Financial Services Trade Liberalization in the Wake of the Asian Crisis

Abstract

Just under a year ago, on 12 December 1997, some 102 Member Governments concluded a far-reaching Financial Services Agreement under the General Agreement on Trade in Services, or GATS, of the World Trade Organization (WTO). The very fact that this agreement had eluded negotiators on two previous occasions – once at the end of the Uruguay Round in 1993, and again at the extended deadline of July 1995 – made their achievement significant enough. But what was most remarkable about the timing of this agreement was that it was reached in the midst of a major financial crisis in South-East Asia, one of the most serious bouts of financial turmoil to hit the world economy since the Second World War. Yet a crisis that many feared could slow down or halt the global trend towards liberalization – even spark a protectionist backlash – so far seems to have had a somewhat different effect. By taking this step at this time, governments reaffirmed in the strongest possible way that greater openness of their financial sectors within a rules-based system offered the only viable and long-term path to global financial stability; and, at the same time, gave a clear and unambiguous signal of their continued commitment to trade and investment liberalization. All of this says something important about the growing global consensus in favour of open markets and integration, even during a period of economic uncertainty. It also says something important about the role that the GATS – and the WTO system more generally – is coming to play in our more integrated world economy. To understand these recent events it is first necessary to understand the central place that services, and especially financial services, have occupied in