RESTRICTEDWORLD TRADE
ORGANIZATIONS/FIN/M/34
26 April 2002
(02-2442)
Committee on Trade in Financial Services
REPORT OF THE MEETING HELD ON 18 MARCH 2002
Note by the Secretariat
1. The Committee on Trade in Financial Services held a meeting on 18 March 2002, under the
Chairmanship of Mr Jan-Peter Mout (The Netherlands).  The agenda is contained in airgram
WTO/AIR/1735. An annotated agenda for this meeting was prepared by the Chairman (JOB(02)/18).
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 seven WTO Members had not yet ratified the Fifth Protocol,
namely Bolivia, Brazil, Dominican Republic, Jamaica, Philippines, Poland, and Uruguay.
3. The representative of the Dominican Republic said that the Protocol had been ratified by
Congress but, due to changes in the government procedures, the notification to the WTO was delayed.
She expressed the hope that formal notification to the WTO would be made in the near future.
4. The representative of Uruguay said that the Protocol was still before the Commission of
International Affairs of the House of Representatives.  He reiterated that the content of the offer
presented by Uruguay under the Fifth Protocol had already been incorporated in Uruguay's legislative
framework.
5. The representative of Poland said that, with the amendment of the Law on Public Trade in
Securities, the last obstacle to the ratification of the Fifth Protocol had been overcome. This
amendment concerned, inter alia , Article 52 of that law, which granted permission to suppliers from
WTO Members to conduct brokerage activities in the form of branch offices. The formal ratificationof the Protocol would take place within six months.
6. The representative of Jamaica said that her country was not opposed in principle to the
ratification of the Protocol. However, priority had been accorded to the rehabilitation and
consolidation of the financial sector, with a view to strengthening the legislative and regulatory
framework. Existing laws had been reviewed and new pieces of legislation, such as the Insurance Act,were at the moment before Parliament. A new regu latory body - the Financial Services Commission -
was established last year and had oversight functions over non-banking financial institutions, such as
unit trusts and insurance companies. The process of consolidation and rationalization had contributed
to the growth and resurgence of the financial sector, which was becoming profitable. There were also
clear indicators of a return to financial stability. Jamaica expected to be soon in a position to adhere tothe Protocol.
7. The representative of Brazil said that the Fifth Protocol had been approved by all the pertinent
Committees, both in the Chamber of Deputies and in the Federal Senate.  The last step pending for the
approval and subsequent acceptance of the Protocol was a vote in the Plenary Session of both the
Chamber and the Senate.  The date for these two votes had not yet been decided upon. Lastly, heS/FIN/M/34
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reiterated that the delays in accepting the Protocol were not due to substantive problems but were
solely the result of procedural and administrative hurdles.
8. The representative of the Philippines said that, since the last time he updated the Committee
on the status of the procedure, the composition of the Legislature had changed and the previous
legislative session was concluded. He added that, under the domestic procedures, the ratificationrequired a reiteration of the process. He emphasized that that was a strictly domestic procedural
matter, and expressed the expectation that the current session would finally ratify the Protocol.
9. The representative of the European Communitie s encouraged those Members to ratify the
Protocol as soon as possible.
10. The Committee decided that the Chairman would contact the delegation of Bolivia, which
was absent during this meeting, to request it to provide updated information on the status of its
ratification procedure at the next meeting.  The Committee also took note of the statements made.
B. TECHNICAL ISSUES
11. The representative of Thailand said that according to paragraph 16 of the Negotiating
Guidelines and Procedures for the Negotiations on Trade in Services, “existing subsidiary bodies shall
be utilized to their maximum capacity”. She then  posed a few questions on the classification issues
raised in the proposals submitted by Canada and Switzerland to the Council for Trade in Services inSpecial Session, documents S/CSS/W/50 and W/7 1, respectively. Paragraph 9 of the proposal
submitted by Canada (S/CSS/W/50) stated that one of its objectives for the GATS negotiation in
financial services was to further "the benefits of liberalization by addressing certain ambiguities in the
GATS framework as it applies to financial services.  For example, definitional or classification
problems may result in uncertainty as to the sche duling and interpretation of commitments.  As such,
we encourage all Members to use the classification list outline in the Annex on Financial Services
when scheduling commitments in financial services”. She wondered what ambiguities in definitional
or classification problems in financial services Canada had encountered.
12. Paragraph 11 of the proposal submitted by Switzerland (S/CSS/W/71) stated that "the current
classification of financial activities, despite its flexibility, poses a certain number of problems that itwould be wise to solve. Some Members were unable  to use it because their domestic regulatory and
supervisory structure is different.  Certain new financial products (such as electronic merchanting
systems) may be classified in any one of several categories.  Finally, the clear convergence between
insurance and banking activities tends to make the current distinction somewhat obsolete.  We
propose that the Committee on Trade in Financial Services (CTFS) discuss these problems with a
view to determining the extent to which the classification will need to be reviewed”. She then asked
the following questions:
(i) Could Switzerland please provide specific examples of classification problems that
should be resolved in financial services (besides electronic merchanting systems and
finance/insurance)?
(ii) Does Switzerland have a definite view on  how electronic merchanting systems should
be classified?
(iii) What are the real-life examples or rationales for Switzerland to state that the clear
convergence between insurance and banking activities tends to make the current
distinction somewhat obsolete?  What does Switzerland think would be more “up-to-
date” classification for insurance and banking activities?S/FIN/M/34
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(iv) If Switzerland is of the view that CTFS should discuss these classification problems,
why hasn’t it brought these issues up at the CTFS?
13. The representative of Thailand made the suggestion that answers to the above questions be
provided at the Committee on Trade in Financial Services under this agenda item. In Thailand's view,
technical issues related to financial services should be discussed in the Committee, in the light of thetime constraints that Members were facing with respect to request and offers.
14. The representative of Canada took note of the questions raised by Thailand and said that he
would respond to them during the discussions on financial services to be held in the Council for Trade
in Services in Special Session, because no expert on financial services was available at the meeting.
15. The representative of Switzerland gave preliminary answers to the questions. On the first
question raised by Thailand, he said that the proposal submitted by Switzerland contained sufficient
examples. He said that, in reviewing the schedules of specific commitments, he noted that someMembers had had difficulties in using the current sectoral classification. Therefore, for coherence and
transparency, it would be useful if Members could reach an agreement on the use of one single
classification. That did not mean that such an agreement must be reached, but it would be certainly
useful with a view to enhancing transparency. Regarding the second question raised by Thailand, he
said that Switzerland had not a definitive view on how the classification should be organized. That iswhy his country suggested that the issue could be discussed in the Committee, which was called on to
deal with technical issues. The issue could be usefully discussed when practical problems be raised in
the negotiations.
16. The Chairman proposed to discuss how to move forward with this agenda item under the item
on Organization of Further Work.
17. The Committee took note of the statements made.
C. RECENT DEVELOPMENTS IN FINANCIAL SERVICES TRADE
18. The Chairman recalled that at the meeting he ld in October, the Committee heard presentations
by the delegations of the European Union, the United States, and Argentina. The latter, entitled
Argentina and the International Financial Architecture was subsequently circulated as documentJOB(01)/151. A detailed description of these three presentations could be found in the report of that
meeting, contained in document S/FIN/M/32. In a ddition, at the last meeting, the United States
presented an informal document, identified as JOB(01)/161, as a follow-up of the previous
presentation. This communication provided more detail on the regulatory process that led to the
development of implementation regulations for the enforcement of the Gramm-Leach-Bliley Act. He
also recalled that, as agreed at the last meeting, delegations would be invited to comment on all the
communications referred to, and to raise other issues of relevance to the work of the WTO in the fieldof financial services.
19. The representative of the European Communities said that the communication submitted by
the United States showed that the system of prior comments was very rigid and did not necessarily
meet all the different types of regulatory systems. It was typically American. He said that this was a
general administrative procedure in the United States, and did not relate specifically to financialservices. He asked whether there was a financial sector specificity or whether this was a general point
of view that was valid for all service sectors, including financial services.
20. The representative of Canada found the communication from the United States very
interesting, particularly as regards transparency in prior comment procedures. He believed that that
was an aspect that could be further explored in the Committee. Transparency in the regulatoryS/FIN/M/34
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process, be it in the drawing-up or modification of the rules, was an aspect to which the Canadian
regulatory system attached great importance. This involved the consultation with different participants
of Canada's civil society, as well as a broad range of practices, such as the effective communication of
laws and related regulations, a clear drafting of the legislation, the publication and codification of
laws, appropriate monitoring of procedures carried out by regulators, and appeal procedures.Transparency as regards consultation with the public in general had proved to be beneficial and
helped Canada to improve its regulatory proceedings. Canada's system consisted of general regulatory
procedures, as well as certain procedures specific to the financial sector. That gave all participants in
the sector an opportunity to contribute in a constructive manner, giving regulators insights on the
costs and benefits of developing certain types of regulations. Prior consultations enabled Canadian
regulators to ensure better compliance with legislation once this legislation entered into force.
21. The representative of Brazil said that he had not heard anything that could not be applied with
respect to any service sector. The comments made by the European Communities were relevant in that
regard. Brazil still remained to be convinced about th e existence of an specificity in financial services
that could justify particular disciplines and obligations regarding transparency. Discussions on
transparency – both in this Committee and in the Council for Trade in Services in Special Session -
had shown that the GATS contained enough obligations in its Article III.3. The problem was the lackof satisfactory implementation of these obligations by Members. Finally, he asked the United States
what measures had been taken to ensure the implementation of the Gramm-Leach-Bliley Act at the
sub-federal level.
22. The representative of Japan said that public comment was a useful tool to improve
transparency of domestic regulation. The issue was of particular relevance in the financial sector,
where need for a regulatory framework was higher. It was important then to examine the means to
ensure that domestic regulations would not be excessively trade-restrictive, for instance by enhancing
transparency in this sector. Due to the need to ensu re financial stability, transparency in licensing and
qualification procedures was all the more relevant in this particular sector. Provisions on prior
comment allowed a more business-friendly environment.
23. The representative of Australia, commenting on the submission by the United States,
endorsed the point that consultation by regulatory authorities with the stakeholders who were affected
by proposed regulation would ultimately lead to higher-quality regulation when this was enacted.
Australia had a system in place, which required prior comment on draft regulation. That procedures
enabled to identify any loopholes or anomalies in the draft regulation before this was enacted. The
case-study presented by the United States was very interesting, and raised relevant issues both for this
Committee and the Working Party on Domestic Regulation.
24. The representative of the United States highlighted some of the elements identified in
document JOB(01)/161, and which were major components of the United States transparency process.
They included the provision of advance notice and comment period for draft regulations; the
publication of final regulations, including a summary of comments received on draft regulations; and
providing a reasonable time between the publication of final regulations and their entry into force. Hethen replied to a few of the comments made thus far. On the European Communities' comments, the
representative of the United States said that many stakeholders of European origin took advantage of
this system. On the point raised by Brazil about the sectoral specificity of this system, he said that
paragraph 11 of the submission made reference to "the special nature of the financial services sector
(its crucial importance for the stability of national economies and trading systems) and the consequenthigh degree of regulation of this sector", and showed the importance of transparency for the financial
sector. On the cross-cutting work carried out in the Working Party on Domestic Regulation, he said
that, given the difficulty in predicting what the outcome of negotiations under Article VI:4 might be
and the specificity of the financial sector, the United States was interested in discussing ways toS/FIN/M/34
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increase transparency in this sector. And this had been highlighted in the negotiating proposal
submitted to the Council for Trade in Services in Special Session.
25. The Chairman said that the submission by the United States triggered a very interesting
debate, although it was not his intention to summarize it. He concluded by saying that it would be
useful to continue this discussion since further work could be done on this particular issue in theCommittee. He encouraged Members to make written contributions to this debate. He also noted that
overlaps between the work in this Committee and the Working Party on Domestic Regulation should
be avoided to the extent possible.  The Chairman proposed to revert to this item at the next meeting.
26. The Committee so agreed.
D. BRIEFING SESSION BY THE INTERNATIONAL MONETARY FUND
27. The Chairman recalled that at the previous meeting, the representative of the International
Monetary Fund made a statement under Other Busine ss, suggesting to conduct a briefing session on
the Fund/Bank Financial Sector Assessment Prog ram (FSAP).  Such a session could include a
discussion of the background to the FSAP, its relationship with the Fund’s economic surveillance,
country coverage, procedures, and the main components of the analysis, including, for example the
institutional and legal framework, macro-prudential analysis, and stress tests. The complete statement
was subsequently circulated as JOB(01)/163. As agreed at that meeting, the Committee would revertto this item, with a view to taking a decision. He said that his informal consultations on this matter
indicated that all delegations favoured the organization of such a seminar. He therefore proposed that
the Committee agreed to hold the briefing session on the margins of the next cluster of services
meetings, on the basis of the suggestion made by the International Monetary Fund (JOB(01)/163).
28. The representative of the United States had no objection to the briefing session. However, he
suggested holding that session closer to the July clusters of services meetings, in order to benefit from
capital-based representation.
29. The representative of the International Monetary Fund said that having the session in July was
acceptable, and that the idea was to hold it as close as possible to the negotiating session on financial
services in the Council for Trade in Services. He also said that the Committee on Cooperation withthe WTO (a working group of the IMF Executive Board) held a meeting on 14 March, and discussed
the outcome of the Doha Ministerial Conference and the preliminary implications for the Fund. In the
course of those discussions, executive directors from a number of countries expressed particular
appreciation for the initiative to hold this semina r, with the idea to explore links and synergies
between the two processes –the negotiations on financial services in the WTO and the FSAP in the
Fund- while respecting the mandate of both instit utions and coherence in overall policy advice. The
ultimate goal would be to ensure that further liberalization of financial services was conducive tofinancial sector stability, which was the most impor tant issue for the FSAP. The Fund saw the coming
seminar as an interactive process, where questions and views could be exchanged between the
Fund/Bank representatives and trade negotiators.
30. The representative of Brazil had no objection to the idea of holding such a seminar.
Negotiators could benefit from the experience of the Fund in this area. He suggested that information
on the agenda and the issues to be discussed be circulated in advance for the consideration of capital
based experts.
31. The Chairman agreed that it would be important that information was circulated before the
meeting. He proposed that his successor and the Secretariat got in touch with the IMF, to make sure
that documentation be available on time for the seminar. About one month in advance could beenough. He also proposed to hold the seminar in the course of the July cluster of services meetings,S/FIN/M/34
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back to back with the meetings of the Committee and with the discussions on financial services at the
Council for Trade in Services in Special Session.
32. The Committee so agreed.
E. ORGANIZATION OF FUTURE WORK
33. The Chairman recalled that at the previous meeting, he announced that he would consult
delegations on the issue of organization future work.
34. The discussion was held informally. At the end, the Chairman provided the following
summary:
(i) Almost all delegations considered that, in keeping with paragraph 16 of the
Negotiating Guidelines and Procedures, subsidiary bodies should be used to their
maximum capacity. The overlap between the activities of the Committee and those of
other subsidiary bodies (particularly the Committee on Specific Commitments and theWorking Party on Domestic Regulation) should be avoided. This concern about
possible overlaps was raised in particular with respect to the issues of the distinction
between modes 1 and 2, and Domestic Regulation. However, as was stated by some
delegations, horizontal discussion of these issues in one subsidiary body did not
preclude discussion about the implications for financial services in this Committee. Itwas also pointed out that subsidiary bodies should not be precluded from taking up
technical issues raised in the negotiating proposals submitted to the Council for Trade
in Services in Special Session. Thailand's initiative regarding classification issues was
a clear example.
(ii) In general, Members were open to discuss most of the issues contained in the
annotated agenda for this meeting, bearing in mind the question of overlap. It was
clear that in order to make progress and to focus on the sector specificity of the issues
just mentioned, discussions should be based on submissions by Members.
(iii) The point was made that the incoming Chairperson should continue these
consultations in order to organize the Committee's activities productively.
(iv) Finally, the Chairman proposed to keep the agenda as it stood. He reminded Members
that item B (Technical Issues) provided the opportunity to take up technical issues,
such as classification, as was done by Thailand. In addition, the agenda item on
Recent Developments in Financial Services Trade provided the opportunity to
continue discussing transparency-related is sues, on the basis of the submission by the
United States and others. The possibility of discussing issues related to e-finance was
also mentioned by one delegation.
35. Finally, the Chairman proposed to take note of his statement, and revert to this issue at the
next meeting.
36. The Committee so agreed.
F. DATE OF THE NEXT MEETING
37. The Chairman proposed that the Committee hold its next meeting during the next cluster of
services meetings.S/FIN/M/34
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38. The Committee so agreed.
G. OTHER BUSINESS
39. No issues were raised under Other Business.
H. APPOINTMENT OF THE CHAIRPERSON
40. The Chairman recalled that according to the Rules of Procedures, the Committee should elect
its Chairperson at the first meeting of the year, effe ctive at the end of such meeting.  However, given
that the consultation on that matter by the Chairman of the Council for Trade in Services had not yet
concluded, he proposed that the formal election of the Committee's Chair for this year and the hand
over took place at the beginning of the next meeting.
41. The Committee so decided.
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