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Council of Canadians joins international call for WTO members to support Ecuador’s modest proposal on financial regulation

The following sign-on statement, in support of Ecuador’s proposal for next week’s Committee on Trade in Financial Services meeting at the WTO, has been sent to WTO representatives around the world. Ecuador quite modestly wants the WTO to study how its rules governing financial services might affect efforts to re-regulate in the wake of the global financial crisis. A previous attempt to put this proposal forward at the WTO was blocked by the United States, Canada, Norway and South Korea, which claimed there was enough flexibility in the GATS to accommodate so-called prudential measures that may distort financial flows but with the aim of providing economic stability.

The Council of Canadians endorsed the statement, which we forwarded to Canada’s permanent mission to the WTO in Geneva, as well as Trade Minister Ed Fast and opposition parties. You’ll find the list of signatories on the Public Citizen website here. For more on the Ecuadorian proposal, and how the U.S., Canada and other countries are further limiting policy flexibility on financial services in agreements like the Trans-Pacific Partnership and CETA, see economist Kevin Gallagher’s article today in Al Jazeera, Trade rules should not constrain fixing global finance.

A press release today from Public Citizen explains that:

More than 100 countries, including many developing nations, have commitments under the WTO financial services rules, which were established in the 1990s when the expansive financial deregulation now viewed as an underlying cause of the global financial crisis was in vogue. In contrast to the financial re-regulation proposals being discussed in the G-20 or the Bank of International Settlements, the WTO’s outdated, deregulatory rules have never been scrutinized since the financial crisis, the groups emphasized.

Gallagher concludes his article:

The proposal by emerging market and developing countries for the WTO to have an open discussion on trade rules and financial regulatory reform is overly modest and urgently necessary. The US and the other nations that blocked the initial proposal should not stand in the way of re-regulating global finance. A healthy and balanced financial system is paramount to a functioning trading system, a system that the US and the whole world so vitally depend on.

Here is the statement in full:

September 24, 2012

The global financial crisis highlighted the need for robust regulation of the financial services sector to ensure financial stability and to avoid future crises. However, trade and finance experts have raised concerns that the rules of the World Trade Organization’s (WTO) General Agreement on Trade in Services (GATS) and related WTO financial services rules could pose obstacles to post-crisis efforts to enhance regulation underway both on the domestic and international levels.

In June 2012, WTO member state Ecuador tabled a modest but important proposal the goal of which is to provide all governments with greater certainty that the WTO rules governing financial services provide sufficient policy space for needed financial reregulation and do not deter improved coherence between the WTO and other international bodies promoting financial reregulation. Ecuador specifically proposed that WTO members undertake a discussion at the WTO’s Committee on Trade in Financial Services (CTFS) about the current scholarship and opinion at the international level with respect to macro-prudential regulation and its relationship to the GATS rules.

This latest initiative comes as a follow up to an effort led by Ecuador in advance of the 2011 WTO Ministerial Conference. Then Ecuador proposed to insert language into the Ministerial Declaration to launch a review of the regulatory implications of the GATS rules relating to financial services. Argentina, Brazil, China, India, South Africa, Turkey and scores of other countries supported this proposal. But it was blocked by the United States, the European Union and Canada. The countries opposed to the review said that it was not necessary because the current WTO rules provide sufficient policy space for countries to maintain or establish robust financial regulation.

Ecuador’s new proposal is simply aimed at giving other WTO member countries the same confidence about their regulatory policy space. Ecuador’s proposal will be discussed at the next quarterly meeting of the CTFS, which will take place the first week of October 2012. And, now we understand that the countries who blocked the formal review of the rules are threatening to block even holding Ecuador’s proposed special educational session on this issue that would facilitate WTO member countries developing a common understanding of the rules and their relation to financial regulation.

More than 100 countries, including dozens of developing countries, have GATS financial services commitments. Countries that did not schedule exceptions – and now post-crisis seek to re-regulate in committed sectors using mechanisms that may be prohibited by GATS rules – could (1) face a WTO challenge, (2) choose not to institute a needed regulatory tool to avoid a threatened challenge, or (3) be required to negotiate compensation terms with affected member states to alter their commitments, which may be infeasible, especially for developing countries.

We cannot afford to wait until the next financial crisis to ensure that countries’ WTO commitments do not interfere with or chill financial regulation.

We, the undersigned organizations, urge all WTO member states to support at the upcoming October 2012 meeting the modest proposal for discussion of the WTO financial services rules and financial regulation within the WTO’s Committee on Trade in Financial Services. It is critical for all member states to have full confidence that the policy space exists in these agreements for financial regulation. Given various threats by industry interests that countries efforts to strengthen their financial regulation conflict with “trade” commitments, such clarity is critical so that countries’ financial reforms are not chilled for fear that they would be subject to a WTO Dispute Panel deciding the meaning of GATS rules in the context of a challenge to their domestic laws.