Date of Proposed Binding Treaty Action
Before 30 January 1999.
The Fifth Protocol to the General Agreement on Trade in Services (the Protocol), shall be open for acceptance by signature or otherwise, until 29 January 1999. The Protocol shall enter into force on the first day of March 1999 provided it has been accepted by all Members concerned. If all such Members have not accepted it by 30 January 1999, then those Members which have accepted it by that date may decide, within a period of thirty days thereafter, on its entry into force. Australia proposes to accept the Protocol before 30 January 1999.
Date of Tabling of the Proposed Treaty Action
12 May 1998.
Reasons for Australia to take the Proposed Treaty Action
The Uruguay Round of multilateral trade negotiations, which ended on 15 April 1994 with the Marrakesh Agreement establishing the World Trade Organization (WTO), resulted, among other agreements, in the conclusion of the General Agreement on Trade in Services (GATS) as an integral part of the WTO. The GATS, which establishes rules for non-discriminatory trade in services, entered into force on 1 January 1995. Australia is a Member of the GATS.
At the end of the Uruguay Round, it was decided that there should be further negotiations on financial services, such as insurance, merchant and consumer banking, to improve coverage of this sector under the GATS and secure a higher degree of liberalisation. The first round of negotiations on financial services was held in 1995 and, while it was successful in securing important improvements in market access, it was recognised that significant barriers remained. WTO Members agreed to further negotiations in 1997 which concluded on 12 December 1997, with 56 Members (representing 70 countries - the offer of the European Union member states being counted as one) including Australia, agreeing to make new or improved commitments to liberalise the sector, such as by allowing more foreign share ownership in Australian banks. The Protocol gives effect to the agreed improvements which are set out in its individual schedules of Members' legally binding commitments.
The principal benefits from the new commitments are the undertakings made by Members to either reduce barriers to trade and investment in financial services, or legally bind the liberalisation that has already taken place. In 1996, world financial services trade was estimated at more than US$70 billion. In addition, the Protocol will bring an enhanced level of predictability to trade in financial services because the commitments will be subject to legally binding WTO enforcement and dispute settlement processes. It also provides the basis to press for further improvements in market access.
The Protocol will bring considerable benefits to the increasingly internationally oriented Australian financial services sector. In 1996, Australian financial services exports (banking and insurance premiums minus claims) were valued at over A$1 billion, having doubled over the previous five years. This does not include the value of large scale offshore investments made by Australian banks and insurance companies. During the negotiations, all of the economies of major interest to Australian companies, including Hong Kong, Indonesia, Japan, Korea, Malaysia, the Philippines, Singapore and Thailand, made liberalising commitments of commercial importance.
As Financial Services are an important infrastructure for the production and export of goods and services, the further liberalisation of trade in financial services as provided under the Protocol is also likely to benefit users and other exporters.
Obligations
The Protocol obliges Australia to supplement its Schedule of Specific Commitments and the List of Article II Exemptions agreed to in the 1995 interim arrangements on financial services with new inscriptions.
The new inscriptions comprise Australia's new commitments under the Protocol which reflect the changes made to the Australian financial system from the end of the Uruguay Round to the end of 1997. The new commitments legally bind at the international level liberalisation measures previously adopted at the domestic level and do not require any changes to domestic policy or legislation (i.e. it was a 'standstill offer' in international negotiations).
The new commitments made by Australia include the:
1. Elimination of the prohibition on banks (resident and non-resident) from holding shares in the Commonwealth Bank of Australia (CBA) and other entities from holding more than five per cent of its issued share capital. This followed the completion of the sale of the CBA on 19 July 1996.
2. Modification of the entry relating to guarantees by the Commonwealth Government given to the financial operations of the CBA. The new entry reflects transitional arrangements for the phasing out of these guarantees following privatisation of the CBA.
3. Removal of the exemption to most-favoured-nation (MFN) treatment which covered requirements for reciprocal access to gain membership of the Australian Stock Exchange. These requirements were abolished in October 1995.
4. Removal of the blanket prohibition on foreign takeovers of the four major banks. However, Australia's schedule of commitments will continue to make clear that foreign acquisitions remain subject to the national interest test under Australia's foreign investment policy guidelines and the Foreign Acquisitions and Takeovers Act 1975.
5. Revision of the entry covering the Australian Industry Development Corporation (AIDC). The revised entry reflects transitional arrangements for the phasing out of Commonwealth Government guarantees following the sale of the AIDC.
6. Addition of a new entry to cover the role of Comcare as the monopoly provider of workers' compensation insurance to Commonwealth Government employees.
7. Elimination of the restrictions placed on share ownership of Authorised Money Market Dealers by banks (domestic and foreign), and the restrictions imposed on relationships and dealings between authorised dealers and related banks. These restrictions were abolished in 1996.
8. Elimination of the prohibition on foreign banks located overseas from raising funds in Australia. This new entry reflects changes implemented in September 1996 which allow such banks to raise funds in Australia through the issue of debt securities, subject to conditions. These conditions include that the securities are only traded in the wholesale market and that specific disclosure requirements must be met.
9. Removal of the entry relating to the reservation by State and Territory governments of the right to prohibit foreign control of State-owned or controlled banks following privatisation of most of these banks. A new entry reflecting the transitional guarantees given to some of the assets and liabilities of the former State-owned or controlled banks has been added.
10. Addition of a new entry covering conditions attached to the sale of the Trust Bank of Tasmania as specified in the Trust Bank (Corporatisation) Act 1997. These include the possible requirement for a joint venture arrangement, and the requirements that at least a majority of the directors of the Trust Bank be resident in Tasmania and that policy and control of the Trust Bank be exercised in Tasmania.
A number of technical changes have also been included for the purpose of clarification. For example, the addition of text to clarify that foreign banks may establish locally incorporated subsidiaries in Australia as well as branch operations, and the simplification of entries covering the establishment of stock and futures exchanges in Australia.
Costs
There are no direct financial costs to Australia in accepting the Protocol. It does not require Australia to make additional contributions to international organisations, nor does it require the establishment of a new domestic agency in Australia to implement or monitor.
Future Protocols
The Protocol does not provide for the negotiation of future legally binding instruments.
Implementation
Australia's commitments under the GATS reflect the domestic financial services regime which has already been put in place.
Consultation
The commitments were formulated in consultation with State and Territory Governments, and the Australian financial services industry. At the start of the negotiations in April 1997, State and Territory Governments were each briefed by a visiting Commonwealth Government official from the Department of Foreign Affairs and Trade. The States and Territories were also informed of progress in the negotiations through the Commonwealth/State Standing Committee on Treaties process.
The State and Territory Governments played an active role in the drafting of Australia's individual schedule of commitments under the Protocol relating to their areas of jurisdiction. Regular consultations were also held with the Australian financial services industry, including the Australian Coalition of Service Industries (ACSI), the Insurance Council of Australia, and the Australian Stock Exchange throughout the negotiations. The Australian financial services industry was fully supportive of efforts to liberalise trade in financial services and was satisfied with the final outcome of the negotiations as set out in the Protocol and its Schedules.
Withdrawal or Denunciation
Pursuant to Article XV of the Marrakesh Agreement establishing the WTO, any Member may withdraw from that Agreement, including the Multilateral Trade Agreements which form an integral part of the Marrakesh Agreement. Withdrawal takes effect upon the expiration of six months from the date on which notice of withdrawal is received by the Director-General of the WTO. The Multilateral Trade Agreements referred to in Article XV include the GATS and its supplementary Protocols.
Article XXI of the GATS also allows a Member to modify or withdraw any commitment in its Schedule at any time after three years have elapsed from the date on which that commitment entered into force. With a requirement of at least three months' notice, the modifying Member may have to enter into negotiations with other Members whose interests are affected by such a modification, with a view to reaching agreement on any necessary compensatory adjustment.
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