Wednesday, 27 August 2014

Russia (Unofficially) Invaded Ukraine

As of this morning, reports have been filtering in from Ukraine that Russian forces have begun slowly entering Ukraine.  And unlike what unfolded on the Crimean Peninsula, these aren't just Russian troops with no insignias.  Vox reports that some of the assets Russia has moved into the region include "Russian artillery, Russian tanks, Russian-trained irregular forces, and even uniformed Russian soldiers".

At around the same time this was reported, Fox was able to report that pro-separatist forces had opened a new front in the conflict by attacking the strategically important city of Novoazovsk, a resort town of approximately 12,000 which borders Crimea.  Leaving aside questions of how a group who just a few weeks ago was on the brink of defeat in Donetsk now have the logistics and manpower to attack elsewhere, what makes this move suspect is that Novoazovsk, should it be taken would leave a clear path to Mariupol, a city through which runs a road that serves as the only land connection Crimea has (via Ukraine) with the rest of Russia. Photographs of the besieged town showed plumes of smoke rising from the eastern Ukrainian city (pictured), due to what residents described as a heavy artillery barrage.  Interestingly enough, a quick Youtube search reveals that back in March when Russia began the process of annexing Crimea, it brought along with it heavy artillery not unlike those which the pro separatist "rebels" are currently pounding Novoazovsk with.

Shelling in Novoazovsk (Associated Press)
Taken in tandem with a videos that surfaced which purported to show the ten Russian paratroopers Ukraine had claimed to have captured admitting to being Russian military personnel under orders to invade Ukraine, it should leave no doubt in the minds of NATO that there is much more to Russia's role in this conflict than the bystander it claims to be.  And thankfully, that seems to be the case.  The Canadian government has taken quite a hawkish position on seeming Russian interference in the affairs of Ukraine, culminating in sending military aid earlier this month.  It made its position on this latest incursion known immediately, issuing a tersely worded tweet earlier today:

Meanwhile the United States, which has has been letting Germany take the lead on Ukraine as of late, has not been totally neglecting the crisis unfolding there.  As the New York Times reported:

"Analysis by Western officials indicates that Russia is orchestrating a multipronged offensive against Ukrainian forces. Russian forces have been trying to help separatists in eastern Ukraine break the siege of Luhansk, one of the main rebel-held cities, and open a corridor to another, Donetsk, from the Russian border"

The United States role can be best described as the good cop to Canada's bad cop, with its more nuanced criticism of Russia and focus on gathering intelligence to discredit Russian claims of non-interference in the country.  In fact, earlier today the US finally broke their relative silence on Ukraine, in a statement accusing Russia of reinforcing faltering rebel efforts. "These incursions indicate a Russian-directed counteroffensive is likely underway in Donetsk and Luhansk," State Department spokesperson Jen Psaki told reporters. And so given the recent escalation in the conflict, expect an announcement soon from the President on potential military aid in the form of advisors and equipment for the Ukrainian military, as well as a possible beefing up of NATO presence within the borders of regional members.  But make no mistake, Russia and Ukraine have all but formally gone to war, with Russia seeking to strengthen its grip on the vital defence industries present in Eastern Ukraine, as well as carve out a land strip connecting it to the currently largely isolated Crimea.  Should they succeed, it would destabilize an already precarious situation in Ukraine, and would prevent a democratic government from exerting control over all of its territories.  

But interestingly enough, Russia's continued "whodunit" approach to engaging with its neighbours may be having negative ramifications for its foreign policy ambitions.  Putin's Eurasian Economic Union pet project is starting to look like an abject failure.  Despite all the transformations this conflict has undergone, its important to remember it was first ignited by then-President Yanukovych moving towards joining Putin's attempt at a counterbalance to the EU.  Since then, Azerbaijan, Uzbekistan and Turkmenistan have all been reluctant to draw themselves into Russia's sphere of influence again after seeing it's messy divorce with once-close ally Ukraine, and even those who have agreed to ascend are causing Russia significant headaches.  Kazakh fears over potential Russian aggression have lead to the severing of several mutual defence treaties, and it forging its own foreign policy route.  It blocked Armenia, a major recipient of Russian aid, from ascending, and along with Belarus refused to join Russia in banning food imports from the West.  It'll be interesting to see if in the long term the antagonism Russia is breeding ends up manifesting into something more than just a healthy skepticism of Russian intentions, but right now it is imperative that Western countries come to the aid of Ukraine before Russia is able to tear it in two.

Tuesday, 26 August 2014

Campaign Finance Reform May Hold the Key to Slowing Corporate Inversion

While corporate inversion is by no means a new phenomena (McDermott International reincorporated in Bermuda in 1982), recent comments by prominent figures in government characterizing such actions as "unpatriotic" have thrust the issue back into the spotlight.  With pressure increasingly on Congress to close the tax loopholes that allow such moves, the GOP stance on only doing so in tandem with cutting the effective corporate tax rate means that a solution may not be forthcoming anytime soon.  And as such, that leaves us with plenty of time to think of equally improbable but decidedly more creative solutions to this latest issue.

 Although technically donations to political campaigns made by foreigners are illegal, ever since 2010's Citizens United decision greatly reduced limits on political contributions, companies based outside the US have been able to effectively circumvent such laws  (I talk about just how murky US laws governing corporations have become here).  In the last full election cycle, the first since the landmark ruling,  foreign controlled subsidiaries contributed over $12 million to Super PACs on both sides, and that's just what was able to be traced.  Due to Citizens United and other subsequent rulings, political action committees (PACs) that do not coordinate with campaigns and their donors are afforded great latitude when it comes to contributions, with no limits to how much can be given to such PACs, and little in the way of disclosure laws on the part of these committees.  Major corporations didn't miss a beat, creating PACs through their American subsidiaries, and then drawing contributions from employees.  This allowed them to influence U.S elections while at the same time shielding themselves from any chance of prosecution,  But what if we could curtail foreign influence in the American electoral process while at the same time slowing or even stopping the exodus of American businesses and their tax revenues abroad?

Currently the American subsidiaries of foreign companies may make political contributions so long as the subsidiary in question is able to prove that it has funds drawn from domestic operations that equal or exceed the donated amount, as per this FEC advisory opinion (AO 1992-16):

FEC, AO 1992-16: The [U.S.] subsidiary must be able to demonstrate through a reasonable accounting method that it has sufficient funds in its account, other than funds given or loaned by its foreign national parent, from which the contribution is made.

As such when we examine recently "inverted" corporations, we see that the value of their American operations generally represent a disproportionate percentage of their total global revenue.  For example Burger King, who recently announced a merger with Canadian coffee chain Tim Hortons in order to relocate to Canada, earned less than half (48%) of revenue in 2013 from territories outside of the United States.  Burger King conducts the majority of its business in the United States through its Miami based subsidiary, and yet since its newly founded "parent company" will be based in Canada, it will only have to pay 26% income tax on revenue earned in Canada, and a rate consistent with the tax code in the country where any income that is repatriated was generated.  While robbing the federal government of tax revenues, due to a very profitable US operation Burger King, should it be so inclined could spend millions on donations to PACs supporting candidates it likes.

While Burger King remains at its core essentially an American fast food company, it's unlikely it would feel the need to drastically influence policy, aside from more favourable tax laws (nothing seems to satisfy them nowadays) and looser labour regulations.  But such loopholes present an opportunity to companies whose fortunes are largely tied to government spending and/or policy.  The defence, (which currently has strict export regulations in place) education, health, food, pharmaceuticals industries have in the past tried to influence policies that would adversely affect them (See Pfizer's own proposed inversion via merger, or the HMOs' opposition to the ACA) and if they were to merge with foreign companies, what checks would be in place to limit their influence in American politics?  By preventing subsidiaries wholesale from making political contributions, it effectively ices these "tax emigres" out of the legislative process, and helping determine where tax dollars they did not proportionally contribute go.  American corporations and the people who benefit from them the most may not have the same interests as the vast majority of Americans, but they still live and work in the country, and as such do have a stake in a healthy and robust consumer base and economy.

Preventing the American subsidiaries of foreign companies from making political contributions will not definitively solve the problem of money in politics, nor will it stop the most determined of companies from relocating abroad.  But it will make the decision a tougher one, unlike the no-brainer that it is.  Admittedly, with Republicans currently likening these companies to "economic refugees" (but judging from their response to the influx of children from Central America, they really couldn't care less about actual human refugees), the chances of anything that makes life harder for the Burger Kings and Pfizers of American commerce being passed by this Congress is infinitesimal at best.  Perhaps a more comprehensive solution including both cutting the corporate tax rate and closing these ridiculous tax loopholes would do better in coaxing businesses to return home.  Maybe recognizing the sheer size of a corporation allows it to exercise its freedoms as a person much more effectively than a single American, and putting limits on that freedom would  better check undue commercial influence in the legislative process.   But in the meantime, piecemeal legislation such as this will have to do.