RESTRICTED
WORLD TRADE S/FIN/W/9
29July 1996
ORGANIZATION
(96-3005)
Committee onTrade inFinancial Services
TECHNICAL ISSUES CONCERNING FINANCIAL SERVICES SCHEDULES
Note bytheSecretariat
INTRODUCTION
1. TheCommittee onTrade inFinancial Services ismandated toprovide aforum fortechnical
discussions, toconduct studies onmeasures ofMembers andtoconduct examinations ofanytechnical
matters affecting trade inservices inthefinancial services sector.1Aspartofthismandate, the
Committee hasinitiated discussions onsome technical issues regarding thescheduling ofcommitments
andthelisting ofArticle II(MFN) exemptions infinancial services, withaview tofacilitating the
interpretation ofexisting schedules andlistsandpossibly toimprove theirtechnical accuracy and
coherence inthefuture.2
2. Thecurrent stateoftheschedules andlistsofMFN exemptions withregard tofinancial services
issuchthatlegalinterpretationandcross-countrycomparisonsofthecommitmentsandMFNexemptions
aresometimes made difficult notonlyduetothecomplexity ofthecontent ofthelegal rights and
obligations embodied inthecommitments, butalsobecause ofthediversity ofconcepts andconventions
usedintheirpresentation. Common understanding onthepresentation ofthese documents hassofar
beenestablished mainly forthebasic structure oftheschedules fortheservices sector asawhole, and
nofurther workhasbeendoneinthisareasincetheendoftheUruguay Round negotiations inlate1993.3
1Seeparagraphs 2and3ofthe"Decision onInstitutional Arrangements fortheGeneral Agreement onTrade
inServices" in"The General Agreement ontrade inServices andRelated Instruments" April 1994.
2TheCommittee onSpecific Commitments isresponsible forsuchtechnical issues inrelation toallservices
sectors other thanthose forwhich standing sectoral bodies havebeen established. (The Decision ontheTerms
ofReference fortheCommittee onSpecific Commitments, adopted bytheCouncil forTrade inServices on22
November 1995.) Thefirstmeeting ofthisCommittee washeldon24May 1996.
3Thebasic principles forthescheduling ofcommitments inservices arelaiddown inthedocument "The
SchedulingofInitialCommitmentsinTradeinServices:ExplanatoryNote"(MTN.GNS/W/164)dated3September
1993 (theScheduling Guide) anditsAddendum (MTN.GNS/W/164/Add.1) of30November 1993. These notes,
however, should notbeconsidered asauthoritative legal interpretations oftheGATS. Anindicative listofthe
sectoral classification ofservices exists intheform ofthe"Services Sectoral Classification List" in
MTN.GNS/W/120 of10July1991. Seealsoaninformal notefortheGroup ofNegotiations onServices of
15September 1993 entitled "Listing ofArticle IIExemptions -Explanatory Note bytheSecretariat."S/FIN/W/9
Page 2
Furthermore, theagreed rulesforscheduling commitments andlisting MFN exemptions areoften not
observed.4
3. Inorder toimprove thetransparency oftheexisting commitments andMFN exemptions, and
toassist infuture negotiations, itseems therefore appropriate toconsider some ofthetechnical issues
involved assoonaspossible withaviewtoimproving thecurrent situation. Intheabsence sofarof
anyformal dispute concerning financial services under theGATS, theextent towhich suchtechnical
complexity anddiversity might eventually leadtolegaluncertainty inthisareaisnotobvious. However,
before anysuchcasearises, italsoseems necessary toconsider ways toclarify theinterpretation of
thecommitments andMFN exemptions ofcountries, sothattheycould bemade more straightforward,
leaving aslittleroom aspossible formisunderstanding.
4. Itmight beneedless toreiterate theimportance ofthetransparency ofthelegal constraints
affecting tradeinservices, inparticular financial services, given thehugefinancial flows involved and
thespeed inwhich theflows could bediverted orreversed inreaction toadverse conditions. Although
some ofthetechnical issues discussed below might seem lessimportant when regarded intheoverall
context ofliberalization oftrade infinancial services, attention should bepaidtosuchissues, sothat
countrieswouldbeabletoaccuratelymeasuretheprogressmadeinliberalizingtradeinfinancialservices,
andavoid unexpected problems which could arisefromlegalinconsistency ofthespecific commitments
andMFN exemptions inthissector.
5. Twotechnical issues concerning thefinancial services schedules arediscussed atlength below.
Theyare:i)thedistinction between Modes 1and2,andii)thesectoral classification offinancial services.
Thisnoteisintended toidentify therelevant points which could bediscussed withregard toeachof
these issues, andtoprovide some ideas forpossible improvements which could bemade inthefuture.
Italsoattempts toidentify some other issues onwhich work could bedonetoimprove theclarity and
legalconsistency oftheschedules andMFN exemptions. Itisunderstood thatthediscussion oftechnical
issues should notleadtoanalteration ofthesubstance ofMembers 'commitments, nortotheimposing
ofanyuniform interpretation when country practices clearly differ. Anymodifications totheschedules
orlistsofMFN exemptions leading tosuchalteration ofrights andobligations ofMembers canonly
bemade inthecourse offuture rounds ofnegotiations orthrough formal procedures suchasthe
procedure under Article XXIoftheGATS. Members are,however, notprevented frommaking any
technical corrections intheirschedules orlists, ifnecessary.
4Examples ofentries intheschedules notconsistent withthescheduling guidelines which havebeenpointed
outrecently are:
- references toeconomic needs testswithout specifying thecriteria onwhich thetestsarebased;
- entries pertaining toauthorization orlicensing requirements without specifying thecriteria;
and,
- references toforeign exchange restrictions which might becovered under Articles XIorXII;
- references toreciprocity conditions intheschedule;
- ascheduled commitment andanMFN exemption concerning thesame measure which appear
tobemutually inconsistent;
- references tomeasures which areclearly prudential innature.S/FIN/W/9
Page 3
THE DISTINCTION BETWEEN MODES 1AND 2INFINANCIAL SERVICES
(i) Thedefinitions andtheir application
6. Thedefinitions ofthefourmodes ofsupply listed inthecountry schedules aresetoutinArticle
I:2.oftheAgreement. Themodes areessentially defined onthebasis oftheorigin oftheservice
supplier andconsumer, andthedegree andtypeofterritorial presence which theyhaveatthemoment
theservice issupplied andconsumed.5
7. Mode 1iscross-border supply, whereby thesupply ofaservice takes place fromtheterritory
ofoneMember intotheterritory ofanyother Member. Inother words, theservice supplier isnot
present within theterritory ofthecountry making thecommitment. International transport andthe
supplyofaservicethroughtelecommunicationsormailareoftencitedastypicalexamplesofcross-border
supply ofservices. Infinancial services, underwriting insurance forrisksinanother country maybe
anexample ofcross-border supply.
8. Mode 2isconsumption abroad, whereby thesupply ofaservice takes place intheterritory
ofoneMember totheservice consumer ofanyother Member. Inthiscase, theservice issupplied
andconsumed outside thecountry making thecommitment. Often theactual movement oftheconsumer
isanecessary condition, butithasbeenunderstood thatactivities suchasshiprepair abroad, where
onlytheproperty oftheconsumer moves orissituated abroad, arealsocovered under thismode, since
theservice isconsumed atthelocation oftheproperty andnotatthelocation oftheconsumer.
9. Formany services, suchasservices associated withhealth, education, tourism oraudiovisual
services, itisrelatively clearwhether theservice issupplied cross-border orconsumed abroad, since
thephysical presence oftheconsumer isrequired tosupply theservice; i.e.iftheconsumer stayshome
andconsumes theservice provided byasupplier abroad, itisclassified asMode 1;iftheconsumer
decides tomove abroad toconsume theservice, thenitisMode 2.Also, inthecaseofservices such
asshiprepair services citedabove, itisclear thattheservice needs tobesupplied andconsumed at
thelocation oftheship, andnotatthelocation oftheconsumer (inthiscasetheshipowner).
10. However, inthecaseoffinancial services, thecriteria formaking thisdistinction arelessclear,
asthesupply andconsumption oftheservice doesnotalways require thephysical presence ofthe
consumer norhisorherproperty; e.g.when borrowing money from aforeign banklocated abroad,
onedoesnotactually needtophysically move oneself norone'sproperty; theborrowed funds could
besupplied andconsumed abroad, ortheycould besupplied andconsumed inthehome country of
theconsumer orinanyother country. Ifthepoint where thefunds were"delivered" determined where
theservice issupplied andconsumed, theservice would besupplied under Mode 1when theborrowed
funds aredelivered inthehome country oftheconsumer, otherwise itwould fallunder Mode 2.If
theplace where theservice was"purchased" mattered, theanswer might bedifferent, since theservice
could bepurchased abroad (inthiscasewhere theloancontract wassigned orwhere thefeesforthe
service werepaidtothesupplier), although thefunds received might bedelivered inthehome country.
Iftheplace where repayment isdue,orwhere anyother related activity takes place should alsobe
taken intoaccount, itwould become verydifficult, ifnotimpossible, todetermine themode ofsupply
oftheservice. Forexample, inthecaseofproperty insurance orassetmanagement services, thelocation
oftheinsured property ortheassets tobemanaged might needtobetaken intoconsideration.6
5Seeparagraphs 18and19oftheScheduling Guide inMTN.GNS/W/164.
6Thedocument MTN.GNS/W/164 defines themodes ofsupply according tothedegree andtypeofterritorial
presence oftheservice supplier andconsumer atthemoment theservice isdelivered. Ittherefore states that
(continued...)S/FIN/W/9
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11. Inthecaseoftheacceptance ofbankdeposits, ananalogy might bedrawn from shiprepair
services, since thefunds mustbedeposited somewhere, andtheservice could bedeemed tohavebeen
supplied andconsumed inthecountry inwhich thedeposit account isopened. Some countries have
apparently adopted suchanapproach, andhavescheduled limitations ontheopening ofoverseas deposit
accounts byresidents under Mode 2,forexample. However, eveninsuchacase,questions mayarise
ifadditional services weresupplied intheconsumer 'shome country orinathirdcountry. Inthecase
ofabanktransfer service, thesupply oftheservice could bedeemed tohavetaken place atbothends
ofthetransfer. Inthecaseofproperty insurance, theinsured property might besituated abroad, but
theindemnity could bepaidintheconsumer 'shome country. Again itisnotclearwhether theservice
hasbeensupplied andconsumed abroad orinthehome country. More complicated cases canbe
imagined, forexample inthecaseofafirmestablished incountry Xissuing corporate bonds incountry
Y,leadmanagedbyaninvestmentbankofcountryZ,andunderwrittenbysecuritiesfirmsfromcountries
X,Y,Zandothers.
12. Looking atsuchexamples castsenough doubt onthefeasibility andrelevance ofattempting
toestablish theplace ofsupply andconsumption forfinancial services, andtodetermine whether a
service issupplied under Mode 1or2.Thequestion ofdetermining theplaceofsupply andconsumption
becomes evenmore difficult aselectronic transactions speed upandfacilitate thetransfer offunds and
information across national borders.7Financial service transactions havealsobecome more complex,
withvarious operations being linked together through swaps andoffsetting operations.8
(ii) Solicitation oractive marketing
13. Inrecognition ofsuchdifficulties, anumber ofcountries havechosen toqualify thescope of
Mode 2intheir schedules byintroducing theconcept of"solicitation", oralternatively, "active
marketing". Suchintentions arestated intheheadnotes totheschedules infinancial services.9These
countries permit theirresidents topurchase intheterritory ofanyother Member financial services
ontheunderstanding thatthisdoesnotimpose anyobligation toallow non-resident financial service
6(...continued)
theessential feature ofMode 2isthattheservice isdelivered outside theterritory oftheMember making the
commitment (pp.7-8). Incontrast, the"Understanding onCommitments inFinancial Services" employs the
term"purchase", whereby itstates that"Each Member shall permit itsresidents topurchase intheterritory of
anyother Member thefinancial services ..."when referring toconsumption abroad. Thepoint ofdelivery of
afinancial service maydiffer from thepoint ofpurchase, butthedistinction issometimes notveryclear.
7This isofcourse notunique tofinancial services; similar situations exist forservices such as
telecommunications andinternational transport.
8Onewaytofacilitate thedetermination ofthemodes ofsupply forasetoffinancial services maybeto
"unbundle" theservices intobasic components. Forexample, theservices provided byabank toacorporate
customercouldconsistoftheaccep tanceofdeposits,lending,transferoffunds,guarantees,brokerageofsecurities
andderivative transactions, underwriting, asset management, settlement andclearing, provision offinancial
information etc.Tocomplete afinancial transaction, several ofthese services aretypically required. Although
suchunbundling isconceptually necessary toacertain extent inorder toclarify theregulatory situation forthe
activitiesofaforeignfinancialinstitutioninacountry,itshouldnotovercomplicatetheinterpretationofascheduled
commitment; forexample, abinding commitment inthecross-border supply of"lending" should bereadas
toinclude acommitment topermit services directly associated withlending, suchasthetransfer ofthefunds
tothecustomer'sbankaccountortheissuingofabankcheque.Suchservicesshouldnotbeconsideredasseparate
services, since theyconstitute anessential partofthelending service.
9Countries withsuchheadnotes are,Canada, Japan, Switzerland, theUnited States (excluding insurance),
andLiechtenstein.S/FIN/W/9
Page 5
suppliers tosolicit business initsterritory.10
14. Although notexplicitly stated intheschedules, ifthesupply ofthefinancial service byasupplier
abroadinvolvessolicitationoractivemarketingofbusinessonthepartofthissupplierwithintheterritory
oftheconsumer 'shome country, thesupply oftheservice might betreated asMode 1.Inother words,
Mode 2could beconfined toconsumption abroad notaccompanied bysolicitation oractive marketing
activities onthepartofthesupplier.11
15. Theprincipal reason formaking adistinction between thesupply ofservices withorwithout
solicitation oractive marketing presumably liesintheneedforprotection ofconsumers andeffective
supervisionofforeignfinancialservicesupplierswhichsolicitoractivelymarkettheirservices.Countries
would beconcerned ifforeign financial service suppliers were allowed tosolicit business intheir
territories without meeting certain standards orqualifications andreceiving proper supervision. On
theother hand, itmayberecognized thatitwould beextremely difficult tokeepunder control the
consumption offinancial services abroad byconsumers intheabsence ofanysolicitation oractive
marketing bythesupplier abroad. Thedesire tosecure adequate supervision wasprominent fromthe
verybeginning ofnegotiations infinancial services.12
16. Itisclearfromtheabovedescriptionthatadistinctionbasedsolelyonwhetherthereissolicitation
oractivemarketingonlypartiallyanswersthedifficultquestionofestablishingacleardistinctionbetween
Modes 1and2.Intheabsence ofsolicitation oractive marketing, thequestion stillremains astowhether
theservice wasconsumed abroad orwassupplied cross-border. When thereissolicitation, theservice
willpresumably betreated asunder Mode 1,butonequestion which immediately arises fromadopting
thisapproach ishowtodefine andidentify theexistence of"solicitation" or"active marketing". Is
thecirculation ofanadvertisement inawidely distributed domestic newspaper oronapopular television
network anecessary orsufficient condition? What about thesending ofmailorder forms toprospective
customers? Although theanswers tothese questions areprobably positive, isitpossible tokeeptrack
ofsuchsolicitation across borders? Another possible question iswhether itisnecessary toestablish
acausal linkbetween theconsumer 'sdecision toconsume aservice abroad andthesolicitation oractive
marketing ofthesupplier.
10UndertheNAFTA(NorthAmericanFreeTradeAgreemen t),eachpartyisrequiredtopermitpersonslocated
initsterritory topurchase financial services from cross-border financial service providers located inanother
party, butitisspecified thatthisobligation doesnotrequire aparty topermit suchproviders todobusiness or
solicit initsterritory. Each party maydefine "doing business" and"solicitation" forpurposes ofthisobligation.
(Article 1404:2)
11Thecountries which have made useofthose concepts have adopted the"Understanding onCommitments
inFinancial Services" (Understanding) asthebasis fortheircommitments infinancial services. Paragraphs 3
and4oftheUnderstanding define commitments roughly corresponding toModes 1and2.Countries haveadded
some clarifications intheirschedules; forexample, Canada hasindicated thatmarket access commitments with
respect tothe"cross-border" and"consumption abroad" supply ofservices (asdescribed inparagraphs 2(a)and
2(b)oftheGATS) apply only tothetransactions indicated inparagraphs 3and4ofMarket Access ofthe
Understanding (GATS/SC/16/Suppl.1).
12Inthe"Understanding", thisconcern foradequate supervision seems tobeonereason forthedistinction
made between thescope ofcommitments defined inparagraphs 3and4;thecoverage ofparagraph 3islimited
compared toparagraph 4.Commitments made under paragraph 3could involve solicitation oractive marketing
byforeign financial service suppliers. Some countries mayhave considered that,ifandwhen theprinciples of
consolidatedhome-countrysupervisionandregulatoryharmonizationcoupledwithenhancedinternationalcooperation
aslaiddown intheregulatory principles agreed bytheBasle Committee onBanking Supervision areapplied
universally, such concern maybealleviated substantially.S/FIN/W/9
Page 6
17. Whilemanyofthesequestionswouldbeofinterestonlyontheoreticalgrounds,practicalconcerns
about theability toregulate thesupply offinancial services onitsterritory might make acountry reluctant
toundertake commitments inMode 1.13Problems mayarisewhen there isanactual difference inthe
degree ofliberalization between Modes 1and2,asisthecaseinmany national schedules. Thevalue
ofarelativelyliberalmarketaccesscommitmentunderMode2canbediminishedbyrestrictivemeasures
under Mode 1,iftheterm"solicitation" isloosely defined, orconversely when "consumption abroad"
isverynarrowlydefined.14Themeaningofanationaltreatmentcommitmentmightalsodifferdepending
onwhether thecommitment ismade under Mode 1orMode 2.15Suchquestions would require further
close examination.
(iii) Issues fordiscussion
18. Delegates maywishtodiscuss thefollowing issues inrelation tothedistinction between Modes
1and2described above.
- What aretheproblems associated withthecurrent distinction between Modes 1and2inthe
financial services schedules? What criteria havecountries usedtodistinguish between Modes
1and2?Aresuchcriteria based onwhere theservice issupplied, orwhere theconsumer
islocated?
- Hasadifficulty intheinterpretation oftheschedules ledtopractical problems inrelation to
13TheOECD Code ofLiberalization ofCurrent Invisible Operations allows OECD Members toregulate on
theirterritory thepromotional activities ofnon-resident providers ofbanking andfinancial services inaddition
toacarve-out forprudential measures.
14Another potential problem mayarise inrelation tofootnote 8toArticle XVIoftheGATS, inwhich itis
provided thataMember iscommitted toallow cross-border movement ofcapital, ifsuchmovement ofcapital
isanessential partoftheservice supplied through Mode 1,butnotthrough Mode 2.Thisdistinction maynot
beasimportant asitseems, since Article XI:1 and:2stipulate thataMember shall notapply restrictions on
international transfers andpayments forcurrent transactions relating toitsspecific commitments norshallimpose
restrictions onanycapital transactions inconsistently withitsspecific commitments regarding suchtransactions,
except under Article XIIorattherequest oftheInternational Monetary Fund. Itcanalsobeargued thatany
restriction oncapital movements maybeprohibited byArticle XVII solongasitwould negatively affect the
competitive opportunities forforeign services andservice suppliers. However, thisstillcasts some doubt on
thescope ofamarket access commitment under Mode 2infinancial services inrelation toassociated capital
flows.
15Thisdifference would bepronounced ifanational treatment commitment inaschedule were considered
asmode-specific;i.e.whenaMemberschedulingacommitmenttoprovidenationaltreatmentdoessoforaspecific
Mode ofsupply butnotforother Modes, itmight beallowed todiscriminate between service suppliers supplying
thesame service through different Modes. Such aninterpretation, however, would limit thevalue ofanational
treatment commitment under Mode 1orMode 2,since according aforeign service supplier supplying theservice
through either ofthese Modes treatment nolessfavourable thanalikeservice supplier ofthecountry supplying
aservice cross-border from another country (Mode 1)orsupplying theservice intheterritory ofanother country
(Mode2)bythemselvesdonotprovidemuchsecuritytotheforeignservicesupplierintermsofnon-discrimination.
Acommitment toprovide national treatment inMode 2maynotbetechnically feasible, ifthesupply oftheservice
takes place entirely outside thecountry making thecommitment. Incontrast, thecommitment would beofmuch
largervalueiftheforeignservicesuppliersupplyingtheservicethroughMode1orMode2wereaccordedtreatment
nolessfavourable thanalikeservice supplier ofthecountry supplying theservice domestically, i.e.thesame
standard asforMode 3.Foradiscussion ofthisissue inrelation tosubsidies andtrade inservices, see"Subsidies
andTrade inServices" (S/WPGR/W/9) of6March 1996, p.9. Itisalsonoted thatparagraph 3ofthe
Understanding contains aphrase "under terms andconditions thataccord national treatment" while paragraph
4concerning residents purchasing financial services intheterritory ofanother Member lacks such terms.S/FIN/W/9
Page 7
thecommitments ofother countries?
- What possible improvements could bemade tothecurrent distinction between Modes 1and
2?Should Mode 2beclarified soastoinclude onlythephysical movement ofconsumers instead
ofapplying adistinction based ontheplace ofsupply andconsumption oftheservice?16
- Istheconcept of"solicitation" or"active marketing" useful inmaking thedistinction clearer?
What arethepractical problems inapplying thisdistinction? Aresuchconcepts employed in
thedomestic legislation ofMembers?
- Would itbepossible todistinguish between Modes 1and2infinancial services byidentifying
whether limitations ofaMember apply totheforeign non-resident supplier (Mode 1)orto
theMember 'sconsumer (Mode 2)?Would suchanapproach beconsistent withthescheduled
commitmentsofMembers?Wouldsuchclarificationalterthesubstanceofexistingcommitments
inschedules ormake scheduled commitments more comprehensible across countries?
- Ifnoimmediate change inthedistinction between Modes 1and2seems appropriate, orifno
change seems possible without altering thesubstance oftheexisting commitments inthe
schedules, could theschedules bemade more comprehensible andcomparable across countries
without changing thedistinction?
- Inthisconnection, isitcorrect toassume thatmarket access commitments inparagraphs 3
and4oftheUnderstanding correspond roughly toModes 1and2respectively, although with
limited coverage ofsubsectors inwhich certain commitments aremade?
- Would itbepossible toclarify themeaning ofnational treatment commitments made under
Modes 1and2?What implications could ariseifdifferent interpretations wereadopted with
regard towhatconstitutes national treatment under these Modes ofsupply?
- What would betheproper procedure toimplement anypossible solutions tosuchtechnical
questions?
THE SECTORAL CLASSIFICATION OFSERVICES
19. Withregard tothesectoral classification offinancial services intheschedules ofcommitments,
alargemajority ofMembers havebased theirschedules ontheclassification intheAnnex onFinancial
Services oftheGATS (theAnnex), orthe"Services Sectoral Classification List" indocument
MTN.GNS/W/120 of10July1991 prepared during theUruguay Round which isanearlier version
16Itmaybenoted thatcross-border trade infinancial services under theNAFTA includes within itsscope
bothModes 1and2under theGATS; theNAFTA alsodoesnotdraw anydistinctions between Modes 1and
2(NAFTA, Articles 1416 and1404). Onepossible solution under theGATS maybetomaintain thedistinction
between Modes 1and2based ontheplace ofdelivery oftheservice, buttospecify thatthedelivery isassumed
totakeplace cross-border under Mode 1unless theconsumer moves abroad orthetransactions aresettled through
anoverseas account, forexample. Thefactthataforeign service supplier settles atransaction through abank
account within acountry might perhaps provide abetter indication ofwhere theservice issupplied thankeeping
track of"solicitation" or"active marketing" involving awide range ofpromotional activities invarying
circumstances.S/FIN/W/9
Page 8
butverysimilar totheoneadopted intheAnnex.17
20. However, there areother variations; while some schedules complement theclassification in
theAnnex withtheUnited Nations CPC(Central Product Classification) codes, others haveusedoriginal
nationalclassifications.Inmanyinstances,thishasmadeschedulesdifficulttointerpretandcross-country
comparison oftheschedules delicate. Forexample: items suchasthe"acceptance ofdeposits" and
"lending" include orexclude certain activities, insurance intermediation suchasbrokerage andagency
istreatedeitherasanindependentitem,orispartof"servicesauxiliarytoinsurance";creditcardservices
areeither apartof"allpayment andmoney transmission services", ortheyconstitute anindependent
item; there arecases inwhich theheading inthe"Sector orsubsector" column indicates anarrower
service sector orsubsector thantheCPCnumber listed below theheading orwhere theCPCnumber
indicates anarrower category thanthesector listed; andservices suchas"venture capital" and"services
related tosecurities markets" aresometimes listed without further detailed definitions.
21. Inthiscontext, the1991version oftheUNCPCcurrently inusedoesnotprovide thenecessary
detail forsome services; themost prominent example isthetreatment ofderivatives, money market
instruments,exchangerateandinterestrateinstruments,moneybrokingaswellassettlementandclearing
services which areputunder thesingle category "other services auxiliary tofinancial intermediation
n.e.c." Reinsurance andretrocession isalsopartof"other insurance services n.e.c." Inseveral cases,
theCPCcodes areattached toonlyselected items inthesectoral column oftheschedule, andsometimes
evenseem tocause more confusion thantoprovide useful additional information onthecontent of
thecommitments intheschedules.
22. Inlightofthissituation, delegates maywish todiscuss whether there isaneed toeither
harmonize thesectoral classification offinancial services, ortoatleastmake them more readily
comparable across countries, sothattheschedules could bemade easier tointerpret andtocompare
across countries. Anunderstanding maybereached byMembers tofollow theclassification inthe
Annex onFinancial Services asclosely aspossible, andtoindicate anynecessary deviations from it
inclear andcomprehensible textual terms.
23. TheSecretariat hasnotidentified anyserious deficiency withrespect totheclassification in
theAnnex. Delegations maywish, however, todiscuss whether theexisting classification issufficiently
detailed orrobust forthepurposes ofscheduling commitments, andwillbeadequate foruseinfuture
negotiations. Thecurrent classification sometimes groups together afairly large number ofsimilar
services intoonecategory.18
17Ofthe122Members oftheWTO, atleast19countries have adopted theclassification intheAnnex on
Financial Services (counting theEuropean Communities asone)and33countries haveadopted theclassification
inMTN.GNS/W/120 asthebasis forscheduling specific commitments. Ontheother hand, 24countries have
employed original national classification methods. 48countries have usedtheCPC numbers (United Nations
Central Product Classification codes) tosupplement thesectoral classifications. Thetotalnumber ofMembers
withfinancial services schedules was76(90Members, iftheECiscounted individually.) asof30June1996.
18Forexample, "transferable securities" could beclassified according totype(stocks, bonds, asset-backed
securities etc.) orbyissuer (corporations, governments, financial institutions etc.); derivative products could
bebroken down bytheunderlying instrument (securities, financial market indicators, commodities etc.); and
services suchascredit cardservices orelectronic payment systems ("smart card" services) andpension fund
management services could bemade independent items.S/FIN/W/9
Page 9
OTHER TECHNICAL ISSUES
24. Apart from thetwoissues discussed above, technical questions arising from entries suchas
those listed infootnote 4aswellasotherissues regarding thescheduling ofspecific commitments might
alsobeofinterest toMembers. Forexample, differences between Members intheuseofthemarket
access column andthenational treatment column could bediscussed. Theappropriate useofthe
additional commitments column, orthelimited cases inwhich theuseofheadnotes orfootnotes would
behelpful might alsobediscussed. Currently theuseofsuchcolumns orpartsoftheschedule vary
byverymuch across countries. Further clarification through discussions ontheapplication ofexisting
scheduling guidelines, orpossibly through formulation ofrecommendations torevise those guidelines
could bemade.
25. Amore general question which hasbeen raised ishowtoimprove theclarity andlegal
consistency oftheschedules andMFN exemption lists. Thisissue maybeparticularly relevant in
financial services, where ahighdegree oftechnical expertise andprecision mayberequired inthe
scheduling ofcommitments, given thediversified andsophisticated nature oftheservices inquestion.
Although finalresponsibility fortheentries made intheschedules andlistslieswiththedelegation
concerned, theSecretariat isatthedisposal ofdelegations toprovide assistance ortechnical advice
prior tofinalization oftheschedules orlistsresulting from negotiations. Fulluseshould bemade
ofsuchresources.
26. Forthispurpose, onemayconsider improving theprocedure fortechnical verification ofthe
schedules andMFN exemption lists. Forexample, thetimefordiscussion andresponse byMembers
might beincreased. TherôleoftheSecretariat might bereviewed, possibly toidentify broad issues
ofatechnical nature fordiscussion intheverification process. Technical assistance onscheduling
techniques bytheSecretariat might alsoneedtobereinforced inthefuture sothatdeveloping country
Members arenotputatadisadvantage byalackoftechnical expertise. Inthisconnection, countries
acceding totheWTO should beprovided adequate assistance inscheduling theircommitments.
27. Another question withbothtechnical andsubstantive aspects ishowtoschedule phase-in
arrangements orstaged liberalization infinancial services. Itmight beuseful toclarify where and
howtoenter commitments which arephased inovertimeorwhich allow foraninterruption of
liberalization onthebasis ofpre-determined conditions.1920
19Aninformal notewascirculated totheCommittee bythedelegation ofCanada on28March 1995 entitled
"Scheduling Staged Liberalization inFinancial Services."
20TheGATS hasprovided forthescheduling ofsuchcommitments inArticle XX:1 (d),where itisstated
thatthetime-frame forimplementation ofcommitments shall bespecified where appropriate.