Global Financial Regulation And The International Tax And Investment Organisation

Recently the United States and the European Union have attempted to force small states out of the market for international banking and financial services by imposing discriminatory global regulations. After a brief coverage of the background of the issue (section 2), this paper contains three key recommendations on how the International Tax and Investment Organisation (ITIO) can help small states to protect their sovereignty and economic interests in this important area. Specifically, section 3 describes how the ITIO should firstly work to expand its membership beyond the existing members to states with similar economic interests, secondly persuade one or more member states to challenge the legality of the new regulations in the World Trade Organisation’s Dispute Settlement Body and the European Court of Justice, and thirdly look to make common cause with like-minded NGOs and corporations. These policy responses are more likely to be effective than any effort to cut a deal and ask for compensation from the EU and US in return for submitting to the new discriminatory regulations, as explained in section 4. [154 words]

Section 2: Background

This paper aims to solve the problem of small states being forced out of the market for international banking and financial services by the combined actions of the United States and the European Union. What should small states do to protect their sovereignty and economic interests in this important area in the face of pressure applied by the world’s richest and most powerful countries?

From 1998 to the present the United States and the European Union have been trying to impose common world-wide standards on how countries regulate international banking and other financial services such as insurance and registering corporations. The effect of these global financial regulations, if adopted, would be to shut small states out of the market for international banking and financial services, redirecting local and foreign capital and investment away from small states and towards Europe and North America. This is because the new regulations would impose stricter and more expensive reporting and information sharing requirements on financial sectors in small states than on their larger competitors in the market for internationally-mobile investment. Although the new standards are publically justified by large states as necessary to prevent money laundering, the financing of terrorism, systemic instability and a �race to the bottom’ in international tax rates, they seem above all intended to produce commercial advantages for large states. The US and EU have also tried to use the World Bank, International Monetary Fund and Organisation for Economic Co-operation and Development to pressure states to sign up to the new standards.

This problem is significant because if small developing states are kept out of the market for financial services they are unable to fall back on previous sources of income like agriculture, due to stagnant prices and protectionism, and aid payments, which have been declining for at least two decades. It is also

...