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November 19, 2009

It’s 10 pm… do you know where your trade negotiators are?

For the last two years of financial crisis, the WTO’s Committee on Trade in Financial Services has not seriously addressed the crisis, or any role that the WTO might have played in bringing it on. This is curious, since the WTO financial rules both require deregulation and, unlike other international bodies, actually have binding and enforceable dispute settlement.

It’s not for lack of trying. In meetings on March 31, the Kenyan and Tanzanian delegation asked to ensure that LDCs have “adequate policy space in confronting development issues.” The Indian delegation to these talks “mentioned the issue of standstill in the Understanding on Commitments in Financial Services. Many Members had made commitments according to the Understanding with a standstill clause. He wondered about the implications of that standstill commitment in the context of the major developments that had taken place.” He went on to ask about one of the major deregulatory requests made by the U.S., Canada and other countries.

You would think that this would be a perfect opportunity for the delegates of the Obama administration to clarify that there was a new sheriff in town, and further deregulation through WTO requirements were not being considered. Instead, even when given such a golden opportunity to announce the change of regime, said they were unwilling to discuss these issues in a non-negotiating forum. In other words, countries wanting the answer to that question must be prepared to discuss committing more to the WTO rules. Canada backed the U.S. up, and that was the end of the discussion.

But on June 24, things got a bit hotter. (The notes for this meeting were only recently disclosed to the public.) The first part of the meeting was relatively stale. The issues of Islamic finance and microfinance were brought up – believe it or not, among the most oft-raised issues in recent talks, and about as far as you can get from the issues that nearly brought down Wall Street, not to mention the hordes of unemployed and evicted.

That was the first agenda item. The second agenda item was even more alarming. The delegation from AIG (oops, the U.S.) had the audacity to suggest that it be allowed to make a presentation on the virtues of further market access (read: deregulation) of the insurance sector. This dragged on for half the session. The other delegations were incredulous, and began aggressively questioning (well, by Geneva standards) why such a presentation was appropriate.

Then, the levee broke. South Africa made a pointed question about the compatibility of rich countries’ bailouts, and whether they were consistent with GATS, or allowed by the so-called prudential “carve out.” Chile, Kenya, Argentina and China backed up the proposal. (As we've written, this isn't much of a carve-out... much more of a carve-in.)

Canada – presumably trying to offer cover to the U.S. for the bailouts – said that any questions about whether the bailouts were GATS-consistent should be handled bilaterally. The U.S. thanked Canada, and agreed that it was not the time or place to have this discussion.

Other delegations quickly called the North Americans on their hypocrisy – Brazil and India in particular. After spending half the session calling for a discussion of further deregulation of the insurance sector, now the rich countries did not want to talk about their bailouts.

The delegate of Bolivia put it well: “it was … quite strange to realize that the only committee that was not dealing with issues related to the financial crisis was in fact the Committee on Trade in Financial Services.”

Strange indeed. When do we get to see the Obama administration's new proposals on financial services? You know, the ones where we re-enshrine the right to regulate our domestic economies to ensure stability and prosperity?

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Todd Tucker

A postscript by SUNS added this note:

[Noting that it has become increasingly clear for many Members during the discussions in the CTFS that the CTFS needs to carry out an analysis of the current financial and economic crisis and its implications for trade in financial services, Argentina, India and South Africa tabled a proposal of work on 17 September 2009. In a formal meeting on 8 October, the proponents responded to many of the questions raised during an informal meeting on 23 September. Their oral intervention at the October meeting was subsequently reproduced in writing in a room document.

[In their 17 September document, Argentina, India and South Africa said that the objective of the exercise is to assist Members, in particular developing countries whose financial systems are intertwined with those of developed countries, to better understand the various approaches for managing the impact of the crisis in their financial markets. Furthermore, this would include the exploration of ways to ensure that such approaches are consistent with Members' GATS commitments.

[In that sense, said the document, the following issues should be addressed by the Committee on Trade in Financial Services: (a) Examination of the extent to which trade in financial services, including conditions of competition, is being affected by financial support programmes and similar measures directed to financial institutions and the possible systemic implications in terms of the GATS. Due to the interconnected nature of modern financial markets, an assessment of the impact of these measures on financial markets, in particular developing country financial markets, is at this stage warranted; (b) Initiation of a discussion on the results of this examination.

[The three countries proposed that the CTFS take concrete steps to address the concerns expressed herein. Such steps would include, but would not be limited to, the following:

[(a) Request the Secretariat to draft a note setting out those provisions of the GATS of specific relevance to financial services;

[(b) Request the Secretariat to conduct an examination of the extent to which trade in financial services, including conditions of competition, is being affected by financial support programmes and similar measures directed at financial institutions;

[( c) For the purposes of transparency and information sharing, the Committee, with the support of the Secretariat, should compile an updated list of all financial support programmes and similar measures provided by Members, including the amounts involved and any other relevant information;

[(d) Noting that emerging markets rely significantly on international credit lines, the Secretariat should conduct research on the impact of these measures on the availability of international credit lines to these markets; and

[(e) Organize a dedicated session of the CTFS to discuss the research findings of the Secretariat, and consider the next steps for the work programme of the Committee. - SUNS]

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