GATS’ Prudential Carve-out In Financial Services And Its Relation With Prudential Regulation

In2007subprime mortgage crisis led to the bankruptcy of financial institutions. The virtual economy and real economy are resulted in serious damage. Market cannot work on itself. Financial regulation is necessary to the market. Prudential regulation is the main part of financial regulation, which is not only of great significance for the safety and soundness of financial institutions operating, but also helps maintain the stability of financial markets and reduce systemic risk.For WTO members, financial regulations are not only the sovereignty of a country, however, it bound by the relevant WTO rules. In order to balance financial liberalization and the stability of a country’s financial system, the GATS prudential measures of a country’s financial services industry to be recognized by the term of prudential measures carve-out. However, due to the vagueness of the term, the practice also caused controversy. Such as the recent dispute between China and American about "Certain Measures Affecting Electronic Payment Services". Therefore, it is needed to explore the standard of prudential carve-out. This article consists of five parts.The first part is the fundamental theory of prudential supervision. In this part it will discuss the causes and the type of prudential regulation.The second part introduces the prudential regulation in specific legal department. Help to understand the prudential regulation of the legal system to promote financial institutions on the relationship between the prudential supervision of the rule of law and other legal rules of prudent operation, to maintain its safety and soundness of the unique features.The third part discusses the development of macro-prudential regulation which is result from the subprime mortgage crisis. The macro-prudential regulation is featured by counter-cyclical characteristics. Neither the objective nor the measures are quite different from the micro-prudential regulation.The fourth part debates on trade liberalization and its relation with prudential regulation. The legitimacy of prudential regulation and prudential measures carve-out are proved.The fifth part analyzes the detail of the GATS’ prudential measures carve-out. Compared to the general exception clause and security exception clause, prudential carve-out has its unique advantage. Then prudential measures’ standard is discussed. Finally, preliminary analysis on the dispute between China and America what is important to China.