4:51 PM Jul 21, 1995

A 17-MONTH INTERIM FINANCIAL DEAL GETS "MAJORITY" SUPPORT

Geneva 21 (Chakravarthi Raghavan) -- There was "widespread support" among the countries involved in the negotiations on a financial services sectoral agreement for the European Union's proposal for a most-favoured-nation accord based on the existing "offers" on the table and to run till 31 December 1997, the financial services committee was advised Friday.

In thus summing up the discussions in the committee, the chairman of the committee noted that two countries (Japan and South Korea) needed more time, while three others (Egypt, India and Pakistan) had also linked it to progress on the issue of movement of natural persons.

Trade diplomats said that while Japan and Korea are yet to decide, and the position of Japan was specially crucial since without it there would not be the 'critical mass' of adherents, the general expectation was that a deal would be struck next week -- by the 28 July deadline.

A protocol being drawn up, and to be adopted if the deal goes through, would come into effect (after members undertake the ratification and/or acceptance processes) on 1 August 1996, to run till 31 December 1997, when the countries involved will have the right to exercise an option to take back or revise those commitments and/or enter a most-favoured-nation reservation, as the United States has already done.

In the meanwhile, the participants would also be committed to a "standstill" (just as the one they have been observing since December 1993 and formalised in the Marrakesh decision continuing these talks), namely not do anything in their countries that might undercut the commitments they enter into to be brought into force on 1 August 1996.

At the committee meeting, the EU again explained its proposal (for other participants to schedule their offers on the table in an MFN commitment, despite the US walking out of the deal), and stressed that it would need the support of a critical mass of participants.

Canada, Chile, Malaysia (on behalf of the Asean group), Hong Kong, Poland, Hungary, Switzerland, Brazil, the Czech Republic, Mexico, Norway, New Zealand, South Africa, Roumania, the Slovak Republic, Israel, Uruguay, Turkey, Australia, Morocco, Argentina, El Salvador -- all said they would agree to the EU proposal. Brazil, in addition said, that it would schedule not only its proposal on the table, but the improvements orally agreed to by it in bilateral talks.

Japan said it was still looking forward to a full MFN-based agreement, would continue its efforts to achieve this and that it was still waiting for a response at the highest level from the US in response to a communication from Prime Minister Murayama. The Japanese delegate said his country was also interested in the outcome of the talks (Monday and Tuesday) in Washington between the EU and the US. Tokyo, the delegate said, was still considering the EU proposal for an interim solution, and would need time to take a decision.

South Korea said it too had not yet given up on the possibility of a global consensus and would continue to attempt to change the US mind, and meanwhile would continue to evaluate the EU proposal.

Pakistan said that to enable it to join, not only should the EU proposal attract substantive support, but there should also be progress on the movement of natural persons where an "offer" had been received from a major entity (the EU) which was not fully satisfactory but was being evaluated.

India took a similar stand, and while concerned about the EU offer, was nevertheless studying them.

The United States made no comment. But it has indicated that it would not stand in the way of such an interim deal, though it would not join.

The US schedule, for preserving existing access and entering MFN reservations about all future access, has already been filed, as per the 30 June deadline set by the Marrakesh decision.

Participants said that both the financial services committee and that on movement of natural persons, and the GATS Council will meet sometime next week, before the 28 July deadline, by when Japan would indicate its position, and if it does join (as seems likely), the accord would be adopted and the new revised schedules filed.

But beyond the claims that all this strengthens WTO and its multilateralism, none of the developing countries are able to say how they gain and what would be the benefits to them in such a temporary deal.

But one trade observer suggested that this was essentially a face-saving process, in the hope that with time the US will come back. But when it does, the developing world will be asked to pay more and there was no assurance that the US will not use bilateral pressures or unilateral threats.

The WTO and its Dispute Settlement Understanding, as part of the single-undertaking concept was accepted on the basis that de facto, though not de jure, the US would give up unilateralist trade sanctions approach. The contrary has been demonstrated and asserted.

Also, the developing countries agreed to the Uruguay Round exercise as a whole, and its completion as a single undertaking, on the basis of concessions and benefits in one sector offsetting obligations on the other, and the concessions on financial services, mostly from developing countries, were to be on that basis.

As the director of the Netherlands Bankers Association has acknowledged in a letter to the Financial Times, in the area of financial services, developing countries "have less possibility of access to our markets than we have to theirs."

With most having got nothing in market access in goods, and some a little, and having agreed to a process of repeated liberalization rounds in opening up their services markets, they are now being asked to do more on financial services without anything in return.

And no amount of "improved efficiency" in their financial services markets by competition from abroad can compensate for the "outflows" -- whether profits, volatility caused by market players or the increased scope for transfer pricing and 'flight capital' activities of such foreign financial services.