See Burley Slaughter (1998). See also Porgcs (1996). 2 See Coleman (1996), pp. 1-15. 3 Covered by the General Agreement on Trade in Services (GATS) which came into force on 1 March 1999.

4 The Uruguay Round is recognized as one of the largest and the longest trade negotiation rounds. It commenced in September 1986 in Punta del Este, Uruguay, and lasted up until 1994, during which time Articles of the GATT were under review and new areas of trade in services, agriculture, technology products and intellectual property were discussed. See the WTO Web site at: ,www.wto.org/wto/about/facts5.htm.. For a detailed and good discussion on the Uruguay Round, see Jackson (1996). 5 Services are estimated to involve USS 1.2 trillion per day in foreign exchange transactions. 6 At first, the United States suggested that services, intellectual property, trade-related investment measures and trade in technology products be included in the GATT itself but, due to the insistence by developing countries, this idea was dropped, as there were already many unresolved issues within the GATT, including those concerning textiles and agricultural trade. A compromise was reached at Punta del Este separating the negotiations among contracting parties of the GATT from those among governments on trade in services. 7 The United States is one of the largest traders in financial services along with Switzerland, Germany, France and the United Kingdom. For the value of the export and import of financial services, see Das (1998).

" Trebilcock and Howse (1998 and 1999). Another analysis is found in Dyer et al. (1997). '' Since the initial proposal was to bring trade in services into the ambit of the GATT, it was believed that the GATT, as a regulator of international commerce, must reflect the needs of modern trade. Moreover, the success of the GATT in providing a uniform body of rules applicable to all Member countries to facilitate international trade in goods made it almost natural to extend its principles to trade in services. Furthermore, the development of technology, the specialization in services, deregulation policies and privatization of investment, and the growing number of mergers and acquisitions aiming at the strategic placement of firms in different countries became reasons to enable the global trade of services. 111 This enthusiasm is attributed to the American International Group and American Express, who were interested in serving international markets through exports in services-that is, cross-border trade-and through local sales by foreign affiliates. There was pressure also from the U.S. business leaders who wanted to sell their services abroad through direct investment and exports. For a detailed account, see Dobson and Jacquet (1998). " The United States argued that the negotiations should be limited to trade in non-factor services, that is services that could themselves be viewed as finished products, such as financial services, and not input services such as construction crews. This distinction served U.S. self-interest, as the non-factor services involved knowledge and technology over which it had a comparative advantage compared to labour-intensive services, over which the developing countries would have a comparative advantage. See Trebilcock and Howse (1998 and 1999). 12 It was recommended that the progress in liberalization of trade achieved by the GATT could be extended to services, not only by the export of the service but also through direct investment in foreign countries. See Dobson and Jacquet (1998), p. 71. " These were led by a group often "hard liners", including India and Brazil. A few developing countries like Hong Kong and Singapore had given their consent to U.S. liberalization package because of the strength of their service sectors, including financial sectors, Mark and Helleiner (1998). It may be noted that today Hong Kong and Singapore are regarded as advanced economies by the International Monetary Fund (IMF).

14 For an overview of the developing countries' perspective during the Uruguay Round, see Bhagwati (1996), at pp. 282-306. 15 See Burley Slaughter (1998), at p. 524. ��� This was a compromise between the U.S. initiative to include trade in services under the GATT and the developing countries, who wanted a distinct agreement for services which would give considerable leverage to national legislation. It was also considered necessary to separate the negotiating process between goods and services, as the issues and concerns were different in each case. �� The MFN principle means that no Member country can be accorded less favourable treatment compared to any other Member country. It is the underlying principle of "non-discrimination" in the GATT, whereby all countries are to be treated equally in market openings. This obviously gives some countries an advantage, as they may have little to offer but a lot to gain. Under the GATS this was a fundamental concern as there was an apparent weakness in the development of financial services by some of the countries and considerable development in the sector amongst other countries. 11 For a detailed understanding of the free-rider problem, see Key (1997) and Das (1998).

11 The employment in the financial sector ranges from 3 percent in France, Canada and Japan, to 5 percent in Singapore, Switzerland and the United States. Value-added in the financial sector as a share of the Gross Domestic Product has also grown between 1975 and 1995. See Kono et al. (1997). It has also been suggested that there was a financial services revolution with the growth of multinational firms, the proliferation of financial innovations and the magnification of competitive scales onto the global market; see Moran (1991), at p. 20. z° The U.S. position was based on the concern that the existing commitments by many of the countries was not enough to reach a meaningful multilateral agreement and, once committed to full MFN, the United States and other industrial countries would have no leverage to induce developing countries to open their financial markets further. Dobson and Jacquet (1998), at p. 82. '-' On 28 July 1995, the second protocol to the GATS was signed by forty-three countries, and all Member countries had until 30 June 1996 to ratify their commitments. Negotiations were to resume by 31 December 1997 to modify and improve the commitments again. At this point, the United States joined with strong MFt.t exemptions and reserved the right to deny MFN treatment in financial services to other countries, but had reached an understanding with the European Union and Japan for full market access and national treatment.

22 Recognizing that these negotiations could not fail, a group of heads of financial services companies from the United States and Europe launched the Financial Leaders Group in 1996. The goal of the group is "to provide private sector support for government efforts to achieve open, non-discriminatory financial markets in key emerging economies, through W ro negotiations.": <<http://www.ford.com/us/corporateinfo/govt-policy/tradc5. html». 23 Jackson (1993). 24 Market access and commercial presence were not a requirement under the GATT, whereas they are a very important element when trading in services, especially financial services such as banking and life insurance where the service provider would be required to give personalized service to the consumer. 25 The Understanding on Commitments in Financial Services provides an "alternative approach" by which interested Member countries may schedule their commitments. It contains a greater burden for opening markets than those in Part III of the GATS. Countries that agree to enter into their scheduled commitments on the basis of the Understanding will undertake commitments under its framework. The Understanding cannot conflict with the provisions of the GATS and offers no presumption as to the degree of liberalization created under it. Since it is only an understanding, it is subject to the voluntary consent of the Member countries and therefore docs not offer much in the way of specific legal obligations for Member countries.

26 See the legal text of the GATS in Jackson et al. (1995), p. 304. z� Article 1, Clause 3(b) reads '"services' includes any service in any sector except services supplied in the exercise of governmcntal authority", and Clause 3(c) reads "`a service supplied in the exercise of governmental authority' means any service which is supplied neither on a commercial basis nor in competition with one or more service suppliers." 11 Automatic teller machine (ATM) networks, electronic funds transfer at point of sale (Pos), home banking or remote banking, and smart cards are considered the principal types of virtual financial services, bringing about a "virtual banking revolution". Securities exchanges arc now almost totally computerized in major financial markets. Most of the world's major securities and derivatives exchanges provide electronic transaction facilities and the settlement and clearing of financial transactions are also done electronically: see WTO (1998). zv Id. 3� Sauve (1994), pp. 5-16.

31 As this is a fairly recent Agreement, it is yet to be seen how the Council of Trade in Services will deal with the possibility of extending conditions and exemptions to the MFN principle. 32 This point has been further developed in this article in Section tv.

33 For an overview of the commitments under the GATS, see Atlinger and Enders (1996), pp. 307-333. 34 National treatment is a core principle of the GATT which requires that the products of any Member country imported into another country are accorded treatment no less favourable than that accorded to like products of national origin. For an overview of national treatment under the GATS, see Mattoo (1997).

35 See Wang (1996).

36 The spirit of this has been well captured by Sydney J. Key when he describes what the stakes were in the Uruguay Round negotiations. He states: "in effect the industrial countries agreed to strengthen the multilateral framework or rules and disciplines including textiles and agriculture and in return developing countries agreed to the inclusion of services, trade-related intellectual property rights (TRW and trade-related investment measures (TRIMS).": Key (1997). ;� Hoekman (1995), at p. 307.

38 Lazer (1990), p. 135. 3y The efficiency argument is in support of specialization on the basis of comparative advantage and increased effective competition, which will improve financial services, improve service quality and standards, and allow the development of technology and transfer of knowledge. There will be an increase in the range of services and the emergence of many new financial instruments. Operating costs can be reduced. ao Trade in financial services can reduce risk for small financial markets. It can compel the government to pursue prudent monetary, fiscal and exchange rate policies. 41 Coleman (1996), pp. 227-240.

.2 It is important to note that the Asian crisis refers specifically to several Asian countries, thereby suggesting that even though some of its causes may be generalized for developing countries as a whole they are not representative of the multitude of problems faced among different developing countries. It may also be noted that the level of development within the financial sectors of different developing countries varies tremendously, so that the Asian crisis cannot be taken as a basis to understand the threefold tension played out in every country labelled as a developing country.

43 Recognition indicates that the host country accepts as substituting for its own regulations the regulation of the home country. So, in fact, it is a choice of law in which the territorial State defers to the national State. Recognition could be considered complete liberalization from a trade standpoint, since the financial service provider is no longer subject to the laws of the host country. Although this is not practical, the modifications made to different regulatory systems suggests a degree of harmonisation which facilitates international trade. The North American Free Trade Agreement (NAFTA) has specific requirements ofrecognition of prudential measures, and the European Community has provisions for harmonisation, with mutual recognition of regulations: see Trachtman (1995b), pp. 37-122.

;� For further elaboration, see Dobson and Jacquet (1998), p. 45. 45 The market-access restrictions listed in the most recently signed Schedule of Commitment on 1 March 1999 exist in the form of licensing and authorization requirements in financial services restrictions and in the number of licences granted. Restrictions are also listed on the specific types of legal entity or joint-ventures allowed and on the participation of foreign capital in local financial institutions such as branches or Atoms, as well as limitations on the value of transactions or assets, such as limitations on the share of banking assets allowed to be held by foreign banks: see WTO (1998), pp. 12-13.

41, It has been suggested that this mode of listing was easier for the developing countries, as they were required to list all their sector-specific commitments rather than make a negative list of all non-conforming measures or exceptions to market access and national treatment. Such a listing requires resources and research capability to determine what the exceptions to the general obligations should be and to forecast how these activities may develop in the future. The United States, with the support of the European Union, pressed for the negative-list approach to the GATS: see Key (1997). i� For this, market access and national treatment would have to be general obligations. 48 The GATS uses the hybrid-list approach, which means that there is a positive list of all sectors committed to market access and national treatment and within each sector committed to there is a list of non-conforming measures, since market access and national treatment applies to these sectors across the board except for the listed non-conforming measures. In practice, the Member countries end up scheduling their sector commitments separately from the non-conforming limitations on modes of supply, which means that a Member can avoid committing to a mode of supply (as per definition of services) quite easily. This also does not solve the transparency problem, for a Member country can simply say "unbound" to a particular mode of supply and not have to disclose related regulations and supervisory functions undertaken by the government. This will also affect future negotiation proceedings, since how does a Member country negotiate further liberalization if it is not aware of all the regulatory barriers? qv Hoekman (1995).

5�� Article ll of the Agreement Establishing The World Trade Organization provides that the W ro shall provide the institutional framework for the conduct of trade relations amongst Member countries in matters related to the Multilateral Agreements. If making trade-related regulations transparent is a conduct of trade relations, then the WTO should institutionalize regulatory surveillance to ensure and facilitate the liberalization process.

51 Wang (1996), p. 93. 5= GATS, Article V. 53 GATS, Article vbis. 53 GATS, Article XIII. 55 GATS, Article xlvbis. 56 GATS, Article xiv. S7 Sauve (1995 and 1998b).

SK GATS, Article VI. 5" See Das (1998).

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