TWN Info Service on Finance and Development (Feb10/02)
10 February 2010
Third World Network

Financial crisis may be discussed at a WTO "event"
Published in SUNS #6858 dated 8 February 2010

Geneva, 5 Feb (Riaz K. Tayob) -- Members of the World Trade Organisation (WTO) are now to hold an "event" on the "global financial crisis that will discuss the pro's and con's of the recent bailout packages", according to developing country trade diplomats.

According to the diplomats, this compromise, reached Thursday at the one-day meeting of the Committee on Trade in Financial Services (CTFS), has an important caveat: members have time until 26 February to indicate their objections to the "event".

The meeting was chaired by South Africa's Sudhir Sooklal.

According to a developing country trade diplomat attending the meeting, the compromise was not easy, as some members were "sensitive" and even adamant to call it an "event" and not a workshop.

[The subject of the financial crisis and the bailout packages to rescue banking and financial firms had come up more than a year ago at the WTO, when some of the major proponents of liberalization of trade in financial services had sought a "celebratory event" to mark the tenth anniversary of the entry into force of the Financial Services Agreement. There was strenuous opposition, principally from the United States (the driving force behind the FSA), to any discussion of the current and ongoing crisis. Since then, the issue has been under informal discussions and consultations.]

This compromise follows the proposal/communication by Argentina, India, Ecuador and South Africa of 17 September 2009. The Argentinian proposal (as trade diplomats call it) was discussed informally and formally towards the end of 2009, culminating in the proponents tabling, on 9 November 2009, a revised draft of the proposal in the form of a room document.

For the 4 February CTFS meeting, the US submitted (on 3 February, as a room document) a proposal that the event should host only member countries' reporting on their experience of the bailouts. The Argentinian proposal had also called for participation of experts of relevant international organisations.

Under the compromise, the tentatively agreed "event" would now "include both outside experts and those countries that can (who) will present" on their experience of the bailouts.

The US and the EC, the trade diplomat said, had expressed "grave reservations" on the second phase of the Argentinian proposal. He explained that what has been agreed at the CTFS was essentially "phase one".

At a meeting of the WTO Trade Policy Review Body (TPRB) on 22 January, according to a Reuters news report, the US, Japan and other industrialized countries had blocked calls by developing countries to examine the possible protectionist impact of bailouts and financial stimulus packages. The Reuters report said that the European Union did not reject the proposal completely but said it required further study so that it could be conducted in a realistic and pragmatic manner.

However, according to a developing country trade diplomat, the EU position at the TPRB and the CTFS was no better than that of others who had openly rejected discussing the financial crisis at the WTO.

Despite the November redrafting, the EC, along with the US, Japan and Canada, were not in support of the Argentinian proposal in the CTFS. Chile, Switzerland and Australia unsuccessfully tried to find some middle ground between the proponents and opponents during the discussions at the CTFS on Thursday.

The EU, said the trade diplomat, did not want the CTFS to discuss the proposal at all, but seemed to suggest that some discussion on the financial crisis could take place in the Council for Trade in Services. However, Argentina responded that at the TPRB, the EU had wanted the discussion on the financial crisis to go to the CTFS, and consequently, Argentina said it could not understand the EU position.

Chile reportedly said that members are going round in circles and implied that every time the issue was raised, the EC seemed to suggest a different structure to host the discussion. Chile said that if the issue is raised in the TPRB, then opponents recommend the CTFS. And in the CTFS, they recommend the General Council. At the General Council, they recommend the TPRB. It sounded like a game.

The "event", barring objections, is hoped to be held at the next cluster of meetings scheduled for the end of April, said the trade diplomat. However, even on timing, there were some logistical doubts, he explained, as the WTO is to conduct its stocktaking exercise on the Doha negotiations in March.

According to the Argentinian proposal (in the form of a room document) of November 2009, the current turmoil in global financial markets has highlighted a number of implications for the work of the CTFS.

Issues related to financial regulation, as well as the interaction between regulation and GATS obligations and disciplines attest to the need for the Committee to address the trade implications of the crisis, it said.

Under Article 1 of the GATS, measures by Members affecting trade in services fall within the scope of the agreement. Therefore, the measures taken by Members in response to the crisis are relevant to the functioning of the GATS.

"Specifically, a non-attributable analysis of the financial support programmes and similar measures directed to financial institutions introduced by Members should be undertaken in the context of the disciplines set forth in the GATS," says the Argentinian proposal.

The Argentinian proposal acknowledges that while various multilateral organisations such as the ILO, the IMF, etc are currently dealing with the matter of the economic and financial crises, they do so within the confines of their specific mandates that may or may not be useful for the purposes of the CTFS or the GATS.

The CTFS has "a significant role to play in keeping under continuous review and surveillance the application of the GATS with respect to financial services, and in providing a forum for technical discussions of measures affecting trade in financial services."

The proposal recalls that when this issue was raised at the General Council, the response from several Members was that it should be dealt with in the relevant Committee. The view of the proponents was that the CTFS is one of the relevant committees.

According to the Argentinian proposal, the objective of the exercise is to assist Members, including developing countries whose financial systems are intertwined with those of developed countries, to better understand how trade in financial services is affected by certain measures adopted during the current financial crisis.

The proposal has two phases. The first phase (initial steps), includes the following:

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

-- Request the Secretariat to organize a half (or one) day event during the next services cluster during which experts in financial services who have already undertaken work in the subject matter could brief the Committee on the results already achieved in their respective areas.

-- Request the Secretariat to carry out a literature review in order to assess what is the work (if any) that other organizations, institutions and/or academics have already done with regard to the extent to which trade in financial services is affected by financial support programmes directed to financial institutions.

Phase two of the proposal includes the following:

-- Request the Secretariat to conduct a non-attributable examination of the extent to which trade in financial services is affected by financial support programmes and similar measures directed to financial institutions. The measures under analysis would be restricted to the measures identified in the relevant sections of certain documents - reports of the Director General to the TPRB: Job(09)/2, "Overview of national bailout measures/plans and guarantee schemes for financial institutions"; Job(09)/30, "Annex 3 Overview of National Bailout Measures/Plans and Guarantee Schemes for Financial Institutions (September 2008 - March 2009)"; Job (09)/62, "Annex 3 Measures For Financial Institutions (March 2009 - June 2009)")

-- Noting that financial markets, including those in developing countries, rely significantly on international credit lines, the Secretariat should conduct non-attributable research on the impact of those measures on the availability of international credit lines to those markets, and its effects on trade in financial services.

-- Organise 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.

A background note by the Secretariat (see SUNS #6857 dated 5 February 2010) prepared for the committee was tabled but not discussed at the CTFS meeting. Trade diplomats said that it would be discussed at the next CTFS session scheduled for the end of April. +