In an article, carried by the newspaper Handelsblatt, a group of German MPs from the Social Democratic party describe the possible new US sanctions against the Nord Stream 2 gas pipeline project as a “threat to European sovereignty.” Earlier, Bloomberg reported that the German authorities are mulling retaliatory sanctions against the United States if Washington continues to dial up pressure on the participants in the project to bring Russian natural gas to consumers in Europe. Moreover, Berlin is reportedly willing to add a pan-European dimension to its possible pushback against Washington. Meanwhile, the US has withdrawn from OECD-held talks on digital tax. France, one of the main proponents of increased income taxation of US IT companies operating in Europe, slams Washington’s actions as “provocative,” and is all set to continue applying the digital tax. Many observers warn that worsening transatlantic trade relations could lead to a new trade war.
On the outside, the United States remains the EU’s main trading partner, with European exports to the US last year amounting to 384 billion euros. The United States is also the second biggest provider of goods and services to Europe, after China. However, by the close of 2019, most EU countries were already balancing between stagnation and recession – not least due to Washington’s economic policies, as the Trump administration kept threatening to slap additional duties on European exports. In addition, Europeans feel the pinch of declining world trade caused by Washington’s trade war with Beijing.
Donald Trump won the presidency on the strength of his promise to maintain America’s leading position in the world, which he sees as the scene of tooth-and-claw competition between states. From this standpoint, all countries not ready to accept Washington’s terms, especially those pursuing an independent policy, are viewed as a “legitimate” target for pressure, primarily an economic one. Since 2018, Washington has been ramping up sanctions and trade restrictions against many leading world powers, including in Europe and, hating as the Europeans are to avoid a politicization of their trade relations with the US, almost each new trade dispute demonstrates geopolitical undertones that are hard to ignore.
For example, Washington regularly threatens to impose a 25 percent tax on imported European cars and spare parts, above all German. Amid Washington’s isolationist policy, Germany is now seen by many Europeans as a potential new leader of the Western community and apparently the primary target of Donald Trump’s attacks against Europeans. Indeed, it was Angela Merkel who, after the first NATO summit attended by Trump, said that Europe can no longer rely on America. Since then, Berlin has been increasingly vocal in pointing, more than anyone else in the EU, at cardinal changes in Washington’s interests in the Old World, above all its desire to undermine Europe’s global competitiveness. On July 1, Germany took over the EU Council’s rotating chair for the next six months, which is likely to further intensify these disagreements.
In October 2019, the United States imposed tariffs on a number of imported European goods, formally justifying this by a WTO ruling that the European Union had not complied with an order to end illegal subsidies for its plane-maker Airbus.
The Americans and Europeans have long been at loggerheads over who violates the WTO rules by providing state assistance to their aviation industry. However, now that Washington is trying hard to limit the supply of high-tech products to the “wrong” countries, transatlantic bickering over subsidized airplane exports is becoming extremely important in terms of foreign policy. And in light of the colossal damage the global aviation industry may suffer as a result of the COVID-19 pandemic, this could put the entire technological future of the European Union on the line.
A similar situation has been developing also around the idea, actively promoted by the EU leadership and a number of EU countries, to impose the so-called “digital tax” on services provided to European consumers by major US technology companies, above all Amazon, Facebook and Google. Meanwhile, in the United States, the geostrategic motives behind the European initiatives is becoming clear not only to observers, but to the White House as well.
Europe is lagging far behind the US and China when it comes to companies providing services in social platforms, e-commerce and cloud computing. Experts warn that the “alternative” to the general strategy is more than just a further reduction of the EU’s role in the development and implementation of advanced software and technical solutions. If the EU countries fail to adapt to the changing technological paradigm, they may be faced with rising unemployment and falling tax revenues across the board.
According to experts interviewed by The Economist Intelligence Unit, any of the abovementioned topics may set off a destructive trade war on both sides of the Atlantic. Well, Germany will certainly not be the sole victim of jacked up US tariffs on European car imports, as the auto industry accounts for up to six percent of all EU jobs. In addition to the direct damage from falling exports to the United States and third countries, new US sanctions would seriously undermine the overall business climate in the European Union. Brussels would have to impose retaliatory sanctions, which, in turn, would set the stage for a global trade war that would not leave any country untouched. The costs of doing business will go up, while profits will go down. Due to a falling demand in domestic markets, caused by the coronavirus pandemic, companies will not be able to pass their losses to the consumers, and will suffer ever new losses.
It took Europeans quite a while to realize that growing transatlantic disagreements “constitute an essential debate” over the priorities and goals of “Western policy in the world in the wake of the late 20th – early 21st century globalization.” A sizeable portion of the American establishment is no longer interested in dominance per se, as US national interests are now realized “in confrontation with major rivals,” including Europe.
The Trump administration insists that the situation can only be changed by America acting in such a way as to reap direct and immediate benefits measured in dollars. “Friendship” with America should pay off right away, providing economic concessions for Washington is just a way of monetizing one’s allied relations with the United States. While during the Cold War, tactical economic differences were smoothed out by shared strategic interests amid a bipolar confrontation, these days, if “there are no shared fundamental interests between them” the United States and Europe “are simply competitors on many tracks” – something Trump never tires of repeating.
The outbreak of the coronavirus epidemic has led to a serious new discord between Europe and America, with the shock from the pandemic on both sides of the Atlantic proving strong enough to force the nominal allies to start fighting each other for resources. Everyone is on his own now. The situation with the pandemic and its socio-economic impact on the United States has been so bad that it now threatens to undermine Donald Trump’s chances for reelection. Meanwhile, trade policy is one of the political levers that the US president can use quickly and without having to ask for Congressional approval.
Previously, this approach often worked with the European Union, usually ready to give up some of its economic sovereignty. The Europeans’ reaction was restrained and “asymmetric” in nature. This is how they reacted to Trump’s increasingly aggressive attacks just a year of two ago. Experts from the Russian Academy of Sciences’ Institute of Europe and on the INF Treaty believe that although the EU’s domestic market and combined GDP are roughly similar in size to America’s, “Europe’s economic dependence on the US is much higher than America’s dependence on the European Union, which still makes Brussels extremely vulnerable to economic pressure from Washington.”
That being said, the hard-hitting socioeconomic impact of the COVID-19 pandemic is forcing Europe to realize the need to protect and advance its economic interests. A pessimistic forecast is based on the notion that the pandemic will bring about a long-term economic downturn and even exacerbate it. The Eurozone economy is projected to post a seven to 10 percent drop this year – twice as much as during the crisis of 2009. Even the “hundreds of billions of euros” that European politicians are talking about may not be enough to overcome the consequences of the coronacrisis any time soon, largely due to the global nature of its impact on the entire system of global economic relations. This may prove a serious problem. As [French President] Emmanuel Macron often says, “If the crisis widens the split between the economies of the bloc, the European project could explode.”
Meanwhile, much now depends on the position of Germany where almost all parliamentary factions see the threat of new US sanctions as “a violation of international law and, above all, an infringement of European sovereignty.” Europe needs to push back against America’s “aggressive attacks.” Well, in the midst of a pandemic and a deep recession caused by it, “a trade war is the last thing that Americans and Europeans need. However, a positive partnership is possible only on an equal basis which, among other things, means respect for the sovereignty of each partner.”
Against the backcloth of extremely worrying forecasts for the European economy, Chancellor Angela Merkel told The Guardian that it is in the best interest of all EU countries to fully support the European domestic market and act as one in the international arena. Faced with “extraordinary” circumstances, Berlin expects all EU member states to focus on “what brings us together.” Moreover, “much” depends on the stability of the European economy. For example, a sharp spike in unemployment can have devastating political consequences, and even “increase the threat to democracy.”
“For Europe to survive, its economy must survive,” Merkel emphasized.
According to numerous forecasts, in the post-coronavirus world, almost all countries will focus on internal problems, on increasing their economic self-sufficiency and even autonomy. The world may become “poorer and more cost-effective,” and the process of globalization will, at best, come to a halt and stay so for several years. Right now, faced with multiple crises, Europe, may be tempted to take its time and wait, at least until after the November presidential elections in the US. By then, the scope of the economic damage from the pandemic will become clearer. What is obvious, however, is that only by resolutely standing up to America, especially if this resistance ultimately results in a “deal” more beneficial to Europeans, will the EU be able to restore its geopolitical weight in international affairs.
From our partner International Affairs
Biden should abolish corporate tax for small business, and make Big Tech pay what they owe instead
If Biden wants to increase tax revenue, create jobs and protect the American Dream, he should abolish corporate income tax for startups and small businesses.
In America, mom and pop businesses pay the same tax rate as multinationals. Individual income tax has seven tax rates, depending on how much an individual has made. We need the same system for corporate income tax, instead of a flat rate that strangles small businesses. Small businesses that are essential for our post-pandemic recovery.
For companies to pay their fair share of tax, corporate tax rates need to be fair. Individuals have a progressive tax system – the more you earn, the higher rate you pay – but for companies it is a flat rate. That’s not fair, especially when the US, like many countries, is committed to the idea of corporate personhood: that a corporation is a legal person.
For small businesses – which are the majority of American businesses – there is really no difference between corporate and individual income. If the mom and pop store does well, so do Mama and Papa. This is what makes the current system even more unfair.
The inherently fair idea of progressive taxes (where the more you earn, the higher rate you pay) has deep roots in Western civilization. The famous economist Adam Smith wrote about this concept centuries ago. Even John Locke, a man who famously hated taxes, was in favour of progressive taxation. The idea originates in Ancient Greece and in the arguments of Aristotle and is intimately linked with democracy itself.
We can all agree that this makes sense for individuals. So why does this same principle not apply to business? I think it should, especially because I believe every individual has an entrepreneur within them. Anyone can – and should – be a CEO, a builder of opportunity and wealth. But government policies have to encourage that, and protect capitalism from the threat of increased social divides.
Two individuals, Elon Musk and Jeff Bezos now have more wealth than the bottom 40% of Americans. The share of total wealth of the upper class in the US has increased from 60% to 79% in the last 40 years, while the lower class share has decreased from 7% to 4%, and the middle class’s share has dropped from 32% to 17%.
This doesn’t mean that we shouldn’t aim to raise more corporate taxes – we should. Out of $3.46 trillion revenue income realized by the US government only about $230 billion or close to 6.6% was contributed by corporates.
Some corporates can afford to pay more – especially Big Tech, because they don’t even pay the low flat rate they should be paying. In the UK, for example, Amazon paid £293 million in tax, even though it made £13.73 billion in sales in 2019 or about 2%. This is in stark contrast to the 21% corporation tax it is supposed to pay.
We need more fairness, to protect true capitalism. Fairness isn’t just a socialist value, it is about providing equal opportunity for all citizens to prosper through wealth creation.
It’s unfair that those small businesses and start-ups end up paying proportionally more than their multi-national counterparts. But this is also economically stifling: Instead of allowing founders the space to breathe, grow and make new hires, they are faced with big, strong competitors who pay effectively lower taxes (because they can afford the best tax attorneys).
The American Dream is predicated on the idea that one can start a new business, work hard and be the master of his or her own destiny. A regressive corporate tax policy, which we have now, flies in the face of this ideal.
In 2020, 804,398 new businesses were started in the US. We have to give these businesses a fair opportunity to grow. By taxing them at the first hurdle, we stifle the chance of the next Facebook and Google being born, which could equally lead to much less tax revenue down the line.
Lowering, or abolishing, start-up business tax can counter-intuitively increase tax revenue for the federal government in the long-term.
More importantly, it can remind us what America is really about, and bring our communities and generations together at a time when we need unity, growth and innovation more than ever before.
Role of WTO in Regularization of International Trade
International trade is one of the main features of the globalized world and global economy. There it needs also a well-organized institutional mechanism to regulate it. World Trade Organization is an international organization established in 1995, whose main objective is to facilitate trade relations among its member countries for their mutual benefits. Currently 164 states are its members. The activities and works of WTO are performing by a Secretariate of about 700 staff located in Geneva, Switzerland, led by the Director General. English, Spanish and French are the official languages of World Trade Organization. The annual budget of WTO is about 180 million dollars.
Since its creation it is playing an important role in the regularization of international trade. It offers a forum and facilitation for negotiating trade agreements in order to reduce the barriers in the way of smooth international trade among member countries. Thus, the role of this organization is playing very important role in the regularization of international trade which is contributing to economic development and growth of member countries in this globalized world. The World Trade Organization also offers an institutional structure and legal framework for the execution and supervising of the international trade related agreements which are very helpful in regularization of international trade. It also settles disputes, disagreements and conflicts occurring during the interpretation and execution of the components of the international agreements related to international trade. During the past 60 years, the World Trade Organization and its predecessor organization the GATT (General Agreement on Tariffs and Trade) have assisted to establish a solid and flourishing global trade system, by this means helping to extraordinary international economic development.
The WTO is regularizing international trade more specifically through negotiating the decrease and finally elimination of barriers to trade among countries and try to make smoothly the working of the rules and principles governing the international trade e.g. tariffs, subsidies, product standards, and antidumping etc. It also administers and monitor the execution of the World Trade Organization’s determined guidelines for trade in services, goods as well as intellectual property rights related to international trade. It also monitors and review the member states international trade policies as well as make sure the transparency in bilateral and multilateral trade agreements. Likewise, it also solves disputes arising among members related to trade relations or related to the explanation of the provisions of the trade agreements. It also offers services to the governments of the developing states in the fields of capacity building of officers in matters related to international trade. WTO is also doing research on matters related to international trade and its related issues and collect data in order to find better solutions of the problems and obstacles in regularization of international trade. It is also trying to bring into the organization the 29 states who are yet not members of the organization aimed to assist and regulate their international trade according to the international standard.
One of the main barriers in way to international trade is disputes between the engaged parties. Since long this was a very critical issue limiting the trade among states. The WTO is playing very good and instrumental role in the solution of trade related disputes. Since the establishment of WTO in 1995 over 400 disputes related to trade have been brought by its member countries to WTO. The increasing number of bringing trade related disputes to WTO is showing the faith of member countries in the organization. Close trade relations have massive advantages but also create disputes and disagreements. With the increase of international trade, the possibility of its related disputes also increases. Previously, such problems and disagreements have caused in severe disputes. But at present, in the era of WTO the international trade related disputes are decreased because the member states have now dispute’s solution platform, and they are turning to the World Trade Organization to solve their trade related disagreements and disputes. Before the World War Second, there was not any such international organization or forum which could facilitate international trade and its related affairs, and there was also noany legal framework for solving trade related disputes among states of the word.
One of The World Trade Organization’s guiding principal is to continue the open boundaries for trade, ensure the Most Favoured Nation (MFN) status among member countries and stop discriminatory behaviour of members towards other member(s) and bring transparency in doing international trade. It is also assisting counties to open their indigenous markets to global trade, with justified exemptions or with suitable flexibilities, promote and support to durable growth, reduce trade deficit, decrease poverty, and promote economic stability. It is also working to integrate different international trade policies and principles. The member countries of WTO are also under the compulsion to bring their trade related disputes to this organization and avoid unilateral actions. WTO is the central pillar of the current international trade system.
Russia and France to strengthen economic cooperation
On April 29, Russian President Vladimir Putin held videoconference with leaders of several French companies-members of the Franco-Russian Chamber of Commerce and Industry (CCI France-Russia) to discuss some aspects of Russian-French trade, economic and investment cooperation, including the implementation of large joint projects as well as the prospects for collaborative work.
Putin noted that the Economic Council of the Franco-Russian Chamber of Commerce and Industry is still operational in spite of difficulties, and the late April meeting was the fourth time since 2016. From the historical records, France has been and remains a key economic partner for Russia, holding a high but not sufficiently high, 6th place among EU countries in the amount of accumulated investment in the Russian economy and 5th place in the volume of trade.
Despite a certain decline in mutual trade in 2020 (it went down by 14 percent compared to 2019) the ultimate figure is quite acceptable at $13 billion. French investment in Russia is hovering around $17 billion, while Russian investment in France is $3 billion.
Over 500 companies with French capital are operating in various sectors of the Russian economy. French business features especially prominently in the Russian fuel and energy complex, automobile manufacturing and, of course, the food industry. “It could have been more if the French regulatory and state authorities treated Russian businesses as Russia is treating French businesses. We appreciate that in a difficult economic environment, French companies operating in Russia have not reduced their activity,” Putin pointed out.
The Russian Government established the Foreign Investment Advisory Council, which includes six French companies. Further, there is an opportunity to discuss specific issues related to the economic and investment climate in Russia, and that opportunity is traditionally provided at the St Petersburg International Economic Forum, which will be held on June 2-5.
French companies are involved in the implementation of globally famous landmark projects, such as the construction of the Yamal LNG and Arctic LNG 2 facilities and the Nord Stream 2 gas pipeline project. This, Putin regrettably said “We are aware of and regret the amount of political speculation concerning the latter. I would like to point out once again that it is a purely economic project, it has nothing to do with present-day political considerations.”
Russia intends to increase assistance to the development of science and technology. Funds will be directed primarily to innovation sectors such as pharmaceuticals and biotechnology, nuclear and renewable energy, and the utilisation of carbon emissions.
“We are interested in involving foreign companies that would like to invest in Russia and in projects we consider high priority. In order to do this, we will continue to use preferential investment regimes and execute special investment contracts, as you know. A lot of French companies successfully use these tools on the Russian market. For example, more than one third of 45 special investment contracts have been signed with European, including French, partners,” he explained during the meeting.
He also mentioned continuous efforts to attract foreign companies to localise their production to state purchases and to implementing the National Development Projects, as well as existing opportunities for French businesses in special economic zones. Today there are 38 such zones created throughout the Russian Federation.
Russia pays particular attention to attracting high-quality foreign specialists. Their employment is being fast-tracked, and their families can now obtain indefinite residence permits. There is a plan to launch a special programme of ‘golden visas’ whereby to issue a residence permit in exchange for investment in the real economy, a practice is used in many other countries.
Taking his turn, Co-Chair of the CCI France-Russian Economic Council, Gennady Timchenko, noted that the pandemic has changed the world, people and business, and that French companies in Russia are responsible employers and socially responsible members of Russian society.
Despite the crisis and the geopolitical situation, a number of French companies have launched production in 2020–2021. Companies such as Saint-Gobain and Danone have renewed their investments. French companies have increased their export of products manufactured in Russia; they are investing in priority sectors of the Russian economy. For example, this year the French company Lidea is launching a plant called Tanais to produce seeds. Russia is dependent on the import of 30 to 60 percent of these seeds, according to various estimates.
Despite the current geopolitical conditions and information field, there are important signals for French business and the Russian side to strengthen economic cooperation, attract investment, and create partnerships on a new mutually beneficial basis.
Co-Chair of the CCI France-Russian Economic Council, Patrick Pouyanne, noted that the meeting has become an excellent tradition, the presence of 17 CEOs and deputy CEOs of French companies shows the importance of these joint meetings, and further reflect the deep interest of French business in Russia.
In addition, Patrick Pouyanne further offered some insights into Russia-French cooperation. By 2020, twenty members of the Economic Council invested a total of 1.65 trillion rubles, supporting 170,000 jobs. These companies have operated in Russia for decades and continue investing in the Russian economy despite the sanctions and the epidemic. These companies help France maintain its status as the second largest investor in Russia. In 2020, France invested over $1 billion in Russia despite the economic difficulties caused by the pandemic.
Concluding his remarks, Patrick Pouyanne stressed that the economic operators believe everyone will benefit if Russia, France and all of Europe are not divided or isolated. This is the challenge today. Indeed, diplomacy has to continue playing an important role in settling differences, and businesses are convinced that meetings like this create bridges between Russia and France to strengthen investment and economic cooperation.
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