Financial services (de-)regulation in trade agreements

Part 1: GATS 1994

  • First services trade agreement
  • Four modes of services trade
  • Most important: mode 3, investment
  • Market access and national treatment commitments via bottom-up approach
  • Commitments can not be changed without compensation

GATS 1994

  • Unfinished business:

Domestic regulation: disciplines qualifications, procedures, technical standards, licensing requirements

Rules: subsidies, gvt procurement, safeguards LDC modalities

Financial services negotiations continued until 1997 with 104 countries taking commitments (into force in 1999)

  • Built-in agenda of negotiations: GATS 2000

GATS 1994 on financial services

  • Market Access and National Treatment commitments on financial services in schedules
  • Annex on Financial Services
  • Understanding on Financial Services appended to Final Act of Uruguay Round

GATS 1994 on financial services

Market Access and National Treatment commitments on financial services in schedules

  • No limitations on the number of services providers and quantity or value of services provided
  • No limits on foreign ownership
  • No restrictions on specific types of legal entity Unless specified otherwise in schedules

No restrictions on payments and capital movements related to committed (financial) services (except in case of balance of payment problems)

GATS 1994 on financial services

Annex on Financial Services, contains:

  • Scope and definitions
  • Definitions of “services in exercise of government authority”: central banks, monetary authorities, statutory social security are excluded
  • Prudential carve out: “a self-cancelling loophole”

GATS 1994 on financial services

Prudential carve out “self-cancelling loophole”:

members can take measures for prudential

reasons to ensure protect investors, depositors etc or to protect the integrity and stability of the financial system

Where such measures do not conform with the provisions of the Agreement, they shall not be used as a means of avoiding the Member’s commitments or obligations under the Agreement

GATS 1994 on financial services

Understanding on Financial Services:

  • Between 33 mostly OECD countries (plus Nigeria and Sri Lanka)
  • Contains enhanced commitments, including:

Stand-still (only existing conditions allowed)

New services shall be permitted

Existing monopolies listed and endeavour to reduce

Remove “non-discriminatory” measures that would hinder foreign financial services

Mode IV senior staff connected with investment permitted

  • Actually constitutes a negative lists

GATS 1994 on financial services

  • Geared towards swift liberalisation, increased competition and concentration
  • Without prove that this will improve access to services in developing countries
  • Increased risk for instability (free movement of capital, payments and providers)
  • No regulation of financial services but reduction of policy space (“regulations are barriers to trade”)

Part 2:

Services negotiations in the DDA

  • GATS 1994 : broad built-in agenda, including market access negotiations within 6 years
  • GATS 2000
  • GATS 2000 integrated into DDA.
  • In DDA: most developing countries not keen on engaging without progress on development issues, NAMA and Agriculture
  • DDA stalled

Services negotiations in the DDA

  • Market access and national treatment
  • Domestic regulation
  • Rules
  • LDC modalities

Services negotiations in the DDA

Market access and national treatment

  • Request – Offer process, did not pick up
  • Attempts to break the bottom-up approach
  • Annex B in Hong Kong: “all to commit in 80% of sectors”; failed, but collective requests allowed
  • Chair’s text May 2008: “bind existing openness”, “no prior exclusion of sector or mode”

Services negotiations in the DDA

EU tabled 107 requests! (all leaked out)

  • Financial services, one of 5 key sectors: 94 requests on financial services, including 20 LDCs and 30 LICs
  • Some requests in financial services:
  • Increase foreign ownership
  • Remove licences for branches
  • Remove state monopoly on reinsurance

Services negotiations in the DDA

Some EU requests:

  • Allow foreign companies to provide financial services to state agencies
  • Allow foreign bans to have offshore banking licences
  • Remove requirement that money reserve must be held in branch Allow trade in derivative products Remove requirement of mandatory lending to SMEs

Services negotiations in the DDA

Collective or plurilateral request on financial services by 10 countries :

  • Bind all existing liberalisations
  • Market opening in Mode 3 in all financial services
  • Remove all foreign ownership restrictions

Services negotiations in the DDA

Domestic regulation

  • rules for the administration of licenses, qualifications and technical standards = all financial services regulation
  • To make sure they:

do not constitute “unnecessary barriers” to trade in services

“are not more burdensome than necessary”

are based on “objective and transparent criteria”

  • = “necessity test”: authorities must prove that regulation do not interfere with free trade “more than necessary”

Services negotiations in the DDA

Domestic Regulation

Is also about “transparency”:

  • Governements must publish proposals for new measures in advance
  • And allow opportunity for interested persons to comment => allow for lobby

Part 3: “going with the willing”, financial services in FTA’s

  • The DDA stalling, US and EU step up FTA negotiations
  • Financial services in EU FTA’s, so far in:

Cariforum EPA

EU-Korea

EU-Central America

EU-Colombia/Peru/Ecuador

EU-Singapore

EU-Canada

Presented by : Marc Maes, CSO Strategy Meeting on Advocacy Around Africa’s Trade and Development Challenges.

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