8:32 AM Apr 10, 1997

FINANCIAL SERVICES TALKS RESUME

Geneva 10 Apr (Chakravarthi Raghavan) -- Negotiations for liberalisation of financial services resumed here this week, with participants working to a 12 December deadline.

The interim agreement on financial services, with participation of 43 countries (including the EU's 15 member-states) concluded in July 1995, but with the United States entering at the last minute MFN exemption, protecting only the existing access of existing foreign participants to the US market, and making any other liberalisation subject to reciprocal bilateral arrangements.

This would have broken up the accord, but to provide another chance, the interim agreement specified that participants would be free to revise their offers (upwards or downwards) and including on most-favoured-nation and national treatment commitments by 31 December 1997.

The chairman of the Committee on Trade in Financial Services, Mr. Yoshio Okubo of Japan's Finance Ministry, said after the first meeting of the committee that he felt encouraged, and that the comments and atmosphere was "constructive".

He explained his feeling of 'encouragement' and 'constructive' atmosphere as based on references in speeches of members to the successful Singapore Ministerial Conference of the WTO, to the conclusion of the Information Technology Products accord and the liberalisation of basic telecommunication services.

In a message to the committee, the WTO head, Renato Ruggiero spoke of the negotiations dealing with a sector which was an essential part of the infrastructure of the world economy and of all national economies, and a sector where efficiency or lack of it affects the success of every other enterprise and welfare of every citizen.

Ruggiero suggested that given the pace of reform and deregulation of financial markets it should be possible to go even further than the high level of liberalisation commitments in the interim accord and an agreement, solidly based on MFN principle could be evolved.

But these upbeat views about merits of liberalisation of financial services by all countries, and the neo-mercantalist pressures from the US and EU on developing countries liberalising their markets fast, comes at a time when a careful reading of the official pronouncements of the International Monetary Fund and IMF staff papers suggest some second thoughts in that institution, and emergence of slight cautionary notes.

The recently published (by UNCTAD) research papers for the Group of 24 (developing country group at the Fund/Bank institutions) also show finance officials of these countries showing some caution over liberalisation of financial services and concern over the likely consequences for the real economy.

Perhaps also relevant is the concern of Interpol, in its internal documents, showing that financial liberalisation and deregulation have made it easier for criminals to launder money - whether it be proceeds of drug trafficking or other criminal activities.

Trade officials suggested that these could be tackled by "prudential regulations" of countries. However, the GATS agreement on prudential regulations. GATS (Art 2. of the annex on financial services) enables countries to take measures for prudential reasons, "including for protection of investors,. depositors, policy holders or persons to whom a fiduciary duty is owed by a financial service supplier or to ensure integrity and stability of the financial system". While the word "including" implied other purposes could be brought into the "prudential reasons" category (subject to views of panels and appellate bodies in disputes), trade officials seem non-plussed by suggestions that international trade rules forcing liberalisation and deregulation should itself deal with international crimes like money-laundering.

These should be dealt with at the IMF or Basel Committee on Bank Supervision, one official suggested, while another thought that the US could enact laws. This implied that the WTO could not deal with it, but the US (as one of the principal targets of drug trafficking) should act on its and other nations behalf.