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Regulating Subsidy to Bank Industry by GATS

Author: XuHongEn
Tutor: NaLi
School: Jilin University
Course: Legal
Keywords: GATS Subsidy Bank Industry
CLC: D996.1
Type: Master's thesis
Year: 2011
Downloads: 37
Quote: 0
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Abstract

During the global financial crisis, the governments take certain measures that aim to help banks weather the crisis to prevent the financial system from collapsing. Such measures are likely to create distortions of international competition in the banking sector. Therefore, it is quite necessary to regulate the support measures by international laws. This article examines whether the General Agreement on Trade in Services (GATS) is a useful instrument to tackle government support that creates distortions of international competition in the banking sector, and minimize thenegative effects that caused by support measures.This article is divided into introduction, body and conclusion. The introduction part is mainly about the background of paper writing. During the financial crisis, the governments take assorted support measures to help the different economic sectors, aiming to reduce the negative effects caused by the financial crisis. As one of the most important economic sector, bank industry absolutely becomes the primary target of all the support measures. The widespread occurrence of government strategies to address the global crisis has given rise to concerns with regard to the competitive impact of such support strategies on the other countries. In light of this statement, the research on regulating subsidy to bank industry by international laws becomes exceptionally significant.The body part is divided into three sections.In the first chapter, I will briefly summarize how government support to banks may create negative effects and the legal weapons that can be taken to fight such effects at the international level. Because of the importance of the banks, the governments always take measures to support the banking industry to protect financial stability in the financial crisis, and it is possible that the subsidy by the government may be biased towards domestic banks, which creates the distortion of the international competition. Therefore, identifying the legal restraint the international law imposes on governments that support banks seems really quite necessary. As a kind of service industry, it appears logical to assess government support in the banking sector under Annex 1B relating to trade in services, which consists of the GATS and its specific Annexes.In the second chapter, I will introduce the GATS and its Annexes as the relevant legally binding international instruments to regulate the subsidy. Although there exists no specific subsidies disciplines in the GATS, two obligations should be considered here:first of all,the important obligation in ArticleⅩⅦnot to treat domestic services and service suppliers more favorable than like services and service suppliers of other WTO members(‘National Treatment’obligation); second, the obligation in ArticleⅥ(1) to administer all measures of general application affecting trade in services in a reasonable, objective and impartial manner. Nevertheless, these GATS obligations apply in a very flexible manner; therefore, it is difficult to examine the violation of the GATS.In the third chapter, I will mainly address an important kind of measures called“measures for prudential reasons”. This kind of support measure provides an exception from the obligations, making it harder to put restraint on certain measures for violating the GATS obligations. In examining the‘measures for prudential reasons’, discreetly analyzing is quite essential; otherwise, the government would take‘prudential measures’as an excuse to avoid the Member’s commitments and obligations under the GATS.In the conclusion, I will make a brief summary. I can conclude that the GATS indeed imposes some legal restraint on WTO Members that provided support to banks, but because of the flexibility and uncertainty of the obligation provisions , only in very specific circumstances might a GATS obligation be violated. Furthermore, even if certain general support schemes‘as such’or‘as applied’indeed violate the GATS, the measures can still be adopted sometimes because of the existence of‘measures for prudential reasons’. Therefore, this flexibility and uncertainty need to be addressed by the WTO members, reassuring the GATS could really play an important role in regulating the subsidy to bank industry.

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