Treaty on Global Currency Transactions Tax

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Preface

Preface

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The currency transactions tax (CTT) has evolved from a mere campaign tool into a serious issue on the global political agenda. This draft Treaty, first introduced at the World Social Forum in Porto Alegre in January 2002, aims at taking the process a step further. Thus far its technical part has provided a model for the law that was adopted by the Parliament of Belgium in July 2004.

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The emancipatory potential of the CTT ("the Tobin tax") depends on the way it will be realised. The tax has three main aims:

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1. To curb foreign exchange markets and thus transnational flows of short-term capital. Thereby the tax will stabilise financial markets and increase the economic policy autonomy of states;

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2. To create global funds for preventive and compensatory mechanisms, and more generally, for global common goods.

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3. To gain some democratic control over global financial markets and the social forces they have helped to unleash and strengthen.

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Many visions of the CTT focus on only one of the aims of the tax, thus excluding other concerns. James Tobin's original 1972 proposal was only about stability and autonomy of states (1), leaving (2) aside as an uninteresting by-product. Tobin had virtually nothing to say about (3). Some economists have followed Tobin in this regard. Many later proposals have only been interested in creating global funds (2) and imply such a low rate of taxation that the volumes and functioning of foreign exchange markets would be left practically intact. Also many recent proposals to establish a stand alone CTT by the European Union would not achieve the three basic goals. There would be no global fund or global democratic control of financial markets. If developing countries were invited to join the regime subject to acceptance of the control of the European Central Bank, the CTT regime would come close to reproducing (neo)colonial structures of finance.

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A further problem is that the CTT Organisation has to be capable of learning and thereby being self-transformative. The CTTO has to be open to different points of view; react rapidly to unexpected changes; and be qualified to assume new tasks if needed. Moreover, there has to be a fair, transparent and accountable process whereby decisions concerning the allocation of funds can be reached. Only an efficient and open democratic organisation can meet these requirements. On the positive side, a CTTO could also stimulate the development of new forms of democratic participation and accountability in global economic governance, by virtue of its exemplary structure and initiatives.

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The draft Treaty incorporates all the main aims of the tax. The tax base is defined as comprehensively as possible. In our proposal the tax rate is set at a modestly high rate (e.g. 0.1%) in order to make the desired effect of curbing transnational financial flows. The tax itself is modified. A two-tier system of tax, following the well-known Spahn model, confiscates windfall gains from over-speculation through the trigger of a higher tax during times of exchange rate turbulence. The tax is collected on a national basis, and the states will keep part of the revenues. However, the bulk of the OECD countries' revenues will go automatically to a global fund.

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The CTTO will govern the tax and control the global fund. Since it may be in control of more money than the UN system and the World Bank combined, its rules, principles and procedures must be legitimate and thus democratic. The CTTO consists of three bodies: a Council, a Permanent Secretariat and a Democratic Assembly. Three kinds of actors are recognised as stake-holders: governments; national parliaments; and transnational civic actors, including not only NGOs but also for instance trade unions. In non-consensual decision-making, the weigh of governments and national parliaments depends on the size of the population of their respective countries. Civil society organisations, broadly conceived, take part in decision-making in the Democratic Assembly.

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In the first phase, although the regime has to be open for all states to join on equitable terms, there is no need for a universal consensus on the need for the Tobin tax. The proposed Treaty shall enter into force following the 30th ratification of the Treaty, or on the date on which the Preparatory Group has established that the Contracting States who have ratified the Treaty account for at least 20% of the global currency markets, whichever is later. That is, a grouping of countries can initiate the system at any time. The only thing that is needed is a state that is willing to convene an international conference for establishing the CTT and a sufficiently large grouping of states interested in participating.

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The explanatory and normative arguments for a CTT, as well as many of the basic ideas of the draft Treaty, are discussed in more detail in H. Patomäki (2001): Democratising Globalisation. The Leverage of the Tobin Tax, Zed: London & New York. Moreover, the key role of the CTT in a strategy for global democratisation is discussed in H. Patomäki & T. Teivainen: A Possible World. Democratic Transformation of Global Institutions , Zed: London & New York, 2004 (available also in Finnish and, in part, in Swedish; editions in Arabic, Portuguese and Spanish forthcoming in 2006).

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Patomäki, assisted by Phoebe Moore, prepared the first outline for a draft Treaty in September and October 2001. Lieven A. Denys has not only given a systematic legal form to this outline but also modified many of the basic ideas and added some of his own suggestions. The result is a consultative document for concrete and detailed discussions. In principle, however, everything is now ready for the first 30 states to sign and ratify the Treaty and thereby to establish the CTTO.

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We continue to invite comments from the global civil society, the state representatives and all other concerned parties. The point is to make the draft Treaty subject to public democratic discussions before it should become a point of departure in formal negotiations.

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The following text contains two parts. The first part is a summary memorandum, describing in plain language the main ideas. The second part is the draft Treaty itself.

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In Brussels and Helsinki, August 2005.

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Lieven A. Denys ldenys@vub.ac.be Heikki Patomäki heikki@nigd.org

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