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A Big Step Forward for China's AIIB

Member countries have agreed on a charter for the Asian Infrastructure


Investment Bank.
In March, a flurry of counties (including U.S. allies like the U.K., South Korea, and
Australia), applied to join Chinas new Asian Infrastructure Investment Bank (AIIB)
before the March 31 deadline for joining as a founding member. The new bank will
have authorized capital of $100 billion, to be used in infrastructure projects
throughout Asia.
Being a founding member means having a say in the AIIB charter especially
important for countries that had expressed concern about governance issues related
to the new bank. Today, Chinas Ministry of Financeannounced that the 57 founding
members of AIIB have agreed upon the banks charter, which will be signed in a
ceremony in Beijing at the end of June.
The AIIB negotiators met in Signapore from May 20-22 for talks on the banks
charter. At stake were a number of concerns: how the banks capital will be provided
and the corresponding stakeholder levels of each country. China has previously said
that 75 percent of AIIB shares will be reserved for Asian countries, meaning
European countries like the U.K., Germany, and France will have little say.
Delegates from the Singapore meeting told Reuters that China will likely wind up
with a 25-30 percent stake in the bank, making it the largest shareholder. India is
expected to be the second largest shareholder at 10-15 percent. That meshes
with predictions from the Korean Institute for Economic Policy, which calculated
that China and India would be the largest shareholders at roughly 30 and 10 percent,
respectively. KIEP, which based its calculations on having 75 percent of shares for
Asian countries and allocating shared based on GDP and PPP (purchasing power
parity), predicted that Indonesia, Germany, and South Korea would be the next three
largest shareholders, all with just under 4 percent.
The biggest question mark for KIEP was the status of Russia is it included as an
Asian country or not? If Russia is part of the Asian group splitting 75 percent of AIIB
shares, it would (along with India) would have around 10 percent, while Chinas
percentage would drop to 25. Meanwhile, other non-Asian countries (Germany,
France, the U.K., etc) would see their shares rise by comparison, as Russia would no
longer count toward the 25 percent of shares reserved for non-Asian members.
That question remains unanswered for now there are very few details on the actual
contents of the charter (formally known as the Articles of Agreement, or AOA). That
will likely change soon as each individual government begins the process of having
the AOA ratified through domestic processes.
In addition to allocating shares, the AOA contains information on the governance
structure (including the question of whether or not China has veto power over bank

decisions) and on the processes for approving and overseeing loans. China has
previously promised that the AIIB will follow the same international standards as
other lending institutions like the IMF when it comes to environmental concerns and
labor rights. China has also promised, however, to keep AIIB lean and efficient
rather than weighted down by bureaucratic procedures. In other organizations,
some standards are harsh and even attached with political conditions,Xinhua
noted, saying that China founded AIIB precisely to get around those issues.
China says AIIB is expected to begin operations by the end of 2015, although some
delegates are uncertain if every member country will be able to win legislative
approval for the AOA that quickly.

Politicians not tough enough on tax avoidance, say voters

Attempts by some multinationals to use complex arrangements to pay less


tax have provoked widespread anger.
Voters in Britains key marginal seats want tougher action to crack down on
tax avoidance and have unimpressed by pledges by political parties to raise
billions of pounds from rich individuals and corporations, according to a
poll published on Thursday.
The ComRes survey found that almost three-fifths of those questioned
(58%) thought the promises made by the Conservatives, Labour and
the Liberal Democrats did not go far enough.
Providing evidence of public disquiet about the activities of multinational
firms that have minimised their tax bills, the poll also showed that nine in
10 voters in marginals thought tax avoidance by big corporations was
morally wrong even when it was legal.
The poll was commissioned by the Tax Dodging Bill campaign, a coalition
of development organisations including ActionAid, Oxfam and Christian
Aid, that is calling on the new government to introduce a law to tackle tax
avoidance within 100 days of coming to power.

Its findings came as the Labour leader, Ed Miliband, insisted in his


interview with the comedian Russell Brand that Labour had to respond to
the public outrage at multinationals using complex arrangements to pay
less tax.
Labours plans for the public finances rely on it being able to find 6.7bn
from tougher tax avoidance measures, while the Conservatives would need
4.6bn and the Liberal Democrats 9.7bn to make their budget arithmetic
add up. The Institute for Fiscal Studies, described the figures as
aspirational.
Jenny Ricks, head of campaigns at ActionAid, said: This poll shows that
widespread anger about corporate tax avoidance both in the UK and in poor
countries is showing no signs of going away.
People still dont believe that the promises made by political parties on
tackling tax dodging go far enough. Pressure is mounting on all parties to
act. Thats why the next government must introduce a tax-dodging bill it
could bring in billions in the UK and poor countries money badly needed
to fight poverty.
ComRes interviewed 1,000 voters in 40 battleground seats. A vast majority
(84%) thought it was still too easy for large companies to avoid paying tax
in the UK, while a similar proportion (81%) said tax dodging by large
companies in developing nations harmed people living in those countries.

Google, Amazon, Starbucks: The rise of 'tax shaming'


Global firms such as Starbucks, Google and Amazon have come under fire
for avoiding paying tax on their British sales. There seems to be a growing
culture of naming and shaming companies. But what impact does it have?
Companies have long had complicated tax structures, but a recent spate of stories
has highlighted a number of tax-avoiding firms that are not seen to be playing their
part.
Starbucks, for example, had sales of 400m in the UK last year, but paid no
corporation tax. It transferred some money to a Dutch sister company in royalty
payments, bought coffee beans from Switzerland and paid high interest rates to
borrow from other parts of the business.

Amazon, which had sales in the UK of 3.35bn in 2011, only reported a "tax
expense" of 1.8m.
And Google's UK unit paid just 6m to the Treasury in 2011 on UK turnover of
395m.

The art of paying less tax

Multinationals such as Google, Amazon and Starbucks have been


criticised by the Public Accounts Committeeover tax avoidance
Stung, Starbucks plans tochange its arrangementsand pay UK
corporation tax

Global firms' tax pay 'an insult'


Everything these companies are doing is legal. It's avoidance and not evasion.
But the tide of public opinion is visibly turning. Even 10 years ago news of a
company minimising its corporation tax would have been more likely to be inside the
business pages than on the front page.
What changed? And is "shaming" of companies justifiable and effective?
Momentum has been growing for the last few years.
In September 2009, the Observer ran with the headline: "Avoiding tax robs our

public services, declares minister". The paper reported that the


government was planning to say tax is a "moral issue" and that it was "determined
to end avoidance and evasion."
October 2010 - and the Vodafone case - saw the Daily Mail report: "Vodafone

closes Oxford Street store at 6bn tax protest".


A few months later and the focus moved to Sir Philip Green's business
empire."Crisis? What crisis?" reported the Mail, which said the TopShop
boss was "enjoying" a Barbados holiday while thousands of campaigners laid siege to
his UK stores.
Barclays Bank was the next target - in February 2011 the Daily Express

reported on the "raid" by tax protesters, who shouted: "Dave and George
do your sums." Later that same month, the Guardian ran with the headline "UK
Uncut: 'People are starting to listen to us'".

Withdrawal of custom

Another impact of tax shaming is that some people, such as 45-year-old selfemployed businessman Mike Buckhurst, from Manchester, boycott brands.
"I've uninstalled Google Chrome and changed my search engine on all my
home computers. If I want a coffee I am now going to go to Costa, despite
Starbucks being nearer to me, and even though I buy a lot of things online, I
am not using Amazon.
"I'm sick of the 'change the law' comments, I can vote with my feet. I feel
very passionate about this because at one point in my life I was a top rate tax
payer and I paid my tax in full," he says.
To some extent, the shift is down to the recession, according to Dr Stuart Roper, a
corporate reputation expert at Manchester Business School.
"We are in an age of deep public spending cuts and real austerity. And this [tax
avoidance] is not a victimless crime, if you like. If this was six or seven years ago,
pre-financial crisis, I don't think it would have had the same impact it's had now," he
says.
War on Want's tax justice campaigner Murray Worthy says there has also been a
change in public perception.
"As the public have got to understand better what corporate tax avoidance is, there
is a clear sense of outrage that is going well beyond a small group of protesters - it's
something that the public feels is really not right with the current system," he says.
Discussions of the ethics of tax avoidance are now everywhere. But a few years
back, it was a hardcore gaggle of activists and campaign groups like UK Uncut that
were staging sit-down protests in stores such as the Arcadia Group, Boots, Vodafone
and Fortnum and Mason.

Journalists and newspapers are also doing their own investigations, argues Worthy,
with the appearance of Google, Starbucks and Amazon before the Public Accounts
Committee a result of stories by the Daily Telegraph, Reuters and the Guardian
respectively.
In a report published on Monday, the committee's chairwoman Margaret
Hodge said the level of tax taken from some multinational firms was "outrageous"
and that HM Revenue and Customs needed to be "more aggressive and assertive in
confronting corporate tax avoidance".
MPs also called for those who do not pay their "fair" share to be named by the
government, but Prime Minister David Cameron and Chief Secretary to the Treasury
Danny Alexander ruled it out, saying it would breach taxpayer confidentiality.

But just how effective is tax shaming anyway?


The idea that Starbucks would voluntarily pay more tax than it legally needs to
seems extraordinary on the surface, and an argument for the effectiveness of tax
shaming.
"Up until yesterday, I wouldn't have thought these stories had much effect. I thought
companies would carry on doing what they were doing, but look over their shoulder,
in terms of their reputation," says Michael Devereux, a tax expert at Said Business
School, University of Oxford.

Corporate tax avoidance

Locating factories, service and distribution hubs and regional HQs


in low-tax jurisdictions

Starbucks, for example, sources its UK coffee from a wholesale trading


subsidiary in Switzerland

And Google operates in Bermuda and Ireland

Transfer pricing is when a division of a multinational in one country


charges a division in another country for a product or a service

This means artificially high charges can be levied internally, to siphon


money from a high-tax country to a low-tax one

Corporation tax: Easy to avoid?


How do companies avoid their tax?
"Starbucks appears to be saying they don't think they owe any more money, but will
pay anyway. If that's true, it's having a reputational effect - but it's a bit odd in terms
of the tax system, we wouldn't want the tax system to be voluntary," he says.
Branding experts agree the reputational side of things is key, as it is hard to measure
the direct impact of tax shaming on sales and profit.
Dr Sue Bridgewater, a marketing expert at Warwick Business School, says if a
company with a strong brand damages that, it also damages its financial "value".
"Customers have very long memories and their emotional tie to a brand is a very
important part of the loyalty," she says.
But Roper says even reputational damage is difficult to ascertain and can quickly
dissipate.
Another impact of tax shaming is that individuals can boycott brands, but Roper says
the number of people who take direct action is "relatively low".
What is more dangerous for companies is social media, he says - citing
#boycottstarbucks, which was formed in the wake of the Starbucks story - because
"a small number of people [can] activate and ferment dissent among another group".
But is tax shaming justifiable?
Amazon, Starbucks and Google are by no means unique in minimising their UK tax
liability. And individuals often try to lower their own tax bill by exploiting rules in
inheritance tax, or gifting to charity.

Is it remotely plausible that Google, Amazon and Starbucks would


suddenly emigrate and stop trying to sell as much as possible to
British consumers?
Bridgewater says large multinational corporations have been using various methods
of being "tax efficient" for decades, and it is "probably sound business practice".
"The issue arises when we feel that a company has crossed a line and what it does to
be tax efficient is morally, if not legally, inappropriate," she says.

For a lot of companies, it is about fairness, according to Simon Walker, director


general of the Institute of Directors.
"It is very frustrating for many companies who pay large tax bills that some
multinationals are able to avoid doing so.
"The solution must be simplifying the tax system, not simply hectoring from
Westminster. If these firms are immoral to take advantage of tax loopholes, then
politicians are surely immoral for creating the loopholes in the first place. Taxes
should be simpler to cut down on avoidance and relieve the burden our complex tax
code puts on companies who do try to do the right thing," he says.
The director-general of the CBI, John Cridland, agrees the crux of the debate comes
down to fairness.
"A company may be making good revenues but pay lower amounts of tax for
completely legitimate business reasons. But if it's doing this by using so-called
'black-box' arrangements, where transactions are designed for no commercial
purpose at all, other than to avoid tax, then the CBI does not condone it, even if it is
legal," he says.
He says if the government wants a different result from the tax system, it must
change the rules.
The pressure to do so has rarely been greater.

It's time for a global minimum wage

Capitalism has been globalised, but the rules that protect people from capitalism
have not.

Last April, 1,127 workers were killed when Rana Plaza, a garment factory in Savar,
Bangladesh, collapsed. To put this in perspective, that's more than twice the number of
Americans that have been killed in mass shootings since 1983. This unfathomable tragedy
reached us around the world in the form of images troubling enough to make even the most
calloused consumers think twice about where their clothes come from. Surely - we all
thought - the companies that source from Bangladesh would do something to address the
pervasive problems with the industry.
What we have so far is a new Accord on Factory Safety in Bangladesh, which 38 companies
around the world have agreed to sign. The Accord does have serious shortcomings, of
course: it's voluntary, temporary,

Last April, 1,127 workers were killed when Rana Plaza, a garment factory in Savar, Bangladesh,
collapsed. To put this in perspective, that's

more than twice the number of Americans that have

been killed in mass shootings since 1983. This unfathomable tragedy reached us around the world in
the form of images troubling enough to make even the most calloused consumers think twice about
where their clothes come from. Surely, we all thought, the companies that source from Bangladesh
would do something to address the pervasive problems with the industry.
What we have so far is a new Accord on Factory Safety in Bangladesh, which 38 companies around
the world have agreed to sign. The Accord does have serious shortcomings, of course: it's voluntary,
temporary, and it doesn't include most

major US firms such as Gap, Wal-Mart, Target, Macy's,

Sears, JCPenney, Nordstrom, and so on (who have initiated a separate agreement that analysts have
already denouncedas a "sham"). Still, it represents an important step toward better global labour
standards.
But the singular focus on safety that has come to dominate the debate about Rana Plaza obscures
the far more serious, systemic problems that are ultimately to blame for this tragedy. Even if the
Accord were mandatory, permanent, and universal, it would still leave these deeper issues untouched.
Indeed, the companies that have signed the Accord have likely done so in hope of putting an end to
the public outcry before it generates pressure for the more substantive reforms they know need to
take place.

A rigged labour market


The real problem has to do with the way the global labour market works. Because of neoliberal

economic policies imposed over the past few decades, companies now have the power to rove the
globe in search of what CEOs refer to as the "best investment conditions". Poor countries like
Bangladesh have to compete with other poor countries to attract much-needed foreign capital by
offering the lowest minimum wages, the flimsiest safety standards, the cheapest taxes, and so on.
Most economists justify this destructive "race to the bottom" under the banner of "comparative
advantage".
As part of this deal, companies no longer have to bargain with local workers - they can opt out of the
social contract whenever it suits them. If workers in Savar, say, got together to demand better wages
or safety standards, the companies that use them would just start sourcing from somewhere else,
leaving them unemployed. Such a move wouldn't take more than a mouse-click at the headquarters of
Gap or Wal-Mart.

101 East - Worked to death

So workers are made to face a stark choice: accept dangerous conditions and minimum wages
of$0.21

per hour, or lose their jobs. The constant threat of replacement keeps workers cheap and

docile, to the tremendous benefit of corporate profits.


Historically, unions have played a crucial role in helping workers bargain for a better deal: the end of
child labour, the 40-hour work week, safety standards, and so on. But today the hyper-mobility of
capital renders unions powerless. In their absence, we're witnessing a rapid descent back to 19thcentury labour conditions - the sort immortalised in classic books like

Oliver Twist and The

Jungle.
Wages in many sectors are falling as desperate people the world over compete to sell their labour for
less than the next person, even as worker productivity increases and corporate profits reach record
highs.
To put it bluntly, the global labour market is rigged in the interest of multinational companies; it is
designed to allow them to pump value out of human bodies - mostly poor, brown, female bodies - as
efficiently as possible. Those bodies generate the enormous wealth that flows into corporate coffers,
but only a fraction of it goes back to them in wages - the vast majority gets pocketed as profits and
CEO bonuses.
This process of appropriation - or theft, really - helps explain the shocking

trends in global

inequality that we have seen over the past few decades, to the point where the richest 200 people
now have

more wealth than the poorest 3.5 billion - more than half of the world's population.

Putting a floor on the 'race to the bottom'


In a context of globalisation, it's clear that country-by-country fixes just won't do. If we improve labour
standards in one poor country - as with the Bangladesh Accord - then companies are likely to move
somewhere else, wiping out local jobs and slashing much-needed GDP. The upshot is that local
policymakers have a perverse incentive to

not improve things too much, for fear of causing

more harm than good. Even if they wanted to, they often can't: most free trade agreements - like
NAFTA and the forthcoming TPP - empower foreign corporations to sue sovereign governments for
regulatory legislation that reduces their profits.

If we're going to have a global labour market, it stands to reason that we need a global system of
labour standards, something that will put a floor on the race to the bottom and guarantee a baseline
level of human fairness. The single most important component of such a system would be a global
minimum wage.

Not only is it now


conceivable to have a
global minimum wage
system, it's also - for the
first time in history - quite
doable.
Muhammad Yunus, founder of the Grameen Bank and a winner of the Nobel Peace Prize,
recently proposed

a plan along these lines, arguing for a wage floor of $0.50 per hour. I'm thrilled

that Yunus is bringing publicity to this cause, but his plan isn't quite good enough: the wage floor
would apply only to the garment industry, and it would be left up to corporations to take action something we already know they won't do. For Yunus, this would be a matter of "corporate social
responsibility" - and brand enhancement - rather than a matter of basic justice.
A bigger problem with Yunus' plan, however, is that a fixed minimum wage would be little use to
people who live in countries where it's impossible to survive on even $0.50 an hour. That, and it would
unfairly hurt the poorest, lowest-wage countries by eliminating their comparative advantage.
A better idea would be to set the global minimum wage at a fixed

percent - economist Thomas

Palley recommends 50 percent - of each country's median wage, so it would be tailored to local
economic conditions, costs of living, and purchasing power. As wages increase across the spectrum,
the floor would move up automatically, so we wouldn't have to constantly pressure politicians to raise
the minimum to keep up with inflation. All countries would be treated equally, and countries that
presently enjoy a comparative advantage through cheap labour would retain that advantage.
Of course, in some countries wages are so low across the spectrum that 50 percent of the median
would still leave workers in poverty. So the global minimum would need a second safeguard: wages in
each country must be above the national poverty line.

What would happen?

This system would go a long way towards helping to

eliminate poverty, and would help reduce

inequality within countries - indeed, for this reason the UN would be wise to adopt a global minimum
wage as a key strategy toward realising the post-Millenium Development Goals

development

agenda. Raising wages also has positive economic benefits: it stimulates demand and thus
facilitates local economic growth, and it does so in a way that doesn't depend on debt.
Sceptics who worry that a minimum wage system might negatively affect employment can take
comfort in the now-overwhelming evidence

to the contrary (also see here).

What would a global minimum wage mean for consumers? Not much, it turns out. Economist Robert
Pollin has

found that doubling the wages of sweatshop workers in Mexico would raise the price of

clothes sold in the US by only 1.8 percent. In fact, you could raise sweatshop wages by a factor of ten
and consumers in rich countries still wouldn't be fazed: a

study by the National Bureau of Economic

Research shows that people are willing to pay 15 percent more on a $100 item - and 28 percent more
on a $10 item - if it is made under "good working conditions".
A global minimum wage would go a lot further than the "fair trade" fad that has become popular
among many Western consumers. Every time I walk into a store and see items labeled fair trade, I'm
always struck by what their presence implies: that the rest of the "normal" products are

unfair. We

shouldn't be presented with a choice between fair trade goods and oppression goods - oppression
goods shouldn't exist in the first place. When we buy the things that we need to sustain and enjoy our
lives, we should be able to be confident that we are not colluding in the exploitation of other human
beings who toil in near-slavery conditions.
The problem with globalisation is that capital has been globalised while the rules that protect people
from it have not. It's time to take the next logical step. Not only is it now conceivable to have a global
minimum wage system, it's also - for the first time in history - quite doable. The UN's International
Labour Organization has already proventhat it has the will and the capacity to govern such a system.
Imagine if we put this idea to popular referendum. Imagine the landslide support it would receive from
people across the world. "The arc of history bends toward justice," Dr Martin Luther King, Jr told us.
Yet this is true only when we summon the courage to bend it thus. What we need now is to mobilise
the popular pressure to make it happen, to grip and bend the arc of history, recognising that "power
concedes nothing without a demand", as Frederick Douglass once put it: "It never has, and it never
will."

Dr Jason Hickel lectures at the London School of Economics and serves as an


adviser to /The Rules. He has contributed political critique and analysis to
various magazines, including Le Monde Diplomatique, Foreign Policy in
Focus, The Africa Report, and Monthly Review. He is currently working on a
new book titled The Development Delusion: Why Aid Misses the Point about
Poverty.