Brexit and Financial Services: the GATS Option … · GATS does not, however, define a service; instead, Article I:3(b) provides that services “include any service in any sector

Brexit and Financial Services: the GATS OptionIntroduction

1.1 ThisbriefingnoteisconcernedwiththerulesoftheWorldTradeOrganization(“WTO”)astheyapplytofinancialservices.Thefinancialservicessectorcoversbothbanking(broadlydefined–seebelow)andinsurance/reinsuranceservices.Aswillbeseen,thescopeoftradeliberalisationinrelationtoservicesislimitedand,oncetheUKhaslefttheEuropeanUnion(“EU”)therewouldthereforebescopeforimprovingaccessforthefinancialservicessectorthroughaneconomicintegrationagreementwiththeEUconsistentwithArticleVoftheGeneralAgreementonTradeinServices(“GATS”).Onerequirementofsuchanagreementisthatithassubstantialsectoralcoverage.ThiswouldpreventanagreementwiththeEUthatisrestrictedtofinancialservices(ortoaselectgroupofservicesectors).

1.2 On23June2016theUnitedKingdom(“UK”)votedtoleavetheEU.TheGovernmentintendstostarttheprocessofnegotiatingthewithdrawaloftheUKfromtheEUbytheendofMarch2017.UnderArticle50(3)oftheTreatyonEuropeanUnion(“TEU”) thetreatiesshallceasetoapplytotheUKfromthedateofentryintoforceofthewithdrawalagreementor,failingthat,twoyearsafterthenotificationunlesstheEuropeanCouncil,inagreementwiththeUK,unanimouslyagreestoextendthisperiod.

1.3 InthisbriefingnoteweconsiderthepositioniftheUKisnotbeabletonegotiateaccesstotheEUSingleMarketandwillinsteadrelyontherulesoftheWTOinordertotradewithotherEU/EEAMemberStatesfollowingwithdrawalfromtheEU.TheUKGovernmenthasannouncedthatitwillseektonegotiateapreferentialtradeagreementwiththeEU,althoughastheshapeofsuchanagreementisunclear,andmightnotbenegotiatedwithinthetwoyearsafternotificationunderArticle50(2)TEUitisnotconsideredhere.Neitherarepossibletransitionalarrangementsasthecontentsofanysuchmeasuresareatpresentuncertain.

The Current Position

1.4 CurrentlytheUKisafullMemberoftheEUandisthereforeaconstituentpartoftheEUSingleMarket.Thisischaracterisedbytheso‑calledfourfreedoms:freemovementofworkers,freedomofestablishment,freedomtoprovideservicesandfreemovementofcapital.Exceptionstothesefreedomsarestrictlylimited.TheprovisionsoftheTreatyontheFunctioningoftheEuropeanUnion(“TFEU”)conferringtheserightshavedirecteffectandcanthereforebedirectlyreliedonbyindividualsandfirms.

1.5 TheseTreatyrightsaresupplementedbysectoraldirectivesandregulationsprovidingalegalframeworkfortheexerciseoftheserights.Forexample,intheareaofbanking(whichincludesdeposittakingandlending)theCapitalRequirementsDirectiveandRegulationimposeprudentialrequirements.TheMarketsinFinancialInstrumentsDirective(“MiFID”)imposesprudentialrequirementsforinvestmentfirms,andSolvency

IIforinsurers.InsurancemediationisgovernedbytheInsuranceMediationDirective(“IMD”).TheEuropeanMarketInfrastructureRegulation(“EMIR”)regulatesclearinghousesandtraderepositoriesinrespectofover‑the‑counterderivativestrading.CommontoallthesedirectivesandregulationsistheprovisionofrightsofmutualrecognitionunderwhichafirmauthorisedandregulatedinoneEU/EEAMemberState:

– mayestablishabranchinanotherMemberStateinrelianceontheirhomestateauthorisation;and/or

– provideservicesonacross‑borderbasis,

withouttheneedforfurtherauthorisationfromtheStatewheretheyestablishabranchorprovideservices.Thisisreferredtoas“passporting”.

1.6 FollowingwithdrawalfromtheEU,ifUKbusinessesarenolongerabletorelyonpassportingrights,howwouldtheUK’sfinancialservicesindustrybeabletoprovideservicesinEUMemberStates?Itshouldbenotedthatthisquestiononlyarisesinthecaseofservicesthatarecross‑borderinnature.ThiswillbethecasewheretheserviceisprovidedfromanEUbranchofaUKserviceprovider,orifservicesareprovidedcross‑borderfromaUKfirmtoacustomerintheEU.WheretheserviceisprovidedintheUKbecausetheEUcustomercomestotheserviceprovidertherewillbenocross‑borderelementandtheUKfinancialservicesproviderneedonlycomplywithUKlawandregulation.TheCommissionhastakentheviewthat“location”ofaserviceshouldbedeterminedbyreferencetothelocationofthe“characteristicperformance”oftheservice1.However,althoughappliedbytheUK,notallEEAstatesfollowthisinterpretation2;hencetheneedtotakelegaladviceastowheretherelevantlocalregulatorintheMemberStatewherethecounterpartyislocatedconsiderstheserviceasbeingprovided.The“location”ofwhereaserviceisprovidedwouldbebroughtintomuchgreaterfocusinapost‑passportingregimeasitwoulddelimittheregulatoryjurisdictionofUKandEUfinancialservicesregulators.

1 CommissionInterpretativeCommunication:FreedomtoProvideServicesandtheInterestoftheGeneralGoodintheSecondBankingDirective,20June1997.

2 FCAHandbook,SUPApp3.3.8G.

2 BrexitandFinancialServices:theGATSOption /

The General Agreement on Trade in Services

2.1 TheGATSisoneoftheagreementsconstitutingtheglobalarchitecturefortradeliberalisationfollowingthecreationoftheWorldTradeOrganization.ItseekstoliberalisetradeinservicesbetweenWTOMembercountries,butismuchmorelimitedinthedegreeofliberalisationachievedthantheGeneralAgreementonTariffsandTrade(“GATT”)inrespectoftradeingoods.

2.2 ArticleI:IofGATSstatesthat“This Agreement applies to measures by Members affecting trade in services”.GATSdoesnot,however,defineaservice;instead,ArticleI:3(b)providesthatservices“include any service in any sector except services supplied in the exercise of governmental authority”.

Provision of Services

2.3 TheGATSidentifiesfourmodesinwhichservicescanbeinternationallyprovided:

(a) fromtheterritoryofoneWTOMemberintotheterritoryofanotherWTOMember(mode1);

(b) intheterritoryofoneWTOMembertotheserviceconsumerofanyotherWTOMember(mode2);

(c) byaservicesupplierofoneWTOMember,throughcommercialpresenceintheterritoryofanyotherWTOMember(mode3);and

(d) byaservicesupplierofoneWTOMember,throughpresenceofnaturalpersonsofaWTOMemberintheterritoryofanyotherWTOMember(mode4).

2.4 Thesewillnowbeexplainedinmoredetail:

(A) Inmode1theserviceisprovidedonacross‑borderbasiswithoutanymovementofthesupplierorconsumer.AnexampleislegaladviceprovidedoverthetelephonebyalawyerinLondontoaclientinBeijing.

(B) Inmode2therecipient/consumeroftheservicemovestothecountryoftheservicesuppliertoreceive/consumetheservice.AnexampleisaUKnationalbeingprovidedhotelorrestaurantserviceswhileonholidayinSwitzerland,oraclienttravellingfromParistoLondontoreceiveinvestmentbankingadvice.

(C) Undermode3theservicesupplierofoneWTOMemberestablishesa“commercialpresence”intheterritoryofanotherWTOMember.AnexamplewouldbeaGermanbankestablishingabranchinParis.

3 / BrexitandFinancialServices:theGATSOption

(D) Mode4isengagedwhereanaturalpersonmovesfromoneWTOMembertoanotherWTOMembertoprovidetheservice.AnexampleisanengineerwhomovestemporarilytoanotherWTOMembertoprovideengineeringservices.Mode4isconsideredsensitivebymanyWTOMembersbecauseitinterfereswithacountry’ssolecontroloverimmigration3. However,theAnnextotheGATSclarifiesthattheGATSdoesnotapplytomeasuresaffectingnaturalpersonsseekingaccesstotheemploymentmarketofaWTOMember,nortomeasuresrelatedtoresidence,citizenshiporemploymentonapermanentbasis.

Measures

2.5 Itseemsclearthat“averybroadandflexibledefinition”of“measures”waschosentoachievemaximalscopeofapplication4.However,purelyprivatemeasuresarethoughttobeexcluded.TobesubjecttothedisciplinesoftheGATStheremustbesomedelegationoratleastencouragementbythestatethroughincentivesordisincentives5.Thetermcovers“anymeasurebyaMember,whetherintheformofalaw,regulation,rule,procedure,decision,administrativeaction,oranyotherform”(ArticleXXVIII,GATS).Thereferencetoadministrativeactionand“oranyotherform”appearstocaptureinaction(suchasadeliberateomission)aswellasactivemeasuresthatadverselyaffecttrade.

Affecting Trade in Services

2.6 UnderArticleXXVIIIoftheGATS“‘measures by Members affecting trade in services’ include measures in respect of:

1. the purchase, payment or use of a service;

2. the access to and use of, in connection with the supply of a service, services which are required by those Members to be offered to the public generally;

3. the presence, including commercial presence, of persons of a Member for the supply of a service in the territory of another Member”.

Thelistisindicativeandothermeasureswhicharenotexpresslysingledoutmaybecaught.However,forameasuretoaffecttradeinservicesalinkmustbeshownbetweenthemeasureandtheeffect.Thelegaltestcovers“notonlylawsandregulationswhichdirectlygoverntheconditionsofsaleorpurchasebutalsoanylawsorregulationswhichmightadverselymodifyconditionsofcompetitionbetweenlikedomesticandimportedproductsontheinternalmarket”6.

2.7 InUS – Gambling,theAppellateBodymadecleartheneedtoidentifythelegalsourceofthemeasureaffectingtradeandnotitseffects:

3 NMunin,A Legal Guide to GATS,p.10.4 Ibid,p.59.5 Ibid,p.61.6 EC – Bananas III,panelreport,para7.281.


“Wenotealsothat,ifthe‘totalprohibition’wereameasure,acomplainingpartycouldfulfilitsobligationtoidentifythe‘specificmeasureatissue’,pursuanttoArticle6.2oftheDSU,merelybyexplicitlymentioningthe‘prohibition’.Yet,withoutknowingtheprecisesourceofthe‘prohibition’,arespondingpartywouldnotbeinapositiontoprepareadequatelyitsdefence,particularlywhere,ashere,itisallegedthatnumerousfederalandstatelawsunderliethe‘totalprohibition’”.7

Most Favoured Nation

2.8 Mostfavourednationtreatmentisoneofthetwonon‑discriminationprovisionsintheGATSandpreventsaWTOMemberfromdiscriminatingbetweenservicesandservicesuppliersfromdifferentWTOMembers.Forexample,aWTOMembercannotprovideaconcessiontooneWTOMemberwithoutautomaticallyextendingtheconcessiontothewholeWTOmembership.Mostfavourednationtreatmentappliesequallytoconcessionsgrantedtonon‑WTOMembers8.

2.9 ArticleIIoftheGATSstates:

“1. With respect to any measure covered by this Agreement, each Member shall accord immediately and unconditionally to services and service suppliers of any other Member treatment no less favourable than that it accords to like services and service suppliers of any other country.

2. A Member may maintain a measure inconsistent with paragraph 1 provided that such a measure is listed in, and meets the conditions of, the Annex on Article II Exemptions.

3. The provisions of this Agreement shall not be so construed as to prevent any Member from conferring or according advantages to adjacent countries in order to facilitate exchanges limited to contiguous frontier zones of services that are both locally produced and consumed”.

2.10 ThetestforbreachofArticleIIisthefollowing:

(i) IsthemeasurecoveredbyGATSandisitaffectingtradeinservices(seeabove)?

(ii) Aretheservicesand/orservicesupplier“like”?

(iii) DoestheWTOMemberaccordlessfavourabletreatmentthanthatrequiredbyArticleII:1?

2.11 ArticleII:2permitsaWTOMember,onaccessiontotheGATS,tosubmitalistofexemptionsfrommostfavourednationtreatment.Thislistcannotbesupplementedlater.Theexemptionswereoriginallyintended“inprinciple”toapplyfortenyearsaftertheentry

7 AppellateBodyreport,para125.8 Ibid,p.105.


intoforceoftheWTOAgreements,althoughWTOMembersareinnorushtogiveuptheirexemptionsandwouldseektonegotiatetradeconcessionsinreturnfortheirabolition.

2.12 InArgentina – Financial ServicestheAppellateBodyinterpretedlessfavourabletreatmentasinvolvingthemodificationoftheconditionsofcompetitiontothedetrimentoflikeservicesandservicesuppliersofanyotherWTOMember.“Likeness”hasbeenheldtosubsistwhere“theproductsorservicesandservicesuppliers,respectively,areinacompetitiverelationshipwitheachother”9.

Schedules of Specific Commitments

2.13 ArticleXX.1oftheGATSprovidesthat“Each Member shall set out in a schedule the specific commitments it undertakes under Part III of this Agreement”.ItisthereforenecessaryforaWTOMembertoscheduleatleastsomecommitments,althoughthesemaybeminimal.Oncescheduled,theWTOMemberwillenjoyallthebenefitsoftheGATSincludingtheobligationforotherWTOMemberstoprovidemostfavourednationtreatment(asdiscussedinparagraph2.8).

2.14 TheschedulesarelistsspecifyingtowhichservicesectorsandtowhichmodesofsupplyaWTOMemberchoosestoapplythenationaltreatmentandmarketaccessrequirements(aswellaspossibleadditionalcommitments).TheschedulesrepresenttheservicesequivalentofboundtariffsundertheGATTforgoods:minimumcommitmentsinrespectoftradeconcessions.TheGATSusesapositivelistinwhichanyconcessionsneedtobepositivelylistedtobebinding.

2.15 Whenspecifyingtheircommitments,WTOMembersarefreetoimposeterms,limitations,conditionsandqualifications.ArticleXXprovides:

“With respect to sectors where such commitments are undertaken, each Schedule shall specify:

a. terms, limitations and conditions on market access;

b. conditions and qualifications on national treatment;

c. undertakings relating to additional commitments;

d. where appropriate the time‑frame for implementation of such commitments; and

e. the date of entry into force of such commitments”.

2.16 Part1ofthescheduleiscalled“horizontalcommitments”andspecifiesmeasuresthatapplyacrossallscheduledservicessectors.Examplesincludelimitsonforeigndirectinvestment,landownershipandcorporatestructures.Assuch,itenablesWTOMemberstointroducerestrictionsforallservicesthroughasingleentry10.Suchmeasuresmayaffectparticularmodesofsupply.

9 Argentina – Financial Services,AppellateBodyreport,para9.2910 NMunin,A Legal Guide to GATS,p.131.


2.17 Sector‑specificcommitmentsrelatetospecificservicesectorsandmodesofsupply.Therearethreetypesofcommitments:marketaccess,nationaltreatmentandadditionalcommitments.EachareimportantinunderstandingWTOMembers’schedules.

The market access commitmentapplieswheretheWTOMemberspecifiesthetermsandconditionssubjecttowhichitagreestoprovideotherWTOMemberswithmarketaccesstoservicesectorsandmodesofsupply.MarketaccessappliesonlytothesixtypesofrestrictionssetoutinArticleXVIoftheGATS11(seeparagraph2.24below).

The national treatment obligationaccordingtowhichtheWTOMemberspecifiestheconditionsandqualificationswhichitappliestoeachservicesectorandmodeofsupply.Limitationsonsupplycancovercasesofde factoaswellasde jurediscrimination12.

Additional Commitments.ArticleXVIIIprovides:“Members may negotiate commitments with respect to measures affecting trade in services not subject to scheduling under Articles XVI or XVII, including those regarding qualifications, standards or licensing matters. Such commitments shall be inscribed in a Member’s Schedule”.

2.18 TherearefourlevelsofcommitmentthatmaybeundertakenbyaWTOMemberinthespecificcommitmentspartofthescheduleofcommitments:

Full commitment – marked “none” in the Schedule of Commitments.ThismeansthataWTOMemberdoesnotlimitmarketaccessornationaltreatmentthroughmeasuresinconsistentwitheithermarketaccessornationaltreatmentinaspecificservicesectorandmodeofsupply.However,anyconditionssetoutinthehorizontalpartoftheschedulewillstillapply.

Commitments with limitations – marked “none, except” in the Schedule of Commitments.IfaWTOMemberchoosestoapplyparticularmeasuresinconsistentwithmarketaccessornationaltreatmentitmustspecifytheseintherelevantcolumn.

No commitment – marked “unbound” in the Schedule of Commitments.ThismeansthattheWTOMemberisfreetoapplytotheservicesectorandmodeofsupplyanymeasureinconsistentwithmarketaccessornationaltreatment.Thisshouldonlybeusedwhereacommitmentinrespectofamodeofsupplyinaservicesectorhasbeenmade.Wherenocommitmentsaremadeasregardsaparticularsector,theservicesectorshouldnotbescheduled.

Lack of technical feasibility – marked “unbound*” in the Schedule of Commitments. Whereitistechnicallyimpossibletosupplyaspecificservicesectorthroughaparticularmodeofsupplythisshouldbemarkedwithan*asterisk13.

2.19 Therearetwelveservicesectors,mostofwhicharedividedintosub‑sectors.Thelistofservicesectorsis:businessservices,communicationservices,constructionandrelatedengineering

11 NMunin,A Legal Guide to GATS,p.132.12 Ibid,pp.132‑133.13 Ibid,p.137.


services,distributionservices,educationalservices,environmentalservices,financialservices,healthrelatedandsocialservices,tourismandtravelrelatedservices,recreational,culturalandsportingservices,transportservicesandotherservicesnotincludedelsewhere.WTOMembersareabletoschedulecommitmentsinsectorsorsub‑sectors.Commitmentsmaybemadeinrespectofanyorallofthefourmodesofsupply(seeparagraphs2.3and2.4above).

National Treatment

2.20 NationaltreatmentcomplementsmostfavourednationtreatmentasoneofthecoredisciplinesundertheGATS.Remember,however,fromtheprecedingsectionthatitisaqualifiedobligationinthatWTOMembersareablewhenpreparingtheirschedulesunderArticleXXtomakeitsubjecttoexceptionsandqualifications.Itfollowsthat,unlikeArticleIIIoftheGATT,itdoesnotapplyimmediatelyandunconditionallyasitsscopeisdeterminedbythecommitmentsundertaken.ArticleXVIIoftheGATSprovides:

“1. In the sectors inscribed in its Schedule, and subject to any conditions and qualifications set out therein, each Member shall accord to services and service suppliers of any other Member, in respect of all measures affecting the supply of services, treatment no less favourable than that it accords to its own like services and service suppliers.

2. A Member may meet the requirement of paragraph 1 by according to services and service suppliers of any other Member, either formally identical treatment or formally different treatment to that it accords to its own like services and service suppliers.

3. Formally identical or formally different treatment shall be considered to be less favourable if it modifies the conditions of competition in favour of services or service suppliers of the Member compared to like services or service suppliers of any other Member”.

2.21 ThescopeofArticleXVIIismuchnarrowerthanthescopeoftheGATS.Firstly,itonlyappliesto“the sectors inscribed in [the country’s] Schedule, and subject to any conditions and qualifications set out therein”.Secondly,itonlyappliestomeasures“affecting the supply of services”.Asthereisnospecificdefinitionof“measures”inArticleXVII,thedefinitioninArticleXXVIIIoftheGATS(discussedinparagraph2.5above)applies.

2.22 InArgentina – Financial ServicestheAppellateBodyrejectedthedecisionofthepaneltohaveregardtotheregulatoryaspectsinconsideringwhetherameasureaffordedlessfavourabletreatment.TheAppellateBodyreiterated:

“thefactthataprovisionhasapotentiallybroadscopeofapplicationisnotuniquetoArticleII:1orArticleXVIIoftheGATS.AsPanamarightlypointsout,ArticleIII:4oftheGATT1994alsohasanextensivescopeofapplication,covering‘alllaws,regulationsandrequirementsaffecting[the]internalsale,offeringforsale,purchase,transportation,distributionoruse’oftheproductsatissue.Theword‘affecting’inbothArticleIII:4


oftheGATT1994andArticleI:1oftheGATShasbeeninterpretedtomeanthattheseprovisionshavea‘broadscopeofapplication’.ThebroadscopeofArticleIII:4oftheGATT1994isalsoreflectedinthefactthatitcoversmeasuresaffectingthe‘internalsale,offeringforsale,purchase,transportation,distribution,oruse’ofproducts,therebyincludingmeasuresaffectingnotonlyproductsthemselvesbutalsoproducersorsuppliersofgoods.Nevertheless,thebroadscopeofArticleIII:4oftheGATT1994hasnotbeenperceivedasareasonforrequiringananalysisastothe‘regulatoryaspects’relatingtotheproducts.Rather,pursuanttothelegalstandardfor‘treatmentnolessfavourable’underArticleIII:4oftheGATT1994,thefactthatameasuremodifiestheconditionsofcompetitiontothedetrimentofimportedproductsis,initself,sufficientforafindingthatthemeasureconfers‘lessfavourabletreatment’”14.

Likeness

2.23 TheGATSjurisprudenceislessdevelopedintheareaoflikenessthanisthecasefortheGATT.InChina – Electronic Payment Servicesthepanelfocussedontheconditionsofcompetition.ThisanalysiswasfollowedbytheAppellateBodyinArgentina – Financial Serviceswhereitwasheldthatthesametestappliedto“likeness”underArticleXVIIandArticleII(mostfavourednation).

Market Access

2.24 MarketaccessisgovernedbyArticleXVIoftheGATS.ArticleXVI:2provides:

“In sectors where market‑access commitments are undertaken, the measures which a Member shall not maintain or adopt either on the basis of a regional subdivision or on the basis of its entire territory, unless otherwise specified in its Schedule, are defined as:

(a) limitations on the number of service suppliers whether in the form of numerical quotas, monopolies, exclusive service suppliers or the requirements of an economic needs test;

(b) limitations on the total value of service transactions or assets in the form of numerical quotas or the requirement of an economic needs test;

(c) limitations on the total number of service operations or on the total quantity of service output expressed in terms of designated numerical units in the form of quotas or the requirement of an economic needs test;

(d) limitations on the total number of natural persons that may be employed in a particular service sector or that a service supplier may employ and who are necessary for, and directly related to, the supply of a specific service in the form of numerical quotas or the requirement of an economic needs test;

14 AppellateBodyreport,para6.109.


(e) measures which restrict or require specific types of legal entity or joint venture through which a service supplier may supply a service; and

(f) limitations on the participation of foreign capital in terms of maximum percentage limit on foreign shareholding or the total value of individual or aggregate foreign investment”.

2.25 TheeffectofArticleXVI:1istoturntheschedulesofcommitmentsintoasourceofrightsforWTOMembers.Asthearticlereferstotreatmentnolessfavourablethanthatprovidedforunder the terms, limitations and conditions agreed and specified in its Scheduleitisclearthatthelimitationsandconditionsimposedintherelevantschedulecannotbedisregardedoroverridden.ArticleXVIappliestodiscriminatoryandnon‑discriminatorymeasures.Thereferenceto“no less favourable treatment”derivesfromtheGATTwhereacompetitiveopportunitiestestisapplied.Discriminationwillbefound,accordingly,ifthecompetitiveopportunitiesoftheforeignsupplierareadverselyaffected.

Economic Integration Agreements

2.26 TheGATScontainsanexemptionfrommostfavourednationcommitmentsinrespectofeconomicintegrationagreements.TherequirementsaresetoutinArticleVoftheGATS.ArticleV:1provides:

“This Agreement shall not prevent any of its Members from being a party to or entering into an agreement liberalizing trade in services between or among the parties to such an agreement, provided that such an agreement:

(a) has substantial sectoral coverage, and

(b) provides for the absence or elimination of substantially all discrimination, in the sense of Article XVII, between or among the parties, in the sectors covered under subparagraph (a), through:

(i) elimination of existing discriminatory measures, and/or

(ii) prohibition of new or more discriminatory measures, either at the entry into force of that agreement or on the basis of a reasonable time‑frame, except for measures permitted under Articles XI, XII, XIV and XIV bis”.

2.27 ItisclearthattheGATSwouldnotallowaneconomicintegrationagreementthatwasrestrictedtoasingleservicessector(suchasfinancialservices).TheUKwouldthereforebeprecludedunderWTOrulesfromnegotiatingapreferentialtradeagreementwiththeEUthatonlyappliedtocertainclassesofservicesasopposedtoservicesgenerally.Footnote1statesthattherequirementforsubstantialsectoralcoverage“is understood in terms of number of sectors, volume of trade affected and modes of supply. In order to meet


this condition, agreements should not provide for the a priori exclusion of any mode of supply”.Itfollowsthatthenumberofsectors,volumeoftradeandmodesofsupplyareallrelevanttothequestionwhethertheeconomicintegrationagreementcomplieswithArticleV,althoughthedegreeofliberalisationoftheindividualmodesofsupplyisunclear.Forthepositiononmutualrecognitionagreementsseeparagraphs2.35to2.39below.

Domestic Regulation

2.28 Domesticregulationisanimportanttoolforservingpublicpoliciesaswellasprotectingweakerpartiessuchasconsumers.Atthesametimeitmayserveasasignificantbarriertointernationaltrade.ItisgovernedbyGATSArticleVI.Thisprovides:

“1. In sectors where specific commitments are undertaken, each Member shall ensure that all measures of general application affecting trade in services are administered in a reasonable, objective and impartial manner.

2. (a) Each Member shall maintain or institute as soon as practicable judicial, arbitral or administrative tribunals or procedures which provide, at the request of an affected service supplier, for the prompt review of, and where justified, appropriate remedies for, administrative decisions affecting trade in services. Where such procedures are not independent of the agency entrusted with the administrative decision concerned, the Member shall ensure that the procedures in fact provide for an objective and impartial review.

(b) The provisions of subparagraph (a) shall not be construed to require a Member to institute such tribunals or procedures where this would be inconsistent with its constitutional structure or the nature of its legal system.

3. Where authorization is required for the supply of a service on which a specific commitment has been made, the competent authorities of a Member shall, within a reasonable period of time after the submission of an application considered complete under domestic laws and regulations, inform the applicant of the decision concerning the application. At the request of the applicant, the competent authorities of the Member shall provide, without undue delay, information concerning the status of the application.

4. With a view to ensuring that measures relating to qualification requirements and procedures, technical standards and licensing requirements do not constitute unnecessary barriers to trade in services, the Council for Trade in Services shall, through appropriate bodies it may establish, develop any necessary disciplines. Such disciplines shall aim to ensure that such requirements are, inter alia:

(a) based on objective and transparent criteria, such as competence and the ability to supply the service;

(b) not more burdensome than necessary to ensure the quality of the service;


(c) in the case of licensing procedures, not in themselves a restriction on the supply of the service.

5. (a) In sectors in which a Member has undertaken specific commitments, pending the entry into force of disciplines developed in these sectors pursuant to paragraph 4, the Member shall not apply licensing and qualification requirements and technical standards that nullify or impair such specific commitments in a manner which:

(i) does not comply with the criteria outlined in subparagraphs 4(a), (b) or (c); and

(ii) could not reasonably have been expected of that Member at the time the specific commitments in those sectors were made.

(b) In determining whether a Member is in conformity with the obligation under paragraph 5(a), account shall be taken of international standards of relevant international organizations applied by that Member.

6. In sectors where specific commitments regarding professional services are undertaken, each Member shall provide for adequate procedures to verify the competence of professionals of any other Member ”.

2.29 ThepurposeofArticleVIistomakedomesticdecision‑making,implementationandadministrationmoretransparent15.ArticleVIdiffersfromnationaltreatmentandmarketaccess.ArticleVI:1setsoutthegeneralgoalinitscallforthe“reasonable, objective and impartial”administrationofallmeasuresofgeneralapplicationinwhichcommitmentshavebeengiven.ItfollowsthatArticleVIcannot“bite”onsectorswherenospecificcommitmentshavebeenmade.However,whereevenminimalcommitmentshavebeenundertakeninasector,thearticlewillapplytothatsector16.Intermsofscope,thearticlecoverslaws,regulationsandgeneraladministrativeactsbutwouldseemtoexcludeindividualorad hocmeasuresthatarenotgeneral17.ItshouldalsobestressedthatArticleVIisconcernedwiththeadministrationandnotthesubstanceofdomesticregulations18.

2.30 Thereisnocaselawontheinterpretationof“reasonable,objectiveandimpartial”.Reasonablecouldbeinterpretedasimplyingastandardofproportionality19.Impartialprobablymeansevenhanded,providingforobjectivityandneutrality20.ArticleVI:2appliestoallsectorswhetherornotacommitmenthasbeenundertakeninthatsector.TorelyonArticleVI:2aservicesuppliermustshow(A)anadministrativedecision,(B)anadverseeffectontheservicesupplierand(C)acausallinkbetweenthedecisionandtheadverseeffect21.ArticleVI:2requiresthatWTOMembershavejudicial,arbitraloradministrativetribunalsorprocedurestoreviewadministrative

15 Ibid,p.271.16 Ibid,p.273.17 Ibid,p.272.18 Ibid,p.273.19 Ibid,p.275.20 Ibid.21 Ibid,p.277.


decisions.AfailuretointroducesuchformofreviewmayonlybechallengedbytheWTOdisputesettlementsystem.Inpractice,theUnitedKingdomisfullycompliantwithitssystemofcourtsandtribunals.Thereferenceto“appropriate remedies”leavesdiscretiontoWTOMemberswiththeresultthattheremediesavailablemayvaryfromWTOMembertoWTOMember.

2.31 ArticleVI:3addressescaseswhereauthorisationisrequired.Aservicesupplierisentitledtoadecisionwithinareasonableperiodoftime.Itleadstotransparencyofdecisionsaswellasinformationthatmaybeusedtochallengedefectsinthedecision‑makingprocess22.Compliancewiththisprovisionpresupposesabasisinnationallawonwhichtoapplyforauthorisation23.

2.32 ArticleVI:4empowerstheCouncilforTradeinServicestodevelopdisciplinestoensurethatqualificationrequirementsare(a)basedonobjectiveandtransparentcriteria,(b)notmoreburdensomethannecessaryand(c)inthecaseoflicensingprocedures,notinthemselvesarestrictiononthesupplyoftheservice.Thewords“inter alia”whichprecedetheitemisedlistofrequirementsinArticleVI:4indicatethattheseareminimumstandards.AsArticleVI:4appliestosectorswhetherornotcommitmentshavebeenmade,thereisthepossibilityofoverlapwiththerulesonmarketaccessandnationaltreatment.Onlystandardsintheaccountancysectorhavesofarbeenagreed.

2.33 ArticleVI:5appliespendingtheadoptionofstandardsunderArticleVI:4.WTOMembersareprohibitedinsectorswheretheyhavemadecommitments,fromapplyinglicensingandqualificationrequirementsandtechnicalstandardsthatnullifyorimpairsuchspecificcommitmentswhichdonotcomplywiththecriteriaoutlinedinsubparagraphs4(a),(b)or(c);orcouldnotreasonablyhavebeenexpectedofthatWTOMemberatthetimethespecificcommitmentsinthosesectorsweremade.ThearticleisdesignedtopreventWTOMembersfromtakingbackwithonehandconcessionswhichtheyhavegivenwiththeotherbymakingcommitments.

2.34 ArticleVI:6appliesonlywherecommitmentshavebeenmadeinrespectofprofessionalservicesandislimitedtotheprocedureandnotthesubstance24.Theprovisionisintendedtofacilitatemode4throughprovidingamechanismforthequalificationsofforeignnationalstobeassessed.ItiscomplementarytoArticleVIIonrecognition.

Mutual Recognition

2.35 ArticleVIIoftheGATSprovidesformutualrecognitiononaunilateralbasisorabilateralbasis.Significantly,wheremutualrecognitionisgranteditmustbecapableofbeingextendedonanMFNbasistootherWTOMemberswhomeettherelevantcriteria.ArticleVIIprovides:

“1. For the purposes of the fulfilment, in whole or in part, of its standards or criteria for the authorization, licensing or certification of services suppliers, and subject to the requirements of paragraph 3, a Member may recognize the

22 Ibid,p.282.23 Ibid.24 Ibid,p.295.


education or experience obtained, requirements met, or licenses or certifications granted in a particular country. Such recognition, which may be achieved through harmonization or otherwise, may be based upon an agreement or arrangement with the country concerned or may be accorded autonomously.

2. A Member that is a party to an agreement or arrangement of the type referred to in paragraph 1, whether existing or future, shall afford adequate opportunity for other interested Members to negotiate their accession to such an agreement or arrangement or to negotiate comparable ones with it. Where a Member accords recognition autonomously, it shall afford adequate opportunity for any other Member to demonstrate that education, experience, licenses, or certifications obtained or requirements met in that other Member’s territory should be recognized.

3. A Member shall not accord recognition in a manner which would constitute a means of discrimination between countries in the application of its standards or criteria for the authorization, licensing or certification of services suppliers, or a disguised restriction on trade in services.”

2.36 ThecoreoftheprovisionisArticleVII:1whichwouldpermittheUnitedKingdomtoaccordmutualrecognitiontoEUstandardsonaunilateralorbilateralbasis.TheformerisunlikelytobeattractiveasitwouldgiveEUfinancialservicessuppliersaccesstotheUKmarketwithoutacorrespondingrightonthepartofUKservicesuppliers.Hence,thearticlemakesprovisionforamutualrecognitionagreement.Unlikeaneconomicintegrationagreement,amutualrecognitionagreementcouldberestrictedtoasingleservicessectororsub‑sector.ItisalsoanexceptiontotheMFNprincipleasbyaccordingmutualrecognitiontoEUstandardstheUKwould,potentially,bediscriminatingagainstotherWTOMembers.Mutualrecognitionmaybebasedonharmonisation,butneednotbe.Inpractice,itmaybeunlikelythattheEUwouldagreetomutualrecognitionofUKstandardsunlesstheywerebased,atleast,oninternationallyagreedprudentialstandards.Infact,theEUcouldgofurtherandinsistthattheUKadheredtoEUstandards(eventhoughtheUKwouldhavenosayovertheirformulation)asaconditionofenteringintoamutualrecognitionagreement.Thisemphasisesthediscretionarynatureofmutualrecognition.

2.37 Sincemutualrecognitioncancausediversionoftradetothepartiestoamutualrecognitionagreement,ArticleVII:2aimstobalancethetradeliberalisingandtradedistortingeffectsofsuchagreements.Basically,otherWTOMembersmustbeaccordedanadequateopportunitytoaccedetothemutualrecognitionagreementortonegotiatesimilaragreements.ArticleVII:2doesnotdefinean“adequateopportunity”,butbasedontheordinarywordingandobjectivesoftheGATSitcanbearguedthatitrequiresageneralwillingnesstoincludeotherWTOMembersintherecognitionprocess25.ThepossibilityofofferingotherWTOMemberstheopportunitytonegotiateasimilaragreementmustbeavailableonanon‑discriminatorybasisandthenegotiationsmustbeconductedingoodfaith26.

25 RWolfrumetal.WTO Trade in Services,Nijhoff,p.201(Krajewski).26 Ibid.


2.38 ArticleVII:3imposesapositivenon‑discriminationobligation.AWTOMembershallnotaccordrecognitioninamannerwhichwouldconstituteameansofdiscriminationbetweencountriesintheapplicationofitsstandardsorcriteriafortheauthorisation,licensingorcertificationofservicessuppliers,oradisguisedrestrictionontradeinservices.ArticleVII:3wouldbeviolatediftheEUrecognisedthestandardsoperatingintheUnitedStateswithoutapplyingsimilarrecognitiontoUKstandardsprovided that the standards were equivalent.

2.39 ThereisanotificationrequirementinArticleVII:4(c)onaWTOMemberpromptlytoinformtheCouncilforTradeinServiceswhenitadoptsnewrecognitionmeasuresorsignificantlymodifiesexistingonesandtostatewhetherthemeasuresarebasedonanagreementorarrangementofthetypereferredtoinArticleVII:1.

Exceptions

2.40 ThereareexceptionsforpublicpolicyandpublicsecurityinArticleXIVoftheGATS.OfmorerelevanceinthefinancialservicescontextisArticleXIV(c)whichprovidesanexceptionformeasures“necessary to secure compliance with laws or regulations which are not inconsistent with the provisions of this Agreement including those relating to: (i) the prevention of deceptive and fraudulent practices or to deal with the effects of a default on services contracts; (ii) the protection of the privacy of individuals in relation to the processing and dissemination of personal data and the protection of confidentiality of individual records and accounts; (iii) safety”.ThescopeofthisprovisionwasconsideredinArgentina – Financial Services.Thecaseconcernedvarioustaxationmeasures,registrationofbranchesofcompaniesofnon‑cooperativetaxjurisdictionsandapriorauthorisationrequirementforthepurchaseofforeignexchangeforrepatriation.ThepanelheldthatthemeasureswerejustifiedonthebasisthattheydiscouragedharmfultaxpracticesandenabledtheauthoritiestoensurethatArgentineresidentsweretaxedonalltheirearnings.TherequirementsrelatingtothesettingupofbrancheswerejustifiedbytheneedfortheArgentineauthoritiestosecurecompliancewiththeCommercialCompaniesLawandtheResolutiononCompaniesIncorporatedAbroad,whiletherequirementforpre‑authorisationforthepurchaseofforeignexchangewasnecessarytoensurecompliancewiththeLawagainstMoneyLaundering.

2.41 TheAppellateBodyheldthat“[a]measurecanbesaid‘tosecurecompliance’withlawsorregulationswhenitsdesignrevealsthatitsecurescompliancewithspecificrules,obligations,orrequirementsundersuchlawsorregulations,evenifthemeasurecannotbeguaranteedtoachievesuchresultwithabsolutecertainty.Themorepreciselyarespondentisabletoidentifyspecificrules,obligations,orrequirementscontainedintheGATS‑consistentlawsorregulations,themorelikelyitwillbeabletoelucidatehowandwhytheinconsistentmeasuresecurescompliancewithsuchlawsorregulations”27.Moreover,“[t]hesecondelemententailsamorein‑depth,holisticanalysisoftherelationshipbetweentheinconsistentmeasureandtherelevantlawsorregulations.Inparticular,thiselemententailsanassessmentofwhether,inthelightofallrelevantfactorsinthe‘necessity’analysis,thisrelationshipissufficientlyproximate,suchthatthemeasurecanbedeemedtobe‘necessary’tosecure

27 AppellateBodyreport,para6.203.


compliancewithsuchlawsorregulations”28.IntheAppellateBody’sview“thesetwoelementsasconceptuallydistinct,yetrelated,aspectsoftheoverallinquirytobeundertakenintowhetherarespondenthasestablishedthatthemeasureatissueis‘necessarytosecurecompliancewithlawsorregulations’underArticleXIV(c)oftheGATS.Wedonotseethecontentofthesetwoelementsoftheanalysisasentirelyseparate.Nordoweseethestructureofeachanalysisasonethatmustfollowarigidpath.Rather,theanalysesofthesetwoelementsmayoverlapinthesensethatsomeconsiderationsmayberelevanttobothelementsoftheArticleXIV(c)defence”29.Inaddition,themeasuremustnotbe“applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where like conditions prevail, or a disguised restriction on trade in services”.

The Annex on Financial Services

2.42 TheAnnexonFinancialServicesisanintegralpartoftheGATSandappliestofinancialservicesbroadlydefined30.However,inordertobeafinancialserviceitmustbesuppliedbyafinancialservicessupplier.Thisisdefinedas“any natural or juridical person of a Member wishing to supply or supplying financial services but the term “financial service supplier” does not include a public entity”.

2.43 ThemostimportantprovisionintheAnnexonFinancialservicesisthe“prudentialcarve‑out”inparagraph2(a).Thisreads:

“Notwithstanding any other provisions of the Agreement, a Member shall not be prevented from taking measures for prudential reasons, including for the protection of investors, depositors, policy holders or persons to whom a fiduciary duty is owed by a financial service supplier, or to ensure the integrity and stability of the financial system. Where such measures do not conform with the provisions of the Agreement, they shall not be used as a means of avoiding the Member’s commitments or obligations under the Agreement”.

28 AppellateBodyreport,para6.204.29 AppellateBodyreport,para6.205.30 AfinancialserviceisanyserviceofafinancialnatureofferedbyafinancialservicesupplierofaWTOMember.Accordingto

theGATS“Financialservicesincludeallinsuranceandinsurance‑relatedservices,andallbankingandotherfinancialservices(excludinginsurance).Financialservicesincludethefollowingactivities:Insurance and insurance‑related services(i)Directinsurance(includingco‑insurance):(A)life(B)non‑life(ii)Reinsuranceandretrocession;(iii)Insuranceintermediation,suchasbrokerageandagency;(iv)Servicesauxiliarytoinsurance,suchasconsultancy,actuarial,riskassessmentandclaimsettlementservices.Banking and other financial services(excludinginsurance)(v)Acceptanceofdepositsandotherrepayablefundsfromthepublic;(vi)Lendingofalltypes,includingconsumercredit,mortgagecredit,factoringandfinancingofcommercialtransaction;(vii)Financialleasing;(viii)Allpaymentandmoneytransmissionservices,includingcredit,chargeanddebitcards,travellerschequesandbankersdrafts;(ix)Guaranteesandcommitments;(x)Tradingforownaccountorforaccountofcustomers,whetheronanexchange,inanover‑the‑countermarketorotherwise,thefollowing:(A)moneymarketinstruments(includingcheques,bills,certificatesofdeposits);(B)foreignexchange;(C)derivativeproductsincluding,butnotlimitedto,futuresandoptions;(D)exchangerateandinterestrateinstruments,includingproductssuchasswaps,forwardrateagreements;(E)transferablesecurities;(F)othernegotiableinstrumentsandfinancialassets,includingbullion.(xi)Participationinissuesofallkindsofsecurities,includingunderwritingandplacementasagent(whetherpubliclyorprivately)andprovisionofservicesrelatedtosuchissues;(xii)Moneybroking;(xiii)Assetmanagement,suchascashorportfoliomanagement,allformsofcollectiveinvestmentmanagement,pensionfundmanagement,custodial,depositoryandtrustservices;(xiv)Settlementandclearingservicesforfinancialassets,includingsecurities,derivativeproducts,andothernegotiableinstruments;(xv)Provisionandtransferoffinancialinformation,andfinancialdataprocessingandrelatedsoftwarebysuppliersofotherfinancialservices;(xvi)Advisory,intermediationandotherauxiliaryfinancialservicesonalltheactivitieslistedinsubparagraphs(v)through(xv),includingcreditreferenceandanalysis,investmentandportfolioresearchandadvice,adviceonacquisitionsandoncorporaterestructuringandstrategy”.


2.44 InArgentina – Financial ServicestheAppellateBodyconsideredforthefirsttimetheprudentialcarveoutstatingthat“paragraph2(a)containsthreerequirementsthatmustbefulfilledforameasuretobejustifiedunderthisprovision.First,thereisthethreshold,orpreliminary,questionofwhattypesofmeasuresmaypotentiallyfallwithinthescopeofparagraph2(a).Second,ameasuremusthavebeentaken“forprudentialreasons”.Finally,underthesecondsentenceofparagraph2(a),themeasure“shallnotbeusedasameansofavoidingtheMember’scommitmentsorobligationsundertheAgreement”.Onlywhenameasurefallswithinthescopeofparagraph2(a)willtherebeaneedtoevaluatewhetheritwastaken“forprudentialreasons”andwhetheritfulfilstherequirementinthesecondsentenceofparagraph2(a)”31.

2.45 TheAppellateBodycontinued“Thefactthatparagraph2(a)coversviolationsofobligationsunder“anyotherprovisionsoftheAgreement”meansthatitcouldbeinvokedtojustifyinconsistencieswithallofaWTOMember’sobligationsundertheGATS.Theseinclude,forexample,aWTOMember’smost‑favoured‑nationtreatmentobligationunderArticleII,marketaccesscommitmentsunderArticleXVI,ornationaltreatmentobligationunderArticleXVII.Thisindicatesthat,forexample,measureswhichareofthetypeslistedinArticleXVI:2,andwhichimposemarketaccessrestrictionsforprudentialreasons,couldpotentiallyfallwithinthescopeofparagraph2(a).ThetypeofmeasuretakenbyaWTOMember(suchasmarketaccessrestrictions)andtheprovisionoftheGATScontravenedbysuchmeasure(suchasArticleXVI)aredistinct,butrelated,concepts.Forthisreason,wedonotagreewithPanamathatthepermissiongrantedbytheintroductoryclauseofparagraph2(a)todepartfromtheobligationssetoutin“anyprovisionsof”theGATS“hasnoimplicationonthetypeofmeasuresthatmaybeinconsistentwithanyprovisionoftheGATSandalsocoveredbytheprudentialexception””32.

2.46 Prudentialmeasuresthatcouldfallwithintheprudentialcarveoutincludecapitaladequacystandards,requirementsforthefitnessandproprietyofseniormanagementandshareholdercontrollers,conductofbusinessrules,liquidityrulesandrequirementsinrespectofbankrecoveryandresolution.Standardssetbytheinternationalstandardsettingbodies(e.g.theBaselCommitteeandIOSCO)mightbetakenasabenchmarkforwhatconstitutesprudentialmeasures.

2.47 Paragraph3(a)oftheAnnexonfinancialservicesmakesprovisionforthemutualrecognitionoftheprudentialmeasuresofanyothercountryindetermininghowaWTOMember’smeasuresrelatingtofinancialservicesshallbeapplied.Suchrecognitionmaybeachievedthroughharmonisationorotherwise,maybebasedonanagreementorarrangementwiththecountryconcernedormaybeaccordedautonomously.ThisisahortatoryprovisionasitdoesnotrequiretheWTOMembermutuallytorecogniseotherstates’domesticregulationasequivalent.Paragraph3(b)providesthataWTOMemberthatispartytosuchanagreementorarrangementshallaffordadequateopportunityforotherinterestedWTOMemberstonegotiatetheiraccessiontosuchagreementsorarrangementsortonegotiatecomparableonesundercircumstancesinwhichtherewouldbeequivalentregulation,

31 AppellateBodyreport,para6.246.32 Ibid,para6.255.


oversight,implementationofsuchregulation,and,ifappropriate,proceduresconcerningthesharingofinformationbetweenthepartiestotheagreementorarrangement.

2.48 Finally,paragraph4oftheAnnexrequirespanelsfordisputesettlementonprudentialissuesandotherfinancialmatterstohavethenecessaryexpertiserelevanttothespecificfinancialserviceunderdispute.However,subjecttothat,thenormalWTOdisputesettlementprocedureapplies.

The Understanding on Financial Services

2.49 TheUnderstandingonFinancialServiceswaselaboratedbyagroupofdeveloped,mostlyOECD,countriesthatweredissatisfiedwiththequitelimiteddegreeofliberalisationoftradeinfinancialservicesachievedbytheAnnex.Theunderstandingisnotaseparateagreementbutratherrepresentsa“modelschedule”thatWTOMembersmay,iftheysochoose,adopt.Itthereforehasnolegalforceper sebutbecomesbindingonceitscommitmentsareincorporatedinthescheduleofcommitmentsofWTOMembersthatfollowtheUnderstandingonFinancialServices.TheEUanditsMemberStateshaveadoptedtheapproachsetoutintheUnderstandingonFinancialServices.

2.50 SectionAprovidesforastandstillprovision.ThisisintendedtofixthestatusquooffinancialservicesregulationatamaximumbelowwhichaWTOMembermaynotloweritsleveloftradeliberalisation.Underthestandstillprovision,anymeasurenotinconformitywiththeUnderstanding’salternativeapproachmustpre‑datetheadoptionoftheUnderstandingintherelevantMember’sschedule.TheeffectistograndfatherexistingmeasuresthatarecontrarytothetextoftheUnderstanding.

2.51 SectionBprovidesformarketaccessandmodifiesthelistofprohibitedmarketaccessrestrictionsinArticleXVI:2.SectionB.3providesfortheliberalisationofcross‑bordertradeundernationaltreatmentofcertaininsuranceservices(e.g.maritimeshipping,commercialaviationandspacelaunchingandfreightaswellasgoodsininternationaltransport).UndertheUnderstanding,eachadoptingWTOMembershallpermititsresidentstopurchaseintheterritoryofanyotherWTOMembertheinsuranceservicessetoutintheUnderstandingandthebankingserviceslistedinparagraphs5(a)(v)to(xvi)oftheAnnexonFinancialServices.Thisencompassesaverybroadrangeofbankingservicesincludingdeposit‑taking,lending,paymentandmoneytransmissionservices,securities,assetmanagement,settlementandclearingandadvisoryservices.

2.52 EachadoptingWTOMembershallgrantfinancialservicesuppliersofanyotherWTOMembertherighttoestablishorexpandwithinitsterritory,includingthroughtheacquisitionofexistingenterprises,acommercialpresence.AdoptingWTOMembersmay,however,imposeterms,conditionsandproceduresforauthorisationofthecommercialpresence.

2.53 EachadoptingWTOMembershallpermittemporaryentryintoitsterritoryofthefollowingpersonnelofafinancialservicesupplierofanyotherWTOMemberthatisestablishingorhasestablishedacommercialpresenceintheterritoryoftheadoptingWTOMember:(i)senior


managerialpersonnelpossessingproprietaryinformationessentialtotheestablishment,controlandoperationoftheservicesofthefinancialservicesupplier;and(ii)specialistsintheoperationofthefinancialservicesupplier.EachadoptingWTOMembershallpermit,subjecttotheavailabilityofqualifiedpersonnelinitsterritory,temporaryentryintoitsterritoryofthefollowingpersonnelassociatedwithacommercialpresenceofafinancialservicesupplierofanyotherWTOMember:(i)specialistsincomputerservices,telecommunicationservicesandaccountsofthefinancialservicesupplier;and(ii)actuarialandlegalspecialists.

2.54 EachadoptingWTOMembershallendeavourtoremoveortolimitanysignificantadverseeffectsonfinancialservicesuppliersofanyotherWTOMemberof:(a)non‑discriminatorymeasuresthatpreventfinancialservicesuppliersfromofferingintheadoptingWTOMember’sterritory,intheformdeterminedbytheadoptingWTOMember,allthefinancialservicespermittedbytheadoptingWTOMember;(b)non‑discriminatorymeasuresthatlimittheexpansionoftheactivitiesoffinancialservicesuppliersintotheentireterritoryoftheadoptingWTOMember;(c)measuresofanadoptingWTOMember,whensuchanadoptingWTOMemberappliesthesamemeasurestothesupplyofbothbankingandsecuritiesservices,andafinancialservicesupplierofanyotherWTOMemberconcentratesitsactivitiesintheprovisionofsecuritiesservices;and(d)othermeasuresthat,althoughrespectingtheprovisionsoftheAgreement,affectadverselytheabilityoffinancialservicesuppliersofanyotherWTOMembertooperate,competeorentertheadoptingWTOMember’smarket;providedthatanyactiontakenunderthisparagraphwouldnotunfairlydiscriminateagainstfinancialservicesuppliersoftheadoptingWTOMembertakingsuchaction.

2.55 Undertermsandconditionsthataccordnationaltreatment,eachadoptingWTOMembershallgranttofinancialservicesuppliersofanyotherWTOMemberestablishedinitsterritoryaccesstopaymentandclearingsystemsoperatedbypublicentities,andtoofficialfundingandrefinancingfacilitiesavailableinthenormalcourseofordinarybusiness.ThisparagraphisnotintendedtoconferaccesstotheadoptingWTOMember’slenderoflastresortfacilities.Whenmembershiporparticipationin,oraccessto,anyself‑regulatorybody,securitiesorfuturesexchangeormarket,clearingagency,oranyotherorganisationorassociation,isrequiredbyanadoptingWTOMemberinorderforfinancialservicesuppliersofanyotherWTOMembertosupplyfinancialservicesonanequalbasiswithfinancialservicesuppliersoftheadoptingWTOMember,orwhentheadoptingWTOMemberprovidesdirectlyorindirectlysuchentities,privilegesoradvantagesinsupplyingfinancialservices,theadoptingWTOMembershallensurethatsuchentitiesaccordnationaltreatmenttofinancialservicesuppliersofanyotherWTOMemberresidentintheterritoryoftheadoptingWTOMember.

EU Schedule of Commitments under the GATS

2.56 TheEUscheduleofcommitmentsisestablished“inaccordancewiththeprovisionsofthe‘UnderstandingonCommitmentsinFinancialServices’”.Thesecommitmentsaresubjecttothelimitationsonmarketaccessandnationaltreatmentinthe“allsectors”sectionofthescheduleandtothesub‑sectorslisted.Marketaccesscommitmentsinrespectofmodes1and2applyonlytotransactionslistedinB.3andB.4(cross‑bordertradeincertaininsurance


andbankingservices).Asageneralruleandinanon‑discriminatorymanner,financialinstitutionsincorporatedinaMemberStateoftheEUmustadoptaspecificlegalform.

2.57 Unlikeforeignsubsidiaries,branchesestablisheddirectlyinaMemberStatebyanon‑EUfinancialinstitutionarenot,withcertainlimitedexceptions,subjecttoprudentialregulationsharmonisedatEUlevel.Therefore,suchbranchesmayreceiveanauthorisationtooperateintheterritoryofaMemberStateunderconditionsequivalenttothoseappliedtodomesticfinancialinstitutionsofthatMemberState,andmayberequiredtosatisfyanumberofspecificprudentialrequirementssuchas,inthecaseofbankingandsecurities,separatecapitalisationandothersolvencyrequirementsandreportingandpublicationofaccountsrequirementsor,inthecaseofinsurance,specificguaranteeanddepositrequirements,aseparatecapitalisation,andthelocalisationintheMemberStateconcernedoftheassetsrepresentingthetechnicalreservesandatleastonethirdofthesolvencymargin.MemberStatesmayapplytherestrictionsindicatedinthisscheduleonlywithregardtothedirectestablishmentfromathirdcountryofacommercialpresenceortotheprovisionofcross‑borderservicesfromathirdcountry;consequently,aMemberStatemaynotapplytheserestrictions,includingthoseconcerningestablishment,tothird‑countrysubsidiariesestablishedinotherMemberStatesoftheEU,unlesstheserestrictionscanalsobeappliedtocompaniesornationalsofotherMemberStatesinconformitywithEUlaw.

2.58 SeveralMemberStateshaveimposedrestrictionsontheprovisionofinsuranceandinsurance‑relatedservicesundermodes1and2.Bywayofexample,undermode1(cross‑border)DenmarkrequirescompulsoryairtransportinsurancetobeunderwrittenbyafirmestablishedintheEU.InGermanyifaforeigninsurancecompanyhasestablishedabranch,itmayconcludeinsurancecontractsinGermanyrelatingtointernationaltransportonlythroughthebranchestablishedinGermany.Italyimposesarequirementthatinsuranceofrisksrelatingtoc.i.f.exportsbyresidentsmaybeunderwrittenonlybyinsurancefirmsestablishedintheEU.Inrespectofmode2(consumptionabroad)AustriarequirescompulsoryairinsurancetobeunderwrittenonlybyasubsidiaryestablishedinAustriaorbyabranchestablishedinAustria.Nopersonsorcompanies(includinginsurancecompanies)mayforbusinesspurposesinDenmarkassistineffectingdirectinsuranceforpersonsresidentinDenmark,forDanishshipsorforpropertyinDenmark,otherthaninsurancecompanieslicensedbyDanishlaworbyDanishcompetentauthorities.Manymoreexamplescouldbegiven.

2.59 Intermsofcommercialpresence,Austriastatesthatthelicenceforabranchofficeofaforeigninsurerwillberefusediftheinsurerinthehomecountrydoesnothavealegalformcorrespondingorcomparabletoajointstockcompanyoramutualinsuranceassociation.FinlandhasarequirementthatthegeneralagentofaforeigninsurancecompanyshallhavehisplaceofresidenceinFinlandunlessthecompanyhasitsheadofficeintheEEA.Spainrequiresaforeigninsurertohavebeenauthorisedtooperatethesameclassesofinsuranceinitscountryoforiginforatleastfiveyearsbeforeestablishingabranchoragencytoprovidesuchclassesofinsurance.InGreecetherightofestablishmentdoesnotcoverthecreationofrepresentativeofficesorotherpermanentpresenceofaninsurancecompanyunlesssuchofficesareestablishedasagencies,branchesorheadoffices.InFinlandthemanaging


director,atleastoneauditorandatleastonehalfofthepromotersandMembersoftheboardofdirectorsandsupervisoryboardshallhavetheirplaceofresidenceintheEEAunlessanexemptionisobtained.Foreigninsurerscannotgetalicenceasabranchtocarryonstatutorysocialinsurance(statutorypensioninsurance,statutoryaccidentinsurance).SwedenrequiresafounderofaninsurancecompanytobeanaturalpersonresidentintheEEAoralegalentityincorporatedthere.Otherrestrictionsonmarketaccessandnationaltreatmentexist.

2.60 PresenceofnaturalpersonsisunboundexceptassetoutinthehorizontalsectionandissubjecttoadditionalrequirementsinGreece.ThehorizontalsectionstatesthataccessisunboundexceptformeasuresconcerningtheentryintoandtemporarystaywithinaMemberStateoflistedcategoriesofnaturalpersonswithoutrequiringcompliancewithaneconomicneedstestexceptwhereindicatedforaspecificsubsector.TheSchedulestatesthatallotherrequirementsofEUandMemberStates’laws,regulationsandrequirementsregardingentry,stayandworkshallcontinuetoapply.Theservicecontractshallcomplywiththelaws,regulationsandrequirementsoftheEUandtheMemberStatewheretheservicecontractisexecuted.

2.61 Inrespectofbankingandotherfinancialservices,BelgiumrequiresestablishmentinBelgiumfortheprovisionofinvestmentadvisoryservices.Irelandgenerallyrequiresauthorisation(inIrelandoranotherMemberState)fortheprovisionofinvestmentservicesandinvestmentadvicewhichrequiresthattheentitybeincorporatedorbeapartnershiporasoletrader,ineachcasewithahead/registeredofficeinIreland.AuthorisationmaynotberequiredwhereathirdcountryserviceproviderhasnocommercialpresenceinIrelandandtheserviceisnotprovidedtoprivateindividuals.Therearenolimitsonnationaltreatmentinrespectofmode2(consumptionabroad).However,severalMemberStatesplacerestrictionsonmarketaccess.GreecerequiresestablishmentfortheprovisionofcustodialanddepositoryservicesinvolvingtheadministrationofinterestandprincipalpaymentsdueonsecuritiesissuedinGreece.TheUKrequiressterlingissues,includingprivatelyledissues,tobeleadmanagedonlybyafirmestablishedintheEEA.

2.62 Undermode3(commercialpresence)allMemberStatesrequiretheestablishmentofaspecialisedmanagementcompanytoperformtheactivitiesofmanagementofunittrustsandinvestmentcompanies,andonlyfirmshavingtheirregisteredofficeintheEUcanactasdepositoriesoftheassetsofinvestmentfunds.InBelgiumanypublicbidtoacquireBelgiansecuritiesmadebyoronbehalfofaperson,companyorinstitutionoutsidethejurisdictionofonetheEUMemberStatesshallbesubmittedtotheauthorisationoftheMinisterofFinance.InSpain,financialinstitutionsmayengageintradinginsecuritieslistedonanofficialstockexchangeorinthegovernmentsecuritiesmarketonlythroughsecuritiesfirmsincorporatedinSpain.InFinlandatleastonehalfofthefounders,themembersoftheboardofdirectors,thesupervisoryboardandthedelegates,themanagingdirector,theholderoftheprocurationandthepersonentitledtosigninthenameofabankshallhavetheirplaceofresidenceintheEEAunlesstheMinistryofFinancegrantsanexemption.ThebrokeronaderivativeexchangeshallhavehisplaceofresidenceintheEEA,althoughanexemptioncanbegrantedunderconditionssetbytheMinistryofFinance.


2.63 InIreland,tobecomeamemberofastockexchangeanentitymusteitherbeauthorisedinIreland(whichrequiresthatitbeincorporatedorisapartnershipwithhead/registeredofficeinIreland)orbeauthorisedinanotherEUMemberState.TheprovisionofinvestmentservicesrequireseitherauthorisationinIreland,whichnormallyrequiresthattheentitybeincorporatedorbeapartnershiporsoletrader,ineachcasewithahead/registeredofficeinIrelandoranotherEUMemberState.Thesupervisoryauthoritymayalsoauthorisebranchesofthirdcountryentities.IntheUKinter‑dealerbrokersdealinginGovernmentdebtarerequiredtobeestablishedintheEEAandseparatelycapitalised.Moreexamplescouldbegiven.

2.64 ThepresenceofnaturalpersonsisunboundsaveasindicatedinthehorizontalsectionandissubjecttospecificconditionsinFinlandandGreece.

2.65 TheEUhasundertakenadditionalcommitmentsundertheGATSinrespectofinsuranceandotherfinancialservices.Inrespectofinsurance,MemberStateswillmaketheirbestendeavourstoconsiderwithinsixmonthscompleteapplicationsforlicencestoconductdirectinsuranceunderwritingbusiness,throughtheestablishmentinaMemberStateofasubsidiaryinaccordancewiththelegislationofthatMemberState,byanundertakinggovernedbythelawsofathirdcountry.Incaseswheresuchapplicationsarerefused,theMemberStateauthoritywillmakeitsbestendeavourstonotifytheundertakinginquestionandgivethereasonsfortherefusaloftheapplication.InrespectofotherfinancialservicesinapplicationoftherelevantECDirectives,MemberStateswillmaketheirbestendeavourstoconsiderwithin12monthscompleteapplicationsforlicencestoconductbankingactivities,throughtheestablishmentinaMemberStateofasubsidiaryinaccordancewiththelegislationofthatMemberState,byanundertakinggovernedbythelawsofathirdcountry.Incaseswheresuchapplicationsarerefused,theMemberStatewillmakeitsbestendeavourstonotifytheundertakinginquestionandgivethereasonsfortherefusaloftheapplication.MemberStateswillmaketheirbestendeavourstoconsiderwithin6monthscompleteapplicationsforlicencestoconductinvestmentservicesinthesecuritiesfield,asdefinedintheInvestmentServicesDirective[nowtheMarketsinFinancialInstrumentsDirectiveorMiFID)],throughtheestablishmentinaMemberStateofasubsidiaryinaccordancewiththelegislationofthatMemberState,byanundertakinggovernedbythelawsofathirdcountry.Incaseswheresuchapplicationsarerefused,theMemberStatewillmakeitsbestendeavourstonotifytheundertakinginquestionandgivethereasonsfortherefusaloftheapplication.

2.66 ItwillbeseenthatthedegreeofliberalisationeffectedbytheGATSisconsiderablylessthanthatavailableundertheSingleMarketDirectives.Thereisnorighttoestablishabranch,andwhereaMemberStateallowsathirdcountrybranchitwillbesubjecttoauthorisationrequirements.Mode1(cross‑border)servicesislimitedtocertainkindsoflargeriskinsuranceandbankingactivities,butissubjecttolimitationsonmarketaccessandnationaltreatmentinmanyMemberStates.ConsumptionabroadisnotsubjecttorestrictionsonnationaltreatmentbutissubjecttonationalrestrictionsonmarketaccessincertainMemberStates.Thepresenceofnaturalpersonsisheavilycaveatedandsubjecttonationalimmigrationlaws.


2.67 TheHouseofLordsEuropeanUnionCommittee,initsreportontheimpactofBrexitonfinancialservicesrecommendedthatakeypriorityfortheGovernmentshouldbetoensurethatthereisanadequatetransitionperiod,avoidinga‘cliffedge’bothatthemomentofwithdrawalfollowingtheArticle50processandastheUKandtheEUmovetowardsanewrelationship.


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OSM0010118_v03

March2017

Jan Putnis T 02070903211 E [email protected]

Stephen Powell T 02070903131 E [email protected]

Tolek Petch T 02070903006 E [email protected]

Ben Kingsley T 02070903169 E [email protected]

Richard de Carle T 02070903047 E [email protected]

Contacts

Documents

Brexit and Financial Services: the GATS Option … · GATS does not, however, define a service; instead, Article I:3(b) provides that services “include any service in any sector