RESTRICTED
WORLD TRADE S/FIN/M/15
4August 1997
ORGANIZATION
(97-3287)
Committee onTrade inFinancial Services
REPORT OFTHE MEETING HELD ON17JULY 1997
Note bytheSecretariat
1. Thefifteenth meeting oftheCommittee onTrade inFinancial Services waschaired by
Mr.Yoshio Okubo ofJapan. Theagenda forthemeeting wascontained inWTO/AIR/628 of27July
1997, andconsisted offiveitems: recent developments infinancial services trade; exchange ofviews
onprogress inbilateral negotiations; technical issues regarding theSchedules ofSpecific Commitments
andListsofArticle IIExemptions infinancial services; organization offuture work; andotherbusiness.
ItemA: Recent Developments inFinancial Services Trade
2. Several Members reported onrecent developments inreforming theirfinancial systems.1Japan
updated onitsongoing financial system reform. Fourgovernment councils published reports inearly
Junewhich proposed sweeping changes infinancial lawsandregulations, suchastheliberalization
ofbrokerage commissions forstock trading; abolition ofalicensing requirement forsecurities firms,
tobereplacedbyaregistrationsystem;arelaxationoftheregulatorysystemenablingfinancialinstitutions
toofferallkinds ofsecurities andderivatives including asset-backed securities; thelowering ofbarriers
betweenbanking,securitiesandinsurancebusinesses;andtheintroductionoffinancialholdingcompanies.
While those changes concerned domestic regulation andwerenotnecessarily connected tothecurrent
negotiations onfinancial services, thebenefits ofreform would beenjoyed equally byforeign financial
institutions.
3. Korea reported ontheimplementation ofitscomprehensive financial reform plan. Interest
rateliberalization wasalmost complete except fordemand deposits. Plans toreform thecentral bank
andfinancial supervisory systems werealsofinalized. TheKorean government alsoplanned tolower
thefirewalls between banking, securities andinsurance businesses. Market entry wasmade easier
byreplacingtheeconomicneedstestswithobjectivecriteriafortheestablishmentofinsurancecompanies
andsecurities firms earlier thisyear. Thegovernmental planmaybechanged toacertain extent during
thelegislative process, butwould leadtoamore liberalized financial regime.
4. Brazil reported ontheprogress intheprivatization programme ofbanks previously owned by
theStates. Theprocess hadadvanced significantly through atransparent auction system. Presidential
decrees permitting foreign participation intheauctions oftwoStatebanks hadbeenissued. Theprocess
ofrestructuring andre-capitalizing financial institutions continued withtheentry ofseveral newforeign
financial institutions asbranches, subsidiaries orthrough equity participation. Ininsurance, negotiations
continued withregard totheentry ofnewinsurance companies inthemarket. Thereinsurance sector
required further regulation according toBrazil 'sconstitution.
1Descriptionsofinitialoffersmadebydelegationsunderthisagendaitemhavebeenrecordedundertheagenda
itemB.below.S/FIN/M/15
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5. Israel waspursuing anactive policy ofliberalization andderegulation offinancial markets,
encouraging theinvolvement andactivities offoreign financial institutions. Privatization ofstate-owned
banks wasproceeding, andforeign participation wasencouraged intheprocess. In1997, Israel
authorized theoperation ofthefirstforeign branch bankinaddition tosubsidiaries. Foreign insurance
companies hadbeenentering thegeneral insurance market aswell, andthepossibility toallow direct
sales oflifeinsurance policies wasbeing studied, which would benefit foreign firms. Government
involvement inthecapital market hadalsobeenreduced, withcomprehensive reforms taking place
inthegovernment bondmarket, andtheterms forpurchasing securities andraising capital onforeign
stock exchanges hadbeenrelaxed. Adecision hadalsobeenmade torelax foreign exchange controls.
On18June1997, asetofcapital market measures hadbeenannounced which involved relaxation of
ceilings forforeign securities investment byprovident funds, commercial firms andmutual funds.
Institutional investors would bepermitted tocarry outtransactions inforeign securities directly with
foreign brokers.
6. TheEuropean Communities stated thatithadcirculated aninformal notefrom theUnited
Kingdom explaining recent changes inthesupervisory system. Thailand reported thaton2July1997,
theintroduction ofamanaged floatsystem forthebahtwasannounced. Sofar,thestock market had
reacted favourably tothisnewenvironment. Notwithstanding recent developments, theThaidelegation
expected thatthebenefits ofliberalization would greatly outweigh thecosts. However, itmust be
recognized thatThailand, asother developing countries, required timetoadjust. There wasadded
urgency instrengthening domestic financial markets aswellasregulatory mechanisms. Some slowdown
ineconomic activity must beexpected inthewake ofthenewexchange rateregime, buttheThai
government wasconfident thatthiswould laythegroundwork forfuture growth andstability. Poland
explained theongoing privatization process ofitsstate-owned financial institutions. Foreign investor
participation wasrapidly growing inthefinancial sector; inbanking, italready exceeded one-third
oftotalequity.
ItemB: Exchange ofViews onProgress inBilateral Negotiations
7. TheChairman explained thataltogether, twelve offers hadbeensubmitted bythemorning of
17July, andonemore offer wasexpected laterintheday. Heinvited those countries which had
submitted offers toexplain theircontent totheparticipants. Several ofthespeakers urged others to
follow suitbysubmitting meaningful offers before theSeptember meeting oftheCommittee. Alloffers
wereconditionalonthesuccessfulconclusionofthecurrentnegotiations,oronthelevelsofcommitments
byother Members.
8. Japan explained thatithadsubmitted itsinitial offeron11Julycontaining further substantial
improvements toitsexisting schedule. Itfullyreflected recent amendments totheForeign Exchange
Control Lawwhich would beineffect inApril 1998aswellasamendments totheInsurance Business
Lawwhich tookeffect in1996. Submission ofthisoffer firmly demonstrated Japan'scommitment
toasuccessful conclusion ofthecurrent negotiations. TheSlovak Republic submitted thisdayanoffer
containing further improvements inmarket access onthebasis ofcommitments made inthecourse
ofthelastnegotiations in1995. Theinitial offer reflected thederegulation process inalleconomic
sectors, butsince acareful evaluation oftheimpact ofderegulation wasnecessary, thenewoffer
represented modest improvements toexisting commitments. Turkey hadpresented itsinitial offerwith
improvements concerning theremoval orrelaxation ofconditions andrestrictions onmarket access
which hadbeentaken mainly onprudential grounds. Further improvements totheoffermight bemade
oncetheNational Assembly approved draftamendments totheexisting laws.
9. TheEuropean Communities andtheirMember States stated thatithadsubmitted itsinitial offer
on30Juneinwhich iteliminated 12restrictions fromitsexisting schedule andreduced thescope ofS/FIN/M/15
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11others. Alistofthose improvements contained intheoffer wascirculated. Itwasoffering free
access totheinternal market oftheE.U.inallthefinancial services sectors onaMFN basis, implying
thatallreciprocity provisions which existed either inthelegislation oftheCommunities ortheirMember
States would notbeapplied. TheUnited States stated thatithadtabled itsoffer earlier intheweek
which signalled thewillingness tolockintotheWTO substantially fullnational treatment andmarket
access tothetotheU.S.financial services market onanMFN basis. Theoffer included important
improvements toits1995commitments, suchastheelimination ofalimitation regarding discriminatory
examination feesonforeign banks aswellasanumber ofStatecitizenship andresidency requirements
ininsurance. Interstate branching would bemade available toforeign banks onanational treatment
basis. Anybenefits ofreforms coming outoftheongoing fullreassessment oftheorganization of
markets inbanking andsecurities, including areview oftheGlass-Steagall Act,would beextended
toforeign participants onafullnational treatment basis. TheU.S.added thatitenjoyed considerable
benefits fromensuring thatnewregulations werewidely vetted withmarket participants -bothdomestic
andforeign -prior toenactment. Itsuggested thatother countries strongly consider adopting similar
priorconsultationmeasuresfortheeffectiveregulationandsupervisionoftheirfinancialservicesmarkets.
Hong Kong, China mentioned thattheinformal discussions onthetechnical issue ofmodes 1and2
hadhelped itmake anoffercontaining improvements incross-border supply ofreinsurance andauxiliary
insurance services, accompanied byaheadnote which setoutexactly what thecommitments were.
Italsoadded thattheHong Kong Special Administrative Region maintained itsownfinancial system
asinthepast,andcontinued todecide itsownfinancial andeconomic policies.
10. Hungary stated thatithadimplemented fairly quick liberalization offinancial services, resulting
inmorethanhalfofthetotalcapital ofHungarian banks andinsurance firms being owned byforeigners.
Itsofferwentconsiderably beyond itsexisting commitments byeliminating morethanthirty previously
existing limitations. Theofferwasbased ontheUnderstanding onCommitments inFinancial Services,
andcontained veryfewlimitations inmarket access. Itprovided practically fullnational treatment
toforeign suppliers inallsectors andsubsectors infinancial services. Asof1January 1998, thesupply
offinancial services bydirect branches would alsobeallowed, forwhich legislation wasbeing prepared.
Theintention wastobindtheeffects ofthislegislation assoonasitwasadopted. Thepossibility of
removing existing MFN exemptions wasalsounder consideration. Canada explained thatitsinitial
offertabled on14Julyshowed thatitwasprepared tobinditsexisting openregime onapermanent
MFN basis. Legislation onarecent decision toallow direct branching offoreign banks wasnowbeing
worked out.Canada would continue tokeepitstrading partners informed ofthedevelopments regarding
thissubject. Bahrain announced thatithadmade acomprehensive initial offerbased onMFN inbanking
andother financial services forthefirsttime. Bahrain hadaveryliberal financial services sector,
andwasconsidered aninternational financial centre withmorethan180banks andfinancial institutions.
Theofferwasmade asanaddition toitsexisting commitments ininsurance which remained unchanged.
Thedelegation ofBahrain invited interested Members tohavebilateral meetings withthem forany
questions. Australia hadimplemented anumber offinancial sector reforms sincetheendoftheUruguay
Round, andthegovernment wascurrently reviewing therecommendations oftheWallis inquiry into
thefinancial system. Ithaddecided toreflect initsnewoffer thereforms made inthethree years
toend-1996 which included anumber ofimportant changes.
11. Switzerland hadsubmitted itsinitial offer earlier intheweek, which contained further
improvements compared tothelevel oftheinterim agreement in1995. Further liberalization was
provided inhealth insurance, membership ofstock andfutures exchanges, cross-border marketing and
distribution offoreign investment funds, andleadmanaging ofswiss franc-denominated issues. Full
MFN treatment offoreign services andservice suppliers wasoffered withsubstantially fullmarket
access andnational treatment. Norway hadputforward itsinitial offerwiththechanges tothepresent
schedule clearly indicated. Theoffer reflected current regulations inNorway ofmarket access and
national treatment forfinancial service suppliers incorporated outside theEuropean Economic Area
(EEA). Norwegian financial market regulation hadbeenliberalized since the1995negotiations partlyS/FIN/M/15
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asaresult ofcommitments undertaken in1995. Financial service suppliers incorporated outside the
EEA wereallowed toestablish branches inNorway. Thelatest changes putintoforce inJuly1996
hadalready beennotified toMembers. Specific national treatment restrictions intheformofresidency
requirements forlimited companies hadalsobeenremoved intheoffer. Theoffer contained fully
MFN-based commitments.
12. TheChairmantheninviteddelegationsnothavingsubmittedofferstogiveindicationsorprogress
reports. Israel announced thatitwould table itsoffer inSeptember. Poland alsoannounced thatit
would submit itsofferbythenextmeeting oftheCommittee inSeptember, withsignificantly improved
market access andnational treatment commitments. Theofferwould reflect legislative andregulatory
changes which tookplaceafter1995including thoseunder preparation. Legislative proposals forreform
wereexpected tobeadopted byParliament inthefollowing weeks. Theinitial offerwould alsocontain
liberalization commitments forthefuture generally inlinewithPoland 'sobligations within theOECD.
Thisincluded thepossibility ofopening direct branches inthebanking andinsurance sectors atthe
beginning of1999. Venezuela stated thatitwassubmitting itsoffer onthatday,which wasbased
onits1995 schedule, butwithfurther improvements. Thepossibility ofmarket access through the
establishment ofbranches offoreign financial institutions inreinsurance andreinsurance broking was
offered. Thereciprocity requirement wasremoved intheareaofcapital markets. Newcommitments
inmarket access andnational treatment wereincluded forsettlement andclearing services forsecurities
andinvestment funds. Romania wasnotinaposition totableanoffer onthedayofthemeeting of
theCommittee, buthoped topresent anoffer before thenextmeeting inSeptember. Animportant
number ofdraftlawsandregulations were before Parliament forconsideration, anditsoffer would
reflect allthenewlawsandregulations adopted bythattime. Forthetimebeing, Romania was
committedtomaintainitsexistingcommitmentsinbankingandotherfinancialservices.Italsomentioned
thatitwasinvolved inbilateral meetings inwhich alltherequests werebeing examined. TheCzech
Republic waswilling toconsolidate improvements toitsliberalization undertakings made in1995.
Ithoped tobeinaposition tosubmit itsinitial offerintimeforthenextmeeting oftheCommittee.
Perustated thatamulti-sectoral committee onfinancial services waselaborating anofferwhich ithoped
tobeabletosubmit inthenextfewweeks.
13. Egypt stated thatithadmade commitments infinancial services inthebelief thattheywould
benefit bothitseconomy andthose ofitstrading partners. Itwasstudying carefully howtoimprove
itscommitments during thepresent round ofnegotiations, bearing inmindthedevelopmental dimension
andtheresponse ofitstrading partners intheapplication ofArticles IVandXoftheGATS. Due
torecent changes inthegovernment, itwasnotinaposition tosubmit anofferby14July,butitmight
dosobythenextmeeting inSeptember. Thailand, speaking onbehalf ofASEAN, explained thattheir
offers werealready onthetablesince1995. Those offers stillstood, buttheASEAN delegations were
considering therequests received fromnegotiating partners, andsome ofitsmembers, ifnotall,might
come upwithimproved offers afterthesummer break. ASEAN countries werecommitted totrade
liberalization andwere inthecontinued process ofopening uptheirfinancial sectors. However, it
wasimportant torecognize thattheywere pursuing thispathautonomously atapacesuitable under
theexisting economic conditions, andinlinewiththeprinciple ofgradual liberalization.
14. ThePhilippines reiterated thepossible markers forsuccess ithadstated during thefinancial
services negotiations twoyears ago,which stillboresignificant relevance tothecurrent negotiations.
Theywereprogressive liberalization, thesingle undertaking principle andshared responsibility. Market
reforms should beprogressively translated intocommitments consistent withthedomestic capacity
toconsolidate those reforms. Initsbilateral meetings, itwasoften asked whyinsome instances there
wasadiscrepancy between theactual regime andthelevelofcommitments made inthe1995schedule.
Itwasastrategy, notbornoutofillwillonitspart,butrather onewhich wascritical tosustaining
market reforms. Abalance ofbenefits mustbestruck inasingle undertaking, withaneffort tofacilitate
animprovement inthedeveloping countries 'capacities toexport financial services. Concerning sharedS/FIN/M/15
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responsibility, those Members which were inaposition tocapture agreater share ofthebenefits of
liberalization infinancial services should exercise leadership andbeargreater responsibility forthe
success ofthenegotiations. NewZealand wasprepared tomake aconditional offerwhich would extend
itscommitments inservices auxiliary toinsurance including broking andagency services. Itwasalso
willingtoconsideradoptingtheUnderstandingonCommitmentsinFinancialServices,andwaspreparing
requests toitsnegotiating partners tobemade available shortly. Itattached fundamental importance
totheMFN principle andtoseeing thisprinciple reflected intheapproach ofallMembers.
15. Brazil mentioned thatitsconstitution required theapproval byCongress ofregulating legislation
infinancial services. Discussions onsuchregulations inCongress werebeing undertaken, butthey
remained ataninitial stage. Itwasextremely difficult toofferanykindofcommitments before aclearer
viewemerged ontheregulations tobeapplied tothissector. Therefore, Brazil wasnotinaposition
tocommit itselftoaspecific timetable forpresenting anoffer. However, thegovernment wasseriously
working towards thegoalofnextSeptember, andallpossible efforts would bemade toproduce an
offerbythattime. Korea stated thatitwould tableasubstantially improved offercompared toitsoffer
ofJuly1995 assoonaspossible before theSeptember round ofnegotiations. Theinitial offerwould
reflect allofitsmeasures scheduled forimplementation bythetimeitwassubmitted withsome
exceptions. Itwasimportant toreach abalanced agreement commensurate withthedifferences in
financial market development among Members, especially intheareas offoreign exchange andcapital
mobility. Theimportance offinancial market stability should alsobetaken intoaccount. Macau was
alsopreparing aconditional offer containing substantial improvements ascompared tothe1994
commitments, asitdidnottakepartinthenegotiations leading totheinterim agreement in1995.
Thisoffer would behanded inassoonaspossible before thenextmeeting inSeptember.
16. TheChairman theninvited delegations togivetheirviews ontheprogress made inthebilateral
negotiations. Switzerland hadhad22bilateral negotiations during theweek, inwhich some countries
hadgivenclearindicationsofimprovementstocomesoon.Someoftheoffersalreadypresentedincluded
verysignificant stepsforliberalization. Although suchefforts wereacknowledged, someothercountries
werestillstaying onthesidelines ofthose negotiations andtaking await-and-see attitude. Potential
investors were watching carefully theprogress being made. When timewasrequired toimplement
reforms progressively, phase-in commitments might beagoodway. Revised offers should betabled
wellinadvance ofthenextround ofnegotiations inmid-September.
17. TheEuropeanCommunitiesthoughtthatdiscussionsduringtheweekweregenerallyencouraging
withthepresentation oftwelve (plus one)offers, which wasagood initial starting point. Inaddition
toproviding realmarket access andsubstantial national treatment, theoffers should guarantee that
nosteps would betaken backwards inliberalization, andshould reflect liberalization measures that
hadalready beendecided eveniftheyhadnotyetbeenimplemented totally. Thiscould bedonein
fullconsistency withtheprinciples andconcerns expressed earlier regarding progressive liberalization
andshared responsibilities. Itagreed thatthere wasaneedtotakeintoaccount financial stability.
Itstressed thatthecurrent negotiations werenotabout liberalizing capital movements norexchange
controls; there wasaneed toconcentrate basically onthesupply offinancial services through
establishment, along withcross-border supply ofanumber ofservices which neednotbethose which
might destabilize financial markets. Foreign presence inthemarkets ofanycountry experiencing
financial difficulties could helpprovide theenvironment forinvestors tobring infresh, long-term capital
forrecapitalization.
18. TheUnited States alsohadhadbilateral meetings withovertwenty countries inwhich detailed
discussions tookplace ontherequest liststheyhadputforward. Itwasencouraged thatanumber
ofcountries hadbeentaking those listsseriously. Theoffers made represented animportant step
forward. However, specific issues thatrepresented serious barriers totheirfinancial service suppliers
inforeign markets hadyettobeaddressed inthesenegotiations. Ithoped thattheywould beaddressedS/FIN/M/15
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when offers would beseeninSeptember. TheUnited States would continue totrytoreach agood
dealby12December instepwithitstrading partners. TheChairman stated thatitwasessential to
havealloffers attheearliest possible timing forthenegotiations tosucceed. Thenumber ofoffers
submitted wasstilllimited atthistime, andtheChairman strongly urged delegations tomake their
utmost efforts insubmitting offers before thenextmeeting oftheCommittee inSeptember.
ItemC: Technical Issues Regarding theScheduling ofSpecific Commitments andListing of
Article IIExemptions inFinancial Services
19. TheChairman recalled thattheCommittee hadasked theSecretariat toorganize informal
consultations onthequestion ofmodes 1and2infinancial services, andtoreport backontheoutcome
ofthose consultations. Awritten report hadbeenprepared onthesubject bytheSecretariat asan
informal note(Jobno.3706 of3July1997) circulated before themeeting. TheSecretariat reported
thattheinformal meeting heldon24Junewasuseful inclarifying thepositions ofMembers. Delegations
recognized thatthiswasanissuewhich would require clarification onawider scope thanthatoffinancial
services, butnodelegation feltthatitwasamajor problem indevising itsownschedule. Delegations
agreed thattherewasnoneedandprobably nopossibility given theshorttimeavailable totrytodevise
amultilateral solution forfinancial services inclarifying thedistinction between thetwomodes further.
Itwould befortheMembers feeling theneedtoclarify thescope oftheircommitments inmodes 1
and2todothisintheirschedules. Itwasthought thatthebestwaytooffersuchaclarification would
betouseheadnotes. TheSecretariat hadprovided twoexamples ofpossible headnotes which were
attached totheinformal note, buttheywerenotmeant tobeobligatory inanysense. TheSecretariat
would beready toassist inthedrafting ofsuchheadnotes ifnecessary. According totheinformal
discussions, thiswasallthatneeded tobedoneonthissubject forthepurposes ofthecurrent negotiations
andtheCommittee didnotneedtocome backtothissubject inautumn. There wasdiscussion, however,
ofwhat could bedone nextyearafter thenegotiations, possibly intheCommittee onSpecific
Commitments.
20. Therepresentative ofHong Kong, China waspleased thatauseful andproductive informal
discussion ontheissue ofmodes 1and2hadbeenconducted. Hethought thattheissue ofhowbest
toschedule services supplied byservice suppliers based abroad wasafundamental andcomplex question
whichshouldbedealtwithelsewherefromthefinancialservicesnegotiations,probablyintheCommittee
onSpecific Commitments. Thiswasanissue which needed tobetackled in1998 intimeforthe
negotiations tostartintheyear2000. Asregards howtopromote clarity andtransparency infinancial
services schedules, thediscussions attheinformal meeting wereuseful. Inmaking useoftheheadnote
initsoffersubmitted recently, Hong Kong, China hadusedtheconcept ofsolicitation ormarketing
indefining thescope ofitscommitments under mode 1.
21. Therepresentative ofKorea recognized that,atthisstageinthenegotiations, themostpractical
solution wastoaskeachMember topresent itsofferinaclearmanner, assuggested. Healsoadded
thattheexample headnote circulated bytheSecretariat based onthecriteria ofwhowassubject to
limitations provided ahinttoalonger-term solution tothisissue. Therefore heencouraged allMembers
tousethisexample headnote asmuch aspossible. Ifthere wereanyservices towhich these criteria
didnotapply, discussions could beheldafterthecurrent negotiations inthisCommittee orinother
appropriate bodies.
22. Therepresentative ofCanada wasgenerally supportive oftheapproach tousetheheadnote
asaninterim solution, butstressed thatthiswasonlyashort-term solution untilthecurrent negotiations
werecompleted. Italsonoted thatalthough there werehorizontal issues involved which might well
bedealtwithbytheCommittee onSpecific Commitments, itsviewwasthatfinancial services experts
should alsobeinvolved inanyfurther discussions onthismatter toensure thatanysolution wouldS/FIN/M/15
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beappropriate forthefinancial services sector. Inthissense, thispresent Committee should notbe
prevented from having aroleinsuchdiscussions inthefuture.
23. TheChairmansuggestedthattheCommitteetakenoteoftheresultsoftheinformalconsultations,
which weretoconsider using headnotes fortheclarification ofthedistinction between modes 1and2.
Healsosuggested thattheCommittee takenoteoftheexamples ofheadnotes prepared informally by
theSecretariat, butconfirmed thatthere wasnoobligation tousethose examples. Norwasthere any
obligation touseheadnotes atallintheoffers tobemade inthecourse ofthepresent negotiations.
Inthemeantime, ifindividual delegations hadquestions orproblems regarding howtodevelop their
ownheadnotes, theycould always discuss withtheSecretariat orwithother delegations bilaterally.
Inthelonger term, i.e.aftertheconclusion ofthenegotiations inDecember, theCommittee might
wishtoconsider thisissueaswellasother technical issues inpreparation forfuture negotiations. Since
theCommittee didnotneedtodecide onthework programme afterDecember atthisstage, hesuggested
thattheCommittee alsotakenoteofthesuggestions made withregard tothework afterDecember.
24. Following those suggestions bytheChairman, theCommittee tooknote.
ItemE: Organization ofFuture Work
25. TheChairman recalled thattheCommittee hadagreed onanindicative timetable forcompletion
ofthenegotiations atitsApril meeting. Hesuggested tohavethenextmeeting oftheCommittee on
thedateindicated inthetimetable, i.e.onThursday 18September. TheCommittee soagreed.
ItemF: Other Business
26. Israel thanked theSecretariat forhaving actively participated inandcontributed toaseminar
ontrade inservices heldinthiscountry inJune1997.