from Macro and Markets

G8 Economic Scorecard: No Runs, No Errors

June 18, 2013

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While Syria took center stage at the G8 summit, leaders also dealt with a broad range of economic issues including trade, tax harmonization and transparency, and a sluggish global economy.  In a substantive sense, there were no deliverables from this meeting--these are tough issues with strongly divergent national interests and any progress will take a long time.  Still, leaders had to agree on common principles and first steps, and it appears that they have done so.  If the absence of failure is a success, then the summit looks to have succeeded.

The summit marked the formal launch of the Transatlantic Trade and Investment Partnership (T-TIP).  Failure to do so would have been disasterous, and last minute objections from the French government over the cultural exception threatened to ruin the party.  Negotiations now begin in early July with an ambitious timeline of finishing within 18 months, on a "single tank of gas".  With tariffs already low within the region, negotiations will focus on harmonizing rules and regulation across a range of sensitive sectors.  I remain skeptical that a big deal can be reached, but if I’m wrong the benefits could be substantial.

Taxes were the other major economic item on the agenda.  It’s easy to be against tax avoidance and tax evasion, harder to agree on what to do about it.  Aside from the enormous complexity of the issue, there is the basic question of national interest--at a time of significant fiscal pressure, avoiding tax competition will remain a challenge.  Nonetheless, recent disclosures of aggressive tax strategies by multinationals has turned up the heat.  In response, The G8 issued the Lough Erne Declaration . It calls for automatic sharing of tax information, harmonization of rules to reduce tax avoidance strategies by multinationals, and an expansion of a U.S. Dodd-Frank rule that extractive companies report payments made to all countries (scheduled to go into effect next year if it survives court challenges).  In sum, this is a name and shame strategy, on the assumption that publicity is the best disinfectant.

It looks like the next step on taxes will be national registries that require shell companies to disclose ownership (the U.K. idea of a central register of beneficial ownership looks out of reach for now).  In addition, the ambition remains for agreement on automatic information exchange by the time of the G20 summit in Russia in September.  I suspect that in the next few years we will see increased pressure on tax havens and, consequently, on the multinational companies that use them.  Time will tell if this was the turning of the tide.

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