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Exploring the Intersection of Trade Policy, Immigration, and Tax Law

Exploring the Intersection of Trade Policy, Immigration, and Tax Law: A Coordinated Tax Response to the "Push" Factors Driving the Current Wave of Migration to the United States from Central America

Genevieve Tokic*

The full text of this article can be found in PDF form here.

INTRODUCTION

In recent years, much attention has been given to an unprecedented wave of immigration from Honduras, Guatemala, and El Salvador (the “Northern Triangle” of Central America) to the United States. A 2015 report by the American Federation of Labor and Congress of Industrial Organizations (“AFL– CIO”) entitled “Trade, Violence and Migration: The Broken Promises to Honduran Workers” cited a combination of factors, including historic economic policies of the Honduran government (which include tax breaks for foreign manufacturing operations through the maquiladora regime and tariff-free export processing zones) and the implementation of the Central American Free Trade Agreement (“CAFTA”) in 2006, as drivers for the deteriorating security situation in Honduras, which now has one of the highest murder rates in the world. This climate of violence, together with increasing inequality and lack of economic opportunity, which are present in Guatemala and El Salvador, as well, appear to be the drivers of the new wave of immigration from the Northern Triangle to the United States.

Honduras, Guatemala, and El Salvador all have severe socioeconomic problems contributing to the current wave of immigration. CAFTA was portrayed as a partial solution to this situation, promising to bring economic development to these countries. This promise has not been fulfilled as of yet; minimal increases in foreign direct investment and economic growth in the Northern Triangle since 2006 have been insufficient to remedy high poverty levels, and growth has been unequally distributed. For the promises of free trade to be fulfilled, further reforms are needed, both internationally and domestically. Among these changes, international tax reforms may play an important role.

This Paper explores the nexus between trade policies, the current wave of immigration from the Northern Triangle countries, and tax policy. Because of the importance of U.S. investment to the economies of the Northern Triangle countries, U.S. international tax laws impacting transactions and investment decisions by U.S. companies may have a significant impact on the “success” of CAFTA in delivering growth through improved free trade between the CAFTA member states. Among other things, the Paper will advocate for the enactment of tax treaties between the U.S. and CAFTA member countries. In addition, the Paper will explore other international tax policy initiatives that could help the Northern Triangle countries raise much-needed tax revenue and alleviate some of the distortions caused by current international tax policy in terms of investment decision-making.

I. EMIGRATION FROM THE NORTHERN TRIANGLE AND ITS CAUSES

Immigration from the Northern Triangle has increased significantly in the second decade of the twenty-first century. Most of this is due to a surge in illegal migration. As of 2013, Guatemala, Honduras, and El Salvador had a combined estimated population of approximately thirty million people. Of this total, it was estimated that approximately 2.7 million people, or 9% of the total populations, were living in the United States. This was an increase of 80% (up from approximately 1.5 million) since 2001. Many more Northern Triangle nationals have tried to reach the United States and failed. Around the end of the first decade of the twenty-first century, the number of asylum and refugee applications from the Northern Triangle also surged. The number of people from the three Northern Triangle countries requesting asylum in the neighboring countries of Belize, Costa Rica, Mexico, Nicaragua, and Panama increased by “1,179% from 2008 to 2014, while asylum requests increased by 370% for the United States over the same time period.”

Clearly, the usual mix of “push” and “pull” factors that has fed a steady but small stream of immigrants from the Northern Triangle over decades has shifted dramatically, and the statistics appear to indicate that it is the “push” factors— what is happening on the ground in these countries—that is causing the exodus. Numerous sources have identified poor economic conditions and job prospects for the young, coupled with rising levels of violent crime and gang activity, as the primary causes. The majority of unauthorized migrants from the Northern Triangle countries are young, poorly educated, and male. In addition, many are unemployed or work in agriculture or other unskilled employment. The demographic profile of the immigrants is in keeping with the “push” factors identified by the various sources. 

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*Assistant Professor, Northern Illinois University College of Law. The author wishes to thank Anushi Trivedi for research assistance. And of course many thanks are due to all the organizers and participants at the Sanford E. Sarasohn Conference on Critical Issues in Comparative and International Taxation II: Taxation and Migration. All errors and omissions are the author’s own.