On February 3, the WTO issued a document that many in Geneva call the “non-response” to over a year of growing questions from WTO member countries and others about the connection between the rules of the General Agreement on Trade in Services (GATS) on financial services and the global economic crisis. Indeed, this was the Secretariat’s first major study in nearly 12 years about the WTO’s financial service rules. This paper has been discussed in a hot debate on the IELP blog, and in a recent OECD-WTO study.
The new paper is a disappointment to anyone hoping for a convincing rebuttal to charges that the WTO’s General Agreement on Trade in Services (GATS) promotes financial services deregulation. The 76-page document includes a lengthy discursion on the GATS treatment of corporate branches versus subsidiaries, as well as a very defensive discussion of the causes of the crisis (bottomline, in their estimation: WTO rules are in no way implicated). The paper avoids altogether the question of WTO compatibility of the types of measures that member countries have implemented in response to the crisis. This is despite the formal demand via a paper tabled September 17, 2009 in the WTO’s Committee on Trade in Financial Services, and via subsequent requests at the General Council in December.
And, with respect to the question of how GATS rules promoted past financial deregulation and could conflict with reregulation, several points are especially worth highlighting:
1. The Secretariat does not rebut any of the main concerns about the GATS rules’ deregulatory requirements raised in recent years.
2. In fact, the Secretariat confirms many of these concerns.
3. When dealing with a controversial issue where there is no record of official interpretation at the WTO, the Secretariat cites only unofficial sources making “don’t worry, be happy” arguments rather than reviewing all of the international law review and other analyses, or offering an official interpretation.
Here’s a Top 13 list of claims the WTO’s defenders would have liked the Secretariat to make, but which it did not, because it cannot:
1. That GATS rules only require that foreign firms be treated like domestic firms, and that a WTO panel would never rule against a non-discriminatory domestic regulation.
2. That WTO panels have already established that countries are free to adopt non-discriminatory financial services regulations without risking GATS challenges.
3. That any policy that is ruled kosher by the so-called “international financial regulatory bodies” (like the Basel Committee for Banking Supervision, the International Monetary Fund (IMF), etc.) is automatically allowable under the GATS, and that the WTO just imports the definitions and disciplines of these more knowledgeable bodies.
4. That countries that fear that past governments overcommitted domestic financial service sectors to GATS rules at the height of the deregulation craze can withdraw those sectors without having to pay out compensation to other WTO members.
5. That anytime a country adopts a financial services policy for prudential reasons, then there is no way that this policy can be challenged at / ruled against by a WTO panel.
6. That the GATS has been determined by a WTO panel to not restrict countries from adopting firewalls between commercial and investment banks (as the United States did under the Glass-Steagall Act and later amendments).
7. That the GATS has been determined by a WTO panel to not apply to policies limiting the size of individual firms.
8. That countries can ban financial services they fear are toxic, even if past governments signed up these sectors (perhaps inadvertently) to the GATS.
9. That GATS contains no disciplines for capital controls that many developing countries are now seeking to use, and that countries now desiring to restrict capital flows (through financial transaction taxes or other means) can simply add these as limitations to their schedule in the Doha Round negotiations.
10. That the Doha Round does not entail deeper financial services commitments.
11. That the bank bailouts of the last two years present no GATS conflicts.
12. That the Standstill provision in the Understanding on Commitments on Financial Services does not amount to a lock in of the regulatory status quo in place in the 1990s.
13. That policies of the Treasury Department or Federal Reserve are not subject to GATS disciplines.
Indeed, the Secretariat would not have been able to support the above points, even had it wished to.
If you want to delve more into the nuts and bolts of this study, check out a new memo that I just posted.