fact-sheet-development-and-capital-controls - Developing Countries Urgently Need a Fix for WTOs Ban on Capital Controls In the wake of the global

fact-sheet-development-and-capital-controls - Developing...

This preview shows page 1 - 3 out of 5 pages.

Developing Countries Urgently Need a Fix for WTO’s Ban on Capital Controls In the wake of the global economic crisis, even the International Monetary Fund (IMF) has noted the utility of capital management techniques (CMTs) for helping insulate developing countries from crisis-causing capital floods and flights. 1 But many developing nations may find their ability to use these tools hampered by their financial services commitments under the World Trade Organization’s (WTO) General Agreement on Trade in Services (GATS). Indeed, many developing countries face more constraints in this area than developed countries, which are generally thought to have the deepest GATS financial services commitments. The IMF, Bank of International Settlements and Financial Stability Board have noted that “Some countries have subscribed to international instruments that limit their ability to use capital controls.” 2 Based on past IMF writing, it is clear that this could only refer to trade and investment pacts. What GATS provision restricts capital controls? Article XI of the GATS states that countries “shall not impose restrictions on any capital transactions inconsistently with its specific commitments regarding such transactions…” Countries list their “specific commitments” pursuant to GATS Article XVI on market access, which has a footnote that reads in part, “If a Member undertakes a market-access commitment in relation to the supply of a service through [Mode 1] and if the cross-border movement of capital is an essential part of the service itself, that Member is thereby committed to allow such movement of capital.” 3 What does this mean? The strictness of these disciplines turn on several interpretative and technical questions. First, how widely would a panel construe the notion of “restriction” in Article XI? Second, are the only “restrictions” to be avoided that that do not “allow… movement of capital” at all, or could a broader range of restrictions be prohibited? In other words, what is the range of “restrictions” that can be imposed “consistently with specific commitments”? Finally, when is “capital… an essential part of the service itself”? As for the term “restriction,” WTO panels and legal scholars all agree that it should be construed broadly. 4 Its meaning, according to such sources, could include measures to prohibit capital flows, to requiring permits for capital transactions, to measures that tax or increase the cost of such transactions. Accordingly, a wide range of capital controls could constitute “restrictions.” As for the requirement that “restrictions” not be imposed “inconsistently with specific commitments,” there is a range of possible interpretations. One interpretation of the phrase “that Member is committed to allow such movement of capital” is that the only GATS-prohibited “restriction” would be an outright refusal to allow Mode 1 capital movements in a committed
Image of page 1
2 sector. This is a fairly extreme CMT that most countries do not utilize (although it is unfortunate
Image of page 2
Image of page 3

You've reached the end of your free preview.

Want to read all 5 pages?

  • Spring '13
  • RomelSudah
  • Management, Utility, Financial services, World Trade Organization, International Monetary Fund, GATS, GATS financial services

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

Stuck? We have tutors online 24/7 who can help you get unstuck.
A+ icon
Ask Expert Tutors You can ask You can ask You can ask (will expire )
Answers in as fast as 15 minutes