Last week, we pointed out an interesting piece by the New York Times' Gretchen Morgenson, who wrote about the WTO conflict with financial re-regulation.
In this Sunday's NYT, the WTO's Keith Rockwell responds. Here's a highlight:
The most important elements of the W.T.O. commitments on financial services pertain to nondiscrimination and national treatment, meaning that if you accept opening your market, you may not apply different regulations to banks from different foreign countries or to your local banks.
We've been following this issue on the blog for years, and I'm a little underwhelmed by the WTO talking points. As far back as 2009, Pascal Lamy (the WTO head) made the same argument that Rockwell now makes: that the WTO's GATS only requires non-discrimination. And as we wrote then:
...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.
This article, as it happens, was the focus of Morgenson's piece. She wrote on Article XVI or Market Access rules, while Lamy and Rockwell seem to want to only talk about Article XVII or National Treatment rules. (Their conversation on National Treatment doesn't really draw the right lessons from the case history: even policies that don't have discriminatory aims or effects can be found to violate the so-called "anti-discrimination" rules.)
Both articles are major planks of the GATS architecture: for the WTO to pretend that the former doesn't exist is disingenous and inconsistent with the organization's own case law.
Rockwell is also off point when he writes:
As members of the European Union, Britain and Sweden provide the same degree of market access to foreign providers of financial services. Yet the crisis did not hit Swedish banks, while British banks suffered greatly. Why? Their regulatory systems differ.
The real pertinent question is whether either nation attempted to ban a dangerous financial product, cap the size of financial service providers, or restrict capital flows. If they attempted to, and they had deep financial services commitments under Article XVI, they could face dispute settlement and ultimately trade sanctions.
So, it's not ALL regulations that are banned by the GATS, but some very important ones are.
To recap: the WTO rules are enforceable and ban some very important financial regulations, while there is no international body (not BIS, not IMF, etc.) that can compel any positive financial regulation. To paraphrase Morgenson, this is an unfortunate paradox, and isn't about doing the right thing.