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October 26, 2009

Killing Regs, Not Just Applying them Equally

I wanted to share a bit more about the Citigroup Global Services Summit soiree, which I posted on last week.

On a substantive level, what was the tenor of the conference? First, a reluctant concession to the political-economic reality that more financial services regulation might be necessary and/ or likely to be imposed; and second, some positioning against over-regulation, with veiled references to WTO disciplines against domestic regulations.

At the same time, because this was a meeting of WTO boosters, many folks claimed that trade deals would not prevent reregulation - no matter how lacking these arguments were on the merits. (On a parallel track, Goldman Sachs has recently been showing how to do this two step, first here, and then here.)

Here was WTO Secretary-General Pascal Lamy:

"As you all know, in the world of the GATS, ‘liberalization’ is essentially about opening specified sectors to competition on a non-discriminatory basis. It does not mean deregulation. It has long been recognized that opening up certain services, such as financial and telecom services, may require a regulatory framework in order to protect consumer interests, and ensure competitive markets. At this point in the services negotiations, this is very important. Let me repeat it: opening markets is one thing, you can do it more or less. Regulation is another. You can open and regulate, open and not regulate, not open and regulate, or not open and not regulate. At this moment, it is important to understand this. If you open your market, you are saying you are regulating foreign and domestic in the same way. It is no coincidence that the GATS Annex on Financial Services preserves the right of Members to take measures for prudential reasons even if they do not conform to its obligations under the Agreement.”

It's rare to see the titular head of an organization so blatantly misrepresent its purpose. Do the international nuclear agencies claim they're really food groups? Does the UN claim to do stand up?

As a report we put out last month shows, Lamy disregards a coterie of hairy provisions in WTO texts that would limit countries' ability to reregulate: this includes the Annex provision cited by Lamy.

Also, the WTO's own Appellate Body ruled that non-discriminatory bans on the supply of services, in sectors where full market access commitments have been undertaken, are quantitative limitations covered by GATS Article XVI(2) - and thus must be removed.

GATS Article VI also creates a mandate to discipline "non-discriminatory" regulations. And, as I noted in a recent post, the WTO secretariat explicitly says that many consumer protections - let alone requirements that banks reinvest in their communities - would be disciplined by either Article VI, XVI or XVII of the GATS.

How can anyone say with a straight face that this is just liberalization, not deregulation?

(HT to Ellen Gould for many of these points.)

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Todd Tucker

Here was an interesting concession that come up in a Citigroup rapporteur's notes:

"There is a tension in the G20 and other fora seeking to improve financial regulation versus the WTO and its market liberalizing orientation. However, in the WTO, it is not a question of deregulation but rather liberalized market access through market access and national treatment. In the Doha Round services negotiations, a problem arises in pursuing market access objectives because the traditional “request – offer” approach derived from tariff negotiations is not particularly well-suited to non-tariff barriers affecting financial services. Probably the most appropriate request for a binding commitment, therefore, is for national treatment and non-discrimination. These market access concepts have not been discussed in the current dialogue at the G20 nor in other intergovernmental financial fora such as the Financial Stability Board where it ought to be brought into the discussion in order to ensure that these important considerations are reflected in regulatory responses."

See: http://uscsi.org/Summit2009/RRFinancialServices.pdf

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