Public & Government Affairs

FTI Consulting International Trade Bulletin – 1st July

This Week In Trade

The UK and Singapore entered the modern age of digital trade, as it was announced this week that the two nations are working towards a Digital Economy Agreement, the first negotiated by any European nation. The UK’s subsidy system will also get a reboot as the Government sets out its plan for a “nimbler” post-Brexit subsidy system. Finally, convincing a wide range of stakeholders to jump on board the global corporate tax ship is proving a challenge as competing economic priorities come into play.

FTI’s Key Headlines

Singapore Sling 

This week, the UK and Singapore embraced the digital age of trade and kicked off negotiations on a UK-Singapore Digital Economy Agreement (DEA). If successful, this will be the first digital economy agreement between an Asian and a European nation. Implying that the announcement fires the starting gun for future digital trade agreements as part of the UK’s much-vaunted Indo-Pacific tilt, the Department of International Trade has hailed it as an opportunity to “serve as a pathfinder for common frameworks, digital rules and standards between the two regions.”

Agreeing a deal with Singapore ticks a number of key boxes for the UK government by demonstrating its commitment to the digital economy and signaling Global Britain’s surge East. Part of the Government’s wider plan to establish the UK as a global leader in industries such as fintech and cybersecurity, the flashy-sounding title is the UK’s announcement to the world that it is the place to “do digital” as it drags the historically staid trade sector into the zoom era. Staying on brand, negotiations between the two nations were launched via video call.

Details of the meetings are so far elusive, but the Government’s stated objective is to open up digital markets for British exporters and ensuring cross-border data sharing. Incidentally, the DEA comes hot on the heels of Foreign Secretary, Dominic Raab’s visit to Singapore last week, during which he discussed the UK’s accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), of which Singapore is a member of. Whilst digital restrictions and restricted data flow are certainly some of the upcoming obstacles to smooth global trade, whether Britain’s first DEA delivers material benefits to British businesses remains to be seen.

Shaking up subsidies

On Wednesday, the UK set out plans for a simpler, post-Brexit system of state subsidies that the Government will use to support or boost certain industries. The Subsidy Control Bill, introduced to Parliament yesterday, starts from the basis that subsidies will be permitted provided they follow UK-wide principles. Kwasi Kwarteng called the bill “a clear departure from the EU state aid regime” but was quick to point out that it would not be a charter for bailing out otherwise unsustainable businesses.

Under the new system, state support will be divided into three categories, with contentious subsidies being declared “of interest”. It is the application of this category of provision that trade officials in Brussels will be watching most keenly. From an EU perspective, maintaining the regulatory ‘level playing field’ is a core tenet of the Post-Brexit trade agreement with the UK and the EU continues to insist that any unfair advantage afforded to British companies will not go unchecked. Nevertheless, Downing Street remains bullish, aware that, for a domestic audience, it is the application of these ‘new freedoms’ by which the success of Johnson’s Brexit will be judged.

However, at home there is already opposition from the devolved administrations, with Scotland and Wales stating that, under previous devolution law, control over state aid policy should have come to them after Brexit. While Whitehall has assured the devolved governments that, in due course, they will be “empowered” to decide how and when subsidies are issued within their jurisdictions, that does not dissipate the likely flashpoint that lies ahead when ambitions collide.

Tiffs over taxes

Just weeks on from the G7 celebrating their ground-breaking agreement to implement a global minimum corporate tax regime, plans to solidify this into practice look to be rapidly unravelling. Negotiations in Paris to convince 140 countries, including China, India, eastern European countries and developing nations, to get on board with the deal and reach a consensus on the new rules for taxing cross-border commerce are proving to be complex and controversial.

Unimpressed with what they consider to be an unambitious and self-interested plan on the part of the G7 economies, developing nations in the G24 have demanded that a larger share of profits to be covered and appear poised to reject the deal on this basis. Argentina’s finance minister said on Monday that a global minimum tax rate of 15% is too low and a rate of at least 21% is needed, demonstrating the plethora of economic priorities that any deal will have to address.

Meanwhile, in Washington DC, the opposite narrative is driving towards a showdown on Capitol Hill regarding potentially punitive levies on the US-based global tech giants. The White House is already looking conciliatory in the knowledge that it will struggle to get any deal through Congress that doesn’t show explicit benefits to US public finances and companies.

All this comes before consideration is given to how a deal could potentially incorporate China, with the country’s leadership currently maintaining a tactical silence on the issue that is certain not to last. Needless to say, convincing tax-efficient havens such as Barbados and Switzerland to shrug off their appeal in these areas will also be a hard sell that has yet to be debated.

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The views expressed in this article are those of the author(s) and not necessarily the views of FTI Consulting, its management, its subsidiaries, its affiliates, or its other professionals.

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