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The Law of The "C"

It is interesting to note how the "space" between nations has been managed. The space I refer to is, of course, the sea. And I guess it was pretty important to find some way of managing it, as it represents the largest percentage of the earth's surface.

And so, over time, there has been developed what is known as the "law of the sea". It is a codified system of rules that are designed to deal with the obvious need to find common ground between nations, as to how to treat the sea - and what goes on in and under it.

The current Law of the Sea developed from an older concept known as "freedom of the seas", which dates back to the 17th century.

Under that earlier system of codes and rules, a nation's territorial rights only extended 3 nautical miles (6 km) - leaving the rest as "international waters".

In the 20th century, these territorial limits have been extended to allow greater control of such things as fish stocks and mining rights for minerals - and have been codified by the United Nations.

The most well known "laws" are those which grant certain rights to coastal nations, like the 12 nautical miles of "extended" sovereignty given to such nations. Then there is the Exclusive Economic Zone (EEZ) which extends up to 200 nautical miles from the coast - for the purpose of economic exploitation.

A full disclosure of these laws can be found at:

http://www.un.org/Depts/los/index.htm

What's interesting, of course, is the fact that such sovereignty has proscribed limits - 12 and 200 nautical miles respectively. And both of different degree.

Once you are "outside" such limits - then you are no longer subject to the sovereignty of any particular nation. In other words, the sea is considered beyond and outside such control.

That is why, when ships go to sea, you can enjoy such things as duty-free goods and gambling - unhampered by silly national laws.

A similar phenomenon is seen while flying - hence the offer of duty-free goods while in-flight between earth-bound destinations.

Such cooperative agreements as the "law of the sea", are inevitable - as a means of settling potential disputes, and stopping any one country from claiming more water-based sovereignty than is their right.

The only way any one nation can "stop" another nation from monopolising the oceanic resource is to agree that ALL nations will give up such a claim.

In this way, the sea is a law unto itself. Professional seafarers know this of course - as do those who live their lives at sea.

The sea has always been equated with "freedom". When you are at sea you are under no national jurisdiction - and for a short time can enjoy the benefits that such freedom brings.

Which brings us to the other "C" - Cyberspace.

It is helpful to view the internet (cyberspace) as of similar "kind" as the sea - a territory outside of any individual nation, common to all, but not beholden to any one in particular.

It is obvious that ONE country cannot "claim" sovereignty over the whole internet. So, while trying to grapple with economic issues arising out of the cyber-economy, these nation states are going to have to accept that apart from "traffic" within their own "space" - the internet is very much like the oceans of the world - or the space above the world. Common to all - and owned by none.

What this means is that cyberspace must be "neutral" and apart from the nations of the world. In other words, an independent territory just like the ocean. A place where certain agreed rules are applied - but NOT the rules of individual nations.

So in cyberspace, as when at sea, one can imagine buying goods WITHOUT duty or taxes, and gambling WITHOUT state interference. And so it is - right now! What's more, as with the sea, one can imagine earning a living on the net - without the crippling burden of a national income tax.

One of the built-in protections against supranational monopoly is the very fact that we have nations in the first place. And not only that, but an increasing number of nations each year - which all have their own interests and territory to protect.

The advantage in this is that while delineating their own "sovereign" territory - they are also excluding all that which cannot be included: such as the oceans, the air above the oceans and space itself.

And cyberspace can claim the very same extra-nationality.

Which brings me to the issue of the increasing pressure nation states are being brought under - regards their tax policies.

This doesn't just apply to "tax havens", but all countries which are perceived to have low tax rates.

The well-established welfare statist countries are all concerned by the issue of "tax competition" - where lower tax countries can siphon off both capital and labour, for obvious reasons.

This has lead the OECD to call for "tax harmonisation" - which is simply another word for everyone increasing their tax rates so they equate with Germany or Denmark!

What the "big-brother" countries are really saying is, "We don't want to have to compete taxation-wise with other countries. We don't want other countries having different tax rates to ours."

Now, imagine how this idea would work out in other areas.

Say you live in a country that produces computers. It's like saying, "We don't want you selling computers cheaper than us." Of course, in many cases countries DO try to limit such ordinary competition through the use of tariffs (taxes on imported goods to increase their local market price - so they don't out-compete locally made goods of similar nature). But this doesn't justify the practice.

Let's move the idea to another area - pay rates for various skills.

Imagine one country saying to another, "You can't pay your computer programmers $300 per hour when we are only paying $50. It's not fair, you will attract all our best programmers!"

The usual and correct response would be - "Tough!"

So let's take our imaginary computer programmer - and look at his options. He is working in country "A" for $50 per hour - and is offered a job in another country for $300 per hour. Naturally, he is tempted to take the offer and move. This is normal practice. It goes on all the time - people moving somewhere else to improve their lot in life.

Okay, let's look at another scenario: This time our computer programmer is earning $150 per hour in Country "A" - and paying tax at the rate of 35%. He gets an offer of work in Country "B", with the same hourly rate - BUT a lower tax rate - 15%.

He is tempted to take this offer, for the very same reason he is tempted to take the first offer - because it will put MORE money in his pocket!

And that's it. In essence, whether you get paid more, or simply get taxed less, it's all about what's left in your pocket at the end of the day. And "competition" in tax rates is every bit as legitimate as competition in wages and conditions - and anything else for that matter!

The dangerous notion of "tax harmonisation" is that somehow it is "right" to have everyone paying a uniform rate of tax - to prevent the movement of people and capital outside a country's borders.

It's dangerous because it is in effect a "slave" notion - that you have no right to seek a better environment for your life - and that no other country has the right to try and offer such an environment to you.

On the face of it, it looks bleak - knowing that the high-tax countries are fighting a "war" with the low-tax ones. However, human nature doesn't change. People will always seek ways to preserve what is theirs - and if one door is closed, then that simply provides an opportunity for someone else to open a new door.

I expect that, just as some tax-havens and low tax jurisdictions may give in and comply with the "big-brother" directives from other countries, others will see a golden opportunity to increase their market share!

I also expect to see the arrival of much more sophisticated ways around the taxes levied by these "slave states". And the increasing pressure on existing low tax countries can only make new options all the more profitable and likely.

What's happening is more and more people are discovering the benefits of securing financial privacy - and the demand for such services can only increase.

As far as I'm concerned, the "noisy complaints" of the old established nation states are emerging proof of their tax-base decline - and impending panic!

This, in my opinion, will be particularly evident in the rapid emergence of China and South East Asia as the world's next major economic power bloc. They have already well-established low income tax rates,like 17% in Hong Kong and China, and 15% in Singapore.

These countries impose a very low tax overhead on their people, and as a result, entrepreneurship is on the rise. Not only that, but there is already a skills and capital influx into these countries - due to such financial incentives. This naturally impacts on the taxation bottom line of the higher tax countries.

And long may it continue!

On one hand all this tax harmonisation stuff could be seen as "bad" news - for if all such low tax countries were to disappear, then what could we do to protect ourselves from the outrageous protection racket called "tax"?

On the other hand, it's a sign of the times - that all is not well in "high-tax" land.

I believe technology will come to the rescue - in the form of cyberspace (already), and perhaps even "real" space in the future.

If cyberspace can be delineated and "outside" the sovereignty of any one nation - then it is only a matter of time before such a territory will be able to deliver economic services from WITHIN cyberspace - in other words, not beholden to the laws of any one nation.

As an example, we could see the deployment in space of special purpose "economic" satellites - carrying the full ability to offer banking services for example - and managed from earth-bound cyberspace.

A "bank" in space is not such a far-flung idea. It's only a matter of time before full wireless internet will be the norm - and the ability to bank with "SpaceBank" will be a real possibility.

And as space, as well as cyberspace, belongs to no particular nation, then jurisdictional rules would not apply.

In other words, while "behind-the-eightball" nations are fighting each other over their various tax rates, technology could provide the ultimate solution - one permanently outside the control of any one (high tax) nation.

And that day may arrive sooner than you think!

Yours in freedom

David MacGregor

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