VZCZCXYZ0020
OO RUEHWEB

DE RUCNDT #0508/01 0741413
ZNR UUUUU ZZH
O 151413Z MAR 06
FM USMISSION USUN NEW YORK
TO SECSTATE WASHDC IMMEDIATE 8322

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. 
 
-------------------------- 
Reactions to U.S. proposal 
-------------------------- 
 
¶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. 
 
-------------------- 
Secretariat response 
 
SIPDIS 
-------------------- 
 
¶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