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

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