WORLD TRADE  
ORGANIZATION  RESTRICTED 
S/FIN/M/69 
18 July 2011 
 (11-3570) 
Committee on Trade in Financial Services  
  
 
REPORT OF THE MEETING HELD ON 21 JUNE 2011 
 
Note by the Secretariat
1 
  
1. The Committee on Trade in Financial Services held a meeting on 21 June 2011, under the 
chairmanship of Mr Quan ZHAO (China).  The ag enda for this meeting was contained in Airgram 
WTO/AIR/3767.   
A. T
RADE IN FINANCIAL SERVICES AND DEVELOPMENT  
2. The Chairperson recalled that the Committee had had a very fruitful discussion on trade in 
financial services and development at the last mee ting.  Members had made insightful comments on 
the Secretariat Background Note, and some had shared  their own experience with the liberalization of 
trade in financial services and even promised furthe r contributions to the discussion.  Some Members 
had expressed an interest in building on the work already done by the Secretariat and on Members' 
own contributions, and discussing specific issues furt her.  Taking all this into account, the Committee 
had agreed to keep the item on the agenda, and th at the Chair conducts additional consultations on 
how to proceed in the future.  
3. In the Chairperson's view, while the first di scussion proved useful, additional input from - 
and interaction among - Members was necessary.  Hi s consultations had shown that there was an 
interest in pursuing this discussion further, not just in  the abstract, but in a concrete and realistic way, 
focusing on aspects of the relationship between trad e in financial services and development that might 
be of direct relevance for Members.   
4. The representative of China said that the discussion should be narrowed down, focusing on 
two aspects, which were discussed in a room document,  submitted for this meeting.  Firstly, Members 
could identify the activities of foreign financial institu tions that were most relevant and conducive to 
economic growth and social deve lopment, and exchange views on their experiences in promoting 
such activities.  Examples included the provision of  credit to Small and Medium-Sized Enterprises 
(SMEs) and economically underdeveloped groups a nd regions, contributing to poverty reduction and 
serving the local developmental needs, "universal service" policies, e.g., sharing know-how and 
training local professionals, as well as any other activities that might have clear social and developmental objectives.   
5. Secondly, the Committee could explore ways to  enhance developing Members' capacity to 
carry on effective and efficient supervision and regulation over the financial market and foreign 
financial institutions, to identify the components of the regulatory framework that are most crucial to 
ensuring the stability of the local financial market  in the process of opening up to foreign service 
suppliers, and to enhance the "firew all" that keeps the local market safe from external shocks during a 
financial crisis.  
                                                      
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/69 
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  6. Her delegation was flexible with respect to the format of the proposed discussion. Should 
Members agree, a half-day workshop could be organi zed later this year.  Experts from international 
organizations, academics and Government officials c ould discuss a wide range of issues related to 
"trade in financial services and development", fo cusing on the two aspects previously mentioned.  
7. She finally suggested that the item be kept in the agenda for the next meeting, so as to give 
Members additional time to reflect on these suggestions. 
8. The representative of Argentina said that, wh ile the question of the causality between 
financial sector development and economic growth w as still open, financial crises did have a negative 
impact on economic growth.  Financial crises ha d clearly shown that disruptions in financial 
intermediation had had negative consequences for the real economy - hence the relevance of financial 
stability and prudential regulation and supervision.  In this context, as indicated in paragraph 7 of the 
Secretariat Note, Governments must ensure fina ncial stability, overcoming regulatory, supervisory 
and banks' risk management failures.  
9. He then made some observations based on Ar gentina's experience.  As of December 1999, 
out of a total of 92 banks, 38 had been of foreign or igin (21 wholly-owned foreign bank subsidiaries 
and 17 foreign bank branches).  As a result of th e Argentine crisis at the end of 2001and the 2008 
global crisis, the participation of foreign had dimi nished.  As of December 2010, over 64 banks, only 
20 had been of foreign origin (11 foreign bank s ubsidiaries and 9 foreign bank branches).  In other 
words, foreign bank participation in the system (i n terms of the number of banks) had fallen from 38 
per cent in December 1999 to 30 per cent in December 2010. In addition, the share of foreign banks in 
the banking system's assets had dropped from almost  50 per cent in 1999 to 25 per cent in December 
2010.   
10. He also said that foreign banks tended to estab lish in the major urban centres, the number of 
inhabitants being the most relevant  factor determining the location of agencies. On the other hand, 
State-owned banks had a wider infrastructure, with  a larger number of agencies established in many 
more localities, which crucially depended on these banks for the supply of financial services.  
Likewise, private domestic banks appeared to be more sensitive than foreign banks to the business 
environment at the provincial level.   
11. Argentina's experience showed that, like in other countries, foreign banks reduced their 
activities or retired from the market altogether in  times of crises.  In addition, the geographic 
concentration of foreign banks te nded to confirm the concern mentioned in the Secretariat Note 
regarding foreign banks' focus on high-value customers only.  
12. The representative of India said that his dele gation was prepared to continue with the 
discussion on this topic, and that a focus on speci fic aspects would make it more productive. He was 
flexible as regards the format of  such a discussion. He reminded Members of the suggestions he had 
made at the previous meeting, recorded in docum ent S/FIN/M/68, that the Secretariat revised the 
Background Note so as to make reference to studies on the impact of the recent financial crisis on 
trade in financial services and on economic developm ent, and to elaborate further on the literature 
challenging the consensus on the relationship between  financial sector development and growth.   
13. The representative of Switzerland supported furt her discussion of this issue. The Committee 
should consider the functions and dysfunctions of the financial sector and their impact on economic 
development.  A focus on specific aspects of this broad issue would certainly contribute to a more 
productive discussion.  In that regard, he welcomed  the Chinese delegate’s suggestions, which seemed 
to go in the right direction.   
14. The representative of Japan said that his dele gation was open to further discussion of this 
issue.  Commenting on the suggestions made by the Chinese representative, he agreed that it was  S/FIN/M/69 
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  important to identify the activities of financial in stitutions that were more  relevant for economic 
growth and development.  He wondered, however, what was meant by the reference to "any other 
activities that might have clear social and deve lopmental objectives."  In his view, those other 
activities might include infrastructure development or  the inducement of FDI in non-financial sectors.  
It was also important to consider the challenges so metimes faced by foreign financial institutions to 
adapt to different social and cultural environments.  
15. He agreed that the second aspect raised by China - the role of financial regulation and 
supervision - was very important, but he cautioned against duplicating the work carried out in other 
WTO bodies and international organizations.  A lo t had been done on this aspect since the G-20 
Summit in November last year.  He suggested in that regard that the organizations concerned be 
invited to the Committee.  He finally suggested that  China revised the room document in view of the 
comments made  
16. The representative of Ecuador also noted that both aspects raised by the Chinese 
representative were pertinent for the Committee.  He  was open as regards the format of a future 
discussion.  He supported the calls for the Secret ariat to review its Background Note so as to 
incorporate an assessment of the effects of the financial crisis on financial services trade and economic development. In addition, the Secretaria t Note could be improved, in his view, with a 
further discussion on the relationship between the pr esence of foreign financial institutions and the 
vulnerability of financial sect ors to external shocks.  
17. The representative of Chinese Taipei recogni zed the importance of financial services 
liberalization.  Chinese Taipei had been taking step s to open its financial sector since 1994.  The 
commitments made in 2002 upon accession to the WT O were no less liberal than those made by most 
developed countries.  Such liberalization had contri buted to the development of the financial sector, 
with total assets going from US$950 billion in 2002 to  US$1,655 billion in 2010.  Chinese Taipei's 
GDP had grown from US$293.7 billion in 2001 to US $430 billion in 2010.  The GDP growth rate had 
increased from -2.52 per cent in 2001 to 9.03 pe r cent in 2010. The financial services industry, 
including the financial, insurance, and real estate sectors, contributed to almost 15 per cent of GDP in 
2010.    
18. As of end 2010, 28 foreign ba nks had established 92 branches and 12 representative offices.  
As regards the securities sector, while in 2002 15.4 per cent of market capitalization had been held by 
foreign investors, that figure had risen to 31.2 per cent by the end of 2010. In addition, total 
accumulated net inward remittances made for the purpose of securities investments had reached to 
US$165.8 billion in 2010, up from US$43.13 billion in  2002.  Insurance penetration had increased 
from 12.2 per cent of GDP in 2002 to 17.7 per cent in 2010.  
19. As stressed by UNCTAD in the document on "Trade in Services and Development 
Implications", released on 20 Janua ry 2005, financial services was a key infrastructure sector, and its 
development could have "spill-over" effects.  Sp ecifically, financial services might positively impact 
on the growth of other sectors by facilitating capital accumulation and technical innovation. Its 
development could also help alleviate poverty an d contribute to human development.  Chinese 
Taipei's experience was in line with those findings.   
20. Her delegation shared the view that liberaliza tion should not be equate d with deregulation. 
Furthermore, in order to ensure the sound operation of the financial services sector, attention should 
be paid to improving investor and consumer pr otection, strengthening corporate governance, 
enhancing information transparency, and raisi ng capital adequacy requirements of financial 
institutions.  Attention must also be paid to the latest market developments.  Financial regulations 
must be continuously reviewed.  For example, Chinese Taipei had recently eased the limits on the 
amount that a foreign bank was allowed to lend to  individual groups, and ha d allowed foreign banks S/FIN/M/69 
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  to provide information - upon request by customer s - about the procedures to open accounts in the 
head office. 
21. In conclusion, the experience of Chinese Ta ipei was evidence of the causal link between 
trade in financial services and development.  Furt her financial services liberalization, especially of 
banking services, was crucial for Members' economic development. 
22. The representative of Turkey said that the Secr etariat Background Note should be revised to 
include a discussion on the impact of the recent financial crisis on the real economy.  Having said 
that, she provided additional information about the Turkish financial sector.  As of December 2010, 
total banking assets had been distributed as follows : 32 per cent held by domestic private banks, 28 
per cent in the hands of State-owned banks, and th e remaining 40 per cent owned by foreign banks. 
Financial sector assets represented 148 per cent of GDP  in 2009, up from 105 per cent in 2001.  Total 
credit represented 39 per cent of GDP in 2009, up from 14 per cent in 2002.   
23. Fifty-eight per cent of credit to SMEs was provided by domestic private banks, while State-
owned and foreign banks c ontributed 22 and 19 per cent of the total, respectively.  As shown by these 
figures, the relative participation of  foreign banks in the supply of credit to SMEs was low. Private 
banks' credit was concentrated in major cities.  Fo r example, 47 per cent and 46 per cent of the total 
credit granted, respectively, by foreign and domest ic private banks was extended to customers in 
Istanbul (which contributed 30 per cent of Turkey's GDP).  Only 27 per cent of the credit granted by State-owned banks went to customers in Istanbul.  In addition, while 33 per cent  and 28 per cent of 
private domestic and foreign banks' branches, respec tively, were located in Istanbul, only 18 per cent 
of State-owned banks' branches were concentrated in that city.  
24. The representative of Indonesia supported furt her discussion of this issue in whatever 
format.  While he found the Secretariat Background Note very informative and useful, he supported 
calls for its revision.  He agreed that financia l sector liberalization might contribute to economic 
growth and development, but liberalization itself may not suffice to achieve specific development 
objectives and avoid shocks.  Fi nancial liberalization should be  complemented with a sound 
regulatory framework in order to ensure financial stab ility.   He found China's suggestions interesting.  
25. The representative of the European Union said that the Secretariat Background Note was 
complete as it was.  The review and the conclusi ons drawn responded to the issues raised in the 
proposal by China.   The recent crisis might have or iginated in the financial sector, but had affected 
the whole economy.  The issue was therefore broad, and not limited to the work of this Committee.  
The EU experience was in line wi th the findings in the Secretariat Note.   Financial sector 
development helped promote   economic growth and development.  The financial sector contributed to 
the functioning of the whole economy, by for ex ample channelling local savings to the most 
productive investment opportunities, thus reducing reliance on foreign borrowing. Insurance services 
helped spread risks. Cheaper and better financ ial services contributed to the sound performance of 
domestic companies.   
26. The EU experience showed that removing unnecessary barriers to foreign financial services 
and service suppliers enhanced competition, and e ndowed local markets with  capital, expertise, 
innovation, and better products and services.  A less efficient and more restrictive financials sector 
slowed down growth and development.  Financial services liberalization must not be equated with 
deregulation.  Indeed, liberalization might require more regulation.  The EU supported regulation that 
was transparent, proportionate and necessary.  
27. She finally said that her delegation needed mo re time to reflecton the suggestions made by 
China, but was open to discuss the issue further.   S/FIN/M/69 
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  28. The representative of South Africa supported China's proposal.  He reminded Members that 
this was the only WTO Committee mandated to discuss i ssues related to financial services.  He also 
supported the suggestions made by some delegations that the Secret ariat Background Note be revised 
so as to include a discussion of the impact of th e financial crisis on trade in financial services and 
development. The representative of Australia consider ed that the Background Note by the Secretariat 
did not need to be revised.  The discussion on this  topic had been very good, and the Committee had 
certainly a role to play in the debate about the contribution of trade in financial services to development.  The suggestions made by China we re good.  He wondered, however, whether they 
could be broadened to include c onsideration of the role and significance of liberalization and strong 
and effective regulation of the financial sector.  Australia's experience in that regard would be 
highlighted in a forthcoming paper.  He was ope n as regards the format of the discussion.  As 
suggested by Japan, other international organizations working in this particular area could be invited 
to participate in future meetings.  
29. The representative of Cuba supported China's pr oposals and the suggestions made by other 
delegations that the Secretariat Background Note be revised so as to include a discussion of the 
impact of the financial crisis on trade in  financial services and economic development. 
30. The representative of Korea said that the sugges tions made by China were relevant for the 
Committee and for this discussion.  He was ope n as regards the format for such discussion.  
31. The representative of the United States welcomed th e attention given to this important issue.  
He made some observations based on the US experience, noting that the 200 foreign banking 
organizations operating in the US held 17 per cent of  the banking sector's assets, and contributed 25 
per cent of total commercial lending.  Those figur es would seem to confirm the so-called "cherry-
picking" or "cream-skimming" phenomenon, i.e. th e observation that foreign banks dominate the large 
commercial lending segment of the market in ex cess of their share of the market.  There were, 
however, good reasons for such behaviour since fo reign banks were genera l wholesale institutions, 
operating from a few branches in major urban ar eas.  And although some had already started 
developing a retail network, most of them were not in terested in this segment of the market.  And this 
was indeed what should be expected:  no one would expect large global banks to enter a market and 
engage in microcredit.  Their comparative advant age lied in bringing large investment projects to 
international capital markets, and in intermedia ting between large-scale financial requirements and 
large-scale financing sources. Thus, calling for mo re involvement of foreign banks in small-scale 
projects was akin to argue in favour of cross-s ubsidization of these services.  Such a policy would 
have the effect of restricting the growth of inte rnational exporters by depr iving them of credit or 
pricing credit at too high a price.  The US did not have any problem with foreign banks doing predominantly large commercial lending.  Typically , they came in as branches to serve large 
multinational corporations.   
32. Turning to the suggestions made by China, he said that the first aspect raised in the room 
document seemed to be too constrained.  The fo cus was on micro-credit development and know-how 
transmission.  It should be complemented with an analysis of the contribution of foreign financial 
institutions to the competitiveness of large domestic  companies.  The second aspect raised by China 
leaned towards a discussion on the appropriate le vel of prudential regulation.  A number of 
international organizations, such as the Basel Committee on Banking Supervis ion and the Financial 
Stability Board, were already working on that.  It was not clear to him what the WTO could add to 
that debate. The IMF, for example, was doing some work on international crisis transmission. Some 
useful lessons could be drawn from such studies.  Perhaps the IMF could be invited to the Committee 
to comment on its findings.  
33. Turning to other suggestions, he was not sure  how a discussion on the effects of the latest 
financial crisis on trade in financial services could be  brought into a debate on trade and development.  S/FIN/M/69 
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  In his view, instead on focusing on the recent crisis , it might be more useful to take a look, more 
generically, at financial crises over the last 20 y ears, and try to draw some general lessons.   
34. The representative of China said that Member s seemed open as regards the format of the 
discussion.  In her view, the advantage of a works hop was that outside experts could be invited to 
participate.  The Committee would not interfere w ith how those organizations conducted their work, 
but would rather provide its own perspective.  
35. The Chairperson said that delegations had had a fruitful discussion of the subject.  He noted 
the proposal made by China with a view to providi ng more focus to the debate, the comments made 
by delegations on that proposal, and the positions expressed by Members on the need to revise the Background Note.  These issues called for further discu ssion. At the Chair's invitation, the Committee 
took note of the statements made decided to reve rt to the agenda item at the next meeting.  
B. TECHNICAL ISSUES  
36. The Chairperson recalled that the Committee had decided to renew its consideration of 
classification issues.  For that purpose, the Secretar iat had been asked to pr epare an Informal Note 
overviewing classification issues raised in the past , which was circulated as JOB/SERV/79.  The 
purpose of this discussion was not necessarily to m odify the current classification - which was an 
option among others - but, rather, to clarify how to  treat specific services  in case their classification 
was ambiguous or far from obvious.  
37. As previously agreed by Members, the discussi on was held in informal mode. An informal 
summary of the discussion was circulated by the Chairperson under his responsibility (JOB/SERV/83).  At the Chair's suggestion, the Committee took note of the statements made, and 
agreed to revert to this agenda item and continue  with the discussions on classification issues at the 
next meeting. 
C. ACCEPTANCE OF THE FIFTH PROTOCOL TO THE GENERAL AGREEMENT ON TRADE IN SERVICES 
EMBODYING THE RESULTS OF THE FINANCIAL SERVICES NEGOTIATIONS  
38. The Chairperson recalled that Brazil and Jamaica had still to accept the Protocol.  
39. The representative of Brazil said that, as far as his country was concerned, the situation had 
not changed.  The internal procedures had not yet been completed.  
40. The Committee took note of that statement, and d ecided to revert to this agenda item at the 
next meeting. 
D. RECENT DEVELOPMENTS IN FINANCIAL SERVICES TRADE  
41. The Chairperson recalled that this was a sta nding item of the agenda, and that Members 
were welcome to raise any issue under this item.  
42. The Committee took note of that statement, and d ecided to revert to this agenda item at the 
next meeting. 
E. OTHER BUSINESS  
43. There were no statements under Other Business. 
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