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What Role for Non-Discrimination and Prudential Standards in International Financial Law?

Thomas Cottier and Markus Krajewski[1]

I. Introduction

More than a decade ago—in the aftermath of the 1997-99 Asian financial crisis— Hufbauer and Wada asked whether financiers can learn from traders.1 The opening remarks of their contribution can easily be transferred to the contemporary state of affairs. Even though bankers and finance ministers are apparently ‘more sophisticated, better dressed and earn more money’ than their trading counterparts, Hufbauer and Wada assert that ‘financiers have collectively stumbled, and stumbled badly, over the past decade’.2 The authors contrasted this perception with the allegedly much better track record of the trading system. While the impression of the performance of the international financial system then and now seems comparable, the protagonists of the world trading system have currently no reason to cheer. The troubled state of the Doha Development Agenda, two failed Ministerial Conferences (in 1999 and 2003), the proliferation of regionalism, and growing fragmentation within the World Trade Organization (WTO) membership, suggest that the international trading system can no longer be perceived as the bright star in the sky ofinternational economic law. Can it still be useful to look for some inspiration from the trading system when navigating through the murky waters of international financial law? Or, should the trade epistemic community keep their heads down, because the WTO’s framework of liberalizing financial services may have contributed to the financial crisis as suggested by the UN Commission of Experts on Reforms of the International Monetary and Financial System under the chairmanship of Josef Stiglitz?3

We approach these questions based on the assumption that the crisis of the politics and policies of the world trading system should not obscure the achievements of this system as a rules-and-principles-based legal order.4 The multilateral trading system has been reasonably successful in fending off outright protectionism in the wake of the crisis. While there have been temporary support and protective measures which may have had protectionist effects, the crisis did not result in a systemic increase of protectionist trade barriers.5 The situation is completely different from the experience after the Great Depression in the 1930s when no multilateral framework was in place.6 The principles and rules of the WTO are therefore bound to play an important role in further developing the architecture of the financial system.7

One of the cornerstones of this system is the principle of non-discrimination embedded in the world trade order through its two concretizations, the most- favoured nation (MFN) and the national treatment principles. Despite the paramount importance of these principles for WTO law and, indeed, most regional trade agreements, non-discrimination is hardly mentioned as a general principle of the current international financial system.8 It is not a central element of reform proposals which have been suggested following the most recent financial and economic crisis. The Toronto G20 Summit Declaration of June 2010 mentions non-discrimination only as a requirement for the implementation of measures to improve transparency and regulatory oversight of hedge funds, credit-rating agencies, and over-the-counter derivatives.9 It is not perceived as a substantive or standalone requirement for regulatory measures. Nor has it been identified as a potentially important contribution to a crisis-resistant system.10

Non-discrimination is the main principle and instrument with which to bring about level playing fields between domestic and foreign competitors—a key concern in the search for a new financial architecture and one of the main reasons why rules should be partly allocated to the level of regional, international, or global law.

in bilateral trade agreements may restrict the ability of governments to change the regulatory structure in ways which support financial stability, economic growth, and the welfare of vulnerable consumers and investors’, United Nations, ‘Report of the Commission of Experts of the President of the United Nations General Assembly on Reforms of the International Monetary and Financial System’, 21 September 2009, ch 3, para 208.

  • 4 Meinhard Hilf, ‘Power, Rules and Principles—Which Orientation for WTO/GATT Law?’, 4 Journal of International Economic Law 1 (2001), at 111.
  • 5 WTO, Trade Policy Review Board, ‘Report to the TPRB from the Director General on Trade- Related Developments’, WT/TPR/OV/W/3, 14 June 2010, para 2.
  • 6 See Barry J. Eichengreen and Douglas A. Irwin, ‘The Slide To Protectionism in the Great Depression: Who Succumbed and Why?’, National Bureau of Economic Research Working Paper No 15142, July 2009, (visited 3 October 2010).
  • 7 See also Chapter 20 by Ernst Baltensperger and Thomas Cottier in this volume.
  • 8 See e.g. Rosa M. Lastra, Legal Foundations of International Monetary Stability (Oxford: Oxford University Press, 2006); Mario Giovanoli and Diego Devos (eds), International Monetary andFinancial Law: The Global Crisis (Oxford: Oxford University Press, 2010).
  • 9 G20, Toronto Summit Declaration, Toronto, 26—27 June 2010, (visited 7 July 2010).
  • 10 Mario Giovanoli, ‘The Reform of the International Financial Architecture After the Global Crisis’, 42 New York University Journal of International Law & Politics 81 (2010), at 122.

This chapter discusses the potential of the non-discrimination principle for international financial law and the potential impact of and role for the development of a more stable system. It seeks to contribute to an agenda for future research and to suggest a few waymarks which could help to develop roadmaps through the landscape of international economic law.[2]

  • [1] The authors are grateful to Ronald Abegglen, Research Fellow WTI, for his assistance in preparingthe Chapter. 1 Gary Hufbauer and Erika Wada, ‘Can Financiers Learn From Traders?’, 2 Journal of InternationalEconomic Law 567 (1999), at 567. 2 Ibid, at 567. 3 ‘The framework for financial market liberalization under the Financial Services Agreement of theGeneral Agreement on Trade in Services (GATS) under the WTO and, even more, similar provisions
  • [2] John Jackson, ‘International Economic Law: Complexity and Puzzles’, 10 Journal of International Economic Law 3 (2007), at 7—8.
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