The original article that ARGeezer linked to on Zero Hedge excerpts its key points from a "policy primer" from Public Citizen Global Trade Watch (Lori Wallach's organization) titled "The Connection between the World Trade Organization's Extreme Financial Service Deregulation Requirements and the Global Economic Crisis" (PDF).
This primer discusses the confusing yet critical "prudential exception" clause in the General Agreement on Trade in Services about "Domestic Regulation" that afew pointed to above. In particular, it discusses the "self-cancelling" nature of the verbiage, and asserts that "it in fact provides no safeguard for [domestic] financial stability measures that may conflict with the WTO deregulation obligations":
GATS Annex on Financial Services contains a "Domestic Regulation" provision that makes clear that only countries' domestic financial stability measures that are not "used as a means of avoiding the Member's commitments or obligations under the Agreement" are permissible if they do not conflict with the pact's deregulation requirements.16 That is to say, even if regulatory measures are taken for prudential reasons, they are not safeguarded from the WTO's array of deregulation requirements, if they in effect undermine these regulatory constraints. Some have disingenuously called this provision the "prudential exception" or "prudential carve-out," but because it is self-cancelling, it in fact provides no safeguard for financial stability measures that may conflict with the WTO deregulation obligations. Bizarrely, given the loophole already eviscerating the provision, the financial service industry has been lobbying in the context of ongoing GATS negotiations for a narrow interpretation that would limit "prudential" measures to regulations concerning only solvency and financial disclosure.17 16 Annex on Financial Services, paragraph 2(a) states that "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 owned 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." 17 The Commission on the Future of Health Care in Canada, summary report on Globalization and Health, Putting Health First: Canadian Health Care Reform, Trade Treaties and Foreign Polic (prepared by the Canadian Centre for Policy Alternatives), October 2002. Available at http://www:healthcarecommission.ca.
16 Annex on Financial Services, paragraph 2(a) states that "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 owned 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." 17 The Commission on the Future of Health Care in Canada, summary report on Globalization and Health, Putting Health First: Canadian Health Care Reform, Trade Treaties and Foreign Polic (prepared by the Canadian Centre for Policy Alternatives), October 2002. Available at http://www:healthcarecommission.ca.
If this interpretation of the clause is as unambiguous as this paper makes it out to be (i.e. unambiguous in a WTO "court"), how could lawyers -- even U.S. or E.U. lawyers -- argue their way out of it?
santiago: The US and the EU simply are not, and never really have been, politically constrained by WTO agreements. Instead the WTO has served as kind of organizing tool for the purpose of attempting to constrain policies regarding trade, investment, and property rights particularly directed at developing countries.
Supposedly trade sanctions are the way that the WTO enforces obedience to its agreements and regulations, but I never understood how that worked. Is it conceivable that as China's economic and financial clout continues to grow, the Chinese government could use/leverage the WTO (e.g. via sanctions) finally to impose consequences on the US and EU for such violations of these agreements? The march of civilizations is a series of defenses that man has put up against the dread of pure existence.
There are built in costs to members' noncompliance to their commitments -- and noncompliance is usually a result of inability to overcome domestic opposition, not strategic willfulness on the part of the national authority responsible for foreign policy. The penalties for non-compliance come in the form of "allowing" affected member governments to impose trade sanctions of their own on imports from states that have been determined, through by an elaborate, multinational decision and appeal process, of being in violation of their commitments. Even then, states impose sanctions only if the they can muster sufficient domestic support for them - there is no automatic sanctions coming from the WTO as such, so this isn't in any way a level playing field among countries. Such sanctions serve as a domestic political weapon to help encourage pro-trade factions to prevail in domestic policy contests by encouraging exporters to also support policies which liberalize competing imports.
There is, therefore, nothing at all deterministic about WTO agreements. Rather it just provides some political tools that may, or may not, help pro-trade coalitions within nation-states prevail over anti-trade coalitions. Stronger international institutional arrangements such as NAFTA or the EU provide somewhat better weapons for domestic the pro-trade factions, but even then the outcomes are far from unambiguous.
On China's (current and/or future) ability to make use of WTO agreements and regulations to force more international compliance (even by the EU and USA), are you equally skeptical? The march of civilizations is a series of defenses that man has put up against the dread of pure existence.
