Compensatory Restrictions and National Treatment in Services Trade: An Example from Banking Sector

Abstract

Even though GATS is a separate agreement from that of GATT, yet they both comprise some common fundamental principles and binding provisions like National Treatment, which regulate differential treatment between foreign and domestic producers/products in any host country. However, because of certain characteristics of services trade and particularly in relation to the specific modes of supply and trade-political considerations surrounding services trade, the application of the traditional National Treatment clause has been modified in the GATS. Arguably, this makes the applicability of National Treatment more difficult than in the GATT, and much space for uncertainty with respect to the legal implications of commitments entered into. It may be seen if one considers a few such examples as that of India’s trade in banking services. Banking services constitute an integral part of Financial Services, singularly important and actively negotiated amongst the types of services considered under the domain of the GATS. India, being a signatory to the Agreement, has undertaken certain National Treatment commitments involving banking services-which have particular significant implications for entry and regulation of foreign banks in India, consequently affecting her overall domestic commercial banking sector as a whole. This is so because of a considered already sufficiently high foreign presence in Indian commercial banking apart from large number of prospective entrants. This paper tries to analyze some concerns of the National Treatment clause of the Agreement and derive some inferences for India’s commercial banking service sector.

DOI - https://doi.org/10.65525/SVUP.9788199651548.2026.17-33