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Global Financial Reform & Trade Rules: The Need for Reconciliation

By Kevin P. Gallagher and Leonardo E. Stanley

Next week the World Trade Organization (WTO) will consider a proposal by Ecuador and others that WTO members undertake a discussion about the relationship between the financial regulatory reforms and global trade rules. This new policy brief suggests that such a discussion is urgently needed so as to ensure that efforts to re-regulate global finance in the wake of the financial crisis are not constrained by trade commitments.

Dockside cranes in CyprusThis new policy brief synthesizes the key findings of a task force of experts that met in Argentina this summer to conduct a “compatibility review” regarding the extent to which nations have the flexibility to regulate cross-border finance under global trade and investment rules.

As noted in the policy brief, the task force shows that there are a number of incompatibilities between the ability to regulate cross-border finance and disciplines under the World Trade Organization (WTO) and the myriad ´free trade agreements´(FTAs) and bi-lateral investment treaties (BITs) that many nations have agreed to over the past decade.

In general, the review found that FTAs and BITs are far more incompatible with the ability to regulate cross-border finance than is the WTO regime and proposes a number of remedies to reconcile such incompatibilities at the WTO and beyond.

The policy brief was written by Boston University professor and GDAE research associate Kevin P. Gallagher, along with Leonardo Stanley from the Center for the Study of State and Society (CEDES) in Argentina. The brief synthesizes discussions held at a meeting of the Task Force on Regulating Global Capital Flows held at CEDES earlier this year. The Task Force is a collaboration between the Global Economic Governance Initiative at Boston University’s Pardee Center, the Global Development and Environment Institute at Tufts University (GDAE), the Initiative for Policy Dialogue at Columbia University, and the Center for the Study of State and Society (CEDES) in Argentina.

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This article reprinted here with permission.