Special Tax Zones and the WTO

17 Pages Posted: 12 Mar 2017 Last revised: 19 Apr 2017

See all articles by Reuven S. Avi-Yonah

Reuven S. Avi-Yonah

University of Michigan Law School

Martin Vallespinos

University of Michigan at Ann Arbor - Law School

Date Written: March 2, 2017


Since the SCM agreement was enacted in 1995, the global leadership in the field of STZs has shifted from the OECD to the WTO.

The WTO general agreement includes a broad set of policy goals that goes beyond trade relationships, but its legal framework has been systematically narrowed to the task of assuring market access, non-discrimination, and fairness in trade. Other relevant issues that has impacts on trade, such as for example harmful tax competition or tax base erosion, has not been sufficiently weighted and has been treated as secondary items.

As of today, having passed more than 20 years since the enactment of the first WTO agreements, the WTO overall treatment of STZs appears to be inconsistent with the general policy goals of the organization. While service STZs generally remain free from challenge because there are no formal subsidy rules concerning services, manufacturing STZs with substantial activities have been significantly curtailed by the SCM Agreement. The disparity in the treatment of “goods” and “services” has produced a negative impact on developing countries, as they tend to rely more on manufacturing STZs to achieve economic growth, while benefitting developed countries, which to rely more on offshore banking, technology, and financial services STZs in order and attract investment.

The fairness and distributional concerns raised by this disparity in treatment has also been placed in a secondary position, on the grounds that the objectives of the WTO are limited to market access, freedom, and non-discrimination in trade. This perspective, however, is not consistent with the rationale and general policy goals of the organization, as provided by the main WTO agreement.

Keywords: Special Tax Zones, WTO, tax competition

JEL Classification: H26

Suggested Citation

Avi-Yonah, Reuven S. and Vallespinos, Martin, Special Tax Zones and the WTO (March 2, 2017). U of Michigan Public Law Research Paper No. 545. Available at SSRN: https://ssrn.com/abstract=2928644 or http://dx.doi.org/10.2139/ssrn.2928644

Reuven S. Avi-Yonah (Contact Author)

University of Michigan Law School ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States
734-647-4033 (Phone)

Martin Vallespinos

University of Michigan at Ann Arbor - Law School ( email )

Ann Arbor, MI
United States

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