February 25, 2016

Would the MAC be Legal under America's Bilateral Investment Treaties (BITs)?

Would the proposed Market Access Charge (MAC) be legal under America's Bilateral Investment Treaties (BITs). The answer is simple: Yes.

BITs generally follow a standard model, and the language in the model provided by USTR on its web site imposes absolutely no barrier to implementing a Market Access Charge (MAC). The relevant sections are Articles 3, 4, and 5. These deal respectively with:
  1. National Treatment
  2. Most-Favored-Nation Treatment
  3. Minimum Standard of Treatment 
The MAC was designed to be totally non-discriminatory in terms of nationality of investor in order to comply with these provisions.

Moreover, Article 20 on Financial Services leaves absolutely no doubt of the MAC's legality under Bilateral Investment Treaties. This article provides that:

Nothing in this [Bilateral Investment] Treaty applies to non-discriminatory measures of general application taken by any public entity in pursuit of monetary and related credit policies or exchange rate policies. …  
For purposes of this provision, “public entity” means a central bank or monetary authority of a Party.

The MAC was specifically designed to conform with these standard BIT provisions as well as with the IMF guidelines for acceptable capital flow management tools. The MAC is also consistent with both WTO/GATT guidelines, which focus largely on current account rather than financial account trade, and with the OECD guidelines, which closely parallel those of the IMF.

The main reason that the MAC passes all of these tests is that, unlike most solutions currently being proposed for solving America's trade deficits, the MAC applies in an absolutely even-handed manner regardless of country of origin, type of owner, declared purpose, etc.

In conclusion, the Market Access Charge (MAC) approach is fully legal under both the language and the intent of existing US and international law.

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