10:52 PM Jul 28, 1995

FINANCIAL SERVICES DEAL FORMALLY APPROVED

Geneva 28 July (Chakravarthi Raghavan) -- An interim WTO/GATS financial services liberalisation accord, to take effect from 1 July 1996 and run till November 1997, was formally approved Friday at a meeting of the Committee on Trade in Financial Services.

The Committee was advised by its Chairman, Frank Swedlove of Canada, of the completion of the negotiations. Twentynine WTO members, counting the EU as one, have agreed to sign the protocol of their intention to implement the improved schedules of commitment by 30 June 1996.

In terms of the protocol, it becomes effective 30 days after the ratification by all the members. While some countries, which have an executive process for ratification, might be able to do so earlier, for others like Japan which need Parliamentary action, more time is needed and hence the 30 June 1996 deadline.

But all signatories to the protocol have stipulated their willingness to comply with the improved schedules immediately, so long as it is consistent with existing legislation. There is also a standstill commitment, namely, that signatories would not do anything that would prejudice their commitments to come into force later.

In a statement to the Committee, Swedlove noted that given the events of 30 June (the US change of position and entering MFN reservations on future access, to new presence or expansion of existing presence), the results achieved "are the best that could have been hoped for".

The discussions and negotiations of the past year have led to "important improvements" both in terms of market access and national treatment commitments and in terms of fewer and less trade-distorting MFN exemptions, he said.

The EU, Swedlove said, had shown "great leadership" over the past month in response to the US decision, and other countries should also be commended for their unwavering commitment to the principles of progressive liberalization and MFN.

Without these efforts, the financial services negotiations would have "certainly led to failure".

The achievements should be considered as a "key step forward, but by no means the end of the process", Swedlove said, adding: "members have committed to review their positions on financial services by end of 1997 and this will create an opportunity for commitments to further liberalization and an even broader MFN-based agreement."

In several of the comments and statements, other participants, praised the EU leadership, noted that while not very satisfactory, the interim accord was the best that could be done, and looked forward to a review and further process at end 1997 and/or the next round of services liberalization negotiations.

Several Third World diplomats privately noted that though the US was not a party to the protocol, and had stood by its 30 June position, it by no means was a case of the US being sidelined or isolated.

One diplomat noted that its presence at this "EU organized feast" was very visible. The fact that both the EU and Japan sought and got assurances from the US preserving their own positions on the US market, and others got some private or side-assurances that it was not the US intention to discriminate against any particular country, showed that the United States was very much a major force inside the WTO.

The terms and content of the US assurance to the EU are not fully known. In the case of Japan, it has been assured that the access of its firms to the US market, would not be affected -- an assurance that was given by the US Treasury, but which Japan got reiterated at the level of President Clinton, to discourage future US unilateralist "retaliations" in this sector.

Several of the other delegates from countries parties to the interim deal and protocol said that whether the private assurances or side-letters from the US amounted to the same or not, the fact was that none of the developing countries were seeking, now or in the near future, competitive presence on the US financial markets.

And under the US juridical system, neither the administration nor the various statutory bodies dealing with these questions, could in fact discriminate against any country on an executive fiat. Congress would have to adopt specific legislation -- and this issue has become tied up by the wider questions about US Financial Services legislation -- where various competing interests have in fact held up the bills.

And while, the US is often crude and blunt in its pressures, nevertheless the US system is an "open" and "transparent" process -- whether the legislative process in Congress or administrative actions, where public notice has to be given, views heard, and decisions challengeable. The EU process, and much more that of Japan, are not at all transparent. And often, the EU takes shelter behind the actions or postures of their member-governments and their regulations. It also uses its enormous weight, and trade preferences and other aid it could grant or withhold, to arm-twist others, the diplomat added.

While all the 29 participants in the negotiations and parties to the protocol have done so on an MFN basis, a cursory glance through the schedules shows that implicitly, or with different wordings, or some explicitly have in fact some MFN reservations: in terms of their domestic laws requiring 'reciprocity' of treatment to countries who deny to their enterprises equal treatment.

Malaysia, Venezuela, India and Philippines have either entered some MFN reservations, or left their earlier (Dec 1993) schedules unchanged in wording. In other cases, this is implicit.

But all of them have made clear that it was not intention to discriminate either. Some privately also explain that it was not tactical to get into a domestic political fight to remove such provisions over an interim accord, and their positions have been fully set out and explained to their major trading partners.

In the case of 'movement of natural persons' -- which is the fourth mode of delivery envisaged in the GATS agreement for delivery of services -- the Marrakesh decision extending the negotiations, while providing for countries taking an MFN reservation at end of the period, only provided for "improvements" of offers and commitments on movement of natural persons.

In December 1993, most of the countries had only provided for some commitment as part of their commitment for 'commercial presence'. Only the US (among industrialized countries) at that time had made a horizontal commitment in terms of the fourth mode of delivery for services. This remains as part of its GATS schedule.

Canada has now entered a new specific commitment (unrelated to commercial presence) in respect of foreign legal consultants, urban planners and senior computer specialists, with some stipulated educational qualifications and other requirements.

The EU has now listed this possibility across a wide range of service sub-sectors, but specific to some of its member-States -- like Belgium, Denmark, Netherlands, Germany and UK, with some qualification and/or economic needs tests.

The schedules covered by the protocol are expected to be published by the WTO soon, when a more detailed analysis could be possible.