Movement of Capital and Trade in Services: Distinguishing Myth from Reality Regarding the GATS and the Liberalization of the Capital Account

Federico Lupo Pasini

Research output: Contribution to journalArticle

3 Citations (Scopus)

Abstract

This article will analyze the interplay between capital movements and trade
in services as structured in World Trade Organization (WTO) law, and it will
assess the implications of the capital account liberalization for the freedom of
WTO Members to pursue their economic policies. Although the movement
of capital is largely confined to the domain of international financial or monetary
policy, it is regulated by WTO law due to its role in the process of
financial services liberalization, which generally requires liberalized capital
flows. From a legal perspective, the interplay between capital movements
and trade in services requires striking a delicate balance between the right
of market access and the parallel right of economic stability. Indeed, a liberalized
regime for capital movements could pose serious stability problems
during times of crisis. For this reason, it is necessary that Members are able
to derogate from their obligations and adopt emergency measures.
Regulating the movement of capital in the General Agreement on Trade in
Services (GATS) requires stretching the regulatory oversight of WTO law
over different aspects of international economic policy. Indeed, capital movements are a fundamental component of the balance of payments and have a
major role in shaping monetary, fiscal, and financial policies. This article will
analyze how the discipline provided by the GATS on capital movements will
affect not only trade in services, but also the Members’ policy space on
monetary and fiscal policy. The article will conclude that while the GATS offers enough policy space for the maintenance of financial stability, it does
not fully take into consideration the need of Members to control capital
movements in order to conduct monetary policies.
Original languageEnglish
Pages (from-to)581-619
Number of pages39
JournalJOURNAL OF INTERNATIONAL ECONOMIC LAW
Volume15
Issue number2
Publication statusPublished - 2012

Fingerprint

capital movement
liberalization
myth
WTO
Economic Policy
balance of payments
international economics
Law
fiscal policy
monetary policy
obligation
Capital movements
Liberalization
Trade in services
Capital account
market
economics
World Trade Organization
Economic policy
Monetary policy

Keywords

  • capital flow
  • capital movement
  • capital account
  • WTO Law
  • GATS
  • trade in services
  • capital controls

Cite this

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title = "Movement of Capital and Trade in Services: Distinguishing Myth from Reality Regarding the GATS and the Liberalization of the Capital Account",
abstract = "This article will analyze the interplay between capital movements and tradein services as structured in World Trade Organization (WTO) law, and it willassess the implications of the capital account liberalization for the freedom ofWTO Members to pursue their economic policies. Although the movementof capital is largely confined to the domain of international financial or monetarypolicy, it is regulated by WTO law due to its role in the process offinancial services liberalization, which generally requires liberalized capitalflows. From a legal perspective, the interplay between capital movementsand trade in services requires striking a delicate balance between the rightof market access and the parallel right of economic stability. Indeed, a liberalizedregime for capital movements could pose serious stability problemsduring times of crisis. For this reason, it is necessary that Members are ableto derogate from their obligations and adopt emergency measures.Regulating the movement of capital in the General Agreement on Trade inServices (GATS) requires stretching the regulatory oversight of WTO lawover different aspects of international economic policy. Indeed, capital movements are a fundamental component of the balance of payments and have amajor role in shaping monetary, fiscal, and financial policies. This article willanalyze how the discipline provided by the GATS on capital movements willaffect not only trade in services, but also the Members’ policy space onmonetary and fiscal policy. The article will conclude that while the GATS offers enough policy space for the maintenance of financial stability, it doesnot fully take into consideration the need of Members to control capitalmovements in order to conduct monetary policies.",
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AB - This article will analyze the interplay between capital movements and tradein services as structured in World Trade Organization (WTO) law, and it willassess the implications of the capital account liberalization for the freedom ofWTO Members to pursue their economic policies. Although the movementof capital is largely confined to the domain of international financial or monetarypolicy, it is regulated by WTO law due to its role in the process offinancial services liberalization, which generally requires liberalized capitalflows. From a legal perspective, the interplay between capital movementsand trade in services requires striking a delicate balance between the rightof market access and the parallel right of economic stability. Indeed, a liberalizedregime for capital movements could pose serious stability problemsduring times of crisis. For this reason, it is necessary that Members are ableto derogate from their obligations and adopt emergency measures.Regulating the movement of capital in the General Agreement on Trade inServices (GATS) requires stretching the regulatory oversight of WTO lawover different aspects of international economic policy. Indeed, capital movements are a fundamental component of the balance of payments and have amajor role in shaping monetary, fiscal, and financial policies. This article willanalyze how the discipline provided by the GATS on capital movements willaffect not only trade in services, but also the Members’ policy space onmonetary and fiscal policy. The article will conclude that while the GATS offers enough policy space for the maintenance of financial stability, it doesnot fully take into consideration the need of Members to control capitalmovements in order to conduct monetary policies.

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