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DigitaldiplomacyTechnology governancefor developing countriesPathwaysfor ProsperityCommissionTechnology &Inclusive Development

This is a paper from:Pathways for Prosperity Commission. (2019).Digital diplomacy: technology governance fordeveloping countries. Oxford, UK: Pathwaysfor Prosperity Commission.Cover Image: a lit-up South Africa at nightcan be seen on a satellite image of Earth.Photograph: Rakchai Duangdee.Elements of this image furnished by NASA.Digital diplomacy: technology governance for developingcountries written by the Pathways for ProsperityCommission on Technology and Inclusive Developmentis licensed under the Creative Commons Attribution 4.0International License (CC BY 4.0)www.creativecommons.org/licenses/by/4.0/Report design by Soapbox www.soapbox.co.uk

AcknowledgementsThe Pathways for Prosperity Commission would like to extend their gratitudeand acknowledge the people who made this paper possible. Digital diplomacy:technology governance for developing countries was drafted by a team led bythe Commission’s academic directors, Professor Stefan Dercon and ProfessorBenno Ndulu, the secretariat’s head of research and policy, Toby Phillips, andsenior research and policy officer Beatriz Kira. Invaluable contributions to thisreport were made by the Commission’s executive director Elizabeth Stuart,as well as Francesca Walker, Andrea Tartakowsky Pezoa, Jonathan Dolan,Putu Natih, Madeleine Chang, Bilal Majeed, and Lucinda Cadzow.Communications and production of this paper were led by Meena Bhandari,the Commission’s head of communications and events, with Philippa King,Marina Barker, Liliana Resende, and Emily Cracknell.The team greatly benefitted from the advice of the Pathways for Prosperitycommissioners, as well as Ngaire Woods, Dean of the Blavatnik School ofGovernment, University of Oxford, together with the School’s faculty and staff.For their helpful and stimulating conversations, the team would particularlylike to thank John Norris, Christopher Eleftheriades, Tunde Fafunwa, ChrisLocke, Priya Vora, Kay McGowan, Michael Pisa, Emily Jones, Michael Deveraux,Sadie Creese, Juan David Gutiérrez, Kevin O’Neill, Jean-Philbert Nsengimana,Pramod Varma, Stephanie Segal, David Eaves, Kate Wilson, Ify Ogo, MartinKohout, and Mactar Seck.The depth of the report is thanks, in part, to: independent research andanalysis conducted for the Commission by Future State; respondents to theCommission’s survey; interviewees who participated in consultations; participantsof the roundtable discussions in Washington DC, Bali, Kigali, and Oxford;and background paper authors, Parminder Jeet Singh, Joanna Świątkowska,Mariana Giorgetti Valente, Vikas Gupta, Kay McGowan, Priya Vora, Matthew Homer,Jonathan Dolan, and Prakhar Misra.1 — Acknowledgements

About the Pathways CommissionThe Pathways for Prosperity Commission on Technology and Inclusive Developmentis proud to work with a diverse group of commissioners who are global leadersfrom government, the private sector, and academia.The Commission is based at Oxford University’s Blavatnik School of Government.We collaborate with international development partners, developing countrygovernments, private sector leaders, entrepreneurs, and civil society to producecutting-edge research.The Commission aims to catalyse new conversations and to encourage theco-design of country-level solutions aimed at making frontier technologies workfor the benefit of the world’s poorest and most marginalised men and women.2 — Digital diplomacy: technology governance for developing countries

ContentsExecutive summary41 Introduction82 Technology policy priorities for developing countries113 The case for regional and international coordination254 Principles for international coordination295 Conclusion39References41Endnotes523 — Contents

Executive summaryCurrent approaches to governing, managing, and regulating digitaltechnology, such as they exist, are dominated by a small number of countries,and based on the priorities of developed nations. The business modelsand digital architectures designed by firms can have far-reaching impacts,and these are inherently shaped by the regulatory environment. Despite this,surprisingly little attention is paid to how poorer or resource-constrainedcountries should approach digital regulation – either within their owncountries or as an increasingly pressing transnational issue.The Pathways for Prosperity Commission undertook a consultationwith policymakers in developing countries to identify their key technologypolicy priorities, specifically in terms of international coordination.1Emerging governance mechanisms around the digital economy will be pivotalfor those seeking to make the most of the opportunities on offer. However,to date, developing countries’ priorities have not been heard. Specifically, theconsultation sought to identify what rules and policies to govern cross-borderprovision of digital services would help to ensure that all countries sharein the gains of the data-driven global economy.For developing countries, governance and regulation for the new economyis a daunting task, but concerted international cooperation can help. As ouranalysis of the consultation reveals, international coordination presents anopportunity for developing countries to exercise their own voices and developa governance model that works for them. Countries can work together toresolve many of the issues listed below.What are the key technology policy priorities for developing countries?The results of our consultation Developing countries should be able to tax technology companiesthat offer goods and services to their residents. Governments indeveloping countries have little ability to tax businesses that participatein the economic life of their country without an associated or meaningfulphysical presence. International cooperation can help to ensure thatdeveloping countries get their fair share of the revenue generatedby foreign technology companies.4 — Digital diplomacy: technology governance for developing countries

Developing countries need support from the international communityto combat cybercrime and improve cybersecurity. Developing countriesare particularly exposed to cybercrime, which causes financial andreputational losses. International cooperation that involves developingcountries can improve cybersecurity to enhance trust amongst actorsand foster investment in developing countries. Frameworks to protect privacy and personal data should conformwith developing countries’ policy priorities. Developing countries needto establish rules to ensure that citizens have control over their personalinformation, and to prevent unauthorised or arbitrary use of their databy private and public agents. International cooperation can help with peerlearning and technical standardisation, but individual countries should decidefor themselves on the best data governance framework that works for them. The design and enforcement of competition laws need to be fit forthe digital age. Digital technologies are straining existing best practiceapproaches to competition policy, and this challenge is particularlydaunting for developing countries, many of whom are only just beginningto implement existing best practice. International cooperation can supportcapacity-building, information sharing, and coordinated responses. Developing countries’ interests must be considered in intellectualproperty (IP) rules. IP rules can diminish developing countries’ accessto technological innovations or impose costly compliance requirementson their firms, restricting their capacity to engage in parts of the globaldigital value chain. Developing countries can give a voice to theirinterests through coordinated action between like-minded states. Data often has incredible potential beyond the initial purpose for which itwas collected, but the tools, standards and regulations that would enabledata sharing are largely absent. Transactions that can lead to inclusive growthare increasingly dependent on data being transferred across the world. As datacan be used multiple times without losing its value, interoperability opens upthe possibility for new and innovative uses, increasing economic efficiency.International cooperation can help establish shared standards to makeservices and applications work seamlessly with each other.The six policy priorities outlined in the box above span a broad range oftechnical and ideological issues. Countries will need to determine their policysettings and resolve trade-offs based on their domestic values and preferences.Indeed, many of these problems are ones of domestic policy – and yet, becauseof the inherently globalised nature of digital products and services, internationalcoordination can play a key role. Five principles emerged repeatedly during ourconsultations. They can help guide efforts to make the cross-border governanceof digital technologies work for developing countries.5 — Executive summary

How to make cross-border governanceof technology work for developing countriesKey principles for a cooperative digital worldFoster digital cooperation: creating incentives for countries to work together.Large global institutions are unlikely to solve the problems of digitalisation fordeveloping countries. Developing countries should chart their own path towardsinternational cooperation to shape cross-border regulation of technology. Thiscould start with regional coalitions or agreements between non-regional groupsof countries with shared values and goals. It may also be easier to start with lesscontentious topics, such as online harms, and then evolve to address widerissues, such as taxation.Tailor technology governance for developing countries: better ensuringimplementation in a wider range of national contexts. Global rules andstandards are often not a good fit for developing countries, which have capacityconstraints and policy goals that often differ from those of developed nations.Any set of rules with impacts outside the borders of a single country shouldconsider a tiered approach, starting with a minimum-implementable baselinethat any country could (reasonably) be expected to meet in order to engagewith cross-border digital trade.Unlock data for inclusive development: using data to improve people’slives. Much of the world’s information is locked away in proprietary databases,employed only for a slim fraction of its possible uses. Data governance rulesshould give people the ability to access their personal data and providepolicymakers with tools to aggregate across anonymised datasets, maximisingthe social and economic value of data. This should be accompanied by adequatelevels of protection to prevent arbitrary abuses of data (eg unauthorisedmass surveillance).Be part of something bigger: harmonising cross-border digital trade. Thedigital economy is increasingly dependent on data being transferred acrosslocations, systems and devices. Digital integration can generate immense valuefor countries and supercharge innovation. Countries could work together tosupport cross-border digital trade that is as frictionless as possible. This willrequire some level of shared standards and interoperable systems – ensuringthat digital goods meet consistent requirements and standards.Protect against cyber harms: establish data protection, transparency andaccountability measures. People, governments, and businesses need to feelsafe to invest and participate in the integrated digital market. This will requirea consistent regulatory framework that gives users trust and confidence inservice providers, improves legal certainty, and fosters investment. Transparencyand accountability mechanisms could improve the reliability of automateddecisions and help to prevent algorithmic discrimination.6 — Digital diplomacy: technology governance for developing countries

Successful implementation of these principles will depend on embedding theminto the wider political economy, taking into account each country’s uniqueneeds and priorities.2 Some of these principles are inherently cross-border, whileothers demand both domestic and international approaches: but they all describeoutcomes that could be achieved through international cooperation, and thatcould improve people’s lives in developing countries. Such principles, however,will not be pursued in a vacuum, rather their implementation will largely dependon complex negotiations at national and international levels.Governance decisions made today will have far-reaching consequences inthe emerging digital economy. New technologies bring countless opportunities,but they also bring risks, not least the risk that only a small number of powerfulstates shape the digital future for everyone else. But it does not have to be thisway: it is possible for governance and regulatory regimes to support the interestsof developing countries. International coordination between like-minded nationswill be crucial in governing a digital economy that works for everyone.7 — Executive summary

Chapter 1IntroductionThe use of digital technology is growing at an extraordinary rate.The global volume of digital information doubles every two years and is setto reach 175 zettabytes (175 trillion gigabytes) by 2025.3 This will only increaseas the next 3 billion people come online. 4 For those already online, digitalproducts are becoming more and more integrated into everyday life, as pricesof devices and applications fall and innovations multiply. The volume of globaldigital commerce exceeded US 3 trillion in 2017, representing 13% of totalcommerce, and is set to more than double by 2022.5 Data flows now accountfor a larger share of GDP growth than the global trade in goods.6 Industries thatwere once purely analogue, such as food delivery or maize farming, now benefitfrom digital integration. This transformation continues apace, rapidly creatingnew and unforeseen opportunities and disruptions.7The current wave of technological change is largely driven by data – manynew products are based on the ability to store, move, and analyse piecesof information. The movement of data is practically frictionless: it can betransported across borders and stored or processed anywhere in the world atalmost no marginal cost. The practical reality of this is that the booming digitalindustry is globalised by default. A successful digital product can easily moveinto new markets, and the availability of microservices makes it much easier toprovide digital services in this global market.8 For example, when a passengercalls a car using Indonesia’s Go-Jek’s ride-hailing app, their information first goesto a cloud computation service (owned by Google and based in Singapore), fromwhich point the app can locate an available driver and calculate the price of thejourney.9 The driver will receive the information about the ride on their phoneand use Google Maps to navigate the traffic, sharing real-time location datawith the cloud service.10But while technological change is dynamic and fast-paced, many laws andpolicies for regulating and governing technology remain static. Regulatorytools that were developed decades ago are being applied to unrecognisableproblems in the digital age. The lag in regulatory best practice and technicalassistance means that this issue is all the more prevalent in developing countries,which do not have the appropriate rules or means to enforce them adequately.For example, many developing countries are struggling to design and implementa competition policy regime fit to deal with digital platforms, the likes of whichare already under strain in richer nations.11 Malawi, for instance, only createda competition authority in 2012, and Malaysia only in 2010. Benin and Mongoliaare amongst the countries that are yet to establish one.8 — Digital diplomacy: technology governance for developing countries

The Pathways Commission undertook a consultation to identify thetechnology policy priorities that will make a difference in improving the livesof people in low- and middle-income countries. We consulted more than 100stakeholders to develop a more nuanced understanding of the key challengesand opportunities of the digital age from the perspective of developing countries.A total of 105 people completed a survey and 12 participated in interviews withopen-ended questions (see Figure 1). 91% of survey respondents were fromdeveloping countries (see Figure 2).12 Detailed findings, and a discussion of themethodology, are presented in a forthcoming paper, but in Chapter 2, we presentthe highest-ranked policy issues requiring coordinated international action.13Figure 1. Distribution of survey participants based on stakeholder ociety40%Academia/think tankPrivatesectorGovernmentNote: This figure does not include two respondents who identified their stakeholder group as ‘Other’.Figure 2. Distribution of survey respondents based on the regionof primary expertise5%1%21%1%24%24%24%Note: This figure does not include 19 respondents who identified their region of expertise as ‘Global’.9 — Introduction

Despite the fact that many of the policy levers in the digital age sit withinreach of domestic policymakers, there are challenges that will requireinternational coordination. This was a common concern among consultationrespondents. Countries can, in theory, act unilaterally to resolve many of theidentified policy issues. Initiating change in many of these issue areas – fromprivacy to competition policy – is within the remit of domestic policymaking,and requires each country’s government to balance digital change with othernational priorities. However, as we further explore in Chapter 3, there are benefitsfrom coordinated action, both at the regional and international levels. In reality,the lack of international consensus limits countries’ available options to actunilaterally – they often lack the political heft, technical capacities, and voiceto influence major technology policy debates. Even when individual countriesdo act independently, their limited options can result in blunt decisions thatprove ineffective or that enhance inequalities.14Many of the pressing concerns of the digital age can only be effectivelytackled by cross-border regulation and data-sharing mechanisms betweencountries. Without such cooperation, the consequences for individual countries,their businesses, and their citizens, may be significant. For example, a surveyparticipant from Indonesia expressed concern with the prospects of theircountry achieving its policy goals on its own:‘the country is still figuring out how to support, incubate, and acceleratetechnology for its own good, let alone setting up a robust technologypolicy independent of global examples to take inspiration from’.Survey respondentEven though debates about the challenges of digitalisation are starting totake place at international organisations such as the World Trade Organization(WTO) and the World Intellectual Property Organization (WIPO), solutions thatwork for developing countries are unlikely to emerge from current multilateralinstitutions, as their voices are less likely to be heard and so their priorities notreflected in the debates taking place in these fora.15 In Chapter 4, we proposean alternative agenda to support developing countries to truly harnessthe potential of frontier technologies.10 — Digital diplomacy: technology governance for developing countries

Chapter 2Technology policy prioritiesfor developing countriesThe global debate around technology governance is firmly focused ona few centres of power: the US, the EU, China and, to a lesser extent,India.16 These countries have the main driving roles in most policy discussionsaround the world – often with competing interests, as illustrated by the USChina trade war. The same holds true for governance of technology: with somany powerful – and, at times, rivalrous – perspectives on how to regulatein the digital age, the concerns of the majority of developing countries areoften left out of the picture. Therefore, understanding the policy prioritiesthat would make the most difference for developing countries was atthe heart of the Pathways for Prosperity consultation process.The Pathways consultation revealed that the most important priority fordeveloping country policymakers is economic development. Respondentsidentified ‘jobs and skills’ – the measure most entwined with economicdevelopment – as the most significant issue by any measure (see Figure 3).17Any agenda for digital governance must therefore recognise, and ideallysupport, this imperative. The path for digital-led development, however, is notstraightforward. The consultation found that, when addressing the challengesof digitalisation, policymakers try to balance economic development, nationalsecurity, and citizen rights – priorities that may sometimes be in direct tensionwith each other.Policy issues which prevent developing countries from harnessing theopportunities of new technologies are not just questions of domestic policy:they often require concerted international cooperation. Our survey revealedsix areas where global efforts are most needed (see Figure 4). In this chapter,we discuss these six areas: taxation, cybercrime and cybersecurity, privacyand data protection, market competition, intellectual property, and data sharingand interoperability. We discuss how digital technologies give rise to challengesaround each of these issues, and the developing countries’ perspectives onthese challenges. While recognising that there are a plethora of other policypriorities which are relevant for developing countries, we believe that these otherissues are either already covered by existing global frameworks and institutions,or are a matter of domestic policymaking.11 — Technology policy priorities for developing countries

Figure 3. Respondents’ ranking of policy issuesJobs and skillsPrivacy and data protectionTelecommunications and infrastructureData sharing and interoperabilityCybercrime and cybersecurityDisinformationMarket competitionIntellectual propertyTaxation of digital assetsNote: Ranks were calculated using the Rank Sum Weight Method.Figure 4. Percentage of respondents who identified lack of internationalcoordination as an obstacle to achieving a policy priority12 — Digital diplomacy: technology governance for developing countries12%11%Teatiolencoan md min ufra nist catru ioct nsureJobsandskillsdan itylibiar rash opeta erDa intng15%sinform18%Di21%Intepr llecop tuer altyMpe artit ketion22%com23%da Pta rivpr acot yec antio dn32%di Tagi xata tiola nss oet fCysbecy rcrbe imrs eec anur dity32%

2.1 Taxing digital assets is challenging foreveryone – in particular for developing countriesThe digitalisation of the global economy poses a series of challenges fortaxation which require international coordination, not least because manytechnology companies are multinational corporations. Technology companiescan be registered in one country while offering goods and services worldwide,as digital services do not require a physical, in-country presence and can bedelivered from afar.18 This allows multinational companies to book their profits(and thus pay corporate tax) in the (often richer) countries in which they arebased.19 This scenario affects both developed and developing countries andis not altogether new – indeed, it is the fundamental problem of multinationaltaxation in a globalised world – but it is made more difficult by the intangible,fluid nature of digital goods and the digital economy. 20Developing countries represent a large share of digital services’ user base,but are unable to collect taxes from their profits. For example, almost 1.4 billionpeople in developing countries are Facebook users, representing almost 70%of active users worldwide (although they account for a smaller share of globalrevenue). 21 It is common to see firms for which the only parts of their businessthat ‘exist’ in a developing country are their customer base and a facility toreceive payments. It is still possible to tax the transaction when money changeshands (several countries apply their regular goods-and-services consumptiontax to digital goods), but the profit and the rest of the business remain abroad. 22This is not a problem if we assume that the product is created entirely in a foreigncountry and merely imported whole, but that is not necessarily the case withdigital services that, for instance, rely on local data. As a result of such taxarrangements, technology companies often fail to contribute a fair share tonational revenues, fuelling further economic inequality, and limiting fundsavailable for education, health, and infrastructure.The interconnectedness of the data-driven economy and the differentrevenue models adopted by technology companies – in which many servicesare offered for ‘free’ – add another layer of difficulty to the taxation of digitalassets. Traditional taxation, at its foundation, attributes value to a transaction –but this falls apart when obviously valuable transactions and services do notcarry a price, or when it is unclear where or how the value is created. Challengesinclude addressing how digital services and the data that enables them shouldbe characterised and valued for tax purposes (see Box 2 on measuring the valueof digital transactions), and how to distribute this value among the actors andcountries involved in the operation. 23 A particular concern is whether any profitsattributable to the remote gathering of data by a company should be taxablein the country from which data is gathered. 2413 — Technology policy priorities for developing countries

Developing countries have – understandably – been implementingmeasures to try to capture some of the wealth generated by digitaltransactions, but this has caused considerable controversy. In countriesunder significant budgetary pressure with low-capacity taxation systems,digital technologies can help to improve tax administration. 25 However, inmost developing countries, taxing digital services has been considered a moreimmediate means of securing extra revenue. Other approaches have includedIndia’s equalisation levy on local businesses that procure digital services abroad,or Uganda’s move to levy users through mobile network operators (who do havea taxable presence) for the use of social media or messaging (see Box 1). 26 Despitethe growing criticisms of such measures, it is important to acknowledge that,in many cases, they are the only alternatives available for developing countriesstruggling with their finances. If corporate actors were more proactive in findingways to contribute to the economy of the countries in which they operate, therewould be fewer incentives for the use of ‘sticks’ – not only including social mediataxes, but also measures such as data localisation and interruption of app serviceprovisions (which are widely condemned by technology companies, civil societyorganisations, and users themselves).Box 1. How have developing countries attempted to tax digital transactions?Uganda’s social media taxIn 2018, Uganda introduced a ‘social media tax’, which charged users200 Ugandan shillings (UGX) (around US 0.05) per day for the use of a numberof internet applications, including popular services such as Facebook, Twitter,WhatsApp, and Instagram. 27 The new tax adds up to about US 1.50 per monthor US 19 per year, in a country where many people live on less than US 1 a day.In the period after the introduction of the tax, data use and mobile moneytransactions decreased in Uganda, and internet user penetration dropped from47% to 35%. In a series of tweets, the Uganda Communications Commission (UCC)announced that, following the imposition of the social media tax, the numberof ‘over-the-top’ (OTT) subscriptions had declined by more than 2.5 millionin the last quarter of 2018. 28The tax also disproportionately affected marginalised users – the cost of the socialmedia tax represents 2.4% of average individual income in metropolitan Kampala,but 22.6% of the average individual income in rural Bukedi. 29India’s equalisation levyIndia implemented an equalisation levy on cross-border digital advertisingin June 2016.30 The 6% levy applies to payments made by companies basedin India to a foreign company (without a permanent establishment in India)for online advertisements, if the annual payments exceed Rs.100,000(approximately US 1,450) in one financial year.31The levy, which is only applicable to cross-border business-to-business (B2B)transactions, is withheld at the time of payment by the purchaser of the services14 — Digital diplomacy: technology governance for developing countries

(ie the Indian firm hiring the advertisement services), and subsequently paid tothe government. The measure is controversial because it puts an extra burdenon local firms using foreign platforms for advertisements, and is especially heavyfor startups. However, it has contributed to an increase in tax revenue: the Indiangovernment reportedly collected approximately US 76 million between 2017and 2018 through the equalisation levy.32A government committee has been analysing measures for other types ofcross-border digital transactions, but the equalisation levy has not yet beenexpanded to other sectors. However, the Indian government has consideredother measures to tax digital transactions, such as the introduction of a ‘significanteconomic presence’ (SEP) concept, which would allow the government to taxincome of foreign companies based on their virtual economic presence.33Reforms are required in international taxation to ensure that developingcountries share in the benefits of global technological progress in an inclusiveway. Current tax treaties prohibit the taxation of business profits of companieswithout a physical establishment

consultation sought to identify what rules and policies to govern cross-border provision of digital services would help to ensure that all countries share in the gains of the data-driven global economy. For developing countries, governance and regulation for the new economy is a daunting task, but concerted international cooperation can help.

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