gats and financial services: current state of play and the doha agenda
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GATS and Financial Services: Current State of Play and the Doha Agenda. Dr Apostolos Gkoutzinis, Lecturer in Financial Law, SOAS, University of London. Summary. Introduction The GATS Framework of Financial Services Negotiations - PowerPoint PPT PresentationTRANSCRIPT
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GATS and Financial Services: Current State of Play and the Doha Agenda
Dr Apostolos Gkoutzinis,
Lecturer in Financial Law,
SOAS, University of London
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Summary
Introduction The GATS Framework of Financial
Services Negotiations The Current State of Play regarding
financial services commitments (1997 Agreement)
The Doha Agenda and Current Developments
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Financial Liberalization in Action Geneva, November 2004: WTO Members
express anxiety over China’s decision to limit foreign ownership of Chinese banks to 25% of equity capital
Rome, 2005: The Bank of Italy openly discourages the otherwise inevitable takeover of Italy’s 9th largest bank by the Dutch ABN Amro. According to the Italian press, the government and the BoI agree that a total foreign participation of 15% is more than enough for the Italian banking system
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FDI in the Financial Sector Developed countries still the largest exporters of
financial services Developing countries still predominantly “host
countries” to foreign financial institutions In 29 developing economies, foreign banks account for
more than 70% of assets Foreign banks account for:
46% of assets in the UK20% of assets in the US8.5% of assets in Spain6.7% of assets in Japan5.7% of assets in Italy4.3% of assets in Germany
How Important is the Regulatory Treatment?
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Financial Liberalization: Tracks of Legal Reform Unilateral Liberalization (genuine policy
initiative or under external pressure conditionality eg South Korea)
Bilateral Liberalization on the basis of bilateral investment or trade agreement
Multilateral regional: the Internal Market pillar of the EU, NAFTA
Multilateral with global reach: GATS in the context of WTO
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The Elements of Legal Reform
Removal of direct and discriminatory barriers to market access and national treatment (EC Treaty, NAFTA, GATS)
Removal of indirect and collateral trade restrictions by way of regulatory reform such as harmonization, mutual recognition, requirements of proportionality, transparency etc (EU and to a much lesser extent GATS- “prudential carve-out”)
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The Complexity of Financial Services Negotiations Amalgamation of Foreign Direct Investment,
Capital Account Liberalization and Immigration (different barriers, liberalization strategies, economic considerations and political sensitivities)
The collateral trade effects of financial and monetary regulatory standards (eg Glass-Steagall and interstate branching in the US)
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GATS and Financial Services
Multilateral framework of principles and rules
Specific national commitments for market access and national treatment
Regulatory autonomy unimpaired
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Inherent and Structural Limitations in the GATS Process
Trade in services, a poorly understood concept, was not included in international trade and policy debate and negotiations until after the early 1980s
Barriers to financial services trade more effective and diffused than tariffs and quotas
Collateral trade effects of innocent regulations Substantive negotiations involved one sector at a time,
preventing cross-sectoral trade-offs Lack of a single external voice and tension among trade
ministries and finance ministries/central banks/regulators “positive list” approach in scheduling national commitments
(complexity and lack of technical capacity) Great divide among ‘developed’ and ‘developing’ countries’
trade interests and comparative advantage
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The Current State of Play
148 WTO members Fifth Protocol to the GATS: Financial Services
Agreement (December 1997) 140 WTO members with commitments of MFN
in financial services 108 WTO members with commitments of
national treatment and market access in financial services
Mode 2: good progress Mode 3: far deeper liberalization than mode 1 (which remains one
of the Doha challenges)
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“Understanding on Commitments in Financial Services” Endorsed by 37 WTO members (mostly
developed countries) A smaller group of OECD countries wanted more Full liberalization for mode 2 Foreign financial institutions can provide services to public
sector entities Full market access for mode 3 (including participation to
payment and clearing systems, organized securities markets, self-regulatory organizations)
“endeavor” to remove or limit effects of non-discriminatory measures with collateral trade effects
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Market Access and National Treatment (in general)
on average high and medium income countries scheduled the most advanced commitments
Commitments analogous to financial sector development
Emerging market economies: With few exceptions (eg Malaysia and Mexico), limited “fresh” liberalization
Either scheduled existing practices (Argentina, Brazil, Chile, India, Indonesia, Thailand)
or less than what they actually practice (Philippines: 51% foreign participation against 60% actual)
Extensive grand-fathering provisions
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Remaining Barriers
“positive list” approach ‘economic needs’ test: eg USA, Portugal, Egypt,
Malaysia, Singapore, Sri Lanka, Chile, India Moratorium on new charters: Brazil, Malaysia Limits on foreign investment in domestic
institutions: Ghana, India, Korea, Malaysia, China Limits on branching: a large number of countries Limits on permissible activities of foreign banks:
eg Vietnam, China Higher regulatory requirements and other
disadvantages for foreign branches: large number of countries
Transparency Deficit and Tax Disadvantages: large number of countries
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Broad Assessment
Ongoing process of negotiations resulting in legally binding commitments
Elimination of a substantial number of direct barriers
Broad participation which keeps expandingBUT Many countries remain unbound Little progress in mode 1 Few instances of going beyond the status quo ‘positive list’
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Remaining issues
Binding more services and modes of supply Eliminating existing limitations and exemptions Clarification of difference between modes 1 and 2, with special
regard to e-banking Commitments in mode 1 can be bolder Vast scope for improvement in developing countries Simplify the institutional framework Adopt a ‘negative list’ Eliminate gaps between commitments and actual practices Clarify the prudential carve-out Adopt a standstill provision Automatic incorporation of unilateral commitments (eg South
Korea) Relationship between “regulatory initiatives” (eg Basel) with
“liberalization initiatives” (WTO) : Some of these items are already in the Doha agenda (eg
improvements on the scope and scale of commitments)
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DOHA: A Brief Introduction In-built “GATS obligation” to resume
negotiations in 2000 Doha (Qatar), November 2001:
Ministerial Declaration incorporates services in the new round of trade negotiations
Several deadlines missed Hong Kong, China, December 2005
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DOHA and Financial Services
Progress sporadic and disappointing “Offers” limited in number and poor in quality A mere 11 WTO members tabled initial or revised offers
Turkey, Chile, EC, Liechtenstein, USA, Japan, Norway, Canada, Australia, New Zealand and Iceland
Apparent that these jurisdictions are already coming from strong positions and are close to exhausting the room for further GATS-related improvements
The crucial developing and emerging market countries remain silent and wait…
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The EU 2005 Revised Offer: An Interesting Approach Requests for financial services commitments to 85
WTO members Requests tiered according to level of financial
development Requests in sectors that involve little or no capital
movements For financially developed countries, requests for
endorsing the “Understanding” For poorer countries, very modest requests For LDCs, two out of five sectors (telecommunications,
construction, financial services, transport and environmental services)
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Concluding remarks
Progress has been made but political will for further liberalization will be tested
Trade effects of financial regulation: the elephant in the room
Non-WTO avenues of liberalization on the rise: US/EU regulatory dialogue, bilateral treaties, regional arrangements