5:43 AM Jul 17, 1995

JAPAN, STILL MULLING OVER EU FINANCIAL SERVICES PROPOSAL

Geneva 14 July (Chakravarthi Raghavan) -- Japan's Prime Minister, Tomiichi Murayama has written to the US President, Bill Clinton, urging the United States to rejoin the talks at the World Trade Organization on a financial services sectoral accord and sign up one on a most-favour-nation basis.

This was indicated by Japan Friday evening at the informal meeting of the Committee on Financial Services which heard preliminary reactions from the various key countries involved to the European Union's proposal that all the countries who have made 'improved' offers (over their December 1993 offers) should retain them on the table and incorporate them into an schedule on an most-favoured-nation basis, for a financial services accord of a limited 3-5 year duration, with the option of revisiting it and revising their stands.

The United States, at whose instance the negotiations had been continued beyond the conclusion of the Uruguay Round, walked out of the negotiations just 24 hours before the new deadline of 30 June (set at Marrakesh) for the conclusion of the talks and scheduling of the commitments by the participants.

The US had walked out on a multilateral accord on the ground that it was not satisfied with the offers from key developing countries, and said it would enter an MFN reservation -- assuring existing access to its market to all foreign enterprises with a presence, and restricting future access to new enterprises or expansion of activities to existing ones on the basis of bilateral reciprocal accords.

The EU had proposed an extension of the talks till 28 July (which was accepted by consensus), and had made the proposal for everyone to retain their own best offers on the table and for an agreement to be concluded for a 3-5 year duration, even if the US does not join.

Since then, the EU Commission has been engaged in high-level lobbying of other key countries and promoting and announcing agreements of others in the hope of creating a snow-ball effect.

Australia, Hong Kong and Asean group of nations are among those who have been reported by the EU Commission in Brussels as having agreed to the EU proposal.

At Friday's meeting, where various delegations presented their responses to the EU proposal, most of them, with differing nuances though, indicated they could go along with such an accord.

However, there was the view that such an accord should be for 3-5 year period, with most participants indicating 'flexibility' on the duration, but against a much shorter time-period of six months to a year, as has been reportedly suggested by some EU member-states themselves.

At the Financial Services Committee's informal meeting Friday, Japan reportedly indicated that it was yet to take a decision on the EU proposal, and that its decision would be influenced by the response from President Clinton to Prime Minister Murayama's letter, and also the decisions Monday of the EU Council of Ministers.

The Committee is due to meet again on 21 July.

Trade diplomats who did not want to be identified said that it was their impression that there were differences within the EU's Council of Ministers over the Commission's proposal.

The EU Commission clearly hopes that given the generally favourable views of other delegations to the EU proposal, and the reports of this that the diplomats would be making to their principals, capitals yet to make up their minds, would favourably incline to the EU move.

Even inside Japan, while the foreign office reportedly favours the EU proposal, the finance ministry and perhaps the MITI are reported to have reservations.

Korea, another important player, is also reported to have indicated that Seoul was still weighing the pros and cons.

Among the others, India reportedly said that it viewed the EU proposal as one based on concern for multilateralism and the operation of the MFN principle and that India had always been in favour of strengthening them. But a decision was yet to be taken on the issue in New Delhi and that the decision would also be influenced by the outcome of the parallel negotiations on movement of natural persons. Pakistan and Egypt also reportedly said their capitals were yet to take a decision and that one of the elements that would weigh with them would be the outcome of negotiations on movement of natural persons. The United States would appear to have indicated that while it would not change its position, it would not stand in the way of a financial services accord on the basis proposed by the EU Commission.

But there is no particular economic reason for the US to stand in the way since it has everything to gain and nothing to lose. For, such an accord would ensure the best of both worlds for the US: its enterprises would enjoy the MFN treatment in other markets whose countries enter into WTO commitments, while the US need not extend the same treatment on the US market and could continue to press other countries bilaterally to give the US more (which would however be automatically available to other nations).

However, the impression that the US has been "isolated" by the EU inside the WTO could be seen to have some political negatives that the administration might want to weigh. Even then, it is difficult to see the US blocking a consensus if others choose to go along with the EU proposal, though the idea of a limited duration accord, with all participants free at the end of the period to revise their stands and if they felt exercise their option of following the US example, and exercising options they could now -- taking back their multilateral offers on the table, allowing existing (as of WTO entry or any preceding agreed date) access, and entering MFN reservations on all future access, including what they would schedule now.