Coverage of prudential measures in the GATS: Some conclusions from the WTO appellate body

Since the issuance of the framework of the General Agreement on Trade in Services (GATS) as part of the results of the Uruguay Round negotiations, there has been a continuing controversy as to the scope which it provides for financial regulation. The principal focus of this controversy has been the so-called ‘prudential carve-out’ or ‘prudential exception’ of para 2(a) of the Annex on Financial services. This provides latitude under GATS rules for measures taken by members for prudential reasons affecting their financial sectors, notwithstanding other provisions of the GATS. A recent dispute between Panama and Argentina was the first official WTO decision to address this.