Financial Stability and the Trans‐Pacific Partnership: Lessons from Chile and Malaysia
| Author | Katherine Soverel,Ricardo Ffrench‐Davis,Kevin P. Gallagher,Mah‐Hui Lim |
| Published date | 01 November 2015 |
| Date | 01 November 2015 |
| DOI | http://doi.org/10.1111/1758-5899.12249 |
Financial Stability and the Trans-Pacific
Partnership: Lessons from Chile and
Malaysia
Ricardo Ffrench-Davis
University of Chile
Kevin P. Gallagher
Boston University
Mah-Hui Lim
Penang Institute
Katherine Soverel
Boston University
Abstract
There is growing recognition that nations may need to deploy cross-border financial regulations to prevent and miti-
gate financial crises. Indeed, in December 2012 the International Monetary Fund (IMF) agreed on a new ‘institutional
view’that notes how the IMF will begin to recommend that nations deploy cross-border financial regulations in the
future. However, many nations have become party to global, regional and bilateral trade and investment treaties that
may restrict their ability to deploy such regulations effectively. This article analyzes the cases of two countries currently
in negotiation over a Trans-Pacific Partnership Agreement (TPP): Chile and Malaysia. This article examines the extent to
which each nation has deployed cross-border financial regulations in the past, and the extent to which they have
negotiated the policy space for such regulations in its trade and investment treaties. Finally, this article analyzes the
degree to which such measures would be permitted if the TPP’s investment provisions looked like the model bilateral
investment treaty of the USA. We find that, with some important exceptions, both countries have successfully deployed
cross-border financial regulations and have carved out the ability to do so under the World Trade Organization (WTO)
and some regional commitments. However, such policy space would be jeopardized if the TPP conformed to the US
model rather than arrangements that each country has been able to broker in other arenas.
Policy Implications
•Policies for regulating global finance may be increasingly incompatible with global trade rules.
•The TPP is being negotiated in a region with a long history of financial instability and parties to the treaty should
be sure that nations have the flexibility to regulate cross-border finance.
•Traditional trade negotiators and policy makers in central banks and finance ministries need to have more dia-
logue. ‘Trade’is increasingly about financial services but is being negotiated by those with little expertise of finan-
cial matters.
•New institutions such as the Financial Stability Board should partner with trade institutions such as the WTO to
ensure compatibility between the twin goals of boosting world trade and maintaining financial stability.
In the wake of the global financial crisis, the regulation
of cross-border finance is justified now more than ever.
New advances in econometrics have shown that capital
account liberalization is not strongly associated with
growth in emerging markets and developing countries
yet tends to be associated with financial crises. New
©2015 University of Durham and John Wiley & Sons, Ltd. Global Policy (2015) 6:4 doi: 10.1111/1758-5899.12249
Global Policy Volume 6 . Issue 4 . November 2015
330
Research Article
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