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

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
1.
1.1
1.1.1
1.1.2
1.2
1.2.1
1.2.2
1.2.3
1.2.4
2.

2.1
2.1.1
2.1.2
2.1.3
2.2
2.2.1
2.2.2
Overview of banking services and international commitments of Vietnam
on opening banking services market in the WTO’s framework 7
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
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
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
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
1.
1.1
1.1.1
1.1.2
1.2
1.2.1

1.2.2
1.2.3
1.2.4
2.
2.1
2.1.1
2.1.2
2.1.3
2.2
2.2.1
2.2.2
Overview of banking services and international commitments of Vietnam
on opening banking services market in the WTO’s framework 8
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
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

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
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
1.
1.1

1.1.1
1.1.2
1.2
1.2.1
1.2.2
1.2.3
1.2.4
2.
2.1
2.1.1
2.1.2
2.1.3
2.2
Overview of banking services and international commitments of Vietnam
on opening banking services market in the WTO’s framework 9
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
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
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
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
GATS
GDP
FDI
Association of South
East Asian Nations
General Agreement
on Trade in Services
Gross Domestic
Product
Foreign Directive
Investment
5
IMF
NA
SRV
WTO
WB
VND
USD
International Monetary Fund

National Assembly of Vietnam
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
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
services made up 37,98% of GDP in 2004).
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-Favored-
Nation, (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.
1 6
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.
-
(i)
(ii)
Based on the time factor, banking services are divided into:
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)
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.
6.
guaranteeing
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
1.1.2.1
Opening up the banking services market in the context of
globalization.
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
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(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
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