Michael,
I don't think the creation/redemption process of an ETF that invests solely in foreign stocks [like EFA] is going to make it any less tax efficient. The ETF will still be able to get rid of the low cost basis shares.
There might be a bigger spread or discount/premium for the foreign ETF because of the increase costs of buying/selling the stocks, just like there a bigger spread or discount/premium for the micro-cap ETFs.
AFAIK, most mutual funds that invest in foreign stocks are not specifically tax managed, except for Vanguard's TM int'l fund. I would think that the foreign ETFs are going to be more tax efficient than a comparable actively managed foreign fund.
- Alec
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