----- Forwarded Message -----
From: E R F <[email protected]>
To: [email protected]; [email protected]
Sent: Thursday, 9 February 2012, 5:27
Subject: [MacroScan] Sign-on: Economist statement on capital controls and the
Trans-Pacific trade agreement
Dear Economist,
We write to ask if you would sign the economist statement below asking
negotiators of the Trans-Pacific Partnership Agreement (TPPA) to grant nations
the flexibility to deploy capital account regulations to prevent and mitigate
financial crises.
We are seeking economist signatories from TPPA countries, Australia, Brunei,
Chile, Malaysia, Peru, New Zealand, and Vietnam.
If you are willing to sign, simply reply to [email protected] with your
name, title, and country and we will add you to the list.
Please feel free to circulate to others from these countries that you think
might be willing to sign. They can simply send their name, title, and country
to [email protected] as well.
Deadline for sign-ons: Friday, February 17.
The TPPA is what US President Barack Obama hails as a "21st Century Trade
Agreement" that improves upon and rectifies past problems in US trade and
investment treaties. Thus this is a particularly opportune time to weigh in,
as a major TPPA negotiation round will begin in Melbourne, Australia on March
1, 2012.
Since the financial crisis began, the Asian Development Bank, the United
Nations Economic and Social Commission for the Asia-Pacific, the International
Monetary Fund and others have all agreed that capital account regulations are
legitimate tools to buffer nations from volatile capital flows. However, the
U.S. government has used trade agreements to severely restrict a nation's
ability to deploy such regulations.
In January 2011, we organized a similar letter to the Obama administration
signed by more than 250 economists, urging a general reform of U.S. trade
policies with regard to capital controls. Treasury Secretary Timothy Geithner
responded by stating that the administration would “seek to preserve” current
policy since in his view governments have sufficient alternatives to capital
controls to deal with volatility.
This new economist letter is more specific to pending negotiations in a region
that has been susceptible to volatile capital flows and that has proven that
regulating such flows can contribute to stability and growth. In the wake of
the crisis, let us urge policy-makers in all TPPA countries to ensure that
nations have all the tools possible to prevent and mitigate future crises.
Additional background is available here. We would be happy to give you more
details about the TPPA and the relationship between trade deals and capital
account liberalization in general.
Sincerely,
Kevin P. Gallagher, Global Development and Environment Institute, Tufts
University, [email protected]
Sarah Anderson, Global Economy Project Director, Institute for Policy Studies,
Washington, DC, [email protected]
To be issued March 1, 2012
Hon. Craig Emerson, Trade Minister
Department of Foreign Affairs and Trade of Australia
H.R.H. Prince Mohamed Bolkiah, Minister
Ministry of Foreign Affairs and Trade of Brunei Darussalam
Hon. Alfredo Moreno Charme, Minister
Ministry of Foreign Affairs of Chile
Yb. Dato’ Sri Mustapa Bin Mohamed, Minister
Ministry of International Trade and Industry, Malaysia
Hon. Tim Groser, Trade Minister
Ministry of Foreign Affairs and Trade of New Zealand
Hon. Eduardo Ferreyros, Minister
Ministry of Foreign Trade and Tourism of Peru
Hon. Lim Hng Kiang, Minister
Ministry of Trade and Industry of Singapore
Amb. Ronald Kirk, Trade Representative
Office of the United States Trade Representative
Hon. Vu Huy Hoang, Minister
Ministry of Industry and Trade, Vietnam
Re: Promoting financial stability in the Trans-Pacific Partnership Agreement
Dear Trade Ministers,
We, the undersigned economists, write to you regarding the capital transfers
provisions in the proposed Trans-Pacific Partnership Agreement (TPPA). We are
concerned that if recent U.S. treaties are used as the model for the TPPA, the
agreement will unduly limit the authority of participating parties to prevent
and mitigate financial crises.
Nearly all U.S. free trade agreements (FTAs) and bilateral investment treaties
(BITs) strictly limit the ability of trading partners to deploy capital
controls – with no safeguards for times of crisis. A few recent U.S. trade
agreements put some limits on the amount of damages foreign investors may
receive as compensation for certain capital control measures. They also extend
the “cooling off” period before investors may file claims in international
tribunals. However, these minor reforms do not go far enough to ensure that
governments have the authority to use such legitimate policy tools.
Authoritative research published by the National Bureau of Economic Research,
the International Monetary Fund, and other institutions has found that limits
on short-term capital flows can stem the development of dangerous asset bubbles
and currency appreciations, and grant nations more autonomy in monetary
policy-making, and protect nations from the dangers of abrupt capital flight.
The U.S. government’s rigid opposition to capital controls does not reflect the
global norm. According to an IMF report, “Most BITs and FTAs either provide
temporary safeguards on capital inflows and outflows to prevent or mitigate
financial crises, or defer that matter to the host country’s legislation.
However, BITs and FTAs to which the United States is a party (with the
exception of NAFTA) do not permit restrictions on either capital inflows or
outflows.” Indeed, other TPP countries typically allow more flexibility in
their trade and investment treaties.
While capital controls and other capital management techniques are no panacea
for financial instability, there is an emerging consensus that they are an
important part of the macro-economic toolkit. Indeed, all G-20 leaders endorsed
the following statement at the 2011 Cannes Summit:
“Capital flow management measures may constitute part of a broader approach to
protect economies from shocks. In circumstances of high and volatile capital
flows, capital flow management measures can complement and be employed
alongside, rather than substitute for, appropriate monetary, exchange rate,
foreign reserve management and prudential policies.”
Increased financial stability is in the interest of businesses, working people,
and consumers in all TPPA parties. When one country falls into crisis, its
trading partners lose export markets. When one country cannot control financial
bubbles that drive up currency values, consumers in trading partner countries
may be hurt by rising prices on imported goods. When exchange rates are
unstable, long-term investors and businesses engaged in exporting or importing
face uncertainty.
Thus, we recommend that the TPPA permit governments to deploy capital controls
without being subject to investor lawsuits, as part of a broader menu of policy
options to prevent and mitigate financial crises.
We look forward to discussing these issues further. Please direct inquiries to:
Sarah Anderson, Institute for Policy Studies, [email protected]
Kevin P. Gallagher, Boston University, [email protected]
Sincerely,
_______________________________________________
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