Monthly Archives: November 2015

The United States as a Tax Haven

taxes

The world is becoming less welcoming to tax dodgers. That is the conclusion of the latest Financial Secrecy Index, published every two years by the Tax Justice Network (TJN), an NGO….. Among the biggest improvers are the Cayman Islands, once a notorious tax haven, and Luxembourg, which tax campaigners used to call Europe’s “death star” of financial secrecy.

The reason for the shift is the global, austerity-era push for countries to share more information on tax arrangements. Under the fast-spreading, OECD-sponsored Common Reporting Standard, countries will routinely exchange data on each other’s citizens so they can be taxed appropriately in their home countries. Rules on the registration of corporate ownership are being tightened, too, in order to reduce opportunities to hide dirty money in anonymous shell companies.

But America, the country that has arm-twisted so many others to join the transparency revolution, is dragging its feet. It is now the third most secretive jurisdiction, behind Hong Kong and, inevitably, Switzerland (where rumours of the death of bank secrecy have been exaggerated).

America was in the vanguard in the fight against tax havens, first targeting the Swiss, then passing the Foreign Account Tax Compliance Act, or FATCA, which forces financial firms all over the world to spill the beans on their American clients. While demanding concessions from others, however, Washington has made few itself. It has, for instance, failed to engage with the OECD’s data-sharing scheme. Worse, anonymity-friendly incorporation regimes at the state level mean America is unmatched in corporate secrecy.

This matters, because America hosts a lot of offshore business—just ask a billionaire from Caracas or Cairo where he buys property or sets up the shell companies that hold it. The TJN offers a solution: it reckons Europe should mimic FATCA by imposing a stiff withholding tax (it suggests 35%) on payments from Europe to American financial institutions, until America gives as much data as it takes. That would induce wry smiles in Zurich.

Excerpts from Tax evasion: The mega-haven, Economist, Nov. 7, 2015, at 67

Chinese Drones Lift Off

CH-5 Chinese drone.
China has displayed its latest and biggest military unmanned aircraft at an industry expo in Shenzhen, Guangdong province…Considering the rule that China’s defence sector never publicly displays advanced weapons solely designed for the People’s Liberation Army (PLA), the public debut of CH-5 at the China (Shenzhen) International Unmanned Vehicle Systems Trade Fair has an unmistakable indication: China is eager to sell it.  “We have sold the CH-3 to several foreign nations and now we plan to launch the export version of the CH-5 to the international market. It can perform air-to-ground strike, reconnaissance and transport operations,” said Shi Wen, chief designer of the CH series at China Academy of Aerospace Aerodynamics..  They did not disclose which countries have introduced the CH series, but earlier reports quoted Vasily Kashin, a senior analyst with the Moscow-based Centre for Analysis of Strategies and Technologies, as saying Egypt, Saudi Arabia and Iraq have deployed drones from the CH family.…[T]he drone can stay in the air for as long as about 40 hours and operate at an altitude of up to 10 km.  Compared with other military drones that usually have a maximum take-off weight of less than 1,500 kg, the CH-5 is much more powerful-it is able to fly with a weight of 3,000 kg and carry 900 kg of equipment and weapons.

Excerpt from China displays biggest drone, The Hindu, Nov. 21, 2015

New Nuclear Plant in the US since 1996

Watts Bar nuclear reactors 1 and 2. image from wikipedia

The Tennessee Valley Authority (TVA) has the green light to operate a new East Tennessee nuclear reactor, the first operator license issued since 1996.  The TVA has finally completed the Watts Bar 2 reactor, which has been in the works for more than 40 years. Construction on the site near Spring City was suspended in 1985 but then restarted in 2007. The U.S. revised its nuclear reactor safety standards after the Fukushima disaster in Japan, and the Watts Bar 2 reactor is the first reactor to meet the new safety standards

Excerpt from Ed Arnold, Tennessee goes nuclear,Memphis Business Journal, Oct. 26, 2015

Closing Down Nuclear Plants in the United States

pilgrim nuclear plant image from US NRC

In Massachusetts, residents who live near Entergy Corporation’s Pilgrim Generating Station, worry about health and environmental threats from the spent radioactive fuel that remains at the plant once the power plant closes. And they’re not being quiet about it.  “My house is six miles across open water from the reactor,” says Mary Lampert, the director of the citizen group Pilgrim Watch. “I can see it from my house, which is real motivation to get to work on the very serious issues that threaten our communities.”  Lampert says she and her fellow activists celebrated when they heard that Entergy had decided to close the plant, but their joy was short-lived when they learned about the continued presence of radioactive waste….because no state wants to be a permanent repository,” Lampert says.

Nonetheless, Makhijani says, while decommissioning is risky, because parts of the reactors are highly radioactive, it is less risky for the surrounding public in compared to operating an aging nuclear plant.  “There are mainly two different kinds of big risks associated with nuclear power,” Makhijani explains. “One of them we have seen dramatically in Fukushima: the operating nuclear reactor fails, has a meltdown and [there is] a massive release of radioactivity. That is the risk that goes away when you shut down the nuclear reactor and remove the fuel.”There are risks associated with removing the fuel because some of it is still very hot and needs to be cooled. A loss of coolant, for example, could lead to fires. But as the fuel gets older, it cools down significantly and these risks decline, Makhijani says. “If you thin out these pools and have dry storage, the risks to the surrounding population become quite low,” he explains.

Entergy Corporation says it has set aside nearly a billion dollars to decommission the plant and to protect public health and safety.

Excerpt, Adam Wernick, Even plans to close nuclear power plants stir controversy, PRI,  Nov. 21, 201

Premature De-industrialization: Africa

African-Economic-Outlook-2014

“Name any country in Africa, and I could have found a world-class firm there a decade ago,” says John Page of the Brookings Institution, a think tank, the co-author of a forthcoming book on African manufacturing. “The problem is, two years later, I’d go back and still find just the one firm. In Cambodia or Vietnam, I would go back and find 50 new ones.”

To be sure, many countries deindustrialise as they grow richer (growth in service-based parts of the economy, such as entertainment, helps shrink manufacturing’s slice of the total). But many African countries are deindustrialising while they are still poor, raising the worrying prospectthat they will miss out on the chance to grow rich by shifting workers from farms to higher-paying factory jobs.

s not just happening in Africa—other developing countries are also seeing the growth of factories slowing, partly because technology is reducing the demand for low-skilled workers. “Manufacturing has become less labour intensive across the board,” says Margaret McMillan of Tufts University. That means that it is hard, and getting harder, for African firms to create jobs in the same numbers that Asian ones did from the 1970s onwards.

Yet deindustrialisation appears to be hitting African countries particularly hard. This is partly because weak infrastructure drives up the costs of making things. The African Development Bank found in 2010 that electricity, a large cost for most manufacturers, costs three times more on average in Africa than it does even in South Asia. Poor roads and congested ports also drive up the cost of moving raw materials about and shipping out finished goods.

Africa’s second disadvantage is, perversely, its bounty of natural riches. Booming commodity prices over the past decade brought with them the “Dutch disease”: economies benefiting from increased exports of oil and the like tend to see their exchange rates driven up, which then makes it cheaper to import goods such as cars and fridges, and harder to produce and export locally manufactured goods.

Excerpt from Industrialisation in Africa: More a marathon than a sprint, Economist, Nov. 7, 2015, at 41

The Modern Concentration Camp Approach to Migration Crises

christmas island

In 2012, Australia’s Human Rights Commission concluded that the country’s “system of mandatory detention breaches fundamental human rights.” Christmas Island, which the commission found “is not an appropriate place in which to hold people in immigration detention“, is at the centre of that system.

While little is known about what actually happened during the November 2015  riots, and after them, what preceded them is revealing.  Fazel Chegeni, an Iranian Kurd who’d been tortured in Iran and granted refugee status in Australia, still found himself in the immigration detention system.  Over four years, in which, as Fairfax Media discovered, five immigration ministers “defied repeated advice that this was the last place he should be”, the damaged and vulnerable asylum-seeker was incarcerated beyond hope and understanding.  Fazel Chegeni escaped the centre. But escaping here is not really escaping. There’s nowhere to go, and no way to get there.

His body was found two days later. How did he die? No one has said. But his death appears to have triggered a furious reaction from some of the men he was incarcerated with. Riots. $10 million worth of damage. Seven detainees, including New Zealanders, handcuffed and flown out to a maximum security prison in Perth.  And then the clean-up, and the consequences, including reports of men who hadn’t rioted, but couldn’t escape the riots, being held in cages…,,

Back in New Zealand, United Future leader Peter Dunne wrote: “The modern concentration camp approach Australia has taken is simply wrong. It was wrong when the British tried it in Northern Ireland in the 1970s; it is wrong in Guantanamo Bay, or in Israel today. Australia is no different.”

His words have had widespread coverage in Australia, with a surprising amount of agreement. But, Gordon Thomson (head of the local government at Christmas island) who wants the centre gone from his beloved island, said: “That’s the whole purpose of it. The remote location is ideal for the government’s purposes – that’s to have a secret, the most secretive regime that they can possibly achieve within our legal system, and Christmas Island is the place they can do that best.”

Excerpts from  John Campbell, Unlocking Christmas Island’s secrets, Radio New Zealand News, Nov. 16, 2015

Funding Nuclear Fusion Technologies: ARPA

The sun is a natural fusion reactor. image from wikipedia

ARPA-E, or Advanced Research Projects Agency-Energy is a United States government agency tasked with promoting and funding research and development of advanced energy technologies. It is modeled after the Defense Advanced Research Projects Agency (DARPA).

From the ARPA website

Fusion energy holds the promise of virtually limitless, clean power production. Although fusion has been demonstrated in the laboratory, scientists have been unable to successfully harness it as a power source due to complex scientific and technological challenges and the high cost of research….Attaining [the conditions for the production of fusion] conditions is a very difficult technical challenge. Additionally, many current experimental techniques are destructive, meaning that pieces of the experimental setup are destroyed with each experiment and need to be replaced, adding to the cost and time required for research.
Los Alamos National Laboratory (LANL), along with HyperV Technologies and other partners, will design and build a new driver technology that is non-destructive, allowing for more rapid experimentation and progress toward economical fusion power.   LANL’s innovation could accelerate the development of cost-effective fusion reactors, which may provide a nearly limitless supply of domestic power and eliminate dependence on foreign sources of energy.
Fusion reactors offer nearly zero emissions and produce manageable waste products. If widely adopted, they could significantly reduce or nearly eliminate carbon emissions from the electricity generation sector. LANL’s approach, if viable, could enable a low-cost path to fusion, reducing research costs to develop economical reactors.

Partners
HyperV Technologies Corp.
University of Alabama in Huntsville
University of New Mexico
Brookhaven National Laboratory
Tech-X Corporation

The Inevitability of Nuclear Power

Hinkley Point B nuclear power station, UK

[A third nuclear reactor is to be built in Flamanville, France  by Electricité de France (EDF)]…Called Flamanville 3, is likely to become the focus of international attention because it is the model for an imminent expansion across the channel…EDF has agreed on October 21st agreed with China General Nuclear Power Corp (CGN), a state-owned entity, to build two reactors of the same design in south-west England called Hinkley Point C. EDF will own two-thirds of the project and CGN a third. The plant in Somerset is supposed to open by 2025, after construction that is forecast to cost £24.5 billion ($37.8 billion)…

The history of Flamanville 3, where work began in 2007, indicates how difficult that might be. It was planned as a five-year scheme, but this month EDF, which is mostly state-owned, formally asked officials to extend the deadline to 2020. Its original budget of €3.3 billion has more than tripled, to €10.5 billion ($11.9 billion). Getting its new European Pressurised Reactor (EPR) into service is proving harder than expected. One problem is the troubled condition of Areva, another mostly state-owned French firm, which supplies reactor components. It reported losses of nearly €5 billion in March, because of soaring costs and long delays at the only other EPR being built in Europe, Olkiluoto 3, in Finland. Work began in 2005 but it will not open before 2018 at the earliest.

The main technical problem at Flamanville 3 concerns suspicions of high levels of carbon in the steel of a crucial component, the vessel, already installed under the dome of the new reactor. Replacing it now, if inspectors conclude it is too brittle, would be costly. In June the company also said it was double-checking the working of safety valves.

Meanwhile EDF’s financial burden grows. It boasts of €73 billion in global revenues, but faces a threefold strain. Demand for electricity is stalling in France, its main market—and, as problematic, the country plans to cut nuclear’s share of electricity generation to half of the total, by 2025, from 75%. Next, though details are not finalised, EDF will absorb the nuclear unit of troubled Areva. Last, it has to upgrade, or at least maintain, France’s stock of ageing reactors. Mr Lévy told French radio on October 18th that capital expenditure for that alone would be around €50 billion.

No wonder ratings agencies judge that EDF’s financial prospects are secure only because of its state backing.

EDF’s prospects, indeed those of any nuclear company, depend on the backing of politicians who want to preserve nuclear expertise and jobs at home. 

EDF’s Nuclear Ambitions: French Lessons, Economist,Oct. 24, 2015, at 63

Children Slavery Markets

ferry lake Volta Ghana, image from wikipedia

Crowdsourcing project Tomnod (part of the DigitalGlobe company) is working with the public-private partnership The Global Fund to End Slavery to produce accurate and public data on slavery.More than 20,000 children are forced into slavery on Lake Volta, Ghana, the International Labour Organization estimates.They work 19-hour days and carry out dangerous tasks which leave many disabled, disfigured or even dead, campaigners say. Yet the size of the lake, 8,500  square kilometres (3,280 sq miles), makes it difficult to map from the ground and provide an exact figure of the number of child slaves, said Caitlyn Milton at Tomnod, part of the satellite company DigitalGlobe..  More than 10,000 volunteers have contributed to the campaign since it launched in mid-October 2015.

Although child labour is illegal in Ghana, thousands of children are sent away by parents who believe traffickers’ promises of an education and a better life.  In reality, children as young as four years old risk their lives diving into the lake’s murky waters to untangle nets, and end up working in such horrendous conditions that many die.  For other parents, selling some of their children into slavery is the only way to feed the rest of their family.  The average couple in the Lake Volta region earns little over $2,000 a year, meaning that a family with eight children will have only $2 a week – the price of a loaf of bread – to feed each child, according to The Global Fund to End Slavery….

“Unfortunately you don’t have to look hard to find children working on the lake, but it takes a lot to mount rescue operations that are backed up by the long-term support necessary to ensure children are not retrafficked,” Kofi Annan said.  Yet hard data could increase the government’s efforts to end slavery, by prosecuting traffickers and providing social support so that there is somewhere for children to escape to, he added.

Tomnod has run other projects including monitoring illegal fishing in Costa Rica and locating elephant poachers in the Democratic Republic of Congo…

Excerpts from Eyes in the sky: online “mappers” track child slavery in Ghana, Reuters, Oct. 28, 2015

Monetary Defeat and Political Suicide-Zimbabwe

Zimbabwean dollars image from wikipedia

Zimbabwe: Deflation has taken root as consumer demand shrinks and the economy struggles with a shortage of dollars. Once bustling factories in Harare are now rusty shells, devastated by the 1999-2008 recession that cut GDP by about half.  In addition, the mines are reeling from the fall in commodity prices and a drought has left 16% of the population needing food aid. Formal unemployment stands at more than 80% and power shortages are getting worse…

A year ago, Mugabe, the President of Zimbabwe,  turned to “old friend” China, but behind the official warmth Beijing made clear the days of blank cheques were over, forcing Zimbabwe to make repayments on $1 billion of loans made over the previous five years….

Zimbabwe has also opened talks on fresh loans from the World Bank, IMF and African Development Bank for the first time since 2009, when it started defaulting on its foreign debt, which now stands at $10.4 billion or 74% of GDP….

In the past, Mugabe parcelled out land seized from white commercial farmers, raised wages for state workers and printed money to finance government spending to shore up his support. Now he has little room to manoeuvre after the adoption of the US dollar in 2009. The government can no longer devalue the currency, print money to stimulate the economy or influence interest rates…

But new international loans will require reforms, including selling some loss-making state firms, which are a constant drain on the public purse, analysts said.Harare would need to plug leaks in its finances, increase transparency in mining revenue, redistribute idle farms to competent farmers and ease black economic empowerment laws requiring foreign-owned firms to sell majority shares to locals.  “By far the biggest reform is that of the civil service. The government needs to cut spending on salaries, which the authorities are conscious of,” said a Western diplomat who has helped Harare in discussions with foreign creditors.  Wages take up 83% of Zimbabwe’s $4 billion annual budget. Finance Minister Patrick Chinamasa has said the bill should be cut in half, but there is no consensus within cabinet on how to do it.  The government is now the biggest employer with 550,000 workers of the total 800,000 formal jobs. Most Zimbabweans earn a living in the informal sector and on the streets.

Excerpts from Zimbabwe’s Mugabe warms to the West as economy wobbles, Reuters, Oct. 22, 2015