Introduction

It appears that negotiations under the General Agreement on Trade in Services (GATS) to liberalize financial services trade are not proceeding smoothly. No major progress has been recorded since the Fifth Protocol to GATS came into effect in 1999. Under such circumstances, in order to promote a progressive liberalization of financial services, some insist that rationality, objectivity and transparency in domestic regulation should be achieved according to the principles of GATS Article VI. However, it is extremely difficult to form a consensus on domestic regulation under Article VI between developed and developing countries. To complicate the issue even further, there appears to be no consensus or agreed definitions among World Trade Organization (WTO) members about the scope of application or the content of regulations subject to Article VI.

This chapter discusses various aspects of domestic regulation in light of Japanese experiences, examines the experience of financial system reform in Japan and draws lessons for advancing the GATS negotiations on financial services liberalization in the future. In order to maximize the benefits from liberalizing financial services, we argue that institutional frameworks to enhance the objectivity and transparency of investor protection laws and other domestic regulations should be put in place and enforced effectively, in addition to promoting the opening of markets to foreign services providers. In our opinion, the recent global financial crisis strengthened the validity of such a view.