Policy Space to Prevent and Mitigate Financial Crises in Trade and Investment Agreements
Do nations have the policy space to deploy capital controls in order to prevent and mitigate financial crises? This paper examines the extent to which measures to mitigate this crisis and prevent future crises are permissible under a variety of bilateral, regional and multilateral trade and investment agreements. It is found that the United States trade and investment agreements, and to a lesser extent the WTO, leave little room to manoeuvre when it comes to capital controls. This is the case despite the increasing economic evidence showing that certain capital controls can be useful in preventing or mitigating financial crises. It also stands in contrast with investment rules under the IMF, OECD and the treaties of most capital exporting nations which allow for at least the temporary use of capital controls as a safeguard measure. Drawing on the comparative analysis conducted in the paper, the author offers a range of policies that could be deployed to make the United States investment rules more consistent with the rules of its peers and the economic realities of the 21st century.
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