Government Support For Banks Under The Global Financial Crisis

Under the global financial crisis, the suffered WTO members’ governments supportfor banks. This article examines whether the General Agreement on Trade in Services(GATS) is a useful instrument under this circumstance to effectively tackle theinternational distortions of banks’ competition. Firstly, rules of GATS and financialservice’s regulation are stated, which refer to the content of banking sector. It is necessaryto discuss the influence that government support banks may cause. Then according to theprovisions of GATS framework, this article explains the government support under thefinancial crisis. The GATS has no specific provision on subsidies. However, the generalsupport schemes may violate Article XVII (national treatment) if they excludeforeign-owned banks with a commercial presence in the territory of the WTO member thatadopts the scheme. To avoid this, WTO Members need to achieve some specificcommitments and the effective limitations to this commitment. Moreover, it is requiredthat the excluded banks are ‘like’ the domestic banks. A single application of a generalscheme may violate Article VI (1) if the solid evidence is available for that this applicationis not reasonable, objective or impartial, which should not to use it as the exception.Despite these possible violations, the great majority of measures would still be justifiedunder the broad ‘prudential carve-out’. Only support measures that are not reasonably ableto achieve the prudential goal will not be exempted. This would ensure that the GATSwould be able to prevent the government support from distorting competition of financialmarket. Finally, according to the above statement and Chinese reality, it provides somerelevant advice.