F I N A N C I A L S E RV I C E S L I B E RA L I S AT I O N F O R U M

J O H A N N E S B U R G - S O U T H A F R I C A1 - 2 N D J U LY 2 0 1 3

TRADE IN SERVICES AND FINANCE & INVESTMENT PROTOCOLS

SADC TRADE IN SERVICES: BASIC ISSUES

• Decision to liberalize trade in services in SADC was taken in 2000• Protocol on Trade in Services• Legal framework agreed in 2009, signed by Heads of State

in 2012• Provides for ground-rules for liberalisation, and

negotiations on “commitments “through schedules, to be annexed

• Several other SADC Protocols address issues related to trade in services • Finance and Investment (M3), Draft Protocol on Movement

of Persons (M4) & Sector-specific Protocols (e.g. covering transport, communications, education & training, culture, information & sports, energy, health; tourism, etc.)

MAIN OBJECTIVES OF THE TIS PROTOCOL

—To progressively liberalize intra-regional trade in services (eliminate substantially all discrimination between Member States) with a view to creating a single market for services trade

—To promote sustainable economic growth and development, to raise living standards & alleviate poverty

—To enhance the capacity and competitiveness of the services sectors of State Parties

—To enhance economic development, diversification, local, regional and foreign investment in the services economies of the Region.

HOW SERVICES ARE TRADED – WIDE DEFINITION

MODES1. Cross-border Trade

2. Consumption Abroad

3. Commercial Presence

4. Movement of Natural Persons

EXAMPLE Resident from A purchases insurance or banking services from a supplier outside A

A’s resident obtains banking services in B (ATM, foreign exchange services. etc.)

Bank or insurance firm from B sets up subsidiary or branch in A

Managers of Executives from parent company in A are sent to work in subsidiary/branch in country B

SADC TRADE IN SERVICES PROTOCOL:SCOPE AND DEFINITION

Includes

• All measures (laws regulations, rules, procedures, decisions, administrative actions) by state parties (at all government levels) affecting trade in services

• All services and suppliers in any service sector (business, communication, construction, distribution, education, environmental; finance; tourism; transport, recreational, cultural and sporting,

Excludes• Measures affecting air transport traffic rights

• Services supplied in the exercise of government authority e. g. : • Activities of Central Banks or monetary authorities in pursuit of monetary of exchange rate policies,

• Activities forming part of a statutory system of social security or public retirement plans

• Activities by a public entity for the account or with the guarantee, or using the financial resources of the Government

• All Government Procurement (i.e. services purchased for governmental purposes and not with a view to commercial resale or with a view to use in the supply of services for commercial sale )

FINANCIAL SERVICES CLASSIFICATION – TWO APPROACHES

• W/120• Life, accident and

health insurance services (CPC 8121)

• Non-life insurance services (CPC 8129)

• Reinsurance and retrocession (CPC 81299*)

• Services auxiliary to insurance (including broking and agency services (CPC 8140)

• GATS Annex on FS• Direct insurance• Life• Non-life

• Reinsurance and retrocession

• Insurance intermediation (brokerage and agency)

• Auxiliary services, e.g. consultancy, actuarial, risk assessment and claim settlement

12 different subsectors covering a wide range of services froma)Accepting of deposits and other repayable funds from the

public b)Lending of all typesc)Financial leasing d)All payments and money transmission services e)Guarantees and commitments f)Trading for own account or for account of customers of the

following:Money market instruments ; Foreign exchange; Derivative products; Exchange rate and interest rate instruments; Transferable securities; Other negotiable instruments and financial assets

g)Money Brokingh)Asset managementi) Settlement and clearingj) Information servicesk)Advisory, intermediation etc..

Banking and other Financial services

KEY OBLIGATIONS UNDER THE TIS PROTOCOL

• Most Favoured Nation Treatment - MFN (art 4:1 )• immediately and unconditionally accord no less

favourable treatment than accorded to like services and service suppliers

• Right to regulate (art. 5) & domestic regulation (art. 7)• in regulating the sector, measures should not impair

rights under obligation

• Mutual recognition art. 7• Recognition of requirements, qualifications, licences met

or obtained in another state party

KEY PROVISIONS CTD.

• Transparency (Protocol art 8) • Publish all measures of general application pertain to or

affecting operations of the Protocol/agreement • Designate/establish enquiry point

• Progressive liberalisation art. 17• Rounds of negotiations (1st round cover 6 sectors)

KEY PROVISIONS CTD.

• Transfers (art. 20)• … state party shall not apply restrictions to the right of

free transfer, into and out of its territory, including of initial plus any additional capital, returns, payments under contract, royalties and fees, proceeds from the sale or liquidation of all or any part of an investment

• …… in serious balance of payments difficulties, or under imminent threat thereof, the State Party concerned may adopt restrictive measures with regard to transfers and payments relating to services and investment

LIBERALIZATION OF TRADE IN FINANCIAL SERVICES

• Market access (art. 14)• no quota type restrictions• Maximum foreign shareholding requirements • Restrictions on direct branching • Exclusivity of certain services (e.g. settlement or clearing)• Prohibition of cross-border supply

• National treatment (art. 15)• Do not discriminate based on nationality• Nationality requirements for Members of Board of directors• Higher capital adequacy ratios for foreign suppliers• Higher qualitative standards required from foreign suppliers

WHAT DO THE NEGOTIATIONS ON TRADE IN FINANCIAL SERVICES NOT ADDRESS

• Cooperation between regulators or supervisors (strategy, promotion, training)

•Harmonisation or convergence of laws, policies and rules

GATS ANNEX ON TRADE IN FINANCIAL SERVICES

• …contains the so called ”prudential carve-out”

Para 2 a: “Notwithstanding any other provisions of the Agreement, a Member shall not be prevented from taking measures for

prudential reasons, including for the protection of investors, depositors, policy holders or persons to whom a fiduciary duty

is owed by a financial service supplier, or to ensure the integrity and stability of the financial system. Where such

measures do not conform with the provisions of the Agreement, they shall not be used as a means of avoiding the Member's commitments or obligations under the Agreement.” The Prudential Carve-out is NOT part of the SADC Protocol on Trade

in ServicesDo we assume it applies implicitly? Or incorporate explicitly it into

TIS at the end of the negotiations?

1ST ROUND OF NEGOTIATIONS

• Objective Each Member State will provide better treatment to SADC MS in each priority sector than is provided in their GATS schedule– No new restrictions to be introduced during the

negotiations (“standstill”)– Six priority sectors

• Request – offer processes • Request one or more trading partners• Offer applies to all state parties

•Negotiations over period of 3 years (2012 – 2015)• Requests (LSO, MUS, ZAF, SWZ & ZMB)- 5 sectors (incl

FS)• Offers (MUS, SC & SWZ)- 4 sectors (full range of

Financial Services included by all)

PTIS & FIP

PTIS• pro

gressively liberalize intra-regional trade in services -create single market

FIP• “fos

ter the harmonisation of financial and investment policies of the State Parties” through “through facilitation of regional integration, co-operation and co-ordination…”

Economic developm

ent through market

integration

PTIS & FIP CTD.

PTIS•Promote investment in trade in services•Market access through schedules •conditions as described in the schedules

•Rules of protection of investment•Only of SADC origin

FIP•Promote investment in all sectors of economy•No right to establish•Equitable and fair treatment for all admitted investment•Rules of protection of investment•Covers investment of any origin

obligations in FIP annexes complement and supports services liberalisation

COMPLEMENTARITY OF THE TWO AGREEMENTS

Finance and Investment

Protocol•addresses issues of cooperation, awareness raising, convergence of regulations etc. •Few “hard” obligations, progress through cooperative structures only

Trade in Services Protocol

•Addresses access to markets and discrimination between services/suppliers•Does NOT curtail prudential regulation of financial services •Uses legally binding commitments