REVIEW OF CAPITAL FLOW REGULATION UNDER THE ETHIOPIAN BITS IN LIGHT OF THE IMF’S ARTICLES AND GATS: IMPLICATION ON ETHIOPIA’S ACCESSION TO WTO

Abstract

While the freedom to move capital is necessary for foreign investors, the power of the state to regulate capital transfer is necessary to prevent volatile capital from causing financial crises as well as to mitigate such crises when they occur. Thus, in regulating capital flow, a balance should be made between the right to transfer funds and the state’s right to protect the stability of its economy. This study is to examine the extent to which measures to mitigate the crisis and prevent future crises are permissible under Ethiopian bilateral investment treaties(BIT) when compared with International Monetary Fund’s Articles and General Agreement on Trade in services (GATS) rules and its implication on Ethiopia’s accession to World Trade Organization (WTO). It is found that the Ethiopian bilateral investment treaties, unlike the International Monetary Fund’s Articles and General Agreement on Trade in services rules , leave little room when it comes to capital flows regulation. This is the case despite the increasing economic evidence showing that certain capital controls can be useful in preventing or mitigating economic crises. It also stands in contrast with rules under the International Monetary Fund’s Articles and General Agreement on Trade in services rules that majority of Ethiopian BITs allow for free transfer of capital without any restriction. Therefore, drawing on review analysis conducted in the study, the thesis suggests a range of policies that could be deployed to make the Ethiopian bilateral investment treaties more consistent with the International Monetary Fund’s Articles and General Agreement on Trade in services rules.