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6. Implications for Policy and Theory
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Implications for Policy and Theory 149 The November 2005 meeting of the Global Forum on Taxation was notable for its politeness and amity. There was so little controversy that the two day meeting finished half a day early. Journalists expecting a repeat of the insults, tears, and high drama that had characterized previous meetings between the OECD and tax havens left disappointed. At the concluding press conference, the chair of the Committee on Fiscal Affairs and the Samoan Central Bank Governor (formerly a strident critic of the OECD) were relentlessly upbeat about the feats of dialogue and partnership that had been achieved. Andrew Quinlan even bought Jeffrey Owens a drink as the two discussed the areas of agreement between the Center for Freedom and Prosperity and the OECD. What had happened to the hostility and rancor, why the outbreak of peace and harmony? To go back to the beginning, in 1998 the OECD had come up with a daring, innovative and ambitious strategy for regulating an important new issue, harmful tax competition, which centered on a confrontation with tax havens. But by 2005 the OECD had been forced back on a strategy that was eminently conventional, relying on inclusion and consensus to achieve incremental progress on tax information exchange . Within this period, the organization prosecuted a rhetorical campaign against targeted tax havens after key decision makers had been persuaded that the economic coercion, that had been threatened earlier, was not an appropriate response . Both sides in the contest sought to legitimate themselves and mobilize public disapproval against their opponents. In different ways, tax havens and the OECD were both crucially reliant on the way they were perceived by third parties, the former in terms of their reputation for financial probity, the latter in terms of its rep- utation for impartial expertise. The OECD struggled to reconcile the tax competition initiative with its status as a community of apolitical, pro-market experts. Opponents appropriated the very principles from which the OECD drew its authority to erode support for the campaign.The organization saw splits among its members, suffered role conflict within the secretariat, and lost standing in the eyes of third parties . Rhetorical entrapment, a form of “political ju-jitsu,” saw the principles of the strong used for the purposes of the weak. The use of rhetoric by targeted states was strategic but not cynical. Small states were genuinely convinced that they were being treated unfairly and in a manner fundamentally at odds with just standards of international behavior. This concluding chapter is evaluative. First, I assess the impact of the campaign to regulate harmful tax competition. A decade after the G7 had first raised the issue , what impact has the initiative had? There are three possible yardsticks of success : the original aims of the 1998 report; those of the scaled-down initiative after November 2001 focusing on information exchange; and the counterfactual “What if there had been no initiative at all?” Second, and more broadly, I assess the future of tax havens and general prospects for international regulation in the areas of tax and financial services. International regulation of tax and financial services will continue to increase, but such processes are unlikely to rely primarily on the top-down confrontational means used by the OECD and the FATF. Despite increasing challenges , most of the world’s tax havens will survive, if only for a lack of other economic options. Third, this chapter summarizes and evaluates the theoretical and conceptual implications of the study. The globalization thesis of a fiscal “race to the bottom,” premised on increased capital mobility and international collective action problems, has little explanatory power. Finally, I argue that an approach centered on language and social facts is in no way incompatible with the conclusion that conflict and power are central features of the international arena. Assessing the Results, 1996–2006 The OECD initiative was novel and important in terms of its ends and means. In its first incarnation, the central goal of the project was to stop harmful tax competition that was said to threaten OECD member states’ tax systems. Primarily, this involved dissuading tax havens from using their tax and financial codes to attract foreign investment that was not devoted to substantial economic activity. Supplementing this aim, member states were enjoined to review and abolish any harmful preferential tax regimes they might have. These were defined as special nontransparent tax breaks, available to foreign investors but isolated from the domestic tax system (ring...