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Anthony Jenkins/The Globe and MailThe Globe and Mail

Internationalists among us are celebrating. The news that Swiss banking giant UBS AG has agreed to disclose the names of some 4,500 American taxpayers with accounts at the bank has been heralded as the birth of a truly transnational fiscal regime.

U.S. Secretary of State Hillary Clinton has praised the new international "understanding" that the settlement embodies, while U.S. Treasury Secretary Timothy Geithner has characterized the UBS affair as "part of the broader effort to address international tax evasion and close the tax gap." Virtually everyone who comments on it publicly describes the case as important beyond its own terms.

Academics from the United States to Europe have been praising the development as having "energized" the field of international tax law. This past week, even Canada's Minister of National Revenue, Jean-Pierre Blackburn, has enthused over the prospect of going to court to obtain information from the secretive world of international private banking.

For all of the hype, one would think that the ancien régime, in which national policies took priority over any semblance of an international legal order, has given way to a new environment of fiscal co-operation and a harmonized ethic of financial regulation and universal taxation. But to paraphrase Mark Twain, reports of the death of unilateralism and self-interest are greatly exaggerated.

The UBS case has not occurred in a vacuum. In fact, it is part of a multipronged approach to tax havens implemented by the Organization for Economic Co-operation and Development. The initiative came after U.S. President Barack Obama, succeeding where French President Nicolas Sarkozy had tried and failed, personally intervened at the G20 summit this past April and convinced the Chinese to endorse a policy of publicly naming and shaming those states that refuse to engage in the type of information-sharing that most Western tax authorities demand.

While the Chinese were persuaded by whatever it is that Mr. Obama privately told them, the Swiss had to be coerced by litigation and intense public pressure. By contrast, Switzerland's tiny neighbour, Liechtenstein - where financial services account for 30 per cent of the economy - was too self-sufficient to be massaged and too insular to be pressured; it had to be clandestinely bought. The German government, tired of being rebuffed by a small enclave in which bank secrecy is a national creed, purchased records stolen by a former employee of the LGT Group, a bank owned by Liechtenstein's royal family, paving the way for the IRS and other tax authorities to open their own inquiries into the Alpine kingdom.

The Canadians have also entered the game in their own way. While we don't have the muscle to wield an American-style stick, we do have a couple of carrots to dole out in the right circumstances.

A recent deal with Bermuda is a case in point. In return for its signing a Tax Information Exchange Agreement, Canada has granted Bermuda the much coveted foreign affiliate tax exemption, whereby dividends paid by Bermuda-based subsidiaries to their Canadian corporate parents are exempted from Canadian tax. The exemption is often sought by offshore financial centres, but until now it has been withheld from zero-tax havens such as Bermuda where no one knows how much profit is artificially lodged there, and has been saved for countries like Barbados with proper tax systems where, even if the tax is lower than our own, a return is filed and accounts are kept in the usual way.

As for the other tax havens, most continue to do business as usual. Singapore and Gibraltar have announced they will comply with OECD standards for information sharing, but have done little to actually implement these standards. Cayman Islands has enacted legislation allowing its government to share information about tax residents to selected countries as determined unilaterally by the Cayman Islands government. Costa Rica, Malaysia and a couple of others have thumbed their noses at the entire idea of tax transparency.

As it turns out, the new international legal regime isn't much of a legal regime. Some countries can be coerced, blackmailed, bribed, pressured or seduced into co-operating, while other countries can get their way through imposing these tactics on them. Some countries refuse to be budged or pay only lip service to the international norms, while other countries lack the clout or the gifts to give out in return for co-operation.

International tax law, like all international norms from the law of war and peace on down, is a game that reflects the interests, and the power, of the players. As a consequence, the principles of universality and equality - the cornerstones of any modern legal system - are so full of deductions and loopholes that they hardly add up to law.

Ed Morgan is professor of international law at the University of Toronto.

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