RESTRICTED  WORLD TRADE  
ORGANIZATION  S/FIN/M/67 
12 April 2011 
 
 (11-1829) 
Committee on Trade in Financial Services  
  
 
REPORT OF THE MEETING HELD ON 9 MARCH 2011 
 
Note by the Secretariat
1 
 
1. The Committee on Trade in Financial Services held a meeting on 9 March 2011, under the 
chairmanship of Mrs. Helen Stylianou (Australia).   The agenda for this meeting is contained in 
Airgram WTO/AIR/3706.   
2. The Chairperson  noted her intention, under "Other Business", to provide some information 
regarding the dedicated discussion on Trade in Fina ncial Services and Development.  The Committee 
so agreed  and adopted  the agenda. 
A. ACCEPTANCE OF THE FIFTH PROTOCOL TO THE GENERAL AGREEMENT ON TRADE IN SERVICES  
3. The Chairperson  recalled that on 7 March, the Council for Trade in Services had reopened the 
Fifth Protocol until 8 April 2011 to allow its accep tance by the Philippines, which had completed its 
internal ratification procedures.  Brazil and Jamaica had yet to accept the Protocol.  
4. The representative of Brazil  said that the situation had remained unchanged.  The internal 
procedures had not been completed, and a timefr ame could not be indicated at this stage.  
5. The Chairperson  encouraged Brazil and Jamaica to ta ke inspiration from the Philippines and 
accelerate their internal procedures fo r the acceptance of the Protocol. 
6. The Committee took note  of those statements, and decided  to revert to this agenda item at the 
next meeting. 
B. TECHNICAL ISSUES  
7. The Chairperson  recalled that at the previous meetin g she had drawn Members' attention to 
classification issues.  Her intention was simply to  alert Members to a matter that, in her view, 
deserved further consideration by the Committee.  Addressing classification issues in this Committee 
would be coherent with the approach taken by  the Committee on Specific Commitments, which was 
discussing classification issues in all service sectors excluding financial services.  These issues had in 
fact been raised in the past.  In her view, such a discussion should be essentially Member-driven, in 
particular as regards the identification of poten tial problems or shortcomings in the current 
classification system.  The discussion would not necessarily aim at modifying the current classification, but rather at clarifying the classification of specific services and exchanging 
experiences relevant for the purpose of making commitments.   
8. As promised at the previous meeting, she had conducted consultations  with a significantly 
large number of Members on this issue.  It became clear at those consultations that there was some 
                                                     
 
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/67 
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  interest in discussing classification issues, but such  a discussion was not a short-term priority for 
Members.  She understood, however, that delegations  would like to keep the door open for a future 
discussion in the light of other developments. 
9. Having said that, she proposed that:  
- the Committee agree to examine classification issu es, on the basis of an informal Note by 
the Secretariat drawing from the discussion on classification contained in the recent 
Background Note on Financial Services (S/FIN /W/73 and Corr.1).  This Note would be 
circulated as a Job document.  Delegations interested in specific classification issues not mentioned in that Background Note should cont act the Secretariat so  that those issues 
could also be incorporated in the forthcoming paper;  
- a first discussion on classification issues in fi nancial services be scheduled in the meeting 
after next, at a date yet to be determined;  and  
- this discussion be held as a sub-item under Te chnical Issues, in informal mode, for which 
the Chair would produce an informal summary.  
 
10. The Chair's proposal was explicitly supported (i n this order) by the representatives of the 
United States
;  Hong Kong China ;  the European Union ;  Japan ;  Switzerland ;  Pakistan ;  and China . 
11. The Committee took note  of the statements and agreed  to the Chair's proposal.  
C. RECENT DEVELOPMENTS IN FINANCIAL SERVICE TRADE  
12. The Chairperson  said that, as promised by its Ambassador at the last meeting, Barbados had 
circulated a communication entitled "Unintended Consequences of Remedial Measures taken to 
correct the Global Financial Crisis: Possible Imp lications for WTO Compliance" (JOB/SERV/38).   
13. The representative of Barbados  said that the document listed the measures introduced by 
regulators worldwide to bring about financial stab ility following the crisis, and elaborated on how 
several of these measures tended to be in conflict with WTO principles and disciplines.  In her view, 
measures were indeed necessary.  However, sufficien t time had elapsed and it might now be useful to 
evaluate whether the GATS framewo rk needed to be revised in order to accommodate the emerging 
regulatory frameworks.  
14. The argument could be made that the GATS "prudential carve out" would cater for the 
situations described in the document.  However,  in her view, the increasing number of exceptions 
being introduced on prudential grounds might be a sign that the basic rules are in need of revision.  
Also, while the carve-out might permit Members to  do so, the fact was that commitments had been 
breached.  There was also the condition – she added – that even while relying on the carve-out, the 
measures introduced by Members must not be u sed as a means of avoiding commitments or 
obligations.  However, this might well have b een the intention of the governments concerned. 
15. An Annex to the paper identified the provisi ons in the GATS and in the Understanding on 
Commitments in Financial Services (hereinafter the "Understanding") which c ould be considered for 
amendment, as well as the nature of those amendmen ts.  The provisions cited included paragraphs A, 
B.7, B.10(d), and B.11.C.1 of the Understanding;  and Articles X:2, XI:2, XII:5, XVI, and XXI:2(a) 
of the GATS.   S/FIN/M/67 
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  16. She finally noted that the WTO was not the only organization overtaken by the dramatic 
events in the wake of the financial crisis.  The Bank for International Settlements (BIS) and the 
International Monetary Fund (IMF) were in the same  situation, and both had recognized the need to 
make adjustments, and were proceeding accordingly. 
17. The representative of Hong Kong, China  was open to further discussing the possible 
implications of remedial measures taken by some Members during the financial crisis.  However, a 
few clarifications were needed.  Trade liberali zation and the multilateral rules under the WTO should 
continue to be part of the international financial architecture in the future, despite the various intended 
or unintended consequences of the remedial measures taken by some governments, and without 
prejudice to the compatibility of these measures with Members' obligations under the GATS.   
18. In his view, the prudential carve-out, wh ich was available to both the signatories  and the non-
signatories of the Understanding,  had provided the necessary policy space for Members to take 
measures for prudential reasons, including to ensure th e integrity and stability of the financial system.  
It was obvious to his delegation that the global fina ncial crisis was one of the situations where the 
integrity and stability of the financial system were  at risk, and which the prudential carve-out was 
intended to address.   
19. His delegation was not in the business of de fending or justifying an y specific remedial 
measures of individual Members.  That would be  the responsibility of the Members concerned if 
asked or challenged by others to justify their actio ns.  However, he disagreed that – as stated in 
paragraph 11 of the Communication from Barbados – a measure that was inconsistent with certain 
obligations or the GATS must necessarily have b een used as a means of avoiding that Member's 
commitments or obligations.  Accepting such an in terpretation or proposition would defeat the very 
purpose of the carve-out and render it almost useless.  That said, his delegation was open to further discuss the various measures taken in relation to th e financial crisis, and would like to learn more 
about their relationship with WTO rules.  
20. He mentioned two additional aspects containe d in the communication from Barbados: the 
cross-reference to international prudential standard s promulgated by international organizations, such 
as the Financial Stability Board (FSB), that were  implemented by many jurisdictions; and the 
convergence of regulatory standards on a global basis and how fast such standards could be 
implemented by national supervisors in a consistent and coordinated ma nner.  He noted in that regard 
that GATS Article VII:5 on recognition addressed inte rnational standards.  This was a relevant 
reference point should Members decide to discuss th e issue further.  However, it was clear to his 
delegation that any discussion at this point about  making amendments to the GATS, the Annex on 
Financial Services or the Understanding was premature.  He finally emphasized that trade liberalization in financial services and recognition of prudential standard s were not in conflict.  It was 
up to Members to seek the right balance.  
21. The representative of the European Union
 said that her delegation had specific reservations on 
the content and substance of the analysis cont ained in the Communication from Barbados.  The 
Committee had already had detailed discussions on the financial crisis, and on the interaction between 
trade liberalization and the right to regulate.  The European Union would not want to have the same 
discussion again. 
22. The representative of the Republic of Korea  suggested that before moving forward with any 
discussion on this subject, the FSB should be inv ited to brief the Committee on current discussions 
and developments in that forum.  
23. The representative of Turkey  said that her country made commitments in financial services in 
accordance with the Understanding.  It would be help ful therefore to clarify that there was no conflict S/FIN/M/67 
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  between the right to take prudential measures a nd the standstill provision of the Understanding.  
Perhaps the Secretariat could explain whether the pr udential carve-out applied to the provisions in the 
Understanding.  In her view, if the standstill pr ovision contained in the Understanding prevented 
Members from benefiting from paragraph 2.A. of th e Annex on Financial Services, then the issue 
should be further discussed in the Committee with a view to assessing the need for revisions or 
modifications of the Understanding.  
24. The representative of India
 agreed with the basic premise in the paper that remedial measures 
must be analysed in a dispassionate manner.  It was important to understand better whether some of 
these measures were in contravention of WTO discip lines and commitments and, if so, what were the 
potential effects.  This was an important lesson for the future.  He also agreed with the premise in 
paragraph 2 of the communication from Barbados that  it was important to ensure that measures which 
were part of rescue programmes did not have unint ended consequences over the medium-term, create 
moral hazard or encourage protectionism.  He re called in that regard the joint Communication 
submitted with Argentina, Ecuador and South Africa, that also pointed to the need to look at how 
trade in financial services was being affected by  financial support programmes.  The discussion held 
as part of the first phase of the work programme proposed in this communication had brought out 
clearly how conditions of competition in services trade could be adversely affected by some of these 
measures.  He regretted, however, that no fu rther progress had been made on the second phase 
proposed in the joint Communication.  Yet, the joint communication was still on the table and the proponents reserved the right to come back to it.   
25. Commenting on the Communication from Barbados, he said that section 1 raised several 
interesting questions regarding in particular co mmitments made under the Understanding.  These were 
important issues, which called for more technical wo rk, and should not be brushed aside.  Referring  
to paragraph 7 of the Communication, which dealt with the take-over of financial institutions by 
governments, he gave the example of one Member , whose government had become the owner of a 
major insurance company as a result of a bail out, but whose schedule of specific commitments 
prohibited foreign state-owned insurance companies from  operating in its jurisdiction.  This particular 
issue had been raised by India in the past, but no  satisfactory reply had been given.  Questions like 
this one needed to be asked and addressed.  Para graph 13 of the Communication discussed the transfer 
of funds from subsidiaries of foreign banks from one country to another.  As stated by the 
representative of the Central Bank of India at the dedicated discussion on the financial crisis, during 
the crisis foreign banks tended to hold liquidity in their headquarters, thus exacerbating domestic 
liquidity problems.  
26. He finally said that more time was needed to  examine and react to the possible amendments 
suggested in the Annex to the Communication from Barbados.  Nevertheless , the paper confirmed a 
long-term belief that Members should be cautious in talking about financial liberalization without 
adequate regulatory frameworks.  He asked the re presentative of Barbados what future steps were 
envisaged to enhance Members' understanding of th e important issues raised in the Communication 
and looked forward to further discussing the paper.   
27. The representative of Norway
 said that the global financial crisis had affected trade in 
financial services in a number of ways.  The Comm ittee already had a first discussion of the linkages 
between the financial crisis and trade in financia l services.  In her delega tion's view, the prudential 
carve-out should be interpreted so  as to give the necessary policy space for all measures taken for 
prudential reasons, in particular in situations wher e overall financial stability was threatened.  Events 
in late 2008 had demonstrated that a financial crisis by its very nature  had been difficult to predict in 
advance and once the crisis began to unfold, regul atory action had to be taken swiftly, hence the 
prudential carve-out needed to be broad in scope in order to fulfil its purpose.  S/FIN/M/67 
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  28. The representative of United States  agreed with a number of points raised by the 
representatives of Hong Kong, China and Norway.  In  his delegation's view, the GATS was flexible 
enough to deal with the adoption of regulatory meas ures, including new ones.  In the case of financial 
services, that flexibility was even further strengthe ned through the prudential carve-out.  It allowed 
Members to take the remedial measures that prev ented a possibly worse crisis.  Taking into account 
the flexibility already built into the Agreement, his delegation saw no reason to reopen the GATS for 
amendment.  Specific concerns that a Member might  have about measures adopted by other Members, 
including the United States, could be discussed on a bilateral basis.  
29. The representative of Argentina  said that the Communication from Barbados raised issues of 
particular relevance for the work of the Committee.   As expressed by the representative of India, it 
addressed concerns that his delegation and others  had already expressed in this Committee and in 
other fora.  He encouraged the Committee to further consider the issues raised.  
30. The representative of Canada  echoed some of the comments made previously by other 
delegations including the Eurpean Union;  the Unite d States;  Hong Kong China;  and Norway.  Not 
only had Members discussed some of these issues be fore, but they were already addressed in specific 
international fora such as the FSB.  The prude ntial carve-out had been developed in good 
consideration of the overall obligations in the fina ncial services sector, other elements in the GATS, 
and the whole trading system.  Changing that delicate balance would be problematic for his 
delegation.  The immediacy and depth of support measures that c ould have been taken during the 
financial crisis was very important in protecting the financial system and contributing to the global 
economic recovery.  Calling into question legitimat e prudential actions did not contribute to the 
mandate of the WTO and the Doha round objectives. 
31. The representative of Brazil  said that the Communication from Barbados raised some very 
important issues.  He added that, as pointed out by his delegation on previous occasions, the language 
of the prudential carve-out was rather unclear, and did not seem to offer sufficient comfort for 
Members to take relevant measures. 
32. The representative of Japan  said that her delegation saw no problems with the current 
provisions of the Annex and the Understanding.  Th e GATS contained already enough flexibility, and 
the situations envisaged by the carve-out were im possible to foresee in advance.  Her delegation saw 
no need at the moment to revise either the Annex or the Understanding.  
33. The representative of China  said that more time was needed to further study the 
Communication from Barbados.  Nonetheless, he ag reed with the Brazilian representative that the 
scope of the prudential carve-out was unclear.  It was necessary to further analyse the measures taken 
during the financial crisis due to their far-reac hing implications for the financial regulatory 
framework.  
34. The Chairperson  invited the Secretariat to address the question raised by the representative of 
Turkey on the relationship between the Understa nding and paragraph 2 of the Annex on Financial 
Services. 
35. Turning to this question, a representative of the Secretariat  started by making a distinction 
between the Annex on Financial Se rvices and the Understanding.  Th e Annex on Financial Services 
was an integral part of the GATS and was applicab le to all Members, its basic function being to 
supplement and clarify provisions contained in the main GATS framework with respect to the 
financial services sector.  In contrast, the Understa nding was a stand-alone document, applicable only 
to those Members that had scheduled commitments in  accordance with it.  Paragraph 2 of the Annex, 
entitled 'Domestic Regulation' – not an obvious title given the purpose of the provision – was an exception.  It started with a sentence that indicated  the overriding nature of the provision vis-à-vis the S/FIN/M/67 
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  rest of the Agreement – "Notwithstanding any ot her provisions of the Agreement…" – and then 
referred to measures taken for prudential reasons.  There was no definition of such measures.  The 
only definition of "prudential" referred to the obj ectives pursued, i.e., measures to protect investors, 
depositors, policy holders, or any pe rson to whom a fiduciary duty was owed, or more generally to 
protect the integrity and stability of Members' fina ncial systems.  This was one of the truly broad 
exceptions in the GATS. 
36. As in any exception provision, there would always be a caveat.  Unlike Article XIV of the 
GATS (General Exceptions), the carve-out did not cont ain a necessity test.  Rather, it simply stated 
that Members should not use those measures as means of avoiding their obligations or commitments.  
That particular  language had not been interprete d in any legal dispute and there was no equivalent 
sentence elsewhere in the WTO syst em.  What was clear, however, was that the terms chosen were 
less stringent than a necessity test.  They obvi ously implied a certain relationship between the 
measure and the prudential objective, and a burden of  proof would be associated with the application 
of the carve-out.  It was also clear that, as an excep tions provision, it overrode any provisions in the 
GATS.  Lastly, he clarified that when referenc e was made to the GATS, it must be understood as 
referring to the Agreement in its totality, i.e. th e articles of the Agreement, its Annexes, and the 
Schedules of Specific Commitments.  Finally, he noted  that these were personal views that should not 
be construed as an interpretation of the consistency with the GA TS of measures Members had taken 
and, in particular, of the status of these measures under the prudential carve-out. 
37. The representative of Barbados
 reiterated that the issues raised in the Communication were 
important.  They might not be urgent, and Members might conclude that it was not timely to introduce 
any change;  after all, Members were not operating in a vacuum since there was already a framework 
of rules and disciplines.  However, times change and circumstances change.  It was not her intention 
to jeopardise any of the actions taken in good faith in  the past, and in fact allowance could be made, 
should the GATS or the Understanding be changed, in order to preserve the integrity of the actions 
taken under the existing system.  Although the dedicat ed discussion on the financial crisis had proven 
very informative, no connection was made between  the measures taken in response to the financial 
crisis and the GATS framework.  Members should k eep an open mind in this regard.  The WTO was 
not the only institution that had been overtaken by  events.  Even the IMF Managing Director had 
admitted that many rules in that institution needed to be changed.  She did not imply that the same 
level or depth of change was needed in the WT O, but suggestions such as the ones she had made 
should be examined without prejudice.  Discussion was in itself useful.  It might perhaps not be 
necessary to come to a conclusion, but the process of examination and analysis could be beneficial in 
any event.  
38. The Chairperson  suggested that, since a number of delegations requested more time to 
consider the issues raised in the Communicati on, the Committee took note of the discussion and 
reverted to this topic under the same agenda item (R ecent Developments in Fi nancial Services Trade) 
at the next meeting.  The Committee  so agreed .  
D. OTHER BUSINESS  
39. The Chairperson  reminded Members that the dedicated discussion on Trade in Financial 
Services and Development would be held at the ne xt meeting of the Committee, most probably in 
May.  The Background Note by the Secretariat woul d be circulated in advance of the meeting.  
40. The Committee took note  of this statement. 
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