FIFTH COMMITTEE TAKES UP SCALE SETTING MEMBER STATE CONTRIBUTIONS TO UN BUDGET

Sixtieth General Assembly

Fifth Committee

6^th Meeting (AM)

FIFTH COMMITTEE TAKES UP SCALE SETTING MEMBER STATE CONTRIBUTIONS TO UN BUDGET

Current Scale Set through 2006; Japan Says More Equitable Scale Structure Needed

As the Fifth Committee (Administrative and Budgetary) this morning took up the scale, under which Member States’ contributions to the budget of the United Nations are calculated, the representative of Japan said that a comprehensive review was needed in order to reach agreement on a scale structure that was more equitable and fair.

With the elements of the current scale set through 2006, the Assembly will need to consider this year whether to adjust any of the elements of the methodology for preparing the scale for 2007-2009.  When it adopted a revised scale in 2000, the Assembly, by the terms of resolution 55/5 B, based individual countries’ assessments on the estimates of their gross national income (GNI), which is converted to United States dollars after adjustments for external debt and low per capita income.  One of the main features of the new scale was a reduction of the maximum rate of assessment, or ceiling, from 25 to 22 per cent.  Points arising as a result of the application of the new ceiling to the Organization’s main contributor -– the United States -- were distributed pro rata among other States, except for those affected by the floor (0.001 per cent) and the least developed countries ceiling.

Noting that his country had a scale of almost 20 per cent, Japan’s representative said that its assessment far exceeded the sum of contributions made by four of the five permanent members of the Security Council.  With a growing number of people in Japan voicing dissatisfaction with the country’s current burden in the United Nations, he questioned if the current methodology truly reflected the principle of capacity to pay.   Japan would seek a burden-sharing system that reflected the fact that those Member States with special status must assume commensurate special responsibilities.

The representative of the Russian Federation said that the existing scale methodology was the result of many years of painstaking work, and it did not need any significant changes.  The efforts to adjust certain elements to eliminate a few shortcomings should be continued, however.  The system should ensure that the assessment of Member States reflected their true economic situation.

Also today, the representative of Slovenia, who spoke on behalf of five successor States of the Socialist Federal Republic of Yugoslavia, addressed the issue of unpaid assessed contributions of the former Yugoslavia.  According to the report on the matter, which was introduced by United Nations Controller Warren Sach, the Assembly had several options in deciding what action should be taken.  The successor States had proposed that the full amount of the former Yugoslavia’s debt should be written off.  A proposal had also been made to request those countries to pay the arrears arising prior to the former Yugoslavia’s final dissolution and write off the balance arising thereafter.  Alternatively, payment of the pre-dissolution arrears could be sought from the five successor States and the post-dissolution balance could be sought from Serbia and Montenegro.

Other documents before the Committee were introduced by the Chairman of the Committee on Contributions, Ugo Sessi, and the Chairman of the Fifth Committee, John W. Ashe ( Antigua and Barbuda).

The Committee will continue its work at 10 a.m. Tuesday, 18 October, when it is scheduled to continue its consideration of the scale of assessments and take up the proposal to lift suspension of recruitment of General Service staff.

Background

Reflecting the outcome of its sixty-fifth session, which was held in June, this year’s report of the Committee on Contributions (document A/60/11) contains the elements of the methodology for preparing the scale under which Member States’ assessments for the United Nations budget will be calculated in 2007-2009.

When it adopted a revised scale in 2000, the Assembly, by the terms of resolution 55/5 B, based individual countries’ assessments on the estimates of their gross national income (GNI), which is converted to United States dollars after adjustments for external debt and low per capita income.  There are also minimum and maximum rates -- so-called “floor” and “ceiling” –- of assessment.

One of the main features of the revised scale was a reduction of the ceiling from 25 to 22 per cent.  The new ceiling was then applied to the Organization’s main contributor -– the United States -- and the points arising as a result of the change were distributed pro rata among other States, except for those affected by the floor (0.001 per cent) and the least developed countries’ ceiling of 0.01 per cent.

Since the provisions of resolution 55/5 B do not extend beyond 2006, the Assembly will have to decide this year whether to adjust the elements of the scale methodology for the next period, 2007-2009.

Having begun its consideration of the results of the current methodology and possible changes or refinements for future scales last year, the Committee on Contributions decided to review most of them this year.  During its sixty-fifth session, the Committee reached agreement on such elements as income measure; criteria for deciding when to replace market exchange rates (MERs); and appropriate price-adjusted rates of exchange (PAREs).

The Committee recommended that the scale for the period 2007-2009 should be based on the most current, comprehensive and comparable data available for GNI.  Another recommendation emanating from the session related to the use of conversion rates based on MERs in 2007-2009, except where that would cause excessive fluctuations and distortions in the income of Member States, in which case PAREs or other appropriate conversion rates should be employed.  The first group for which replacement of MERs would be considered consists of those States, often with fixed exchange rates, whose levels of per capita GNI in United States dollars “seem clearly out of line with economic reality”.

The Committee decided to review further or seek guidance from the Assembly on such elements of the scale methodology as base period; debt-burden adjustment; low per capita income adjustment, including the discontinuity faced by Member States moving up through the threshold of the low per capita income adjustment between scales; and relief measures for Member States facing large scale-to-scale increases.  Also addressed during the session was a proposal related to annual recalculation of the scale.  The Committee also met with a representative of the World Bank to discuss issues related to data on external debt.

This year, the Committee concluded that relative PARE -– the rate that reflects the movement of domestic prices relative to those of the United States, rather than their absolute movement – was, in general, the most technically sound method of adjusting MERs for the scale, when distortions were identified.  Nevertheless, while relative PARE would, henceforth, be the default method in cases where MERs were not appropriate, the Committee recognized that other solutions might be needed in specific cases.

Taking up concerns that the application of the methodology adopted in 2000 had led to substantial increases in the rate of assessment of some Member States, including developing countries, the Committee recalled that the scheme, which was designed to limit such increases, had been fully eliminated in the scale for 2001-2003.  However, that scale included transitional measures for some States experiencing large increases.  The scales for 2001-2003 and 2004-2006 had also both included voluntary adjustments to mitigate the increases of some Member States.  The Committee considered the possibility of introducing a systematic measure to phase in large scale-to-scale increases over the three-year period, but decided to consider the matter further only if mandated to do so by the Assembly.

The document also addresses such issues as multi-year payment plans, measures to encourage timely payment of assessed contributions and the application of Article 19 of the Charter.  [According to Article 19, should a Member State fall behind in the payment of its dues by an amount equal to its assessments for the two most recent years, it will lose its right to vote in the General Assembly, unless the Assembly decides that non-payment is a consequence of factors beyond its control.]

The Committee further noted that, at the conclusion of its session in June, only Chad was in arrears in the payment of its dues under the terms of Article 19 and had no vote in the Assembly.  In addition, the following 10 Member States were in arrears in the payment of their assessments, but had been permitted to vote in the Assembly until 30 June 2005 pursuant to Assembly resolution 59/1 A:   Central African Republic, Comoros, Georgia, Guinea-Bissau, Iraq, Liberia, Niger, Sao Tome and Principe, Somalia and Tajikistan.  The Committee decided to authorize its Chairman to issue an addendum to the present report, as necessary.

The Committee concluded that, although results so far were mixed, the system of multi-year payment plans, endorsed by the Assembly in 2002, had made a positive contribution in encouraging States to reduce their debt and in providing a way for them to demonstrate their commitment to meeting their financial obligations to the United Nations. The Committee noted with appreciation that the Republic of Moldova had completed payments under its plan and no longer fell under the provisions of Article 19. Also noted with appreciation were full payments under multi-year plans by Georgia, Niger and Tajikistan in 2004, and by Georgia and the Niger in 2005.  The Committee recognized those States’ considerable efforts to honour their commitments and urged those that had not done so to make every effort to make the necessary payments and thereby steadily reduce their debt to the Organization.  The Committee recommended that the Assembly encourage other Member States in arrears to consider submitting multi-year payment plans.

The Fifth Committee also had before it the Secretary-General’s report on multi-year plans (document A/60/66), which contains information on the submission of such plans and the status of Member States’ payments as at 31 December 2004.

And the last document before the Committee was a letter, dated 2 September, from the Permanent Representative of the Niger to the United Nations, requesting that the Assembly consider an exemption under Article 19 of the Charter for his country (document A/C.5/60/2).  According to the document, the country’s authorities have done everything possible to pay the full minimum amount necessary in order to have the right to vote.  However, despite the efforts made, this has been impossible owing to Niger’s difficult internal situation over the last few years, among others, the coup d’état of April 1999.  One of the least developed countries, the Niger is currently going through its worst humanitarian crisis.  Three million people (close to 25 per cent of the population) are currently suffering from famine; 20 per cent of the country’s children are suffering from severe malnutrition; and hundreds have already starved to death.  The country often suffers from drought and locust plagues.

Despite the grave economic difficulties facing the country, the Government has demonstrated its commitment to meeting its financial obligations through the multi-year payment plan submitted in March 2004 and the two instalments already made, the letter states.  Aware of the fact that the non-payment of its contribution by the Niger was due to conditions beyond its control, the Assembly had previously decided to exempt his country from the application of Article 19.

Introduction of Documents

UGO SESSI, Chairman of the Committee on Contributions, introduced that body’s report to the Committee (document A/60/11).  Explaining the methodology for preparation of the scale, he said that the starting point for the scale had always been a measure of national income for each Member state.  Recently, that measure had been gross national product (GNP), or, as the concept had been renamed under the 1993 system of national accounts, gross national income (GNI).  The Committee had recommended that the 2007-2009 scale should be based on the most current, comprehensive and comparable data available for GNI.  The data used for the current scale, prepared in 2003, had had a two-year time lag.  In that connection, the Committee had been advised that issues of data availability and reliability meant that a reduction of that time lag would be impractical, although the matter would be kept under review in the future.  Subject to such review, therefore, the scale for 2007-2009 would be prepared using data through 2004.

Regarding conversion of national data to a common currency, the United States dollar, he said that conversion rates used in preparing the next scale should be MERs, except where that would cause excessive fluctuations and distortions, in which case PAREs or other appropriate conversion rates should be used.  That general principle, while very important, left open the question of how to decide which MERs should be replaced.  This year, the Committee had considered a multilayered proposal for a more systematic approach for the next scale.  That involved looking at cases where per capita GNI in dollars appeared clearly unrealistic or where there had been very large increases in per capita GNI between the last three years of the base periods for the current and future scales.  It was decided that this approach would be used in preparing the scale for 2007-2009.  Noting that none of possible approaches to PAREs were without problems, the Committee concluded that relative PARE was, in general, the most technically sound method.  Other solutions might be needed in some cases.

Continuing, he addressed such elements of the methodology as the base period, the debt-burden adjustment, low per capita income adjustment, the floor, the ceiling and the least developed country ceiling.  He also recalled that, in its resolution 58/1 B, the Assembly had noted that the current methodology had led to substantial increases in the assessment rates of some States, including developing countries.  The Committee had decided to consider the question of the possibility of some systematic measure to phase in large increases, if mandated to do so by the Assembly.

On measures to encourage payment of arrears, he said that, while the Committee had been considering the issue for eight years, only its recommendations relating to multi-year plans had been adopted.  Other issues were pending or awaiting guidance from the Assembly.  The Committee reaffirmed its earlier conclusion concerning the deadline for timely payment of assessments.  A draft revision of financial regulation 3.4 was presented in annex II to the Committee’s report. The Committee also reaffirmed its recommendations that the Assembly should encourage Member States with outstanding assessments and credits to authorize the Secretariat to apply such credits to the amounts outstanding, in order to reduce their debt.  Otherwise, the Committee had decided not to consider further the question of measures to encourage payment of arrears, unless, it received guidance thereon from the Assembly.

Turning to requests for exemptions under Article 19 of the Charter, he said that it had received such requests from 10 Member states –- Central African Republic, Comoros, Georgia, Guinea-Bissau, Iraq, Liberia, Niger, Republic of Moldova, Somalia and Tajikistan. Two of those requests, those from Liberia and the Niger, had been received after the deadline established by resolution 54/237 C.  Accordingly, the Committee decided that it could take no action on those requests.  Among the other eight requests, the Committee recognized with appreciation the considerable efforts by the Republic of Moldova to meet its financial obligations to the United Nations and noted that it no longer fell under the provisions of Article 19.  Thus, no action was required by the Assembly in that regard.

The Committee concluded that the failure of other seven States to pay the minimum amount necessary to avoid the application of Article 19 was due to conditions beyond their control and recommended that they be permitted to vote until 30 June next year, he said.  Noting a recent payment by the Comoros, it urged that country to continue reducing its arrears and encouraged it to consider the possibility of submitting a payment plan.  Also noted with appreciation was Tajikistan’s continued effort to meet and exceed its commitments under its multi-year plan.  The Committee, however, considered that, as a technical advisory body, it was not competent to consider the request from Tajikistan that its peacekeeping arrears accrued before 2000 should be written off.

Two Member States, Chad and Iraq, had subsequently paid the amounts necessary to restore their vote in the Assembly.  In its resolution 59/312 of 14 July, the Assembly had decided that the Central Africa Republic, Comoros, Georgia, Guinea-Bissau, Liberia, Niger, Sao Tome and Principe, Somalia and Tajikistan would be permitted to vote in the Assembly until it took a final decision during the main part of its sixtieth session.  Accordingly, there were no Member States that currently came under Article 19 and have no vote in the Assembly.

The United Nations Controller, WARREN SACH, then introduced the Secretary-General’s report on multi-year payment plans (document A/60/66) and unpaid assessed contributions of the former Yugoslavia (document A/60/140).  On the latter, he said that in its decision 59/551, the Assembly had decided to defer that question for future consideration.  The report before the Fifth Committee concluded that, as unpaid assessments of the Socialist Federal Republic of Yugoslavia were not collectible from that State, the Assembly would need to decide what action should be taken.  The five successor States had proposed that the full amount should be written off.  A proposal had also been made to request the successor States to pay the arrears of the former Yugoslavia arising before its final dissolution on 27 April 1992 and write off the balance arising thereafter.  Alternatively, payment of the pre-dissolution arrears could be sought from the five successor States and the post-dissolution balance could be sought from Serbia and Montenegro based on the principle of estoppel.  Those three options were by no means exhaustive and many other variants could be considered.

On 1 November 2000, when it ceased to be a Member State, the former Yugoslavia had outstanding assessed contributions totalling some $16.23 million, a credit of $1,846 in the special account for the United Nations Transitional Assistance Group (UNTAG) and an advance of $26,000 to the Working Capital Fund for 2000-2001.  Following subsequent allocation of credits in respect of unencumbered balances of a number of peacekeeping accounts for prior periods, the total amount stood at about $16.14 million.  The advance to the working Capital Fund of $26,000 was still outstanding and the credit in the special account for UNTAG was now $37,712.

The Chairman of the Fifth Committee, JOHN W. ASHE ( Antigua and Barbuda), introduced a letter from the representative of the Niger (document A/C.5/60/2).

Statements

ROMAN KIRN (Slovenia) said he spoke on behalf of all successor States of the Socialist Federal Republic of Yugoslavia -– Bosnia and Herzegovina, Croatia, Slovenia, the former Yugoslav Republic of Macedonia, and Serbia and Montenegro (formerly the Federal Republic of Yugoslavia) -- and was aware of the urgent need to deal with the unpaid assessed contributions of the former Yugoslavia during the sixtieth session.

He said the successor States were devoting the utmost attention to the issue, which was on the agenda of two committees -- the Joint Committee of High Representatives for Succession and the Financial Committee of the Successor States.  Both committees would discuss the issue.  He welcomed the report of the Secretary-General and regretted that some of the views of the successor States were not taken into account.  Because the report had been released so recently, he asked the Fifth Committee to defer discussion of the issue until the March 2006 session, when the successor States could then present their position.

TOSHIRO OZAWA ( Japan) said that, as the second largest financial contributor to the United Nations and one that shouldered nearly 20 per cent of the Organization’s financial burden, Japan placed great importance on the scale of assessments.  He noted that negotiations on the methodology of the scale would be the first opportunity to revisit the issue since 2000.  During the general debate last month, Japan’s Foreign Minister, Machimura Nobutaka, argued that a comprehensive review was needed in order to reach agreement on a scale structure that was more equitable and fair.

Mr. Ozawa noted that Japan had a scale of 19.468 per cent, which was a very large figure compared to the country’s GNI, which stood at about 145.7 per cent when calculated in the year 2003.  He said this scale obligated Japan to pay an assessed contribution that far exceeded the sum of contributions made by four of the five permanent members of the Security Council.  He noted that Japan had paid its dues faithfully without conditions, despite its own huge, accumulated fiscal deficit and its reduction in total national expenditures in recent years because of financial circumstances.

He added that more people in Japan were voicing frustration and dissatisfaction with the country’s current burden in the United Nations.  He questioned if the current methodology, which created a discrepancy of as much as 5 per cent between the scale and the calculated GNI share of a Member State, truly reflected the principle of capacity-to-pay.  He also questioned whether it was fair to continue the present situation in which four of the five permanent members of the Security Council -- put together -- shouldered less financial burden that a single Member State that was denied such status.

He said that, unless Japan could give its taxpayers clear and convincing answers to the two questions, there was the risk of a “wavering commitment” by the Japanese people towards the United Nations.  Japan would seek a burden-sharing system that reflected the fact that those Member States with special status must assume commensurate special responsibilities.  He said Japan would present its concrete proposals during the course of the coming negotiations.

VLADIMIR A. IOSIFOV ( Russian Federation) said the equitable distribution of the Organization’s expenses among Member States was the exclusive prerogative of the General Assembly and it had created principles to ensure Member States paid in full and on time.  The strict compliance with that principle formed the core of the Organization’s financial stability and the discharge of its global tasks.

He said his Government attached great importance to improving the scale methodology in order to provide for the fairest possible appropriation among all Members States.  He noted that the existing scale methodology was the result of painstaking work completed over many years, and it did not need any significant changes.  The work now under way to adjust certain elements to eliminate a few shortcomings should be continued.  The system should ensure that the assessment of Member States reflected their true economic situation.

He noted the progress of the Committee on Contributions and supported the recommendations included in its report.  He believed that the current scale methodology, using three- and six-year base periods, in general, responded to the need to ensure a more accurate reflection of each country’s ability to pay and mitigate short-term fluctuations in GNI.  He did not see any viable alternative.  The Organization needed stability in assessing scale and the predictability of timely payments.  He said the three-year cycle was the best method.  He added that he hoped countries in arrears would make efforts to steadily reduce their arrears.

Organizational Matters

The CHAIRMAN drew the Committee’s attention to the proposed programme of work for this week, adding that the full programme of work would be presented to the Committee for its approval tomorrow.

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For information media • not an official record