Latin American Trade Network Policy Brief #66, April 2011

Trading away financial stability: Capital controls and the US-Colombia trade agreement

By Kevin P. Gallagher

The Obama Administration is preparing to submit a reworked version of the US-Colombia Free Trade Agreement to Congress, along with two other agreements previously negotiated by the Bush Administration. In this LATN policy brief, Kevin Gallagher demonstrates that the agreement has not been reworked to reflect the need to ensure that nations have the ability to prevent and mitigate financial crises. Negotiated before the recent global financial crisis, the US-Colombia FTA does not grant Colombia the ability to deploy capital controls to manage the flows of speculative capital into and out of the country. Colombia has been successful at using such measures in the past, indeed as recently as 2007. As Gallagher argues, the growing economic consensus is that such policies are valuable and warranted, particularly in periods of financial instability. US trade and investment agreements should break with Bush-era policies, acknowledge the new economic consensus on capital controls, and allow US trading partners the right to avail themselves of such measures to ensure financial stability. As the recent crisis showed, it is in every country’s interest, including the United States’, to reduce the risk of financial contagion from speculative capital.

– Download “Trading Away Financial Stability”
– Read more on GDAE’s work on Capital Controls and Development
– See further publications from the Latin American Trade Network
– Follow the Capital Controls discussion on the Triple Crisis Blog
– Read more on GDAE’s Globalization and Sustainable Development Program