UN: US PROPOSES PURCHASING POWER PARITY AS A BASIS

UNCLAS USUN NEW YORK 000508

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: AORC KUNR UNGA
SUBJECT: UN: US PROPOSES PURCHASING POWER PARITY AS A BASIS
FOR 2007-2009 SCALE METHODOLOGY

REF: A. A) SECSTATE 32804 B) LEIS-ATTWOOLL EMAIL OF
MARCH 10

B. 2006


1. Summary. The Fifth Committee resumed its consideration on
March 13th of the elements of the scale of assessment to be
sent to the Committee on Contributions (CoC) this June. New
proposals were tabled by Japan, Mexico and the US, and a
revised proposal was presented by the European Union. The
G-77 questioned all proposals, with particular emphasis on
the U.S. proposal. The Secretariat further undercut the U.S.
proposal in its comments that the data collection and
compilation required for the U.S. proposal would "impose huge
problems, and the UN Statistics Division may not be able to
do it." End summary.


2. New proposals on elements of the scale methodology to be
considered by the CoC were presented by Mexico, Japan and the
U.S. and a revised proposal was submitted by the EU during
informal consultations. Nearly all the questions and
clarifications sought on all proposals were made by members
of the G-77, with China and Brazil stating outright that
certain proposals (Japanese and American) were unacceptable.


3. The Japanese proposal, presented by Ambassador Ozawa,
would create a floor of 3 or 5 per cent for permanent members
of the Security Council, and would also have a 3 year base
period and annual recalculation. G-77 questions focused in
particular on the practical application of an annual
recalculation as well as the element of "responsibility to
pay" espoused by the Japanese delegation. As expected, China
and Russia had strong negative reactions to the latter
element. In a particularly biting comment, the Chinese
delegate reminded the committee that her country did not have
to buy a seat on the Security Council.

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Reactions to U.S. proposal
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4. As instructed (ref A and B),USdel proposed a "clean
slate" approach to the methodology with only four elements:
Gross National Income based on purchasing power parity (PPP);
a 3 year base period using most current data; a ceiling of 22
per cent; a floor of .001 per cent. Questions and comments
were raised by the following delegations: South Africa (on
behalf of the G-77 and China),India, Egypt, Norway, China,
Argentina, Russia, Brazil, and Trinidad and Tobago. Overall,
the questions focused on the applicability of the data, the
relevance of the data in determining capacity to pay, the
assertion that PPP is a departure from capacity to pay,
problems in data gathering for PPP and lack of data for many
countries, and precedent in the GA for not accepting PPP.


5. South Africa led the charge with a number of technical
questions on how this methodology would work in practice,
with particular reference to the lack of data for many
countries. The question of missing data was also raised by
Argentina. South Africa further questioned whether the U.S.
was proposing to move away from the bedrock principle of
capacity to pay, particularly since the proposal contained no
provision for a low per capita income adjustment which has
been part of the methodology since the 1940s.


6. The Indian delegate commented that according to his
understanding of PPP, India could then make payment to the UN
in goods and services, with loaves of bread, for example. He
also said that PPP negates the principle of "broadly
according to capacity to pay", which is in the UN Charter,
and it also eliminates the provisions that have been built in
over time to more accurately measure countries' capacity to
pay. Comment: Capacity to pay is not a Charter obligation.
End comment.


7. Norway twice questioned whether PPP would better reflect
capacity to pay and how this could be technically applied.
The Norwegian delegate also asserted that the U.S. proposal
skirts the principle of capacity to pay and is technically
inaccurate since it is a method to reflect standard of living.


8. China said that PPP inflates economies of developing
countries and pointed out that the International Comparison
Program (ICP) still has many problems in collecting PPP data.
PPP has only been relevant for particular studies, not for
assessments. China further questions whether any UN agency
has used PPP as the basis for operations and whether the CoC
has ever accepted PPP.


9. Russia pointed out that PPP was considered ten years ago
by the Working Group on Capacity to Pay, and the group found
that PPP was not suitable as a basis for assessment. Brazil
chimed in asserting that PPP estimates are not always robust
and therefore PPP is an unacceptable approach. Lastly


Trinidad and Tobago reminded the committee that Member States
need to be serious about looking at the technical basis of
proposals and that proposals should be aimed at minimizing
distortions in capacity to pay.

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Secretariat response

SIPDIS
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10. The Secretariat was represented by Mark Gilpin, Chief of
the Contributions Service and Dr. Viet Vu, Chief of the
National Accounts Section of the UN Statistics Division. In
response to the many questions of delegations on the U.S.
proposal, Mr. Gilpin replied that PPP rates have not been
used in the past in other UN organizations. The CoC had
looked into PPPs, however, and did not agree that it would
suitable for use in assessments. Rather, it was an approach
to be used for analytical and policy purposes and was not
relevant for income comparisons.


11. Dr. Vu of the Statistics Division said that PPP is a
concept to measure purchasing power, not to measure capacity
to pay. The World Bank is currently undertaking a program to
measure PPP, however this is not yet complete. PPP measures
the prices of goods that are commonly consumed in society.
He cited the Big Mac index as an example, but further pointed
out that the majority of societies did not consume Big Macs,
therefore PPP was not representative of the majority of
economies. The ICP is in the process of collecting data for
one year of PPPs and will have to make estimates for a number
of countries. The ICP only covers 90 countries and the data
for all other countries were statistical estimates. The use
of PPP would taking World Bank data, most of which are an
estimation; also, the data are not prepared annually. In
developed countries, PPP rates were very close to Market
Exchange Rates. However, in developing countries, services
are cheap compared to goods and therefore PPP in developing
countries deviates strongly from MERs. PPP would impose huge
problems in data collection and the UN Statistics Division
may not be able to collect the data requested in the U.S.
proposals. The use of PPP would not make the scale more
objective. Rather, it would deteriorate the transparency of
the data.

BOLTON