on:

• WTO Agreement on Customs Valuation (1994)
• UN Model Double Taxation Convention between Developed and Developing Countries Article 7

Abuse of Dominant Position

The term abuse of dominant position refers to anti-competitive business practices which a dominant firm may engage in to maintain or increase its position in the market.

Based on:

• UNCTAD Model Law on Competition (2007), Chapter I, III and IV
• DOHA Ministerial Declaration (14 November 2001), Art. 23-25

Market Distorting Subsidies

There are two general types of subsidies, (export and domestic) both of which take the form of either payments or services. An export subsidy is a benefit conferred on a firm by the government that is contingent on exports, while a domestic subsidy is not directly linked to exports. The basic principle of trade liberalisation is that a subsidy that distorts the allocation of resources within an economy by providing perverse incentives to produce should be subject to discipline. Subsidies that are presumed to be non trade-distorting (e.g. payments for environmental services or decoupled payments) are recognised as not having harmful consequence for trade. The asymmetrical global application of market distorting subsidies can resulting in dumping, increased market concentration, environmental damages and puts small producer livelihoods at risk.

Based on:

• WTO Agreement on Subsidies and Countervailing Duties (1994)
• Doha Development Agenda (2001)

Discriminatory Standards

Discriminatory standards, which can include technical barriers to trade (TBT) and certain non-tariff barriers to trade (NTB), refer to technical regulations and voluntary standards that set out specific characteristics of a product, such as its size, shape, design, functions and performance, or the way a product is labelled or packaged before it enters the marketplace. These regulations, when prepared, adopted or applied with the effect of creating unnecessary obstacles to international trade can be abused and carry a protectionist intent, discriminating against imported products, thus creating major barriers for developing country exporters. For this purpose, technical regulations shall not be more trade-restrictive than necessary to fulfil a legitimate objective, e.g. protecting human health and safety or the environment.

Based on:

• UN Millennium Project Task Force on Trade – Trade for Development (2005), pp.261-262

Lack of Access to Financial Services

Financial services, including savings, deposit and payment services, loans and insurance, are important because they provide people with access to capital for production, investments and to meet short term consumption demands. Access to financial services is often limited in rural areas because of information asymmetries in financial markets, the large transaction costs associated with remote rural communities, collateral requirements for accessing capital and high risks of rural production.

Based on:

• UN Millennium Project Task Force on Hunger – Halving Hunger: It Can Be Done (2005), The Earth Institute at Columbia University
• Monterrey Consensus of the International Conference on Financing for Development (2002), Paragraph 18
• UN Doha Declaration on Financing for Development (2008), Paragraph 12 and 18
• ILO Policy Statement: Microfinance for Decent Work (2005)
• ILO International Labour Standards and Micro-finance: A Review (1998)

Insufficient Market-related Infrastructures

Market related infrastructure is the basic physical and organisational structures that are needed to support producers accessing markets. It can include technical and physical requirements for transportation, water management, energy, communications and waste management. Sufficient investments have to be guaranteed in order to develop market-related infrastructures, thus guaranteeing producers an equal access to markets.
Based on:

• UN Millennium Project Task Force on Hunger – Halving Hunger: It Can Be Done (2005), The Earth Institute at Columbia University

Unclear Agreements

Unclear agreements are those which create confusing market signals for production, fail to give adequate penalties or incentives and have an unfair balance of risks. They are difficult to manage, monitor and enforce, and thus may leave a party open to un-transparent or dishonest practices. Clear and understandable agreements are negotiated on the basis of good faith and fair dealing (meaning no coercion, threats or unreasonable price agreements), are communicated to and understood by all parties, have clear terms for payment, incentives, timing and quality requirements and fairly balance risks between parties.

Based on:

• UNCITRAL United Nations Convention on Contracts for the International Sales of Goods (1980)
• UNIDROIT Principles of International Commercial Contracts (2004), Art. 1.7, 3.8, 3.9, 3.10, 5.1.7 and 6.2.2
• EU Principles of European Contract Law Parts I and II (1998), Art. 1.201, 2.301, 4.107, 4.108, 4.109 and 4.110

Corruption

Corruption can be defined as the active or passive misuse of entrusted powers for obtaining benefits (such as private financial gain) or avoiding disadvantages. Acts of corruption include bribery, embezzlement, undue influence and coercion, extortion, fraud, favouritism, nepotism, victimisation, insider dealing, collusive and obstructive practices, money laundering, forgery as well as cartelisation and price fixing. Corruption affects the worlds poorest the most, as it distorts the market, leading to inefficiencies both in the decision making process and the allocation of resources, in addition to threatening good governance, democratic processes and the development of fair business practices.

Based on:

• UN Convention Against Corruption (2005), Art. 12, 14, 15, 16, 21, 22, 23, and 39
• UNODC Model Money-laundering, Proceeds of Crime and Terrorist Financing Bill (2003), Part II-17
• UN Convention Against Transnational Organized Crime (2004), Art. 7 and 9

Unfair Import Tariffs and Quotas

Tariff measures serve either to raise fiscal revenue or to protect domestic industry from foreign competition and are applied when a product crosses the boundary of a customs area. Tariffs give a price advantage to locally-produced goods over similar goods which are imported, and they raise revenues for governments. These measures increase the import price by a fixed percentage (Ad valorem tariffs) or by a fixed amount (specific tariffs). Import quotas are a set maximum limit on the quantity of a product that may be imported; any imports above that level may be subject to further tariffs. Import tariffs and quotas are unfair when they are persistently and asymmetrically applied by some countries as a form of protectionist behaviour against other imports.

Based on:

• UN Millennium Project Task Force on Trade – Trade for Development (2005), pp. 258-259 and p.266