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Is it time to review China’s ‘developing country’ status at the WTO, considering its economic might?

Miriyala Samyukktha

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US president Donald Trump criticised China for engaging in unfair trade practices by taking advantage of its ‘developing country’ status in World Trade Organisation. President Trump also criticised World Trade Organisation for allowing countries like India, China, South Africa to engage in such practices that effect American economic interests. (Mason and Lawder 2019)

Trump argues that China is not a developing economy as it claims to be. He considers China to be developed economy that does not deserve preferential treatment from the WTO and developed countries such as the USA.(Mason and Lawder 2019)

China is the second largest economy in the world with $13.37 billion GDP. China is a major source of foreign direct investment in all corners of the world and provides billions of dollars in overseas development assistance. Twelve of the 100 largest companies in the world by capitalisation are Chinese, as are roughly one in eight of the world’s billionaires. (Cutler and Doyle 2019)

The question of Chinese exploitation of WTO arises due to the economic explosion China has achieved over 30 years. It is the world’s second largest economy and yet unlike any other country enjoys the economic benefits arising out of being categorised as a developing country. This article will further go ahead to trace China’s journey to WTO and the result of being a developing country in WTO.

Tracing China’s journey to WTO

After the heavy destruction caused by World War 2, countries including United states, United Kingdom and allied forces came together to discuss the economic reconstruction of the world. This meeting was called the Bretton Woods Conference. As a result of the conference, countries came together to establish the International Bank for Reconstruction and Development (IBRD) and International Monetary Fund (IMF).

International Trade Organisation (ITO)was also proposed to establish rules and regulations for international trade. But this was not supported by USA and hence, ITO could not come into existence. GATT or General Agreement on Trade and Tariffs was adopted in its place.

On July 10, 1986 China signed the General Agreement on Trade and Tariffs. Later, in the 1995 Uruguay rounds, GATT was replaced by World Trade Organisation (WTO). GATT only focussed on goods trade and did not cover trade in services and Intellectual Property Right.(Lardy 2001)

While GATT is set of multiple agreements signed and abided by nations, WTO is an intergovernmental organisation which focussed on trade of goods, services and intellectual property rights. (Lardy 2001)

After the opening up of its economy, China witnessed rapid growth in 1980’s. China had massive trade and ability to attract foreign direct investment. Chinese leadership came to understand that their liberal foreign investment regime and low-cost labour markets give them a wonderful opportunity to participate and compete in international markets and that this participation could provide a sustainable base for the continued growth and development of their domestic economy. (Lardy 2001)China requested to join WTO in November 1995, and on December 11, 2001, it officially became a member of WTO.

World Trade Organisation (WTO)

The WTO has 164 members and 23 observer governments including Iran, Iraq, Bhutan, Libya etc. (“WTO | Development)

WTO functions(“WTO | Development)

  • Administering WTO Trade Agreement
    • Act as forum for trade negotiation
    • Handling trade disputes
    • Monitoring trade policies
    • Cooperation with other international organization

WTO Agreements(“WTO | Development)

  • For Goods – Marrakesh Agreement (1995) and Trade Facilitation Agreement (2017)
    • For Services – General Agreement on Trade in Services
    • For Intellectual Property – The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)

Benefits to Developing Countries in WTO:

Special and Preferential Treatment

The WTO Agreements contain special provisions which give developing countries some levy and benefits in their conduction of trade. The WTO also makes developed countries treat developing countries more favourably than other WTO Members. These provisions are referred to as “special and differential treatment” (S&D) provisions.(“WTO | Development)

The special provisions include:

  • longer time periods for implementing Agreements and commitments
  • measures to increase trading opportunities for developing countries
  • provisions requiring all WTO members to safeguard the trade interests of developing countries
  • support to help developing countries build the capacity to carry out WTO work, handle disputes, and implement technical standards, and
  • provisions related to least-developed country Members.

It is important to note here that the WTO does not define countries as developed or developing. Countries declare their status themselves. According to the WTO, two-thirds of its 164 members, including China, currently consider themselves developing countries.

Non-Reciprocal Preferential Treatment

Non reciprocal preferential treatment for developing countries states that the grants and trade concessions given by developed countries to developing countries are not on reciprocal basis. It means the developing countries are not expected to make matching offers or concessions in return to the developed countries. (“WTO | Development)

Restrict Imports

GATT and WTO give developing countries the right to restrict imports in order to promote or protect their local industries or assist in cases of Balance of Payment difficulties. (“WTO | Development)

The World Trade Organisation explicitly states that international trade should benefit the economic development of developing and least developed countries. (“WTO | Development) The above-mentioned provisions also facilitate the same. This is to ensure that developing countries protect their agriculture sector and other industries which might be affected due to competition from goods of developed countries.

How did the developing country status facilitate Chinese economic growth?

China with its industrial strength, facilitated voluminous trade and enjoyed the benefits of free trade with other countries while protecting its local industries at the same time. The developing country status allowed China to subsidise its industries, support state-owned firms and discriminate against foreign investors. It had the opportunity to expand its domestic industries exponentially and further improve trade. This can be understood by the given data.

In 1995, Chinese imports and exports of goods totalled to $280.9 billion or 3 percent of the global trade. As of 2018, its total trade of goods jumped to $4.6 trillion or 12.4 percent of global trade. China is the world’s largest trader currently. USA comes only after China as the world’s second largest trader at 11.5 percent of total trade.(“Is China the World’s Top Trader?” 2018)

Taking advantage of the non reciprocal preferential treatment, China does not have to give concessions to developed countries like USA while they are obligated to give preferential treatment to China. China exported $480 billion worth of goods to the US in 2018 (19 percent of all its exports), but only imported $156 billion. In the case of Hong Kong, China exported $303 billion in 2017 (12.2 percent of total exports) and imported just $9 billion (0.4 percent of total imports).(“Is China the World’s Top Trader?” 2018)

Thus, in 2018, China exported $2.49 trillion in goods while it imported $2.13 trillion. China’s exports usually surpass their imports. Developed countries on the other hand, like USA, import more than they export. In 2019, USA trade deficit was $617 billion.

Chinese products and services overseas are levied lower rates of duty due to its developing country status. While China imposed high tariffs on its imports and offered more subsides to local producers, in order to protect domestic industries.

Also, the terms of WTO helped in forced transfer of technology and theft of intellectual property from the developed countries, benefitting China. (Lee 2019) Developed countries and other observers of international community claim this to be unfair asit puts developed countries at a relative disadvantage.

China’s Economic Might

China has always claimed to be a communist and socialist country. Historically, it has been dead against market reforms, opening up its economy and opposed anything that held western values. However, rapid industrialisation followed by opening up its economy, market reforms, trade with other countries, joining WTO, all facilitated rise in its economy. China has scored remarkable achievements in economic and social terms being a part of WTO. (“China in the WTO: Past, Present And Future” 2012) (Hu and Khan 1997)

  • 2nd largest economy in terms of GDP
  • 1st largest merchandise exporter
  • 2nd largest merchandise importer
  • 1st destination for inward FDI among developing countries
  • 1st investor for outward FDI among developing countries

Developing country status

In spite of its economic development, China claims that it is a developing country because of its huge population and low per capita income. China’s Gross national income per capita is $9460 as per 2018 and it is classified as upper middle-income country by world bank. (Hu and Khan 1997) As per world bank indicators, countries with Gross National Income of $12,056 and above qualify as developed country. Hence, as per criteria China claims itself to be developing country and refuses to revoke its status.

Chinese Vice Commerce Minister Wang Shouwen said that Beijing will not allow other members to deprive China of the special and differential treatment that developing members deserve. His statements suggested that China is adamant on its developing country status and would reject future commitments if China’s status was questioned. (McDONALD 2018)

Martin Khor, Director of south centre said the following about China’s developing country status, “If China is forced to take on the duties of a developed country and forego the benefits of a developing country, the west could soon ask other developing countries that are ahead of China (at least in per capita terms) to do the same. China’s fight to retain its developing country status is of interest not only to the Chinese people, but also to their counterparts in other developing countries.”

If the developing countries or parts of the world feel that the economic criteria to categorise a country as a developed or developing nation is partial or not right, countries need to fight for a revision of such criteria. The excuse that some countries do not want to comply with the established standards, citing which China refuses to revoke its status, is unacceptable.

China also claims that many WTO rules have actually favoured the US and other developed countries, in the areas of agricultural support, textile quotas and intellectual property rights protection. (Lee 2019)

China defends its developing country status with the above arguments.

Conclusion

Development is a multidimensional concept that includes GDP or GNI per capita, but it includes other dimensions as well. A particular country can be more developed in some of these dimensions, and less so in others. This multi-dimensionality complicates the classification of countries as “developed” versus “developing.” 

And hence, what really calls for a question is that, should the standards of measuring or categorising a country as developing and developed nation change? The world’s second largest economy (or actually the first largest economy as per purchasing power parity) is still categorised as a developing country. This is because the standard for such measurement is Gross Domestic Product per capita and Gross National Income per capita.

Should the feature for measurement change to nominal GDP or GDP as per PPP or any other economic indicator? A change in this criterion will bring about a lot of changes in the international economy. Is that a good change for the world? Will that change economically benefit the world countries? These questions are a subject of a whole new research.

In the current scenario, China can be rightly considered as a developing nation in WTO. When a certain standard is set it should be unbiasedly applied to all countries what so ever. However, With the approaching global recession, recent trade war between USA and China and with President Trump threatening to pull out of WTO, now is a good time to re-evaluate the economic status of countries.

I am a second-year master’s student from O.P Jindal Global University, Haryana, India currently pursuing M.A in Diplomacy, Law and Business from the Jindal School of International Affairs.

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Economy

Pandemic Recovery: Three Sudden Surprise Gifts

Naseem Javed

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A new shine across the globe is entering into boardrooms; a new awakening is enforced and a new shift emerges… the sudden popularity of new awakenings

“Simultaneous Synchronization”: For about a decade, the most difficult concept at leadership discussions in both Public and Private Sectors was ‘simultaneous synchronization’ deployments of national mobilization and upskilling of hidden talents on large-scale digital platforms. The obvious lack of vision and skills at top leadership grossly failed to figure out how all this works. Suddenly this the most talked about topic and now seen as a rapid-fire solution to save broken economies. The pressure cooker with skeleton economies on the boil now released the steam and blew the whistle to attract open-minded innovative thinking. It is finally time to lead, follow or get out of the way.

“Upskilling and Reskilling”: Last many decades the developed economies blatantly ignored this area, now like a shark bite there is global panic on upskilling and reskilling. Ignoring once the almighty German model of apprenticeships treated as young apprentices changing motor-oils but preferred teams of ‘wet behind ears’ young MBA learning hedge-funding charades as better options. Today, upskilling to have skilled citizenry capable of quality productivity, performance and profitability is critical for survival. Trade wars are old schools, internal wars of upskilling to create confident and skilled citizenry to save nations with dignity is now the new survival.

“Big Business Is Big But Small Business Is Bigger”:
Economic heads buried in sands all across Western economies, resorted to election time lip service and allowed SME slip down the drains. Big business is big but small business is bigger. Worship accordingly. Today, heavy membership fees from top firms influence all trade gropus all over the world, from national trade associations to Chambers of Commerce, sacrificing local SME. Do the math.

Pandemic awakened the sleeping giants: All three above challenges now suddenly becoming survival strategies and nation-by-nation and town-by-town new language and dialogues emerging as new gifts. A new series under way with high-level discussions and debates by Expothon covers such topics in greater depths.

The warm facts and cold realties;
No further proof required, as most economies of the world will be shrink-wrapped soon
No further validation needed, as unlimited printing monies will only flush down economies
No further denial accepted, as hologramic stock markets would not save the jobs or nations

When facing truth becomes taboo; facing music suddenly becomes a new occupation; understanding cries of public a new art and swimming against economic currents a new science. In the end, it is the critical analysis and complex problem solving to capture the dodging truth a new survival strategy. The pandemic recovery is no longer election theatrics but all about Mastery of Covidism, isolating novices to deal with recessions, depressions and economic compressions.

The Tribulation Factors:
50% of downtown of the world may not survive,
50% of tall office towers may go empty,
50% of retail shops may go under,
50% businesses may never open,
50% of displaced may not have any jobs soon
50% of office workers may work remote,
50% economies may lose a decade to recover,
50% hailed as successful economy now mostly illusion,
50% political leadership may lose power,

The Brand New Thinking:
100% brand new concepts underway around the world,
100% new skill-transformation underway for new economies,
100% global thinking connecting and shaping new platforms,
100% new vision shaping brand new voice over fakery,
100% rejection of old competency over new thinking,
100% adoption of entrepreneurial mobilization,
100% rise on diversity, tolerance and equality issues
100% critical thinking to face the truth and march forward,

Stand up and claim your expertise. Ask three difficult questions:
Why local or national mobilization of entrepreneurialism and upskilling of small midsize business base cross the nation stalled? When or if ever was there a national or regional bold debate on these specific topics? What possible forces are stopping such activities and why?Depending on style and type of skilled leadership and based on geographic location some, amazing opportunities are alive and active. Study Pentiana Project, especially when all such thinking is not new funding dependent as these are all deployment hungry and execution starved steps.
The rest is easy

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Millionaires for Humanity Petition: Who does not want to sign

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Recently millionaires from different countries signed a petition under the name “Millionaire for Humanity” demanding their respective governments to raise taxes on them to help with the coronavirus pandemic. More than 80 individuals have signed the letter, and most signatories belong to the developed nations like the US, UK, and Germany. One of the key aspects of the petition is that taxes can only create a huge impact against charitable contributions, no matter how generous these contributions are. It might be a rare and historic moment to witness wealthy individuals quoting “Tax us, Tax us, Tax us” to fund the social sector like health, education, and security. The phrase “rebalance our world through wealth tax” seems like a unique moment of truth for the wealthy to play their part towards humanity.

But is the voluntary action enough to counter the state’s inaction to tax the wealthy? A few individuals’ voluntary actions are a drop in the ocean that might not even make a dent to make all wealthy accountable?Wealthy do indeed pay proportionate taxes according to their state laws in many parts of the world. But the bitter truth is that there are also increased tax avoidance cases by the wealthy, which the Paradise Papers, Panama Papers, and other evidence show. That is why there is a rigorous debate on taxing the rich even more.

According to Oxfam’s 2020 report world’s 2,153 dollar billionaires had more wealth than 4.6 billion people or 60% of the world population in 2019. Even in the aftermath of COVID-19 there has been no change in the millionaire’s status quo who actually saw their wealth grow exponentially. According to Forbes magazine report, 10 billionaires gained $51.3 billion or Rs 3.9 lakh crore (at exchange rate of Rs 76) in just a week between April 2 and 9 when the global economy was almost shut (except for a few essentials) and millions were losing their incomes and jobs.They did this through the stock market. These billionaires included Jeff Bezos, Mark Zuckerberg, Warren Buffett, Elon Musk, Bill Gates, and Mukesh Ambani.

Thus the paper analyses two main issues in relation to the petition. Firstly, why similar actions were not taken by the wealthy in the developing nations, with focus on India? Secondly, will a voluntary compliance mechanism via a petition resolve the ongoing issue of tax evasion by the wealthy?

  1. Why there is no similar petition in developing countries?

The petition seems to appear as a global movement, but in reality, it is a mere representative of the few wealthy individuals residing in developed economies. The less participation and debate amongst the developing countries on taxing the rich can be understood in terms of their societal and cultural background. In India, it is easier to project it as a home to the poorest, but it is also a home for some of the world’s wealthiest people. In this context, it is essential to understand how the wealthier population’s nature changed significantly since Independence and how a favourable tax system helped them to grow.

1.1. From Inherited wealth to private enterprise:

When the British left, a handful of business families and dynastic royalties were in charge of key economic industries. These dynastic royalties had amassed and inherited great fortunes over time due to their close ties to the colonial administration. Although there was poverty amongst the general population, the most lavish lifestyles were only enjoyed by the princely classes, some business houses and large zamindars (landlords).

Primarily the inherited wealth was the primary source of wealth amongst the wealthier population.

However, between 1961 and 1986, India’s notorious macroeconomic plight undermined a progressive effort to reduce the incumbent rich’s size and importance. Low economic growth was accompanied by a sharp reduction of the real value of wealth held by the top 0.1%. The backdrop for this decline was itself rooted in the integration of India when the government quickly took steps to abolish inherited wealth amongst the super-rich royalty. Hence inflation, progressive taxation, and nationalization that characterized the late 1960s and 1970s punished the outdated rentier class and expropriated much-existing wealth.

In the 1990s, domestic and external liberalization happened in India, resulting in the deregulation of taxation and private investment. This led to a rapid increase in stock market capitalization relative to GDP. In fact, given the tremendous rise in stock market capitalization, it seems possible that wealth concentration in India may have surpassed its pre-1970 levels in recent decades. This transformative wealth dynamics of the 1960s and 1970s are crucial to understanding how the elite class, once populated by inherited wealth, is now made up of private enterprises.

However, the rise of the new private enterprise did not address income inequality, only to make the rich richer and the poor more miserable. According to Oxfam’s January 2020 report ‘Time to Care‘ said, in 2019, the wealth of top 1% Indians went up by 46% while that of the bottom 50% by 3%. In 2019, the top 1% Indians held 42.5% of national wealth, which is, more than 4 times the wealth of 953 million people constituting the bottom 70%. The bottom 50% held just 2.5% of national wealth. According to the Credit Suisse’s ‘Global Wealth Report of 2019‘, there were 7,59,000 dollar millionaires in India 2019, up from 725,000 in 2018 and 34,000 in 2010. This shows that even as a developing economy we do not have a dearth of wealthy people who are unable to participate in the petition.

1.2. How the tax system works favourably for the wealthy?

In developing countries, the governments’ primary focus is on resource mobilization, which dictates their tax system. This is due to the unequal income distribution. However, the tax system is also designed in such a way that makes it harder to tax the rich. This is because wealthy taxpayers’ political and economic power often prevents the government from developing fiscal reforms to increase their tax burdens.

Moreover, there are high personal exemptions and the plethora of other exemptions and deductions that benefit those with high incomes (for example, the exemption of capital gains from tax, generous deductions for medical and educational expenses, the low taxation of financial income). India has been an active recipient of FDI for decades. As a result, it results in lower effective tax rates for MNCs.

Simultaneously, the government keeps on slashing the corporate income tax rate during every budget, providing strong incentives for taxpayers to choose the corporate form of doing business for purely tax reasons. For instance, the Indian government slashed corporate tax to 22% (without exemptions) for domestic companies in September 2019, bringing the effective rate to 25.17%  (with surcharge and cess). Such a move happened when the economy had nose-dived for several consecutive quarters.

According to the IMF, the combination of tax incentives and low corporate tax rates leads to the following:

  • Increased incidences of tax evasion due to the ease with which multinationals seem able to avoid tax, combined with the three-decade-long decline in corporate tax rates, undermines both tax revenue and faith in the fairness of the overall tax system and
  • the current situation is especially harmful to low-income countries, depriving them of much-needed revenue to help them achieve higher economic growth, reduce poverty and meet the 2030 Sustainable Development Goals.

Hence, it can be observed that wealthy individuals are provided with a plethora of tax incentives in a developing economy to prevent capital flight. However, this does not translate into high tax morale for these individuals due to increased tax evasion incidences. Now is the time for the wealthy to take part in the petition to share responsibility in rebuilding the economy.

  • Will the Petition be effective in achieving fair taxation by the wealthy?

2.1. Assessing the problem of tax evasion by the wealthy

Empirical data has shown (e.g., E. Hofmann, Voracek, Bock,& Kirchler, 2017b[1]), that the motivation to engage in tax avoidance and evasion increases with wealth. Recent studies indicate that tax evasion is directly proportional to wealth, with the top 0.01% of the wealth distribution (i.e., households with more than $40 million in net wealth) evades almost 30% of their wealth and income tax versus 3% by taxpayers overall (Altstaeder, Johannesen, & Zucman, 2017[2]). With the aim to minimize their taxes, it is easier for the wealthy to hire tax agents who are skilled in devising ways to achieve that(Sakurai & Braithwaite, 2001[3]).

Tax avoidance is a huge issue that amounts to $240 billion every year (Rs 18.24 lakh crore), according to OECD-G20’s anti-tax avoidance initiative, ‘Action Plan on Base Erosion and Profit Shifting’ (BEPS). Recent data by Fair Tax Mark shows that Facebook, Google and four other US tech giants, described as the Silicon Six (others being Netflix, Amazon, Microsoft, and Apple) had avoided paying $100 billion tax (Rs 760,000 crore) between 2010 and 2019. Due to tax evasion, according to 2019 IMF study, the non-OECD countries are losing 1.3% of their GDP or $200 billion of revenue every year while the OECD countries about 1% of GDP or close to $450 billion.

Nonetheless, the blame cannot be squarely put on the wealthy for causing tax evasion. It is the legal, political, and economic context of national tax loopholes which not only give the wealthy many more opportunities to avoid taxes than the average citizen but might also create an ideal environment that legitimises aggressive tax avoidance behaviour.

2.2. How the petition will help in combating massive tax evasion problem?

It can be said that the petition is an example of committed motivation by the wealthy which drives them to pay taxes because of a felt moral duty(Gangl et al., 2015[4]) or due to emotional stress, caused by anticipated guilt or shame (Blaufus, Bob, Otto, & Wolf, 2017[5]). However before delving into the question whether such an initiative will be effective to combat tax evasion in the long run, it is important to understand the social psychological process that motivates the wealthy to either pay or evade taxes.

The wealthy can easily identify and compare themselves with other wealthy individuals as a result of pychological process in relation to belonging to a particular group. As a result they imitate not only lifestyles but also tax behviours out of comparison and competition, because one does not want to fall behind in the financial race (Mols & Jetten, 2017[6]).For instance, if all wealthy friends move money to offshore tax havens, then the individual will also more likely do that.

Also, wealthy individuals do acquire a heightened sense of self-esteem, freedom, and perceived control, which increases the willingness to resist anything that hinders freedom (Brehm, 1966[7]). Taxes on the wealthy is a classical case where the rich find it as an attack on their personal freedom for which they look for ways to fight against it. In fact, experimental research shows that coercive fines and audits increase taxpayer reactance more than less coercive attempts by the tax authorities (Gangl, Pfabigan, Lamm, Kirchler, & Hofmann, 2017). Thus, when faced with coercive form of taxation wealthier individuals will be motivated to employ more resources (compared to the average taxpayers) to escape this situation. This might make the classical coercive attempts to increase the tax honesty less effective.

In such a scenario, the voluntary form of tax compliance might appear as the ultimate solution to fight against reactance. Such a form of compliance comes with trust in the tax system, and thus, people accept their tax obligations without threatening audits and fines. However, state measures like suspending fines and audits or tax amnesties, which gives leeway to rich taxpayers to repatriate their money from tax havens without being fined, also show no long‐term positive effect (Alm & Beck, 1993[8]; Toro, Story, Hartnett, Russell, & Van‐Driessche, 2017[9]). Thus, it is important to combine voluntary and coercive tax measures to ensure fair taxation with a sense of tax honesty on the part of the wealthy individuals.

3. Conclusion

In view of the COVID-19 it is apparent that the petition by the few wealthy individuals brings in a wave of hope towards achieving fair taxation for the sake of humanity. However, the outreach is still not global, with a participation of a fraction of wealthy individuals from a few developed economies.Thus, there is a need to ensure the huge participation of wealthy people, not only from developing economies but those involved in tax evasion.

As discussed in the article,  tax-related decisions of the wealthy are different from average taxpayers due to social psychological differences of belonging to a particular community. So a unique approach must be followed to motivate the wealthier population to pay their share of taxes.

3.1. Possible solutions:

There are many ways to motivate the wealthy, either in developed or in developing countries, to contribute more taxes to the benefit of society. It is true that mere public plea to join the campaign will not attract the attention of majority of wealthy individuals. On the other hand, coercive audit or fines to ensure fair taxation also does not help much towards the cause. For example, a fine of 18.8 million Euros imposed on Portugal’s football superstar Cristiano Ronaldo did not diminish the fame and positive image associated with the player.

One possible solution to influence the tax decisions of the wealthy is to combine coercive and voluntary state measures by publicly naming and shaming the wealthy individuals who resist to be part of the global campaign or pay their fair share of taxes. Thus, if such accusations on famous wealthy individuals like Chief Executive Officers or politicians violate ordinary citizens’ tax morale, these latter might start questioning the reasons for their tax honesty. For instance, after Greece published a blacklist of over 4,000 citizens who owed tax money to the state (Aswestopoulos, 2012[10]),  it experienced a decline in the shadow economy’s size from 25.4% in 2010 to 22.0% in 2016 (Schneider, 2016[11]). This way, identifying evaders publicly may act as punishment and a deterrent from engaging in aggressive tax avoidance. However, it is equally true that shaming needs active public support and media coverage, without which the debate towards fair taxation will lose its grip. So the time is ripe for citizens to join their hands in the global movement towards fair tax and compel the wealthy to be accountable.


[1]Ackermann, L., Becker, B., Daubenberger, M., Faigle, P., Polke‐Majewski, K., Rohrbeck, F., … Schröm, O. (2017, June). Cum‐ex. The great tax robbery. Zeit Online .

[2]Altstaeder, A., Johannesen, N., & Zucman, G. (2017). Tax evasion and inequality . Retrieved from http://www.nielsjohannesen.net/wp-content/uploads/AJZ2017.pdf

[3]Sakurai, Y., & Braithwaite, V. (2001). Taxpayers’ perceptions of the ideal tax adviser: Playing safe or saving dollars ? Working Paper No 5, The Australian National University, Centre of Tax System Integrity.

[4]Gangl, K., Hofmann, E., & Kirchler, E. (2015). Tax authorities’ interaction with taxpayers: A conception of compliance in social dilemmas by power and trust. New Ideas in Psychology37, 13–23. https://doi.org/10.1016/j.newideapsych.2014.12

[5]Blaufus, K., Bob, J., Otto, P. E., & Wolf, N. (2017). The effect of tax privacy on tax compliance – An experimental investigation. European Accounting Review26(3), 561–580.

[6]Mols, F., & Jetten, J. (2017). The wealth paradox. Economic prosperity and the hardening of attitudes. Cambridge, UK: Cambridge University Press.

[7]Brehm, J. W. (1966). A theory of psychological reactance. Oxford, UK: Academic Press.

[8]Alm, J., & Beck, W. (1993). Tax amnesties and compliance in the long run: A time series analysis. National Tax Journal46(1), 53–60.

[9]Toro, J., Story, T., Hartnett, D., Russell, B., & Van‐Driessche, F. (2017). Italy. Enhancing governance and effectiveness of the fiscal agencies. Interantional Monetary Fund. Fiscal Affairs Department . Retrieved from http://www.mef.gov.it/inevidenza/documenti/Rapporto_FMI_Eng.pdf

[10]Aswestopoulos, W. (2012, January). Finanzamt stellt “Liste der Schande” ins Netz. Focus Online . Retrieved from http://www.focus.de/finanzen/news/staatsverschuldung/liste-der-schande-viele-deutsche-unter-griechischen-steuersuendern_aid_706059.html

[11]Schneider, F. (2016). Estimating the size of the shadow economies of highly‐developed countries: Selected results. CESifo Dice Report14(4), 44–53.

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Economy

Decoding European Union’s Economy

Aakash Agarwal

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European Union (EU) is a political and economic union which consists of 27 member countries. It acts as one economic unit in the world economy and is considered a major world trading power. They are subject to obligation and privileges of the membership. It focuses on comprehensive growth of all countries.

The Formation

The EU was formed to end the centuries of warfare that culminated during World War II. The union was founded in 1992 with the Maastricht treaty but was given its reformed structure and powers in 2007 with the Lisbon treaty. Under these treaties, the 27 members agree to come together with their sovereignty and delegate many decision-making powers to the unified body. Currently, there are seven official EU institutions which are made for the executive, judicial and financial functions. The primary aim of this treaty was to boost economic social and political integration amongst the nation.

The European Central Bank is the EU’s central bank . It regulates monetary policy and manages bank lending rates and foreign exchange reserves . The institution over the

years has expanded and strengthened its own authority. It has proved to be a competent institution and is serving its purpose.

However, It has also faced a series of unforeseen circumstances including the 2008

economic crisis, an influx of migrants from the Middle East and Africa and Brexit Negotiations. In June 2016 the United Kingdom decided to leave the European Unionand officially from 31 January 2020, the United Kingdom is no longer part of the EU.

Breakdown Of The Economy

Most countries that are a part of the European Union and use the same currency Euro. A group of nineteen of the twenty-seven EU members use the Euro currency. Therefore the trade process is simplified and the rest of the EU is also legally required to join the eurozone at some point. In terms of the total value of all the goods and services, it is considered bigger than the US economy. The 19 EU member states that comprise the euro area accounted for 85.5% of the EU’s GDP in 2019. However, due to the unforeseen circumstances implemented across the world in 2020 GDP is down by 3.8% in the euro area and 3.5% in the EU.

The EU’s trade structure has helped it to become one of the world’s largest economies after China. In 2018 it surpassed China’s GDP with a difference of $3.3 trillion. These measurements use purchasing power parity to the account of discrepancy between each country’s standard of living. Some experts argue that the EU produces more but the US still a larger economy, whereas the US is a country and the EU is a trading area which compiles the 27 countries. Despite the eurozone debt crisis, the EU is staggering towards a bigger fiscal integration. The EU’s currency, the euro has successfully competed with the global currency dollar. The EU’s exports in 2019 were for products petroleum, automobiles and medication while its top imports are petroleum, communications equipment, and natural gas.

Classification Of Eu Budget

The biggest chunk of the percent spent on the agricultural sector. Which includes the direct payment to farmers development of fisheries, forest and rural areas. The second chunk goes into economic, social and territorial cohesion, which is meant to help the EU’s less developed countries. It includes infrastructure, job development, technical assistance for

Small business. The rest is spent on research and development and building the EU’s foreign policy which is under Global Europe. The EU budget must balance as it has no authority to spend more than it takes in.

Trade

The 64% trade is undertaken within the EU states. The trade with the rest of the world accounts for some 15.6% of global imports and exports. The EU countries had the second-largest share of global imports and exports of goods in 2016.

Employability

After the global economic crisis and eurozone turbulence in 2008, the employability saw a rise in future.


The Economy Post Covid-19

The world economy has witnessed a plethora of ups and downs in this pandemic. European Union leaders sealed a 750 million – euro ($857billion) deal for their coronavirus blighted economies after a marathon talk. The EU was slow to coordinate initially with the pandemic and already weakened by Brexit, It was important for an upfront on economic aid which would demonstrate its come back. Earlier it has been observed bitter rows over how the grants would be managed. Council President Michel said securing a deal as “not only about money, it’s about people, about the European future, about our unity.”

Chancellor of Germany Angela Merkel said on Monday that EU leaders had come up with a “framework” for a possible agreement. Whereas Michel told, “This agreement sends a concrete signal that Europe is a force for action”. French President Emmanuel Macron, who spearheaded the deal with German Chancellor Angela Merkel, hailed it as “truly historic”.

But Currently, Countries like France, Spain and smaller nations in the EU have been adversely affected, It is believed that the economies of France and Spain will shrink by over 10%. The Country’s GDP is not expected to return to last year’s level before 2022. Earlier this month that it expects the EU economy to shrink 8.3% in 2020, The European Commission said considerably worse than the 7.4% slump predicted two months ago.

Comparisons With India

The deficiency in India’s COVID relief package is inadequate fiscal spending ( just 1% of GDP). For spending more the government will have to borrow more. However, without spending, the economy will likely struggle a little longer. Whereas in the EU package Euro 390 billion of grants. Cheap loans and credit guarantees are important but for a declining economy, stress should be given more to wage subsidies and emphasis on the MSME sector.

The meeting of the EU is the first major in-person gathering of world leaders since the COVID-19. The ideal emphasis which every leader is saying is the concept of ‘fundamental of the internal market should begin again with all necessary precautions and not just countries most affected by the crisis but also for those which benefit the most from the internal.

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