Can South-South Cooperation Combat Coercive Financial Rule-making?

In recognition of this, on 27-28 July, 2023, the Governments of Colombia, Brazil and Chile convened the historic ‘First Latin American and Caribbean Summit for an Inclusive, Sustainable and Equitable Global Tax Order’ in the Colombian coastal city of Cartagena de Indias bringing together 16 Latin America and Caribbean countries[1]. Inter alia, the LAC ministers present at the Summit, and the civil society organisations in attendance, acknowledged the need for closer cooperation among LAC countries to create a more inclusive, sustainable and equitable global tax system.^[2]

Could an alliance between Latin American and Caribbean countries on global tax matters be beneficial to Caribbean IFCs?

Historic Summit

In January 2023, Jose Antonio Ocampo, Colombia’s then Minister of Finance and Public Credit, announced the Colombia government’s intention to host this historic summit, the first occasion these countries would meet to discuss tax issues as a regional grouping.[3] Colombia’s efforts were later supported by the Governments of Brazil and Chile, and the UN Economic Commission for Latin America and the Caribbean (UN ECLAC). An invitation to participate in the summit was extended to all LAC country leaders, while African and other G24 leaders were invited as observers.[4] The effort has received tremendous support from civil society groups and think tanks globally.

The outcome included a joint declaration signed by Ministers of Treasury, Economy and Finance and officials from the 16 participating countries to establish the Regional Platform for Tax Cooperation for Latin America and the Caribbean, to promote dialogue and knowledge exchange, and to develop national and global tax policies that help the region to more adequately confront the mounting crises they face.[5] It was agreed that Colombia will hold the Pro Tempore Presidency of this Regional Platform for the next twelve months. ECLAC will be the technical secretariat of the platform. The Pro Tempore Presidency will be tasked with creating an Annual Work Plan, with ECLAC support, and prioritising the most pressing themes regarding an inclusive, equitable and sustainable taxation agenda within a period of 6 months.

The initiative appears to be a good faith attempt to build a LAC coalition not only for regional coordination on tax issues, but one that would also help to strengthen the region’s impact on global tax policy making, recognising that the global South remains on the periphery of global financial rule-making. The main theatre for global tax rule-making is the Organisation for Economic Cooperation and Development (OECD), a club of the world’s wealthiest countries. As I argued in a previous IFC Review piece,  developed countries comprise the majority of these plurilateral bodies’ members and drive their agenda, despite some attempts to address the democratic deficits.[6] While discussions on tax issues have also been ongoing in the UN, efforts to create a truly multilateral forum such as a UN intergovernmental tax body have been repeatedly blocked by OECD countries until recently when a UN resolution was passed to move towards such a body.  

The net result is that the policy imperatives of these plurilateral standard-setting bodies and the so-called ‘soft law’ they create do not always align well with the development realities, circumstances or context of developing countries, especially small states, which are compelled to adopt these externally-made standards or face blacklisting and even possible sanctions. These bodies lack the legitimacy to be the standard-setting bodies, especially for issues like taxation which impact countries’ ability to mobilise resources to fund their development objectives and achievement of the UN Sustainable Development Goals.

Furthermore, the Base Erosion and Profit Shifting Project and the Inclusive Framework two-pillar solution, which was agreed to by OECD countries beforehand amongst themselves, are being foisted on other countries to sign up. Developing countries increasingly feel that these solutions are not in line with their development interests. The question is to what extent do these plurilateral standard-setting bodies really believe in the issue of tax justice? Indeed, the OECD is alleged in media reports to have discouraged Australia from adopting tougher laws which would have required multinational corporations (MNCs) to reveal where they pay taxes.[7]  Many LAC countries have at one point or another expressed support for making the UN system the forum for global tax issues through the creation of a UN Tax Convention and the establishment of a permanent UN body on tax matters, which would promote inclusivity and ensure all countries have a seat at the global tax-ruling table.

Another positive of this LAC initiative is that development is a strong component of this effort, acknowledging that countries’ tax policy must support, advance and not undermine their development imperatives. Civil society had a strong role to play in the discussions, and there was strong mention of the links between tax and gender, women’s empowerment, the environment, education, and public health, for example. There was also the argument that the move towards largely regressive tax systems was anti-developmental as they shifted the tax burden away from the wealthy towards the most vulnerable segments of society.

However, only two Caribbean countries (Haiti and Dominican Republic) participated in the Summit. None of the English-speaking Caribbean governments participated in the Summit although representatives of civil society groups from those countries were present at the civil society meetings. It is not publicly known why this is the case as the Summit has barely received any media coverage in the English-speaking Caribbean. However, I can speculate on a few possible reasons. There might be some discomfort among Caribbean governments with creating a new platform for these issues, as opposed to using existing architecture like the Community of Latin American and Caribbean States (CELAC). On that front, it is curious why CELAC was not the chosen venue for this discussion. Additionally, it is unclear to what extent this new platform takes into account existing sub-regional cooperation mechanisms. CARICOM countries usually approach foreign policy matters as a bloc as the Revised Treaty of Chaguaramas calls for coordination of foreign policy. Moreover, CARICOM countries discuss tax and other finance matters in their Council for Finance and Planning (COFAP).

Another fear among Caribbean countries could be that their voice in this regional space might still be drowned out by more powerful LAC countries. This fear is not unfounded. While there is much to be gained from greater LAC cooperation and there are, of course, similarities, there are also important differences which any proposed regional cooperation must take into account. These differences include size, economic structure, social structure and tax structure. Among Latin American countries, only Panama could really be considered an IFC, while IFCs are more predominant in Caribbean countries.

Additionally, many Caribbean countries face accusations of being tax havens, including by some Latin American countries, even though Caribbean countries are often among the first adopters of global tax initiatives such as automatic exchange of information. Therefore, while blacklisting for AML/CFT/ML and tax issues is not a major issue for Latin American countries, for Caribbean countries it is. It is for this very reason that Caribbean representatives present at both the Panama and Cartagena civil society meetings were insistent that the final civil society outcome document handed over to the Ministers needed to include some reference to this issue, and indeed includes this as recommendation number nine, which calls for decolonialisation of the global tax order.

Regarding AML/CFT/PT matters, the countries on the Financial Action Taskforce (FATF)’s List of Jurisdictions under increased monitoring (the grey list) on June 23, 2023, the following LAC countries and territories are present: Barbados, Cayman Islands, Haiti, Jamaica and Panama.[8] In many cases, this pervasive narrative of small IFCs as ‘tax havens’ is perpetuated by their unfair inclusion on these lists and in popular media. While institutions and persons in global North countries are the largest perpetrators of money laundering and tax crimes, their countries never appear on each other’s blacklists or on the blacklists generated by the OECD, which these countries control. The Tax Justice Network’s 2022 Financial Secrecy Index lists several large countries as the most secretive tax jurisdictions.  However, one would hardly find a US state like Delaware, Nevada or South Dakota, or a European IFC like Luxembourg, Ireland, Liechtenstein or Switzerland on the blacklist of any OECD country. Even within LAC this persists. For example, Brazil’s blacklist of 61 countries includes several Caribbean IFCs.  

Can Cooperation Among LAC Countries Benefit Caribbean IFCs?

In theory, south-south cooperation among LAC countries on tax matters could be mutually beneficial, including for Caribbean IFCs. After all, in much the same way that G7 countries use their collective might to set the rules of global finance, LAC countries could leverage their collective voices to press for a fairer global financial system which considers their development imperatives. It is commendable that this initiative is seeking to incorporate a Caribbean voice, as many Caribbean countries feel that LAC discussions are often limited to the experiences of Latin American countries without acknowledging Caribbean realities. However, LAC cooperation must bear in mind the region’s heterogeneity and as such, Caribbean issues should be given the same weight as issues affecting other LAC countries.

Additionally, LAC should seek to use already existing regional cooperation structures such as CELAC, and also respect and bear in mind that CARICOM already has its own processes for functional cooperation on this issue. In other words, any LAC cooperation should complement - not seek to replace - CARICOM’s own structures. It is also time for LAC countries to leverage their collective voices to support the African Group proposal for a UN Tax Convention and for the UN to be the official forum for development of global financial rules as opposed to the status quo. If done on the basis of mutual respect and communication, south-south cooperation among LAC countries could be beneficial to Caribbean IFCs.

1 The countries which attended were: Bolivia, Brazil, Chile, Colombia, Ecuador, Haiti, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, the Dominican Republic and Uruguay.

2 In my capacity as an academic, I participated in the civil society preparatory meetings in Panama and Cartagena de Indias.

3 https://www.elespectador.com/economia/macroeconomia/ocampo-presento-iniciativa-sobre-justicia-tributaria-en-el-foro-de-davos/

4  https://www.minhacienda.gov.co/webcenter/portal/TributacionIncluyente/pages_TributacionIncluyente/icumbrelatinoamericacaribetributacion

5 https://news.un.org/es/story/2023/07/1523042

6 https://www.ifcreview.com/articles/2021/september/why-fatf-s-workstream-on-unintended-consequences-matters-to-ifcs/

7 https://www.ft.com/content/b21cfde0-8940-45db-b3e3-3e9807d7b957

8 https://www.fatf-gafi.org/en/publications/High-risk-and-other-monitored-jurisdictions/Increased-monitoring-june-2023.html

Alicia Nicholls
Alicia D. Nicholls is an international trade consultant with over a decade of experience providing bespoke trade research and advisory services to a variety of clients. She is currently a research fellow and part-time lecturer with the University of the West Indies. Miss Nicholls is the founder of the Caribbean’s leading trade policy and development blog, www.caribbeantradelaw.com, since 2011. She also presents regularly at both regional and international academic and industry-related conferences and webinars. While she maintains an interest in all issues affecting Caribbean trade and trade policy, her specific research focuses primarily on global financial regulation and small States, foreign investment law and policy and international business.