3:18 PM Jun 28, 1995

US BACKING AWAY ON FINANCIAL SERVICES THREATS?

Geneva 27 June (Chakravarthi Raghavan) -- American trade officials appeared Tuesday to be slightly backing away from their earlier hard-line stands about lack of sufficient progress in financial services offers, particularly from emerging markets, and the prospect of their carving out this sector from out of the WTO and GATS.

A senior US trade official said Tuesday evening that there were signs of flexibility in the negotiations, which are running against a 30 June deadline, and that a deal might still be possible.

The financial services negotiations, covering mainly banking and securities services as well as insurance, are part of the General Agreement on Trade in Services (GATS) negotiations in the WTO and have been continued after the Marrakesh agreement ending the Uruguay Round, along with negotiations on movement of natural persons. Two other sectoral negotiations, telecommunications and maritime services, are on till next year.

The financial services negotiations were continued as a compromise, after the US suddenly reversed itself in October-November 1993, and threatened to put in an MFN exemption -- allowing only existing access to foreign financial services firms with branches or commercial presence in the US, but without any right to either expand their activities or for new firms to be set up. With others also threatening to follow the US example, the negotiations were continued till 30 June, giving everyone the option to revise their own financial service schedules which many had already tabled and incorporated. As late as last weekend, US Treasury Secretary Robert Rubin had said that prospects of a deal at the WTO on financial services were poor since market opening offers from important countries fell short.

The WTO head Renato Ruggiero, in a statement Tuesday noon, appealed for wrapping up the financial services and movement of natural persons negotiations with a multilateral agreement. Last week, in an article in the Wall Street Journal, he had questioned the US arguments that the key developing countries would be "free riders" in any such multilateral agreement, pointing out that there was no conceivable way these countries would be establishing themselves in the United States and competing with US firms.

Speaking to reporters on Tuesday, a senior US official spoke of the US being in no position to make an "irrevocable" MFN commitment on financial services, given the state of offers from key developing countries, but also spoke of "a lot can happen in three days.. We are continuing to work with individual countries to achieve acceptable packages..."

He would not expand on the "irrevocable" MFN commitment, and whether the US intended to prolong the negotiations in some way for another two years.

The GATS does not enable any "revocable" MFN commitments or scheduling of offers, only for a scheduling with MFN reservations, which could in the future be withdrawn, restoring full MFN treatment for everyone.

At Marrakesh, in filing its financial services schedule and threatening its MFN reservation possibilities as a stick in the negotiations, the US had said until the end of the negotiations it would unilaterally continue to provide MFN treatment in its market.

Some trade officials and diplomats have been speculating the US might do the same now, offering to continue bilateral talks with key countries to secure its objectives.

US negotiators make no bones about the fact that in these negotiations they are looking for full investment rights for their financial service sector enterprises -- banking and security services, including the right to introduce new derivatives trading; insurance and reinsurance including insurance brokers, and other miscellaneous financial services in key developing country markets.

If it adopts the tactics being hinted at, in effect, the US will be extending these negotiations, with acquiesence from key developing countries, and seeking to apply bilateral pressures, with some considerable assistance from the IMF and the World Bank to force full financial services liberalisation in the developing world.

While the US anxiety to get the maximum out of this sector, one of the few where the US sees it has technological and other comparative advantages, is perhaps understandable in a trading system, claiming to be based on free-trade concepts, but essentially run on mercantalist principles of "what I export is a gain, what I import is a loss", it is difficult to swallow their sanctimonious arguments that the US is anxious to liberalise the financial sectors of the developing countries because of its interest in their development, since without liberalised financial services and the presence of efficient US enterprises, development would not be feasible.

US officials, while claiming that their country's prosperity is due to their liberalization philosophy, are unable though to counter the point that in their own country's history, as that of Europe or Japan, their financial services liberalisation is a very recent phenomenon, coming after a long time of protecting their banks, insurance and other such business enterprises, and that insurance and banking services are an important ingredient of capital accumulation where the ownership, national vs foreign, is an important element.

As the world's major exporter of debt, and importer of capital, the US has now a big stake in ensuring its enterprises having a hand in the mobilization of savings abroad and accumulating that capital, in profits, fees, commissions and through transfer pricing, into the US.