RESTRICTED
WORLD TRADE S/FIN/M/12
4November 1996
ORGANIZATION
(96-4628)
Committee onTrade inFinancial Services
REPORT OFTHE MEETING HELD ON22OCTOBER 1996
Note bytheSecretariat
1. Thetwelfth meeting oftheCommittee onTrade inFinancial Services waschaired by
Mr.Frank Swedlove ofCanada. Theagenda forthemeeting wascontained inWTO/AIR/424 of
18September 1996. Withregard totheobservership ofinternational intergovernmental organizations,
itwasagreed thatuntilinformal consultations attheCouncil levelarefinalized withregard tothisissue,
theCommittee would invite theUN,UNCTAD, theIMFandtheWorld Banktoparticipate asobservers
onanadhocbasis.
2. Themeeting started withanassessment ofthestatus ofacceptances andimplementation of
theSecond Protocol totheGATS. TheProtocol hadentered intoforce on1September 1996, butthere
weresixMembers (Belgium, Brazil, Egypt, Greece, Portugal andSpain) which hadnotyetformally
accepted it.TheChairman strongly urged those Members tofinalize theirdomestic procedures for
acceptance bytheend-November deadline. Thedelegation ofJapan echoed thisstatement, andthe
delegate oftheEuropean Community responded byconfirming thattheywereworking fullytohave
allitsMember States accept theProtocol assoonaspossible before thedeadline.
3. Concerningrecentdevelopmentsinfinancialservicestrade,Norwayreportedthatsomelegislative
changes affecting foreign insurance brokers, banks, securities brokerage firms andinvestment
management companies announced initsschedule of4October 1995 hadrecently entered intoforce.
Thisresulted infurther liberalization ofitsfinancial services markets toforeign firms establishing in
Norway. Australia wasnowconducting aParliamentary enquiry intoitsfinancial system which would
result inrecommendations onthecurrent regulatory arrangements.
4. TheCommittee thenturned todiscussion oftechnical issues regarding thescheduling ofspecific
commitments andlisting ofArticle II(MFN) exemptions infinancial services, based onsome questions
raised inthenotebytheSecretariat (S/FIN/W/9). Inintroducing thenote, theSecretariat pointed out
thatdiscussion oftechnical issues bydefinition would notaffect thesubstance ofnegotiated commitments
made byMembers, andthatthenotedidnotseektoimpose uniform interpretations onmatters where
country practices differed. Inresponse toacomment byonedelegation, theSecretariat wished tomake
anotional drafting correction tothefirstsentence onpage2ofthenote; what isstated hereasthe
scheduling guidelines notbeing observed byMembers should notbetaken asavalue judgement of
theSecretariat. Itwasonlyreferring toallegations thatwere sometimes made.
5. Discussions focused onthetwotechnical issues described atsome length intheSecretariat
note; thedistinction between Modes 1and2infinancial services andthesectoral classification of
financial services. Some concern wasexpressed withregard totheimplications ofthetechnical issues
raised inthepaper forother sectors. Anumber ofissues were clearly relevant forthenegotiations
toberesumed in1997. Delegations generally thought thattheexercise ontechnical issues wasdifficult
butnecessary; itwashowever necessary toavoid duplicating thework oftheCommittee onSpecific
Commitments. Onedelegation pointed outthatthereference inparagraph 26ofthenotetoalack
oftechnical expertise indeveloping countries wasunnecessary.S/FIN/M/12
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6. Onthedistinction between Modes 1and2infinancial services, itwaspointed outthatlegal
consequences might stemfromachange ininterpretation, andtherewasvalue inknowing thecriteria
usedbyothers. Thequestion wasparticularly relevant when different restrictions applied todifferent
modes ofsupply. Onedelegation pointed outthatregardless ofwhether theservice wasclassified under
Mode 1or2,oneshould takeintoaccount thefactthatmeasures taken inpursuit ofmonetary or
exchange ratepolicy, ormeasures taken forprudential reasons would notbecovered bytheGATS.
Itwasalsopointed outbyadelegation thatitwould beappropriate tofirstconsider various criteria
andtousethem consistently; thenextdifficult goalwould betoagree onacriteria applicable toall
countries. Intheview ofonedelegation, practical problems arising from theapplication ofthis
distinction inrelation tocommitments ofother countries hadyettobeidentified. Onedelegation
suggested thatMembers consider whether limitations ofeachMember applied toaforeign non-resident
supplierortotheMember'sconsumer;itwouldthenbeappropriatetoconsiderwhethersuchadistinction
could beusedforscheduling purposes. TheSecretariat wasasked toconduct informal consultations
onhowtoproceed further inorder toclarify thedistinction between Modes 1and2infinancial services
schedules.
7. Onedelegation pointed outthatwhen considering thequestion ofwhether aparticular financial
service wassupplied under Mode 1orMode 2,oneshould notconfuse thedelivery oftheservice with
theconduct ofassociated flows ofcapital. According tothisdelegation, thedetermination ofthemodes
ofsupply should focus onthedelivery oftheservice, anditmight bemore appropriate ifallfinancial
services transactions were tobeclassified under Mode 1.According tothisdelegation, theuseof
theconcepts of"solicitation" or"active marketing" would addtotheconfusion, andwaslikely tobecome
increasingly meaningless withthewidespread useofelectronic commerce. Asageneral point, this
delegation thought thatthedifficulties encountered when making thedistinction between Modes 1and
2illustrated thedrawbacks ofscheduling commitments under theGATS bymodes ofsupply.
8. Onthequestion ofsectoral classification, itwaspointed outthatthiswasapriority inview
ofthenegotiations nextyear. Several delegations thought thatanapproach tofollow theclassification
intheAnnex onFinancial Services asclosely aspossible, andtoindicate clearly anynecessary deviations
fromit,would beveryuseful. Aproposal wasmade fortheCommittee toconsider initsnextmeeting
formal adoption ofthisclassification asthebasis forthenegotiations nextyear. Such anapproach
would provide increased transparency. Onedelegation suggested thatconsideration begiven to
developing aconsistent classification listforusebyallMembers inthenegotiations in1997, butthis
exercise should belimited toremoving inconsistencies between theservices sectoral classification list
inMTN.GNS/W/120 andthelistintheAnnex onFinancial Services.
9. Another delegation pointed outthatabroader andmore generic sectoral classification would
beadequate forliberalization, given thefungible nature offinancial services. TheSecretariat wasasked
toreport tothenextmeeting oftheCommittee onanyprogress made inthework undertaken bythe
Voorburg Group oftheUN,aswellasthework bytheCommittee onSpecific Commitments, and
toconsider theirimpact ontheclassification offinancial services. TheSecretariat wasalsoasked to
lookintothequestion ofwhether amore disaggregated definition offinancial services waspossible.
10. Onothertechnical issues, itwaspointed outthatMembers needed toidentify therelevant issues
fordiscussion. Onedelegation supported increasing thetimeavailable fortechnical verification of
schedules oncethenegotiations were completed.
11. TheCommittee thendiscussed theorganization offuture work. TheChairman mentioned that
compilations ofexisting schedules andArticle II(MFN) exemption listsinfinancial services werenow
available fromtheSecretariat. After some discussion, itwasdecided tohavethenextmeeting ofthe
Committee inearlyApril 1997, which would launch theresumption ofthefinancial services negotiations
foritscompletion byend-December 1997. Thefirstround ofbilateral negotiations should alsotakeS/FIN/M/12
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place around thedateofthemeeting. Atimetable forthenegotiations would alsobepresented tothis
meeting. Discussions ontechnical issues could bemade inparallel withthenegotiations.
12. Lastly, theCommittee turned tothesubject ofitsreport totheCouncil forTrade inServices.
Adraftreport wasprepared bytheSecretariat andcirculated asaninformal noteahead ofthemeeting.
Thedelegation ofNorway hadsubmitted awritten comment tothisdraftwhich wasalsocirculated
informally. Following informal discussions anumber ofamendments tothetextprepared bythe
Secretariat wereagreed. However, since some delegations wereobliged toreserve theirpositions on
thefinalparagraph ofthereport, notably inregard toitssecond sentence, theChairman announced
thatthereport would besentforward totheCouncil forTrade inServices, forincorporation inits
report totheGeneral Council, onanadreferendum basis, i.e.,ontheunderstanding thatitcould be
further amended indiscussion attheCouncil forTrade inServices level. Delegations wishing topropose
further amendments tothetextwould therefore beabletodosointheCouncil forTrade inServices.