Articles by Tom White on the GC Blog and GC analysis
French finance minister, Bruno Le Maire, called this week for political oversight of the quasi-judicial commission merger control process, creating a new tool to help European industries compete internationally. With the European Parliament and European Commission entering a period of transition next month, national leaders will have space to set the agenda for an EU response to the unorthodox industrial and trade policies of the USA and China. How serious are the renewed calls for European Champions from Paris, and the idea that merger policy should be a political tool for creating them? They have found strong support from Berlin and from the current frontrunner to be next commission president, Manfred Weber.
A distinctive feature of President Juncker’s “political” European Commission was a single set of collective top-down priorities, rather than a stitching together of the agendas of individual commissioners. In 2014, this meant a focus on economic reforms to restore growth lost during the 2008 financial crisis: a digital single market, a capital markets union and an investment plan for Europe. Events inevitably challenged this strategy — an unprecedented refugee crisis, Brexit, the emergence of new security threats — but it proved more resilient than many expected at the outset of the “last chance” Commission.
Recent years have seen important global shifts in both the policy frameworks for screening inward foreign investment and the way in which they are applied. These shifts come against a backdrop of protectionist political rhetoric and anxieties about the impact of foreign direct investment (FDI) in traditionally open economies. The new landscape is exemplified by the position in the US, from the increase in the volume and intensity of CFIUS reviews (leading to the collapse of deals such as Ant/MoneyGram and Canyon Bridge/Lattice Semiconductor), to the current proposals for expansion of the CFIUS mandate. It also extends to Europe, with increased intervention in France and Germany, the European Commission planning EU legislation on inward investment screening for the first time, and the UK government proposing extensive changes to its powers of national security review. Against the backdrop of these larger changes are many smaller shifts in the political mood around FDI across the OECD.
One of the clichés in international cooperation is that national governments’ enthusiasm for sharing cost centres evaporates when talk turns to sharing profit centres. This explains the imbalance between joint investment in basic research and national commercial application of R&D, or the discrepancy between joint telecoms standards and ruthless national auctions for mobile phone spectrum. But it is the technocratic world of tax administration that traditionally exposes this most bluntly, with the need to raise revenue and to attract capital investment outweighing the desire for efficiency and fairness between national finance ministries. The final months of 2017 have delivered stark reminders that while the negative-sum game of tax secrecy may be ending, the incentives to play the negative-sum game of tax competition remain too strong for governments to resist.
Much has been written at the launch of Brexit negotiations today about the time remaining for negotiators. Michel Barnier has set a deadline of October 2018 for agreeing a withdrawal treaty, which may or may not include an outline of the future UK-EU trading relationship. This is to allow ratification by the European Council, European Parliament and – where necessary - national parliaments in the EU27. The UK parliament also plans to vote on the deal before the legal deadline of 31 March 2019, and the current balance of power in Westminster makes that far from a formality.
Attention in the European Council has turned from unity over Brexit to whether France and Germany can find a unifying policy direction for the EU27. The view in Paris is that Franco-German compromises offer a realistic balance between the interests of member states in the west, east, north and south, and that a joint platform is more achievable without the need to take account of a London outlier, especially on economic policy and defence cooperation.
Manuel Valls’ elimination from France’s Presidential race meant one certainty in an unpredictable election: on 7th May voters will choose a ‘change’ candidate. It may mean the ‘new politics’ promised by Emmanuel Macron, eschewing left/right party structures. It may be the ‘new economy’ promised by François Fillon, with radical structural reforms. Or it may be the ‘new social model’ offered by Benoît Hamon, guaranteeing a Universal Basic Income. But the most immediate change could be a more coherent and assertive foreign policy, driven by a refreshed relationship with Berlin.
Global Counsel hosted an interesting seminar with Nicolas Véron of Bruegel recently about the future of international standards for financial regulation. This assessed the EU’s appetite for designing its rulebook to be attractive for other jurisdictions, and more specifically whether this might help the UK agree some form of ‘super-equivalence’ that could provide regulators with confidence to allow continued cross-border trade. Yesterday’s failure in Santiago to agree global standards for capital requirements highlighted one of our reasons for scepticism: that EU interest in global standards has weakened considerably since the high point of promoting Solvency II for insurers in 2012. With the incoming US administration promising more ‘competitive’ regulation of the financial sector by amending the post-crisis Dodd-Frank legislation and showing little interest in maintaining the G20 as a policy-making forum, and with carve outs for large Asian markets from FSB standards, it is worth considering why the largest players have retired from the competition to set universal standards.
UK commentators have spent recent weeks debating the opportunities offered by the EU’s ‘equivalence’ regime for companies outside the single market. The concept was significantly expanded by Michel Barnier to encourage global adoption of EU rules and simply commits the EU to go beyond its formal WTO commitments for countries that meet its regulatory standards. In the London-centric Brexit debate, it has become a point of contention about the consequences of ‘hard Brexit’ for the City of London. Advocates of a clean break argue equivalence is a ready-made substitute for single market passports; those aiming for an ambitious UK-EU deal argue it is incomparable to legally-enforceable rights to national treatment, and only offers conditional tolerance for UK-based firms to provide services to institutional investors through a branch in the EU27.
Commission President Jean-Claude Juncker has followed Theresa May in making a provocative and eye-catching appointment. This is partly to compensate for negotiations on both sides beginning to resemble a slow bicycle race, with neither side incentivised to reveal their objectives. But while technical work is underway, these headline appointments are also a useful way of signalling intent and building support.
Amid the macho jostling between British politicians to set out ‘red lines’ for negotiating post-Brexit arrangements with the EU, where will British Prime Minister Theresa May turn for guidance? Rather than to her divided and inexperienced cabinet, there are good reasons for her to look at the records of predecessors Thatcher and Brown. Both bluntly but effectively framed pan-European challenges for other leaders in terms that required London-made solutions, whether completing the single market in goods or the financial crisis response. May will certainly want to move on quickly from the more affable but transactional legacy of her immediate predecessor, whose ‘renegotiation’ boiled down British interests to a narrow set of requests.
EU countries agreed last night a set of common anti-avoidance principles for corporate taxation, incorporating the OECD’s Base Erosion and Profit Shifting principles into law. This is seen by many as a watershed for co-operation on the design and base of business taxes, going far beyond earlier commitments to exchange information and co-operate in the enforcement of tax rulings.