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Tax, tariff and trade

The tax, tariff and trade laws of a political region, state or trade bloc determine which forms of consumption and production tend to be encouraged or discouraged. All three are often changed by a trade pact.

Typically all three types of laws must also be changed to implement any program of moral purchasing, fair trade, safe trade, or any tying of money supply to methods of measuring well-being. It is advocates of these measures that usually refer to tax, tariff, and trade policy as a single and indivisible unit:

Human development theory and the anti-globalization movement, for instance, focuses on relationships between internal and external rules, and on the internal markets of a state, and what kinds of trade relations they create. They criticize inadequacy of existing rules, and argue that most of the so-called 'trade' rules are actually investment guarantees.

Critics of these movements and defenders of free trade and global investment liberalization respond that the older ideas of independent trade policy , investment policy and industrial policy assumed that a higher degree of control by governments over business was possible.

While factions disagree on the desirability of the changes and the direction of change, all agree that the newer ideas about unified tax, tariff and trade laws take globalization for granted, and assume that not only nation states but larger trade blocs and smaller regions and cities are in competitive positions relative to other players worldwide:

  • Tax policy to encourage or discourage particular types of consumption or production in the jurisdiction.
  • Tariffs, or lack thereof, to encourage or discourage imports or consumption inside the jurisdiction.
  • Trade, especially investment, policy to encourage or discourage location of particular types of activity in the jurisdiction, especially leading to export opportunities.

Despite some exceptions, in a global economy, policy on all three issues reduces to quantitative distinctions, and impact of change must be considered on all fronts at once. To avoid a "race to the bottom" as competing jurisdictions try to undercut pricing, trade bloc rules and trade pacts become more necessary, e.g. North American Free Trade Agreement, and political integration for common rule-making more desirable, e.g. as in the European Union (EU).

Critics of this process, notably in the safe trade, fair trade, and anti-globalization movements, argue that this is itself a race to the bottom, in standards and regulations. Protections typically afforded by the state to its own citizens can no longer be economically afforded in an environment where the state itself is in a competitive position in a global market.

One solution is the development of simultaneous policy initiatives, which would require trading partners to implement similar political, e.g. labor rights, measures all at the same time, so none were disadvantaged economically relative to its trading partners for implementing a measure that all of the partners deemed desirable.

The EU, has a particularly strong form of integration of the three, fixing the targets of taxation, ending most internal tariffs, and building a common West European trade bloc. Recently they also developed a common currency, the Euro, and are planning to implement some fair trade rules based on means of measuring well-being. In the process, however, they have retained a system of agricultural subsidy which keeps the EU self-sufficient in food. Some call this hypocrisy, others call it evidence that a program of liberalization has limits, and that food and water supplies are inherently tied to local interests and ecologies. Thus some subsidies, and agricultural policy, are not part of the same negotiations as lead to tax, tariff and trade rule changes. Monetary integration is also considered a separate issue, and indeed the Euro was not implemented until long after acceptance of tax, tariff, trade rules.

See also

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