7:15 AM Jul 14, 1995

FINANCIAL SERVICES - WITH OR WITHOUT US ?

Geneva 14 July (Chakravarthi Raghavan) -- The key group of countries involved in the negotiations for liberalizing financial services are meeting informally Friday afternoon to assess the outlook, in the light of the European Union's drive to conclude a multilateral accord, with or without the US, for a 3-5 year period.

According to trade diplomats, the key to the success of the EU proposal lies with Japan and South Korea and their own perceptions whether it gives them a multilateral shield of sorts against the United States and its unilateralism or weakens their position.

If these two agree to go along with the EU push, other developing nations facing domestic critics and having doubts and reservations might feel impelled to do the same.

But if Japan or South Korea hold back (in both countries there is domestic political problems and complaints from their domestic enterprises), it would be difficult for others to accept the EU proposal.

The financial services negotiations virtually collapsed when the United States advised other participants last month that it would enter an MFN reservation to its financial services schedule, guaranteeing only existing access on a most-favoured-nation basis and reserving for bilateral, discrminatory treatment all applications for expanding activities of those with a presence or future applications for presence.

However, the EU intervened, and has been engaged in a high-publicity drive asking all countries who have made "offers", most of them improving their offers of December 1993, to keep their offers, schedule them on a most-favoured-nation basis in the GATS financial services schedule, but subject to the option to everyone to reassess the situation after 3-5 years.

At the EU instance, the Financial Services Committee has extended till 28 July the deadline for countries to file their final schedules, and or to exercise an MFN exemption option.

The EU Council of Ministers, who agreed with the EU Commission move, are due to meet on 17 July to assess the situation, and the GATS Financial Services Committee itself is meeting on 21 July.

Since the decision at the GATS to extend the deadline to 28 July, EU Commission in Brussels has publicised some details of the "offers" of various other participants and its appreciation of these offers, and has been pressing particularly Japan and the Asian countries to join its move for a multilateral agreement in the GATS, even if the US keeps out.

The EU Commission has also announced that the ASEAN group of countries have agreed to its proposal.

The EU Commissioner, Leon Brittan, is asking all the other participants to confirm their acceptance of its proposal by 21 July, and has planned to go to Washington with such a commitment in what is described an attempt to the Americans to join.

Last month, in agreeing to the extension of the deadline, the US made clear that its position would not change even at the new deadline.

In Japan, the issue of whether to agree with the EU or not appears to be a matter of some difference between the Japanese Foreign Ministry and the Finance Ministry.

The Foreign Ministry apparently favours the EU move, and has been encouraging the other developing countries also to look favourably -- arguing that a multilateral approach would be useful to them, even if they have to bilaterally make some concessions to the US, since that concession would be automatically multilateralized and the US would find any gain would not advance its own narrow mercantalist interest.

Japan itself reached an accord with the United States early this year in agreeing to some market opening to US in this sector, and has said that this would be available on an MFN basis to all others.

In terms of the Japanese market therefore, keeping this offer on the table and scheduling it in the financial services accord of the GATS does not involve anything further.

But while Japanese scheduling its offer in the WTO, and binding itself, enables others, including the US, to quickly come to the WTO with complaints in cases of disputes involving the Japanese commitment, Japan or anyone else would have no such recourse visavis the US,

Even more, for Japan, which has some of its banking and security trading enterprises in operation in the US, any attempt by the US to curb their activities or restrict future expansion, through capital-adequacy and other socalled 'prudential regulations' would leave Japan without any multilateral remedy.

While GATS and the financial services accord enables 'prudential regulations' by a country, it is not to be a hidden protectionist instrument, and whether or not a prudential regulation is a protectionist instrument could be tested in the WTO.

For the other developing countries, like the ASEAN or India, tabling a schedule of the offers on the table, as the EU proposes, might be attractive to policy-makers as a way of assuring foreign investors and even 'locking in' their reform programmes against future change of governments and its policies.

But any view in such capitals that this would provide them a multilateral shield of sorts against US unilateralism, and its predatory demands for market access in their countries, must have been diluted by the US-Japan Auto dispute and its 'settlement', and the differing ways and interpretations of it coming from Tokyo and Washington.

Trade officials in the US have made no secret of their intention to continue to use the unilateral trade threats and instruments to open up foreign markets for US exports of goods, services and investments.

US undersecretary for Commerce, Jeff Garten, was quoted Friday in the International Herald Tribune as saying that the US would act independently and on its own on trade issues and not wait for multilateral solutions.

Garten was quoted as saying that while the US believed in free trade and the WTO and would seek multilateral solutions to trade problems wherever possible the WTO was not an end for the US, "only a means."

Garten has been further quoted as saying that trade was high on US domestic and foreign agenda, that winning foreign markets had a high priority for the US and that it would move on its own against perceived barriers abroad, and that trade in the coming decade or more would involve competition and tension among industrial countries as they fight for the markets in the "emerging markets".

Despite the efforts of WTO Director-General Renato Ruggiero, or EU trade officials and others, to present the US-Japanese auto accord in bilateral talks under threat of US sanctions as showing the strength of the WTO and its role as a multilateral dispute settlement instrument, the US view acts as a heavy anti-dote to such euphoria.

The jury is still out on whether the six-month old WTO can protect the rights and interests of the weak against the strong or it will become one of the many interludes in the history of post-industrial- revolution world.