12:20 PM Jul 19, 1995

EU SEEKS JAPAN, KOREA SUPPORT ON FINANCE DEAL

Geneva 18 July (Chakravarthi Raghavan) -- The EU Commission, armed with a backing from its Council of Ministers for an interim WTO financial services accord to run till December 1997, was pressing Japan and South Korea to agree to its proposal and schedule their best offers on the table for an interim accord on MFN basis despite the US standing out.

Reports from Brussels quoted the EU Commission officials as saying that a multilateral deal could still be struck without the US, but only if Japan, South Korea and other Asian countries as well as Latin American nations would join such an agreement.

While the EU Commission was projecting its proposal in various ways, but generally as one intended to "save" the WTO multilateral system, unattributed remarks citing EU trade sources, suggested some byzantine motivations that would or ought to make the developing countries pause.

The EU Trade Commissioner, Leon Brittan, told reporters in Brussels after the Council meeting: "Europe cannot succeed on its own.. I would urge our partners in Asia and Latin America, many of whom have shown growing signs of support over the last few weeks, to come out firmly and formally in favour of a deal."

"This is a turning point in the European Union's strategy to rescue the world financial services talks and bring about a substantial multilateral deal on which we can build in the future," Brittan added, thus donning the mantle of a knight in white shining armour marching to the rescue of the multilateral trade system against the US bilateralist approach. Trade diplomats noted that a Reuters news agency dispatch out of Brussels quoted the French Industry Minister Yves Galland as saying that the EU was optimistic a deal would be struck to run till 31 December 1997 and that the 1997 deadline for the interim accord was set to coincide with the end of next year's US presidential elections "in the hope that a new administration would take a less muscular stance on world trade."

But the Reuters report also quoted "EU trade sources" as saying that there was "no intention of ever making the interim accord definitive. Rather the aim is to continuously roll it over, all the while ratcheting up the liberalisation offers on the table".

Such an approach would be in line, and find favour with the United States which has privately made clear to key delegations and countries that whether there be a multilateral WTO trade deal or not, the US would continue to apply bilateral pressures to force its trading partners in the developing world to open up their financial services markets to US enterprises.

While the US is the leading competitor with an edge in this area -- whether banking services, security services and funds management or insurance and reinsurance -- the Europeans are the next.

Both have an eye on the emerging markets, whose own financial services industries are fledgling and in no position to compete on their domestic markets, leave aside on the markets of the Americans or Europeans, and the potential for profits in these markets for foreign enterprises.

The United States has indicated that while it would not stand in the way of a WTO accord, on the lines proposed by the EU, it would not change its view and be a party to it, by withdrawing its MFN reservations.

Third World diplomats said that without a strong domestic position, developing countries at the WTO would continue to face constant pressures to yield ground to the TNCs from abroad, and with constantly increasing demands for more and more 'liberalisation'. The financial services area would be no exception.

However, the GATS/WTO draft protocol for the interim accord on financial services would clearly stipulate that it would remain in force till 31 December 1997, at which point all its signatories would have the option to withdraw from their commitments and enter MFN reservations.

According to an IPS report from Brussels, the EU claims that a global treaty on financial services can still be struck if a sufficient number of countries join in. "A substantial proportion of world trade in financial services must be covered," a spokesman for Brittan said. "But, this does not necessarily mean the U.S. has to be included."

But, he said that participation by Japan, South Korea and the ASEAN countries -- Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand -- was crucial. "I am confident that with the necessary leadership above all from Japan and Korea, that objective will be achievable," the spokesman added.

Officials in Brussels argue that if Japan gives its support, other Asian countries will necessarily follow. "Japan commands respect in Asia," one EU trade expert commented.

Reports from Tokyo said that Japan is yet to take a decision and, while still hoping the US could be persuaded to join such a deal, has not yet made up its whether to agree to the EU proposal.

Brittan argues that Japan stands to gain a great deal from joining the multilateral pact, and that such an accord will give "stability and predictability" to Japan's own plans to expand its financial services abroad and will increase Japan's leverage in opening up export markets so that Japanese banks and insurance firms can set up shop in other countries before the arrival of their U.S. competitors. Such a WTO accord, with its rigorous system for setting disputes, will make Japan less exposed to bilateral attacks from its trading partners.

The WTO/GATS Committee on Financial Services and the GATS Council are to meet on Friday when decisions have to be taken, in time for countries to meet the new July 28 deadline for filing their schedules and/or concluding the interim accord.