Yes, and in fact, my comment was completely unfair to Lori Wallach herself. Besides writing about this matter on Public Citizen's Global Trade Watch since the financial crisis broke out in 2008, she testified to the Congressional Subcommittee on Terrorism, Nonproliferation and Trade about it in March 2009:
(my bold)
On behalf of Public Citizen's 100,000 members, I thank the Chairman and the Committee for the opportunity to share my organization's views on U.S. foreign economic policy in the global crisis. <...> The devastation being caused by the global economic crisis to the lives and livelihoods of hundreds of millions of people around the world is not merely the result of bad practices by certain mega financial service firms, but the foreseeable outcome of one system of global economic governance - or more accurately anti-governance - that has been put into place and now must be replaced. <..> ... In the body of this testimony, I go into some detail on one little-known aspect of the current failed economic governance system: the radical deregulation requirements contained in the WTO's Financial Service Agreement (FSA). This aspect of the WTO operates to export worldwide the extreme financial service deregulation that has triggered this crisis. Agreeing to review and renegotiate these WTO financial service deregulation terms must be a key element of the G-20 process aimed at addressing the crisis. Continue reading Lori Wallach's full testimony... (PDF)
<...>
The devastation being caused by the global economic crisis to the lives and livelihoods of hundreds of millions of people around the world is not merely the result of bad practices by certain mega financial service firms, but the foreseeable outcome of one system of global economic governance - or more accurately anti-governance - that has been put into place and now must be replaced.
<..>
... In the body of this testimony, I go into some detail on one little-known aspect of the current failed economic governance system: the radical deregulation requirements contained in the WTO's Financial Service Agreement (FSA). This aspect of the WTO operates to export worldwide the extreme financial service deregulation that has triggered this crisis. Agreeing to review and renegotiate these WTO financial service deregulation terms must be a key element of the G-20 process aimed at addressing the crisis.
Continue reading Lori Wallach's full testimony... (PDF)
The General Agreement on Trade in Services (GATS, 1995, signed at the end of the Uruguay Round) includes financial services and contains two annexes on them. From the first Annex:
2. Domestic Regulation (a) 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. ... 3. Recognition (a) A Member may recognize prudential measures of any other country in determining how the Member's measures relating to financial services shall be applied. 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. (b) A Member that is a party to such an agreement or arrangement referred to in subparagraph (a), whether future or existing, shall afford adequate opportunity for other interested Members to negotiate their accession to such agreements or arrangements, or to negotiate comparable ones with it, under circumstances in which there would be equivalent regulation, oversight, implementation of such regulation, and, if appropriate, procedures concerning the sharing of information between the Page 309 parties to the agreement or arrangement. Where a Member accords recognition autonomously, it shall afford adequate opportunity for any other Member to demonstrate that such circumstances exist. ... 4. Dispute Settlement Panels for disputes on prudential issues and other financial matters shall have the necessary expertise relevant to the specific financial service under dispute.
(a) 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.
...
3. Recognition
(a) A Member may recognize prudential measures of any other country in determining how the Member's measures relating to financial services shall be applied. 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.
(b) A Member that is a party to such an agreement or arrangement referred to in subparagraph (a), whether future or existing, shall afford adequate opportunity for other interested Members to negotiate their accession to such agreements or arrangements, or to negotiate comparable ones with it, under circumstances in which there would be equivalent regulation, oversight, implementation of such regulation, and, if appropriate, procedures concerning the sharing of information between the Page 309 parties to the agreement or arrangement. Where a Member accords recognition autonomously, it shall afford adequate opportunity for any other Member to demonstrate that such circumstances exist.
4. Dispute Settlement
Panels for disputes on prudential issues and other financial matters shall have the necessary expertise relevant to the specific financial service under dispute.
From which I understand (though not understanding all), that prudential regulation to ensure the stability of the financial system is not forbidden; that countries may agree on regulation; that disputes may arise as on other trade matters.
So it doesn't sound to me, on a quick scan, as if signatories are locked into a system where they may not regulate if they see the need.
But perhaps the writers quoted above are referring to other legal texts, in which case some direct references, rather than opinions, would be useful.
However, one Jayati Ghosh quotes the exact same passage, but interprets it in the exact opposite sense (her emphasis):
networkideas.org - The WTO as Barrier to Financial Regulation
The section on domestic financial regulation in the Annex makes the following point: ''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'' [emphasis added]. So, if countries have already made commitments to allow certain kinds of financial activities of foreign financial institutions, they cannot impose any prudential regulations (even when they are necessary for the stability and viability of the system) if they run counter to such commitments! What this means is that much of the regulation now being considered or proposed in developed countries would run counter to this provision in the Annex to GATS. Any such regulation could be opposed by another member country whose financial firm is affected by such rules. Given the cross-border proliferation and complex entanglements of financial institutions, it seems to be almost inevitable that such challenges will occur.
''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'' [emphasis added].
So, if countries have already made commitments to allow certain kinds of financial activities of foreign financial institutions, they cannot impose any prudential regulations (even when they are necessary for the stability and viability of the system) if they run counter to such commitments! What this means is that much of the regulation now being considered or proposed in developed countries would run counter to this provision in the Annex to GATS. Any such regulation could be opposed by another member country whose financial firm is affected by such rules. Given the cross-border proliferation and complex entanglements of financial institutions, it seems to be almost inevitable that such challenges will occur.
As for the FSA (which was added in 1999 and thus four years after the Annex excerpted above), I linked to the Understanding on Commitments in Financial Services ("deregulation on steroids"), whose "standstill" clause (also linked above, though embedded in the text) is cited in various places I have found this issue discussed:
Any conditions, limitations and qualifications to the commitments noted below shall be limited to existing non-conforming measures.
I thought the Understanding on Commitments in Financial Services was an addendum or section within a larger "Financial Services Agreement", but as it gets its own section on the WTO Agreements page, I am wondering if it is in fact the FSA itself. The march of civilizations is a series of defenses that man has put up against the dread of pure existence.
I don't find the terminology particularly clear. In fact I find that any (country) with enough lawyers can play around with it.
So I agree with santiago below. The direction all this takes is: weaker countries are supposed to open up their markets while the stronger do what they like.
Yes, maybe it's because I'm not used to reading this sort of verbiage, but I got the impression that it was written quite deliberately to be ambiguous and confusing. The march of civilizations is a series of defenses that man has put up against the dread of pure existence.
Right alongside the Committee on Bread, eggs, milk and squick.
- Jake If you only spend 20 minutes of the rest of your life on economics, go spend them here.
