5 - The Multilateral Trade Framework

Summary

This chapter assesses the compatibility of capital controls and other CFMs with the multilateral trade framework; that is, the WTO’s GATS. The GATS contains several provisions that relate to controls and restrictions on services in general, and to financial services in particular. This chapter begins by setting out the framework for obligations in the GATS relevant to cross-border capital movements before explaining and evaluating the relevant exceptions. While the exceptions should in theory allow capital controls to be put in place in a manner that is consistent with the GATS, each of the exceptions contain uncertainties which, depending on how they are interpreted, could mean capital controls would fall outside the scope of the exceptions. Recent jurisprudence, however, should provide some comfort to governments seeking to make use of exceptions in the financial services sector, namely the so-called prudential exception. In this regard, the GATS should not be viewed as a major impediment to the implementation of CFMs implemented in good faith and for prudential reasons.