From gunboat diplomacy to the negotiating table

Interaction with the global community is the inevitable reality of modern nation states and societies. This is not a recent phenomenon. It is all the more reinforced at all levels of governance and social interaction in the North and the South. More and more activities are controlled by global standards in the wake of increased globalization. The parameters of the engagement, however, are not designed in a democratic or equitable manner and do not address the concerns of all States Parties in equal measure. It is therefore up to each State party to look after its interests within the authorized limits.

The terms of engagement present opportunities and challenges. The undertaking suggests opportunities to negotiate and reject or mitigate hostile terms and conditions against any negotiating party. Unfortunately, the proliferation of precedents, standard clauses, insufficient capacity, poor governance, corruption and a myriad of other factors continue to prevent countries in the South from getting the most out of the negotiations. Often they don’t know exactly what to negotiate on behalf of the country.

These and other factors have increased capital flight and undermined the growth potential of countries in the South, particularly in sub-Saharan Africa, with its bountiful nature and resources. To reverse this trend, Nigeria needs to improve its ability to protect its interests first on the negotiating table, where the engagement agreement with the rest of the world is struck, and in sectors and areas that impact positive multiplier on the economy and the well-being of people.

Before securing the contemporary opportunity to presumably negotiate on fair and just terms, nation states were subject to gunboat diplomacy. During negotiations of any kind, the European powers would deploy a fleet of ships to the coast of the other party with a great psychological impact of the possible consequences if the negotiations failed.

The ability to deploy naval power had advantages, therefore, nations with strategically established military bases around the world. The gunboat was also used to establish new trading partners, create colonial outposts, and expand the empire. Capable nations depended on the imperialists for raw materials and foreign markets. Gunboat diplomacy was used to collect foreign debts until the adoption of the Hague Convention (No. 2) respecting the limitation of the use of force for the collection of contractual debts of 1907.

The gunboat approach was followed by diplomatic protection whereby state parties exchanged notes on how their nationals, especially investors, were to be treated by other governments. Diplomatic protection meant that the governments of investors and other negotiating parties would protest any unfair treatment of their citizens in trade and economic matters. This meant that once an agreement had been reached on an issue, that agreement had to be honored, even if it was unfair to one party.

Why focus on these areas? Nigeria needs trade and investment to grow its economy. To achieve this desire, we must have the potential to harness capital, technology and know-how in ways that are not antithetical to development. The investor, on the other hand, demands the assurance of security and return on investment in a conducive business environment with the ability to repatriate profits. The negotiated agreement aims to protect the interests and concerns of the parties. Unfortunately, developing countries, like Nigeria, have often found themselves on the wrong side of their aspirations as negotiators consistently and persistently negotiate eternally hostile bilateral investment agreements despite available information on hostile clauses to avoid and existing BITs to be terminated or at worst revised.

With trade, one of the main challenges is to maximize the benefits of trade liberalization and this largely depends on scope and coverage. Each country must select the sectors where it can maximize its comparative advantage. It is a trading function. Therefore, negotiators must understand the substance of trade negotiations, otherwise hostile deals will lead to illicit financial flows and further hemorrhage of capital. Europe’s strenuous efforts to negotiate trade agreements with Africa, from the Yaoundé agreement to the Lomé agreement to the current economic partnership agreements, are based on the potential beneficial impact of trade between nation states. At the global level, the World Trade Organization is the multilateral legal framework and more recently the long-awaited African Continental Free Trade Area makes improved trade negotiating capacity more compelling for Nigeria, despite the epithet greater economy. Economic benefits and advantages are not conferred on a golden platter, they must be negotiated, so negotiators must know what to ask for and what to reject.

There is no doubt that taxation remains the most secure and reliable source of state revenue on which development planning can be based with some level of assurance. In this regard, state tax entities must be able to assert their authority over business entities operating within their jurisdiction. Unfortunately, companies that operate in more than one tax jurisdiction have begun to exploit loopholes in tax treaties to shift profits to low-tax jurisdictions, usually to the detriment of developing countries in the South. The ability of multinational corporations to avoid total tax liability is rooted in various aggressive tax avoidance practices and illegal tax evasion practices that require great skill and understanding on the part of tax authority personnel to unearth a fair share of corporate taxes from multinationals. In addition, international legal obstacles erected by countries in the North must be renegotiated or reduced to mitigate the negative consequences of capital flight caused by the exploitation of the tax system by multinationals.

The final area of ​​interest relates to the natural resource and environmental sectors. Nigeria, like many African countries, is generously endowed with natural resources. Maximizing the benefits of these natural resource endowments requires the ability to negotiate with those who have the finance, technology and know-how to exploit the resources in ways that benefit the environment and the ultimate owners of the resources. In the oil and gas sector, negotiations will generally take place between a national oil and gas company, or other entity representing the government, and a foreign investor, usually another company. The takeaways depend on the negotiation skills of government officials on all aspects of the agreement, ranging from exploitation of the resource to sale of the product, benefit sharing, technology transfer, local content, environmental issues and community rights, among others.

Eliminate IFFs and strengthen domestic resource mobilization: Domestic public resources are critical to development planning, as no country has advanced its economy by relying on foreign investment, official development assistance, or lending. loan. The development trajectory of advanced economies shows that they have largely grown through domestic public resources. Leaving Africa’s IFFs unattended is an existential problem because on the one hand Africa is burdened with debt burden though cheap loans and other development aid but there is a huge drain of FFI since pre-colonial times that we have not yet filled in.

To end IFF, action is required at different levels viz. action at the national level; continental or regional action and global international cooperation.

So what should we do? : We need to improve the ability to review trade documents and prevent falsification of records, especially erroneous prices; evaluation of the operations of multinational companies in all sectors, but more particularly in the extractive sectors; review contractual clauses that facilitate IFFs; avoid unnecessary tax exemption clauses designed to attract foreign direct investment and pay attention to tax exemption channels such as donor funded projects, contractor loan funded projects, loan funded projects from international development partners, contracts for national security projects, etc. will enhance Nigeria’s desire to reduce IFFs, as many of these examples have become conduits for IFFs.

Negotiators should refrain from accepting contract splitting to facilitate IFFs, such as artificially dividing a single contract into several smaller contracts to avoid taxes, duties or levies. Multinationals with subsidiaries or associates in Africa like to divide contracts into local and foreign components.

The part of the work that carries the greatest value is then artificially classified as performed by the foreign company in its home country, usually a low-tax foreign jurisdiction or tax haven.

As a policy measure, Nigeria should avoid rewards to front companies incorporated in tax havens. These companies only win big contracts to outsource to a local company at a fraction of the cost and then repatriate the huge difference (profits).

We also tackle corruption perpetrated by officials who accept gratuities to award contracts; agreeing to clauses with an odious obligation on the government which is inevitably in default, thus incurring a penalty shared with the agents who agreed to such clauses in the first place.

Without addressing IFFs, Africa cannot and will not achieve the Sustainable Development Goals. Nor will it be able to control its development priorities.

  • Professor Owasanoye, SAN, is the Chairman of the Independent Corrupt Practices and Other Related Offenses Commission

About Darnell Yu

Check Also

Trade Matters – Lowenstein Sandler’s Bulletin on Global Trade and National Security – November 3, 2022 | Lowenstein Sandler LLP

1. New controls targeting China’s semiconductor and supercomputer sectors The U.S. Department of Commerce’s Bureau …