RESTRICTEDWORLD TRADE
ORGANIZATIONS/FIN/M/28
20 November 2000
(00-4925)
Committee on Trade in Financial Services
REPORT OF THE MEETING HELD ON 9 OCTOBER 2000
Note by the Secretariat
1. The Committee on Trade in Financial Services held a meeting on 9 October 2000.  The
agenda is contained in airgram WTO/AIR/1399.
Item A: Acceptance of the Fifth Protocol to the General Agreement on Trade in Services
Embodying the Results of the Financial Services Negotiations
2. The Chairman recalled that at the July mee ting the Committee had agreed to his suggestion to
request the intervention of the Director-General in an attempt to renew a sense of urgency in relation
to the acceptance of the Fifth Protocol.  He said that on 19 September 2000 the Director-General had
sent a communication to the Ministers concerned of the 9 Members that had not yet finalized the
domestic procedures to accept the Protocol.  He invited those Members still conducting domestic
processes to provide any further information on such processes.
3. The representative of Nigeria indicated that the instrument of ratification was being prepared
and it would be sent to the appropriate authorities for endorsement.  His delegation had received the
letter from the Director-General, which would be forwarded to his Capital.
4. The representative of Poland referred to the report of the previous meeting containing
information on the general situation in his country regarding ratification of the Protocol.  He added
that the necessary amendments to the law on public turnover in securities had been approved by the
Council of Ministers in July.  The draft amendment law had been submitted to the Parliament in thesame month and it had had its first reading already.  The second reading would take place in mid
October and it was expected that the law would be passed expeditiously paving the way for
ratification of the Protocol.
5. The representative of Jamaica said that the Ministry of Finance and Planing of her country
had received the letter from the Director-General and was in the process of forwarding a response to
indicate that the situation, as explained at the May meeting, had not changed, i.e. whilst Jamaica was
not opposed in principle to ratifying the Fifth Protocol, the decision to delay ratification for the time
being was due to certain difficulties which had arisen in the sector and the resulting need to address
inadequacies in the regulatory framework.  Significant progress had been made but work was still in
progress.  Jamaica believed that upon completion of those reforms, it would be in a position to meetits obligation arising from participation in the Protocol.  Furthermore, Jamaica's ability to participate
in a meaningful way in further discussion on market access in services would be enhanced.  In light of
that, her delegation hoped that Members would appreciate Jamaica's situation and the resulting need
for time to put a modern financial services sector in place.S/FIN/M/28
Page 2
6. The Chairman thanked delegations for the information provided and encouraged those that
had not been in a position to update the Committee on the state of ratification or acceptance
procedures to do so as soon as possible.
Item B: Technical Issues
7. The Chairman recalled that at the previous meeting no interventions had been made regarding
the Sectoral Classification of Financial Services.  However, in previous meetings some delegations
had expressed interest in looking at the classification contained in the Annex on Financial Services for
the purpose of assessing its coverage of activities that had emerged in the sector since the conclusion
of the Uruguay Round, and discussing its use in the process of scheduling commitments in the current
negotiations.  Thus far no objections had been raised to taking up such discussions and thus the
proposals were still on the table.
8. The representative of Canada indicated that his delegation supported the continued inclusion
of this item on the agenda.  His delegation was looking at possible new activities that might not be
captured in the existing classification.
9. The representative of Japan stated that the issue was being considered in capital.  The
question his delegation was considering regarding the classification of financial services in the Annex
on Financial Services was how to classify some new services that had appeared with the advent of theInternet and the rapid proliferation of electronic tr ading systems.  It was not evident, for example,
where to classify the services of electronic communication networks (ECNs) that provided the
marketplace for trading securities.  The entities  providing such services were not "trading in
securities" (Annex classification item x:e) themselves, but simply providing the platform for securities
trading with a network and a set of defined rules.  Those services involved so mething more than just a
combination of settlement and clearing services (item xiv) and the provision of financial information
(item xvi).  Such services might be classified as "trading of securities" (item x:e), or "intermediation
or other services auxiliary to securities trading" (item xvi), but they would probably merit being put as
an independent item in the classification.  Such services were appearing not just in the area of
securities trading, but also with regard to banking or insurance services.  There were web-sites, whichprovided loan quotations or premium quotations from various banks or insurance companies for
potential depositors or insurance policy holders to choose from.  They could still be placed under the
Annex (item xvi) or "intermediation and other auxiliary financial services", but as they gained
importance as service providers, one might give thought to the possibility of identifying their services
clearly in the classification list.  The core issue arising from the advent of such new services was that
even when those services may be considered as a combination or hybrid of the services already in the
classification list, it was not clear whether existing commitments in a Member's schedule under theGATS actually covered such new services.  His delegation was still at a preliminary stage in the
consideration of the matter.  He suggested that if Members were interested in discussing such a
question in the Committee, he could ask capital to prepare an informal note for the consideration of
Members.
10. The representative of the United States said that his delegation still questioned the need to
look at the definitions in the Annex.  He took note of the statement by Canada that it was looking at
the issue.  Regarding Japan's intervention, he expected that his delegation would take issue with some
of the conclusions that Japan appeared to be drawing.
11. The Chairman observed that delegations were still reviewing the issue and needed some time.
The Committee took note of the interventions and de cided to revert to this item at the following
meeting.S/FIN/M/28
Page 3
Item C: Other Issues for Future Discussion
12. The Chairman recalled that at the previous meeting the discussion had concentrated on a
proposal by Japan for requesting information from international organizations working on regulatory
issues in financial services.  While most delegations had expressed their support for such an initiative,others had felt it necessary to clarify further the details, such as the organizations to be consulted and
the kind of information to be requested, to be able to decide on the matter.  In that context, the
Committee had agreed on holding informal consultations after the summer break to exchange views
on the details of the proposal.  Subsequently, the Committee had received an informal submission by
Japan, circulated as Job 5625 and dated 19 September 2000, elaborating on the oral presentation made
at the July meeting.  At the informal meeting, held on the 20 September 2000, most delegations
welcomed the Japanese submission and expressed their preliminary support and comments.  However,one delegation had stressed that at that stage, without having more clarity as to what the Committee
would do with the information that would be gathered, could not support the proposal.  Nevertheless,
the Committee had a useful exchange of views rega rding the format of th e information gathering
exercise, should the Committee agree on the proposal.  In that context, it was suggested that a two
stage approach be followed, i.e. first, to request the Secretariats of selected organizations to providesome general information, and subsequently invite those organizations to attend a meeting to respond
to questions and/or comments from delegations regarding their submissions.
13. The Chairman felt that to focus the discussion the Committee could address the following
questions:  First, should the Committee seek info rmation from international organizations working on
financial services regulation? If so, which organizations should be approached?  What type ofinformation should be requested?  And in what format?  He invited delegations to address these
questions in their interventions.
14. The representative of Japan provided further information on the proposal in light of comments
made at the informal meeting.  Although the propos al contained in Job No. 5625 was self explanatory,
he stressed that the exercise's purpose was to gather information from international organizations andnot from individual countries.  It was not in any way intended to prejudge the interpretation of the
clause on prudential measures as set out in the Annex.  The information to be obtained was intended
to serve as background information for delegates in preparation for negotiations in financial services.
It did not aim at assessing the status of individual countries in the implementation of the core
standards in question as the WTO was not a forum for conducting examination of the progress in
financial reform.  Japan was flexible in relation to the manner in which the information could be
collected and the type of information to be requested.  He suggested that the main internationalorganizations active in developing standards in financial regulation, i.e. Basel Committee, IOSCO,
and IAIS, be invited to provide written submissions on their activities, and subsequently to attend a
meeting of the Committee for an oral presentation followed by comments or questions by delegations.
Those organizations were also interested in the work of the WTO in financial services and an
exchange of information among international organiza tions would certainly help in avoiding conflicts
or overlaps.
15. The representative of Morocco felt that the idea that the Committee collect information from
international organizations dealing with regulatory issues of financial services would help delegations
to understand those issues.  Her delegation would support seeking information from organizations
where the interest of developing countries were represented and solely for informational purposes.  Asto how to collect the information, her delegation was flexible.  As to which organization, the list
suggested by Japan should not be final and could be extended with the agreement of Members.S/FIN/M/28
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16. The representative of Korea indicated that delegations should bear in mind that the Annex on
Financial Services recognized the right of Members to take prudential measures indicating the reasons
for those measures.  The work on establishing international standards, including prudential measures,
by relevant international organizations was already published and proceeded regardless of the process
of financial services trade liberalization.  Most financial authorities endeavour to implement thosestandards to enhance transparency and stability of the financial markets.  In that regard, WTO work
on that issue might duplicate work.  It was undesirable and unnecessary for the Committee to discuss
what constituted prudential measures.  Given that international bodies such as OECD, IMF, and
World Bank had observer status in the Committee, they could be consulted at any time if questions on
prudential measures arise during negotiations.  Korea was opposed to any proposal involving the
compilation of information by the WTO Secretariat or presentation by relevant international bodies
since those initiatives could lead to prejudging the scope of prudential measures in the WTO.
17. The representative of Hong Kong, China had no objection to the Japanese proposal but called
for caution as to the nature of the link to be  drawn between the work conducted by the suggested
bodies and the Committee's ability to eliminate trade barriers and liberalize financial services.  Not all
of the mentioned organizations were relevant to the Committee's work.  The principles issued by the
Basel Committee, IOSCO, and IAIS were probably the most relevant to prudential measures and thusthe Committee might want to look at those.  The Codes in Transparency and Special Data
Dissemination Standards by the IMF and  the Principles of Corporate Governance by the OECD
might be relevant.  His delegation had doubts as to the relevance of the work by IASC, on accounting
standards, and by IFAC, on auditing standards, as they aimed at the comparability and reliability of
financial information.  As acceptable standards for financial reporting should be set out by therespective international regulatory bodies, those issues  were not directly relevant to the work of the
Committee.  The Forty Recommendations of the Financial Action Task Force, aimed at combating
laundering of money originated from drug trafficking, did not seem to be strictly relevant to
prudential matters.
18.  The representative of Malaysia expressed difficulties with the Japanese proposal.  The main
question in relation to the information gathering exercise was its final objective and what it could lead
to.  The proposal suggested to look at the issue in  terms of the ongoing negotiations, getting ideas as
to practical difficulties in the implementation of standards, and to see whether countries had
encountered problems in the implementations of the international standards being set for the financial
sector.  In doing so the main concern was that the Committee would be discussing developments in
prudential regulation, which could result in the Committee becoming a forum where delegations
would be discussing, and even quest ioning, measures and regulations which were in place at the time.
His delegation would not be very comfortable in discussing in the Committee prudential measures
adopted by other countries.  Any moves to discuss prudential measures, which would undermine the
provision on prudential measures in the Financial Annex, would be something that Malaysia would
not support.  Additionally, the Basel Committee and IAIS allowed for their Member countries,
including developing ones, to express their views and concerns on the standards as they were beingdeveloped and thus Malaysia did not see the value added in having the Committee, which deals with
trade liberalization and not prudential standards, discussing those standards.  Should information be
gathered, there would certainly be a discussion and then a debate on eligibility of measures having
implication for the prudential carve-out.  Malaysia shared Korea's position on the proposal.
19. The representative of Switzerland shared Japan's view on the difficulty in reaching a common
definition of the concept of prudential measures in the framework of the Annex on Financial Services.
He also shared the concern that if Members were to achieve high levels of liberalization it was
necessary to ensure that it did not create instability  in the financial markets.  For that reason it was
necessary to have a deeper understanding of the various regulatory systems put in place by Members
and take into account the different position of countries in the liberalization process.S/FIN/M/28
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20.  The representative of the United States reiterated that his delegation did not support further
discussion of the provision on prudential measures as it was an extremely important provision
resulting from intensive work and reconciliation of a number of significant interests.  Thus far no
compelling evidence had been found that excessive prudential regulation among countries had
constrained trade in financial services, at least to the same degree as explicit limits on market access.With regard to the work of international regulatory bodies, his delegation strongly supported that
work as helpful to raising standards world-wide, but believed that that work was independent from
trade negotiations.  In particular, while the Committee could consider the improved regulatory
framework around the world as Members proceeded with negotiations on financial services market
access liberalization, the Committee should not seek to amend, interpret, enforce or encourage
implementation of those internationally agreed standards.  On the Japanese proposal, his delegation
would not object to the Secretariat compiling information on the standard setting process or themonitoring of implementation, as outlined in section II of the proposal.  However, much of that
information had been recently compiled by the Financial Stability Forum and, rather than duplicating
efforts, his delegation recommended that the Secretariat draw on it to the extent feasible.  In view of
the large number of organizations involved, and the volume of information that could be provided by
them, his delegation would not support formal contacts or inviting presentations until after thecompiled documentation had been reviewed.
21.  The representative of Canada supported a dialogue with relevant international organizations.
The exercise could be done without encroaching on issues regarding the prudential carve-out.
Regarding the questions posed by the Chairman, Canada was of the view that information should be
sought and that at first the exercise could focus on the Basel Committee, IOSCO, and IAIS, to make itmore manageable.  As to the type of information and the process, his delegation was interested in the
transparency element of the work and suggested to have written submissions before any decision on
oral presentation be taken, so as to have a more incremental and controlled exercise.  Should oral
presentations be considered appropriate, the Committee could have one or two at a time.
22.  The representative of Australia supported the Japanese proposal to gather information from
bodies such as the OECD regarding definitional is sues.  Gathering information would be especially
useful for areas such as financial services classification issues, for example the OECD Forum on
Harmful Tax Practices could make a meaningful contribution, as could the World Bank and academic
institutions of many Members.  Any request to international organizations should focus on gathering
information on matters before the Committee such as classification and modes of supply.  The
information should address key developments affecting financial services and the way in which they
are traded, for example growth of supply through el ectronic commerce compared to growth of supply
through physical presence.  At the same time the Committee's work should not be weighed down with
deliberations about consultations with international bodies.
23. The representative of Norway said that improving the relationship with the outside world was
a very important part of his country's policy in the WTO and strengthening the working cooperation
with relevant international organizations was an im portant part of that as well.  Therefore, Norway
welcomed the proposal from Japan.  Given the sentiments of the Committee, however, his delegation
concurred that at that stage the effort should be limited to receiving written submissions.  Concerning
the content of the information, he shared the concerns expressed that the exchange of information
should not developed into debates on legitimacy of prudential regulations.  As to the organizations to
be contacted, those suggested by Canada should be the starting-point.
24. The representative of Mexico welcomed the proposal but was not in a position to comment on
its content.  However, to be consistent with his delegation's position in other bodies of the WTO he
said that Mexico could not support an exercise consisting of consultations with other international
organizations.  Any Member was free to consult with the suggested international organizations and
then share its findings with the Committee if so wished.S/FIN/M/28
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25. The representative of Chile supported the Japanese proposal and viewed it as an information
gathering exercise without prejudice to what the Committee could do at a later stage.  The Committee
should go step by step in the process, first a compilation of information and then some institutions
could be invited to present their information. The representative of Brazil saw merit in the Japanese
proposal.  However, since the proposal was still under consideration in capital he reserved his position
in relation to the types of entities, scope and type of information to be sought.  As to format, he
concurred with suggestions that an incremental approach be adopted.
26.  The representative of the European Communities favoured the Japanese proposal.  Like
others, her delegation would be concerned if the Committee were to try to define the scope of the
clause on prudential measures, something that should not be done as reformulation of regulation was
going on in a number of countries.  Because of that reason, however, it seemed useful to have
whatever information the standard setting bodies co uld give the Committee, not with a view to taking
those standards as part of WTO commitments per se  but to see what was happening in the world of
regulation.
27. The representative of Japan responded to some of the comments made.  As to a possible
impact on the financial services prudential measures clause, he reiterated that his delegation also
objected to getting into the issue of prudential measures.  While the standards in the area of financialsupervision and regulation were of a non-binding nature and pursued the stability of the financial
system around the world, those standards might not meet WTO Members' needs in conducting
supervision and regulation.  Financial supervision and regulation should be conducted in a way that
reflected the level of development of the financial industry in individual countries.  As to the
suggestion that the proposed exercise would duplicate work, the intention was to facilitate futurenegotiations in the sector through enhancing the understanding of the issues by the trade negotiators,
which were not normally from the financial sector.  Japan was flexible on the type of information and
the bodies to be addressed.  Its preference would be to focus on core standards developed by the Basel
Committee, IOSCO, and the IAIS.
28. In summing up the Chairman noted that some delegations were not in a position to support
the proposal, while others favoured it but with a more gradual and controlled approach.  Questions
about the objective of the proposal had also been raised.  Some suggested different ways in which
delegations could have access to the information in question.  Given that the proposal was still under
consideration by some delegations, the Committee decided to revert to the matter at the following
meeting.
Item D: Recent Developments in Financial Services Trade
29. The Chairman invited delegation to provide information on regulatory or economic
developments that affected financial services trade.  No interventions were made.
Item E: Request for Observer Status- International Association of Insurance Supervisors
30. The Chairman recalled that at the previous meeting the Committee had had a third exchange
of views on a communication from the Internationa l Association of Insurance Supervisors (IAIS),
dated 27 March 2000, requesting observer status in the committee.  While some delegations favouredpostponing any decision on the request until the conclusion of the debate on observership of regional
intergovernmental organizations in the General Council, other delegations strongly supported the
granting of observer status, be it permanent or on ad hoc basis.  In that context, it was decided to hold
informal consultations to assess whether the Committee could reach a decision on this matter rather
than postponing it for indefinite period of time.  Such informal consultations were held on the20 September 2000 and had revealed no change in delegations' positions.  In the informal
consultations delegations had raised questions:  a) Whether the General Council had made anyS/FIN/M/28
Page 7
decision that all the subsidiary bodies should not consider any request of observership, and
b) Whether any subsidiary body has considered or granted observership since the General Council
started its discussion on the matter.  He invited the Secretariat to address those questions.
31. A representative of the Secretariat indicated that in relation to the first question the answer
was no, the Committee was free to decide whether to grant the status and the conditions to be attached
to that granting.  The relevant legal instrument has been in place since 1996, i.e. Rules of Procedures
for Sessions of the Ministerial Conference and Meetings of the General Council (WT/L/161 of 25 July
1996), which in relation to the observer status of intergovernmental organizations stated the
following:  "Request for observer status shall be considered on a case-by-case basis by each WTO
body to which such a request is addressed, taking into account such factors as the nature of the work
of the organization  concerned, the nature of its membership, the number of WTO Members in the
organization, …".  In relation to the second question, based on that decision various Committees hadgranted observer status on Ad hoc  basis, for example in 1999 the CTD granted observer status on
ad hoc  basis to 11 organizations including Organization of African Unit, the South Centre, the Islamic
Development Bank,
 and the Arab Maghreb Union.
32. The Chairman felt that it served no purpose to continue having the item on the Committee's
agenda indefinitely if delegations were not in a position to reach a consensus on the matter.  He urged
delegations to exercise flexibility and allow for some decision that day.  If the Committee were todecide to grant observer status on ad hoc  basis, an invitation to attend the meeting as observer would
be extended to the IAIS when an item of its interest would be on the agenda of the Committee.
Should the Committee agree on postponing the decision on this matter for an indefinite period of time,
he suggested that a short reply be sent to the IAIS informing them of such a deferral.
33. The representative of Egypt was not in a position at that stage to approve the request of the
IAIS;  his delegation would favour the Chairman's proposal to inform the requesting organization that
decision on its request was pending until the issue was resolved in the General Council. The
representative of Pakistan added that unfortunately there was an impasse regarding the observer status
of intergovernmental organizations in all WTO bodies, whose resolution required political will.  Thesituation was embarrassing, however, Pakistan's position had not changed as a resolution was stillpending in the General Council.  He also favoured postponing the decision on the request until the
Committee had more guidance from the General Council.
34. The representative of Norway supported the granting of the observer status to IAIS.  He
acknowledged that the Committee was not able to positively decide at that stage, but did not see the
need to convey such a situation to the applicant because indirectly such a reply would contribute to aconclusion.  He hesitantly supported taking the item off the agenda for the time being but did not
support sending a reply to the IAIS.  The representative of Australia concurred.  The information
provided by the Secretariat confirmed that committees should utilise the autonomy granted to them todecide on observership.
35. The representative of Malaysia looked at the issue from a systemic point of view, and echoed
the sentiments expressed by Egypt and Pakistan.  On the comments by Norway, he said that the
Chairman could decide on how to proceed since his delegation felt that the IAIS would need to beinformed that at that stage its request was not under consideration, since the item should not be on the
Committee's agenda until the General Council resolved the matter.
36. The representative of Hong Kong, China noted the Secretariat's explanation of what the
administrative position was within the WTO.  It seemed that the Committee could not agree on the
specific request, so his delegation could agree that that particular request be taken off the agenda.  Hestressed that if there were to be another request he would like to see the Agenda item reconsidered.
The representative of Pakistan clarified that his delegation was not opposed to any particularS/FIN/M/28
Page 8
organization per se ;  his concern was more of a systemic nature and thus he supported the taking of
the item off the agenda until the resolution of the issue by the General Council. The representative of
Egypt added that the procedures referred to by the Secretariat existed prior to the latest discussions on
the issue at the General Council in July; since then those procedures were no longer on the table.  Hisdelegation could support taking the item off the agenda for the time being without sending a reply toIAIS.
37.  The representative of Switzerland supported the granting of observer status for IAIS.  He
observed its universal and transparent nature, the importance of its work in the area of international
regulation of insurance, and the fact that it had observer status in other international organizations.
All of those features should be taken into consideration in taking a decision. He echoed the position
stated by Hong Kong, China as to how to proceed with the request.
38. The representative of the European Communities wondered whether it was necessary to send
a letter to IAIS conveying the deferral.  The Secretariat had already acknowledged the original
application indicating that the matter would be under consideration, which she thought would still be
the case even if the item was not on the Committee's agenda because it would be considered in
relation to the discussion at the General Council.
39. The Chairman concluded that the Committee could not reach a consensus on the granting of
observer status to IAIS at that stage given the parallel discussion on observer status of
intergovernmental organizations.  He suggested to take the item off the agenda until the resolution of
the matter by the General Council.  The Committee so agreed.
Item F: Date of the Next Meeting
40. The Chairman proposed to hold the follow ing meeting of the Committee on 27 November
2000, as a tentative date.  It was so agreed.
Item G: Other Business
41. No issues were raised under this agenda item.
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