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Financial Services in Asian PTAs

Financial Services in Asian PTAs. Gloria O. Pasadilla, PhD and Boon-Loong Ngiang Asian Development Bank Institute Prepared for presentation at the APEC-SOM2 Meetings Kazan, Russia. Outline. Key architectural differences for Financial Services PTAs in Asia

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Financial Services in Asian PTAs

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  1. Financial Services in Asian PTAs Gloria O. Pasadilla, PhD and Boon-Loong Ngiang Asian Development Bank Institute Prepared for presentation at the APEC-SOM2 Meetings Kazan, Russia

  2. Outline • Key architectural differences for Financial Services PTAs in Asia • Restrictiveness of Financial Services commitments • Tentative correlations between architecture and restrictiveness

  3. Preferential Trade Agreements in Asia • In the past decade, “In-Effect” PTAs in Asia have increased by almost six fold from 10 to 58 Source: ADB Regional Integration Center

  4. Preferential Trade Agreements in Asia • Most new In-Effect PTAs include Services Agreements • As of May 2012, 36 out of 42 of these PTAs include Financial Services Source: ADB Regional Integration Center

  5. Preferential Trade Agreements in Asia Financial Services covered via 3 Architecture Types: • Financial Services Chapter • Services Chapter with Financial Services Annex • Services Chapter only Note: Investment Chapter may also cover FS

  6. Financial Services PTAs in Asia • Some PTAs that have dedicated Financial Services Chapter schedule Financial Services in GATS-style whilst other Services in NAFTA-style Scheduling Method

  7. Financial Services PTAs in Asia • PTAs with Services chapter only (without FS chapter or annex) has the highest proportion of South-South agreements Development Level

  8. How are Financial Services covered by various trade disciplines?

  9. Where are the disciplines covered? • Direct coverage of core disciplines • More ‘red’ means more language that treat FS differently from other services Covered in

  10. Implications • Financial Services is clearly covered differently in all three architecture types • To the extent that there are more scope for specialised coverage of disciplines that affect Financial Services, there could be greater clarity in treating Financial Services differently from other Services • Note that different treatment does not necessarily mean better or worse

  11. How stringent are the disciplines affecting Financial Services?

  12. Trade in Services Core Disciplines • 19 out of 34 PTAs have either ratchet or stand-still clauses • Japan-Chile, Korea-Singapore and Singapore-Panama PTAs allow more flexibility for Financial Services whilst EFTA-Singapore PTA allows for less JP-CL KR-SG SG-PA JP-ID JP-PH KR-PE KR-US US-SG JP-CH KR-EU EFTA-SG JP-PE

  13. Financial Services-Specific Disciplines • 16 out of 34 PTAs have rules for New Financial Services to be introduced • Japan-Peru and Japan-Switzerland PTAs have the most liberal rules JP-CL JP-MY JP-PH JP-SG SG-AU US-SG KR-PE KR-US SG-PA JP-IN IN-SG IN-KRKR-EU JP-PE JP-CH NZ-SG

  14. Capital Transfers Discipline • 26 out of 34 PTAs allow capital controls in the event of serious balance-of-payment financial difficulties • US-Singapore allow for temporary restrictions on flow of “hot money” but not FDI KR-EFTA KR-Peru KR-SG KR-US US-SG KR-EU SG-PA

  15. Implications • PTAs that have separate Financial Services Chapters tend to have more stringent disciplines • They may also provide scope for greater clarity in specialised treatment of Financial Services

  16. Assessing the Restrictiveness of Financial Services Commitments

  17. Restrictiveness Methodology Adapted Borchert et al. (2011) & Mattoo (2000): For scoring restrictiveness of Financial Services PTAs of a country, used “virtually open-plus” or “virtually open-minus” for relevant variations (i.e. substantial changes to lending limit)

  18. Financial Services PTAs – Restrictiveness: Are N-N PTAs ‘better’ than S-S? South-South

  19. Architecture Type vs Restrictiveness:Do Financial Services Chapters help? • Financial Services PTAs with dedicated Financial Services Chapters are observed to be associated with relatively less restrictiveness Services Chapter Only Services Chapter With Financial Services Annex Financial Services Chapter

  20. Financial Services PTAs:Do Disciplines Correlate with Restrictiveness? • Financial Services PTAs with Ratchet and Standstill clauses are observed to be associated with relatively less restrictiveness NoClause 3-yearStandstill PartialStandstill FullStandstill Ratchet

  21. Financial Services PTAs:Is Restrictiveness a Function of Level of Development • North-North Financial Services PTAs are observed to be relatively less restrictive South-South North-South North-North

  22. Financial Services PTAs:Are multi-party ‘better’ than bilateral PTAs? • On average, Bilateral Financial Services PTAs are observed to be relatively less restrictive • However, restrictiveness of individual Bilateral Financial Services PTAs can be relatively variable Multilateral Bilateral

  23. Do countries learn from past negotiations and become more restrictive? • On average, the overall restrictiveness of Financial Services PTAs has been observed to have risen over time • Why is that?

  24. Why is average restrictiveness rising over time? • In the past decade, more “South” countries have concluded Financial Services PTAs in Asia, thus increasing the “average” restrictiveness of Financial Services PTAs

  25. Does greater foreign penetration lead to less restrictiveness ? • Japan’s Financial Services sector is one of the least restrictive, but it also has the least proportion of foreign-owned financial institutions • Low restrictiveness need not translate to higher proportion of foreign entrants • Among developing Asian countries, more penetration is associated with less restrictiveness Japan (2.8%) Korea (5.6%) Philippines (10.6%) Malaysia(15.2%) India(18.0%) Thailand(18.9%) China(21.6%) Singapore(27.4%) Indonesia(28.1%) % of foreign-owned Financial Institutions in ParenthesesSource: Bankscope (2012)

  26. Summary and Conclusion (1/2) • NAFTA-style Financial Services PTAs in Asia tend to have separate Financial Services Chapters • PTAs that have separate Financial Services Chapters tend to have more stringent disciplines • They also provide greater clarity in different treatment of Financial Services

  27. Summary and Conclusion (2/2) • Those PTAs that have separate Financial Services Chapters are also associated with lower levels of restrictiveness in Financial Services commitments • The rising number of PTAs that involve “South” countries are associated with increasing average restrictiveness of Financial Services PTAs in Asia

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