Justice Is It Really Bieng Served Essays - Gaming, Clarence Darrow

Justice: Is It Really Bieng Served Justice: Is it Really Being Served ? Crime is a very serious issue in today's society that is talked about through many different methods, media, television programs, etc.. Clarence Darrow's speech, ?Address to the Prisoners in the Cook County Jail? displays a very strong feeling on whether or not ?criminals? in jail our really at fault for their crimes or if it's the fault of those people on the ?outside?, those not in jail. Once being a lawyer himself and defending criminals like Nathan Leopold and Richard Loeb, both notorious murders, Darrow has a strong insight on hard core criminals and the legal system. He utilizes his experience and knowledge along with the appeals of pathos, logos and ethos, to gain the respect and opinions of his audience. Darrow's main purpose in this speech is to state his feelings of disregard for the justice system. He feels as though jails do not serve a true purpose and that people are not in jail because they deserve to be but rather because of unavoidable circumstance. Those who obtain money hold the power and those who are poverty stricken will be punished, no matter who was at fault or who did the crime. This piece was a speech to prisoners in a Chicago jail and therefore, it seems as if his targeted audience must have been the criminals themselves. However, he must have also been targeting the politician's and legal personnel for the tone of his sentences and the beliefs he stated would do no justice for those already in prison and must have been intended to influence those people on the ?outside?. Darrow strikes the pathetic or the emotional appeal instantly in his first paragraph: ? I do not believe that people are in jail because they deserve to be. They are in jail simply because they cannot avoid it on account of circumstances which are entirely beyond their control and for which they are in no way responsible? (862). This statement alone could create an uproar in any prison. Darrow uses great diction in this quote, using it as, a persuasive tool, to slip past the scrutiny of readers and sway them toward particular responses. With a statement as powerful as that one how can a person not begin to ponder on why these people are in jail and if the prisoners are really at fault for their crimes. Through the use of tone Darrow triggers the mind into believing that the people that are on the outside are the ones that create the havoc and those on the inside, the prisoners, are mere victims of their ruthlessness. ?If it were not for the fact that people on the outside are so grasping and heartless in their dealings with the people on the inside, there would be no such institution as jails? (863). The words seem to creep into your mind making one feel as though he is correct in what he is saying. It is as if one can hear the power and persuasiveness in his voice speaking to the prisoners allowing one to have no choice but to believe him. Darrow targets the emotional appeal in his closing paragraph, ? The only way to abolish crime and criminals is to abolish the big ones and the little ones together. Give men a chance to live. Abolish the right of private ownership of land, abolish monopoly, make the world partners in production, partners in the good things in life? (872). With his style of using harsh and abrupt sentences Darrow produces the feeling that if we would create an equality amongst us all that people would not experience hardship, there would be no crime, hate and competition. The length of Darrow's sentences seem to bring about different attitudes and feelings. His shorter sentences seem blunt or terse, where his longer sentences, that delay closure, posses more of a dramatic effect. In addition to stimulating ones emotions, Darrow appeals to the logical reasoning side of the audience: Whenever the standard Oil Company raises the price of oil, I know that a certain number of girls who are seamstresses, and who work night after night long hours for somebody else, will be compelled to go out on the streets and ply another trade, and I know that Mr. Rockerfeller and his associates are responsible and not the poor girls in the jail cell? (866). He leads us to believe that it is the fault of the rich and not that of the poor. If the rich would not be so money hungry and greedy they would

Religion or Cult essays

Religion or Cult essays When Does a Religion Become a Cult? When Does a Cult Become a Religion? I think that religion and cults are closely related. However, there can be many noticeable differences. In order for a religion to become a cult, it needs to develop into a negative form of expression. Cults are often damaging to a person and any people that are close to them. In order for a cult to become a religion, it needs to develop into a positive form of expression. This cult to religion change is dependent on the amount of people that follow it, the respect that it gets from others, and the results of following it. In order for a religion to become a cult, it needs to have a negative impact on its followers. Many times, people who are having trouble with their own lives will turn to religion or cults in order to find themselves. Many times these people will follow a new religion, and as time goes on, more and more of these people will join a certain religion. If the religion doesnt satisfy their needs, then they will break away and form their own religion, which ends up becoming a cult. These cults have a negative effect on the people that follow it. They feel that the other religions are not realistic or valid, and they try to turn others toward their new-formed cult. When others see that the cult members are out of the norm of the society, they form a negative opinion about them. This negative feeling toward the cult is what causes a religion to become a cult. In order for a cult to become a religion, it needs to have a positive effect on its followers. The people who are in this cult need to get others to have a good opinion of it. Also, they need to form a large following in order to show that their cult is widely accepted in the society. The cult has to be something that doesnt show signs of being a fad. If a cult is something that only reflects the beliefs of a society at that time, an ...

Religion or Cult essays

Religion or Cult essays When Does a Religion Become a Cult? When Does a Cult Become a Religion? I think that religion and cults are closely related. However, there can be many noticeable differences. In order for a religion to become a cult, it needs to develop into a negative form of expression. Cults are often damaging to a person and any people that are close to them. In order for a cult to become a religion, it needs to develop into a positive form of expression. This cult to religion change is dependent on the amount of people that follow it, the respect that it gets from others, and the results of following it. In order for a religion to become a cult, it needs to have a negative impact on its followers. Many times, people who are having trouble with their own lives will turn to religion or cults in order to find themselves. Many times these people will follow a new religion, and as time goes on, more and more of these people will join a certain religion. If the religion doesnt satisfy their needs, then they will break away and form their own religion, which ends up becoming a cult. These cults have a negative effect on the people that follow it. They feel that the other religions are not realistic or valid, and they try to turn others toward their new-formed cult. When others see that the cult members are out of the norm of the society, they form a negative opinion about them. This negative feeling toward the cult is what causes a religion to become a cult. In order for a cult to become a religion, it needs to have a positive effect on its followers. The people who are in this cult need to get others to have a good opinion of it. Also, they need to form a large following in order to show that their cult is widely accepted in the society. The cult has to be something that doesnt show signs of being a fad. If a cult is something that only reflects the beliefs of a society at that time, an ...

A Study on the Jovian Planets

A Study on the Jovian Planets Far beyond Earth in the solar nebula lies an ice belt and beyond that lay the four Jovian planets. They are Jupiter, Saturn, Uranus and Neptune. Jovian means Jupiter- like in which the rest of do coincide with the name. Uranus Neptune and Saturn, all carry the same traits as Jupiter. are large gas giants that contain mainly a thick atmosphere of Hydrogen and helium. These planets do not have solid surfaces, rather they just get denser with depth. They contain high mass and are usually anywhere from 15 to 318 times the mass of earth. They also contain many satellites and the gravity is much stronger than that of earth. inner structure probably consists of a rocky core of metals, water, ammonia and methane. Usually these cores are about the same size as earth possibly a little larger. It is also possible that Uranus and Neptunes core is a liquid instead of a solid. also have about the same rotational characteristics and all have rings around them. Jupiter, the first of , reigns supreme throughout the solar system. Named after the Roman god Jove, the ruler of Olympus; Jupiter is the fifth planet from the sun and is also the largest planet in the Earths solar system. It is 318 times more massive than Earth and is two thirds of the planetary mass in the solar system. Jupiters surface, unlike earth, is gaseous and not a solid. It is about 90% hydrogen and 10% helium with traces of methane, ammonia, water and rock. Jupiters interior is very similar to the Suns interior but with a far lower temperature. However, it is still unknown but Jupiter is believed to have a core of liquid metallic hydrogen. This exotic element can only be achieved at pressure greater than 4 million bars. Jupiter radiates more energy in space than it receives from the sun. The interior of Jupiter is hot and has been estimated to be 20000 degrees Kelvin. The heat is generated by the Kelvin- Hemholtz mechanism, or the gravitational compression of a planet. It g ives off about 1.5 to 2 times more energy than the sun. It is speculated that the source of this heat is due to the rapid rotation of the planet and its liquid metallic hydrogen core. Liquid Metallic hydrogen consists mainly of ionized protons and electrons and is the electrical conductor and the source of Jupiters magnetic field. This magnetic field spins in less than 10 hours and is stirred by convection currents. The results are the strongest magnetic field in the solar system. ( Seeds, 516). This magnetic field is so large that it extends beyond Saturn and is electrified enough to send charges into the earths magnetic field. In the 1970s, Pioneer and Voyager flew past Jupiter and discovered the large magnetic field or magnetosphere. The magnetosphere is not a true sense a perfect sphere. It is highly flattened due to the rapid rotation of Jupiter. This magnetic field causes phenomenon such as strong lightening and even an aurora similar to earths aurora borealis . Jupiter, unlike earth, has three distinct weather producing zones or a troposphere. They are believed to contain Ammonia ice, ammonium hydrosulfide, and water and ice. In the apparent or uppermost atmosphere, ammonia ice crystals thrive in a temperature of about 150 degrees Kelvin. Most astronomers theorize that the next level of the atmosphere is primarily made up of Ammonium hydrosulfide crystals in a temperature of 200 degrees Kelvin. It is also theorized that the third and final level before the liquid metallic hydrogen is a layer of liquid ammonia and water droplets. Jupiters atmosphere is also plagued by high velocity winds that move in wide bands. These winds blow in opposite directions along the latitude of the planet. Because of chemical reactions and differences, they can be seen wrapping around Jupiter in colorful bands. The light colored bands are called zones and the dark colored bands are called belts. It is not known whether the belts and zones are permanent, they have not changed in eighty years of observance. One theory is that the jet stream at the belt-zone boundaries are linked to circulation patterns deep in the liquid interior (Seeds, 520) One of the most prominent features in Jupiters atmosphere is the Great Red Spot or GRS. The GRS is an oval about 12000 by 25000 km. At first sight the GRS is similar to a hurricane on earth but with infrared observations and by observing the direction of rotation, scientists have concluded that the GRS is a high pressure region whose cloud tops are higher and colder than surrounding regions. Similar animosities exist on the other Jovian planets but it is not known how long they will last. Like all Jovian planets, Jupiter has its own ring system. Jupiters rings are less than 30 kilometers thick and with a distance of 1.81 planetary radii. The rings are at least 100 times harder to see than Saturns rings. Most of the particles found in Jupiters rings are small and have a diameter about the same size as a light wave length. This causes the light to bounce off of the particles and scatter making the rings look bright. The particles found in Jupiters rings are believed to be the remains of a moon that moved in too close to the Roche limit and was torn apart. Like a great king with many followers, Jupiter also has an extremely large amount of satellites orbiting around it. Jupiters satellites can be divided into two groups. The smaller moons are merely captured asteroids but the larger moons are like a small planet. Callisto is one of the larger moons orbiting around Jupiter. It is slightly larger than the earths moon and has rocky core topped by a mantel of ice. Photographs of Callisto has shown that it is a dead world that is mostly dark and full of pot marks from meteors. Ganymede, the next moon of Jupiter is also an icy world. It is about fifty percent larger than the earths moon. Ganymede is full of craters but it also has a grooved surface which suggests that the water mantle must have been warm enough to leak and it was probably caused by tidal heating. Europa unlike Callisto and Ganymede is a rocky moon with a small icy crust. However, this moon is also an active moon. Voyager photos showed a icy surface that had almost no craters at all and cracks that seemed to be allowing water to seep through, so it is theorized that Europa is a moon that is still growing and changing. Io is the moon closest to Jupiter. Io is surrounded by a cloud of sulfur, oxygen and sodium. It was also discovered that Io has eight active volcanoes on it and it continues to grow and expand as the volcanoes spew gas and debree. It also gets all of its energy from the Io flux tube. The tube is thought to deliver ionized gas to the surface to give the volcanoes their energy. Jupiter also has many other small moons called the Galilean moons. These moons are thought to be small asteroids that were captured. It is also believed that the moons were originally part of the planet itself when it first formed. However, Jupiter in all its glory and moons cannot live up to the beauty of the sixth planet away from the sun. Saturn one of the most beautiful planets was discovered by Galileo with a telescope in 1609. Saturn is a very unique planet in that it is lighter than water, with a density of .7 gram per cubic centimeter. ( Considine) Saturn is only slightly smaller than Jupiter and has many of the same attributes that Jupiter has. Saturn is thought to have a liquid metallic region and a small silicate core. It has also been shown that with infrared observations that Saturn radiates 2.5 to 3 times more energy than it gets from the Sun (Seeds, 529) Like Jupiter, Saturn has belts and zones but they lie much deeper in the Atmosphere and contrast less. The atmosphere of Saturn is slightly different from Jupiters atmosphere. Saturn is much colder and the temperature seems to change as if there were seasons. The winds also blow much harder than on Jupiter . They can exceed 500 meters per second and they blow primarily in an eastward direction. Saturn also contains less helium in its composition than Jupit er. Saturn also has a large magnetoscope allowing the rings to exist but it is largely influenced by the solar winds. Although all the Jovian planets have rings, Saturn is by far the best known. When Galileo discovered the rings in 1609, he thought that he saw three objects. A central form with two forms on either side. It was not until 1659, that Christiaan Huygens discovered the actual disc around the planet. Then in 1675, Giovanni Cassani discovered the gaps between the rings. The gaps are now called Cassanis division. Saturns rings are named by the letters of the alphabet in the order they were discovered not in the order they actually appear. The outermost edge of ring A is about 21 times the radius of earth (Seeds, 532) The rings of Saturn are made up of millions of small particles mostly frozen water. Each ring rotates slower on the inside than on the outside. It is believed that the rings have a thickness of two kilometers. As voyager passed by Saturn, it was discovered that there were many gaps between the rings and that there was as many as 100 rings around Saturn. It was also discovered that Saturns rings had spokes that radiated out radially from the ring. Scientists believe that the Magnetic sphere around Saturn caused microscopic particles to be pulled out radially from the rings and they scattered the light much like the rings around Jupiter. Voyager also sent back pictures of shepherd satellites or two moons that orbit around each other. The gravitational force of these moons are thought to be one of the leading causes of the many rings within a ring. While the rings are beautiful it is still a mystery whether the moon is primordial or part of an icy moon that got too close to Saturns Roche limit. Saturn also has it own satellites beside its rings. Saturn has seventeen different moons. Most are dead icy worlds, but there is one large enough that it may contain oceans. Saturns biggest satellite is Titan, with a diameter of 5150 kilometers it is 6 percent larger than Mercury. It is the second largest satellite in the solar system. It is been proposed that Titan is made up of equal parts of rock and ice. It has a very opaque atmosphere. It is a very thick photochemical haze that is about 50 kilometers thick. The atmospheric pressure is about 60 percent greater than earths and it is mad up primarily of nitrogen. Most scientists agree that some form of liquid methane lies on the surface. Some even believe that the surface contains rivers, lakes and even oceans full of methane. It is also speculated that the slime made by the methane might have been the same slime that started life here on Earth many centuries ago. Unfortunately, not much more can be learned about Titan until we can go beyond its thick, hazy atmosphere. In addition to Titan there are eight smaller moons and many more minor satellites. Most of these moons are geologically dead. Few show some signs of cracks and fissures. It is also interesting top point out that the moons are not all spherical in shape, there are a few that are highly irregular. Overall, these moons wobble and move about in a crazy orbiting pattern , unfortunately we have not learned enough to give much information about them. The next planet in the wonderful series of the Jovian Planets is Uranus. Uranus was discovered by Herschel on March 13, 1781 while he was looking for stellar parallax. Uranus is named after the eldest of the Greek Gods. Uranus like Jupiter has no surface. It is mainly comprised of hydrogen and helium. It has no visible cloud patterns but its weather is shown to be similar to Jupiters and Saturns weather. It is thought to have three levels of atmosphere, with water clouds on the first level, followed by Ammonia clouds and then Methane clouds. Uranus also has the same characteristic of the belt- zone pattern that Saturn and Jupiter has. This has laid claim that the temperature of Uranus is directly related to seasons and the belt- zones wind pattern. The interior of Uranus does not include the same liquid metallic hydrogen that makes up Jupiter and Saturn. It is believed that the core is made up of highly pressured water, ammonia and methane which becomes a strong enough conductor to create a magnetic field around the planet . The magnetosphere is also odd in that it does not center around Uranus, instead it slants to about 60 degrees relative to its axis. This magnetosphere is also known for causing the phenomenon known as electroglow or ultraviolet photons released into the solar winds. Unlike Jupiter and Saturn , Uranus barely releases more energy than it gets from the sun and is thought that it has lost most of its internal heat. Like Saturn, Uranus also has rings that were discovered not very long ago. In 1977, James Elliot and a team discovered the rings accidentally. There are eleven known rings that range in size and shape. Unlike Saturn rings, Uranuss Rings are dark in color and relatively thin. The brightest of these rings is known as the epsilon ring. It is filled with debree of fairly large particles and dust. Uranus is also surrounded by about 15 satellites. The names of Uranuss moons take from the writings of the bard William Shakespeare and Pope. Uranian moons are believed to be made up of dirty ice. Oberon the outermost moon, is named after the fairy king in Midsummer Nights Dream, and is pot marked with craters and is fairly dark. It has a large fissure or fault were it was believed that water poured across and flooded the craters. Titania, respectively named for the fairy queen in the aforementioned play, is the largest of the uranian moons. Titania is littered with craters, faults and fissures. It has shown signs of being active but not recently. Uranus has other moons also but the most unique is Miranda. Mirandas history is a violent one that tells us that she might have been broken apart. The surface of Miranda is also filled with ovoids or oval patterns that unknown in origin. The last and final Jovian Planet is Neptune. Neptune was named for the sea god and is the eighth planet from the sun. Neptune was discovered in 1843 by two people Adams and Galle. Very little is known about Neptune and most the information provided is from voyager2s encounter. Neptunes interior seems to be like Uranuss in that it is comprised mainly of various ices and rocks. It is presumed that Neptune has a small rocky core with an icy mantle with a layer of liquid hydrogen. Like the typical gaseous planets, Neptune has wild winds confined to bands of latitude with large storms or vortices. Neptune unlike Uranus has an internal heat source that radiates twice as much energy as it gets from the sun. Neptune like all of the jovian planets has a magnetic field, though it is weaker than Uranuss. However like Uranuss magnetic field, the magnetic field of Neptune is off centered and tips at a fifty degree angle. Neptune also has rings like the rest of the jovian planets. There are very few of them and they are considerably thin and dark . Probably the only reason they exist is because of the shepherding moons. Neptune has about eight moons with Triton being the largest. Triton is mainly composed of ice and is still active. It has very few craters but has seen a violent past. It has been pushed and pulled by tidal forces, which caused nitro gas volcanoes on its surface. Different from the terrestrial planets, the Jovian planets are basically big balls of gas. The jovian planets seemed to be formed around the same time from the solar nebula. Jupiter and Saturn are the closest in nature to each other with Neptune and Uranus taking on a few of their traits. They all carry the same characteristics in their Classification. The Jovian planets are composed mainly of helium and hydrogen. They have a liquid or small rocky core. They are usually high in mass and low in density. They have many satellites and the gravity is much stronger than Earths. They also all share the same banding and zoning winds. With these characteristics defined with each description given it is easy to see how the planets, Jupiter, Saturn, Uranus and Neptune are Jovian or Jupiter like.

Single Cell Protein Essay Example | Topics and Well Written Essays - 1000 words

Single Cell Protein - Essay Example Although, there is a global shortage of protein, the shortage is in developing countries which cannot afford this technology. There are several advantages in using microorganisms as a food source. They occupy less room then conventional crops and animals; therefore they can grow on a wide range of cheap or waste products of agriculture and industry. They grow much more rapidly, are more easily modified by genetic engineering and so have relatively high protein content. They are independent of climate and do not occupy the large areas of land. There also are fewer ethical issues associated with there exploitation and no animal rights issues. There are different uses of yeast and fungi; like it can produce dietary supplements known as single cell protein (SCP). Yeast species are efficient in producing large amounts of different types of vitamins and is also used in the commercial production of that vitamin. Other species like yeasts can also be utilized in brewing, which can absorb as well as store vitamins from their food. It is healthy for people to take yeasts as vitamin supplements. Yeast fungi can also produce huge amount of useful stuff such as numerous enzymes, industrial alcohol, glycerol and fat. The yeasts are also helpful in commercial production of these substances. The Single Cell Protein (SCP) is produced by using bacteria, fungi, yeast or algae. SCP, for the time being, is very successful for using alternative cheaper proteins such as Soya bean, and lack of research into value-added products derived from microorganisms. Recent studies show that autolysis is an efficient method of extracting protein from the yeast; the internal cell's enzymes actions can actually cause the breakdown of cell constituents. If yeast is exposed at a very high temperature, it can speed up the process of autolysis. In reality, getting the best result of the finished product (in terms of flavor, quality or yield), totally depends on the solubiliszation of the cell contents in autolysis; it is a vital and indispensable step. In spite of this significant process, there are few common understandings of these biological modifications which happen during autolysis. Furthermore, almost every study on yeast autolysis have only been conducted with only one Saccharomyces cerevisiae know as yeast specie,and no study have been done to know the autolysis reaction of different species. Yeast was treated in laboratory which fermented the production; presently a lot of research is in progress in the department of Chemical & Life Sciences which is also examining other species like Kluyveromyces marxianus (dairy yeast),as it can produce novel yeast extracts. SCADA (Supervisory Control and Data) software is also assisting this procedure and the effect of reaction of the substance that is acted upon by an enzyme or ferment on consequential nutritive value and flavor enhancement is still being investigated. According to the recent research it is been found that yeast which produce protein contains highly nutritional matter (up to 50% dry weight basis). Therefore, controlled conditions during autolysis will result in the activation of yeast proteases which degrade yeast proteins into soluble peptides and amino acids. Another name of SCP is microbial protein or microbial food. Due to the

Music and Gender Essay Example | Topics and Well Written Essays - 750 words

Music and Gender - Essay Example Music as a popular culture has the power to influence almost anyone. In hip-hop music, male dominance is a powerful tool, that appears to make the female entity more or less an object of fascination. One take on the subject of patriarchal power is defined by Bell Hooks in the following excerpt: "The sexist, patriarchal ways of thinking and behaving that are glorified in gangsta rap are a reflection of the prevailing values in our society, values created and sustained by white supremacist capitalistic patriarchy."(M.Dot, 2008). The essay written by pseudonym writer M.Dot relates how black hip-hop music tends to follow the 'white suprematist' ideals that men are above and beyond women and for that reason can be seen as objects of men's fantasy rather than having a voice and meaning of their own. The figures of Condoleza Rice and Hillary Clinton are thorns in the flesh of those trying desperately to maintain their place as masculine hegemonous figures. Two reasons for this may arise and one of which may be pure speculation but is however a valid reason. In Hip Hop and Rap, both music genre's make the women predominantly into 'boodies' and 'boobs', crudely arranging them with very little if any mental capacity. Sean Kingston recently released the album with the single "Beautiful Girl" where the featured girl was seen merely as a 'gold-digger' looking for a meal ticket in the form of a man. "You know you'll never work", denotes that because of her beauty she will never have to support herself, further making the man the power image to provide for the woman. 3. Liberal and radical feminism are quite obviously anti-patriarchal power. Country music exemplifies the ideals of the romantic cowboy sweeping the lady-love off her feet on his glittering steed. The hegemony displayed in this genre of music plays up the romantic ideal of masculinity, not the reality. "Since women are believed to factor centrally in human social relations, the male psyche seeks to subordinate women, and thus sustain the illusion of male centrality."(Robinson, 2006: 46). Robinson writes about the fact that in order to make the male the controller, the woman must make herself the controlled (Ibid). This makes for entertaining although unrealistic visions of societal norms. In a sense the modern hip-hop and gansta-rap as urban phenomena, are trying to reinforce something that is being contested, while the rural inspired country music is still hanging onto the romanticised idealism of when men were cowboys. It depends however very much n who is listening to the music. 4. Constantine hip-hop has had rather a bad image, being largely directed by sex in all its forms. It is by far the more popular of the hip-hop styles and centers around the inadequacies of femininity and tries to form the perception that women are all tending towards prostitution. One feminist website describes Constantine hip-hop as focussing on women, and black women in particular as sex objects with the camera's focussing on gyrating body parts (Ayanna, 2008). In this case we are talking Puff-Daddy and Snoop-Dogg rather than the more genteel Sean Kingston. Prophetic hip-hop is a genre more directed towards the future of the world. It often places great emphasis on the doom of modern society, painful break-ups and

History of Cheese Essay Example for Free

History of Cheese Essay In developing a search strategy the most important thing is to decide on the keywords that sum up the information one wants. In my research paper I am researching on the history of cheese. The keywords in my topic are history and cheese. The synonyms of cheese include cheese flower, high mallow, malva sylvestris and tall mallow. History synonyms include account, chronicle and story. Cheese production and consumption has proliferated all over the world since its discovery years ago. This is due to its availability in the stores all over the world. The process of making is also easy and the ingredients that are used in its production are easily presented. The main ingredient is milk. Production of cheese has been converted from small scale production to large scale production as years since its discovery progress (Martin 12). Cheese refers to a group of milk-based foods which come in different flavors, forms and textures. It comprises of proteins and fat that is gotten from milk. The milk is produced by cows, goats, sheep or buffaloes (Harbutt 8). Cheese is produced by curdling of milk protein. The mild is acidified and an enzyme called rennet is added to cause the curdling. The solid and liquid are separated and modeled into different forms and shapes. There are a variety of cheese that includes cheddar, camembert, stilton and parmesan. The history of cheese according to a study done at the University of Georgia was discovered by an accident. An Arabian merchant was carrying milk in a pouch. The pouch made from a sheep’s skin contained rennin. Due to the scorching heat from the sun, the enzyme rennin was activated causing the milk to turn into solid curds. Though the exact time of the discovery of cheese is unknown, cheese appeared 3500BC. It was widely used in Asia and then migrated to Europe. Cheese was mentioned in Homer’s epic, The Odyssey. In the scene the Cyclops is making cheese and placing in wicker (University of Georgia 1). In the early days of cheese production, milk from different sources was mixed, and a variety of seasonings added to produce abundant flavors. Cheese was introduced in America after Mayflower landed and became a staple component in many American households. The first cheese factory was established in 1851 in Oneida County, New York. The Jesse Williams factory eliminated the production of cheese individually or by local farms. This flourished the production of cheese (Sokol 2). Writers like Richard claims that cheese was first forum in the Middle East. It was in form of sour milk which came into being after it was discovered that domesticated animals could be milked. It was observed that milk left in a container turned into a solid especially in hot temperatures. The curds and whey that were gotten from milk were discovered to be edible. The history of cheese is also mentioned in the old testament of the bible. David was fed with cheese of kine when he escaped across the river Jordan. David was also asked to bring with him ten cheeses to his commander of his brothers as they were participating in the battle against the philistines (Sokol 2). The ingredient of cheese is mostly milk. All kinds of milk like reindeer, caribou, yak, and llama have been used to produce cheese. In the process of cheese production, Sokol in his book, â€Å"And That’s How You Make Cheese† claims that protein in the milk is curdled and separated from water. The curdles are cut, cooked, drained and pressed to drain out more water. This leads to the production of a solid cheese that can be sliced. Archeologists that were excavating lake dwellings on the shores of Lake Neuchatel found potsherds that had pierced with holes. The findings dated back to six hundred years before Christ. The vessels had been used as drainers that were used to separate curds from whey (Toussaint-Samat 103). This made them conclude that the production of cheese which was mainly from sheep and goats milk had been done on their land earlier. Cheese contains high concentration of essential nutrients. Some of these nutrients include quality proteins and calcium that help in the development of the body. The invention of cheese grew tremendously due to the many benefits that are accrued from it. Cheese contains high concentration of calcium that helps in cavity prevention in the teeth. It helps in the development of strong teeth because it has low concentration of lactose. The consumption of cheese after a meal such as cheddar, Swiss, Brie and Monterey helps in the prevention of tooth decay. Cheese has also been proven to prevent cancer due to its high concentration of conjugated Linoleic acid and Sphingolipids (Roberts, Petrini and Hooper 350). The cheese business has thrived in the world greatly due to the large profits accrued from the industry. Cheese production and consumption has increased all over the world. Companies have cropped up and ventured in the industry thus creating a viable business enterprise. Some of the companies like the Arena Cheese factory, Aria Foods, Inc and Andrew Everett are some of the companies that have ventured in the cheese industry. They have enabled many households to enjoy wide variety of cheese after their meals. Cheese like the Provolone and Ricotta are used as appetizers, salads. They are first refrigerated and wrapped in order to retain freshness. Other types of cheese like the Parmesan and Roman are grated on soups, bread and spaghettis. Camembert cheese is used o crackers or with fruit that help in appetizers and desserts. It is first refrigerated during storage and preserved in a temperature controlled room. The United States is the largest producer of cheese in the world. This has been facilitated by the large supply of milk in the US. The United States has dedicated large amount of funds and time on investment and research work. The availability of large farms involved in milk production has also contributed to the production of cheese in the US. There are more than four hundred and fifty plants in the United States dealing in cheese production. The companies operate on a strict sanitary and quality standards set up to control the cheese industry. This has helped the United States to position itself as the premium cheese supplier (Pastorino, Hansen and McMahon 67). One of the most popular types of cheese is Roquefort. This cheese falls in the family of blue veined cheese because throughout the cheese, there are thin blue lines amidst the cream colored cheese. Originally produced in Southern France, it has moved across the world as a favorite of so many. For this cheese, one can choose between goat, sheep, and cow milk. The sheep the French use to make their cheese are fed grass in which there is a high level of limestone or calcium carbonate. Cheese-France 1) If the milk has too much or too little acid in it, a different cheese may be formed or the milk can spoil at a faster rate and therefore making an unappetizing block of cheese. The limestone helps balance the pH level and acts as a buffer. At time the cheese maker adds rennet, to start the curdling process, and then must wait at least two hours to allow the rennet to form. People cant eat Roquefort cheese because of an allergy to penicillin. As one article states, The traditional way of getting penicillium is to place loaves of bread in a dark, damp space, and letting them mold. After ten weeks the bread crust is pealed back to reveal the inside of the bread, which is nothing more than a fine green powder, the powder is called penicillium. After combining the bacterium with the curd, the cheese begins to take shape but, the cheese needs to monitored because many other byproducts must be removed throughout the curdling process. Once the salt has settled, the cheese maker must put holes into the cheese to allow the carbon dioxide to release into the air. The cheese maker will receive his final product about six months later, as the bacterium is hard at for that long. Encyclop? dia Britannica 1) Cheese since its discovery has evolved in a great way. The production of cheese used to be in small scales during the early years. Today it is produced commercially by large companies. The use of cheese has also changed from the time when it was used as food. Cheese is currently used in prevention of teeth cavities, salad and preservatives. This shows that since cheese was invented tremendous changes have been experienced thus leading to its development to what it is in the present world (Sokol 29).

The Distinguishing between Hester and Dimmesdale in Nathaniel :: essays research papers

  Ã‚  Ã‚  Ã‚  Ã‚  Both Hester and Dimmesdale, are characters in the Scarlet Letter. They suffer with the guilt of the sin of adultery that they committed. At the time, the Puritans looked down on this type of sin. Hester and Dimmesdale can be compared and contrast in the way they handled their scarlet letter, their cowardliness, and their belief of what the afterlife is. Hester and Dimmesdale both bear a scarlet letter but the way they handle it is different. Hester’s scarlet letter is a piece of clothing, the â€Å"SCARLET LETTER, so fantastically embroidered and illuminated upon her bosom† (Hawthorn 51). Dimmesdale on the other hand, has a scarlet letter carved in his chest. This is revealed when Dimmesdale was giving his revelation, in which â€Å"he tore away the ministerial band from before his breast. It was revealed!† (Hawthorn 232). Since the Scarlet Letter on Hester is visible to the public, she was criticized and looked down on. â€Å"This women has brought same upon us all, and ought to die† (Hawthorn 49) is said by a female in the market place talking about Hester. She becomes a stronger person through living this hard life. Dimmesdale instead has to live â€Å"a life of cowardly and selfish meanness, that added tenfold disgrace and ignominy to his original crime† (Loring 185). He becomes weaker and weak er by time, â€Å"neither growing wiser nor stronger, but, day after day, paler and paler, more and more abject† (Loring 186). Their courage is also weak.   Ã‚  Ã‚  Ã‚  Ã‚  The courage that those two share is quite similar, in that they have none. They both are afraid of the public and what the public would think of them. Hester refuses to tell anyone about her real husband, Chillingworth, who is still alive, or about her lover, Dimmesdale. Hester and Dimmesdale also try to take the cowardly way out when she has a chance to go to leave Boston and go to Europe, â€Å"Her advising them to flee Boston was irresponsible† (Granger 7). Hester after talking about leaving, and while in the forest with Dimmesdale and Pearl, takes the scarlet letter off. She was planning to never wear the scarlet letter again, especially after saying, â€Å"The mid-ocean shall take it from my hand, and swallow it up forever!† (Hawthorne 193). This shows that she did not have enough courage to bear the scarlet letter in Europe. Pearl still makes her bear the letter by saying, â€Å"Come thou and take it up!† (Hawthorne 193).

The Doha Round and Financial Services Negotiations

The Doha Round and Financial Services Negotiations AEI STUDIES ON SERVICES TRADE NEGOTIATIONS Claude Barfield, series editor THE DOHA ROUND AND FINANCIAL SERVICES NEGOTIATIONS Sydney J. Key INSURANCE IN THE GENERAL AGREEMENT ON TRADE IN SERVICES Harold D. Skipper Jr. LIBERALIZING GLOBAL TRADE IN ENERGY SERVICES Peter C. Evans REDUCING THE BARRIERS TO INTERNATIONAL TRADE IN ACCOUNTING SERVICES Lawrence J. White The Doha Round and Financial Services Negotiations Sydney J. Key The AEI Press Publisher for the American Enterprise Institute WA S H I N G T O N , D . C . 2003Available in the United States from the AEI Press, c/o Client Distribution Services, 193 Edwards Drive, Jackson, TN 38301. To order, call toll free: 1-800-343-4499. Distributed outside the United States by arrangement with Eurospan, 3 Henrietta Street, London WC2E 8LU, England. Library of Congress Cataloging-in-Publication Data Key, Sydney J. The Doha round and financial services negotiations / Sydney J. Key. p. cm. Incl udes bibliographical references and index. ISBN 0-8447-4182-5 (pbk. ) 1. Financial services industry—Law and legislation 2. Foreign trade regulation. I. Title K1066.K49 2003 343†². 087—dc 22 2003063553 3 5 7 9 10 8 6 4 2 Printed in 2003 by the American Enterprise Institute for Public Policy Research, Washington, D. C. The views expressed in publications of the American Enterprise Institute are those of the authors and do not necessarily reflect the views of the staff, advisory panels, officers, or trustees of AEI. The views expressed by the author in this publication should not be interpreted as representing the views of the Board of Governors of the Federal Reserve System or anyone else on its staff. Printed in the United States of America Contents QFOREWORD, Claude Barfield ACKNOWLEDGMENTS 1 2 INTRODUCTION INTERNATIONAL TRADE IN FINANCIAL SERVICES E-Finance 6 Modes of Supply 7 Services Provided across Borders 8 Foreign Direct Investment 9 Presence of Natural Per sons 9 LIBERALIZATION AND REGULATION Three Pillars of Liberalization 12 National Treatment and Market Access 13 Nondiscriminatory Structural Barriers 15 Freedom of Capital Movements 18 Strengthening Domestic Financial Systems 20 Minimum Standards and Codes of Good Practices 22 â€Å"Surveillance† 23 The Prudential Carve-Out in the GATS 24 NATIONAL TREATMENT AND MARKET ACCESS â€Å"Binding† Existing and Ongoing Liberalization 28 IMF Conditionality 30 Permanence of GATS Commitments 31 Foreign Direct Investment 32 Remaining Barriers to Entry and Operation 33 MFN Exemptions 34 Barriers within the Scope of the Prudential Carve-Out 35 Cross-Border Services 37 Binding Gaps versus Remaining Barriers 38 Uncertainty about WTO Jurisprudence 39 v vii xiii 1 4 3 11 4 27 vi CONTENTSMore Liberal Approaches for Wholesale Services 39 Evolving Regulatory Responses to Retail Cross-Border Services 40 Negotiating Goals 41 5 NONDISCRIMINATORY STRUCTURAL BARRIERS Regulatory Transparency 44 R ules about Developing and Applying Rules 44 Sound Financial Systems 46 â€Å"Effective Market Access† 47 General Anticompetitive Measures 49 â€Å"Necessity† and Domestic Regulation 50 Recognition of Prudential Measures 51 Harmonization 52 Facilitating Access 52 The Intra-EU Approach 53 Remaining Second-Pillar Barriers 54 Applicability of the Intra-EU Approach 55 CONCLUSION 43 6 57 61 87 101 107 NOTES REFERENCES INDEX ABOUT THE AUTHOR Foreword Q In advanced industrial economies, the services sector accounts for a substantial portion of each nation’s gross domestic product.Despite the increasing importance of trade in services, the General Agreement on Trade in Services (GATS), which was negotiated during the 1986–94 Uruguay Round and entered into force in January 1995, marked the first time that rules for opening markets in services were included in the multilateral trading system. The GATS called for periodic negotiating rounds, beginning no later than 2 000, to achieve further liberalization of trade in services. Serious individual sector negotiations, however, did not shift into high gear until a comprehensive new round of multilateral trade negotiations was launched at the November 2001 ministerial meeting of the World Trade Organization (WTO) in Doha, Qatar. The American Enterprise Institute is engaged in a research project to focus on the latest round of trade negotiations on services.Mounted in conjunction with the Kennedy School of Government at Harvard University, the Brookings Institution, and the Coalition of Service Industries Research and Education Foundation, the project entails analysis of individual economic sectors: financial services; accounting; insurance; electronic commerce; energy; air freight and air cargo; airline passenger services; and entertainment and culture. Each study identifies major barriers to trade liberalization in the sector under scrutiny and assesses policy options for trade negotiators and inte rested private sector participants. AEI would like to acknowledge the following donors for their generous support of the trade-in-services project: American Express Company; American International Group; CIGNA Corporation; FedEx Corporation; Mastercard International; the Motion Picture Association of America; and the Mark Twain Institute. I emphasize, however, that the vii viii FOREWORD conclusions and recommendations of the individual studies are solely those of authors.Issues for the Financial Services Negotiations In this study, Sydney J. Key analyzes the role of the GATS and the WTO in the liberalization and regulation of the financial services sector and identifies six broad goals for the financial services negotiations in the Doha round. What makes her analysis unique is that she integrates the two very different perspectives of trade policy and financial regulatory policy. Throughout the study, Key emphasizes the complementary and mutually reinforcing relationship between eff orts to open markets under the GATS and the intensive ongoing international work on strengthening domestic financial systems, including prudential regulation and supervision.The study examines the role of the GATS and the WTO in relation to what Key characterizes as the three pillars of liberalization necessary to achieve â€Å"international contestability of markets†: (1) opening markets to foreign services and service suppliers through GATS commitments to provide â€Å"national treatment† and â€Å"market access†; (2) implementing domestic structural reforms that would eliminate nondiscriminatory structural barriers to trade in financial services; and (3) liberalizing capital movements. Key explains that the GATS deals with third-pillar liberalization only insofar as it affects countries’ specific commitments to liberalize trade in services; in general, liberalization of capital movements is a matter of concern for the International Monetary Fund (IMF). Key emphasizes the importance of focusing on fundamental first-pillar liberalization in the Doha round financial services negotiations and sets forth four first-pillar goals: first, binding in the GATS existing and ongoing liberalization that provides market access and national treatment; second, removing remaining barriers to national treatment and market access and binding the resulting liberalization; third, narrowing or withdrawing the broad exemptions that some countries have taken from the most favored nation (MFN) obligation of the GATS; and, fourth, using an incremental approach for cross-border services that combines strengthening GATS commitments and achieving greater liberalization in practice. CLAUDE BARFIELD ix How far should the Doha round financial services negotiations extend into the realm of second-pillar liberalization?Like other authors in this series, Key grapples with the role of the GATS with regard to the domestic structural reform needed to reduce or elimina te nondiscriminatory structural barriers to trade in services. Key believes that the Doha round financial services negotiations should proceed selectively by concentrating on the areas in which the GATS and the WTO have a comparative advantage. She singles out two particularly important second-pillar goals for the Doha round financial services negotiations: developing stronger GATS disciplines on regulatory transparency; and removing barriers to â€Å"effective market access† and binding the resulting liberalization.Key argues that GATS rules on transparency in developing and applying regulations, together with the closely related principle of procedural â€Å"fairness† in applying regulations, would not only help eliminate barriers created by opaque and unfair regulatory procedures but also help ensure that a country does not use its regulatory process to undermine its commitments to national treatment and market access. Key explains how GATS rules on transparency in financial services regulation could both complement and build upon the work on transparency that is part of international efforts to strengthen domestic financial systems. The other second-pillar goal set forth by Key involves anticompetitive domestic regulatory measures that cannot be justified on prudential grounds and serve primarily to keep foreign financial firms from competing in host-country markets by making entry impractical or too costly—thereby denying them â€Å"effective market access. Key explains that identifying barriers to effective market access that could be negotiated in the Doha round requires a country’s trading partners to determine whether, in practice, a host country’s measures keep foreign firms from competing in its markets and whether a â€Å"critical mass† of regulators believes that the measures are inappropriate for prudential purposes. She points out, however, that even if the prevalent regulatory view is that the measures cannot be justified on prudential grounds, host-country regulators must be persuaded to accept it. What about barriers to trade in financial services that are created by legitimate prudential measures? Key explains the importance of the â€Å"prudential carve-out† for domestic regulation in the GATS Annex on Financial x FOREWORDServices: it ensures the GATS will not interfere with the ability of national authorities to exercise their responsibilities for prudential regulation and supervision to protect consumers of financial services and to promote the integrity and stability of the financial system. She notes that while prudential measures sometimes impose additional requirements on foreign firms, they may also create barriers simply because they differ among countries— that is, financial firms operating on a global basis may often find it burdensome to comply with a multitude of different national rules. Key identifies two approaches for dealing with barriers create d by prudential measures.One would have home-country regulatory authorities convince host-country authorities that their prudential concerns can be addressed with less sweeping requirements. These efforts could take place bilaterally or in various international fora, including the financial services negotiations under the auspices of the WTO, where finance ministries play a major role. A second approach would have home- and hostcountry authorities negotiate a recognition arrangement. Although the GATS Annex on Financial Services facilitates unilateral or mutual recognition of prudential measures by permitting a departure from the MFN obligation of the GATS for such arrangements, Key explains why the WTO is not the appropriate forum for their negotiation.In conclusion, Key summarizes the forces affecting the outcome of the Doha round financial services negotiations and the importance of that outcome to the process of financial sector liberalization: Success in achieving the financial services goals discussed in this study depends significantly on factors beyond the scope of the negotiations. As the GATS explicitly recognizes, liberalization of trade in financial and other services is an ongoing process. For financial services, this process is being driven in large part by market forces and new technologies. It is also being driven by the growing recognition among policymakers that market opening can benefit host-country consumers of financial services and, at the same time, contribute to the resiliency of domestic financial systems.The development of international minimum standards and codes of good practices for sound financial systems and their implementation by individual CLAUDE BARFIELD xi countries provide a strong foundation for moving ahead with further liberalization of trade in financial services. The negotiations in the Doha round can play an important role in helping to accelerate the process of liberalization as well as solidifying its results in th e form of binding commitments subject to the WTO dispute settlement mechanism. CLAUDE BARFIELD American Enterprise Institute for Public Policy Research Acknowledgments Q The author greatly appreciates the assistance of the many individuals who read all or part of the manuscript and provided valuable comments and suggestions in their areas of expertise.She would like to thank Alistair Abercrombie, Claude Barfield, Nicholas Bayne, Stijn Claessens, Steven Fabry, Bernard M. Hoekman, Cecilia Klein, Masamichi Kono, Robert D. Kramer, Patrick Macrory, Ann Main, Marilyn L. Muench, Kathleen M. O’Day, Patrick Pearson, Mary S. Podesta, Amelia Porges, Peter E. W. Russell, Hal S. Scott, Richard E. Self, Jonathan D. Stoloff, and T. Whittier Warthin for reading the manuscript in its entirety. She would also like to thank Peter Berz, Barbara J. Bouchard, James M. Boughton, David T. Coe, Kenneth Freiberg, Ralph Kozlow, Ross B. Leckow, Michael D. Mann, Juan A. Marchetti, Peter K. Morrison, Will iam A. Ryback, David Strongin, Mark W. Swinburne, Andrew Velthaus, and Obie G.Whichard for reading drafts, and often redrafts, of particular sections. Finally, the author would like to thank Juyne Linger for her work in editing the manuscript. xiii 1 Introduction Q The General Agreement on Trade in Services (GATS), the first global trade agreement to cover financial and other services, is an important new element in the international framework for liberalization and regulation of the financial sector. Participation in the GATS, however, does not necessarily mean that a country has made strong commitments to open its markets to foreign services and service providers. Indeed, the strength of commitments varies substantially among countries.The GATS therefore requires periodic negotiating rounds on financial and other services to improve commitments and thus achieve â€Å"a progressively higher level of liberalization. †1 The GATS was negotiated in the Uruguay Round, which was l aunched in 1986 and formally concluded in April 1994. 2 Financial services, however, was one of several sectors for which negotiations on specific commitments were extended, and final agreement was not reached until December 1997. 3 In 2000, in accordance with the deadline established by the GATS for initiating a new round of services negotiations, work began again on financial and other services. This occurred despite the failure of the Seattle ministerial meeting of the World Trade Organization (WTO) in December 1999 to launch a comprehensive new round of trade negotiations.Subsequently, at the Doha ministerial meeting in November 2001, WTO members reached agreement on an agenda for comprehensive multilateral trade negotiations that incorporated the so-called â€Å"built-in† agenda for financial and other services. 4 The ministerial declaration set January 1, 2005, as the deadline for completing the Doha round; the declaration called for the next ministerial meeting, subseq uently scheduled for September 2003 in Cancun, to assess progress and provide any necessary political guidance. 5 1 2 THE DOHA ROUND AND FINANCIAL SERVICES NEGOTIATIONS For financial services liberalization, four aspects of the GATS and the WTO are particularly significant: First, the WTO is a multilateral forum in which the primary goal is reducing or eliminating trade barriers to promote competitive markets and thereby support economic growth and development.The new prominence of this goal at the multilateral level complements the intensive work on strengthening domestic financial systems in a variety of other international fora, ranging from institutions such as the International Monetary Fund (IMF) to specialized bodies such as the Basel Committee on Banking Supervision. 6 Indeed, the efforts to liberalize trade in financial services and the efforts to strengthen domestic financial systems, including prudential regulation and supervision, are mutually reinforcing. In addition, t he WTO is a forum in which all members have the opportunity to participate on an equal basis. Multilateral trade agreements are negotiated in the WTO without the â€Å"conditionality† that links IMF or World Bank financial assistance to the implementation of specific policy measures by a borrowing country. In principle, therefore, GATS commitments to liberalization have â€Å"domestic ownership†Ã¢â‚¬â€that is, they reflect a country’s recognition of the need for policy reform—a quality that the IMF has found to be a crucial determinant of the success of its programs. 8 Second, the GATS provides a mechanism for parties to undertake legally binding commitments subject to enforcement under the WTO dispute settlement mechanism. A GATS commitment is permanent in that it cannot be withdrawn without compensation of trading partners. Failure to honor a commitment could open a country to a dispute settlement proceeding and, ultimately, WTO-sanctioned retaliatory measures by its trading partners. Thus, backsliding in the face of protectionist domestic political pressures could be extremely costly. As a result, binding even the status quo is extremely important.Moreover, for negotiations that stretch over many years, the â€Å"status quo† in the final phase is often different from that at the outset of the negotiations, in part as a result of the negotiating process itself. Third, the GATS is based on the most-favored-nation (MFN) principle, which precludes discrimination among foreign countries. Under the MFN obligation of the GATS, a WTO member must accord to services and INTRODUCTION 3 service suppliers of any other member treatment â€Å"no less favorable† than the treatment it provides to â€Å"like† services and service suppliers of the most favored foreign nation. 9 The reach of the MFN obligation is very broad ecause it applies to all measures affecting trade in services that are covered by the GATS, not just thos e for which a member has made specific commitments to liberalization. 10 Although the GATS does allow members to enter into economic integration agreements—such as the Treaty establishing the European Community (EC Treaty)11 and the North American Free Trade Agreement (NAFTA)—without extending the benefits of the agreements to all WTO members, it establishes stringent criteria for an agreement to qualify for this exception. 12 If a WTO member undertakes liberalizing measures in connection with services obligations in an agreement that does not meet the criteria, it must apply the measures to all WTO members on an MFN basis. 3 Fourth, the GATS negotiating process can itself have a positive impact on domestic policymaking, particularly in emerging market economies and other developing countries. Governments that participate in the negotiations are forced to account to their trading partners for the barriers they impose and to explore the possibility of overcoming domesti c political constraints to reduce or eliminate those barriers. A continuing challenge for the trading partners is to use the GATS negotiating process to provide support for and to harness political and market forces that are creating pressures for liberalization within a host country. In this regard, a country’s â€Å"readiness† for reform is critical. Thus, the outcome of the GATS process depends heavily on factors beyond its purview.The next chapter of this study presents a brief discussion of the international provision of financial services and their coverage by the GATS. The third chapter provides a framework for analyzing the role of the GATS and the WTO in liberalization and regulation of the financial sector. The fourth chapter focuses on the barriers to national treatment and market access that need to be addressed in the financial services negotiations in the Doha round. The fifth chapter examines nondiscriminatory structural barriers and identifies certain a reas of domestic structural reform that could usefully be dealt with in the GATS negotiations. The final chapter presents the conclusions of this study. 2 International Trade in Financial Services QThe financial sector is a critical component of a nation’s economy: It not only contributes directly to output and employment but also provides an essential infrastructure for the functioning of the entire economy. The financial system serves as a channel through which savings can be mobilized and used to finance investment and, at the same time, facilitates transactions necessary for internal and external trade. It also helps to manage risks and reduce so-called information asymmetries between providers and users of funds. 1 For these reasons, a sound and efficient financial system is imperative for economic growth and development. A sound financial system also increases the resiliency of a nation’s economy, thereby helping it to withstand external shocks such as movements in exchange rates or a major increase in global interest rates.International trade in financial services—together with enhanced prudential regulation and supervision and other basic structural reforms—can play an important role in helping countries build financial systems that are more competitive and efficient, and therefore more stable. Financial services trade can enhance capital market efficiency; improve the quality, availability, and pricing of financial services; stimulate innovation through the dissemination of new technologies, know-how, and skills; and promote the use of international good practices in areas such as accounting, risk management, and disclosure of financial information. 2 The rapid growth of trade in financial services in recent years reflects a combination of economic, technological, and regulatory factors. These include new and expanding markets in developing and transition economies, technological advances, and progress in reducing or elimin ating a variety of host-country barriers (see chapter 3). 4 INTERNATIONAL TRADE IN FINANCIAL SERVICES 5 Trade in services, as defined in the GATS, includes services provided across borders and through foreign direct investment. The cross-border provision of services—for example, the provision of financial services from an office located in one country to residents of another country— is broadly analogous to trade in goods. 4 By contrast, foreign direct investment involves the establishment of a commercial presence, such as a branch or subsidiary, within a host country. 5 The GATS approach of defining international trade to nclude services provided to host-country customers through the establishment and operation of a commercial presence differs from the approach used for balance-of-payments purposes, in which once a local branch or subsidiary has been established, the services it provides to host-country customers are treated as domestic. 6 In this study, the term â₠¬Å"financial services† refers to financial services other than insurance, which is the subject of another study in this series. 7 Although the GATS definition of financial services encompasses both â€Å"insurance and insurance-related services† and â€Å"banking and other financial services (excluding insurance),†8 they have been negotiated and listed in the financial services schedules as separate subsectors. 9 These subsectors are, however, closely linked.Many of the major commercial and investment banks operating internationally are part of financial conglomerates that also include firms engaged in insurance underwriting, and banks often engage directly in insurance brokerage activities. Moreover, the development of new types of products and instruments is blurring the distinctions between financial subsectors. Major financial firms now provide a wide range of financial services to customers in other countries. These include commercial banking activities such as lending and deposit-taking; investment banking activities, such as underwriting securities and advising on mergers and acquisitions; trading activities, that is, brokering and dealing in securities and other financial instruments; and asset-management activities, including management of mutual funds and pension funds.Other financial services provided internationally include financial information and data processing services; investment advisory services; payment and money transmission services, including credit cards; settlement and clearing for financial assets; and financial leasing. 6 THE DOHA ROUND AND FINANCIAL SERVICES NEGOTIATIONS Many financial services provided internationally are wholesale in nature; that is, they are provided to â€Å"sophisticated† customers such as corporations and institutions, other financial services firms, and wealthy individuals. 10 Both foreign direct investment and cross-border supply are important means of providing wholesale financia l services.In the banking sector, when wholesale services are provided through establishment of a commercial presence, direct branches of the foreign bank—if permitted by host-country regulation—are usually a more efficient form of organization than subsidiaries. Unlike subsidiaries, branches are not separately incorporated in the host country and operate using the firm’s consolidated worldwide capital (but see chapter 4 regarding lending limits based on branch capital-equivalency requirements). E-Finance Technological advances have long had a major impact on the conduct of wholesale financial activities. Business-to-business electronic transactions within the financial sector have been used for more than two decades, both domestically and internationally.Financial firms have also provided online services to nonfinancial firms over closed proprietary networks for a number of years. Widespread access to the open network technology of the Internet, however, offers a whole new range of possibilities to provide services to a much broader base of customers at substantially lower costs. As a result, online services provided to wholesale customers—both within and across national borders—are growing rapidly. This growth includes not only traditional financial services but also new types of services designed to facilitate business-to-business e-commerce activities. 11 The same technological and cost-saving possibilities exist for the provision of electronic banking and other financial services to retail customers.Within some countries, the provision of some types of financial services over the Internet and through web-enabled technologies, such as mobile telephony, is expanding dramatically. Prominent examples include discount brokerage and mutual funds in the United States, and banking services in Finland, Norway, and Sweden. 12 The cross-border provision of INTERNATIONAL TRADE IN FINANCIAL SERVICES 7 financial services to retail cus tomers over the Internet, however, is still in its infancy. In general, the international provision of retail financial services still takes place primarily through locally incorporated subsidiaries. 13 Indeed, a number of banks are now using their host-country subsidiaries as a base from which to provide electronic banking services to host-country retail customers.The lack of widespread development of cross-border retail banking and other financial services—through the Internet or more traditional methods—reflects host-country regulatory requirements aimed at ensuring adequate consumer protection, consumer preferences, and tax considerations. Some countries actually require the establishment of a commercial presence to provide retail financial services. Even when regulatory requirements for cross-border services involve nondiscriminatory application of host-country prudential standards, firms operating on a global basis may have difficulty meeting a multitude of diffe rent national requirements. Perhaps even more important, consumers may prefer dealing with a local commercial presence, particularly because redress against a local establishment is usually readily available through the domestic legal system.In addition, in a number of countries, consumers receive more favorable tax treatment on financial products that are provided through locally incorporated entities. 14 Modes of Supply In an effort to include all of the ways in which services are provided internationally, the GATS defines â€Å"trade in services† in terms of four so-called modes of supply. Mode 1 and mode 2 cover services provided across borders; for financial services, the distinction between these two modes is not always clear. Mode 3 covers services provided through establishment of a commercial presence—that is, through foreign direct investment, a term that is not used in the GATS.Mode 4 covers services provided through the temporary presence of â€Å"natural persons,† which includes nonlocal employees of a foreign service provider. The GATS uses modes of supply not only to define the scope of its coverage but also as the basis for specific commitments to liberalization that WTO members undertake. 8 THE DOHA ROUND AND FINANCIAL SERVICES NEGOTIATIONS Services Provided across Borders. In this study, the term â€Å"cross-border services† is used broadly without attempting to assign a geographic location to the transaction. Thus, this study does not attempt to determine whether a transaction â€Å"takes place† in the country of the service provider or in the country of the customer.For example, a cross-border financial services transaction could be carried out in a number of different ways: (a) a representative of, say, a foreign bank might visit the country of the customer to arrange a loan; (b) the customer might travel abroad to visit the office of the foreign bank; or (c) the transaction might take place via telephone , fax , or, increasingly, the Internet, which, in this context, is simply another technological means of delivering the service. 15 The GATS, however, distinguishes between services provided to nonresidents â€Å"from† the country of the service supplier (mode 1 or crossborder supply) and services provided â€Å"in† the country of the service supplier (mode 2 or consumption abroad). Usually—but as currently defined by the GATS, not necessarily—mode 2 involves physical movement of the consumer, such as the movement that occurs in tourism. 6 For financial services, however, the line dividing these two modes of supply is not always clear, especially in the case of example (c) in the previous paragraph. Indeed, because financial services are intangible, assigning a geographic site to their provision across borders is difficult and often arbitrary and will become more so as the importance of e-finance increases. From a regulatory perspective, a major issue is whether, and to what extent, the rules of the host country—that is, the country of the customer—are applied to the cross-border transaction. 17 Suppose, for example, that employees of a foreign bank visit the host country to arrange cross-border loans.Even when the host country does not have a regulatory framework in place for cross-border banking services, host-country bank regulators sometimes look at factors, such as the frequency and duration of visits and the permanence of the host-country infrastructure for the visiting employees, to determine whether, for regulatory purposes, the cross-border activity rises to the level of a host-country office. 18 Or suppose that a foreign broker-dealer solicits host-country customers to purchase securities. Securities regulators often use solicitation— in addition to the actual conduct of business with domestic residents—as INTERNATIONAL TRADE IN FINANCIAL SERVICES 9 criterion for determining whether the foreign firm is subject to hostcountry broker-dealer registration requirements. 19 In response to the increasing use of the Internet by the securities industry, a number of regulators also examine factors such as whether a web site is being used to target host-country customers (see chapter 4). 20 Besides regulatory jurisdiction, another important jurisdictional issue arises in the event of a dispute; here the question is which country’s courts have jurisdiction to try the case and which country’s laws apply. 21 Foreign Direct Investment. The inclusion of foreign direct investment in the GATS reflects its importance as a way of providing services internationally. 2 By contrast, the General Agreement on Tariffs and Trade (GATT) does not cover foreign direct investment; for goods, there is only a relatively narrow agreement, negotiated in the Uruguay Round, on trade-related investment measures (TRIMs). 23 Although the GATS includes establishment of a commercial presence as a mod e of supply, it does not have a separate framework for investment like that of the NAFTA or the widely used bilateral investment treaties (BITs). 24 These agreements cover portfolio investment as well as direct investment in both goods and services. Moreover, unlike the GATS, they include provisions to ensure the protection of investments—specific rules governing expropriation and compensation, for example—and also provide for arbitration of disputes between private investors and host-country governments. Presence of Natural Persons.The fourth mode of supply in the GATS, the temporary presence of natural persons, includes the temporary presence in the host country of employees of firms providing services across borders or through a commercial presence. For example, for financial services, this mode of supply covers the presence of nonlocal staff of a host-country branch or subsidiary of a foreign financial firm as well as agents of the firm visiting the host country to facilitate the provision of cross-border services. 25 Although the presence of natural persons is listed as a mode of supply in the GATS, and members can negotiate sectorspecific commitments, countries usually make commitments for the temporary presence of natural persons as â€Å"horizontal commitments† that 10 THE DOHA ROUND AND FINANCIAL SERVICES NEGOTIATIONS apply to all services sectors. 6 For the financial services sector, however, most countries that belong to the Organization for Economic Cooperation and Development (OECD) have incorporated into their schedules a set of commitments allowing the temporary entry of senior managerial personnel and certain types of specialists in association with the establishment of a commercial presence. 27 3 Liberalization and Regulation Q Policymakers, particularly in emerging market economies, are increasingly recognizing that opening markets to foreign financial firms can benefit both consumers of financial services and the domesti c economy as a whole. As noted in chapter 2, the presence of foreign firms can create more competitive and efficient markets for financial services, thereby supporting economic growth and development and contributing to a more resilient domestic financial system.At the same time, however, ensuring adequate prudential regulation and supervision of financial firms and markets, together with other fundamental domestic structural reforms, is essential to obtain the maximum benefits of liberalization while minimizing the risks. Basic structural reforms include increasing transparency and accountability in both the private and public sectors; introducing effective risk management techniques; and developing the institutional infrastructure, such as insolvency laws and appropriate judicial procedures. Because measures to promote competitive markets and to strengthen domestic financial systems are complementary and mutually reinforcing, the relationship between financial sector liberalizatio n and regulation has two distinct dimensions. On the one hand, liberalization requires reducing or removing anticompetitive regulations that pose unnecessary barriers to trade in services. On the other hand, liberalization requires increasing the strength and quality of certain regulations and, in some areas, introducing new regulations. Thus the process of liberalization involves, inter alia, reaching a consensus on where to draw the line between regulations that are simply anticompetitive barriers to trade—and should therefore be eliminated—and regulations that serve legitimate purposes. For financial services, the GATS contains a â€Å"prudential carve-out† for domestic regulation. 2 In the GATS, the term â€Å"prudential† is used broadly 11 12 THE DOHA ROUND AND FINANCIAL SERVICES NEGOTIATIONS o encompass not only measures to promote the integrity and stability of the financial system (as the term has traditionally been used in banking regulation) but also measures designed to protect consumers of financial services. The prudential carve-out, discussed later in this chapter, is designed to ensure that any obligations undertaken or commitments made in the GATS will not interfere with the ability of national authorities to exercise their responsibilities for prudential regulation and supervision. Whether a particular measure is prudential or simply being used to avoid a country’s obligations and commitments under the GATS is, however, an issue that could be brought before a WTO dispute settlement panel. All countries impose certain rules that are clearly prudential.Even if a measure is prudential, however, it may create a barrier to trade in financial services. This could occur because a host country imposes additional prudential requirements on foreign financial firms vis-a-vis their domestic counterparts. Such barriers could also be created simply because prudential rules differ among countries—that is, even if eac h host country applies the same rules to foreign and domestic firms, financial services firms operating on a global basis often find it burdensome to comply with a multitude of different national prudential rules. A critical question is whether such barriers could be addressed without jeopardizing prudential goals.Specifically, in what areas and under what conditions might financial services regulators be able and willing to recognize each other’s regulations and supervisory practices as being as effective as their own? The GATS is permissive with respect to such recognition arrangements. However, as will be explained in chapters 4 and 5, the WTO is not the appropriate forum for financial services regulators to negotiate recognition of prudential measures. Three Pillars of Liberalization â€Å"International contestability of markets† refers to the creation of markets that are competitive and efficient on a global basis—a goal that can be achieved by removing all types of barriers to foreign participation in hostcountry markets. International contestability is, in effect, based on three pillars of liberalization: (1) national treatment and market access; (2) the LIBERALIZATION AND REGULATION 13 removal of nondiscriminatory structural barriers, that is, domestic structural reform; and (3) freedom of capital movements. For financial services, the GATS has so far dealt mainly with the first pillar. An important question for the Doha round is how far the negotiations should extend into the second pillar. The GATS deals with the third pillar only insofar as it affects countries’ specific commitments to liberalize trade in services; in general, liberalization of capital movements is a matter of concern for the IMF 4 . National Treatment and Market Access. The first pillar of international contestability of markets is liberalization aimed at opening markets to foreign services and service suppliers and ensuring that they enjoy substantially the same treatment as their domestic counterparts. Such liberalization requires reducing or removing barriers that discriminate against foreign services and service suppliers with regard to entry and operation in a host-country market. A host country might, for example, discriminate against foreign financial firms by refusing to grant licenses for their branches or subsidiaries; imposing limitations on their ownership position in domestic firms or on their aggregate market share; or prohibiting them from engaging in certain activities that are permissible for their domestic counterparts.First-pillar liberalization also requires removing various quantitative limitations on the overall provision of services in a host-country market. Although these barriers may not, on their face, be overtly discriminatory, they are typically used to block entry by foreign services and service suppliers. A country might, for example, limit the number of service suppliers in a particular market by rest ricting the number of new licenses that may be issued or by relying on an economic needs test, which involves an assessment of â€Å"needs† in the market by host-country authorities. 6 Because these measures have the effect of imposing some type of quantitative limitation on foreign entry, they are similar to the more overtly discriminatory barriers.To deal with these first-pillar barriers, the GATS uses the principles of â€Å"national treatment† and â€Å"market access. † Article XVII (National Treatment) relies on a generally accepted definition of national treatment—that is, it 14 THE DOHA ROUND AND FINANCIAL SERVICES NEGOTIATIONS requires a host country to treat foreign services and service suppliers no less favorably than â€Å"like† domestic services and service suppliers. 7 Barriers to entry or operation that discriminate against foreign services or service suppliers vis-a-vis their domestic counterparts would therefore be inconsistent with national treatment. The GATS does not attempt to define market access.Instead, Article XVI (Market Access) provides a list of restrictive measures, primarily quantitative, that are typically used by host countries to deny entry to foreign services or service suppliers. A country that does not maintain any of these measures is regarded as providing full market access. 8 The list includes seemingly nondiscriminatory quantitative barriers to entry that apply to both domestic and foreign firms, such as limitations—in the form of numerical quotas or economic needs tests—on the number of service suppliers or their total assets. It also includes quantitative barriers to entry that are clearly discriminatory and thus are also inconsistent with national treatment, such as limitations on foreign ownership interests in domestic firms.As a result, some overlap exists in the national treatment and market access provisions of the GATS—that is, certain measures may be inconsi stent with both national treatment and market access. 9 The list of measures in Article XVI also includes restrictions on the type of legal entity through which services may be supplied—for example, requiring establishment of a subsidiary as opposed to a branch. In the GATS, national treatment and market access are â€Å"specific commitments† as opposed to general obligations. 10 As a result, national treatment and market access do not apply across-the-board to all services sectors; instead, they apply only to sectors, subsectors, or activities that a WTO member specifically lists in its schedule of commitments. 1 If a member is making only a partial commitment to national treatment or market access within a listed sector, subsector, or activity, any limitations must be listed in its schedule. 12 The use of specific commitments for national treatment and market access instead of obligations applicable to all services sectors is in some respects a structural weakness of the GATS. 13 Under a more ambitious approach, such as that used in the NAFTA’s services and investment provisions, national treatment and market access would apply in each sector unless an exception was specifically listed in a country’s schedule of LIBERALIZATION AND REGULATION 15 commitments or one of the public policy exceptions, such as the national security exception, applied. 14 Nondiscriminatory Structural Barriers.The second pillar of liberalization required for international contestability of markets is aimed at removing nonquantitative and nondiscriminatory structural barriers. Such barriers are associated with national measures that do not discriminate between domestic and foreign services and service suppliers. A secondpillar barrier could arise because a national measure is primarily anticompetitive or fosters anticompetitive behavior by private parties. In some cases, the barrier could be associated with the inadequacy or absence of domestic regulationâ €”for example, the lack of an adequate domestic legal framework for insolvency. A second-pillar barrier could also arise because of differences in national rules, including prudential rules, that make it difficult to conduct operations on a global basis.Removing second-pillar barriers goes far beyond achieving national treatment and market access. Those principles ensure that foreign services and service suppliers can enter a host-country market as currently structured and enjoy equality of competitive opportunities vis-a-vis their domestic counterparts. By contrast, second-pillar liberalization represents an effort to create maximum potential competitive opportunities in a host-country market. Achieving this could require major domestic structural reform. This would necessarily involve some degree of convergence of national regulatory systems, either de facto or through negotiated harmonization. A longstanding U. S. rohibition on affiliations between banks and insurance compani es in the United States, which was repealed in 1999, created a major second-pillar barrier for many years. 15 Indeed, the European Union had found it difficult to accept that a European financial conglomerate that included both a bank and an insurance company could engage in only one of these businesses in the United States. Regardless of whether this nondiscriminatory restriction was primarily anticompetitive or could have been justified as a prudential measure, it nonetheless constituted a barrier to trade in financial services. Significant second-pillar barriers are often associated with national regulatory regimes for asset-management services. 16 These include 6 THE DOHA ROUND AND FINANCIAL SERVICES NEGOTIATIONS across-the-board prohibitions on delegation of functions, such as portfolio management and administrative operations, by the host-country office to a foreign affiliate; extremely strict asset-allocation requirements for a domestic mutual fund or pension fund; and rules that prohibit such funds from investing in foreign securities. 17 While asset management activities raise legitimate prudential concerns about ensuring adequate protection of hostcountry customers, these types of measures often serve primarily to restrict competition, particularly competition from foreign firms (see chapter 5).Nondiscriminatory structural barriers to trade in financial services are not limited to financial sector regulation. Barriers in other areas that are particularly important for the effective functioning of the financial services sector, such as lack of adequate frameworks for corporate governance or insolvency, are part of the international work on strengthening domestic financial systems, which is discussed later in this chapter. Ineffective or nonexistent competition policy regimes, which could foster anticompetitive behavior by private parties, can also create major second-pillar barriers. Differences in national tax systems are yet another source of second -pillar barriers.Discriminatory treatment of foreign firms under national tax or competition rules, however, would be a first-pillar barrier. 18 Second-pillar barriers can also arise from a country’s administrative procedures—in particular, a lack of regulatory transparency and procedural â€Å"fairness. † For example, a country might fail to publish all of its laws, regulations, and administrative decisions; administer them in an impartial manner; establish a meaningful procedure for interested parties to comment on proposed regulations; act on applications for licenses within a reasonable period of time; or provide a mechanism for independent review of administrative decisions.Because regulatory transparency and procedural fairness can be extremely effective in ensuring that commitments to market access and national treatment are fully implemented, they constitute an important underpinning of first-pillar liberalization. The European Union’s single-mark et program represents the most far-reaching effort to date to remove nondiscriminatory structural barriers among a group of nations. Predicated on political agreement on goals for economic liberalization, that effort is being carried out in the context of LIBERALIZATION AND REGULATION 17 the unique supranational legislative, judicial, and administrative structure of the European Community. 9 Even within the European Union, however, important nondiscriminatory structural barriers to trade in financial services among the member states are still in place (see chapter 5). The GATS addresses certain types of second-pillar barriers. Article III (Transparency) imposes a general transparency obligation on WTO members to publish all measures â€Å"of general application† that are relevant to trade in services. 20 Article VI (Domestic Regulation) addresses, in fairly general terms, barriers created by domestic regulations. It requires countries to apply such regulations in a â€Å"rea sonable, objective and impartial manner† to avoid undermining commitments to market access and national treatment. 1 Moreover, countries must have appropriate legal procedures to review administrative decisions affecting trade in services. 22 Article VI also mandates further work to develop disciplines to ensure that licensing requirements or technical standards do not constitute unnecessary barriers to trade in services. Pending the completion of this work, countries must refrain from adopting licensing rules or technical standards that are so burdensome, restrictive of trade, or lacking in transparency that they undermine the benefits that could reasonably be expected from their commitments to national treatment and market access. 23 The GATS deals with additional second-pillar barriers for individual sectors in members’ schedules of commitments.The most far-reaching example is in basic telecommunications, where a substantial majority of the countries that have made c ommitments to national treatment and market access in that sector have incorporated into their schedules— using the â€Å"additional commitments† column—a reference paper setting forth â€Å"procompetitive† regulatory principles. 24 Designed for a sector where dominant suppliers often control essential host-country facilities, these principles seek to ensure that a country’s national treatment and market access commitments will not be undermined. Countries committing to the principles undertake, among other things, to maintain measures to ensure network interconnection on nondiscriminatory terms and to prevent certain anticompetitive practices. 25 In the financial services sector, most OECD countries addressed nondiscriminatory structural barriers in their 1997 schedules of commitments 18 THE DOHA ROUND AND FINANCIAL SERVICES NEGOTIATIONS imply by making a general â€Å"best efforts† commitment to remove or eliminate any significant adverse effects of such barriers. 26 In addition, the United States and the European Union used the additional commitments column of their schedules to make â€Å"best efforts† commitments to remove specified nondiscriminatory barriers. For example, the U. S. administration committed to try to work with the Congress to remove Glass-Steagall Act restrictions, a goal that was subsequently accomplished, while the European Union pledged that its member states would try to process applications for licenses for banking and insurance subsidiaries within specified periods of time.Japan, under great pressure from its trading partners, went further and made binding commitments regarding removal of certain second-pillar barriers—including restrictions on asset-management services and lack of regulatory transparency and limitations on lines of business in insurance—that were covered in its bilateral financial services agreements with the United States (see chapters 4 and 5). Freedo m of Capital Movements. The third pillar of liberalization involves achieving freedom of capital movements across national borders. Such movements comprise international capital transactions—that is, the creation, transfer of ownership, or liquidation of capital assets, including financial assets—and the payments and transfers associated with such transactions. 27 Restrictions on international capital movements are usually imposed on the underlying transactions as opposed to the related payments and transfers. 8 For example, if a country wished to restrict foreign direct investment in the banking sector, it could prohibit foreign financial firms from acquiring significant ownership interests in host-country banks: it would be unusual to try to achieve this result by permitting the acquisition of the ownership interests while using exchange controls to block payment for them. 29 Although the free movement of capital plays a critical role in allowing efficient allocation of resources on a global basis, the Asian financial crisis of 1997–98 revived a long-standing debate over the appropriateness and effectiveness of capital controls, particularly on short-term flows. 0 Nevertheless, all parties to the debate agree that capital controls can never be a substitute for sound macroeconomic policies and fundamental reforms of domestic financial and legal structures. Indeed, the Asian crisis itself emphasized that weaknesses in domestic financial systems can create significant vulnerabilities LIBERALIZATION AND REGULATION 19 as capital movements are liberalized. At present, conventional wisdom holds that, although imposition of new capital controls should, in general, be avoided, the imposition of limited, temporary capital controls to deal with massive temporary inflows or outflows of short-term debt might be useful in some cases. 1 Moreover, it is now widely recognized that removal of existing controls must be carried out with great care. Of parti cular importance are the pace and appropriate â€Å"sequencing† of liberalization of different types of capital flows and of liberalization of capital movements vis-a-vis structural reforms to strengthen domestic financial systems. 32 Freedom of capital movements per se is not within the purview of the GATS; international capital movements and international trade in financial services are, however, closely related. Establishment of a commercial presence in a host country by a foreign service supplier involves both trade in services under the GATS and international capital transactions.For example, a commitment in the GATS to liberalize financial services trade by allowing foreign financial firms to establish wholly owned subsidiaries is essentially a commitment to allow foreign direct investment that involves the acquisition of 100 percent of the shares of existing or de novo hostcountry financial firms. 33 In theory it is possible that, once established, the subsidiary could conduct its ongoing activities without engaging in additional international capital transactions; however, its activities would need to be limited to transactions with host-country residents involving domestic financial assets. 34 Establishment and operation of branches, which are not separately incorporated in the host country, virtually always involve international capital transactions between the bank’s head office and the branch. 5 These transactions include both foreign direct investment and portfolio investment. 36 For branches conducting a wholesale business, ongoing activities would typically also involve international capital transactions with unaffiliated parties. For cross-border financial services, international capital transactions are typically either integral to, or closely associated with, the provision of the service. For example, international capital transactions are an integral part of accepting deposits from or making loans to nonresidents. In addition, international capital transactions are usually, although not necessarily, associated 20 THE DOHA ROUND AND FINANCIAL SERVICES NEGOTIATIONS ith financial services such as securities trading or asset management on behalf of a customer residing in another country. 37 By contrast, certain crossborder financial services, such as investment advisory services and financial information services, can be provided without an associated international capital transaction. The usefulness of investment advice might be limited, however, if the customer were prohibited from investing in foreign assets. In general, it is difficult to realize fully the benefits of liberalization of trade in financial services without freedom of capital movements. Financial services trade absolutely requires, however, the liberalization of only those capital movements that are necessary for the trade transaction to occur.In recognition of this relationship, Article XI of the GATS (Payments and Transfers) prohibits WTO members from imposing restrictions on capital transactions or associated payments and transfers that would be inconsistent with their specific commitments to liberalization of trade in services. 38 A footnote to Article XVI (Market Access) provides greater detail—namely, a country that has made a specific commitment to market access must allow (a) capital movements that are â€Å"essential† for the provision of a service in mode 1 (cross-border supply); and (b) inward capital movements that are â€Å"related† to a service supplied through establishment of a commercial presence. 39 The bottom line is that if a country makes a commitment to liberalize trade with respect to a particular financial service in the GATS, it is also making a commitment to liberalize most capital movements associated with the trade liberalization commitment.The country is not, however, making an across-the-board commitment to freedom of capital movements. The GATS provisions dealing with capital movements, like GATS specific commitments to liberalize trade in services, are subject to a balance-of-payments safeguard. 40 Both the capital movements and balance-of-payments safeguard provisions of the GATS refer to and are consistent with the IMF’s responsibilities in these areas. 41 Strengthening Domestic Financial Systems The financial services sector has an elaborate and intensively used framework of international fora that are used, both separately and in combination, LIBERALIZATION AND REGULATION 21 o address overall financial and regulatory policy issues; to promote cooperation and coordination among supervisors; to set voluntary but widely accepted international minimum standards and codes of good practices; and, most recently, to provide â€Å"surveillance† of domestic financial systems. This surveillance includes monitoring and helping to build institutional capacity for implementation of the international standards and codes. The international fo ra dealing with these issues include the Group of Seven (G-7), the Group of Ten (G-10), the Group of Twenty (G-20), the Financial Stability Forum, the Basel Committee on Banking Supervision (Basel Committee), and the International Organization of Securities Commissions (IOSCO), as well as the IMF and the World Bank. 2 The international framework for the financial services sector, which has been constructed over the past quarter century and is still evolving, is a response to two major factors: the internationalization of banking and other financial activities; and the special characteristics of the financial sector, especially the phenomenon of â€Å"systemic risk. † Because of systemic risk, problems with one financial firm can be transmitted to unrelated financial firms, both within and beyond a single country. For example, a chain reaction of problems could be triggered through imitative runs on banks as depositors lose confidence in a banking system, through default on do mestic or international interbank obligations, or through domestic or international payment systems.Problems in a country’s financial sector can also affect the real economy, both domestically and internationally, through declines in output and shifts in trade flows. In addition, the existence of global financial firms, with activities falling within many different national jurisdictions, requires cooperation and coordination among home- and host-country authorities to prevent gaps in supervision. Increasingly, these global firms are financial conglomerates, which means that supervisory cooperation and coordination are necessary across financial subsectors as well as national borders. For these reasons, countries have a stake in the quality of each other’s regulation and supervision of the financial sector and also in ensuring cooperation and coordination among supervisors.In this regard it is useful to distinguish between prudential regulation, which includes, for exa mple, capital and other requirements designed to ensure the safety and 22 THE DOHA ROUND AND FINANCIAL SERVICES NEGOTIATIONS soundness of financial institutions, and supervision, which is aimed at making certain that financial firms adhere to such requirements. The importance of strong, effective supervision cannot be overemphasized; without it, the best prudential rules can be meaningless in practice. The extent to which both experience and good judgment are required for such supervision also needs to be emphasized. Indeed, the role and nature of supervision make it particularly difficult for supervisory authorities to reach recognition agreements based on the harmonization of prudential rules (see chapter 5).While regulation and supervision must be strong and effective, a further complication is that a poorly designed regulatory system—for example, an excessively generous deposit-insurance scheme—can create an unacceptable degree of moral hazard; that is, it may enco urage excessive risk-taking by regulated firms. Accordingly, national regulatory and supervisory systems must be designed to complement and support, but not to substitute for, market discipline. Thus, achieving widespread transparency in both the public and private sectors, including accurate and timely disclosure of financial information, is critical