RESTRICTED  WORLD TRADE  
ORGANIZATION  S/FIN/M/45 
19 July 2004 
 
 (04-3098) 
Committee on Trade in Financial Services  
 
   
REPORT OF THE MEETING HELD ON 25  JUNE 2004 
 
Note by the Secretariat
1 
 
1. The Committee on Trade in Financial Services held a meeting on 25 June 2004, under the 
chairmanship of Ms. Miyon Lee (Republic of Korea). The proposed agenda is contained in airgram 
WTO/AIR/2343.  
2. Before proceeding with the adoption of the agenda, and in order to take advantage of the 
presence of the delegation of Antigua and Barbuda at the meeting, the Chairperson suggested that the proposed agenda items be taken up in the following order:  A) Acceptance of the Fifth Protocol to the 
GATS Embodying the Results of the Financial Serv ices Negotiations;  B) The GATS and the Annex 
on Financial Services – International Regulations  and Financial Services (Communication from 
Antigua and Barbuda et al.);  C) Recent Developmen ts in Financial Services Trade;  D) Technical 
Issues;  E) Date of the Next M eeting; and F) Other Business.  
3. The Committee adopted
 the agenda, as suggested by the Chairperson.  
4. The Chairperson drew Members' attention to the annotated agenda prepared under her 
responsibility contained in document Job(04)/72 and dated 11 June 2004.  Its purpose was two-fold:  firstly, to remind Members of the state of play of the items that had usually been discussed by the 
Committee; and secondly, to provide some thoughts on issues that might be tackled by the Committee 
as part of its activities during this year.  Thes e thoughts had emerged from her consultations with 
various delegations. The annotated agenda contained a last item entitled "Other Issues for 
Discussion", covering several issu es of a different nature that Members seemed to be willing to 
discuss. They became apparent during the debate that had followed the presentation by the OECD on 
insurance services at the previous meeting.  The Chairperson did not judge it appropriate to include a 
separate agenda item for individual issues, alth ough she felt that it was worth providing a forum. 
Therefore, she suggested that delegations, should f eel free to intervene under the agenda item that 
suited them best, either under Technical Issues or under Recent Developments  in Financial Services 
Trade.  
A. A
CCEPTANCE OF THE FIFTH PROTOCOL TO THE GENERAL AGREEMENT ON TRADE IN 
SERVICES EMBODYING THE RESULTS OF THE FINANCIAL SERVICES NEGOTIATIONS  
5. The Chairperson  recalled that three WTO Members ha d yet to accept the Fifth Protocol, 
namely:  Brazil, Jamaica, and the Philippines.  She invited those three Members to provide 
information on the status of their domestic processes. 
                                                      
1  This document has been prepared under the Secr etariat's own responsibility and without prejudice to 
the positions of Members and to their rights and obligations under the WTO. S/FIN/M/45 
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 6. The representative of Brazil
 said that he had no new developments to report. He added that 
the Fifth Protocol was still following due legislative process in his country.  
7. The representative of the Philippines  said that following the recent general elections in his 
country, the necessary draft resolu tion for the acceptance of the Protocol would have to be submitted 
to the soon-to-be organized Congress. There did not appear to be any significant obstacle, and it was 
only a matter of legislative process.  
8. The representative of Jamaica  said that since the financial crisis that had occurred in her 
country in the mid-1990s, the government of Jamaica had embarked on a process of policy, legislative 
and regulatory reform, aimed at enhancing the soli dity, effectiveness and competitiveness of both 
foreign and domestic firms in the sector, as well as ensuring effective consumer protection.  In the last 
few years, the financial sector, although resurgent, was still undergoing the necessary reform and 
consolidation.  Jamaica remained committed to  an open and liberalized financial sector. 
Notwithstanding, available evidence pointed to the critical need for adequate supervisory and 
regulatory frameworks to be in place to underpin long-term gradual liberalization.  This was a major 
objective of the government's policy and the proc ess was still under way.  Despite the fact that 
Jamaica had not yet ratified the Fifth Protocol to the GATS, it maintained a very liberal financial 
regime. For example, the main requirement for establishment in the banking sector was a higher 
capital adequacy requirement for foreign vis-à-vis  local banks.  In the insurance sector, full foreign 
equity ownership was allowed as long as certain ge neral requirements were met.  She concluded by 
saying that the ratification of the Fifth Protocol to the GATS was currently under discussion in 
Jamaica within the context of the country's prepar ation for participation in the current round of 
services negotiations. 
9. The Chairperson  expressed her appreciation for the information provided by the three 
Members and encouraged them to accelerate their internal procedures for the acceptance of the 
Protocol. 
10. The Committee took note  of the statements made and decided  to revert to this agenda item at 
the next meeting. 
B. THE GATS  AND THE ANNEX ON FINANCIAL SERVICES – INTERNATIONAL REGULATIONS AND 
FINANCIAL SERVICES  
11. The Chairperson  recalled that consideration of th e proposal submitted by Antigua and 
Barbuda and other Members, contained in document S/FIN/W/29/Rev.1, had to be postponed at the 
last two meetings upon the request of the proponents, which were non-resident delegations.  As 
agreed at the previous meeting, the item was included in this meeting's agenda, following 
confirmation by the representative of Antigua and Barb uda that he would be available to attend.  In 
order to tackle the issue, she suggested that sh e would invite the representative of Antigua and 
Barbuda to briefly remind Members of the proposal 's main features, and to comment on the remarks 
and questions made at the meeting on 6 October 2003.  After that, she would offer the floor for further 
discussion on the proposal.  She also invited Memb ers to make suggestions on how to proceed with 
the consideration of this issue. 
12. The delegation of Antigua and Barbuda  briefly recalled the objective of the proposal.  In its 
introductory statement of October 2003, the delega tion of Antigua and Barbuda had emphasized that: 
• the sovereign right of states to regulate and ma nage their crucial financial services sector was 
being challenged continually by some countries  who seem bent on usurping the role of 
international organizations such as the WTO in global governance;   S/FIN/M/45 
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 • there had been an unprecedented growth in the number of codes, standards and guidelines, 
including financial standards relating to mone y laundering, capital adequacy requirements, 
cross-border taxation and exchange of informat ion, that had been developed by plurilateral 
groups such as the OECD and the FATF, and with which they expected conformity from non-
members of these groups; 
• the best rules, codes and practices - and the on es that were most effectively implemented and 
policed - were those in which all states, large and small, had a real and meaningful role in 
elaborating; and  
• the inclusiveness and international legitimacy of financial standards, universally negotiated 
and universally applied, could best be accomplished through the provisions related to 
Domestic Regulation under Article VI of the GATS. 
13. The proposal sought to limit the impact of plurilateral standards on WTO Members, and 
promote the greater inclusiveness of small States in  the process of formulating standards, by placing 
them under the umbrella of the WTO instead of plurilateral organizations such as the OECD and 
FATF, which had limited membership. To this end, the proposal contained the following 
recommendations: 
• that small states acquire some measure of flex ibility in designating bodies responsible for the 
administration of their standard setting and co mpliance obligations under GATS and that, in 
particular, they should be given technical assistance in formulating and implementing 
standards with which they are expected to comply; 
• that a more explicit definition be given for what constituted a "relevant international 
organization" in footnote 3 of Article VI:5(b) of the GATS to ensure that all WTO Members, 
regardless of their developmental status and through technical assistance, have access to 
international processes aimed at setting standards; and 
• that small States who were expected to comply with these financial standards and codes be 
notified and subsequently accorded the opportunity to engage in consultations with the standard-setting members, bodies and institutions. 
14. At the meeting held in October 2003, a numb er of delegations had supported the proposal, 
some had sought further clarifications, while others had wanted to consult further with their capitals.  
15. The delegation of Antigua and Barbuda responded to some of the queries raised by 
delegations. He recalled that a suggestion had been made that the proposal could hinder the work being conducted in various plurilateral bodies on issues such as eradicating money laundering and combating terrorism, illegal tax ev asion and promoting a stable and secure international financial 
system.  Nothing could be further from the truth.   Moreover, Antigua and Barbuda had reiterated its 
commitment to, and solidarity with, these efforts and remained fully opposed to any diminution of 
progress on those fronts.  Rather, the explicit goal  was to work with other WTO Members to ensure 
that the process of setting and implementing  standards was as inclusive as possible. 
16. He also recalled a query on whether the proposal was meant to have limited application to the 
financial services sector, and if not, why it had not been raised in the Working Party on Domestic 
Regulation.  He said that the proposal was meant to have application in all sectors to which Article VI 
applied.  Antigua and Barbuda had chosen to introduce it in the Committee as the experience of small 
States was most pronounced in the financial services sector.  The proposal had been drawn up in 
direct response to that particular circumstance.  However, that did not preclude consideration by other 
relevant WTO Committees. S/FIN/M/45 
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 17. Antigua agreed that Article VI:5(b) was an interim provision.  However, the proponents 
believed that the current reference to internationa l bodies should be placed on a more secure and 
permanent footing, leading to greater harmonization of  international standards.   He therefore invited 
Members to help develop and expand upon the current formulation, and welcomed discussions on 
how this could be most effectively achieved. 
18. The observation had been made that, although the WTO was not a standard-setting body, the 
proposal sought to charge the WTO with responsibil ity for setting standards in the field of financial 
services.  Indeed, Antigua and Barbuda was mindful that the WTO's overarching aim was that of 
promoting the liberalization of in ternational trade in goods and services, and not its regulation per se. 
The WTO therefore could not be charged with excl usive responsibility for setting and maintaining 
regulatory standards.  And yet, to the extent that regulatory measures could affect trade, there was a 
precedent under the GATT, where the WTO collabora ted with international organizations which had 
specific responsibilities for the development, format ion and application of st andards and regulations 
that affected trade in goods. 
19. In particular, he mentioned the TBT and SPS Agre ements in this context.  Not only did they 
encourage WTO Members to participate in the work of international bodies that set standards, in accordance with Members' capac ities and levels of developmen t (see Article 2.6 and 3(4) 
respectively), but in some cases actually ascribed to the WTO a role in the notification and 
consultation process of developing these standards (e .g. TBT, Article 2.9).  They also contained very 
strong provisions designed to encourage the particip ation of developing countr ies in the formation of 
these standards. Indeed, international bodies we re to ensure the 'active and representative 
participation' of developing countries, taking into  account the special problems of developing country 
Members.  (See for instance Article  12.5 TBT, and Article 10(4) SPS.) 
20. In this regard, the representative of Antigua and Barbuda referred to a document that had been 
drawn to his attention by a delegate at the last  meeting, namely, the D ecision of the Committee on 
Principles for the Development of Internationa l Standards, Guides and Recommendations with 
relation to Articles 2, 5 and Annex 3 of the Agreemen t (Annex 4) of the Second Triennial Review of 
the Operation and Implementation of the Agreement on Technical Barriers to Trade.  In that 
document, Members highlighted the need to ensure that the principles of transparency, openness, 
impartiality and consensus, effectiveness and relevance, coherence, and specially the concerns of 
developing countries informed the development of inte rnational standards.  In particular, Paragraph E, 
entitled Development Dimension, underscored the importance of including developing countries in this process of standards setting: "13.  Constraints on developing countries, in particular, to effectively 
participate in standards development, should be ta ken into consideration in the standards development 
process.  Tangible ways of facilitating developing countries participation in international standards 
development should be sought.  The impartiality and openness of any intern ational standardization 
process requires that developing countries ar e not excluded de facto from the process.  With respect to 
improving participation by developing countries, it ma y be appropriate to use technical assistance, in 
line with Article 11 of the TBT Agreement.  Provi sions for capacity building and technical assistance 
within international standardizing bodies are important in this context." 
21. The proposal, likewise, exhorted Members to in clude small States in the formation of 
standards that affected trade in services.  Firstly,  membership of internatio nal organizations that set 
standards affecting trade in services, needed to be open to all WTO Members, regardless of their level of development, and those organizations were required to have in place a system and programme for the provision of technical assistance.  Secondly, the WTO should act as a contact point in the process 
of developing these standards in the relevant organi zations.  It therefore naturally expanded upon the 
practice of the WTO, in making developing countrie s part of the standard setting process, and in 
extending it to trade in services.  S/FIN/M/45 
 Page 5 
 
 
 22. It had also been claimed that his delegation' s proposal could off-set the carefully negotiated 
balance of rights and obligations among WTO Members.  He recalled, though, that the GATS was not 
an immutable instrument.  Indeed, if current obliga tions did not cater to the needs of the smallest 
Members, they must be made more representative and reflective of all concerns and interests.  The 
current balance in the GATS would not be to the be nefit of all Members, if small States were being 
effectively excluded from the formulation of standards that were harming their trade in financial 
services. The proposal, therefore, was only one st ep in the direction of redressing the current 
imbalance, via a means that was neither foreign nor c ontrary to the past practice or principles of the 
WTO. 
23. Finally, in response to the question as to whether there was a real need for the special 
delegation of administrative obligations and functions under Article VI to regional bodies, in light of 
the existence of GATS Article I:3, he reminded Me mbers that the proposal replicated requests and 
proposals made by small States in other Committees and under other WTO Agreements. The intent 
was to ensure that scarce resources in small States  were most effectively an d flexibly allocated and 
utilized.  Relevant proposals had generally been we ll received in other contexts, and his delegation 
hoped that it would also be the case here.  To the extent that the Agreement already allowed for this sort of delegation to regional bodies, the proposal  was meant only to clarify and/or reinforce that 
aspect. 
24. The delegation of Antigua and Barbuda hoped that  the responses helped to further clarify and 
reinforce the proposal.  He looked forward to furthe r exchanges on any of its aspects, and strongly 
believed that it warranted the full consid eration and support of the Committee. 
25. The representative of Mexico
 reminded the Committee that his country had made a series of 
recommendations and suggestions at the October m eeting. He recognized that, in spite of its 
importance, the issue was broader and could not be rest ricted solely to the financial sector.  That was 
the reason why he had suggested that many of th e concerns be incorporated in the work of the 
Working Party on Domestic Regulation, which was di scussing the possibility of drawing up certain 
disciplines that would apply to technical standard s including international standards. His delegation 
would be submitting a paper on Mexico's experience  with disciplines on technical standards which 
might be useful for the authors of this proposal. 
26. The representative of Canada  said that her country attached  great importance to assisting 
smaller economies in dealing with and implemen ting initiatives against international terrorist 
financing or money laundering, as well as strength ening financial sector regulation and stability, and 
tax competition rules.  Canada provided assistan ce on a bilateral and multilateral basis through a 
variety of programmes having direct and indirect appl ication in these areas.  For example, through the 
Canadian International Developmen t Assistance Agency, her country provided 8 million dollars to the 
Caribbean Regional Technical Assistance Centre, which had a mandate to assist capacity building in 
financial sector regulation supervision broadly,  including for the combat of money laundering and 
terrorist financing.  Canada had further committed 12 million dollars to the IMF and the World Bank 
financial sector reform strengthening initiative to assist countries having undergone a financial sector 
assessment to implement the recommendations. Another programme - the Canadian Cooperative 
Fund - was also available to provide technical assistance on these issues.  Through the Caribbean 
Financial Action Task Force Canada also helped to combat money launderi ng. Therefore, Canada 
concurred with the sentiments ex pressed in the proposal that technical capacity building was 
important. 
27. The representative of Barbados  said that his country supported the principles of this proposal.   
Any standards and rules, which were multilaterally  enforced and where mu ltilateral compliance was 
expected, should be de veloped and debated in the multilateral context.  The importance of 
inclusiveness could not be overstated.  Barbados did not see any incongruence between the proposal S/FIN/M/45 
Page 6  
 
 and the ability of plurilateral bodies to research, debate and recommend proposals on issues of 
international relevance, from the eradication of mo ney laundering to illegal tax evasion. Whether or 
not Members reached agreement on the specific changes recommended in the proposal, it could not be 
denied that plurilaterally developed standards, the imposition of compliance-re lated sanctions, and the  
chilling effect that ensued could undermine and, in so me cases, mortally ruin the financial sector of 
developing countries, especially LDCs and small economies.  Barbados urged other Members to 
continue to engage on the issues raised and confro nt the problems faced by small economies in that 
regard. 
28. The representative of Cuba
 said that Members had recognized the structural disadvantages of 
small and vulnerable economies, particularly in th e formulation and application of international 
commercial standards.  Ministers had agreed in Doha to look for solutions within the system in order 
to halt or reverse the threat to these economies.  She stressed that trade in services was critical for 
small economies.  If the subsidiary bodies of the Council for Trade in Services considered these 
proposals, this would contribute to an improvemen t in multilateral standards and benefit a small group 
of countries, which did not have the possibility or capacity to design international codes and standards 
on financial services.  
29. The representative of Japan  sympathised with the sponsors the proposal.  However, Members 
should be cautious when considering revising the current text of the GATS, from the standpoint of 
legal stability.  Before discussing specific provisi ons of the GATS, it would be worthwhile to see 
whether there was an alternative to address the con cerns expressed in the proposal.  It was noteworthy 
that paragraph 5(b) of GATS Article VI stipulat ed that in determining whether a Member was in 
conformity with the obligation under paragraph 5(a), for example with the requirements of objective 
and transparent criteria, account shall be taken of international standards of relevant international 
organizations applied by that Member.  Although international standards should be respected, this 
provision could be interpreted to mean that Me mbers were not necessaril y bound by international 
standards at all times.  Japan was reluctant to amend the GATS in accordance with the proposal under consideration.  If necessary, this should be disc ussed by other WTO bodies, since this was not an 
issue restricted to financial services. 
30. The representative of Norway
 supported the statement by Japan.  As a small but very open 
trading nation, Norway recognized that compliance with international standards could be resource-
consuming.  At the same time, the fight against money laundering, bribery, harmful tax competition 
and terrorist financing should be in the interest of all countries.  Consequently , technical assistance for 
drafting, implementing, and enforcement was of great importance, and Norway had offered such 
assistance to other countries, including Antigua and Barbuda.  Transparency and dialogue with 
affected countries were equally important and shoul d be encouraged.  The OECD had stressed that 
standards setting must be an inclusive process.  The Financial Action Task Force (FATF)explicitly 
recognized that countries had differe nt legal and financial systems, and could not be expected to take 
identical measures to achieve common objectives.  The revised 40 recommendations presented last summer set only minimum standards.  The global  nature of the financial system offered great 
potential benefits, but also raised important challe nges, for example in the areas of money laundering, 
terrorist financing, and harmful tax competition.  These challeng es were real and necessitated 
effective and timely responses.  For example, countr ies had the right to defend their tax base, and to 
promote financial stability and the protection of cons umers.  Norway fully supported the work of the 
FATF and the OECD initiative on harmful tax compe tition, designed at combating financial abuse in 
the global economy, as well as the work of the Ba sel Committee on Banking Supervision in the area 
of capital adequacy requirements and core principles  for effective banking supervision.  His country 
disagreed with any notion that these measures were in  place to protect the financial industry.  Rather, 
they were prudential and reflected the need to protect policy holders, the national tax base, and to 
combat money laundering and terrorist financing.  Norway could not support any proposal that could  S/FIN/M/45 
 Page 7 
 
 
 undermine these initiatives through the WTO system.  Norway would, however, continue working to 
ensure transparency and the widest possible participation in standard setting. 
31. The representative of the United States  said that the Preamble of the GATS recognized the 
right of Members to regulate services.  The GATS itself contained some disciplines with respect to 
regulations, for example transparen cy, national treatment and market access.  However, the United 
States did not believe that the GATS itself was the appropriate forum for the development of 
international financial standards.  However, from time to time, countries might choose to raise 
questions about a particular standard maintained  by a country affecting market access.  Other 
organizations, such as the Basel Committee on Ba nking Supervision, the OECD, and the FATF were 
much more involved in the development of standard s relating to issues raised  by Antigua and Barbuda 
and other Members.  The standards developed by th ese bodies did not create any obligations under the 
GATS.  However, many countries participating in such work adopted the standards because they 
either contributed to stable and tr ansparent financial regimes or helped combat terrorist financing and 
money laundering.  He agreed with the points made by Australia at the meeting in October 2003.  
Like Norway, the United States would like to draw Members' attention to the work of the IMF, World 
Bank, and the FATF, where Members were providing assistance to countries and territories that 
sought to comply with international regulatory st andards, in particular the FATF recommendations 
regarding money laundering and terrorist financing.   The United States also took note of Japan's 
remarks concerning the amendment of certain GATS  provisions and believed, after listening to the 
statement made by Antigua and Barbuda, that there were  other ways to take appropriate action.  In her 
view the key was how to ensure that all Members,  regardless of their development status, through 
technical assistance had access to the international pr ocess in the setting of standards.  Looking at the 
provisions of the GATS that were cited in the proposal, the United States was open to consider how a 
number of the goals could be achieved and remained open to further discussion.  
32. The representative of Trinidad and Tobago  said that the proposal rais ed issues that were of 
concern for many developing countries.  Her country acknowledged and supported the principles contained in the document and its general thrust. The proposals were very useful and could be used as a basis for further discussion on how to deal with  this serious problem.  Further consideration was 
merited.  
33. The representative of Hong Kong, China
 said that the answers provided by the representative 
of Antigua and Barbuda had clarified some of the issues raised in previous meetings.  It was 
interesting to hear that the proposals made would have application beyond the financial services 
sector.  He also took note that Antigua and Barbuda recognized the transitional nature of Article VI:5 
of the GATS, and that by putting forward this prop osal, was looking for a more permanent solution. 
The clarifications helped to understand the rationale  of the proposal.  In his view, there were two 
questions involved.  First, the setting of international standards,  which was perhaps not a subject 
matter for the WTO.  Antigua and Barbuda had indeed recognized that the main role of the WTO was not international standard-setting. Hong Kong, China looked forward to further exchange of views on 
how this issue could be taken forward.  The second question raised by the proposal did have relevance 
for the work of the WTO, namely the role of inte rnational standards and thei r relationship with trade 
in services and domestic regulations.  Internatio nal standards were important for trade in services, 
particularly when services were traded across bord ers.  Hong Kong, China recognized the importance 
of international standards in ensuring the stability of  the financial system not just domestically, but 
also globally.  He emphasized th e role of technical assistance for the implementation of these 
standards, especially by developing countries.  There was scope for further deliberation in the on-
going work of the Working Party on Domestic Regu lation concerning Article VI:4 of the GATS.  This 
was perhaps an area not yet thoroughly discussed.  Some of the elements in the proposal under 
consideration could be raised into th at discussion in the Working Party. S/FIN/M/45 
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 34. The representative of Australia
 said that the proposal raised some serious issues and 
suggestions, and could have far reaching impacts on Members' ability to establish and apply 
prudential and tax-related standards.  He agreed that there was a need to make progress in developing 
an open financial system underpinned by sound and sophisticated frameworks.  He highlighted the 
importance of technical capacity building;  Austra lia was committed to provi ding technical assistance 
to smaller nations and fostering cooperative arrangem ents in order to overcome any existing barriers 
to participation in in ternational initiatives. 
35. The representative of New Zealand  said that the proposal raised  some important issues.  He 
shared the caution expressed by others.  It was important to bear in mind that the work of bodies such 
as the Financial Action Task Force and the OECD in  this areas was intended to address clear and 
immediate problems, most particularly the challe nge of combating terror ism.  He acknowledged, 
however, the difficulties and burdens implied for small and developing countries.  New Zealand 
provided technical assistance to build the necessary capacity. He concurred with the comments made 
by Australia at the October 2003 meeting and today. 
36. The representative of the European Communities  asked the representative of Antigua and 
Barbuda to give more concrete examples of how regulations had impacted on his country's financial sector, and how they hindered trade in financial se rvices.  Secondly, he noted the outreach efforts 
implemented by the international standard setting or ganizations themselves, which were carrying out 
extensive programmes, in the context of which they consulted both developed and developing 
countries. Thirdly, he drew attention to the tec hnical assistance provided by European Union Member 
States and the European Commission.  Finally, he agreed that this was not only a financial services issue, and expressed doubts as to whether the Committee was the appropriate forum to discuss it. 
37. The representative of South Africa
 noted the reluctance of some Members to address GATS 
provisions on international standa rds and the insistence that these be debated in other bodies. She 
concurred the representative of Trinidad and Tobago th at the issue needed to be further discussed. As 
argued by the authors of the propos al, standards developed in other plurilateral organizations did 
restrict trade in financial services. The Committ ee should continue discussing this issue at future 
meetings. 
38. The representative of Chinese Taipei  said that the paper raised a very important and complex 
issue that many small economies were facing.  Ot her developing economies were also concerned by 
this problem. Given the international nature of financial regulation, compliance was particularly 
complicated and required substantial resources.  He had sympathy for the problems faced by many 
Members.  Nevertheless, he agreed that the WTO might not be an appropriate forum to address these 
problems. In addition, Members should be cautious  in opening GATS provisions in an attempt to 
alleviate the problem.  He supported the position of Trinidad and Tobago that the paper submitted by 
Antigua and Barbuda and other Members could be used as a basis for further clarification and 
discussion.  
39. The representative of Antigua and Barbuda  thanked the delegations that had endorsed the 
proposal.  He could not agree with the argument th at the problem needed to be addressed elsewhere 
since there were implications for matters before this Committee, and the Committee represented an 
excellent forum.  His delegation was nonetheless pr epared to look at avenues to address the issues 
raised in the proposal.  He considered the point made as a whole and would resist any temptation to 
single out any particular aspect as being more a cceptable than others.  He also thanked those 
delegations that committed resources to technical assistance in this area. However, he could not 
accede to the view that standards destined for broad application should be set by organizations with 
limited membership.  Rather, those standards sh ould be dealt with in organizations where all 
Members participated.   S/FIN/M/45 
 Page 9 
 
 
 40. In concluding, the Chairperson  said that a wide range of important issues had been raised. 
Some Members said that although standard-setting was not the role of the WTO, standards could 
affect trade in services.  She noted that related work was going on in other subsidiary bodies of the 
Council for Trade in Services.  Other delegations po inted out that Members had the right to regulate, 
particularly for prudential reasons.  She also to ok note of the importance attached to technical 
assistance in this area. She said that further discussion was needed and suggested that the Committee 
revert to this issue at future meetings, dependi ng on the availability of the proponents.  The 
Committee so agreed . 
C. RECENT DEVELOPMENTS IN FINANCIAL SERVICES TRADE  
41. The Chairperson  recalled that discussions under this ag enda item in the past had been devoted 
to two issues:  presentations on national experien ces regarding recent regulatory reform processes, 
and e-finance.  She drew attention in that regard to the presentations made by Peru and Turkey on the 
evolution of their national regulatory fram eworks; the document submitted by Malaysia 
(S/FIN/W/28); and the documents submitted by Hong Kong, China and Switzerland on e-finance 
(S/FIN/W/25 and Add.1, and W/26 and Add.1 respectively). 
42. Presentations on regulatory reform and liberalizat ion turned out to be very useful, since they 
allowed Members to exchange information and e nhance their awareness of national experiences 
behind the negotiations. She encouraged Members to continue to contribute to this discussion by 
sharing their national experiences in the future. 
43. The issue of e-finance was of particular releva nce for the Committee.  She said that Members 
should consider ways to continue with the analysis of  this issue. It would be particularly useful if 
delegations could emulate the examples of H ong Kong, China and Switzerland, and provide 
additional inputs on their domestic regulatory frameworks and experiences in this area.   
Contributions from developing country Members would be particularly welcome. Apart from national 
experiences in this area, some useful work could be conducted in order to better understand the e-
finance reality. In her view, all Members stood to gain from improving their knowledge about the services actually supplied electronically, the differe nt modalities adopted for the electronic supply of 
financial services and  the regulatory challenges rais ed by this means of delivery. Indeed, there could 
be positive synergies between this type of work and the technical work that Members might want to 
undertake on classification and scheduling issues: a better knowledge of financial services, and  
supplied electronically or on a cross-border basis might eventually motivate further discussions on 
how to schedule new commitmen ts in relevant areas.  
44. During her consultations many Members had expressed interest in recent experiences with 
financial liberalization or financial reform carr ied out in the context of economic integration 
processes, regionally or otherwise. This could also  be considered under this agenda item.  She also 
drew Members' attention to the submission of an informal document by Norway on Marine and 
Energy Insurance (JOB(04)/80, dated 23 June 2004),  and to a room document submitted by Turkey on 
e-insurance activities by Turkish insurance companies. 
45. The representative of Norway
 said that the document's motivation was to share with Members 
the fundamentals of his country's regulatory framework, and draw useful insights for the current 
negotiations.  He explained that insurance comp anies were not allowed in principle to conduct 
business without authorization.  This normally required a local presence.  Subject to prudential 
regulation, foreign players were free to set up subsidiaries or branches.  However, there were 
exceptions to this general requir ement, allowing cross-border provision, among others, marine and 
energy insurance as well as insurance of some large commercial risks.  These exceptions were based 
on the involvement of large professional parties in these contracts. Marine and energy insurance S/FIN/M/45 
Page 10  
 
 usually involved large premiums, but relatively few parties, who were well qualified to assess the 
risks involved in the transactions with local or foreign insurers.   
46. With regard to Mode 1, there were no specific requirements provided that the contracts are 
supplied through an insurance broker authorized in Norway.  Foreign insurance companies are not 
subjected to any licensing or registration requirements  to conduct this line of business.  There were no 
restrictions, authorization or reporting requirement s for the conduct of marine and energy insurance 
under Mode 2, often defined as the right of the consumer on his own initiative, without prior 
consultation or active marketing from the non-re sident insurance company, to contact a foreign 
insurance company to take out insurance contracts abroad.  Norway believed that this was a sound 
way of conducting business.  However, he noted that several countries put restrictions on consumers' choice, leading to two options.  First, the risk s were placed and kept in the domestic market, 
increasing the exposure to risk.  The second and most common scenario was to write the risk locally, 
but immediately channel it abroad either through reinsurance or fronting.  He explained that in the 
case of fronting, a hundred per cent of the risk was channelled abroad, turning the local insurance 
company into a very expensive and unnecessary broker.  Fronting operations presented several 
drawbacks. First of all, there was a fee charged by  the insurance company, often between 5 and 15 per 
cent of the premium, which increased the cost of doing business.  Secondly, insurance services did not 
simply consist of collecting premium rates.  In f act, the whole range of serv ices provided was vital 
(e.g. expertise and advice; contact with customers; in troduction of new products).  He considered in 
that regard that requiring a local presence instead of allowing cross border to take place was like 
placing a non-yielding tax on the sector.  Moreover, a local presence requirement in such a specialized and international sector of finance could also dampen incentives for the local insurance industry to be dynamic, innovative and cost efficient. 
47. Norway believed that insurance relating to marine and energy could and should be subject to 
lighter regulation allowing for cross-border supplie s to occur.  Foreign insurance companies were 
regulated in their home countries anyway.  For instance, Norwegian insurance companies were subject to stringent regulatory requirements, and ha d to comply with minimum capital adequacy rules, 
conditions regarding technical provisions, detailed  guidelines for risk management, transparency, 
group structure, and management qualifications. From a regulatory standpoint, it was natural to 
differentiate between different types of consumer s, ranging from the unsophisticated consumer with 
few resources and limited experience in financ ial markets to the multinational company, well 
equipped to deal with any unforeseen  disputes or other legal events.   
48. While regulators must try to limit the risks faced by business and consumers, it was neither 
possible nor feasible to eliminate these risks alt ogether.  The commercial environment was simply too 
complex and regulation would be extremely costly  to business, regulators, and the economy in 
general.  An open regime allowed the risks to be spread across sectors, time and countries.  
49. Finally, regarding the issue of capital move ment, which had been raised in the Committee 
before, he said that taking commitments or just having an open regime for cross-border marine and 
energy insurance would not undermine governments' necessary control and oversight over capital 
movements.  Neither would commitments invite ca pital movements that could undermine financial 
stability or prudential tax considerations, nor would they impede the right of governments to take 
necessary actions in the face of any serious balance-of -payment problem or threat, as stipulated in the 
GATS.  Commitments on these lines of insurance w ould only lead to capital movements at the time 
the transaction took place - when the premiums were paid - and, eventually, at the moment a claim must be paid.  Most Members, if not all, allowed for rein surance to take place in some form, which  
was in effect the same operation, from the perspective of capital movements, as direct insurance.  This 
segment of insurance had been kept open in Norway  for decades, even at times when restrictions on 
the movement of capital were in place.  S/FIN/M/45 
 Page 11 
 
 
 50. The representative of Turkey  said that the informal document before the Committee briefly 
outlined e-insurance initiatives in Turkey.  He re frained from summarizing the document since it was 
self-explanatory.  However, should Members have an y questions or comments, he would try to reply 
at the next meeting.  
51. The representative of Canada  noted that, according to the Norwegian submission, there was 
no need to have a tight regulatory framework fo r insurance companies dealing with sophisticated 
customers.  It would be interesting to know how th e Norwegian authorities ensu red that a certain line 
of business was restricted or that it was of particul ar relevance for more sophisticated consumers. Was 
the distinction made on a size-of-transaction basis or  on a particular definition of marine and energy 
insurance?  And how did the authorities ensure that relatively unsophisticated consumers did not get into this particular line of insurance? 
52. Turning to the Turkish document, the represen tative noted that paragraph 4 indicated that 
insurance companies were using the Internet mainly to provide information on products and agents.  It 
seemed therefore that Internet use focused mainly on information and agency referral purposes, while 
the companies were still relying on the traditional ne twork of salesmen.  It would be interesting for 
other Members to take a look at their own insurance sector and see whether that was in fact the case.  Canada would certainly look into this issue to see how insurance firms were using the Internet.  
53. The representative of the United States
 said that her country had an interest in the issues 
discussed.  She was particularly interested in the analysis provided by Norway concerning marine and 
energy related insurance.  She considered that the United States was interested in exploring ways to 
advance the liberalization of cross-border trade in this field.  
54. The representative of Hong Kong, China  asked a few questions on the communication 
submitted by Norway. The first question was whether the exception to the general authorization 
requirement referred to in paragraph 2 was for the whole sector of marine and energy insurance, or 
whether it was implemented on a company-by-compa ny or contract-by-cont ract basis. Secondly, 
given that foreign companies providing marine and energy insurance were not subject to licensing or registration requirements, he asked how the Norwegian authorities ensured that regulatory concerns about solvency and technical provisions were addressed. Thirdly, since paragraph 7 stated that the 
Norwegian Financial Services Authority (FSA) had th e faculty to intervene in contracts performed by 
locally incorporated insurance companies, he enquired whether the FSA had any such role in the case 
of marine and energy insurance undertaken with non locally incorporated companies. Finally, he 
asked whether the exception for marine and energy insurance covered third-party insurance, that is, 
insurance not intended to cover the insured party but the liabilities to a third party.  If that was the 
case, how would such third party insurance be safe guarded if it had been undertaken with a foreign 
insurance company not subject to licensing or registration requirements? 
55. He summarized that the communication raised many interesting issues form the perspective 
of the negotiations.  Perhaps the unique nature of  marine and energy insurance set it aside from other 
services. Hong Kong, China's regulators were considering these issues, and he would make further comments as a follow up to the questions just posed.  After analyzing the room document submitted 
by Turkey, he might raise questions at the next meeting. 
56. As a preliminary comment on the submission by Norway, the representative of Japan said that 
prior to a profound discussion of the cross-border supply of insurance beyond the degree of 
liberalization stipulated in the Understanding on Commitments in Financial Services, Japan would 
like to see that more Members make commitmen ts according to the Understanding. He would 
comment on the submission from Turkey at the next meeting, if necessary. S/FIN/M/45 
Page 12  
 
 57. In addition, he expresse d appreciation for the annotated agen da prepared by the chairperson, 
which facilitated these discussions.  Regarding the is sues raised in paragraph 12, he said that Japan 
was one of the Members interested in further insura nce liberalization.  However, liberalization should 
be balanced with regulatory and supervisory require ments in order to protect policy holders.  The  
independence of the insurance supervisor required  further analysis because regulatory structures 
differed from country to country depending on the ma rket situations.  Finally, Japan fully recognized 
the importance of transparency in the financial sector, and would analyse any proposal submitted in 
that regard.  
58. The representative of Switzerland
 said that the document from Norway highlighted the great 
importance of insurance services for any economic  activity.  Switzerland agreed with the paper's 
conclusion that a liberal regime in Modes 1 and 2 ensured and strengthened the integrity and stability 
of financial systems.  He promised to make  additional comments at the next meeting. 
59. The representative of Brazil  said that discussions in the Committee might help clarify some 
grey areas in the GATS negotiations on financial se rvices.  One of those areas concerned the issue of 
capital account liberalization vis-à-vis GATS commitments in Modes 1 and 2, and footnote 8 of the GATS.  In that regard, he asked the Norwegian delegation what policy objectives were pursued by requiring that insurance companies providing all types of insurance, except marine and energy 
insurance had a local presence in the market.  Taking into account the positive experience of Norway 
with the regulation and supervision of energy and marine insurance supplied on a cross border basis, 
could that regime be replicated in other areas? 
60. The representative of Norway
 replied to some of the issues raised.  On a question from the 
Canadian delegation, he said that the regulatory basis for the exemptions were provided by law.  
There were explicit exemptions for insurance relate d to off-shore exploration, as well as for large 
commercial risks which were defined as risks undertak en by companies with an activity of a least 10-
man-years or annual sales of more than 50 million  Norwegian kroners.  This  was also reflected in 
Norway's initial offer in  the GATS negotiations. 
61. Turning to the questions raised  by Hong Kong, China, he said that it was natural to 
distinguish different types of consumers and to regulate accordingly.  Norway did not put any 
conditions on foreign insurance companies conducting these lines of business through Modes 1 and 2, basically reflecting the fact that the market was allowed to regulate more in this sector than in others.  
Regarding paragraph 7, he confirme d that the Norwegian FSA also had the possibility to intervene in 
contracts taken up with a foreign insurance compan y if the term were found to be unreasonable or 
dangerously low.  He also conf irmed that third-party liability insurance was covered by Norway's 
commitments.  Cross-border supply of third party liability insurance was not allowed in the case of 
individuals, but for marine and energy insurance, reflecting the professional background of the parties 
involved. 
62. Turning to the question raised by Brazil, he said that Norwegian consumers were allowed to 
seek insurance abroad (i.e. under Mode 2) at their ow n risks.  In the case of Mode 1, it was pertinent 
to differentiate between different types of consum ers;  big multinational companies and individuals. 
63. The representative of Hong Kong, China
 asked whether the exception to the authorization 
requirement applied to the whole sector or only on a company-by-company or contract-by-contract 
basis.  He also enquired whether the cross-border supp ly of insurance in respect of marine and energy 
for third party liability was allowed.   
64. The representative of Norway  said that the exception to the authorization requirement applied 
to the sector.  In addition, there was an exception fo r large commercial risks in all sectors and not just 
in marine and energy.  S/FIN/M/45 
 Page 13 
 
 
 65. The representative of Brazil  referred to the annotated agenda prepared by the Chairperson.  
He said that his country's position on the policy issu es mentioned in paragraph 12 was reflected in the 
report of the last meeting.   Concerning the status of public services, he explained that the activities 
described in paragraphs 1(b)(ii) an d (iii) of the Annex on Financial Se rvices were outside the scope of 
the GATS provided they were not conducted "in comp etition with a public entity or a financial service 
supplier".  However, Brazil was not sure about the meaning of the terms "competition with a public 
entity or a financial service supplier" .  He was specifically concerned about their application to social 
security and pension systems.  Brazil would welcome a discussion of this topic in order to avoid 
surprises in the future with regard to the coverage of commitments. 
66. The Chairperson  noted the interest expressed by Members in further discussing cross-border 
supply in marine and energy insurance;  delegations  would like to come back with further comments 
and questions.  She therefore suggested that the Committee revert to this agenda item at the next 
meeting.  She also drew attention to the propos als mentioned in the annotated agenda, and invited 
Members to submit further proposals in the near future. 
67. Making reference to paragraph 8 of the anno tated agenda, the representative of Chinese 
Taipei  informed the Committee that a single financia l regulator would be established to regulate the 
banking, securities and insurance industries.  This was a major step in Chinese Taipei's regulatory 
history, and was part of the financial reform program launched in 2001.  The new agency could make 
a small presentation in the future.  If the idea was accepted, his delegation would begin work with the 
Secretariat to make the necessary arrangements. 
68. The Committee agreed  to the suggestion made by Chinese Taipei, took note  of the statements 
made and decided  to revert to this agenda item at the next meeting. 
D. TECHNICAL ISSUES  
69. The Chairperson  recalled that delegations had not addressed any technical issues at the last 
four meetings.  In her view, this Committee should c ontinue to play a useful role in the identification 
and analysis of technical issues that might be of  importance in the current round of negotiations, for 
example, in preparing or improving initial offers .  The point had been made not only in this 
Committee, but also in other subsidiary bodies in the area of services that taking on new commitments 
depended in part on greater clarity about various cl assification and scheduling issues.  In her opinion, 
the Committee might usefully undertake work on the classification and scheduling of commitments in 
financial services.  In fact, the presentation by Norway had indicated some issues related to the 
scheduling of commitments. 
70. Possible candidates for further work, based not only on previous discussions at the Committee 
and the Special Session of the Council for Trade in Services, but also on her informal consultations 
with individual Members, included: 
 - the distinction between Modes 1 and 2 in the case of electronic transactions;  - other scheduling issues of a general natu re that may have arisen in bilateral  
  negotiations or in initial o ffers on financial services; and 
 - classification issues that may have arisen in bilateral negotiations  or in initial offers. 
71. It would be interesting to know whether Members were interested in addressing these issues 
in this Committee. As stated on repeated occasions  in the recent past, if Members felt that the 
Committee could play a positive role in this area, procedural aspects for the conduct of work could be 
discussed later. S/FIN/M/45 
Page 14  
 
 72. The representative of the United States
 said that she was not prepared to express any view on 
the proposal by the Chair.   She would consult with her authorities. 
73. The representative of India  saw the possibility of some useful work being done.  However, he 
expressed reservations about linking it directly w ith the negotiations.  Issu es relating to scheduling 
and classification that might have arisen in bila teral negotiations or in initial offers were best 
discussed in the appropriate subsidiary body or in the CTS Special Session as was being done in other 
sectors.  However, India was open to other technical work that might be done. 
74. The representative of Canada  suggested that the Chairperson undertake informal consultations 
with Members in this regard. 
75. The representative of Japan  was of the view that the agenda item on technical issues should 
be retained to allow to address any issues arisin g in bilateral negotiations or offers on financial 
services.  However, at this juncture, since Japan saw no problems with the current classification of 
financial services, his delegation did not feel an y need to undertake work in that area.  While 
scheduling issues of a general nature might be better discussed in another subsidiary body, sector-
specific issues could be raised under this agenda item. 
76. The representative of the United States  said her delegation was interested in being able to 
bring forward to this Committee certain issues that had arisen in bilateral ne gotiations, provided they 
were ripe and in consultation with the Members who were participating in those negotiations. As 
regards classification and scheduling issues, her delegation did not want the subsidiary bodies to 
overtake what friends groups or Members were de aling with in the negotiations.  The Committee 
itself was a very special body, and the United States would keep in mind its role in the course of the 
negotiations. 
77. The representative of Australia  was broadly supportive of the ideas put forward by the Chair 
for future work.  The proposed themes could prov ide a focus for the Committee in addressing issues 
that were relevant in the current financial services  negotiations.  He looked  forward to consultations 
on this issue. 
78. The representative of Brazil  said that the standard applied in  the Committee should be similar 
to those applied in other subsidiary bodies.  Brazil wanted all of them to play a more important role in 
the negotiations.   
79. The Chairperson  took note of the comments and suggestions made.  The annotated agenda 
was just aimed at highlighting what had been raised in the past, based on the reports of previous 
meetings and on her consultations with delegates.  It was not her intention to seek any particular 
consensus at this meeting.  She suggested that Memb ers reflect on these matters for future meetings.  
She would also consider the possibility of info rmal consultations and would convene them as 
appropriate.  The objective was to make this agenda item productive. 
80. The Committee took note  of the statements made and decided  to revert to this issue at the next 
meeting. 
E. DATE OF THE NEXT MEETING  
81. The Chairperson  suggested that the Committee hold its next meeting during the next cluster 
of services meetings. The exact date would be announced in due course. As had been the regular 
practice in the past, if possible, the meeting would be scheduled in the second week of the cluster in 
order to facilitate the part icipation of capital experts.  S/FIN/M/45 
 Page 15 
 
 
 F. OTHER BUSINESS  
82. There was no issue raised under this agenda item. 
 
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