GATS Disciplines on Capital Transfers and Short-term Capital Inflows: Time for Change?

The article examines General Agreement on Trade in Services (GATS) disciplines on capital transfers in light of the challenges stemming from massive surges of short-term capital. It identifies circumstances where the Agreement outlaws controls on capital inflows that are necessary for maintaining the recipient’s country monetary and exchange rate stability. It also identifies circumstances where the Agreement allows controls on capital inflows that confer a trade advantage to the recipient country by preventing the appreciation of an undervalued exchange rate. The findings suggest the Agreement fails to secure an adequate balance between trade liberalization, capital mobility and macroeconomic and financial stability. The article argues that the problem is aggravated by the differences between GATS and IMF disciplines on capital transfers and offers some thoughts on ways to improve the lack of coherence of the current global economic governance structure related to cross-border capital flows.