8:06 AM Nov 25, 1993

LAWRENCE SUMMERS TO TRY HIS HAND ON FINANCIAL SERVICES

Geneva Nov 25 (Chakravarthi Raghavan) -- US Treasury Under-secretary for international economic relations, Lawrence Summers, is expected here next week to explain and canvass suport from Uruguay Round negotiators of other countries for the US stand for a two-tier approach to its commitments on financial services, and also on the across-the-board tax carve-out question.

The former World Bank chief economist is expected to press negotiators from other countries to accept the US position, because of the strong opinions held at the Congress.

Late this October, at the very end of the efforts in the Uruguay Round Group of Negotiations on Services (GNS) to finalise the texts and the negotiations on initial commitments, the US negotiators announced that they would adopt a two-tier approach on access to US markets on financial services and enter a general reservation on their direct tax laws visavis their services commitments.

Both positions, taken by US trade negotiators in response to the views of its Treasury officials and the relevant Congressional committee chiefs, have thrown the services negotiations into an uproar.

Most other participants particularly from the major developing world, have made clear they would now revise their own services offers and take back their initial offers, however limited, of throwing open parts of their financial services sectors to foreign competition.

And all the negotiators have also said that if the US goes ahead with its tax-carve out reservations, they would do the same too and the US as the home for TNCs with largest number of branches and subsidiaries abroad would be the one that would suffer most.

The attempts of the US Assistant Treasury Secretary Leslie Samuels this week to explain the tax issue and get support from the negotiators +failed and he was sent back to Washington with a strong message from the negotiators and the GATT head, Peter Sutherland that the US move won't fly.

In its more general two-tier approach to financial services liberalization commitments, the US said it would guarantee current access to its financial services market for foreign suppliers on a most-favoured-nation basis (required by the GATS), but that any new access or expansion into new areas for those now having some limited access or presence in the US would be based on reciprocal agreements.

This US Treasury position is stimilar to the initial approach in the negotiations but which was given up in the light of the protracted negotiations on the services issue.

The US has made no secret of its intention to use bilateral pressures to force open key markets abroad for its financial service suppliers.

The US two-tier approach is said to be aimed at forcing open the markets of Japan, South Korea, the Asean countries, India, Brazil and other major Third World economies.

The European Community would not be affected by the US approach, and could even benefit in terms of the Japanese market through a similar approach of its own. But EC negotiators have joined others in voicing concerns over the US action.

Japan too has expressed concern, but what it would do is not clear, since Japan's interest is not only the US and EC markets, but Third World markets.

But most major Third World economies have very small presence on the US, EC or Japanese markets, and none of them are in a position for the foreseable future to be able to compete and deliver on these markets. Thus they are not too worried about the restraints on expansion in these markets.

But the US stance would enable them also to take back the initial commitments for liberalization of financial services they had been prepared to offer -- not as much as the US reciprocity would demand, but still sufficiently liberalizing, according to those who have seen some of these tentative schedules and offers -- and instead open up their own markets on a purely case-by-case basis.

However, the US Congress also appears bent on enacting special legislation, the socalled 'Fair Trade in Financial Services', authorizing retaliatory trade measures to open up foreign markets for US financial services.

Some GATT negotiators say that any retaliatory measures could even be illegal and challengeable in the post Uruguay Round system.

In other developments, Michael Cartland of Hong Kong, another 'friend of the chair' of Sutherland is to start consultations from next week in the rules area -- covering the GATT articles, Trips and Trims -- where there have been proposals by one or the others for changes.

The major point in the demand for changes is the US demand for changes in the Dunkel text on anti-dumping and countervailing measures -- where the US wants to ensure that its domestic procedures and conclusions in assessing the evidence of dumping and procedures followed are not challenged and upset through a GATT adjudicatory process.

The antidumping rules text in the DFA is an arbitrated text -- the negotiations leading to the Brussels meeting in 1990 and subsequently when they were resumed in Geneva not being able to produce any agreement, with the US ranged against the rest.

The United States had said last week that it would be putting forward its revised draft on this, but has not so far done so, and is not now expected to do so until early next week.

Whether this is part of the current US-EC bilateral discussions in Washington, at level of senior officials, after the Mickey Kantor-Leon Brittan meeting earlier this week, and as preparations for the 1 December meeting of the two in Brussels is not clear here.

On agriculture and Blair House, reports out of Brussels have said that Leon Brittan is now somewhat more hopeful of changes in that accord to accommodate the EC. This has made the Cairns group members and other participants here nervous over the price they would be called upon to make for this, and at the last moment when they would not even be able to assess it properly.

The French Prime Minister, Edouard Balladur though has come out in Paris saying that the Washington talks have not yielded any compromises in the directions sought by the French over the Blair House accords. The French government has also come out insisting that the broad details of the package must be available to the French government in time to enable it to place the package before the French Parliament for a vote before the 15 December deadline for concluding the substantive negotiations.

Much of the public statements of the key participants is no doubt with an eye to their domestic lobbies -- to paint a grim picture of the difficulties, so that even any minor concessions they win could be made to appear major before their public. But there are also still several major problems, including some substantive questions relating to the DFA text which have not started to be addressed so far.

Consultations are to take place on Thursday afternoon, chaired by Amb. Julio Lacarte (who chaired the negotiations on institutional questions) on the question of relevance of 'non-violation' complaints in dispute settlement visavis the TRIPs accord.

This was an issue raised by India and received support at the informal developing country group meeting Thursday from among others Argentina, Brazil, Pakistan and Egypt.

In the current General Agreement, whose concepts have been carried over into the proposed Comprehensive Dispute Settlement Understanding (DSU), a dispute can be raised by one party against another for failure to carry out its obligations (in terms of law or measure which on the face of it is contrary to the GATT obligation), or the application of any measure whether or not in conflict with the provisions of the GATT (the non-violation complaint) or the existence of any other situation.

India raised the issue in the consultations on the institutional question, the TRIPs negotiations, resulting in the current draft, had not addressed the dispute settlement questions -- because of differences whether it was to be part of GATT and all GATT provisions would apply (as the industrial countries wanted) or separate as it has emerged. But if the DSU is to be invoked, and the GATT provisions imported, the non-violation provision could not apply to TRIPs. The only dispute that could be raised under TRIPs would be failure to carry out the obligations.

Among the Quad countries, Canada took the same position as India in the Lacarte consultations on institutional questions where it was raised earlier this month.

The informal heads of delegations meeting on Thursday evening, to deal with services questions, is expected to deal with the US proposals for a two-tier approach on financial services, the US plans for a tax carve-out. But the HOD meetings are too large to engage in negotiations but merely for an exchange of views and to be pursued if necessary in a 'friend of the chair' consultations.

Another issue also expected to come up is the 'pricing clause' in the telecommunications annex which in its Art. 5.2 requires that "each member shall endeavour to ensure that pricing of public telecommunications transport networks and services is cost-oriented".

At issue is the policy of most telecommunication administrations to cross-subsidise facilities in line with the country's development strategies.

India has objected to the pricing clause, even on a 'best endeavour basis', insisting that the GATS and its trade-related provisions could not be used to address the question of pricing policies of countries, and that the only place the pricing issue could be taken up would be in the relevant bodies of the International Telecommunications Union.

The Indian position received support from a number of developing countries at their weekly informal meeting Thursday morning.

Singapore, on behalf of the Asean countries, referred at the meeting to press reports from out of the Seattle APEC meeting, and the earlier NAFTA fight before Congress in Washington, to the effect that the Asean countries would support the US move for extending the transition period for phase-out of the Multifibre Arrangement from the 10 years in the DFA text to 15 years.

In 'buying' the NAFTA votes, US President Bill Clinton has assured Textile lobby Congressmen that the US would explore with others the possibility of extending the MFA phase-out to 15 years. Several press reports citing the Congressmen concerned had said that Phbilippines, Indonesia and Thailand among the Asean also now favoured a 15-year transition period.

"This is not true and we will stick to the DFA," Amb. Kesavapani of Singapore reportedly told the informal developing country group on behalf of the Asean countries.

In other comments at the meeting, South Korea is reported to have referred to press reports that both European and American shipping interests now want complete exclusion of the maritime transport sector from the purview of the GATS and its trade liberalization and expressed concerns over these reports.