FINANCIAL SECTOR REGULATION AND THE GATS

1. FINANCIAL SECTOR REGULATION AND THE GATS GENEVA – 29-30 MARCH 2004 PRESENTATION BY SEBASTIAN SAEZ CONSULTANT   Views expressed are personal

2. REGULATION AND ITS TRADE IMPACT • Market Access and National Treatment commitments do not provide effective access to market; • Non discriminatory regulations may act as a deterrent to trade in services; • Issue is relevant to developing countries: the sum of all regulatory cost is equivalent to a specific tariff on services export; • Asymmetric impact of regulations on trade opportunities; • Need for review of regulations and institutional environment.

3. THE ROLE OF THE GATS IN FINANCIAL SERVICES LIBERALIZATION • GATS and macroeconomic policy management: “ These types of interactions (the impact of macroeconomic policy in trade in services) fall entirely outside the ambit of the GATS” (WTO, Secretariat, 1997). • GATS and prudential regulation in the financial service sector: “ As with macroeconomic policy management, GATS commitments do not in any way curtail the scope for prudential regulation” (WTO, Secretariat, 1997).

4. THE ROLE OF THE GATS IN FINANCIAL SERVICES LIBERALIZATION • GATS and other policy objectives: “ If they are neither discriminatory, nor intended to restrict the access of suppliers to a market, then such non-prudential domestic regulatory measures fall within the ambit of GATS Article VI disciplines ” (WTO, Secretariat, 1997). • GATS and trade liberalization: Article XVI and Article XVII “It is the reduction and elimination of these measures that constitute the primary focus of the trade liberalization efforts of the GATS” (WTO, Secretariat, 1997).

5. FINANCIAL SERVICES AND THE GATS • Financial services sector is blessed with a curse; • The curse: it is the only service sector that plays a double function as a central piece of the overall macroeconomic performance of a country and at the same time at the microeconomic level, as a key tool for an efficient resource allocation; • The blessing: this characteristic has always attracted a great deal of attention and it is a sector where regulatory matters have been extensively studied and constantly reviewed.

6. FINANCIAL SERVICES AND THE GATS • Remaining problems: • Standard-setting organization membership and effective participation imperfect; • Regulatory standards describe elements that a financial system should have; • These standards are minimum conditions, and stronger regulations are still necessary. • Role of WTO remain relevant to provide a confident framework for further liberalization.

7. FINANCIAL SERVICES AND THE GATS • Maintain a clear and structural separation between financial services liberalization and macroeconomic management. Focus on microeconomic objectives; • Carve-out for prudential measures; • Article XVIII as a tool for dealing with regulation; • Bilateral initiatives have shown that it is very difficult to address regulatory issues; • Article VI practical problems; • Initial steps: transparency and procedural matters;

8. FINANCIAL SERVICES AND THE GATS • SOME CRITERIA FOR DEVELOPING DISCIPLINES; • Should be simple, non-prescriptive, in order to reflect the particular legal context of countries and avoid excessive cost of implementation; • In cases where new legislation is necessary, due respect for internal procedures should be allowed; • Regulators must remain powerful and be perceived as powerful; • Disciplines need to provide confidence to promote further liberalization.