RESTRICTED
WORLD TRADE S/FIN/M/7
26July1995
ORGANIZATION
(95-2160)
Committee onTrade inFinancial Services
REPORT OFTHE MEETING HELD ON21JULY 1995 MORNING
Note bytheSecretariat
1. TheseventhmeetingoftheCommitteeonTradeinFinancialServiceswaschairedbyAmbassador
ChristerManhusenofSweden,sinceMr.FrankSwedlovecouldnotcometothemeeting.Thediscussion
followed theagenda contained inAirgram WTO/AIR/131.
2. Onthereview andconsideration ofdraftfinalschedules andMFN exemptions, theChairman
reminded delegates thatatthelastformal meeting oftheCommittee on30June, delegates agreed to
recommend totheCouncil forTrade inServices toadopt aDecision (the"Decision ontheApplication
oftheSecond Annex onFinancial Services" indocument S/L/6) which extended theperiod inwhich
countries wereallowed tomake changes totheirschedules andMFN exemptions until28July. This
Decision wassubsequently adopted bytheCouncil. Delegations alsoreaffirmed inthatmeeting of
theirwillingness tocontinue efforts toachieve asuccessful conclusion ofthenegotiations andtoexplore
possible ideas thatwould preserve theimproved offers made bycountries. Since then, suchefforts
havebeenmade.
3. Thedelegate fromtheEuropean Community explained itsproposal tomaintain thebestoffers
ofcountries, including notonlywritten submissions butalsoindications made bilaterally throughout
thenegotiation process, onanMFN basisforalimited period oftime. Adecision taken atMinisterial
levelconfirmed thisposition subject toanumber ofconditions: onewastodefine thetimeperiod
oftheagreement tountil31December 1997. Itwasasomewhat shorter period thanmany delegations
might haveexpected, butthisperiod should notbetoolongsinceanagreement without theparticipation
oftheUnited States wasnotanidealsituation. Another important condition wasthatacritical number
ofcountries decided totakethesame line. Ifthese conditions weremet,theCommunity wasprepared
tomaintain itsbestoffer andtogoahead withtheproposed solution.
4. TheChairman invited countries toinform theCommittee oftheirpositions regarding theE.C.
proposal andtoconfirm theirpositions relating totheschedules andMFN exemptions. Delegations
wererequested inaletter fromMr.Frank Swedlove toallMembers dated 12Julythattheymade their
positions known toothers bythismeeting. Inresponse tothis,thedelegate from Canada supported
theE.C. proposal andurged afewremaining countries thathavenotyetsignalled support forthis
proposal torecognize theimportance ofreaching anagreement andmaintaining theirbestoffers on
anMFN basis. Inorder tosecure atrulyMNF-based deal,however, itwasnecessary thattheagreement
wasmade among asmany Members aspossible which bound liberalization measures inmarket access
andnational treatment putforward inthelastweek ofJune, andthattheoffers hadfew,ifany,MFN
exemptions. Thedelegate fromChile indicated thatitwasmaking additional improvements toitsoffer
submitted on23Junethrough bilateral meetings. Itwaswilling tomaintain itsbestoffer reflecting
theagreement reached inthelastweek ofJuneoverthetimeperiod proposed, insofarastheother
Members oftheCommittee maintained theirbestoffers. Chile didnotintend toapply anyMFN
exemptions, andencouraged others toproceed similarly topreserve thecredibility oftheWTO and
theGATS. Chile'snewconditional offer would becirculated early inthefollowing week.S/FIN/M/7
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5. Speaking onbehalf oftheASEAN countries, thedelegate from Malaysia mentioned thatthe
ASEAN countries hadgoneasfarastheycould inoffering improvements intheircommitments, and
reminded delegates oftheimportant principle ofprogressive liberalization intandem withcountries '
abilities andeconomic development. Itwasalsorecalled thattheagreement wasasingle undertaking
reflecting abalance ofrights andobligations andwasbased onshared responsibility. Thebitter irony
wasthatthedelegation thathadchosen presently tobeintheperiphery ofthenegotiations wasthe
onethatfought thehardest tosecure success inthenegotiations. Thedelegate expressed appreciation
oftheE.C. initiative, which would provide thebasis tosafeguard themeaningful results ofthe
negotiations, andwould allow anexpectation thatthesituation might move inthedirection thatcountries
aimed forinthenottoodistant future. TheASEAN Members wished tostress theirpreparedness
tomaintain theirbestconditional offers asof30June1995, andwere prepared toassume anMFN
commitment tothefullest extent possible, while hoping thattheothers would dothesame. Thedelegate
added thattheefforts currently under waytosalvage thedealmustcontinue inatransparent manner
andbecarried outingood faith, andsidedeals would notbehelpful totheprocess.
6. Hong Kong feltthattheoffers onthetabletowards theendofJune, while notperfect, provided
anadequate basis tosecure apermanent unconditional agreement. Theinterim agreement thatwas
being considered wasverymuch asecond bestagreement inthatsense. However, inviewofthedelicate
position inwhich thenegotiations lay,thedelegate welcomed theinitiative oftheEuropean Community
andwasprepared tokeepHong Kong'sbestofferonthetable, provided thatasignificant number of
other participants including some keyparticipants didthesame. Hong Kong urged those whohad
sofarnotmade theirpositions cleartodosoinapositive manner asamatter ofgreat urgency. On
thetimeperiod oftheinterim agreement, thisdelegation wasflexible, butpreferred tohavealonger
duration thanthetwoandahalfyears suggested, andwondered whether theperiod before theentry
intoforce oftheProtocol could notbeshortened from theoneyearproposed.
7. Poland expressed itsreadiness toconfirm thebestoffers onthetableprovided thatothers did
likewise, despite thedisappointing situation compared tooriginal expectations. Hungary similarly
expressed itswillingness tomaintain itsofferonanMFN basisfortheproposed period oftime, despite
thedifficult situation created bytheposition ofonepartner, onthecondition thatanoverwhelming
majority ofparticipants didlikewise. Switzerland wasalsoprepared tomaintain itsbestofferdated
13Junefortheduration oftheproposed interim period, although thissolution wasnottheidealsolution.
Theinterim period should beusedtomake steady progress infurther liberalization oftradeinfinancial
services.
8. Brazil, insupporting theE.C.proposal, indicated thatitwould maintain itsbestofferwhich
would include some further improvements thatresulted from thelastround ofbilateral negotiations
during thelastweek ofJune. Themain improvements were thefollowing: 1)Brazil would extend
fullnational treatment tocommercial presence ininsurance services except reinsurance, 2)improve
market access ininsurance brokerage byallowing natural persons toactasinsurance brokers and
permitting foreign participation indomestic brokerage firms uptoalimitof50percent oftotalcapital
andonethirdofvoting stock, 3)enteranother phase-in arrangement fornational treatment ofservices
notperformed byfinancial institutions andnotcurrently recognized asfinancial services under domestic
regulations, suchascredit cardandfactoring services. Thelimitonforeign participation ininsurance
brokerage firms would notapply tofirms established before 3July1986. Thisimproved offer was
conditionalontheagreementbeingan"MFNminusonlyone"agreement,andotherpartnersmaintaining
theiroffers. Onthetimeperiod, Brazil preferred three years, butcould goalong withtheproposal
fortwoandahalfyears.
9. TheCzech Republic indicated thatitsbestofferbased onMFN treatment submitted on15June
wasstillonthetable, andthatitwasready tojointheproposal bytheE.C., provided thatacritical
massofcountries didthesame. Mexico andNorway alsoexpressed theirintentions tomaintain theirS/FIN/M/7
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bestoffers onanMFN basisforaperiod oftimetobedetermined, solongastherewasacritical mass
ofcountries thatdidthesame. South Africa, afterfurther consultations, wasprepared tomaintain
itsbestoffer onanMFN basis inanyagreement thatmight becollectively bereached inthese
negotiations, although itwashoped thatparticipation would beascomprehensive aspossible. New
Zealand alsopreferred tomaintain itscurrent offerinthecontext ofabroadly-based fixed termMFN
agreement, butitwould becrucial thatabroad range ofitstrading partners, especially themajor
economies intheAsia-Pacific region, werealsoparticipating insuchanagreement. Inorder toprovide
stability andpredictability fortheindustry, anyfixed-term agreement should beforasubstantial period
oftime, andthisdelegation preferred aperiod oftimewhich would leadnaturally intothenextround
ofnegotiations onliberalization inservices, butthere wasclearly aneedforsome flexibility inthe
actual timeperiod tobedecided.
10. Japan wasmaking every effort tocreate asituation inwhich allMembers including theUnited
States would commit themselves totheMFN principle; Japan hadappealed totheUnited States at
theSummit levelinthisregard, andwasalsointerested intheoutcome oftalksbetween theE.C.and
theU.S.onthisissue. Japan wasnowconstructively considering theproposal bytheE.C.foraninterim
agreement.AlthoughJapanwasmakingeveryefforttowardaconstructiveconclusionofthenegotiations,
ithadnotyethadenough timetostudy fullytheimplications ofsuchanagreement.
11. Romania expressed itswillingness tomaintain itssupport fortheE.C. proposal andtokeep
theexisting offeronanMFN basis. Pakistan indicated disappointment attheresponses ofmajor trading
partners inthenegotiations onmovement ofnatural persons including theE.C. Thiscountry would
beready tojointheconsensus ontheE.C. initiative, ifsignificant improvements incommitments in
thisareawereseenintheareaofmovement ofnatural persons. Theofferremained onthetableuntil
adefinitive decision wastaken.
12. TheSlovak Republic accepted thetimeperiod proposed bytheE.C.andwasoftheviewthat
acritical number ofcountries hadtosupport theagreement. Israel appreciated therescue operation
bytheE.C. andwould maintain itscurrent schedule ontheunderstanding thatother Members acted
accordingly andmaintained theirschedules. Thedelegate ofUruguay hadrecommended itsauthorities
tomaintain itsofferontheunderstanding thatthegreatest possible number ofcountries would adopt
thesameattitude. Turkey alsosupported theE.C.proposal. Australia continued tohopethattheUnited
States would reconsider itsposition, butnevertheless welcomed theE.C.initiative. Thisdelegation
welcomed theefforts ofthedelegation ofJapan inconstructively considering theE.C.proposal. The
offers putonthetableshould bethebestoffers indicated during thecourse ofthefinalweek ofthe
negotiations. Australia hadmade suchanindication, andafinalofferincorporating thisimprovement
wasnowdistributed which deleted alimitation onmarket access withrespect tobanking inpage34
ofthedocument GATS/SC/6; which wasalimitation ontheacquisition ofthevoting shares ofan
authorized bank. Thisdelegation urged other delegations todolikewise inwriting assoonaspossible.
Onthequestion oftheduration ofanagreement, Australia favoured aperiod ofperhaps fiveyears
inorder toprovide predictability andstability, butwasprepared togoalong withtheE.C. proposal
forashorter period. Morocco alsoexpressed fullsupport totheE.C. proposal andwasprepared to
maintain itsbestoffer onanMFN basis.
13. India mentioned thatitwaslooking favourably ontheproposal touphold multilateralism and
theMFNprinciple,butitwouldbeofenormoushelpifitsmajortradingpartnersappreciateditsconcerns
andshowed movement forward intheareaofmovement ofnatural persons. India washoping that
oneofthemajor trading partners which hadrecently indicated aproposal intheareaofmovement
ofnatural persons, which wasalsotheMember thatwastaking theinitiative intrying toarrive atan
interim agreement infinancial services, would takeonboard atleastsomeofitsconcerns. Korea thought
thatgovernments should notgiveupefforts toobtain aglobal consensus byurging thereturn tothe
MFN principle ofonemajor trading partner, andremained circumspect while evaluating furtherS/FIN/M/7
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developments.
14. Argentina indicated thatitwould maintain itsoriginal offer andsupport theE.C. initiative,
although thisdoesnotinclude oneofthemostimportant actors inthenegotiations. Thetimeperiod
proposed bytheE.C. should givetheflexibility toenable those whohadnotbeenabletojointhe
agreement todosointherelatively short term. ElSalvador alsoindicated thattheycould goalong
withtheE.C.proposal, andencouraged theUnited States toreconsider itsposition. Egypt supported
multilateral efforts, butrecognized alinkage withresults obtained intheareaofmovement ofnatural
persons; theE.C. proposal infinancial services along withitsofferinmovement ofnatural persons
were stillunder study.
15. TheEuropean Community added thattheadditional offeroftheE.C.intheareaofmovement
ofnatural persons wassubject tothecondition thatother partners would alsomake additional
commitments, andthattheE.C.would maintain thisofferifthefinancial services negotiations could
bebrought toasuccessful conclusion. Thisdelegation alsoexpressed hopethatadecision could be
made intheverynextdayswiththeknowledge ofwhattheoffers ofthecountries were, andurged
itstrading partners, inparticular Japan andKorea, toconclude theirconsideration ofitsproposal
urgently, andtoindicate theirsupport andparticipation intheverynearfuture. TheChairman summed
upthediscussions onthisitembymentioning thatagreatmajority ofMembers hadindicated thatthey
wouldmaintaintheirbestoffersonthetable,ontheconditionthatasufficientlylargenumberofcountries
didthesame. Heurged those delegations whose schedules would beattached totheProtocol tosend,
asquickly aspossible, aformal communication totheSecretariat withtheschedules tobeattached.
TheChairman alsonoted thatthere waswidespread support fortheE.C. proposal, andthatthedate
of31December 1997would beagreeable tomostdelegations interms oftheduration oftheagreement.
Some delegations hadmade reference tothenecessity ofimproved offers onthemovement ofnatural
persons. Itwasnecessary fortheCommittee torevert totheE.C. proposal andother related issues
atitsnextmeeting.
16. Onprocedural issues, theSecretariat haddistributed informal noteswhich setoutpossible drafts
ofaProtocol (the"Second Protocol totheGATS") andarelated Decision (the"Decision Adopting
theSecond Protocol totheGATS") tobeadopted attheconclusion ofthepresent negotiations. Drafts
werealsoprepared fortwoDecisions (the"Decision onCommitments inFinancial Services" andthe
"Second Decision onFinancial Services") tobetaken bytheCouncil forTrade inServices inorder
tomake thenecessary arrangements related totherights ofcountries tomodify theirschedules and/or
MFN exemptions afteracertain period oftime. Asalready mentioned, thisperiod wasnowproposed
tobe2years andahalf,until31December 1997.
17. TheSecretariat explained fourslight textual changes toearlier drafts oftheProtocol andthe
Decisions. Itwould alsobenecessary toaddadatetothefirstparagraph oftheSecond Decision on
Financial Services which would betheagreed datefortheendoftheinterim agreement. Onthequestion
ofthelegalbasisfortheprocedure, theSecretariat explained thattherewasnodoubt thattheseDecisions
could betaken bytheCommittee andtheCouncil forTrade inServices byconsensus, andthatthe
Council forTrade inServices rather thantheGeneral Council wasempowered totaketheDecisions
being discussed; there weremany precedents tosuchdecisions being taken byconsensus which had
hadmore far-reaching consequences totheContracting Parties totheGATT 1947 thantheDecisions
proposed tobetaken inthecontext ofthepresent negotiations. Their legalvalidity hadnever been
challenged, andtheyhadbeenaccepted byPanels as"relevant GATT provisions". Onthecapacity
oftheCouncil forTrade inServices totakesuchdecisions, Article IVparagraph 5.oftheWTO
Agreement provided thattheCouncil forTrade inServices should oversee thefunctioning oftheGATS,
anditwasclear thatanything thattheGeneral Council could dointhismatter theServices Council
could alsodo.Itwasalsoclear thattheSecond Decision being considered didnotintroduce any
fundamental changes intherights andobligations ofMembers, since itmerely extended thetermofS/FIN/M/7
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therights andobligations provided under theSecond Annex, whose third paragraph explicitly gave
totheServices Council theauthority toestablish anyprocedures necessary fortheapplication ofthat
Annex. Therefore, aDecision toextend thetermoftherights andobligations thattheAnnex provided
seemed tobeabsolutely within thecapacity oftheServices Council toestablish necessary procedures.
Infactcountries werenowworking onthebasis ofasimilar Decision taken bytheServices Council
on30June. Delegations expressed satisfaction withthisexplanation.
18. TheEuropeanCommunityproposedthattheCommitteeadoptthe"DecisionAdoptingtheSecond
Protocol" inthemeeting andrecommend totheServices Council thatitadopt thetwoDecisions being
discussed initsmeeting scheduled intheafternoon. Thedelegation thought thatthiswastheappropriate
manner toproceed inorder toeffectively create anoption toputintoeffect theinterim solution now
discussed intheCommittee, andtoavoid thecontinuation ofuncertainty withregard totheconclusion
ofthenegotiations. Bytaking these Decisions, nocountry would becommitted totheoffers onthe
tableasofyet,andcountries would stillbeabletorevise theirschedules andMFN exemptions until
28July, asprovided forintheDecision oftheServices Council taken on30June. With theaddition
ofthedateof1November 1997 inparagraph 1.oftheSecond Decision, thedocuments should be
adopted astheywere.
19. Onedelegation reiterated itsquestion astowhether theperiod ofoneyearduring which the
Second Protocol wasopenforacceptance which wasprovided inparagraph 2.ofthatProtocol was
truly necessary, given thattheduration oftheinterim agreement wasnowproposed tobeonlytwo
andahalfyears. After discussion, itwasagreed, however, thatthisperiod foracceptance ofoneyear
should bemaintained sinceithadbeennecessary toallow asufficiently longperiod forsome countries
tocomplete theirratification procedures, andthiswasnotaffected byanydecision ontheduration
oftheagreement. Another delegation expressed concern ontheword "negotiations" inparagraph 3.
oftheSecond Decision, andasked forclarification whether thisimplied thatthere wasarequirement
thatnegotiations tookplace during theinterim period. Itwassubsequently confirmed indiscussion
thatthiswasnotthecase; itdidnotmean thatanynegotiations theCommittee would berequired
tooversee were mandatory.
20. Onedelegation wished toconsult itsauthorities onwhether toagree totheadoption ofthe
Decisions inthemeetings oftheCommittee andtheServices Council onthisday,expressing concern
thattheDecisions tobetaken might notbefullyindependent from thecontent ofthecommitments
tobemaintained during theinterim period. Itwastherefore decided toholdanother meeting ofthe
Committee intheevening ofthesame dayat5p.m.todiscuss procedural issues.