Financial Services: A Swiss Perspective

1. Financial Services: A Swiss Perspective Christine Breining & Thomas Cottier World Trade Institute, Berne Symposium on Assessment of Trade in Services 14 - 15.3.2002 WTO Geneva Worldtradeinstitute.ch

2. Summary of Paper • Financial Services - a key industry in Switzerland • 112’000 employees - 13’000 jobs abroad • Structural changes: • Trend towards all finance and one-shop services: regulatory challenge • Concentration: 413 (1995) to 375 (2000) banks • Electronic banking (10-15% of customers) Worldtradeinstitute.ch

3. Regulatory Responses • International Agreements and Arrangements: • Technical Agreements following dismantling barriers (trade facilitation, mainly technical and contractual issues) • Agreements seeking liberalization and market access improvement (EC, NAFTA, GATS) • Agreements promoting financial stability (BIS) • Challenge of Interface and Coherence Worldtradeinstitute.ch

4. Bank for International Settlement (BIS) Basle • 1997: 25 Basle Core Principles of Effective Banking Supervision • Methods of prudential regulation • Methods of cross-border banking • 2001: Core Principles of Systematically Important Payment Systems • Soft law standards (G 10) Worldtradeinstitute.ch

5. Prudential Regulation • Prudential regulations of paramount importance and a necessary companion of trade liberalization • Where to place them ? • exclusively national law (home control) • exclusively international law (harmonization) • mixed regimes? Worldtradeinstitute.ch

6. Establishment or Cross Border? • Exclusive home control relates to the concept of establishment abroad (3rd mode) • Progress in modes 1 and 2 are impeded by exclusive and thus highly varied home controls • Transparency alone will not do • The EC experience: mutual recognition Worldtradeinstitute.ch

7. Current WTO Rules • Art. VI: 4 GATS: authority to develop standards; Art. VI:5 GATS: interim rules • Art. VII: Mutual Recognition and CMFN (and Annex FS para. 3) • Annex FS Art. 2: (carve out?) Notwithstanding any other provision of this Agreement, a Member shall not be prevented from taking measures for prudential reasons. ... 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 commitment or obligations under the Agreement. Worldtradeinstitute.ch

8. Regulatory Options (1) • Status Quo (case by case) • home rules, variations, adjudication (DSU, including non-violation complaints), taking into account Basle instruments likely • protracted implementation modes 1 and 2 likely • Mutual Recognition (CMNF) • Discriminatory potential (in particular for LDCs) Worldtradeinstitute.ch

9. Regulatory Options (2) • TRIPs Approach • Incorporation of Standards • No treaty standards available • Inter-organizational tensions Worldtradeinstitute.ch

10. Regulatory Options (3) • SPS/TBT Approach • Reference to external standards • Possibility to apply stricter home standards (subject to consistent risk analysis and management) • Problem of broad legitimacy of standards • Plurilateral Approach or Opting-out option Worldtradeinstitute.ch

11. Regulatory Options (4) • Commitment to international Standards as part of negotiated individual concessions and thus part of schedules: • Recourse to Basle Rules and others (IMF?) • Recourse to adopted WTO set of rules • Specifically negotiated rules and conditions (MFN) • Value of concession linked to quality of PS commitment Worldtradeinstitute.ch

12. Conclusions • Whatever regulatory option is chosen, negotiators should remember: • Prudential regulation and market access are of equal importance • Prudential regulation is a a key element of good governance and the rule of law • Good goverance and the rule of law depend on vertical and thus international checks and balances Worldtradeinstitute.ch