Swiss Taxes and European Trade
The EU has had a free trade agreement with Switzerland since 1972 (before it was even named the EU). The European Commission is trying to blame Switzerland of unfair trade, since it has such low taxes and attractive business climates. Coyote and Cato hit on this news item, both pointing out the dangerous implications of the argument that laissez-faire policies are ipso facto unfair trade practices.
In fairness to the EC, I have to admit that sometimes tax policies are normally considered unfair trade practice. This is a non-tariff barrier, a group of policy tools that includes import quotas and subsidies. If a subsidy is delivered in the form of a targeted tax cut, how is that different from taxing an entity and returning it to them in the form of a subsidy check? As far as I can tell, however, they're not trying to make this argument, anyway. I don't think foreign subsidies should be a big deal, though. It just means foreigners are financing a price reduction for Americans. The people who should be really pissed off are those foreigners paying the taxes.
Part of the problem is that free trade still has a distinctly 19th century bent to it. Goods are discreet, countries are discreet, and businesses are static; agreements regard raw resources and manufactured goods. Actually attracting businesses to locate in a given place isn't really covered by free trade rules. Nor should it be. Most free trade agreements involve a lot of rules and measures to control and circumscribe free trade, so that the agreement is freer than the status quo but not absolutely free on its own. Making up new rules to cover the movement of businesses and capital would likely make the world economy less free as protections spring up to limit the escape of businesses from repressive economies to free ones.
It's still incredibly hard to take most world politicians seriously on truly free trade, even when they aren't saying that low taxes are unfair, because of the anti-agriculture bias of free trade agreements. Europe is worse than anybody else (with France being at the moral bottom of the pile) when it comes to agricultural free trade. When it comes to industrial goods and intellectual property, even the movement of capital, the West gives free trade agreements high priority, but whenever agriculture is mentioned they all cite the need to protect and preserve and to tax. Hypocrisy.
Fortunately, the Swiss won't budge here. Taxes are generally despised in Switzerland, and tax competition is a long-held practice. Switzerland is not really interested in EU membership, and this incident is likely to broaden the gap. Switzerland didn't even join the UN until 2002. A vote in the early 1990s to join the European Economic Area failed and the Swiss instead pursued a bilateral agreement. The EEA was only established in the first place so that European neighbors could have freer trade with the EU without joining the EU, but apparently even the EEA was too close for comfort for the Swiss voters.
In fairness to the EC, I have to admit that sometimes tax policies are normally considered unfair trade practice. This is a non-tariff barrier, a group of policy tools that includes import quotas and subsidies. If a subsidy is delivered in the form of a targeted tax cut, how is that different from taxing an entity and returning it to them in the form of a subsidy check? As far as I can tell, however, they're not trying to make this argument, anyway. I don't think foreign subsidies should be a big deal, though. It just means foreigners are financing a price reduction for Americans. The people who should be really pissed off are those foreigners paying the taxes.
Part of the problem is that free trade still has a distinctly 19th century bent to it. Goods are discreet, countries are discreet, and businesses are static; agreements regard raw resources and manufactured goods. Actually attracting businesses to locate in a given place isn't really covered by free trade rules. Nor should it be. Most free trade agreements involve a lot of rules and measures to control and circumscribe free trade, so that the agreement is freer than the status quo but not absolutely free on its own. Making up new rules to cover the movement of businesses and capital would likely make the world economy less free as protections spring up to limit the escape of businesses from repressive economies to free ones.
It's still incredibly hard to take most world politicians seriously on truly free trade, even when they aren't saying that low taxes are unfair, because of the anti-agriculture bias of free trade agreements. Europe is worse than anybody else (with France being at the moral bottom of the pile) when it comes to agricultural free trade. When it comes to industrial goods and intellectual property, even the movement of capital, the West gives free trade agreements high priority, but whenever agriculture is mentioned they all cite the need to protect and preserve and to tax. Hypocrisy.
Fortunately, the Swiss won't budge here. Taxes are generally despised in Switzerland, and tax competition is a long-held practice. Switzerland is not really interested in EU membership, and this incident is likely to broaden the gap. Switzerland didn't even join the UN until 2002. A vote in the early 1990s to join the European Economic Area failed and the Swiss instead pursued a bilateral agreement. The EEA was only established in the first place so that European neighbors could have freer trade with the EU without joining the EU, but apparently even the EEA was too close for comfort for the Swiss voters.
Posted by neolibertarian on
February 19, 2007 at 3:32pm