In the summer of 2023, Indonesia initiated the intention to join the Organisation for Economic Co-operation and Development (OECD). Following a year, in the midst of Indonesia’s 2024 election, the OECD’s discussions on Indonesia’s accession offered hope. Finally, in May 2024, Indonesia accepted the roadmap to navigate the process of joining this rich-country club.
The nation’s 2045 vision serves as a compelling rationale to align development trajectory with the rich-country club policy setting. Blessed with a demographic bonus, abundant natural resources, and the leading economy in the most rapidly expanding region in the world, none of these factors easily guarantee the development toward Indonesian golden 2045. So, the Government of Indonesia has demonstrated a commendable initiative by initiating negotiations and processes for OECD membership.
Undoubtedly, the most salient characteristic of OECD’s influence in global economic governance is its soft law. Unlike the enforcement mechanisms used by the WTO, IMF, and World Bank, the OECD enjoyed a stand-alone mechanism of regulation without overarching authority or ability to impose sanctions. Yet, the OECD’s approach successfully conveyed a sense of tangible influence on state conduct.
Practically, the OECD’s impact to global economic governance is also much more about the creation of socially relevant policy knowledge, transferring of policy expertise and technical committee among their members. This benefit underscores an important reason to enhance transparency in Indonesia’s economic development efforts to avoid becoming stalled as a middle-income trap country.
However, it’s essential to recognize that the OECD is not only just about market-oriented economic platform offered by rich countries, but also more as the exclusive club for international tax cooperation. This raises the fundamental question: Has Indonesia reflectively comprehend the contestation of global tax politics in recent decades?
As a result of the liberal international economic order entering a crisis since 2008, global tax politics has taken a significant blow related to this political economic shift. The expansion of the OECD gained momentum as a response to this change. From 2007 to 2021, The OECD has welcomed eight new member countries, predominantly from the global south, including Chile, Colombia, Costa Rica, Estonia, Israel, Latvia, Lithuania, and Slovenia. In 2022, Argentina, Brazil, Bulgaria, Croatia, Peru, and Romania also took the first step, before Indonesia, in accession conversation for OECD membership.
Furthermore, the financial crisis 2008 has paved the way for an unprecedented enthusiasm for OECD agendas in international tax cooperation not only in the enlargement of membership but also more in the need for collaboration with global south countries. Under this situation, the OECD’s openness deliberation with emerging markets and low-income countries represented its tendency to obtain effective and timely reform, even though with the sacrifice of its legitimacy. The OECD/G20 Inclusive Framework (IF) on Base Erosion and Profit Shifting (BEPS) project, as the best of that product, has get attention as the biggest overhaul of global tax regulation in creating a configuration interest between the OECD members, G20 emerging economies and low-income countries (LICs), in particular addressing the digital economic issues.
During the process of OECD accession membership, the Government of Indonesia has to strategically comprehend its position in facing a political dynamic of international tax cooperation. To be sure, the OECD itself is the home turf of global north countries’ influence in the international tax regime. According to Martin Hearson, co-Research Director of the International Centre for Tax & Development (ICTD), in his book “Imposing Standards”, global south participants, particularly low-income countries (LICs), were only given a presence at the OECD table in 2016, despite having had the opportunity to engage in the UN tax committee for quite some time. Yet, the UN tax committee offered a little chance to global south countries to symbolize their interest and to counterbalance bias in the global tax system.
In an unprecedented move in November 2023, the UN general assembly, backed by an African-led demand, announced the extraordinary action for bridging between global north and south countries in global tax governance. Under the negotiation for a United Nations Convention on International Tax Cooperation (UNFCITC), which is currently negotiating in April 26 to May 8 (first session) and July 29 to August 16 (second session) to the final draft, is explicitly the disputes in order to defend global south interest in international tax cooperation. The need for the UN tax framework convention, in line with Hearson’s discourse, are to include using decidedly political footing, inclusive multilateral cooperation and more procedural transparency. In other words, the influence of OECD in global tax politics will near end when the world needs UN guidance on international tax policy.
During the initial session of the negotiation, on the view of what type of framework convention looks like, based on Tax Justice Network reports, Indonesia holds a vivid statement in advocating for an inclusive, fair, and effective international tax cooperation framework convention to address the tax challenges especially in the digitalization of economy, but without disrupting the existing agenda. As a founding member of global south, Indonesia has clearly represented its position. Indeed, Indonesia’s independent and active doctrine in foreign policy is expressed through charting a direction and formulating policies that uphold international law.
The result of this negotiation, as the final draft of the parameters for UN tax framework convention, will be completed in August, before being sent for voting to the UN General Assembly at the end of the year. To put in simply, this dynamic transition of global tax politics will have a substantial impact for Indonesia’s cost and benefit to join the OECD. Therefore, despite having several requirements for OECD’s accession process, the Government of Indonesia must also thoughtfully review this transition of global tax governance to achieve a positive-sum game in joining the rich-country club.
[Photo by JovanSR, via Wikimedia Commons]
The views and opinions expressed in this article are those of the author.
Andi Mohammad Ilham has served as tax consultant and a postgraduate student at the School of Government and International Relations, Griffith University.
