7:00 AM May 3, 1995

FINANCIAL LIBERALISATION ISSUE ON RUGGIERO AGENDA

Geneva 3 May (Chakravarthi Raghavan) -- The new head of the World Trade Organization (WTO), Renato Ruggiero is soon setting out on a trip to key Asian countries where he will be pushing for liberalization of financial services and conclusion of WTO multilateral negotiations on this by 30 June.

This 'agenda' and 'priority' were set out Wednesday by Ruggiero at his first press conference at the WTO headquarters as the head of the WTO. He assumed office on Monday, though he has been at the WTO headquarters for a few weeks acquainting himself with the staff and the internal processes.

Both before taking over formally, and since then, Ruggiero has been giving a series of press interviews and statements -- more or less repeating his views.

Apart from the emphasis on financial services liberalisation, two other items on his short-term agenda, as spelt out by him, is to bring about greater transparency -- by the WTO providing more information to the media -- and improving the 'efficiency' of the organization by pushing for a 30% increase to compensate them for what he claimed was an erosion in their earnings.

Since the WTO/GATT staff conditions are same as that of the UN system, the Ruggiero remark appears to be an endorsement of the staff attempts to get their emoluments and other conditions equated to those of the Bretton Woods Institutions, who get 25-30 percent more for the same jobs as within the UN system. This was turned down by the WTO members in the preparatory committee, but the staff have renewed the campaign.

The extra costs, Ruggiero said, could easily be met by countries if they just reduce one of their members staffing the Budget Committee of the WTO and paying that savings to the WTO budget.

After the conclusion of the financial services negotiations, Ruggiero wanted the organization to start the preparatory process for the first Ministerial meeting in Singapore (set for end 1996) where he expected a package to be evolved in terms of faster implementation of some of the Uruguay Round agreements as well as the new agenda out of those mentioned in the Marrakesh laundry list.

At the Marrakesh Ministerial meeting that wound up the Uruguay Round, no agreement could be reached on a future work programme, and the Uruguay Minister who chaired that meeting mentioned all of them in his final concluding statement and said these could be discussed in the WTO Preparatory Committee in terms of a future work programme.

That Preparatory Committee threw the issue on to the WTO General Council.

Most of Ruggiero's remarks related to the financial services issue.

But judged by his various remarks, in his trip towards the end of the month, that will take him to Singapore, and then to a Cairns Group meeting at Manila, and from there to Bangkok and New Delhi, Ruggiero is clearly going to push this issue (and persuade his hosts to do more than they have done in terms of their 'offers') in a carrot-and-stick approach: liberalisation of financial services is good for them and their 'competitivity', but if they don't and the WTO's negotiations on financial services end on 30 June, without significant market access openings (from them) and a time-table for full liberalisation, there will be liberalisation among a few (OECD) countries on a discriminatory basis.

This last has been the primary threat being held out by the United States since November 1993 in its efforts to open up the leading Third World economies to the US financial services enterprises -- banking, financial trading (including the derivatives industry), insurance and the like.

The negotiations on trade in financial services, within the framework of the WTO's General Agreement on Trade in Services (GATS), was continued at Marrakesh.

Along with negotiations on movement of natural persons, as a mode of delivery for services, the continued financial services negotiations arose out of the last minute US position (in October-November 1993) that without significant market access openings by the major developing countries and a time-table to achieve full liberalisation, the US would enter most-favoured-nation reservations, agreeing only to existing market access under MFN conditions, and full liberalisation only to those who meet US conditions.

At that time, this resulted in a threat by some developing countries -- who under the GATS are entitled to liberalise less than the industrial countries, and according to their pace, development needs and situations -- that they too would put similar MFN reservations.

The US since then has been using bilateral pressures on the Asean countries, and countries like India, asking them to improve their 'offers' on the table and set out a time-table (the US Assistant Treasury Secretary on a visit to Geneva in March, spoke of a five-year time table) to achieve full financial services liberalisation.

Though the US has been pushing this still, since the onset of the Mexican crisis, there has been considerable rethinking among even the socalled 'mainstream economists' about the wisdom of developing countries premature liberalising their financial services sector.

Ruggiero though spoke of the benefits to the developing countries by having access to these financial services from the service-providers from the North.

An insight into his thinking perhaps came when he cited the example of Mexico as a country that had benefited from the financial services liberalisation and how through liberalisation Mexico had made it into the ranks of the Organization of Economic Cooperation for Development (OECD) and thus that this was the path for other developing countries who wish to become industrial countries!

Ruggiero acknowledged that the Mexican economy had been undergoing some difficulties in the aftermath of the 'peso crisis', but suggested that the crisis had been resolved, that Mexico had recovered from its trade deficit and that the peso itself had also undergone some appreciation. There were still difficulties ahead, but he was sure these would soon be overcome.

While this is also the official view out of Mexico, a report by the Washington Post (in the International Herald Tribune of 2 May) that the worst part of the crisis (for the people of Mexico) may still be in the horizon, and that the "rosy scenario" that the government paints of monthly trade surpluses, reduced current accounts deficit and improved stock market performance, had to be seen in the context of an increasingly bleak domestic picture: steeply rising unemployment, 40-50% annual inflation (compared to the pre-crisis six percent), mounting street crime and acts of civil disobedience.

A correspondent suggested that Ruggiero was really pushing the American agenda on financial services and that if he had read some of the material published even in the western media -- other than the press clippings that the WTO press office produces every day for WTO diplomats and the secretariat -- he would have found a very different picture about Mexico and considerable amount of rethinking among many development economists on the wisdom of premature liberalisation of financial sectors by developing countries.

Ruggiero brushed these aside and said financial services negotiations was a Marrakesh agenda.

Instead of the issue of financial liberalisation raised by the question, he spoke generally of trade liberalization being of benefit to the developing world and that only through trade liberalization could the situation of developing countries be improved. There might have been some initial over-optimism in Mexico, he said, but that the situation is improving and "we have to stick to liberalization".

Ruggiero did not spell out at his press conference the areas where he wanted accelerated implementation of the Uruguay Round accords, but in an interview to the Financial Times recently, he had suggested the implementation period being reduced to five years for agriculture, textiles and the TRIPs agreement -- which gives 5 years for compliance to developing countries and an additional five years for those with only process patents to extend it to product patents.

The partial liberalisation of agriculture by the industrial countries is to be achieved in six years, with the review process for further reform to start by 2000.

In textiles and clothing the removal of discriminatory restrictions against exports from the developing world and the end to the Multifibre Agreement is set for 31 December 2005.

The US has been pushing what it considers to be advanced developing countries to comply with the TRIPs ahead of schedule. It is asking this from Singapore, and got the Argentine President o veto a Congressional bill that provided for an 8-year period.

In other comments, Ruggiero repeated his recent press comments about bringing China in -- though it was a difficult question of when and how etc -- and also Russia and other countries knocking on the doors of the WTO.

Chinese negotiators are expected here next week for renewed informal discussions and negotiations on China's entry into the WTO.

On the WTO dispute settlement and the US (S.301 statements and threats), Ruggiero did not find any reason to think that the US would not be abiding by the system which they were committed to uphold.

As for the Japan-US autoparts dispute, he hoped that it would be settled bilaterally, in this week's Vancouver meeting between the two Trade Ministers. But if not, it could be taken up in the WTO's dispute settlement system and "it won't be a tragedy if this happens."

He also hoped that the weekend meeting of trade ministers of the Quad (US, EU, Japan and Canada) would bring out a resounding endorsement of the WTO and for the implementation of the Uruguay Round agreements and conclusion of the financial services negotiations.

He also referred to the exchange rate turmoil and spoke of need for coherence between trade, money and finance systems through coordination between the WTO and IMF and World Bank.