Volume 48 (2014) / Issue 6
Paragraph 2(a) of the GATS Annex on Financial Services is generally known as the Prudential Carve-Out (PCO). Essentially, it allows WTO Members to adopt the measures they deem appropriate for prudential reasons, when regulating trade in financial services. The provision has not yet been interpreted in WTO dispute settlement proceedings. However, it is extremely relevant in light of the 2008-2009 financial crisis and the regulatory developments that ensued worldwide. Few scholars have looked into the issue and it seems to be their common view that the PCO has to be classified in the technical sense as being an 'exception' to the obligations and the commitments of the GATS. The main argument of this article is that the PCO should rather be classified as a 'provision that excludes the application of other provisions'. This alternative interpretation is more consistent with the negotiating history of the provision, the negotiators' intention, as well as the economic rationale behind it. Characterizing the PCO in this manner has implications for the allocation of the burden of proof (which should therefore fall on the complainant and not on the defendant) and for the degree of deference that WTO judges have to pay to the rights and the prerogatives of the regulators in the domain of financial services.
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