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Blackmailing and Coercion as Ineffective Tools of Diplomacy by Zsófia Tóth-Bíró

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Blackmailing and Coercion as Ineffective Tools of Diplomacy

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Albeit gratitude is not a political category, one may nevertheless fantasise about a world in which political actors at least do not stab allies in the back who have proved, time and again, to be reliable partners. There are some rare examples of countries that tend to express gratitude–if not necessarily in deeds but at least in rhetoric and in refraining from outright attacks–for the past deeds of Hungarian governments. To cite just two: Germany for Hungary’s allowing East German refugees to cross its border with Austria in 1989, or Poland for the numerous historical occasions on which Hungary stood by it. 

The United States, which by the way has defined itself, although somewhat on and off, as Hungary’s  “friend and ally” over the past decades, definitely falls into the populous category of the ungrateful, as, by the way, its number one protégé, Ukraine, but I already wrote about that here. Never mind that Hungary never wavered in supporting America after the 9/11 terrorist attacks, or that it consented to NATO using its territory during the bombing of Yugoslavia, despite its grave concerns for the safety of the ethnic Hungarians in Vojvodina. It is obviously considered natural and not a gesture of friendship that Hungary did sign the Defence Cooperation Agreement, and has not voiced objections to the rotational but clearly continuous presence of US troops in the country. Not to mention the recent large-scale purchase of US-made military equipment. “Defy me once, and I will crush you!” seems to be the motto of Democratic administrations. And defy Hungary did, when it made it clear it would not subscribe to shooting itself in the foot with a global minimum corporate tax of 15 per cent. So the United States Government has decided to resort to the ancient tool of coercion to get what it wants. 

In an interview with Hungarian news website Index, foreign minister Péter Szijjártó remarked that Secretary of State Blinken had personally signalled it to him that should Hungary not support the global minimum tax, the US would terminate its double tax treaty with Hungary. Let us add – in a clear act of retaliation.   

If Hungary was to raise the corporate tax by six per cent, it would greatly harm the country’s competitiveness

The Hungarian foreign minister said he had explained to Mr. Blinken that in Hungary there is a nine per cent corporate tax, which is the main reason why the country has kept breaking all investment records in the past eight years, attracting foreign capital primarily thanks to the favourable tax environment. If Hungary was to raise the corporate tax by six per cent, it would greatly harm the country’s competitiveness and would lead to the loss of a large number of jobs, the Hungarian foreign minister told his US counterpart. Antony Blinken apparently heard what Mr. Szijjártó said, but underscored that the introduction of a global minimum tax was something President Joe Biden ‘has at heart’ and made it clear that if Hungary resisted the tax, the United States would abrogate the 1979 tax treaty between the two countries. (Let me ask a rhetorical question as a side note: I wonder why the politicians of large and powerful countries keep advocating for worldwide uniformity regarding taxes, regulations, ideologies etc., but never advocate for a global minimum wage?)

Mr. Szijjártó also remarked the interview that the US government’s move propelled Hungary into the centre of a fierce US domestic debate, as ‘the Republicans also oppose the introduction of the tax, because they also believe it harms economic competitiveness. In fact, there are expert consultations on the topic between the Hungarian administration and the Republicans,’ the foreign minister said.

Mr. Szijártó also noted that the American decision ‘will have no serious consequences on everyday business dealings,’ but it is likely that certain tax accounting procedures will become more complicated for those companies that operate and have revenues on the territory of both countries.

This is not the first time in the recent past that the United States has punished Hungary with a unilateral move. In 2014, the US found that ‘certain Hungarian private individuals’ and government officials became ineligible for entry to the US because ‘credible information’ was available showing that those persons ‘participated in or profited from corruption activities.’ The infamous visa entry ban scandal was quite obviously a tool to blackmail the Hungarian government, but it turned out to be more smoke than fire.

Hungary, as an EU member state, can veto the Union’s joining the new tax regime

As far as the current coercion exercise is concerned, Mr. Szijjártó was gentle enough not to point out the sheer hypocrisy behind the unfriendly move.  But National Review reporter John Fund did, in his piece titled ‘Biden Keeps Tax Treaty with Russia, Terminates It with Hungary’, published on 12 July. Yes, mind-boggling as it sounds, it is true: the US government saw fit to end its 43-year-old tax treaty with Hungary, punishing an alleged friend and ally, and at the same time keep it with Russia, a country which otherwise is now its number one arch-enemy. As Fund puts it, the global minimum tax of 15 per cent for multinational corporations is in fact ‘being pushed by the Biden administration. As a member of the European Union, Hungary must give its approval before the EU can impose the new minimum tax.’ Ay, there’s the rub. Hungary, as an EU member state, can veto the Union’s joining the new tax regime.

However, there is probably another reason why the US government is playing hardball. As John Fund says in his article, Viktor Orbán ‘has been a thorn in Biden’s side for years. During the 2020 campaign, Biden singled out Orbán as a “thug.”’ However, Mr. Fund points out, ‘Orbán, unlike Vladimir Putin, is a freely elected leader, having just defeated a united opposition by 17 points in April.’ Mr. Fund noted that Biden is ‘on shaky moral ground’ by letting Russia keep its treaty while shutting down one with Hungary, ‘a formerly Communist nation whose opening up of its borders in May 1989 accelerated the end of the Cold War and the collapse of the Soviet Union.’

Mr. Fund also quoted Adrian Smith and Mike Kelly, two Republican House members on the Ways and Means Committee, as saying that Biden’s move will only add to the U.S.’s reputation as an undependable ally. The GOP representatives also highlighted that while Biden can negotiate a global minimum tax, Congress will have to enact legislation for the U.S. to be actually involved.

So it looks like the Biden government may end up not being able to push its anti-growth tax cartel idea through anyway, beside finding that it is very difficult to coerce the Hungarian Prime Minister into doing anything that he does not feel coincides with the interests of the Hungarian people. He was re-elected for the fourth time precisely because the majority of Hungarians trust him and expect him to always put the country first.   


Zsófia Tóth-Bíró, Online Editor of Hungarian Conservative

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