Passport to Toledo: Cuno, the WTO and the ECJ

14 Pages Posted: 16 Nov 2005

Date Written: November 15, 2005


On September 27, 2005, the U.S. Supreme Court granted certiorari in the case of Cuno v. DaimlerChrysler, a case involving interstate tax competition that had drawn numerous comments from academics and the bar. The case is controversial for holding that some state tax incentives to business are a violation of the Commerce Clause. Because of that controversy and the ubiquitous prevalence of such incentives, it is widely expected that if the Supreme Court reaches the merits, it will reverse.

The purpose of this article is to try to place the debate about Cuno in a broader perspective by connecting it with the overall discussion of harmful tax competition. Specifically, the article will address two (admittedly highly unlikely) hypotheticals: First, suppose (like the London borough of Pimlico in the classic British film, Passport to Pimlico) the City of Toledo, Ohio, seceded from the United States and became a separate country? Second, suppose in addition that the new country of Toledo somehow became a Member State of the European Union?

The reason these hypotheticals are interesting is because it is clear that if the first hypothetical were true, the tax incentives offered by Toledo (which was at issue in Cuno) would violate the rules of the World Trade Organization (WTO); and if the second hypothetical were true, the tax incentives would also violate the Treaty of Rome, as interpreted by the European Court of Justice (ECJ). Moreover, the reason for these outcomes is that tax incentives such as those at issue in Cuno violate well established policies of both the WTO and the ECJ designed to prevent harmful tax competition from skewing trade and investment patterns. Thus, consideration of the two hypotheticals may shed some light on the policy issues at stake in Cuno, as well as on the desirable outcome if the Supreme Court were to decide Cuno on the merits.

Keywords: state taxation, tax competition, WTO, EU

JEL Classification: H71

Suggested Citation

Avi-Yonah, Reuven S., Passport to Toledo: Cuno, the WTO and the ECJ (November 15, 2005). Available at SSRN: or

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)

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