The second concerns SWIFT itself. We have seen repetitively how crucial the role of SWIFT is. It is important to know more about SWIFT in order to perfect the laws and regulations defining its activity.

## 2.3 Collecting securities transaction taxes (STT) through settlement systems already exists

The creation of an integrated European capital market is one of the most important projects currently under way in the EU (European Commission 2004). A crucial element of this project is the safety and efficiency of Pan-European clearing and settlement systems. Presently the clearing and settlement systems work at the domestic level and are numerous and fragmented, affecting the liquidity of financial markets and the cost of capital. There is no such European integration of securities clearing and settlement systems as there is for forex and money markets thanks to EURO1 and TARGET. The European Parliament's Resolution of January 2003 (100) underlined that "the existing clearing and settlement arrangements do not enable cross-border transactions to be processed efficiently and, in consequence, it is impossible to exploit to the full the internal market in financial services". The Parliament called upon the Commission to study thoroughly the US example of a unified clearing, settlement and custody framework with the objective to create a unified European framework (101).

Several reports were dedicated to the subject. Among them, the two reports of the Giovannini Group identified 15 barriers, divided into technical or market practice barriers, barriers related to tax procedures and legal barriers ("the Giovannini Barriers") (102), as the main causes of fragmentation. The reports concluded that until these barriers are eliminated, the EU clearing and settlement environment will remain a juxtaposition of domestic, non-integrated markets. Among the barriers, tax procedures issues are of particular interest. The two reports are not demanding the suppression of taxation on securities that exists in a few countries, such as the UK, Ireland and Belgium. Taxation remains an attribute of national sovereignty.

The EU concern is to realise free access to any securities settlement systems without any discrimination between national and foreign systems in order to promote pan-European integration through competition between systems. In the words of the commission: "Another category of barriers constitute an effective impediment to the use of Securities Settlement Systems as intermediaries in cross-border settlement. An example of this type of barriers would be the collection of transaction taxes only via a functionality integrated into the local Securities Settlement System; using a different system could mean

<footnote n="100">100) European Parliament resolution on the communication from the Commission to the Council and the European Parliament entitled "Clearing and settlement in the European Union: main policy issues and future challenges", 15 January 2003.</footnote>

<footnote n="101">101) Another important aspect of the EU legislation work concerns the cooperation between EU member states. Information exchange on as wide a basis as possible underpins Council Directive 2003/48/EC dealing with taxation of income in the form of interest received across national frontiers. Moreover, there is now a Directive for Mutual Assistance on Recovery, under which the competent authorities of one Member State can assist those of another with the collection of both direct and indirect taxes due in the first-mentioned state from a debtor located in the second. In addition, the original Directive on Mutual Assistance (Council Directive 77/799/EEC of 19 December 1977 concerning mutual assistance by the competent authorities of the Member States in the field of direct taxation, OJ 1977 L336/15) is currently undergoing modernisation with a view to strengthening it. Therefore, Member States will have better possibilities for controlling taxpayers who are located outside their territorial jurisdiction. This could useful for the CTT.</footnote>

<footnote n="102">102) The full texts of the two Giovannini reports are available on the Commission's website and are therefore not discussed in detail in this Communication.</footnote>
paying higher transaction taxes (103). As a consequence, market participants may, because of cost concerns, not use their preferred settlement location" (EU Commission, 2004, we underline).

This citation shows two important points: The first is that it is recognised that Securities Transactions Taxes are presently collected via a functionality integrated to the settlement systems. This means that there is already in the EU a legal basis for collecting transaction taxes automatically as proposed by CTT supporters through settlement systems despite all the legislation in favour of free capital movement and the neo-liberal dogma of free competition. If it is true for securities, why would it be different for forex transactions?

The second point relates to paying higher taxes when using a foreign settlement system rather than the national one. This is labelled by the first Giovannini Report as "Barrier 12". The paradox is that the elimination of this barrier which prevents equal treatment would lead to a situation where all settlement systems could compete to collect transaction taxes during the settlement process.

The second Giovannini Report, which establishes a strategy to remove the barriers, states (104) (See box 2-6):

Box 2-6 : Excerpt from the Second Giovanni Report

Removing Barrier 12

Any provisions requiring that taxes on securities transactions be collected via local systems should be removed to ensure a level playing field between domestic and foreign investors. This is clearly a responsibility of national governments and their actions should be co-ordinated via the relevant EU Council. This barrier is to be removed within a period of three months of removing Barriers 7 and 1.

Source: Second Giovannini Report, p 11.

The Commission then proposes the creation of a group of experts to examine, in more detail, the taxation issues identified by the Giovannini group and by respondents to the first Commission Communication on Clearing and Settlement as constituting barriers to efficient cross-border settlement. This group of experts was created under the name of FISCO group (FIScal COmpliance experts group) and held its first meeting on 15th April 2005.

The close link between STT and the CTT is so obvious that during the discussion of the Villiers/Kauppi Report on Clearing and Settlement at the ECON session of 30th March 2005 in the European Parliament, leke van den Burg (MEP, Socialist Group) proposed that the FISCO group should also consider the "Tobin Tax" issue. During the first meeting of the FISCO group, David Wright, Director of Directorate G in DG Internal Market, and head of the group, thanked "the EP for the attentions they gave to the FISCO" but carefully ruled out the proposal, because the "Tobin Tax" issue was "clearly outside the scope of the mandate of the expert group and therefore could not be considered" (see FISCO, 2005).

Nonetheless, the presentations included elements about the capabilities of a settlement system to help the fiscal authorities to collect a transaction tax.

<footnote n="103">¹⁰³) The reason is that foreign intermediaries are obliged to use a local agent or local representative in the discharge of their withholding charges which entails extra cost.</footnote>

<footnote n="104">¹⁰⁴) Barriers 1 and 7 are respectively :the removing of national differences in information technology and interfaces used by clearing and settlement providers (barrier 1) and the harmonisation of the operating hours of the numerous European settlement systems (barrier 7). SWIFT is charged with supervising the removing of barrier 1.</footnote>
The UK Stamp Duty Reserve Tax is a tax on agreements to transfer chargeable se-
curities for money or money's worth. In principle a 0.5% charge applies. Chargeable secur-
ities are mainly equities, rights, warrants and certain debt securities that are issued by a
UK issuer or registered in the UK. In Ireland, the Irish Stamp Duty is a 1% charge on cer-
tain "instruments" such as instruments which affect transfers on sales of registered shares
in Irish companies or equitable interests in Irish shares and contract for the sale of equit-
able interest in Irish shares. There is no equivalent to the UK SDRT3 (FISCO, 2005).

But in either case, the role of CREST, the main securities settlement system in the
UK and in Ireland is central. CREST is required to ensure that chargeable transactions are
reported to the Inland Revenue, to collect the Stamp Duty Reserve Tax, and to account for
it to the Inland Revenue (See box 2-7). Brokers and dealers are required to file the data re-
lated to relevant transactions directly into CREST which will automatically inform the Inland
Revenue authority. This proves that Straight-Through-Processing (STP) can be used for
fiscal issues. Penalties are applied when the duty is not paid on time which could also in-
spire the CTT legislation.

**Box 2-7 : CREST - Electronic Transfer of Shares System (Capital Taxes)**

"The purpose of this manual is to explain how stamp duty and the CREST system interact. For the sake of simplicity the term shares is used but all types of security (e.g. shares, stock, debentures, debenture stock) can be transferred through the system and the charge to stamp duty covers transfers of all such types.

CREST is the name of an electronic system, which settles transfers of shares that are dealt with on the Irish and UK Stock Exchanges. Prior to the introduction of CREST stamp duty was calculated and collected by a computer system called Talisman and a stampable instrument (TBT) was produced in respect of each share transfer on which stamp duty was charged; payment of this duty was made under composition agreement.

Under the CREST system, an instrument is not produced - the shares are transferred electronically, i.e. CREST is a paperless system of transferring shares. Legislation was introduced under the 1996 Finance Act, which provided for the payment of stamp duty on electronic messages, which effect the transfer of shares. The transfer of Irish shares through the CREST system commenced in October 1996.

The Stamp Duties Consolidation Act, 1999 supersedes the legislation enacted in the 1996 Finance Act. Sections 67 to 78 deal with electronic transfer of shares".

Source: Summary of Rules, Procedures and Reference Manuals used by the Revenue Commissioners.
The complete manuals have been published on the Revenue website ([http://www.revenue.ie](http://www.revenue.ie))

In 2001-2001, the annual revenues of the stamp duty in the UK reached £4.5 billion
to be compared with £32.4 billion for corporation tax and a total of public sector receipts of
£383.0 billion (M. Hawkins, J. McCrae, 2002). This shows the relevance of the fiscal rev-
enues from transaction taxes.

In Belgium, a “pro rata temporis withholding tax regime for debt securities held in the book entry form in a recognised settlement system” exists (FISCO, 2005, p 5). Currently, only the settlement system operated by the Belgian National Bank has been recognised. The securities are held by account-holders with the operator of the system in tax exempt accounts (X accounts) and taxable accounts (N accounts). Taxation pro rata temporis means that taxation is a function of time. “Any entry of securities into a taxable account results in a credit of withholding tax on interest accrued since the last income payment until date of entry. Any delivery out of a taxable account results in a debit of withholding tax on interest accrued since the last income payment until the date of delivery” (FISCO, 2005, p 5). Taxes are collected by the operator of the system, i.e. the Belgian National Bank.

This example shows again that a settlement system can automatically collect a
transaction tax, and that a central bank can assume fiscal responsibility.
## 2.4 SWIFT's strategic role in combating money laundering

SWIFT (Society of Worldwide Interbank Financial Telecommunications) is an industry-owned limited liability cooperative that supplies secure messaging services and interface software for financial transactions to more than 7,400 banks, clearing and settlement payment systems (Euro1, CLS, TARGET), stock exchanges (Euronext), securities brokers, and investment managers in 198 countries.

It was founded in 1973 by the major multinational banks. Its headquarters are located at La Hulpe, in Brussels' periphery. It is ruled by Belgian law, and supervised by the Belgian Central Bank, which acts on behalf of the European Central Bank.

SWIFT is the primary facilitator of cross-border payment information in the world and transmits approximately seven million messages per day. 1.8 billion messages were processed in 2002. Communications and messaging standards introduced by SWIFT have the potential to drive the payments industry towards a payment messaging standard because of the SWIFT network's broad span. The other proprietary messaging systems that remain have to be careful to maintain compatibility between their standards and SWIFT standards if they want to keep connected with the rest of global financial markets. SWIFT's ability to create standards has been officially recognised by the Giovannini Group and the EU commission that asked SWIFT to remove "Barrier 1", which is the lack of harmonisation and interoperability of European securities settlement systems.

SWIFT payment messages are processed by the Financial Information Network (FIN) which operates on a secure Internet Protocol (IP) network called SWIFTNet. SWIFT-Net services were introduced in 1999 with the objective of offering the financial industry an interactive standard platform for financial communication and messaging. All new payment systems like CLS, and now TARGET, use SWIFTNet interactive services to allow real time management of queued messages, for instance.

We have seen how critical SWIFT is for the CTT and STT issues. It may be seen as illusory, the possibility to use SWIFT for this purpose due to the fierce opposition of its users who worship the holy confidentiality of their transactions. However, there is at least another reason to be interested in SWIFT: the fight against money laundering and financing terrorism. On these topics, we will see how far-reaching the legislation is at national and international levels.

Eric Heillener (2001) has convincingly demonstrated that most of the measures conceived and sometimes implemented against money laundering can be used to create a new international order based on new capital controls. We think that his argument can be extended to global taxes.

In 1989 at the Paris G7 summit, an international body called "Financial Action Task Force" (FATF) was established (105). Although its action may be criticised as insufficient, it is at least considered as the minimum world standard in the fight against money laundering. The FATF had quickly acknowledged that one important measure against money laundering would be to increase the information content included in SWIFT messages. Eric Heillener (op cit, p 8) explains that under the FATF requirement, SWIFT had already decided on 30 July 1992, to send a worldwide message to its customers to invite them to include in their messages the name and address of each of their ordering and receiving non-bank customers (106). But this invitation was not binding because at that time there was no legislation

<footnote n="105">105) In 2003, the FATF had 33 members: 31 countries and governments and two international organisations; more than 20 observers, five FATF-style regional bodies and more than 15 other international standards for combating money laundering and the financing of terrorism.</footnote>

<footnote n="106">106) "Initiatives of this kind may signal the first step along a potential route of transforming CHIPS, Fedwire and SWIFT into "closed-circuit systems" that can be used only by those willing to adopt certain responsibilities vis-à-vis the regulation of money laundering" (Eric Heillener op cit, p 8). This concept of "closed-circuit</footnote>
lation on that matter.

This situation has changed now because, soon after its creation, the FATF submit-
ted in 1990 an important report detailing 40 recommendations to strengthen the fight
against the recycling of capital derived from criminal activities. These 40 recommendations
were revised in 1996 and then extended in 2003 to integrate eight new recommendations
to more specifically counteract the financing of terrorism. In the last revision, some import-
ant aspects have been softened, but some recommendations remain that are useful for
global tax issues. Among them, we have selected some that are the most relevant. The
basic idea is to read the 40 recommendations with "global taxes lenses" and in some
cases to substitute the term "money laundering" with "fiscal fraud".

For instance, **recommendation 1** establishes that *“countries should criminalise money laundering”* and should *“apply the crime of money laundering to all serious offences, with a view to including the widest range of predicate offences”* *“Predicate offences for money laundering should extend to conduct that occurred in another country, which constitutes an offence in that country, and which would have constituted a predicate offence had it occurred domestically”*. If *“money laundering”* was replaced by *“fiscal fraud”* lots of judges who cannot prosecute big firms, banks and rich people who defraud the tax in the EU would be happy, and citizens too.

**Recommendation 2,** in its paragraph b states: *“Criminal liability, and, where that is not possible, civil or administrative liability, should apply to legal persons. This should not preclude parallel criminal, civil or administrative proceedings with respect to legal persons in countries in which such forms of liability are available. Legal persons should be subject to effective, proportionate and dissuasive sanctions. Such measures should be without prejudice to the criminal liability of individuals”*. Imagine for a moment that the same applied for legal persons who would dare to defraud the CTT.

**Recommendation 3** details the provisional measures to confiscate *“property laundered, proceeds from money laundering or predicate offences”*. Again, this would apply perfectly to fiscal fraud.

**Recommendation 4** is particularly interesting for the CTT. It states: *“Countries should ensure that financial institution secrecy laws do not inhibit implementation of the FATF Recommendations”*. We can perfectly imagine an article in the European Directive saying: EU State Members should ensure that financial institution secrecy laws do not inhibit implementation of the CTT in the EU.

**Recommendation 5** seems to have been written especially for the CTT and is per-
fectly in accordance with the “know your customer” best practice that we have seen be-
fore. It could apply for instance when a bank or a clearing and settlement institution pro-
cesses a forex transaction which is not directly routed to the RTGS. We cannot resist to
the pleasure to quote this recommendation (box 2-8). Just substitute again “money laun-
dering” and “terrorist financing” by “fiscal defrauding”.

<footnote>systems” could also be used for tax issues. Payment systems would not be “porous”. There would gateways
opened only to those respecting laws and regulations including of course fiscal ones.</footnote>
Box 2-8 : FATF Recommendation No. 5

"Financial institutions should not keep anonymous accounts or accounts in obviously fictitious names.

Financial institutions should undertake customer due diligence measures, including identifying and verifying the identity of their customers, when:

(i) establishing business relations; carrying out occasional transactions above the applicable designated threshold; or

(ii) that are wire transfers in the circumstances covered by the Interpretative Note to Special Recommendation VII; there is a suspicion of money laundering or terrorist financing; or the financial institution has doubts about the veracity or adequacy of previously obtained customer identification data.

The customer due diligence (CDD) measures to be taken are as follows:

a) Identifying the customer and verifying that customer's identity using reliable, independent source documents, data or information [4].

b) Identifying the beneficial owner, and taking reasonable measures to verify the identity of the beneficial owner such that the financial institution is satisfied that it knows who the beneficial owner is. For legal persons and arrangements this should include financial institutions taking reasonable measures to understand the ownership and control structure of the customer.

c) Obtaining information on the purpose and intended nature of the business relationship.

d) Conducting ongoing due diligence on the business relationship and scrutiny of transactions undertaken throughout the course of that relationship to ensure that the transactions being conducted are consistent with the institution's knowledge of the customer, their business and risk profile, including, where necessary, the source of funds".

Customer due diligence would be useful for global taxes, too. Thus **recommendation 7** is of importance for forex transactions because it relates to cross-border correspondent banking which is still important for their settlement. Financial institutions should, in addition to performing normal due diligence measures:

“a) Gather sufficient information about a respondent institution to understand fully the nature of the respondent’s business and to determine from publicly available information the reputation of the institution and the quality of supervision, including whether it has been subject to a money laundering or terrorist financing investigation or regulatory action.

b) Assess the respondent institution's anti-money laundering and terrorist financing controls.

c) Obtain approval from senior management before establishing new correspondent relationships.

d) Document the respective responsibilities of each institution.

e) With respect to "payable-through accounts", be satisfied that the respondent bank has verified the identity of and performed on-going due diligence on the customers having direct access to accounts of the correspondent and that it is able to provide relevant customer identification data upon request to the correspondent bank".

This shows that it is possible to be very strict when establishing correspondent banking business relations. If a bank has a reputation of defrauding the CTT, in the circumstances described, then it should not be possible to establish correspondent banking relations with it. And correspondent banking is "the vital blood" of money laundering according to the US Senator Carl Levin (107). Without their link with the payment systems of big financial centres, shell banks established in tax havens would be unable to do anything. Reputation risk is another reason for banks to respect the law.

**Recommendation 10** could be important for controlling the payment of the tax: "Financial institutions should maintain, for at least five years, all necessary records on transactions, both domestic and international, to enable them to comply swiftly with inform-

<footnote n="107">107) "Minority Staff of the Permanent Subcommittee on Investigations", Carl Levin, United State Senate, 2001. The title of the report is particularly illustrative: "Correspondant banking: a gateway for money laundering". See in particular pages 13 and 14.</footnote>
ation requests from the competent authorities. Such records must be sufficient to permit reconstruction of individual transactions (including the amounts and types of currency involved if any) so as to provide, if necessary, evidence for prosecution of criminal activity".

This proves again that even without the CTT, banks are obliged to store a huge amount of data for five years. This data includes domestic and international transactions, the amount and types of currency involved if any. This proves again that the data exist. It is included in the message types that SWIFT processes. The CTT would simply rely on this already existing material to check if the tax has been duly paid.

**Recommendation 14** protects financial institutions, their directors and officers and employees from judicial action for breach of any restriction on disclosure of information, if they report their suspicions. It can be important if employees inform authorities that a customer refuses to pay the CTT.

**Recommendation 17** asks countries to ensure that "effective, proportionate and dissuasive sanctions" are available to deal with those that would fail to comply with the law.

**Recommendation 21** establishes that countries that do not apply or insufficiently apply the FATF recommendations could be subject to countermeasures. This could establish a base to protect the CTT area, i.e. the EU against countries opposed to the CTT.

The last recommendations deal with the necessity that supervisors have the necessary legal power to investigate and that countries cooperate extensively at the international level. This applies also to the CTT.

There are also interpretative notes that are valuable. The **interpretative note to recommendation 13** explains "that suspicious transactions should be reported by financial institutions regardless of whether they are thought to involve tax matters". Although it shows the disrespect towards the payment of taxes, which can be evaded and is not usually considered as a crime, this note shows that in practice it is difficult to separate money laundering and tax evasion because they use the same mechanisms.

The **interpretative note to recommendation 19** is also worthwhile. In its first paragraph, it states that: "To facilitate the detection and monitoring of cash transactions, without impeding in any way the freedom of capital movements, countries should consider the feasibility of subjecting all cross-border transfers, above a given threshold, to verification, administrative monitoring declaration and record keeping". One can imagine that if it is feasible to check any cross-border transaction in cash, then it must be much easier to check, monitor and record dematerialised transactions that only require access to file records.

Finally, the **interpretative note to recommendation 38** is especially appealing because it is very close with the principle of a special fund for the financing of development. "Countries should consider establishing an asset forfeiture fund in its respective country into which all or portion of confiscated property will be deposited for law enforcement, health, education, or other appropriate purposes".

### 2.4.1 The EU reaction to FATF recommendations

The EU reacted quickly to the FATF recommendations and was probably the first region of the world to implement the FATF recommendations.

Since 1991, the European Commission Directive requires Member States to prohibit the laundering of illicit drug proceeds, to oblige their financial sector to identify their customers, keep records, establish internal control procedures and to report any indications of
money laundering to the competent authorities.

This had consequences on the legislation concerning cross-border financial trans-
actions. A new step was made when the EU decided in 1997 to adopt the first directive on
retail cross-border transfers. This directive makes mandatory the presence of the identity
of the ordering and receiving customers in the SWIFT message and the nature of the
transaction. This was confirmed by all subsequent EU directives on cross-border transfers.

The limitation to drug proceeds was soon found to be too restrictive, and that money
launderers had found alternative ways to launder money. In 1999, the commission pro-
posed widening the range of criminal offences covered and the range of vulnerable non-
financial activities and professions. These propositions laid ground for the amending Dir-
ective 2001/97/EC adopted on 4 December 2001.

In June 2003, the FATF considerably extended the level of detail in its recommend-
ations, notably with regard to customer identification and verification, the situations where
a higher risk of money laundering may justify enhanced measures and also eight new
measures against the financing of terrorism.

In 2004, the EU Member States and the Commission believed that these revised re-
recommendations justify a new directive in order to implement them in a coordinated way (108)
. A proposal presented by the Commission in 2005 followed "on information on the payer
accompanying transfers of funds" (109). This proposal establishes in conformity with FATF
Special Recommendation n° 7 that simplified information (the account number of the payer
or a unique identifier) has to be applied to transferred funds within the EU whereas com-
plete information (name, address, account number) on the payer or of the payee has to be
applied to transfers of funds between the EU and other jurisdictions.

All this activity shows that when there exists a political will to do something at the in-
ternational or even at the European level, it is possible to act, even if it does not mean that
money laundering has disappeared. Money launderers have evolved their institutions, too.
This is a second lesson for global tax issues. Their supporters have argued that there is no
reason why Member States should passively assist the innovation of financial engineers to
create new products especially to evade the tax. The combat of money laundering shows
that it is perfectly possible to react to money launderers innovations by new directives and
new regulations. The same is true for global taxes, and there is no reason why financial
engineers would be smarter than civil servants. If the same energy that has been exerted
in the fight against money laundering was spent on combating tax havens, fiscal competi-
tion, capital flight and in favour of global taxes, the realization of a CTT would be easy.

There have been some timid attempts in this direction. The potential of anti-money
laundering regulatory regime for constructing new international regulatory arrangements
was recognized by the G7 finance ministers in 1998, who announced new initiatives to
counter international tax evasion (E. Heillener, op cit, p 12). "(T)hey stated that domestic
agencies involved in the fight against money laundering should now be permitted to share
financial information with both domestic and foreign tax authorities" (op cit p12). E. Heillen-
er gives examples of the use of very complex artificial intelligence computer programmes
by the "Financial Crimes Enforcement Network" an agency of the US Treasury, and its
equivalent in Australia, to track money laundering activities but also tax evasion activities.
"Indeed, in the Australian case, the majority of suspicious transactions that have been
identified in recent years have in fact related to tax evasion" (op cit p 13, note 42).

This is another proof that technical progress increases the regulatory power of

<footnote n="108">¹⁰⁸) See the Proposal for a « Directive of the European Parliament and of the Council on the prevention of the use of the financial system for the purpose of money laundering, including terrorist financing». Brussels, COM (2004) 448 final, 2004/0137 (COD).</footnote>

<footnote n="109">¹⁰⁹) "Proposal for a Regulation of the European Parliament and of the Council "on Information on the Payer Accompanying Transfers of Funds". Brussels 26/07/2005, COM(2005) 343 final.</footnote>
states in the age of global finance. This power could be used to deny access to those who would not respect the law. The US is doing it explicitly, in order to combat financing of terrorism, with the “Patriot Act”. Although the “Patriot Act” is dangerous and must be criticised because it restrains a lot individual liberties, it has increased the number of legal requirements for non-US banks and correspondent banking, and has put in practice the concept of “closed circuit-systems” (see J.B. Tompkins, 2002). The US national payment system is now scrutinized with a full outfit of legal and technical devices.

The same can be made in areas such as global taxes and capital flight.

<table><caption>Table 2-5 : Some Characteristic of Selected Large-Value Payment Systems</caption><thead><tr><th>Country</th><th>Name, ownership and year.</th><th>Settlement institution</th><th>Message carrier</th><th>Message flow shape</th><th>Annual number of transactions (2003, thousands)</th><th>Annual value of transactions (2003, in billions of USD)</th></tr></thead><tbody><tr><td colspan="7"><strong>EUROPEAN COUNTRIES</strong></td></tr><tr><td>BELGIUM</td><td>ELLIPS, CB+ B, 1996.</td><td>CB</td><td>SWIFT</td><td>V</td><td>15,306</td><td>22,517</td></tr><tr><td>FRANCE</td><td>TBF and PNS, CB and B 1999.</td><td>CB</td><td>SWIFT for both systems</td><td>Y for both systems</td><td>3,864 and 7,332</td><td>108,746 and 20,294</td></tr><tr><td>GERMANY</td><td>RTGS<sup>PLUS</sup>, CB, 2001.</td><td>CB</td><td>SWIFT</td><td>Y</td><td>32,792</td><td>145,115</td></tr><tr><td>ITALY</td><td>BI-REL, CB, 1997</td><td>CB</td><td>SWIFT</td><td>Y</td><td>9,423</td><td>27,953</td></tr><tr><td>NETHERLAND</td><td>TOP, CB, 1997.</td><td>CB</td><td>SWIFT</td><td>Y</td><td>4,717</td><td>24,119</td></tr><tr><td>SWEDEN</td><td>K-RIX and E-RIX 1990 and 1999</td><td>CB</td><td>SWIFT</td><td>Y</td><td>1,302 and 93</td><td>13,900 and 2,141</td></tr><tr><td rowspan="2">U.K.</td><td>CHAPS Sterling, CB + B, 1984</td><td>CB + B</td><td>SWIFT</td><td>Y</td><td>27,215</td><td>84,267</td></tr><tr><td>CHAPS Euro, CB + B, 1999</td><td>CB + B</td><td>SWIFT</td><td>V</td><td>4,292</td><td>35,207</td></tr><tr><td>SWITZERLAND</td><td>SIC, B and Postfinance, 1987</td><td>CB</td><td>Proprietary network</td><td>Y</td><td>192,700</td><td>33,202</td></tr><tr><td colspan="7"><strong>PAN EUROPEAN AND INTERNATIONAL SYSTEMS</strong></td></tr><tr><td>European Union</td><td>TARGET, CB, 1999</td><td>CB</td><td>SWIFT for TARGET Interlinking</td><td>V for cross-border TARGET payments</td><td>66,608</td><td>474,706</td></tr><tr><td>EURO 1</td><td>B, 1999</td><td>CB</td><td>SWIFT</td><td>Y</td><td>38,852</td><td>50,501</td></tr><tr><td>EPM</td><td>CB, 1999</td><td>CB</td><td>SWIFT</td><td>V</td><td>41</td><td>5</td></tr><tr><td>GERMANY/ SWITZERLAND</td><td>SEC-EuroSic, B and Postfinance 1999</td><td>B</td><td>Proprietary network</td><td>V</td><td>2,023</td><td>630</td></tr><tr><td>CLS</td><td>B, 2002.</td><td>SPI</td><td>SWIFT</td><td>V</td><td>20,583</td><td>221,299</td></tr><tr><td colspan="7"><strong>OTHER COUNTRIES</strong></td></tr><tr><td rowspan="2">USA</td><td>Fedwire, CB, 1918.</td><td>CB</td><td>Proprietary network</td><td>V</td><td>123,300</td><td>436,706</td></tr><tr><td>CHIPS, B, 1970</td><td>B</td><td>Proprietary network</td><td>V</td><td>64,500</td><td>326,561</td></tr><tr><td>CANADA</td><td>LVTS, 1999, CB</td><td>PA</td><td>SWIFT</td><td>Y</td><td>4,139</td><td>22,517</td></tr><tr><td>JAPAN</td><td>BOJ-NET, CB, 1998</td><td>CB</td><td>Commercial telephone companies</td><td>V</td><td>4925</td><td>161,914</td></tr><tr><td rowspan="3">SINGAPORE</td><td>MEPS+, CMA, 2005</td><td>CMA</td><td>SWIFT</td><td>Y</td><td>2132</td><td>5,638</td></tr><tr><td>HKD CHATS, CMA, 1996</td><td>CMA + PA</td><td>Proprietary network</td><td>Y</td><td>3,508</td><td>11,207</td></tr><tr><td>USD CHATS, B, 2000</td><td>CMA + PA</td><td>Proprietary network</td><td>Y</td><td>999</td><td>1,236</td></tr><tr><td>HONG KONG</td><td>Euro CHATS, B, 2003</td><td>CMA + PA</td><td>Proprietary network</td><td>Y</td><td>5</td><td>135</td></tr></tbody></table>

Notes: CB = Central Bank. B = Banks. CMA = Central Monetary Authority. PA = Payment Association.

Source: CPSS, BIS 2005b.
# 3 FISCAL REVENUES, THEIR MANAGEMENT AND USE.

Like any tax, the CTT generates fiscal revenues that are potentially considerable. It is therefore legitimate to try to estimate them and to think about their possible uses. James Tobin's own view was that revenues were a "by-product" that had no major importance and could not justify per se the creation of the tax.

He considers initially giving the revenues to the IMF or to the World Bank to increase their budget. In a 1996 collective book, he proposes that the revenues should be divided between these two international institutions and the governments that would have levied the tax, according to a progressive formula allowing the poorest countries to keep the full amount of the receipts to guarantee their participation to the scheme.

For the CTT supporters, the revenues are on the contrary of paramount importance due to the magnitude of world social inequalities and ecological needs waiting for money to be addressed. CTT revenues are also crucial in the sense that they offer an opportunity to recreate an international solidarity between people that has been weakened by the circumstance experience of so-called "socialist countries" which have perverted its signification, and since free-market ayatollahs have put in practice their motto « trade not aid » as if aid was the first culprit of poverty and free trade the miraculous way out hunger.

Aid must be rehabilitated. This is why it is important to estimate the CTT revenues as exactly as possible, to analyse how they could be usefully spent on social, ecological and economical grounds. But before, it is necessary to answer some objections that are frequently made about the CTT fiscal revenues.

Is not there a contradiction between the objective of reducing speculation as much as possible and at the same time turning the CTT into a financing fund for development? In effect, if the tax is efficient against speculation, there should not be speculation anymore, and so no more revenues.

On a moral ground, is it right to finance development and global common goods with an activity, i.e. speculation, that by the way we condemn?

On a political ground, is not there a risk to turn the neo-liberal globalisation tolerable by reducing the more out crying social and ecological inequalities, while at the same time allowing speculators to keep on speculating?

After all, G. Soros himself has declared himself in favour of the "Tobin tax" and argued that "too much speculation kills speculation".

How can we answer to these objections?

1) In our view, the first objective is to reduce speculation as much as possible. If the CTT was able to eradicate speculation totally, this primary objective would be achieved and the CTT supporters could congratulate themselves. But nobody imagine seriously that currency speculation could totally disappear with a unique measure such as a small tax. In fact speculation would be strongly reduced but not totally.

As H. Desir (2000) member of the European Parliament explains, the North American CTT supporters compare the CTT to the "sin taxes" in force in the USA, i.e. in non religious terms, taxes on alcohols and tobaccos.

These last years, these taxes have strongly increased in countries such as France and the UK, with the result of a significant decrease of consumption. Nonetheless, no one imagine that alcohol and tobacco addictions could disappear thanks to mere taxes.

Public health problems can only be resolved with appropriate public health policies. There goes the same with the CTT. It can contribute to dampen speculation, but the only true solution must be found in the reconstruction of a new international monetary and fin-
ancial system in which markets would be placed under the surveillance of public authorit-
ies and not the contrary as it is today.

Therefore, the tax can indeed achieve two objectives. Dampening speculation and
producing new financial resources.

Let's add that the purpose is not to turn the CTT as the only financing for develop-
ment fund that would substitute the already existing sources. Fiscal revenues coming from
the CTT must increase the existing resources and not replace them.

CTT revenues should not also create a situation where governments should feel
free of their responsibilities in terms of Official Development Aid (ODA). ODA must be
maintained as the essential source of stable and permanent financing for development. 30
years ago, United Nations adopted a resolution asking the 22 richest countries members
of the OECD to dedicate 0.7% of their GDP to ODA. Not only this objective has never
been reached, but most of rich countries governments have never ceased to reduce their
contribution that has fallen to 0.2% in 2000 (among which 0.10% for the USA and 0.32%
for France at that time) (110). Meanwhile, they kept on asking developing countries to open
their economies and welcome foreign direct investments and foreign portfolio investments
that are supposed to boost their development but are generally responsible of economic
crises.

If rich countries fulfil their promise to dedicate 0.7% of their GDP to ODA, these
would increase from the US$ 56 billion registered in 2000 to 156 US$ billion. This increase
of 100 billion would make it possible to finance global common goods, emergency aid, and
go beyond the Millennium Development Goals. Added to the CTT revenues, it would be
possible to be far more ambitious than these social basic needs for all developing coun-
tries, while private capital is only interested in countries that have a sufficient number of
potential consumers.

2) This leads us to the second objection. According to the UNCTAD in its 1999 an-
nual report, the 48 less advanced countries where nearly 600 millions of people live have
received only 0.5% of Foreign Direct Investments (FDI) directed to developing countries.
Four developing countries have received since 1998 more than 50% of these
FDI. This private capital have scarcely contributed to development mostly buying already
existing firms, have benefited from profit opportunities, and have strongly increased social
and economical instability. Portfolio investments that are short-term financial investments
of purely speculative nature ad to this instability. J. Stiglitz, former economist in chief at the
World Bank, and Nobel Prize of economics, once said that relying on portfolio investment
for financing development is the equivalent as being sited in a plane ready in permanence
to take off for another country. As a consequence, demanding speculation to pay the
amount necessary to repair the social disasters that it provokes is as moral as asking pet-
roleum companies to pay for the pollution of oceans each time a tanker sinks.

The demand « polluters must pay » must be completed by the demand that « specu-
lators must pay ».

3) This is why we think that the danger that the CTT could be enlisted to comfort
neo-liberal globalization is not a serious one. Banks and speculators don't want to pay for
the crisis they are guilty for no more than petroleum companies do spontaneously agree to
pay to compensate for the ecological and human catastrophes they are responsible for.
Banks and financial investors are fiercely opposed to the CTT for two reasons. The first is
that they have much to lose in terms of profit. The second is for political reasons. Banks,

<footnote><sup>110)</sup> Only 4 countries from northern Europe have achieved and regularly over passed this objective in 2000: Denmark (1.06%), Netherlands (0.84%), Sweden and Norway (0.80%). See : OCDE : www.oecd.org</footnote>
financial investors and their corporate customers have gotten addicted to the near full
liberty that governments have given them these last two decades. Their objective is to
guarantee that there won't be any come back to the situation that prevailed in the sixties,
where capital controls limited their decisions. That is what the ex general director of the
GATT, Renato Ruggiero expressed at the launch of the World Trade Organisation when
he declared: "We are in the process of writing the world economy constitution" (111).

In this context, the adoption of the CTT would be necessarily interpreted as a major
symbolic victory by those who oppose the neo-liberal globalisation able to change the
present relation of social forces and create a new political momentum that banks and in-
vestors don't want at any price.

This is why we think that the CTT will achieve its double objective of reducing spec-
ulation and financing development.

**3.1 ESTIMATION OF THE REVENUES**

Estimating the CTT revenues is necessarily a difficult task due to the unavoidable
arbitrary hypotheses that must compensate the absence of past experience. Three recent
official reports (112) and at least nine reports of more or less critical supporters of the CTT
(113) have realised this exercise. These previous estimations will not be presented here in
details but we will discuss their main hypotheses and methodology in order to justify our
own choices (See below table 3-1).

There are several features that differentiate these previous studies. One can start
by discriminating between simple and sophisticated methodology. The simple one consists
in taking the annual volume of the world forex market and to multiply it by the tax rate (for
instance, D. Cassimon). This gives very high and optimistic estimations.

<footnote n="111">¹¹¹) Quoted by Stephen. GILL, in a very instructive article judiciously intiteld: « The new liberal constitution», « L’Economie Politique », n° 2-2ème trimestre 1999, France.</footnote>

<footnote n="112">¹¹²) Ministry of Finance of Finland (2001), Ministère des Finances de Belgique (2001). Ministère de l'Economie des Finances et de l'Industrie of France (2000).</footnote>

<footnote n="113">¹¹³) S. Kapoor (2004), Clunies-Ross A. (2003), M. Nissanke (2003), B. Jetin 2002, P.B. Spahn (2002), R. Schmidt (2001), D. Cassimon (2001), H. Patomäki (2001), D. Felix and R. Sau (1996).</footnote>
<table><caption>Table 3-1 : SURVEY OF PREVIOUS REVENUES ESTIMATES</caption><thead><tr><th>AUTHOR</th><th>Year of daily turnover</th><th>Geographical coverage</th><th>Daily turnover (in US dollar billion)</th><th>Exempted official trading</th><th>Fiscal evasion</th><th>Pre-tax transaction costs.</th><th>Elasticity</th><th>Reduction of volume</th><th>Tax rates</th><th>Revenues (in US dollar billion)</th></tr></thead><tbody><tr><td>S. Kapoor (2004)</td><td>2004</td><td>World Level</td><td></td><td></td><td></td><td>0.01%-0.03%</td><td></td><td>None</td><td>0.005%</td><td>10-15</td></tr><tr><td rowspan="2">M. Nissanke (2004)</td><td rowspan="2">2001</td><td rowspan="2">World Level</td><td rowspan="2">1,210.0</td><td rowspan="2">8%</td><td rowspan="2">2%</td><td>0.01%</td><td>none</td><td>5%</td><td>0.01%</td><td>30-35</td></tr><tr><td>0.02%</td><td>none</td><td>15%</td><td>0.02%</td><td>17-19</td></tr><tr><td>P.B Spahn (2002)</td><td>2001</td><td>EU level</td><td>440.0</td><td>none</td><td>none</td><td>0.01% for banks and 0.02% for customers</td><td>none</td><td>-15%</td><td>0.01%<br>0.02% with 0.01 % for banks</td><td>16.6<br>20.8</td></tr><tr><td>A. Clunies-Ross</td><td>2001</td><td>World level</td><td>1,210</td><td></td><td></td><td></td><td></td><td></td><td>0.02%</td><td>53</td></tr><tr><td>D. Cassimon (2001)</td><td>1998</td><td>World level</td><td>2,100 (with derivatives)</td><td>10%</td><td>None</td><td>None</td><td>None</td><td>None</td><td>0.01% and 0.02%</td><td>47.25 and 94.5</td></tr><tr><td>D. Felix & R. Sau (1996)</td><td>1995</td><td>World level</td><td>1,120</td><td>10%</td><td>25%</td><td>0.1%<br>0.5%<br>1%</td><td>0.3 to 1.75.</td><td>-13% for a 0.05% tax rate, -49% for a 0.1% tax rate.</td><td>0.05%<br>0.1%<br>0.25%</td><td>90 to 97<br>148<br>180</td></tr><tr><td>P. Kenen (1996)</td><td>1995</td><td>World level</td><td>1,120</td><td></td><td></td><td></td><td></td><td></td><td>0.05% and 0.025% for banks.</td><td>90 to 97</td></tr><tr><td>J. Tobin (1996)</td><td>1995</td><td>World level</td><td>1,120</td><td></td><td></td><td></td><td></td><td>-70%</td><td>0.1%</td><td>50 to 94</td></tr><tr><td>J. Frankel (1996)</td><td>1995</td><td>World level</td><td>1,120</td><td>-20%</td><td></td><td></td><td></td><td>-45%</td><td>0.1%</td><td>176</td></tr><tr><td>Belgium Ministry of Finance (2001)</td><td>1998</td><td>World level and EU level</td><td>1500 at the world level, 772.5 at the EU level.</td><td>Increasing rate in accordance with the tax rate: from 15% to 25% at the world level. 20.2% to 35% at the EU level.</td><td></td><td>0.02% for banks, 0.05% for financial institutions, 0.1% for others</td><td>-0.5, to -1.5 (world). -0.55, to -1.75 (EU)</td><td>From 5% to 100% according to tax rate and elasticity</td><td>From 0.01% to 1%</td><td>From 19 to 128 (world level) and from 9 to 39 (EU level).</td></tr><tr><td>Finnish Ministry of Finance (2001)</td><td>1998</td><td>World level</td><td>1500</td><td>20%</td><td></td><td>0.02% for banks, 0.05% for financial institutions, 0.1% for others</td><td>-0.5 non financial customers, -1 financial customer, -1.5 banks</td><td>From 5% to 100% according to tax rate and elasticity</td><td>0.01%, 0.25% and 1%</td><td>71, 102<br>177</td></tr><tr><td rowspan="3">French Ministry of Finance (2000)</td><td rowspan="3">1998</td><td>World level</td><td>1500</td><td>None</td><td>20%</td><td>0.02% and 0.05%</td><td>-0.5, -1, -1.5</td><td>-67% in central estimate</td><td>0.01% to 0.20%</td><td>50</td></tr><tr><td>EU level</td><td>682</td><td>None</td><td>30%</td><td>0.02% and 0.05%</td><td>-0.5, -1, -1.5</td><td>-67% in central estimate</td><td>0.01% to 0.20%</td><td>22</td></tr><tr><td>France</td><td>54</td><td>None</td><td>50%</td><td>0.02% and 0.05%</td><td>-0.5, -1, -1.5</td><td>-67% in central estimate</td><td>0.01% to 0.20%</td><td>2</td></tr></tbody></table>

Source: Various Studies compiled by the author

The sophisticated methodology assumes that the introduction of the tax will lead to a reduction of the volume of transactions in relation to the prevailing situation according to the nature of the trader (bank, financial customer or non-financial customer, see P.B. Spahn 2002, Ministry of Finance of Belgium and Finland, 2001, for instance) and sometimes according to the nature of the transaction (spot, outright forward and swaps, see M. Nissanke for instance). In our view, it is a perfectly normal and desired consequence since one objective of the tax is to reduce the excessive volume of transactions.
Starting from these premises, we diverge with the opponents of the tax, which tend to exaggerate the volume reduction, and also with those supporters that advocate a very tiny ordinary tax in order to minimise as far as possible the reduction of volume, because they wrongly identify volume of transactions and liquidity (S. Kapoor, 2004; M. Nissanke, 2003; P.B. Spahn, 2002).

The difficulty is double. First it is necessary to make hypotheses concerning fiscal evasion and fraud, with the idea that they will increase with the tax level. Second, it is necessary to estimate the sensibility of the volume of transactions to the tax rate (114), with the same idea that the higher the tax rate, the stronger the reduction of volume. In other terms, the volume elasticity increases with the tax rate.

1. Fiscal fraud is a deliberate act against the law. Fiscal evasion tries to stay on the borderline by creating new financial products that by-pass the law, or by off-shoring trading to countries that do not apply the tax, in particular tax havens. We have seen that our conception of the tax collecting procedure minimises strongly the possibilities of fraud and off-shoring. But with a concern of prudence, we have retained pessimistic hypotheses: The higher the tax rate and the smaller the geographical coverage, the higher fiscal fraud and evasion is.

The French official report (hereafter French report) conjectures that at the world level, fiscal fraud and evasion leads to a reduction of 20% of volume. 20% can be considered a high level and we can suppose like J. Frankel (1996) that it also includes the exemption of official transactions realised by governments, central banks and other public institutions (115). At the EU level, the French report assumes that the reduction of volume is 30%. At the national level it would be 50%. The Belgium official report (hereafter Belgium report) is a bit more refined. It supposes that the fiscal leakage grows with the level of tax. At the world level, it supposes that some countries (mostly tax havens) refuse to adopt the tax and allow some traders to by-pass the tax. Even if we think that tax havens cannot stay out of reach and can be efficiently retaliated, we will accept in one of our estimates the Belgium report's hypothesis that a minimum of 15% evade the tax, plus (t x 100 x 10%), t being the tax rate (116).

2. The estimate of the volume elasticity poses more difficulty. Those who trade will react to the increase of their transaction cost. This raises questions about the relevant initial transaction cost and their degree of sensibility to the increase of this transaction cost. As far as the initial transaction cost is concerned there are two possible options.

On one hand, if one thinks that the tax will be paid by banks only and that the tax must not disturb markets (for instance, S. Kapoor 2004, M. Nissanke, 2003, P.B. Spahn 2002) then the interbank pre-tax transaction cost is relevant. It is presently 0.011% for the euro-US dollar market, 0.023 for the US dollar/yen market, and 0.021% for the US dollar.

<footnote n="114">114) Economists call this sensibility an « elasticity ». In the present case a “volume” elasticity.</footnote>

<footnote n="115">115) M. Nissanke (2003, p 23) “assumes that the share of official transactions carried out by monethary authorities in global turnover is about 8%”. Because she retains a very low tax rate of 0.01% to 0.02% the incentive for tax evasion through migration and asset substitution is also low. On the whole, the possible leakages amount to 10% of total turnover and are deducted from the tax base as non-taxed instruments. In this regard our assumption that for higher tax rates a leakage of 20% may include exempted official transactions is not abusive.</footnote>

<footnote n="116">116) t is expressed in decimals. For instance, for a 1% tax rate, t = 0.01, and 15% + (0.01 x 100 x 10%) = 25% of the initial volume would escape from the tax (see the Belgium report on page 50).</footnote>
dollar/GB pound (see P.B. Spahn, 2002). In this conception the tax rate is necessarily very close to zero, in the 0.01% to 0.02% range, because a 0.01% tax rate already reaps off half of banks' profit margin.

On the other hand, if one thinks, (like we do but also D. Felix et R. Sau, op cit 1996), that banks and their professional customers (financial institutions of all kinds and non-financial firms) must pay the tax, having in mind that in the end the transaction cost has to increase significantly to put sands in the wheels, then the non-financial firm pre-tax transaction cost is a maximum and the relevant reference to judge the impact of the tax.

The main argument against our view is that banks will transfer the burden of the tax to their customers, and in particular to non-financial firms and it will hurt cross-border trade and investment more than speculators, contradicting the main objective of the tax (see M. Nissanke 2003 and P. Davidson 1997). Our answer is twofold.

Banks already pass to their customers the charges that they don't want to pay. And it is true that they will also try to pass the CTT cost to their customers. But because of increased competition between banks and the changing relations of forces between banks and their customers due to electronic trading, banks will have to pay their share of the CTT. Thanks to the increasing transparency on electronic platforms, customers are able to compare the quotes offered by banks which include the transaction cost and would include the tax. Customers will be able to choose the most advantageous quotes, and rivalry between banks will force them to accept to pay part of the CTT in order to offer more competitive quotes.

This effect will happen at the trading site. But there is another possibility at the settlement site.

As we have seen in part 2, SWIFT messages offer the possibility of fine-tuning the messaging and settlement charges. An ordering customer can decide to pay these charges, to share them with the beneficiary, or ask the beneficiary to pay them. In case of an interbank transaction, SWIFT offers the same options. The EU has decided that by default the ordering customer should pay these charges (option "OUR" in a SWIFT message). It is thus perfectly possible to use these fine-tuning possibilities to decide that the CTT should be paid entirely by the ordering counterparty (be it a customer or a bank) or that half should be paid by the ordering counterparty and half by the beneficiary counterparty, or whatever other proportion. There is no need for the EU commission to scrutinise every transaction. But if a legal basis exists, the counterparty that feels it pays an over duly share of the tax could engage in legal action.

To summarise we are faced with two options. At the trading site, competitive forces can decide which share of the CTT is paid by banks and their customers. At the settlement site, there is another possibility for the two counterparties and all the intermediaries to reach an agreement. If there is no agreement, the EU rule applies by default, say equal share for each counterparty, for instance.

As a consequence, we will study a unified tax rate applied independently to the wholesale (interbank) and retail markets (other financial and non-financial customers). This tax rate will be compared with the non-financial pre-tax transaction cost on the retail market. This transaction cost is presently 0.1 % in developed countries according to the Belgium and Finish and French reports. According to D. Felix and R. Sau, (1996) the final transaction cost charged to customers includes the whole chain of transactions of the "potato principle", searching costs and risk premiums. For these reasons the pre-tax transaction cost can reach 0.5% to 1%. But again, with a concern of prudence, we will retain a tax rate of 0.1%, i.e. five to tenfold the rate privileged by M. Nissanke and P.B. Spahn as the most plausible and desirable rate. For exploratory reasons, we also study higher rates up to 1%.
Regarding the volume elasticity, the only solution is to make hypotheses, as there is no empirical evidence for the foreign exchange markets. Banks and their customers (other financial customers and non-financial customers) can be more or less sensible to the same transaction cost increase. We may suppose that banks have a higher elasticity than the other financial institutions, which in turn have a higher elasticity than non-financial customers due to their respective pre-tax transaction costs. The higher the sensibility of traders is, the higher the reduction of volume.

For these reasons, we have decided to study two estimations based on the official reports of the ministry of Finance of France, Belgium and Finland. This choice is justified by the following rationale. These reports are not in favour of the CTT. Much to the contrary, they are critical and their conclusion is that the CTT should not be adopted. By using the methodology employed in these reports, we cannot be suspected of producing over optimistic revenue estimates.

The first estimation is the simplest and follows the methodology of the French Ministry of Finance. It is based on a unique tax rate and the same volume elasticity whatever the trader (banks or their customers) and the nature of transaction (spot, outright forward, swaps and other derivatives). This methodology is the more adapted to the idea that banks and their customers will find a way to share the tax between them which allows to consider the market as a whole and study the impact on the market of three different elasticities -0.5, -1 and -1.5 (117). In its simplest acceptation, an elasticity of – 1 means that the volume of the forex market decreases by 1% when the transaction cost increases by 1%. In other terms the reduction of volume is proportionate to the increase of the transaction cost. It is a neutral assumption. When the elasticity is -1.5, one supposes that traders are very sensible and overreact to the increase of the transaction cost. They reduce by -1.5% the volume of their trade when the transaction cost increase by 1%. To the contrary, an elasticity of 0.5% means that traders are not very sensible to the increase of the transaction cost. When this one increases by 1%, they reduce their transactions by only 0.5%.

The second estimation is based on the idea that banks and customers will not share the tax burden between them but that each will pay it in full. In this case it is necessary to take into account differences in elasticity of banks and their customers in accordance with their respective pre-tax transaction costs. On this point we follow the methodology of the two official reports made by the Ministry of Finance of Finland and Belgium which are more or less the same. At the world level, it is supposed an elasticity of -1.5 for banks, -1 for other financial customers and -0.5 for non-financial customers respectively.

To estimate revenues at the EU level, the Belgium report makes the additional assumption that elasticities are higher because traders are faced with more possibilities to trade in other currencies (especially the US dollar) than the taxed currencies, that are the euro, and the other EU currencies such as the British pound, the Swedish krona and the Danish krone and the new Member States' currencies from eastern Europe. At the EU level, the elasticities are -0.55, -1.1, and 1.75.

In this second alternative, we will estimate four different geographical coverages. The first is the CTT revenue at the world level. The second estimates the revenue in the hypothesis that the CTT is adopted by the euro area only. The third estimates the revenue of the 15 EU member-states (the euro area plus the United Kingdom, Denmark and Sweden) before the last wave of integration of new member-states. The new member-states must join the euro area in the near future and due to the lack of comprehensive data

<footnote n="117">¹¹⁷) In the 1996 collective book dedicated to the analysis of Tobin tax, J. Frankel, a reckoned specialist of exchange rates and not a declared supporter of the CTT, recalls that any hypothesis concerning the volume elasticity is arbitrary. But he deems an elasticity of – 0.32 linked to pre-tax transaction of 0.1% as reasonable. So, the hypotheses of the French, Belgium and Finnish official reports may considered as more restrictive and not over friendly to the CTT.</footnote>
we have not included them in the estimations. Another difficulty is that when they will join the euro area, the volume of their forex transactions will decrease due to the elimination of their transactions with the member-states of the euro area. But it is difficult to anticipate how much the reduction of the volume of their transactions will be. But if taken into account, they would increase the revenue slightly because their joint weight on the foreign exchange market is not very important. Much more significant is the inclusion of the United Kingdom in the estimation because London, with one third of global turnover is the most important market of the world. Finally, we will estimate revenues in the case of Switzerland and Norway joining the CTT area, even though they are not members of the EU. Again, the impact is significant due to the importance of the Swiss forex market.

### 3.1.1 Estimates based on unique tax rates and the same elasticity for the whole foreign exchange market (118)

In order to minimise the possibilities to by-pass the CTT, the tax rate is the same for any kind of transaction (sport, outright forward, swaps and derivatives) and for any economic agent (banks and their customers).

The initial tax base is the global turnover indicated in the triennial foreign exchange survey published by the BIS. The latest survey available at the time of this report was published in March 2005 for the activity of April 2004. The average daily world turnover in traditional foreign exchange markets at current exchange rates rose to US $ 1.9 trillion in April 2004, a 57% increase compared to 2001 and 26% more than the level reached in 1998. In other terms, the peak level reached in 2004 more than reversed the fall observed between 1998 and 2001. The revenues are very sensible to these evolutions of the global turnover, which until 1998 had never ceased to increase at a quick pace.

For the euro area, the turnover is lower than the combined market turnover of the previous currencies of the countries that decided to create the euro. This is partly due to the elimination of internal transactions between those countries. In April 2004, it reached US $ 659 billion per day to be compared with 442 billion in 2001 and 750 in 1998. Contrary to the world turnover, the euro turnover was, in 2004, 49% higher than in 2001, but -12% lower in 1998.

We suppose that the tax rate varies between 0.01 and 0.20% and that pre-tax transaction cost vary between 0.02% and 0.1% (119). Of course, the combination of a tax rate of 0.20% combined with pre-tax transaction cost of 0.02% and a -1.5 elasticity makes no sense since the market turnover would have disappeared. The French report disregards such extreme combinations and also its contrary such as a tax rate of 0.01%, pre-tax transaction cost of 0.05%, and a low elasticity of -0.5 leading to a small reduction of -15%. This is why we will only consider plausible combinations with a maximum for the reduction of market volume no superior to two-third of the market which already leaves ample room for theoretical estimations and a minimum of volume reduction of 15% when the tax rate is 0.01% (120).

The amount of the annual revenue is given by the application of the tax rate to the tax base. The tax base is calculated by subtracting to the market turnover the reduction of

<footnote n="118">118) We follow the methodology used by the Ministry of Finance of France (2000) for the period 1989-2004 at the world level and 1998-2000, at the euro area level.</footnote>

<footnote n="119">119) The French report considers pre-tax transaction costs between 0.01% and 0.05%. We have included the 0.1% level for reasons explained before.</footnote>

<footnote n="120">120) The matrix of market turnover reduction is obtained by the combination of the tax rate, pre-tax transaction costs and volume elasticity according to the formulae used in each report. These matrixes are presented in annex in table 3-11 in the annex for the French report and in table 3-12 for the Belgium and Finnish reports.</footnote>
volume due to fiscal evasion and to the volume elasticity according to the following formulae used in the French report:

$$R = 250 \times \tau \times V \times (1 - ev) \times \left( 1 + \frac{2\tau}{k} \right)^{\epsilon}$$

Where **R** is the revenue, 250 the number of business days per year, **τ** the tax rate, **V** is the market turnover before tax, **ev** is fiscal evasion, **k** is the pre-tax transaction cost, and **ε** is the volume elasticity.

What is interesting in this formulae is that the reduction of the market turnover due to the sensibility of traders to the increase of transaction cost is strengthened by the fact that the elasticity, **ε**, is not a multiplier but an exponential, which is more powerful. This means that the reduction of volume is rather overestimated than underestimated, which tends to minimise the revenues rather than increase them.

The tax, “τ” is multiplied by 2 because it leads to a simultaneous reduction of the bid price and an increase of the ask price (121). The French report supposes implicitly that that the trader makes a round trip, for instance sells the euro and then buys it a few minutes later. This is precisely what J. Tobin had in mind when he conceived his tax. The arbitrageur, “jobbers” and other speculators are those who make frequently round trips on currencies. They would pay the tax twice. Hence, the reduction of volume due to the sensibility of traders to the increase of transaction cost is stronger than if we focus on traders that don’t make round trips but single transaction: buy or sell but not buy and sell in a short interval. In this case, traders pay only once the tax. The reduction of volume due to the sensibility is much weaker for the precise reason that transaction costs increase less. This is the situation studied in the Finnish and Belgium reports (see below the second set of estimations). The French report is thus more severe in this senses and leads to weaker revenues.

Having this in mind we can comment the synthetic results presented in tables 3-1 and 3-2 (122). We have distinguished three scenarios, the “privileged”, the “intermediate” scenario, and the “minimal” ones. The privileged scenario is based on CTT rate of 0.1%, a pre-tax transaction cost of 0.1% and a neutral elasticity of -1. It is associated with a reduction of market volume of 67% (see table 3-11 in annex of chapter 3). It is our favourite scenario because it is close to the conception of the CTT that we have defended in the first two parts of this report. The intermediate scenario is based on a CTT rate of 0.02%, a pre-tax transaction cost of 0.02% and a neutral elasticity of -1. It is also associated with a reduction of volume of 67%. These are stricter hypotheses than the ones found in the central scenario of the French report (2000, annex 3, p 62) for which a tax rate of 0.05%, a pre-tax transaction cost of 0.05% and an elasticity of -1 is considered a “plausible” scenario (123).

What we call the “minimal” scenario is the market-friendly one: a very small CTT rate of 0.01%-0.02%, a pre-tax transaction cost of 0.02% and weak volume elasticity of -0.5. The assumption of a weak elasticity is coherent with the choice of a very small tax rate. The forex market should not be disturbed by such a tiny tax rate, and the market turnover should remain more or less stable. In effect, the reduction of market volume is

<footnote n="121">121) The buying price (bid price) is the price at which the market is ready to buy the currency. The selling price (ask price) is the price at which the market is ready to sell the currency. By definition, the selling price is always superior to the buying price. Transaction costs are defined as the difference (the spread) between the ask and the bid prices.</footnote>

<footnote n="122">122) The detailed results are presented in table 3-9 in the statistical annex at the end of part 3.</footnote>

<footnote n="123">123) The French report central scenario leads also to a reduction of 67% of market turnover.</footnote>
29% when the tax rate is 0.01% and 42% when the tax rate is 0.02%. This “minimal” scenario reflects the choices made by authors like P.B. Spahn, M. Nissanke and S. Kapoor but with a much stronger reduction of volume.

The two scenarios are not necessarily contradictory and can be reconciled if the 0.01%-0.02% is conceived as an “introductory” rate due to increase to the 0.1% rate across a phase-in period, like envisaged by D. Felix and R. Sau (1996) for whom the tax rate could reach 0.25% at the end of the process.

At the world level, the revenues in 2004 in the privileged scenario can be estimated at US $ 125 billion in 2004, against US $ 80 billion in 2001, and US $ 100 in 1998 (See table 3-2 and figure 3-1). These amounts of revenues are sufficient to go beyond the financing of the Millennium Development Goals as we will detail later.

<table><caption>Table 3-2 : REVENUE ESTIMATES AT THE WORLD LEVEL</caption><thead><tr><th colspan="7">PRIVILEGED SCENARIO</th></tr><tr><th colspan="7">ELASTICITY OF-1 AND TRANSACTION COST BEFORE CTT =0.1%</th></tr><tr><th>TAX LEVEL</th><th>1989</th><th>1992</th><th>1995</th><th>1998</th><th>2001</th><th>2004</th></tr></thead><tbody><tr><td>0.01%</td><td>11</td><td>14</td><td>19</td><td>25</td><td>20</td><td>31</td></tr><tr><td>0.02%</td><td>19</td><td>24</td><td>34</td><td>43</td><td>34</td><td>54</td></tr><tr><td>0.05%</td><td>33</td><td>42</td><td>56</td><td>75</td><td>60</td><td>94</td></tr><tr><td>0.10%</td><td>43</td><td>56</td><td>75</td><td>100</td><td>80</td><td>125</td></tr><tr><td>0.20%</td><td>52</td><td>67</td><td>90</td><td>120</td><td>96</td><td>150</td></tr></tbody><thead><tr><th colspan="7">INTERMEDIATE SCENARIO</th></tr><tr><th colspan="7">ELASTICITY OF-1 AND TRANSACTION COST BEFORE CTT =0.02%</th></tr><tr><th>TAX LEVEL</th><th>1989</th><th>1992</th><th>1995</th><th>1998</th><th>2001</th><th>2004</th></tr></thead><tbody><tr><td>0.01%</td><td>7</td><td>8</td><td>11</td><td>15</td><td>12</td><td>19</td></tr><tr><td>0.02%</td><td>9</td><td>11</td><td>16</td><td>20</td><td>16</td><td>25</td></tr><tr><td>0.05%</td><td>11</td><td>14</td><td>19</td><td>25</td><td>20</td><td>31</td></tr><tr><td>0.10%</td><td>12</td><td>15</td><td>20</td><td>27</td><td>22</td><td>34</td></tr></tbody><thead><tr><th colspan="7">"MINIMAL" SCENARIO</th></tr><tr><th colspan="7">ELASTICITY OF-0.5 AND TRANSACTION COST BEFORE CTT =0.02%</th></tr><tr><th>TAX LEVEL</th><th>1989</th><th>1992</th><th>1995</th><th>1998</th><th>2001</th><th>2004</th></tr></thead><tbody><tr><td>0.01%</td><td>9</td><td>12</td><td>16</td><td>21</td><td>17</td><td>27</td></tr><tr><td>0.02%</td><td>15</td><td>19</td><td>27</td><td>35</td><td>28</td><td>43</td></tr><tr><td>0.05%</td><td>27</td><td>34</td><td>46</td><td>61</td><td>49</td><td>77</td></tr><tr><td>0.10%</td><td>39</td><td>51</td><td>68</td><td>90</td><td>72</td><td>113</td></tr></tbody><tfoot><tr><td colspan="7">NOTE: METHODOLOGY OF THE FRENCH MINISTRY OF FINANCE (2000). AUTHOR'S CALCULATIONS</td></tr></tfoot></table>

It shows that a universal treaty creating the CTT, together with other global taxes (124) have a real potential to financing development and global common goods.

It is not exactly the case with the “minimal” scenario. Revenues would amount to US $ 27 to US $ 43 billion in 2004, US $ 17 billion to US $ 28 billion in 2001 and US $ 21 billion to US $ 35 billion in 1998 (125).

<footnote n="124">124) The CTT is not the only global tax that could be mobilised to finance development and global commons. Detailed analysis on global taxes can be found in B. Jetin (2003) and the “Landau and alii” report (2004).</footnote>

<footnote n="125">125) On the whole period, average revenues are respectively US$ 17 and US$ 28 billion. On the last ten years (1995-2004), they remain stable at respectively 20 and 33 billion.</footnote>
<figure><img src="image_25.png" /><figcaption>Fig. 3-1 : CTT Revenues Estimates According to the Tax Rate at the World Level</figcaption></figure>

Note: Methodology of the Ministry of France

These estimates are rather conservative but closed to M. Nissanke's (2003) estimates of 17-19 billion for 0.01% CTT and 30-35 billion for a 0.02% CTT for the year 2001, despite a notable difference in methodology (126). US $ 27 to US $ 43 billion represents 54% to 86% of the US $ 50 billion deemed necessary by the World Bank to finance the Millennium Development Goals (hereafter MDG). This is quite significant even though the World Bank's estimate is very conservative (see below) but has turned the official financing target due to the weigh of this institution. But, it is important to remember that this minimal scenario enjoys a favourable assumption of a volume elasticity of -0.5. In the intermediate scenario, revenues fall to the range of US $ 19 to US $ 25 billion (127) in 2004, i.e. between 38% and 50% of the MDG financial needs.

A cautious conclusion of this first series of estimates at the world level is that in terms of financing efficiency, the minimal scenario is insufficient to cover basic needs, unless one gets satisfied with raising half the financing needed. If we want to be sure that sufficient money is raised, a tax rate of 0.1% should be the objective.

At the Euro area level (see table 3.2), in our privileged scenario (128), the revenue could amount to US $ 38.4 billion in 2004, up from 25.8 in 2001 but below the 1998 level of

<footnote n="126">126) M. Nissanke (2003) applies different tax rates according to the nature of the transaction and the nature of the market - wholesale and retail. The French official report uses a unique tax rate. She assumes that the reduction of volume is 5% when the tax rate is 0.01%, and 15% when the tax rate is 0.02%, while we assume a reduction of volume of 29% and 42% respectively.</footnote>

<footnote n="127">127) Remember that the intermediate mixes the same elasticity as in the privileged scenario, i.e. -1, and pre-tax transaction cost of 0.02% considered by P.B. Spahn and M. Nissanke.</footnote>

<footnote n="128">128) The privileged scenario is: tax rate = 0.1%, pre-tax transaction costs = 01% and elasticity = -1.</footnote>
43.8 before the launch of the euro. This is a very important amount of money at the dis-
posal of the EU to finance global commons goods and development. The euro area on its
own has the possibility to alleviate substantially the sufferings of developing countries by
financing 77% of the MDG.

In the minimal scenario <sup>(129)</sup>, revenues are between the US $ 8.2 and US $ 13.3 bil-
lion, that is one third of the privileged scenario <sup>(130)</sup> and only 16.4% and 26.6% of the finan-
cing of the MDG. And this holds only under the favourable condition that the volume elasti-
city is -0.5, because if traders are more sensible and the elasticity is neutral, i.e. -1, the
revenues are only respectively, US $ 5.8 and 7.7 billion (intermediate scenario). This
means a contribution to the MDG financing of respectively of only 12% and 15%. This
does not mean that we underestimate the importance of these reduced revenues.

What do represent these US$ 7.7 billions? According to UNESCO "the world should
spend US$ 7 billions more during the 10 years to come to give basic education to all chil-
dren. This is less than what is spent every year in the USA in cosmetics or in ice cream in
Europe". And the same document ads that "according to a World Bank study, in 1990, a
one year extension of the average duration of education in a country could lead to a 3% in-
crease of its GDP" <sup>(131)</sup>. Other figures deserve to be mentioned. A preparatory document to
the United Nations conference on « financing for development » shows that it would be ne-
cessary to dispose of a budget of US$ 8 to 9 billion per year to finance properly humanit-
arian emergency aid to be compared with a present UN budget of US$ 5 billions. Extra 3
to 4 US$ billions need to be found <sup>(132)</sup>. These examples are sufficient to justify the creation
of the CTT and it will not be possible to oppose to them the traditional catastrophist argu-
ment. One can hardly imagine how a tiny tax rate of 0.01% could provoke the disappear-
ance of the present foreign exchange market.

In summary, even the “minimum” scenario would be a gigantic step forward. But our
point is that it is indeed possible to do much better.

<footnote><sup>(129)</sup> The minimal scenario is: tax rate = 0.01% - 0.02%, pre-tax transaction costs = 01% and elasticity = - 0.5.</footnote>

<footnote n="130">¹³⁰ For 2001, our estimates of the « minimal » scenario is US $ 4 billion for tax rate of 0.01% and US $ 9 billion for a tax rate of 0.02%. This is much lower than P.B. Sphan's estimates for the same year: US $ 16.573 billion for a tax rate of 0.01% and US $ 20.8 billion when the tax rate is 0.02% with 0.01% for banks. The difference of methodology and in particular the more severe hypotheses of the French report concerning the tax base and the elasticity explains this important difference.</footnote>

<footnote><sup>(131)</sup> UNESCO, Facts and figures, 2000, Institut de la statistique. www.unesco.org</footnote>

<footnote n="132">¹³² « High Level Panel on Financing for Development-Recommendations and Technical Report », United Nations, A/55/1000, 26 June 2001. www.un.org/esa/ffd/ODA-Sub-index-.htm</footnote>
<table><caption>Table 3-3: Revenue Estimates at the Euro Area Level</caption><thead><tr><th colspan="4">PRIVILEGED SCENARIO</th></tr><tr><th colspan="4">ELASTICITY OF-1 AND TRANSACTION</th></tr><tr><th colspan="4">COST BEFORE CTT = 0.1%</th></tr><tr><th>TAX LEVEL</th><th>1998</th><th>2001</th><th>2004</th></tr></thead><tbody><tr><td>0.01%</td><td>11</td><td>6</td><td>10</td></tr><tr><td>0.02%</td><td>19</td><td>11</td><td>16</td></tr><tr><td>0.05%</td><td>33</td><td>19</td><td>29</td></tr><tr><td>0.10%</td><td>44</td><td>26</td><td>38</td></tr><tr><td>0.20%</td><td>53</td><td>31</td><td>46</td></tr></tbody><thead><tr><th colspan="4">INTERMEDIATE SCENARIO</th></tr><tr><th colspan="4">ELASTICITY OF-1 AND TRANSACTION</th></tr><tr><th colspan="4">COST BEFORE CTT = 0.1%</th></tr><tr><th>TAX LEVEL</th><th>1998</th><th>2001</th><th>2004</th></tr></thead><tbody><tr><td>0.01%</td><td>7</td><td>4</td><td>6</td></tr><tr><td>0.02%</td><td>9</td><td>5</td><td>8</td></tr><tr><td>0.05%</td><td>11</td><td>6</td><td>10</td></tr><tr><td>0.10%</td><td>12</td><td>7</td><td>10</td></tr></tbody><thead><tr><th colspan="4">"MINIMAL" SCENARIO</th></tr><tr><th colspan="4">ELASTICITY OF-0.5 AND TRANSACTION</th></tr><tr><th colspan="4">COST BEFORE CTT = 0.02%</th></tr><tr><th>TAX LEVEL</th><th>1998</th><th>2001</th><th>2004</th></tr></thead><tbody><tr><td>0.01%</td><td>9</td><td>5</td><td>8</td></tr><tr><td>0.02%</td><td>15</td><td>9</td><td>13</td></tr><tr><td>0.05%</td><td>27</td><td>16</td><td>24</td></tr><tr><td>0.10%</td><td>40</td><td>23</td><td>35</td></tr></tbody><tfoot><tr><td colspan="4">NOTE: METHODOLOGY OF THE FRENCH MINISTRY OF FINANCE (2000). AUTHOR'S CALCULATIONS</td></tr></tfoot></table>

### 3.1.2 Estimates based on a specific tax rate for banks, financial customers and non-financial customers (133)

The major difference in this new estimation is that now we take into account the differences in pre-tax transaction costs on the wholesale and retail markets with the implicit idea that the tax burden will not be shifted between banks and there customers. It is a complete change from the previous methodology because the hypotheses concerning the reduction of market volume are much more restrictive. The disappearance of the market is reached much more quickly than in the previous methodology in particular for banks.

The pre-tax transaction cost of banks, financial customers and non-financial customers is supposed to be respectively 0.02%, 0.05% and 0.1%. Because banks have very low initial transaction costs, it is assumed that they are very sensible to the increase of these transaction costs and therefore their volume-elasticity is high: -1.5. For the same reasons, the elasticity for financial customers (insurance companies, hedge funds, mutual funds and others) is supposed to be -1, and the volume elasticity for non-financial customers (productive firms) is supposed to be -0.5. At the world level, fiscal evasion varies from 15% to 25% according to the tax rate. But fiscal evasion is assumed to increase up to the range of 25.2% to 40% at the euro area level (see table 3-14 in annex). The relative market share of banks, financial and non-financial customers is taken from the BIS survey (134).

The formula used is of the same kind as the one found in the French report with the following significant differences: It is supposed that those who trade don't make round trip

<footnote n="133">133) These estimates follow the methodology used by the Ministry of Finance of Belgium (2001) and Finland (2001) for the period 1989-2004.</footnote>

<footnote n="134">134) These relative sector shares vary according to the geographical coverage and we have calculated them accordingly using BIS data. We have used table E.1 in BIS survey because it gives "net-net" data while the Belgium and Finnish reports have relied on table E.8 in BIS survey that presents "net-gross" data. It is not a detail because it introduces major differences in the market share of banks and customers. For a detail presentation of data used, see the annex at the end of part 3.</footnote>
on currencies but single transactions. And the elasticity effect is taken as the difference to one (135).

$$R = 250 \times \tau \times V \times (1 - ev) \times \left[ 1 - \left( 1 + \frac{\tau}{k} \right)^{\varepsilon} \right]$$

$\tau$ the tax rate, is thus not multiplied by 2. As a consequence, the reduction of volume due to the elasticity is inferior to the one observed in the French report (136). In this sense, the Belgium and Finnish methodology is more favourable to the revenue estimate, but in compensation it is based on lower pre-tax transaction costs for banks which account for the majority of transactions, and lower tax rates.

The results are presented for the world level in table 3-4 for 2004. We can see that the tax base of the banking sector decreases stiffly and that the limit of two thirds of volume reduction is reached at the 0.02% (the value beyond the two-thirds limit is marked in red on the table). At this level, the revenue paid by banks is US$ 14.9 billion. Beyond that level, there is still some possibility to increase the revenue (see the tax rate marked in blue), but at a decreasing rate due to the bell-form of the revenue curve (see chart 3.2). The maximum of revenue (US$ 16.2 billion) is reached for a tax rate of 0.04%. Increasing the tax rate beyond 0.04% is counterproductive because revenues begin to decrease due to the elasticity effect. At the 0.04% level, the reduction of the volume of transactions realised by banks is 80.8%. In other terms, the volume of transactions of the banking sector would be at 19.2% of its previous level. There is therefore a trade-off between the volume of transactions of the banking sector and the maximisation of revenues generated by banks comprised in the range of 0.02% to 0.04%. The difference of revenue is of US$ 1.3 billion which is not negligible. A good compromise between efficiency and feasibility is to fix the tax rate at 0.02% for the banking sector and get revenues of US$ 14.9 billion.

But table 3-4 and figure 3-2 show that it is not necessary to make such a compromise for their financial and non-financial customers. At a 0.1% tax rate, the reduction of volume is exactly two-third for financial customers and only 29.1% for non-financial customers that would not be hurt too much. At this level of taxation, the two kinds of customers generate respectively US$ 43.4 billion and US$ 39.1 billion. The total revenue generated by banks and their customers would therefore reach US$ 97.4 billion at world level in 2004 (137).

<footnote n="135">135) The formula used in the Belgium and Finnish reports is never given explicitly anywhere to the contrary of the French report. One can only found in annex the matrix of decreases of market volume due to the elasticity effect. So we had to reconstitute the formula by approximation. But in the end we get the same results so we are sure that the formula found is the good one. The matrix of decreases of market volume is presented in table 3-12 in the annex, so that the reader can check that the formula and the revenue estimates are exact.</footnote>

<footnote n="136">136) See in annex tables 3-11 and 3-12 in the annex for a comparison of matrix of volume reduction for the two methodologies.</footnote>

<footnote n="137">137) If a unified tax rate of 0.1% had been applied, revenues would have been around US$ 700 million lower at 96.7 billion (see table 3-4).</footnote>
<table><caption>Table 3-4 : Revenues Estimates According the Methodology of the Ministry of Finance of Belgium and Finland for the World Level in 2004</caption><thead><tr><th>WORLD LEVEL IN 2004</th><th>TOTAL</th><th>NON-FINANCIAL SECTOR</th><th>OTHER FINANCIAL INSTITUTIONS</th><th>BANKING SECTOR</th></tr></thead><tbody><tr><td>ELASTICITY</td><td></td><td>-0.5</td><td>-1</td><td>-1.5</td></tr><tr><td>Transaction cost before tax in %</td><td></td><td>0.1</td><td>0.05</td><td>0.02</td></tr><tr><td>Share of volume before tax in %</td><td>100</td><td>14</td><td>33</td><td>53</td></tr><tr><th>CTT Rate in %</th><th>Fiscal evasion in %</th><th>Endogeneous reduction of volume in %</th><th>Endogeneous reduction of volume in %</th><th>Endogeneous reduction of volume in %</th></tr><tr><td>0.01</td><td>15.1</td><td>4.7</td><td>16.7</td><td>45.6</td></tr><tr><td>0.02</td><td>15.2</td><td>8.7</td><td>28.6</td><td>64.6</td></tr><tr><td>0.03</td><td>15.3</td><td>12.3</td><td>37.5</td><td>74.7</td></tr><tr><td>0.04</td><td>15.4</td><td>15.5</td><td>44.4</td><td>80.8</td></tr><tr><td>0.05</td><td>15.5</td><td>18.4</td><td>50.0</td><td>84.7</td></tr><tr><td>0.06</td><td>15.6</td><td>20.9</td><td>54.5</td><td>87.5</td></tr><tr><td>0.07</td><td>15.7</td><td>23.3</td><td>58.3</td><td>89.5</td></tr><tr><td>0.08</td><td>15.8</td><td>25.5</td><td>61.5</td><td>91.1</td></tr><tr><td>0.09</td><td>15.9</td><td>27.5</td><td>64.3</td><td>92.2</td></tr><tr><td>0.10</td><td>16.0</td><td>29.3</td><td>66.7</td><td>93.2</td></tr><tr><td>0.15</td><td>16.5</td><td>36.8</td><td>75.0</td><td>96.0</td></tr><tr><td>0.20</td><td>17.0</td><td>42.3</td><td>80.0</td><td>97.3</td></tr><tr><td>0.25</td><td>17.5</td><td>46.5</td><td>83.3</td><td>98.0</td></tr><tr><td>0.50</td><td>20.0</td><td>59.2</td><td>90.9</td><td>99.2</td></tr><tr><td>0.75</td><td>22.5</td><td>65.7</td><td>93.8</td><td>99.6</td></tr><tr><td>1</td><td>25.0</td><td>69.8</td><td>95.2</td><td>99.7</td></tr><tr><th>CTT Rate in %</th><th>Annual Revenue in US $ billion</th><th>Annual Revenue in US $ billion</th><th>Annual Revenue in US $ billion</th><th>Annual Revenue in US $ billion</th></tr><tr><td>0.01</td><td>27.8</td><td>5.3</td><td>11.0</td><td>11.5</td></tr><tr><td>0.02</td><td>43.9</td><td>10.2</td><td>18.8</td><td>14.9</td></tr><tr><td>0.03</td><td>55.3</td><td>14.7</td><td>24.6</td><td>16.0</td></tr><tr><td>0.04</td><td>64.2</td><td>18.8</td><td>29.2</td><td>16.2</td></tr><tr><td>0.05</td><td>71.5</td><td>22.7</td><td>32.8</td><td>16.1</td></tr><tr><td>0.06</td><td>77.8</td><td>26.3</td><td>35.7</td><td>15.8</td></tr><tr><td>0.07</td><td>83.3</td><td>29.8</td><td>38.1</td><td>15.4</td></tr><tr><td>0.08</td><td>88.2</td><td>33.0</td><td>40.2</td><td>15.0</td></tr><tr><td>0.09</td><td>92.7</td><td>36.1</td><td>41.9</td><td>14.6</td></tr><tr><td>0.10</td><td>96.7</td><td>39.1</td><td>43.4</td><td>14.2</td></tr><tr><td>0.15</td><td>113.1</td><td>52.1</td><td>48.57</td><td>12.5</td></tr><tr><td>0.20</td><td>125.7</td><td>63.0</td><td>51.49</td><td>11.2</td></tr><tr><td>0.25</td><td>136.3</td><td>72.6</td><td>53.42</td><td>10.3</td></tr><tr><td>0.50</td><td>171.8</td><td>107.4</td><td>56.46</td><td>8.0</td></tr><tr><td>0.75</td><td>192.9</td><td>131.2</td><td>55.89</td><td>5.8</td></tr><tr><td>1</td><td>210.5</td><td>149.0</td><td>55.84</td><td>5.6</td></tr></tbody></table>

Source: BIS Triennal Forex Survey for data, Belgium and Finnish reports (2001)
form methodology. B Jetin's calculations.
<figure><img src="image_26.png" /><figcaption>Fig. 3-2 : World Revenues in 2004 by Sector Focussing on Small Tax Rates</figcaption></figure>

Of the 97.4 billion generated by a 0.02% to 0.1% CTT rate, banks would pay 15.3% of the total, financial customers 44.6% and non-financial customers 40.1%. In other terms customers bears nearly 85% of the tax burden for a share of market turnover of 47%. This result may be considered a paradox for those of think that banks must pay the major share of the tax burden because they are supposedly more speculative than their customers that are surprisingly exonerated for any speculative activity. But as we have shown in part 1, insurance companies, hedge funds, mutual funds and even pension funds and multinational firms are also engaged in speculative activities and must be taxed as such.

More generally, figure 3-3 shows that banks pay a major share (41%) for a tax rate of 0.01% only. Beyond that level, their share shrinks rapidly to one fifth at the 0.6% rate and 15% at the 0.1% rate. Financial customers pay the bigger share (45% to 46%) from the 0.02% rate until the 0.1% rate. Finally, non-financial customers pay an increasing share from less than one fifth for a 0.01% up to 40% at the 0.1% and then turn the major contributor to the CTT. At the theoretical but unrealisable 1% level, banks would pay nearly nothing because they would nearly have ceased their activity and non-financial customers would pay 70%, which makes no sense.

As a consequence, the fact that customers pay a tax share that is nearly the double their market share while banks pay a tax share that is about a quarter of their market share is unavoidable (138). For the critics of the CTT (R. Dodd, 2003) who argue that banks don't

<footnote n="138">138) This results is also due to the hypothesis that the elasticity of banks is high: -1,5. If we suppose that the elasticity of banks is neutral, i.e. = -1, i.e. the same as financial customers whose transaction costs are close</footnote>
speculate, this result must be reassuring. Whatever the point of view, we are not concerned by an objective of equal tax share in order to guarantee fiscal justice for multinational banks, speculative funds and corporations, but with an objective of efficiency. In this perspective, a differentiated tax rate, i.e. a 0.02% tax rate for banks and a 0.1% for their customers is a good compromise.

Another interesting result to observe is that despite the difference in methodology, the revenue is again in the magnitude of US$ 100 billion in 2004. If we apply the same compromise across time, we can see in figure 3-4, world revenues fluctuate according to the fluctuations of market turnover. This reminds us that global taxes are not as stable as ODA financed by national budgets and cannot be considered as the main source of financing for development but as supplementary sources of financing. Nonetheless, if the CTT had been created since 1992, it would have provided on average US $ 64.2 billion each year on the period 1992-2004 (for 0.02% and 0.1% tax rate). Since 1995, the world revenues are on average US$ 70.9 billion and 75.7 billion since 1998. Again we can observe the leverage of a CTT as a source of financing. In this regard, smaller rates are deceptive (See figure 3-4). A 0.01% rate would have generated no more than US $ 19 billion on average on the 1992-2004 period, and a 0.02% US$ 29.4 billion. It is clearly not enough and it is possible to make better.

<footnote>(0.05%), the relative share of each actor is much more equilibrated. Banks would pay 29.8%, the financial customers 37% and non-financial customers 33.3% of the tax burden. What is the true elasticity remains an open question.</footnote>
<figure><img src="image_27.png" /><figcaption>Fig. 3-4 : Revenues Estimates of the CTT According to the Tax Rate at the World Level</figcaption></figure>

<figure><img src="image_28.png" /></figure>
At the European level, the picture is a bit different for several reasons. First, the relative turnover market share of banks is even lower than at the world level. This is especially true for the euro area. In 2004, banks accounted for 49.5% (against 53% at the world level), other financial institutions for 34.8% (33%) and non-financial customers for 15.8% (14%). This plays in favour of the revenues because customers by hypothesis have a lower elasticity than banks. Second, the set of hypothesis is not exactly the same. Volume elasticities and fiscal evasion are higher because the geographical coverage is smaller. We have considered three alternatives. A CTT adopted at the euro area level only, then at the EU 15 and finally an enlargement to Switzerland and Norway.

We begin by presenting the results at the euro area level for 2004 and 2001 (see table 3-5 for detailed results and figure 3-5 below for intra-European comparisons).

As we can see, the annual revenue for a unique 0.1% CTT rate at the euro area level in 2004 would be theoretically US$ 28.3 billion that is about 10 billion less than the US$ 38 billion estimate obtained with the methodology of the French report. But again, we note that at such rate the banking activity has shrunk to almost nothing, 4.3% of its initial volume. If we apply the same compromise, a 0.02% tax rate for banks and a 0.1% for customers, the revenue would be US$ 29.3 billion, one billion more <sup>(139)</sup>. We can thus consider that revenues in the range of 29 and 38 billion can be deemed as plausible for the euro area for the year 2004. This shows that the euro zone has a great potential to generate massive revenues. In comparison, the 0.01% and 0.02% render a meagre US$ 8.4 and US$ 13.1 billion.

This estimate can be considered as robust due to the severity of the hypotheses retained. The market turnover for 2004, US$ 659 billion is the total forex turnover of the euro area net of local and cross-border interdealer double counting <sup>(140)</sup> to the contrary of the data used by the Ministry of finance of Belgium and Finland, which did not eliminate cross-border interdealer double counting <sup>(141)</sup>. The volume elasticity is higher for the euro area than at the world level for each sector. In particular, the volume elasticity for banks amounts to 1.75 leading to a stronger reduction of volume, -50.8% for the very tiny tax rate of 0.01%, that is one basis point, or in other term one cent of euro for each banknote of 100 euros. And finally, we have assumed a higher fiscal evasion, from 25.1% up to 40% than the one found in the Belgium and Finnish report to estimate the revenues at the EU level (20.2% to 35.0%, see op cit, page 56), because the euro area is smaller.

In 2001, the revenues would have been US$ 17.8 billion with a market turnover of 442 billion against 659 billion in 2004, (See figure 3-5 below). This result is close to P.B. Spahn's estimation (20.8 billion), although our methodology differs on several points. Our elasticity volume is much higher because the tax rate applied to customers is 5 times higher. This may explain our smaller revenue estimate.

<footnote><sup>(139)</sup> Customers would still pay 0.1%. Financial customers would generate 12.6 billion of revenues and non-financial customers, 13.1%. Added to the 3.6 paid by banks whose trade volume is 30% of its previous level, it sums to US$ 29.3 billion. To respect fully our self-imposed rule regarding the upper limit of volume reduction of two thirds, we should have retained a 0.8% tax rate for financial customers generating US$ 11.8 billion (in blue in the table 3-5). But to keep things simple, we have opted for a 0.1% rate for financial customers even if it corresponds to a 70.1% reduction of market volume (in red in table 3-5).</footnote>

<footnote><sup>(140)</sup> See table E.1 of the BIS 2004 triennial forex survey, on page 48 of the statistical annex. We have chosen "net-net" data, which is in accordance with the aggregated data presented in tables B.1 and B.2, page 5 and 6 of the BIS Survey. This is important to calculate the share of each counterparty at the European and euro area level.</footnote>

<footnote><sup>(141)</sup> These reports used the E.8 tables in the BIS triennial survey, which presents what the BIS calls "net-gross" data. Net-gross data overestimates the market share of the banking sector, especially in Europe.</footnote>
<table><caption>Table 3-5 : Revenues Estimates According the Methodology of the Ministry of Finance of Belgium and Finland for the Euro Zone in 2004</caption><thead><tr><th>EURO ZONE LEVEL IN 2004</th><th>TOTAL</th><th>NON-FINANCIAL SECTOR</th><th>OTHER FINANCIAL INSTITUTIONS</th><th>BANKING SECTOR</th></tr></thead><tbody><tr><td>ELASTICITY</td><td></td><td>-0.55</td><td>-1.1</td><td>-1.75</td></tr><tr><td>Transaction cost before tax in %</td><td></td><td>0.1</td><td>0.05</td><td>0.02</td></tr><tr><td>Share of volume before tax in %</td><td>100</td><td>15.8%</td><td>34.8%</td><td>49.5%</td></tr><tr><th>CTT Rate in %</th><th>Fiscal evasion in %</th><th>Endogeneous reduction of volume in %</th><th>Endogeneous reduction of volume in %</th><th>Endogeneous reduction of volume in %</th></tr><tr><td>0.01</td><td>25.2</td><td>5.1</td><td>18.2</td><td>50.8</td></tr><tr><td>0.02</td><td>25.3</td><td>9.5</td><td>30.9</td><td>70.3</td></tr><tr><td>0.03</td><td>25.5</td><td>13.4</td><td>40.4</td><td>79.9</td></tr><tr><td>0.04</td><td>25.6</td><td>16.9</td><td>47.6</td><td>85.4</td></tr><tr><td>0.05</td><td>25.8</td><td>20.0</td><td>53.3</td><td>88.8</td></tr><tr><td>0.06</td><td>25.9</td><td>22.8</td><td>58.0</td><td>91.2</td></tr><tr><td>0.07</td><td>26.1</td><td>25.3</td><td>61.8</td><td>92.8</td></tr><tr><td>0.08</td><td>26.2</td><td>27.6</td><td>65.0</td><td>94.0</td></tr><tr><td>0.09</td><td>26.4</td><td>29.7</td><td>67.8</td><td>94.9</td></tr><tr><td>0.10</td><td>26.5</td><td>31.7</td><td>70.1</td><td>95.7</td></tr><tr><td>0.15</td><td>27.3</td><td>39.6</td><td>78.2</td><td>98.5</td></tr><tr><td>0.20</td><td>28.0</td><td>45.4</td><td>83.0</td><td>98.9</td></tr><tr><td>0.25</td><td>28.8</td><td>49.8</td><td>86.1</td><td>99.7</td></tr><tr><td>0.50</td><td>32.5</td><td>62.7</td><td>92.8</td><td>99.8</td></tr><tr><td>0.75</td><td>36.3</td><td>69.2</td><td>95.3</td><td>99.9</td></tr><tr><td>1</td><td>40.0</td><td>73.3</td><td>96.5</td><td>99.7</td></tr><tr><th>CTT Rate in %</th><th>Annual Revenue in US $ billion</th><th>Annual Revenue in US $ billion</th><th>Annual Revenue in US $ billion</th><th>Annual Revenue in US $ billion</th></tr><tr><td>0.01</td><td>8.4</td><td>1.8</td><td>3.5</td><td>3.0</td></tr><tr><td>0.02</td><td>13.1</td><td>3.5</td><td>5.9</td><td>3.6</td></tr><tr><td>0.03</td><td>16.4</td><td>5.0</td><td>7.6</td><td>3.7</td></tr><tr><td>0.04</td><td>18.9</td><td>6.4</td><td>8.9</td><td>3.5</td></tr><tr><td>0.05</td><td>23.0</td><td>7.7</td><td>10.6</td><td>4.6</td></tr><tr><td>0.06</td><td>22.8</td><td>8.9</td><td>10.7</td><td>3.2</td></tr><tr><td>0.07</td><td>24.4</td><td>10.1</td><td>11.3</td><td>3.0</td></tr><tr><td>0.08</td><td>25.8</td><td>11.1</td><td>11.8</td><td>2.9</td></tr><tr><td>0.09</td><td>27.1</td><td>12.1</td><td>12.2</td><td>2.7</td></tr><tr><td>0.10</td><td>28.3</td><td>13.1</td><td>12.6</td><td>2.6</td></tr><tr><td>0.15</td><td>32.1</td><td>17.2</td><td>13.6</td><td>1.3</td></tr><tr><td>0.20</td><td>35.8</td><td>20.5</td><td>14.1</td><td>1.2</td></tr><tr><td>0.25</td><td>38.0</td><td>23.3</td><td>14.2</td><td>0.5</td></tr><tr><td>0.50</td><td>47.1</td><td>32.8</td><td>13.8</td><td>0.5</td></tr><tr><td>0.75</td><td>51.7</td><td>38.4</td><td>13.0</td><td>0.4</td></tr><tr><td>1</td><td>55.3</td><td>41.8</td><td>12.1</td><td>1.5</td></tr></tbody></table>

Source: BIS Triennial Forex Survey for data, Belgium and Finnish reports (2001) for methodology. B. Jetin's calculations.
We now turn to the revenue estimate at the EU15 level. We have to add the UK, Sweden and Denmark foreign exchange activity. This means that transactions in UK sterling pound, Swedish krona and Danish krone are also taxed along with the euro. Transactions now amount to US$ 1016 billion per day in 2004, a 54% increase in comparison with the euro area market turnover due essentially to the incorporation of the British market. The volume elasticity for each counterparty remains the same, but fiscal evasion is lower. As in the Belgium and Finnish report, it starts at 20.1% when the tax rate is 0.01% and ends at the 35% level when the rate is 1%.

Revenues estimates are presented in table 3-6. A 0.02% tax rate on interdealer transactions would produce US$ 6.1 billion while transactions of financial and non-financial customers would produce revenues of respectively US$ 20.2 and US$ 21.2 billion. The total at the EU 15 level would amount to US$ 47.5 billion in 2004, nearly half of world CTT revenues. This result shows once again that the EU has an important role to play in the fight against poverty and in favour of global common goods. If the EU decided it, it could nearly finance on its own the Millennium Development Goals. In 2001, revenues would have been US$ 28.65 billion due to a smaller market turnover of US$ 657 billions per day.

Adopting the CTT at the EU level would be an important political signal addressed to developing countries. It would be an act of solidarity proving that the European construction can be based on fundamental values and not only on business. Of course, the CTT can be created by the Euro area only. But the political symbol and the efficiency of the CTT would have much more momentum and coherence if the decision was taken at the EU level. It would be a stronger incentive for non-European countries to join in.

If we now think of the potential of a European decision beyond the EU, incorporating also Switzerland and Norway, revenues would not only be larger, but the possibility to avoid the tax would also be reduced further. Switzerland is not only an important European financial centre, but it is also closely linked to EU financial market and to the euro, via its partnership with German banks. The market turnover would now be US$ 1149 billion in 2004 (746 billion in 2001). We assume the same volume elasticities than before but we suppose that fiscal evasion is now slightly lower. It starts at 17.7% for a 0.01% CTT rate up to 32.5% for a 1% rate.

On this basis, table 3-7 shows that a 0.02% rate applied to banks would produce revenue US$ of 7.1 billion in 2004 and a 0.1% applied to customers would produce respectively revenue of US$ 24.6 billion and US$ 23.6 billion. The total would amount to US$ 55.3 billion, i.e. the official MDG financing target (US$ 33.4 billion in 2001).

These results are synthesized in figure 3-5, which presents the revenues that could be generated by a CTT based on low tax rate of 0.02% for banks and higher tax rate of 0.1% for their customers. It shows that Europe has very important role to play.

To which purposes should these revenues used for? How could the world and Europe manage these revenues to be sure that they are used for in a proper way?
<table><caption>Table 3-6 : Revenues Estimates According the Methodology of the Ministry of Finance of Belgium and Finland for the EU-15 Level in 2004</caption><thead><tr><th>EU 15 LEVEL IN 2004</th><th>TOTAL</th><th>NON-FINANCIAL SECTOR</th><th>OTHER FINANCIAL INSTITUTIONS</th><th>BANKING SECTOR</th></tr></thead><tbody><tr><td>ELASTICITY</td><td></td><td>-0.55</td><td>-1.1</td><td>-1.75</td></tr><tr><td>Transaction cost before tax in %</td><td></td><td>0.1</td><td>0.05</td><td>0.02</td></tr><tr><td>Share of volume before tax in %</td><td>100</td><td>15.5%</td><td>34.0%</td><td>50.5%</td></tr><tr><th>CTT Rate in %</th><th>Fiscal evasion in %</th><th>Endogeneous reduction of volume in %</th><th>Endogeneous reduction of volume in %</th><th>Endogeneous reduction of volume in %</th></tr><tr><td>0.01</td><td>20.2</td><td>5.1</td><td>18.2</td><td>50.8</td></tr><tr><td>0.02</td><td>20.3</td><td>9.5</td><td>30.9</td><td>70.3</td></tr><tr><td>0.03</td><td>20.5</td><td>13.4</td><td>40.4</td><td>79.9</td></tr><tr><td>0.04</td><td>20.6</td><td>16.9</td><td>47.6</td><td>85.4</td></tr><tr><td>0.05</td><td>20.8</td><td>20.0</td><td>53.3</td><td>88.8</td></tr><tr><td>0.06</td><td>20.9</td><td>22.8</td><td>58.0</td><td>91.2</td></tr><tr><td>0.07</td><td>21.1</td><td>25.3</td><td>61.8</td><td>92.8</td></tr><tr><td>0.08</td><td>21.2</td><td>27.6</td><td>65.0</td><td>94.0</td></tr><tr><td>0.09</td><td>21.4</td><td>29.7</td><td>67.8</td><td>94.9</td></tr><tr><td>0.10</td><td>21.5</td><td>31.7</td><td>70.1</td><td>95.7</td></tr><tr><td>0.15</td><td>22.3</td><td>39.6</td><td>78.2</td><td>97.6</td></tr><tr><td>0.20</td><td>23.0</td><td>45.4</td><td>83.0</td><td>98.5</td></tr><tr><td>0.25</td><td>23.8</td><td>49.8</td><td>86.1</td><td>98.9</td></tr><tr><td>0.50</td><td>27.5</td><td>62.7</td><td>92.8</td><td>99.7</td></tr><tr><td>0.75</td><td>31.3</td><td>69.2</td><td>95.3</td><td>99.8</td></tr><tr><td>1</td><td>35.0</td><td>73.3</td><td>96.5</td><td>99.9</td></tr><tr><th>CTT Rate in %</th><th>Annual Revenue in US $ billion</th><th>Annual Revenue in US $ billion</th><th>Annual Revenue in US $ billion</th><th>Annual Revenue in US $ billion</th></tr><tr><td>0.01</td><td>13.7</td><td>3.0</td><td>5.6</td><td>5.0</td></tr><tr><td>0.02</td><td>21.3</td><td>5.7</td><td>9.5</td><td>6.1</td></tr><tr><td>0.03</td><td>26.6</td><td>8.1</td><td>12.3</td><td>6.2</td></tr><tr><td>0.04</td><td>30.7</td><td>10.4</td><td>14.4</td><td>6.0</td></tr><tr><td>0.05</td><td>34.1</td><td>12.5</td><td>16.0</td><td>5.7</td></tr><tr><td>0.06</td><td>37.0</td><td>14.4</td><td>17.2</td><td>5.4</td></tr><tr><td>0.07</td><td>39.6</td><td>16.3</td><td>18.2</td><td>5.1</td></tr><tr><td>0.08</td><td>41.8</td><td>18.0</td><td>19.0</td><td>4.8</td></tr><tr><td>0.09</td><td>43.9</td><td>19.6</td><td>19.7</td><td>4.6</td></tr><tr><td>0.10</td><td>45.7</td><td>21.1</td><td>20.2</td><td>4.3</td></tr><tr><td>0.15</td><td>53.2</td><td>27.7</td><td>21.9</td><td>3.6</td></tr><tr><td>0.20</td><td>58.7</td><td>33.1</td><td>22.6</td><td>3.0</td></tr><tr><td>0.25</td><td>63.3</td><td>37.7</td><td>22.9</td><td>2.7</td></tr><tr><td>0.50</td><td>77.1</td><td>53.3</td><td>22.4</td><td>1.4</td></tr><tr><td>0.75</td><td>85.0</td><td>62.6</td><td>21.1</td><td>1.3</td></tr><tr><td>1</td><td>89.0</td><td>68.4</td><td>19.7</td><td>0.8</td></tr></tbody></table>

Source: BIS Triennial Forex Survey for data, Belgium and Finnish reports (2001) form methodology. B Jetin's calculations.
<table><caption>Table 3-7 : Revenues Estimates According the Methodology of the Ministry of Finance of Belgium and Finland for the EU15 Level +Norway and Switzerland</caption><thead><tr><th>EU 15 +<br>SWITZERLAND<br>AND NORWAY</th><th>TOTAL</th><th>NON-<br>FINANCIAL<br>SECTOR</th><th>OTHER<br>FINANCIAL<br>INSTITUTIONS</th><th>BANKING<br>SECTOR</th></tr></thead><tbody><tr><td>ELASTICITY</td><td></td><td>-0.55</td><td>-1.1</td><td>-1.75</td></tr><tr><td>Transaction cost<br>before tax in %</td><td></td><td>0.1</td><td>0.05</td><td>0.02</td></tr><tr><td>Share of volume<br>before tax in %</td><td>100</td><td>15.5%</td><td>34.0%</td><td>50.5%</td></tr><tr><th>CTT Rate in %</th><th>Fiscal evasion in<br>%</th><th>Endogeneous<br>reduction of<br>volume in %</th><th>Endogeneous<br>reduction of<br>volume in %</th><th>Endogeneous<br>reduction of<br>volume in %</th></tr><tr><td>0.01</td><td>17.7</td><td>5.1</td><td>18.2</td><td>50.8</td></tr><tr><td>0.02</td><td>17.8</td><td>9.5</td><td>30.9</td><td>70.3</td></tr><tr><td>0.03</td><td>18.0</td><td>13.4</td><td>40.4</td><td>79.9</td></tr><tr><td>0.04</td><td>18.1</td><td>16.9</td><td>47.6</td><td>85.4</td></tr><tr><td>0.05</td><td>18.3</td><td>20.0</td><td>53.3</td><td>88.8</td></tr><tr><td>0.06</td><td>18.4</td><td>22.8</td><td>58.0</td><td>91.2</td></tr><tr><td>0.07</td><td>18.6</td><td>25.3</td><td>61.8</td><td>92.8</td></tr><tr><td>0.08</td><td>18.7</td><td>27.6</td><td>65.0</td><td>94.0</td></tr><tr><td>0.09</td><td>18.9</td><td>29.7</td><td>67.8</td><td>94.9</td></tr><tr><td>0.10</td><td>19.0</td><td>31.7</td><td>70.1</td><td>95.7</td></tr><tr><td>0.15</td><td>19.8</td><td>39.6</td><td>78.2</td><td>97.6</td></tr><tr><td>0.20</td><td>20.5</td><td>45.4</td><td>83.0</td><td>98.5</td></tr><tr><td>0.25</td><td>21.3</td><td>49.8</td><td>86.1</td><td>98.9</td></tr><tr><td>0.50</td><td>25.0</td><td>62.7</td><td>92.8</td><td>99.7</td></tr><tr><td>0.75</td><td>28.8</td><td>69.2</td><td>95.3</td><td>99.8</td></tr><tr><td>1</td><td>32.5</td><td>73.3</td><td>96.5</td><td>99.9</td></tr><tr><th>CTT Rate in %</th><th>Annual Revenue<br>in US $ billion</th><th>Annual<br>Revenue in US<br>$ billion</th><th>Annual<br>Revenue in US<br>$ billion</th><th>Annual<br>Revenue in<br>US $ billion</th></tr><tr><td>0.01</td><td>15.9</td><td>3.5</td><td>6.6</td><td>5.9</td></tr><tr><td>0.02</td><td>24.8</td><td>6.6</td><td>11.1</td><td>7.1</td></tr><tr><td>0.03</td><td>31.0</td><td>9.5</td><td>14.3</td><td>7.2</td></tr><tr><td>0.04</td><td>35.8</td><td>12.1</td><td>16.8</td><td>7.0</td></tr><tr><td>0.05</td><td>39.8</td><td>14.6</td><td>18.6</td><td>6.6</td></tr><tr><td>0.06</td><td>43.2</td><td>16.8</td><td>20.1</td><td>6.3</td></tr><tr><td>0.07</td><td>46.2</td><td>19.0</td><td>21.3</td><td>6.0</td></tr><tr><td>0.08</td><td>48.8</td><td>21.0</td><td>22.2</td><td>5.6</td></tr><tr><td>0.09</td><td>51.2</td><td>22.9</td><td>23.0</td><td>5.4</td></tr><tr><td>0.10</td><td>53.3</td><td>24.6</td><td>23.6</td><td>5.1</td></tr><tr><td>0.15</td><td>62.2</td><td>32.4</td><td>25.6</td><td>4.2</td></tr><tr><td>0.20</td><td>68.6</td><td>38.7</td><td>26.4</td><td>3.5</td></tr><tr><td>0.25</td><td>74.0</td><td>44.0</td><td>26.8</td><td>3.1</td></tr><tr><td>0.50</td><td>90.2</td><td>62.3</td><td>26.2</td><td>1.6</td></tr><tr><td>0.75</td><td>99.6</td><td>73.3</td><td>24.7</td><td>1.6</td></tr><tr><td>1</td><td>104.5</td><td>80.4</td><td>23.2</td><td>1.0</td></tr></tbody></table>

Source: BIS Triennial Forex Survey for data, Belgium and Finnish reports (2001) form methodology. B.Jetin's calculations.
<figure><img src="image_29.png" /><figcaption>Fig. 3-5 : Summary of Revenue Estimates According to the Geographical Coverage in 2001 and 2004</figcaption></figure>
## 3.2 HOW SHOULD THE REVENUE BE SPENT?

J. TOBIN's proposal to use the revenue to supplement the budget of the IMF and the World Bank was received by the NGOs "like a stone falling into water" to repeat an expression Tobin used himself. Equally, the suggestion of using the revenue to pay all or a part of the foreign debt of the countries of the South received no echo at all, since the large majority of NGOs, trade unions and political parties from the global South demand, pure and simple, the cancellation of a debt that has already been repaid several times <sup>(142)</sup>. It would be senseless to help the countries to finance their development, if one continues to demand from them that they impoverish themselves by repaying their foreign debt. To give one example: 40% of Zambia's budget is dedicated to servicing foreign debt, and this is more than the combined budgets for health and education. At the same time, infant mortality is on the rise, only a third of the children receive complete vaccination and the number of children not going to school is increasing.

Debt cancellation for the countries of the global South could save them more than $300 billion per year and this would then be available to finance internal development and no longer contribute to the growth of the rich countries.

The distribution of the revenue from the tax between rich and poor countries is another aspect of the debate. Some think that the rich countries should keep a part of the revenue. This would signify an additional incentive for their government to adopt the tax in times where reducing the budget deficit and lowering taxes has become the golden rule for the countries that want to enjoy glorification by the market. The tax revenue could be used to reduce poverty, improve the social protection of those in greatest need, construct welfare housing, etc. The list is long since social inequality and poverty in the rich countries have increased in the past few years. As far as we are concerned, we think that the countries from the global North are sufficiently rich to finance this indispensable social expenditure from their available resources and do not need the CCT or any other global taxes for this. The CCT is not necessary to raise the minimum income benefits in France, since France already possesses such resources as well as the necessary wealth. It only has to be redistributed differently.

Consequently, we think that all of the revenue of the CCT should be dedicated on the one hand to international programmes of common interest in fields like health and ecology, and on the other hand, to national development programmes in countries of the global south.

In some cases, it is possible to refer to studies made by the UN and its different agencies to find an estimate for the sums required. The revenues from a CTT should not be the only source of financing for these programmes. There are other forms of development financing, especially the Official Public Development Aid (ODA). As will be shown later, the CCT revenue should not be used to release the rich countries from their duty to finance development. However, the estimates of the cost of development made by the different UN agencies during the 1990s up to the concerted effort at the "Conference on Financing for Development" organised by the UN in Monterrey in March 2002, are useful to determine the magnitude of the sums to be collected at the international and national levels in order to reach minimal ecological and social objectives. Thus the United Nations Programme for Development (UNDP) seeks to define international programmes of common interest through the new notion of "global public good" prior to specific financing. As far as the specific national development programmes are concerned, it is the notion of

<footnote n="142">142) On this topic see "le bâteau ivre de la mondialisation" (the inebriated boat of globalisation), a publication edited by Eric Toussaint and Arnaud Zacharie, Editions CADTM/Syllepse, 2000, Paris.</footnote>
"universal access to basic social services" that is placed in the foreground. Through these two notions we will analyse step-by-step the role the CCT revenue could play.

### 3.2.1 Financing "global public good"

The concept of "public good" is traditionally defined as opposed to "private good". A good is private when the same quantity of this good cannot be consumed by two individuals at the same time. Its allocation is regulated by a market. In contrast, at the country level, a public good is the currency, health, education, culture, non-polluted air, heritage, justice, security, infrastructure, and the transmission of information and knowledge. It is essentially a non tradable service that is often indivisible. Public goods have two common characteristics. The first is that their consumption by one individual does not reduce the possibility of consumption by other individuals (non-rivalry principle). The second is that nobody can be deprived of it since nobody can appropriate it (non-exclusion principle) (143).

The consumption of public goods often has positive effects for the entire community. Thus, individuals that respect the rules of hygiene and public health improve their personal situation by having vaccinations and taking care of themselves and at the same time help to prevent illnesses and this profits the whole community without incurring any costs. This collective positive and free effect is qualified as "external economy" by the economists (144). The so-called "pure" public goods like justice, police and national defence are traditional obligations and can only be financed by taxes. They are essentially provided by the national state or local communities. Correspondingly, other public goods are called "impure" since there is no obligation to use them and so are paid for by voluntary users (toll motorways for example). However, even in this case the price paid does not always represent the real cost, since this could be prohibitive, and so carries a state subsidy financed by the tax. In some cases, but not always, the public goods are indispensable to the community but are not profitable, and so are therefore not produced by private enterprise and sold on the market. The definition of public goods therefore varies and depends on the historical and political traditions of each country. The same applies to education. The existence of a public education service in France is a political decision inherited from the republican tradition that formally derives from the intention of wanting to guarantee the right to education for all citizens. However it co-exists with a private education system. In other countries, education is primarily considered a private good, even if in reality, the two systems, public and private, often co-exist.

This is the essence of the problem. Except for the pure collective goods that reduce the state to its regulatory functions (army, police, justice), for which there is no market, the neo-liberals think that in every possible case the public goods should be transformed into private goods and markets should be created to deal in them. This requires the calculation of property rights (145). This neo-liberal programme is clearly at work in a number of coun-

<footnote n="143">143) For instance, the "consumption" of street lighting by one individual does not reduce the consumption by her/his neighbour and cannot exclude her/him from such consumption. However, there are numerous intermediary cases. Pay TV (with a cable or decoder) is an unrivalled good since its consumption does not diminish the consumption by others, yet it is exclusive since only those who pay for it have access to it. These goods are sometimes called "club goods". See H.R. VARIAN, "Analyse microéconomique" (Micro-economic Analysis), p. 419-420, éditions De Boeck Université, 1995, Bruxelles.</footnote>

<footnote n="144">144) However, there are also "public bads" that generate collective negative effects (still called external dis-economies by the economists). These include pollution, traffic congestion or communication congestion. Therefore it is necessary to reduce pollution or congestion to generate a collective positive effect.</footnote>

<footnote n="145">145) Concerning the elimination of "public bads", liberal economic theory promoted the famous Coase theorem (1960), which was nominated for the Nobel prize in Economics. According to this theorem, if the transaction costs are low, and if property rights and laws are clearly defined, then the state need not try to reduce "public</footnote>
tries, with the privatisation of public services and the organisation of competition between public and private enterprises, with the private appropriation and commodification of a number of goods and services that used to be in the public domain and available free. We are witnessing the extension of intellectual property rights in the fields of culture, education, information and even with living species, the transferring of public assets to private spheres that then need to be paid for, etc.

The same tendency is reproduced at the global level, since with the increasing integration of the economies, more and more public goods or bads cross national borders. What are these global public goods?

The list is more or less long depending on whether we refer to rigorously exhaustive definitions (See table 3-8) or to a more limited but more operational definition (for the one defined in the preparatory work for the United Nations Conference on Financing for Development, see the following box 3-1).

**Box 3-1 : GLOBAL PUBLIC GOODS DEFINED IN THE PREPARATORY PROCESS FOR THE MONTERREY CONFERENCE (March 2001).**

* Maintaining peace

* Prevention of contagious diseases and the fight against HIV/AIDS.

* The creation of a fund to purchase vaccines and for research in tropical diseases.

* International agricultural research.

* The prevention of CF emissions and other greenhouse gases.

* The limitation of CO2 emissions.

* Biodiversity protection.

Source: Panel of experts report to the United Nations General Secretariat.

Table 3-8 permits an easier comprehension of the differences between certain global public goods (or bads). It distinguishes public goods according to whether they only concern the present generation or also affect future generations at a global or regional level. Then it classifies public goods into four categories. The pure public goods are those that strictly respect the principles of non-rivalry and non-exclusion. The other categories only partially respect these two principles. Based on this classification it is for example useful to compare the need for clean water, air, and financial stability. If an enterprise pollutes river water, two possibilities are open to achieve clean water. In some countries the state could decide that the enterprises own the clean water and have the right to pollute it since they need to be competitive and cleaning up the pollution is expensive. In this case the citizens have put up with pollution and if they want clean water they have to pay for the pollution clean-up by buying rights to clean water from the enterprises that own them. Once the citizens own the right to clean water, these citizens could demand that the enterprises reduce their pollution, or take them to court. This solution is unjust since the sufferers from pollution have to pay. However this is the preferred solution for the neo-liberals since they proceed from the principle that sufferers from pollution have the "freedom" to buy (or not to buy) the right to have clean water on a market (¹⁴⁶). The other solution is that the state de-

<footnote>bads". The market will spontaneously reduce them, and the victim of economic externality could threaten whoever is responsible with a law suit and then negotiate an amicable settlement for compensation.</footnote>

<footnote n="146">¹⁴⁶) This solution was proposed in 1960 by R. Coase, Nobel Laureate in Economics, and a fierce advocate for property rights. This solution leads to the creation of markets (with assistance from the state) to solve all the problems of humanity. This indeed is a false solution since the enterprises are interested in maximum pollution in order to make citizens pay a high price to buy the right to clean water. The principle of a market of</footnote>
cides that the citizens have the right to clean water and that the polluters have to stop polluting and reduce the costs of pollution. As in the case of education, the choice between subjection to market mechanisms or state intervention is a political decision. It is notable that in the example of water pollution, it is possible to identify the polluter. In the case of global public bads, like air pollution, it is much more difficult to exactly identify which are the enterprises that pollute and by what quantities in order to make them pay the real cost of cleaning up the pollution. This is already difficult within a single country, it is a priori even more difficult at the international level, since the pollution clouds travel through various layers of the atmosphere. Therefore, market mechanisms cannot work in this case, and it is only public intervention that can lead to a reduction in pollution of the atmosphere, by setting emission standard for pollution and fixing financial penalties.

<table><caption>Table 3-8 : Taxonomy of Global Public Goods According to Their Characteristics</caption><thead><tr><th></th><th></th><th>PURE PUBLIC GOODS</th><th>IMPURE PUBLIC GOODS</th><th>CLUB</th><th>JOINT PRODUCTS</th></tr></thead><tbody><tr><td rowspan="6">INTRA -<br>GENERATIONAL</td><td rowspan="4">REGIONAL</td><td>Extinguishing forest fires</td><td>Navigation routes</td><td>Common markets</td><td>Peace-keeping</td></tr><tr><td>Decontamination of<br>ground water</td><td>Depolluting rivers</td><td>Crises cells</td><td>Medical aid</td></tr><tr><td>Control of veterinary dis-<br>eases</td><td>Motorways</td><td>Electric networks</td><td>Technical assistance</td></tr><tr><td>Flood control</td><td>Local parks</td><td>Information net-<br>works</td><td></td></tr><tr><td rowspan="2">GLOBAL</td><td>Cleaning up maritime<br>pollution</td><td>Allocation of electromag-<br>netic wave bands</td><td>Canals</td><td>Foreign aid</td></tr><tr><td>Meteorological forecasts</td><td>Satellite communications</td><td>Air corridors</td><td>Humanitarian aid in<br>case of natural dis-<br>asters</td></tr><tr><td rowspan="6">INTER -<br>GENERATIONAL</td><td rowspan="4">REGIONAL</td><td>Meteorological surveil-<br>lance stations</td><td>Postal services</td><td>Internet</td><td>Combating drug<br>traffic</td></tr><tr><td>International tribunals</td><td>Epidemic control</td><td>Fishing zones</td><td></td></tr><tr><td>Preservation of humid<br>zones</td><td>Reducing acid rain</td><td>National parks</td><td>Peace-keeping</td></tr><tr><td>Cleaning up lakes</td><td>Protection of fish reserves</td><td>Irrigation systems</td><td>Flood control</td></tr><tr><td rowspan="2">GLOBAL</td><td>Cleaning up toxic waste</td><td>Protection of wildlife re-<br>serves</td><td>Lakes</td><td>Cultural diversity</td></tr><tr><td>Reducing the main pol-<br>lutants</td><td>Reduction in volatile or-<br>ganic compounds</td><td>Cities</td><td></td></tr><tr><td rowspan="4">GLOBAL</td><td>Protecting the ozone lay-<br>er</td><td>Overuse of antibiotics</td><td>Transnational Parks</td><td>Preservation of trop-<br>ical forests</td></tr><tr><td>Reducing the green-<br>house effect</td><td>Maritime fishing</td><td>Geostationary or-<br>bits</td><td>Space exploration</td></tr><tr><td>Eradication of epidemics</td><td>Protecting the Antarctica</td><td>Polar orbits</td><td>United Nations</td></tr><tr><td>Creation of new encoun-<br>ters</td><td>Financial stability</td><td>Coral Reefs</td><td>Reducing poverty</td></tr></tbody><tfoot><tr><td colspan="6">Source : Adapted from Todd Sandler, "Intergenerational Public Goods, Strategy, Efficiency and Institutions". In "Global Public Goods", p. 24-25.</td></tr></tfoot></table>

rights to pollute is still gaining momentum since it constitutes the "major innovation" of the Kyoto protocol (1997) to reduce the greenhouse gases. It has been accepted by the European Union and France.
Financial instability is a public bad that is located between these two examples. Financial instability manifests itself through excessive fluctuations at the stock exchange and in currency exchange rates, and through the massive influx or outflow of capital. These phenomena, naturally provoked by financial markets, lead to financial crises that affect the life of countless victims (147). As in the case of polluted air, it is not always easy to identify which financial enterprises are responsible for a financial crisis, since the responsibility is often collective. Action by the state is therefore justified but, unlike the case of air pollution, the standards, in the case of standards of financial transparency and prudence, are not sufficient and have never managed to prevent new financial crises. The failure of the Enron enterprise in the United States which had satisfied all the financial regulations and procedures is a good example. This justifies the CCT. The excessive volatility of the exchange rates is a negative externality. As we have seen previously, the CCT enables a "filter" to be placed on currency transactions, and leads to the identification after the event of those responsible for the financial instability through those who pay the tax most often. The CCT works in the same way as a tax imposed on polluting enterprises. The tax leads to a reduction in the number of currency transactions responsible for the instability in the same way as a reduction in the volume of production of the polluting enterprises reduces pollution emissions(148). More precisely, if we refer to the proposal of a fluctuation corridor for currencies as in chapter 1, the excessive fluctuation of currency exchange rates are those that exceed the capacity of the corridor and thus deserve to be taxed by a dissuading rate.

To strengthen this system of a fluctuation corridor, we could arrange that a part of the revenue could be used to create a "reserve currency fund" to strengthen the currency defence capacities of public authorities when faced with speculative attacks or massive outflows of capital. From this point of view, the CCT is certainly a global tax that enables financing a global public good, since it would contribute to the stability of currencies in a two-fold way, by dissuading speculation and by financing the reserve fund. If the exchange rate stability achieved were not obligatory but resulted from the free choice of the countries who sign an international treaty, this stability could be considered an impure public regional or global good.

This stability of currency taxes, which is only one aspect of financial stability, would either be profitable to group of countries (possibly on a regional basis) or to the whole world, after the application of the tax has been geographically expanded.

It would benefit the entire population and present and future economic actors. These characteristics are essential and need to serve as a basis for the definition of global public goods that can be suitably financed by the global taxes.

For a good to be global and really public, a good has to satisfy three essential criteria: it has to apply to all countries, it has to benefit all social categories of the population, and it has to satisfy the needs of current generations without endangering future generations (149).

This definition has the merit of being clear and it is doubtlessly for this reason that it cannot be accepted by the G8 countries, the international institutions and especially the WTO, since it is too restrictive for the interests of TNCs.

<footnote n="147">147) Financial instability is a public bad since it fulfils the criteria of non-rivalry and non-exclusion.</footnote>

<footnote n="148">148) From this point of view, the CCT is similar to a Pigou tax, named after the English economist who made this proposal in 1920.</footnote>

<footnote n="149">149) See I. KAUL, I. GRUNBERG, M.A. STERN (editors), "Global Public Goods. International Cooperation in the 21st Century", Oxford University Press, Oxford, 1999. Especially Chapter 1, "Defining global Public Goods", p. 10-16.</footnote>
The stakes are high and are particularly important since it is not only the case of de-
fining whether a good is public or private but also who produces it: public authority or
private initiative?

The multinational corporations, supported by their governments and the WTO want a restrictive definition of global public goods to guarantee the largest possible sphere for private interest. The privatised global public goods are to be regulated by the "General Agreement on Trade in Services" (GATS) that the WTO wants to define in the round of trade negotiations adopted at the Doha conference in 2001.

We find a first recent example of the pursuit of these interests in health. The fight against HIV/Aids and other infectious illnesses is often cited as an exemplary global public good because of its planetary expansion. During the G8 summit in Genoa, a decision was even made to start an international fund. However, besides the fact that the G8 countries are not rushing to contribute to the fund, the fight against HIV/Aids interferes with the private interest of pharmaceutical TNCs that have done everything to prevent South Africa from producing present medicines at a more accessible cost for the infected population. The case of *Stavudine*, a medicine against Aids, is a showcase: "Developed by university research, the molecule has been exclusively acquired by the Bristol-Myers Squibb corporation, which has obstructed its commercialisation in the countries most affected by the pandemic"(150). A compromise was finally found, not due to a natural process but because of a struggle carried out by South Africa and other countries of the South, leading to an agreement at the WTO Doha summit in 2001.

The second example concerns access to information on the internet. The Universal Declaration of Human Rights defines freedom of expression in article 19, and in article 27 the freedom of access to information and protection of security and the private nature of the users of the means of communication. Based on this, UNESCO considers that governments and civil society have a responsibility to make information a global public good, universally available for educational, cultural and social needs (151). Now, there are several problems if we follow this approach. The first is obviously the higher cost of access (computer, telephone line, internet provider costs). The second problem lies in the definition of information being considered as a national or global public good when copyright or other intellectual rights are being extended and are transforming the internet into an increasingly private sphere restricted to those that pay for right of access.

The third example is the preservation of biological diversity. As Michael Flitner reminds us (152), the transformation of plants and animals into commodities has been accelerated with the adoption of agreements that regulate intellectual property rights at an international level. The TNCs of the countries of the North that produce seeds had their property rights protected since the creation of the "International Union for the Protection of New Varities of Plants" (UPOV) in 1961. These signed conventions have stimulated acquisitions and mergers between corporations, have led to a rapid reduction in genetic diversity and confirmed an economic inequality between the countries of the global South, providers of original plant varieties and the countries from the North, sellers of "modernised varieties" in hard currencies. Since 1983, when the United Nations Food and Agriculture Organisation (FAO) adopted a resolution that defined all the genetic plant resources, including the vari-

<footnote n="150">150) Cf. Philippe Demenet: "Le scandale stavudine. Ces profiteurs du Sida". Le Monde Diplomatique, Febru-
ary 2002.</footnote>

<footnote n="151">151) See "Panel on Universal Access to Information and Informatics for Human Development", organised under the auspices of UNESCO at the Economic and Social Council of the United Nations, 10 May 2000, New York. UNESCO/CII/INF Draft 20 1 2000.</footnote>

<footnote n="152">152) Michael Flitner: "Biodiversity: of Local Commons and Global Commodities". In: "Privatizing Nature. Political Struggles for the Global Commons", publication co-ordinated by Michael Goldman, Pluto Press in association with Transnational Institute, 1998.</footnote>
eties developed by the TNCs, as a "heritage of humanity", the Northern member countries of the UPOV denounced this as a "blow to the heart of free enterprise". The resolution will remain purely on paper just like the resolutions defining the "rights of peasants" on the access to seeds and their reuse, "... deriving from their past, present and future contribution to conservation, preservation, and future improvement in the disposal of genetic plant resources..." (FAO 1989). Since the GATT and then the WTO will commandeer the issue of intellectual property rights to establish international legislation that legalises the exorbitant power acquired by the chemical and agro-industrial TNCs we will see seeds that cannot yield germinating seed (i.e. must be bought for each planting) produced by Monsanto. The fruits and vegetables produced in this way will then compete with the produce of Latin American peasants where market access has been blown wide open with dynamite, a favourite expression of Mickey Kantor, former international trade negotiator of the United States.

These three examples show that we cannot rely on the private sector or the markets to offer global public goods satisfying the three criteria we defined previously since the private corporations try above all to restrict beneficiaries only to solvent customers. Instead of eradicating epidemics, it is more profitable to sell to those who can buy the means to cure themselves. This is why it is safer to count on the intervention of the state to produce universal public goods, benefiting all countries and all people of all the generations. As P. Hugon and Jean-Jacques Gabas (153) affirm, we have to abandon purely economic concepts, and even a utilitarian concept of liberal economy, and adopt a political concept (or political economy). "Politics define public goods and the specific space occupied by the market" (p. 25-26).

### 3.2.2 What would be the Probable Cost of Financing Global Public Goods?

It is impossible to estimate the costs of financing the "reserve currency fund" in advance. Firstly, this reserve could be either regional or international depending on the geographic expansion of the CCT. It would also depend on the currencies concerned and their volatility. It would be a task for the future institution that is assigned to managing the tax to decide the amount of resources necessary according to these parameters and based on experience.

As far as the other global public goods are concerned, where the scientific basis is absent for a rigorous evaluation of certain public goods such as, for instance, the reduction of the greenhouse effect there are only rough estimates and no exact figures (see Box 3-2).

<footnote n="153">153) P. Hugon and Jean-Jacques Gabas: "Global Public Goods and International Co-operation", "L'Economie Politique" no. 12, 4th trimester 2001.</footnote>
Box 3-2 : ESTIMATE OF ANNUAL COSTS OF GLOBAL PUBLIC GOODS.

> Maintaining peace (1 billion $)

> The fight against tuberculosis and malaria (2 billion). The fight against HIV/AIDS. (7 to 10 billion $
$)

> The creation of a fund to purchase vaccines and for research in tropical diseases. (1 to 6 billion $
$).

> Agricultural Research for the Third World (currently, the budget of the CGIAR amounts to 330 million, decreasing during the past years).

> The prevention of CFC emissions and other greenhouse gases. The financing from countries of the North to the countries of the South to help them reduce emissions is currently at 1.2 billion $.

> The limitation of CO2 emissions. No estimate available, certainly very high costs.

> Protection of biological diversity. No estimate available, probably several billion $.

Source: Panel of experts Report to the General Secretariat of the United Nations, p. 70-71.

Therefore, "satisfying the needs in global public goods in a slightly more extensive way would probably require a minimum of $20 billion a year that would be about four times the current sum", assuming that most of the measures against the greenhouse effect would be financed through national budgets (UNO p. 51 and 70).

We should add emergency humanitarian aid. It is not only justified an obligation of solidarity. Assisting the victims of a natural disaster or of an armed conflict is the starting point for reconstructing local and national communities so that the fight against poverty, inequalities, epidemics, and reestablishment of peace can be undertaken. It would make little sense to fight epidemics that are already affecting several countries while ignoring those that suddenly increases because of local conflicts. On the other hand, even if this is disputed, the number of victims of natural disasters (floods, storms) has risen by 300% during the last ten years, and this could be the consequence of the greenhouse effect.

For all these reasons, humanitarian aid is intrinsically linked to the supply of global public goods. The higher the supply in global public goods, the less likely natural disasters and conflicts are to occur, and this would reduce the need in humanitarian aid. In the meantime, it is necessary to assist the victims. During the 1990s, about 100 million people were victims of a natural disaster or an armed conflict each year. The budget of humanitarian aid increased to about $4.5 billion during this period, i.e. 8% of the official development aid budget. This budget is clearly insufficient to satisfy all needs: during the conflict in Eritrea in 1998, the victims received less than $2 per person in aid. To provide real aid to all victims, a budget of $8 to $9 billion a year would be necessary, i.e. an increase from $3 to $4 billion (154). The creation of a reserve fund of $1 to $2 billion could be added in order to be able to react without delay. Finally, this would amount to an extra $10 billion to be added to the cost of international programmes.

In total, the international programmes of common interest would cost at least $30 billion.

Which kind of public financing should be chosen?

The financing of these resources would need to be specified and not become a burden on the current development aid budget. At the moment, the UNO (op cit) estimates that "15% of aid is dedicated to the supply of global public goods in a strict sense", i.e. in health and environment. The report notes that "... the financed activities very often benefit

<footnote n="154">154) All figures cited are from the previously mentioned High-Level Panel of experts to the General Secretary of the United Nations. It provides all the complementary bibliographic references we cannot reproduce here.</footnote>
the donor countries more than the destination countries", and that there is a danger of "cannibalisation" of public development aid given to national programmes, notably those designated to fight poverty. For instance, Gabon, which is not one of the poorest countries, is designated to receive more development aid from France, not to supplement the financing of additional social expenditure but to "preserve" forests. This decision on co-operation by the French is justified by the concept of global public good. However, this lies within the period of decline in French government aid from 0.57% of GDP in 1994 to 0.32% in 2000. This means that an increase in financing for development can only mean less financing for social expenditure, in Gabon and in other countries. Finally, the preservation of forests in Gabon is presented as the supply of a global public good, to hide purely economic interests that have nothing to do with the concern for preserving forests and for the people living there. The forests are principally considered as resources that need to be "managed" in the best of interests of the timber and furniture industry (155).

If we really want to provide global public goods to all of the citizens in the countries of the South and the North, then these need to be disconnected from private interests, and should be provided by the co-operation between states, and/or international institutions, since there is no international state. At the federal level, public goods can be provided and supplied by the state, perhaps without cost as a result of the tax. Following the same logic, at the international level, the global public goods need to be financed by new taxes to be called "global taxes", requiring an international treaty. This was one of the aspects of the initial mandate of the United Nations Social Summit in June 2000 in Geneva to the commission charged with studying the financing of development. The tax on currency transactions is obviously one of the main global taxes to be considered but it is not the only one: a unitary tax on the profit of TNCs, a tax on air transport, a tax on CO2 emissions (two global eco-taxes), a tax on internet use (bit tax) could also complete the tax in a useful way. According to the preparatory documents for the UN conferences, the carbon tax could collect $125 billion a year, (an amount similar to the CCT), the tax on air transport $2.2 billion, and the internet tax $70 billion in the year 1996 (see technical note no. 3 by the UN General Secretariat), i.e. a total of about $200 billion, that could be added to the $100 billion from the CCT. Altogether global taxes could collect about $300 billion.

Which direction should these global taxes take? It is above all not a question of ratifying the decrease in federal taxation carried out and legitimised by the liberal reforms. It is also not a question of justifying the absence of political good will on the part of several governments from the global South in imposing a progressive income tax on the revenue of wealthy households and on corporations. According to the OECD, the national tax revenue does not amount to more than 26% of GNP for the rich countries, 19% of GNP for intermediary countries and only 9% of GNP for poor countries. For instance, the inability and absence of political will on the part of the Argentinean government to impose taxes on the large national and transnational corporations as well as on the Argentinean bourgeoisie who transfers their fortunes to Miami, is one of the main causes of the tax bankruptcy of the Argentinean state. With or without global taxes, it would be necessary to reverse by all means the current tendency and reaffirm the necessity for a just contribution from citizens and corporations to the state budget without which the federal solidarity assuring equality between citizens would be impossible.

We do not want to question the prerogatives of the state in fiscal matters, one of the attributes of sovereignty that is most strenuously defended. The global taxes, like the CCT, would be imposed by each state at the federal level (see chapter 3), they would however be subjected to specific accountancy rules to make clear that they are intended to finance

<footnote n="155">155) This concept is justified by the French development aid representative, Jean-Michel Sevérino, in "Critique Internationale", no. 10, January 2001, Paris.</footnote>
the common good at the international level. The CCT, like the other global taxes, are indeed a necessary instrument for solidarity between all countries.

In the present case, we note that if only the CCT would be implemented and would collect a minimum of $100 billion a year, it would enable the financing of $20 billion of expenditure on global public goods as estimated by the UNO. $80 billion would then remain to finance federal development programmes, especially to finance the basic conditions for development of social and environmental issues. We will see at the end of this chapter that if we take into account the entirety of potential resources generated by global taxes, completed by other possible measures of financing, it would be possible to clearly surpass the minimum development goals set by international organisations.

### 3.2.3 Universal Access to Basic Social Services

In 1990, the first "World Children's Summit" took place under the auspices of UNICEF. There was an agreement on the objective to halve the mortality rates of pregnant women and malnutrition of infants under 5 years of age by the year 2000. In 1995, Copenhagen hosted the first "Summit for Social Development" organised by the UN. The objective was then extended to universal access to "basic social services". This means that "every individual can have access to basic preventive and curative health care, to family planning and to minimum care for pregnant women, to education and AIDS prevention, to drinking water and waste water treatment, to school from kindergarten to college, and to literacy programmes for adults" (156). In 1995, UNICEF estimated that the expenditure necessary to fulfil these objectives would be an additional $40 billion. In 1998, UNICEF (op cit) and UNDP (157) estimate together "... that 80 billion Dollars (at 1995 prices) are lacking to ensure the basic needs for all are satisfied, the approximate total sum necessary being between $206 and $216 billion, instead of the actual expenditure of only $136 billion". The difference between the required and the actual expenditure has since doubled since the "World Social Summit" in 1995, because of the increase in that population which is has no access to basic social services, improved cost estimation and the increase in prices. The break-down in the missing $80 billion is shown in Box 3-3.

Let us remember that the countries from the South are also called upon to contribute to finance basic social services by accepting the requirement of dedicating 20% of their budget to satisfying the basic needs of all, to which the rich countries also dedicate 20% of public development aid (world programme 20-20 adopted in 1995). "A recent study of thirty countries showed that the basic social services consist of 12% to 14% of the federal budget in most of these cases. However, in a small number of countries the net amount is lower, for instance in Cameroon (4.0%), the Philippines, or Brazil (8.5%) ... Furthermore, the distribution of public expenditure on health and education is severely discriminatory. The richest people benefit most, and the needs of the poorest suffer most neglect. An accentuated bias can also be observed in the distribution of subsidies" (UNDP, op cit, Box 4.5, p. 79). UNICEF (op cit p. 15) adds that gender inequalities amplify these inequalities between rich and poor. In Niger, the literacy rate for men is 21% and only 7% for women. In Nepal, these figures are 41% for men and 14% for women. The proportion of girls and women that have never been to school comes to 85% for the poorest 20% of the population and 54% for the richest 20%.

<footnote n="156">156) "Basic services for all?", UNICEF report, Centre de Recherche Innocenti, http://www.unicef.org/</footnote>

<footnote n="157">157) UN Development Programme. "World Human Development Report 2000". See especially: p. 9, and chapter 4, rights provide the means to fight against poverty, p. 79. Available at the ATTAC France site: http://www.attac.org</footnote>
As far as the rich countries are concerned, they only dedicated $5.5 billion to basic social services in 1995-96, and in 1997-98 they reduced this amount by 20% to $4.35 billion, i.e. half of the 11% in Official Development Aid, far removed from the goal of 20% officially adopted by the OECD in 1996.

### Box 3-3: Where the Money is Missing...

According to UNICEF the additional $70 to $80 billion per year would have to be distributed in the following way:

* $7 to $8 billion on basic education.

* $8 to $10 billion on gynaecologic health, obstetrics, and family planning.

* $15 to $17 billion on access to drinking water and waste water treatment.

* $14 billion on basic health services.

* $26 to $31 billion on essential clinical care.

Source: "Basic services for all?", 1998, p. 19. UNICEF report, Research Centre Innocenti, http://www.unicef.org/

#### .... And Where There is Too Much Money:

"$80 billion, that is nearly four times less than the Third World has to pay on foreign debt; it is about a quarter of the United States military budget; 9% of world-wide military expenditure; 8% of annual world-wide advertisement costs; half of the wealth of the four richest people of the planet. Misery of the present, richness of the possible".

Source: "Satisfaction des besoins fondamentaux" (Satisfaction of Basic Needs) by Eric Toussaint and Arnaud Zacharie, Comité pour l'Annulation de la Dette du Tiers-Monde. http://attac.org/genes2001/documents/docdet5.htm

The second "World Social Development Summit" organised by the UN took place in this context in 2000 in Geneva. Despite some progress, the goals will not be achieved because the developed countries did not comply with their commitments in development aid and because the Third World countries which want to increase their social expenditure were strangled by the foreign debt service payments. Notwithstanding, more ambitious goals were adopted, ratified by the heads of state and the governments at the UN in New York during the "Millennium Summit" from 6 to 8 September 2000.

As well as universal access to basic social services, the "Millennium Development Goals" were extended to the reduction of extreme poverty (concerning the billion of individuals living on less than one dollar per day), gender equality, the protection and regeneration of the environment (see Box no. 3-4). According to a recent study by the World Bank published for the Summit on Financing for Development (¹⁵⁸), a minimum of an additional $50 billion is necessary for these goals to have any chance of being met by 2015. This amount that would mean the doubling amount of public development aid currently budgeted, and is calculated in the following way. The World Bank estimates that halving extreme poverty by 2015, one of the goals of the Millennium Declaration, needs an extra $39 billion. Poverty reduction would mean that more people would have enough money to pay for basic social services. The amount required to finance providing these services cost

<footnote n="158">¹⁵⁸) The summary of this study can be found in the UN journal "International Press Service" (IPS), vol. 10, no. 4, page 4 and 5 in the article "$76 billion needed to achieve Millennium Goals" available at: http://www.ipsdailyjournal.org. These estimations are also used in the following preparatory document for the Conference on Financing for Development: "High-Level Panel on Financing for Development - Recommendations & Technical Report", UNO, A/55/1000, 26 June 2001. http://www.org/esa/ffd/ODA-Sub-index-.htm.</footnote>
free to those that remain poor would also automatically be reduced. According to the study, reducing extreme poverty by half and simply providing universal access to basic social services would cost an additional $54 billion a year.

A second approach presented in the World Bank study follows the UNDP and UNICEF method mentioned above to calculate the individual cost of each goal. The result is an additional amount of between $35 and $76 billion a year. The lowest estimate, $35 billion, corresponds to the amount necessary to reduce poverty with positive effects on the other development goals. The $76 billion, very close to the UNDP and UNICEF estimate, corresponds to the amount that access to each basic social service for all would cost. If we assume that poverty reduction would not ensure that the population concerned could pay for access to these services, then the median between these two hypotheses would amount to $55.5 billion.

### 3.2.4 What do these figures tell us?

1) Even if the cost is increased, elimination of extreme poverty and universal access to basic social services would not come to astronomic sums that are beyond the financing capacities of the global North. If the countries of the North would dedicate 0.7% of their GNP to Official Development Aid, an additional $100 billion would be available and the financing of this social minimum could be fully achieved.

2) A simple accounting exercise reveals that if we combine the public aid resources of 0.7% of GDP, the revenue from the CCT ($100 billion $) and the other global taxes previously collected (about $200 billion), this would amount to an additional revenue of $400 billion a year becoming available, compared to the cost of international social and ecological programmes ($30 billion) and the costs of the Millennium Development Goals ($80 billion), i.e. $110 billion. The obvious conclusion would be that it would be possible to certainly surpass the minimum given in the "Millennium Declaration" (See Box 3-4), and to eliminate poverty entirely and not just extreme poverty (we are still poor even if we earn $5 a day), and to really assist the people beyond just providing basic care, and to realise more ambitious education goals than just learning to read, write and count, to clean up contamination and protect the environment and not just treat waste water, to preserve natural and cultural assets, etc.
Box 3-4 : Excerpt from the "Millennium Declaration" adopted by the heads of state and government at the "Millennium Summit", 6 - 8 September 2001 at the UNO.

"We resolve:

To halve, by the year 2015, the proportion of the world's people whose income is less than one dollar a day and the proportion of people who suffer from hunger and, by the same date, to halve the proportion of people who are unable to reach or to afford safe drinking water.

To ensure that, by the same date, children everywhere, boys and girls alike, will be able to complete a full course of primary schooling and that girls and boys will have equal access to all levels of education.

By the same date, to have reduced maternal mortality by three quarters, and under-five child mortality by two thirds, of their current rates.

To have, by then, halted, and begun to reverse, the spread of HIV/AIDS, the scourge of malaria and other major diseases that afflict humanity.

To provide special assistance to children orphaned by HIV/AIDS.

By 2020, to have achieved a significant improvement in the lives of at least 100 million slum dwellers as proposed in the 'Cities Without Slums' initiative."

We could start dreaming that this declaration, not the first of this kind, could finally take some effect. However, less than one year later, the UNO estimates that at least $50 billion a year would be necessary for the goals announced to have any chance of being achieved.

3) To be convinced that the elimination of poverty and the financing for development is possible, we need to remember that we have not considered other sources of financing that consist of precise proposals like the unitary tax on TNC profits, an exceptional tax on the assets of the largest fortunes in the world, as UNCTAD suggested in its 1995 report. Naivety need not lead to thinking that with the current state of affairs, the well-being of humanity could be achieved within a few days by the grace of the leaders of the rich countries who are suddenly convinced by rational arguments. However, a completely limited redistribution of resources by an act of international solidarity can lead to a real improvement of the fate of the poorest. The leaders of the rich countries will not do this unless they are forced to do so by public opinion.

4) In this perspective, the entirety of possible financial resources could fill a "Solidarity Fund for Sustainable Development", (SFSD) that would secure a redistribution of social wealth from the countries of the North to the South, correcting some of the inequalities aggravated by free trade and international investment. Of course, development cannot be reduced to a question of finance. It is primarily a question of respect for human and social rights that only local social mobilisations can put into effect. However, money does count. If we want to end child labour, we need to provide a minimum income to the families that would otherwise depend on child labour to survive, especially if the parents' health and their ability to work is rapidly declining(159). Additionally, it is necessary to build schools or equip existing school buildings, or pay teachers' salaries.

Financing and implementation of fundamental rights go together. This is a pre-
requisite for development aid to be efficient, otherwise the development projects miss their
targets, and development will not occur or is carried out against the population. This is

<footnote n="159">159) See Ashul's story told by M. Bonnet. A 12 year old Indian child, Ashul works as a slater to support his family since his father became ill from breathing in slate dust for years. "It is the same for everybody here. We work seven or eight years, we get ill, and it's over: we cannot be cured". The slates are used by millions of Indian school kids. "Regards sur les enfants travailleurs" by M. BONNET, "Cahiers Libres", Editions Page Deux, Geneva, 1998.</footnote>
evident from the past experience of development aid as conceived by big institutions such as the World Bank. The programme for the protection of biological diversity managed by the "Global Environment Facility" (GEF, created in 1991), an institution dominated by the World Bank, is one of the most recent of such examples. "False priorities or their absence, a top-down approach, with little local participation and a lot of external expertise, large-scale intervention over a short period of time..." (Michael Fitner, 1998, op cit p. 159) are others. In the case of the Amazon forest, "lungs of the planet", this concept leads to a distance between observer and observed comparable to the distance that separates a satellite observing the forest from space and the seringueiro down below. "Under these circumstances it is inevitable that the demand for global management of the Amazon forest is in conflict with the aspirations with respect to cultural rights, democracy and self-determination" (Wolfgang Sachs, 1993, cited by Michael Fitner).

Therefore, if the CCT is born and the revenue is significant, it should not be used to repeat the mistakes of the past. The CCT and the other new sources for financing for development must provide the opportunity and time to break with the past experience and renew the strategies for development. The only possible guarantee for achieving this is to take care of the redistribution of revenue from the CCT, and making it a practical exercise of democracy, whereby the beneficiary people have rights to define, manage and control the projects. This is the idea we will develop in the following section by focussing on the management and distribution of revenue from the CCT. The same principles could also apply to all new taxes contributing to the "Solidarity Fund for Sustainable Development", (SFSD), if it were to be created one day.
## 3.3 WHICH GLOBAL INSTITUTION SHOULD MANAGE THE REVENUES?

The general idea is that the tax would be collected at the national level, mainly in the rich countries where the majority of change transactions are carried out. This income would be dedicated to financing international and national developing programmes. A possibility with the advantage of being simple would be that the CTT revenues would just flow into the budget of the Development Ministries of each country, and this would solve the management problem. The difficulty with this proposal would be that the rich countries have the annoying tendency of using development aid for political and economic aims.

At the EU level, we could also imagine that the revenues would go directly to the European Commission to increase the budget of the commissioner in charge of development aid. But in this case there is no guarantee that the revenues would be better used and better controlled than they are today. It is not a matter of goodwill or efficiency of the people working at the European Commission but the lack of democracy and accountability of the present European institutions and the absence of people receiving the aid in the definition of the purpose and priorities of the European aid.

If one wants to resolve these traditional problems, the only solution is to create a new institution at the international level if the CTT is adopted worldwide or at the European level if the CTT is created by the EU in a first stage. This new institution would have the responsibility to centralise revenues at the international level first, and second to redistribute them to the developing South.

This supposes that rich countries, and among them the European countries, engage in a process of international solidarity and do agree to transfer to this new institution the revenues collected on their national territory. This is already the case with ODA.

To determine the characteristics of this new institution, the best is to define the tasks it would have to achieve and the working principles that it should respect. This will enable us to determine if one or several already existing international institutions are capable to achieve these tasks and put these principles in practise (160).

### 3.3.1 Objectives and principles of the institution

The institution should be responsible for the following tasks:

#### 1. Defining general tax regulations

These regulations would define the rules of imposition (tax basis, tax rate) to be applied in each state for the tax levy as well as the general regulations dealing with its redistribution to the countries of the South. These general regulations (that are discussed further below) could be redefined according to the evolution of financing requirements.

#### 2. Supporting the countries in the application of the regulations and controlling compliance

Even though the tax is imposed at a national level, the international institution would have to support the countries complying with the general regulations and in applying the terms of the agreement. This would require an international institution capable of supervising the agreement. Traditionally, supervising compliance with international agreements

<footnote n="160">160) In this process, we will follow the "War on Want" report, in collaboration with the « New Economics Foundation" entitled « The Robin Hood Tax », http://www.waronwant.org, even if we don't necessarily agree on all points.</footnote>
is either based on voluntary activity reports compiled by the states or based on the com-
plaints of some states concerning other states. Surely the most efficient way would be to
equip the international institution with direct investigational power that would permit the
verification of compliance with agreements.

3. Penalising violation of rules

Ensuring the rules are respected supposes a penalising power which could range
from simply publishing cases of fraud, obliging the countries concerned to explain their be-
haviour publicly, to issuing a warning and even going as far as imposing financial penal-
ties. The member states would have to accept the principle of such sanctions and the de-
tails would be negotiated collectively.

4. Interpretation and amendments to the general rules.

The initial general rules would probably not foresee the modalities of implementa-
tion in all its details. Financial innovations would immediately attempt to avoid the new le-
gislation. Therefore it would be necessary to envisage frequent amendments that would
cover the legislation loopholes and counter new attempts of evasion.

As far as its functioning is concerned, three principal key features would have to be
maintained to ascertain the credibility of the new institution: transparency, accountability
and democracy.

1. Transparency

The information concerning fiscal revenue and its expenditure needs to be subject
to immediate communication and be easily accessible. The penalties for non-compliance
with the regulations by member states need to be clear and known in advance.

2. Accountability

The institution needs to be accountable to all member states, and also to all cit-
izens. Accountability has to be considered as a duty inscribed in the founding treaty of the
institution so that it cannot be abolished.

3. Democracy

The functioning has to be based on the participation and equal treatment of all
member states in the South and in the North. Representatives of governments, of national
parliaments, of the trade union movement and other NGOs need to take the lead to make
the institution more democratic than the existing institutions,

**3.3.2 Does an adequate institution already exist?**

Are there one or more international institutions capable of ensuring these objectives
and to respect these basic principles? This question is first of all directed towards the
United Nations itself and its various bodies but also to other international institutions that
are not part of the UN or are not under the influence of the so-called "Bretton Woods" insti-
tutions.

The United Nations are often cited as the ideal framework for negotiating, creating
and managing the CTT. All the countries of the planet are members of the UN and are said
to have equal influence, since each country has one vote. This is in contrast to the IMF,
where the number of votes is proportional to the financial contribution of each country. The
United Nations therefore is believed to enjoy a more democratic image and has not been
discredited as much as the IMF and the World Bank. But this goes too far in ignoring the
reality. The existence of the Security Council of the United Nations which deals with ques-
tions of peace and security, strongly contradicts the idea that each country has an equal
vote since the permanent members have a de facto veto right. Additionally, most of the de-
cisions are made previously behind the scenes. The fact that each country has a single
vote does not provide sufficiently guarantee equality. The same principle is in place at the
WTO, and it is known that the inequalities are great among a number of countries of the
South that do not have access to financial resources or possess sufficient expertise to par-
ticipate in the negotiations on an equal basis. Also, the countries of the North meet
secretly behind closed doors as soon as things get serious and it is time to make de-
cisions. At the United Nations, the G7 countries also exert a determining influence on all
decisive questions and are capable of exerting pressure on other countries in order to in-
fluence their votes. The United States did not hesitate to paralyse the United Nations dur-
ing the 1980s by not paying their financial contributions, and would not hesitate to exert
new financial blackmailing to avoid the adoption of the tax <sup>(161)</sup>. Despite these difficulties,
could one imagine that the UNO or one of its bodies could offer an institutional framework
for the CTT?

> The General Assembly of the United Nations is sometimes cited as an institution that is a priori suitable to create and then administer the tax under its authority, since every country has a vote. The problem is that its decisions are not binding. It does not dispose of sufficient authority to create a tax on a universal basis nor can it ensure compliance. In addition, it does not possess sufficient management capabilities. However, it could possibly be a forum for negotiation and conclusion of an international treaty to impose the tax on a global level.

> The Economic and Social Council (ECOSOC) was established by the founding charter of the United Nations as the principal decision-making body in economic and social matters. Theoretically its task is to co-ordinate all economic policies carried out by the United Nations agencies, including the specialised agencies. From the perspective of democratic participation, it is one of the UN bodies that include the largest number of countries from the South, and which provides trade unions, NGOs and other international and national organisations with a right of consultation. In practice, however, the Economic and Social Council has never managed to play an important role in the definition and implementation of either economic or social policies, nor has it even been able to co-ordinate the actions carried out by all the UN agencies. Its involvement in international financial and monetary questions is even more marginal.

> The UN Conference on Trade and Development (UNCTAD), created in 1964 at the request of the countries of the South, is the principal body subordinate to the General Assembly, and includes representatives from all countries. In the past it has acquired the reputation of being the principal forum for discussion and analysis of economic questions primarily concerning the countries of the South. It has developed an integral approach to international trade, finance, investment and development. Several international agreements have been negotiated and adopted under its auspices. However, the majority of them, like the agreements on primary resources have remained on paper only, since the Northern countries have refused

<footnote><sup>(161)</sup> A more modest example but still significant is the publication of the joint work in 1996 concerning the "Tobin Tax", "The Tobin Tax: Coping with Financial Volatility" that was initially supposed to be published by the UN. The United States tried to censor it by threatening to withdraw their financial contribution to the UN if it were published. The book was finally published by Oxford University Press.</footnote>
to sign them, and this has given the UNCTAD the reputation of being only a forum for discussion. It could be a relevant forum for the negotiation of an international agreement to establish the CCT at the global level. However, the UNCTAD does not have the required technical competence and administrative capacity to transform itself into an institution that could be assigned the collection and redistribution of the revenues from the CTT.

* The United Nations Development Programme (UNDP), created in 1964, recombines different funds and specific programmes and has an executive office of 36 members, elected on a geographical basis. It carries out the most important work of the United Nations in the sphere of conceptualisation and implementation of sustainable development policies and the eradication of poverty in co-operation with the governments of the 130 countries of the South where it has been implemented. The UNDP has a long tradition of co-operation with NGOs. Every year it publishes the "Human Development Report" that measures the development for each country according to an indicator that is based on a broad statistical basis, and is much more representative than the per capita income alone. For these reasons, the UNDP could make a useful contribution in the redistribution of resources among the countries and for the identification of social priorities. On the other hand, it has no experience in the field of negotiations and the adoption of new international treaties, particularly in the financial and fiscal areas. Therefore, it could not serve as an institutional framework to collect the CTT and to solve the technical problems that might arise.

In summary, the United Nations, despite appearances, neither offer sufficient democratic conditions nor all of the necessary competences to manage and redistribute the resources coming from the CTT. They could be a forum for negotiation of an international treaty designed to apply the CCT to the whole world, and could provide cooperation in the field of redistribution of resources between countries.

### 3.3.3 Are the Bretton Woods institutions more adequate?

The International Monetary Fund and the World Bank are two institutions created by the so-called "Bretton Woods" agreements in 1944. They are formally specialised agencies of the UN and present an annual activity report to the UN. However, they have acquired a de facto independence from the UN, and make their major decisions accordingly. It is therefore a very telling fact that the UN considers it a major victory that the IMF and World Bank attended the Monterrey conference on Financing Development in March 2001. This reveals to what extent these two institutions are more used to being accountable to their true masters, the G7 countries, and especially to the United States, since the European Union has never tried to exert a joint influence on the IMF to reinforce a different policy. These two institutions suffer great discredit. This is due to the economic, social and ecological catastrophes caused by the structural adjustment policies imposed by the IMF, the inefficiencies and negative effects of which have unfortunately been proven countless times, and to the programmes of the World Bank which have too often been unrelated to the real needs of the countries they have been applied to, and have even been imposed against the will of the population.

The debate among NGOs (that do not depend financially on these two institutions) are on whether or not it is possible to radically reform these two institutions that used to be Keynesian and are today enshrined in neo-liberalism. Is it still possible or relevant to re-
form these institutions so that they could contribute positively to development or would it not be more useful and productive to declare their "decommissioning as in the case of obsolete nuclear power stations" and their replacement by new institutions established on new and better foundations (162) ?

Even if we tend towards the third solution, developing this point would go beyond the aspirations of this text. We will restrict ourselves to underlining reasons why these two institutions, together with their open hostility towards the CCT, would not be suitable to manage the CCT.

The IMF is primarily specialised in the field of international finance (international mobility of capital, currency exchange rates and interest rates) and has a global reach. However, it is not really specialised in the field of national and international taxation since this exceeds its mandate. The World Bank also analyses international finance from the perspective of financing countries in the South but it also does not have technical expertise in fiscal matters, nor legitimacy in this area. During the preparation process for the UN conference in Monterrey (op cit, p. 65-66) this point was also emphasized, when the creation of an international fiscal organisation to be assigned to ensuring a minimum of co-operation and regulation of international taxation was proposed.

The IMF and the World Bank are also characterised by anti-democratic procedures that disqualify them as guarantors of the equality between countries of the North and the South. The richer countries are individually represented in the executive bodies whereas all the other countries are grouped together according to region and may only select one representative, often chosen by the most powerful country in the region. The voting rights are in proportion according to the financial contribution of each country. To give just one example, 21 African countries plus the Seychelles are represented by one executive director and have 4.07% of the votes at the World Bank and 2% at the IMF. In both institutions, the presidents are not elected but chosen by the rich countries.

Both institutions have recently made progress in the matter of transparency and have established independent evaluation bodies. However, the participation of NGOs and trade unions does not go beyond a consultation status, and some representatives, such as those from business, have a stronger status than others. A participation in decision making is not foreseen.

For all these reasons, the IMF and the World Bank cannot be the appropriate institutions to manage the tax.

The Bank of International Settlements (BIS) is the last important international institution. Created in 1930 to facilitate the war reparation payments of Germany, it is the oldest international finance institution. It is the co-ordination centre for central banks, mainly of the rich countries. It supplies important statistical information on the international capital markets. The shares of the bank are held by the 49 central banks of the member states that have the right to vote at the General Assembly. As a bank, it intervenes during financial crises to participate in the financial rescue of countries in difficulties. This occurred with Mexico in 1982 and with Brazil in 1998. However, the BIS also intervenes as a banking agent in some international currency exchange agreements. Accordingly, the BIS was also in charge of carrying out some transactions between European central banks at the time of the European Monetary System (EMS, 1974-1994) that preceded the creation of the Euro. The BIS is an important forum for the elaboration of financial and banking standards (such as the Cooke ratio) that the countries then incorporate into their national legislations.

<footnote n="162">162) See the contribution by Walden Bello, director of the NGO "Focus on a Global South": "The Structural Adjustment Plans. A Success for Whom?" in the joint book on the Globalisation Process compiled by Edward Goldsmith and Jerry Mander.</footnote>
lation. Finally, the BIS fulfills an important role in the harmonisation of financial transaction regulations that are particularly important for the practical introduction of the CCT, as we will see in the next chapter. The BIS members meet each other monthly on a confidential basis to discuss economic policies and banking and fiscal regulation.

The BIS is the international institution that has the most extensive expertise concerning the functioning of international finance, especially with regard to currency markets, and could provide very valuable technical co-operation in collecting the tax. Unfortunately, it does not encompass all the countries of the world, and especially not those of the South, which also have important financial centres such as Singapore and Hong Kong. On the other hand, it includes institutions, such as central banks, which, unlike the Treasuries, are formally independent of governments. This intensifies democracy problems, since the Treasuries are political institutions representing their governments. Finally, BIS is unlikely to be found working together with the representatives of civil society on questions of development, for which it has no competence whatsoever. On the other hand, the BIS could provide their expertise in the field of mechanisms of international finance to an institution assigned to collecting the CTT.

Finally, we have to conclude that no existing institution has all the competences that would be needed to fulfil the three necessary basic functions, i.e. negotiation of an international treaty, the definition of the necessary technical norms to introduce the tax, and the distribution of revenues among the countries. Thus, it would seem more appropriate to create a new institution based on an international treaty that could be negotiated at the General Assembly of the United Nations, if the CTT were to be immediately introduced at a global level, or to be negotiated directly between countries if the CTT were first created by a group of initiating countries. If the tax were created by the European Union, its institutions could be used to negotiate the treaty. The new institution which could be called the "Solidarity Fund for Sustainable Development" (SFSD) which could then work in co-operation with the BIS on all matters dealing with technical aspects of levying the tax, and together with UNCTAD and UNDP for the redistribution of resources. However, in any case, the new institution would have to remain independent from all existing international institutions. The independence should extend to the United Nations, if the tax is not extended across the entire planet, and as long as the United Nations does not reform itself in terms of real independence from the countries of the North, and towards a real equality between North and South. Even if the CTT were created as an initiative of the European Union but without the participation of the United States, it probably would leave the management of the tax to a UN agency where the United States could still exert a decisive influence.

### 3.3.4 The structure of the new international institution (SFSD)

The conception of the outlines of an institution assigned to manage a global tax on the international level that does not as yet exist is an exercise in the "science of political fiction". Furthermore, among the criticisms formulated about the CCT, the nature of the institution assigned to its management is often criticised. This is why it appears useful to carry out this exercise. This is partially inspired by some studies written by the supporters of the tax, especially concerning the internal organisation of the new institution, which fully defend the original project with respect to its concrete activities and its field of competence. The point we have in common with several of these studies is that the future institution would be composed of two essential bodies: an executive in the form of a States
Council and a legislative in the form of a Democratic Assembly <sup>(163)</sup>. According to Heikki Patomäki and Lieven A. Denys, these two bodies would have the following characteristics:

* The States Council would be composed of representatives of states that signed the international treaty to create the CTT. The Council would have the objective to put the treaty into practice, i.e. supervise the implementation of the tax and the revenue levy by signing up the member states, clarify its interpretation in case of litigation or difficulties, and prepare the budget based on the tax levy. Each country would have voting rights proportional to their population. Countries with the largest populations (for instance India or Brazil) would have three votes, countries with a medium-sized population two, countries with a small population one vote. More important decisions would be taken by a majority of two-thirds, ordinary decisions by a simple majority. Furthermore, the council would be assisted in its task by a permanent secretariat that would have also the objective of following innovations on the financial markets in the following fields: creation of new financial products affecting currency transactions; evolution of communication means between the financial and banking institutions; evolution of the means for regulating currency transactions. This would be carried out with the objective of developing the treaty according to market innovations. The secretariat would have to report to the council. It would publish a biannual report to be approved by the Democratic Assembly.

* The Democratic Assembly would be equipped with the necessary powers to control the States Council that reports on its activities. Notably, the assembly has the power to amend the treaty and to vote on the budget the council submits. The council is obliged to implement the budget as it has been amended and voted on by the Assembly. The Assembly is composed of representatives of states, democratically elected federal parliaments, of NGOs and trade unions. Each government has the right to one representative. The federal parliaments have the right to one to five representatives according to the size of their population. The NGOs and trade unions have the right to a number of representatives equalling three-quarters of the number of representatives of states and parliaments. The NGOs and trade unions would be drawn by lottery from a previously established list, since this would be the least arbitrary way of choosing representatives from "civil society" that are not elected and are not legitimised by a democratic vote. The lottery would have to be set up in a way that guarantees a majority of representatives from the trade unions and NGOs from the South. A procedure of accreditation (based on written documents and auditions) would have to be organised to verify that the candidates from trade unions and NGOs are independent from their federal state and international institutions, especially financially, and can prove a real activity in the fields that are likely to be financed before they can be included in this list. The accredited NGOs and trade unions that have not been drawn by lottery, as well as the local communities (regional communities, municipalities) would have the right to directly submit projects to the SFSD.

<footnote><sup>(163)</sup> Apart from the report by the NGO War on Want already mentioned, the most successful projet being the one by Heikki Patomäki, Professor of Economics and International Politics at the University of Nottingham Trent (Great Britain), heikki.at.nigd.u-net.com and Lieven A. Denys, Professor of European and International Fiscal Law at the Free University of Bruxelles (Belgium) ldenys at vub.ac.be. They are the authors of a plan of a "Treaty for the Tax on Currency Transactions" finalised on 24 January 2002.</footnote>
### 3.3.5 What should the budget debate be based on?

As we see it, the new institution should mainly deal with international programmes (currency reserve funds, ecological and social programmes), discuss their objectives, their relative priorities as well as the cost of financing them. As far as the federal development programmes are concerned, the role of the institution would be to determine the share of resources to be returned to each country. The contents of each federal programme would be elaborated by the countries themselves, the SFSD limiting itself to verifying that the development projects that have been submitted are in line with the general founding treaty and the basis of international conventions (UN universal charter of Human Rights, reduction of gender inequalities, basic labour standards of the ILO, international environment law, etc.).

According to which principles should the resources be redistributed?

Democracy has to play a decisive role, not only in the functioning of the SFSD but also as a criterion to allocate resources. Each country would receive a share of the revenue in relation to population size and its classification in terms of human development according to the indicators calculated each year by the United Nations Programme for Development (UNDP) (See box 3-5) that could show visible reduction in inequalities between men and women. The general idea would be that countries would receive a larger amount of resources at the beginning when their classification by the Human Development Indicator (HDI) is lower. This proportion could be increased according to the average improvements measured by the Gender-related Development Index (GDI) that incorporates gender inequalities that are made. If no improvement were accomplished, the amount would be reduced after a warning from the SFSD and negotiation with the countries concerned. Therefore it would be unjust if a very poor country with very great social and gender inequalities would continue to receive a lot of resources even if it makes no effort to change the situation and wastes the allotted resources. After several years, in the worst case, the country would receive no further resources and these would either be held in reserve or redistributed to other countries that need them and are making progress in the gender discrimination field. This procedure would aim at avoiding financing countries to no avail, where the money would not be spent in a useful way, and this would never be applied by a blind mechanism but through a permanent political dialogue between the FSDD and the country in question. Ecological indicators would also have to be designed, allowing a similar measure of the ecological status of a country and the improvements made in this area. The UNDP publishes statistics in its annual report on the "level of ecological degradation" for 174 countries, and they could develop these indicators. As in the social and human sphere, a country classified at a low level in ecological status would receive a high amount that would be adjusted according to the measured improvements or deterioration.
Box 3-5 : THE UNDP HUMAN DEVELOPMENT INDICATORS

> The Human Development Indicator (HDI) is calculated each year since 1990 to determine the general improvements of basic aspects of human development with a composite indicator enabling a classification of the countries. The IHD measures average improvements in elementary dimensions of human development: life expectancy, education level and standard of living.

> The Human Poverty Indicator (HPI) concentrates on deficits and failures in the 3 dimensions above.

> The Gender-related Development Index (GDI), evaluates the average progress of the same aspects as the HDI but corrects the results by including inequality between men and women. The stronger this inequality is, the lower the classification according to the HDI of a country that may be well-classed according to the HDI.

> The Indicator of Women's Participation translates inequalities between men and women in the most important fields of participation and economic and political decision-making. It concentrates more on the opportunities open to women rather than their capacities that are already measured by the GDI. Three dimensions are considered: (1) Percentage of women in executive and managing positions. (2) Percentage of women in technical and superior teaching professions. (3) Percentage occupying parliamentary functions.

Source: Based on Human Development Report, UNDP, 1999.

The role of the SFSD would therefore be crucial in the elaboration of international pro-
grammes and their financing, and also in determining the quota each country would have
to pay to finance federal programmes for sustainable development. On the other hand, the
SFSD would not have the right to define the contents of these federal programmes.

How should the federal programmes of development be elaborated?

In fact, if we want to break with the World Bank procedure and start development programmes that really respond to the needs of the people, the best is that they themselves elaborate programmes and determine the priorities themselves. Therefore, in the project proposed here, respecting human rights and exercising political democracy play a decisive role. Exercising democracy is the only means to guarantee that the gains are used for social and ecological aims and not diverted to other aims (e.g. arms trade, buying votes, nepotism) or foster corruption.

As soon as it is possible, the ideal would be that in each country the precise use of
resources would be decided by referendum, as in the case of the participatory budget ex-
periment in the city of Porto Alegre in Brazil. In this system, the population, either directly
or through trade unions and NGOs, would enter into dialogue with the political representat-
ives elected in the various local assemblies. The objective would be to establish a budget
transparency and to define the expenditure priorities. The political parties and the deputies
would both take part in defining priorities (164). The same would apply in the case of the rev-
enue from the CTT following a procedure adapted to the preferences and traditions of the
countries, since the expenditure concerns social and ecological spheres. The revenue dis-
tributed to each country could be the results of a referendum at the national level or it
could be decentralised to the regional level or even to the municipal level. All combinations
between the federal and local levels are conceivable. This scheme inspired by the process

<footnote n="164">164) During the second "World Social Forum" in Porto Alegre, for example, a symbolical vote was organised. The outcome from 6 possible choices was to use resources resulting from the interdiction of arms trade.</footnote>