FIFTH COMMITTEE BEGINS DISCUSSION TO DETERMINE STATES' CONTRIBUTION FOR 1998-2000, MONDAY, 20 OCTOBER

17 October 1997

Press Release
GA/AB/3169

FIFTH COMMITTEE BEGINS DISCUSSION TO DETERMINE STATES' CONTRIBUTION FOR 1998-2000, MONDAY, 20 OCTOBER

19971017 Background Release Eight Sets of Proposals on Scale Of Assessments Include Lowering Ceiling, Floor Rates

Determining which State will pay how much of the expenses of the United Nations for the next three years is one of the most contentious tasks facing the General Assembly at its current session. Its decision will take immediate effect beginning with the 1998-1999 budget, proposed at $2.213 billion net.

In making its decision, the Assembly will consider such questions as the reduction in the proportion to be borne by the largest contributor, the United States, the minimum amount payable by smaller Member States, as well as the eligibility of permanent members of the Security Council for relief under the low per capita income adjustment.

Discussion over the method for determining the assessments tends to reveal stark geo-political and economic divisions. Various criteria are considered, which, together, it is hoped, will accurately reflect every Member State's real "capacity to pay" for the Organization's continued functioning. Considered together, those criteria result in the "United Nations scale of assessments".

The Assembly will take its decision on the scale of assessments based on the recommendation of its Fifth Committee (Administrative and Budgetary), which begins considering the issue on Monday, 20 October. In this regard, the Committee will be guided in its discussions by a report of the Committee on Contributions, an 18-member body which advises the Assembly on matters related to assessment.

During its last session, the Assembly reaffirmed that the expenses of the Organization should be apportioned broadly according to capacity to pay. However, it was unable to agree on a single set of methodological elements and, instead, requested the Committee on Contributions to formulate eight scales based on eight sets of criteria. One is based on the set of elements currently in use and the others reflect proposals put forth by States and groups of States, including Canada, Japan, Mexico, United States, European Union, and the "Group of 77" developing countries.

The Committee's report (documents A/51/11 and Corr.1) contains those eight scales, and reflects the discussions held on the various elements. During its work, the Committee tried to reach consensus on the major elements of the scale, which would be reflected in a ninth scale. Although some agreements had been reached, formulation of a ninth scale was not possible.

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Among the elements reflected in the eight proposals are whether to use gross national product (GNP) or national income; the average base period for calculating Member States' income; the extent of reduction, or "gradient", for countries with per capita income below the world's average; the ceiling and floor for maximum and minimum contributions, respectively; whether or not permanent members of the Security Council should benefit from the adjustment for low per capita income; and the phase-out period for the "scheme of limits", which is a mechanism to slow down the rate by which a Member State's dues can vary between two successive scales.

Seven of the proposed scales, including the current one, retain the 25 per cent ceiling, which has been in place since 1974, while one -- put forth by the United States, which is assessed at the maximum rate -- lowers the ceiling to 20 per cent. If the lower ceiling were accepted, two Member States -- Japan and the United States -- would be assessed at that rate. Some members of the Committee noted that such a situation would raise an issue of equity for both States.

According to a publication of the United Nations Institute for Training and Research (UNITAR), entitled Assessing the United Nations Scale of Assessment: Is it Fair? Is It Equitable?, the maximum percentage ever assessed to one Member State was 39.89 per cent of the Organization's regular budget, charged to the United States from 1946 through 1949. The United States has been the highest-assessed Member State since the Organization's inception.

On the minimum rate, or floor, the scale reflecting the current approach would retain it at 0.01 per cent, six scales would have a floor of 0.001 per cent, and a proposal by Canada would have no floor. The maximum to be paid by the least developed countries (LDCs) would be 0.01 per cent under six of the proposed scales, while two propose abolishing this ceiling for LDCs. Recalling the Assembly's 1993 decision that LDCs should not be assessed at a rate higher than 0.01 per cent, members of the Committee on Contributions agreed that the LDC ceiling should remain an element in the scale.

Seven of the eight alternative scales use GNP as the basis for calculating a country's capacity to pay, in contrast to the present use of national income. [GNP measures domestic product and the net effect of transfers to and from other countries. National income also reflects the estimated notional impact of depreciation.] During its deliberations, the

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Committee on Contributions reaffirmed its earlier recommendation that future scales should be based on estimates of GNP.

Calculation of a Member State's assessable income includes consideration of where its average per capita income, within a given period, falls in comparison to the world average. For countries with per capita income below the world average -- which is called the "threshold" -- adjustments are made to the scale. That relief is then absorbed by wealthier countries, according to provisions in each scale proposal. Countries' assessable incomes are reduced by the proportion by which their per capita income falls below the threshold, multiplied by a percentage figure called the "gradient". Currently, the gradient is 85 per cent. Several scales propose maintaining that gradient, while three would decrease it to 75 per cent. The higher the gradient, the less the assessable income, the lower the assessment.

The Committee had an extended discussion of the adjustment for low per capita income and reaffirmed its continuing relevance and importance. However, it was unable to agree on the appropriate level for the gradient.

A controversial issue is whether permanent members of the Security Council should be eligible for the low per capita income adjustment. Under the criteria of two proposals (Japan and United States), permanent members would not be eligible for such adjustments; under the remaining six proposals, they would. Of the Council's five permanent members, China and the Russian Federation would be affected by the proposal.

Another element to be decided is the length of time over which a country's economic statistics should be drawn. Proposed base periods range from three to nine years. The current length is an average of seven and eight years. The Committee on Contributions reached tentative agreement that the base period should be six years, with further reduction remaining a possibility in the consideration of the Organization's next scale.

A shorter base period would mean that economies that have grown faster in the past few years would take on a greater share of the Organization's expenses, while a longer base period would not give as much weight to the recent fluctuations in each country's economic position.

Both the length of the base period and the scheme of limits are designed to offset dramatic changes in a country's economy. The scale of 1977, for example, with a base period of three years, contained increases up to 400 per cent for certain countries, mainly oil-exporting countries. The base period was then extended to seven years.

Another criterion to assess a country's capacity to pay pertains to external debt. While some proposals would have actual debt repayment, also known as debt flow, become a qualifier for adjustments in the scale, others

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are based on debt stock, that is, the amount of external debt a country carries, as the determining factor for such adjustments. Two proposed scales -- European Union and United States -- would remove the debt-burden adjustment altogether. During an earlier session, Committee members agreed that should debt-burden adjustment remain an element in the scale, it should be based on actual principle repayments. At its last session, it also tentatively agreed that the debt adjustment should be maintained.

Other aspects of the scale include the number of decimal places to be used, conversion rate criteria, and whether or not the scale should be updated annually.

Attached to the report are nine technical annexes. One is a chart comparing the elements of the eight scales, while the remaining annexes illustrate how each scale would affect countries' rates.

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