FTI Consulting International Trade Bulletin – 10th June 2021
This Week In Trade
It’s all eyes on Cornwall this week as Britain rolls out the red carpet for the leaders of the G7. The UK government hopes to use the summit to set the agenda for the world’s wealthiest countries as they formalize plans to build back better from the pandemic. The meeting follows hot on the trail of the G7’s long-promised plan to tax global corporations, an agreement that has already been attacked from all sides, with the right complaining it is anti-competition and the left warning that it does not go far enough. Brits will also be wondering whether cod will be on the menu with Boris Johnson celebrating the timely signing of a new free trade agreement with Norway, Iceland and Liechtenstein.
FTI’s Key Headlines
A breath of Cornish air for the G7
With just days to go before G7 leaders gather for the three-day G7 Summit in Cornwall, the police and military have already descended on the sleepy, seaside town of Carbis Bay for the biggest security operation Cornwall has ever seen. Major global challenges will be up for discussion at the summit, notably vaccine diplomacy, climate and relations with China. But for Boris Johnson the summit is a perfect showcase for the diplomatic trading prowess of “Global Britain”.
To this end, it comes as no surprise that the so-called “special relationship” is at the forefront as Johnson meets bilaterally with President Biden today. Despite pressure from the US to end the bitter stand-off over a post-Brexit settlement in Northern Ireland, Johnson and Biden will mark the occasion by signing an aptly named 21st century “Atlantic Charter” setting out co-operation on key global challenges. The UK is also planning to announce a free trade agreement with Australia next week, perhaps with the hope that the news may tempt the US to consider a lucrative free trade deal with the UK. Given the US President’s dim view of Brexit, such engagement may yet prove to be elusive. Moreover, it cannot have escaped Johnson’s notice that the next stop on Biden’s itinerary is Brussels.
For his part, Biden’s priorities extend far beyond Britain. Making his first trip abroad since taking office, the new President seeks to rebuild trans-Atlantic ties strained during the Trump administration. He can expect to be welcomed with open arms by European leaders, who are quietly breathing a sigh of relief to see the US under a less combative and colourful administration. A key aim of the summit will be to show that the rich countries in the G7 still matter, alongside addressing the growing consensus that the threat of China needs to be addressed.
Turning point for global tax?
History was made late last week as the G7 nations announced the long-awaited framework for changing the global corporate-tax system, which aims to lock-up the loopholes multinationals have exploited to reduce their tax bills. In the words of Janet Yellen, the establishment of a minimum global corporation tax of at least 15% is designed to prevent a “race to the bottom” for corporation tax.
Opinions on the deal are divided – tech firms have ostentatiously welcomed the new rules, which will not reassure campaigners and charities like Oxfam who have denounced the minimum rate as “far too low” to make a difference. It has not gone unnoticed that the G7 deal also called for the UK and other countries which have introduced digital sales taxes to withdraw them.
French Finance Minister, Bruno Le Maire, acknowledged the agreement as a “starting point” recognizing the long way the deal has to go before implementation, with the key details still to be debated over the coming months. Needless to say, ratifying parts of the deal with the 140 countries involved in the talks will be a timely and complex process with plenty that can go wrong in the meantime. Indeed there is a danger the deal will run into a red wall in the US senate, where new international treaties require a 2/3 majority for approval. Republicans are already vowing to oppose it on the grounds the deal is anti-competitive and “anti-American” which comes as a slight surprise given the author of the policy is the US Treasury Secretary.
The UK has been vocal in its call for tougher tax rules on American tech titans in particular, but there are suggestions this week that Rishi Sunak will seek an exemption for UK financial services firms. The road ahead is clearly long and beset with further negotiation however the GTA signifies a big step toward establishing a global taxation system that is a better fit for a digital-focused future.
Thank Cod for the UK’s latest FTA
Last Friday, the UK clinched a new trade deal with its Nordic neighbours, Norway and Iceland, along with the landlocked European principality of Liechtenstein. Whilst Liz Truss hailed the agreement’s “cutting-edge digital provisions” and the Culture Secretary Oliver Dowden singing the deal’s praises for opening up a “new frontier” for touring British musicians, Norwegian fish was the real catch of the day. The deal reduces import tariffs on Norwegian fish and seafood and removes them entirely for white fish, such as cod, welcome news for fans of fish fingers but perhaps less welcome for British fisherman. In return, Norway will reduce tariffs on four British cheeses including Wensleydale and West Country Farmhouse Cheddar which prior to the deal could be as high as 277%, although the exact level of the new tariffs was not specified.
Recognizing the prominence of these two products, Norwegian Prime Minister Erna Solberg somberly declared, “we have given on cheese, but we got a little more on fish”. Indeed, the positive news of a deal comes after months of difficult talks and fears that the deal would be scuppered by the Norwegian Christian Democrat Party, which objected to opening up the Norwegian market to British beef and cheese. Whilst the deal contains marginal measures for mobilizing digital paperwork the fundamentals essentially echo those struck between the UK and the EU in December and is still a far cry from the previous seamless trade the UK enjoyed under the single market.
The UK is probably hoping to generate more positive headlines on its progress towards trade deals with fast growing economies in the Asia-Pacific region. The announcement of an FTA with Australia could be imminent, and the UK has made steady steps towards joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
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