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FRANCE'S INFLATION FIGURES DIP BUT ENERGY PRICES KEEP SPARK ALIVE

The Eiffel Tower is pictured in Paris, France, Tuesday, July 11, 2023.
- Copyright Christophe Ena/Copyright 2023 The AP.
Copyright Christophe Ena/Copyright 2023 The AP.
By Euronews
Published on 15/03/2024 - 11:30 GMT+1
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France's inflation rate stood at 3% in February year-on-year, only 0.1% lower
than the previous month.

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Consumer prices rose 0.9% in February compared with January, the French
statistical office INSEE said on Friday. Although inflation is generally
decreasing in France, many people may feel they are not actually seeing much of
a change in their monthly expenses. 

Food prices are still rising, but at a slower rate than they were. Year-on-year
food items were 3.6% more expensive last month - the figure reached 5.7% in
January. 



Energy prices are also keeping household spending on the rise, with a 4.3%
increase in February compared with the same month last year, and are 4.1% more
expensive than in January on a month-on-month basis. The end of a
government-imposed cap on electricity prices explains that hike.

Despite the increases, the country's inflation has dropped in the past twelve
months. 

France's inflation peaked above 6% during the last months of 2022 and early
months of 2023.

France's inflation rate is continuing to fall, in a similar way to its European
neighbours, although it remains some way away from its 2% goal.


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Business Economy


REWARDING TAX HAVENS? WHY IRELAND MAY CASH IN ON OECD REFORMS

Dublin docklands. - Copyright Canva
Copyright Canva
By Eleanor Butler
Published on 15/03/2024 - 10:47 GMT+1
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The cornerstone of Irish economic policy has been low corporation tax, so what
will a minimum levy mean for the country?

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Stretched out along Dublin’s river Liffey is an expanse of glass office
buildings.

Sometimes referred to as the ‘Silicon Docklands’, the nickname points to the
neighbourhood’s status as a corporate magnet.



Major firms - famously Big Tech - have long flocked to Ireland, enticed by the
country’s low level of corporation tax.

Since 1997, the official rate has been held at 12.5%, although this changed in
January with the arrival of a long-awaited reform.

Along with around 140 other nations, Ireland introduced a 15% minimum tax rate
on the profits of multinationals, a policy spearheaded by the Organisation for
Economic Co-operation and Development (OECD).

"The goal was to try to reduce the distortions in investment decisions that were
occurring as a result of competition to reduce tax rates amongst countries,"
explained Manal Corwin, Director of the Centre for Tax Policy and Administration
at the OECD.

Not only were firms making investment choices disproportionately based on tax
costs, states were also being forced to lower rates to compete for this
investment, she told Euronews Business.




A NATION BUILT ON FOREIGN INVESTMENT

Before recent breakthroughs, Ireland had long shunned efforts to harmonise
international tax rules, as it was substantially benefiting from the existing
system.

During much of the previous century, Ireland had been one of Europe’s poorest
countries, although this all changed with the rise of the Celtic Tiger - an
economic boom - in the 1990s.

Whilst the Tiger was shaped by a number of forces, foreign direct investment is
often cited as a driver behind Ireland’s remarkable GDP growth, which jumped by
229% in the two decades to 2007.

For many, the corporate levy of 12.5%, phased in gradually after 1997, was
partially to thank for this period of prosperity.



"It's paid a rich dividend on a number of fronts," explained Kieran Mcquinn,
Professor of Economics at Ireland’s Economic and Social Research Institute.

"I think governments and political parties of all shades are always a little bit
tentative about increasing the corporation tax rate again," he added.

"There's a perception that it might send the wrong signal to the international
community."

Ireland’s former Finance Minister Paschal Donohoe, who stepped down in December
2022, was notoriously hesitant to implement the OECD reforms.

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He told national broadcaster RTE in 2021: "What I’m doing is making the case for
our 12.5% rate and for the right of smaller- and medium-sized economies to have
a low rate, as part of their competitiveness."


WILL THE TAX HIKE SCARE INVESTORS?

Since investment in Ireland has historically been supported by the country’s
generous tax system, some fear the 15% floor could harm the nation’s economy -
although many experts would contest this prediction.

To a large extent, Ireland is shielded by safety in numbers, as the decision to
raise the corporate tax rate is not purely domestic.

Added to this, experts highlight that the nation offers other incentives for
investors beyond its tax policies.

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Since Brexit, Ireland stands out as one of just two EU countries that has
English as an official language, and it has already established a community of
multinationals on its soil.

The Irish Tax Institute recently reiterated the view that Ireland will remain an
attractive option for investors, although its President, Tom Reynolds, expressed
concerns about bureaucracy surrounding the new rules.

"Those of us who work in the tax functions of large multinationals are now
getting our heads around how we comply with what is in effect a new and untested
taxing system that sits alongside our domestic corporation tax code," Reynolds
said.

"Suffice to say that we need Revenue to be supportive and pragmatic in the
bedding in period ahead."

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Rather than condemning the new tax floor, some experts are also more wary about
an accompanying OECD initiative proposed, which seeks to reallocate taxes based
on where customers and users of a service are located, rather than where a firm
is physically based.

The policy means that other countries may be able to collect tax, currently
going into Ireland’s coffers, that is generated by business activity outside of
Ireland.

This proposal is known as pillar one, with pillar two referring to the global
minimum tax.


CRITICISM OF THE OECD REGULATION

For other commentators, the main flaw of the OECD’s reforms is that they aren’t
sufficiently watertight.

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"The problem is that there are a number of loopholes that were introduced
gradually to the agreement that are basically drilling holes in the floor," said
Quentin Parrinello, Senior Policy Advisor at the EU Tax Observatory.

In particular, he pointed to something called 'substance-based carve outs',
which can allow companies to dodge the minimum rate of tax.

If a company has business activities in a country where the corporate levy is
less than 15%, other nations should be able to collect the excess revenue until
this threshold is reached.

With 'carve outs', the picture changes.

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Provided that the firm operating in the low-tax country has certain expenses in
this jurisdiction, they can then subtract these costs from the revenues subject
to global taxation.

According to Parrinello, this scenario undermines the fight against harmful tax
competition, a move that harms everyone - including Ireland.

"Harmful tax competition is a lose-lose situation," he said.

"We’re all losing public resources that are desperately needed to tackle the
inequality crisis and to tackle the climate crisis."

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WILL THE MINIMUM TAX BE A CASH COW FOR IRELAND?

Globally, the OECD estimates that the global minimum tax will generate an
additional $155 billion to $192 billion annually in corporation tax revenue.

In euros, this amounts to between €142 billion and €176 billion, with
significant benefits expected for investment hubs like Ireland.

If the Emerald Isle does decide - and manage - to charge an effective 15% rate
of tax, the country will see a substantial influx of cash, given the high number
of multinationals already on its soil.

The Irish Department of Finance projects that its corporate tax revenue will hit
€24.5 billion in 2024, an annual increase of around 2.5%.

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Recognising the volatility of these revenues, the government announced last year
that it would be funnelling the extra cash into sovereign wealth funds, meaning
state-owned investments.

Many Irish people will no doubt be hoping for immediate spending increases,
perhaps to support the country's healthcare system or tackle Ireland's growing
housing crisis.

For now, the government says that some of this revenue must be stored away for a
rainy day, providing a cushion for future shocks.

It's important that "permanent fiscal commitments are not made on the basis of
transitory revenues", said the Irish Minister for Finance, Michael McGrath, in
January, adding that public services would see "sustainable" investment.

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Business Economy


CHINA'S SEMICONDUCTOR PRODUCTION CHALLENGES COULD BE BOON FOR EUROPE

A Chinese microchip is seen through a microscope set up at the booth for
Tsinghua Unigroup project at the China Beijing International High-tech Expo in
Beijing on May 17, 2018 - Copyright Ng Han Guan/Copyright 2020 The AP. All
rights reserved.
Copyright Ng Han Guan/Copyright 2020 The AP. All rights reserved.
By Indrabati Lahiri
Published on 15/03/2024 - 10:40 GMT+1 •Updated 10:47
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Ageing technology and COVID-19 belt tightening are some of the challenges faced
by China in its race to achieve semiconductor independency.

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China is currently the world's top semiconductor consumer, accounting for more
than 50% of global consumption, according to the Centre for International
Governance Innovation. Along with this, it is also the world's fifth largest
semiconductor manufacturer, following Taiwan, South Korea, Japan and the US.

China has also highlighted several times in the past that it aims to become an
artificial intelligence superpower in the coming few years. Naturally, the US
has not taken kindly to these statements, amid increasing geopolitical and trade
tensions between the two countries.



This has led to the US putting several Chinese companies such as Semiconductor
Manufacturing International Co (SMIC), China's largest chip market, on a trade
blacklist, citing security concerns. This means that major US chip makers, such
as Nvidia and AMD now face restrictions on chip sales and exports to China.

The US has justified the move, citing concerns that China may use the advanced
chips it gets from Nvidia and similar companies for military purposes, which
could be problematic for the US down the line.

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According to the **Centre for Strategic and International Studies: "**These
actions demonstrate an unprecedented degree of US government intervention to not
only preserve chokepoint control, but also begin a new US policy of actively
strangling large segments of the Chinese technology industry - strangling with
the intent to kill."

China has responded to this with its own graphite export ban on the US.
Regarding this, the Chinese Ministry of Commerce said: "The graphite export
control policy is a normal adjustment in accordance with the law, and some items
are included while some removed from the export control list.

"The export control measures do not target any specific country, region or
industry. China is always committed to safeguarding the safety and stability of
the global industrial and supply chains, and will grant licences to exports that
comply with relevant regulations."



The country has also been trying to ramp up its domestic production of chips as
fast as possible. However, this is not without considerable challenges.


WHAT CHALLENGES IS CHINA FACING IN SEMICONDUCTOR PRODUCTION?

Much to US dismay, one of the sanctioned companies, Chinese tech giant Huawei,
managed to come up with a new smartphone recently, the Mate 60, which uses a 7
nanometer process chip.

This type of chip is considered highly advanced, which has raised increasing
concerns about how China is still managing to produce sophisticated chips,
despite the sanctions.

However, one of the biggest challenges that Chinese chipmakers are currently
facing is that they are still using old chipmaking technology to produce
increasingly complex and new-age chips, as the US has cut off most of China's
access to more sophisticated chip making technology.



Using older technology invariably raises costs significantly, meaning that
Chinese chipmakers such as SMIC are having to charge about 40% to 50% more than
other competitors, especially Taiwanese companies such as Taiwan Semiconductor
Manufacturing Company. This primary impacts 7 nanometer and 5 nonometer
production chips.

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The costs are only projected to keep increasing with every new generation of
chips. Although this would be significantly helped by an ASML extreme
ultraviolet (EUV) lithography system, the US has also pressurised the
Netherlands to restrict China’s access to its chip technology as well.

The other major concern with older chip technology is that the yield is lower,
with the number of usable and sellable chips produced being considerably less
than with more advanced technology.

Following the pandemic, the Chinese government has also had to put a large chunk
of semiconductor funding on hold, as more pressing expenses, such as stimulus
measures for various sectors took precedence.

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Political and lack of oversight issues, as well as widespread corruption eroding
funding for chip research and development programmes have also considerably
slowed down the domestic manufacturing process.

Additionally, the country is facing hurdles with intellectual property, with
several chip producing technologies already patented and closely protected by
international companies.

As foreign affairs and national security website War On The Rocks said: "The
Chinese government has allocated the semiconductor industry not only one
trillion yuan (€0.13 trillion) through state capital such as the Integrated
Circuit Investment Fund (the Big Fund) but also high political priority,
directing both political efforts and the market to infuse the chip industry with
resources.

"These efforts, however, did not seem to move China up in the semiconductor
value chain. Even after billions were thrown at the problem, indigenous
production is far from being a reality. Despite some progress in independent
chip design for a variety of products ranging from cloud computing to
smartphones, the country still could not break free from the foreign-dominated
supply and manufacturing chain."

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HOW COULD CHINA'S CHIP PRODUCTION WOES BENEFIT EUROPE?

Europe has also been an active participant in the semiconductor independence and
artificial intelligence dominance race. In 2020, the European Union's share of
the worldwide microchips market was about 10%.

The European Chips Act, implemented in 2023, is expected to bring a significant
boost to the EU's domestic chip production, taking its global share to about 20%
by 2030.

As the European Commission said: "The European Chips Act will bolster Europe's
competitiveness and resilience in semiconductor technologies and applications,
and help achieve both the digital and green transition. It will do this by
strengthening Europe's technological leadership in the field."

Now that China is likely to be considerably delayed in upping its domestic
production due to these US sanctions, this gives Europe a rare golden
opportunity to ramp up its own production and plug in the gap in the market. As
such, it can potentially produce, market and sell its own chips and secure
steady clients long before China catches up.

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With China already being a rising global superpower with increasing influence in
South East Asia and a dominant producer of both rare earth minerals and electric
vehicles (EVs), the US and the EU have been feeling more threatened about an
economic and trade disbalance in the last few years.

This is because of rising concerns that China may use its dominance over things
such as rare earth minerals as a retaliatory or bargaining tool with other
nations, effectively cutting them off, if they decide to do so. An example of
this was when China stopped exports of rare earth minerals to Japan in a dispute
over fishing back in 2010.

Heating EU-China tensions over a number of issues, such as EU investigations
over Chinese EV imports to the continent, as well as concerns about data privacy
and transparency, have led to increased concerns that China may retaliate
against the EU in the near future as well. 

If so, it would be far better for the EU to be self-reliant for semiconductors,
at least, because of their widespread need and application.

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