PRESS/18
26July1995
WTO Director-General Hails Financial Services Accord
MrRenato Ruggiero, Director-General oftheWorld Trade Organization, today welcomed
thesubstantial consensus reached intheWTO onafinancial services agreement. Thefollowing is
hisstatement.
"Members oftheWTO deserve much credit today. Seldom hasthecause ofmultilateralism
soevidently succeeded. Countries havecome together totakethebenefits ofmore thanthree years
oftough negotiations anddifficult policy decisions inthisverysensitive sector. They haveunderstood
thatinacting together thesumoftheirefforts wasfargreater thaneachindividual component.
"Naturally, withonemajor trading partner unable toimprove thecommitments itmade in1993
ortooffernon-discriminatrory access toitsmarket, thismustbeasecond-best result. Butitisavery
good second best. Thecommitments which havebeentaken aresubstantial. They willbring new
opportunitiesandgreatersecurityandpredictabilityforinvestorsinbanking,insuranceandotheractivities
inthefinancial services sector. They willhelppromote merchandise aswellasservices trade where
access to,andthefunctioning of,financial services iscritical. Andtheywillhelpfacilitate newfinancial
flows todeveloping andtransition economies.
"After two-and-a-half years, allgovernments willbefreetoreview theirpositions. Some may
feelabletogofurther withtheircommitments afterthattimeanditistobehoped thattheUnited States
willthenfeelabletocome backwithin themultilateral, MFN framework ifitdoesnotdosoearlier.
Inanyevent, thisisonlythebeginning ofaprocess ofprogressive liberalization inthefinancial services
sector. Wewillre-launch negotiations throughout theservices sector within fiveyears. Thatwill
beavaluable opportunity tobuild ontoday'sundoubted success."
95-2180 MORE PRESS/18
Page2/3
TheWTO Agreement onFinancial Services
Thedealinanutshell
Ofsome 76WTO Members withcommitments inthefinancial services sector, around 30
(counting theEUasone)offered improvements inthenegotiations which leduptothisagreement.
Because thecommitments varysowidely, itisdifficult togeneralize ontheirpractical significance.
Nevertheless, some elements arerelatively common.
Themostevident practical change, inmany countries, willbetheappearance ofmore foreign
banks, securities firms andinsurance companies inthemarket; theavailability ofbanking, securities
andinsurance services soldacross theborder byoverseas companies; andtheprovision ofasset
management andother financial services bywholly, orpartially, foreign-owned companies. Theother
sideofthepicture isthatforcountries which areactual orpotential exporters offinancial services,
opportunities fortheirbanks, securities firms andinsurance companies aregoing tobeconsiderably
enhanced through thisagreement. Forthose already present inoverseas markets, theconditions under
which theydobusiness maybeimproved ortheirability tooffernewfinancial products andservices
enhanced.
Thenature ofthecommitments include, insome cases, improvements inthenumber oflicences
available fortheestablishment offoreign financial institutions; guaranteed levels offoreign equity
participation inbranches, subsidiaries oraffiliates ofbanks andinsurance companies; removal or
liberalization ofnationality orresidence requirements formembers oftheboards offinancial institutions;
andtheparticipation offoreign-owned banks incheque clearing andsettlement systems. While the
emphasis intheschedules ofcommitments isonopening upmarkets andbinding entry conditions,
theWTO services agreement recognizes theneedforadequate prudential regulation ofallbanking
andinsurance service providers.
These newcommitments build ontheverysubstantial commitments secured intheUruguay
Round. Thefullschedules ofcommitments inthefinancial services sector willbeavailable publicly
shortly, astheyareforother services sectors
Background onServices intheWTO
TheGeneral Agreement onTrade inServices (theGATS) wasoneofthemajor achievements
oftheUruguay Round andnowforms anintegral partoftheWorld Trade Organization 'slegal
framework. TheGATS covers allservice sectors, including financial services, andiscomposed of
twoelements. Thefirstelement isthesetofrulesanddisciplines which apply toallWTO Members;
thesecond isthe"schedules ofspecific commitments".
The"schedules" areanalogous tothetariff schedules which govern themarket access
commitments ofeachWTO Member withrespect tomerchandise goods. Theservices schedules, each
ofwhich amounts toalegally-enforceable, binding undertaking onthepartoftheMember concerned,
contain commitments onindividual service sectors andservice activities which define theconditions
foraccess tothemarket.
Keyprinciples are:Most-Favoured Nation (MFN) which guarantees thataMember willnot
discriminate among Members supplying aservice, and"national treatment" which guarantees that
governments through theirregulations andlawsdonotdiscriminate infavour ofdomestic service
providers attheexpense ofoverseas orforeign-owned service providers. Where Members havebeen
MOREPRESS/18
Page4
unable toguarantee MFN treatment inaparticular service activity theyhaveentered aso-called "MFN
exemption" -though these arenormally verylimited innumber andscope. Where fullNational
Treatment cannot beaccorded, orother limitations onmarket access areimposed, thefactmust be
entered inthenational schedule.
Itwasneverexpected,indeedneverpossible,thattheschedulesofservicescommitmentsresulting
fromtheUruguay Round negotiations could create immediate free-trade inservices worldwide. These
commitments areafirstinstalment ofliberalization which willbeextended progressively through further
rounds ofservices negotiations. Justasimportant isthebinding nature ofthecommitments sofar
made. They provide secure andpredictable conditions fortrade inservices and,more especially, for
overseas investment byservices companies.
Why special negotiations onfinancial services?
AttheendoftheUruguay Round some 76countries hadcommitments onfinancial services
intheirschedules ofinitial commitments. However, therewasaviewamong some industrial countries
thatthecommitments intheschedules ofatleastsome Members were notsufficiently forthcoming
towarrant afinalsettlement. Inparticular, theUnited States announced, in1993, thatitwould take
anMFN exemption onsome aspects offinancial services unless theschedules wereimproved. Ineffect
thismeant thattheUSwould discriminate among foreign financial service providers, offering more
access tothose trading partners whoopened theirmarkets onareciprocal basis.
Inorder toavoid suchanoutcome itwasagreed thatthedeadline forentering MFN exemptions
andamending schedules inthefinancial services sector wasextended untiltheendofJune1995 (six
months aftertheestablishment oftheWTO). Thenegotiations tosecure newimproved commitments
began intheSpring of1994. AttheendofJune1995, afterseveral rounds ofintensive negotiations,
theUnited States announced thatitremained dissatisfied withtheresults obtained. Asaconsequence
itwould remove mostofitsofferonfinancial services andtakeanMFN exemption forthewhole of
thefinancial services sector -while safeguarding theposition offinancial services companies already
operating intheUSmarket.
Recognizing thedanger ofallother significant participants inthenegotiations downgrading
theirownoffers, theEuropean Union proposed thattheend-June 1995deadline beextended untilJuly
28,1995toseeifthedealcould besalvaged -ifnecessary without theparticipation oftheUnited States.
Thiswasagreed, andallMembers undertook toconsider theextent towhich theycould maintain and
implement theirbestoffers onanMFN basis atleastforalimited period oftime.
How doestheFinancial Services agreement work?
Ineffect theagreement means thatthebestoffers negotiated overthepasttwoyears and,
especially, thelastfewmonths, withtheexception ofthatoftheUnited States, willbeimplemented
foraninitial period uptoNovember 1,1997. Atthatpoint, Members willagain haveanopportunity
(during thefollowing 60days) tomodify orimprove theiroffers onfinancial services schedules and
totakeMFN exemptions inthesector. Itmaywellbethatnewnegotiations onfinancial services will
takeplace atthattime.
TheProtocol towhich thenewfinancial services schedules areannexed isopenforacceptance
until30June1996inorder toallow Members timefordomestic ratification procedures. TheProtocol,
andtherefore thecommitments, willenterintoforce30daysafteracceptance byallMembers concerned.
If,by1July1996, allconcerned Members havenotaccepted theProtocol adecision willbemade
within thefollowing 30daysastowhether ornotitcanenter intoforce. During theperiod prior to
entry intoforce Members haveundertaken nottotakemeasures which would beinconsistent withtheir
future commitments.
END