Last week on The Interpreter Leon Berkelmans raised concerns over the Australian Government's ability to impose capital control measures in the context of the Trans-Pacific Partnership (TPP) Agreement. Dr Berkelmans argued that a carve-out for capital control measures contained in Article 29.3 of the TPP (Exceptions and General Provisions Chapter) does not go far enough in protecting governments from potential investor-state dispute settlement claims.
The TPP contains a specific additional safeguard protecting governments' ability to impose capital controls and other prudential measures, in the Financial Services Chapter. Article 11.11 of this Chapter provides that 'a Party shall not be prevented from adopting or maintaining measures for prudential reasons'.
'Prudential reasons' is defined to include 'the maintenance of the safety, soundness, integrity, or financial responsibility of individual financial institutions or cross border financial service suppliers as well as the safety, and financial and operational integrity of payment and clearing systems.'
Article 11.11 may be invoked as a defence in the unlikely event of a dispute over Australia's financial controls.
This provision, in combination with Article 29.3, which allows parties to impose temporary safeguard measures in the event, or threat, of serious balance of payments and external financial difficulties, provides ample scope for a country to impose capital control measures to protect its financial sector.
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