As the world’s superpowers continue to claw their way out of the debt crisis, virtually every political leader is facing disaster and dissent at home. Barack Obama is second-guessed by his hostile Senate at every turn, David Cameron’s own party is demanding the UK turn its back on Europe and Francois Hollande’s missteps have caused mass demonstrations calling for his head. Little wonder then, G8 leaders had plenty on their minds as they convened at Lough Erne to vent their frustrations to one another.
Across the globe, governments are facing severe pressure from voters to tighten up their corporate tax policies, although domestic pressure is nowhere greater than in Britain.
Consequently, Cameron used his influence as this year’s G8 host to steer almost an entire day’s discussion at the summit towards addressing commercial tax concerns. Arguably, he came away with a result. In essence, Cameron got the leaders to agree to a set of core principles with which to combat his government’s corporate tax anomaly. The joint declaration will ensure governments share tax information, as well as tighten loopholes that allow international firms to hide profits in tax havens. Chancellor George Osbourne immediately took to the airwaves, lauding the agreement as a major victory; Cameron, on the other hand, considered it somewhat hollow. One of the measures MPs in Britain are calling for is to establish an international registry of corporate ownership so the public (and its officials) know who owns what. Cameron was unable to convince the rest of his fellow leaders to support the endeavour. In the end, the official G8 communiqué recommended these measures be pursued on a domestic level – although both Germany and Russia were completely uninterested in doing so. There was also hesitancy amongst leaders to implement Cameron’s suggestion to automatically exchange tax information with poor countries that often end up serving as tax havens.
“Beneficial ownership information on companies should be accessible onshore to law enforcement, tax administrations and other relevant authorities, including, as appropriate, financial intelligence units,” the leaders recommended. “This could be achieved through central registries of company beneficial ownership and basic information at national or state level.”
Although falling short of the resolute action Cameron was hoping for, he still argued the move was a step in the right direction, and that tax avoiders would now have “nowhere to hide.” Analysts aren’t so sure. UBS economist George Magnus argued that politicians often “speak with forked tongues” on issues like corporate tax rates: “Political leaders are quite keen to stigmatise corporations, but as far as corporate tax goes, governments make the tax rates and are engaged in competition to attract companies.” Regardless, intense domestic pressure will no doubt ensure that at least some of these recommendations are carried out.
Give a penny, take a penny
While the effects of the summit’s tax recommendations may fall on deaf ears, its trade deal may prove too lucrative to ignore. Throughout the two-day period, European Commission president José Manuel Barroso helped launch formal negotiations to hammer out an unprecedented EU-US trade deal. The agreement would see markets freed up on both sides of the Atlantic and create up to two million jobs across the globe, according to Cameron.
“We’re talking about what could be the biggest bilateral trade deal in history,” Cameron said. “This is a once in a generation opportunity and we are determined to seize it.”
If Cameron pushed for anything at the summit as much as tax avoidance, it was this trade agreement. It’s not hard to see why; the UK’s domestic economic policy is largely driven by export-led growth. Facing continued frustration over the lack of progress in liberalising Doha trade policy, therefore, Cameron is hopeful a major bilateral trade agreement with the US could create new jobs and lower consumer prices. He said the agreement would add £100bn to the EU economy (versus £85bn in the US).
Meanwhile, the fact that such a deal could provide more incentive for staying in the EU will also help curb high levels of eurozone hostility hampering Cameron’s popularity in Britain. It’s the proverbial win-win.
Yet critics are wary of the fact that this type of agreement has been discussed (and later ignored) in years’ past.
In the leader’s official communiqué, they vowed to establish a new multilateral trading system and make cross-border trade easier. Yet they promised to do the exact same in 2005, the only difference being they’d also originally pledged to invest in trade partnerships with poorer countries in order to improve their infrastructures and raise living standards. Finally hammering out a more liberal and resolute agreement on Doha anytime in the last 10 years could have accomplished that, but leaders turned instead to their own issues and those of their developed neighbours. In this year’s communiqué, no one made mention of the need to reexamine how trading works with less developed economies. As G8 subsidies continue to damage trade prices in Africa and the Caribbean markets, more emphasis here is vital to avoid overcapacity and establish healthy growth in emerging economies.
In truth, not even every developed country was excited about the way an EU-US deal would affect business. The French expressed great concern over their heavily-guarded domestic film industry, nervous that freeing up trade with the US would lead to a Hollywood invasion. Consequently, the architects of the agreement conceded France should be able to opt-out of media-related imports and go unpunished. That’s great news for France, but the concession caused discordance among those in favour of the deal who worry that too many exceptions will make the agreement unattractive to the US. Yet Obama made clear he would use his sway to “break through logjams” if necessary. So, while the similar and more ambitious trade commitments of 2005 went virtually ignored, it appears safe to say at least some permutation of this proposed bilateral trade agreement between the EU and US will materialise over the next two years.
Less contentious issues at the conference unsurprisingly rendered greater results – for starters, correcting the EU’s continued failure to establish a banking union. Leaders outside the eurozone pointed out that a union was needed to strengthen the policies keeping Europe’s monetary union afloat. Yet Angela Merkel, who leads the eurozone’s strongest economy, still seems hesitant to embrace such an establishment. Her long-held assumption continues to be that the German government will face an influx of liabilities if harder-hit countries join their funds together with failing banks in the future. She’s probably right. In response, the leaders told their finance ministers to begin developing a comprehensive plan to close down the region’s troubled banks in conjunction with a new supervisory system being implemented next year by the ECB. European leaders planned to finalise their end of the bargain at the EU summit the following week, and the outcome looks promising.
Meanwhile, Merkel turned the tables and was characteristically critical over Japan’s lack of austerity measures. The typically-stagnant Japanese economy has shown substantial growth this year, due mostly to Prime Minister Shinzo Abe’s heavy stimulus plan. Even as Abe’s unexpected growth figures dazzle strong opponents of austerity, his approach may yet prove too near-sighted regarding the flexibility of his labour market. Japan also has yet to consider any serious structural changes to its corporate restrictions, which tend to tie companies down to poor investments even when things go south. In a rather meek fashion, Abe promised Merkel he would place heavy focus on budget consolidation when he returns home. Abe’s vow to restructure the way Japan allows firms to do business should help to sustain the country’s historically stagnant growth pattern, and the agreement can be pegged as yet another productive outcome of the summit. Yet also overshadowed by bigger issues was the leaders’ proposal to ensure oil, gas and mining companies publish what they pay to governments (and vice-versa). Cameron argued this would ensure “that natural resources are a blessing and not a curse.” The summit also produced a declaration saying that all G8 members would stop paying terrorist ransoms in return for the safety of kidnap victims, citing these payments as directly funding the activities of al-Qaeda.
Silence on Syria
The biggest disappointment of the summit was the leaders’ decision to glaze over the elephant in the room that is Syria. Before the meeting, Canadian Prime Minister Stephen Harper joked the group would effectively become “G7 plus one” when the issue of Syria came up, referencing Russia’s lone-wolf status in cautiously defending the entrenched President Assad. Some have pegged this as Vladimir Putin sympathising with Assad’s alleged fight against radicalism (Chechnya is by no means a distant memory), whilst others say his lack of support for a regime change boils down to a fear rising Islamist republics that have proven arguably hostile to some in the west. Regardless, the growing camp in Europe continues to edge closer to serious intervention in the two-year conflict. The US is now sending warplanes to neighbour Jordan, and Britain is backing calls for a no-fly zone. In the end, there may not be a right answer here. This was ultimately reflected in the official communiqué’s lame-duck statement concerning the war.
“We condemn any use of chemical weapons in Syria and call on all parties to the conflict to allow access to the UN investigating team mandated by the UN Secretary General … in order to conduct an objective investigation into reports of use of chemical weapons,” the statement said. “We remain committed to achieving a political solution to the crisis based on a vision for a united, inclusive and democratic Syria.”
Although Putin remained relatively quiet on the issue, his resolve in waiting out the storm may have successfully prevented the peace talks others in the G8 were hoping would take place in Geneva later this summer. Western military intervention in the interim is far more likely.
By no means should Britain’s hosting of the G8 summit be considered unproductive. It brought serious issues under the global spotlight, and has helped to provide several resolute actions like ensuring the creation of a European banking union and the possible safeguarding of Japan’s economic growth. Even on the murky issue of bilateral trade, several emerging aspects will prove instrumental in nudging along an ever-sluggish global economy. That said, many will still consider the summit’s joint declarations concerning tax avoidance and Syria nothing but ambiguously empty words. Only time will tell whether Britain’s hosting of the G8 will bear fruit in the months to come. Yet one thing is certain: when Vladimir Putin hosts the summit next year, the tone will be decidedly darker and more taxing.