U.S.-EU: A New Hope or the Empire Strikes Back?

Last week was Europe week, and between the G7 meeting and the U.S.-EU Summit, the United States and the European Union managed to roll out four agreements: on digital and corporate taxation, the Boeing-Airbus dispute, steel and aluminum tariffs, and a new Trade and Technology Council. This was a balanced outcome—the first and last were instigated by the European Union and the second and third by the United States. I am optimistic about the first one, not so much about the others.

 
The G7 agreement on a minimum corporate tax and a formula for taxing large multinational companies’ profits in countries other than where they are headquartered is neither finished nor fully agreed to—there are many other parties beside the G7 nations—but I am optimistic this one may get to the finish line. It is a sensible approach that reflects a compromise—a lower rate than the Biden administration had initially proposed and a broader base than the European Union had proposed. There are unhappy campers within the European Union that must be dealt with, notably Ireland, and there are G20 members that could be obstacles. This was a G20-mandated project, so its approval at the next leaders’ summit in October is essential to moving it forward. To do that, we appear to have a secret weapon and a viable threat. The secret weapon is France, whose finance minister is planning to visit potential problem countries to persuade them to endorse the deal. This is a welcome development since the United States and France are not always on the same page, and having them out front talking to China is probably better than the United States doing it. The threat came from Treasury Secretary Yellen, who pointed out that for countries that decline to raise their corporate tax to the minimum, the United States, which is home to many of the affected companies, could simply tax the gap between the G20 level and a country’s lower level. The result would be that the company would lose the advantage of a lower tax location, and the host government would forego the tax revenue.

There are many steps left to go, beginning with the G20 finance ministers meeting in Venice next month, but I sense momentum here, thanks largely to Secretary Yellen.

The agreements on the Boeing-Airbus case and the steel and aluminum tariffs, in contrast, were punts that simply postponed resolution of the issues. In the aircraft case, retaliatory tariffs were suspended for five years (dependent on good behavior) and commitments on future cooperation were made. On the whole, the European Union got the better of this deal. Its position has long been, “We are innocent, but we will promise not to do it anymore.” The U.S. position has been that more than a promise is needed—Airbus has to pay back the subsidies it has received. While the agreement more clearly defines the question of what constitutes a prohibited subsidy, it does not address the U.S. demand that Airbus reimburse. I suspect that may be quietly forgotten over the next five years as the two companies concentrate on the forthcoming challenge from China, which would mean that the European Union would essentially get away with its profoundly anti-competitive behavior over more than 40 years. Also apparently not addressed by either party is whether their respective antitrust rules permit the cooperation that has been agreed to.

The steel and aluminum tariff punt was shorter—to the end of this year rather than in five years—but it was still a punt. The good news is that the United States is pursuing the right course—seeking a multilateral approach to Chinese overcapacity—and Ambassador Tai is right in pointing out that the European Union should be interested in that as well. The Organization for Economic Cooperation and Development failed to make much progress on that front, largely because the main culprit, China, participated in the discussions. To achieve its goal, however, the Biden administration will have to enlist more countries beyond those in the European Union, which will be a labor-intensive exercise that there is currently no sign of them beginning.

Finally, the Trade and Technology Council was launched with considerable enthusiasm and fanfare. It is without question a good idea, but old people like me have seen this movie before. It is not the first transatlantic forum to be created, and it likely will not be the last. It will start off in a fit of optimism and full attendance by the ministerial-level cochairs, but the agenda will be filled with the difficult and weedy issues, and weeds inevitably get turned over to the bureaucratic experts who have wrestled unsuccessfully with the same issues for years. For example, an early agenda item will likely be coming up with a replacement for Privacy Shield, the most recent U.S. effort to comply with the European Union’s data privacy rules. This will be the third try, and I am not optimistic that whatever they come up with will pass muster with the EU courts. Likewise, I’m sure the United States will want to discuss the European Union’s proposed Digital Markets and Digital Services Acts, but with the European Union enjoying the benefits of first mover advantage in the regulatory space and the United States lacking its own federal policy, reaching a common understanding will be difficult. It will take sustained commitment at the highest level and enormous patience and imagination at the working level to make something out of the council and prevent it from ending up in the dust bin along with its predecessors. I wish them well because the issues are important, not just to our economies but to our democracy, but we should temper our optimism.

William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C. 

Πηγή: csis.org