WORLD TRADE  
ORGANIZATION  RESTRICTED 
S/FIN/M/73 
30 July 2012  
 
(12-4171) 
Committee on Trade in Financial Services  
  
 
REPORT OF THE MEETING HELD ON 27 JUNE 2012 
 
Note by the Secretariat
1 
  
1. The Committee on Trade in Financial Services held a meeting on 27 J une 2012, under the 
chairmanship of Ms Micong Klimes (Germany).  The agenda is contained in Airgram WTO/AIR/3962.   
A. A
CCEPTANCE OF THE FIFTH PROTOCOL TO TH E GENERAL AGREEMENT ON TRADE IN SERVICES  
2. The Chairperson recalled that Brazil and Jamaic a had yet to accept the Protocol and invited 
them to provide any update on the status of their domestic ratification processes.   
3. In response, the representatives of Brazil and Ja maica stated that the situation had remained 
unchanged.   
4. The Chairperson encouraged these delegations  to accelerate the internal procedures and 
accept the Fifth Protocol.  The Committee took note of those statements and decided to revert to this 
agenda item at its next meeting.  
B. RECENT DEVELOPMENTS IN FINANCIAL SERVICES TRADE  
5. The Chairperson recalled that Ecuador had s ubmitted a proposal under this agenda item prior 
to the last Ministerial Conference (S/FIN/W/80).  In the course of subsequent discussions at the 
Committee, a few other Members had made different suggestions to complement that proposal.  There 
were divergent views on what to discuss and how to proceed.  In the Chair's view, those divergences 
were mainly due to the fact that "what" to do and "how" to do it remained unclear.  At the last 
meeting, many Members, as well as the outgoing Ch airperson, had encouraged Ecuador to further 
elaborate and clarify its proposal, and suggested th at the Chair hold further consultations, which she 
did.  Indeed, she informed the Committee that sh e had conducted informal consultations with many 
delegations that had shown an interest in this pa rticular issue.  No decision was taken.  Those 
consultations had helped Ecuador clarify its propo sal, and also made clear that a new – formal – 
proposal was necessary so that delegations could fina lly figure out the best way forward, both in terms 
of substance and form.  Subse quently, Ecuador had submitted a ne w proposal the day before this 
meeting (S/FIN/W/84).   
6. The representative of Ecuador said that, unfortu nately, since his delegation had received the 
proposal only the day before the meeting, it had been  circulated in Spanish only, and could not be 
translated into the other WTO official languages on  time.  He then summari zed the basic content of 
the proposal.  It was vital for his country that th e WTO monitor and review developments related to 
the global financial crisis, which called for a saf e regulatory framework providing Members with 
                                                      
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/73 
Page 2  
 
  certainty as to the tools available to prevent the crisis from intensif ying further.  Ecuador's main 
concern in this respect was of a systemic nature:  the importance of ensuring that all Members would 
have the capacity to safeguard the stability of thei r financial systems, including against any possible 
escalation of the international financial crisis, on the basis of a clear and agreed understanding of 
existing WTO regulations.  This app lied in particular in the contex t of the discussions on new forms 
of macro prudential regulation and capital management techniques, which had been taking place in a 
number of relevant international and regional bodies and na tional institutions. 
7. The work carried out by the Committee between  2009 and 2010, examining the impact of the 
financial crisis on trade in financial services, enab led Members to share information and experiences.  
It showed that regulatory reform was of the utmo st importance and that countries needed to ensure 
that there was appropriate regulation, as well as consistent application throughout the world.  
However, such work had not addressed how an appr opriate regulatory framework  related to relevant 
GATS provisions.  International bodies, some of wh ich had historically held a negative view of 
capital management techniques, had significantly moderated their position and had recently produced 
documents suggesting that the countries which applie d macro prudential regulations (specifically for 
capital management purposes) dealt with the crisis more effectively than those which did not.  
Members seeking greater clarity in respect of GATS rules had also noted the opinions of various trade 
and financial experts, as well as in ternational organizations, warning of possible conflicts between the 
financial stability tools necessary for to day's situation and WTO rules.  
8. It was therefore necessary, in Ecuador's view , to promote a proper link between WTO rules 
and the work of other international organizations  responsible for safeguarding the stability of the 
global financial system.  In this way, Members would have greater confidence and trust in the 
existence of space for the application of macro pr udential policies and capital management techniques 
within the framework of the relevant prudential rules of the GATS.  Discussions and consultations 
over the previous proposal submitte d by Ecuador had made it clear that  various alternatives, such as 
preparing a legal interpretation of the GATS rul es in relation to the need for macro prudential 
regulation, or the analysis and identification of  specific measures falling within the scope of GATS 
rules, were not viable for some Members.  These Members considered, for example, that discussions 
of this nature could in the long term narrow the sc ope of the existing rules, to the detriment of the 
interests of all Members.   
9. In Ecuador's view, the Committee should hold a dedicated discussion on the steps forward 
proposed at the international level in respect of ma cro prudential regulation a nd their relationship with 
GATS rules.  The purpose was to increase Members'  confidence in respect of GATS rules and their 
relationship with the current thinking on macro-pr udential regulation, while respecting the limits to 
the discussion requested by the entire Membership.  This Member-driven discussion could begin on 
the basis of a background paper prepared by th e Secretariat describing the current thinking on 
macro-prudential regulation.  Discussion could start w ith questions of interest to Members that could 
prompt a useful exchange of experiences.  The proposal included examples of questions.  
10. The representatives of Bolivia and El Salvador  (also on behalf of Dominican Republic and 
Honduras) supported the proposal.  The representativ e of Venezuela sympathized with Ecuador's 
concerns, and considered that the proposal was timely.  
11. The representatives of China, India, Pakistan, Switzerland, Thailand, and Turkey said that 
more time was needed to review the proposal and th at they would revert to it at the next meeting.  
12. The representative of Argentina supported a di scussion on macro-prudential measures in the 
light of the GATS framework, and the preparation of a document by the Secretariat.  He also 
supported the participation of ot her international organizations in the discussion, provided that 
participation was framed within specific terms of  reference directly related to the issues under  S/FIN/M/73 
 Page 3 
 
 
  consideration.  He added that  he would seek further guidance from his authorities on the specific 
questions raised by Ecuador in the proposal. 
13. The following delegations also indicated that mo re time was needed to review and understand 
the proposal, but made nonetheless preliminary comments.  
14. The representative of Hong Kong, China welcom ed that Ecuador was not seeking to make a 
legal interpretation of the prudential carve-out or to  draw a positive list of measures considered to fall 
within the scope of the carve-out.  With regard to the question in paragraph 17(c) of the proposal, he 
considered that, as an organization, the WTO had no role to play in the development of global standards for macro-prudential policy.  It was importa nt, in his view, to ensure that the Committee did 
not go beyond the ambit of the WTO as an organizat ion.  Regarding the question in paragraph 17(d), 
it was not clear to him why the issue of policy space was related to a potential conflict between 
negotiators and regulators.  Also, he did not understand the focus of the question in paragraph 17(e) of 
the proposal.  He added that, while he had an open mind on the proposal, it was necessary to have more clarity on the questions that Members w ould be called upon to discuss before agreeing on 
holding a dedicated discussion or requesting the Secretariat to prepare a Background Note.  
15. The representative of the European Union said that the GATS had not limited Members' 
capacity to take prudential measures necessary to address risks related to the financial crisis.  
Moreover, any attempt to interpret the prudential car ve-out might actually end up narrowing its scope.  
It was also important not to go beyond the Committee 's terms of reference.  He added that Ecuador's 
objectives were still not clear. 
16. The representative of Australia said that her delegation was open to a Committee discussion 
on regulatory measures in financial services, including exchanging information on Members' 
experience with the prudential carve-out.  She al so said that the GATS and the Annex on Financial 
Services afforded Members a high level of discreti on, while not permitting measures that were purely 
or primarily protectionist in effect.  It was important that Members were able to regulate the financial sector and to respond to regulatory issues that migh t arise.  Her delegation was not looking for a 
discussion on the legal interpretation of the prudent ial carve-out.  There was no need for a paper by 
the Secretariat at this stage.  She suggested the Chair hold consultations before the next meeting.  
17. The representative of Canada said that more time was needed to consider the proposal, 
including the request for a document by the Secretaria t.  In Canada's view, the prudential carve-out 
had functioned well.  During the financial crisis, the carve-out provided Members with the flexibility 
to adopt prudential measures to safe guard their domestic financial systems and reform their regulatory 
regimes.  In Canada's experience, the GATS had not limited Members' ability to maintain, adopt, or 
modify their regulatory regimes - nor had it prevented Members from taking meaningful commitments in financial services.  The carve-out provided a good balance between liberalization and 
prudential regulation.  That said, Canada was ope n to a discussion regarding Members' experience 
with their commitments and with financial sector  reform.  Any such discussion should be Member-
driven, and any Note by the Secretariat or any partic ipation of outside experts should be agreed to by 
all Members. 
18. The representative of South Africa expressed hi s delegation's willingness to engage in further 
discussion on these issues.  Experts and commentator s had raised concerns about potential conflicts 
between some of the measures taken in the aftermath of the financial crisis and GATS disciplines.  He cautioned against this discussion leading to finger- pointing.  Seeking a legal interpretation of the 
prudential carve-out might be self-defeating in te rms of the original obj ectives sought with that 
provision.  That said, for the sake of transpar ency, it would be good for Members to engage in 
discussion.  It might be difficult for Members lik e South Africa to undertake further liberalization S/FIN/M/73 
Page 4  
 
  commitments until these issues were discussed.  He supported the idea of a Background Note by the 
Secretariat.  
19. The representative of Mexico supported the sugg estion to have further consultations before 
the next meeting. 
20. The representative of the United States said that the exceptions in the GATS provided 
Members with wide latitude to impose prudential regulation.  The proposal's objective was still not 
clear.  She cautioned against sugges tions of conducting a legal review of the prudential exception. 
Members ought to be mindful of the WTO's mandate and its relationship with other fora.  Time was 
not ripe to request a document by the Secretaria t - it was first necessary to agree on the focus and 
target of the discussion.  
21. The representative of Indonesia supported in principle the discussion on macro-prudential 
regulation and policy space.  It was important, howev er, not to overlap with work conducted in other 
international fora, and not to go beyond the WTO's mandate. 
22. The representative of Brazil said that the rele vance of the topic proposed for discussion - 
macro-prudential regulation and its relationship with the GATS - was beyond question.  This debate 
would allow Members to exchange views, without pr ejudice to the outcome of such a discussion.  He 
expressed his delegation's concern about the vague  and ambiguous wording of the prudential carve-
out and agreed with Ecuador that Members needed to be more confid ent in order to undertake more 
commitments.  He also supported the suggesti on of requesting a Note by the Secretariat. 
23. The representative of Chile said that his delegation would be glad to share its experience on 
the interaction between regulators and negotiators, in  line with the question in paragraph 17(d) of the 
proposal.  Referring more broadly to the proposal, he wondered what degree of confidence or 
certainty was sought by Ecuador.  The prudentia l carve-out had never been challenged and no 
Member was openly uncomfortable with the current la nguage of the carve-out.  In that context, he 
asked why, in Ecuador's view, the current situation was a cause for uncertainty.   
24. The representative of Japan agr eed to exchange information on measures by Members.  The 
GATS provided Members with sufficient policy space to take measures to address the financial crisis.  
It was not necessary in his view to agree on wh ether specific measures were prudential or not. 
25. The representative of Costa Rica said that th e GATS provided Members with an adequate 
margin of manoeuvre.  It did not prevent Member s from adopting prudential measures.  Moreover, no 
Member had questioned the prudential carve-out so far.  He agreed that Members could exchange 
information on financial measures ta ken to counter the financial cris is.  Members should be mindful, 
however, of the role of the WTO in the developmen t of macro-prudential regulation and of the fact 
that the GATS regulated trade in servi ces but not the services themselves.  
26. The representative of Singapore said, with regard to the question raised in paragraph 17(d) of 
the proposal, that it would be interesting to hear how Members coordinated positions between 
regulators and negotiators.  It was her understanding that Ecuador's objective was not to make a legal 
interpretation of the prudential carve-out.  The exercise must be Member-driven.  
27. The representative of Korea said that the GATS provided Members with enough flexibility to 
adopt macro-prudential measures.  The Committee should not attempt to interpret relevant GATS 
provisions or make judgements on specific prudentia l measures by Members.  He also called for 
informal consultations before the next meeting.   S/FIN/M/73 
 Page 5 
 
 
  28. The representative of Chinese Taipei shared the concerns expressed by Australia and the 
European Union, and also called for informal consultations. 
29. Addressing the comments made, the representative of Ecuador said that for many Members 
the prudential carve-out gave enough space to undertak e macro-prudential regulation.  According to 
experts, measures of this kind, including measur es to control and manage capital flows, were 
necessary to safeguard the stability of financial system s.  However, international organizations such as 
UNCTAD were of the view that the GATS framework  did not allow the adoption of this type of 
measures, which were essential in the current junctu re.  This problem needed  to be addressed by the 
Committee, so that all Members, in particular deve loping-countries, had the same degree of certainty 
about the prudential carve-out.  It was a question of  perspective.  The issue of the GATS' scope in 
relation to macro-prudential regulation was not new.  But the fact that it had arisen again was 
evidence that not all Members were satisfied with pr evious discussions.  It would be worse if the issue 
were to be solved through dispute settlement.  
30. He clarified that his delegation was not seek ing a legal interpretation of the GATS or 
revisions to the rules.  But it was important to  have a better understanding of the compatibility of 
macro-prudential measures with the GATS framework  of rules.  The GATS, and therefore the 
prudential carve-out, had emerged in  a different context.  The new - unprecedented - situation called 
for this discussion.  He also clarified that the ques tions included in paragraph 17 of the proposal were 
just examples with a view to stirring Members' interest in the discussion.  
31. The Chairperson said that it was clear that Memb ers needed more time to review the proposal.  
Taking into account the various statements in that  respect, she would conduct informal consultations 
before the next meeting.  
32. The Committee took note of the statements made an d agreed to revert to this agenda item at 
the next meeting. 
C. TECHNICAL ISSUES (CLASSIFICATION ) 
33. The Chairperson recalled that at the previous 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/102). 
34. The Committee turned to informal  mode to continue the discussion.  An informal summary 
would be circulated after the meeting under the Chair's responsibility.  
35. 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  
36. The Chairperson said that a very interesting a nd informative workshop on this topic had been 
held the previous day.  As announced at the e nd of the workshop and as usually done, the programme 
and the presentations would be uploa ded to the Services page in the WTO website.  In addition, she 
said that the Secretariat would prepare an in formal report of the workshop, describing the 
presentations and highlighting the main issues discussed.   It was important, in her view, to keep some 
record of the workshop proceedings for Members' information.  
37. In her opinion, the question now was to decide what to do next with this topic.  She was not 
convinced that the discussion should be closed as th ere was a lot to learn from Members' experiences.  S/FIN/M/73 
Page 6  
 
  It would be useful if more Members contributed their views and experiences with trade in financial 
services.  The national presentations at the wo rkshop, as well as the comments made by some 
delegations about their countries' experiences, were certainly one of the highlights of the workshop.  
In her view, the Committee needed to  figure out a suitable way to continue discussions on this topic, 
or on specific and concrete issues arising from it.  She did not have any specific ideas to submit at this 
stage, but would welcome suggestions from delegations. 
38. All the delegations that took the floor consider ed the workshop to have been a success and to 
have contributed to enhancing Memb ers' understanding of this subject. 
39. The representative of China said that Member s would need some time to digest the 
information received during the workshop.  It was im portant that the information be made public in 
the WTO website so that all interested persons had access.  Without attempting to draw definitive 
conclusions on the workshop proceedings, he made  the following observations.  It was undisputed 
that the financial sector played an important ro le in economic development.  The evidence also 
showed that "trade" in financial services could also help economic development by promoting 
competition, prompting financial innovation and allowing the transf er of know-how.  However, the 
evidence also showed that liberalization alone did not necessarily bring economic growth.  Without 
appropriate regulation, an overwhe lmed financial sector might actually work to the detriment of 
development.  With greater integration of financ ial markets, developing countries lacking sufficient 
regulatory capacity were facing increasing risks as a r esult of premature liberalization.  They needed 
space and time to develop regulatory capacity and establish sound regulatory systems before opening 
up.  Financial sector liberalization must also take  into account the particular economic and social 
situations of different countries.  Members needed  more time to digest all the information, and 
identify areas of future work under this agenda ite m.  He felt that there were ideas brought up in 
China's original proposal, such as the identification of activities of foreign financial institutions more 
conducive to the development of domestic economies,  which could be considered further.  This 
should be a Member-driven process.  He supported th e idea of having informal consultations before 
the next meeting.  
40. The representative of India said that three ke y messages could be drawn from discussions so 
far.  Firstly, in his view, the issue of the linkage  between trade in financial services and development 
had not yet been settled.  There were many studi es on the linkage between the financial sector and 
development with divergent conclusions, but fewe r studies on the linkage between trade in financial 
services and development.  It was not clear whet her the relationship between trade in financial 
services and development was of causality or mere association.  The strength of that linkage was also 
debatable.  Further, it was important to separate the effects of internal domestic liberalisation of 
financial services from the liberalisation of trade in financial services.  The impact of trade in financial services on equity also needed to be better understood.  
41. The second message was that liberalisation of tr ade in financial services and liberalisation of 
financial services in general could be beneficial onl y if there was adequate and appropriate regulatory 
oversight.  Liberalization without re gulation was fraught with dangers. The recent financial crisis had 
shown that not even the most advanced Memb ers, nor the most specialized international 
organizations, had the regulatory capacity and un derstanding to handle sophisticated and complex 
financial services.  In fact, those who were providing these complex instruments themselves were not in a position to fully comprehend the underlying risks.   Thus, when it came to financial regulation, 
both developed and developing countries had to learn and unlearn a lot of things.  Developing 
countries had a very justified and ra tional fear of rushing into premat ure liberalization of this sensitive 
sector.  Calibrated opening with ade quate regulatory oversight was the key.  In this context, the policy 
followed by India's regulator - i.e. Reserve Bank of India - had stood the country in good stead.  S/FIN/M/73 
 Page 7 
 
 
  42. The third message was that there had been diver se experiences with liberalization of financial 
services as brought out in the presentations and the sharing of experiences at the workshop.  For 
example, while there might be benefits of havi ng foreign banks, there were attendant risks and 
concerns also.  Entry of foreign fi nancial institutions by itself did not  guarantee development.  In his 
view, there was no one-size-fits-all approach a nd, ultimately, each Member had to choose its 
trajectory and pace of liberalization keeping in vi ew the national interests and circumstances.   
43. The representative of Turkey said that, as show n by the representative of the Turkish banking 
regulatory agency, her country had not been impacted by the financial crisis thanks to the measures 
taken in the aftermath of the 2001 crisis.  Ther e was not necessarily a direct positive correlation 
between trade in financial services and developmen t.  There might be positive or negative causalities 
depending on the initial conditions of the country, including its level of development.  Given the 
profit-seeking nature of financial institutions, it woul d be unrealistic to assume that financial services 
trade would directly contribute to development and pove rty alleviation.  As ha d become apparent with 
the financial crisis, the financial industry should stick to its original  role as a facilitator of economic 
activity.  In the case of Turkey, private domestic banks were the leading institutions providing credit 
to SMEs, while state-owned banks focused on br inging financial services to rural areas.  A 
coordinated action at the global level was important , since measures taken in one jurisdiction might 
have unintended consequences on othe r countries.  The development of global standards was an issue 
that needed to be furthe r discussed by the Committee. 
44. The representative of Canada said that th e workshop provided further insights on how 
financial sector policies could support growth and de velopment.  Canada's experience had shown that 
financial sector liberalization went hand in hand w ith strong regulation and s upervision in promoting 
economic growth and development.  Canada's financial sector had be nefitted from the participation of 
foreign financial institutions that brought comp etition, and contributed to the strengthening and 
diversification of financial markets.  Since Memb ers could benefit from sharing their experiences,  
Canada supported further discussion on trade in financial services and development.  
45. The representative of Brazil said that the presenta tions made at the workshop highlighted the 
potential benefits of opening to trade in financial services.  It had become clear, nonetheless, that 
increased participation of foreign financial institutions entailed draw backs, such as higher volatility, 
concentration of risks, concentration of foreign banking activity in urban areas, and cherry-picking 
clients (leaving domestic institutions to deal with lo w-end clientele).  In order to support growth and 
development objectives, liberalization must be underpinned by a sound regulatory and supervisory 
framework.  It would have been interesting if  presentations and discussion at the workshop had 
focused more on the pace and sequencing of the tr ade and domestic financial reforms necessary to 
harness the contribution of cross-border banking to th e attainment of development goals.  He stressed 
the need for gradualism, tailoring financial reform to countries' specific needs and circumstances.  He 
also supported further discussions on this topic.  
46. The representative of Pakistan said that the nexus between trade in financial services and 
development was still evasive.  Whether the relati onship was one of correlation or causation was not 
entirely clear.  Speaking about regulation, he considered  that the role of the State in this sector had 
changed in light of changing circumstances.  He looke d forward to further discussions on this topic.  
47. The representative of South Africa said that the relationship between trade in financial 
services and development was of critical importance.   He made three observations.  Firstly, it was 
clear that regulatory failure in one country might increase risks in others.  The importance of 
regulatory standards needed to be stressed.  Secondl y, it was not entirely clear that liberalization of 
trade in financial services would necessarily lead to development.  There was no overwhelming 
evidence in favour of such assertion.  Foreign bank s, for example, tended to go for sophisticated 
wholesale clients, with very little impact on develo pment.  In the case of South Africa, it was the S/FIN/M/73 
Page 8  
 
  domestic banks, more focused on the retail market, wh ich had a development impact.  Lastly, he said 
that the Committee had an important role to play in relation to this issue, if only by allowing Members 
to share their experiences.  This agenda item should continue to occupy Members.  He looked forward 
to further discussions.  
48. The representative of Australia said that, as s hown by her country's experience, progressively 
opening markets, supported by robust regulation, c ould increase trade in financial services without 
undermining financial stability.  It would be importa nt to learn more about Members' experience with 
financial services liberalization.  In particular, it w ould be interesting to hear from smaller developing 
countries and least developed countries, which had usually less experience with foreign financial 
institutions supplying financing for SMEs and rural banking services.  She looked forward to hearing 
from developing country Members on how this  agenda item could be taken forward. 
49. The representative of the European Union said th at the EU experience showed that trade in 
financial services was beneficial to development, and that liberalization was not in contradiction with 
better regulation.  He added that further work was necessary at the international level to ensure that 
standards were applied consistently by all countries.   
50. The representative of Indonesia said that fi nancial services liberalization would not 
necessarily contribute to development if it was not supported by  sound regulation. 
51. The representative of the United States noted th at there was a link between financial services 
and economic growth.  As expressed by a number of delegations at the workshop, trade in financial 
services was a critical engine of economic growth, and liberalization and re gulation could positively 
contribute to growth.  She looked forward to hearing more from other Members' experiences. 
52. The Chairperson noted the wish of delegations to keep this item on the agenda;  she would 
consult informally on how to move forward.   
53. The Committee took note of the statements made an d decided to revert to this agenda item at 
the next meeting.  
E. OTHER BUSINESS  
54. The Chairperson informed the Committee that , at the request of the Working Party on 
Domestic Regulation, the Trade in Services Division had prepared a document on regulatory issues 
that covered virtually all service sectors, incl uding financial services.  The document had been 
circulated as S/WPDR/W/48, and the discussi on on regulatory issues in financial services was 
contained in paragraphs 185 to 195.  The  fact th at the document had been circulated at the Working 
Party did not mean that the sec tion on financial services could not be discussed at this Committee as 
well, should Members so wish.  She encouraged dele gations to take a look at the document and to let 
her know, should they wish to refer to it or discu ss it at the next meeting, so that appropriate 
arrangements could be made in the Committee's agenda.  
__________