An Overview
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taken place (see Gari 2004), and thus far, Argentina, Brazil, and Uruguay have ratified the protocol, which entered into force in December 2005.
Why Include Financial Services? Broadly, there are three main reasons for countries to include financial services disciplines and commitments in their PTAs. The first—and typically the most important—reason is the existence of offensive interests in this sector and asymmetric bargaining powers in favor of the individual countries. This motive should not be surprising: a trade agreement is essentially a mercantilist exercise, so the inclusion of certain sensitive sectors such as financial services reflects the perceived interests and negotiating strengths of the partners. Therefore, a country includes financial services commitments either because it is forced to do so by the negotiating partner (perhaps as a quid pro quo for securing market access in another sector) or because it has offensive interests in financial services and is able to pursue them in the markets of trading partners, which is typically the case in the context of North-South PTAs (see annex 2B).26 The second reason is to use such trade agreements as a vehicle either to lock in recent unilateral liberalization or to advance the government’s reform agenda in this sector by precommitting to future market opening, thereby overcoming any lingering resistance from domestic constituencies and providing a positive signal to foreign investors. This motive seems to have been the case for financial services commitments undertaken by, for example, Argentina in GATS (Bouzas and Soltz 2005) and Costa Rica in the negotiation of the Free Trade Agreement between Central America, the Dominican Republic, and the United States (CAFTA-DR-U.S.) (see chapter 7 in this volume). Finally, countries can decide to integrate services, including financial services, in PTAs for strategic or political, rather than purely economic, reasons. The clearest examples of such cases involve plurilateral regional trading bloc initiatives, such as the CAN and Mercosur in the Latin American and Caribbean Region.27 Despite many reasons for including financial services in PTAs, a number of potential drawbacks exist. They consist primarily of (a) regulatory sensitivities about further domestic financial market opening and the related fear of limiting “policy space” in this sector, (b) potential distortions that could arise from giving preferential treatment to specific counterparts (especially in cases where first-mover advantage is important), (c) strategic considerations (commitments made with one PTA counterpart can become a floor in multilateral or other bilateral trade negotiations), and (d) administrative problems that arise from managing a complex web of financial services liberalization rules with different countries. By far the