Trade accord in financial services: pros and cons

Abstract

At the end of the Uruguay Round of multilateral trade negotiations in 1993, negotiations on trade in financial services remained incomplete. An interim agreement was concluded in July 1995 and negotiations were reopened in April 1997. A new and improved set of commitments regarding financial services under the General Agreement of Trade in Services (GATS) was agreed on 12 December 1997. Being a new international agreement, the GATS has limitations and shortcomings. Although these have been enumerated, this paper aims to provide a wide-ranging analysis that traces the road to the GATS accord, analyses the impact of market liberalisation in financial services and the role of the GATS in it, and undertakes a detailed analysis of the structure and performance of the GATS. I argue that the trade in financial services is a vital area of the global economy and I hope to provide readers with a comprehensive background knowledge of the trade in services and the GATS to enable them to ask relevant questions which in turn would trigger future research. The first section of the paper discusses sthe accord on financial service. The following sections focus on the role of trade in financial services in an economy and its growing significance in the international economy. The fourth and fifth sections explore the process and impact of opening trade in financial services. The sixth section delves into the complexities of the GATS framework, the level of commitments of the members and strengths and weaknesses of the GATS system. The last point of focus is trade in financial services in Asia, including policy implications and how the Asian financial crises have affected liberalisation of trade in financial services. The last section sums up the principal findings.