WORLD TRADE  
ORGANIZATION  RESTRICTED 
S/FIN/M/74 
16 November 2012  
 
(12-6330) 
Committee on Trade in Financial Services  
  
 
REPORT OF THE MEETING HELD ON 1 OCTOBER 2012 
 
Note by the Secretariat
1 
  
1. The Committee on Trade in Financial Services held a meeting on 1 October 2012, under the 
chairmanship of Ms Micong Klimes (Germany).  The agenda is contained in Airgram WTO/AIR/4001. 
2. The representatives of Argentina and Panama request ed that the title of item E of the agenda 
be changed to "Argentina - Certain Measures that affect Trade in Financial Services". 
3. The Committee adopted the age nda with that amendment. 
A. ACCEPTANCE OF THE FIFTH PROTOCOL TO THE GENERAL AGREEMENT ON TRADE IN 
SERVICES  
4. The Chairperson informed that Jamaica had completed its domestic procedures for the 
acceptance of the Fifth Protocol to the GATS, and had requested the Council for Trade in Services to 
reopen the Protocol for acceptance by Jamaica.  The request by Jamaica and the draft Council 
decision were contained in documents S/C/W/346 a nd 347, respectively.  She added that the issue 
would be dealt with directly, as had always been th e case, by the Council for Trade in Services, at its 
next meeting later that week.  Brazil is the only Member that has yet to accept the Protocol. 
5. The representative of Brazil stated that the situation had remained unchanged.  
6. The Chairperson extended the Committee's appreci ation to the Government of Jamaica for its 
efforts in completing the acceptance of the Fifth Protoc ol, noting that this was an important step in the 
right direction.  She also encouraged Brazil to accelerate its internal procedures for the acceptance of 
the Protocol and keep this Committee in formed of any progress in that regard. 
7. The Committee took note of those statements and de cided to revert to this agenda item at its 
next meeting. 
B. RECENT DEVELOPMENTS IN FINANCIAL SERVICES TRADE  
8. The Chairperson recalled that, at the last meeting, Ecuador circulated a communication 
contained in document S/FIN/W/84, with a pr oposal to have a dedicated discussion on 
macroprudential regulation.  The communication al so suggested that the Secretariat prepare 
a Background Note on the issue.  As the communicati on had been circulated just the day before the 
meeting, and in Spanish only, most delegations i ndicated that more time wa s needed to review the 
proposal, and it was suggested that the Chair hol d informal consultations.  Those informal 
consultations, held on 14 Septembe r, allowed Members to better understand the proposal and express 
                                                      
1  This document has been prepared  under the Secretariat's own responsibility and without prejudice to 
the positions of Members and to their rights and obligations under the WTO. S/FIN/M/74 
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  their views on it.  These revolved around three issu es:  1) whether to have a discussion on macro-
prudential regulation; 2) whether relevant in ternational organizations, such as the Bank for 
International Settlements (BIS) a nd the International Monetary F und (IMF), should be invited to 
participate; and 3) whether the Secretariat should be  asked to prepare a Background Note on the issue. 
9. Opinions diverged on these three issues.  Accord ing to the Chairperson, a large majority of 
Members supported the idea of having a dedicated  exchange of experiences with regard to 
macroprudential regulation.  The precise issue for discussion should be clearly framed.  Concerning 
the other two issues, some considered that th e discussion should be Member-driven, without the 
participation of international or ganizations, while others found valu e in inviting organizations that 
were directly involved in this area.  The request fo r a Secretariat Note elicited a similarly broad range 
of replies.  Answers to some questions raised  by Members during those consultations were still 
outstanding.  She asked Ecuador to address these questions first, before opening the floor for 
discussion. 
10. The representative of Ecuador said that the prop osal had a clear raison d'être:  to ensure 
Members' capacity to safeguard the stability of their financial systems based on a clear understanding 
of the GATS rules and their relationship with th e new macroprudential regulations proposed by 
various international organizati ons.  Several Members had supported the proposal.  Others had 
expressed concerns that it might lead to a legal in terpretation of the existing GATS rules or to the 
development of an exhaustive list of measures that would fit within the framework and others that 
would not.  With a view to accommodating these concerns, Ecuador proposed the holding of a 
dedicated Member-driven discussion in the Committee.   Such a structured debate would permit an 
open and frank exchange of views in the common interest. 
11. He then addressed some of the qu estions posed by Members in past meetings.  He clarified in 
that regard that the questions appearing in paragr aph 17 of the proposal simply served as examples of 
the type of issues that Members might address during the discussion, and were put forward with a view to stimulating debate.  In the case of paragr aph 17(c), the IMF was mentioned as an example of 
an organization that had been working on macropruden tial issues.  Organizations working in this area 
included the Financial Stability Board (FSB), the Bank for International Se ttlements (BIS) and the 
G-20.  Other international organizations agreed wi th the need to regulate financial systems, but 
considered that such regulations might be hamper ed by certain GATS rules.  That was the case of 
UNCTAD, whose 2011 Trade and Development Report  made the point that the  GATS had been 
negotiated at a time when financial deregulation w as seen as the best way to promote the development 
and stability of the financial sector.  However, as a result of the crisis, many countries now preferred 
to re-regulate their financial systems, although their GATS commitments could prevent this.  
Members therefore faced different opinions by di fferent international organizations as to the 
relationship of specific policies with the GATS framework  of rules.  This should at least be addressed 
by the Committee so as to clarify the coherence between those policy prescriptions and the GATS. 
12. The report to the G-20 on Macroprudential Polic y Tools and Frameworks (27 October 2011), 
prepared by the BIS, the FSB and the IMF, explai ned that macroprudential policy was characterized 
by three defining elements:  (i) its objective - to limit systemic risk, i.e, the risk of widespread 
disruptions to the provision of financial services that have serious negativ e consequences for the 
economy at large;  (ii) its scope - the focus is on the financial system as a whole, as opposed to 
individual components that take the rest of the sy stem as given;  and (iii) its instruments and 
associated governance - macroprudential policy uses prim arily prudential tools calibrated to target the 
sources of systemic risk.  This definition of macr oprudential policy clearly pointed to the need to 
better understand the inter-relati onship between the different frameworks governing financial 
services, such as the GATS.  S/FIN/M/74 
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  13. Turning to question 17(e), he noted that organizations such as the IMF and UNCTAD had 
included, as part of their concept of macroprudentia l policies, capital flow management measures.  
The GATS had rules for international payments an d transfers arising as a result of the supply of 
a service by a foreign service supplier.  However, in the case of financial services, the movement of capital was indeed the service.  As shown by the recent global financial crisis, capital flows might 
destabilize the system if not subject to appropriate regulations and controls.  The different measures to 
manage these capital flows should also be analysed in the context of the GATS. 
14. The proposal to let the Secretariat prepare a background document was seen as a way of 
stimulating the discussion, which, in any case, mu st remain Member-driven.  However, if the 
Committee decided not to make such a request to the Secretariat, Ecuador would go along with that 
decision.  While some Members considered that  the scope of the discussion should be narrowed, 
Ecuador was of the view that Members should be  able to address any aspect of macroprudential 
policy and share their opinions and ideas with the rest  of the Membership.  He was pleased to note in 
that regard that a large number of Members, in cluding those having concerns with respect to the 
proposal, had indicated their readiness to share th eir experiences in this area in the Committee. 
15. From the perspective of a developing count ry, a session dedicated to an exchange of 
experiences and views would be a very useful way of  learning about best practices in macroprudential 
regulation with a view to ensuring the stability of financial systems.  In his view, there was wide 
support for a proposal around the following elements:  firstly, a session dedicated to an exchange of 
experiences with macroprudential regul ation in order to clarify the c oherence of such regulation with 
GATS rules, without leading to a legal interpre tation of the GATS or the development of any 
exhaustive list of measures falling within that framework.  Secondly, as a way of launching the 
discussion, the Secretariat could be requested to draft a background document describing macroprudential policies currently recommended in in ternational forums.  However, if the Committee 
did not feel this to be appropriate, Ecuador was re ady to work with Members in order to find other 
ways to motivate and encourage discussions.  Thirdly, the dedicated discussion could be 
supplemented with the participation of experts from international organizations that had been dealing 
with this matter, such as the IMF, the FSB or UNCTAD. 
16. The representative of Turkey said that her de legation had supported a discussion on the scope 
of the GATS prudential carve-out as proposed by Ecuador.  The revised proposal by Ecuador took 
account of the concerns raised by Members.  While the prudential carve-out was extensively 
discussed in other forums, such as the IMF and th e G-20, the WTO was the natural place to address 
particular concerns by Members.  In her view, it would be beneficial to include this issue as an agenda 
item in future meetings on the condition that the discussion be Member-driven and non-binding (in 
the sense that there should not be any conclusions that might be understood as binding upon Members).  She urged those Members who might still ha ve concerns to reconsider Ecuador's proposal 
in line with her suggestion.  Such  an approach would facilitate the exchange of views and countries' 
experiences. 
17. The representative of Bolivia supported the propo sal by Ecuador, including the preparation of 
a Background Note by the Secretariat and the pa rticipation of experts from other international 
organizations.  He also agreed with Turkey that the discussion should not set  any precedent, nor lead 
to a revision of the GATS. 
18. The representative of Brazil backed the proposal by Ecuador. 
19. The representative of Cuba supported a de dicated discussion and the preparation of 
a Background Note by the Secretariat. S/FIN/M/74 
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  20. The representative of China also agreed to a dedicated discussion and the preparation of 
a Background Note by the Secretariat.  Such a discussion should not lead to any legal interpretation of 
GATS rules applicable to financial services.  His delegation was willing to share China's experience 
with the implementation of macroprudential regulation in recent years. 
21. The representative of the United States still had some concerns with the proposal.  He was 
willing, however, to consider a balanced and focused  dedicated discussion.  He appreciated Ecuador's 
clarification that the intention was not to seek a legal interpretation of th e GATS in relation to the 
need for macroprudential regulation, nor any analysis  or list of measures that would fall within the 
scope of GATS rules.  Seeking a legal interp retation of the prudential carve-out might be 
self-defeating in terms of its original objective.  His delegation was not convinced of the need for a 
Background Note by the Secretariat.  It was not cl ear what that Note was supposed to achieve.  It 
would be unfair to expect the Secretariat to second-guess what the Members' contribution to the 
discussion would be in terms of experiences with macroprudential regulation.  Concerning experts 
from other international organizations, his delega tion could accept the participation of those that 
actually dealt with macroprudential regulation, such  as the IMF, but not of others that were not 
directly involved in the development of such regulation, including UNCTAD.  Any dedicated 
discussion should be Member-driven and avoid polem ic debates on financial services and financial 
regulation. 
22. The representative of Chile said that the issu e proposed for discussion was within the mandate 
of the Committee.  Therefore, his delegation w as not opposed to a dedicated discussion, although its 
scope should be more clearly delineated.  He also  supported the participati on of experts from other 
international organizations. 
23. The representative of Argentina endorsed the proposal by Ecuador. 
24. The representative of South Africa also expr essed support for the proposal, including the 
preparation of a Background Note by the Secretar iat and the participation of experts from other 
international organizations.  The discussion should not, however, lead to an interpretation of the 
prudential carve-out. 
25. The representative of Hong Kong, China was s till concerned about some elements of the 
proposal, such as the discussion of the relationshi p between macroprudentia l regulations and GATS 
disciplines.  Any discussion should not undermine the le gal nature of the GATS.  His delegation could 
consider Members sharing experiences on macropruden tial regulation.  He requested Ecuador to put 
in writing what the dedicated discussion would en tail and how it would be organized, so that 
Members could focus on the details.  Although he  was not opposed to requesting Background Notes 
from the Secretariat, the exact parameters should be clearly identified before a decision could be 
taken.  Lastly, a decision on the participation of experts from other international organizations could 
only be taken once the details of the proposed discussion became clearer. 
26. The representative of the European Union was not opposed to a Member-driven exchange of 
experiences on the implementation of macropruden tial regulation.  He was, however, sceptical 
regarding the participation of inte rnational organizations dealing wi th macroprudential issues, as these 
organizations had different objectives and compet ences.  Therefore, any cooperation with those 
organizations or invitation of experts shoul d be decided by Members on a case-by-case basis. 
27. The representative of Pakistan supported the proposal by Ecuador as long as any discussion 
was Member-driven, non-binding, and did not lead to any legal interpretation of GATS rules.  The 
invitation of experts from other international orga nizations should be decided on a case-by-case basis.  S/FIN/M/74 
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  28. The representative of Egypt supported the dedicated discussion as long as it was 
Member-driven and did not lead to an interpreta tion of GATS.  He also supported the request for 
a Background Note by the Secretariat as well as the participation of experts from other international 
organizations, including UNCTAD. 
29. The representative of Australia supported an ex change of experiences with macroprudential 
regulation in the GATS.  That discussion should be  Member-driven, and must not lead to a legal 
interpretation of the GATS prudential carve-out.  Members should decide by themselves how they 
contributed to such a discussion and how they pre sented their experiences.  Australia was not in 
favour of replying to specific questions.  A Secretaria t Note might not be necessary at this stage, since 
Members were best placed to draw on their experi ences and discuss any issue of relevance to them.  
She agreed with inviting experts in macroprudentia l regulation.  Careful consideration should be 
given to the competence of the invitees and the rele vance of their contribution for the discussion in the 
Committee. 
30. The representative of Japan said that there was no need to provide for a legal interpretation of 
GATS rules in relation to macroprudential regulation.   Nor was there a need to develop a list of 
measures that would be compatible with the GATS carve-out.  Any discussion should be within the 
terms of reference of the Committee. 
31. The representative of Canada remained open to any discussion on Members' GATS 
commitments and financial sector reform.  Howeve r, his delegation had c oncerns about the purpose 
and objective of the proposal.  In his view, the GATS prudential carve-out provided a good balance 
between liberalizing financial services and ensuri ng that regulators had the authority to adopt 
prudential measures.  Regulators had not been cons trained by the current framework.  In fact, the 
prudential carve-out had functione d well during the financial crisis , providing Members with the 
flexibility to take a wide range of measures to protect their financial systems and reform their 
regulatory regimes.  The misalignment of th e proposed discussion with Members' views and 
experiences cast serious doubts on its purpose and objec tives.  In addition, it was not clear what the 
discussion or a Background Note by the Secretaria t would achieve, beyond what had been recently 
discussed at the Workshop on Trade in Financial Services and Development and the contributions 
made by such organizations as the BIS, the FSB and the IMF.  For example, he did not agree, as claimed in the proposal by Ecuador, that the pr oposed discussion would respond to the G-20 call to 
strengthen the regulation and superv ision of the financial sector.  The G-20 had been clear on the 
measures to be strengthened and on the organizations to undertake this work.  In reviewing the 
references included in Ecuador's proposal, it became cl ear that the role of the WTO, underlined by the 
G-20, was to resist protectionism, to promote global trade and investment, and to achieve an ambitious and balanced conclusion to the Doha Deve lopment Round.  This demonstrated the need to 
move forward in a cautious manner, on the basis of  clear objectives, and avoid duplication with the 
work conducted by other international organizations with specific mandates related to financial sector 
regulation. 
32. The representative of the Philippines said that a literature review by the Secretariat would be 
an acceptable first step.  A dedicated discussion among Members or a workshop, including the 
participation of experts from international organi zations, would be an appropriate second step.  Any 
initiatives to be pursued should be confined to the Committee's mandate, i.e, to keep under continuous 
review and surveillance the application of the GATS w ith respect to the financial sector, and to further 
technical discussions.  There should be no a ttempt to interpret the prudential carve-out. 
33. The representative of Switzerland was open to the idea of a dedicated discussion which, 
however, should not lead to a legal interpretati on of the GATS prudential carve-out.  A decision on 
a Background Note by the Secretariat and on th e participation of experts from international S/FIN/M/74 
Page 6  
 
  organizations could only be taken once there was mo re clarity as to the objectives and scope of the 
discussion. 
34. The representative of Mexico said that more  information was necessary on the specific 
elements of Ecuador's proposal, for example with re gard to the objective and content of the proposed 
Background Note by the Secretariat.  While she was open to a Member-driven dedicated discussion, 
any such initiative should not aim to interpret the GATS.  In her view, the GATS prudential carve-out 
had not prevented the introduction of appropriate regulations to confront the financial crisis. 
35. The representative of Nigeria supported a Member-driven discussion.  He also favoured 
a Background Note by the Secretariat and the participation of experts from international 
organizations.  This exercise should not aim to provi de a legal interpretation of GATS disciplines.  He 
supported the idea of a workshop put forward by the Philippines. 
36. The representative of India also called fo r a dedicated discussion among Members on 
macroprudential regulation, as well as the prepara tion of a Background Note by the Secretariat. 
37. The representative of Singapore supported a dedi cated discussion, including the participation 
of international organizations, provided it did not le ad to a legal interpretation of GATS rules.  She 
was open to the idea put forward by the Philippines of a literature review prepared by the Secretariat. 
38. The representative of the Republic of Korea said that a dedicated discussion on 
macroprudential measures, where Members could exch ange their experiences, seemed interesting.  
The participation of international organizati ons should be decided on a case-by-case basis. 
39. The representative of the Dominican Republic supported a dedicated discussion on 
macroprudential regulation, which should not seek to interpret the GATS prudential carve-out.  
Experts from the BIS, the IMF and the OECD should be invited to participate in the discussion.  
There was no need for a Background Note by the Secr etariat, given the participation of experts from 
international organizations. 
40. The representative of Chinese Taipei also argued for a dedicated discussion where Members 
could exchange their experiences on macroprudential re gulation, although further clarity on the details 
was necessary.  Such a discussion should not seek to  develop a legal interpretation of GATS rules.  
Further clarity was necessary as we ll with regard to the proposed Background Note by the Secretariat. 
41. The representative of Ecuador said that the b asic purpose of the proposal was to learn from 
those Members that had successfully applied macr oprudential regulation over the recent years, as 
a way of helping others that had less experience in  this matter.  The proposal did not seek a legal 
interpretation of the GATS or to circumscribe measures that would fall within the prudential 
carve-out.  On the contrary, the purpose was to strengthen the GATS framework and to better 
understand how macroprudential regul ation fitted within the GATS.  The proposed Background Note 
by the Secretariat and the participation of expert s from international organizations were aimed at 
encouraging Members to participate in the discussion.  Even the content of the Secretariat Note could 
be further discussed, and he remained open to othe r alternatives.  The objective was to give Members 
further motivation to contribute to the discussion. 
42. The Chairperson said that many Members show ed willingness to share their experiences with 
macroprudential regulation.  Howe ver, positions diverged on the proposed Background Note by the 
Secretariat and the participation of experts from in ternational organizations.  She suggested therefore 
focusing the Committee's attention on the organization of a dedicated discussion for the time being.  S/FIN/M/74 
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  43. The representative of Canada suggested that  the progress made at the meeting should be 
captured in a revised proposal so as to fac ilitate further consideration of the issue. 
44. The Chairperson mentioned two options.  Either  Ecuador revise its proposal or, taking into 
account the various inputs provided by Members, the Chair could provide a summary of discussions. 
45. The representative of Ecuador agreed that it was important to make progress in the 
consideration of this proposal.  A summary by the Ch airperson could help in that regard.  He was not 
against revising the proposal, but wanted to avoid the risk of further delays. 
46. The representative of Hong Kong, China said that the suggestion of having a revised proposal 
by Ecuador was an attempt to take the discussion fo rward.  There were many paragraphs in document 
S/FIN/W/84 to which his delegation could not agr ee and many areas where further clarity was still 
needed.  It would, therefore, be difficult to  support a decision on a dedicated discussion or 
experience-sharing exercise on the basis of that particular proposal.  A shorter and more concise proposal by Ecuador focusing on experience-sharing would be helpful. 
47. The representative of Nigeria supported the idea of  further considering this issue on the basis 
of a summary by the Chair. 
48. The representative of Ecuador agreed to presen t a revised proposal as suggested by some 
Members. 
49. The Chairperson said that she would hold inform al consultations if and when Ecuador was 
ready. 
50. The Committee took note of the statements made an d decided to revert to this agenda item at 
the next meeting. 
C. TECHNICAL ISSUES (CLASSIFICATION ) 
51. The Chairperson recalled that at the previ ous meeting, the Committee had continued its 
discussion on classification issues.  The summary of th at discussion, which had been held - as agreed - 
in informal mode, was contained in an Inform al Note issued under the Chair's responsibility 
(JOB/SERV/109). 
52. The Committee turned to informal  mode to continue the discussion.  An informal summary 
would be circulated after the meeting under the Chair's responsibility. 
53. After the discussion in informal mode, the Comm ittee decided to revert to this agenda item 
at the next meeting. 
D. TRADE IN FINANCIAL SERVICES AND DEVELOPMENT  
54. The Chairperson recalled that the Committee had held a Workshop on Trade in Financial 
Services and Development on 26 June 2012.  Th e Workshop was a follow-up to a dedicated 
discussion on the topic held by the Committee on 12 May 2011.  An informal summary of the 
Workshop had been prepared by the Secretariat (JOB/SERV/116). 
55. Discussions at the last meeting showed that Members wished to continue exploring the 
relationship between financial services trade and de velopment.  In her view, after the dedicated 
discussion last year and the Workshop in June, th e Committee could focus on more specific topics, 
again on a Member-driven basis.  She suggested th at, once topics were identified, the Secretariat S/FIN/M/74 
Page 8  
 
  could prepare a short Note to inform and support discussions.  The Committee could address one topic 
per meeting so as to have enough time to prepar e the discussions.  If Members agreed with this 
general approach, it remained to identify, and agree on, the relevant topics. 
56. The representative of China complimented the S ecretariat for the summary of the Workshop.  
It provided a very good picture of the issues discuss ed and offered an excellent basis for Members to 
continue their consideration.  Trade in fina ncial services contributed positively to economic 
development by promoting efficiency, competitio n, innovation and access to finance.  Members 
should progressively liberalize their financial systems according to their needs and in line with their 
regulatory capacity.  As discussed during the Wo rkshop, there was a need to further develop 
international guidelines and standards to enhance the integrity and stability of the international 
financial system.  The Committee should build upon  the discussions held so far and the Workshop. 
57. The representative of Canada also considered  that the Workshop had been very useful, 
particularly in showing how financial sector polic y could promote economic growth and development.  
He supported the Chair's proposal for Members to id entify topics for future discussion.  However, 
Members should first focus on the topics to be di scussed, and then consider whether to ask the 
Secretariat to do some further work. 
58. The representative of India agreed with the suggestion made by the Chair.  His delegation was 
also thinking about topics that could be further addressed by the Committee. 
59. The representative of Australia said that it w ould be good to hear more from small developing 
countries and LDCs about issues of interest to them and their experiences with foreign financial 
service suppliers and access to finance.  Their cont ribution would be particularly relevant for the 
Committee. 
60. The representative of Nigeria said that the main ch allenge at this time was to decide what type 
of lessons or conclusions could be drawn from the Workshop.  The summary prepared by the 
Secretariat was useful in that regard.  He ag reed with the general approach outlined by the 
Chairperson. 
61. The Chairperson clarified that the summary prepared by the Secretariat was only to 
complement the Workshop and keep some record of the issues discussed.  It was not a negotiating 
document, nor did it aim at any particular conclusion.  She noted that there was an interest to continue 
exploring the relationship between trade in financia l services and development, breaking it down into 
specific aspects.  She saw merit in  Members identifying topics of interest to them, and having further 
exchanges of national experiences either specifically related to those topics, or addressing more 
broadly the relationship between fina ncial services trade and development. 
62. The Committee took note of the statements made an d decided to revert to this agenda item at 
the next meeting. 
E. ARGENTINA - CERTAIN MEASURES THAT AFFECT TRADE IN FINANCIAL SERVICES  
63. The Chairperson recalled that this agen da item had been requested by Panama. 
64. The representative of Panama voiced her country's concern with Argentina's trade policy.  In 
addition to the claims in the area of goods, in the case of services Argentina had been applying 
discriminatory measures to countries considered by Argentina as low- or no-tax jurisdictions.  
Specifically, Resolution No. 35,615/2011, which provid es the regulatory framework for reinsurance in 
Argentina, includes a ban on the authorization of br anches of foreign reinsurance companies based in 
low- or no-tax jurisdictions.  Furthermore, Law No. 20,628 on Income Tax and the Decree  S/FIN/M/74 
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  No. 1,344/98, which implements the Law, provid es for discriminatory levying of taxes depending on 
the origin, domicile, place of incorporation or resi dence of the service supplier, which implies that the 
services offered by suppliers based in these jurisdicti ons are subject to less favourable treatment than 
those from suppliers domiciled or located elsewhere .  Moreover, this piece of legislation imposes 
different rules for transactions involving parties dom iciled in low- or no-tax jurisdictions.  Argentina 
is using an alternative method of tax valuation calle d "transfer pricing" for transactions with persons 
domiciled, incorporated or located in low- or no-tax countries, resulting in the imposition of higher 
taxes on profits if transactions are performed wi th subjects domiciled or incorporated in these 
jurisdictions.  These discriminatory measures underm ine the Most-Favoured-Nation (MFN) principle 
contained in Article II:1 of the GATS.  Any measure applied to Panama, or to any Member, due to its 
taxation system is contrary to this principle. 
65. The services sector was the fastest growing sector of Panama's economy.  Panama had 
managed over the years to establish itself as a respecte d and stable international financial centre.  The 
classification of Panama as a low- or no-tax juri sdiction, and the subse quent application of 
discriminatory measures by Argentina, undermined tr ade in financial services, and had a negative 
effect on Panama's reputation.  Panama had trie d continuously, for over a decade, to resolve the 
situation through all available bilateral channels.  Despite these efforts, Argentina had not shown any 
willingness to correct the situation.  Panama was, therefore, compelled to express its concern about 
the imposition by Argentina of discriminatory meas ures against financial and other services supplied 
by Panama. 
66. She called upon Argentina to explain why it c onsidered that Law No. 20,628 and Decree 
No. 1,344/98 establishing a discriminatory tax collection mechanism depending on the origin or place 
of residence of the services supplier was compatible  with the MFN principle.  Also, Panama called 
upon Argentina, as had been done bilaterally for sever al years, to indicate, as soon as possible, its 
intention concerning the measures in question, an d when these would be removed.  She finally 
indicated that Panama would follow this matter up in every relevant WTO forum. 
67. The representative of Argentina said that the info rmation provided by Panama on an informal 
basis ahead of the meeting included a general and vague description of the complaint which did not 
allow the preparation of an exhaustive response.  He  was also surprised that Panama had decided to 
voice this claim in the WTO, particularly taking into  account that a month ago Argentina's Ministry of 
Foreign Affairs invited the Panamanian authorities to  hold a meeting on fiscal issues in Buenos Aires, 
on a date to be decided.  The readiness of Argen tina to address tax issues bilaterally was reiterated 
a few days ago by Argentina's Minister of Foreign Affairs to his Panamanian peer on the occasion of 
their meeting in the framework of the UN General A ssembly.  Panama had not yet responded to this 
offer. 
68. He said that tax evasion was one of the ma jor problems faced by both developed and 
developing countries.  Tax evasion weakened th e fairness of the tax system, and deprived 
governments and taxpayers of significant r esources, compromising economic growth and 
development.  Tax havens created incentives fo r tax evasion through non-cooperative practices.  As 
a member of the OECD Global Forum on Transpar ency and Exchange of Information for Tax 
Purposes, Argentina was committed to the applicati on of international standards on transparency and 
exchange of information for tax purposes, having sign ed 20 agreements on exchange of information in 
line with international standards. 
69. Argentina's legal framework provided for mech anisms to counteract the negative effects of 
jurisdictions known as "tax havens",  which were consistent with th e international standards used by 
most countries having such standards.  The character ization of such jurisdictions depended on various 
factors, including lack of transparen cy in the identification of compani es' owners and lack of financial 
information prepared in accordan ce with internationally accepted accounting standards.  Another S/FIN/M/74 
Page 10  
 
  aspect to be considered was the lack of a suitabl e instrument for the effective exchange of tax 
information with Argentina, which would allow for the appropriate determina tion and control of tax 
obligations incurred by persons carrying out transacti ons with persons residing or located in low- or 
no-tax jurisdictions.  Argentina was one of sev eral countries, both developed and developing, 
implementing differentiated tax treatments on the basi s of the latter factor.  Argentinian legislation 
was not discriminatory;  rather, it sought to preserve the country's legitimate tax base, which would 
otherwise be threatened by the lack of transpar ency of tax systems in force in jurisdictions 
characterized as tax havens. 
70. To explain the rationale behind the provisions  challenged by Panama, it was necessary to 
refer to technical details.  As companies reside nt in Argentina deducted from their income tax 
obligations the payment of interest, the law esta blished a mechanism aimed at preventing tax evasion 
arising from the creation of financial dealings with  companies established in tax havens, with a view 
to moving capital towards jurisdictions where Ar gentina would not have access to the relevant 
information, thus reducing the payment of income tax in Argentina. 
71. In order to counter transactions performed th rough entities located in tax havens, Argentina 
adopted anti-abuse mechanisms, inter alia , Article 93.c) of the Income Tax Law (1997 text and 
subsequent amendments).  According to this pr ovision, it was presumed that the net profit of 
Argentinian origin would be equi valent to 100% of the gross amount of interest paid by an 
Argentinian resident (other than a bank) to a cred itor resident in a low- or no-tax jurisdiction with 
which Argentina had not entered into an exchange of  information agreement.  In the case of interest 
paid to beneficiaries residing in other jurisdicti ons, the law presumed that only 43% of the gross 
amount of interest paid constituted net profit of Argen tinian origin.  In terms of effective rates, if the 
beneficiary of the interest payment was a resident  of a low- or no-tax jurisdiction, the corresponding 
tax retention amounted to 35% of the interest paid, whereas if the beneficiary was located in another 
jurisdiction, the tax retention would be 15.05%. 
72. Argentinian legislation ensures compliance with the tax obligations of Argentinian taxpayers, 
effective supervision and control of  financial transactions, and adequa te control of capital movements.  
It was worth recalling that the Preamble to the GATS recognized the right of Members to regulate the supply of services within their territories, and to est ablish new regulations in order to achieve national 
policy objectives.  Argentina rejected, therefore, a ny attempt to restrict Governments' capacity to 
regulate services in pursuance of legitimate policy obj ectives, such as the fight against tax evasion. 
73. Argentinian legislation on tax havens does not constitute a tool of discrimination against 
residents of other countries or jurisdictions.  As already stated, these defensive measures are aimed at 
protecting the integrity of Argentina's legitimate ta x base.  Low- or no-tax countries that agreed to 
negotiate, enact and effectively implement an agreement providing for the exchange of tax 
information with Argentina are excluded from the lis t.  This agreement is similar to agreements 
signed by Panama with other countries.  Discu ssions between Argentina and Panama are ongoing, 
with a view to setting a date for a bilateral me eting.  Argentina hoped to reach agreement on these 
issues shortly. 
74. The representative of Panama said that Argen tinian legislation was not compatible with 
Article II:1 of the GATS.  Argentinian and Panama nian authorities had been exchanging information 
for more than a decade.  Panama had tried to solve this issue since, without success.  Panama 
therefore felt compelled to voice its concern in this  Committee.  For 14 years, Argentina had justified 
the existence of these lists of low- or no-tax juri sdictions on standards elaborated by international 
forums such as the OECD.  According to a prog ress report issued by the OECD in May 2012, 
between 95% and 98% of the jurisdictions included in  Argentina's list of low- or no-tax jurisdictions 
had actually introduced significant changes to their legislation.  She indicated that Panama had 
12 double taxation agreements in force, three ag reements had been submitted for Parliamentary  S/FIN/M/74 
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  approval, and in 11 cases negotiations had been concl uded.  Panama expected, therefore, to have a 
total of 26 double taxation agreements in force in th e near future.  Panama complied with the highest 
international standards in this area.  She called upo n Argentina to respond to the concerns raised and 
to eliminate these discriminatory measures. 
75. The representative of Argentina said that his de legation had provided a reply on the basis of 
the scarce information available regarding Panama's st atement at this meeting.  He further explained 
that, on the basis of the factors outlined in his prev ious statement, Panama had been included in the 
list of low- or no-tax jurisdictions kept by Argent ina, which had led, in turn, to a tax treatment 
different from the one applied to jurisdictions.  He said that Panama also appeared in lists of tax 
havens kept by other countries.  Until very recentl y, Panama appeared in such lists kept by various 
European countries, having been removed from some of them only after the signature of a bilateral 
agreement allowing for the exchange of tax informa tion.  In addition, as per a specific mandate from 
the G-20 and in the context of the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes, a peer review was underway with a view to assessing compliance with 
international standards on transparency.  The ev aluation of Panama carried out by this Forum 
concluded that Panama did not comply with the inte rnational standards on transparency.  In particular, 
the report found that Panama did not comply with 10 elements of the Forum's terms of reference.  
Even though it was true that, after this report, Pana ma introduced changes to its regime, particularly 
with regard to access and availab ility of information for tax purpo ses, such modifications had not 
been enough to change the evaluation, and Panama ha d not been able to move towards phase 2 of the 
peer review in the Forum.  He  added that both countries were moving forward in their bilateral 
consultations and hoped that a satisfactory solution could be found at this level. 
76. The Committee took note of the statements made. 
F. OTHER BUSINESS  
77. No issues were raised under this agenda item. 
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