TWN Info Service on Finance and Development (Apr11/04)
19 April 2011
Third World Network

G-20 action needed on WTO financial deregulation, say NGOs
Published in SUNS #7131 dated 15 April 2011

Geneva, 14 Apr (Kanaga Raja) -- More than 125 civil society organizations have urged the finance ministers of the G-20 to call for a thorough review and reform of existing World Trade Organization (WTO) financial services rules to ensure that they provide countries with the policy space needed to implement sound financial re-regulation.

In a letter sent to the G-20 finance ministers, who are meeting in Washington DC on 14-15 April, the organizations said that success on the laudable G-20 goal of ensuring financial stability requires changes to the existing WTO rules covering the financial sector and changes to the Doha Round agenda with respect to financial services.

The letter amongst others urges a series of steps that the groups said the G-20 should take, including addressing WTO de-regulation in upcoming Communiques, negotiation of a meaningful WTO safeguard for financial regulation, and suspending elements of the Doha Round negotiations that would expand existing financial regulatory limits.

[The letter comes as WTO Director-General Pascal Lamy informed delegations that he would be convening an informal meeting of the Trade Negotiations Committee (TNC) on 29 April at the level of heads of delegation, the purpose of which he said is "to give delegations the opportunity to consider next steps."

[In a fax sent to delegations, the WTO head also said that on 21 April, the Chairs of the negotiating groups will be circulating "documents", which represent "the product of the work in their Negotiating Groups."

[Lamy's use of the word "documents" - rather than revised draft texts - seems to suggest that the Chairs may not now be coming out with draft texts that the Director-General had previously said, on a number of occasions, that they would by Easter.

[Lamy also informed delegations that the "documents" by the Chairs issued on 21 April would be accompanied by an introductory report by him, as TNC Chair, in which he will report on the consultations that he is currently conducting - namely, on the impasse in the Doha talks particularly on the sectoral initiative in non-agricultural market access (NAMA).

[Trade diplomats from several key developing countries have privately indicated that any of these Chair's "texts", "documents" or "documents with ‘texts' as annexes" could not be endorsed by them or their countries, as there has not been any discussion after the July 2008 texts.

[These diplomats have underlined that the gap between the "demandeurs" (namely, the US and EU) and the others, mostly the major emerging economies, is as wide as the distance between the moon and the earth, and the demandurs have to come down to earth. Major emerging economies that are being "targeted" by the US and EU would not be able to make any more concessions and would say "NO", they added.

[Some of them also suggested that all the discussions would now appear to be on how to "make a soft landing" and put the Doha talks in some cold storage, without saying so. Linked to this are ideas as to what texts would be "frozen" to ensure that ten years of work are not lost. Ideas floating around include both the July 2008 package of texts, as well as all the papers, formal and informal, on the table. A few key diplomats also say they will refuse to agree to freeze on the basis of any texts that are tabled now, and that go beyond the 2008 July package.

[According to a Reuters news report of 13 April, the trade ministers from the BRIC countries of Brazil, Russia, India, China, and new member South Africa, in a media statement on the eve of their summit, said that "The delicate balance of trade-offs achieved over 10 years of negotiations and contained in the draft July 2008 texts risks being upset." The Reuters report quoted them as stressing that "Ministers remain willing to conclude the round on the basis of those draft modalities."

[Meanwhile, Director-General Lamy met Wednesday with the G-90 coalition at the WTO - comprising the African Group, the ACP group and the Least Developed Countries - at which he reported on his consultations so far with key members on the NAMA sectoral issue. According to a particpiant at that meeting, Lamy told the G-90 that the gaps on the sectoral issue are too far apart and are "unbridgable". The trade diplomat told SUNS that this sounded like "an obituary for the Doha Round." - SUNS]

A press release issued by the "Our World Is Not for Sale Network", a loose grouping of organizations, activists and social movements, highlighted that the gap between the WTO's 2001 Doha Round agenda and the global reality in 2011 is nowhere more stark than in the WTO's continuing push for more financial deregulation in the wake of the financial crisis.

The organizations, which include labour, environmental, farming, faith, and trade and finance groups, said that despite the G-20's proclaimed mission of restoring financial stability and taking proactive measures to avoid future crises, the G-20 communiques have repeatedly called for a swift conclusion of the WTO Doha Round - despite further deregulation being one of the three pillars of the Doha Round.

The NGO letter was signed by amongst others, European Network on Debt and Development, People's Health Movement Global, Public Services International, SEATINI, ATTAC (Hungary, Japan, Norway, Spain), The Berne Declaration, Brazilian Institute of Social and Economic Analyses (IBASE), The Congress of South African Trade Unions (COSATU), Friends of the Earth (US), IBON Foundation, and the Institute for Agriculture and Trade Policy (IATP).

Other signatories include the Agency for Cooperation and Research in Development (ACORD), Brazilian Network for People's Integration, Hemispheric Social Alliance, the Pacific Network on Globalization (PANG), the Institute for Global Justice, Jubilee Debt Campaign, Navdanya, Public Citizen, Research Foundation for Science, Technology and Ecology, Social Watch, Third World Network-Africa, Transnational Institute, War on Want, and the World Development Movement.

"We call on G-20 governments to ensure that they protect the right and ability of countries to apply policies that safeguard their national financial stability," said Peter Waldorff, general secretary of Public Services International. "This includes ensuring changes are made to WTO rules to restrain the financial sector from acting with impunity across borders."

"Implementing the G-20's ambitious goals to stabilize the global economy will require changes to existing WTO rules that domestically lock in - and export worldwide - the extreme financial services deregulation agenda that contributed to the global economic crisis," said Lori Wallach, director of Public Citizen's Global Trade Watch.

"It also will require replacing the 2001 WTO Doha Round financial deregulation agenda with a new approach focused on liberating from the WTO's constraints the domestic policy space that is needed to re-regulate the runaway financial services industry and stimulate the economy," she added.

In their letter to the G-20 finance ministers, the civil society groups expressed concern that important financial reform policies that both G-20 governments and non-G-20 governments seek to implement in order to prevent future crises are already at risk.

They noted that "leading trade negotiators, economists, financial experts and trade lawyers have warned that current WTO provisions covering financial services restrict countries' use of important financial regulatory measures. This includes some policies promoted by the G-20, such as those to avoid rapid inflows and outflows of capital and those designed to limit the risks derivatives trading can pose to commodity price anomalies and financial stability."

At the heart of the problem, they emphasized, is the manner in which some of the key rules of the WTO's current General Agreement on Trade in Services (GATS) text conflate liberalization and deregulation.

"When a country commits a financial sector to liberalization under the GATS rules, the country is simultaneously bound to not maintain or establish a list of non-discriminatory regulatory measures relating to management of capital inflows and outflows, bans of especially risky financial products and services, and more."

And, these WTO rules are strongly enforced, including with the imposition of trade sanctions for countries that fail to conform their domestic policies to the WTO regulatory constraints.

In contrast to this system of strongly enforced deregulatory global financial governance, the letter notes, the various G-20 Communiques' commitments are not subject to any system of enforcement. Indeed, implementation of G-20 commitments and recommendations by WTO signatory countries in their domestic laws could put them in conflict with their WTO obligations.

"The very threat of the resulting WTO litigation and prospective sanctions poses a chilling effect on the re-regulation supported by the G-20 and governments worldwide," the groups warned.

The groups noted that the UN Commission of Experts on International Financial and Monetary Reforms, which included distinguished academics, former finance ministers and central bank heads from around the world and was chaired by Nobel-prize winning economist Joseph Stiglitz, issued the following warning about the WTO financial services rules: "Agreements that restrict a country's ability to revise its regulatory regime - including not only domestic prudential but, crucially, capital account regulations - obviously have to be altered, in light of what has been learned about deficiencies in this crisis. In particular, there is concern that existing agreements under the WTO's Financial Services Agreement might, were they enforced, impede countries from revising their regulatory structures in ways that would promote growth, equity, and stability."

The UN Commission's analysis and concerns have been echoed by an array of trade and financial regulatory scholars and analysts. They have also noted that the existing WTO provision that a country could employ as a defense were its prudential financial regulations challenged does not provide a meaningful safeguard, says the NGO letter.

The letter points to a paper tabled by Barbados last month, which examines numerous ways in which current WTO rules conflict with common financial regulatory policies. The paper suggests that various financial reform measures undertaken by the European Union and the United States are in violation of WTO rules, the letter adds. (See SUNS #7116 of 25 March 2011, for details of the Barbados paper.)

[Several key developing countries, and their trade and finance experts, are opposed to and chary of the Barbados paper, and its proposals for amending "retrospectively" the Understanding on Commitments in Financial Services (appended as an additional modality to the Marrakesh Final Act), nor the idea of amending the current prudential carveout in the Financial Services Annex to GATS, to do away with the proviso against circumvention of commitments under the guise of prudential measures. Some are also intrigued by the Barbados proposal, since the only commitment Barbados has made under financial services appears to be on "Reinsurance". - SUNS]

"However, despite these warnings, efforts to expand WTO financial services liberalization under the current rules continue in the context of WTO Doha Round as if there had not been a crisis or development of a new global consensus in favour of more robust regulation of the financial sector," the groups complained in their letter.

Indeed, they stressed, the Financial Services Collective Request made in 2006 and hundreds of bilateral requests demanding that countries commit additional financial sectors to the current WTO rules remain unchanged.

"In addition, Doha Round negotiations to establish new, additional constraints on domestic regulation continue. This includes the efforts by the Working Party on Domestic Regulations to establish a new cross-cutting set of regulatory limits and the plan to adopt the 1998 Disciplines on Domestic Regulation in the Accountancy Sector, which would constrain governments' regulatory polices in that sector."

"Despite the stark conflict between the current Doha Round deregulatory agenda with respect to financial services and the G-20's call for improved financial regulation, G-20 Communiques have repeatedly called for a swift conclusion to the WTO Doha Round," said the groups, adding: "We ask that you address this risky disconnect".

"We urge you to include in your forthcoming Communique a call for a thorough review and reform of the existing WTO rules to ensure that they provide countries with the policy space needed to implement sound financial re-regulation. We also urge you to call for negotiation of a meaningful new WTO safeguard for financial regulation and a suspension of Doha Round-related negotiations that would expand on the existing financial regulatory limits."

"These steps are necessary so that governments may re-regulate their financial systems without threat of WTO penalty," the NGO letter stresses.

"It's time to end the Doha Round negotiations and to try a new way that reflects the severe financial and economic challenges countries are facing in the wake of the financial crisis," said Adhemar Mineiro from the Brazilian Network of People's Integration.

"If the G-20 is serious about its goal of ensuring financial stability, G-20 finance ministers must take action to prevent international commercial agreements from undermining the financial reforms the global economy desperately needs," he added. +