8:23 AM Nov 30, 1993
US FAILS TO CONVINCE ON FINANCIAL SERVICES APPROACHGeneva 30 Nov (Chakravarthi Raghavan) -- United States Treasury Undersecretary for International Economic Affairs, Lawrence H. Summers, failed to win support Monday at the GATT of negotiators from other countries for the US 'two-tier' approach to US commitments on financial services and was warned that this would be counter-productive and unravel the entire services accord. Late in the negotiations, in October this year, the US negotiators had come out with their 'two-tier' approach: filing a US schedule of universal commitment of access to the US market in financial services for those firms already in business and for operations authorized for them, and a second level of commitment, on a non-MFN basis, for countries with full open financial markets or preparing to commit themselves over time to reach full open financial markets. The US position when clearly unveiled in the Uruguay Round negotiations for a General Agreement on Trade in Services (GATS) created an uproar among other trading partners. While many of whom, particularly from the developing world, who have filed 'conditional' offers of liberalisation in some areas have been stressing the 'conditional' nature of their offers and need for the US to rethink its position, some others have actually taken back their offers themselves. Summers came to Geneva Monday to meet with the negotiators from the key countries to win them over to the US position. He also met with the GATT Director-General Peter Sutherland. In all the meetings he got the same message, namely that the US position would result in those developing countries who have made offers of liberalisation, taking into account their own situations, taking back their offers which could result either in a GATS without any financial services sector or even GATS itself. Summers coming to Geneva to argue the US plea and demand for 'reciprocity' in trade liberalisation in the financial services sector is not without irony. Until he joined the Clinton administration as its second ranking official in the Treasury, Summers as a professor of political economy was the World Bank's Chief Economist from 1991-1993. While he hit the public eye (among NGOs and the public in developing countries) with his famous internal Bank policy paper for exporting pollution to the developing world since life was 'cheaper' there, he played a key role in the Bank in the design of country assistance strategies and had overall responsibility for the Bank's research. The World Bank pushed developing countries through 'country-assistance' programmes and strategies (structural adjustment programmes) to undertake unilateral liberalisation of their external trade sectors, without any reciprocity from their trading partners, and pushed the neo-classical trade policy theory that 'unilateral liberalisation' is good for the liberalising country. It was not clear whether in his meetings with GATT negotiators Monday, any of them had asked him about why policies preached by him in his previous job were good for weaker developing countries, but not for the strong United States. Summers was not available for a direct comment to newsmen on this. But a senior US official, briefing the press Tuesday on the Summers discussions in Geneva on financial services issue on condition he could not otherwise be identified, attempted to explain it away by arguing that the US had the most liberalised financial services market and had provided 'national treatment' for foreign firms established in the US and that this open policy had served the US well. However, the official was unable to respond when it was pointed out that the question was not about domestic liberalisation or deregulation, but liberalisation in international trade where even now the foreign firm had no automatic right of establishment (as would be when financial services are liberalised under GATS for delivery through commercial presence). The US official also claimed that the US position for a two-tier approach was not something new or sudden and that its negotiating partners had always known the US position. The US had started with an initial total non-MFN position on financial services, but later had been willing to have the two-tier approach. This position had been clear to other negotiators ever since the new administration came into office, the official said. But the Clinton administration came to the White House only in January, and there had been no Uruguay Round negotiations till July and serious negotiations in Services only in September. Other negotiators said that while the US might have been in consultation with the EC -- and both of them were targeting not only Japan but also some of the Far Eastern economies and trying to persuade the latter to be more forthcoming in financial services liberalisation -- the two-tier approach, as the tax carve-out, move was sprung on the others only in October. Giving the history of the financial services issue in the negotiations, another negotiator noted that in the beginning the US (and a few others) had favoured a totally independent financial services sector agreement with only a tenuous relationship to the GATS in being made an annex to the GATS. The US idea was to confine it to OECD countries and others willing to take on the same level of OECD obligations, but lodge it in the GATS to enable the enforcement of its provisions on signatories through the GATS dispute settlement processes. This did not fly, with most of the Third World countries making clear that the US and those favouring such an approach could negotiate such an agreement in the OECD, but not in the Uruguay Round. The US thereupon came up with the proposition that it would take a complete MFN derogation for this sector, namely, no GATS commitment on financial services and a derogation from GATS so that any bilateral or plurilateral agreements with countries would not require the US to extend the benefits to others. It became clear that this too would not be acceptable. The EC for its part was at the same time wanting to bring in developing countries into the framework and persuading them to throw open for competition sectors and subsectors to the extend they were able to do. Though Summers attempted Monday to make the two-tier approach as an improvement on the non-MFN approach earlier, he failed to carry any conviction to others, sources at Monday's consultations said. The US official distinguished between the Summers talks here on the US Treasury views on financial services liberalisation and its position on a tax carve-out in the services, dealt with here last week, equally unsuccessfully by an Assistant Treasury Secretary, Leslie Samuels. The officials claimed that the Summers discussions had been 'productive' and that the US felt encouraged that a successful resolution of this issue could be reached. Summers had been able to clarify the US position and had a greater understanding of the position of others. The US, he said, was not saying that developing countries should immediately liberalise their entire financial services sector, but that they should enter into commitments to do over a period of time, say ten years. Other participants questioned the US views about liberalisation and the talk of reciprocity. As one negotiator put it, "how can one have reciprocity in liberalisation as between the US with its very large market and another country A with a much smaller population? The US can easily take say another 20 financial firms engaged in various sectors while in another country two outside firms could be one too many...we can only look for harmonized balance in terms of liberalisation, not reciprocity." At the consultations Monday, Summers is also reported to have been told that the conditional or non-MFN liberalisation by the US to a limited number of countries, even if it was put into the US schedule for the GATS, would be unenforceable in that the US could not invoke the dispute settlement mechanisms of the MTO for settling future disputes. While the US official in briefing the media Tuesday however claimed that its attorneys had advised this was perfectly legal, others questioned this, noting that by definition any non-MFN bilateral or plurilateral accord would be outside the GATS. Asked about reports that in view of the US position, others were revising or withdrawing altogether their own offers on financial services, the US official said that the current universal MFN commitment was contingent on the offers and progress made so far. "If countries withdraw their offers, it will have effects on our position about MFN exemption," he said, but stopped short of confirming that the US would then go back to its position of complete MFN derogation in this sector, risking the gutting of the entire GATS. The US view on financial services has found support from France, which otherwise is feuding with the US over farm subsidies, audio-visual services and maritime services. However, the EC Commission has opposed the US position. At Monday's meeting Canada also is reported to have expressed sympathy with the US over the inadequacy of financial services offers on the table, but did not expressly support the two-tier approach.