At the end of the Uruguay Round negotiations in 1993, negotiations on financial services, along with those on basic telecommunications and maritime transport, remained unfinished. Specific commitments to provide market access and national treatment were made in the sector, but they were not considered enough to conclude the negotiations. Broad MFN exemptions (exemptions to the principle of MFN (most-favoured-nation) treatment) based on reciprocity remained. The Second Annex on Financial Services to the General Agreement on Trade in Services (GATS) and the Decision on Financial Services adopted at the end of the Round provided for extended negotiations in this sector. The negotiations were to be held during a six-month period following the entry into force of the GATS; i.e. until the end of June 1995. At the conclusion of this period, Members of the WTO had the possibility to improve, modify or withdraw all or part of their commitments. They were also able to introduce additional MFN exemptions. Until the end of this period, existing broad MFN exemptions based on reciprocity were not applied.

  
  
The interim Agreement of 1995 back to top

The 1995 negotiations were actually concluded on 28 July 1995 instead of 30 June as initially planned. The agreement was called the “interim” agreement, since negotiators again decided that the results of the negotiations were not satisfactory and envisaged further negotiations in two-years' time; i.e. in 1997. As a result of the 1995 negotiations, 29 WTO Members (counting the EU as one) improved their schedules of specific commitments and/or removed, suspended or reduced the scope of their MFN exemption in financial services. Those improved commitments were annexed to the Second Protocol to the GATS. Three other countries - Colombia, Mauritius and the United States - decided not to improve their commitments, and took broad MFN exemptions based on reciprocity.

As a result of those extended negotiations, and with new accessions to the WTO, 97 Members of the WTO (counting the EU individually) had commitments in financial services by mid-1997 in the area of financial services, compared to some 76 countries at the end of the Round. The Second Protocol and the commitments annexed to it entered into force on 1 September 1996 except for a small number of countries which were unable to complete their internal ratification procedures and formally accept the Protocol before 1 July 1996. For those remaining countries, the commitments entered into force 30 days after acceptance.

  
  
The negotiations in 1997 back to top

The negotiations were reopened in April 1997. Members again had an opportunity to improve, modify or withdraw their commitments in financial services and to take MFN exemptions in the sector from 1 November until 12 December 1997¹. As a result of the negotiations a new and improved set of commitments in financial services under the GATS was agreed on 12 December 1997. A total of 56 schedules of commitments representing 70 WTO Member governments² and 16 lists of MFN exemptions (or amendments thereof)³ were annexed to the Fifth Protocol to the GATS, which was open for ratification and acceptance by Members until 29 January 1999. 52 Member governments⁴ accepted the Protocol by the due date, and those Members decided to put the Protocol into force on 1 March 1999 in accordance with the terms of the Protocol. It was also decided by the Council for Trade in Services that the Protocol would be kept open for acceptance until 15 June 1999 for the remaining 18 Members⁵. For those Members accepting after 1 March, the Protocol will enter into force upon acceptance.

With five countries making commitments in financial services for the first time, the total number of WTO Members with commitments in financial services will increase to 104⁶ upon the entry into force of the Fifth Protocol.

As a result of the negotiations, the United States, India and Thailand decided to withdraw their broad MFN exemptions based on reciprocity; 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 United States submitted a limited MFN exemption in insurance, applicable in a circumstance of forced divestiture of US ownership in insurance service providers operating in WTO Member countries.

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. Important progress was also made in “grandfathering” existing branches and subsidiaries of foreign financial institutions that are wholly- or majority-owned by foreigners. 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.

  
  
Activities covered by the GATS in financial services back to top

Financial services include two broad categories of services: insurance and insurance-related services and banking and other financial services. These two categories are further broken down into the following:

-  Insurance and insurance-related services

Insurance and insurance-related services cover life and non-life insurance, reinsurance, insurance intermediation such as brokerage and agency services, and services auxiliary to insurance such as consultancy and actuarial services.

-  Banking and other financial services

Banking includes all the traditional services provided by banks such as acceptance of deposits, lending of all types, and payment and money transmission services. Other financial services include trading in foreign exchange, derivatives and all kinds of securities, securities underwriting, money broking, asset management, settlement and clearing services, provision and transfer of financial information, and advisory and other auxiliary financial services.

¹Korea has submitted on 20 January 1999 an improved schedule of commitments. This schedule will enter into force on completion of a certification procedure.

²The WTO Members concerned are: Australia; Bahrain; Bolivia; Brazil; Bulgaria; Canada; Chile; Colombia; Costa Rica; Cyprus; Czech Republic; the Dominican Republic; Ecuador; Egypt; El Salvador; the European Communities (15 Member States); Ghana; Honduras; Hong Kong, China; Hungary; Iceland; India; Indonesia; Israel; Jamaica; Japan; Kenya; Korea; Kuwait; Macau; Malaysia; Malta; Mauritius; Mexico; New Zealand; Nicaragua; Nigeria; Norway; Pakistan; Peru; Philippines; Poland; Romania; Senegal; Singapore; Slovak Republic; Slovenia; South Africa; Sri Lanka; Switzerland; Thailand; Tunisia; Turkey; the United States; Uruguay and Venezuela.

³Submitted by Australia, Canada, Honduras, Hungary, India, Mauritius, Nicaragua, Pakistan, Peru, Philippines, Senegal, Switzerland, Thailand, Turkey, the United States and Venezuela.

⁴The 52 Members governments are: Bahrain; Canada; Chile; Colombia; Cyprus; Czech Rep.; Ecuador; Egypt; EC and their Member States (Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Portugal, The Kingdom of the Netherlands, Spain, Sweden, United Kingdom); Hong Kong, China; Hungary; Iceland; India; Indonesia; Israel; Japan; Korea, Rep. of; Kuwait; Macau; Malaysia; Malta; Mauritius; Mexico; New Zealand; Norway; Pakistan; Peru; Romania; Senegal; Singapore; Slovak Republic; South Africa; Sri Lanka; Switzerland; Thailand; Tunisia; Turkey; United States and Venezuela.

⁵Australia, Bolivia, Brazil, Bulgaria, Costa Rica, Dominican Republic, Luxembourg, El Salvador, Ghana, Honduras, Jamaica, Kenya, Nicaragua, Nigeria, Philippines, Poland, Slovenia, and Uruguay have not yet formally ratified and accepted the Protocol as of 15 February 1999.

⁶Including the Kyrgyz Republic and Latvia, both new Members of the WTO.