FINANCIAL SECTOR FINANCIAL SECTOR REGULATION AND THE REGULATION AND THE

GATSGATS

PRESENTATION BYPRESENTATION BY

SEBASTIAN SAEZSEBASTIAN SAEZ

CONSULTANT CONSULTANT Views expressed are personal

GENEVA – 29-30 MARCH 2004

REGULATION AND ITS REGULATION AND ITS TRADE IMPACTTRADE IMPACT

Market Access and National Market Access and National Treatment commitments do not Treatment commitments do not provide effective access to market; provide effective access to market;

Non discriminatory regulations may Non discriminatory regulations may act as a deterrent to trade in services; act as a deterrent to trade in services;

Issue is relevant to developing Issue is relevant to developing countries: the sum of all regulatory countries: the sum of all regulatory cost is equivalent to a specific tariff cost is equivalent to a specific tariff on services export;on services export;

Asymmetric impact of regulations on Asymmetric impact of regulations on trade opportunities; trade opportunities;

Need for review of regulations and Need for review of regulations and institutional environment. institutional environment.

THE ROLE OF THE GATS THE ROLE OF THE GATS IN FINANCIAL SERVICES IN FINANCIAL SERVICES

LIBERALIZATIONLIBERALIZATION

GATS and macroeconomic policy GATS and macroeconomic policy management: management: “ “ These types of interactions (the impact of These types of interactions (the impact of

macroeconomic policy in trade in services) macroeconomic policy in trade in services) fall fall entirely outsideentirely outside the ambit of the GATS the ambit of the GATS” (WTO, ” (WTO, Secretariat, 1997).Secretariat, 1997).

GATS and prudential regulation in the GATS and prudential regulation in the financial service sector: financial service sector:

“ “ As with macroeconomic policy management, GATS As with macroeconomic policy management, GATS commitments commitments do not in any way curtaildo not in any way curtail the scope the scope for prudential regulationfor prudential regulation” (WTO, Secretariat, 1997).” (WTO, Secretariat, 1997).

THE ROLE OF THE GATS THE ROLE OF THE GATS IN FINANCIAL SERVICES IN FINANCIAL SERVICES

LIBERALIZATIONLIBERALIZATION

GATS and other policy objectives: GATS and other policy objectives: “ “ If they are neither discriminatory, nor intended to If they are neither discriminatory, nor intended to restrict the access of suppliers to a market, then restrict the access of suppliers to a market, then such non-prudential domestic regulatory measures such non-prudential domestic regulatory measures fall within the ambitfall within the ambit of GATS Article VI disciplines of GATS Article VI disciplines ” (WTO, Secretariat, 1997).” (WTO, Secretariat, 1997).

GATS and trade liberalization: Article GATS and trade liberalization: Article XVI and Article XVIIXVI and Article XVII

““It is the reduction and elimination of these It is the reduction and elimination of these measures that constitute the measures that constitute the primaryprimary focus of the focus of the trade liberalization efforts of the GATStrade liberalization efforts of the GATS” (WTO, ” (WTO, Secretariat, 1997).Secretariat, 1997).

FINANCIAL SERVICES AND THE FINANCIAL SERVICES AND THE GATSGATS

Financial services sector is blessed with Financial services sector is blessed with a curse; a curse;

The The cursecurse: it is the only service sector : it is the only service sector that plays a double function as a central that plays a double function as a central piece of the overall macroeconomic piece of the overall macroeconomic performance of a country and at the performance of a country and at the same time at the microeconomic level, same time at the microeconomic level, as a key tool for an efficient resource as a key tool for an efficient resource allocation; allocation;

The The blessingblessing: this characteristic has : this characteristic has always attracted a great deal of always attracted a great deal of attention and it is a sector where attention and it is a sector where regulatory matters have been regulatory matters have been extensively studied and constantly extensively studied and constantly reviewed. reviewed.

FINANCIAL SERVICES AND THE FINANCIAL SERVICES AND THE GATSGATS

Remaining problems: Remaining problems:

Standard-setting organization Standard-setting organization membership and effective membership and effective participation imperfect;participation imperfect;

Regulatory standards describe Regulatory standards describe elementselements that a financial system that a financial system should have;should have;These standards are minimum These standards are minimum conditions, and stronger regulations conditions, and stronger regulations are still necessary.are still necessary.

Role of WTO remain relevant to Role of WTO remain relevant to provide a confident framework for provide a confident framework for further liberalization.further liberalization.

FINANCIAL SERVICES AND THE FINANCIAL SERVICES AND THE GATSGATS

Maintain a clear and structural Maintain a clear and structural separation between financial separation between financial services liberalization and services liberalization and macroeconomic management. Focus macroeconomic management. Focus on microeconomic objectives;on microeconomic objectives;Carve-out for prudential measures;Carve-out for prudential measures;Article XVIII as a tool for dealing Article XVIII as a tool for dealing with regulation; with regulation;

Bilateral initiatives have shown that Bilateral initiatives have shown that it is very difficult to address it is very difficult to address regulatory issues;regulatory issues;Article VI practical problems;Article VI practical problems;Initial steps: transparency and Initial steps: transparency and procedural matters; procedural matters;

FINANCIAL SERVICES AND THE FINANCIAL SERVICES AND THE GATSGATS

SOME CRITERIA FOR SOME CRITERIA FOR DEVELOPING DISCIPLINES; DEVELOPING DISCIPLINES; Should be simple, non-prescriptive, Should be simple, non-prescriptive, in order to reflect the particular in order to reflect the particular legal context of countries and avoid legal context of countries and avoid excessive cost of implementation; excessive cost of implementation; In cases where new legislation is In cases where new legislation is necessary, due respect for internal necessary, due respect for internal procedures should be allowed; procedures should be allowed; Regulators must remain powerful Regulators must remain powerful and be perceived as powerful; and be perceived as powerful; Disciplines need to provide Disciplines need to provide confidence to promote further confidence to promote further liberalization.liberalization.