EMBARGO: NOT FOR PUBLICATION
BEFORE 00:01 GMT 22SEPTEMBER 1997
PRESS/76
15September 1997
LIBERALIZING FINANCIAL SERVICES HELPS ECONOMIES
WITHOUT COMPROMISING THEIR RIGHT TOREGULATE
Anewstudy byeconomists from theWTO Secretariat discusses thebenefits andchallenges
related totheliberalization offinancial services trade inbothdeveloping anddeveloped countries.
Thestudy highlights theimportance ofinternational competition inbanking, securities andinsurance
markets while acknowledging thecritical needforpreserving prudential policies tosafeguard financial
systems forthebenefit ofinvestors andconsumers.
Thestudy, "Open Markets inFinancial Services andtheRoleoftheGATS"1explains that
trade liberalization inthissector will:
-enhance competition andimprove sectoral efficiency, leading tolower costs, better quality,
andmore choice offinancial services;
-improvefinancialintermediationandinvestmentopportunitiesthroughbetterresourceallocation
acrosssectors,countriesandtime,andthroughbettermeansofmanagingrisksandabsorbingshocks;and
-induce governments toimprove macroeconomic management, domestic policy interventions
incredit markets, andfinancial sector regulation andsupervision.
Liberalization offinancial services canhavestrong positive effects onincome andgrowth.
Developed anddeveloping countries withopenfinancial sectors havetypically grown faster thanthose
withclosed regimes. Theeconomic success ofHong Kong (China) andSingapore hasbeengreatly
facilitated byinternationally-oriented financial service sectors. Many developing countries suchas
Argentina, Brazil, Ghana, Hungary, Indonesia, andPakistan havebecome increasingly integrated in
theworld 'sfinancial markets.
1Thestudy, thefirstinaseries ofstudies ontopical issues, isavailable inEnglish, French and
Spanish andmaybepurchased forCHF 30.-from theWTO 'sPublications Division.
MORE 97-3651 PRESS/76
Page2/3
Thefinancial services sector hasexpanded rapidly inrecent years. Thestudy notes that
employment increased by25to50percentinanumber ofindustrialized countries since 1970 and
nowrepresents 3to5percentoftotalemployment. Value-added inthefinancial service sector has
alsogrown considerably overthepast25years andnowreaches between 7and13percentofGDP
inHong Kong (China), Singapore, Switzerland, andtheUnited States.
Financial service sector growth reflects theriseininternational financial market activities.
Lending andsecurities trading, andderivative markets haveexperienced rapid growth inthepast
10years, withmany developing andtransition economies alsobenefitting fromimproved international
market access. Foreign ownership ofbanking assets, anindicator ofcommercial presence inthissector
approaches 20percentintheUnited States, Argentina andChile. Consequently, thestudy says,cross-
border trade infinancial services more thantripled between 1985 and1995 andnowexceeds
US$50 billion forthemostimportant trading countries. DatafortheUnited States suggests thattrade
viacommercial presence inforeign markets isevenmore important thancross-border trade.
Thestudy identifies anumber ofchallenges which must bemetifcountries aretoreapthe
fullbenefits from trade liberalization inthefinancial services sector. Itstates that"macroeconomic
stability, structural policies which minimize distortionary interventions inthefinancial sector and
prudential regulation andsupervision" mustunderpin thebenefits ofliberalization. Thestudy notes
thatthereisnouniversally applicable liberalization strategy andthatthespecific circumstances ofeach
country should betaken intoconsideration.
Thestudy stresses thatmaintaining thestability andsecurity ofthefinancial services system
isofparamount importance. Theauthors point outthattheGeneral Agreement onTrade inServices
(GATS)allowsWTOMemberstotakeprudentialmeasurestoprotectinvestorsandtoensuretheintegrity
andstability oftheirdomestic financial systems. Italsopermits theuseoftemporary non-discriminatory
restrictionsonbalance-of-paymentsandtransfersintheeventofseriousbalance-of-paymentsandexternal
financial difficulties. Moreover, themanagement ofmonetary andexchange ratepolicy fallsoutside
thescope oftheGATS.
Initsoverall assessment concerning thebenefits oftrade liberalization andthechallenges for
Member governments, thestudy states: "Thebenefits fromparticipating inthemultilateral negotiating
process under theGATS, through market access andnational treatment commitments, canaccrue to
countries without inanywaycompromising theirability topursue sound macroeconomic andregulatory
policies." Indeed, notesthestudy, "there arecircumstances where forward commitment toliberalization
mayhelptosupport thedevelopment ofbetter macroeconomic andregulatory policies."
END