US to "pry open" financial services markets

by Chakravarthi Raghavan

GENEVA: Top US trade and treasury officials are planning visits to key Asian capitals - Tokyo, Seoul, New Delhi, Jakarta, Kuala Lumpur, Bangkok, Manila and Singapore - in an effort to pressure and persuade them to open up their financial services markets and table liberalized offers in the WTO negotiations, according to US officials here and in Washington.

The US tabled on 14 July 1997, its "improved" offer, combining it with an offer to provide Most-Favoured-Nation (MFN) treatment, in the financial services talks, conditional on key emerging economies and Japan improving their own offer and liberalizing their financial services markets.

The US offer

The US offer is said to open its liberalized financial services market on an MFN basis to all foreign suppliers (among WTO members) - allowing new entrants as well as existing players in the US market to expand their activities by branching out into other financial service sectors and activities, as well as be in the same position as US banks in terms of expansion into other states of the US.

Paradoxically, if it succeeds in its present ploy, and does manage to secure a more liberal financial services package, with the "emerging" markets providing more liberal access now, and assurances of eliminating other restrictions over a short time-span, it would strengthen the view in Washington that it should focus on "sectoral" negotiations where it can gain more than on any "new Round".

By forcing countries into sectoral negotiations, the US has gained in basic telecommunications, in information technology, and is staking out a claim for "free trade on Internet" - with no governmental controls, regulations or tariffs and so on.

The negotiations are running to a deadline of mid-December - the date when countries have to exercise their option of either leaving their own financial services schedules at the WTO as is, or revise it in any way, including filing an MFN exemption clause and guaranteeing only access to their markets when the Round was concluded.

This option can be exercised by all those (92 countries) who scheduled their financial services concessions as part of the Uruguay Round schedules when that Round was concluded or those 43 countries (28 plus the 15 EU members) who filed improved schedules in 1995 when the talks were resumed (but failed because of the US entering a MFN exemption, guaranteeing only existing access to existing players on the US market). When the US at the last moment went back on its position and filed an MFN exemption, the financial services talks (continued after Marrakesh) collapsed. But the EU persuaded others to leave their offers on the table, with the option of revising it by mid-December 1997, if the resumed talks in 1997 did not succeed in changing the US mind.

The financial services talks, as a part of the Uruguay Round negotiations, has had a chequered history, and is part of the US attempts to pry open foreign markets for its corporations in sectors where the US economy is strong and competitive, while keeping up and increasing the barriers to foreign suppliers in sectors where the US is no longer competitive.

Reciprocal basis

In the final stages of the Uruguay Round negotiations in October 1993, the US came up with the proposition for a two- tier financial services sector deal: a US general schedule assuring existing access to its markets to existing foreign suppliers, and a more and fully liberal access to countries on a reciprocal basis.

Suddenly it announced that it was not satisfied by the package of financial services offers on the table and was therefore going to file an MFN exemption position.

This met with a strong negative reaction from the Uruguay Round negotiators, and even threatened to wreck the entire services negotiations.

Then US Treasury Under-Secretary, Lawrence Summers, came to Geneva to persuade negotiators to agree to a two-tier approach, but failed.

Then in December 1993, just when the Uruguay Round negotiations were to be concluded at the official level, and schedules had to be filed and scrutinized, the US said it would take an MFN exemption on financial services - guaranteeing existing access to all foreign suppliers, but providing future access, either for new entrants or expansion of activities of existing entrants on a reciprocal basis.

There was such an uproar, with several countries either threatening to take back their own offers, or some filing revised (and reduced) market openings, that ultimately it was decided that the financial services talks would be continued after Marrakesh, and that by a deadline of six months after entry into force of the WTO (that is, 30 June 1995), countries who have filed schedules would be able to revise them, including in terms of their taking an MFN exemption.

When the talks were resumed in earnest, after the WTO came into force, of the 92 WTO members who had filed schedules, some 43 (the 15 EU member countries and 28 others) negotiated, and many of them filed improved offers.

While initially the US negotiators in Geneva seemed satisfied that this was the best that could be done, Washington changed its mind (under pressure from its financial services lobbies) and said it would file an MFN-exemption clause.

With others then stating that they would do the same, or completely withdraw their financial services schedules, the EC tried to broker a deal of sorts, by persuading countries to keep their schedules and revised offers on the table, resume the negotiations in 1997, working to a mid-December deadline when they could exercise their option of improving their offers, revising them downwards, and/or filing their own MFN exemption provisions in their schedules as the US had.

In the resumed negotiations, while a 14 July deadline was set, many of the developing countries made clear that they would not be able to make any changes or improvements, if any, by then.

The EC filed a revised offer late June, while the US filed its new offer on 14 July. Hong Kong, Japan, Switzerland and Bahrain have filed revised and improved offers.

Canada and Australia have said they would file revised offers, but these were still to be filed.

US officials have said they were "disappointed" with the Japanese revised offer, and that they wanted the "emerging" economies of Asia, and Latin America like Brazil, to greatly improve their offers and throw open their banking, securities, insurance and other financial services sectors to foreign competition.

A US team with Jeffrey Lang (Deputy US Trade Representative) and a top official from the US Treasury are planning a tour of the Asian capitals in August. Tokyo, Seoul, Manila, Singapore, Bangkok, Kuala Lumpur and New Delhi are among the capitals on their itinerary.

However, the effort to persuade Asian countries to liberalise their financial services markets comes at a time when the Asian economies are facing strains and problems as a result of speculators moving on their markets, taking advantage of their existing levels of liberalisation and currency convertibility.

Turmoil in the Asian currency markets

Thailand, which probably among the Asian emerging markets, had gone the farthest in terms of liberalisation, has already been battered and has had to devalue its baht. After resisting, Manila has followed suit, and Kuala Lumpur has also allowed the Ringgit to fall.

Reports from Asian financial markets on 15 July, spoke of speculators moving in on market after market (where currencies have been more or less pegged to the US dollar), and making their kill, betting that their central banks and governments can't withstand pressures for long and would be forced to allow the currencies to drift down.

South Korea is still facing the aftermath of its political crisis and its effects on financial services sectors, as well as its manufacturing sector.

And when Lang goes to New Delhi, he will be dealing with a government (at least, its finance ministry) which might want to liberalize its financial services sectors, but facing a public opinion which sees the contrast of the US using all tactics to break open Indian markets, while the US's own markets are closed.

In June, the US prevented a consensus in the WTO/GATT balance of payments committee over an Indian official plan to eliminate quantitative restrictions (QRs) maintained for BOP reasons, demanding that India should remove them faster than the 9-year phase-out, subsequently revised downwards to 7 and then to 6.

The US, EC and others have threatened to take India to the WTO dispute settlement process over the quantitative restrictions, where they hope to win, and force India to remove them all, over a maximum of two years.

When US officials were asked about the double-standard and unfairness of the US being able to maintain after 30 years, of a discriminatory textiles and clothing regime, the quota restrictions for another 10 years, while demanding immediate phase-out of India's quantitative restrictions under the BOP, US officials privately said "It's an unfair world and you have to live in it".

And in one media interview, another US official said that Indian financial officials want to "liberalize" the economy and remove all restrictions, while only the trade officials were opposing, and thus the US moves to take India to a panel process would be welcomed by sections of the Indian government.

Even if this were true, and Indian financial officials would indeed like to 'oblige' by agreeing to more liberalisation, the coalition government in New Delhi would find itself in more domestic political troubles.

During the Uruguay Round, then US Trade Representative (USTR) Carla Hills told the US Senate, she would use a crowbar to pry open foreign markets for US exports.

The present USTR, Ms. Charlene Barshevsky, and her hard- line deputy Jeff Lang, have made no secret of their intent to pry open foreign markets (while acting in every way to shelter their domestic market), not with a crowbar, but with sectoral negotiations and the use and misuse of the WTO's dispute settlement machinery. (TWE 166, 1-15 August 1997)

Chakravarthi Raghavan is the Chief Editor of the South-North Development Monitor (SUNS) from which the above article first appeared.