This briefing note is concerned with the rules of the World Trade Organization (“WTO”) as they apply to financial services. The financial services sector covers both banking (broadly defined – see below) and insurance/reinsurance services. As will be seen, the scope of trade liberalisation in relation to services is limited and, once the UK has left the European Union (“EU”) there would therefore be scope for improving access for the financial services sector through an economic integration agreement with the EU consistent with Article V of the General Agreement on Trade in Services (“GATS”). One requirement of such an agreement is that it has substantial sectoral coverage. This would prevent an agreement with the EU that is restricted to financial services (or to a select group of service sectors). 1.2 On 23 June 2016 the United Kingdom (“UK”) voted to leave the EU. The Government intends to start the process of negotiating the withdrawal of the UK from the EU by the end of March 2017. Under Article 50(3) of the Treaty on European Union (“TEU”) the treaties shall cease to apply to the UK from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification unless the European Council, in agreement with the UK, unanimously agrees to extend this period. 1.3 In this briefing note we consider the position if the UK is not be able to negotiate access to the EU Single Market and will instead rely on the rules of the WTO in order to trade with other EU/EEA Member States following withdrawal from the EU. The UK Government has announced that it will seek to negotiate a preferential trade agreement with the EU, although as the shape of such an agreement is unclear, and might not be negotiated within the two years after notification under Article 50(2) TEU it is not considered here. Neither are possible transitional arrangements as the contents of any such measures are at present uncertain. The Current Position 1.4 Currently the UK is a full Member of the EU and is therefore a constituent part of the EU Single Market. This is characterised by the so‑called four freedoms: free movement of workers, freedom of establishment, freedom to provide services and free movement of capital. Exceptions to these freedoms are strictly limited. The provisions of the Treaty on the Functioning of the European Union (“TFEU”) conferring these rights have direct effect and can therefore be directly relied on by individuals and firms. 1.5 These Treaty rights are supplemented by sectoral directives and regulations providing a legal framework for the exercise of these rights. For example, in the area of banking (which includes deposit taking and lending) the Capital Requirements Directive and Regulation impose prudential requirements. The Markets in Financial Instruments Directive (“MiFID”) imposes prudential requirements for investment firms, and Solvency
II for insurers. Insurance mediation is governed by the Insurance Mediation Directive (“IMD”). The European Market Infrastructure Regulation (“EMIR”) regulates clearing houses and trade repositories in respect of over‑the‑counter derivatives trading. Common to all these directives and regulations is the provision of rights of mutual recognition under which a firm authorised and regulated in one EU/EEA Member State: –– may establish a branch in another Member State in reliance on their home state authorisation; and/or –– provide services on a cross‑border basis, without the need for further authorisation from the State where they establish a branch or provide services. This is referred to as “passporting”. 1.6 Following withdrawal from the EU, if UK businesses are no longer able to rely on passporting rights, how would the UK’s financial services industry be able to provide services in EU Member States? It should be noted that this question only arises in the case of services that are cross‑border in nature. This will be the case where the service is provided from an EU branch of a UK service provider, or if services are provided cross‑border from a UK firm to a customer in the EU. Where the service is provided in the UK because the EU customer comes to the service provider there will be no cross‑border element and the UK financial services provider need only comply with UK law and regulation. The Commission has taken the view that “location” of a service should be determined by reference to the location of the “characteristic performance” of the service1. However, although applied by the UK, not all EEA states follow this interpretation2; hence the need to take legal advice as to where the relevant local regulator in the Member State where the counterparty is located considers the service as being provided. The “location” of where a service is provided would be brought into much greater focus in a post‑passporting regime as it would delimit the regulatory jurisdiction of UK and EU financial services regulators. 1 Commission Interpretative Communication: Freedom to Provide Services and the Interest of the General Good in the Second Banking Directive, 20 June 1997. 2 FCA Handbook, SUP App 3.3.8G. 2 Brexit
The General Agreement on Trade in Services 2.1 The GATS is one of the agreements constituting the global architecture for trade liberalisation following the creation of the World Trade Organization. It seeks to liberalise trade in services between WTO Member countries, but is much more limited in the degree of liberalisation achieved than the General Agreement on Tariffs and Trade (“GATT”) in respect of trade in goods. 2.2 Article I:I of GATS states that “This Agreement applies to measures by Members affecting trade in services”. GATS does not, however, define a service; instead, Article I:3(b) provides that services “include any service in any sector except services supplied in the exercise of governmental authority”. Provision of Services 2.3 The GATS identifies four modes in which services can be internationally provided: (a) from the territory of one WTO Member into the territory of another WTO Member (mode 1); (b) in the territory of one WTO Member to the service consumer of any other WTO Member (mode 2); (c) by a service supplier of one WTO Member, through commercial presence in the territory of any other WTO Member (mode 3); and (d) by a service supplier of one WTO Member, through presence of natural persons of a WTO Member in the territory of any other WTO Member (mode 4). 2.4 These will now be explained in more detail: (A) In mode 1 the service is provided on a cross‑border basis without any movement of the supplier or consumer. An example is legal advice provided over the telephone by a lawyer in London to a client in Beijing. (B) In mode 2 the recipient/consumer of the service moves to the country of the service supplier to receive/consume the service. An example is a UK national being provided hotel or restaurant services while on holiday in Switzerland, or a client travelling from Paris to London to receive investment banking advice. (C) Under mode 3 the service supplier of one WTO Member establishes a “commercial presence” in the territory of another WTO Member. An example would be a German bank establishing a branch in Paris.(D) Mode 4 is engaged where a natural person moves from one WTO Member to another WTO Member to provide the service. An example is an engineer who moves temporarily to another WTO Member to provide engineering services. Mode 4 is considered sensitive by many WTO Members because it interferes with a country’s sole control over immigration3. However, the Annex to the GATS clarifies that the GATS does not apply to measures affecting natural persons seeking access to the employment market of a WTO Member, nor to measures related to residence, citizenship or employment on a permanent basis. Measures 2.5 It seems clear that “a very broad and flexible definition” of “measures” was chosen to achieve maximal scope of application4. However, purely private measures are thought to be excluded. To be subject to the disciplines of the GATS there must be some delegation or at least encouragement by the state through incentives or disincentives5. The term covers “any measure by a Member, whether in the form of a law, regulation, rule, procedure, decision, administrative action, or any other form” (Article XXVIII, GATS). The reference to administrative action and “or any other form” appears to capture inaction (such as a deliberate omission) as well as active measures that adversely affect trade. Affecting Trade in Services 2.6 Under Article XXVIII of the GATS “‘measures by Members affecting trade in services’ include measures in respect of: 1. the purchase, payment or use of a service; 2. the access to and use of, in connection with the supply of a service, services which are required by those Members to be offered to the public generally; 3. the presence, including commercial presence, of persons of a Member for the supply of a service in the territory of another Member”. The list is indicative and other measures which are not expressly singled out may be caught. However, for a measure to affect trade in services a link must be shown between the measure and the effect. The legal test covers “not only laws and regulations which directly govern the conditions of sale or purchase but also any laws or regulations which might adversely modify conditions of competition between like domestic and imported products on the internal market”6. 2.7 In US – Gambling, the Appellate Body made clear the need to identify the legal source of the measure affecting trade and not its effects:
“We note also that, if the ‘total prohibition’ were a measure, a complaining party could fulfil its obligation to identify the ‘specific measure at issue’, pursuant to Article 6.2 of the DSU, merely by explicitly mentioning the ‘prohibition’. Yet, without knowing the precise source of the ‘prohibition’, a responding party would not be in a position to prepare adequately its defence, particularly where, as here, it is alleged that numerous federal and state laws underlie the ‘total prohibition’”.7 Most Favoured Nation 2.8 Most favoured nation treatment is one of the two non‑discrimination provisions in the GATS and prevents a WTO Member from discriminating between services and service suppliers from different WTO Members. For example, a WTO Member cannot provide a concession to one WTO Member without automatically extending the concession to the whole WTO membership. Most favoured nation treatment applies equally to concessions granted to non‑WTO Members8. 2.9 Article II of the GATS states: “1. With respect to any measure covered by this Agreement, each 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. 2. A Member may maintain a measure inconsistent with paragraph 1 provided that such a measure is listed in, and meets the conditions of, the Annex on Article II Exemptions. 3. The provisions of this Agreement shall not be so construed as to prevent any Member from conferring or according advantages to adjacent countries in order to facilitate exchanges limited to contiguous frontier zones of services that are both locally produced and consumed”. 2.10 The test for breach of Article II is the following: (i) Is the measure covered by GATS and is it affecting trade in services (see above)? (ii) Are the services and/or service supplier “like”? (iii) Does the WTO Member accord less favourable treatment than that required by Article II:1? 2.11 Article II:2 permits a WTO Member, on accession to the GATS, to submit a list of exemptions from most favoured nation treatment. This list cannot be supplemented later. The exemptions were originally intended “in principle” to apply for ten years after the entry into force of the WTO Agreements, although WTO Members are in no rush to give up their exemptions and would seek to negotiate trade concessions in return for their abolition. 2.12 In Argentina – Financial Services the Appellate Body interpreted less favourable treatment as involving the modification of the conditions of competition to the detriment of like services and service suppliers of any other WTO Member. “Likeness” has been held to subsist where “the products or services and service suppliers, respectively, are in a competitive relationship with each other”9. Schedules of Specific Commitments 2.13 Article XX.1 of the GATS provides that “Each Member shall set out in a schedule the specific commitments it undertakes under Part III of this Agreement”. It is therefore necessary for a WTO Member to schedule at least some commitments, although these may be minimal. Once scheduled, the WTO Member will enjoy all the benefits of the GATS including the obligation for other WTO Members to provide most favoured nation treatment (as discussed in paragraph 2.8). 2.14 The schedules are lists specifying to which service sectors and to which modes of supply a WTO Member chooses to apply the national treatment and market access requirements (as well as possible additional commitments). The schedules represent the services equivalent of bound tariffs under the GATT for goods: minimum commitments in respect of trade concessions. The GATS uses a positive list in which any concessions need to be positively listed to be binding. 2.15 When specifying their commitments, WTO Members are free to impose terms, limitations, conditions and qualifications. Article XX provides: “With respect to sectors where such commitments are undertaken, each Schedule shall specify: a. terms, limitations and conditions on market access; b. conditions and qualifications on national treatment; c. undertakings relating to additional commitments; d. where appropriate the time‑frame for implementation of such commitments; and e. the date of entry into force of such commitments”. 2.16 Part 1 of the schedule is called “horizontal commitments” and specifies measures that apply across all scheduled services sectors. Examples include limits on foreign direct investment, land ownership and corporate structures. As such, it enables WTO Members to introduce restrictions for all services through a single entry10. Such measures may affect particular modes of supply.2.17 Sector‑specific commitments relate to specific service sectors and modes of supply. There are three types of commitments: market access, national treatment and additional commitments. Each are important in understanding WTO Members’ schedules. The market access commitment applies where the WTO Member specifies the terms and conditions subject to which it agrees to provide other WTO Members with market access to service sectors and modes of supply. Market access applies only to the six types of restrictions set out in Article XVI of the GATS11 (see paragraph 2.24 below). The national treatment obligation according to which the WTO Member specifies the conditions and qualifications which it applies to each service sector and mode of supply. Limitations on supply can cover cases of de facto as well as de jure discrimination12. Additional Commitments. Article XVIII provides: “Members may negotiate commitments with respect to measures affecting trade in services not subject to scheduling under Articles XVI or XVII, including those regarding qualifications, standards or licensing matters. Such commitments shall be inscribed in a Member’s Schedule”. 2.18 There are four levels of commitment that may be undertaken by a WTO Member in the specific commitments part of the schedule of commitments: Full commitment – marked “none” in the Schedule of Commitments. This means that a WTO Member does not limit market access or national treatment through measures inconsistent with either market access or national treatment in a specific service sector and mode of supply. However, any conditions set out in the horizontal part of the schedule will still apply. Commitments with limitations – marked “none, except” in the Schedule of Commitments. If a WTO Member chooses to apply particular measures inconsistent with market access or national treatment it must specify these in the relevant column. No commitment – marked “unbound” in the Schedule of Commitments. This means that the WTO Member is free to apply to the service sector and mode of supply any measure inconsistent with market access or national treatment. This should only be used where a commitment in respect of a mode of supply in a service sector has been made. Where no commitments are made as regards a particular sector, the service sector should not be scheduled. Lack of technical feasibility – marked “unbound*” in the Schedule of Commitments. Where it is technically impossible to supply a specific service sector through a particular mode of supply this should be marked with an * asterisk13. 2.19 There are twelve service sectors, most of which are divided into sub‑sectors. The list of service sectors is: business services, communication services, construction and related engineering services, distribution services, educational services, environmental services, financial services, health related and social services, tourism and travel related services, recreational, cultural and sporting services, transport services and other services not included elsewhere. WTO Members are able to schedule commitments in sectors or sub‑sectors. Commitments may be made in respect of any or all of the four modes of supply (see paragraphs 2.3 and 2.4 above). National Treatment 2.20 National treatment complements most favoured nation treatment as one of the core disciplines under the GATS. Remember, however, from the preceding section that it is a qualified obligation in that WTO Members are able when preparing their schedules under Article XX to make it subject to exceptions and qualifications. It follows that, unlike Article III of the GATT, it does not apply immediately and unconditionally as its scope is determined by the commitments undertaken. Article XVII of the GATS provides: “1. In the sectors inscribed in its Schedule, and subject to any conditions and qualifications set out therein, each Member shall accord to services and service suppliers of any other Member, in respect of all measures affecting the supply of services, treatment no less favourable than that it accords to its own like services and service suppliers. 2. A Member may meet the requirement of paragraph 1 by according to services and service suppliers of any other Member, either formally identical treatment or formally different treatment to that it accords to its own like services and service suppliers. 3. Formally identical or formally different treatment shall be considered to be less favourable if it modifies the conditions of competition in favour of services or service suppliers of the Member compared to like services or service suppliers of any other Member”. 2.21 The scope of Article XVII is much narrower than the scope of the GATS. Firstly, it only applies to “the sectors inscribed in [the country’s] Schedule, and subject to any conditions and qualifications set out therein”. Secondly, it only applies to measures “affecting the supply of services”. As there is no specific definition of “measures” in Article XVII, the definition in Article XXVIII of the GATS (discussed in paragraph 2.5 above) applies. 2.22 In Argentina – Financial Services the Appellate Body rejected the decision of the panel to have regard to the regulatory aspects in considering whether a measure afforded less favourable treatment. The Appellate Body reiterated: “the fact that a provision has a potentially broad scope of application is not unique to Article II:1 or Article XVII of the GATS. As Panama rightly points out, Article III:4 of the GATT 1994 also has an extensive scope of application, covering ‘all laws, regulations and requirements affecting [the] internal sale, offering for sale, purchase, transportation, distribution or use’ of the products at issue. The word ‘affecting’ in both Article III:4of the GATT 1994 and Article I:1 of the GATS has been interpreted to mean that these provisions have a ‘broad scope of application’. The broad scope of Article III:4 of the GATT 1994 is also reflected in the fact that it covers measures affecting the ‘internal sale, offering for sale, purchase, transportation, distribution, or use’ of products, thereby including measures affecting not only products themselves but also producers or suppliers of goods. Nevertheless, the broad scope of Article III:4 of the GATT 1994 has not been perceived as a reason for requiring an analysis as to the ‘regulatory aspects’ relating to the products. Rather, pursuant to the legal standard for ‘treatment no less favourable’ under Article III:4 of the GATT 1994, the fact that a measure modifies the conditions of competition to the detriment of imported products is, in itself, sufficient for a finding that the measure confers ‘less favourable treatment’”14. Likeness 2.23 The GATS jurisprudence is less developed in the area of likeness than is the case for the GATT. In China – Electronic Payment Services the panel focussed on the conditions of competition. This analysis was followed by the Appellate Body in Argentina – Financial Services where it was held that the same test applied to “likeness” under Article XVII and Article II (most favoured nation). Market Access 2.24 Market access is governed by Article XVI of the GATS. Article XVI:2 provides: “In sectors where market‑access commitments are undertaken, the measures which a Member shall not maintain or adopt either on the basis of a regional subdivision or on the basis of its entire territory, unless otherwise specified in its Schedule, are defined as: (a) limitations on the number of service suppliers whether in the form of numerical quotas, monopolies, exclusive service suppliers or the requirements of an economic needs test; (b) limitations on the total value of service transactions or assets in the form of numerical quotas or the requirement of an economic needs test; (c) limitations on the total number of service operations or on the total quantity of service output expressed in terms of designated numerical units in the form of quotas or the requirement of an economic needs test; (d) limitations on the total number of natural persons that may be employed in a particular service sector or that a service supplier may employ and who are necessary for, and directly related to, the supply of a specific service in the form of numerical quotas or the requirement of an economic needs test;measures which restrict or require specific types of legal entity or joint venture through which a service supplier may supply a service; and (f) limitations on the participation of foreign capital in terms of maximum percentage limit on foreign shareholding or the total value of individual or aggregate foreign investment”. 2.25 The effect of Article XVI:1 is to turn the schedules of commitments into a source of rights for WTO Members. As the article refers to treatment no less favourable than that provided for under the terms, limitations and conditions agreed and specified in its Schedule it is clear that the limitations and conditions imposed in the relevant schedule cannot be disregarded or overridden. Article XVI applies to discriminatory and non‑discriminatory measures. The reference to “no less favourable treatment” derives from the GATT where a competitive opportunities test is applied. Discrimination will be found, accordingly, if the competitive opportunities of the foreign supplier are adversely affected. Economic Integration Agreements 2.26 The GATS contains an exemption from most favoured nation commitments in respect of economic integration agreements. The requirements are set out in Article V of the GATS. Article V:1 provides: “This Agreement shall not prevent any of its Members from being a party to or entering into an agreement liberalizing trade in services between or among the parties to such an agreement, provided that such an agreement: (a) has substantial sectoral coverage, and (b) provides for the absence or elimination of substantially all discrimination, in the sense of Article XVII, between or among the parties, in the sectors covered under subparagraph (a), through: (i) elimination of existing discriminatory measures, and/or (ii) prohibition of new or more discriminatory measures, either at the entry into force of that agreement or on the basis of a reasonable time‑frame, except for measures permitted under Articles XI, XII, XIV and XIV bis”. 2.27 It is clear that the GATS would not allow an economic integration agreement that was restricted to a single services sector (such as financial services). The UK would therefore be precluded under WTO rules from negotiating a preferential trade agreement with the EU that only applied to certain classes of services as opposed to services generally. Footnote 1 states that the requirement for substantial sectoral coverage “is understood in terms of number of sectors, volume of trade affected and modes of supply. In order to meetthis condition, agreements should not provide for the a priori exclusion of any mode of supply”. It follows that the number of sectors, volume of trade and modes of supply are all relevant to the question whether the economic integration agreement complies with Article V, although the degree of liberalisation of the individual modes of supply is unclear. For the position on mutual recognition agreements see paragraphs 2.35 to 2.39 below. Domestic Regulation 2.28 Domestic regulation is an important tool for serving public policies as well as protecting weaker parties such as consumers. At the same time it may serve as a significant barrier to international trade. It is governed by GATS Article VI. This provides: “1. In sectors where specific commitments are undertaken, each Member shall ensure that all measures of general application affecting trade in services are administered in a reasonable, objective and impartial manner. 2. (a) Each Member shall maintain or institute as soon as practicable judicial, arbitral or administrative tribunals or procedures which provide, at the request of an affected service supplier, for the prompt review of, and where justified, appropriate remedies for, administrative decisions affecting trade in services. Where such procedures are not independent of the agency entrusted with the administrative decision concerned, the Member shall ensure that the procedures in fact provide for an objective and impartial review. (b) The provisions of subparagraph (a) shall not be construed to require a Member to institute such tribunals or procedures where this would be inconsistent with its constitutional structure or the nature of its legal system. 3. Where authorization is required for the supply of a service on which a specific commitment has been made, the competent authorities of a Member shall, within a reasonable period of time after the submission of an application considered complete under domestic laws and regulations, inform the applicant of the decision concerning the application. At the request of the applicant, the competent authorities of the Member shall provide, without undue delay, information concerning the status of the application. 4. With a view to ensuring that measures relating to qualification requirements and procedures, technical standards and licensing requirements do not constitute unnecessary barriers to trade in services, the Council for Trade in Services shall, through appropriate bodies it may establish, develop any necessary disciplines. Such disciplines shall aim to ensure that such requirements are, inter alia: (a) based on objective and transparent criteria, such as competence and the ability to supply the service; (b) not more burdensome than necessary to ensure the quality of the service;
director, at least one auditor and at least one half of the promoters and Members of the board of directors and supervisory board shall have their place of residence in the EEA unless an exemption is obtained. Foreign insurers cannot get a licence as a branch to carry on statutory social insurance (statutory pension insurance, statutory accident insurance). Sweden requires a founder of an insurance company to be a natural person resident in the EEA or a legal entity incorporated there. Other restrictions on market access and national treatment exist. 2.60 Presence of natural persons is unbound except as set out in the horizontal section and is subject to additional requirements in Greece. The horizontal section states that access is unbound except for measures concerning the entry into and temporary stay within a Member State of listed categories of natural persons without requiring compliance with an economic needs test except where indicated for a specific subsector. The Schedule states that all other requirements of EU and Member States’ laws, regulations and requirements regarding entry, stay and work shall continue to apply. The service contract shall comply with the laws, regulations and requirements of the EU and the Member State where the service contract is executed. 2.61 In respect of banking and other financial services, Belgium requires establishment in Belgium for the provision of investment advisory services. Ireland generally requires authorisation (in Ireland or another Member State) for the provision of investment services and investment advice which requires that the entity be incorporated or be a partnership or a sole trader, in each case with a head/registered office in Ireland. Authorisation may not be required where a third country service provider has no commercial presence in Ireland and the service is not provided to private individuals. There are no limits on national treatment in respect of mode 2 (consumption abroad). However, several Member States place restrictions on market access. Greece requires establishment for the provision of custodial and depository services involving the administration of interest and principal payments due on securities issued in Greece. The UK requires sterling issues, including privately led issues, to be lead managed only by a firm established in the EEA. 2.62 Under mode 3 (commercial presence) all Member States require the establishment of a specialised management company to perform the activities of management of unit trusts and investment companies, and only firms having their registered office in the EU can act as depositories of the assets of investment funds. In Belgium any public bid to acquire Belgian securities made by or on behalf of a person, company or institution outside the jurisdiction of one the EU Member States shall be submitted to the authorisation of the Minister of Finance. In Spain, financial institutions may engage in trading in securities listed on an official stock exchange or in the government securities market only through securities firms incorporated in Spain. In Finland at least one half of the founders, the members of the board of directors, the supervisory board and the delegates, the managing director, the holder of the procuration and the person entitled to sign in the name of a bank shall have their place of residence in the EEA unless the Ministry of Finance grants an exemption. The broker on a derivative exchange shall have his place of residence in the EEA, although an exemption can be granted under conditions set by the Ministry of Finance.
In Ireland, to become a member of a stock exchange an entity must either be authorised in Ireland (which requires that it be incorporated or is a partnership with head/registered office in Ireland) or be authorised in another EU Member State. The provision of investment services requires either authorisation in Ireland, which normally requires that the entity be incorporated or be a partnership or sole trader, in each case with a head/registered office in Ireland or another EU Member State. The supervisory authority may also authorise branches of third country entities. In the UK inter‑dealer brokers dealing in Government debt are required to be established in the EEA and separately capitalised. More examples could be given. 2.64 The presence of natural persons is unbound save as indicated in the horizontal section and is subject to specific conditions in Finland and Greece. 2.65 The EU has undertaken additional commitments under the GATS in respect of insurance and other financial services. In respect of insurance, Member States will make their best endeavours to consider within six months complete applications for licences to conduct direct insurance underwriting business, through the establishment in a Member State of a subsidiary in accordance with the legislation of that Member State, by an undertaking governed by the laws of a third country. In cases where such applications are refused, the Member State authority will make its best endeavours to notify the undertaking in question and give the reasons for the refusal of the application. In respect of other financial services in application of the relevant EC Directives, Member States will make their best endeavours to consider within 12 months complete applications for licences to conduct banking activities, through the establishment in a Member State of a subsidiary in accordance with the legislation of that Member State, by an undertaking governed by the laws of a third country. In cases where such applications are refused, the Member State will make its best endeavours to notify the undertaking in question and give the reasons for the refusal of the application. Member States will make their best endeavours to consider within 6 months complete applications for licences to conduct investment services in the securities field, as defined in the Investment Services Directive [now the Markets in Financial Instruments Directive or MiFID)], through the establishment in a Member State of a subsidiary in accordance with the legislation of that Member State, by an undertaking governed by the laws of a third country. In cases where such applications are refused, the Member State will make its best endeavours to notify the undertaking in question and give the reasons for the refusal of the application. 2.66 It will be seen that the degree of liberalisation effected by the GATS is considerably less than that available under the Single Market Directives. There is no right to establish a branch, and where a Member State allows a third country branch it will be subject to authorisation requirements. Mode 1 (cross‑border) services is limited to certain kinds of large risk insurance and banking activities, but is subject to limitations on market access and national treatment in many Member States. Consumption abroad is not subject to restrictions on national treatment but is subject to national restrictions on market access in certain Member States. The presence of natural persons is heavily caveated and subject to national immigration laws. 22 Brexit