A recent WTO case held the U.S.' export tax subsidies illegal. Despite strong political resistance, which fed a long and costly legislative process, the U.S. recently repealed these subsidies. This case and the U.S. reaction revealed that although the U.S. is the single super economic power, it is not as dominant a player as some portray it. The case also shed light on the tension between the present international trade and tax regimes and the difficulty of applying WTO law to income tax measures. This tension did not escalate earlier mainly because countries tended not to use their income tax systems for protectionism. This article suggests that the use of tax systems to protect domestic interests may increase as a consequence of economic globalization. As a result, the current disconnect between the international trade and tax regimes shall cause both regimes to be challenged, as they may both apply in some cases with different and conflicting results.
The article observes that the international trade and tax regimes cannot be simply reconciled or somehow meshed together, yet, it argues that their policies could (and should) be coordinated, with some adjustments made to the present legal constructs. It suggests that such coordination would benefit from the establishment of an international tax organization, which shall be responsible to making the evolving international tax regime more compatible with the international trade regime (but not part of the WTO). The article analyzes and rejects other solutions, primarily the one I call the tax expenditure solution, which is based on the contention, rejected in this article, that the international tax and trade regimes do not conflict, which proponents are willing to subject some aspects of income tax laws to WTO scrutiny as they are, without any adjustments. Finally, the article argues that coordinating international tax and international trade policies may be beneficial to both regimes even apart from the solution of the aforementioned incongruity.
Yariv Brauner, International Trade and Tax Agreements May Be Coordinated, But Not Reconciled, 25 Va. Tax Rev. 251 (2005), available at http://scholarship.law.ufl.edu/facultypub/11