What the G20 Reform Commitments Could Mean for the Transatlantic Economic Relationship

As the world’s economies rebound from the global recession, international institutions including the European Union, the Organization for Economic Cooperation and Development (OECD), and the Group of Twenty (G20) have begun to get serious about fixing the global financial system. 
Following the OECD’s plan presented in July to overhaul the global finance system by attacking tax havens and closing financial loopholes, the G20 has begun a serious discussion on implementing these recommendations on an international scale.  The G20 summit’s finance agenda outlined last week in Saint Petersburg further honed in on the need for international cooperation on tax, banking, and finance regulation. 

Proposals high atop the OECD and G20 agendas include plans to the strengthen the roles of central banks to better handle financial crises, and installations of sweeping laws and commitments that would substantially hinder the ability of large companies to shift profits generated in high tax countries to low tax jurisdictions.  Although certain multinationals have spoken out in favor of these plans, there has been significant pushback from others. Broadly speaking, the general feeling among the international regulatory community tends to reflect that these reforms would be a step forward on the road to financial regulatory coherence and fairness across borders.

The European Union and the United States have also begun to get serious on financial reform in the past several months.  In the United States, momentum is building around an overhaul of the antiquated corporate tax system, which has largely not been reformed to sync with global standards. In the wake of the 2008 financial crisis, and with growing pressure from international institutions to shore up tax havens and offshoring, the United States now seems less reluctant to move with the rest of the OECD countries toward an international standard tax system.

On the European front, attempts by Brussels to curb cross-border tax evasions have proven ineffective. Several laws and initiatives have been constructed to close tax loopholes; however, such initiatives have fallen flat.  Countries like the Netherlands and Luxembourg provide investment and license havens to larger, higher tax-burden countries like France and Germany.  Further regulation from Brussels, like all things, will require the cooperation of the larger member countries, and so far, consensus has been difficult to secure.  

Although the European Union and United States have an uphill journey to repair their broken financial systems, policymakers do seem to be making progress. An EU-US led overhaul of the banking and tax systems could mean a strengthening of transatlantic investment, trade, and economic efficiencies, assuming each side of the Atlantic decides to be early enforcers and champion the OECD’s plan. A step forward by the transatlantic community on these kinds of reforms could also be a chance to stay ahead of the curve.  By allowing fairer and more harmonious channels of trade and commerce, and by establishing a dialogue across the Atlantic on financial reform, an EU-US consensus on tax and financial reforms could create stronger cooperation in the future of the transatlantic business and economic community. 

An EU-US reform consensus would not only buttress bonds among the states involved, it would also create a stronger, more robust banking and financial system for the future, ensuring greater transparency, efficiency, and competition. Moreover, it would be an excellent addition to a strengthened regulatory framework envisaged by the negotiations for a Transatlantic Trade and Investment Partnership. Given the current climate, the G20’s support of the OECD plan should only gain steam while picking up auxiliary supporters on the way.  Many African, Asian, and Latin American countries have already widely endorsed the plan, given the issues with offshoring and illicit financial flows out of the developing world.  

The transatlantic economies should seize this opportunity in order to synergize regulatory efforts and set a global standard in a competitive world economy.  A push toward a tighter and fairer transatlantic market now could lead to a more competitive transatlantic market in years to come, fully equipped to adhere to global regulatory standards. As markets continue to expand into developing countries, and capital investments find new and rapidly growing ventures in Asia, Latin America, and Africa, an EU-US consensus on financial and tax standards could mean staying ahead of the competition.

Andrew Chrismer is the assistant director of the Global Business and Economic Program

Also read: TTIP and the Fifty States: Jobs and Growth from Coast to Coast, a groundbreaking new report from the Atlantic Council, the Bertelsmann Foundation, and the British Embassy in Washington released on September 24, 2013