Robert A. Green

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International agreements and institutions cannot bind governments. They can facilitate cooperation, however, by changing the domestic political context in which governments make decisions based on self-interest. The Article uses this insight to analyze the polar cases of dispute settlement in the General Agreement on Tariffs and Trade (GA7T) and in income tax treaties. Although these agreements share common goals and principles, they employ radically different dispute settlement mechanisms. The GATT employs a legalistic, quasi-judicial system; tax treaties rely on intergovernmental consultation and negotiation. The Article argues that legalistic dispute settlement performs an important role in the international trade regime by managing retaliatory strategies and by generating and disseminating information about the capabilities and intentions of the parties to the regime. The Article further argues that, in the international tax regime, legalistic procedures are less necessary for these purposes. Any incremental benefits of employing such procedures would likely be outweighed by the costs. These costs include the possibility that confrontational and adversarial processes will undermine ongoing relationships; that political forces will lead to conspicuous cases of noncompliance that will threaten the prestige of the regime; that the decisions of politically unaccountable international dispute settlement bodies will be perceived as lacking in legitimacy; and that legalistic systems will fail to be sufficiently flexible to accommodate treaty rules to changing circumstances and issues. The Article concludes that it would be misguided to redesign tax treaty dispute settlement to resemble the GATT model or to bring income tax disputes under the jurisdiction of international trade or investment agreements with legalistic dispute settlement systems.

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