Over the last few months, network members have been busy preparing our first newsletter. We cover the launch of the network from Nairobi and report back from campaigns in the UK, the US, and across Africa with the Tax Justice Network for Africa (TJNA).
We also have a special focus topic -- multinational abuses and the need for a Country-by-Country reporting standard. Editorials from members shine the spotlight on the dirty deeds of Firestone Tire and Rubber Company -- and explain how the international financial system is supporting tax dodging and other practices that are causing, prolonging, and deepening poverty, suffering, and violence for billions of people around the world. The problems go beyond just occasional acts of corporate malpractice – it is time to face up to the systemic abuse.
Finally, you’ll also read about why tax justice is important – from preventing “economic tourism” in Malawi to the need for financing for development in the Democratic Republic of Congo.
Follow the links in the box to the left or download the whole document in pdf. Thanks for reading!
Monday, September 17, 2007
Why Tax Justice?
As a first discussion topic, YTJN members asked: “What does tax justice mean to you?” and “Why do you think it is important?” We wanted to see how the issues of tax justice related to both problems in our local communities and transnational patterns of exploitation and corruption.
Among the blog entries below are some of our responses featured in our first newsletter:
Among the blog entries below are some of our responses featured in our first newsletter:
- why Malawi needs tax justice;
- how tax links to sustainable development;
- the problems connected to a national anti-corruption drive;
- and questions surrounding the financing of development in the D.R.Congo.
Why Malawi Needs Tax Justice
By Mwaona Nyirongo
The issue of poverty has made headlines in almost all types of media. It has been claimed by scholars that about eight million people die each year on a global scale as a result of poverty. Not only that – millions of children are also denied access to education because of poverty. In essence, it must be acknowledged that this situation is well defined in developing countries.
One of these developing countries is Malawi, a country that lies in the southern part of Africa. It is a densely populated country with its largest population living below the poverty line; thus many people survive on less than a dollar per day. Some elite Malawians place blame on the international financial system for this economic stagnation. This piece of writing therefore tries to shade more light on economic injustice with regard to the objectives of the Tax Justice Network and the issues of tax.
Very few Malawians know the truth about the injustice that monetary organizations and corporations inflict on their country. All they know is that Malawi has economic partners who assist them financially. Little do they know that such an international financial system just works to create an economic tourism rather than boosting the economy. The integration of Malawi into the world economy has prompted the coming of mafia-like economic gurus who have in essence milked Malawi severely. The acts of such gurus have reduced Malawi to a country for profit-making rather than development.
The above phenomenon is attributed to the fact that many multinational companies in Malawi sign contracts which include many tax holidays. The companies also rely on transfer pricing to shift their profits to another country. Thus, the Malawi government is not able to collect the necessary tax. This therefore implies that Malawi needs an economic enlightment, which is equally the same with tax justice. From such an understanding, it is quite apparent that Malawi indeed is in need of tax justice.
Mwaona Nyirongo is a second year student at Domasi College of Education in Malawi studying history and geography.
The issue of poverty has made headlines in almost all types of media. It has been claimed by scholars that about eight million people die each year on a global scale as a result of poverty. Not only that – millions of children are also denied access to education because of poverty. In essence, it must be acknowledged that this situation is well defined in developing countries.
One of these developing countries is Malawi, a country that lies in the southern part of Africa. It is a densely populated country with its largest population living below the poverty line; thus many people survive on less than a dollar per day. Some elite Malawians place blame on the international financial system for this economic stagnation. This piece of writing therefore tries to shade more light on economic injustice with regard to the objectives of the Tax Justice Network and the issues of tax.
Very few Malawians know the truth about the injustice that monetary organizations and corporations inflict on their country. All they know is that Malawi has economic partners who assist them financially. Little do they know that such an international financial system just works to create an economic tourism rather than boosting the economy. The integration of Malawi into the world economy has prompted the coming of mafia-like economic gurus who have in essence milked Malawi severely. The acts of such gurus have reduced Malawi to a country for profit-making rather than development.
The above phenomenon is attributed to the fact that many multinational companies in Malawi sign contracts which include many tax holidays. The companies also rely on transfer pricing to shift their profits to another country. Thus, the Malawi government is not able to collect the necessary tax. This therefore implies that Malawi needs an economic enlightment, which is equally the same with tax justice. From such an understanding, it is quite apparent that Malawi indeed is in need of tax justice.
Mwaona Nyirongo is a second year student at Domasi College of Education in Malawi studying history and geography.
Why Tax Justice: Tax for Sustainable Development
My name is Harum Mukhayer; I live in Khartoum, Sudan and study at Ahfad University for Women. Recently I have been more involved with global issues of development from a youth point of view, which is why I find the YTJN as a youth-driven coalition for promoting progress very interesting.
I am the founder of a new web-based project called Glocal Key. Our team from different parts of the world aims to create a web-based platform that has a local impact on a global scale, addressing issues that concern youth locally and facilitating locally led initiatives that are supported by our Global Network.
The issue of tax justice and the vision of the YTJN I found especially appealing when I read a blog entry by tax expert Richard Murphy who talks about the importance of tax in the debate on development. He mentioned an article from Kenya’s Business Daily which provides a case study of how ’over the last few years Kenya has witnessed a phenomenal growth of tax revenues and alongside it, growth in the national budget.’
However, in countries where people have low levels of income and live under the worst conditions of poverty, taxation may provide a means of building sustainability. To consider how this might happen, it will be necessary to consider the whole process of transition from a situation of underdevelopment to a level of attained growth as well as both how tax revenues are generated and where they are invested.
I think that the role of youth is integral in helping make tax justice everybody’s responsibility, promoting civic engagement, and ensuring tax is used as a means of creating more equitable societies. In particular, it will be important to ensure that the benefits of taxation are evenly weighed against the costs incurred by those less capable to pay them.
However, given the link between tax justice and development it comes down to a matter of awareness-raising especially among youth on the dual objective of tackling harmful tax practices while at the same time encouraging fair mobilization of domestic revenue. This is key to bridge existing inequalities, and maintain sustainable development.
Resources mentioned:
Read the blog entry from Tax Research UK's site.
Read the Kenyan Business Daily article.
Harum Mukhayer is a final year student in the School of Management Studies.
I am the founder of a new web-based project called Glocal Key. Our team from different parts of the world aims to create a web-based platform that has a local impact on a global scale, addressing issues that concern youth locally and facilitating locally led initiatives that are supported by our Global Network.
The issue of tax justice and the vision of the YTJN I found especially appealing when I read a blog entry by tax expert Richard Murphy who talks about the importance of tax in the debate on development. He mentioned an article from Kenya’s Business Daily which provides a case study of how ’over the last few years Kenya has witnessed a phenomenal growth of tax revenues and alongside it, growth in the national budget.’
However, in countries where people have low levels of income and live under the worst conditions of poverty, taxation may provide a means of building sustainability. To consider how this might happen, it will be necessary to consider the whole process of transition from a situation of underdevelopment to a level of attained growth as well as both how tax revenues are generated and where they are invested.
I think that the role of youth is integral in helping make tax justice everybody’s responsibility, promoting civic engagement, and ensuring tax is used as a means of creating more equitable societies. In particular, it will be important to ensure that the benefits of taxation are evenly weighed against the costs incurred by those less capable to pay them.
However, given the link between tax justice and development it comes down to a matter of awareness-raising especially among youth on the dual objective of tackling harmful tax practices while at the same time encouraging fair mobilization of domestic revenue. This is key to bridge existing inequalities, and maintain sustainable development.
Resources mentioned:
Read the blog entry from Tax Research UK's site.
Read the Kenyan Business Daily article.
Harum Mukhayer is a final year student in the School of Management Studies.
Why Tax Justice: Corruption
Corruption has become one of the most debated topics in the development discourse today. We will feature different perspectives on the issue in every newsletter. Our first is from a student in Malawi reflecting on the government's Anti-Corruption drive.
Lack of Political Will Derails Anti-Corruption Drive in Malawi
By Madalitso Mphepo
Trying to root out corruption in Malawi, the Government set up the Anti-Corruption Bureau in 1996. This was done in order to bring to book those involved in corruption. Even our donors like Britain have donated generously to the activities of the bureau, which include areas such as capacity building and recruiting human resources as well as raising public awareness.
Though this is the case, there is little being done on the ground to curb corruption. The Bureau lacks the political will to take offenders to task. For instance, in June 2006, the Bureau arrested the former Head of State Dr Bakili Muluzi for the gross corruption during his ten year rule from 1994 to 2004. Within these years Dr Muluzi accumulated a lot of dubiously collected wealth to become one of the richest presidents in Africa while Malawi remained one of the poorest countries. Dr Muluzi was also accused in other dubious deals ranging from his acquisition of the plush Keza Office Park to his hand in the 2002 maize scam at Admarc.
To the amazement of many Malawians, the Government ordered his immediate release. The reasons behind all this were political in nature. The Government wanted to buy favors from Members of the National Assembly especially those from United Democratic Front, which is Muluzi’s Party. This was done in order to gather support for the 2006-2007 Financial Budget to pass in the August House. The Government was trying to reduce political tension, but at the same time it was denying justice to be heard among the people. As if this was not enough, the government forced the then director of the Anti-Corruption Bureau, Gustav Kaliwo, to resign within 48 hours.
Furthermore, the Public Appointments Committee (PAC) of the National Assembly has frustrated the executive arm of government in their drive against corruption by refusing twice to recommend the newly appointed Director of the Anti-Corruption Bureau Tumalisye Ndovi. Some quarters accuse the PAC of double standards in exercising their powers because they are failing to give reasons why they refused the appointment of Tumalisye Ndovi as the new Director of the Anti-Corruption Bureau.
In summation, many observers in Malawi view the anti-corruption drive in Malawi as far from producing good fruits. Though the president of Malawi Dr. Bingu wa Mutharika is preaching zero tolerance of corruption, there is a lot to be done. The government through the Anti-Corruption Bureau is fighting petty corruption leaving top government officials who are involved in gross corruption. The government should strengthen its muscle to bring to book those involved in corruption regardless of political affiliation, religion, race and region. The government should also enact strict laws against corruption, if ever the battle against corruption is to be won.
Madalitso Mphepo is a 2nd year student at Domasi College of Education studying religious studies and geography.
Lack of Political Will Derails Anti-Corruption Drive in Malawi
By Madalitso Mphepo
Trying to root out corruption in Malawi, the Government set up the Anti-Corruption Bureau in 1996. This was done in order to bring to book those involved in corruption. Even our donors like Britain have donated generously to the activities of the bureau, which include areas such as capacity building and recruiting human resources as well as raising public awareness.
Though this is the case, there is little being done on the ground to curb corruption. The Bureau lacks the political will to take offenders to task. For instance, in June 2006, the Bureau arrested the former Head of State Dr Bakili Muluzi for the gross corruption during his ten year rule from 1994 to 2004. Within these years Dr Muluzi accumulated a lot of dubiously collected wealth to become one of the richest presidents in Africa while Malawi remained one of the poorest countries. Dr Muluzi was also accused in other dubious deals ranging from his acquisition of the plush Keza Office Park to his hand in the 2002 maize scam at Admarc.
To the amazement of many Malawians, the Government ordered his immediate release. The reasons behind all this were political in nature. The Government wanted to buy favors from Members of the National Assembly especially those from United Democratic Front, which is Muluzi’s Party. This was done in order to gather support for the 2006-2007 Financial Budget to pass in the August House. The Government was trying to reduce political tension, but at the same time it was denying justice to be heard among the people. As if this was not enough, the government forced the then director of the Anti-Corruption Bureau, Gustav Kaliwo, to resign within 48 hours.
Furthermore, the Public Appointments Committee (PAC) of the National Assembly has frustrated the executive arm of government in their drive against corruption by refusing twice to recommend the newly appointed Director of the Anti-Corruption Bureau Tumalisye Ndovi. Some quarters accuse the PAC of double standards in exercising their powers because they are failing to give reasons why they refused the appointment of Tumalisye Ndovi as the new Director of the Anti-Corruption Bureau.
In summation, many observers in Malawi view the anti-corruption drive in Malawi as far from producing good fruits. Though the president of Malawi Dr. Bingu wa Mutharika is preaching zero tolerance of corruption, there is a lot to be done. The government through the Anti-Corruption Bureau is fighting petty corruption leaving top government officials who are involved in gross corruption. The government should strengthen its muscle to bring to book those involved in corruption regardless of political affiliation, religion, race and region. The government should also enact strict laws against corruption, if ever the battle against corruption is to be won.
Madalitso Mphepo is a 2nd year student at Domasi College of Education studying religious studies and geography.
Why Tax Justice: Development Finance
AT THE BEDSIDE OF THE D.R. CONGO
The Democratic Republic of Congo: a country with abounding natural resources, where the earth guards its immeasurable known and unknown riches, a fertile soil greets diverse crops and gives life to a rich fauna and plenteous flora, rivers and streams cover the whole territory, and rainfall observes regular patterns. Confronted with the question of development, the DRC requires financing at all costs. By Smalto Kabuya.
With just this brief outline of the DRC, it seems like somewhere one would live a good life. However, in development indexes, the DRC scores as one of the poorest countries in the world! Its GDP per capita (based on purchasing power parity) is estimated at $705. In the same category, Lesotho’s GDP per capita is $2,619, and in the middle-income category, South Africa’s is $11,192. The DRC’s external debt is valued at US$14 billion – servicing the debt alone costs about US$30-50 million per month – while life expectancy at birth remains around 43.5 years. The country’s human development index is estimated at 0.391, giving it a rank of 167th out of 177 countries with data and a place among the least developed countries in the world according to the UNDP’s Human Development Report. This is a situation to challenge the conscience of each and every one of us.
The Congo, a sleeping giant, needs to awaken. For a long time it has been in ruins, covered by the ashes left by international vultures and by governance that hasn’t responded to the aspirations of its people. The story of the existence of the Congolese State is, effectively, the story of the suffering of its people – deprived of enjoying the riches that lie no further than their fingertips, a destiny comparable to a pauper who does not know how to put into his mouth the piece of bread he holds in his hands. Indeed, in the eyes of any observer, the case of the DRC remains an enigma.
Whether the Congolese citizen can become what he should be, remains however, the measure of any enlightened plan for his society, and generally implies what the Congolese nation means in and of itself. Indeed, the question of the well-being of the population lies at the heart of the development of the economy and governmental politics. For this development to happen however, there has to be the necessary financing as well as a way to ensure that both the state and big commercial firms fulfil their responsibilities.
Development: Both the Will and the Means
The concept of development causes a lot of ink and saliva to flow in debates on all levels. At the international level it has attracted much attention from the United Nations, which attached to it certain areas judged as priorities, now used as the basis for the Millennium Development Goals. If we define development in a simple way, as a means of giving individuals access to a decent life, it is evident that poverty is the most formidable malady. And reducing poverty does in fact comprise the second goal set by the UN to be achieved by 2015: the duty to achieve it falls on each of us. Contributions are necessary as much from the international community as from individual states, public actors as well as private actors.
Faced with the immediate nature of the need for development, both the will and the means to achieve it are required. If the will stems from governmental policy, the means come from economic mechanisms judged most useful for these policy goals. Indeed, the government can only meet the expectations of the people by defining a framework able to bring about the development of these economic mechanisms. The framework of governmental action can thus be understood as the regulation necessary for development. Consequently, the real question one must ask is: what is the state of fiscal legislation in D. R. Congo – given that it is evidently public finances which provide the means for any governmental undertakings? Or to cite a common saying, “Whoever wishes to eat bread, must first cook it”.
Without getting into the details of the importance of an adequate fiscal system, in these paragraphs we’ll simply raise the issue, and maybe later, allow for a succinct analysis. However, as attested by the difficulties the government faced convincing parliament to adopt the annual budget, the DRC’s fiscal system functions very poorly. That budgetary process alone revealed the financial problems eating away at the country.
Refusing Handouts and Mobilising Domestic Resources
Faced with financial difficulties, the first reflex is to ask for handouts! Many believe that a fresh breath of air from abroad would alleviate the problems. Quite the contrary – without any complementary measures or controls, all such efforts would be self-destructive given the deficiencies described above, and the problems would only grow worse.
Instead, and indeed following the high-level dialogue on development financing, domestic financial resources should be the primary source for development financing. In this view, as well as rejecting reliance on external financing from international trade and overseas development aid, the government should play a leading role in the process of development as well as the strategies for poverty reduction, including policies for resource mobilisation. What development plan has the DRC adopted?
In the same flow of ideas, considering the limitations facing governments seeking innovative resource mobilisation policies, it is very important that the institutions that will determine the success of the chosen measures be reinforced. In other words, the quality of the state’s institutions is key with regard to all government actions, including resource mobilisation. Weak institutions will result in poor resource mobilisation and management, whereas strong institutions will allow strong resource mobilisation and management; in the first instance there is no hope for development.
This said, the DRC should embrace and put in place the principles that have been laid out by NEPAD partners in the African Peer Review Mechanism, which involve rules for good governance, healthy management of public affairs, sound macroeconomic policies and other key measures designed to create an environment conducive for the resource mobilisation and sustainable development. If good governance, sound macroeconomic policies, institutions designed to support a market-based economy, a skilled labour force, necessary infrastructure and juridical controls are the factors which determine the level of both domestic and international investments, the state lies at the heart of the creation of such an environment.
The Responsibility of the State
The state’s central role in creating an environment conducive for resource mobilisation and sustainable development demands that we analyse the responsibility of the state, which can be seen in different ways. Firstly, the state must work to calm situations that threaten law and order, and following our discussion focusing on resource mobilisation must in particular counter the loss of public funds through corruption, capital flight, fiscal fraud and other similar situations. Secondly, although creating an environment conducive to development involves the emergence of a private sector, the state remains responsible for providing the population with public services such as education, water, and healthcare. Access to safe drinking water remains a nightmare even for Congolese living in urban areas! Education is also in need of reform to meet the needs of the nation and remains a burden on the shoulders of the people. Furthermore, following the MDGs, primary and secondary education should be free; some countries in Africa have already achieved this. Faced with this challenge, where does DRC find itself? Are the means to meet the challenge missing?
However, most importantly, while carrying out these and other responsibilities, the state must be answerable to the people who consented to its existence and explain to them how it is governing public affairs. The people should be able to hold it accountable for all acts done on their behalf.
Contracts in a Troubled Time: Without the Will of the People
It is particularly important that the multitude of contracts signed with ‘the Congolese State’ be examined. It is no secret that especially in the more troubled times, many people who did not have the mandate of the people were involved in giving out mining and other types of public contracts.
However, if the current government’s initiative to revise certain public contracts is to be praised, it is important that the parliamentary commission in charge of the revision adopt a work methodology that would involve the public and consequently require the publication of all contracts suspected of illegality. Given that all contracts are required to conform to certain conditions of validity, those that wouldn’t fulfil such criteria would be annulled. The possibility of contract annulment would encourage interested parties to start such a procedure. In the case of the mining contracts mentioned above, the people would be the most interested party. Indeed, in opening public contracts to revision, every person having a point of view to express would be considered an interested party – including all Congolese citizens, being the taxpayers in the state.
Corporate Responsibility
Large corporations operating in a given population’s territory also have responsibilities; domestic or multinational companies must work to develop the environment in which they operate. This would imply, among other things, respect for environmental rights, infrastructure development, and encouragement for private initiatives that have a social or community involvement and benefit built into it in communities where they operate. There are many examples to illustrate such ideas, ranging from large corporations half extinct to those continuing to operate despite the difficulties including OKIMO (gold mining), SOMINKI (gold and other mining operations), MIBA (diamond mining), GECAMINE (copper and other mining operations), to cite a few cases. They have all generated millions in profits while the local people have been left to live in the dust and suffer the effects of environmental damage caused by the companies’ operations. The abuse is not limited to the mining companies either; the above could be said about both domestic and multinational companies in other industries, including agriculture and forestry.
It would therefore be in the best interests of the people it represents for the State to assume all its responsibilities. That is why, when it comes to signing or obtaining public contracts, the State must insert a clause stating that large corporations wanting to operate in the national territory must in some way go beyond their own aims to work for the greater social good. In addition, the state must ensure that such clauses are applied in practice. This would not only allow local host communities to hold these companies to account but also help preserve the environment and guarantee means of living for future generations.
Closing the Floodgates
However, no matter what, the problem will remain sizeable if the state does not work to close the gaps and holes through which the public treasury is depleted. It is of greatest importance that the state work with its people to struggle against all sorts of fiscal termites that eat up and divert public funds. Corruption, capital flight, fiscal fraud, and the use of tax havens constitute the largest holes through which national resources disappear. Closing them would allow the state to better channel its funds, as discussed in the Tax Justice Network’s study on this theme “Closing the Floodgates.”
The issue of financing the DRC's development remains a contributor to the State's capacity to create a social, juridical and economic environment that would be favourable to putting the country on the path to development. If overseas development aid is to be accepted, it could only be considered as a supplement to the large efforts that the state must generate for the development of the country. It is in this way that the state is expected to take charge of its responsibility, by putting the interests of its people at the centre of all its activities. Making the financial system healthier through fiscal legislation, the banking sector, credit unions, cooperative banks, and small and medium sized enterprises are the main challenges.
In the light of what needs to be in place, an efficient fiscal system is a key factor contributing to the mobilisation of national financial resources that can serve to finance the development of the country. It is in these terms that the Congolese State should respond to the aspirations of its people, and engage in the symphony of the nations with a role that would reflect its weight.
Kabuya B. Smalto has a Bachelor in Law from UNILAC-Nairobi. Thanks to Matti Kohonen and Nathalie Hanley for the translation from the original French.
The Democratic Republic of Congo: a country with abounding natural resources, where the earth guards its immeasurable known and unknown riches, a fertile soil greets diverse crops and gives life to a rich fauna and plenteous flora, rivers and streams cover the whole territory, and rainfall observes regular patterns. Confronted with the question of development, the DRC requires financing at all costs. By Smalto Kabuya.
With just this brief outline of the DRC, it seems like somewhere one would live a good life. However, in development indexes, the DRC scores as one of the poorest countries in the world! Its GDP per capita (based on purchasing power parity) is estimated at $705. In the same category, Lesotho’s GDP per capita is $2,619, and in the middle-income category, South Africa’s is $11,192. The DRC’s external debt is valued at US$14 billion – servicing the debt alone costs about US$30-50 million per month – while life expectancy at birth remains around 43.5 years. The country’s human development index is estimated at 0.391, giving it a rank of 167th out of 177 countries with data and a place among the least developed countries in the world according to the UNDP’s Human Development Report. This is a situation to challenge the conscience of each and every one of us.
The Congo, a sleeping giant, needs to awaken. For a long time it has been in ruins, covered by the ashes left by international vultures and by governance that hasn’t responded to the aspirations of its people. The story of the existence of the Congolese State is, effectively, the story of the suffering of its people – deprived of enjoying the riches that lie no further than their fingertips, a destiny comparable to a pauper who does not know how to put into his mouth the piece of bread he holds in his hands. Indeed, in the eyes of any observer, the case of the DRC remains an enigma.
Whether the Congolese citizen can become what he should be, remains however, the measure of any enlightened plan for his society, and generally implies what the Congolese nation means in and of itself. Indeed, the question of the well-being of the population lies at the heart of the development of the economy and governmental politics. For this development to happen however, there has to be the necessary financing as well as a way to ensure that both the state and big commercial firms fulfil their responsibilities.
Development: Both the Will and the Means
The concept of development causes a lot of ink and saliva to flow in debates on all levels. At the international level it has attracted much attention from the United Nations, which attached to it certain areas judged as priorities, now used as the basis for the Millennium Development Goals. If we define development in a simple way, as a means of giving individuals access to a decent life, it is evident that poverty is the most formidable malady. And reducing poverty does in fact comprise the second goal set by the UN to be achieved by 2015: the duty to achieve it falls on each of us. Contributions are necessary as much from the international community as from individual states, public actors as well as private actors.
Faced with the immediate nature of the need for development, both the will and the means to achieve it are required. If the will stems from governmental policy, the means come from economic mechanisms judged most useful for these policy goals. Indeed, the government can only meet the expectations of the people by defining a framework able to bring about the development of these economic mechanisms. The framework of governmental action can thus be understood as the regulation necessary for development. Consequently, the real question one must ask is: what is the state of fiscal legislation in D. R. Congo – given that it is evidently public finances which provide the means for any governmental undertakings? Or to cite a common saying, “Whoever wishes to eat bread, must first cook it”.
Without getting into the details of the importance of an adequate fiscal system, in these paragraphs we’ll simply raise the issue, and maybe later, allow for a succinct analysis. However, as attested by the difficulties the government faced convincing parliament to adopt the annual budget, the DRC’s fiscal system functions very poorly. That budgetary process alone revealed the financial problems eating away at the country.
Refusing Handouts and Mobilising Domestic Resources
Faced with financial difficulties, the first reflex is to ask for handouts! Many believe that a fresh breath of air from abroad would alleviate the problems. Quite the contrary – without any complementary measures or controls, all such efforts would be self-destructive given the deficiencies described above, and the problems would only grow worse.
Instead, and indeed following the high-level dialogue on development financing, domestic financial resources should be the primary source for development financing. In this view, as well as rejecting reliance on external financing from international trade and overseas development aid, the government should play a leading role in the process of development as well as the strategies for poverty reduction, including policies for resource mobilisation. What development plan has the DRC adopted?
In the same flow of ideas, considering the limitations facing governments seeking innovative resource mobilisation policies, it is very important that the institutions that will determine the success of the chosen measures be reinforced. In other words, the quality of the state’s institutions is key with regard to all government actions, including resource mobilisation. Weak institutions will result in poor resource mobilisation and management, whereas strong institutions will allow strong resource mobilisation and management; in the first instance there is no hope for development.
This said, the DRC should embrace and put in place the principles that have been laid out by NEPAD partners in the African Peer Review Mechanism, which involve rules for good governance, healthy management of public affairs, sound macroeconomic policies and other key measures designed to create an environment conducive for the resource mobilisation and sustainable development. If good governance, sound macroeconomic policies, institutions designed to support a market-based economy, a skilled labour force, necessary infrastructure and juridical controls are the factors which determine the level of both domestic and international investments, the state lies at the heart of the creation of such an environment.
The Responsibility of the State
The state’s central role in creating an environment conducive for resource mobilisation and sustainable development demands that we analyse the responsibility of the state, which can be seen in different ways. Firstly, the state must work to calm situations that threaten law and order, and following our discussion focusing on resource mobilisation must in particular counter the loss of public funds through corruption, capital flight, fiscal fraud and other similar situations. Secondly, although creating an environment conducive to development involves the emergence of a private sector, the state remains responsible for providing the population with public services such as education, water, and healthcare. Access to safe drinking water remains a nightmare even for Congolese living in urban areas! Education is also in need of reform to meet the needs of the nation and remains a burden on the shoulders of the people. Furthermore, following the MDGs, primary and secondary education should be free; some countries in Africa have already achieved this. Faced with this challenge, where does DRC find itself? Are the means to meet the challenge missing?
However, most importantly, while carrying out these and other responsibilities, the state must be answerable to the people who consented to its existence and explain to them how it is governing public affairs. The people should be able to hold it accountable for all acts done on their behalf.
Contracts in a Troubled Time: Without the Will of the People
It is particularly important that the multitude of contracts signed with ‘the Congolese State’ be examined. It is no secret that especially in the more troubled times, many people who did not have the mandate of the people were involved in giving out mining and other types of public contracts.
However, if the current government’s initiative to revise certain public contracts is to be praised, it is important that the parliamentary commission in charge of the revision adopt a work methodology that would involve the public and consequently require the publication of all contracts suspected of illegality. Given that all contracts are required to conform to certain conditions of validity, those that wouldn’t fulfil such criteria would be annulled. The possibility of contract annulment would encourage interested parties to start such a procedure. In the case of the mining contracts mentioned above, the people would be the most interested party. Indeed, in opening public contracts to revision, every person having a point of view to express would be considered an interested party – including all Congolese citizens, being the taxpayers in the state.
Corporate Responsibility
Large corporations operating in a given population’s territory also have responsibilities; domestic or multinational companies must work to develop the environment in which they operate. This would imply, among other things, respect for environmental rights, infrastructure development, and encouragement for private initiatives that have a social or community involvement and benefit built into it in communities where they operate. There are many examples to illustrate such ideas, ranging from large corporations half extinct to those continuing to operate despite the difficulties including OKIMO (gold mining), SOMINKI (gold and other mining operations), MIBA (diamond mining), GECAMINE (copper and other mining operations), to cite a few cases. They have all generated millions in profits while the local people have been left to live in the dust and suffer the effects of environmental damage caused by the companies’ operations. The abuse is not limited to the mining companies either; the above could be said about both domestic and multinational companies in other industries, including agriculture and forestry.
It would therefore be in the best interests of the people it represents for the State to assume all its responsibilities. That is why, when it comes to signing or obtaining public contracts, the State must insert a clause stating that large corporations wanting to operate in the national territory must in some way go beyond their own aims to work for the greater social good. In addition, the state must ensure that such clauses are applied in practice. This would not only allow local host communities to hold these companies to account but also help preserve the environment and guarantee means of living for future generations.
Closing the Floodgates
However, no matter what, the problem will remain sizeable if the state does not work to close the gaps and holes through which the public treasury is depleted. It is of greatest importance that the state work with its people to struggle against all sorts of fiscal termites that eat up and divert public funds. Corruption, capital flight, fiscal fraud, and the use of tax havens constitute the largest holes through which national resources disappear. Closing them would allow the state to better channel its funds, as discussed in the Tax Justice Network’s study on this theme “Closing the Floodgates.”
The issue of financing the DRC's development remains a contributor to the State's capacity to create a social, juridical and economic environment that would be favourable to putting the country on the path to development. If overseas development aid is to be accepted, it could only be considered as a supplement to the large efforts that the state must generate for the development of the country. It is in this way that the state is expected to take charge of its responsibility, by putting the interests of its people at the centre of all its activities. Making the financial system healthier through fiscal legislation, the banking sector, credit unions, cooperative banks, and small and medium sized enterprises are the main challenges.
In the light of what needs to be in place, an efficient fiscal system is a key factor contributing to the mobilisation of national financial resources that can serve to finance the development of the country. It is in these terms that the Congolese State should respond to the aspirations of its people, and engage in the symphony of the nations with a role that would reflect its weight.
Kabuya B. Smalto has a Bachelor in Law from UNILAC-Nairobi. Thanks to Matti Kohonen and Nathalie Hanley for the translation from the original French.
Taking a Closer Look
Investment by Multinational Corporations
By Emma Lochery
For low-income countries around the world, investment by multinational corporations (MNCs) could represent hope – in the form of royalty payments, tax revenue, and employment. Instead, in the vast majority of cases, it leads to increased poverty, corruption, and conflict. Time and time again the relationships between countries and corporations have resulted in more human suffering and environmental damage.
Without serious changes in MNC behaviour, poor countries will continue to be stripped of their assets while receiving little in return except repressive governments and minimal offers of aid from culpable Western governments – aid which adds to the problems of corruption and unaccountable governance. The time has come to implement a comprehensive and mandatory multilateral regulatory framework which includes country by country reporting to monitor the way these corporations interact with governments and their citizens.
Governments and Corporations: Mechanisms of Exploitation
To understand why most MNCs’ investments in low-income countries increase human suffering instead of alleviating poverty, it is important to examine the relationships which exist behind the investments. In particular, it is important to pay attention to the contracts signed by governments and corporations.
Examining the contracts reveals how governments desperate to attract foreign investment offer conditions favourable for multinational corporations – but highly detrimental to their countries’ wellbeing. Contracts grant extended tax holidays and allow MNCs to avoid regulations protecting labour rights, other human rights, and environmental conditions. The World Bank, IMF, and donors have frequently lauded such concessions for creating “positive investment climates”**.
In addition, the contracts themselves are often vaguely written and contain loopholes companies can exploit in the future. Through these omissions and embedded confidentiality clauses, they create space for crime, unaccountability, and corruption both inside and outside the country in question.
Corporate Structures: The Role of Mispricing and Tax Havens
The structure of corporations around the world is another reason they find it so easy to exploit countries’ natural resources while providing little benefit to the people of that country. Many multinational corporations (MNCs) set up structures to avoid paying taxes in the jurisdictions where they are exploiting resources.
MNCs are generally families of sister companies called subsidiaries – separate parts of a company which can be registered in different jurisdictions but which are controlled ultimately by the parent company. This business model is very dominant in the global economy: around 60% of world trade today is composed of transactions between different parts of the same company*. Because these transactions happen between two affiliated companies, the prices involved are not set by the market. Instead, prices are under the companies’ control – such a price is known as a transfer price.
Under rules laid down by the Organisation for Economic Cooperation and Development (OECD), transfer pricing is supposed to follow the “arm’s length rule”. That is, the price should be equal to the market price – it should be set as if the companies were not affiliated.
In reality, as researched by businessman and author Raymond Baker, around 45-50% of these transactions are mispriced. Affiliates in this case are not following the arm’s length rule but manipulating prices in order to control which affiliated company registers the most profit. For example, if a subsidiary mining in a country sells the resource on to an affiliated company at a very low price, then it will not make a very large profit and therefore won’t pay much tax. Instead, because of the artificially low price, the profit will accrue to the affiliate buying the resource. If this affiliate is registered in a tax haven, that is, a location where some taxes are levied at a very low rate or not all, it will not have to pay much tax on that profit. Through this process of tax avoidance, the multinational corporation as a whole benefits.
Meanwhile, government revenues in the country where the mine is located remain low. Public services remain underfinanced and reliance on foreign aid is not reduced. Local people also often suffer the results of environmental degradation, low labour rights standards, and other abusive multinational practices.
Mittal and Firestone: A Clear Pattern
This newsletter includes a discussion of two examples of corporate abuse from Liberia. Robtel Pailey’s article reveals the crimes of Firestone Tire Company. The contract between Firestone and the government and the corporate structures related to this contract lie at the heart of the problem. The article on Mittal Steel Company’s new contract with the Sirleaf government in Liberia discusses similar issues. It profiles a report by NGO Global Witness which revealed self-proclaimed “socially responsible” Mittal Steel’s original 2005 contract with the transitional government in Liberia as another example of corporate abuse and moral corruption.
Time to Face up to the Systematic Abuse
The cases of Firestone and Mittal are only two examples of the way huge multinationals are exploiting citizens and societies around the word. In his article on the need for tax justice in Malawi, Mwaona Nyirongo uses the term “economic tourism”, an apt way to describe the way he says multinational corporations have “reduced Malawi to a country for profit-making rather than development.”
Today capital is increasingly mobile and more of the world’s largest economies are corporations rather than countries. It is crucial that a mandatory (non-voluntary) international regulatory framework be created and enforced to monitor MNC behaviour, financial transactions, and interactions with governments. This framework must encompass mandatory Country-by-Country reporting standards which would require MNCs to declare in which countries they operate, what they are called in each location, what their financial performance is in each of those countries, and how much tax they pay to government locally as a result.
At the same time, the role of tax havens and other parts of the international financial system that enable the pillaging of developing countries’ resources must be recognised and countered. Without this change, corporate social responsibility rhetoric will continue to be pitifully empty.
Notes:
* See the Tax Justice Network briefing on Country-by-Country reporting. Also see Christian Aid, The Shirts off Their Backs: How Tax Policies Fleece the Poor, September 2005, p 14.
**See the TJN publication, tax us if you can, p. 17 for more information.
For more information on transfer pricing, also watch Tax Research UK's Richard Murphy's explanation:
A Hopeful Step: Mittal Steel’s Renegotiated Contract
In October 2006, Global Witness released the report “Heavy Mittal”* critiquing the 2005 Mineral Development Agreement between Mittal Steel and the National Transitional Government of Liberia (NTGL). They explain how Mittal and other MNCs “seek to maximize profit by using an international regulatory void to gain concessions and contracts which strongly favour the corporation over the host nation.”
Aside from whether the transitional government had the authority to negotiate and sign the contract, the contract itself gave Mittal Steel complete freedom to set the price of iron ore – and therefore the amount of royalties to be paid to the government – as well as a five year tax holiday. It also transferred two important public assets – a major port and an important railway line – to the company. Apart from damaging Liberia’s chances of economic recovery, the agreement threatened to harm the present and future rights of Liberian citizens. One of most worrying aspects of the agreement was that it granted the company the right to choose which new laws it would comply with – as well as the right to possess public and private land, potentially without adequately compensating the previous owners of the land.
Fortunately, the elected government of Liberia renegotiated the contract earlier this year with the company, now known as Arcelor Mittal: the $1bn deal was announced at the end of April 2007. The new deal requires that the price of iron ore be determined by market forces and does not include the five year tax holiday or give Mittal the right to possess the port and railway line. Mittal is also no longer exempt from new human rights or environmental laws. Unfortunately, the new contract still gives the company exemption from new laws related to income tax, royalties and other payments. Most crucially, the contract includes a confidentiality clause that will make it very difficult for citizens to access information about royalty payments and other financial flows. Such an omission is a serious challenge for transparency or accountability campaigns.
*The report is available here. For a more recent update, also go here.
By Emma Lochery
For low-income countries around the world, investment by multinational corporations (MNCs) could represent hope – in the form of royalty payments, tax revenue, and employment. Instead, in the vast majority of cases, it leads to increased poverty, corruption, and conflict. Time and time again the relationships between countries and corporations have resulted in more human suffering and environmental damage. Without serious changes in MNC behaviour, poor countries will continue to be stripped of their assets while receiving little in return except repressive governments and minimal offers of aid from culpable Western governments – aid which adds to the problems of corruption and unaccountable governance. The time has come to implement a comprehensive and mandatory multilateral regulatory framework which includes country by country reporting to monitor the way these corporations interact with governments and their citizens.
Governments and Corporations: Mechanisms of Exploitation
To understand why most MNCs’ investments in low-income countries increase human suffering instead of alleviating poverty, it is important to examine the relationships which exist behind the investments. In particular, it is important to pay attention to the contracts signed by governments and corporations.
Examining the contracts reveals how governments desperate to attract foreign investment offer conditions favourable for multinational corporations – but highly detrimental to their countries’ wellbeing. Contracts grant extended tax holidays and allow MNCs to avoid regulations protecting labour rights, other human rights, and environmental conditions. The World Bank, IMF, and donors have frequently lauded such concessions for creating “positive investment climates”**.
In addition, the contracts themselves are often vaguely written and contain loopholes companies can exploit in the future. Through these omissions and embedded confidentiality clauses, they create space for crime, unaccountability, and corruption both inside and outside the country in question.
Corporate Structures: The Role of Mispricing and Tax Havens
The structure of corporations around the world is another reason they find it so easy to exploit countries’ natural resources while providing little benefit to the people of that country. Many multinational corporations (MNCs) set up structures to avoid paying taxes in the jurisdictions where they are exploiting resources.
MNCs are generally families of sister companies called subsidiaries – separate parts of a company which can be registered in different jurisdictions but which are controlled ultimately by the parent company. This business model is very dominant in the global economy: around 60% of world trade today is composed of transactions between different parts of the same company*. Because these transactions happen between two affiliated companies, the prices involved are not set by the market. Instead, prices are under the companies’ control – such a price is known as a transfer price.
Under rules laid down by the Organisation for Economic Cooperation and Development (OECD), transfer pricing is supposed to follow the “arm’s length rule”. That is, the price should be equal to the market price – it should be set as if the companies were not affiliated.
In reality, as researched by businessman and author Raymond Baker, around 45-50% of these transactions are mispriced. Affiliates in this case are not following the arm’s length rule but manipulating prices in order to control which affiliated company registers the most profit. For example, if a subsidiary mining in a country sells the resource on to an affiliated company at a very low price, then it will not make a very large profit and therefore won’t pay much tax. Instead, because of the artificially low price, the profit will accrue to the affiliate buying the resource. If this affiliate is registered in a tax haven, that is, a location where some taxes are levied at a very low rate or not all, it will not have to pay much tax on that profit. Through this process of tax avoidance, the multinational corporation as a whole benefits.
Meanwhile, government revenues in the country where the mine is located remain low. Public services remain underfinanced and reliance on foreign aid is not reduced. Local people also often suffer the results of environmental degradation, low labour rights standards, and other abusive multinational practices.
Mittal and Firestone: A Clear Pattern
This newsletter includes a discussion of two examples of corporate abuse from Liberia. Robtel Pailey’s article reveals the crimes of Firestone Tire Company. The contract between Firestone and the government and the corporate structures related to this contract lie at the heart of the problem. The article on Mittal Steel Company’s new contract with the Sirleaf government in Liberia discusses similar issues. It profiles a report by NGO Global Witness which revealed self-proclaimed “socially responsible” Mittal Steel’s original 2005 contract with the transitional government in Liberia as another example of corporate abuse and moral corruption.
Time to Face up to the Systematic Abuse
The cases of Firestone and Mittal are only two examples of the way huge multinationals are exploiting citizens and societies around the word. In his article on the need for tax justice in Malawi, Mwaona Nyirongo uses the term “economic tourism”, an apt way to describe the way he says multinational corporations have “reduced Malawi to a country for profit-making rather than development.”
Today capital is increasingly mobile and more of the world’s largest economies are corporations rather than countries. It is crucial that a mandatory (non-voluntary) international regulatory framework be created and enforced to monitor MNC behaviour, financial transactions, and interactions with governments. This framework must encompass mandatory Country-by-Country reporting standards which would require MNCs to declare in which countries they operate, what they are called in each location, what their financial performance is in each of those countries, and how much tax they pay to government locally as a result.
At the same time, the role of tax havens and other parts of the international financial system that enable the pillaging of developing countries’ resources must be recognised and countered. Without this change, corporate social responsibility rhetoric will continue to be pitifully empty.
Notes:
* See the Tax Justice Network briefing on Country-by-Country reporting. Also see Christian Aid, The Shirts off Their Backs: How Tax Policies Fleece the Poor, September 2005, p 14.
**See the TJN publication, tax us if you can, p. 17 for more information.
For more information on transfer pricing, also watch Tax Research UK's Richard Murphy's explanation:
A Hopeful Step: Mittal Steel’s Renegotiated Contract
In October 2006, Global Witness released the report “Heavy Mittal”* critiquing the 2005 Mineral Development Agreement between Mittal Steel and the National Transitional Government of Liberia (NTGL). They explain how Mittal and other MNCs “seek to maximize profit by using an international regulatory void to gain concessions and contracts which strongly favour the corporation over the host nation.”
Aside from whether the transitional government had the authority to negotiate and sign the contract, the contract itself gave Mittal Steel complete freedom to set the price of iron ore – and therefore the amount of royalties to be paid to the government – as well as a five year tax holiday. It also transferred two important public assets – a major port and an important railway line – to the company. Apart from damaging Liberia’s chances of economic recovery, the agreement threatened to harm the present and future rights of Liberian citizens. One of most worrying aspects of the agreement was that it granted the company the right to choose which new laws it would comply with – as well as the right to possess public and private land, potentially without adequately compensating the previous owners of the land.
Fortunately, the elected government of Liberia renegotiated the contract earlier this year with the company, now known as Arcelor Mittal: the $1bn deal was announced at the end of April 2007. The new deal requires that the price of iron ore be determined by market forces and does not include the five year tax holiday or give Mittal the right to possess the port and railway line. Mittal is also no longer exempt from new human rights or environmental laws. Unfortunately, the new contract still gives the company exemption from new laws related to income tax, royalties and other payments. Most crucially, the contract includes a confidentiality clause that will make it very difficult for citizens to access information about royalty payments and other financial flows. Such an omission is a serious challenge for transparency or accountability campaigns.
*The report is available here. For a more recent update, also go here.
Firestone: Evading Taxes and Human Rights in Liberia
by Robtel Neajai Pailey
Emmanuel B. is 30, a slender five foot three, and a slave whose piercing brown eyes tell unspeakable truths. He’s not the kind of slave we’ve seen in the collective imagination of 19th century plantations in the deep South of the United States. No, Emmanuel is a modern slave in 21st century post-conflict Liberia, and Firestone Tire and Rubber Company his unyielding master.
Like many workers on Firestone’s largest rubber plantation, Emmanuel was born in Harbel, has lived in Harbel all his life, and will most likely waste away in Harbel. Previously a student in Gbarnga, Emmanuel has ambitions to return to school, but those are pie in the sky dreams considering his family has no means of supporting him.
As Westerners drive around in their heavy-duty SUVs propelled by another type of black gold—Firestone tires—Emmanuel wakes up at the crack of dawn to tap raw latex from 800 rubber trees daily. His clothes are tattered, and his shoulders covered in red puss-infected blisters from carrying buckets full of raw latex suspended from an iron pole to the Firestone processing plant two miles from his tapping site. For Emmanuel and his fellow tappers, a 5am start is the only means of filling their daily quota. Some have even begun to use their children to complete the herculean task.
Emmanuel sat perched like a statue, surrounded by green shrubbery and tall eerie splotched rubber trees one afternoon last December. He was taking a break, and had just finished tapping a record 800 trees when I spotted him while driving on a winding road on the Firestone plantation. He was gracious enough to demonstrate what a tapper does from sun-up to mid-morning. With a pitchfork suspended in the air, Emmanuel extended his long wiry arms to ease the raw latex out of the trees and into small red cups that catch the white liquid. The drip drip drip of the white coated liquid was almost as laborious to witness as Emmanuel’s daily task...another 799 trees to go and only five hours left. If workers don’t fill their quotas, their wages are reduced by half.
I visited the Firestone Rubber Plantation for the very first time in December 2006 while on a research fact-finding mission for my dissertation. I decided to take a break from high browed academic work, and visit the sprawling modern day encampment I had heard so many horror stories about. It’s what I imagined the South to look like during the century or so of chattel slavery in the United States, with the hustle bustle activity of plantation life and the accompanying strokes of exploitation. As my brother-in-law, Christopher Pabai, and I pulled into the one million acre—and constantly expanding—plantation, we were welcomed by an ungodly stench, a stench I can only compare to the smell of rotten cheese. Not just ordinary rotten cheese, but the kind that has been drenched in burning oil, steamrolled on a conveyor belt, and neatly packaged for nonhuman consumption. That’s what raw latex smells like when it’s being processed. Rather than wearing masks to protect their noses from the assault, the plantation workers ingest the foul stench day in and day out. It took all my willpower not to retch all over Firestone’s perfectly manicured lawn or lush green golf course that senior management frequents while on hiatus from their back-breaking overseeing.
Believe it or not, the foul stench is the least of the workers’ worries.
While England celebrates its 200th anniversary of the abolition of the slave trade, plantation workers in Liberia are trapped in a time warp of monumental proportions. They exist in the parallel universe of multinational corporate checkmate, where the prize goes to the highest exploiter. Firestone has been playing the chess pieces of Liberia’s rubber slaves since the company, then led by its founder Harvey Firestone, signed a concession agreement with the Liberian government in 1926 to lease one million acres of land for six cents per acre—an abominable exchange given the astronomical dividends garnered from rubber sales then and now. The agreement was surrounded by controversy as well: after its approval by the legislature, the corporation added a clause that mandated that Liberia would accept a $5 million loan from Harvey Firestone, a plan against which the Liberian Secretary of the Treasury, the Attorney General, and local activists protested. As well as drawing on support from the US State Department, the company established a subsidiary to handle the loan separately in order to sidestep the resistance – one of many subsidiaries that would be established to handle multiple dimensions of the corporation’s business in Liberia.
Since then, the company has continued to exploit the country – especially through avoiding taxes and abusing human rights standards in its chase for profits. As a striking example of the asymmetry of the relationship between country and corporation, in 1951, the profits retained by Firestone-Liberia after taxes were paid to the Liberian government still amounted to three times the total income of the Liberian treasury for the same year. This asymmetry was also revealed in the many tax exemptions granted to and exploited by the company. Throughout its history in Liberia, Firestone has muscled its way into gaining long tax holidays; long exemption periods of import and export duties; special tax tariffs; and large tax deductible items in cases where it was liable to taxes.
In 2005, Liberia’s transitional government signed another concession agreement for an extra 37 years of rubber slavery, despite having 20 years remaining on the original contract. Besides the question of whether the transitional government had the authority to sign the contract, the revised agreement ensured that the corporation’s exploitative privileges remained entrenched. It not only allows Firestone to set the price of rubber in the context of its own contract, thus creating the conditions that could enable transfer pricing and allow the company control over the amount of taxable income, but also sets the benchmark for all rubber in Liberia. The government does not even have an equity share in the investment, so that taxes and royalties are its only financial benefit. Rubber is Liberia’s largest export, and Firestone its largest international corporate exploiter, I mean employer, to date.
In March 2007, the Firestone Rubber Company, a subsidiary of the Japan-based Bridgestone Corporation, won the Public Eye Global Award for its social and ecological sins, which
demonstrate the shady side of pure profit-oriented globalization. The award was bestowed upon Firestone precisely because of the slave-like conditions on the plantation in Liberia. Workers live in dilapidated mud huts and are forced to seek the aid of their children in the strenuous and dangerous task of extracting latex from rubber trees. The deliberate and strategic use of children is against international laws including ILO Conventions, American and Liberian labor laws.
Since the plantation opened in 1926, company housing, mainly single room mud huts with no electricity, running water, or toilet facilities, has never been refurbished and updated to modern safety standards. Firestone’s plantation workers and their children toil under the same slave-like conditions they have endured for the past 80 years. The children’s labor usually includes cutting trees with sharp tools, applying pesticides by hand, and hauling two buckets on a pole, each filled with more than 30 kg of latex. Every day, these child laborers have to work long hours and are thus denied the right to basic education. Access to the company run schools is further impeded as parents must present a costly birth certificate in order to register their children.
Violation of child labor laws is only one among a long list of indictments against Firestone. According to Friends of the Earth USA, discharge from the company’s rubber processing plant has contaminated the adjacent Farmington River and other waterways, killing once vibrant ecosystems and polluting communities that depend on river water for drinking, bathing, and fishing. Furthermore, plantation workers are exposed to toxic chemicals and compounds on a daily basis while tapping. The merciless exploitation of Liberia’s people and natural resources by Bridgestone is directly linked to the nation’s impoverishment as the raw materials produced in Liberia are sent elsewhere for processing, thereby shutting out the possibility of added value. If a processing plant is built in Liberia, it could revolutionize the way rubber is used within a continent in dire need of manufactured goods such as condoms in the heyday of Bush’s conservative AIDS funding policies.
Clear violations of the law prompted a legal complaint filed in November 2005 against Bridgestone Corporation and Bridgestone Firestone North American Tire, LLC by the International Labor Rights Forum (ILRF), a member of the Stop Firestone Campaign, which is an advocacy coalition launched in 2005 to highlight Firestone’s exploitative undermining of Liberian labor laws. The 35 plaintiffs either have been or are currently child laborers on the company’s rubber plantation in Liberia. They describe their lives as “trapped in poverty and coercion.” The plaintiffs have brought their case to a U.S. court since Liberia’s legal system eroded during 15 + years of civil war and strife. The case is currently ongoing.
The ILRF, along with its Stop Firestone Coalition partners, demands that Firestone:
- provide workers with basic rights, including a living wage and the freedom of association;
- end all child and forced labor and assign achievable quotas;
- adopt health and safety standards; stop exposing workers to toxic compounds and chemicals;
- improve housing, schools, and health care centers to provide safe and comfortable facilities;
- ensure public disclosure of revenue and all types of foreign investment contracts;
- stop releasing chemicals into the environment and redresses all environmental damage; and
- publicly disclose the identity and quantity of all toxic compounds it releases or transports.
Liberia’s Minister of Labor, Kofi Woods, a long-time human rights activist/lawyer and a major catalyst for the Stop Firestone Campaign, has been in rounds of renegotiation sessions with Firestone representatives recently in Washington, D.C. Because of his list of demands—which are reminiscent of the Stop Firestone Coalition demands—Firestone representatives stormed out of the meetings in March 2007. Go figure. Woods and his cohorts are what I imagine African legislators should be like, uncompromising and unyielding when it comes to corporate social and ethical responsibility. Liberia’s post-conflict reconstruction agenda will be null and void without a reconfiguration of the concession agreement with Firestone. After all, any post-war scheme involves a drastic revving up of the national economy, and given Firestone’s economic entrenchment in Liberia, it will need to refashion how it deals with Liberian workers, thereby increasing employee profit margins.
History challenges us to stay on a forward moving dialectic of change. The Firestone example shows us that an ironic distortion of that dialectic is taking place right under our noses. Slavery ain’t dead, it’s manufactured in the rubber we use daily. We owe it to Emmanuel and his comrades on the Firestone Rubber Plantation to change the course of history, to make a clean break from modern-day slavery and its peculiar 21st century manifestations. We owe it to ourselves.
Take action now!
• For more information on the Stop Firestone Campaign, visit www.stopfirestone.org.
• Check out the STOP Firestone student action kit and bring the campaign to your campus!
• Visit the Stop Firestone YouTube channel!
• Listen to Robtel Pailey’s Pambazuka News podcast with Ezekiel Pajibo and Kofi Woods about the role of Firestone Rubber Company in Liberia.
• Watch the “Slaves of Firestone” photo essay.
• Read more about the history of Firestone in Liberia from an essay by Carl Patrick Burrowes.
• Read a report on Firestone from the Liberian Save My Future Foundation (SAMFU).
Liberian native Robtel Neajai Pailey is a graduate of Howard and Oxford universities. Excerpts of this editorial were originally published in Pambazuka News, the authoritative social justice e-newsletter for Africa.
Emmanuel B. is 30, a slender five foot three, and a slave whose piercing brown eyes tell unspeakable truths. He’s not the kind of slave we’ve seen in the collective imagination of 19th century plantations in the deep South of the United States. No, Emmanuel is a modern slave in 21st century post-conflict Liberia, and Firestone Tire and Rubber Company his unyielding master.
Like many workers on Firestone’s largest rubber plantation, Emmanuel was born in Harbel, has lived in Harbel all his life, and will most likely waste away in Harbel. Previously a student in Gbarnga, Emmanuel has ambitions to return to school, but those are pie in the sky dreams considering his family has no means of supporting him.
As Westerners drive around in their heavy-duty SUVs propelled by another type of black gold—Firestone tires—Emmanuel wakes up at the crack of dawn to tap raw latex from 800 rubber trees daily. His clothes are tattered, and his shoulders covered in red puss-infected blisters from carrying buckets full of raw latex suspended from an iron pole to the Firestone processing plant two miles from his tapping site. For Emmanuel and his fellow tappers, a 5am start is the only means of filling their daily quota. Some have even begun to use their children to complete the herculean task.
Emmanuel sat perched like a statue, surrounded by green shrubbery and tall eerie splotched rubber trees one afternoon last December. He was taking a break, and had just finished tapping a record 800 trees when I spotted him while driving on a winding road on the Firestone plantation. He was gracious enough to demonstrate what a tapper does from sun-up to mid-morning. With a pitchfork suspended in the air, Emmanuel extended his long wiry arms to ease the raw latex out of the trees and into small red cups that catch the white liquid. The drip drip drip of the white coated liquid was almost as laborious to witness as Emmanuel’s daily task...another 799 trees to go and only five hours left. If workers don’t fill their quotas, their wages are reduced by half.
I visited the Firestone Rubber Plantation for the very first time in December 2006 while on a research fact-finding mission for my dissertation. I decided to take a break from high browed academic work, and visit the sprawling modern day encampment I had heard so many horror stories about. It’s what I imagined the South to look like during the century or so of chattel slavery in the United States, with the hustle bustle activity of plantation life and the accompanying strokes of exploitation. As my brother-in-law, Christopher Pabai, and I pulled into the one million acre—and constantly expanding—plantation, we were welcomed by an ungodly stench, a stench I can only compare to the smell of rotten cheese. Not just ordinary rotten cheese, but the kind that has been drenched in burning oil, steamrolled on a conveyor belt, and neatly packaged for nonhuman consumption. That’s what raw latex smells like when it’s being processed. Rather than wearing masks to protect their noses from the assault, the plantation workers ingest the foul stench day in and day out. It took all my willpower not to retch all over Firestone’s perfectly manicured lawn or lush green golf course that senior management frequents while on hiatus from their back-breaking overseeing.
Believe it or not, the foul stench is the least of the workers’ worries.
While England celebrates its 200th anniversary of the abolition of the slave trade, plantation workers in Liberia are trapped in a time warp of monumental proportions. They exist in the parallel universe of multinational corporate checkmate, where the prize goes to the highest exploiter. Firestone has been playing the chess pieces of Liberia’s rubber slaves since the company, then led by its founder Harvey Firestone, signed a concession agreement with the Liberian government in 1926 to lease one million acres of land for six cents per acre—an abominable exchange given the astronomical dividends garnered from rubber sales then and now. The agreement was surrounded by controversy as well: after its approval by the legislature, the corporation added a clause that mandated that Liberia would accept a $5 million loan from Harvey Firestone, a plan against which the Liberian Secretary of the Treasury, the Attorney General, and local activists protested. As well as drawing on support from the US State Department, the company established a subsidiary to handle the loan separately in order to sidestep the resistance – one of many subsidiaries that would be established to handle multiple dimensions of the corporation’s business in Liberia.
Since then, the company has continued to exploit the country – especially through avoiding taxes and abusing human rights standards in its chase for profits. As a striking example of the asymmetry of the relationship between country and corporation, in 1951, the profits retained by Firestone-Liberia after taxes were paid to the Liberian government still amounted to three times the total income of the Liberian treasury for the same year. This asymmetry was also revealed in the many tax exemptions granted to and exploited by the company. Throughout its history in Liberia, Firestone has muscled its way into gaining long tax holidays; long exemption periods of import and export duties; special tax tariffs; and large tax deductible items in cases where it was liable to taxes.
In 2005, Liberia’s transitional government signed another concession agreement for an extra 37 years of rubber slavery, despite having 20 years remaining on the original contract. Besides the question of whether the transitional government had the authority to sign the contract, the revised agreement ensured that the corporation’s exploitative privileges remained entrenched. It not only allows Firestone to set the price of rubber in the context of its own contract, thus creating the conditions that could enable transfer pricing and allow the company control over the amount of taxable income, but also sets the benchmark for all rubber in Liberia. The government does not even have an equity share in the investment, so that taxes and royalties are its only financial benefit. Rubber is Liberia’s largest export, and Firestone its largest international corporate exploiter, I mean employer, to date.
In March 2007, the Firestone Rubber Company, a subsidiary of the Japan-based Bridgestone Corporation, won the Public Eye Global Award for its social and ecological sins, which
demonstrate the shady side of pure profit-oriented globalization. The award was bestowed upon Firestone precisely because of the slave-like conditions on the plantation in Liberia. Workers live in dilapidated mud huts and are forced to seek the aid of their children in the strenuous and dangerous task of extracting latex from rubber trees. The deliberate and strategic use of children is against international laws including ILO Conventions, American and Liberian labor laws.Since the plantation opened in 1926, company housing, mainly single room mud huts with no electricity, running water, or toilet facilities, has never been refurbished and updated to modern safety standards. Firestone’s plantation workers and their children toil under the same slave-like conditions they have endured for the past 80 years. The children’s labor usually includes cutting trees with sharp tools, applying pesticides by hand, and hauling two buckets on a pole, each filled with more than 30 kg of latex. Every day, these child laborers have to work long hours and are thus denied the right to basic education. Access to the company run schools is further impeded as parents must present a costly birth certificate in order to register their children.
Violation of child labor laws is only one among a long list of indictments against Firestone. According to Friends of the Earth USA, discharge from the company’s rubber processing plant has contaminated the adjacent Farmington River and other waterways, killing once vibrant ecosystems and polluting communities that depend on river water for drinking, bathing, and fishing. Furthermore, plantation workers are exposed to toxic chemicals and compounds on a daily basis while tapping. The merciless exploitation of Liberia’s people and natural resources by Bridgestone is directly linked to the nation’s impoverishment as the raw materials produced in Liberia are sent elsewhere for processing, thereby shutting out the possibility of added value. If a processing plant is built in Liberia, it could revolutionize the way rubber is used within a continent in dire need of manufactured goods such as condoms in the heyday of Bush’s conservative AIDS funding policies.
Clear violations of the law prompted a legal complaint filed in November 2005 against Bridgestone Corporation and Bridgestone Firestone North American Tire, LLC by the International Labor Rights Forum (ILRF), a member of the Stop Firestone Campaign, which is an advocacy coalition launched in 2005 to highlight Firestone’s exploitative undermining of Liberian labor laws. The 35 plaintiffs either have been or are currently child laborers on the company’s rubber plantation in Liberia. They describe their lives as “trapped in poverty and coercion.” The plaintiffs have brought their case to a U.S. court since Liberia’s legal system eroded during 15 + years of civil war and strife. The case is currently ongoing.
The ILRF, along with its Stop Firestone Coalition partners, demands that Firestone:
- provide workers with basic rights, including a living wage and the freedom of association;
- end all child and forced labor and assign achievable quotas;
- adopt health and safety standards; stop exposing workers to toxic compounds and chemicals;
- improve housing, schools, and health care centers to provide safe and comfortable facilities;
- ensure public disclosure of revenue and all types of foreign investment contracts;
- stop releasing chemicals into the environment and redresses all environmental damage; and
- publicly disclose the identity and quantity of all toxic compounds it releases or transports.
Liberia’s Minister of Labor, Kofi Woods, a long-time human rights activist/lawyer and a major catalyst for the Stop Firestone Campaign, has been in rounds of renegotiation sessions with Firestone representatives recently in Washington, D.C. Because of his list of demands—which are reminiscent of the Stop Firestone Coalition demands—Firestone representatives stormed out of the meetings in March 2007. Go figure. Woods and his cohorts are what I imagine African legislators should be like, uncompromising and unyielding when it comes to corporate social and ethical responsibility. Liberia’s post-conflict reconstruction agenda will be null and void without a reconfiguration of the concession agreement with Firestone. After all, any post-war scheme involves a drastic revving up of the national economy, and given Firestone’s economic entrenchment in Liberia, it will need to refashion how it deals with Liberian workers, thereby increasing employee profit margins.
History challenges us to stay on a forward moving dialectic of change. The Firestone example shows us that an ironic distortion of that dialectic is taking place right under our noses. Slavery ain’t dead, it’s manufactured in the rubber we use daily. We owe it to Emmanuel and his comrades on the Firestone Rubber Plantation to change the course of history, to make a clean break from modern-day slavery and its peculiar 21st century manifestations. We owe it to ourselves.
Take action now!
• For more information on the Stop Firestone Campaign, visit www.stopfirestone.org.
• Check out the STOP Firestone student action kit and bring the campaign to your campus!
• Visit the Stop Firestone YouTube channel!
• Listen to Robtel Pailey’s Pambazuka News podcast with Ezekiel Pajibo and Kofi Woods about the role of Firestone Rubber Company in Liberia.
• Watch the “Slaves of Firestone” photo essay.
• Read more about the history of Firestone in Liberia from an essay by Carl Patrick Burrowes.
• Read a report on Firestone from the Liberian Save My Future Foundation (SAMFU).
Liberian native Robtel Neajai Pailey is a graduate of Howard and Oxford universities. Excerpts of this editorial were originally published in Pambazuka News, the authoritative social justice e-newsletter for Africa.
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