Global Tax Initiatives: The Movement for the Currency Transaction Tax

The currency transaction tax (CTT), first proposed in 1972, is a simple idea: a tax levied on every currency exchange, set at a level low enough not to hinder transactions needed to finance trade in goods and services, or long-term investments. The establishment of the CTT, or a new organization to govern the CTT, would potentially constitute a far-reaching global regulatory change. This paper asks two sets of questions. First, what have been, and are, the causes of the emergence, rise and development of both the transnational campaign for the CTT and the related worldwide movements and networks? Second, what are the conditions of success of different strategies for global regulatory change, in this case the CTT? And consequently, what models for the CTT, and strategies to realize them, are feasible, and what effects would they have?

To analyse the first question, the author draws on the Braithwaite and Drahos scheme, according to which there are recurrent proactive and reactive sequences of strategic action to secure global regulatory change, such as the establishment of the CTT. A proactive sequence starts with the creation of new ideas and “enrolment of organizational power” through various mechanisms and transnational networks. A reactive sequence starts with a disaster, followed by media hype and then public demand to innovate new regulations. Subsequently, individual actors may revive regulatory innovation, which may, through a complicated process and in a potentially diluted version, become a global standard, which will eventually placate the public.

By the mid-1990s, the CTT started to be discussed in the context of trying to find alternative sources of funding for the United Nations system, and, more generally, for global efforts to reduce absolute poverty. However, until the Asian crisis of 1997–1998, interest in the CTT was usually triggered by major financial crises, and then died out when the crisis passed from the headlines. Of the almost 200 major financial crises (which involved more than 80 currency crises) which have taken place since the late 1970s, the farthest-reaching ones have occurred since 1990. The Mexican crisis (1994–1995) and its repercussions, and the Asian crisis (1997)—which spread to Russia and Brazil (1998)—alarmed the world. In part as a reaction to this situation, a more systematic and organized global campaign for the CTT finally emerged. This reactive scheme has been reinforced by general frustration with the mainstream Western politics of neoliberal globalization, and it contributed decisively to the establishment of the World Social Forum (WSF) in 2000–2001.

By 2004, the momentum generated by the Asian crisis was mostly over. Although many non-governmental organizations (NGOs) celebrated the Belgian CTT law of 1 July 2004 as a major breakthrough, no CTT in the sense of the original proposal is in sight. What remains on the agenda of global politics is a neoliberal version of the tax that aims at finding alternative sources of funding for development. There are also major obstacles in realizing that vision. Moreover, the CTT campaign is now divided between those who would like to see a minimalist CTT implemented unilaterally by individual countries or the European Union, and those who are struggling for global regulatory changes.

The second part of the paper analyses and assesses the two different visions of the CTT. War on Want—an international development NGO based in London—has been advocating a minimalist version of the CTT as a means to “raise 20 billion dollars each year to help fund the Millennium Development Goals”. The Draft Treaty on Global CTT outlines an alternative model more in line with the aspirations of ATTAC and other organizations and movements participating in the WSF process. In the latter model, the tax is set at a sufficiently high level to curb the power of transnational financial flows. The Draft Treaty on Global CTT also has the potential to act as an “icebreaker” in international law, by setting an example of post-sovereign global regulation and taxation that can be applied in other fields as well.

The paper concludes by discussing possible futures in terms of the conditions for success of different visions and strategies of realizing the CTT. Although new crises may appear crucial to the creation of further momentum for the global CTT, it does not seem wise to rest one’s hopes on the possibility of a new disaster. The global dialectic of control may also take on different forms from that wished by the reformists.

Heikki Patomäki is professor of International Relations at the University of Helsinki.