RESTRICTED  WORLD TRADE  
ORGANIZATION  S/FIN/M/49 
24 August 2005 
 
 (05-3739) 
Committee on Trade in Financial Services   
  
 
REPORT OF THE MEETING HELD ON 23 JUNE 2005 
 
Note by the Secretariat
1 
  
1. The Committee on Trade in Financial Services he ld a meeting on 23 June 2005.  The agenda 
is contained in airgram WTO/AIR/2596.   
2. The Chairperson
 noted the incoming chair's intenti on under "Other Business" to inform 
Members about the date for the next trans itional review of China's commitments.   
3. The Committee so agreed , and adopted the agenda. 
A. APPOINTMENT OF THE NEW CHAIRPERSON  
4. The Chairperson , Ms. Miyon Lee (Korea), said that according to the rules of procedure for 
meetings of the Committee, the hand-over of the ch airmanship should have taken place at the end of 
the last meeting.  However, sin ce the consultations on the chairmanships of the subsidiary bodies to 
the Council for Trade in Services had not been finali zed yet, it was decided that the hand-over would 
take place at the beginning of this meeting.  Accordingly, she proposed that the Committee elect 
Mr. Guido Kemmerling, from Germany, as Chairman of the Committee on Trade in Financial 
Services.  Mr. Kemmerling was elected by acclamation. 
B. ACCEPTANCE OF THE FIFTH PROTOCOL TO THE GENERAL AGREEMENT ON TRADE IN 
SERVICES EMBODYING THE RESULTS OF THE FINANCIAL SERVICES NEGOTIATIONS  
5. The Chairman  recalled that three WTO Members had yet to accept the Fifth Protocol:  Brazil, 
Jamaica, and the Philippines.  At the last meeti ng, these three delegations provided information on the 
status of their acceptance processes.  In addition, some delegations expressed their concerns about the 
delay in accepting the protocol.  He invited these th ree Members to provide information on the status 
of their domestic processes. 
6. The representative of Brazil  said that the situation had not changed since the last report made 
to the Committee.   
7. The representative of the Philippines  said that the matter was still pending in the Senate, but 
that equally pressing legislative work had prevented it s ratification.  He replied to a query by Canada 
in the meeting held on 23 November 2004 for information on how the congressional calendar was 
developed in the Philippines.  Being a non-par liamentary system, the congressional calendar and 
legislative agenda in the Philippines were primarily the prerogative of the legislative branch, in view 
of the principle of separation of powers.  Legislativ e work had to be carried out within the constraints 
of a three-year limited period every time the pr otocol was presented to the Senate, since the 
Philippines' Congress had a lifetime of only three years, after which all measures must be re-submitted and re-deliberated.  He drew the Committee 's attention to two important developments in 
                                                     
 
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/49 
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this matter.  First, the Senate Committee on Fore ign Relations conducted a pu blic sitting on 2 June 
2005 to consider the Fifth Protocol.  He hoped that the matter could be sent to the whole Senate as 
soon as possible.  Secondly, the President had cer tified the matter as urgent, which under Philippine 
Constitutional Law entitled the proposed legislative action to expedited procedures.  While the 
commitments under the Fifth Protocol had already been implemented, the Philippines' authorities 
noted the concerns raised in this Committee ove r the non-ratification of the Protocol by the 
Philippines.  He added that the Philippines adhered to the principle that a state should refrain from 
acts that would defeat the object and purpose of a treaty, pending its ratification and/or entry into 
force.   
8. The representative of Jamaica
 said that national consultati ons were still ongoing in Jamaica 
on this issue.  Both the Ministry of Finance a nd the Central Bank were undertaking a full internal 
review of existing and new legislation with a view to determining the scope and implications of the 
commitments under the Fifth Protocol, and how to ensure compliance with the commitments.  She 
hoped that once this review had been completed, Jam aica would be able to indicate a more concrete 
timeframe for the acceptance of the protocol. 
9. The representative of the United States  appreciated the reports made by the three delegations, 
and hoped that more positive news could be provided by these Members at the next meeting with 
regard to the ratification of the Protocol.   
10. The representative of Japan  said that this was a very important issue, and asked whether it 
would be possible for these three Members to ratif y the Protocol before the next Ministerial 
Conference in Hong Kong, China.   
11. Replying to the question raised by Japan, the representative of Brazil  said that it was not 
possible to indicate a timeframe for the acceptance of the Protocol.   
12. The Committee took note  of the statements made and decided  to revert to this agenda item at 
the next meeting. 
C. TECHNICAL ISSUES  
13. The Chairperson  recalled that there was no discussion unde r this agenda item at the previous 
meeting.  However, he drew Members' attention to the recent submission from Brazil on electronic commerce and financial services (JOB(05)/103).  He invited Brazil to present the document. 
14. The representative of Brazil
 said that the main purpose of the paper was to examine whether 
electronic commerce in financial services fell under m ode 1, mode 2, or both.  Although some 
delegations thought this was an acro ss-the-board issue, Brazil was of the view that this issue was of 
more relevance for financial services.  In some sect ors, e.g.  hairdressing services, the distinction was 
very clear.  However, the distinction was not that clear for financial services.  Although the issue had 
been discussed since 1997, no final conclusion was reached.  The general objective of the paper was 
to raise the issue for discussion at the Committee, rath er than to point to a specific solution.  Brazil 
thought that once this solution was clear, it would be possible for some Members to improve their 
commitments on modes 1 and 2.   
15. He explained that the four modes of supply were defined before electronic commerce was 
common.  Mode 2 had the implicit idea of the cons umer going to the country of the supplier, while 
under mode 1 the consumer stayed in his/her own terr itory.  According to this view, some considered 
electronic commerce as falling under mode 1.  But others might view electronic commerce as falling under mode 2, since there could be a virtual placement  of the consumer in the other country's territory 
through the internet.  The main problem was theref ore where internet transactions were located.  
Countries like Brazil were still developing regulation regarding internet activities in the financial 
sector.  Some examples were given in the paper.  On the other hand, he explained, if a consensus or an  S/FIN/M/49 
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understanding could be reached that mode 2 was mean t to cover only traditional ways of consumption 
abroad, the commitments of many Members could be  improved.  But in order to do so, the mere 
inclusion of a headnote stating that mode 2 did not include electronic commerce would not preclude a 
panel from stating the opposite, i.e., that mode 2 did include electronic commerce.  That was the reason for Brazil's and many other Members' hesitati on in making this type of commitment.  He also 
noted that in past discussions, some Members dis tinguished between the two modes on the basis of 
the existence of active marketing.  Therefore, m ode 2 would cover transactions where there was no 
active marketing.  In Brazil's view, that interpreta tion did not seem to be fully compatible with the 
definition of supply of services under Article XXVIII (b) of the GATS, which was supposed to include 
"production, distribution, marketing, sale and de livery".  The question was how could mode 2 not 
include marketing.  He noted that some Memb ers relied on the Understanding on Commitments in 
Financial Services to draw the distinction between th e two modes.  But in his view the Understanding 
only replaced Part III of the GATS and not the defin itions, which were included in Part VI.  Brazil 
was open to the idea that marketing was not included  under mode 2,  but a clear legal solution was 
needed.  Finally, he expressed the hope that this pa per might be the starting point of a fruitful debate 
on this issue, and encouraged other Members to participate in the discussion by explaining, inter alia , 
the different regulatory approach es followed in this area.   
16. The representative of the European Union
 said that they had not had any problems in this 
area.  The European Union made its commit ments in accordance with the Understanding on 
Commitments in Financial Services, and did not see the need to introduce any additional clarification 
or headnote.  He agreed that the issue merited fu rther attention and could be discussed in the future, 
but he was not sure the discussion should be focused  only on financial services.  This might be done 
on a horizontal basis.  That said, the European Un ion did not see this as a very pressing issue at the 
moment.   
17. The representative of Thailand  said the paper was a positive contribution.  However, the issue 
was not only the distinction between modes 1 and 2 tr ansactions but also the effective supervision of 
such transactions.  Another important issue was compliance and how to check transactions over the 
internet.  She said that while some Members had al ready established appropriate mechanisms to check 
financial offenders and fraud cases, others did not ye t have such a facility.  Taking those aspects into 
account, she suggested that the Committee invite a representative of the Basel Committee on Banking 
Supervision to update Members on that Committee's work regarding the management and supervision 
of cross border electronic banking activities.  That work might help supervisors determine whether a 
bank's e-banking services were directed at its own  resi dents or at residents of other jurisdictions.  The 
work carried out by the Basel Committee on Banking Supervision might help clarify the concepts of 
prior solicitation or active marketing, which were  referred to in paragraph 8 of the paper. 
18. The representative of Pakistan  found the submission useful, as it put together all the relevant 
facts about electronic commerce and financial se rvices.  Pakistan had recently faced similar 
difficulties, and financial sector authorities would like to know exactly what the position of the WTO 
was regarding modes 1 and 2, e-banking and e-comme rce.  She suggested that the background paper 
prepared by the Secretariat in 1998 be updated to include the recent technological advances in 
financial services. 
19. The representative of the Philippines  offered a few preliminary comments on the submission.  
He shared Thailand's view that supervision and co mpliance monitoring were important issues that the 
Committee should continue thinking about.  In th e case of the Philippines, an Electronic Commerce 
Law was passed in 2000.  However, as in many othe r countries, that law was limited to Contract Law 
and Rules of Evidence, and did not address the issu es raised in the paper by Brazil.  That law 
provided, inter alia , that unless otherwise agreed between the originator and the addressee, an 
electronic data message or electronic document was deemed to be dispatched at the place where the 
originator had its place of business and received at the place where the addressee had its place of 
business.  This rule applied even if the originat or or addressee had used a lap-top or other portable S/FIN/M/49 
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device to transmit or receive the message or docum ent.  The rule also applied to determine the 
location of such transactions.  Also in the y ear 2000, the Monetary Board passed a resolution 
providing for guidelines on the provision of electr onic banking services.  But these guidelines referred 
basically to banks and financial institutions that had actually established a commercial presence in the 
Philippines, and did not address the issue of electronic commerce.  Finally, he noted Brazil's comment 
in paragraph 9 that flexibility on taking commitments in  this area could be an alternative in view of 
the difficulty in getting consensus on the distinction between modes 1 and 2.  If a consensus on this 
issue could be reached, Members should also consider its implications on existing commitments.   
20. The representative of Mexico
 referred to paragraph 11 of the paper, and said that a link was 
made between this document and the Work Programme on Electronic Commerce.  He sought further 
information from the Secretariat as to whether the is sues raised by Brazil were actually included in the 
Work Programme on Electronic Commerce.  He was not  sure that these issues ha d been looked at in 
that context.  He also asked whether Brazil could elaborate more on that link.   
21. The representative of Japan  shared the views expressed by th e European Union.  He agreed 
with Thailand that the main problems lay in effec tive supervision and compliance with the regulations 
of individual countries.  Those problems could only be solved through dialogue between financial 
supervisors rather than through discussions at this Committee.   
22. The representative of Canada  said that the Brazilian submission was an important 
contribution to the work of the Committee in the area  of cross border trade in financial services.  He 
also shared Brazil's view that cr oss border trade in financial services raised many challenges.  But 
these challenges however should not detract Members from focussing on the more central objective of 
achieving the growth and stability through a more open financial sector.  He noted the lacuna in the 
GATS on issues such as active marketing.  However, he also noted that financial services in many 
jurisdictions continued to require some form of establishment.  So the discussion on modes 1 and 2, 
while interesting and important, particularly fo r highly developed regulatory frameworks, was far 
from representing the means by which most trade in financial services continued to be carried out.  
Canada looked forward to discussing the issues raised in the paper.   
23. The representative of Hong Kong, China  said that the paper did a good job in recapitulating 
previous discussions on this issue, and in raising a number of distinct but related issues.  Although not 
new, the issue was worth discussing.  He said that it would be useful if the Secretariat could remind Members of previous background documents on the issue and meeting reports where the issue was 
discussed.  He offered some preliminary comments.  He  said that it would be useful to distinguish the 
various issues raised by the paper and deal with th em separately.  One of the key issues raised in the 
paper was the issue of E-commerce and the challenge  posed by electronic transactions, especially in 
financial services.  The importance of appropriate regulatory frameworks was also raised.  However, 
regulatory issues, which should be dealt with in thei r own right, were not entirely related or linked to 
the main issue raised in the pape r, namely the distinction between mode 1 and mode 2 commitments.  
He said that the distinction between modes 1 and 2, and how electronic transactions might be linked 
to that issue, was only relevant to the extent that  they affected the making of commitments.  Only 
when liberalization commitments under the GATS were  envisaged, did Members have to grapple with 
this issue, because in the real world, especially  when talking about regulations, regulators did not 
normally think in terms of the four modes of supply.   Regulators just dealt with electronic transactions 
in their own right, as something that might call for additional regulatory tools.  In this regard, he 
reminded Members that Hong Kong, China had made a presentation on its regulatory experience in 
this area.  He supported the suggestion made by Thailand to invite the Basel Committee on Banking 
Supervision to share information on its work in this area.  But Members had to recognize that, 
although important, regulatory issues were not dir ectly related to the making of market access 
commitments.    S/FIN/M/49 
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24. The distinction between modes 1 and 2 was impor tant, but its relevance was not confined to 
financial services.  There were of course certain peculiarities  in financial services, such as the 
existence of the Understanding on Commitments in  Financial Services, which had been adopted by 
many Members.  At this stage, he said that  Hong Kong, China would be pleased to pursue the 
discussions on this issue, as they related to financ ial services, in this Committee.  At the same time, 
Members should bear in mind the possible implications that such a discussion might have on a 
broader discussion on cross border trade in services in  the Special Session of the Council for Trade in 
Services.  In Hong Kong, China's view, any discu ssion in this Committee should not unduly impede 
the initiative taken by a number of Members to pursue more liberal commitments on cross-border 
trade in services.  This discussion involved in fact two issues, one of a technical nature – the 
distinction between the two modes – and another one of a substantive nature – the level of 
commitments of individual Members on these two modes of supply.  Although important, at the end 
of the day, the technical issue itself did not dictate the level of a Member's commitments in modes 1 and 2.   
25. The representative of Switzerland
 said that the issue raised by Brazil was important both from 
technical and practical points of view.  Like the European Union, Switzerland had not encountered 
any major problem with this issue.  Switzerland ha d already shared its experience with e-banking in 
document S/FIN/W/26.  He said that he would eventually  revert to this issue at a later stage.  Finally, 
Switzerland was not sure that the issue should be treated solely in this Committee, since it was 
relevant for other services as well.   
26. The representative of Norway  said his country had made commi tments in accordance with the 
Understanding on Commitments in Financial Services,  and the lack of consensus on modes 1 and 2 
had not caused any problems for regulating the market in this area.  This issue should not stand in the 
way of Members taking commitments on Modes 1 and 2.  In his view, the framework in place was 
good enough to ensure satisfactory regulations.   
27. The representative of the United States  associated herself with the interventions made by the 
European Union, Switzerland and Norway.  In her view, no concrete problems with cross-border trade 
had been found.  Moreover, cross-border trade had not represented a problem for the many Members that had already undertaken commitments on mod es 1 and 2.  And when taking commitments had 
become sensitive, Members sought some flexibility  in terms of the sub-sectors included in the 
commitments.  Sometimes, Memb ers included some language in their schedules to take care of 
specific sensitivities with regard to their commitments to cross border  supply.  Additionally, taking 
cross-border commitments did not mean that Members would not continue in parallel to consider how 
best to regulate Mode 1 and 2 su pply.  And that exercise wouldn’ t necessarily be totally complete 
before trade commitments were undertaken.  The Unite d States wanted to take more time to consider 
the suggestions made by some de legations, and look back at the Secretariat paper and consider 
whether any additional work by the Secretariat mi ght be necessary.  Clearly, the Committee itself, 
since the time of that paper, had had further consideration of the issue by virtue of real world 
experiences provided by Chinese Taipei; Hong Kong, China; Switzerland and others.  Perhaps that 
kind of work would be more relevant.  Regardi ng the suggestion to invite the Basel Committee on 
Banking Supervision, she said that it would be better for WTO Members to keep track of the 
important work carried by that organization on an indi vidual basis rather than bringing it into this 
Committee.   
28. The representative of Chinese Taipei
 said that the communication from Brazil was very 
interesting.  The issue raised by that communication presented in fact three dimensions.  First of all, 
there was the development dimension or how to de velop the e-banking or e-finance industry in each 
Member.  In his view, all Members were quite inte rested in further developing this industry.  The 
second dimension concerned regulatory issues.  E- banking and e-finance raised new regulatory 
challenges to domestic supervisors.  Regulators were  primarily concerned with their ability to regulate 
their own market and with the protection given to th eir consumers.  They were also concerned with a S/FIN/M/49 
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far wider issue of international cooperation in the area of money laundering.  The third dimension was 
more directly related to the current negotiations.  The question was whether there were some issues 
that Members should start considering with a vi ew to scheduling commitments.  Chinese Taipei 
would welcome further discussions on this issue.   
29. The representative of China
 said that the Brazilian communication raised interesting 
questions, such as whether a Member's commitment on modes 1 or 2 entailed the obligation to allow 
the supply of any committed financial service throug h electronic means in any circumstances.  The 
Chinese experience showed  that on-line banking did not only create many new financial products, but 
also posed considerable challenges to the financia l regulatory bodies.  He said that China would 
appreciate more comments from Members on how to regulate on-line financial transactions and how 
commitments on financial services under modes 1 and 2 are looked at.   
30. The representative of South Africa  said that the Brazilian communication was an important 
contribution to the Committee's discussions.  She l ooked forward to engaging in the discussion of this 
issue in the future.   
31. The representative of Korea  said that the relationship between modes 1 and 2 was a very 
important technical issue.  Several important issu es had been evoked by other delegations in their 
interventions, such as the relationship between mo des 1 and 2 on the one hand and mode 3 on the 
other; the supervision of e-finance; and the protect ion of consumers.  However, what was important 
for negotiators was how to transform those regulat ory issues into specific commitments.  From that 
perspective, she saw merit in pursu ing the discussion in the future.   
32. The representative of Brazil  said, regarding regulatory issues, that the work of the Basel 
Committee on Banking Supervision, the International Organisation of Securities Commissioners 
(IOSCO) and the International Association of In surance Supervisors (IAIS) was of the outmost 
importance.  Therefore, he encouraged invitations to those institutions.  Issues such as the avoidance 
of fraud were also relevant for trade negotiators , because Members had to bear in mind that when 
opening cross-border trade in financial services ove r the Internet, some forms of fraud might be 
facilitated.  Ensuring compliance across the border w as far more difficult than ensuring it inside the 
borders.  Enforcement outside one's country was of ten ensured through bila teral agreements with 
other countries.  All these issues had to be be cons idered before making further commitments.  Mutual 
recognition of prudential supervision was also importa nt in order to facilitate cross-border trade.  
From that perspective, it would be  interesting to get more informa tion from those three international 
standard setting organizations.   
33. In response to Mexico's comment on paragraph 11 of the paper, the representative of Brazil 
said that there was no intention to establish any part icular link between the discussion of this issue at 
this Committee and the work pursued by the Genera l Council on electronic commerce.  The intention 
was just to remind Members that the issue was important enough to merit a reference in the Doha 
Ministerial Declaration.  Having said that, he said he would appreciate further clarification from the 
Secretariat on the modalities and extent of the Work Program on Electronic Commerce.   
34. Responding to the questions raised by some de legations, a representative of the Secretariat  
said that the work programme on electronic commerce had been adopted by the General Council and 
entailed instructions to the Councils for Trade in Goods, Trade in Services, and TRIPs, as well as to 
the Committee on Trade and Development, to examine certain issues and report back.  The last report 
adopted by the Council for Trade in Services was cont ained in document S/L/74,  dated 27 July 1999.  
That report attempted to identify those issues on wh ich some agreement seem ed to have emerged on 
the one hand; and those issues on which it had been recognised that further work was needed on the 
other.  Paragraph 5 of that repor t made a reference to the distinc tion between modes 1 and 2, clearly 
stating that Members had recognised that there was a problem and that further work was in this area 
was needed.  This was the discussion on this issu e as far as the work program on electronic commerce  S/FIN/M/49 
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was concerned.  Turning to the suggestion made by Hong Kong, China, he said that the Secretariat could prepare a short paper containing a list of the documents, in chronological order, where the issue 
had been addressed.  He further explained that the first substantive paper done by the Secretariat on 
this issue was contained in document S/FIN/W9, dated 29 July 1996.  Discussions followed that document, particularly in the course of the negotia tions that led to the Fifth Protocol.  He drew 
Members' attention to an informal note prepared by  the Secretariat, dated 24 June 1997, in which the 
Secretariat had been requested by Members to suggest  certain approaches to deal with this problem in 
the scheduling of commitments.  That was followed by an informal discussion,  which was recorded in 
document Job 3706.  He added that the Secretaria t would provide Members with a comprehensive list 
of all those documents in chronological order.  He  noted that those discussions did not get into the 
policy issues or merits of liberalising cross border trade, but focussed only on the technical aspect of 
how to reflect the commitments in a schedule in a accurate and unambiguous manner.  He also said 
that the problem of distinguishing between modes 1 and 2 arose only if one of the modes was bound while the other was not.  In other words, if both modes were bound or unbound, the problem of the distinction would not arise.  He added that the work by the Secretariat had been done before the 
conclusion of the financial services negotiations in  December 1997.  Referring to the suggestion to 
update document S/FIN/W/9, he said that the Secr etariat could look into the situation after the 
adoption of the Fifth Protocol, compiling for example all the relevant entries in Members' schedules 
that focussed on this particular issue.  Other asp ects of the schedules could also be looked at.  The 
main source for the updating of that note would be the package of commitments adopted with the 
Fifth Protocol.  Other issues might be looked into, e.g. how regulators addressed questions related to 
electronic trade in financial services, if Members so wished.  But he preferred to leave that to further 
consultations by the Chairperson, as suggested by delegations.   
35. The Chairperson
 said that several suggestions were made in the course of discussions, such as 
updating a Secretariat note on this issue, and i nviting specialists from the Basel Committee on 
Banking Supervision and other rele vant international bodies to the Committee to share information 
regarding their work in this area.  He understood ho wever that some delegations needed more time to 
consider both suggestions.  Under those circumstances,  he suggested that consultations be held with 
interested delegations on these two proposals.  At his suggestion, the Committee took note  of the 
statements made, agreed  that the Chair conduct consultations on the two proposals made, and decided  
to revert to this agenda ite m at the next meeting.   
D. RECENT DEVELOPMENTS IN FINANCIAL SERVICES TRADE  
36. The Chairperson  recalled that at the last meeting Egypt announced its intention to  make a 
presentation on the Egyptian Securities Market.  That presentation would be made by Mr. Maged 
Shawky Sourial, Vice-Chairman of the Cairo & Alexandria Stock Exchange.   
37. The representative of Egypt , Mr Sourial, said that the Cairo & Alexandria Stock Exchange 
(CASE) was one of the oldest, having started in 1883.  In the 1940s it was the fifth largest stock 
exchange in the world.  It made an important c ontribution to industrial development in the 1950s.  
During the nationalization regime, between the 1960s and the 1990s, the Stock Exchange was 
dormant, with no activity at that time.  With the adoption of the program for economic and structural 
reform in the 1990s, there was a need to revitalize the activity of the Stock Exchange as a vehicle for 
privatization.  A modernization program, entailing new regulation and the upgrading of infrastructure, 
was launched in 1997.  It had been Egypt's appr oach that any rule and regulation being adopted 
should be as transparent as possible not only for liste d companies and market participants, but also for 
normal savers and investors.  With that in mind, each draft law was presented to the public (e.g.  
NGOs and other interested parties) for a period of one year.  The feedbacks received were analysed 
before the final draft was put CASE or the regulator for adoption.   
38. Turning to the economic fundamentals underpinni ng the operation of the securities market, he 
said that GDP growth was 4.5% in fiscal year  2003/2004, and the estimate for fiscal year 2004/2005 S/FIN/M/49 
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was 4.8%.  Foreign reserves stood at $15 billion as of  end 2004, equivalent to  10 months of imports.  
After the devaluation in early 2003, and loosing 50% of its value, the Egyptian pound had recently 
strengthened 7% against the dollar.  The infla tion rate was down to 9% annually, after reaching 
double-digit figures immediately after the devaluation.   
39. CASE was the most open stock exchange in th e MENA region, having no restrictions on 
foreign participation.  The same re gulations applied to foreigners a nd to domestic participants.  There 
was no discrimination, neither on portfolio investme nt nor on stake ownership.  A number of mergers 
and acquisitions took place recently involving foreig n companies in different sectors, such as banking, 
cement, insurance, fertilizers.  Settlement of tr ansactions took 3 days, in accordance with IOSCO 
rules.  There were no taxes on dividends or  capital gains, and no stamp duties.   
40. CASE was an affiliate member of the World Fe deration of Exchanges (WFE), and applied for 
full membership in October 2004.  It was also a me mber of IOSCO.  Several agreements were signed 
with Arab exchanges, such as Kuwait, Oman, Bahrain,  Jordan and Sudan, to encourage cross-listing.  
There were even a few cross-listed stocks  in London and the United States.   
41. Corporate governance had been at the top of th e agenda since 1999, primarily as a result of a 
series of crises in emerging markets.  CASE inv ited the IMF and the World Bank to write a Report on 
the Observance of Standards and Codes (ROSC), focusing on corporate governance, accounting and auditing.  Consistent with CASE's commitment to tr ansparency, it was decided that  report would be 
made public whatever the result.  There was a s econd report in 2003, showing improvements from the 
previous one.  Some special characteristics of comp anies in Egypt had to be taken into account: most 
of the corporates were family-owned companies, and flotation of stocks was minimal, averaging not 
more than 20%.  This made it difficult to encour age these companies to adopt corporate governance 
principles.  In 2003,  Egypt took the lead in the region to promote better governance under a comprehensive program named MENA-OECD Invest ment Initiative.  Five working groups were 
established on different topics (transparency, inv estment, taxation, financial sector policies, and 
corporate governance).  A draft code on corporate gov ernance had just been finalized and presented to 
the public.  It was expected to be adopted by the end of 2005.   
42. Stock market performance had improved significan tly in the last decade.  The total value 
traded reached US$ 7,297 million in 2004, compared  to US$98 million in 1993.  In the first five 
months of 2005, total value trade amounted to US $ 8,269 million.  Total volume traded went from 18 
million in 1993 to 1,786 million in the first five  months of 2005.  Market capitalization, as a 
percentage of GDP, went from 21% in 1996 to 60% in 2005.  CASE had been one of the best-
performing markets among emerging market economies.  Last year, the market was up by 102.49%, 
second only to Colombia.  Finally, referring to e-finan ce, he stressed that the development of online 
trading through Internet was one of CASE's prioriti es.  He hoped that this facility could be readily 
available by the end of 2005.   
43. The representative of the European Union
 noted that there were no limitations on foreign 
participation in CASE.  He sought more inform ation on the nature and purposes of the bilateral 
agreements signed by CASE with other stock exchanges (e.g.  MENA countries, Madrid, London, 
Nigeria).   
44. The representative of Egypt , Mr Sourial, replied that the fo cus of the agreements signed with 
other Arab countries was cross-listing, cross-settlement , and the sharing of regulatory approaches.  In 
the case of the other Memoranda of Understanding (MOU), the agreements were aimed at acquiring 
technical expertise through technical cooperation.   
45. The representative of Malaysia  referred to her country's experience with corporate governance 
in the capital market.  Malaysia had establishe d a securities commission in 1993, which laid the 
foundation for a strong corporate governance framewo rk in the capital market.  The MOU signed 
between CASE and the Kuala Lumpur Stock Exchange  had allowed the exchange of information on  S/FIN/M/49 
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regulatory experiences as well as training and educa tion programmes.  One of the key objectives of 
the capital market master plan was to establish Ma laysia as an international Islamic capital market 
centre.  The Islamic capital market ran in parallel with the conventional capital market and faced rules 
complementary to those governing the Islamic banking system, thus broadening and deepening the Islamic financial market.  For example, specific guidelines on the offering of Islamic securities had  
been adopted.   
46. The representative of Pakistan
 sought further information on the performance of different 
emerging economies' markets, referred to by Mr Sourial in one of his slides.   
47. The representative of the United States  said that, in the US experience, the development of the 
securities markets was greatly helped  by having extensive foreign pa rticipation.  He asked whether 
additional information could be provided on the participation of foreign firms in portfolio 
management, underwriting, venture cap ital, bond dealing, rating compan ies, and brokerage firms.   
48. The representative of Egypt , Mr Sourial, said that the concept of Islamic banking had been 
introduced in the early 1980s.  The Islamic ba nking institutions had perfo rmed well and had an 
important share of the market.  However, CASE di d not have an Islamic investment instrument per se , 
but the matter was under study.  He looked forwar d to further cooperation with Malaysia on this 
matter.  Turning to the question raised by Pakistan , he said that the slide was copied from the website 
of Morgan Stanley.  It showed, in different co lours, the best-performing and the worst-performing 
emerging economies' markets.  This was usually calle d in stock market jargon, a "heat chart", either 
for stocks or markets.  The information provided wa s therefore a heat chart for emerging markets.   
49. With regard to the US question, he said that foreign participation in portfolio management 
companies, underwriters, venture capital companies, private equity firms, primary bond dealers, and 
rating companies took the form mostly of joint-vent ures with local financial institutions.  In the case 
of portfolio management, 60% of the companies we re joint-ventures with international investment 
banks.  In the case of rating companies, 4 out of th e 6 established in the market were foreign-owned.  
Most brokerage firms were of Egyptian origin, but they had partnerships with European brokerage 
houses.  Foreign companies were not prevented from listing in CASE.   
50. In concluding, the Chairperson  thanked Mr Sourial for the co mprehensive presentation.  He 
also thanked other Members for the interesting discu ssion that followed and encouraged them to also 
make presentations on recent developments in fi nancial services trade at future meetings.   
51. The Committee took note  of the statements made and decided  to revert to this agenda item at 
the next meeting. 
E. FINANCIAL SERVICES LIBERALIZATION  
52. The Chairperson  drew Members' attention to this ag enda item, which had been requested by 
the United States on behalf of a group of Members, in order to formally present and discuss a joint 
statement, circulated in document S/FIN/W/43.  The statement had been presented informally  at the 
previous meeting under Other Business.  The statem ent had also been presented at the Special Session 
of the Council for Trade in Services. 
53. The representative of Australia  introduced the statement on behalf of the co-sponsors.  The 
statement highlighted the critical importance of  the financial sector for a country's economic 
development.  Access to capital was fundamental to all economies, enabling firms to grow, meet 
domestic demand and operate globally .  The financial sector contributed to economic efficiency and 
stability by effectively assessing risk, providing a tr ansmission mechanism for the flow of funds from 
savers to borrowers.  The statement also highlighted  the importance of financial liberalization, and 
how it interacted with other economic policies.  In  searching for greater international competitiveness, 
various Australian government had used financial sector reform as a major instrument.  Until the S/FIN/M/49 
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1980s, the Australian financial system was heavily regul ated and very restrictive, with the government 
seeking to achieve its monetary and supervisory goals via direct restraints on the activities of financial 
service providers.  By the late 1970s, the system wa s under pressure due to high  inflation, exogenous 
shocks and the declining effectiveness of monetary policy.  Following a number of different enquiries 
such as the Campbell Committee in 1979, and the Wallis  Enquiry of the 1990s, Australia significantly 
liberalized its financial system, resulting in a more competitive and efficient financial sector.  
However, financial sector liberali zation could be very difficult.  It  could often be opposed by powerful 
vested interests, which could exaggerate the imp act of reforms.  It was important then that 
governments be able to assess the competing claims  and devise a balanced way forward, protecting 
consumers and the integrity of the system, while not hampering innovation and financial 
intermediation.   
54. The importance of appropriate regulatory systems and structures was recognized in the 
GATS, a point highlighted in the statement.  That included, for example, systems for the protection of 
consumers and investors.  Australia's experience ha d shown that financial sector liberalization should 
work hand in hand with the implementation of ap propriate regulation.  Indeed, Australia strongly 
supported moves to strengthen financ ial sector regulation in all countries.  Financial sector regulation 
should also be flexible enough to adapt to changing circumstances and the emergence of new financial 
products.  Australia's experience also showed that  financial sector reform should not be seen in 
isolation from other policies.  While a vibrant financ ial sector could be an engine for growth within 
the economy, it needed to be supported by other policies that could facilitate a growing economy in which the financial sector could flourish.   
55. As a small remote economy, Australia was focused on the removal of barriers to trade and 
investment.  While this had bro ught the benefits of competition from abroad, the government had also 
undertaken a number of reforms in areas such as the labour market, infrastructure, taxation, and 
general competition policy, in order to boost prod uctivity and enhance economic growth.  Financial 
sector reform had to be seen as part of an integrated  approach to opening an economy to the beneficial 
forces of globalization.  Evidence suggested that  Australia reaped significant benefits from its 
cumulative reform programme.  Since the late 1990s, Au stralia's growth had been at consistently high 
levels and experienced significant productivity in creases.  This occurred despite periods of 
international turmoil.  Throughout this period, the Australian banking sector had remained highly 
profitable and stable.  These reforms had also been an important driving force in providing a competitive stimulus to the financial sector, improvi ng allocative, technical and dynamic efficiency.  
Consumers had also benefited fro m improved product choice, and re ductions in borrowing costs.   
56. All that said, Australia's reform processes ha d not occurred without unanticipated challenges 
and transitional issues.  In Australia's case, two exam ples were particularly pertinent.  The first related 
to a significant expansion in credit and the reducti on in credit quality, following the first wave of 
financial sector reforms in the 1980s.  As interest  rates rose over this period, the fall in credit 
standards caused a significant rise in nonperformi ng loans and write-downs, resulting in substantial 
losses in the banking sector.  The second example w as the collapse of Australia's largest non-life 
insurance company, HIH Insurance, in 2001, wh ich was largely the result of poor corporate 
management.  While Australia worked through th ese episodes without a full-blown financial crisis, 
both experiences highlighted the importance of ade quate reform sequencing and implementation.  
Otherwise, the promises of long term gains might be  frustrated by negative short terms impacts.  In 
Australia's case, adjustment costs might have been  lower had properly implem ented prudential reform 
taken place at the same time as restrictions on co mpetition were reformed.  The Australian example 
showed that there was no exact blueprint for refo rm.  Governments must take opportunities as they 
arose, such as the current WTO round, to cham pion the cause.  The four benchmarks listed in 
paragraph 7 of the joint statement provided a broa d framework within which Members could consider 
moving forward in financial services liberalizati on and in scheduling meaningful commitments.  
Those benchmarks took into account individual circumstances and were not intended to be  S/FIN/M/49 
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prescriptive.  Australia, like other co-sponsors, w as very interested in hearing the views of all 
Members on the joint-statement, and in pa rticular on the benchmarks just noted. 
57. The representative of Brazil  said that the contents of the paper were matters for the 
negotiation.  As such, they should be discussed in  the  Special Session of the Council for Trade in 
Services, which was the body in charge of negotia tions.  One of the points that struck him was the 
suggestion of benchmarks, which were not acceptabl e for Brazil.  And it was this emphasis on 
benchmarks that made this statement a negotiati ng proposal, which should be validly discussed in the 
Special Session, where Brazil would make specific comments.   
58. The representative of India  shared Brazil's view, and asked the proponents what they were 
looking for from this Committee.  This matter was also being taken up in the Special Session of the 
Council for Trade in Services, where India had no problem in engaging in a discussion.  But India did 
not think that this Committee was the right  forum for discussing the submission.   
59. The representative of Hong Kong, China  shared the statement's view on the importance of the 
financial sector, and the importance of libe ralization and competition for the creation and 
strengthening of healthy financial systems.  And th is was a relevant matter for this Committee, since 
its mandate was to discuss any matters related to th is particular sector.  This Committee was the right 
forum to further elaborate on this point, and on how further liberalization and proper regulatory 
frameworks could contribute to the development of the financial sector.  Another important message 
to be drawn from the statement was that finance was an important sector in itself in the context of the 
ongoing services negotiations.  And given the subs tantive amount of interest expressed by many 
Members in this sector, he believed that the sector provided a potential area for trade-offs in the 
services negotiations.  Therefore, it was important for all Members to engage actively in the 
negotiations with a view to substantially improving  the commitments in this sector.  This discussion 
was perhaps already bordering on market access issu es, which would probably be better pursued in 
the Special Session of the Council for Trade in Se rvices.  In his view, the targets proposed in 
paragraph 7 of the paper constitute d good pointers for the ongoing nego tiations.  Finally, he referred 
to the existence of certain MFN exemptions which tended to impose reciprocity conditions for market 
access in this particular sector.  From the review of MFN exemptions that had recently taken place, it became clear that many of these were inscribed for retaliatory purposes.  And none of these MFN 
exemptions had ever been invoked in actual practic e.  That being the case, the need for such MFN 
exemptions would be obviated if higher levels of commitments were made by a broad range of 
Members.  The need for such reciprocity-based MF N exemptions should no longer exist.  On this 
basis, he said that Hong Kong, China would be  pleased to co-sponsor the statement.   
60. The representative of Korea
 said that her country also pointed to the importance of financial 
services liberalization, and the importance of this  sector for economic development.  Korea had 
continued with its financial liberalization and restruct uring process since the financial crisis in 1997.  
She echoed some of the benchmarks  in paragraph 7 of the joint statement, such as the use of the 
definitions in the Annex on Financial Services  for the purpose of scheduling commitments, the 
liberalization of supply through commercial presence (mode 3), and the enhancement of transparency 
in the application of laws and regulations.  Sh e looked forward to further comments on the joint 
statement in the Committee.  In that regard, she poi nted out that there was no limits to what Members 
could discuss in the Committee.  And as much as she supported discussions on technical issues such 
as the one brought up by Brazil on the distinction betw een modes 1 and 2, she hoped that other issues 
could also be discussed in the Committee.   
61. The representative of Argentina  shared the views of Brazil and India, and said that this 
Committee was not the ideal foru m to present this type of document insofar as it dealt with 
negotiations.  The communication dealt with negotiations  more than with technical aspects of trade in 
financial services.  He realized that it was very  difficult to maintain a clear distinction between 
technical and negotiating issues.  But unfortunately, this type of communication raised once again the S/FIN/M/49 
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question of the need for sectoral committees.  He made nonetheless some comments on paragraph 7 of 
the paper.  He said that setting this kind of be nchmark for scheduling commitments was based on an 
oversimplified vision of financial services.  And th is could go against the flexibility of GATS, and the 
various negotiating modalities, that specifically  allowed developing countries to open fewer 
transactions and modes of supply.  Furthermore, in his view, this type of proposal might run counter 
to the modalities, particularly those for the esp ecial treatment of leas t-developed countries. 
62. The representative of Thailand
 said that section 1 of the joint statement – on the importance 
of financial services liberalization for economi c growth, stability and development – could be 
naturally subsumed under the permanent agenda ite m D on recent developments of financial services 
trade.  However, the four points included in paragr aph 7 of the paper would be better discussed in the 
Special Session of the Counc il for Trade in Services. 
63. The representative of New Zealand  said that his country supported the statement.  He 
explained that New Zealand was one of those countries that had opened its financial sector 
substantially in recent years.  Nowadays, over 90 per cent of financial institutions in New Zealand 
were foreign-owned.  That had meant, as echoed by the joint statement, ready access to banking 
innovations and technologies.  New Zealand was for example one of the first countries to experience 
the introduction of EFTPOS (electronic funds transfer  at point of sale).  Likewise, New Zealand had 
benefited from the introduction of a broad range of  innovative and low cost financial packages that 
benefit both consumers and businesses alike.  Bei ng a small economy, geographically distant from its 
key markets, New Zealand embraced anything that could reduce barriers to exporters, such as having 
access to stable financial services at a low cost.  An d opening up to foreign investment in this sector 
had brought about those benefits.  Referring to paragraph 7 of the paper, he noted that New Zealand 
had already a very open access to its market through modes 1, 2 and 3.   
64. The representative of Pakistan  endorsed the statement made by Thailand. 
65. The representative of South Africa  noted Australia's view that there was not a unique 
blueprint for implementing and executing financial se ctor reforms, and that the issue of sequencing 
was important.  She noted however that, at the same  time, the co-sponsors of the statement, including 
Australia, promoted the notion of be nchmarks for the liberalization of the sector.  She considered that 
the two notions could be conflicting.  Although it co uld be possible to marry them, it was clear that 
these issues needed more discussion and refection.   Finally, she echoed the statement made by 
Thailand.   
66. The representative of Malaysia  expressed her concern about the prescriptive nature of the 
benchmarks indicated in paragraph 7 of the joint stat ement.  In her view, the statement belonged to the 
agenda of the Special Session of the Council for Trade in Services.   
67. The representative of Canada  replied to the concerns expressed by some delegations that the 
paper did not belong in the Committee.  In hi s view, the mandate of the Committee suggested 
otherwise.  Looking at these issues was within  the terms of reference of this Committee.  
Additionally, the negotiating guidelines and proce dures talked about making use of subsidiary bodies 
to the maximum extent.  The paper also high lighted the importance of financial services for 
development, which was also a key issu e for this round of negotiations.   
68. The representative of the United States  said that the terms of reference of the Committee 
clearly allowed Members to discuss the document,  and would allow Members to discuss it in the 
future if they so wished.  The discussion in  this Committee would not preclude Members from 
continuing the discussions on this paper at the Speci al Session of the Council for Trade in Services.  
However, delegations had to be aw are of a practical difficulty that many financial services experts had 
to attend the Special Session.  In fact, it was ofte n the case that by the time the Special Session took 
up these sectoral papers, most of the financial ser vices experts that came for the Committee meeting 
had already left town.  That was the reason for havi ng a discussion at the Committee.  Additionally, it  S/FIN/M/49 
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might be useful in the future to devote more time to some of the benchmarks indi cated in the paper.  It 
might be useful to discuss some of them – e.g.  t hose related to cross-border trade and transparency – 
in more detail, bringing for exam ple national experiences on those two issues to the attention of other 
delegations.  Finally, she thanked Hong Kong, China for its interest on these issues, and welcomed it 
as a co-sponsor of the statement.   
69. The representative of Qatar  said that the issues raised in the statement were very important.  
Issues such as the sophistication of the regulatory system and how that could impact the performance 
of small economies in the long run, needed to be further discussed.   
70. The representative of the European Union  said that the Committee was indeed the appropriate 
forum for discussing the issues raised in the statem ent.  Referring to the point made by a delegation 
about the flexibility for least-developed countries, he  considered that the statement gave a lot of 
flexibility to Members to take account of their different situations.   
71. The representative of Japan  considered that the Committee was the appropriate forum to 
discuss all aspects of the joint statement.  He said that financial services served as a basic 
infrastructure to other domestic industries, so that  liberalization of financial services would strengthen 
the domestic economy.   
72. The representative of Oman  said that the statement contained some technical issues that could 
be discussed in the Committee.  The document coul d also be discussed at the Special Session of the 
Council for Trade in Services, and in that vein he supported the statements  made by Canada, the 
European Union, Japan, and the United States. 
73. The representative of Brazil  said that that was the third time that week that Members were 
having discussions about the mandates of subsidiary  bodies to the Council for Trade in Services, and 
their role of supporting the overall market access ne gotiations.  The day before, Canada had presented 
a document to the Working Party on Domestic Regul ation, which was questioned by Japan and the 
European Union because they thought that was not th e proper place to bring ma rket access issues.  
The day before that one, there was a huge discussi on about the questions that Brazil had presented to 
Members on their schedules, raising scheduling and classification issues.  The similarity between 
these two cases was that neither Canada nor Brazil ev er said or intended to bring negotiating issues to 
those subsidiary bodies.  In this case however th ere was a quantitative and qualitative difference.  Not 
only did the co-sponsors of this joint statement write that in their proposal, but they also said it clearly in their interventions, that they wa nted to turn this Committee into a negotiating body or at least bring 
negotiating issues to the Committee.  He said that Braz il was not prepared to accept that.  In his view, 
the Committee could play a role, and could inde ed support the overall negotiations, by addressing 
technical issues which would indirectly help the overall negotiations.  That was why Brazil presented 
a paper to address issues like the distinction betwee n modes 1 and 2.  Given the discrepancies in that 
regard, he encouraged the Chairperson to consult w ith interested Members with a view to sorting out 
this issue before the September meeting.  Otherw ise, he could anticipate difficulties on that occasion, 
including with the adoption of the agenda.  He added that Brazil would not accept an "à la carte" 
approach to mandates of subsidiary bodies.  If nego tiating issues were to be brought to subsidiary 
bodies, they would need to be brought to all of the subsidiary bodies.   
74. The representative of India
 supported the statement made by Brazil.   
75. The Chairperson  said while some Members considered th at negotiating issues fell within the 
Committee's mandate, others expressed an opposite view.  He said in that regard that he was not 
interested in engaging in a long discussion about the terms of reference of the Committee, which 
would lead the Committee nowhere.  He suggested that  consultations be held on the matter before the 
next formal meeting.   S/FIN/M/49 
Page 14  
 
76. The Committee took note
 of the statements made, and agreed  that the Chairperson held 
consultations as suggested. 
F. ORGANIZATION OF FUTURE WORK  
77. The Chairperson  said that, as announced to Members by fax on 17 June 2005, it was his 
intention to turn the meeting into informal mode, in order to provide delegations with an opportunity 
to exchange views and ideas on the future work of the Committee.   
78. Summing up the brief discussion, the Chairper son said that the communication from Brazil 
would be discussed at the next meeting under the agenda item on technical issues, and encouraged 
Members to make presentations either under that agenda item or under the item on Recent 
Developments in Financial Services Trade.  With re gard to the latter, one delegation suggested that 
Members making the presentations not only highlight recent regulatory changes but also focussed on 
changes to the trade regime for financial services.  The Chairperson also said that, as agreed, he would 
hold consultations on different matters  before the next meeting.   
G. DATE OF THE NEXT MEETING  
79. The Chairperson  suggested that the Committee hold its next meeting during the next cluster 
of services meetings, in September 2005.  The exact  date would be announced in due course.   
80. The Committee so agreed . 
H. OTHER BUSINESS  
81. The Chairperson  recalled that section 18 of the Accession Protocol of the People's Republic 
of China provided for an annual review of the implementation by China of the WTO Agreement and 
of the related provisions of China's Accession Protocol .  As indicated in Section 18, the Committee on 
Trade in Financial Services was one of the bodies in  which this review had to be conducted.  The 
results of the Committee's review would be reported to the Council for Trade in Services.  On previous occasions, the Committee had conducted this review at its last meeting of the year.  This 
year, due to the Ministerial Conference to be he ld in December, the Committee would hold its last 
meeting in September.  Taking that into account, he  announced that the next transitional review of 
China's commitments on financial services would be conducted at the next meeting, in September 
2005, and suggested that the Committee conduct the review following the same procedures as last 
year.   
82. The Committee took note
 of the statements made. 
_________