RESTRICTED  WORLD TRADE  
ORGANIZATION  S/FIN/M/63 
25 June 2010 
 
 (10-3493) 
Committee on Trade in Financial Services  
  
 
 
REPORT OF THE MEETING HELD ON 26 APRIL 2010 
 
Note by the Secretariat
1 
 
1. The Committee on Trade in Financial Services he ld a meeting on 26 April 2010.  It was 
opened by the outgoing Chairperson, Mr. Sudhir Sooklal (South Africa), and then chaired by Ms. Helen Stylianou (Australia).  The proposed ag enda is contained in airgram WTO/AIR/3536.   
A. A
PPOINTMENT OF THE CHAIRPERSON  
2. The outgoing chairperson, Mr Sudhir Sooklal (South Africa), recalled that, according to the 
rules of procedure for meetings of the Council fo r Trade in Services (S/L/15), the handover should 
have taken place at the end of the previous meeti ng of the Committee.  However, since the Chairman 
of the Council for Trade in Services had not finalised his consultations on the chairmanships of the subsidiary bodies at that time, it was decided that  the handover would take place at the beginning of 
this meeting.  Accordingly, he proposed that th e Committee elect Ms. Helen Stylianou (Australia) as 
the Chairperson of the Committe e.  The Committee so decided
.  
B. ACCEPTANCE OF THE FIFTH PROTOCOL TO THE GENERAL AGREEMENT ON TRADE IN 
SERVICES EMBODYING THE RESULTS OF THE FINANCIAL SERVICES NEGOTIATIONS  
3. The Chairperson  recalled that three WTO Members had yet to accept the Fifth Protocol:  
Brazil, Jamaica, and the Philippines.  At the prev ious meeting, these three delegations had informed 
the Committee that they had not been  able to make progress on this issue.  He invited them to provide 
further information on the status of their domestic processes, and give some indication as to when 
they might be able to accept the Protocol.  
4. The representative of the Philippines  said that the ratification of the Protocol to the GATS 
was still under consideration by the Senate.  He  would inform the Committee of any further 
development.  
5. The representative of Jamaica  said that the ratification process was at an advanced stage and 
that it was expected to be concluded in the coming months.  
6. The representative of Brazil  said that the domestic procedures had not yet been concluded, 
and that it was not possible to indicate a precise framework for their completion.   
7. The Chairperson  thanked these delegations for their updates, and encouraged them to 
accelerate their internal procedures for the acceptance of the Protocol.   
                                                      
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/63 
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  8. The Committee took note
 of the statements made and decided  to revert to this agenda item at 
the next meeting. 
C. TECHNICAL ISSUES  
9. The Chairperson  recalled that the Committee had take n three decisions at the previous 
meeting:  first, to go ahead with Pakistan's proposal on e-finance; second, to organize a dedicated 
discussion on the financial crisis;  and, third, to  organize a seminar on trade in non-life insurance 
services.  The decisions on the last two events we re taken as a package, ad referendum, with a 
deadline set on Friday 26 February.  Since no objections  had been received by the agreed deadline, the 
decision stood.  It had been confirmed at the open-ended informal meeting held on 17 March.  
10. She then gave an update on the preparation of  the seminar on non-life insurance services, and 
on the programme envisaged in the proposal on e-fi nance.  The discussion on e-finance (which also 
involved the preparation of a Background Note by the Secretariat) would be held at the first meeting 
of the Committee after the Summer break.  She adde d that the Secretariat had started work on the 
Background Note, that would be made available ahead of the meeting. 
11. The seminar on non-life insurance services would be  held on 28 June.   The Secretariat had 
prepared a draft programme outline that had been  circulated before the informal meeting on 
17 March.  A one-day event was foreseen, open to all Members and observers.  Speakers would include representatives from other international orga nizations, regulators and policy makers, as well 
as private sector representatives.  According to the outline distributed, the seminar would be divided 
into four panels: Panel A on "Economic and comme rcial trends in the non-life insurance sector", 
Panel B on "National experiences with the libera lization of non-life insurance services, Panel C on 
"Challenges raised by the supply of non-life insuran ce in foreign markets", and Panel D on  regulatory 
issues.   
12. She also reminded Members that a decision had b een taken at the informal meeting to provide 
the Secretariat with the names of potential speakers by 16 April.  The Secretariat had received suggestions from some delegations and had alr eady started contacts with these and other potential 
speakers, so as to ensure a successful program.  
13. She then suggested
 that the Secretariat circulate a draft programme at its ear liest convenience.  
The Committee so agreed .  
D. RECENT DEVELOPMENTS IN FINANCIAL SERVICES TRADE  
14. The Chairperson  recalled that at the last meeting the Committee had decided to organize a 
dedicated discussion on the financial crisis, which woul d take place on 29 June.  This decision, which 
had been taken ad referendum, was s ubsequently confirmed at the info rmal meeting of 17 March.  On 
that occasion, the Secretariat had circulated a room document containing a draft outline for the organization of the dedicated discussion.  This ou tline was subsequently circulated, giving Members a 
deadline for submitting comments.  Only one delegati on – Canada – had submitt ed suggestions by the 
deadline, subsequently circulated with a new deadline for comments ( 21 April).  By the new deadline, 
a communication was received from the delegations of  Argentina, Ecuador, India and South Africa, 
supporting Canada's suggesti ons for paragraphs 2(b) and 2(b)(vii) of the draft outline, but objecting to 
the text suggested in item 2(b)(vi) of the outline.  
15. In an attempt to solve the impasse, the Chairp erson had held consulta tions with those five 
Members.  As a result of the consultations, the te xt of the outline was amended.  Canada’s proposal 
for paragraph 2(b)(vi) was replaced by a new subpa ragraph 2(d)(ii) proposed by Argentina, Ecuador, 
India and South Africa.  Copies of this new vers ion were made available to Members during the  S/FIN/M/63 
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  meeting as a room document.  In the Chairperson's view, the new text represented a good 
compromise.  
16. The Chairperson suggested that , since the decision to hold the dedicated discussion on the 
financial crisis had already been taken, the Comm ittee adopted the proposed outline as revised.  The 
Committee so agreed .  She added that the Secretariat would circulate the final version in the three 
official languages.  
17. The Committee took note  of the statements made and decided  to revert to this agenda item at 
the next meeting, which will be devoted to th e dedicated discussion on the financial crisis.  
E. FINANCIAL SERVICES – BACKGROUND NOTE BY THE SECRETARIAT   
18. The Chairperson  recalled that a decision had been taken at the last meeting to postpone 
discussion of the Background Note until this meeting.   She also recalled that these Secretariat Notes 
were intended to provide a basis for Members' discussions, but should not be the sole focus of 
attention – Members should offer their own written s ubmissions, contributions and comments.  In line 
with usual practice, she first invite d the Secretariat to present the Note. 
19. A representative from the Secretariat  explained that the Background Note on financial 
services was part of the ongoing process of sectoral discussion in the Council for Trade in Services.  
The Note had been prepared for that purpose and according to the parameters for that exercise.  
However, upon Members' request, the Note had also  been placed on the agenda of this Committee.  
The last two years had been very eventful for the financial services sector.  The Note looked at 
developments in the sector, and focused on those aspect s that were most related to trade in financial 
services and the GATS.  However, the Note was not meant to provide a comprehensive account of the 
sector itself.  He recalled that following discussions  at the Committee regarding a possible Note on the 
GATS provisions particularly relevant to financial services, the Secretariat had responded at the time 
that this Background Note could address that idea to a very large extent.  It was also agreed that this 
particular aspect could be further supplemented if Members so wished.  
20. He further explained that the Note was divide d into five sections.  The first section looked 
into GATS provisions of particular relevance to fi nancial services.  The seco nd section looked at the 
economic importance of the sector, both in terms of  its contribution to overa ll economic activity, and 
its share of world trade.  Section three discussed the long-term trends shaping the sector.  Section four 
was devoted to the financial crisis – its origins,  effects, and the policy response by Governments. 
Section five described the coverage, level and type of current commitments in financial services.  An 
Annex to the Note discussed classification issues. 
21. Before opening the floor for discussion, the Chairperson  said that in her view this was a 
comprehensive and thought-provoking paper.  She wa s particularly struck by the observation that 
WTO Members had made more commitments in the fi nancial services sector than in any other, except 
tourism.  The discussion on the types of commitments made was also quite interesting.  She noted in 
particular the observation by the Secretariat, in paragraph 145 of the Note, that financial services 
commitments tended to be particularly “wordy” maki ng them more difficult to analyse, or at least 
categorise.  In some cases, Members had scheduled  measures that were not required.  She wondered 
in that regard whether Members had done that becau se of a misunderstanding of their obligations or in 
order to be on the safe side.  It would be interesti ng to hear delegations' views on this subject and, of 
course, on the many other issues raised  in this significant piece of work. 
22. The representative of Ecuador  said that the document prepared by the Secretariat enabled 
Members to have an overall and complete vision of the financial services sector.  The Note did not 
simply provide a general picture of the sector – its importance, its relationship with the GATS, and the S/FIN/M/63 
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  type of commitments made by Members – but also  looked into the financial crisis.  The Committee 
could not avoid discussing issues related to the fina ncial crisis.  His delegation was particularly 
grateful for the efforts made by the Secretariat in th is regard.  The relevance of the issues covered by 
the Secretariat Note deserved careful analysis by Members.  His authorities were pursuing such an 
analysis.  Nevertheless, he referred to some of the points contained in the document.   
23. In the section on the GATS provisions concerning payments, transfers, and capital 
movements, it was said that according to Article XI :1, a Member should not maintain restrictions on 
transfers and payments for current transactions wh en it took a commitment in the area of financial 
services; and that these restrictions could not be included either as limitations in the schedule of 
specific commitments.  In addition, by virtue of Article XI:2, Members were obliged not to impose 
restrictions on capital transactions in a way incons istent with the specific commitments they had 
assumed with regard to such transactions, unless under Ar ticle XII.  However, the financial crisis had 
renewed the relevance of measures tending to regulate internatio nal capital flows in order to reduce 
the risks raised by such flows.  It was therefor e a source of concern that some measures might be 
considered as restrictions, and therefore contrary to the GATS.   
24. As indicated in paragraph 91 of the Secretaria t Note, financial markets had become more and 
more complex as a result of a radical increase in financial innovation.  The emergence of new and 
complex financial products, which very often exceeded  the regulatory capacity of States, had been 
identified as one of the triggers of the current fina ncial crisis.  The prohibition of supplying some of 
the most problematic of these financial products wa s, in his view, a measure which a Member could 
adopt in the exercise of its regulatory capacity.  However, such a prohibition could constitute a 
limitation on the supply in a sector in which th e Member might have taken a commitment;  a 
limitation which, as contemplated in the GATS, s hould have been included in the Member's schedule 
of commitments.  Therefore, Members would need to anticipate the types of services that might be 
prohibited, and include the limitations in th eir schedules of commitments accordingly.   
25. Taking into account the origins and the effects of  the financial crisis, he said that it was 
imperative that Members had sufficient policy space to  be able to adapt their regulation to the fast 
changing financial services, without this implying a violation of their commitments.  Commitments 
must not become an obstacle to Members' efforts to strengthen financial sector regulation.  Additionally, Members regulatory capacity with re gard to the implementation of non-discriminatory 
measures could be further limited by the obligatio ns resulting from Article XVI:2 of the GATS.  
26. Paragraphs 28 to 32 of the Note dealt with the prudential exception contained in 
paragraph 2.a) of the Annex on Financial Services.   The Note made reference to the opinion of 
various authors favouring a broad interpretation of  this exception, as giving Members considerable 
autonomy to apply financial regulati ons.  He said that there were, ho wever, diverging views regarding 
the degree of discretion allowed in this area.  And these divergent opinions were based on the uncertainty brought about by the second part of para graph 2.a) of the Annex, which served to qualify 
the exception.  For this reason, and due to the fact that this provision had not yet been interpreted in 
WTO jurisprudence, he believed that caution shou ld be exercised before putting forward views 
regarding its true scope.   
27. To conclude, he said that the Secretaria t should have also c overed some of the 
recommendations contained in the report of the Commission of Experts of the President of the UN General Assembly on Reforms of the Internationa l Monetary and Financial System.  That report  
referred, inter alia,  to the role played by the liberalisation of financial markets in exposing developing 
countries to greater risks, to the quick spread of  the crisis throughout the world as a result of the 
commitments assumed under the GATS, and to the constraints imposed by the GATS on Members' 
ability to regulate the operation of financial institutio ns and instruments, and to revise their regulatory 
structures with a view to promoting growth, equity, and stability.  The report also recommended to re- S/FIN/M/63 
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  examine the multilateral agreements promoting greater liberalization of financial services and flows in 
terms of their effects on the balance of payments, and their impact on macroeconomic stability.  In his 
view, the recommendations put forward by this Co mmission, in which experts from throughout the 
planet had participated, should not pass unnoticed.  
28. The representative of Argentina  echoed Ecuador in congratulating the Secretariat for the 
Background Note on financial services.  In his view, the Note demonstrated that the Secretariat had 
the competence to grapple with the complex issues raised by trade in financial services.  He was 
particularly grateful for the inclusion of a section on the GATS disciplines relevant to trade in financial services, which was something that had been requested by various delegations during 
previous meetings.  He then turned to the section of  the Note dealing with the financial crisis.  In 
paragraph 96, the Secretariat stated that none of the root causes of the financial crisis could be 
attributed to services trade liberalization as provide d for in the GATS, namely granting market access 
and national treatment.  Additionally, as expressed in  paragraph 117, the financial crisis did not seem 
to have prompted a widespread introduction of trade restrictions in financial services.  In his view, 
this reaffirmed the importance of the WTO system in helping contain protectionist pressures and in 
maintaining commitments negotiated multilaterally.   
29. Still, as stated in paragraph 120 of the Note, many of the measures taken in response to the 
financial crisis constituted a form of subsidy, with potential effects on competition.  This fact pointed 
to the need to move forward in negotiating discip lines on subsidies affecting trade in services, as per 
the mandate contained in the GATS.  Furthermore it also underscored the importance of analysing the 
effects of the recently adopted measures, in part icular their effects on competition in financial 
services, as had been proposed by Argentina, Ecuado r, India, and South Africa some time ago.  The 
Secretariat Note included references to studies that had looked into the effects of these measures on capital markets.  In his view, the dedicated discussi on to be held within the Committee would provide 
a good opportunity to discuss these issues and bette r understand the effects of such measures.  
30. Summing up, he said that as shown by the Secretariat Note, if not properly regulated, 
financial services might cause financial instability a nd affect other sectors of the economy.  Secondly, 
there must be more and better regulation, both domest ically and internationally.  Thirdly, it should be 
stressed that surveillance could help avoid crises.  Fourthly, international fina ncial transactions were 
extremely complex and therefore required solid superv isory institutions.  Finally, liberalization must 
be accompanied by efforts to avoid contagion.  
31. The representative of Australia
 congratulated the Secretariat for the Note, which was very 
useful and timely.  She agreed with the view put forward in the Note that, while the prudential carve 
out afforded Members a high level of discretion, it did not permit measures that were purely or 
primarily protectionist in effect.  In the opinion of the Australian Treasury, that was a very useful distinction to make when considering the role of the GATS in financial services trade.  She suggested 
that, given the timely discussion of the financial crisis  in the paper, that at the dedicated discussion on 
the financial crisis and trade in financial services, the Secretariat made a presentation on the basis of 
section 4 of the Note, which was entitled "Financial cr isis, origins, effects and policy actions".  She 
would be interested to hear the views of others on that proposal. 
32. The representative of Turkey
 thanked the Secretariat for the comprehensive paper.  The 
financial crisis had showed the ga ps of, and the need for, regulatory cooperation at the international 
level.  As a member of G20, her country was activ ely taking part in the efforts to overcome the 
challenges brought about by the crisis and to prevent future crises.  She said that it was important to 
identify and control the risks stemming from ne w financial products, by applying a "controlling 
approach", rather than a "prohibition approach ", since prohibiting such products might hinder 
innovation.  This might have a ne gative impact on the credit market and, through the credit market, on 
the real economy.  Apart from the excessive risks ta ken by certain banks, shortcomings in financial S/FIN/M/63 
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  sector supervision was also to blame for the crisis .  Improving the current supervisory approach might 
be a solution to prevent such crises in the future.  In her view, the financial sector in Turkey had not 
been affected by the crisis because, first, mortga ge credits and derivatives products did not account for 
a major part of banks' assets; and second, after 2001, bad bank assets had been replaced and 
problematic banks liquidated – the num ber of banks operating in Turkey  had dropped from 80 to 50.    
33. The representative of China
 said that the Note by the Secretariat was comprehensive, thought-
provoking, and a good basis for Members' discussions at the Committee.  It was China's expectation 
that Members would deepen their discussion on the i ssues raised in the Note.  She then made some 
comments. 
34. First, she said the financial sector was of the utmost importance for every Member and the 
world at large.  It was indispensable for economic growth and social development.  However, this 
systemic importance also implied that damages caused by malfunctioning or systemic failures might be catastrophic for the whole economy.  The Note by the Secretariat also recognised the problems 
raised by financial systems' periodic deviations from the right track.  Understanding the nature and 
characteristics of this important sector was still an im portant task for regulators.  A relevant question 
in this context was what the appropriate level of financial sector development was, in terms of the 
need for promoting the sound development of real  economies.  Thus, China proposed to promote 
studies and deepen discussions among Member s on these issues at the Committee.   
35. Second, China recognised the differences in fi nancial sector developm ent between developed 
and developing countries.  In de veloping countries, lack of financial services was a hindrance to 
economic and social development, affecting small and medium sized companies, agriculture sectors 
and households.  Even in devel oped countries, small and medium sized companies, as well as 
households, usually found it difficu lt to have access to needy financial services, such as banking 
credit.  Although national authorities might be alre ady taking this issue into account, the Committee 
had a responsibility to ensure that  trade in financial services was u sed to promote access to finance, 
and therefore development.  She suggested in that  regard that the Committe e focused its discussions 
on this topic, with the help of the Secretariat, which could prepare further background studies to 
facilitate Members' discussions.  
36. A third important issue to consider was the re lationship between financial sector opening and 
economic development.  Although th e general conclusion drawn by the Secretariat in its Note was 
that opening up of financial sectors was not direc tly related to the current financial crisis, the 
experiences of different regions differed significantl y.  It was a common view that the opening up of 
financial sectors should be in line with the country's  level of economic devel opment.  Opening up too 
fast, especially in the case of capital markets, s hould not be recommended to countries in an early 
stage of development.  In her view, the Committe e should discuss, and provide guidance to Members 
on issues such as the appropriate level of financia l sector openness in light of countries' economic 
development.   
37. Fourthly, she turned to the current financial cr isis.  At a time where economies were starting 
to recover from the seemingly most devastating economic  and financial crisis of the last century, it 
was important to reflect on its causes, with a view to drawing lessons in order to avoid future crises.  In her view, the Note by the Secretariat had right ly identified the prime reason or the root causes of 
the crisis, namely, the unprecedented expansion of leverage in the financial system, fuelled by 
expansionary monetary policies in industrialized mark ets that led to historically low interest rates.  
Another fundamental feature of the current cris is was the apparent failure of regulators and 
supervisors to restrain excessive risk taking.  Ch ina supported financial regulatory reform initiatives at 
both the national and international level.  She e xpressed the hope in that regard that the Committee 
also contributed to discussions on this issue, partic ularly taking into account that the development of 
sound financial systems would surely be benefi cial to trade in financial services.    S/FIN/M/63 
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  38. Fifthly, she noted a trend towards concentrati on in financial sectors, especially in developed 
countries.  In her view, the Committee should discuss  how to address the issue of competition in this 
sector.  She concluded that, in addition to th e topics previously outlined, the Committee should 
perhaps address a technical issue, namely the distin ction between modes 1 and 2 in the case of  cross-
border financial transactions conducted through electronic means.  
39. The representative of Chile  commended the Secretariat for the comprehensive and high-
quality Background Note, which raised many issues th at could be further explored by the Committee.  
He found the section on GATS provisions very interes ting, with clear and precise explanations about 
the application of different provisions to trade in fi nancial services.  Referring in particular to the 
analysis of the so-called prudentia l carve-out, he said that his delegation agreed with the interpretation 
given by the Secretariat of its scope of appli cation and coverage.  Sec ondly, section IV of the 
document provided an interesting and thorough account of  the crisis, with particular reference to its 
origins, causes, effects, and the potential role play ed by the GATS or by specific commitments in the 
outbreak of the crisis.  He agreed with the st atement in paragraph 96 re garding the relationship 
between liberalization of trade in financial servi ces, as understood by the GATS, and the financial 
crisis.  This issue would certainly be further e xplored in the dedicated discussion on the financial 
crisis that would be held in J une.  Another important issue in hi s view was the relationship between 
regulation and market access.  The experience of Ch ile in the last twenty years – liberalizing the 
sector and introducing at the same time proper fi nancial regulation – was worth exploring.  As 
confirmed by the Secretariat Note, the evidence show ed that both liberalization and regulation should 
go hand in hand.  In concluding, he said that some of  the topics raised in the Secretariat Note – such 
as the relationship between modes 1 and 2 – shoul d be further explored by the Committee.   
40. The representative of Japan  said thanked the Secretariat for producing an informative and 
thoughtful paper on trade in financial services.  In his view, it provided a good basis for discussion 
among Members in the Committee.  Commenting on the paper, he agreed with the Secretariat that 
none of the root causes of the financial crisis could be attributed to financial services trade 
liberalization as provided for in the GATS.  Resor ting to protectionist measures or backtracking from 
liberalization commitments under the GATS would be detrimental to the efforts undertaken 
worldwide to overcome the financial crisis.  The Secretariat Note also included an interesting 
discussion on financial regulatory form in internationa l fora.  In his view, this was an issue to take 
into account since improperly strengthened financial regulations could impede the liberalization of 
trade in financial services.  In order to address su ch concerns, it would be useful for the relevant 
international standard-setting bodies, such as the Fi nancial Stability Board, to exchange information 
with the WTO while implementing such financial regulatory reform.  This information exchange 
would also help WTO Members clarify the scope of prudential measures.   
41. The representative of Hong Kong, China  said that the Secretariat Background Note was an 
excellent piece of work.  As an international fina ncial centre and a regional hub of financial services, 
Hong Kong, China fully recognised the significant role  played by the financial services sector in 
economic development.  His delegation had a keen interest in the financial services negotiations and 
believed that commitments in financial services woul d  form a key  component in any final package 
that could be envisaged for the services negotiations .  He said that the environment in which the 
financial services industry operated and the industry it self  had undergone dramatic changes in the last 
decades, which were outlined in sec tions II and III of the paper.   
42. Section IV of the Background Note dealing with the financial crisis was particularly timely 
and pertinent.  Naturally, the factors behind the cr isis, the policies in res ponse to it, as well as the 
possible new rules of the game were topics of great relevance and interest.  He appreciated the sound 
account provided by the Secretariat of the facts leadi ng to the crisis, and the actions taken in response 
to it.  He echoed the assessment of the Secretaria t that based on the available evidence none of the 
root causes of the financial crisis could be attribut ed to services trade liberalization as provided for in S/FIN/M/63 
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  the GATS.  He also noted that malfunctions of the financial services sector in recent years seemed to 
be related to inconsistencies in th e sector and regulatory loopholes.  He agreed with the view that the 
crisis could not be attributed to the i nvolvement of foreign financial institutions per se .  He noted that 
while the financial crisis did not seem to have prom pted widespread introduction of trade restrictions 
in financial services, some of the financial s upport programmes and similar measures introduced by 
Members in response to the crisis might have aff ected the conditions of competition in financial 
markets.  This was an issue that Members should continue to give attention to.   
43. The representative of the United States
 said that the Secretariat had done a first-class job in 
producing this report, which was indeed very helpful.   In particular, Section I provided an interesting 
legal analysis, which constituted a good basis fo r Members' discussions, a lthough his delegation did 
not necessarily endorse every aspect and detail of the analysis.  As others, he also agreed with the 
statement in paragraph 96 that the root causes of the crisis were to be found in failures of 
macroeconomic policy, namely excessive liquidity, and failures of regulation, where regulators did 
not keep pace with financial market developments.  These aspects had very little, if anything, to do 
with financial services liberalization as defined by the GATS.  He added that the US GATS 
commitments had not contributed in any way to the current situation; nor had they constraint the 
policy actions taken to respond to the crisis.  Fi nally, section V of the paper (paragraph 147) showed 
that current commitments did not reflect the actual level of liberalization in a number of Members.  
This gap created uncertainty for foreign investors and service suppliers.  Updating schedules to reflect 
current practice would therefore support trade in fi nancial services and recovery from this crisis.  
44. The representative of Brazil  congratulated the Secretariat for an excellent Background Note.  
The Note raised very important i ssues, such as the relevance of ade quate regulation for the opening of 
this sector, and the discussion on modes 1 and 2.  The latter was a topic of particular interest to Brazil, which should be further elaborated on.  He agreed  with the suggestion made by China to further 
discuss the relationship between the opening of the sect or and economic development.  He also agreed 
with the point made by Japan about the importance of exchanging information and cooperating with 
international institutions, such as the Financial Stab ility Board, which would be very useful for both 
the WTO and those institutions. 
45. The representative of Switzerland
 commended the Secretariat for the Note, which focused on 
what was essential for this Committee, i.e. trade in  financial services, and that was complemented by 
pertinent data.  Although the financial services sector  had attracted more commitments than any other 
with the exception of tourism services, it was not only the quantity of commitments, but also their 
quality which mattered.  If the quality of comm itments was considered, the picture was less 
impressive.  In this context, when counting the number or proportion of "full" commitments, 
horizontal limitations should also be taken into account in order to have a complete picture.  It was 
worth recalling in that regard that this sector benefited also from a prudential exception, which 
allowed a larger room of manoe uvre when making commitments.   
46. The main lesson that could be drawn from th e financial crisis was the importance of sound 
regulation and supervision, partic ularly in this sector.  Besides regulation and supervision, it was 
important also to supervise and contain the behaviou r of financial market participants.  The causes of 
the crisis were certainly to be found not only in re gulatory and supervisory flaws, but also in excesses 
on the part of financial market operators.  The fina ncial sector was there to serve the real economy.  
47. Turning to the prudential carve-out (paragraph 2(a) of the Annex on Financial Services), he 
said that, as stressed by Ecuador, it was important to bear in mind that the absence of jurisprudence in 
this area left - from a juridical point of view - grey areas.  He congratulated the Secretariat for 
paragraphs 30 and 31 of the Note, which contained a balanced presentation of this provision.  It was 
clear that paragraph 2(a) of the Annex was the outcome of a compromise.  The most important issue in his view was certainly how to interpret the second sentence of paragraph 2(a) of the Annex on  S/FIN/M/63 
 Page 9 
 
 
  Financial Services.  There were in fact two speci fic issues involved here:  (1)  Does a particular 
measure fall under the scope of the first sentence of paragraph 2(a)?;  (2) If so, it conform with the 
second sentence of paragraph 2(a)?  The first ques tion was very important:  clarifying whether a 
measure was prudential or not.  Only in this case it was possible to turn to the second issue.  In his 
view, these two-pronged approach had not been really addressed in the paper.   
48. Turning to paragraph 96 of the paper, he noted, as the United States, that specific 
commitments had not contributed to the crisis, nor ha d they constraint his country's capacity to take 
the measures needed to counter the effects of the crisis.  In light  of paragraph 120 and footnote 89, 
which he found very pertinent, it was clear that wh ether the measures taken in response to the crisis 
had led to distortions of competition remained an open question, which had no t been finally settled.  
He took issue, however, with paragraph 138, which in  his view was not consistent with the previous 
sections.  In particular, this para graph did not reflect his delegation' s interpretation of paragraph 2(a) 
of the Annex on Financial Services.   
49. The representative of the European Union  said that the Background Note was interesting and 
informative.  He made a few observations, though.  First, given its length, it would have been helpful 
to have an executive summery at the beginning, highlighting the most important findings.  Second, 
taking into account previous discussions at the Comm ittee, the Note would have been benefited from 
a section on Islamic finance.  Finally, while discussi ng the policy measures in response to the crisis, it 
could have also benefited from a reference to  the potential consequen ces of not having those 
measures.   
50. The representative of Chinese Taipei  thanked the Secretariat for producing a very 
comprehensive and informative paper.  He noted  in particular that, except for recently-acceded 
Members, current commitments did not reflect actual levels of liberalization.  Members were in fact more open in reality than they had committed at the WTO.  He therefore encouraged Members to 
improve their commitments, so that trade in financia l services were more predictable and transparent.  
He finally noted two omissions in the paper;  in  paragraph 139, a reference was made to a Box 3, 
which was not reproduced, and Chinese Taipei did not appear in Table 1.  
51. The representative of South Africa
 thanked the Secretariat for an excellent Note.  He echoed 
the comments made by the representatives of Argentina and Ecuador.  He said that simply stating at the meeting, as many delegations had done, that libe ralization did not lead to the crisis did not mean 
that this message, which seemed to be a prevailing view among many, was right or indeed true.  
While not wanting to take sides, he said that it  would be foolish to ignore that some eminent 
economists and academics had argued that liberalization did play a role in the outbreak of the crisis 
and its aftermath.  Most notably, Professor Joseph St iglitz had argued very stro ngly along these lines.  
After the general elections last year, the South A frican Government had established a new Ministry of 
Economic Development;  its advisory committee, wh ich included Mr. Stiglitz as a member, would be 
a very strong driving force in economic policy making in South Africa.   
52. He noted the point made by some that current commitments on financial services did not 
reflect the level of liberalization in many Members.  However, it would be unfair in his view to make 
such a statement without recognising at the same ti me that status quo regimes might suffer from lack 
of regulation, under-regulation or no regulation at all, due to the lack of regulatory capacity in many 
countries.  It was inappropriate to simp ly demand commitments from Members without 
acknowledging these problems in many developing countries.    
53. He also said that the paper did a very good job in summarising the discussion held thus far on 
the distinction between modes 1 and 2.  He was actua lly surprised to realize that this discussion went 
back more than 10 years and no further work had been done since then.  That was all the more 
surprising taking into account the requests made in the DDA, particularly in financial services.  It S/FIN/M/63 
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  would be naïve in his view to expect Members to make commitments on these two modes without 
having addressed this issue first.  
54. The representative of Jordan
 thanked the Secretariat for its  informative and comprehensive 
paper, and noted that Jordan did not appear  in Table 2.  The representative of Pakistan  also noted that 
his country was not mentioned in Tables 1 and 2 of the paper.  
55. The Chairperson  requested the Secretariat to respond to issues raised during the discussion, 
and to provide some guidance on how to take forward the various proposals made. 
56. A representative of the Secretariat  agreed that the so-called prudential carve-out had never 
been subject to any legal interpretation in the WTO.   However, it was necessary, even in the course of 
the technical assistance provided by the Secretariat,  to explain the Agreement in the clearest way 
possible.  In order to do so, the Secretariat had al ways paid attention to the broader context and the 
purpose of such a provision.  He explained that paragraph 2 of the Annex on Financial Services was 
an exception provision, which, as in any treaty,  parties would have recourse to only once the 
inconsistency of a specific measure with one of the party's obligations  had been established.  That was 
the threshold question that needed to be addressed.  If a measure was found not to be consistent with 
any of the Agreement's provisions, the analysis mu st then turn to the conditions specified in 
paragraph 2 for the measure to be considered as  a measure taken for prudential reasons.  This 
paragraph did not contain a defin ition of prudential measures, but only a description of the objectives 
behind the measures; while the second sentence of para graph 2 introduced some sort of parameter for 
the use of the exception.  As explained in paragr aphs 30 and 31 of the Background Note, instead of a 
necessity test as in Article XIV of the GATS, the ca rve-out states that Members should not use this 
provision as a means of avoiding their obligations  and commitments under the GATS.  Even in the 
absence of jurisprudence or authoritative legal interpretations, one coul d still draw one's own 
conclusions as to the legal interpretation, based  on  common sense and on the general customary 
principles of public international law.  The GATS, lik e any other treaty, needed to be interpreted and 
implemented in good faith.   
57. Another interesting issue to look at is th e relationship – or lack thereof – between 
liberalization and the crisis.  In his view, confus ion arose sometimes because liberalization was not 
distinguished from deregulation.  It was important th erefore to pay close attention to what was meant 
by liberalization in different analyses.  The Secr etariat focused, in accordan ce with the GATS, on the 
provision of market access and na tional treatment.  From what he had heard in the debate, there 
seemed to be a great deal of concurrence among Members that market access and national treatment 
commitments as defined in the GATS were not among the root causes of the crisis.  
58. Turning to suggestions for further work regarding,  for example, the role of the financial sector 
in the process of economic development, or even th e counterfactual situation – i.e. what would have 
happened if the rescue measures had not been taken – he said that these issues might benefit a lot from 
discussion in the Committee, and from cooperation with other international organizations.  In light of 
the broad agenda that seemed to be forming up, he suggested that the Chairper son held some informal 
consultations with Members to see how to take th ese issues forward.  In any case, this would not 
exclude any subsequent work by the Secretariat. 
59. Another representative of the Secretariat turned to specific points raised during the discussion.  
Commenting on the issue raised by Switzerland about horizontal limitations in schedules of commitments, he agreed that horizontal limitations did qualify all sectoral commitments that 
followed.  Nevertheless, the Secretariat had prefer red not to take them into account in its general 
analysis of commitments at the end of the documen t, because that would have made all commitments, 
particularly those in mode 3, appear as "partial", wh ile in fact many of the horizontal limitations on 
mode 3 did not seem to have a direct impact on the financial services sector.  Secondly, he clarified  S/FIN/M/63 
 Page 11 
 
 
  that there was no Box 3 in the document.  Regard ing the comments made by  Chinese Taipei, Jordan 
and Pakistan about the omission of these Members from the Tables containing information on the share of the financial sector in employment and GDP,  he said that this information had been taken 
from databases of international organizations such  as the ILO, OECD and the United Nations, which 
apparently did not cover those three Members.  
60. In concluding, the Chairperson
 said that she would hold some informal consultations on how 
to proceed with regard to the proposals made at this meeting.  
61. The Committee took note  of the statements made.  
F. OTHER BUSINESS . 
62. There was no issue raised under this agenda item.  
 
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