WTaxO Lesson #2: Good Luck WIth Your Regime Complex

A second takeaway from yesterday’s World Trade Organization’s ruling against Argentina’s anti-tax haven policies is:

Trade lawyers won’t solve your regime complex problems. As political scientists Kal Raustiala and David Victor write in their classic article on regime complexes:

Regime complexes are marked by the existence of several legal agreements that are created and maintained in distinct fora with participation of different sets of actors. The rules in these elemental regimes functionally overlap, yet there is no agreed upon hierarchy for resolving conflicts between rules. Disaggregated decision making in the international legal system means that agreements reached in one forum do not automatically extend to, or clearly trump, agreements developed in other forums. We contend that regime complexes evolve in ways that are distinct from decomposable single regimes.

Trade is an example of a regime complex. As WTO cases continue to be brought on more areas of non-trade law (like financial services and taxation), the potential for conflict between trade and non-trade obligations grows.

With yesterday’s ruling, the WTO is trying to allay fears that trade obligations necessarily threaten other forms of international and national regulation. Indeed, the WTO panel conceded that tax justice was an important goal throughout their entire analysis. The panelists extensively cited papers by the G-20, United Nations and other bodies on the importance of tax justice. (Interestingly, the panel also approvingly cited the US and Europe’s interpretations on almost every contentious point – as if to signal that they were allowing the WTO to evolve in a way consonant with the views of its most powerful members.)

One reading of their decision was a critique of Argentina for not doing ENOUGH for tax justice. Arguably, if Argentina had not exempted Panama from its sanction regimes, the Kirchners would have won their case. If correct, this is an example of two elements in a regime complex being harmonized: trade needn’t trump tax justice.

I’m a bit skeptical of this reading, for two reasons.

First, we’d be hard pressed to identify regulations in any country so flawless, that so perfectly achieve their objectives, that enterprising complainants and WTO panelists couldn’t find fault with them. That’s not a defense of bad policy-making, but it is policy realism.

And that gets to my second reason. While some elements in a regime complex can be harmonized with each other (in this case tax justice and trade), not all elements can be. For example, countries might simultaneously want to ensure tax justice, have viable trading rules, and also diplomatically reward countries that are cooperative. The WTO decision (arguably) harmonizes the first two objectives, but not the last one.