Trade in Financial Services

hough overshadowed at the World Trade Organization’s (WTO) Nairobi Ministerial Conference earlier this week by the deep differences over agricultural subsidies and food security and on the rules governing trade in industrial goods, services have been an important bone of contention at the multilateral trade body. Developed countries had achieved a major victory in the Uruguay Round of trade negotiations, when they managed to bring trade in services, defined broadly as occurring under four modes (cross-border supply, consumption abroad, commercial presence and movement of natural persons), onto the negotiating table through the General Agreement on Trade in Services (GATS). That began a process of liberalisation of trade in services, which was crucial for the developed countries because they accounted for a rising share of output and employment in the developed countries, and because these countries had been losing their competitiveness in the production of goods, they had retained significant competitive advantages in high-end services.

However, while the Uruguay Round established a framework with four modes for examining and discussing the services trade and delivered GATS, it provided little by way of actual commitments and only a cumbersome “request and offer” regime to proceed with liberalisation. This made substantial gains in the services area, an important objective in the Doha Round for advocates of liberalisation. Among those services, financial services (dominated by agents operating in developed country financial centres such as London, New York and Frankfurt) are among those where the pressures to put in place a far more liberal multilateral investment and trading regime have been intense.