Memorandum on Leaked TISA Financial Services Text

Professor Jane Kelsey, Faculty of Law, University of Auckland, New

Zealand
This memorandum rovides a reliminary analysis of the leaked
financial services chater of the Trade in !ervices A"reement dated
#$ Aril %&#$' (t makes the followin" oints)
The secrecy of ne"otiatin" documents e*ceeds even the
Trans+Pacific Partnershi A"reement ,TPPA- and runs counter to
moves in the .T/ towards "reater oenness'
The T(!A is 0ein" romoted 0y the same "overnments that
installed the failed model of financial ,de-re"ulation in the .T/
and which has 0een 0lamed for helin" to fuel the 1lo0al
Financial 2risis ,1F2-'
The same states shut down moves 0y other .T/ 3em0ers to
critically de0ate these rules followin" the 1F2 with a view to
reform'
They want to e*and and deeen the e*istin" re"ime throu"h
T(!A, 0yassin" the stalled 4oha round at the .T/ and creatin"
a new temlate for future free trade a"reements and ultimately
for the .T/'
T(!A is desi"ned for and in close consultation with the "lo0al
finance industry, whose "reed and recklessness has 0een 0lamed
for successive crises and who continue to cature rulemakin" in
"lo0al institutions'
A samle of rovisions from this leaked te*t show that
"overnments si"nin" on to T(!A will) 0e e*ected to lock in and
e*tend their current levels of financial dere"ulation and
li0eralisation5 lose the ri"ht to re6uire data to 0e held onshore5
face ressure to authorise otentially to*ic insurance roducts5
and risk a le"al challen"e if they adot measures to revent or
resond to another crisis'
.ithout the full T(!A te*t, any analysis is necessarily tentative' The
draft T(!A te*t and the 0ack"round documents need to 0e released
to ena0le informed analysis and decision+makin"'
#' Unprecedented Secrecy Reverses WTO Trend of isclosure
The cover sheet records that the draft te*t will not 0e declassified
until 7 years after the T(!A comes into force or the ne"otiations are
otherwise closed' Presuma0ly this also alies to other documents
aside from the final te*t' This e*ceeds the $ years in the
# #
suer+secretive Trans+Pacific Partnershi A"reement ,TPPA-8 (t also
contradicts the hard+won transarency at the .T/, which has
u0lished documents relatin" to ne"otiations online for a num0er of
years'
#

!ecrecy durin" the ne"otiation of a 0indin" and enforcea0le
commercial treaty is o09ectiona0le and undemocratic, and invites
oorly informed and 0iased decisions' !ecrecy after the fact is
atently desi"ned to revent the "overnments from 0ein" held
accounta0le 0y their le"islatures and citi:ens'
The suression of 0ack"round documents ,travau* rearatoires-
also creates le"al ro0lems' The ;ienna 2onvention on the Law of
Treaties reco"nises they are an essential tool for interretin" le"al
te*ts' Non+disclosure makes it imossi0le for olicy+makers,
re"ulators, non+"overnment suervisory a"encies, oosition
olitical arties, financial services firms, academics and other
commentators to understand the intended meanin" or aly the
te*t with confidence'
%' T!e states drivin" TISA #ere responsi$le for t!e WTO%s
pro&industry finance rules
The articiants in the T(!A ne"otiations are Australia, 2anada,
2hile, 2hinese Taiei ,Taiwan-, 2olom0ia, 2osta <ica, =on" Kon"
2hina, (celand, (srael, Jaan, Liechtenstein, 3e*ico, New Zealand,
Norway, Pakistan, Panama, Para"uay, Peru, !outh Korea,
!wit:erland, Turkey, the U!A and the >uroean Union, includin" its
%? mem0er states'
The leaked te*t shows the U! and >U, which ushed financial
services li0eralisation in the .T/, are the most active in the
financial services ne"otiations on T(!A' The third most active
articiant is the renowned ta* haven of Panama'
To understand the imlications of the T(!A roosals on financial
services it is necessary to understand the comara0le .T/ te*ts'
.hat is commonly called the Financial !ervices A"reement is a
comosite of te*ts)
i' the 1eneral A"reement on Trade in !ervices ,1AT!- sets the
framework for rules that "overn services transactions 0etween
a consumer of one country and a sulier of another5
%

ii' the Anne* on Financial !ervices alies to all .T/ 3em0ers5
@
iii' schedules of commitments secify which financial services
each country has committed to the key rules in ,i- and ,ii-, and
any limitations on those commitments5
$
and
iv' a voluntary Understandin" on 2ommitments in Financial
!ervices
7
sets more e*tensive rules and has an am0ivalent
le"al status in the .T/'
A

% %
Financial services are defined 0y a 0road and non+e*clusive list,
which ran"es from life and non+life insurance, reinsurance,
retrocession, 0ankin", tradin" derivatives and forei"n e*chan"e to
funds mana"ement, credit ratin"s, financial advice and data
rocessin" ,see Art X.2-'
The rules aly to measures that BaffectC the suly of financial
services throu"h forei"n direct investment ,commercial
esta0lishment- or offshore rovision 0y remote delivery or services
urchased in another country ,cross+0order-' They also aim to
BdiscilineC "overnments in favour of a li"ht handed and
self+re"ulatory model of financial re"ulation'
The su0stantive rules tar"et what the financial services industry
sees as o0stacles to its seamless "lo0al oerations, includin")
limits on the si:e of financial institutions ,too 0i" to fail-5
restrictions on activities ,e" deosit takin" 0anks that also trade
on their own account-5
re6uirin" forei"n investment throu"h su0sidiaries ,re"ulated 0y
the host- rather than 0ranches ,re"ulated from their arent
state-5
re6uirin" that financial data is held onshore5
limits on funds transfers for cross+0order transactions ,e+finance-5
authorisation of cross+0order roviders5
state monoolies on ension funds or disaster insurance5
disclosure re6uirements on offshore oerations in ta* havens5
certain transactions must 0e conducted throu"h u0lic
e*chan"es, rather than invisi0le over+the counter oerations5
aroval for sale of BinnovativeC ,otentially to*ic- financial
roducts5
re"ulation of credit ratin" a"encies or financial advisers5
controls on hot money inflows and outflows of caital5
re6uirements that a ma9ority of directors are locally domiciled5
authorisation and re"ulation of hed"e funds5 etc'
'( States promotin" TISA $locked critical de$ates in t!e WTO
post&)F*
This com0ination of li0eralisation of financial markets and
li"ht+handed, risk+tolerant financial re"ulation ena0led the e*cesses
of the owerful U! and >uroean finance industry and the "rowth of
the shadow 0ankin" system' ;arious .T/ 3em0ers called for a
review of the rules after the financial crisis' For e*amle, the .T/
Am0assador from Dar0ados ta0led a aer in the 2ommittee on
Financial !ervices in 3arch %&## that said)
@ @
the crisis has served to hi"hli"ht flaws in the "lo0al re"ulatory
and comliance environment which hamer the
imlementation of corrective measures and in some cases
make them oen to challen"e' Unless it is assumed that such
ro0lems will never a"ain recur, they oint to a need to review
some asects of the "lo0al rules includin" .T/ 1AT! rules
within which countries oerate, so as to ermit remedial
measures to 0e imlemented without runnin" the risk of
havin" them viewed as contraventions of commitments'
E
!u0se6uent attemts led 0y >cuador to secure a de0ate in the
2ommittee were eviscerated to the oint that the eventual
discussion in Aril %&#@ was meanin"less'
?

!imilar concerns were e*ressed outside the .T/' The commission
esta0lished 0y the President of the UN 1eneral Assem0ly in %&&F to
review the financial crisis ,the !ti"lit: 2ommission- wrote in its
interim reort that trade+related li0eralisation of financial services
had 0een advanced under the ru0ric of these a"reements Bwith
inaroriate re"ard for its conse6uences on orderly financial flows,
e*chan"e rate mana"ement, macroeconomic sta0ility, dollari:ation,
and the rudential re"ulation of domestic financial systemsC'
F
Their
final reort called for the a"reements to 0e critically reviewed'
The ma9or layers at the .T/, led 0y the U!, 2anada, Australia,
!wit:erland and the >U, consistently refused to accet there is any
relationshi 0etween the .T/Cs financial services rules and the
1F2' (nstead, they have continued to ne"otiate 0ilateral free trade
and investment treaties that lock "overnments more deely into
that re"ime and e*tend their o0li"ations even further'
(n many cases, the ma9or owers have resented these demands to
countries from the "lo0al !outh as art of a non+ne"otia0le FTA
temlate' Poor countries that carefully limited their e*osure on
financial services at the .T/ have often 0ecome 0ound to a more
e*treme version of those rules and o0li"ations throu"h the FTAs'
+( Strate"ic role of TISA in WTO and FTAs
The U! insisted that the ne"otiation of the Financial !ervices
A"reement durin" the Uru"uay round of the 1ATT continue for
several years after the round had finished, until it was satisfied with
the commitments that were made' The final acka"e was estimated
to cover F7 er cent of international trade in 0ankin", securities,
insurance, and information services as measured in revenue'
#&
3oves 0e"an in %&&& to e*and those commitments further, as
rovided for in the 1AT!' Those talks were incororated into the
4oha round of .T/ ne"otiations in %&&#' The round stalled in the
mid+%&&&s' 3oves to advance the services ne"otiations throu"h
lurilateral ne"otiations failed'
$ $
The "overnments that were ushin" these talks moved outside the
formal .T/ 0oundaries to ursue T(!A' They call themselves the
B<eally 1ood Friends of !ervicesC' Their "oal is to make T(!A the new
latform for financial services' The U! has said it wants to esta0lish
new ne"otiatin" rules in T(!A, "et enou"h countries to si"n on that
will ena0le it to 0e incororated into the .T/, and then have the
same rules adoted for ne"otiations at the .T/'
##
The >uroean
2ommission has said T(!A will use the same concets as the 1AT!
so that it can B0e easily 0rou"ht into the remits of the 1AT!'C
#%

(t is not clear how that mi"ht haen' >ither two thirds or three
6uarters of the 3em0ers would need to a"ree to T(!A comin" under
the .T/Cs um0rella, even as a lurilateral a"reement'
#@
2ountries
like Dra:il and (ndia have 0een very critical of T(!A, and the U! has
not allowed 2hina to 9oin' Dut the ressure on .T/ 3em0ers will 0e
immense' (f the lan did succeed, many !outh "overnments that
resisted the worst demands of the 1AT! and the services asects of
the 4oha round will find they end u with somethin" more severe'
(f T(!A remains outside the .T/ its covera"e will 0e limited to the
si"natories' That is dan"erous itself' The countries that were at the
centre of "lo0al finance and were resonsi0le for the 1F2 will 0e
0ound to maintain the rules that allowed that to haen' The
minimal reforms they have adoted ost+1F2 will 0ecome the
ma*imum ermitted re"ulation' !everal recent (3F aers have
referred to the Bstate of denialC amon" affluent economies a0out the
otential for further devastatin" crises if they maintain the current
olicy and re"ulatory re"ime'
#$
They also oint out that many
develoin" countries that took rudent stes after their e*erience
with the Asian Financial 2risis and similar traumas are much less
e*osed'
#7
Get the architects of T(!A aim to force those countries to
adot the flawed rules they had no role in ne"otiatin", either as the
new B0est racticeC for FTAs or throu"h the .T/'
,( Finance industry !as captured "lo$al rule makin"
The develoment of "lo0al finance rules under the "uise of BtradeC
was the 0rainchild of senior e*ecutives of A(1, American >*ress,
2iticor and 3errill Lynch in the late #FE&s' Their role, and
su0se6uently a 0roader lo00y called the Financial Leaders 1rou, is
well documented' The former director of the .T/Cs services division
himself acknowled"ed in #FFE that) B.ithout the enormous ressure
"enerated 0y the American financial services sector, articularly
comanies like American >*ress and 2iticor, there would have
0een no services a"reementC'
#A
As the lo00y evolved it was still led from .all !treet, 0ut e*anded
to include the ma9or insurance and 0ankin" institutions, investment
7 7
0anks and au*iliary financial services roviders, from funds
mana"ers to credit+ratin" a"encies and even the news a"ency
<euters' They were later 9oined 0y the e+finance and electronic
ayments industry, which includes credit, stored value and loyalty
cards, AT3 mana"ement, and ayment systems oerators like
PayPal'
The industry lo00yists have also set the demands for financial
services in T(!A' The 2hairman of the Doard of the U! 2oalition of
!ervice (ndustries is the ;ice 2hairman of the (nstitutional 2lients
1rou at 2iti' .hen the industryCs demands, as e*ressed in the
consultation on T(!A conducted 0y the U! Trade <eresentative in
%&#@, are matched a"ainst the leaked te*t it 0ecomes clear that
they stand to "et most of what they asked for' >*tracts from their
su0missions are listed at the end of this document'
-( .xamples of t!e an"ers of TISA
A num0er of the rovisions in the leaked te*t are already in the
1AT! financial services instruments, esecially the voluntary
Understandin"' =owever, 2olom0ia, 2osta <ica, Pakistan, Panama
and Peru, which are articiatin" in T(!A, aear not to have
adoted the Understandin"'
The new elements of T(!A 0uild on the 1AT!+lus rules in Korea+U!
Free Trade A"reement, and those roosed in the Trans+Pacific
Partnershi A"reement ,TPPA- and the Trans+Atlantic Trade and
(nvestment Partnershi ,TT(P-' The T(!A arties that are not yet
0ound 0y such a"reements would therefore face esecially onerous
new o0li"ations'
The followin" selection of rovisions shows some of what is new
andHor dan"erous a0out T(!A' They are only a samle of the le"al
issues'
Binding countries to the flawed GATS model (Art X.3 and
X.4)
The 0i""est dan"er is that T(!A will sto "overnments ti"htenin" the
rules on the financial sector' As noted a0ove, this risk is "reatest for
countries that have not already adoted the .T/Cs Understandin"
on financial services, do not already have e*tensive financial
services commitments with the U! or >U under a FTA, or 0oth' Dut it
is a serious risk for all T(!A arties, esecially those with weak
systems of financial re"ulation'
A A
.hen the 1AT! was first develoed "overnments were "iven some
control over the e*tent to which the re"ulation of services was
su09ect to the core 1AT! rules' Those core rules cover the ri"ht of
forei"n financial firmsC to set u and oerate in the host country5 the
cross+0order suly of the 0road ran"e of financial services and
roducts5 the a0ility of their nationals to urchase of those services
and roducts in another country5 and the kind of domestic
re"ulations they could adot'
There are different ways of allowin" "overnments to e*ercise control
over such commitments'
The 1AT! "ave "overnments fle*i0ility to list the services that would
0e su09ect to the core rules, and further limit their e*osure in those
sectors ,a Bpositive list aroach-'
The voluntary Understandin" worked on a Bnegative list that
re6uired "overnments to secify what was not covered 0y its
additional rules' This aroach is increasin"ly common in FTAs,
esecially those with the U!'
Under ne"ative lists "overnments to 0ind the hands of their
successors, even in the face of unforeseen new challen"es' There
are also hi"h risks of error' Proosals to adot ne"ative lists have
0een resisted in the 1AT!, includin" in the 4oha round'
(t is not clear e*actly how the schedules will work for financial
services in T(!A without access to the rest of the te*t' (t is 0elieved
that T(!A rooses a Bhybrid of ositive and ne"ative lists' The rules
may "uarantee forei"n firmsC access to a countryCs services market
usin" the ositive list aroach5 that would allow a "overnment to
secify which services and sectors will 0e covered 0y the market
access rules'
=owever, the re6uirement of non+discrimination, where a forei"n
service sulier must 0e treated no less favoura0ly than domestic
cometitors, would follow a ne"ative list aroach' 1overnments
would have to state what services, activities or laws are not su09ect
to that rule5 secial restrictions on forei"n services, roducts or
measures would only 0e ermitted where they were e*licitly listed'
This would aly even in sectors that were not oened in the market
access ,ositive- list'
A standstill would also aly) "overnments would have to 0ind their
e*istin" levels of li0eralisation and not introduce new restrictions in
the future'
There are also su""estions of a ratchet. .hen a "overnment
reduces restrictions on forei"n financial firms, services or roducts,
E E
those chan"es would automatically 0e locked in'
Finally, it has 0een su""ested that there may 0e no rovision to add
new reservations to the schedules5 there is such a rovision in the
1AT!, althou"h it is e*tremely difficult to use'
The leaked financial services te*t seems to follow this ath'
Access to a countrys financial market
The U! has made secific roosals for the schedulin" of
commitments on financial services'
Under Art X.3.1 arties must list their commitments to allow
forei"n financial service suliers from T(!A countries to esta0lish a
resence in their country'
Their commitments to allow the suly of financial services across
the 0order would aly only to a truncated list of financial services
in Art X.' These mainly relate to insurance and a ran"e of au*iliary
services, lus electronic ayments and ortfolio mana"ement
services5 they do not include mainstream services involvin" 0ankin"
and tradin" of financial roducts'
Those commitments would 0e made in accordance with Art (+@ of
the main T(!A te*t, which is resuma0ly 0ased on a ositive list'
=on" Kon" 2hina wants to make it clear that arties can ut
limitations on the e*tent to which they are committin" a articular
financial service, as ermitted in the 1AT!' This roosal imlies
that the U! does not want to allow "overnments to imose any
limitations on a sector they a"ree will 0e covered 0y those rules'
.ithout the rest of the a"reement it is unclear what rules would
aly if the U! roosal were not adoted' Presuma0ly Art #+@ of
T(!A would aly to financial services 9ust like all other services'
Not discriminating against foreign firms
The U! roosal for Art X.3.2 involves commitments not to
discriminate a"ainst financial services from other T(!A countries,
known as national treatment' This ara"rah only alies to
financial services that are sulied across the 0order' Those
commitments are a"ain limited to the services listed in Art X.'
There is a cross+reference to Art ((+% of the main T(!A te*t, which has
not 0een leaked'
/n its face, it looks like this rovision restricts national treatment of
? ?
financial services to those cross+0order services, unless a T(!A
country says it also alies to forei"n direct investment
,esta0lishin" a commercial resence-' Dut that is imossi0le to
verify'
(t seems likely that the commitments for national treatment use a
ne"ative list, 0ut a"ain that is imossi0le to verify'
Standstill
!o far, this analysis su""ests that T(!A arties can decide what
financial services to commit to these rules, 0ut the U! wants to limit
the e*tent to which they can ick and choose within those sectors'
The crucial rovision is Art X.4! which would aly a standstill to a
countryCs e*istin" financial measures that are inconsistent with the
rules' That means "overnments must 0ind their e*istin" levels of
li0erali:ation for forei"n direct investment on financial services,
cross+0order rovision of financial services and transfers of
ersonnel' The current rules will 0e the most restrictive of financial
services that a "overnment would 0e allowed to use' They would 0e
encoura"ed to 0ind in new li0erali:ation 0eyond their status 6uo'
Australia wants to kee more fle*i0ility, with the standstill to aly
from the date T(!A comes into force' That would allow "overnments
to adot new re"ulations 0efore that date, there0y securin"
themselves more re"ulatory sace than they have now' (t also
e*ressly allows for the rollover of such measures'
(t is not aarent from the leaked te*t whether a ratchet alies to
lock in any new li0eralisation of financial services'
Art X." ,commercial resence- and Art X. ,cross+0order trade-
show the >U and U! are takin" a hard line 0y sayin" that these
schedulin" arran"ements define a countryCs commitments on a
financial service or sector' Australia wants the 0roader a0ility to list
conditions and 6ualifications on the services listed in the schedule
,similar to what =on" Kon" 2hina roosed in Art I'@'#-'
The imlications are hu"e' The aim is to secure much more
e*tensive levels of commitments than e*ist in the 1AT!, or were
romised in the 4oha round, or even e*ist in most FTAs' (t would
also commit "overnments to maintain the current failed system of
financial re"ulation' A T(!A arty could 0e sued if it sou"ht to
ti"hten financial rules that were ut in lace durin" the last three
decades, which were marked 0y reckless or ill+considered
li0eralisation or dere"ulation' (n the realm of financial services, this
is hi"h risk indeed'
F F
#$%edited A&aila'ilit( of )nsurance (Art. X.21)
Article I'%# re6uires re"ulatory rocedures to 0e desi"ned to
e*edite the a0ility of licensed insurers to offer insurance services
across 0orders and in country' >*amles of e*edition include a time
limit for disarovin" an insurance roduct, after which the roduct
must 0e allowed5 e*emtin" various kinds of insurance from
re6uirin" roduct aroval5 and allowin" unlimited new roducts'
The 1F2 illustrates the imlications' 2redit default swas ,24!-
were one of the innovative roducts at the core of the crisis' !was
oerate as a form of insurance) the 0uyer of the swa accets the
risk that a 0orrower mi"ht default and ays u if they do, in return
for receivin" income ayments' An estimated ?& ercent were
BnakedC 24!s, where the investor takin" the insurance does not
even own the asset 0ein" insured
#E
J they were 0asically 0ettin" on
whether insured assets owned 0y someone else would fail' Around
KA& trillion was tied u in 24!s in %&&?'
#?
A(1, a key insti"ator of the
financial services rules, held K$$& 0illion e*osure to 24!s when the
0u00le 0urst, and was 0ailed out 0y U! ta*ayers'
Art X.21 is a license for similar disasters' As the 1F2 showed,
"overnments can 0e slow and reluctant to re"ulate financial
roducts, esecially if they are comle* and the insurer or the entire
industry is ressurin" them' The transarency rovisions, descri0ed
0elow, add to their levera"e' /ften re"ulators will only discover the
dan"ers of an insurance roduct when it is too late' There is "rowin"
ressure to shift from re"ulatin" in ways that welcome and tolerate
risk+takin" to re"ulation that 9ud"es financial services roviders and
roducts on their merits' This rovision would hel to shield
insurance roducts from that trend'
*ata %rocessing and transfer (Art X.11)
The entire services lo00y wants to sto "overnments from re6uirin"
data to 0e rocessed and stored locally' The firms that dominate
cloud+0ased technolo"y are mostly U!+0ased' U! firms also
dominate the information and communications technolo"y sector in
"eneral' The ri"ht to hold data offshore is esecially imortant for
the finance industry 0ecause finance is data' The U! insurance and
credit card industries have 0een esecially vocal in their oosition
to BlocalisationC re6uirements'
Art X.11 has two roosals' /ne is from the >U and Panama and is
couched in ne"ative terms) a arty shall not revent such transfers'
The stateCs ri"ht to rotect ersonal data, ersonal rivacy and
confidentiality is limited 0y an o0li"ation not to use that ri"ht to
circumvent the rovisions of T(!A' This is a catch+%%) the
"overnment cannot adot any rivacy etc measures if they ar"ua0ly
#& #&
0reach any rovisions of T(!A' Dut they could have taken such
measures anyway8
The U! roosal is much more direct' (t wants a 0lanket ri"ht for a
financial services sulier from a T(!A arty to transfer information
in electronic or other form in and out of the territory of another T(!A
arty for data rocessin" where that is an ordinary art of their
0usiness' (t is hard to think of a form of financial service where data
rocessin" is not art of the 0usiness' This o0li"ation is stated in a
ositive, unfettered form' There is no retence of any ri"ht for the
state to rotect ersonal rivacy and data'
At first si"ht that rotection mi"ht 0e found in Art X.1, as
roosed 0y the U! and >U' Dut the rovision is ne"atively worded)
nothin" shall 0e construed to re6uire a Party to disclose information
re"ardin" the affairs and accounts of individual consumers' That
means T(!A does not affect statesC a0ility to re6uire disclosure of
information, resuma0ly to the "overnment, a0out individuals' (t is
not concerned with rotectin" ersonal rivacy or reventin" those
who hold the ersonal data from a0usin" it for commercial or
olitical uroses'
.hen data is held offshore it 0ecomes almost imossi0le for states
to control data usa"e and imose le"al lia0ility' Protectin" data from
a0use 0y states has 0ecome esecially sensitive since the !nowden
revelations a0out U! use of domestic laws or ractices to access
ersonal data across the world'
#ffecti&e and trans%arent regulation (Art 1+)
A"ain there are two roosals, one from the >U and Trinidad, and a
more e*tensive version from the U!' Doth re6uire rior consultation
on roosed new re"ulation Bto the e*tent ractica0leC with Ball
interested ersonsC or, for the U! more e*licitly Binterested ersons
and LstateM artiesC'
(n addition to ensurin" they have a reasona0le oortunity to
comment, the U! says the final decision should, to the e*tent
ractica0le, address in writin" the su0stantive comments from
interested ersons on the roosed re"ulations' >6ually, where an
alication from a financial service sulier to suly a financial
service has 0een declined, they should 0e informed of the reasons'
This may sound retty reasona0le until it is ut in conte*t' <ecall
how cature of the re"ulatory, suervisory, and other u0lic
oversi"ht a"encies 0y the finance industry contri0uted to the 1F2'
#F
The risk+0ased model of financial re"ulation and the Dasel ((
standards for rudential re"ulation of 0anks allowed the industry
itself to 0ecome the front line re"ulators' The resources and
## ##
caacity of re"ulatory a"encies were deleted, as was their
knowled"e and confidence to en"a"e in active re"ulation'
The U! also wants all financial re"ulation to 0e administered in a
Breasona0le, o09ective and imartial mannerC' Dut they are hi"hly
su09ective criteria and rovide fertile "rounds for contest and if
necessary a disute'
Transarency needs to 0e seen as art of a 0roader sectrum of
industry influence' Pressure on re"ulations 0y delu"in" them with
ar"uments and studies, and demandin" e*lanations, is reinforced
0y re6uests for consultations from their atron states and if
necessary threats of a disute' The aim is to BchillC or stifle the
re"ulator' (f the intervention is considered necessary and imortant
enou"h, the industry can ush its atron state to 0rin" a disute'
1ivin" more ower to the industry will make it very difficult to
restore more direct re"ulation, includin" for recautionary reasons'
That is why the industry wants these rovisions' The avenues
throu"h which they or their arent states will 0e a0le to e*ercise
levera"e is not clear, 0ut T(!A is likely to rovide eer review 0y
other arties and a mechanism for them to re6uest consultations, as
well as the enforcement mechanisms'
,rudential -easures (Art X.1")
This is a standard rovision in financial services a"reements'
4efenders of the 1AT! financial services a"reement and advocates
of T(!A descri0e it as a carveout that rotects "overnmentsC a0ility
to re"ulate for rudential reasons' Dut it doesnCt' (t is only a weak
defence that a "overnment can ar"ue if it is su09ect to a disute'
There are many ractical ro0lems with dischar"in" the 0urden of
roof'
3ore ro0lematically, the article is comrised of two sentences that
contradict each other' (f a "overnment takes a rudential measure
that is inconsistent with the a"reement, it cannot do so as a means
to avoid its commitments under the a"reement8 !o any rudential
measures must 0e consistent with the other rovisions in the
a"reement'
The T(!A ne"otiations were an oortunity to revise this e*cetion
and rovide a meanin"ful rotection for the ri"ht of "overnments to
re"ulate for recautionary and remedial reasons' (nstead, T(!A
e*tends countriesC e*osure to the rules and then reeats the same
imossi0ly circular lan"ua"e'
.armonising financial regulation
#% #%
The U! and >U aear to 0e in disute a0out the e*tent to which
financial re"ulation should 0e harmonised' The >U, suorted 0y the
Trans+Atlantic finance industry, wants a harmonised system' That
would ull 0ack some of the ost+1F2 re"ulatory chan"es in the U!,
such as the new re6uirements and restrictions on the finance
industry under the 4odd+Franks Act ,formally the 4odd+Franks .all
!treet <eform and 2onsumer Protection Act-'
The services offer from the >U in its ne"otiations with the U! for the
Trans+Atlantic Trade and (nvestment A"reement ,TT(P- was leaked
this week' The e*lanatory note from the >uroean 2ommission
says)
The draft TT(P offer does not contain any commitments on
financial services' This reflects the view that there should 0e
close arallelism in the ne"otiations on market access and
re"ulatory asects of financial services' 1iven the firm U!
oosition to include re"ulatory cooeration on financial
services in TT(P it is considered aroriate not to include any
commitments on financial services in the >UCs market access
offer at this sta"e' This situation may chan"e in the future if
the U! show willin"ness to en"a"e solidly on re"ulatory
cooeration in financial services in TT(P'
%&

(n other words, the >U is layin" hard0all in TT(P to force the hand of
the U!' .hatever ends u in TT(P is also likely to end u in T(!A'
#@ #@
.xtracts of demands from t!e US Industry
U! !ecurities (ndustry and Financial 3arkets Association
%#

!uliers should 0e a0le to choose their cororate form ,e.g., a #&&N+owned
su0sidiary, a 0ranch or a 9oint venture- and 0e treated no less favora0ly than
domestic suliers ,i'e., national treatment-'
/ther measures, such as the rotection of cross+0order data flows and
transfers, and the inclusion of investor+state disute settlement commitments,
the a0ility to store and rocess data from a central re"ional location, rather
than esta0lishin" a local facility is essential'
Duyin" and sellin" financial roducts across 0orders, articiatin" in and
structurin" transactions, and rovidin" investment advice, without
esta0lishin" a commercial resence and without 0ein" su09ect to searate
licensin" and aroval re6uirements that "enerally aly to firms
commercially resent in a market'
Permit consumers travelin" outside their territories to utili:e any caital
markets related service in the other PartyCs 9urisdiction
A"ree not to adot or maintain measures that revent or restrict transfers of
information or the rocessin" of financial information, includin" transfers of
data 0y electronic means, or that revent transfers of e6uiment, where such
transfers of information, rocessin" of financial information, or transfers of
e6uiment are necessary for the conduct of the ordinary 0usiness of a
financial service sulier'
>ach Party should ermit temorary entry into their territories for ersons who
suly caital markets+related services to work with clients or to staff a
commercial resence'
At a minimum ensure that commitments in any comrehensive trade and
investment a"reement reflect the level of market access afforded under their
domestic laws'
The cometitiveness of financial services firms deends on their a0ility to
innovate, often raidly in order to meet the secial needs of customers 0y
develoin" and offerin" new roducts and services' >nsure that re"ulators
allow rivate firms to meet these needs, while maintainin" aroriate
rudential suervision'
<e"ulators should) ,i- roose re"ulations in draft form and rovide interested
arties the oortunity to comment on such draft re"ulations, where
ractica0le5 ,ii- make u0licly availa0le the re6uirements that suliers must
meet in order to suly a service5 and ,iii- enforce laws and re"ulations on a
non+discriminatory 0asis, accordin" to fair and transarent criteria'
A stron" investment chater that alies e6ually to financial services
investors, includin" with resect to core rotections and investor+state disute
settlement, is vital' !uch core rotections would include ensurin" that
suliers could esta0lish a commercial resence, rotection from
e*roriation, disute settlement, and the free transfer of caital'
T(!A mi"ht include consultation amon" caital markets articiants and
re"ulatory authorities which would lead to the develoment of a list of
re"ulatory o0stacles where reco"nition arran"ements could 0e develoed'
U! 2ham0er of 2ommerce
%%
Financial services
>sta0lish the ri"ht of forei"n financial services firms to invest in another T(!A
arty usin" the cororate form of their choice, without restriction on the
esta0lishment of a new commercial resence or the ac6uisition ,in art or in
full- of an e*istin" enterrise in another T(!A country'
#$ #$
1uarantee national treatment for forei"n comanies in the financial services
sector to ensure that T(!A arties afford forei"n enterrises and investors the
same treatment as domestic investors for re"ulatory and other uroses'
1rant forei"n financial services firms the ri"ht to rovide cross+0order services
without esta0lishin" a commercial resence and without 0ein" su09ect to
searate licensin" and aroval re6uirements that "enerally aly to firms
with a commercial resence in a market'
Permit dissemination and rocessin" ,within country and cross+0order- of
financial information to rovide clients with services necessary for the conduct
of ordinary 0usiness'
Allow consumers to travel outside their home country to o0tain any caital
markets related service'
Insurance
3andate that re"ulatory and suervisory 0odies allow full market access and
national treatment for all lines of insurance, includin" ersonal and
commercial'
1uarantee that domestic insurance re"ulation is made alica0le to all
comanies e6ually in a "iven market, re"ardless of nationality'
>sta0lish clear discilines to level the layin" field 0etween
"overnment+affiliated insurance entities and the rivate market within a
reasona0le time frame, includin" with re"ard to ta*ation, su0sidi:ation, or the
rovision 0y the "overnment of any other commercial economic advanta"es,
with such "overnment+affiliated insurance entities su09ected to suervision 0y
the same re"ulatory authority as rivate comanies'
Prohi0it the imroer dele"ation of re"ulatory authority to non+"overnmental
entities that dilute confidentiality and rocess rotections accorded throu"h
"overnmental administrative rocedures'
!uort the creation of a re"ular annual insurance dialo"ue on
imlementation'
!u09ect to reasona0le levels of rotection, secure the ri"ht to cross+0order
transfer of customer and emloyee data for le"itimate 0usiness uroses
includin" the rovision of more efficient and cost+effective service'
U! 2oalition of !ervices (ndustries) O we reco"ni:e the necessity of certain
re"ulations ,e'"', for national security, data rotection, rudential reasons-, there
should 0e arameters and limitations for their alication' For e*amle, rudential
carve+outs should limit the scoe of allowa0le rudential measures to
non+discriminatory measures that are su09ect to a rule of Pleast trade and
investment distortin"Q ,or somethin" alon" those lines-' !imilarly, caital
re6uirements should not 0e used as dis"uised 0arriers to entry or cometition
with domestic suliers of comara0le services ,e'"', financial services,
insurance-'
(nformation rocessin") when an act, olicy or ractice of a relevant authority
seeks to restrain cross+0order data transfers or rocessin", that authority must
demonstrate that the restriction is not an unnecessary restraint of trade or
investment in li"ht of alternative means 0y which to achieve the o09ective of
rotectin" the identity of the customer, security of the data or the erformance of
rudential oversi"ht'
%@
The American (nsurance Association wants 100 percent market access for the insurance
suppliers of a TISA party in the markets of all the other parties, including freedom from discriminatory
treatment, the absence of quantitative restraints and investment restrictions, the freedom to choose the
form of legal entity through which they operate in a given urisdiction, and the ability to provide
insurance on a cross!border basis" This means strong disciplines on behind!the!border measures that
indirectly restrict or limit market access, including state!owned enterprises, and discriminatory
#7 #7
measures and regulatory schemes that operate as disguised trade restrictions" #rudential measures must
be nondiscriminatory and no more restrictive than necessary to achieve prudential obectives"
$%
&isa wants to ensure the electronic payment industry's access to foreign markets, to ensure that foreign
governments maintain a competitive marketplace through transparent regulation, and to ensure that
electronic payments providers maintain control over, and are able to freely move, information
cross!border"
$(

)loomberg *inancial Information Services believes the new approach to scheduling commitments will
e+pand its level of access to countries markets, and wants no e+emptions for financial information and
data processing services"
$,

#A #A
# htt)HHwww'wto'or"Hen"lishHtratoReHservReHfinanceReHfinanceRe'htm
% htt)HHwww'wto'or"Hen"lishHdocsReHle"alReH%A+"atsR&#Re'htm
@ htt)HHwww'wto'or"Hen"lishHtratoReHservReH#&+anfinRe'htm
$ htt)HHwto'or"Hen"lishHtratoReHservReHservRcommitmentsRe'htm
7 htt)HHwww'wto'or"Hen"lishHtratoReHservReH%#+finRe'htm
AAs of %&&F, the @@ countries whose current schedules reference the Understandin" include)
Australia, Austria, Dul"aria, 2anada, 2:ech <eu0lic, Finland, =un"ary, (celand, Jaan,
Liechtenstein, New Zealand, Norway, !lovak <eu0lic, !weden, !wit:erland, and the United
!tates, as well as the >uroean 2ommunities mem0ers as of #FF$ ,Del"ium, 4enmark, France,
1ermany, 1reece, (reland, (taly, Lu*em0our", Netherlands, Portu"al, !ain and the United
Kin"dom'- The only develoin" nations that utili:ed the Understandin" were Aru0a, Netherland
Antilles, Ni"eria, !ri Lanka ,for 0ankin" not insurance-, and Turkey' Additionally, ei"ht countries
,2yrus, >stonia, Latvia, Lithuania, 3alta, Poland, <omania, and !lovenia- were in the rocess
of revisin" their commitments to match the >2 schedule'
E .T/ 2ommittee on Trade in Financial !ervices, B2ommunication from Dar0ados) Unintended
2onse6uences of <emedial 3easures taken to correct the 1lo0al Financial 2risis) Possi0le
(mlications for .T/ 2omlianceC, J/DH!><;H@?, #? Fe0ruary %&##, ara @5 discussed in
B<emedial actions to tackle crisis not .T/+comliantSC, !UN!, No' E##A, %7 3arch %&##
? 2ommittee on Trade in Financial !ervices, <eort of the 3eetin" held on %& 3arch %&#@,
!HF(NH3HEA, #F Aril %&#@
F Report of the Commission of !perts of the "resident of the #nited Nations $eneral
Assembly on Reforms of the International %onetary and Financial System, "reliminary Report,
%&&F, ?E
#& Pierre !auvT and James 1illesie, BFinancial !ervices and the 1AT! %&&& <oundC in
&rookings'(harton "apers on Financial Services )***, %&&&,
htt)HHwww'0rookin"s'eduHresearchH9ournalsH%&&&Hfinancial+services%&&& $@&
## U! Trade <eresentative <on Kirk, <emarks to the 2oalition of !ervice (ndustries %&#%
1lo0al !ervices !ummit, #F !etem0er %&#%
#% >uroean 2ommission, PNe"otiations for a Plurilateral A"reement on Trade in !ervicesQ,
3emorandum, #7 Fe0ruary %&#@' /nline at)
htt)HHeuroa'euHraidHress+releaseR3>3/+#@+#&ERen'htmSlocaleUF<
#@ The A"reement >sta0lishin" the .T/ would re6uire either a two+third or three 6uarters
ma9ority of 3em0ers to secure an amendment of this kind'
#$ 2armen <einhart and Kenneth <o"off, BDankin" crises) An e6ual oortunity menaceC,
+ournal of &anking and Finance, @E, %&#@, $77E+$7E@5 2armen <einhart and Kenneth <o"off,
Financial and Sovereign ,ebt Crises- Some .essons .earned and /hose Forgotten0 (3F .orkin"
Paer .PH#@H%AA, 4ecem0er %&#@
#7 Phakawa Jeasakul, 2hen" =oon Lim, >rik Lund0ack, (hy (as Asia Resilient1 .essons from
the "ast and for the Future, (3F .orkin" Paer .PH#$H@?, Fe0ruary %&#$, F
#A 4avid =artrid"e, B.hat the 1eneral A"reement on Trade in !ervices ,1AT!- 2an 4oC, seech
to the 2lifford 2hance 2onference on B/enin" 3arkets for Dankin" .orldwide) The .T/
1eneral A"reement on Trade in !ervicesC, London, January #FFE
#E Zhou Iin*i, BA(1, 2redit 4efault !was, and the Financial 2risisC, <isk 3ana"ement !ociety,
#? 3ay %&#@, htt)HHclu0s'ntu'edu's"HrmsHresearchreortsHA(1'df
#? Dank for (nternational !ettlements, B/T2 4erivatives 3arket ActivityC, Novem0er %&&?, A,
Ta0le #, htt)HHwww'0is'or"Hu0lHotcRhy&?##'df
#F!ti9n 2laessens and Laura Kodres, /he Regulatory Responses to the $lobal Financial Crisis-
Some #ncomfortable 2uestions, 3arch %&#$, .PH#$H$A, #%, fn #A
%&>uroean 2ommission, 4raft >U !ervices /ffer, %A 3ay %&#$,
htt)HHwww'scri0d'comHdocH%@&%$#@A&H4raft+>U+offer+on+trade+in+services+for+TT(P
%# htt)HHwww're"ulations'"ovHV8document4etail54UU!T<+%&#@+&&&#+&&@%
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