Monday, August 8, 2022

Global policymakers seek a Biden reset on trade, tax and climate

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Joe Biden’s inauguration as president marks a pivotal moment in international diplomacy: his predecessor’s aggressive stance towards multilateral organizations and “America First” policies has left many global debates in limbo. .

Expectations of economists and policymakers around the world are high for a reset in U.S. attitudes toward international cooperation on trade, taxation, aid, and the environment.

The United States often has a bipartisan view on such issues, so paving the way for deals will not be made easier by a change of administration. The key question for the Biden administration is how many of these urgent items on the international agenda this year it will seek to advance.

Digital taxation

Last year ended with threats of a serious transatlantic trade war over digital taxes imposed by many European countries following stalled negotiations at the OECD in Paris to agree on a new international system of corporate taxation.

The OECD proposed that countries be granted a new right to tax an element of profits earned by multinationals operating in their jurisdiction, even if they were not physically present there, and a minimum corporate tax rate. companies globally.

This year has started with mixed signals. The U.S. Trade Representative suspended his immediate threat of tariffs on French products during the first week of January, but ruled that The taxes on digital services in many other countries warranted retaliation. The deadlock adds to the pressure for a resolution at the OECD. The hope is that progress will restart when the Biden administration takes over.

Pascal Saint-Amans, director of the OECD’s Center for Tax Policy and Administration, said there was still uncertainty, but the change of administration highlighted “good factors” in the search for an agreement.

The biggest change with the arrival of the Biden administration would be the end of the Trump administration’s “random environment uncertainty”, Mr. Saint-Amans said – as well as the better transatlantic relations that he hopes to follow.

Biden’s team has previously indicated that it sticks to international rules for minimum corporate tax rates. However, U.S. tech companies are still divided, although many want a deal to avoid an avalanche of separate tax regimes in each country.

German Finance Minister Olaf Scholz said last week that the goal is to reach an agreement on the OECD principles by July, although the details could take several more months to be finalized.

WTO leadership

Mr Biden’s administration has the power to almost immediately end an unsuccessful standoff at the World Trade Organization.

In October, a few days before the meeting which would have appointed Nigerian Ngozi Okonjo-Iweala to the post of Director General of the WTO, the United States suddenly stuck the decision by announcing that she was backing Korean Yoo Myung-hee instead.

Ms. Okonjo-Iweala is an American and Nigerian citizen and has moderate views on the WTO. But recently, outgoing US Representative Robert Lighthizer says the FT in an interview that she lacked business experience.

If Mr. Biden lifts the block, Ms. Okonjo-Iweala’s nomination will be accepted. Although there has been a little support for Ms Yoo on Capitol Hill, Ms Okonjo-Iweala’s appointment seems unlikely to spark a storm of national protests. It would also go a long way in reassuring other WTO members that the Biden administration, while not being without criticism of the trade body, is a government they can engage with. .

The question is how much domestic political capital Mr. Biden’s team thinks it will cost them to unblock the situation, compared to the damage to the international reputation of the United States if he allows the stalemate to continue or seeks to reopen the appointment process.

The longer the United States keeps the bloc in place, the more it will hurt its international goodwill – and even more if it rejects Ms. Okonjo-Iweala and wants to start the process over again.

Debt relief

Dozens of low- and middle-income countries risk being overwhelmed with unsustainable debt this year as the fiscal cost of the pandemic becomes clear.

Critics, notably the UN and the World Bank, say the international community has failed to meet the challenge by taking coordinated action on debt – unlike the financial crisis of a decade ago – and accuse the Trump administration’s aversion to multilateralism.

One possible step would be for the IMF to issue more of its Special Drawing Rights (SDRs) – a form of reserve currency that governments can sell for cash, allocated roughly according to nations’ share in the ‘Mondial economy. This would provide an unconditional injection of liquidity to many countries facing severe pressures on their public finances.

China – by far the largest bilateral lender to poor countries – is supportive. But the idea was opposed last year by the United States, the IMF’s largest shareholder, on the grounds that it would benefit rich countries more than poor countries.

Critics say there are ways around this and the United States was motivated more by a desire not to benefit people like China and Iran.

Last week, a group of 22 former finance ministers and central bank governors from around the world wrote an open letter supporting the proposal.

Mr Biden’s administration is generally expected to look more favorably on SDRs than its predecessor, but it’s unclear whether it will want to work with China to resolve what is likely to become a pressing issue in the months. to come up.

Carbon pricing

Mr Biden’s first wave of executive orders on Wednesday included confirmation that the United States would join the Paris climate agreement. European allies jumpHis administration will also move towards launching a carbon price and an adjustment of the carbon tax at the border, imposing a tariff on goods such as steel that come from countries without a carbon price.

Europe is in the process of implementing the tax and many in Brussels are hoping the US will follow suit. Some US industries, like steel, have also started to advocate for the move, which would give them an advantage over Chinese production.

But, while carbon pricing is supported by most independent economists, it is not high on the political agenda of Democrats or Republicans.

“Democrats prefer to spend on clean energy during a recession, and Republicans never want to tax energy,” said Paul Bledsoe, former US Senate staff member and Clinton climate adviser in the White House. “But if America dramatically cuts its own emissions [Mr] Biden plans, in due course, to denigrate China with a carbon tariff could prove irresistible.

Reporting by Chris Giles, Jonathan Wheatley and Leslie Hook in London and Alan Beattie in Brussels


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