Losing Control: Policy Space to Prevent and Mitigate Financial Crises in Trade and Investment Agreements

Abstract

This article examines the extent to which measures to mitigate the current financial crisis and prevent future crises are permissible under a variety of bilateral, regional and multilateral trade and investment agreements. US trade and investment agreements, and, to a lesser extent, the World Trade Organization, leave little room to manoeuvre with capital controls, despite increasing evidence that certain controls can prevent or mitigate crises. Investment rules under the treaties of most capital-exporting nations allow for at least the use of temporary controls as a safeguard measure. The article offers a range of policies that could be deployed to improve US investment rules.

Ruling capital: emerging markets and the reregulation of cross-border finance

“…Some of these countries, to varying degrees could be classified as neodevelopmental states or, at least, a hybrid version of developmental states and neoliberal approaches that to some degree are trying to reembed markets (Ban 2013a;Gallagher 2012). As pointed out in chapter 5, these nations (especially Brazil) house many important interest groups that saw the threat of export decline due to exchange rate appreciation and supported national efforts on capital controls after the global financial crisis.…”

“…In institutions such as the WTO where final decision is by consensus vote, however, outcomes are largely determined by market power. When the industrialized world made up three-quarters of the world economy, negotiations were largely over what conditions the industrialized world put on access to those large markets (see Gallagher 2013). Nations, such as Brazil, that had the domestic conditions of countervailing power in place have flourished in global economic governance institutions where they have a more equal share in voting and decision making.…”

“…Such a view was not held by all EMDs, however. Many EMDs had elected political parties and appointed economic policymakers who shared the Washington Consensus view of global economic policy and had been trained in new classical economics (Gallagher 2013).…”

“…Political space refers to the power of states to act given a convergence of parties and interest groups, institutions, and ideas on a desired policy output. Policy space refers to the flexibility of international institutions to allow sovereign states to deploy and coordinate desired policy outputs (Gallagher 2005; UN Conference on Trade and Development [UNCTAD] 2012b).…”

Globalization, Inequality & International Economic Law

“…We need to reform international economic rules and institutions where they exacerbate inequality, in areas such as trade and investment, 31 tax law (Benshalom 2009;Repetti 2008), IMF and World Bank lending (Garcia 2008), global finance (Buckley et al 2016), resource and borrowing privileges 26 See, e.g., (Stiglitz 2007), discussing the anomalies created by liberalizing capital flows while resisting freer movement by labor, especially unskilled labor. 27 ((United Nations Conference on Trade and Development(UNCTAD) 2014)), hereinafter UNCTAD; (Gallagher 2011), WTO and US trade and investment regulation leave little room for policy space. 28 The justifiability (or not) of inequality is also central to theological reflection on the problem of inequality (see footnote 18), for example within Catholic social thought.…”