The Gats Framework Under The Cross-border Banking Supervision

The emergence of GATS adds a new element in the international legal environment of transnational banks regulation. Though GATS, as a multilateral service agreement, is not directly aimed at WTO members' regulation and supervision of financial sector, which is closely related to the liberalization of financial services trade, its rules on financial services trade constitute a legally binding framework for the latter in international law.Nevertheless, because of a series of complicated problems involving treaty interpretation, there exists considerable uncertainty in the degree and scope that GATS rules on financial services should apply to the members' domestic measures of regulation and supervision of transnational banks. The point is embodied in two issues: one is the application of prudential carve-out, and the other is the application of the member's commitment of market access and of national treatment.Firstly, according to the prudential carve-out rule provided in the Annex on Financial Services under GATS, WTO members' domestic measures of regulation and supervision of transnational banks should be sorted as prudential measures and non-prudential measures. The prudential carve-out permits members' prudential measures to legally deviate from their market access, national treatment commitments and MFN obligations under GATS. Non-prudential measures, just like other domestic measures, are subject to members' specific commitments and general obligations under GATS.Obviously, the determinater of applying prudential carve-out is the definition of prudential measure, which determinates to what degree and in what scope a member's domestic measures of regulation and supervision of financial sector are subject to the binding power of GATS rules on financial services. However, on this key issue, GATS adopts an obscure treatment and lay the issue aside, leaving it to WTO dispute settlement mechanism.Meanwhile, worldwide consensus on the definition of prudential measure can not currently be reached. No any general international treaty or corresponding customary rules can provide the well-established standard for prudential measures. Though, somespecial international forum such as the Basle Committee on Banking Supervision have issued a series of minimum standards for and code of best practices of prudential measures. But these model laws can only help to identify the area appropriate subject to prudential measures and the type of measures that are generally accepted as prudential, but don't provide concrete criterion for judging whether a specific regulation measure is a qualified prudential measure under certain circumstances.Of course, there is an anti-abuse provision of the prudential carve-out in the GATS Annex on Financial Services. But if the connotation and extension of prudential measures are not clear, there is nowhere to begin anti-abuse. In order to avoid the problem of defining prudential measures, GATS devised a set of mechanism for recognition of prudential measures in the Annex on Financial Services. Unlike the mutual recognition within the EU, the recognition of prudential measures under GATS is short of minimum harmonization of prudential measures within members, thus, its feasibility and real effect are doubtful.The uncertainty in the application of prudential carve-out does provide leeway for members' financial regulators. Even if a member's certain regulation measures are inconsistent with its market access and national treatment commitments or its MFN obligation, these measures can still be carried out by resorting to prudential carve-out. Nevertheless, the uncertainty prepares foreshadowing for future multilateral services trade negotiations to further get involved in members' transnational bank regulation. Once GATS multilateral services trade negotiation or WTO dispute settlement mechanism sets a stricter criterion for prudential measures, the exclusive jurisdiction traditionally owned by members over their transnational bank regulation will be further eroded and shocked.Secondly, there also exists uncertainty in the application of GATS market access and national treatment commitment. This is shown in three issues: demarcation between national treatment and market access, demarcation of modes of supply of service, the determination of likeness of services or services providers.First, there is doubt relating to the demarcation between market access and national treatment. The restrictive measures listed in GATS Article XVI include both discriminatory measures and non-discriminatory measures. The latter also falls into the scope of national treatment. GATS Article XX provides that the overlapping part of market access and national treatment should be inscribed in the column relating to marketaccess column in the schedules of specific commitments. In this case the inscription in market access column will be considered to provide a condition or qualification to national treatment as well. Thus, if the commitment levels of market access and national treatment are inconsistent with each other, It is open to question whether the national treatment of the discriminatory restrictive measures of market access should be regulated by the inscription in column relating to market access or they should be subject to the limitation conditions listed in national treatment column.The author's opinion is that for discriminatory market access limitation measures, the content listed in market access is superior to that listed in national treatment column. After all, lex specialis derogat lege generalis.Second, the demarcation of modes of supplying service, according to which the GATS specific commitments are made, is not clear. The GATS does not apply a uniform criterion in defining cross-border delivery and consumption abroad. The criterion for defining cross-border delivery is the geographic locations of the services provider and its consumers, that is to say, whether the services provider and its consumers have a physical contact. But the criterion of defining consumption abroad is the location of the providing of services and the nationality of consumers. Thus, in logic, cross-border delivery and consumption abroad are not mutual exclusion, overlapping part may exist.In some transnational bank services field, some bank services (especially electronic bank services) don't require physical contact between services providers and consumers, services providers and consumers can locate in different countries. On this point, it is qualified as cross-border delivery. To the same above bank services, in nationality consumers belong to other member rather than the member where the services providers locate, and the service can be viewed as being provided in the member's territory where the services providers locate. Accordingly, these services can be classified as consumption abroad. Thus, the mode of supplying service whose specific commitment should apply to this kind of bank services is not clear.Third, the determination of likeness of services or services providers is not clear. In the international law, national treatment itself doesn't contain concrete treatment content, but it defines the minimum treatment standard for foreign services and services providers by referring to the treatment enjoyed by the like services and services providers of the host member. That is, the application of national treatment commitment under GATS is based on likeness comparison.