"banking sector of the UAE has expanded its scope by representing a cross-section of foreignbanks in the nation.The market access commitment being one of the specific commitment under the GATS does notaffect the rights of the WTO members to regulate the services nor do they oblige thegovernments to permit unlimited numbers of services suppliers into the market. Thiscommitment only limits on the members suppliers to maintain to equilibrium of the market andreduce competition to the domestic banks; the total value transactions; the total number servicesoperations; the total number of persons to be employed and the type of services permitted. The variety of limitations/horizontal commitments as discussed in the Annex 5 that sets forth theprinciples on the regulatory framework for the banks under the market access include that: undercommercial presence mode of supply, the limitation on market access in the UAE based ondifferent mode of supply include: no limitations for establishing any representative offices by theforeign banks; the foreign banks are liberated for obtaining licenses for operating their bank'snew branches ; however, these banks have the restriction to limit their foreign equity to 49% andalso they do not have the option to accept deposits and other repayable funds from the nation'spublic. Also, there are no restrictions imposed on the foreign banks on all types of lendingincluding consumer credit, mortgage credit, commercial transaction factoring and financing,financial leasing, the guarantees and commitments when the modes of supply is cross border.However, the foreign banks are liberal to engage in guarantees and commitment supplies;financial leasing; and all types of lending among other services, if the mode of supply is in the60 presence of natural person.60„Schedule of specific commitments for trade in services (GCC members), pg no. 74-98 NATIONAL TREATMENT PRINCIPLE - GOVERNMENT OJECTIVES, OBLIGATIONSSPECIFIED FOR THE UAE BANKING SECTOR, REGULATIONS AND NATIONALPOLICY - EXTENT TO WHICH IT HAS BEEN IMPLEMENTEDThe principle of national treatment is dealt under Article III of the GATT and Article XVIII ofthe GATS. While the foreign banks have been allowed to open their branches in UAE, thenumber of branches that it may open has been limited to a maximum of eight branches across theUAE. Their subsidiaries on the other hand are not allowed to enter the UAE banking arena.While the national treatment policy extends to paid-up capital requirements, in matters oftaxation of profits, foreign banks are subject to a 20% tax on profits. This is not so with respectto national banks.The principle of national treatment prohibits discrimination between domestically producedgoods and the imported goods in regards to certain governmental regulations or internal taxation.The application of the national treatment principle in the GATS differs with its treatment underGATT because the principle under GATS is not applicable to all the GATS measures impactingtrade in services. Under the GATS the principle is applicable specifically only to those WTOmembers who have explicitly committed in their schedule to grant this treatment to specificservice sectors.According to the National treatment commitment under the GATS Article XVII, conditionsdemanding the foreign banks to use the local trained professionals and the transfer the technicalexpertise to the local industries because under an unqualified national treatment commitment thatthe foreign supplies will be treated as same as the nationals, however, there is no restrictions onthe host country on number or a variety of restrictions that may lay down under the nationaltreatment commitment that is the banks have the freedom to apply conditions while allowing foreigners to establish their industries /banks in their country. For example, a host country mayrequire the foreign banks established in the country to also establish branches in every village.National treatment commitments can be termed as simple conditions that are made in favor ofthe nationals and which discriminate against foreign suppliers pursuant to Article XIX thedeveloping countries have the opportunity to attach any specific market opening commitmentconditions which have been specifically designed to increase chances of their participation in61 service trade.Foreign banks in the UAE to open branches and provide services there must abide by thenational treatment obligation of the UAE and since 2010 are granted under national treatmentonly a paid-up capital but not with regards to taxation of profits. These banks are subject to a62 20% of tax on their profits and this rule is not applicable to the national banks. The variety of limitations/horizontal commitments as discussed in the Annex 5 that sets forth theprinciples on the regulatory framework for the banks under the national treatment in the UAEbased on different modes of supply include, among other matters: under the modes of supplysuch as cross-border, consumption abroad and commercial presence for bank shares, the foreignbanks in UAE does not have any form of limitation in accepting deposits or any form of otherpayable funds from the public of the nation, financial leasing and also for and types of lendingsuch as the mortgage and consumer credits, financial and factoring of the commercialtransactions. However, with the mode of supply requiring presence of the natural presence theforeign banks in the UAE have the freedom to accept or any form of financial repayable fundsfrom the public, guarantees and commitments and also all types of lending such as the mortgage61“GATS – Fact and Fiction”; http://www.wto.org 62“Trade Policy Review Body,” World Trade Organization, WT/TPR/S/262/Rev.1, 2012; http://www.economy.gov.ae/english/UAE-Office- WTO/UAE-and-WTO/Documents/TRADE%20POLICY%20REVIEW%20Report%20by%20Secretariat%202012.pdf and consumer credits, financial and factoring of the commercial transactions except as provided63 for in the horizontal section.ARGUMENTS IN FAVOUR AND OPPOSING LIBERALIZATION OF FINANCIAL SECTORFrom the above study it can be observed that liberalization of the financial sector has bought adrastic change in the economy of the UAE. However, there have been arguments both in favorand opposing the liberalization of the banking sector. The current section discusses thesearguments and a brief idea of these arguments will help in structuring recommendations foreffective working of liberalization of banking sector. As discussed earlier banking sector is thebackbone of the UAE financial sector and it can be noted that many argument were in favor of as64 well as against the presence of foreign banks in the economy of the nation.ARGUMENTS IN FAVOUR OF LIBERALIZATIONAmong other matters, arguments in favor of liberalization of financial sector put forwardinclude:? Increase in the diversity and efficiency of the financial services,? Reduction in profit-taking and overhead expenses by domestic banks due to theincreased competition by the foreign banks,? Positive effect of the foreign bank entry, such as introducing new banking services,effective customer services, use of modern and more efficient banking technologies,and improving the management of the domestic banks,? Improvement in the banking regulations and supervision with the entry of newfinancial services and new financial service providers,63“SCHEDULE OF SPECIFIC COMMITMENTS FOR TRADE IN SERVICES (GCC MEMBER STATES),” Annex 5;http://www.economy.gov.ae/english/Ministry/MinistrySectors/ForeignTradeSector/Documents/annex/annex%205%20trade%20in%20services% 20commitments%20-%20gcc.pdf 64For an overview see for instance G. Bies, Financial liberalisation in Latin America, in Developing countries and GATS, Ed. C. Jepma, E.Kamphuis, Universtiy of Groningen (EC 134), 2003, p. 57-65 ? Design the management of the domestic banks to meet the competition of the foreignbanks,? Foreign banks training that results in more experienced personnel in the country?sfinancial sector,? Stimulation of the domestic investments in the host country?s with the presence of theforeign banks, and? Entries of foreign banks lead to better lending terms except for the larger firms.ARGUMENTS AGAINST LIBERALIZATIONAmong other matters, arguments against liberalization of financial sector put forward include:? Domestic banks failure to cope with the increasing competition by the foreign banks,which may result in close down of the domestic banks and can cause disruption andincrease the political concerns about the increased control of the financial markets by theforeign banks,? Than the domestic banks foreign banks receive higher interest of margin,? The existence of foreign banks will not provide any additional credit during the downturnin the economy of the host country,? Foreign banks lending may impact the business economy of the host country as theyprovide funding only to larger and often foreign owned firms, and lend less to the smalland poorer consumers, and? Changes in the economy of the foreign bank?s nation, may impact the functionality of theforeign bank in the host nation. "