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The Prudential Carve-out

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Chapter Summary

The core of the prudential carve-out issue is the relationship between the first sentence and second sentence of paragraph 2 (a) of the Annex on Financial Services. The scope of prudential carve-out depends on the distance between prudential measures and GATS obligations. The longer the distance is, the broader the scope of prudential carve-out is, and vice versa. Theoretically, there are four modes of prudential carve-out with different scope. According to the degree of domestic regulation power, against the degree of financial trade liberalization, they are full prudential carve-out, partly overlapping prudential carve-out, non-discriminatory prudential carve-out and wholly overlapping prudential carve-out. The influence of WTO dispute settlement mechanism on issue of prudential carve-out is limited, and the final answer depends on the on-going multilateral trade negotiations. Compared to prudential carve-out in regional trade regimes, such as the OCED, NAFTA, prudential carve-out under WTO seems to be much broader, less restrictive.

Keywords: Annex on Financial Services; domestic regulation; General Agreement on Trade in Services (GATS); non-discriminatory prudential carve-out; prudential carve-out; trade liberalization; trade negotiations; WTO dispute settlement



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