8:30 AM Jun 30, 1995


Geneva 30 June (Chakravarthi Raghavan) -- The troubled financial services talks collapsed Thursday night when the United States rejected the package of offers and agreement on the table and announced that would file an MFN exemption in this sector in the General Agreement on Trade in Services (GATS), assuring on MFN basis only existing access to foreign financial services firms in the US.

The Committee on Financial Services (which is overseeing the negotiations) is due to meet Friday night to take same final decisions, but with little expectation that the US will change its mind.

But there may be some 'unofficial' extension of the 30 June deadline (for countries to file their final schedules of concessions and the conditions of access) since the US announcement gives them little time.

Several developing countries, but also industrialized countries like the European Union, have filed some schedules of concessions in this area on the basis of the GATS and its most-favoured-nation treatment, with no stipulations as was made by the United States at Marrakesh.

They now have to consult their capitals and decide whether to emulate the US stand, and file across-the-board MFN exemptions in this area, assuring only existing access, or make a political point by keeping their 'offers'.

The WTO Director-General Renato Ruggiero was reported as trying to pressure the developing countries (and also the European Union and others) to schedule on an MFN basis the commitments they have offered.

There were some unconfirmed reports that Ruggiero was trying to apply pressures in some key capitals -- including the ASEAN, India etc -- direclty and through their envoys here to this end.

Meanwhile, the EU, was canvassing opinion for a month's suspension of the deadline, during which it hopes a deal could be negotiated without the United States, some diplomats said.

The US decision, on instructions from Washington where the package of offers negotiated in Geneva were considered, was conveyed Thursday evening to an informal conclave of some 30 key countries, and shocked its other trading partners, particularly from other major industrialized countries.

Though the Americans have been publicly saying that they might exercise this option if enough of the major developing countries did not expand their offers and commit themselves to achieve full liberalisation in this area within a measurable time, the EU and others had been under the impression that at the end the US would not do this.

Some of the negotiators from other countries said that American negotiators in Geneva had privately agreed that the total package on the table was a good one and could be accepted, but that some financial service lobbies back home were expecting and demanding full liberalization from the key developing countries, with potentially large markets, and applying pressure on the administration and via some Congressmen to insist on only reciprocal access.

Earlier, the EU had said that it did not consider the offers good enough from the 'emerging markets', but that neverthless the package covered nearly 80-90 percent of the actual trade and should be accepted.

The EU ambassador to the WTO, Jean Pierre Leng told the Committee (after the US announcement) that he was "confused and perplexed", while Japan said that it was "surprised and greatly disappointed".

Talking to reporters, after the Financial Services committee meet, US negotiators (Assistant USTR Jeffrey Lang and Treasury official Jeffrey Schafer) said that "there were important, significant deficiencies in the offers across the sector". The two also spoke of 'free riders' in the negotiations taking advantage of the MFN provisions to get access to the "world's most liberal market" in this area.

But this argument is a dubious one, with even less merit than when it is used in the goods sector about 'free riders' that the World Bank and some of the Northern think tanks and trade lobbies have been making to get concessions from developing countries to open up their markets to imports from the North.

For, even in the long-term future (10-15 years), no developing country could hope to establish a presence in the financial services sector (banking, securities trade and insurance etc) in the US, any other major industrialized country, and be able to compete with advanced enterprises of the US, EU or Japan.

The US decision has put the European Union put in a particularly difficult situation -- of having to decide within 24 hours whether to keep its MFN offers of access in the GATS schedule, or put in similar MFN exemptions.

An urgent meeting of the EU's Council of Foreign Ministers (who have to decide trade issues and give directives to the EU's Executive Commission) has been summoned to meet in Geneva at 1800 GMT of Friday. The Council was originally tentatively set to meet in Brussels, when it was thought their job would only be to approve the agreement negotiated in Geneva.

Though the talks are under WTO auspices, and WTO Director-General made it a case involving WTO credibility and success, in fact these financial services talks (along with those on movement of natural persons, basic telecommunications and maritime services) are a continuation of the Uruguay Round negotiations.

The GATS envisages progressive liberalisation, several rounds of negotiations to achieve liberalization, with the first set five years after WTO/GATS entry into force. It also provides that developing countries entitled to "appropriate flexibility" for opening fewer sectors, liberalising fewer types of transactions and progressively extending market access in line with their development situation.