Crisis Averted in Ireland?
Chris Kuehl, Ph.D.
It is hard to determine what real impact the resignation of Ireland’s Deputy Prime Minister Frances Fitzgerald will have. (Fitzgerald stepped down over allegations of a seriously mismanaged policing scandal when she was justice minister.)
Nobody in the country wants to have a snap election, while the Brexit mess looms, because Ireland looks more and more to be the critical nation as far as the talks are concerned.
In the event of a hard Brexit, the situation in Northern Ireland rapidly becomes more important and will have an impact on British politics as a whole. The border between Ireland and Northern Ireland today is as porous as it could possibly be.
Most of the 300 miles of border is utterly unmarked, and it technically runs through farms, towns and, in several cases, people’s homes. This has never been an issue of any kind, but under a hard interpretation of Brexit, the border would be closed.
There would be control of goods and people—suddenly there would be walls, fences and guard towers in a place that had more than its share of political tensions and violence. It has been repeatedly pointed out that relations between the U.K. and Ireland have rarely been this good. There has been an end to the “troubles” in Northern Ireland, but Brexit can easily shatter this calm.
The issue will be whether Northern Ireland stays in the U.K. During the Brexit vote, there was overwhelming support for staying in the U.K. throughout Northern Ireland as the vast majority of residents opposed anything that would separate them from the rest of Ireland.
There is considerable concern that movements would begin again to unite the two Irelands. The current government in Dublin doesn’t want to take up this issue and has been actively lobbying the British to find ways to work with the EU to avoid the hard break. The Europeans are not feeling very magnanimous, but the leading advocate for a tough position has been Angela Merkel in Germany. She has her hands full with more domestic concerns right now and may be willing to find a cooperative stance.
Making Sense of the GCC’s Impending VAT
As the clock ticks down on the implementation of a new value-added tax (VAT) for the Gulf Cooperation Council states, effective Jan. 1, many businesses continue to get ready for it as well as educate themselves about what it means for them.
A question regarding it recently arose on FCIB’s member-only discussion board from the perspective of someone who exports into the region. For the purpose of invoicing, the individual wanted to know how to handle the VAT for goods and services supplied to a GCC country.
Because rules on the VAT will vary from country to country, one respondent suggested contacting a company’s external auditors or the internal tax department.
With regard to Saudi Arabia, according to the General Authority of Zakat and Tax (GAZT), most goods and services are subject to the standard 5% VAT rate. VAT implementing regulations state that a 5% VAT will be collected on all goods and services subject to the standard rate at each stage of the supply chain, up to the end user. The regulations, however, also specify that select goods and services will be exempt, zero-rated or outside of the VAT scope.
Zero-rated goods and services include the supply of certain medications and medical equipment specified by the Ministry of Health and Saudi Food and Drug Authority; supply of gold, silver and platinum (at least 99% pure and tradable in the international bar market) for investment purposes. Other zero-rated goods and services include exports destined outside the GCC region, services supplied to non-GCC residents, international transport services of goods and people, and supply of qualified international transport vehicles and related services such as supply of spare parts, maintenance, repair and modifications of transport vehicles.
As for exempted goods and services, these include certain financial services, which include—but are not limited to—the issue, transfer or receipt of, or any dealing with money or any security, the provision of any credit or credit guarantee and life insurance or reinsurance of life insurance contracts. Also exempted is rental of residential real estate, which is defined as a permanent dwelling designed for human occupation.
Any activity exercised by a government body in its capacity as a public authority, such as issuance and renewal of passports and driving licenses, shall not be considered to be an economic activity and as such, falls outside the VAT scope and will not be subject to VAT.
GAZT confirms that the nature of the economic activity is what ultimately determines whether the exchange of goods and services that occurs falls under the VAT scope. It also calls upon all businesses to thoroughly read and understand the implementing regulations available on the dedicated VAT website (vat.gov.sa) to ensure their readiness and compliance with VAT.
The website also features a wide range of resources that support businesses’ VAT-readiness, including tools, information and tutorial guides, in addition to a list of goods and services subject to VAT.
Trade Credit Insurer Warns Rebound in Global Trade Could Be Short-Lived
Growing financial and trade protectionism coupled with rising interest rates and worrying geopolitics will lead to increased trade costs, resulting in global trade growth for 2017 and 2018 that is half of pre-crisis rates, predicts trade credit insurer, Euler Hermes, in a recent report. (The report, Game of Trade: Unbowed, Unbent, Unbroken?, focuses on eight key countries: the United States, Mexico, China, Japan, Germany, France, the United Kingdom and Italy.)
While global trade volume growth averaged 8% and value growth soared by 16% on average between 2002 and 2007, Euler Hermes expects an increase in volume by 4.3% in 2017 and 3.9% in 2018. In value terms, it is forecast to expand by 7.5% in 2017 and 6.3% in 2018.
The report outlines the following three issues for the decline:
- The number of protectionist measures is high and keeps on rising. More than 400 new measures are expected this year (somewhat less than in 2016). Some countries such as the U.S. started to rapidly increase the number of barriers. By November, 87 new measures were recorded, more than for all of 2016 (84) and 2015 (86). Measures were heavily aimed at two economies: China (20%) and Canada (18%), up from 10% and 12% respectively in 2016. “Such a trend is particularly important when considering the importance of the U.S. as a final goods consumer: it accounts for 30% of global private consumption,” the report finds.
- Access to financing is still difficult, stemming from a continued balkanization of financial flows. Global cross-border bank lending contracted by 0.2% year-on-year in the second quarter of 2017 due to asymmetric regulation. Risk intolerance and ring-fencing by large banks in the U.S., combined with asymmetric financial regulation (capital requirement) and capital controls (in emerging markets) explain the disappointing trade volume growth forecast. Euler Hermes found a trade financing gap of approximately USD1.5tn this year, in line with the Asian Development Bank’s recent estimate. Pro-relocation policies in advanced economies (so-called tax wars) may also divert capital from emerging markets.
- Geopolitical concerns remain a key determinant of the reshuffling of trade. In Europe, prevailing tensions with Russia and the difficult-to-reach Brexit transition deal pose a serious risk to the trade outlook. In the Middle East, the growing tensions come on top of an already difficult regional situation. Lastly, the heightened risk in the Korean peninsula features trade champions as key protagonists (China, South Korea, Japan and the U.S.).
“Financial protectionism is the greatest danger for global trade,” said Ludovic Subran, chief economist at Euler Hermes “Disciplined support from governments for longer-term investments and the digital revolution, as well as plenty of cash available in company balance sheets, might not be enough to counterbalance this worrying trend.”
In this context, the expected monetary policy normalization by central banks could impact the availability of hard currency and hence raise the costs of trade finance globally, the firm added.
Global trade boom steams into 2018 as U.S. threatens barriers. As 2017 draws to a close, the International Monetary Fund is projecting that the volume of trade in goods and services will have climbed 4.2% over the year, up from 2.4% in 2016. That would be the first time trade has outpaced output growth since 2014. Among the winners: big manufacturing powerhouses, such as Germany and China, and producers of electronics like South Korea. (Bloomberg)
Europe and South America push for one of the largest trade accords. Talks between Europe and South America to create one of the world’s largest trade agreements enter a crucial phase last week as both sides seek to iron out remaining obstacles before a self-imposed deadline next month. (HSN)
Egypt lifts remaining currency restrictions as crunch abates. Egypt’s central bank lifted its last remaining official foreign-currency controls, as a dollar shortage that stymied the economy receded since authorities floated the pound and introduced wide-ranging reforms. (Bloomberg)
U.S. implements changes to Cuba sanctions. Effective Nov. 9, 2017, the U.S. Department of Treasury’s Office of Foreign Assets Control and the U.S. Department of Commerce’s Bureau of Industry and Security implemented the changes to the Cuba sanctions program initially unveiled on June 16. The newly amended Cuba sanctions program adds significant restrictions relating to financial transactions and travel by persons subject to U.S. jurisdiction. (Global Trade Magazine)
New tariffs on Spanish olives indicate U.S. protectionist trend. The U.S. trade department decided on Nov. 21 to impose tariffs on imports of Spanish table olives, in another sign of rising protectionist measures under President Donald Trump, which have drawn criticism from Europe. (EurActiv)
Early China indicators signal that economy cooled in November. Confidence among China’s sales managers and steel producers waned in November, matching the mood among international investors, while sentiment among small businesses improved, according to the earliest available indicators. (Bloomberg)
Honduran protesters, police clash in growing election crisis. Honduran police fired tear gas at rock-hurling protesters on Nov. 30 after a contentious presidential election that looks set to drag on for two more days without a clear winner, deepening the political crisis in the Central American nation. (Reuters)
NAFTA: Mexican economy faces disruption no matter what. Mexico is in a tough spot when it comes to the renegotiation of NAFTA. If the negotiations fail and NAFTA goes away, the Mexican economy will shrink, by anywhere from 2.6%, according to Spanish bank Santander, to 4%, according to Moody’s Investors Service. (Global Trade Magazine)
2018 will be the year African fintech takes off. Next year will be a good year for Sub-Saharan Africa. After a challenging 2017 for many of its nations, 2018 will see economic growth return across the continent, gas activity boom and fintech innovation pick up in speed. (Global Trade Review)
Venezuela sanctions update 2017. 2017 has been an eventful and significant year for the Venezuela economic sanctions programs, particularly in the aftermath of President Nicolas Maduro’s consolidation of political power in a series of contested elections and political maneuverings throughout the first half of the year. (Global Trade Magazine)
How Zimbabwe gets out of its economic nightmare. The political dust surrounding Robert Mugabe’s exit as leader of Zimbabwe last week may be settling but, arguably, an even bigger task awaits the country’s new president, Emmerson Mnangagwa: how to save the economy. (Quartz)
Week in Review Editorial Team:
Diana Mota, Associate Editor and David Anderson, Member Relations