The 2008 global financial crisis reaffirmed the need for robust regulation to address the increasingly reckless banking and financial sector. One of the most important regulatory tools in this post-crisis era of reform is the use of capital controls to regulate cross-border finance, a policy that even institutions long-opposed to capital controls, such as the International Monetary Fund, have now formally recognized as beneficial. However, there is growing concern that the rules of trade and investment treaties may not provide enough policy space for countries to take advantage of these necessary regulatory measures.
In response to this concern, a task force convened in June of 2012 in Buenos Aires, Argentina to review the rules of the WTO and various Free Trade Agreements (FTAs) and Bilateral Investment Treaties (BITs) and examine the extent to which global trade rules are compatible with the ability to deploy effective capital control regulations. The result of this meeting is a comprehensive report released this month titled Capital Account Regulations and the Trading System: A Compatibility Review, which is comprised of chapters written by experts from around the globe (including Todd Tucker, former Research Director at Global Trade Watch and former editor-in-chief of Eyes on Trade).
The report highlights several alarming areas where trade and investment treaties conflict with and impede the ability to use important regulatory tools such as capital controls. It goes on to offer several changes that should be made to outdated trade policies to ensure that countries have sufficient policy space to take the regulatory measures necessary to avoid future financial crises.
Unfortunately, despite concerns expressed by members of civil society, economists, policymakers, and various other international experts, the current negotiations of the Trans-Pacific Partnership (TPP) are on track to lock in the antiquated trade model of extreme deregulation, including a prohibition of bans on risky financial products and a restriction on now widely-endorsed capital controls.