International commercial tension is certainly one of the three principal threats to the health of the global economy and the 'Finance G20' has been forced to acknowledge its limitations in the current context, said the Argentinian finance minister, Nicolás Dujovne, on behalf of the 2018 presidency of the world's largest 20 economies.
“We have to recognise the limitation that we as a group have”, Dujovne said in Washington on Friday 20 April, following the meeting. “The G20 was important to smooth the financial crisis. We have to keep the group working together and focus on the things that put us together rather than the differences”, he added. He went on to explain that discussions on international trade focused on the potential impact of the tension on the global economy (see other article).
“When the World Trade Organisation is called into question, when big economic powers do not respect rules and others adopt a unilateral approach, we face serious problems”, the French finance minister explained later. According to Bruno Le Maire, there is a need to “rethink the WTO” and France will soon be making proposals to improve its effectiveness and legitimacy.
Three major aspects provide the backdrop to these concerns: - the prospect of American taxes on steel and aluminium, tensions caused by this threat between China and the United States and concerns that the EU will not be given a permanent exemption from these taxes; - the American tax reform; - the possible misinterpretation the Americans may have of the proposed European tax on digital activities.
On the first point, Le Maire repeated the EU's calls for a full and permanent exemption from these taxes on steel. “We cannot accept living with this sort of Damocles hanging over our heads”, he said.
Taking a tough tone, the American Secretary of the Treasury, Steven Mnuchin, reiterated that “unfair” trade practices in the world were impeding world and US growth. “The IMF must step up to the plate on this issue, providing a more robust voice and consistently noting when members maintain micro-economic, foreign exchange and trade policies that facilitate unfair competitive advantage or lead to imbalanced growth”, he added.
The Europeans are struggling to find allies over the American tax reform. When the spring meetings of the IMF and World Bank launched, the Director General of the IMF, Christine Lagarde, welcomed the reform. “This is a reform that we have advocated, recommended, encouraged, and that we are very pleased to see happening”, she told the press on Thursday 19 April.
Following an approach from the Council of the EU, the OECD seems equally disinclined to rally to the European side, as it considers that the American tax reform will contribute to its BEPS action plan to fight base erosion and profit shifting (see EUROPE 12003).
Le Maire, on the other hand, feels that the American tax reform could be in breach of WTO rules. Bringing a complaint for the WTO is powder that the EU is keeping dry for the moment.
Taxation of digital. Having had a meeting with Mnuchin, the European Commissioner for Taxation, Pierre Moscovici, stressed once again the proposed EU tax on the activities of the digital sector was not an attack on American businesses, as he also told the American Enterprise Unit on Thursday 19 April (see EUROPE 12006).
“There is nothing aggressive in what we are proposing. How can we explain to taxpayers that the digital giants are paying derisory amounts of tax? It’s indefensible!”, Le Maire said. “When digital trade develops, we have to think of the most appropriate form of taxation”, he added, stressing that the Americans are not “closed to discussions”.
The French minister concluded by saying that “we need to move fast and Europe must pave the way, where others feel that there must be a perfect solution before making a decision. I fear that this solution will take years and will be an excuse to do nothing”. (Original version in French by Élodie Lamer)