RESTRICTED
WORLD TRADE S/FIN/M/4
19June1995
ORGANIZATION
(95-1636)
Committee onTrade inFinancial Services
REPORT OFTHE MEETING HELD ON7JUNE 1995
Note bytheSecretariat
1. Thefourth meeting oftheCommittee onTrade inFinancial Services waschaired byMr.Frank
Swedlove ofCanada. Thediscussion followed theagenda contained inAirgram WTO/AIR/98.
2. After theChairman reported thatthelistofobservers forthemeeting wasunchanged from
thelastmeeting,thedelegatefromChilereportedonrecentdevelopmentsinnationalfinanciallegislation.
Anewlawhadbeenapproved byParliament thatmodernized banking legislation. Thiscomplemented
legislation adopted in1994, which included measures thatpermit diversification ofinvestment by
insurance companies, mutual funds, pension funds andinvestment funds, improve thestandards of
capital market regulation andstrengthen private riskclassification. Adraftlawunder discussion in
Parliamentshouldstimulatetheparticipationofinvestmentinstitutionsinfinancinginfrastructureprojects.
Inthebanking sector, adraftlawwastobesenttoParliament soon. Thelawwould remove anumber
ofrestrictions, allowing banks toestablish insurance brokerage subsidiaries abletoperform factoring
andsecuritization aswellassubsidiaries permitted toperform advisory andleasing services. Itwould
alsoharmonize regulatory norms withtheBISstandards.
3. Onthestatus ofdraftrevised schedules andMFN exemption lists,theChairman reported that
sofar,sixteen countries hadsubmitted draftrevised schedules. They wereAustralia, Brazil, Canada,
Colombia, theDominican Republic, theEuropean Community, Hong Kong, Japan, Korea, Mexico,
Morocco,NewZealand,Norway,SouthAfrica,SwitzerlandandtheUnitedStates.Eightothercountries
hadsubmitted written indications oftheiroffers. They were Chile, theCzech Republic, Poland,
Romania, Singapore, theSlovak Republic, Turkey andVenezuela.
4. TheChairmaninviteddelegationsthathadsubmitteddraftrevisedschedulesorwrittenintentions
togivefurther information withrespect totheiroffers. Venezuela indicated thatithaddecided to
introduce substantial improvements initsoffer. Themain features were thefollowing: binding of
market access forforeign financial institutions intheformofbranches, subsidiaries, oraffiliates with
upto100percent foreign ownership; binding ofmarket access forforeign insurance andreinsurance
companies intheformofsubsidiaries oraffiliates withupto100percent foreign ownership; binding
ofnational treatment withregard tocommercial presence ofaffiliates, subsidiaries andbranches of
foreign banks andother financial institutions; binding ofnational treatment withregard tocommercial
presence ofaffiliates offoreign insurance companies; andbinding ofcross-border supply forreinsurance
services. ThelistofMFN exemptions remained unchanged.
5. Hungary indicated thatitsconditional offer would besenttotheSecretariat verysoon. It
contained acommitment topermit theestablishment ofdirect branches offoreign financial institutions
attheendofacertain transitional period. Itwasalsoready toremove market access limitations in
Mode 3(commercial presence) forinsurance intermediation, factoring andallpayment andmoney
transmission services, aswellastoremove market access limitations inservices auxiliary toinsurance.
Theofferalsoextended thecoverage ofcommitments tomoney broking, provided fullmarket access
forassetmanagement (excluding custodial services) inMode 3andremoved market access limitationsS/FIN/M/4
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forsettlement andclearing services, alsoinMode 3.
6. Morocco hadsubmitted adraftrevised schedule. Itincorporated allaspects ofliberalization
made possible bythenewbanking lawofJuly1993. Therevised offerdidnotinanywaylimitnational
treatment, norputlimitations oncreating newbanking institutions. Theoffer alsospelled outthat
when foreign suppliers tookcontrol ofexisting banking institutions, theyshould dosoinconformity
withthenewlaw.
7. Chile explained thatitsrevised offerwould provide thepossibility forforeign banks tooperate
through branches andwould eliminate thediscriminatory income taxonforeign banks.
8. TheCzech Republic indicated themain features ofitsoffer. Itoffered animprovement in
insurance thatreduced monopoly rights ofexisting suppliers tocompulsory motor thirdpartyinsurance
andairtransport insurance. Commercial presence would notberequired forsupply ofairandmaritime
transport insurance covering goods, aircraft, hullandliability. Therequirement thatamajority of
themanagementboardofaninsurancecompanyhaveresidenceintheCzechRepublicwouldberemoved.
Thesectoral coverage ofbanking andother financial services would beextended toinclude provision
andtransfer offinancial information andauxiliary financial services. TheCzech Republic wasalso
ready toremove theMFN exemption based onreciprocity forestablishment ofcommercial presence.
Asasteptowards fullconvertibility ofitscurrency, anewForeign Exchange Lawwasexpected to
enter intoforce attheendoftheyearatthelatest, which would further improve payment andtransfer
conditions forcurrent andcapital transactions related tospecific commitments andwould permit an
improvement intheschedule regarding consumption abroad.
9. Malaysia indicated modifications toitsofferto:increase thenumber offoreign senior managers
allowed incommercial presence offoreign banks andinsurance companies fromonetotwopersons;
remove therequirement toconduct acceptable training programmes forMalaysians asacondition for
entry offoreign specialists andexperts; increase thenumber offoreign nationals inrepresentative
offices aswellasfinancial leasing companies andcharge cardcompanies. Malaysia alsooffered to
bindnewproducts offered bybanks operating inMalaysia; bindgeneral reinsurance subject toa
quantitative limitonthenumber ofentrants; raisethelimitonforeign equity holding infinancial leasing
andstockbroking companies from30percent to49percent; raisethelimitonforeign equity holding
ininsurance companies from30to49percent uponlocalincorporation ofbranches offoreign insurance
companies; andrelaxthepresent 40percent limitontheamount oftotalcredit facilities thatcompanies
controlled bynon-residents arepermitted toobtain from foreign-controlled banks.
10. Japan expressed itscontinued willingness tocontribute toasuccessful conclusion oftheprocess,
andinformed participants thattheInsurance System Reform Billhadbeenpassed intheDieton31
MayandthatitintendedtoimplementonanMFNbasisthemeasuresregardingfinancialservicesdecided
asaresult oftheU.S.-Japan talksandalsothederegulation package announced inMarch. Itwas
considering further improvement ofitsconditional offer, including theuseoftheadditional commitment
column, toreflect these developments. Itmade clear thatitwasstrongly committed totheMFN
principle.
11. TheChairman appreciated theefforts ofdelegations inannouncing these changes totheoffers
andstressed thathelooked forward toseeing allofthese changes putdown onpaper by15June.
12. Ontheprogress ofbilateral negotiations, onedelegation expressed disappointment thatlittle
realprogress wasyetbeing made andstressed theneedinthenextfewweeks forcountries toconsider
what newliberalization wasdesirable indomestic markets andtotranslate such intentions into
commitments andschedule them inacomprehensive way. Itreferred toitsproposal foraccepting
flexibility inscheduling staged liberalization. Inaddition toacallformore efforts fromparticipantsS/FIN/M/4
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whohavenotyetshown enough movement inannouncing andscheduling liberalization, thisdelegation
saidthatthebroad-based MFN exemptions tabled attheendoftheUruguay Round should beabandoned
tobring financial services fullyunder theprinciples andtheunderlying philosophy oftheWTO.
13. Twodelegations emphasized theequally important nature ofthenegotiations onmovement
ofnatural persons. Oneofthemreported thatalthough thereweresome encouraging signals ofpossible
offers inthatarea,there should behigher levels ofcommitments inorder toachieve balanced results.
Theability ofthiscountry tomaintain and/or improve itsoffer infinancial services wasinevitably
andinextricably linked withoffers received intheareaofnatural persons.
14. Onedelegation mentioned thatitwasfocused onobtaining agood outcome from these
negotiations inthetimeframe given andthatwhile there weresome good offers thathadbeenmade,
there weremany other offers thathadserious deficiencies. There wereoffers thatstillhadabsolute
barstonewentry inimportant sectors orcontained elements ofdiscrimination. There were offers
thatstopped shortofprotecting theacquired rights offoreign firms thatwereestablished andoperating
insome ofthemarkets. Thenewoffers andintentions indicated earlier inthemeeting were tobe
welcomed, butalotofwork remained. Itwasnecessary tomove forward veryquickly, asthetime
remaining wasextremely short. There were reasons tobepositive andhopeful, butalsoreasons to
beconcerned about thestatus ofthenegotiations. Thisdelegation alsocommented onaspecific problem
thatitconfronted withanumber ofcountries: some countries hadtabled offers thatlimited market
access tojointventures withforeign equity participation inaminority position. Anumber ofcountries
seemed tofeelthatbylimiting foreign share-holding tolessthan50percent, theentities concerned
would notbecovered asjuridical persons under theGATS. However, thiswould notnecessarily be
thecase, since notonlytheownership ofthecompany butalsoitscontrol wastaken intoaccount in
thedefinition ofa"juridical person ofanother Member" intheGATS.
15. Onedelegation stressed theimportance ofmaintaining anacceptable degree ofcomparability
amongthecommitmentsofdifferentcountriesandofkeepingrequestsmadetoothercountriesreasonable.
Negotiations should becarried outonthebasisoftheMFN andstandstill principles. Additional efforts
oftheSecretariat werealsorequested inensuring success. Another delegation pointed outthattime
wasrunning outandthatafailure toreach asatisfactory result inthese negotiations would senda
detrimental signal tothetrading world andwould notbodewellfortheWTO. Although some progress
hadbeenmade, much more effort wasrequired tosecure anMFN-based agreement. Thisdelegation
didnotinanywayenvisage aprolongation ofthenegotiations afterthedeadline andstrongly urged
allother participants tomake themost oftheremaining daysandtouseinfullthebilateral context
inordertodeliveragoodresult.Anotherdelegationexpressedconcernthatthegapbetweenexpectations
andconcrete commitments wasstillsubstantial. Themostdifficult stagewasstilltocome andallparties
should givedueweight tothedeadline forsubmission oftheschedules. Itwould beunwise andeven
irresponsible toassume thatsubstantial agreements could belefttofuture rounds ofnegotiations. In
anumber ofcountries, liberalization measures might benewanduntested, which could result insome
reluctance orhesitation tocommit tocurrent policies. However, thereshould beroom forsatisfactory
compromises among participants.
16. ThePhilippines reported thatithadpresented inbilateral meetings conditional improvements
toitscommitments, inorder toreflect the1994 reforms ofitsbanking system. Itwasirrevocably
committed tomarket reforms, butthese reforms should beprogressively translated intocontributions
inmultilateral negotiations. Progressive liberalization, thesingle undertaking andshared responsibility
were theessential ingredients forsuccess. Thecountry 'swillingness toassume greater obligations
infinancialserviceswouldbecontingentuponhigherlevelsofcommitmentsbyitsmajortradingpartners
intheareaofmovement ofnatural persons. Another delegation echoed earlier statements incalling
foralldelegations tocontribute andstressed thatanyfailure intheseextended negotiations would have
negative repercussions extending farbeyond thespecific interests ofthefinancial services sector.S/FIN/M/4
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17. Onprocedural issues, theChairman firstreminded delegations thatatthelastmeeting ofthe
Committee, theSecretariat introduced aninformal notesetting outapossible draftProtocol tobeagreed
attheconclusion ofthepresent negotiations. Atthatmeeting, participants felttheneedtoreflect on
thedraft, ortoconsult theirexperts incapitals. After some informal discussions withdelegations,
theChairman hadsensed apreference forasingle dateofentry intoforce, instead ofthe"staggered"
dates implied bythefirstdraft. Arevised draftProtocol hadnowbeenprepared withaprovisional
dateofentry intoforce of30July1996, which tookintoaccount thetimerequired bysome countries
togothrough theprocess ofdomestic ratification. Another important issue inthisregard waswhat
countries could orshould dointheintervening period between theconclusion ofthenegotiations at
theendofJuneandtheentry intoforce ofthenewcommitments. Thiswasrelevant tothequestion
raised atthelastmeeting onthestatus ofMFN exemptions which were suspended from entry into
force untilend-June, though ofcourse, itwasaquestion thatcovered other commitments aswell.
Ifsuchexemptions were notgoing tobemaintained afterthenewly negotiated commitments came
intoforce, itmight beenvisaged thatgovernments would undertake apolitical commitment, aswas
normal insimilar situations elsewhere intheGATT system, nottotakeanymeasures inconsistent with
theirnewcommitments pending theirentry intoforce. TheSecretariat hadprepared aninformal note
indicating adraftforapossible Decision tobemade bytheCommittee tothiseffect.
18. TheChairman added thatsome delegations hadasked whether theProtocol wastobesigned
onlybythose Members whowere making changes totheirexisting schedules andMFN exemption
lists, while therevised commitments would belegally binding obligations vis-à-vis allMembers on
anMFN basis. Heasked theSecretariat foritsviewandtheSecretariat indicated itsunderstanding
thattheanswer wasintheaffirmative.
19. Delegates felttheneedtoreflect further onthedraftProtocol andthepolitical commitment,
andtheChairman promised tocome backtoitatthenextmeeting oftheCommittee. However, the
Chairman invited delegations tocontact himself ortheSecretariat inregard toanyviews thattheymight
haveonthedraftdocuments andnoted thathemight holdsome further informal discussions onthese
matters.
20. TheChairman thenturned tothequestion offuture meetings. Aview hadbeenexpressed
totheChairman thatthere might beanadvantage inholding another meeting oftheCommittee after
thefinaldraft schedules hadarrived on15June, butbefore themeeting on29June, toprovide an
opportunity forcountries toexplain toother participants whattheyhaddoneintheirschedules. An
informal meeting oftheCommittee wasscheduled for26Juneinthemorning. Some delegations
expressed theirintentions toholdbilateral meetings on22and23June. TheChairman reminded
delegates thatthefinaldraftschedules, dueby15June, would bedistributed toallparticipants inthe
form theywere submitted andshould there beanychanges made after15June, delegations were
requested tosubmit thechanges totheSecretariat inanewdocument thatreplaced initsentirety the
earlier version.
21. TheChairman noted thatthere wasonlyoneweek togobefore 15June. Hestrongly urged
participants tosubmit theirfinaldraftschedules andMFN exemption listsbythisdateandnoted that
thiswould beanimportant element inachieving asuccessful conclusion tothenegotiations.