Developing an International Tax Policy Strategy for NAFTA Countries

9 Pages Posted: 17 Jul 2006


On January 1, 1994, Canada, the United States and Mexico formed the North American Free Trade Agreement (NAFTA) to promote their economic interests by lowering barriers to international trade and investment. A concern exists that national tax differences harm or inhibit cross-border investment flows. Yet NAFTA is almost silent with respect to taxation measures. For the most part, the tax treatment of cross-border flows remains governed by bilateral tax treaties negotiated between the NAFTA states. Why does NAFTA permit national tax differences to remain a barrier to cross-border trade investment flows? The answer lies in the unique place that tax policy plays in a nation's fortunes: taxation is intensely political. Governments are forced to balance the political costs of ceding control over national tax policymaking with their desire to secure heightened economic efficiency. This Article explores how the tensions inherent in globalization play out with respect to potential tax reform efforts under NAFTA. Part I discusses problems created by the different North American tax regimes vis a vis cross-border transactions. Part II turns to Europe to see whether North Americans can draw useful lessons from the European experience with cross-border tax reform efforts. Part III asserts that, given the current political/institutional/economic environment within North America, the appropriate international policy strategy is one of heightened multilateral coordination among the NAFTA countries.

Keywords: tax, international tax, NAFTA, trade, arbitrage, transfer pricing, European Union

JEL Classification: A10, F15, H20, H25, K10

Suggested Citation

Cockfield, Arthur, Developing an International Tax Policy Strategy for NAFTA Countries. Tax Notes International, Vol. 42, No. 11, p. 975, June 12, 2006, Available at SSRN:

Arthur Cockfield (Contact Author)

Queen's University - Faculty of Law ( email )

Macdonald Hall
Kingston, Ontario K7L 3N6 K7L3N6

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