Argentina: Financial Services. WTO Appellate Body Report

Last Updated: 20 September 2016
Article by Sayenko Kharenko

The dispute "Argentina – Financial Services" deals with a number of restrictive measures relating to the provision of financial services, which were imposed by Argentina with respect to the trade partners not cooperating for "tax transparency purposes". The dispute was initiated by Panama that had been subject to such measures for a certain period of time. The Panel examining the dispute found that the actions of Argentina were inconsistent with its obligations under the General Agreement on Trade in Services (the "GATS"). However, the Appellate Body reversed the Panel's findings.


In order to strengthen the national tax system and protect the investors' rights, Argentina launched the legislative reform aimed to combat the tax evasion, fraud, concealment and money laundering.

For the purposes of implementation of the reform, Argentina divided its foreign partners in two categories: "cooperative countries" and "non-cooperative countries".

In order to be classified as a "cooperative", the respective country had to:

  • sign with Argentina an agreement on exchange of tax information or a convention for the avoidance of international double taxation with a broad information exchange clause provided that there was an effective exchange of information;
  • initiate the negotiations with Argentina with a view to signing such agreement .

If a country failed to cooperate with Argentina, it was subject to the special treatment involving the heavier tax burden, additional conditions for provision of reinsurance services, additional requirements on registration of the foreign company branches, restrictions on the access to the foreign exchange market and the capital market of Argentina. In general, Panama challenged eight restrictive measures imposed by Argentina.


The Appellate Body report was one of the most anticipated by the international community. The report was expected to provide a guidance on to what extend the WTO Members may take the measures violating their WTO obligations, but designed to ensure the transparency of the tax system. The significance of this report was further warmed up by the "Panama Papers", which burst into a blaze on the eve of the publication of the Appellate Body Report.  

The key argument raised by Panama in this dispute related to the imposition by Argentina of different requirements with regard to "cooperative countries" and "non-cooperative countries". Panama argued that the imposition of the restrictive measures against "non-cooperative countries" constituted a discrimination under the GATS.

The cornerstone principle underlying the GATS, as well as the whole WTO system, is prohibition of the discrimination, which covers two concepts: the most-favoured nation treatment and national treatment.

Most-favoured nation treatment (the "MFN") embodied inArt. II:1 GATS provides that each WTO Member shall accord "immediately and unconditionally to services and service suppliers of any other Member treatment no less favourable than that it accords to like services and service suppliers of any other country".  In other words, each WTO Member must ensure the MFN treatment with respect to "like" services and service suppliers of any third country. At the same time, this rule applies only to the measures falling under the GATS.1

National treatment obligation embodied in Art. XVII GATS provides that each WTO Member shall accord to services and service suppliers of any other WTO Member treatment no less favourable than that it accords to its own like services and service suppliers. At the same time, this obligation does not apply to all measures, but rather to the specific service sectors with respect to which the WTO members agreed to the application of the national treatment obligation.2

In this dispute, the Appellate Body, inter alia,gave an extensive interpretation of (1) "likeness" of the services and service suppliers and (2) the compliance with the "treatment no less favourable".


The establishment of "likeness" was the key issue during the examination of discrimination in the present dispute. In particular, the question was raised:

  • whether the services of cooperative and non- cooperative countries are like (in terms of the MFN treatment); and
  • whether the services of Argentina and non- cooperative countries are like (in the scopes of national treatment).

The Panel found that the distinction in treatment of services of cooperative and non-cooperative countries depended on origin. It concluded that the services of cooperative and non-cooperative countries were like for the purpose of Art, II:1 GATS, and, accordingly, Argentina violated the MFN obligation.

The same conclusion was reached in the context of Argentina's compliance with the national treatment obligation. Thus, the Panel found that the Respondent also violated Art. XVII GATS.

Analysing the issue of likeness, the Appellate Body noted that "likeness" in terms of trade in services is directly connected with the fact, whether the respective services are in a competitive relationship, and, if so, to which extent. Moreover, the competitive relations and modification thereof constitute a prerequisite for further analysis of WTO Members' obligation to provide  "treatment no less favourable" to the services of any other WTO Member.

Furthermore, the Appelite Body drew attention to the matter of "presumption of likeness". According to the said cocept, if the distinction is based exclusively on origin of services, such services are like.


According to the Appellate Body Report, under both the MFN and national treatment standards, the concept of "treatment no less favourable" is focused on the measure's modification of the conditions of competition. This requirement is not satisfied if the conditions of competition are modified to the detriment of like services from non-cooperative countries.

In examining the "no less favourable treatment" standard, the Panel attached the importance to the regulatory aspects. Thus, the Panel established a three-tier test for determining whether the non-cooperative countries were accorded "treatment no less favourable". Firstly, it should be established whether different treatment was accorded to the two categories of services (of cooperative and non-cooperative countries); secondly, it should be examined whether the non-cooperative countries were accorded "less favourable" treatment; thirdly, such assessment shall be conducted in the light of the regulatory impact on the conditions of competition (analysis of so-called "regulatory aspects").

Thus, after the preliminary findings that Argentina's regulatory aspects modify the conditions of competition to the detriment of like services from "non-cooperative" countries, and, accordingly, accord them less favourable treatment, the Panel did not complete the analysis, but took an additional step relating to the impact of regulatory aspects on the conditions of competition.

The Appellate Body did not agree with the Panel on interpretation of the "no less favourable treatment" standard. As it stated, neither Art. ІІ:1, nor Art. XVII GATS furnish grounds for the application of the additional standard regarding the impact of regulatory aspects on the conditions of competition.


If a WTO member violates GATS provisions by introducing measures, which restrict trade in services but are required for the interests of this WTO Member, such measures may be justified under Art. XIV GATS.

In particular, pursuant to Art. XIV(c) GATS, the restrictive measures may be justified if they are "necessary to secure compliance with laws or regulations which are not inconsistent with the provisions of this Agreement". At the same time, for the application of this exception, a restrictive measure shall not (1) be applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where like conditions prevail; or (2) cause disguised restrictions on trade in services.

According to the Panel's findings, the restrictive measures, introduced by Argentina, may be justified under Art.XIV(c). However, the Panel found that the restrictive measures at hand violated the requirement not to "be applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries".

In general, this conclusion of the Panel was upheld by the Appellate Body, which, in particular, provided explanations as to the application of Art. XIV(c) GATS:

  • the measure "secures compliance with laws or regulations when its design reveals that it secures compliance with specific rules, obligations, or requirements of the respective laws or regulations, even if the measure cannot be guaranteed to achieve such result";
  • with respect to the "necessity" of introduction of the measure, there shall be sufficiently proximate relationship between the restrictive measure and the laws and regulations, such that the measure can be deemed to be "necessary" to secure compliance with such laws or regulations.


Therefore, the Appellate Body reversed the Panel's findings on the existence of discriminatory treatment between cooperative and non-cooperative countries, concluding that the Panel used an erroneous 'likeness' test. However, the Appellate Body did not undertake the 'likeness' analysis, leaving the question of the ratio between States' obligations under the WTO and their aspirations to introduce measures aimed at ensuring the transparency of the tax system, open.


1 According to the concept embodied in Art. II:1 GATS, the MFN treatment aims to accord equal opportunities to supply of services of all WTO Members. Therefore, all like services and service suppliers receive equal treatment from any WTO Member regardless of their origin. Respectively, if the WTO Member accords more favourable treatment to certain services or service supplies originating from any WTO Member, the same treatment should be accorded immediately and unconditionally to the services and service suppliers of any other WTO Member. In other words, the discrimination based on the origin of services is prohibited. 

2 Accordingly, the MFN treatment aims to eliminate the discrimination between the "like" services and service providers originating from the third countries – the WTO Members; meanwhile, the national treatment aims to prohibit discrimination in favour of the national "like" services and service suppliers. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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