SEE ALSO:
press releases
WTO news
Mike Moore's speeches
Renato Ruggiero's speeches, 1995-99

The United States and India, among other countries, withdrew
broad MFN (most-favoured nation) exemptions based on reciprocity as a result of the negotiations; only a small number of countries submitted limited MFN exemptions or maintained existing broad MFN exemptions. Several countries, including Hungary, Mauritius, the Philippines and Venezuela reduced the scope of their MFN exemptions.

The new commitments contain inter alia significant improvements allowing commercial presence of foreign financial service suppliers by eliminating or relaxing limitations on foreign ownership of local financial institutions, limitations on the juridical form of commercial presence (branches, subsidiaries, agencies, representative offices, etc.) and limitations on the expansion of existing operations. Improvements were made in all of the three major financial service sectors - banking, securities and insurance, as well as in other services such as asset management and provision and transfer of financial information.

Subject: list of commitments
#2 of 25 by (GIRAUD) Wed 04 Feb '98 (05:43 AM)

I would like to know when the finalized version of the new or revised commitments will be available to the public.

Subject: #3 of 25 by (LIVINGSTONE) Wed 04 Feb '98 (06:35 AM)

Please explain the meaning and significance of the prudential carve-out in the Annex on Financial Services. Additionally, which prudential measures may be scheduled?

Subject: Financial services and the Asian crisis
#4 of 25 by (UNGPHAKORN) Wed 04 Feb '98 (07:09 AM)
The conventional wisdom is that the troubled Asian economies need to liberalize their financial services sectors in order to recover. For many of these governments the most important point of their offers was to send out a psychological signal to boost international confidence. But isn't the view a bit simplistic? Liberalization in financial services also requires better supervision by central banks, and a better way of dealing with exchange rates and currency flows. Otherwise, the country could simply be opening its doors to new rogue banks or encouraging further currency instability. In other words, isn't it unwise to open up financial services sectors before improvements are made in supervision and in monetary policy?

Subject: Reply to your questions #5 of 25 by (WTO EXPERT) Wed 04 Feb '98 (07:27 AM) Thank you for your enquiries. Here are some quick answers: #2 According to our best estimate, the finalized version of the commitments will become available in early March, after we finish a process called technical verification. #3 As the provision in the Annex says, WTO Members are not prevented from taking measures to protect investors, depositors etc, or to ensure the integrity and stability of the financial system. We take this to mean that capital requirements and other prudential measures endorsed by the Basle Committee on Banking Supervision, for example, are allowed regardless of the Member's commitment to liberalize. Thus the GATS Agreement recognizes that liberalization needs to be accompanied by adequate prudential regulation and effective supervision. #4 Please see our study "Open Markets in Financial Services". I can agree with the view that improvements in bank regulation and supervision are required in the Asian countries, but it does not necessarily mean that liberalization can wait or should be delayed. Good supervision can only come with good market discipline.

Subject: Reply to your questions - 2 #6 of 25 by (WTO EXPERT) Wed 04 Feb '98 (07:54 AM) Sorry! I did not respond to the second part of question #3. Our answer is that prudential measures should not be scheduled. When a measure is scheduled, it means that the measure is either a limitation on market access or national treatment inconsistent with Articles XVI and XVII of the GATS. Having said that, some countries have apparently chosen to schedule some prudential measures to make it absolutely certain that they can maintain the measures under the commitments made. This, however, has implications that the measures may not be purely prudential.

Subject: Exact Title of our Publication #7 of 25 by (WTO EXPERT) Wed 04 Feb '98 (08:13 AM) This is just to inform you of the exact title of the publication referred to in the reply above. "Opening Markets in Financial Services and the Role of the GATS", WTO Special Studies, September 1997. Available in three languages, English, French and Spanish.

Subject: ATTN : Khun Peter Ungphakorn #8 of 25 by (VONKHORPORN) Thu 05 Feb '98 (02:55 AM) I fully agree with your view that it is unwise to open up financial services before supervision and other domestic arrangements are in place. Some have said that in fact, we need to "deregulate" our financial sector before we "liberalise". Do you feel that deregulation can actually help or complement liberalisation ? My view is that it helps but the responsible authorities should have a clear agenda and direction as to how they would implement such deregulation. But the experiences here in Asia suggest that the concerned authorities usually lack ability to set their direction and thus led to chaos in the financial sector. Maybe they were overly politicised ?

Subject: on sequencing economic reforms, to ms. Vonkhorporn #9 of 25 by (Benedictos) thu 05 Feb '98 (07:05 pm) the literature on sequencing economic reforms abound. Plenty of experience can be studied from the latin american experience alone. Nonetheless, each country has to determine exactly how it should do its own. I have faith that our monetary and finance authorities know what they are doing. I also believe that the mechanisms for effective prudential supervision of the financial sector are in place in our country. The most important aspect, however, in terms of policy is that a clear and consistent signal be given as to the intent towards achieving liberalization, and if i may add, the ability to explain policy in terms, that an average man on the street ,the small business entrepreneur, the highly educated so-called technocrat and the high calibre corporate person could all understand. Admittedly, such is often a difficult task and one has to find solace in one's own successes even how small.

Subject: Response to Angelo #10 of 25 by (VONKHORPORN) Thu 05 Feb '98 (09:29 PM) Talking about the Latin American experience, I read that Chile was able to prevent the abrupt in-flow and out-flow of short-term capital and thereby able to maintain domestic stability (in the financial sector, that is). There was also a proposal a long while ago to impose tax on these short-term transactions to discourage such borrowings and encourage long-term investment. Do you think that the more or less free flow of capital and the ability of investors or speculators to pull out their money in this globalised and digitalised world contribute to the financial crisis in our region ?? On other issues, well, I cannot say with such confidence that my authorities know what they "are doing" though I presume that they know what they "should do". I agree that we have the prudential supervision in place and at least the more junior officials at the Bank of Thailand and other institutions actually implement them. But who knows what went wrong at the higher level..

Subject: The question of liberalizing capital flows #11 of 25 by (WTO EXPERT) Fri 06 Feb '98 (02:37 AM) Thank you for the interesting discussion. You may have found the article "Keeping the hot money out" in the journal "Economist" of 24-30 January interesting, also. The obligations imposed under the GATS in relation to capital flows are designed solely to ensure that commitments to allow the supply of a service are not nullified by denial of access to necessary capital. If a country guarantees foreign service suppliers the right to provide a service cross-border, or to set up a commercial presence, then the country is committed to allow the related movement of capital (only capital inflows, in the case of setting up a commercial presence), in accordance with Article XVI footnote 8 of the GATS. Even here, however, the right to take prudential measures to ensure the integrity and stability of the financial system, or to protect the balance-of-payments, would override the obligations relating to capital movement. Commitments to liberalize under the GATS, therefore, does not in any way compromise the ability of governments to implement the necessary prudential measures to stabilize the financial system.

Subject: GATS obligations #12 of 25 by (VONKHORPORN) Fri 06 Feb '98 (03:45 AM) I thank the WTO expert for the comments about liberalising capital flows. I understand from what you said that the GATS obligations are about ensuring that foreign service suppliers can enter the country but other domestic regulations are left at discretion of the host country. I hope I understand correctly. Under the GATS, each country is allowed to have exemptions on some types of services. When I was attending the course in Geneva, people said this approach was not so conducive to services liberalisation. But what was the better alternative ? I mean, how many services sector which developing countries are able to export apart from, say, tourism. How many companies from developing countries will qualify to establish commercial presence in other advanced countries ? Or how many professionals from Thailand are qualified to work in the US or the EU ? I'm no expert on services trade but I think we will be net importers if every sector has to be liberalised. Maybe you can enlighten me on this point. Again, every coin has two sides. Some said if you really think you have no competitiveness on certain things, why do you have to maintain restrictions ? Wouldn't it be better if you open up so the consumers can have better and cheaper services. I was tilting towards this view for a while until the financial crisis hit my country. It seems no foreign investors have real commitment or ready to share the costs and other burdens when the economy went down the hill. Money just flows to where it is safe and profitable and doesn't require a lot of responsibility for the host country. Maybe you would argue that this is it - if Thailand had allowed more foreign ownership or had no restrictions on setting up commercial presence, foreign companies would feel more responsible and concerned about the state of the economy because their profits are at stake. I am still unconvinced on this point. If we grant them national treatment, will they consider us as their "nations" ?? Don't think so. I admit that my views may be limited because at the moment, my mind only thinks of the word "services" as "financial services" because it is an immediate issue in my country. Of course, there are so many other types of services but this is a real-life example.

Subject: Reply to Ms. Vonkhorporn #13 of 25 by (WTO EXPERT) Fri 06 Feb '98 (04:33 AM) Thank you for your views. Domestic regulation is not left entirely at the discretion of the host country, if you have commitments to provide national treatment, for example. Article VI of the GATS also applies disciplines to domestic regulation. On the other hand, prudential measures can be taken at the discretion of countries, so long as they are not used as a means of avoiding the commitments or obligations of the WTO Member. I share your concerns about foreign service suppliers dominating your markets and then leaving all of a sudden when time gets rough. I would tend to think, however, that long-term commitment can be obtained through proper regulation and other policy incentives. If policies in the past had the effect of inducing short-term capital inflows while restricting foreign direct investment in the form of local subsidiaries or joint ventures, such policies may need to be revisited, along with implementing the necessary reforms in modernizing the regulatory and supervisory framework for financial services.

Subject: beneficios economias latinoamericanas de acuerdo serv. Financieros #14 of 25 by (GIL) Fri 06 Feb '98 (05:18 AM) Una de las más importantes trabas al desarrollo de muchas de las economías latinoamericanas es el alto costo del crédito, las tasas de interés son muy elevadas al interior de cada país, y además las tasas de interés internacionales al que acceden ciertas empresas tienen un prima por riesgo que las incrementan. Quisiera saber como este acuerdo sobre servicios financieros (que si bien no toca el tema de las tasas de interés) contribuiría a la superación de este problema, quizás se espera que los países que hayan presentado ofertas de servicios financieros reciban una mayor inversión extranjera en esta área incrementando la oferta nacional, reduciéndose de esta manera las tasas de interés locales (por ejemplo luego que México firmó el Plan Brady las tasas de interés de este país se redujeron en forma importante, algo similar sucedió con otros países latinoamericanos que firmaron este Plan), o quizás a través de una mayor competencia entre los sistemas financieros de los países desarrollados éstas tiendan a reducirse??

Subject: Reply to Ms. Gil Juscamaita #15 of 25 by (WTO EXPERT) Fri 06 Feb '98 (07:27 AM) I think you have already answered your question yourself to a large extent. The only point I may like to add would be that the entry of foreign service suppliers induces governments to implement policies in favour of competition in the domestic financial sector, and help improve the management and risk assessment of financial institutions. Risk premiums may be lowered if stable and transparent rules are implemented in accordance with the GATS commitments. Of course, as you correctly point out, the GATS does not directly deal with interest rates. It is essentially a matter of domestic policy. However, we believe that the agreement will contribute in many ways to creating a more efficient and stable market for credit.

Subject: #16 of 25 by (ORTEGA) Fri 06 Feb '98 (11:54 PM) Me gustaria saber en que medida pudo la crisis asiatica incidir en las recientes negociaciones de servicios financieros, especialmente la incidencia para los paises en desarrollo.

Subject: #17 of 25 by (ORTEGA) Sat 07 Feb '98 (12:05 AM) I would like to know how the recent Asian crisis could influence in the financial services negotiations, especially, the influences on the developing countries.

Subject: #18 of 25 by (ORTEGA) Sat 07 Feb '98 (12:13 AM) If the success or not of this negotiations is closely linked to the national lows,and then to the political willing of each member; how is pretended to ensure this success?

Subject: #19 of 25 by (ORTEGA) Sat 07 Feb '98 (12:15 AM) What is the manner to optimize the achieved results at the negotiations, especially by a country like Venezuela.

Subject: #20 of 25 by (ORTEGA) Sat 07 Feb '98 (12:18 AM) What kind of actions could be or should be applied by developing countries,which not become contradictories with WTO provisions?

Subject: Banking #21 of 25 by (GOHER) Sat 07 Feb '98 (02:07 AM) How could a country feel secure ,if she put its national savings in foreign hands, which are subject to any political decision? (it happens all the time such as the American decision in the Gulf war and Sudan most recent crisis with America.)

Subject: Latin American financial services sector #22 of 25 by (Cancela) Sat 07 feb '98 (05:10 am) How do you evaluate the impact that the concessions made by the Latin American countries in recent negotiations could have on the development of the financial services sector in the region?

Subject: Replies to questions #23 of 25 by (WTO EXPERT) Mon 09 Feb '98 (08:17 AM) Thank you for your questions. They are very difficult to answer, but I will try: #16 & #17 One can only speculate on the influence that the Asian crisis had on the negotiations, but it was understood by negotiators that the GATS provided secure and transparent rules for liberalizing financial services trade which would contribute to stability. It was also recognized that prudential measures could be taken to ensure the integrity and stability of the financial system, and that the guiding principle was progressive liberalization, not total liberalization overnight. #18 For the new commitments to enter into force, countries will need to ratify and accept the Protocol embodying the results of the negotiations by 29 January 1999. In many countries, this means that Parliaments or other bodies need to approve the new commitments. This is how the domestic implementation of the results is ensured in each Member. #19 & #20 Venezuela has made new and improved commitments in its Schedule of Specific Commitments, along with other WTO Members. These commitments need to observed, but they do not prevent countries from applying more liberal policies. #21 Liberalization works in both ways; foreign investors investing in your country also run the risk of a political conflict putting the investment in danger. The best solution is not to stop trade or investment, which will harm everyone, but to avoid such political conflicts from occurring. In fact, more liberal trade and investment should help to prevent conflicts. #22 Very difficult question. It should be noted, however, that the commitments of the Latin American countries reflect more or less the actual liberalization measures already taken in those countries. So far, the general evaluation seems to be favourable. A complete evaluation could be the subject of a future study.