As a small country, Ireland is best served by a stable international economic backdrop and a rules-based system governing areas such as trade and taxation. Unfortunately, the key institutions overseeing the international economic system are now under heavy pressure, as Donald Trump pursues his nationalistic economic agenda.
The most recent demonstration of this came in recent days as the other G7 countries acceded to a US demand to rewrite a part of the global corporate tax deal that took years to put together under the aegis of the Organisation for Economic Co-Operation and Development (OECD). The entire deal is now weakened and may even crumble completely.
The issue for the US was a part of the agreement which would have allowed other countries, including Ireland, to collect top-up tax from American multinationals who were judged not to have paid the minimum rate of 15 per cent elsewhere. Washington saw this as an infringement of US tax sovereignty. The same issue lies behind new trade tensions between the US and Canada,
What is notable is that the G7 countries agreed to unpick the agreement to meet the US demands, as was announced on social media by US treasury secretary, Scott Bessent. The other 140 plus countries who negotiated and signed the agreement are yet to be consulted. The big players are calling the shots.
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In return, the US administration is asking Congress to withdraw a part of the new budget bill which would have given the US the power to levy punitive taxes on investors and companies from countries who were judged to be treating US firms unfairly. As in the field of trade, US threats are being met by significant concessions.
The OECD’s status as a mediator of the corporate tax deal has been undermined and the future of the whole agreement is now in serious doubt. In the same way, the World Trade Organisation looks on powerlessly as the rules of international trade are torn up. In this context, the suggestion last week from Ursula von der Leyen, the European Commission president, that the EU investigates a new regime with a group of Asian countries who are part of a trade bloc – which the UK has also joined – was ill-judged to say the least.
This new dominance by the big players and the tearing up of existing rules is worrying for Ireland. The previous government had hoped that by signing up to the OECD tax deal the controversy over the Irish system would be put to bed and there would be no further demands for change. Now this is all back in the melting pot.
Meanwhile, Ireland has thrived under the rules-based trade system which brings certainty to those exporting from this country, whether multinationals or domestic businesses.
Ireland needs to stick close to the EU to make it case and hope that Europe can find its voice on these issues more effectively than it has to date.
