The week’s news included; EU rules Facebook must police content globally, WeWork on brink of collapse after failed IPO, Trump slaps tariffs on $7.5 billion worth of EU goods, Deliveroo posts heavy losses
Below are our top 10 stories that you need to know about. Be sure to check our twitter page and Facebook page for regular posts of important headlines. Get all the important stories and insights straight into your inbox by subscribing to our mailing list here.
Opinion articles of the week:
- Legal Cheek – The next big thing: data and privacy law
- Forbes – Could Google be about to break Bitcoin?
- BBC – Jet fuel from thin air: Aviation’s hope or hype?
1. BREXIT BACKSTOP ALTERNATIVE
Prime Minister Boris Johnson has submitted an alternative to the controversial “Irish backstop” but it has received a frosty response from the EU. Johnson’s plan would allow Northern Ireland to remain in the European single market for goods but leave the customs union alongside the rest of the UK. In practice, this would create customs checks, a border within the island of Island. Under the plan however, customs checks would take place primarily through digitally submitted paperwork rather than physical checks at the border. Furthermore, the Northern Irish assembly will have vote on whether to retain this arrangement every four years.
The Northern Irish DUP have now announced its support for Johnson’s plan. EU leaders however, have criticised the plan and have told Johnson to amend his position in order to have substantive negotiations. The current proposals were deemed an inadequate basis for negotiations so the ball in back in the UK’s court.
The backstop in its current form was the key sticking point for Theresa May’s Brexit deal. It’s an insurance policy that would keep the UK aligned to the EU in the event no trade deal is reached. There was nothing however, stopping the UK being in this arrangement indefinitely, to the dismay of MPs across Parliament.
The government confirmed in submitted court documents that the UK will seek a Brexit extension if no deal is reached by 19 October. The so-called “Ben-Act” obligates the Prime Minister by law, to seek this extension in this event. Extraordinarily, Prime Minster Johnson has pledged to leave on 31 October, even without a deal. The two seem incompatible but the clock is ticking and we shall soon see how Johnson plans to achieve this.
2. EU RULES FACEBOOK MUST REMOVE ILLEGAL CONTENT GLOBALLY
The European Court of Justice (ECJ) has ruled Facebook can be obliged to monitor and remove illegal content worldwide. The judgement explained that EU law does not protect companies like Facebook from being required by governments to take down illegal content, and this has effect within international law. Facebook will be required to take down content which is “identical” or “equivalent” to such content which has previously been deemed unlawful.
Critics say this could open a door to mass censorship on social media and the obligations are far too onerous on companies. This could make Facebook act essentially an arm of the state, censoring any political criticism or debate which may be illegal in an authoritarian state. Facebook, predictably, was outraged by the ruling but for good reason. This will require the platform to accurately decipher whether a post can be considered “equivalent” to illegal content. This is often very nuanced and will be open to interpretation. In addition, some content may be have been posted legally in one jurisdiction but is visible globally and available in another jurisdiction where such posts are illegal. In this case, can the court compel Facebook to take down a post that was not illegal in the country in which it was posted? These are inevitably the types of legal questions that will arise in the fallout from this ruling.
3. WEWORK ON BRINK OF COLLAPSE
WeWork has gone from hero to zero in just six weeks as it now verges on the brink of bankruptcy. The office space sharing company scrapped IPO plans last week after receiving a frosty response from potential investors. This move had a huge impact as the company lost out on nearly $10 billion in much needed capital. WeWork bonds fell to all time lows and deeper into junk territory. There is even concern that the firm could default on its real estate obligations.
The company is now undertaking a massive scale back to stay afloat. WeWork will shed around 2000 of its 125000 strong work force. Discussions are still ongoing so this number could change. WeWork is considering selling off assets in order to try and balance the books. The company posted a $700 million loss in the first half of this year so fresh funds are desperately needed. Co-founder and CEO Adam Neumann are now in talks with lenders to reshape terms for its $500 million loan it secured prior to its IPO.
4. TRUMP’S EU TARIFFS
The World Trade Organisation (WTO) has authorised the US to impose tariffs on $7.5 billion worth of EU goods. Tariffs will primarily affect EU aircraft and agricultural products. Donald Trump has often criticised the EU for taking advantage of the US in global trade. The EU and US have been in a longstanding trade dispute. The ruling for last week’s tariffs dates back to a 2004 case where the EU was accused of giving Airbus illegal subsidies. The WTO ruled in favour of the US in 2011 and retaliatory tariffs were finally approved last week. Donald Trump is also considering adding further tariffs and does have the scope to do so. Trade tensions were exacerbated by France’s plan to impose a digital tax which will primarily affect US based tech firms. Analysts were expecting more significant tariffs on the EU, so markets reacted positively in response to the news.
5. PAYPAL DROPS OUT OF LIBRA
PayPal has pulled out of the Libra Association, the team developing Facebook’s planned cryptocurrency ecosystem. PayPal did not give a reason as to why it pulled out but said it will focus on its core business. Other heavyweights such as MasterCard and Visa are also reconsidering their involvement.
Facebook has received a huge backlash from regulators worldwide who have threatened to block Libra. France and Germany have already pledged to prevent Libra from operating in Europe. Facebook has now pushed back plans to launch the cryptocurrency to deal with the various regulatory issues.
6. FOREVER 21 BANKRUPTCY
Fashion retailer Forever 21 has filed for bankruptcy protection in the US. The move was widely predicted by many analysts a few weeks ago as the company struggled with mounting debt. Chapter 11 protection allows firms to sort its arrangements with creditors and landlords, saving the company from insolvency. The company’s sales have failed to keep up with overheads. Forever 21 will close 178 of its 500 US stores. It will also close most operations in Asia and Europe. Latin American operations will continue as normal. It is hoped that the reorganization can turn around the business and return it it to profitability.
7. DELIVEROO POSTS HEAVY LOSSES
Deliveroo posted a £232 million loss last year despite a huge increase in sales. The loss largely derived from its expenditure on expansion. The company made large investments in new markets while increasing staff numbers and its not done yet. Deliveroo aims to add 50 additional UK towns to its coverage area this year, a 25% increase.
The company’s roughly $600 million in new funding earlier this year was put on ice after competition concerns. The funding round was led by Amazon and the CMA is investigating whether this constitutes a breach of competition law. Deliveroo operates in 500 cities in 13 countries and posted a 72% increase in sales last year, up to £476 million
8. TED BAKER LOSSES
Ted Baker has posted a £23 million loss in the first half of the year. This triggered a huge sell-off in its shares. Upon release of the results, share prices fell by 35% and then by a further 15% the following day. The losses marked a steep decline from a £24.5 million profit the company posted lost year.
The company has faced a huge reputational damage following allegations of sexual misconduct of its former chief executive. The negative publicity adversely impacted sales in an already tough market. Ted Baker has already warned its second half the year could also be poor if sales do not improve.
9. US JOBLESS RATES
The US unemployment rate fell to 3.5%, a 50-year low. The world’s largest economy also added 168000 jobs, but wage growth remained unchanged. These strong employment figures have begun to alleviate fears of a recession. The US-China trade war has certainly been taking its toll on business confidence and on some sectors of the economy. The manufacturing industry has been struggling and saw 2000 job losses last month alone.
Despite these figures, analysts predict another interest rate cut within the year. The first rate cut in over 10 years was in July. Last month, the Federal Reserve cut rates down to a range between 1.75% and 2%.
10. TESCO CEO DEPARTS
Dave Lewis, CEO of Tesco has announced he will step down as boss next year. His tenure has been successful as he oversaw the turnaround of the UK’s largest supermarket. Lewis became CEO of Tesco in 2014 at the height of the accounting scandal. Tesco came under fire for overstating its profits which resulted in £129 million fine and four executives being charged with. The executives were later cleared of the charges. In 2015, it posted its worst ever annual loss of a staggering £6.4 billion after a huge write down in asset value and steep competition. Last week however, it posted operating profits of £1.13 billion for the first half of 2019 with £28.3 billion in sales. Lewis oversaw the acquisition of wholesalers Booker and the creation of Tesco’s own discount retailer “ Jacks” to help compete with challengers Aldi and Lidl. The company did however, make thousands of job cuts in order to streamline the business. Lewis’s decision came as a shock to the company but he will be replaced Ken Murphy, a senior at Walgreens Boots Alliance.