Introductory remarks of Mr. Erkki Tuomioja, Foreign minister, Co-chair of the HP, in the Session on Global Economic Governance of HP +10 Conference, Hanasaari

Session on Global Economic Governance

Mr. Erkki Tuomioja, Foreign minister, Co-chair of the HP

Setting the scene: Global Economic Governance and the Helsinki Process

The governance of the globalized economy was at the heart of our deliberations within the Helsinki Process from the very beginning. I just wish to remind ourselves about one of the recommendations put forward by the Track on ‘New Approaches to Global Problem Solving” in 2005. The track recommended the replacement of the G 7/8 with a broader grouping, a “G-20 (or thereabouts) annual summit of the heads of leading governments from the North and the South”. It was suggested that this “leader-level group could act as an effective co-ordination mechanism for global economic governance with coherence and legitimacy”.

It would be too much to claim that the Helsinki Process was the initial cradle of the idea of the G-20 Summit concept  but we were definitely in the forefront of bringing this proposal on to the global political agenda. Now, only a few years later, the G-20 is a reality, a cornerstone of global economic governance. And in fact, the first political declaration and measures formulated by the G-20 back in 2008 as a response to the deep financial crisis, where very encouraging indeed.

The declaration of the summit on Financial Markets and the World Economy outlined five major common principles for reform of financial markets: strengthening transparence and accountability, enhancing sound regulation, promoting integrity in financial markets, reinforcing international cooperation, and reforming international financial institutions.

And it was not just a general declaration, but the statement included a fairly long and comprehensive list of specific policy measures to implement the broad principles.

Looking back at what actually has been done since then, one has to admit while some steps have been taken in various areas, it is still far too little and with very limited effects on the harsh realities of the global economy. And as the immediate memory of the global financial crisis recedes, so too does the initial sense of urgency on dealing with its root causes.

Nonetheless, it is obvious that the emergence of the G 20 constitutes an important step towards establishing a coherent mechanism for global economic governance. A lot remains to be done, both in terms of actual implementation of different measures and in enhancing the legitimacy of the structure. The latter is directly linked to the broader issue of a UN reform, also one of the key topics of the Helsinki Process in the past. All major economies naturally need to be in the centre of any functioning structure  of economic governance. But this easily leaves out the voice of smaller countries and the most vulnerable groups in all  communities.

But it is clear that the G 20 has become a crucial vehicle for producing new ideas and proposals. I just want to mention one recent document, that would deserve much more serious attention from the entire international community, namely the report on Mobilizing Climate Finance prepared and published last Autumn at the request of the G 20 Finance Ministers.

But also the dynamics of the international economy have changed significantly compared to the early days of the Helsinki Process. The enormous growth of the power and influence of the new emerging economies has  altered the international scene completely. The debt crisis of the old industrialized countries has also turned certain things the other way round. Who would have believed ten years ago that the austerity policies now promoted in Europe are being criticized by the IMF – claiming that it has learnt its lessons from the debt crisis of the developing countries - for demanding too harsh budgetory disciplines and putting too little emphasis on growth, economic recovery and growing income inequality. We talked about the necessity of a paradigm shift and, indeed, that is what we have been witnessing lately. What the ultimate outcome of this shift will be, remains to be seen.

The New Program of the Finnish Government

Today I wish to focus on two key areas of the global economy where determined and concrete  measures are required to enhance stability and equity:

  • the regulation of the financial market , and particularly issues related to taxation and tax flows;
  • international trade regulations, and particularly the issue of a global agreement on investments.

I’ll start of by reiterating some key elements in the program of the present Finnish government.

The Finnish government is committed to work towards increased stability, transparency and accountability of the international financial markets. We urge that an international financial market tax be introduced on as wide a geographical basis as possible. The aim is to install a global tax, but in the first stage an EU-level system might also be viable. Finland will introduce a bank tax, taking into account experiences from similar arrangements in other Nordic countries. We are in favour of a stricter control of the  financial markets, tighter solvency regulations and the prevention of the non-transparent accumulation of risk. Our government will advocate the closure of tax havens, for example, by means of stricter reporting obligations for multilateral enterprises and increased exchange of information between public authorities.

The Finnish government will also make efforts to influence the development of international trade rules, taking into account of the needs of the environment and consumer protection, human rights and core labor standards in accordance with ILO Conventions and other international agreements. We wish to underscore corporate and social responsibility in trade policies. We are in favour of examining possibilities of creating an open and transparent debt settlement system. And moreover, we support the adoption of a global agreement concerning investments, negotiated on a broad basis, in which rights and obligations of states and investors are addressed in a balanced manner.

On the basis of these political statements and commitments, the Finnish Government is naturally looking for ways and means of developing and promoting these aims multilaterally, both together with governments and other concerned stakeholders, in the very spirit of the Helsinki Process.

I would like to use this opportunity to highlight some particular issues or aspects of these two broad areas, taxation and investments, to facilitate our discussion and look for possible ways forward in our dialogue.

Taxation 

As you all know, the European Union is right now in the midst of an intense debate on a financial transaction tax. Following the very much welcomed proposal by the EU Commission, this is not just another intellectual discourse around the issue, but the most serious political attempt so far to introduce a tax of this kind at the European level. This is underscored by the fact that the public support for these measures is stronger than ever before in the European public opinion. In the internal EU negotiations Finland will definitely be pro-actively on the side of finding a positive solution to the matter. And if Europe beginning with the countries in the Euro-group would be able to set an example and introduce a model for how a transaction tax actually could work, that would certainly give a push to the international debate.

However, here at the HP +10 conference I would like the discussion to focus more on the global perspective of the FFT issue. We know that on short term we cannot expect any breakthrough at the global level. But what can and should be done to take the initiative further also globally ? The Leading Group on Innovative Development Finance, where Finland is a member, is an obvious global forum for continuing work on this matter. The fresh Global Sustainability Report refers to the issue of international taxation, but did not put forward an specific recommendations in this regard. We are open to consider any ideas on how multistakeholder dialogue and cooperation around the FTT issue could take the global political process forward.

What comes to preventing international tax evasion and shutting down tax havens a number of important initiatives are on the European and/or the international agenda, and Finland is seriously considering various ways of engaging more actively in this work.

The International Task Force on Financial Integrity and Economic Development, with our Nordic neighbour Norway in the drivers’ seat, has done some exemplary work in a number of areas, including illicit financial flows, automatic information exchange and trade mispricing.

Finland is considering the possibility of engaging more actively in tackling the misuse of transfer pricing of multinational companies, in close cooperation with the Tax Justice Network. We look forward to the thematic seminar to be organized in Finland in summer this year.  

At the European level the promotion of the EU framework for a Common Consolidated Corporate Tax Base (CCCTB) could be one way of ensuring that corporations would be taxed as single units within the EU.

Another important theme is developing and promoting models  for the multilateral, automatic information exchange on tax issues. Here we welcome the convention on mutual administrative assistance in tax matters currently being prepared by the OECD and support the broadening of the membership and the scope of the European Savings Tax Directive.

In this context it might also be useful to have a closer look at the Foreign Account Tax Compliance Act (FATCA) recently introduced in the United States, which aims at identifying individuals having deposits in foreign financial institutions and being obliged to pay taxes on their deposits and investments to the US. The aim of this law is to prevent tax evasion through enforcing the access to information from foreign financial institutions. In stead of just trying to find ways of limiting the consequent price tag of this for European and other countries, we might  think of developing similar models for tax collection at a multilateral level.

These are just examples of ideas and measures that could be brought forward in order to limit tax evasion. Also here we are open for your reactions and suggestions as to what might be done through multistakeholder cooperation in this field.

Investments

The Helsinki Process was launched in the aftermath of the famous breakdown of the MAI negotiations. We did discuss the issue of foreign direct investments occasionally during the process. I recall that I raised the issue at some point, more or less in the same spirit as the Finnish government now has included it in its program, but then it did not fly.

Actually the experiences of the MAI were dealt with towards the end of the Helsinki Process in a study on multistakeholder cooperation in global governance (Mikael Wigell, FIIA, 2008). In that study the MAI process was used as an example of how multilateral processes can fail partly due to the complete lack of real multistakeholder dialogue and cooperation. Thus, it is not the intention of our government to revisit the MAI as such, not the draft outcome nor the process. The draft MAI was eventually abandoned through the action of civil society movements and groups, which was welcome as  it would have drastically altered the balance of rights and obligations between governments and transnational investors in favour of the latter. Lessons ARE learned.

We all know that in spite of some efforts some ten years ago it was not possible to proceed to real negotiations within the WTO or elsewhere on this topic. However, in spite of the prevailing stalemate at the level of negotiations, some progress has been made. Particularly the policy Framework for investment, an instrument developed within the Investment Committee of the OECD through much more inclusive consultations, has tried to piece together the issues relevant for states and governments when developing their legislation regarding foreign investments. Another example is the business linkage program of UNCTAD, which tries to develop a model for linking investments to the needs of the local economy and job creation for the poor. Finland has supported both initiatives financially.

In the absence of a global agreement, we have seen an immense proliferation of bilateral investment agreements. We are now faced with a virtual jungle of thousands of investment agreements. I believe it is fair to say that the weaker parties are the ones suffering from this  situation.

It is our firm belief that an agreement negotiated with full participation of the developing countries, with the right balance safeguarding the rights of governments and taking proper account of the need to ensure respect for environmental, consumer and labour standards as well as corporate social responsibility is still very much needed.

However, the pertinent question is whether time is ripe for moving forward in this area ? I see some positive signs in that direction.

For example, there are a couple of important recommendations on investment issues in the new GSP report. The report recommends Governments to promote and incentivize the inclusion of long-term sustainable development criteria in investment and transactions conducted by companies, including financial transactions. It also encourages business groups to work with Governments and international agencies to develop a framework for sustainable development reporting. And moreover, it urges businesses to seek to align their business practices with universally accepted principles concerning human rights, labour, environmental sustainability and the fight against corruption, such as those set forth in the Global Compact.

And I have noticed from reports on the preparations of UNCTAD XIII, in April this year, that the issue of creating a stable and predictable investment climate, consistent with international rules, is prominently featuring in the negotiating texts of the conference.

We are prepared, in the kind of informal setting that the multistakeholder concept of the Helsinki Process has provided for, to engage in and provide a forum for a dialogue on the issues related to the need for and the benchmarks of some sort of a global agreement on investments. But we wish to have your views and reactions to this before taking this anywhere further.

Concluding remarks

Finally I want to make a general remark regarding the two themes I have touched upon in my introduction.

If we look at how the two topics, taxation and investments, have paved their way on to the international agenda over the years, or even decades, they represent in a sense two dynamics completely opposite to each other.

The original Tobin Tax, followed by a number of variations throughout the years, emerged  as an initiative or a campaign in the public domain, promoted by the civil society, its popular movements and lobby groups, and fiercely opposed by the political and financial establishment. Gradually it has gained ground, it has moved to the center of politics, but is still opposed by large parts of both the political and  financial establishment.

The MAI process started behind closed doors, initiated by the financial and political establishment, but when leaked to the public space and fiercely opposed by popular movements, lobby groups, and developing country governments, it was dropped from the political agenda and marginalized. With a lot of opposition or at least suspicion still prevailing among those who were against it.

With the need for yet another paradigm shift in mind in the sphere of global economic governance, I can’t refrain from teasing you with a rather unconventional question: would there be any ways and means of influencing “the political gravitation” of the two processes described above so, that the resistance on both sides, the opposition against a financial transaction tax on one hand and a global agreement on investments on the other, could be gradually diminished ? And respectively, could a momentum for building processes  towards a somewhat parallel implementation of the two be created ?