TRADING PLACES

Post Brexit, are the WTO and Free Trade Agreements the future of cross-border services?

With the expiry of the Brexit transition period bringing an end to passporting from the UK, we hear a lot about trading “on WTO terms”. But what exactly does that mean for financial services? And, with “Global Britain” racing to enter free trade agreements around the world, are they the future for cross-border trading?

The WTO’s General Agreement on Trade in Services (GATS) sets out the baseline for the international trade in services, including financial services.

But GATS isn’t a single set of rules; each WTO member sets out a series of commitments for when they will allow market access, cross-border supply and establishment. Although the intention is to liberalise trade as far as possible, it is fair to say that in the area of financial services most countries’ commitments are limited. Those countries that go the furthest (including the UK, the USA, Germany, France, Canada and Japan) have adopted a standard set of commitments called the “Understanding on commitments in financial services”. Even then, those commitments are rather limited, allowing things such as:

  • cross-border trade in a limited set of insurance services (such as maritime shipping and goods in transit);
  • financial services providers from other WTO members to establish a commercial presence in their territory (subject to non-discriminatory national authorisation rules); and
  • financial services providers to offer in their territory any entirely new financial services (i.e. a service that has never existed before, whatever that might be!).

In practice, many countries voluntarily go beyond their GATS commitments, for example by permitting reverse solicitation or implementing mechanisms such as the EU’s equivalence regime. Even then, they are subject to the GATS requirement to apply those rules or regimes in a non-discriminatory manner to all WTO members.

Can we look to free trade agreements as the way forward to opening up financial services markets?

Therefore, with a relatively low level of market liberalisation through GATS, can we look to free trade agreements as the way forward to opening up financial services markets? The answer to that question seems very much to be no, or at least – being charitable – not yet.

Until recently, financial services did not merit their own chapter in most FTAs. The EU-Canada Agreement (CETA) contains probably the most far-reaching financial services provisions. That said, even they only go marginally beyond the respective parties’ GATS commitments.

CONCLUSION

We will be dependent on existing unilateral measures such as equivalence for quite some time to come.

It seems that the days when free trade agreements or WTO agreements will contain anything with a meaningful impact on the ability for financial institutions to provide cross-border services are a long way away, and we will be dependent on existing unilateral measures such as equivalence for quite some time to come.


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CHRIS BRYANT

Partner, London

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This document provides a general summary and is for information/educational purposes only. It is not intended to be comprehensive, nor does it constitute legal advice. Specific legal advice should always be sought before taking or refraining from taking any action.

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