Trade in Financial Services: The Case of Chile
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The latter followed the GATS model, which meant that financial services would be just an additional sector within services. In the end, the EU accepted negotiation of a separate financial services chapter, but still following a GATS approach regarding key provisions and the listing of commitments. Fourth, Chile had to review its financial services legislation for an assessment of where it stood with respect to obligations such as national treatment; market access (economic needs tests, quantitative restrictions, requirements regarding juridical forms of establishment, and so on); modes of supply; residency requirements for senior management; and board of directors composition. In-house lawyers and economists, in collaboration with the regulatory agencies, conducted the review. The goal was to define a NAFTA-like negative list of nonconforming measures. The most-favored-nation (MFN) clause was not seen as an important issue because Chile is not a member of any customs union or common market. The violations of national treatment were few and mostly related to residency requirements. In the case of market access, the potential nonconformities were almost exclusively related to the obligation of a specific juridical form for establishment or commercial presence. In most cases, financial institutions in Chile have to be local stock corporations. Also, foreign financial institutions have to be subsidiaries and cannot be direct branches.21 Finally, no quantitative restrictions existed, such as limits on share ownership, market shares, or types of operations that foreign institutions could perform. Fifth, and finally, Chile had to decide how far it would go in its commitments and whether liberalization beyond the status quo was possible or desirable. Although the negotiating team was aware that some flexibility would have to exist, at least a preliminary decision had to be made. The first issue that arose regarding commitments was the treatment of the privatized social security system, both for pension funds and health care. Foreign ownership was not restricted; in fact, as shown in table 5.3, foreign-owned institutions manage a majority of pension fund assets. However, neither the United States nor the EU has a similar compulsory privatized system. This fact appeared as an important asymmetry, and the negotiators decided that as in Chile’s commitments in GATS and in the agreements with Canada and Mexico, all financial services related to the compulsory social security system would be carved out.22 The second issue was whether Chile would be asked to modify certain aspects of its financial legislation or the structure of its financial system. The latter was discarded because bilateral FTAs do not require the