The Platform for Collaboration on Tax (PCT) – a joint initiative of the IMF, OECD, UN and World Bank Group – released the final version of the Toolkit on Tax Treaty Negotiations along with its web-based, interactive edition.
The PCT’s Toolkit on Tax Treaty Negotiations is an effort to provide capacity-building support to developing countries on tax treaty negotiations, building on existing guidance, particularly from the UN Manual for the Negotiation of Bilateral Tax Treaties between Developed and Developing Countries. The toolkit describes the steps involved in tax treaty negotiations, such as how to decide whether a comprehensive tax treaty is necessary, how to prepare for and conduct negotiations, and what follow-up measures to take after negotiations. Treaty negotiating teams, especially those new to the process, can also find practical tips on the conduct of negotiations and negotiation styles. Additionally, the toolkit collates links to publicly available resources that treaty negotiators will find useful, making them easily accessible. The design of the toolkit allows regular updates and improvements based on the feedback from users and experienced negotiators.
This is the fifth toolkit published by the PCT, a collective effort of the PCT Partners to help countries address challenges in international taxation. The final version of the toolkit takes into account extensive comments received from countries and stakeholders during the public consultation process in June – September 2020. In addition to written comments, public consultation webinars, which were held in English, French, and Spanish in November and December 2020, gathered further feedback from diverse stakeholders, particularly treaty negotiation teams.
Following the release, the Toolkit on Tax Treaty Negotiations, including its full web-based version, will be launched at a three-day workshop on March 11, 12, and 15, 2021. The virtual workshop will feature expert speakers and experienced negotiators, who will discuss some of the substantive issues addressed in the toolkit, such as designing a tax treaty policy framework and the steps involved in the preparation for, conduct of, and follow-up after negotiations.
Contacts:

IMF: media[at]imf.org

OECD: ctp.communications[at]oecd.org

UN: ffdoffice[at]un.org

World Bank Group: Elizabeth Howton, ehowton[at]worldbankgroup.org

Compliments of the OECD.
The post OECD | Platform for Collaboration on Tax Launches Tax Treaty Negotiations Toolkit first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Christine Lagarde, President of the ECB, Luis de Guindos, Vice-President of the ECB, Frankfurt am Main, 11 March 2021 |
Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. We will now report on the outcome of the meeting of the Governing Council, which was also attended by the Commission Executive Vice-President, Mr Dombrovskis.
While the overall economic situation is expected to improve over 2021, there remains uncertainty surrounding the near-term economic outlook, relating in particular to the dynamics of the pandemic and the speed of vaccination campaigns. The rebound in global demand and additional fiscal measures are supporting global and euro area activity. But persistently high rates of coronavirus (COVID-19) infection, the spread of virus mutations, and the associated extension and tightening of containment measures are weighing on euro area economic activity in the short term. Looking ahead, the ongoing vaccination campaigns, together with the envisaged gradual relaxation of containment measures, underpin the expectation of a firm rebound in economic activity in the course of 2021. Inflation has picked up over recent months mainly on account of some transitory factors and an increase in energy price inflation. At the same time, underlying price pressures remain subdued in the context of weak demand and significant slack in labour and product markets. While our latest staff projection exercise foresees a gradual increase in underlying inflation pressures, it confirms that the medium-term inflation outlook remains broadly unchanged from the staff projections in December 2020 and below our inflation aim.
In these conditions, preserving favourable financing conditions over the pandemic period remains essential. Financing conditions are defined by a holistic and multifaceted set of indicators, spanning the entire transmission chain of monetary policy from risk-free interest rates and sovereign yields to corporate bond yields and bank credit conditions. Market interest rates have increased since the start of the year, which poses a risk to wider financing conditions. Banks use risk-free interest rates and sovereign bond yields as key references for determining credit conditions. If sizeable and persistent, increases in these market interest rates, when left unchecked, could translate into a premature tightening of financing conditions for all sectors of the economy. This is undesirable at a time when preserving favourable financing conditions still remains necessary to reduce uncertainty and bolster confidence, thereby underpinning economic activity and safeguarding medium-term price stability.
Against this background, the Governing Council decided the following:
First, we will continue to conduct net asset purchases under the pandemic emergency purchase programme (PEPP) with a total envelope of €1,850 billion until at least the end of March 2022 and, in any case, until the Governing Council judges that the coronavirus crisis phase is over. Based on a joint assessment of financing conditions and the inflation outlook, the Governing Council expects purchases under the PEPP over the next quarter to be conducted at a significantly higher pace than during the first months of this year.
We will purchase flexibly according to market conditions and with a view to preventing a tightening of financing conditions that is inconsistent with countering the downward impact of the pandemic on the projected path of inflation. In addition, the flexibility of purchases over time, across asset classes and among jurisdictions will continue to support the smooth transmission of monetary policy. If favourable financing conditions can be maintained with asset purchase flows that do not exhaust the envelope over the net purchase horizon of the PEPP, the envelope need not be used in full. Equally, the envelope can be recalibrated if required to maintain favourable financing conditions to help counter the negative pandemic shock to the path of inflation.
We will continue to reinvest the principal payments from maturing securities purchased under the PEPP until at least the end of 2023. In any case, the future roll-off of the PEPP portfolio will be managed to avoid interference with the appropriate monetary policy stance.
Second, net purchases under our asset purchase programme (APP) will continue at a monthly pace of €20 billion. We continue to expect monthly net asset purchases under the APP to run for as long as necessary to reinforce the accommodative impact of our policy rates, and to end shortly before we start raising the key ECB interest rates.
We also intend to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when we start raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.
Third, the Governing Council decided to keep the key ECB interest rates unchanged. We expect them to remain at their present or lower levels until we have seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2 per cent within our projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.
Finally, we will continue to provide ample liquidity through our refinancing operations. In particular, our third series of targeted longer-term refinancing operations (TLTRO III) remains an attractive source of funding for banks, supporting bank lending to firms and households.
Preserving favourable financing conditions over the pandemic period for all sectors of the economy remains essential to underpin economic activity and safeguard medium-term price stability. We will also continue to monitor developments in the exchange rate with regard to their possible implications for the medium-term inflation outlook. We stand ready to adjust all of our instruments, as appropriate, to ensure that inflation moves towards our aim in a sustained manner, in line with our commitment to symmetry.
Let me now explain our assessment in greater detail, starting with the economic analysis. Following the strong rebound in growth in the third quarter of 2020, euro area real GDP declined by 0.7 per cent in the fourth quarter. Looking at the full year, real GDP is estimated to have contracted by 6.6 per cent in 2020, with the level of economic activity for the fourth quarter of the year standing 4.9 per cent below its pre-pandemic level at the end of 2019.
Incoming economic data, surveys and high-frequency indicators point to continued economic weakness in the first quarter of 2021 driven by the persistence of the pandemic and the associated containment measures. As a result, real GDP is likely to contract again in the first quarter of the year.
Economic developments continue to be uneven across countries and sectors, with the services sector being more adversely affected by the restrictions on social interaction and mobility than the industrial sector, which is recovering more quickly. Although fiscal policy measures are supporting households and firms, consumers remain cautious in the light of the pandemic and its impact on employment and earnings. Moreover, weaker corporate balance sheets and elevated uncertainty about the economic outlook are still weighing on business investment.
Looking ahead, the ongoing vaccination campaigns, together with the gradual relaxation of containment measures – barring any further adverse developments related to the pandemic – underpin the expectation of a firm rebound in economic activity in the course of 2021. Over the medium term, the recovery of the euro area economy should be supported by favourable financing conditions, an expansionary fiscal stance and a recovery in demand as containment measures are gradually lifted.
This assessment is broadly reflected in the baseline scenario of the March 2021 ECB staff macroeconomic projections for the euro area. These projections foresee annual real GDP growth at 4.0 per cent in 2021, 4.1 per cent in 2022 and 2.1 per cent in 2023. Compared with the December 2020 Eurosystem staff macroeconomic projections, the outlook for economic activity is broadly unchanged.
Overall, the risks surrounding the euro area growth outlook over the medium term have become more balanced, although downside risks remain in the near term. On the one hand, better prospects for global demand, bolstered by the sizeable fiscal stimulus, and the progress in vaccination campaigns are encouraging. On the other hand, the ongoing pandemic, including the spread of virus mutations, and its implications for economic and financial conditions continue to be sources of downside risk.
Euro area annual inflation increased sharply to 0.9 per cent in January and February 2021, up from -0.3 per cent in December. The upswing in headline inflation reflects a number of idiosyncratic factors, such as the end of the temporary VAT rate reduction in Germany, delayed sales periods in some euro area countries and the impact of the stronger than usual changes in HICP weights for 2021, as well as higher energy price inflation. On the basis of current oil futures prices, headline inflation is likely to increase in the coming months, but some volatility is expected throughout the year reflecting the changing dynamics of the factors currently pushing inflation up. These factors can be expected to fade out of annual inflation rates early next year. Underlying price pressures are expected to increase somewhat this year due to current supply constraints and the recovery in domestic demand, although pressures are expected to remain subdued overall, also reflecting low wage pressures and the past appreciation of the euro. Once the impact of the pandemic fades, the unwinding of the high level of slack, supported by accommodative fiscal and monetary policies, will contribute to a gradual increase in inflation over the medium term. Survey-based measures and market-based indicators of longer-term inflation expectations remain at subdued levels, although market-based indicators have continued their gradual increase.
This assessment is broadly reflected in the baseline scenario of the March 2021 ECB staff macroeconomic projections for the euro area, which foresees annual inflation at 1.5 per cent in 2021, 1.2 per cent in 2022 and 1.4 per cent in 2023. Compared with the December 2020 Eurosystem staff macroeconomic projections, the outlook for inflation has been revised up for 2021 and 2022, largely due to temporary factors and higher energy price inflation, while it is unchanged for 2023.
Turning to the monetary analysis, the annual growth rate of broad money (M3) stood at 12.5 per cent in January 2021, after 12.4 per cent in December and 11.0 per cent in November 2020. Strong money growth continued to be supported by the ongoing asset purchases by the Eurosystem, which remain the largest source of money creation. The narrow monetary aggregate M1 has remained the main contributor to broad money growth, consistent with a still heightened preference for liquidity in the money-holding sector and a low opportunity cost of holding the most liquid forms of money.
Developments in loans to the private sector were characterised by somewhat weaker lending to non-financial corporations and resilient lending to households. The monthly lending flow to non-financial corporations continued the moderation observed since the end of the summer. At the same time, the annual growth rate remained broadly unchanged, at 7.0 per cent, after 7.1 per cent in December, still reflecting the very strong increase in lending in the first half of the year. The annual growth rate of loans to households remained broadly stable at 3.0 per cent in January, after 3.1 per cent in December, amid a solid positive monthly flow.
Overall, our policy measures, together with the measures adopted by national governments and other European institutions, remain essential to support bank lending conditions and access to financing, in particular for those most affected by the pandemic.
To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed that an ample degree of monetary accommodation is necessary to support economic activity and the robust convergence of inflation to levels that are below, but close to, 2 per cent over the medium term.
Regarding fiscal policies, an ambitious and coordinated fiscal stance remains critical in view of the sharp contraction in the euro area economy. To this end, support from national fiscal policies should continue given weak demand from firms and households relating to the ongoing pandemic and the associated containment measures. At the same time, fiscal measures taken in response to the pandemic emergency should, as much as possible, remain temporary and targeted in nature to address vulnerabilities effectively and to support a swift recovery. The three safety nets endorsed by the European Council for workers, businesses and governments provide important funding support.
The Governing Council recognises the key role of the Next Generation EU package and stresses the importance of it becoming operational without delay. It calls on Member States to ensure a timely ratification of the Own Resources Decision, to finalise their recovery and resilience plans promptly and to deploy the funds for productive public spending, accompanied by productivity-enhancing structural policies. This would allow the Next Generation EU programme to contribute to a faster, stronger and more uniform recovery and would increase economic resilience and the growth potential of Member States’ economies, thereby supporting the effectiveness of monetary policy in the euro area. Such structural policies are particularly important in addressing long-standing structural and institutional weaknesses and in accelerating the green and digital transitions.
We are now ready to take your questions.
Compliments of the European Central Bank.
The post ECB | Christine Lagarde, Luis de Guindos: Introductory statement to the press conference first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

​The EU SME Strategy, published exactly one year ago by the European Commission aimed at helping small businesses leading the twin transition, reducing regulatory burdens and red tape, supporting market access and entrepreneurship, and improving access to financing. However, the COVID-19 pandemic is threatening the viability of European SMEs due to serious disruptions of global supply chains, transport and travel restrictions, and the collapse in consumption and consumer confidence.
The EU SME Strategy one year on: Challenges and Opportunities” online event that EUROCHAMBRES co-organised with the Committee of the Regions on 10 March 2021 took stock of the Strategy’s achievements in the preceding 12 months, amid the crisis and recovery process.
Following the introduction by Gilbert Stimplin, Co-Chair of EUROCHAMBRES’ SMEs and Economic Policy Committee, a panel composed by Hubert Gambs, Deputy Director-General of DG GROW, Josianne Cutajar, MEP and shadow rapporteur of the European Parliament’s report on the SME Strategy, Eddy van Hijum, rapporteur for the Committee of the Regions’ opinion on the SME Strategy, and Wolfgang Grenke, EUROCHAMBRES Vice President and Co-Chair of the SMEs and Economic Policy Committee, exchanged views about state of play of the Strategy and how to ensure access to support measures. The discussion was followed by closing remarks from the Chair of the Commission for Economic Policy of the Committee of the Regions, Michael Murphy.
Mr. Stimpflin highlighted that European SMEs have been hit the hardest by the crisis, facing logistical issues, productivity constraints and demand decline due to lockdown measures, plus a drop in consumer confidence. He reminded that businesses need room to recover and that EU policy interventions need to be sensitive to SMEs, rather than adopting a one-size-fits-all approach.
Building up on this, Mr Gambs underlined the role that the European Commission has had in rapidly channelling financial support towards SMEs to strengthen their short-term resistance to the crisis and reinforce their long-term competitiveness, growth, and employment creation potential. The Commission believes that employment-enhancing measures together with upward convergence strengthened by the Recovery and Resilience Facility will give the SME Strategy new impetus through investments in environment, and digital initiatives.
MEP Cutajar focused on the Parliament’s actions towards monitoring and raising visibility to the SME Strategy in the broader context of Europe’s economic recovery. SMEs have faced hardship and still face uncertainty. The strategy that was published a year ago became outdated overnight and should be adapted to the new reality. She regretted that, 18 months into the von der Leyen Commission, the EU SME Envoy had not yet been appointed, a role that without doubt could enhance the focus on a systematic and consistent implementation of the “think small first” principle and integrate the Strategy’s coherence and future-oriented approach.
Mr van Hijum stressed that local and regional authorities are best positioned to develop and coordinate placed-based policies for SMEs, in close partnership with regional stakeholders and actors of the quadruple helix in their territories. European and national strategies should embrace ‘think small, act regional’ as a guiding principle: build capacity at regional level, link strategic priorities with available funding and match them with SMEs’ needs on the ground.
Vice President Grenke also reminded the participants of the importance of a prompt appointment of a high-ranking SME Envoy to ensure the think-small-first principle is applied throughout all EU legislation and across all Directorates of the Commission. Furthermore, he pointed out that the EU needs to guarantee the integrity of the Single Market by removing remaining unjustified barriers, avoiding the creation of new ones, better implementing, and enforcing existing legislation, and stimulating investment in SMEs through the modernisation of state aid rules.
Mr. Murphy concluded saying that SMEs have always been the backbone of the EU economy and are now in the eye of the storm. It is vital that all SMEs get the financial support that they so badly need in order to be the motors of the recovery. He called for a genuine partnership among the European, national, regional, and local authorities and policy makers on a smooth delivery of the EU recovery plan, to the benefit of SMEs and local communities.

Discussions during the event, attended by more than 200 participants, allowed participants to delve on the vital role that Chambers of Commerce and Industry and EU regions will play in the recovery process. Chambers believe that a co-ordinated policy response at the European, national, and regional levels will need to shift from its initial focus on the survival of small businesses in the short term, towards a medium and longer-term approach driven by sustainability, enabled by technology, and based on upward innovation, internationalisation, and economic growth. Chambers are committed to working together with EU institutions towards helping SMEs in achieving these goals.
Compliments of the European Committee of the Regions.

The post The EU SME Strategy one year on: Challenges and Opportunities first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

All products under the EU Emissions Trading System should be included
Revenue to be used to step up EU support for the objectives of the Green Deal
The mechanism must not be misused to further trade protectionism

To raise global climate ambition and prevent ‘carbon leakage’, the EU must place a carbon price on certain imports from less climate-ambitious countries, say MEPs.
On Wednesday, Parliament adopted a resolution on a WTO-compatible EU carbon border adjustment mechanism (CBAM) with 444 votes for, 70 against and 181 abstentions.
The resolution underlines that the EU’s increased ambition on climate change must not lead to ‘carbon leakage’ as global climate efforts will not benefit if EU production is just moved to non-EU countries that have less ambitious emissions rules.
MEPs therefore support to put a carbon price on certain goods imported from outside the EU, if these countries are not ambitious enough about climate change. This would create a global level playing field as well as an incentive for both EU and non-EU industries to decarbonise in line with the Paris Agreement objectives.
MEPs stress that it should be WTO-compatible and not be misused as a tool to enhance protectionism. It must therefore be designed specifically to meet climate objectives. Revenues generated should be used as part of a basket of own revenues to boost support for the objectives of the Green Deal under the EU budget, they add.
Mechanism to be linked to a reformed EU Emissions Trading System (ETS)
The new mechanism should be part of a broader EU industrial strategy and cover all imports of products and commodities covered by the EU ETS. MEPs add that already by 2023, and following an impact assessment, it should cover the power sector and energy-intensive industrial sectors like cement, steel, aluminium, oil refinery, paper, glass, chemicals and fertilisers, which continue to receive substantial free allocations, and still represent 94 % of EU industrial emissions.
They add that linking carbon pricing under the CBAM to the price of EU allowances under the EU ETS will help to combat carbon leakage but underline that the new mechanism must not lead to double protection for EU installations.
You can watch a video of the plenary debate here.
Quote
After the vote, Parliament rapporteur Yannick Jadot (Greens/EFA, FR) said:
“The CBAM is a great opportunity to reconcile climate, industry, employment, resilience, sovereignty and relocation issues. We must stop being naïve and impose the same carbon price on products, whether they are produced in or outside the EU, to ensure the most polluting sectors also take part in fighting climate change and innovate towards zero carbon. This is our best chance of remaining below the 1.5°C warming limit, whilst also pushing our trading partners to be equally ambitious in order to enter the EU market.”
Next steps
The Commission is expected to present a legislative proposal on a CBAM in the second quarter of 2021 as part of the European Green Deal as well as a proposal on how to include the revenue generated to finance part of the EU budget.
Background
Parliament has played an important role in pushing for more ambitious EU climate legislation. It declared a climate emergency on 28 November 2019 and wants the EU and its member states to become climate neutral in 2050 and reduce GHG emissions with 60% by 2030.
Contact:

Thomas Haahr, Press Officer | thomas.haahr@europarl.europa.eu

Compliments of the European Parliament.
The post MEPs: Put a carbon price on certain EU imports to raise global climate ambition first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

To reverse widening inequality, keep a tight rein on automation
The industrialized world, especially the United States, suffered severe economic ills even before the COVID-19 pandemic. Unless we recognize them now, we are unlikely to produce solutions.
Chief among these problems is the nature of economic growth, which has become much less shared since the 1980s. Wider inequality in much of the industrialized world; the disappearance of good, high-paying, secure jobs; and the decline in the real wages of less-educated workers in the United States are all facets of this unshared growth (Acemoglu 2019), which has deepened discontent and sparked protests from both left and right in the years since the Great Recession.
My research with Pascual Restrepo indicates that automation accounts for much of this loss of shared growth, along with such factors as globalization and the declining power of labor relative to capital (Acemoglu and Restrepo 2019). With the next phase of automation rapidly unfolding, driven by machine learning and artificial intelligence (AI), the world’s economies stand at a crossroads. AI could further exacerbate inequality. Or, properly harnessed and directed through government policies, it could contribute to a resumption of shared growth.
Automation is the substitution of machines and algorithms for tasks previously performed by labor, and it’s nothing new. Ever since weaving and spinning machines powered Britain’s Industrial Revolution, automation has often been an engine of economic growth. In the past, however, it was part of a broad technology portfolio, and its potentially negative effects on labor were counterbalanced by other technologies boosting human productivity and employment opportunities. Not today.
AI could further exacerbate inequality. Or, properly harnessed and directed through government policies, it could contribute to a resumption of shared growth.
The next phase of automation, relying on AI and AI-powered machines such as self-driving cars, may be even more disruptive, especially if it is not accompanied by other types of more human-friendly technologies. This broad technological platform, with diverse applications and great promise, could help human productivity and usher in new human tasks and competencies in education, health care, engineering, manufacturing, and elsewhere. But it could also worsen job losses and economic disruption if applied exclusively for automation.
The pandemic has certainly given employers more reasons to look for ways of substituting machines for workers, and recent evidence suggests they are doing so (Chernoff and Warman 2020).
Some argue that pervasive automation is the price we pay for prosperity: new technologies will increase productivity and enrich us, even if they dislocate some workers and disrupt existing businesses and industries. The evidence does not support this interpretation.
Despite the bewildering array of new machines and algorithms all around us, the US economy today generates very low total factor productivity growth—economists’ headline measure of the productivity performance of an economy, which gauges how efficiently human and physical capital resources are being used. In particular, total factor productivity growth has been much lower over the past 20 years than during the decades after World War II (Gordon 2017). Even though information and communication technology has advanced rapidly and is applied in every sector of the economy, industries that rely more intensively on these technologies have not performed better in terms of total factor productivity, output, or employment growth (Acemoglu and others 2014).
The reasons for this recent slow productivity growth are not well understood. But one contributing factor appears to be that many automation technologies, such as self-checkout kiosks or automated customer service, are not generating much total factor productivity growth. Put differently, rather than bringing productivity dividends, automation has been excessive because businesses are adopting automation technologies beyond what would reduce production costs or because these technologies have social costs because they give rise to lower employment and worker wages. Excessive automation may also be a cause of the slowdown in productivity growth. This is because automation decisions are not reducing costs and, even more important, because a singular focus on automation technologies may be causing businesses to miss out on productivity gains from new tasks, new organizational forms, and technological breakthroughs that are more complementary to humans.
But is automation really excessive? I believe so. First of all, when employers make decisions about whether to replace workers with machines, they do not take into account the social disruption caused by the loss of jobs—especially good ones. This creates a bias toward excessive automation.
Even more important, several factors appear to have fueled automation beyond socially desirable levels. Particularly important has been the transformation in the corporate strategies of leading US companies. American and world technology is shaped by the decisions of a handful of very large, very successful tech companies that have tiny workforces and a business model built on automation (Acemoglu and Restrepo 2020). Big Tech companies including Amazon, Alibaba, Alphabet, Facebook, and Netflix are responsible for more than $2 of every $3 spent globally on AI (McKinsey Global Institute 2017). Their vision, centered on the substitution of algorithms for humans, influences not only their own spending but also what other companies prioritize and the aspirations and focus of hundreds of thousands of young students and researchers specializing in computer and data sciences.
Of course there is nothing wrong with successful companies pursuing their own vision, but when this becomes the only game in town, we must be on guard. Past technological successes have more often than not been driven by a diversity of perspectives and approaches. If we lose this diversity, we also risk losing our technological edge.
The dominance of a handful of companies over the path of future technology has been exacerbated as well by dwindling support from the US government for fundamental research (Gruber and Johnson 2019). In fact, government policy excessively encourages automation, especially through the tax code. The US tax system has always treated capital more favorably than labor, encouraging businesses to substitute machines for workers, even when workers may be more productive.
My research with Andrea Manera and Pascual Restrepo shows that, over the past 40 years, labor has paid an effective tax rate of more than 25 percent via payroll and federal income taxes (Acemoglu, Manera, and Restrepo 2020). Even 20 years ago, capital was more lightly taxed than labor, with equipment and software investment facing tax rates of about 15 percent. This differential has widened with tax cuts on high incomes, the conversion of many businesses to closely held S corporations that are exempt from corporate income taxes, and generous depreciation allowances. As a result of these changes, investments in software and equipment are taxed at rates of less than 5 percent today, and in some cases corporations can even derive net subsidies when they invest in capital. This creates a powerful motive for excessive automation.
A path of future technology centered on automation is not preordained. It is a consequence of choices by researchers who focus on automation applications at the expense of other uses of technology and by companies that build business models on automation and reducing labor costs rather than on broad-based productivity increases. We can make different choices. But such a course correction calls for a concerted effort to redirect technological change, which can happen only if government plays a central role in the regulation of technology.
Let me be clear that I do not mean government blocking technology or slowing technological progress. Rather, the government should provide incentives that tilt the composition of innovation away from an excessive focus on automation and more toward human-friendly technologies that produce employment opportunities, especially good jobs, and a more shared form of economic prosperity. We do not know exactly what the most transformative human-friendly technologies of the future may be, but many sectors provide plenty of opportunities. These include education, where AI can be used for much more adaptive and student-centered teaching combining new technologies and better-trained teachers; health care, where AI and digital technologies can empower nurses and technicians to provide more and better services; and modern manufacturing, where augmented reality and computer vision can increase human productivity in the production process. We have also witnessed during the pandemic how new digital technologies, such as Zoom, have fundamentally broadened human communication and capabilities.
Governments have always influenced the direction of technology, and we already know how to build institutions that do this in a more beneficial way.
This recommendation may still strike many as unusual. Isn’t it highly distortionary for governments to influence the direction of technology? Could they really influence where technology goes? Wouldn’t we be opening the door to a new kind of totalitarianism with the state intervening even in technological decisions?
I maintain that in fact there is nothing unusual or revolutionary about this idea. Governments have always influenced the direction of technology, and we already know how to build institutions that do this in a more beneficial way for society.
Governments around the world routinely affect the direction of technology via tax policies and support for corporate research and universities. As I have shown, the US government has encouraged automation through its asymmetric taxation of capital and labor. A first step would be to correct that imbalance. This would go a long way but would not be sufficient by itself. Much more can be done—for example, via R&D subsidies targeted to specific technologies that help human productivity and increase labor demand.
This brings me to the second objection: can the government really effectively redirect technology? My answer is that governments have done this in the past, and in many cases with surprising effectiveness. The transformative technologies of the 20th century, such as antibiotics, sensors, modern engines, and the internet, would not have been possible without the government’s support and leadership. Nor would they have flourished as much without generous government purchases. Even more relevant, perhaps, for efforts to redirect technology in a human-friendly trajectory is the example of renewable energy.
Four decades ago renewable energy was prohibitively expensive, and the basic know-how for green technologies was lacking. Today renewables make up 19 percent of energy consumption in Europe and 11 percent in the United States, and costs have declined in the same ballpark as fossil-fuel energy (IRENA 2020). This has been achieved thanks to a redirection of technological change away from a singular focus on fossil fuels toward greater efforts for advances in renewables. In the United States, the primary driver of this redirection has been modest government subsidies for green technologies as well as the changing norms of consumers.
The same approach can strike a balance between automation and human-friendly technologies. As in the case of renewable energy, change must start with a broader societal recognition that our technology choices have become highly unbalanced, with myriad adverse social consequences. There needs to be a clear commitment by the federal government to redress some of these imbalances. The government should also address the dominance of a handful of big tech companies over their markets and the direction of future technology. This of course would have other benefits, such as ensuring greater competition and protecting privacy.
The most challenging objection to these ideas is political—the same challenge raised by Friedrich Hayek to the development of Britain’s welfare state in what became his celebrated book The Road to Serfdom. Hayek warned against the rise of the administrative state, arguing that it would crush society and its freedoms. As he later summarized it, his concern was that
… extensive government control produces … a psychological change, an alteration in the character of the people.… Even a strong tradition of political liberty is no safeguard if the danger is precisely that new institutions and policies will gradually undermine and destroy that spirit.
Although Hayek’s concerns were well-placed, he turned out to be wrong. Liberty and democracy were not quashed in the United Kingdom or in Scandinavian countries that adopted similar welfare state programs. On the contrary, by ensuring a social safety net, these systems sparked greater opportunities for individual freedom to flourish.
There is an even more fundamental reason the welfare state did not threaten liberty and democracy. James Robinson and I lay out the conceptual framework in our new book, The Narrow Corridor (Acemoglu and Robinson 2019). We explain why the best guarantors of democracy and liberty are not constitutions or clever designs of separation of powers, but society’s mobilization. That requires a balance between state and society that puts the polity in the narrow corridor where liberty flourishes and where the state and society can gain strength and capacity together. So when we need the state to shoulder greater responsibilities, we can also experience a deepening of democracy and greater societal mobilization. This means citizens actively participating in elections and becoming informed about politicians and their agendas (and their misdeeds), civil society organizations expanding, and media helping to hold politicians and bureaucrats accountable. This is what happened in much of the industrialized world. As the state took on more, democracy deepened and society’s involvement and ability to keep politicians and bureaucrats in check intensified.
Whether society can play its part in forging a new chapter in our history is an open question. A major complicating factor is that new digital technologies have also weakened democracy. With misinformation rising, AI-powered social media creating filter bubbles and echo chambers inimical to democratic discourse, and political engagement waning, we may not have the right tools to keep the state in check. Yet we do not have the luxury not to try.
Author:

Daron Acemoğlu, Institute Professor at MIT

Compliments of the IMF Finance & Development.
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The EU and U.S. agreed today to suspend all retaliatory tariffs on EU and U.S. exports imposed in the Airbus and Boeing disputes for a four-month period. The suspension allows both sides to focus on resolving this long-running dispute. It provides an important boost to EU exporters, since the U.S. had been authorised to raise tariffs on $7.5 billion of EU exports to the U.S. Similarly, EU tariffs will be suspended on some $4 billion worth of U.S. exports into the EU.
European Commission Executive Vice-President and Trade Commissioner Valdis Dombrovskis said: “This is a significant step forward. It marks a reset in our relationship with our biggest and economically most important partner. Removing these tariffs is a win-win for both sides, at a time when the pandemic is hurting our workers and our economies. This suspension will help restore confidence and trust, and therefore give us the space to come to a comprehensive and long-lasting negotiated solution. A positive EU-U.S. trade relationship is important not only to the two sides but to global trade at large.”
These tariffs will now be suspended on both sides for a four-month period, as soon as internal procedures on both sides are completed.
Background
In 2018, the Appellate Body found that the EU and its Member States had not fully complied with the previous WTO rulings with regard to EU subsidies to aircraft maker Airbus.
In March 2019, the Appellate Body confirmed that the U.S. had not taken appropriate action to comply with WTO rules on subsidies to aircraft maker Boeing.
In October 2019 the WTO authorised the U.S. to take countermeasures against European exports worth up to $7.5 billion, and the U.S. imposed these tariffs on 18 October 2019. The EU Member States concerned have taken in the meantime all necessary steps to ensure full compliance.
In October 2020, the WTO authorised the EU to take similar countermeasures on $4 billion of U.S. exports to the EU against illegal U.S. subsidies to aircraft maker Boeing. The EU sought an agreement with the United States that would have allowed the EU to avoid imposing these tariffs. Since, the U.S. at that time was not ready to accept a negotiated settlement including an immediate removal of the U.S. tariffs, the EU decided on 9 November 2020 to impose its countermeasures. On 31 December 2020, the U.S. changed the reference period for the calculation of its sanctions, thereby substantially increased the range of EU products subject to tariffs.
Compliments of the European Commission.
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The Delegation of the European Union to the United States is pleased to announce that it has granted to distinguished partners funding for projects in support of strengthening transatlantic relations. For the next two years, these four grants will promote a broad range of opportunities for Americans and Europeans to engage and deepen their understanding on a range of issues that are of common interest and concern.

MEET EU: Making Encounters, Engaging Transatlanticists
Coordinated by the University of North Carolina at Chapel Hill (UNC), in partnership with the University of Pittsburgh (PITT) and Florida International University (FIU), this project introduces young Americans along the East Coast to the EU through model EU simulations, a Brussels-Luxemburg study tour for educators, an EU Film Festival and short film competition, a community road show, and expert career panels.
Engaging the New Generation of Transatlanticists
The German Marshall Fund of the United States (GMF) in partnership with the Center for a New American Security (CNAS) will organize throughout the United States a series of diverse and engaging activities on the EU to inform and engage the next generation of American leaders and traditionally under-represented groups. Activities include an essay contest, study tour, town hall meetings, blog post/social media contest, and transatlantic political-military game.
TRAnsatlantic Civil society dialogues with Key policy STAkeholdeRs  (TRACKSTAR)
The Waterford Institute of Technology (WIT) together with James Madison University (JMU) and the Lares Institute will encourage transatlantic dialogue and cooperation between non-governmental organisations and interest groups representing diverse constituencies on both sides of the Atlantic. Seven distinct working groups will tackle a range of policy areas, including climate change, energy, the circular economy and biodiversity, digital economy, trade and investment, democracy and transparency, and regulatory cooperation.
Transatlantic Working Group on the Future of Work
Bruegel AISBL (BA) in partnership with the German Marshall Fund of the United States (GMF) will establish a working group of transatlantic experts to exchange best practices, build strategic alliances and provide analysis and recommendations on new developments and challenges in the field of work and employment.
More information on these grants
Compliments of Delegation of the European Union to the United States.
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Released on March 5, 2021 |
“The European Union and the United States today agreed on the mutual suspension for four months of the tariffs related to the World Trade Organization (WTO) Aircraft disputes. The suspension will cover all tariffs both on aircraft as well as on non-aircraft products, and will become effective as soon as the internal procedures on both sides are completed.
“This will allow the EU and the US to ease the burden on their industries and workers and focus efforts towards resolving these long running disputes at the WTO.
“The EU and the US are committed to reach a comprehensive and durable negotiated solution to the Aircraft disputes. Key elements of a negotiated solution will include disciplines on future support in this sector, outstanding support measures, monitoring and enforcement, and addressing the trade distortive practices of and challenges posed by new entrants to the sector from non-market economies, such as China.
“These steps signal the determination of both sides to embark on a fresh start in the relationship.”
Compliments of the Office of the United States Trade Representative. 
The post USTR | Joint Statement of the European Union and the United States on the Large Civil Aircraft WTO Disputes first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.