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Maybe it's time to say "sayonara" to the Japanese delegation

Kitty Miv, Editor
02 October, 2014

Kitty's Kountry Rankings are below, with a description of how they are kompiled. This week, as every week, I give out Encomiums to countries which have done Good Things, and award Execrations for countries which according to my highly personal and partial views have done Bad Things.

Maybe it's time for negotiating teams attempting to expand the Trans-Pacific Partnership free trade agreement to say "sayonara" to the Japanese delegation, with Tokyo seemingly refusing to budge from its entrenched position on protections for its agricultural and automotive sectors. Of all the world's major economies, Japan remains something of an enigma. It achieved phenomenal growth in the decades succeeding World War Two, but it remains distrustful of foreign participation in its economy, and barriers to entry to Japan's market for foreign investors are still high, despite free trade being the global norm rather than the exception these days. Indeed, foreign direct investment inflows as a percentage of the Japanese economy stand at a meager 4 percent, while the percentages for other advanced economies are in double-digits. Even North Korea manages an FDI-to-GDP ratio of 12.5 percent. As we know though, Japan has lost its way somewhat economically-speaking over the last 20 years, and the emergence of China, South Korea and other Asian economic powerhouses is providing ever-stronger competition for its exports. One sign of a doctrinal change within the Government is the morphing of Japan's External Trade Organization (JETRO) from an export promotion body to an inward investment promotional agency. So it was presumed that Japan's momentous decision to join the TPP negotiations was a part of a process to open up Japan's economy to foreign investment, and Prime Minister Shinzo Abe was widely praised as a result. But since Japan joined the talks last year, it has seemed unwilling to give an inch on these sensitive items, which rather begs the question of why it joined in the first place. Perhaps it's all part of a plan by Abe to play both sides of the fence. Taking Japan into the TPP was a natural extension to the expansionary economic vision dubbed "Abenomics." Contrariwise, by standing up to America on behalf of Japan's powerful agricultural and auto lobbies, perhaps he is strengthening his political hand at home. Whether this is by accident or by design is a moot point at the moment. Either way, after considerable progress was made in the early rounds, the negotiations have more or less come to a complete standstill, and there can be few doubts that the obstacle is Japan-shaped.

I understand that "virtual" currencies may be the future, but I don't really understand Bitcoin. The trouble is, these things are invariably created by techies, and as a consequence only those steeped in techie-dom fully understand them. For starters, why have Bitcoin's creators felt the need to cultivate such an air of mystique about the thing? Bitcoin was supposedly developed by somebody called Satoshi Nakamoto, who apparently also only exists in virtual form. But then how do you make what is essentially a string of binary numbers glamorous? Anyway, despite its lack of controls and a fluctuating value that would give even the most hardened Wall Street pit trader palpitations, Bitcoin seems to have arrived and tax authorities are starting to notice. Unfortunately, or perhaps, for its users, fortunately, nobody agrees what Bitcoin actually is. How do you tax something that doesn't exist in a conventional sense? Is it money, or is it an asset? It's an important distinction, because its tax treatment could differ widely depending on the answer. What's more, value-added tax and other consumption taxes come into play in countries that apply them. Belgium appears to have made a very sensible decision by waiting for the European Court of Justice to decide how virtual currencies should be taxed. But other countries aren't so patient. Deeming Bitcoin a "unit of account," Germany applies VAT to transactions undertaken in this form. The UK previously considered bitcoins as "taxable vouchers" but changed its mind earlier this year and has taken a position similar to Germany's. However, Bulgaria, another EU member state, treats bitcoins as a "financial asset." And the US IRS has decided to treat bitcoins as "property" rather than currency. Using Bitcoin seems a risky enough business as it is, without the added trapdoors of inconsistent and uncertain tax treatment. I'm sticking to the more familiar electronic currency. You know, the sort you can transfer between bank accounts on opposite sides of the Earth, or which allows you to pay for things via a computer. It's called money.


Kitty's Encomiums and Execrations

Methodology: each week (this is the 124th) one or more countries are given encomiums and one or more are given execrations. Those are the entries below with descriptive links. In the following week, each encomium counts as + 1 for that country, and each execration counts as – 1, being added to that country's existing score. Over time, therefore, a ranking will build up for each country, and further countries will join the listing. Germany is at plus 1, since in the second week it had an execration and in the first week it had an encomium, leaving it at neutral; then it had an execration in week four, thus dropping to – 1, and another one in week six, dropping to – 2; finally in week 13 it got something right, so it went back up to – 1; then in week 16 it gained a further star, so then it was in neutral territory until week 23 when it dropped back to minus one, but reverting to neutral territory in the following week, then dropping to minus one in week 50, and back up to plus one in week 51, then to plus two in week 52. Some weeks ago it dropped a place, but then quickly recovered one step. Etc etc and now it's on plus 1 again.

The rankings are intended to be a proxy for business friendliness; evidently they are highly partisan, but as time goes by they are becoming useful for decision-making. For any country in negative territory, you should think carefully before starting a business there.

Kitty's Encomiums:

Belgium patience is a virtue

And Kitty's Execrations:

Japan stonewalling




About the Author

Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net


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