Monthly Archives: April 2013

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Reading to Challenge Your Tax Thinking

Alberto Alemanno, Is There a Role for Cost-Benefit Analysis Beyond the Nation-State?: Lessons from International Regulatory Co-operation, in The Globalization of Cost-Benefit Analysis in Environment Policy (Oxford University Press, 2013) available at SSRN.

When I seek reading suggestions I am especially interested in recommendations for pieces that might not normally cross my desk.  The work I am discussing here, “Is There a Role for Cost-Benefit Analysis Beyond the Nation-State?: Lessons from International Regulatory Co-operation” by Alberto Alemanno, falls into that category.  The topic – the legal analysis of international regulatory cooperation regarding non-tariff barriers to trade (e.g., labor, environmental, or health and safety regulation) — is distinctly not tax.  But this book chapter, which examines the international convergence in specifying procedures for setting regulatory standards, provided an energizing boost to my own thinking about potential harmonization in the international tax arena through cooperation on a “non-substantive” level.  Before discussing why I found this chapter engaging for a tax scholar, a quick overview of the thesis may be helpful.

The article starts from the premise that trade liberalizing goals have pushed states, through the WTO, to reduce trade barriers but that their success has been limited where the trade barriers are in non-tariff form (such as environmental regulations).  In that context, states have shifted to what is characterized as convergence with respect to “how” they determine the appropriate substantive regulation to put in place – i.e. “procedural harmonization.”  Underlying this shift are two assumptions: (1) it is easier for states to agree to procedures that they will follow in setting these kinds of regulations, and (2) that procedural harmonization can/will lead to harmonization of the ultimate substantive decisions.  The author provides examples of such harmonization – the Technical Barriers to Trade Agreement (TBT) established at the end of the Uruguay Round required members to ground their regulatory measures in “international standards, guidelines or recommendations, where they exist” and if not to then either provide a “scientific justification” or “prove the ‘necessity’ of the measures adopted.”  The author considers the harmonization via this agreement to be unsatisfactory in stopping nontrade barriers.  Therefore, he devotes much of the chapter to arguing in favor of a “procedural” requirement that he contends could further reduce substantive divergence – a requirement of international cost-benefit analysis and transparency.  The discussion of how cost-benefit analysis might meet this goal was interesting on its own terms.  But I was drawn to the background context in which the entire conversation was taking place – a world in which agreement on substance was difficult, agreement on procedure was easier, and agreement on the latter was expected to generate convergence regarding the former.  I have been thinking about these questions in the context of international tax – in particular the shift away from attention to tax competition (which was perceived as seeking agreement on substance – or at least rates) and towards information exchange and disclosure on a grander scale.

Why did this trade chapter ultimately prove thought provoking for me?  First, it was useful to keep in mind how related (but nonetheless separate) areas of law are exploring similar problems and similar responses.  Second, it was valuable to review the distinctive take on the convergence conversation developed by legal and regulatory scholars outside of tax.  Ultimately, it was precisely the differences in the trade law context that generated the most opportunities to think critically about tax.  The very act of comparison helped me focus on the relevant features of the tax system (law and practice) that bear on discussions of harmonization, cooperation and convergence.  A few quick examples give a sense of the potential here.  The trade analysis was grounded implicitly in the assumption that harmonization of the substantive rules of these non-tariff barriers to trade was good.  Could something comparable be said in tax?  Initially I thought no – wasn’t that exactly the battle in the tax competition context?  But perhaps the commitment to prevent tax evasion could represent a shared vision.  However, in both the tax and trade arenas agreement on a specific substantive rule—or even suggestions of required harmonization on such rules — face significant challenges.

Another line of inquiry emerged from the asserted expectation in the chapter that agreement on “procedure” was easier than on substance.  That seemed likely – but then prompted questions.  Why is it easier?  Is it connected to ideas about sovereignty?  Whose ideas?  The states?  The legislators?  The regulators? The populace?  Is it grounded in some view of procedure as being neutral? Or unimportant?  Can we draw a plausible line between the substantive rules we cannot agree upon and the procedural rules upon which we might?  Is it accurate to predict that certain procedural similarities will ultimately generate convergence?  Why?  And does the answer to that question depend on the type of “procedural” rule at issue?

Third, the paper’s conclusion — that a procedural requirement of international cost-benefit analysis in setting regulatory standards might decrease regulatory divergence (and thus reduce trade barriers) – was grounded in part in the promise of transparency.  This sounded remarkably familiar.  Core problems of the international tax system (e.g., evasion and avoidance) are being tackled now not through substantive harmonized reform but through transparency and disclosure.  But of course the role of transparency in international tax is quite different; it involves transparency by (or regarding) the taxpayer, not transparency of the government to the regulated parties or the public.  Nonetheless – is there something fundamental about transparency in both cases?

As I read, my questions, thoughts, comparisons, and counters continued.  This is the effect I hope for when reading beyond my core research areas.  Thus, I thought Alemanno’s chapter could be an informative recommendation for others — both as a specific work, and as reminder of the value of searching out relevant discussions beyond the tax world.