Developing countries need fiscal revenue to build their infrastructure, achieve energy security and environmental sustainability, and provide social services necessary for human development. While trade and investment treaties have typically been assumed to be tax revenue-neutral, economic studies demonstrate that such is not, in fact, the case. The legal literature has not given much consideration to this issue, assuming instead that the tax effects of economic globalization have been addressed by bilateral tax treaties. However, constraints on developing countries’ fiscal resources resulting from trade and investment treaties are complex and nuanced, and they go much beyond the jurisdictional overlaps addressed by tax treaties. Trade and investment treaties constrain how countries design their tax policy, how they enforce it, and how they may change it.
This study offers several findings on the impact of trade treaties on the ability to raise revenue and maps issues for policymakers to consider. It analyzes direct fiscal revenue decreases, such as those resulting from lower tariff rates, and indirect constraints on fiscal policy arising from non-discrimination obligations in trade and investment treaties, as well as other investor protection clauses. It then considers whether and to what extent exceptions and carve-out clauses preserve tax policy autonomy. Lastly, it assesses how some developing countries can carve out more policy autonomy for themselves against international regulatory encroachment in current negotiation
