On The Prudential Carve-out In GATS Annex On Financial Services

The prudential carve-out in Annex of Financial Service of GATS is a special clause, forthe aim of the clause is to balance the global financial service liberalization and the domesticregulation autonomy of WTO members. However, the financial service is too sensitive tocarry forward. Most developing country members worried about once they accepted theconditions proposed by industrialized country members, the stability of their nationalfinancial markets would be dangerous. In result, the prudential carve-out in GATS goesbeyond the general obligations and the commitments taken by members. The clause may beused as the barrier to financial service trade. It violates the WTO purpose as well as thestability of national financial markets. After the recent economic crisis, there are plentiful ofnew soft laws of the prudential regulation made by international organizations such as BaselCommittee. On this background, it is time to rethink the prudential carve-out in GATS.This thesis analyses the prudential carve-out in a problem-solving manner, and falls intofive sections:The first section is divided into three parts. At the beginning, the negotiation process ofthe prudential carve-out is studied in the historical analysis way, revealing how the prudentialcarve-out clause formed. Then, it discusses the final text of the clause to illustrate the legalcontext of the prudential carve-out. At last, for the above research, the section elaborates thetwo problems of the prudential carve-out clause.The second section tries to find the solution to the two problems in GATS. Firstly, thethesis combs the substantial provisions in GATS, such as domestic regulation, generalexception, market access and payment, then it concludes that there is little effect for theseprovisions to the prudential carve-out; secondly, the analysis angle turns to the due processprovisions, including the recognition provisions both in Annex of Financial Service andGATS. The analysis combines the study of soft law made by international financialorganizations and the probability of using the soft law. The section assesses the text analysismethod.The third section examines the prudential carve-out in the regional trade agreementsleaded by the United States and European Union. Through the text analysis and the empirical analysis, the thesis studies the more advanced and strict system design of the prudentialcarve-out which provides a useful result for the perfection of the prudential carve-out inGATS.The forth section suggests the perfection of the prudential carve-out in GATS. With theresearch above, the thesis points out the probable developing direction of the clause and notesthat the context of the prudential carve-out should be recognized through the regional orbilateral negotiation. Meanwhile, the appliance of the clause should be adopted with thereasonability test. The process of restricting the prudential carve-out should be taken step bystep.The fifth section of the thesis puts forward the practical policies of China on theprudential carve-out in international and national aspects. China should base on the perfectionof the domestic regulation and adopt the advanced soft law to create a favorable circumstancefor the Chinese financial service.