Abstract
For the financial services sector, the World Trade Organization (“WTO”) provides, for the first time, a high-level multilateral forum in which the primary goal is to reduce or eliminate trade barriers in order to promote competitive markets and thereby support economic growth and development. The new prominence of this goal at the multilateral level complements the intensive work on strengthening domestic financial systems that is taking place in a variety of other international fora, ranging from the International Monetary Fund (“IMF”) to specialized bodies such as the Basel Committee on Banking Supervision.1 This work includes promoting cooperation and coordination among financial supervisors and setting voluntary—but widely accepted—international minimum standards and codes of good practices.2 It also includes IMF and World Bank “surveillance” of domestic financial systems, which, inter alia, involves monitoring and helping to build institutional capacity for implementation of the international standards and codes.3
The views expressed by the author in this chapter should not be interpreted as representing the views of the Board of Governors of the Federal Reserve System or anyone else on its staff. This chapter is adapted from two of the author’s previous works: Financial Services in the Uruguay Round and The WTO (Occasional Paper 54, Group of Thirty, 1997); and The Doha Round and Financial Services negotiations (AEI Press, 2003) <www.aei.org/book456>.
The Basel Committee on Banking Supervision (“Basel Committee”), which was established in 1975 in the aftermath of the failure of Bankhaus Herstatt in what was then West Germany, includes central banks and non-central bank authorities responsible for banking supervision from the Group of 10 (“G-10”) countries plus Luxembourg and Spain; its secretariat is provided by the Bank for International Settlements. The G-10 actually comprises eleven countries: Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom and the United States. Besides the IMF, the G-10, and the Basel Committee, other international fora involved in efforts to strengthen domestic financial systems include the Group of Seven (G-7), the Group of Twenty (G-20), the Financial Stability Forum, the International Organization of Securities Commissions and the International Association of Insurance Supervisors. See IMF, A Brief Guide to Committees, Groups, and Clubs: A Factsheet <www.imf.org/external/np/exr/facts/groups.htm> (accessed Apr. 2003). For additional information on the Basel Committee, see <www.bis.org/bcbs/index/htm> (accessed Apr. 2003).
International minimum standards and codes of good practices have been established in three broad areas that are of critical importance for sound financial systems: (1) transparency of macroeconomic policy and data; (2) institutional and market infrastructure, which includes insolvency, corporate governance, accounting, auditing, market integrity and functioning, and payment and settlement systems; and (3) prudential regulation and supervision, which covers both financial firms and regulatory and supervisory systems. See Financial Stability Forum, Compendium of Standards <www.fsforum.org/compendium/about.html> (accessed Apr. 2003).
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References
See Sydney J. Key, The Doha Round and Financial Services Negotiations (AEI Press, 2003), for a brief overview of international efforts to strengthen domestic financial systems. See also Financial Stability Forum, Compendium of Standards, supra note 1; Ongoing and Recent Work Relevant to Sound Financial Systems, Semiannual Status Report (Apr. 2003) <www.fsforum.org/publications/Ongoin0304.pdf>; and IMF, Standards and Codes <www.imf.org/external/standards/index.htm> (accessed Apr. 2003).
SeeMasami Chikono, Patrick Low, Mukela Luanga, Aaditya Mattoo, Maika Oshikawa, and Ludger Schuknecht, Opening Markets in Financial Services and The Role of The Gats (WTO 1997); Wendy Dobson and Pierre Jacquet, Financial Services Liberalization in The WTO (1997); Stijn Claessens, Asli Dermirgüç-Kunt, and Harry Huizinga, How Does Foreign Entry Affect the Domestic Banking Market?, World Bank Policy Research Working Paper 1918 (1998); Stijn Claessens and Tom Glaessner, Internationalization of Financial Services in East Asia, paper presented at Conference on Investment Liberalization and Financial Reform in the Asia-Pacific Region, Sydney, Australia (Aug. 1997); Ross Levine, Foreign Banks, Financial Development, and Economic Growth, in Harmonization Versus Competition: International Financial Markets (Claude E. Barfield ed. 1996); World Trade Organization, Financial Services: Communication from the United States, S/CSS/W/27 (Dec.18, 2000).
See Sydney J. Key, Financial Services in the Uruguay Round and The WTO (Occasional Paper 54, Group of Thirty, 1997), for a discussion of why cross-sectoral trade-offs involving financial services did not occur.
See Jeffrey Shafer and Jeffrey Lang, In Defence of a Modest Outcome, Fin. Times, Jul. 25, 1995; for an EU perspective, see Leon Brittan, Why Apathy Must not Prevail, Fin. Times, June 19, 1995.
See U.S. Department of the Treasury, National Treatment Study 1994 at 95–98 (1994).
See Roger Kampf, A Step in the Right Direction: The Interim Deal on Financial Services in the GATS, 1 Int’L Tradel. & REG. 157, 159 (1995), and U.S. Department of the Treasury, National Treatment Study 1998 at 113 (1998).
In contrast, the MFN exemption taken by the United States at the end of the Uruguay Round negotiations in December 1993 covered only banking and other financial services excluding insurance (see supra Part II.A). Even though the initial schedules of commitments of countries participating in the Uruguay Round negotiations had entered into force on January 1, 1995, special rules for MFN exemptions adopted for the extended financial services negotiations permitted WTO members to submit revised schedules of commitments and lists of MFN exemptions during a three-month period that ended on July 28, 1995. See GATS, Second Annex on Financial Services; Ministerial Decision on Financial Services, supra note 16; and WTO Council for Trade in Services, Decision on the Application of the Second Annex on Financial Services, S/L/6 (Jul. 4, 1995).
The results of the interim agreement on financial services are reflected in the Second Protocol to the General Agreement on Trade in Services S/L/11 (Jul. 24, 1995); WTO Ministerial Decision adopting the Second Protocol to the General Agreement on Trade in Services, S/L/13 (Jul. 24, 1995); WTO Council for Trade in Services, Decision on Commitments in Financial Services, S/L/8 (Jul. 24, 1995) and Second Decision on Financial Services, S/L/9 (Jul. 24, 1995). See Kampf, supra note 18, and Kenneth Freiberg, Introductory Note—World Trade Organization: Second Protocol to the General Agreement on Trade in Services (GATS) and Related Decisions, 35 International Legal Materials 199 (1996).
Capital movements comprise international capital transactions—that is, the creation, transfer of ownership, or liquidation of capital assets, including financial assets—and the payments and transfers associated with such transactions. Capital assets comprise intangible assets (which, in addition to financial assets, include intellectual property) and real estate. A capital transaction is considered “international” if it takes place between a resident and a nonresident. A broader definition of “international” includes transactions between residents of the same country that involve a foreign capital asset. See International Monetary Fund, Balance-of-Payments Manual (5th ed., 1993).
Under standard balance-of-payments accounting, however, even if the earnings of the subsidiary were reinvested, they would be regarded as additional foreign direct investment by the parent in the subsidiary. See International Monetary Fund, supra note 28, and U.S. Department of Commerce, The Balance of Payments of The United States: Concepts, Data Source, and Estimating Procedures (1990).
The IMF Articles of Agreement do not include liberalization of capital movements as an objective; moreover, if necessary, they allow the imposition of capital controls. Even under the existing articles, however, the Fund is heavily involved with capital movements as part of its responsibility for oversight of the international monetary system, in its routine surveillance of economic policies of its members (so-called Article IV surveillance), and in its stabilization programs, which, subject to conditions, provide financing for balance-of-payments purposes. As the Asian financial crisis of 1997–98 was developing, active consideration was being given to amending the IMF Articles of Agreement to extend its formal jurisdiction with respect to capital movements. The crisis made these discussions more difficult, and work on amending the articles was discontinued. See Stanley Fischer, Richard N. Cooper, Rudiger Dornbusch, Peter M. Garber, Carlos Massad, Jacques J. Polak, Dani Rodrik, and Savak S. Tarapore, Should the IMF Pursue Capital-Account Convertibility? (Princeton Essays Int’l Fin. 207, 1998); Francois Gianviti, The International Monetary Fund and the Liberalization of Capital Movements, in Current Dev. Monetar & Fin. L. (International Monetary Fund, 1999); Sean L. Hagan, The Design of the International Monetary Fund’s Jurisdiction over Capital Movements, in Current Dev. Monetary and Fin. L. (International Monetary Fund, 1999); William E. Holder, Fund Jurisdiction over Capital Movements, 5 ILSA J. Int’L & Comp. L. 407 (1999); Ross B. Leckow, The Role of the International Monetary Fund in the Liberalization of Capital Movements, 17 Wis. Int’L. L. J. 515 (2000).
The provisions in the Annex on Financial Services and the Understanding on Commitments in Financial Services (see infra Appendix A) emerged from a text developed by an informal group of finance officials from Canada, the EU, Japan, Sweden, Switzerland, and the United States. The group had initially gathered to discuss how financial services should be handled in the GATS and was known as the “Fu Lung group” after the restaurant where its first meeting was held in September 1989. In 1990, the group was broadened to include selected Asian, Eastern European, and Latin American countries. Finance officials from the United States had initially envisaged the Fu Lung text as a financial services agreement that would be separate from the GATS framework agreement. However, the idea of a separate agreement for financial services was unacceptable to trade officials, both in the United States and other countries. It was also opposed by finance officials in some countries and by the U.S. financial services industry. See Key, supra Sydney J. Key, Financial Services in the Uruguay Round and The WTO (Occasional Paper 54, Group of Thirty, 1997) note 10, at 18–19.
GATS, Annex on Financial Services, ¶5
Id.
See U.S. Dept. of the Treasury and Board of Governors of the Federal Reserve System, Subsidiary Requirement Study (1992).
GATS, Annex on Financial Services, ¶3.
GATS, Annex on Financial Services, ¶ 4. As of May 1, 2003, there had been no dispute settlement proceeding and no request for consultation on a financial services issue.
Uruguay Round Trade Negotiations Committee, Ministerial Decision on Certain Dispute Settlement Procedures for the General Agreement on Trade in Services, ¶ 4.
GATS, Annex on Financial Services, ¶ 5 (for the text, see infra Appendix B).
See GATS, Annex on Financial Services, ¶ 5. See also United Nations Conference on Trade and Development and World Bank, Liberalizing International Transactions in Services: A Handbook (1994), Obie G. Whichard, Measurement and Classification of Services Sector Activity: Data Needs for GATS 2000, in Robert M. Stern, ed. Services in the International Economy (2001), and World Trade Organization, Financial Services: Background Note by the Secretariat (1998).
GATS, Annex on Financial Services, ¶ 5.
GATS, Annex on Financial Services, ¶ 1.
The Fifth Protocol to the GATS provides for the annexation of the financial services commitments agreed upon in December 1997 to the Uruguay Round services schedules of commitments and for any revised lists of MFN exemptions to replace the previous list of MFN exemptions for financial services (see supra note 21 regarding special rules governing MFN exemptions in the 1997 negotiations). For WTO members that participated in the 1997 negotiations but accepted the Fifth Protocol after March 1, 1999, commitments entered into force upon acceptance. The protocol initially remained open for acceptance until July 15, 1999; it was reopened for acceptance by Costa Rica and Nicaragua in late 1999; by Ghana, Kenya, and Nigeria in 2000, and by Bolivia in 2002. As of May 1, 2003, commitments made by six of the countries participating in the 1997 negotiations—Brazil, the Dominican Republic, Jamaica, the Philippines, Poland, and Uruguay—had not entered into force because they had not yet accepted the Fifth Protocol. See World Trade Organization, Fifth Protocol to the General Agreement on Trade in Services, S/L/45 (Dec. 3, 1997); Committee on Trade in Financial Services, Decision Adopting the Fifth Protocol to the General Agreement on Trade in Services, S/L/44 (Dec. 3, 1997); Communication from Members which have accepted the Fifth Protocol to the General Agreement on Trade in Services, S/L/67 (Feb. 15, 1999); and Council on Trade in Services, Decision on Acceptance of the Fifth Protocol to the General Agreement on Trade in Services, S/L/68 (Feb. 15, 1999). See also World Trade Organization, Council on Trade in Services, Decision on the Acceptance of the Fifth Protocol, S/L/76 (Oct. 21, 1999), Second Decision on the Acceptance of the Fifth Protocol, S/L/87 (June 8, 2000), Third Decision on the Acceptance of the Fifth Protocol, S/L/89 (Dec. 17, 2000), Fourth Decision on the Acceptance of the Fifth Protocol, S/L/108 (Nov. 11, 2002); and World Trade Organization, Status of Acceptances of the Fifth Protocol to the General Agreement on Trade in Services <www.wto.org/english/tratop_e/serv_e/finance_e/finance_status_5prot_e.htm> (accessed April 2003).
The European Communities and each member state were counted separately in these statistics (as sixteen WTO members). Strictly speaking, only seventy members made improved or first time commitments. The exception was Ecuador, which acceded to the WTO in 1996 and used the special rules governing the extended financial services negotiations to weaken its schedule by imposing a temporary freeze on new licenses for both domestic and foreign banks. (Bulgaria, which also acceded in 1996, further strengthened its schedule in 1997.) See British Invisibles, Openingmarkets for Financial Services: The BI Guide to the Financials Services Agreement in The World Trade Organization (1998), Roger Kampf, Financial Services in the WTO: Third Time Lucky, 4 Int’l Trade L. & Reg. 111 (1998), Aaditya Mattoo, Financial Services and the WTO: Liberalization Commitments of Developing and Transition Economies, 23 Theworld Economy 351, (2000) regarding commitments made by individual countries. See U.S. Department of the Treasury, supra note 18, andWorld Trade Organization, supra note 22, regarding improvements made in the 1997 schedules.
The European Communities and each member state were counted separately in these statistics. The total number of members with financial services commitments includes the six countries that had not accepted the Fifth Protocol as of May 1, 2003 (see supra note 60), because these countries had previous commitments in force. See British Invisibles, supra note 61, Kampf, supra note 61, and Mattoo, supra note 61, regarding commitments made by individual countries.
As of May 1, 2003, eighteen members had acceded to the WTO through full accession negotiations under Article XII of the Marrakesh Agreement Establishing the World Trade Organization (as opposed to special GATT/WTO transitional arrangements): Bulgaria and Ecuador (1996), both of which participated in the 1997 negotiations and are therefore included with the Fifth Protocol countries; Mongolia and Panama (1997); Kyrgyz Republic (1998); Estonia and Latvia (1999); Albania, Croatia, Georgia, Jordan, and Oman (2000); Lithuania, Moldova, and China (2001); Chinese Taipei (2002); and Armenia and Macedonia (2003).
In the GATS, national treatment and market access are “specific commitments” as opposed to general obligations. As a result, national treatment and market access do not apply across-the-board to all services sectors; instead, they apply only to sectors, subsectors, or activities that a WTO member specifically lists in its schedule of commitments. If a member is making only a partial commitment to national treatment or market access within a listed sector, subsector, or activity, any limitations must be listed in its schedule. The use of specific commitments for national treatment and market access instead of obligations applicable to all services sectors is in some respects a structural weakness of the GATS. (See Patrick Low and Aaditya Mattoo, Is There a Better Way? Alternative Approaches to Liberalization under the GATS, in GATS 2000: New Directions in Services Trade Liberalization (Pierre Sauvé and Robert M. Stern, eds., 2000), Bernard Hoekman, Assessing the General Agreement on Trade in Services, in The Uruguay Round and The Developing Countries (Will Martin and L. Alan Winters, eds., 1996), and Bernard Hoekman and Pierre Sauv’e, Liberalizing Trade in Service, Discussion Paper 343, World Bank (1994).) Under a more ambitious approach, such as that used in the NAFTA’s services and investment provisions, national treatment and market access would apply in each sector unless an exception was specifically listed in a country’s schedule of commitments or one of the public policy exceptions, such as the national security exception, applied. This approach is referred to as a “top down” or “negative list” approach to scheduling commitments. In its most stringent form, a negative list would mean that only nonconforming measures could be listed as exceptions to national treatment or market access; “negative list” is widely used, however, to refer to an approach that would also allow a country to take exceptions for particular sectors, subsectors, or activities (see Lowand Mattoo, supra). TheGATS approach to scheduling commitments is referred to as a “hybrid list” because it involves a so-called “positive list” of sectors, subsectors, and activities for which commitments are undertaken and, within each listed sector, subsector, or activity, a negative list of limitations on national treatment or market access. (See Key, supra note 10, at 14–16 for a comparison of negative lists and GATS hybrid lists.) See infra Appendix A regarding the use of a negative list approach in the Understanding on Commitments in Financial Services for mode 3 (establishment of a commercial presence) and, for banking and other financial services excluding insurance, mode 2 (consumption abroad).
See Key, supra Sydney J. Key, The Doha Round and Financial Services Negotiations (AEI Press, 2003) note 3, ch. 4.
See Key, supra Sydney J. Key, The Doha Round and Financial Services Negotiations (AEI Press, 2003) note 3, ch. 4. As a technical matter, binding existing liberalization in the GATS could involve removing specific limitations listed in a country’s schedule of commitments, binding a mode of supply for which a country had previously entered “unbound,” or listing subsectors or activities that a country had omitted from its schedule.
Specifically, the ratchet in the NAFTA financial services chapter automatically locks in or binds new liberalization with regard to any measure for which a country has taken an exception to an obligation under that chapter. Suppose, for example, a country has taken an exception for an existing nonconforming measure and subsequently amends that measure to provide market access or national treatment. The ratchet locks in the liberalizing amendment, that is, a country is prohibited from reverting to the original nonconforming measure. See North American Free Trade Agreement, Art. 1409: 1(c).
Negotiating guidelines on services adopted in March 2001 by the Council for Trade in Services? Special Session state that “[b]ased on multilaterally agreed criteria, account shall be taken and credit shall be given in the negotiations for autonomous liberalization undertaken by Members since previous negotiations.” WTO Council for Trade in Services—Special Session, Guidelines and Procedures for the Negotiations on Trade in Services, S/L/93 (March 28, 2001), ¶ 13. See also WTO Council for Trade in Services—Special Session, Modalities for the Treatment of Autonomous Liberalization, TN/S/6 (March 1, 2003).
As a legal matter, in terms of scheduling commitments in the GATS, providing services via the Internet need not be treated differently than providing services via telephone or fax. Some commentators have emphasized the importance of explicitly confirming this principle of “technological neutrality” in the GATS to ensure that members would not make policy distinctions among services based on the technological means of delivery. See Aaditya Mattoo and Ludger Schuknecht, Trade Policies for Electronic Commerce, Policy Research Working Paper 2380, World Bank (2002).
The issue of clarifying the distinction between mode 1 and mode 2 in the GATS may be raised during the Doha round services negotiations. One approach would be to define mode 2 to require the physical presence of the consumer in the country of the service supplier; another approach (which appears to have little, if any, support among WTO members) would be to combine the two modes. See Aaditya Mattoo and Ludger Schuknecht, Trade Policies for Electronic Commerce, Policy Research Working Paper 2380, World Bank (2002) id.
See generallySydney J. Key and Hal S. Scott, International Trade in Banking Services: A Conceptual Framework (Occasional Paper 35, Group of Thirty, 1991). See also Financial Services Authority [UK], The FSA’s Approach to the Regulation of E-Commerce, Discussion Paper 6 (2001). Suppose, for example, that employees of a foreign bank visit the host country to arrange cross-border loans. Even when the host country does not have a regulatory framework in place for cross-border banking services, host-country bank regulators sometimes look at factors such as the frequency and duration of visits and the permanence of the host-country infrastructure for the visiting employees to determine whether, for regulatory purposes, the cross-border activity rises to the level of a host-country office. (In this example, the question would be whether the activity rises to the level of a representative office. In economic terms, a foreign bank’s representative office—which is normally not legally permitted to sign loan or deposit contracts—is basically a marketing mechanism used to facilitate the cross-border provision of financial services. In the GATS, however, the definition of “commercial presence” includes representative offices.) Or, suppose that a foreign broker-dealer solicits host-country customers to purchase securities. Securities regulators often use solicitation—in addition to the actual conduct of business with domestic residents—as a criterion for determining whether the foreign firm is subject to host-country broker-dealer registration requirements. In response to the increasing use of the Internet by the securities industry, a number of regulators also examine factors such as whether a web site is being used to target host-country customers. See International Organization of Securities Commissions, Technical Committee, Internet Task Force, Report on Securities Activities on the Internet (1998) and Report on Securities Activities on the Internet II (2001); U.S. Securities and Exchange Commission, Regulation of Exchanges, Concept Release, Release 34-38672, International Series Release IS-1125 (Jul. 16, 1997) and Statement of the Commission regarding Use of Internet Web Sites to Offer Securities, Solicit Securities Transactions, or Advertise Investment Services Offshore, Interpretation, International Series Release IS-1125 (Mar. 23, 1998); Financial Services Authority [UK], Treatment of Material on Overseas Internet Wold Wide Web Sites Accessible in the UK but Not Intended for Investors in the UK, Guidance 2/92 (1998), and The FSA’s Approach to the Regulation of E-Commerce, supra; Michael E. Mann and Eva Marie Carney, Jurisdiction in Cyberspace: International Implications of Electronic Markets, in John F. Olson and Carmen J. Lawrence, eds. Securities in the Electronic Age: A Practical Guide to the Law and Regulation (2002).
See Financial Services Authority [UK], The FSA’s Approach to the Regulation of E-Commerce, supra note 78.
See infra Appendix A regarding the Understanding on Commitments in Financial Services. In view of the difficulties in distinguishing between the two modes, however, some of the members who made mode 2 commitments for a broad range of financial services also included statements in the so-called headnotes to their financial services schedules emphasizing that these commitments did not require them to allow solicitation by foreign service suppliers. See World Trade Organization, Technical Issues Concerning Financial Services Schedules, Note by the Secretariat, S/FIN/W/9 (1996).
One OECD country—Switzerland—went further and made comprehensive financial services commitments for banking and other financial services (excluding insurance) in mode 1 as well as mode 2. A few OECD countries, however, severely limited even their commitments for financial information and data processing services and/or advisory services, or made no commitments at all in mode 1. The Annex on Financial Services refers to “advisory, intermediation and other auxiliary financial services” undertaken in connection with any financial service listed in the Annex; examples listed included credit reference and analysis, investment and portfolio research and advice, and advice on acquisitions and corporate restructuring and strategy. GATS, Annex on Financial Services, ¶ 5.With respect to mode 1, however, the Understanding covers advisory and other auxiliary financial services but excludes intermediation services. See Understanding on Commitments in Financial Services, ¶ B.3 (c).
SeeHarold D. Skipper, Jr., Insurance in the General Agreement on Trade in Services. (2001).
See Understanding on Commitments in Financial Services, ¶¶ B.3 (a)–(b); Skipper, supra note 84; and infra Appendix A.
In the basic telecommunications sector, a substantial majority of the countries that have made commitments to national treatment and market access in that sector have incorporated into their schedules—using the additional commitments column—a reference paper setting forth “procompetitive” regulatory principles. Designed for a sector where dominant suppliers often control essential host-country facilities, these principles seek to ensure that a country’s national treatment and market access commitments will not be undermined. Countries committing to the principles undertake, among other things, to maintain measures to ensure network interconnection on nondiscriminatory terms and to prevent certain anticompetitive practices. See Bernard M. Hoekman, Competition Policy and the Global Trading System, 20 The World Economy 383 (1997) and Bernard M. Hoekman, Patrick Low, and Petros C. Mavroidis, Regulation, Competition Policy and Market Access Negotiations: Lessons from the Telecommunications Sector in Competition Policy for an Integrated Global Economy (Einar Hope, ed., 1996).
See supra Part II.C and infra Part V.B. For asset management services, Japan’s additional commitments included eliminating restrictions that prohibited a single entity from managing both pension and mutual funds and that imposed extremely strict asset-allocation rules—for example, requiring most assets to be invested in bonds and other fixed-income instruments as opposed to equities. See Japan—United States Measures Regarding Financial Services, supra note 23, and Japan—United States Measures Regarding Insurance, supra note 23. In addition, one insurance commitment was actually aimed at maintaining for a certain period of time a restriction on new entrants into a niche market, the so-called third sector of accident, medical and nursing care insurance. The purpose was to protect the interests of foreign firms in this market until they could enter and compete with domestic firms in other market segments. See Japan—United States Supplementary Measures Regarding Insurance, supra note 23.
See Beviglia Zampetti, Americo, and Pierre Sauvé, Onwards to Singapore: The International Contestability of Markets and the New Trade Agenda, 7 The World Economy 133 (1996), Graham, Edward M., and Robert Z. Lawrence, “Measuring the International Contestability of Markets: A Conceptual Approach.” 30 J. World Trade 5 (1996), Lawrence, Robert Z., Toward Globally Contestable Markets, in Organisation for Economic Co-operation and Development, Market Access after the Uruguay Round: Investment, Competition, and Technology Perspectives (1996).
See Key, supra Sydney J. Key, The Doha Round and Financial Services Negotiations (AEI Press, 2003) note 3, ch. 3, for a more detailed discussion of the three pillars of liberalization.
See Gianviti, supra Francois Gianviti, The International Monetary Fund and the Liberalization of Capital Movements, in Current Dev. Monetary & Fin. L. (International Monetary Fund, 1999) note 37, Holder, supra note 37, and Leckow, supra note 37, regarding the role of the IMF in liberalization of capital movements.
See Barry Eichengreen and Michael Mussa with Giovanni Dell’Ariccia, Enrica Detragiache, Gian Maria Milesi-Ferretti, and Andrew Tweedie, Capital Account Liberalization: Theoretical and Practical Aspects, Occasional Paper 172, International Monetary Fund (1998); Alan Greenspan, International Economic and Financial Systems, Testimony before the Committee on Banking and Financial Services, U.S. House of Representatives (Sept. 16, 1998); Paul Krugman, Saving Asia: It’s Time to Get Radical, Fortune (Sept. 7, 1998); Jeffrey Sachs, Global Capitalism: Making It Work, The Economist (Sept. 12, 1998); Lawrence H. Summers, Go with the Flow, Financial Times (Mar. 11., 1998) and Repairing and Rebuilding Emerging Market Financial Systems, Remarks at Federal Deposit Insurance Corporation International Conference on Deposit Insurance, Washington, D.C. (Sept. 9, 1998), Joseph E. Stiglitz,, Boats, Planes, and Capital Flows, Financial Times (Mar. 25, 1998).
See Kenneth S. Rogoff, Rethinking Capital Controls: When Should we Keep an Open Mind? 39 Finance and Development 55 (2002).
See Shogo Ishii and Karl Habermeier with Jorge Iván Canales-Kriljenko, Bernard Laurens, John Leimone, and Judit Vadasz, Capital Account Liberalization and Financial Sector Stability, Occasional Paper 211, International Monetary Fund (2002), and Eichengreen and Mussa with Giovanni Dell’Ariccia et al., supra note 103.
The bound liberalization could involve “phased commitments,” that is, commitments that are guaranteed to be implemented by a specified future date that marks the end of a transition period. A government could guarantee that it will lift a restriction by a certain date if it is able to do so by regulation, if it already has any necessary legislative mandate, or if it will be given the authority to do so as part of the approval process for the results of the Doha round negotiations or an accession agreement. Phased commitments were not used to any significant extent in the 1997 financial services agreement. China, however, in its WTO accession agreement, made a series of phased commitments to market-opening for financial services. See Key, supra Sydney J. Key, Financial Services in the Uruguay Round and The WTO (Occasional Paper 54, Group of Thirty, 1997) note 10, ch. IV, regarding phased commitments.
See Key, supra Sydney J. Key, The Doha Round and Financial Services Negotiations (AEI Press, 2003) note 3, ch. 4, for a more detailed discussion.
The EU single-market program is, in effect, an effort to achieve “EU contestability of markets” by dealing with all three pillars of liberalization: national treatment and market access; removal of nondiscriminatory structural barriers; and freedom of capital movements. Moreover, the EU single-market legislation includes most of the areas covered by the international work on strengthening domestic financial systems. See supra Part III.B.2 and Key, supra Sydney J. Key, The Doha Round and Financial Services Negotiations (AEI Press, 2003) note 3, ch. 5, regarding the intra-EU approach of mutual recognition and homecountry control.
In 2001, both the United States and Canada submitted proposals on regulatory transparency for the GATS negotiations in the Doha round. See World Trade Organization, Transparency in Domestic Regulation, Communication from the United States, S/CSS/W/102 (July 13, 2001), and Initial Negotiating Proposal on Regulatory Transparency and Predictability, Communication from Canada. S/CSS/W/47. (Mar. 14, 2003). The United States had previously submitted, as an attachment to its initial sectoral proposal for financial services, “some initial views” on transparency and other principles for regulation of financial services. See World Trade Organization, Financial Services, Communication from the United States, S/CSS/W/27 (Dec. 18, 2000).
Transparency in developing financial services regulations includes establishing a meaningful procedure for interested parties to comment on a proposed regulation prior to its adoption in final form. (See Rachel Thompson and Keiya Iida, Strengthening Regulatory Transparency: Insights for the GATS from the Regulatory Reform Country Reviews, in Trade in Services:Negotiating Issues Andapproaches (Julia Nelson and Pierre Sauvé, eds., 2001.) Specific approaches will vary among countries—and over time within countries—depending on the legal system, the institutional arrangements for financial regulation and supervision, and the size and stage of development of financial markets. In the United States, for example, the Administrative Procedure Act generally requires “notice and comment” rulemaking, whereby regulatory authorities must give public notice of proposed rules, provide a reasonable amount of time for interested parties to submit comments, give consideration to comments received, and publish final regulations with an explanation that addresses major concerns raised in the comments and gives the basis for the agency’s decision.See 5 U.S.C. §553 (2000). See Key, supra note 3, ch. 5, for a more extensive discussion of regulatory transparency and procedural fairness.
Most of the work on transparency that is part of the ongoing international effort to strengthen domestic financial systems focuses on establishing international minimum standards and codes of good practices with regard to types of transparency other than regulatory transparency—namely, transparency on the part of governments with regard to macroeconomic policy and data; and on the part of the private sector with regard to disclosure of financial information, risk exposures, and risk management practices. See Key, supra Sydney J. Key, The Doha Round and Financial Services Negotiations (AEI Press, 2003) note 3, ch. 5.
“Effective market access” is an undefined term that has been used in many different ways in the conteXt of international trade in financial services. For example, it has been used broadly to encompass all secondpillar barriers and also, much more narrowly, to refer to de facto national treatment See Sydney J. Key, Is National Treatment Still Viable? US Policy in Theory and Practice, 5 Journal of International Banking Law 365 (1990).
SeeWorld Trade Organization, Council for Trade in Services, Economic Needs Tests, Note by the Secretariat, S/CSS/W/118 (Nov. 30, 2001), for a comprehensive discussion of the distinction between quantitative measures, particularly economic needs tests, listed in GATS Article XVI (Market Access) and domestic regulatory measures.
See Robert G. Pozen, WTO Objectives of Asset Managers, (presentation at conference on “Further Liberalization of Global Financial Services Markets?” Institute of International Economics, Washington, D.C. (June 2002).
In the GATS, additional commitments are scheduled as so-called positive lists of liberalizing measures that reduce or remove existing barriers. A country would, of course, be unwilling to make a commitment to liberalize with respect to a measure that it regards as prudential. Acountry might need to rely on the prudential carve-out, however, if circumstances were to change such that it decided to reintroduce for prudential reasons a measure that was inconsistent with its additional commitments. See Key, supraSydney J. Key, The Doha Round and Financial Services Negotiations (AEI Press, 2003) note 3, ch. 5, for further discussion of the “effective market access” approach.
See Investment Company Institute, Asset Management, presentation at financial services seminar, World Trade Organization, Council for Trade in Services (Oct. 11, 2001).
Under such principles, mutual funds must maintain portfolios that comply with their stated investment objectives, disclose portfolio holdings periodically, maintain sufficient portfolio liquidity to meet redemptions, and keep fund assets safeguarded. Pension funds must act solely in the interests of the pension plan and its participants, make investments in accordance with principles of diversification and prudence, and safeguard plan assets. See, for example, International Organization of Securities Commissions, Technical Committee, Report on Investment Management-Principles for the Regulation of Collective Investment Schemes and Explanatory Memorandum (1994), regarding collective investment schemes.
The Understanding relies on the definition of national treatment in the framework agreement, but clarifies its application in the financial services sector with regard to both payment and clearing systems and selfregulatory bodies. Specifically, it clarifies that access by host-country offices of foreign financial firms to payment and clearing systems operated by public entities must be granted on a national treatment basis; it also makes clear thatwhen membership in a private self-regulatory body is required by a host country in order for foreign financial firms to compete on an equal basis with domestic firms, the host country must ensure that the self-regulatory body offers national treatment. See Understanding on Commitments in Financial Services, ¶ ¶ C1.–C2.
GATS, Annex on Financial Services, ¶ 5.
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Key, S.J. (2005). Financial Services. In: Macrory, P.F.J., Appleton, A.E., Plummer, M.G. (eds) The World Trade Organization: Legal, Economic and Political Analysis. Springer, Boston, MA. https://doi.org/10.1007/0-387-22688-5_20
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