The proliferation of PTAs in LCR, as well as their explicit coverage of financial services in recent years, is leading to the emergence of an increasingly complicated ‘commitments map’ of financial services (see Figure 2) akin to the aforementioned regional “spaghetti bowl” of PTAs. However, as Roy M., Marchetti J. and Hoe Lim A. (September 2006) note, concerns about complexity in services agreements do not relate as much to rules of origin as to the differing market access granted under various PTAs.

In general, the use of one type of coverage over another can be seen as relating to the importance given to financial services by participating countries. As can be seen in Table 3, North-South FTAs primarily tend to cover financial services directly – in fact, virtually all trade agreements involving the US and the EU have developed financial services chapters. This is a strong indication of the importance of ‘offensive’ interests by a trading partner’s financial services industry<sup>41</sup> that, coupled with potentially strong (and asymmetric) bargaining power, can force these services to be explicitly and comprehensively covered in a FTA. This is also confirmed by the fact that – with the exception of Central American countries<sup>42</sup> – most foreign bank assets in LCR countries belong to banks that are headquartered in a developed country (typically the US, Canada or Europe), as can be seen in Figure 4 below<sup>43</sup> ; a similar picture would emerge if this exercise was undertaken for foreign insurance companies.

The NAFTA was the first FTA by a LCR country that included trade in financial services within its scope and devoted a specific self-contained chapter to such trade. Subsequently, Mexico has been a key player in incorporating financial services in its preferential trade agreements; of the twelve PTAs (all are FTAs) entered into by Mexico, seven contain a financial services chapter. However, it is worth noting that the majority of these agreements date back to the immediate post-NAFTA period, i.e. before Mexico’s domestic financial services industry – which was significantly weakened by the 1995 tequila crisis – was (to a large extent) acquired by foreign investors.

Panama, which is an offshore financial center, is the only other LCR country that has included a financial services chapter in its South-South agreements. This is not surprising: as can be seen from Figure 3 below, most LCR countries are net importers of financial services (at least in mode 1)<sup>44</sup> , have few – if any – perceived ‘offensive’ interests linked to a “ _demandeur_ ” or domestic constituency, and there is therefore limited scope for – or interest in – reciprocal exchanges of concessions in the sector.

> 41 Establishing a framework of principles for financial services trade and achieving national treatment and greater market access for US financial institutions in key markets has been a goal of US trade policy since the early 1990s – see Wagner C. (Winter 1999). This is corroborated by data from the _Bureau of Economic Analysis_ (http://www.bea.gov/bea/di/1001serv/intlserv.htm) showing that the US has a trade surplus with Latin American countries in insurance and other financial services.

> 42 This ‘contrarian’ trend in Central America is likely to change going forward as a result of the recent purchase of some of the main regional banking groups by HSBC and Citigroup.

> 43 Although not shown in this paper, an exercise using indices of revealed comparative advantage á-laBalassa yielded similar results for most LCR countries.

> 44 As previously mentioned, balance of payments data is insufficient to adequately capture the size and direction of financial services trade, particularly for mode 3. A crude measure for the latter can be derived from net financial services FDI or the market share of foreign players in different financial sub-sectors.

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