Discriminatory, Yet Consistent: Examining China's Banking Rules and Regulations in Light of the General Agreement on Trade in Services

Abstract

This working paper examines China’s multilateral commitments on trade in services and the extent to which China has implemented those commitments in the banking sector. While some of China’s banking regulations undoubtedly create barriers to market entry and operation, I argue that the text of the General Agreement on Trade in Services allows for such regulatory abrogations so long as the measures are enacted for prudential reasons rather than for the purpose of circumventing trade obligations. China has continually emphasized that the rationale underlying the discriminatory measures is prudential, making it unlikely that a Member state could successfully challenge China’s banking regulations through the World Trade Organization’s Dispute Settlement Mechanism. Accordingly, if foreign-owned banks and branches of foreign banks hope to increase their market share in China, increased pressure must be placed on China to revamp their banking laws. Additionally, the prudential carve-out of the General Agreement on Trade in Services must be revisited to narrow the circumstances under which a country may enact non-conforming measures.