Opening the market for banking services in line with the commitments made by vietnam on its wto accession

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Joint Swedish-Vietnamese Master’s Programme MASTER’S THESIS Opening The Market for Banking Services in line with the Commitments made by Vietnam on its WTO Accession SUPERVISORS: Prof. Christina Moёll Dr. Bui Ngoc Cuong Preface and Acknowledgements The author would like to express many thanks to Professor Christina Moёll, Faculty of Law, Lund University, Sweden; Doctor Bui Ngoc Cuong, Hanoi Law University, and my teachers, relatives, friends and colleagues for their support during the process of writing this thesis. 1 Table of Contents Preface and Acknowledgements ...................................................................................1 Table of Contents..........................................................................................................2 Abbreviations................................................................................................................4 Executive Summary ......................................................................................................5 Overview of banking services and international commitments of Vietnam 1. on opening banking services market in the WTO’s framework .....................7 1.1 1.1.1 1.1.2 1.2 1.2.1 1.2.2 1.2.3 1.2.4 Overview of banking services and the opening up of banking services as part of globalization........................................................................................7 Overview of banking services....................................................................7 Opening up the banking services market in the context of globalization.14 International commitments of Vietnam on opening up its services market within the WTO’s framework.......................................................................18 Commitment on licensing foreign credit institutions to supply banking services in Vietnam..................................................................................22 Commitment on regulating the form of financial companies are licensed to operate in Vietnam...............................................................................25 Commitment on regulating the form of financial services that can be provided in Vietnam ................................................................................25 Commitment on regulating the capital ratio of foreign banks may own in a Vietnamese bank ...............................................................................26 2. The current situation regarding Vietnamese law on banking services and completing the implementation of the commitment to open up the banking services market within the WTO framework ...............................................27 2.1 2.1.1 The current situation regarding Vietnamese Law on banking services ........27 Current overview of the banking system and the Vietnamese Banking Law. .........................................................................................................27 Influence of international commitments on opening banking services on Vietnam Law............................................................................................30 The adaptation of Vietnamese Law on Banking in line with its commitments on joining the WTO ..........................................................32 2.1.2 2.1.3 2.2 2.2.1 2.2.2 Completing the work on Vietnamese Law to fully implement the commitments on opening up the banking services market within the WTO framework.....................................................................................................40 Completion criteria for various regulations of Vietnamese Law and the international commitments on opening up the banking services market. 40 Proposal of solutions to the correct implementation of the international commitments on opening up the banking services market of Vietnam. ..41 Conclusion ..................................................................................................................44 Table of Statutes and other Legal Instruments ...........................................................46 International Treaties and Conventions ......................................................................46 National Legislations ..................................................................................................46 2 Vietnam 46 Bibliography ...............................................................................................................47 Official Reports and other Documents .......................................................................47 Monographs ................................................................................................................47 Articles in Journals, Anthologies etc. .........................................................................48 Preface and Acknowledgements ...................................................................................1 Table of Contents..........................................................................................................2 Abbreviations................................................................................................................5 Executive Summary ......................................................................................................6 Overview of banking services and international commitments of Vietnam 1. on opening banking services market in the WTO’s framework .....................8 1.1 1.1.1 1.1.2 1.2 1.2.1 1.2.2 1.2.3 1.2.4 Overview of banking services and the opening up of banking services as part of globalization........................................................................................8 Overview of banking services....................................................................8 Opening up the banking services market in the context of globalization.15 International commitments of Vietnam on opening up its services market within the WTO’s framework.......................................................................19 Commitment on licensing foreign credit institutions to supply banking services in Vietnam..................................................................................23 Commitment on regulating the form of financial companies are licensed to operate in Vietnam...............................................................................26 Commitment on regulating the form of financial services that can be provided in Vietnam ................................................................................26 Commitment on regulating the capital ratio of foreign banks may own in a Vietnamese bank ...............................................................................27 2. The current situation regarding Vietnamese law on banking services and completing the implementation of the commitment to open up the banking services market within the WTO framework ...............................................28 2.1 2.1.1 The current situation regarding Vietnamese Law on banking services ........28 Current overview of the banking system and the Vietnamese Banking Law. .........................................................................................................28 Influence of international commitments on opening banking services on Vietnam Law............................................................................................31 The adaptation of Vietnamese Law on Banking in line with its commitments on joining the WTO ..........................................................33 2.1.2 2.1.3 2.2 2.2.1 2.2.2 Completing the work on Vietnamese Law to fully implement the commitments on opening up the banking services market within the WTO framework.....................................................................................................41 Completion criteria for various regulations of Vietnamese Law and the international commitments on opening up the banking services market. 41 Proposal of solutions to the correct implementation of the international commitments on opening up the banking services market of Vietnam. ..42 3 Conclusion ..................................................................................................................45 Table of Statutes and other Legal Instruments ...........................................................47 International Treaties and Conventions ......................................................................47 National Legislations ..................................................................................................47 Vietnam 47 Bibliography ...............................................................................................................48 Official Reports and other Documents .......................................................................48 Monographs ................................................................................................................48 Articles in Journals, Anthologies etc. .........................................................................49 Preface and Acknowledgements ...................................................................................1 Table of Contents..........................................................................................................2 Abbreviations................................................................................................................5 Executive Summary ......................................................................................................7 Overview of banking services and international commitments of Vietnam 1. on opening banking services market in the WTO’s framework .....................9 1.1 1.1.1 1.1.2 1.2 1.2.1 1.2.2 1.2.3 1.2.4 Overview of banking services and the opening up of banking services as part of globalization........................................................................................9 Overview of banking services....................................................................9 Opening up the banking services market in the context of globalization.16 International commitments of Vietnam on opening up its services market within the WTO’s framework.......................................................................20 Commitment on licensing foreign credit institutions to supply banking services in Vietnam..................................................................................24 Commitment on regulating the form of financial companies are licensed to operate in Vietnam...............................................................................27 Commitment on regulating the form of financial services that can be provided in Vietnam ................................................................................27 Commitment on regulating the capital ratio of foreign banks may own in a Vietnamese bank ...............................................................................28 2. The current situation regarding Vietnamese law on banking services and completing the implementation of the commitment to open up the banking services market within the WTO framework ...............................................29 2.1 2.1.1 The current situation regarding Vietnamese Law on banking services ........29 Current overview of the banking system and the Vietnamese Banking Law. .........................................................................................................29 Influence of international commitments on opening banking services on Vietnam Law............................................................................................32 The adaptation of Vietnamese Law on Banking in line with its commitments on joining the WTO ..........................................................34 2.1.2 2.1.3 2.2 Completing the work on Vietnamese Law to fully implement the commitments on opening up the banking services market within the WTO framework.....................................................................................................42 4 2.2.1 2.2.2 Completion criteria for various regulations of Vietnamese Law and the international commitments on opening up the banking services market. 42 Proposal of solutions to the correct implementation of the international commitments on opening up the banking services market of Vietnam. ..43 Conclusion ..................................................................................................................46 Table of Statutes and other Legal Instruments ...........................................................48 International Treaties and Conventions ......................................................................48 National Legislations ..................................................................................................48 Vietnam 48 Bibliography ...............................................................................................................49 Official Reports and other Documents .......................................................................49 Monographs ................................................................................................................49 Articles in Journals, Anthologies etc. .........................................................................50 Abbreviations ASEAN Association of South East Asian Nations GATS General Agreement on Trade in Services GDP Gross Domestic Product FDI Foreign Directive Investment 5 IMF NA SRV WTO WB International Monetary Fund VND National Assembly of Vietnam USD Socialist Republic of Vietnam World Trade Organization World Bank Vietnam dong US dollar 6 Executive Summary Vietnam was officially recognized as the 150th member of the World Trade Organization (WTO) on 11th January 2007. This event marked a new stage in the process of integrating Vietnam into the international economy in general and the banking sector in particular. However, faced with the need to implement the commitment undertaken as part of the integration process, Vietnamese banking services regulations were found to contain many weakness. These regulations contain many contradiction, Vietnamese financial ability is generally weak, the management mechanism for banking activities has not caught up with modernization nor conformed to international practices and standards and many forms of banking services have no adequate legal framework… These shortcomings make it hard for Vietnam to implement its commitments effectively and to make full use of the advantages that integration brings. A series of questions arise. What was the real situation of the law on banking services in Vietnam when it joined the WTO? What problems were identified when implementing the commitments? How can Vietnam overcome these shortcomings?... All of these problems need to be studied carefully and then resolved both in theory and in practice. The purpose of this thesis is to clarify the theory and practice of modifying the law on banking services in accordance with Vietnam’s commitments on WTO accession and with international practice in general. - - This involves the following tasks: Clarify the concept of banking service according to international practices (the WTO agreement) and the particular requirements of member countries wishing to open up their banking service market. Clarify Vietnam’s commitments on opening up the banking service market in the framework of the WTO agreement. Clarify the situation of Vietnamese Law when linked to its international commitments within the WTO framework. Such an analysis is the scientific foundation needed to help reform the law in the direction of opening up the banking service market. The thesis will focus on the commitments on opening up banking services market undertaken following WTO accession and on how Vietnam is in fact implementing these commitments. However, because the regulations on opening up the banking services market are based on the law of banking services in general, this research 7 needs to be seen against the background of a study of regulations of Vietnamese and WTO regulations of banking services in the light of 4 of the commitments undertaken: (i) commitment on licensing foreign credit institutions to supply banking services in Vietnam, (ii) commitment on regulating the form of financial companies licensed to operate in Vietnam (iii) commitment on regulating the form of financial services that can be provided in Vietnam, (iv) commitment on regulating the capital ratio of foreign bank ownership of a Vietnamese bank. This thesis combines the analyzing, comparing and synthesizing methods. The analyzing method is used to evaluate the current state of the law on banking services in Vietnam. The comparing method is used to compare Vietnamese regulations with the WTO regulations as well as international practice. The synthesizing method is used to evaluate and draw conclusions on each matter studied and give recommendations for improvement. Moreover, to strengthen our argument, we provide illustrative statistics where necessary. Base on this research, the thesis hope to give an overview of the theory and practice of the current law on banking services in Vietnam and makes some proposals aimed at effectively implementing the commitments made on WTO accession and strengthening the competitive capacity of the banking service sector. 8 1. 1.1 1.1.1 1.1.1.1 Overview of banking services and international commitments of Vietnam on opening banking services market in the WTO’s framework Overview of banking services and the opening up of banking services as part of globalization Overview of banking services The concept of Banking Services a. The concept of “Services”: Today, service activities are developing strongly and are now playing an important part in the economy of most nations. In the 1990s, services made up 40% of GDP in Uganda, 50% of GDP in Zambia, more than 60% of GDP in Korea and Brazil and 80% of GDP in Canada1. (In Vietnam, according to the General Statistics Office , 2 However, there are many different services made up 37,98% of GDP in 2004). concepts of services, none of which is accepted globally. According to many researchers, services can be understood in both a broad and a narrow sense. - In the broad sense, services are considered the third economic sector, which includes all economic activities other than industry and agriculture. This point of view is held by economists such as Allan Fisher and Colin Clark3. Clark defined services as “forms of economic activities which are not included in the first and second sectors (industry and agriculture)”. - In the narrow sense, services are understood to be the “software” of visible products, closely related to the production process and visible product exchange. An example is the Honda product warranty service which is a service connected to the sale of Honda motors, carried out after sales in order to support and enhance sales activity overall. In Vietnam, there are various ways of understanding the concept. According to the Vietnamese encyclopedic dictionary, services are activities to meet the demand of National Committee on international economic cooperation (2005), General view of service commercial liberalization, National Politics Publishing House, p.21. 2 National Committee for International Economic Cooperation Office (2006) “WTO integration documents of Vietnam”, p.182. James R. Melvin, History and Measurement in The Service Sector: a review, Review of Income and Wealth, series 41, number 4, December 1995, p.484. 9 production, business and life4, such as entertainment, health and education services in daily life; transport, information and consulting services in business. According to Prof, PhD. Nguyen Thi Mo: “Services are laboring activities crystallized into invisible products which, although of value, cannot be touched”.5 Compared with the encyclopedia definition this makes it clearer that services consists of invisible products. International organizations like the International Monetary Fund (IMF) or World Trade Organization (WTO) define the concept by determining the areas which are regarded as services and then just listing and classifying them. The General Agreement on Trade in Services (GATS)6 GATS does not define the term but indirectly refers to the concept by way of the 4 modes for providing services. Modes of providing services according to GATS: (a) Cross- border supply: In this mode, the service provider the and customers are each in their own country but the service is provided from the territory of one country to that of another. For example, express-service or transporting oil through a pipeline. (b) Abroad consumption: In this mode, customers have to go to the country of the provider to buy the service, such as the service of being examining and medically treated in a foreign country or studying abroad. (c) Commercial presence: In this mode, service providers set up their presence in the country of the customer through a legal entity such as a branch, representative office or subsidiary company. For example, banking services, distribution services. Encyclopedic dictionary, p.167 Prof. PhD. Mo, Nguyen Thi, “Choosing steps and solutions for Vietnam to open trade in services”, Political Argument Publishing House, 2005, p.14 GATS is a system of regulations of the WTO multilateral adjustment to trade services. This Agreement derives from the Uruguay round negotiations and includes obligations and principles, the index of each field and the specific commitments by each country aimed at opening markets. 29 terms of GATS applies to all service sectors including the banking service sector. These provisions state the principle that all Member States must comply with: (1) Most-FavoredNation, (2) Transparency, (3) National treatment, (4) Market access. 10 (d) Natural presence: In this mode, providers appoint representative in the country of the customer to provide services there. For example, providing experts, researching the market. According to the WTO classification, services are divided into 11 main branches; each branch is again divided into sub-branch, the total number of sub-branches being 155 ones.7 The main branches include: Business services (including services relating to specialities and professions, such as legal consultancy, accounting, auditing, promotion…), information services (including services relating to delivery, telecommunication, and audio vision), construction services, distribution services (including activities of wholesaler, retail, dealer), education services, environment services, financial services (including services relating to banking, insurance, security), medical services, tourism services, culture-entertainment services and transportation services. In my opinion, the concept of services can be understand like this: “Service is the by-product of the laboring process. It does not exist as an object but is consumed together with the process of provision in order to meet the demands of production and of human life”. Services have some attributes as follows:8 First, a service has the characteristic of Intangibility: Services are invisible and immaterial. Services are things which “cannot drop to your feet” when being sold.9 You cannot touch it or drop it on your feet like other common goods because a service product does not exit as an object. For example, when you buy a bottle of milk, it may fall on your feet if you or the seller are not careful. But this problem never happens with services. On the other hand, you cannot assess its quality before consuming it. For example, a customer cannot evaluate the quality of a spa shop if she does not directly use that service. Second, a service has the characteristic of Inconsistency: It is difficult to determine the quality of services because they depend on the context that creates them, such as provider, time, and place of provision. For instance, the quality of training at a foreign language center may be different when teachers at different See Document MTN.GNS/W/120 of the WTO Vice Professor, PhD Nguyen Huu Khai, MA. Vu Thi Hien “Vietnamese services, competitive capacity and international economic integration”, Statistics Publishing House, Hanoi 2007, p.9 Liberalizing International Transactions in Services, p.1 11 levels teach. Even the same teacher can have a successful lecture in one class but fails in another since the level of success depends not only on raw ability but also on equipment and mood…. Third, a service has the characteristic of Inseparability: One of the characteristics of a service is that with a service product, consuming coexists with providing the service. A service is consumed when it is produced, and the process of provision stops when service consumption stops. On calculating the output of the economy, the Bureau of Economic Analysis, U.S Department of Commerce also gave a general definition of service: “Services are those whose products cannot be stored and are consumed at the time and place where trading activities take place10”. Forth, a service has the characteristic of Inventory: Services cannot be stored; this means that service products cannot be produced in advance and stored to wait to be consumed. However, this characteristic is only relative, since some service products are in object form, as in design services, where drawings are visible and can be stored. (b) Concept of “Banking Services”: Similar to the concept of service, there are many different ways of understanding the concept of banking service. Before reviewing this concept, let us find out what a “bank” is. In the past, a bank was often defined by its function (services provided) in the economy. In fact, many financial organizations including security companies, security intermediary companies or leading insurance companies are now trying to provide banking services. And banks are competing by expanding the scale of the services they provide, such as securities, insurance and many other new services. The public is becoming unable to distinguish banks from some other kinds of financial organization. There is one view that : A Bank is a financial organization which provides various categories of financial services, especially credit, savings and payment services, as well as implementing more financial functions than any other business organization in the economy”.11 Encyclopedia of Business and Finance (2001), Vol.2, Macmillan, p.762 For a general view of banks and banking services, see www.saga.vn, accessed 9th October,2008 12 In Vietnam, provision 2, Article 20 of The Law on Credit Institutions12 provides that: “A Bank is a form of credit institution permitted to conduct all banking operations and other related business operation…”. In the book “Modern Banking”, David Cox stated that: “Most professional activities of commercial banks are called banking service or foundations for developing such service”.13 According to the viewpoint of this writer, banking services constitute all the professional activities carried out by a bank, which is just a kind of business. In Vietnam, banking services are controlled by the Law of Credit Institutions, yet this law does not give a definition or explanation of banking services. The phrase “banking services” is mentioned in provision 7, Article 20 of The Law on Credit Institutions: “Banking operations mean monetary business and provision of banking services, with the regular and principle operations being the taking of deposits and the use of such deposits to extend loans and to provide payment services”. So, here, “banking services” means one of the activities of a Bank. In some Vietnamese books, newspapers and magazines, without giving a definition, writers often list various types of banking service. According to this, banking services are understood in a broad and narrow sense: - In the broad sense, banking services includes all currency, credit, payment and foreign exchange activities of the banking system14 (This viewpoint fits the way of classifying banking services used by the WTO15 as well as in many developed countries). - In the narrow sense, banking services only consists of fee receiving activities such as money transfers, guarantee, foreign exchange business, international payments…16 Here, we would like to research issues relating to banking services in the broad sense of the word as it is mainly understood in the modern world. 12 This Law was passed by the X Legislature of the National Assembly of the SRV in its second session on 12 December 1997 (The Law No. 02/1997/QH10) and was amended and supplemented by the Law on amending and supplementing a number of Articles of the Law on Credit Institutions, passed by the XI Legislature of the NA of the SRV in its fifth session on 15 June 2004 (the Law No. 20/2004/QH11). Cox. D (1997), Modern Banking, Politics Publishing House, p335 See “Develop Vietnam’s financial service market in the process of integrating”. Thai Ba Can, Tran Nguyen Nam According to the WTO’s classification, banking service is a component part of the financial service sector in general and was ranked as the 7th sector, sub-sector B. 16 See Professor, PhD. Nguyen Thi Quy, Modern Banking Service, 2008, Scientific Society Publishing House, p.8 13 1.1.1.2 Characteristics of banking services. Beside the general attributes of services mentioned above, banking services have the following features: (a) Banking is a highly sensitive activity for the economy. The banking system is regarded as the nervous system of the economy. Banks play the key role in distributing finance and managing most financial transactions. And the bankruptcy of a single bank may cause the collapse of the whole system, as we have just seen. Banking operations, hence, have a direct effect on the stability of the national economy. (b) Diversity of banking service forms. Unlike trade in commodities, trade in services takes various forms. While the object of a commodity trade is particular goods, the object of trade in service is forms of providing services which are based on the capacity of the service provider. These forms are recognized throughout the world. Banking service is one of the branches of the trade in services, so it also reflects this. On the other hand, beside the traditional services with a long history, such as bank deposits or lending services, banks are increasingly broadening the category of services and providing new services for customers, always being helped by the development of new technology. Banks today are even becoming “financial supermarkets”17 according to Peter Rose. (c) Subject to interference of the government through measures affecting the capacity of the banking service. Interference of the government into trade in service is only implemented through preventing provider’s capacity of providing or consumer’s capacity of consuming service. An activity of providing and consuming normal service requires the presence of service provider and consumer. Only by managing effectively or gaining necessary reorganization of service transaction, can the government make full use of those measures. In banking service, the government makes influence on ability of providing and consuming banking service through measures such as building and implementing national monetary policy or using Law as the tool of manage and maintain order of banking operations… Peter Rose (1999), Commercial Bank Management, Irwin McGraw Hill. 14 1.1.1.3 Classification of banking services Banking services can be classified in different ways, each of which has a certain value. - Based on the time factor, banking services are divided into: (i) Traditional services including: (a) Foreign exchange service, (b) discounting commercial papers and commercial lending, (c) receiving deposits, (d) preserving valuable property, (e) providing transactional accounts, (f) providing confidential services.. New services: (a) consumer loan services, (b) financial consultancy, (c) (ii) cash management, (d) services relating to buying and hiring equipment, (e) selling insurance services, (f) providing services regarding securities, (g) providing investment bank service …18 This classification is a foundation on which to construct a legal framework, State policies, measures of the Bank (strategy, organization, applied technology, monitoring activities, risk control ....) suitable for each type of service, especially the more modern kind, to promote the best possible performance. - Based on the functions of banks, banking services are also classified into: 1. receiving savings from the public 2. lending in all forms 3. providing finance 4. paying and transferring money 5. guaranteeing 6. currency exchanges…19 The meaning of this classification will help us to determine what are banking activities and what are not. The classification of banking services plays an integral role in both theory and practice, as the success of banks depends on their capacity to determine the financial services that society needs, providing those services effectively and selling them at a competitive price. See General view of banks and banking services, www.saga.vn, accessed 9th October, 2008 See Syllabus of Vietnamese Law on Banking, Hanoi University of Law, The People’s public security publishing house, 2007 15 1.1.2 Opening up the banking services market in the context of globalization. 1.1.2.1 Necessity of opening up the banking services market It is necessary to open up the banking services market for the following reasons, all of which acquire greater force in this time of globalization: First, opening up the banking services market is what the economy demands As we known, “capital” is always a “hot” topic in most countries, especially in the developing countries. Demand for capital is increasing, especially in the context of a financial crisis of global magnitude. Opening up the banking services market will increase Foreign Direct Investment (FDI) capital sources. After a long period of tightly protecting domestic bank markets, many countries which were implementing economic reforms in the 1990s, especially average-income countries such as those in Latin America, Eastern Asia, Middle-Eastern Europe, started reducing or removing the barriers preventing Foreign Direct Investment (FDI) from flowing into the banking area. Currently, many nations allow foreign investment in banking not only by opening offices or branches but also by investments in domestic banks. The value of FDI investing in the financial area of developing countries increased dramatically from 2.5 billion USD in the period 1991 – 1995 to 51.5 billion USD in 1996-2000 and 67.5 billion USD in 2001-2005.20 The participation rate of foreign countries can be measured by the proportion of the total value of the banking system which they hold. On the other hand, opening up the banking services market will also help foreign investors take part in privatizing state-owned banks Generally,, opening up the banking services market will help the big banks in America and Europe expand into promising markets in developing countries and buy weak banks, restructuring and selling them or otherwise benefiting from their activities. Second, opening up the banking services market aids in the integration of the international economy. Opening up the banking services market conforms to multilateral commercial agreements, to EU rules (for several countries in Middle Europe and Eastern Europe), to IMF rules (for countries affected by the economic crisis) or to the accession requirements of the WTO (for the WTO’s member countries). Bank Austria Creditanstalt (BA-CA) report, 2005 16 For a member of the WTO or a country participating in negotiations to join WTO, the opening up of the market for banking services is a commitment which has to be implemented if membership is to happen. So, opening up the market for banking services derives from the practical demands of the economy and the need to integrate of each nation, especially developing countries, like Vietnam into the international economy. 1.1.2.2 Globalization as the context for opening up the banking services market for WTO member countries . The term “globalization” understood in the present context is linked to the internationalization of many sectors of which, the most basic is the economic. The economy is however connected to other sectors. Globalization removes political barriers, relies on the progress of digital technology and shrinks distances. And his process is happening on a global scale. Globalization is linked objectively to two other economic processes :liberalization and integration. The final destination of globalization will be is a united global economy that does not recognise any national boundaries. Opening up markets in each nation is one of globalization’s key processes. Opening up the market for banking services is fully within this process. The WTO is an organization whose members are admitted through negotiation, which means that besides agreeing to WTO regulations, the new member must open up is commodity and services markets. Naturally, the commitment on opening up service markets is that the new member commit to loosening the conditions for foreign service providers to get access to the domestic market. However, in practice, countries receiving imported services have a tendency to tighten the conditions for access of foreign service providers to the domestic market so as to protect domestic service providers. In order to have a deeper understanding of this matter, we need to distinguish between commodity commerce and service commerce so that we can understand the differences in market protection. Due to there being no direct tariff on import or export of services, to restrict the activities of foreign service providers and protect the domestic service provider, the host country can propose measures and conditions to control foreign access at two points of time:21 (i) When foreign service providers want to be allowed to provide services and be present in the host country to provide them. See Multilateral Trade Aid Project MUTRAP II (2006), Q&A about WTO, p.68 17 (ii) After they are allowed to provide services and have entered the host country. The conditions given at the first point of time are restrictions on opening p the market. If these conditions cannot be met, foreign service providers will not be allowed to provide services in the host country. The conditions at the second point of time are restrictions providing for national priority. These conditions discriminate between foreign service providers and domestic ones Previous multilateral negotiations tended to avoid service branches since it was thought that services has little ability to be exchanged and transported but today they are regarded as subject to the common development trend affecting all sectors. In the negotiating round in Uruguay (ended in 1994) and the establishment of the General Agreement of Trade in Service (GATS), the members of the WTO made services a decisive element of the multilateral system The facts then showed that liberalization of services can lead to major investments. Nowadays, in the Doha negotiating round, despite many difficulties, the countries are trying to foster the process of service liberalization. Service liberalization is expressed in a schedule of commitments. According to regulations of the WTO, a schedule of commitments consists of 3 parts: joint commitments, particular commitments and list of measures regarding waiver to Most Favored Nations (MFN). (i) Joint commitments: include commitments covering all services in the service commitment schedule. This part mainly mentions general matters, such as regulations of investment, mode of enterprise establishment, measures relating to taxation of and subsidies for domestic enterprises… (ii) Particular commitments: include specific commitments applied to each service in the service commitment schedule. The content of these commitments expresses the level of opening up of each service to Foreign Service providers . (iii) List of measures regarding waiver to Most Favored Nations: includes measures regarding violations of the MFN principle for services. According to regulations of GATS, a member can violate the MFN principle if that member bring the violating measure into the list of measures regarding waiver to Most Favored Nations and this is accepted by other members of the WTO. The schedule of commitments includes 4 columns: (i) Column of Branch/sub-branch description: shows name of particular service subject to a commitment 18 (ii) Column of Market Access: gives list of measures maintained for foreign service providers. GATS regulates 6 limiting measures: 1) limitation on number of service providers, 2) limitation on total value of transactions or property, 3) limitation on total number providing services, 4) limitation on number of workers, 5) limitation on forms of enterprise establishment, 6) limitation on contributing capital from foreign countries. Therefore, the more measures a commitment schedule can list, the narrower the level of opening up the market for foreign service providers. (iii) Column of limitation on national treatment: lists measures maintaining discriminatory treatment between domestic service providers and foreign ones. The more measures a commitment schedule can list in this column of, the greater the discriminatory treatment between domestic service providers and foreign ones. (iv) Column of supplementing commitment: lists measures affecting service providing and consuming operations not belonging to the other limitations. This column describes regulations relating to ability, technical standard, requirements or procedures of licensing. Measure of accessing “negative approach” and “positive approach”: - A “Negative approach” measure: is the a commitment to allow an unlimited range of things. This measure is used when giving commitments for services in the schedule. According to this, committing parties will list all the limiting measures applied to services. Except for these measures, no other ones can be applied. - A “Positive approach” measure: is a commitment to do only those things specifically allowed. According to this, committing parties only commit to open markets for the services appearing in the schedule. They have no responsibility for services that do not appear there. When opening up the market in providing services, each member country will give priority to banking services or banking service providers of any other member country if they accept the conditions and restrictions which are agreed and regulated in the commitment list of that country. 1.1.2.3 Meaning of opening up the banking services market. Firstly, opening up the market for banking services will impact positively on domestic capital markets bank. In fact, foreign capital has a relatively important 19
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