Abstract:
The use of tax-based subsidies in the United States Foreign Sales Corporations (FSC) and Extraterritorial Income Exclusion (ETI) regimes, as well in production havens the world over, place some unique demands on the WTO in the context of the intersection of tax and trade. Nations offering these types of subsidies do so through the tax code but with the object of accomplishing trade policy. The subsidies offered are in the form of foregone tax that the government would have otherwise been entitled to collect. This type of tax expenditure, notwithstanding its fiscal origins, is properly dealt with under trade agreements as opposed to bilateral tax treaties or the Organisations of Economic Cooperation and Development. The WTO administered trade agreements, such as the General Agreement on Tariffs and Trade and the Agreement on Subsidies and Countervailing Measures specifically contemplate and respect tax norms but do not absolve themselves from dealing with the issue when it triggers trade concerns. Where trade is the primary purpose of the measure, as was found in the FSC and ETI regimes, the WTO offers a representative, legalistic and effective trade focussed forum for resolving the conflict. Coupled with this is WTO recognition of tax issues such as tax competition, efficiency and equity that colour the dispute. This is particularly important for developing nations as they primarily use production havens to attract foreign direct investment and encourage exports in a way that may violate trade agreements and normative tax concerns.
