Including financial services in preferential trade agreements: lessons of international experience for China

The objective of this paper is to address the main considerations for China of including financial services in its preferential trade agreements (PTAs). The paper compares and contrasts the different "architectural" approaches that have been used by countries to include financial services in such agreements, and identifies good practices in preparing for financial services negotiations. Furthermore, particular emphasis is placed on lessons from Latin American preferential trade agreements.

The paper deems that the way in which financial services are covered in PTAs is an important consideration for policymakers. In particular, it notes that the lack of setting up for financial services does not necessarily mean that all disciplines of the agreement will apply to that activity. Indeed, notwithstanding the overall architecture of the trade agreement, there is significant scope to introduce certain investment-restrictive measures, where needed, in financial services commitments.

The paper underlines that the different architectural approaches suggests there is no unique model that all countries should aspire to; specific PTA circumstances will largely determine the approach taken. However, it finds that securing the active collaboration of financial sector officials in financial services negotiations would be of great benefit to Chinese trade negotiators. In addition, developing a robust consultation process with non-governmental stakeholders will also enhance the effectiveness of financial services negotiators. The paper also concludes that the use of a trade-related regulatory audit in financial services can facilitate the negotiations and potentially generate positive spillovers in the consultation process.