8:27 AM Jun 19, 1995

FINANCIAL SERVICES OFFERS COVER 90 PERCENT OF TRADE

Geneva 19 June (Chakravarthi Raghavan) -- The offers on financial services -- though already made and put in the schedules of countries at Marrakesh, and those that have now been improved -- cover nearly 90 percent of the significant markets involved, trade officials said Monday.

On Friday, the WTO's press officer, David Woods, in a PR exercise briefing about his boss, Renato Ruggiero's visit to Washington and New York, had said that some 23 countries had tabled revised and improved offers and that the major concern was to ensure the sector was not taken out of the WTO multilateral process and placed on a discriminatory liberalisation tract.

The Committee on financial services is due to meet informally on 26 June to undertake an evaluation, with a final meeting set for 29 June. The negotiations are to end on 30 June.

Trade officials Monday tried to play down the complaints about inadequate offers and liberalisations in this sector and noted that at Marrakesh some 74 countries had filed their schedules of offers, and since then another six more.

In the continuing negotiations, 17 countries had now improved their offers and another ten more had indicated they would be putting over the next couple of days their own improved offers.

In the negotiations on movement of natural persons, there have not been any new offers or improvements from the significant countries, but the EU and Canada are among those talking about their intentions. While India, Pakistan and a few countries have said that the two negotiations were linked, there was no danger that the financial services negotiations would be blocked, trade officials said.

At best, these countries might not improve their existing offers.

In any event, trade officials said, one major sector in India to which others had been looking forward for entry into that market was the insurance sector. But India had made it clear that it would not politically feasible to open this sector, now reserved for its public sector, to foreign enterprises.

The trade officials said Monday that if Japan, which in December 1993 had withdrawn some of its offers (because of the US stand of reserving its position and threatening to enter MFN reservations, if more liberalisation was not achieved), restores them and if the US does not go the non-MFN route, the offers on the table cover nearly 90 percent of the world market in this area.

Also, they note this is the final story, and new round of negotiations are to be launched within five years.

While some of the complaints -- that the key developing countries, including the Asean, had in their 'offers' only put in commitments for a lower level of commitments than currently in their national policies -- may be correct, trade officials suggested their effect should not be exaggerated.

Even when a country -- that now nationally provides for a 60-70 percent foreign participation in the banking or other financial services sector -- agrees only to a WTO/GATS commitment in its schedule of 49%, it is still a WTO multilateral commitment and on an MFN basis and that ensures security and safeguards, the officials said.

And countries who are committed to economic liberalisation, may nevertheless want to progress with caution, and not commit themselves in the WTO thus tying their hands in terms of modifications in the future if their situations warrant.

Even if they are envisaging a future policy of encouraging "divestments" by the present more than 49 percent shares of foreign equity holdings, the binding at 49% means that they would not ask for greater dilution, whereas their non-binding or an MFN exemption footnote (following the US example) would mean they could in future go do down to zero foreign holding.

The officials noted that in December 1993, when the negotiations were agreed to be continued, and the US revised its own offers and reserved its position on MFN, and Japan too took back some of the offers on the table, the EU Commission resisted pressures from its members and retained the offers on the table.

If the US were now to enter an MFN exemption, and Japan does not restore the offers it had made, and agree to multilateralise the agreements it had made with the US, then there would be pressures on the EU commission from its member-states to take back its own offers and/or enter an MFN exemption.

While the focus currently is on the key developing countries in Asia and Latin America to improve their offers and increase liberalisation, the real danger would be if the US files MFN exemptions, with Japan and EU doing same. If this happens, it would be quite some time before another effort at multilateral financial services liberalisation would be feasible. Since the December 1993, Japan's taking away some of its offers on the table, the US and Japan have reached bilateral agreements on the opening up of Japan's banking and insurance and other financial services sectors. Japan has said that it would implement them on an most-favoured-nation basis, but so far has been reluctant to incorporate them in its WTO schedules.

Some trade officials explain that the Japan-US agreement is quite detailed and bulky, containing details for e.g. about the procedures to be followed before any financial services provider in Japan introduces a new derivative, and that such procedures and safeguards might be difficult of incorporation into Japan's WTO schedule.

However, if the "details" are "prudential regulations", there is no need to enter them in any schedule, and the countries concerned are even now enabled to put in prudential regulations. But these could however be challenged before the WTO on grounds of its being protectionist, rather than prudential instruments.

Trade officials tend to play down concerns about open-ended commitments on financial services liberalisation, in some emerging markets and developing countries, arising out of events like the Barings collapse in Singapore or the Mexican financial services liberalisation outcome.

These concerns, they said, have not figured in the arguments at the WTO on these issues, they say.

However, in some of the capitals, both finance officials, and even more the political leadership, have expressed some concerns arising from these questions -- not accepting for example the view that a Barings collapse was essentially the outcome of a "rogue trader's" activities or some specific deficiencies of Mexico.

US and EU officials like the EC's Leon Brittan, have been publicly stressing the important benefits of financial services liberalisation in terms of the benefits it brings to support exports of their goods, other services and investments, and in some ideological terms about the benefits that liberalisation and competition brings to liberalising countries.

But trade officials echoing similar views -- while speaking about the dangers of the US and major industrialized countries taking a non-MFN route, thus closing out opportunities for the developing countries to the US/OECD markets -- are unable to specify how exactly the countries concerned, who could not in the near future hope to invest and compete in these areas in the industrialized countries, would lose out.

While they point to the IMF, World Bank and other neo-classicial ideological studies, there is quite a pile of other studies which, while accepting the need for competition and liberalised trade, nevertheless argue that financial services liberalisation has to be the last step in the process, and one that needs to be approached by countries with shallow domestic markets with great care.