Foreign Policy’s daily flagship newsletter with what’s coming up around the world today. Delivered on weekdays.
June 7, 2021, 6:32 a.m.
Here is today’s foreign policy: The G-7 agrees on a worldwide minimum corporate tax rate, PeruPresidential elections are too short to call, and NATO Secretary General Jens Stoltenberg visits Washington.
G-7 approves corporate income tax
The G-7 signed a landmark corporation tax deal over the weekend that will give momentum to ongoing OECD talks on a new global floor and reinvigorate the G7 ahead of a UK summit later in the week.
The two pillars of the agreement aim to combat tax havens by reducing the incentives for companies to “move” abroad in the first place. The first pillar sets a minimum global corporate tax rate of 15 percent, while the second pillar allows each country to tax the profits of large multinationals within that country rather than where the company is headquartered.
The agreement was sold to help countries generate revenue as the COVID-19 pandemic is draining resources. It was also designed to counter a decades-long race to the bottom in corporate tax rates and a parallel surge in companies posting profits overseas. The average global corporate income tax rate was around 40 percent in 1980 and, according to the tax foundation, is around 23 percent today. Globalization has also increased the level of profits abroad: in the 1990s, around 5 percent of corporate profits were generated by companies outside the country in which they were headquartered; in the 2010s this proportion rose to around 18 percent.
As Michael Hirsh wrote in Foreign Policy last Friday, Biden’s team sees the new corporate tax plan as an indirect way to advance its stated campaign goals of governing companies and leveling the playing field for workers. “Every country is worse off from tax competition, especially its workers. … When people say they have rigged the system and considering why we have such extreme inequality, taxes play a big role, “a Biden government official told Hirsch.
US Treasury Secretary Janet Yellen in a statement on Saturday praised the deal as a “significant, unprecedented commitment,” saying the deal also shows the Biden administration’s commitment to global cooperation. “I think what you are seeing is a revival of multilateralism,” said Yellen. Along with high-level talk, the deal also helps the United States stave off the surge in taxes on digital services, which nearly half of European countries have proposed or implemented to tax the (mostly American) tech giants.
Thumbs up from the technology. That may explain the positive reviews from Silicon Valley. Facebook spokesman Nick Clegg said the company wants “the international tax reform process to be successful and realizes that this could mean Facebook pays more taxes”. José Castañeda, a Google spokesman, said the search giant’s staff “are very supportive of the work to update international tax rules.”
Over the first hurdle. However, it is far too early for the Biden government to win. A meeting of G-20 finance ministers in July will test the plan’s appeal to a wider group of nations. Then there are the OECD negotiations themselves: Since the organization governs by consensus, a deal could be hindered by objections from tax havens. Finally, there is the US Congress, in which at least one chamber may not even be in democratic hands when the matter is voted on.
Setting the bar. The minimum rate for companies is still too low for some. “It is absurd for the G7 to claim they are ‘overtaking’ a broken global tax system by introducing a global minimum corporate tax rate similar to the soft rates imposed by tax havens like Ireland, Switzerland and Singapore,” said Gabriela Bucher. the CEO of Oxfam. “You set the bar so low that companies can easily exceed it.”
The world this week
On Tuesday June 8th Discussions in the World Trade Organization Council on Trade-Related Aspects of Intellectual Property Rights (TRIPS) on an intellectual property waiver for COVID-19 vaccines and other medical instruments will resume.
US Vice President Kamala Harris meets with Mexican President Andres Manuel Lopez Obrador the day after talks with Guatemalan President Alejandro Giammattei.
On Wednesday June 9th, the Albanian parliament is voting on whether President Ilir Meta should be charged for failing to fulfill his constitutional duty to national unity by supporting an opposition party in the April elections.
Mongolia is holding presidential elections, with former Prime Minister Ukhnaagiin Khürelsükh being the front runner.
On Thursday June 10thThe day before the G-7 summit, British Prime Minister Boris Johnson receives US President Joe Biden for a meeting.
Talks in Vienna on a US return to the 2015 nuclear deal with Iran and the lifting of US sanctions will resume today. This is the sixth round of discussion.
On Friday June 11th Boris Johnson welcomes his counterparts from the USA, Canada, Italy, France, Germany and Japan to the first G7 summit since 2019. Heads of state and government from Australia, India and South Korea have also been invited.
On Saturday June 12th Algeria is holding early parliamentary elections as part of Algerian President Abdelmadjid Tebboune’s efforts to quell protests against the pace of reform.
What we are following today
The majority of AMLO is shrinking. Mexican President Andres Manuel Lopez Obrador’s Morena party and its allies walked out of parliamentary elections on Sunday with a reduced majority, shattering the president’s hopes for constitutional changes that require a two-thirds majority. Morena is expected to continue to have between 265 and 292 seats in the Mexican lower house, according to the national electoral body. The results of 15 state governor races are not yet known, although pre-election polls favored Morena in most of these competitions.
Peru’s choice. Peru’s ideologically polarized presidential election between the socialist Pedro Castillo and the conservative Keiko Fujimori is too short according to unofficial results. A quick count from Ipsos found Castillo was 0.4 percent ahead of Fujimori, while an earlier exit poll showed Fujimori 0.6 percent ahead. With only 42 percent of the votes counted, Fujimori Castillo leads with 52.9 percent to 47.1 percent in the official overall ranking.
NATO in Washington. NATO Secretary General Jens Stoltenberg is in Washington today for talks with President Joe Biden, Defense Secretary Lloyd Austin and National Security Advisor Jake Sullivan. The meetings will take place as the organization prepares for its first Biden Presidency Summit on June 14 in Brussels. Biden and Stoltenberg will discuss burden sharing, cyberattacks, climate change and “challenges” from Russia and China, White House spokesman Jen Psaki said on Friday.
The lifeline of the CDU. The Christian Democratic Union (CDU) won a decisive victory in the elections in Saxony-Anhalt on Sunday and thus strengthened Armin Laschet’s hopes of inheriting the chancellorship from his CDU colleague Angela Merkel in the federal election in September. According to an exit survey, the CDU improved by six points compared to its victory in 2016 and thus prevailed against the right-wing extremist Alternative for Germany (AfD), which took second place. Despite a recent surge in national polls, the Greens ranked seventh, which means future difficulties for the party in the former GDR.
Colombia’s riots. Colombian President Ivan Duque will ask lawmakers to approve new measures to address allegations of police brutality during weeks of protests that have turned into an anti-government protest movement. Duque calls for increased police surveillance and training after human rights groups reported dozen of police killings in the past few weeks. Negotiations between the government and the protest leaders have stalled because of differences of opinion between the two sides over the conditions for the talks.
The Bundeswehr has more than troops to consider in its withdrawal plans from Afghanistan: 65,000 cans of beer (or around 60 beers per soldier) and 340 bottles of wine remain in German military camps at their base in Mazar, north of Afghanistan Kabul. The drink glut likely arose when Ansgar Meyer, the commanding officer in charge, banned drinking alcohol in the final days of the retreat (which is now expected to be completed in July). Since Afghans are banned from consuming alcohol, leaving the cans behind is not an option. The German military authorities now have to decide whether to send the drinks home with their troops or to dispose of them on site.
That’s it for today.