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ENQUIRE PROJECT DETAILS BY GENERAL PUBLIC |
| Project Details |
| Funding Scheme : | General Research Fund | ||||||||||||||||||||||||||||||||||||
| Project Number : | 14613717 | ||||||||||||||||||||||||||||||||||||
| Project Title(English) : | When Regimes Clash on Capital Controls: Managing the Conflicting Norms and Standards of the IMF, WTO and International Investment Agreements | ||||||||||||||||||||||||||||||||||||
| Project Title(Chinese) : | 資本管制的法律制度碰撞：處理國際貨幣基金組織、國際貿易組織及國際投資協定間的規則和標準衝突 | ||||||||||||||||||||||||||||||||||||
| Principal Investigator(English) : | Prof Mercurio, Bryan | ||||||||||||||||||||||||||||||||||||
| Principal Investigator(Chinese) : | N/A | ||||||||||||||||||||||||||||||||||||
| Department : | Faculty of Law | ||||||||||||||||||||||||||||||||||||
| Institution : | The Chinese University of Hong Kong | ||||||||||||||||||||||||||||||||||||
| E-mail Address : | b.mercurio@cuhk.edu.hk | ||||||||||||||||||||||||||||||||||||
| Tel : | 26961095 | ||||||||||||||||||||||||||||||||||||
| Co - Investigator(s) : |
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| Panel : | Humanities, Social Sciences | ||||||||||||||||||||||||||||||||||||
| Subject Area : | Social and Behavioural Sciences | ||||||||||||||||||||||||||||||||||||
| Exercise Year : | 2017 / 18 | ||||||||||||||||||||||||||||||||||||
| Fund Approved : | 605,824 | ||||||||||||||||||||||||||||||||||||
| Project Status : | Completed | ||||||||||||||||||||||||||||||||||||
| Completion Date : | 31-12-2020 | ||||||||||||||||||||||||||||||||||||
| Project Objectives : |
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| Abstract as per original application (English/Chinese): |
香港會於未來的某些節點陷入資本管制方面的困境,而這種困境將會在以下兩組義務發生衝突碰撞時產生：香港簽訂的國際貿易協定和國際投資協定中規定的義務，和香港對中國和（或）國際貨幣基金組織的義務。 然而香港該採取何種措施來應對這一問題仍不明晰；同樣，香港的投資者在其他國家實施資本管制的背景下享有怎樣的權利也不明朗。 此次項目旨在解決這種困難而惱人的法律狀況，以期澄清歧義、為香港及投資者指明方向。 具體而言，此次專案將會研究貨幣流動方面的制度規則, 以期達到下述目標：第一，闡明在何種情況下，資本管制會和基於國際貿易協定、國際投資協定產生的國家義務相衝突；第二，研究含有保障措施條款的國際貿易協定和國際投資協定在多大程度上允許政府於發生危機時或在其他狀況下採取措施、保障穩定；第三，探析如果香港採取資本管制措施，其將承擔何種責任( 然而，這一情況發生概率很小) ，以及作為人民幣交易港，香港是否會因為其所採取的、中國的資本管制而必然導致的措施而需承擔違反國際貿易協定和國際投資協定的責任。 跨境貨幣流動對於國際金融，以及幫助世界各國壯大、發展、繁榮都至關重要，如今的問題在於，這一方面的制度既不統一，也不和任何組織的職責範圍完全契合。國際貨幣基金組織在過去年間逐漸掌握了維護全球金融市場穩定的權威，並大力支援開放及貨幣自由流動；但同時可能也催生了資本泡沫，幣值波動，以及突發的貨幣流入流出激增，而這些正是導致亞洲、俄羅斯、巴西、土耳其和阿根廷金融危機（1997-2001），以及全球金融危機（2008）的原因。 現在,國際貨幣基金組織意識到了貨幣自由流動的危害，並且在“機構觀點” （2012）中合法化了資本管制措施的使用， 將其稱之為“有用”及合法的對抗不穩定的工具，並且將其納入貸款和穩定項目。 然而這也造成了國際經濟法中金融、貿易和投資規則之間的緊張。 國際貨幣基金組織的要求可能會與國際貿易組織、自由貿易協定和（或）國際投資協定中的規則產生衝突。 國際貨幣基金組織意識到了其與現有法律制度的緊張與衝突，但令人震驚的是，它並未對之加以處理，而僅僅是呼籲其他組織和成員在未來起草協定時“考慮國際貨幣基金組織的觀點和立場”。這一建議對未來的協定有所裨益，但是並不能解決國際貨幣基金組織、國際貿易組織和其他超過3200份的協定之間的衝突。 此次專案會通過調查研究，來界定這一問題，並專注於香港由於其在人民幣貿易中扮演的獨特角色和與中國的特殊關係，而可能面臨的責任。 |
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| Realisation of objectives: | The project met all of the objectives set out in the revised proposal. The first three published works dealt with Objectives 1-3. The first, ‘Towards Convergence of Trade and Investment Law? A Right to take Prudential measures for the Preservation of Financial Stability’, laid the groundwork for the project. While existing literature debates whether and to what extent States should be allowed to take “prudential” regulatory measures in order to safeguard their financial systemic interests from serious threats of financial crisis, and more critically the conditions, necessity, timing, and length of such measures, there has been virtually no case law applicable to the subject matter. This article, and the second publication, ‘Regulating Tax Havens: Insights from the WTO Appellate Body Decision in Argentina – Financial Services’, evaluated and reviewed the only dispute involving financial services at the WTO. This case provided an opportunity to contribute to the doctrinal debate on prudential measures by drawing a parallel between trade and investment perspectives on the matter. Prior to these publications, no article had discussed the potential convergence between WTO case law and investment arbitral law on the issue of measures taken for prudential reasons relating to economic duress. Another output, entitled, ‘Liberalization Commitments, Financial Stability Safeguards and Capital Controls: The Evolution from GATS to TPP and Megaregional Trade Agreements’, traces and places the capital control debate into perspective by evaluating how the drafters of the most recent Free Trade Agreements (FTAs) managed the issue of necessary regulatory interference in times of economic, financial and monetary instability. More specifically, the article reviews the market access provisions of several FTAs relating to foreign financial service suppliers and focuses on the regulatory prudential safeguards or ‘carve-outs’ included in liberalization agreements to ensure that partner countries/members retain a certain freedom to regulate on financial stability matters, comparing an FTA provision to the GATS. The article also contributes to the literature in discussing the carve-out from a political perspective with a view to consider whether prudential measures will be relied upon in order to preserve financial stability or whether such provisions will in practice be ignored or untrusted. While at least one prominent political economist suggests that FTAs leave no room for capital controls aimed at preventing and mitigating financial crisis, this article reaches the opposite conclusion, finding that modern trade agreements leave significant room for regulatory exceptions, particularly in times of financial instability. Taken together these three articles largely fulfil Objectives 1 and 3, and touch upon Objective 2. Post-mid-term reporting period, two additional articles were published. The first, ‘The Legitimacy of Controlling Capital Flows Under International Economic Law During a Retreat from Globalization’, contributed to the fulfilment of Objectives 1-4 as it dealt with the right of governments to take capital controls to maintain financial stability and prevent or mitigate the effects of economic crises. The article serves as somewhat of an outline to the later monograph in that it directly engaged with IMF policy and the use of short-term and long-term controls implemented in Chile, Malaysia, Iceland and China before examining the consistency of selected controls with international rules. Ultimately, as with the earlier publications, the findings are that treaty language is a critical factor in determining the legality of a particular capital control under a trade or investment agreement. Having started to look to the fulfilment of Objective 4 in the previous article, the second article ‘Do Beijing’s Capital Controls Restrict Hong Kong?: Reality or Illusion’ fulfils Objective 4 by directly assesses Hong Kong’s potential liability as an RMB trading hub for the imposition of capital controls in China. The article provides an overview of Hong Kong’s policy on capital flows, its commitment to capital transfers in related trade and investment agreements, and its financial positioning in relation to the BRI. It then traces China’s gradual and steady policy of liberalizing its capital markets in recent years and after thorough examination concludes that although there is some risk it may be theoretical in nature and is unlikely that China’s capital controls will legally bind Hong Kong and affect its legal commitments. Indeed, Hong Kong stands to benefit from China’s continued liberalization, especially with increased regional unity stemming from the GBA, and can continue to capitalize on its unique advantages to connect China with other regions. Finally, and most importantly, work continued researching and drafting the monograph, Capital Controls and International Economic Law (CUP, forthcoming 2022). The book brings the existing work together and fulfils the first three project objectives (Objectives 1-3). The first 4 chapters introduce the concept of financial movements and capital controls before mobbing on to explore the legal foundation for the IMF’s mandate over capital controls. Here, and in accordance with Objectives 1 and 2, the research finds that while the Fund grounded its mandate shift and expansion on the text and wording of the Articles of Agreement, it did so by using a “byroad” which allowed the Fund to interpret its constitutive instrument and creatively use its legal instruments to escape the historical distinction between “capital movements” and “current international transactions”. The book then explores whether the Fund’s expansion in mandate is legally valid and legitimate. By looking at hard and soft law, the book concludes that the mandate expansion was in line with the standards of international law applicable to international organizations and thus the Fund can legally monitor and discipline capital movements. These chapters fulfil Objective 1 and set the stage for the fulfilment of Objectives 2 and 3 in the later chapters. Chapters 5-7 determine whether the Fund’s approach to capital controls conflicts with international economic law, namely the disciplines of trade and investment law. Through the negotiation of trade and investment agreements, countries agree to certain obligations and make specific market access commitments. While such agreements contain safeguards and exception clauses, the scope and depth of such clauses varies between agreements. This research found modern agreements negotiated included deep obligations but also broad safeguards and exceptions. In contrast, older treaties and those negotiated by numerous developing countries lack adequate safeguards and exceptions. For this reason, the Fund’s approach to capital controls may run afoul of the obligations and commitments undertaken in certain agreements. These chapters, in addition to the conclusions developed in Chapter 8, fulfil Objectives 2-3. The project also produced two short pieces for public dissemination, one was published by East Asia Forum and one by the Oxford Business Law Blog. These discussed various aspects of the research, most notably the potential for regime conflict between the IMF and various other strains of international economic law in line with Objectives 1-3. The project hosted a Workshop (covering Objectives 1-4) in November 2019. The workshop was held at the height of the Hong Kong protests and as several speakers were unable to travel to due to disruption at the airport the event was smaller than originally planned. The project was mainly doctrinal, desk based, but interviews were conducted with a range of officials and stakeholders in the North America, Europe and Asia. | ||||||||||||||||||||||||||||||||||||
| Summary of objectives addressed: |
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| Research Outcome | |||||||||||||||||||||||||||||||||||||
| Major findings and research outcome: | The major findings and research outcomes are as follows: (1) The IMF was not only to demonstrate how the IMF shifted its mandate to include authority over capital movements, but why it was legally entitled to do so. (2) The WTO’s GATS Agreement does not serve as an impediment to the implementation of capital controls, especially when supported by the IMF. (3) Modern properly drafted FTAs and international investment agreements are not an impediment to the implementation of CFMs, but that some risks remains due to older generation treaties and for countries continuing to negotiate without appropriate safeguards and exceptions. (4) The WTO and investment tribunals have interpreted exception clauses broadly, fairly and reasonably (5) There seems to be a convergence between WTO and International Investment law in this area of the law (6) Capital controls taken in accordance with IMF recommendations or guidance are unlikely to conflict with modern trade and investment agreements The main conclusion coming from this analysis is that the risk of international economic law instruments constraining governments from using capital controls as part of their policy toolkit has been overstated. Not only can modern treaties be drafted in such a manner so as to restrict investor protections and governmental obligations through targeted treaty language and the use of safeguards and exceptions, but both investment tribunals and the WTO panel/Appellate Body have demonstrated an awareness and appreciation of broader, societal interests and in the main avoided interpreting the relevant treaties in a narrow and constricting manner. The main risk lies with free trade agreements and international investment agreements that do not incorporate modern drafting techniques which limit or condition State obligations and provide for a wide range of safeguards and exclusions to ensure that legitimate capital controls do not run afoul of treaty obligations. In this regard, I agree with the IMF that “the limited flexibility afforded by some [trade and investment agreements] in respect to liberalization obligations may create challenges for the management of capital flows”, and call upon governments not only to be mindful of the issues discussed in this book when negotiating new agreements but also to seek to revise older agreements to provide for more and better protection as a safeguard should they desire or need to employ controls in the face of financial turmoil and crisis. | ||||||||||||||||||||||||||||||||||||
| Potential for further development of the research and the proposed course of action: |
Research in this area remains ongoing, and trade and investment tribunals should be carefully watched to see if the trend of interpreting obligations fairly narrowly and exceptions broadly continues. Moreover, there is scope to improve the treaty practice of numerous countries, most of which are developing countries, that have not incorporated modern safeguards and exceptions into their trade and investment agreements. Finally, further development and impact could be gained by presenting this information to governments and having them re-evaluate older generation treaties with a view to updating them in a manner which better protects governments that may seek to maintain and preserve financial stability in times of financial crisis. | ||||||||||||||||||||||||||||||||||||
| Layman's Summary of Completion Report: | This project addresses the regulation of capital movements and has three aims: (i) determine under what circumstances capital controls conflict with state obligations under trade and/or investment agreements; (ii) consider the extent trade/investment agreements include safeguards enabling governments to preserve stability in times of crisis or otherwise; and (iii) assess Hong Kong’s liability should it initiate capital controls and whether it might be liable under trade/investment agreements for China's controls. The main conclusion is that the risk of international economic law instruments constraining governments from using capital controls as part of their policy toolkit has been overstated. While capital controls conflict with state obligations under trade and/or investment agreements, modern drafting techniques can restrict investor protections and governmental obligations through targeted treaty language and the use of safeguards and exceptions. That being said, numerous trade and investment agreements do not incorporate modern drafting techniques. Hong Kong's treaties are modern, and its risks from the issuance of capital controls locally or in Beijing are minimal. As financial crisis is a recurring feature of the modern economy, and as more countries are agreeing to the liberalisation of trade and investment, the findings are significant and could help shape the future generation of treaties. | ||||||||||||||||||||||||||||||||||||
| Research Output | |||||||||||||||||||||||||||||||||||||
| Peer-reviewed journal publication(s) arising directly from this research project : (* denotes the corresponding author) |
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| Recognized international conference(s) in which paper(s) related to this research project was/were delivered : |
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| Other impact (e.g. award of patents or prizes, collaboration with other research institutions, technology transfer, etc.): |
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| SCREEN ID: SCRRM00542 |