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Thursday, August 28, 2014
Environmental & Regulation Issues why the negotiations for Climate Change agreement take longer than it should?
And Climate change is theoretically a perfect topic for an international environmental agreement. Most countries are affected by, and contribute to, the build up of greenhouse gases. They should therefore be willing to join in the effort to stop it. However, it is far from easy to agree what to do, but not on how to do it, as we all know. So what is the challenge here. It is to use far less fossil fuel energy while increasing standards of living in developing countries and avoiding the sort of cuts in standards of living in developed countries that would produce public backlash and political impasse. This is easier said than done as we can see from our discussion on the negotiations that have taken place and in progress.
We begin with the initial development of the climate change negotiation. The United Nations Framework Convention on Climate Change (UNFCCC) was signed and ratified by the world’s majority of countries in the early-mid 1990s. However, before and since that, negotiations and meetings have been marred by special interest groups trying to prevent effective action to combat climate change. Most importantly, there has been a serious lack of political will to take effective steps and measures. This can be regarded as one of the most critical factor in the delay in the negotiations for Climate change.
If we consider, the major participant in the negotiations the US who has been vocally against effective action on climate change due to its reliance upon fossil fuel for its economy. Being a producer of oil and coal, they feel more threatened by action on climate change. On the other hand, Europe has proposed for a stronger action. One reason it does so is that it currently imports its fossil fuels so has more incentive to reduce this dependency and seek out domestically grown alternatives. Judging from these two differing views we can see why that the process of negotiation is taking so long to reach an agreement.
In both regions, local populations have a reasonable awareness of environmental issues. However, in the US, the business lobbies (mainly fossil fuel based industries) are very strong and powerful and have been able to affect decisions and outcomes. According to the Environmental News Service (July 6, 2000), former US President Bush’s energy plan had also supported an increase in fossil fuel use. Instead of going via the international route and the Kyoto protocol, the U.S. has been seeking bilateral agreements with developed and developing countries, offering incentives such as debt relief in return. This has complicated the negotiation process and also created a different perspective.
Equity Watch, a newsletter by the Center for Science and Environment (CSE) provides a time-line of climate change and the political fall-outs. In it, it points out how since the 1980s and 1990s nations such as the United States, and former Soviet Union have in the past been against the notion of setting specific targets to reduce greenhouse gas emissions. Other nations and blocs around the world are primarily for strong action as well, but have their own mix of concerns. For example:
• The island nations are already seeing a rise in sea levels
• OPEC and various industrialized countries are concerned about their economic ramifications and are pushing forth more research into creating carbon “sinks” to soak up carbon dioxide emissions.
• Developing countries are concerned about their right to develop, to use their resources, and to not be penalized for climate change problems that are largely caused by the industrialized countries.
If we carefully observe, the above is just a generalization. In reality, there is mixture of concerns. These do seem to be the ones that are primarily shown by the various groups in the past negotiations. As an example though, some Latin American and Asian nations are also supportive of some sort of forestry program, as it can attract possible investments. Again these differing views and objections are some of the things that have delayed the negotiations on climate change. There are differences between economic effectiveness and social responsibility and equality.
Most of all, we find that the poor countries face the brunt of the problems caused by global warming, and point out that most of the current global warming are the results of the rich countries’ pollution. Current consumption patterns also see far more greenhouse emissions per person in the rich countries than the poorer ones.
We find that the coalition had been the most “outspoken and confrontational industry group in the United States battling reductions in greenhouse gas emissions.” This Climate Change coalition contained many big oil, energy and automobile companies. As evidence of climate change mounted, major corporations had to pull out of the Climate Change Coalition, as it was bad PR for them to be associated with the coalition, and some accepted the evidence and began to invest in cleaner technologies. But much damage had already been done, and the influence on the Bush Administration, for example, has resulted in continued anti-international cooperation. Again this has led to the delay in the negotiation process as the coalition managed to lobby on the issue and create a distraction on the major issue facing climate change.
However, we can be more assured when WWF pointed out that in February 2000 many large businesses are keen to support the Kyoto treaty. Ross Gelbspan for example, shows that economic issues can be addressed by supporting Kyoto; that jobs can be created, not lost, etc. Transitioning those subsidies to renewable, as Gelbspan also discusses, and helping fossil fuel companies be part of that transition, would be positive, rather than detrimental to their concerns. A number of businesses are researching alternatives to fossil fuels, or more efficient forms, but lack similar subsidies (or conversely, suffer from lack of market penetration because of the huge subsidies to the fossil fuel industry. With this strong cooperation from large businesses, it is hoped that the delay be overcome by the negotiators in climate change. In some respects, we can be assured of their support in the negotiations and to renew the commitment to climate change and social responsibility.
The delay can also be attributed to negotiations being too complex. When there are more people around the negotiating table then it's going to take longer to reach agreement. Especially when, as in trade negotiations, every participant has a veto on any part or all of the agreement. That's true, but irrelevant. The real problem is that politicians are sufficiently stupid to be negotiating at all. The only logical position for anyone to take is unilateral free trade. Those who insist on negotiations are entirely doolally about the purpose of trade in the first place.
T he other aspect of the issue at hand is the fact that tackling climate change will require action by all countries. Reaching agreement between all countries on how to do this is challenging. Each country has its individual priorities and needs, and so the international negotiations must find a common ground. Over 85 countries, including both developed and developing economies, have already made pledges under the United Nations Framework Convention on Climate Change to limit their emissions. Together, these countries represent more than 90 per cent of the global economy and are responsible for more than 80 per cent of global emissions. Given this huge rask at hand, thus lead to delay in reaching the agreement required between countries.
Apart from those issues mentioned earlier we find that climate change negotiations aoften framed as a South North struggle and given the normative principles, such as ‘the polluter pays’, ‘common but diﬀerentiated responsibilities and respective capacities’, and ‘per capita emission rights’, the South has a diﬀerent and stronger bargaining position vis-à-vis the North in climate change negotiations compared to development cooperation. With a global deal on climate change the implications for how to organise
development cooperation could be far-reaching, but as the South is a heterogeneous group of countries, as a variety of initiatives by countries in the North undermine the UNFCCC framework and as a global deal is as far away as ever, the likely consequences for development cooperation are limited in the near future.
If we look closely at the negotiations that have been taking place over the years, we can sense that there are many reasons for the slowness apart from that mentioned earlier. One other aspect that we can consider is that there is this unavoidable sense that the gap between what's talked about by diplomats and environmentalists at these meetings and what can actually be accomplished has grown so wide as to be virtually meaningless. If one consider not attending the recent most meeting one can save the 6.6 tons of carbon dioxide that would have been burned by just one’s share of the round-trip flight to Durban, and follow the proceedings from one’s home.
In considering this issue one needs to consider the real situation at hand, The reality is that international climate negotiations have remained stuck on the same issues for over 15 years, from the original negotiations over the Kyoto Protocol, which was supposed to reduce carbon output by signatory countries by an average of 5.2% below 1990 levels. Back then — to sketch out the different sides broadly — Europeans were pushing hard for comprehensive carbon cuts, major developing countries mostly just wanted to ensure that they wouldn't be required to do anything, and the U.S. was skeptical about the whole process. In the end — thank in part to some last-minute negotiations by then Vice President Al Gore — the Kyoto Protocol was signed, mandating carbon cuts by 2012 among developed nations while setting up climate aid for developing ones. We can therefore see why it has taken so long to reach an agreement on cliate change.
The issuance of parameters on Islamic commercial and banking products is but a great effort to lay down guidance and settle the arguments and disputes on relevant Islamic banking products in the country
Malaysia's Islamic finance industry has been in existence for over 30 years. Among the main regulations and guidelines issued by the authorities to govern the financial system includes the Banking and Financial Institutions Act, 1989 (BAFIA). However, the Islamic Banking Act 1983 (IBA), is not affected. The BAFIA is a comprehensive Act and extends comprehensive powers to Bank BNM to supervise a larger spectrum of financial institutions, Since then, BNM has introduced numerous regulations and guidelines. The most significant change is brought about by the Financial Sector Master Plan (FSMP). The FSMP comprises measures and a timetable for the liberalization of the conventional and Islamic banking and insurance sectors.
Common problems and challenges
Though there are many products and services with proper procedures and regulations, there are underlying problems in their implementation. We can categorize common problems and challenges that are facing Islamic banking system in Malaysia into three aspects :
i) Muamalat contracts applied;
ii) Too heavily dependent on debt financing; and
iii) To achieve economic of scale.
To overcome muamalat contracts dispute, Islamic banks have to change bay al-inah principle to tawarruq principle in doing trading transaction as suggested by (Abdul Mumin Ab. Ghani & Ahmad Sufyan Che Abdullah, 2006).Tawarruq seems to be more effort to provide alternative loans to users/customers and avoiding the riba element. There must be much effort to enlarge equity financing through musyarakah and mudharabah which its nature is not in fixed determined profit and loss. Even though few initiatives to introduce this contract had been done, but the reality is that it is still far from targeted. Product contract musyarakah munataqisah has a great potential to expand, not only for investment but also for home financing.
Apart from that mentioned earlier, disputes on the compliance of certain products such as a the case involving Kuwait's Investment Dar and BLOM Bank SAL( Blom) has revolved around arguments on the sharia compliance of a certain product, which experts say could leave investors wary of Islamic finance. Blom is a Lebanon-based bank that provides retail, corporate, private and investment banking services, as well as Islamic banking. Dar has refused to pay Blom Bank $10.7 million, arguing that their original deal involving a wakala or agency arrangement -- which was approved by its sharia board -- fell foul of religious laws. Dar's charter prohibits it from entering into non-Islamic transactions. Lawyers say the case has raised several issues including the level of communication between the bank's board and its sharia advisers.
Lawyers have also commented that some banks selectively disclose information to sharia advisers to speed up the approval process for products or push these experts for an endorsement within a short time after supplying them with complicated financial documents.
Another issue refers to BAFIA. The Act is very brief and regulatory in nature, also do not offer substantive law where the bankers or customers would be able to understand how it works for them. Ultimately, the jurisdiction of the courts to hear Islamic banking disputes still lies with the Civil Court due to a few provisions in the Federal Constiution of Malaysia. An important question to be answered is, what extent have the provisions in IBA and BAFIA (Islamic) windoe prevailed over other legal requirements? Section 55 states that in case of conflict between the provisions of the Companies Act, 1965 and the provisions of IBA the latter shall prevail. Does this mean that in all other conflicts, the provisions of IBA shall be put aside?
Given the above issues, BNM in 2010 proposed new rules to tighten sharia compliance at Islamic banks including raising sharia advisers' accountability and independence, and requiring audits on banks. BNM, which oversees the world's largest sukuk market, said Islamic banks must set up sharia review, audit and risk management control functions to reinforce compliance.
"The framework aims essentially to strengthen the sharia governance process, decision-making, accountability and independence," the central bank .
"To reinforce the sharia compliance functions, internal sharia review and audit requirements will be introduced, supported by an appropriate risk management process and research capability." .
Under the BNM rules, the board would be responsible for the overall sharia oversight of Islamic banks but must recognise the independence of sharia advisers.The role of sharia advisers is widened to include ensuring implementation of decisions involving Islamic law and must inform the bank where non-compliance with sharia issues have not been properly addressed. Islamic financial institutions in Malaysia, which include the units of HSBC Kuwait Finance House, Maybank and CIMB must have review functions that continuously monitor shariah compliance of their operations. They must also have annual sharia audits which would provide an independent assessment of compliance with established policies, Bank Negara said, "The senior management is also responsible for ensuring that all submissions to the sharia committee are adequately researched and supported by a thorough study on the sharia issues, product structuring and documentation,"
In 2010 various key initiatives were undertaken by BNM to strengthen Malaysia’s position in Islamic finance. Given this , we will look at those rules that BNM has introduced including those in draft form. These included the introduction of Syariah Governance Framework for Islamic Financial Institutions which will be elaborated further in the next paragraph. Under the Syariah Governance Framework for Islamic Financial Institutions, it provides guiding principles on Syariah governance structure, processes and arrangements to manage Syariah risks. It also sets the standards for board, committee and management in discharging their duties pertaining to Syariah. In addition, the Syariah Parameter References were developed to codify the Syariah principles for commonly used Islamic products contracts, namely Murabahah, Ijarah, Mudharabah, Musharakah, Istisna and wadiah. The purpose of this Shariah contract parameter for Murabahah is to provide reference on the nature and features of the contract to the Islamic financial services industry.
The Principles and Practices of Shariah in Islamic Finance is a collection of a
series of reference documents known as the Shariah Parameter Reference currently issued by Bank Negara Malaysia (BNM). As discussed earlier, the development of Murabahah from a sale-based transaction to a financial instrument has raised a number of issues in the local and international market practices. As such, the benefit of a parameter is to provide a more comprehensive and complete understanding of the nature and features of Murabahah contracts as a guidance to all finance practitioners, finance professionals, academicians, scholars and regulators. Detailed references to specific Shariah fatwas, opinions and standards would facilitate scholars in Islamic finance to expound further the systematic development of Islamic financial products that adopt the Murabahah contract.
The Bank has developed the Shariah governance framework for IFIs with the primary objective of enhancing the role of the board, the Shariah Committee and the management in relation to Shariah matters, including enhancing the relevant key organs having the responsibility to execute t h e Shariah compliance and research functions aimed at the attainment of a Shariah based operating environment. However “banking under Shari’ah supervision” is not practical as this was done through delegating authority for the Shari’ah matters to the respective Shari’ah Boards, absolving Islamic bankers of their responsibility in Shari’ah violations. Of course, in principle, Shari’ah Boards have the authority to impose their viewpoint. But logistic considerations do not permit timely vetting and/or monitoring of all banking operations.
The Shariah Parameter Reference 1 is for the purpose of Murabahah. The purpose of this Shariah contract parameter for Murabahah is to provide reference on the nature and features of the contract to the Islamic financial services industry. Murabahah sale established itself as a mode of asset financing with an agreed and known mark-up. Being the most prevalent financing mechanism in Islamic finance, the Murabahah sale instrument has provided a Sharia-compliant alternative to interest-based financing mechanisms. The Murabahah contract has also been applied for deposit taking and issuance of sukuk. The development of Murabahah from a sale-based transaction to a financial instrument has raised a number of issues in the local and international market practices. The benefit of a parameter is to provide a more comprehensive and complete understanding of the nature and features of Murabahah contracts as a guidance to all finance practitioners, finance professionals, academicians, scholars and regulators. The purpose of this Shariah contract parameter for Murabahah is to provide reference on the nature and features of the contract to the Islamic financial services industry. The features outlined in this parameter may serve as general guidance for the application of Murabahah contract. Any practice by the Islamic Financial Institutions (IFI) which is not specified in the parameter can be conducted as long as it does not contradict the features outlined in the parameter.
With the above introduction, The Principles and Practices of Shariah in Islamic Finance is no longer the issue of not having universally followed terminology for Islamic financing. For example, while majority of Islamic banks use the nomenclature Murabahah to stand for financing via sale on deferred payment, some label it Bai’ Thaman bil Ajil.—Quite interestingly, these latter institutions also offer Murabahah financing products. The Principles and Practices of Shariah in Islamic Finance has managed to overcome this issue.
This concept paper on Shariah Parameters Reference 4: Musharakah Contract (SPR4) sets out the Shariah requirements for application of the Musharakah contract. The purpose of this Shariah parameter for Musharakah is to provide a reference on the nature and features of the contract to the Islamic financial services industry, for the various financial instruments
including Musharakah financing, Musharakah investment and Musharakah Mutanaqisah. The essential features attributable to a Musharakah contract are capital, management, profit sharing, loss sharing and a joint venture.
This concept paper on Shariah Parameters Reference 5: Istisna’ Contract (SPR5) sets out the Shariah requirements for the application of the Istisna’ contract. The Shariah contract parameter for Istisna’ is aimed to become true source of reference on the nature and features of Istisna’ contract for the Islamic financial services industry, and to facilitate the consistent implementation of Istisna’ contract in Malaysia. Specific definitions and the basis for its legitimacy are described to facilitate the understanding of the Shariah contract requirements. The features identified in this parameter shall serve to assist the Islamic financial services industry to identify, understand, apply and distinguish the contract from other prevailing contracts in the industry. Thus with this, we no longer face the situation of selective interpretation of Arabic terms that creates confusion among the bank clients and the public. For example, istisna’ originally means manufacturing and delivery of something against advance payment. But in Islamic banking quarters, istisna’ financing signifies payment by an Islamic bank to the manufacturer of a thing for its delivery to the bank’s client with whom the bank has sale-on-deferred-payment relationship. Thus the term istisna’ financing is somewhat of a misnomer. With the Shariah Parameters Reference 5, it nop longer exist.
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