"Substantial harvest" in financial talks, says WTO head

by Chakravarthi Raghavan

GENEVA: On 8 December, with five days left to meet the deadline (on 12 December), the WTO/GATS negotiations on financial services liberalization resumed, with eight more countries tabling offers, bringing the total to 46 offers from 60 countries (treating the EC as 15).

Those who tabled their new or improved offers were: Mexico, Jamaica, Ghana, Kuwait, Pakistan, Malaysia, the Dominican Republic, Nicaragua and Brazil.

Malaysia, which has improved its offer (as announced earlier) and has agreed to a 51% majority ownership in the insurance sector, has however, not yielded to the US demands to "grandfather" existing 100% equity ownership of one of the US companies - the AIG insurance conglomerate.

Malaysian officials noted that "grandfathering" in GATT terminology really meant that existing laws of countries, contrary to trade rules, would be valid. When GATT came into being in 1947, all contrary US laws were thus "legitimized"; using that term in the financial services talks seems to have quite the opposite meaning.

Since the last meeting of the Committee on Trade in Financial Services (CTFS) in November, offers had also been submitted by Chile, Poland, Cyprus and Bulgaria.

Indonesia and Thailand announced on 8 December, that they would be tabling their offers and indicated, according to trade officials, that rights of existing operators on their market, with equity ownership higher than in their scheduled offers, would be protected. Colombia also was said to be in the process of tabling its offer soon.

India was still expected to table a revised offer. But trade officials noted that with Parliament dissolved and a forthcoming election in process, with only a caretaker government in place in New Delhi, it was difficult to expect any major improvements, and the revised offers could at best represent policy already decided by government.

While many delegations said that any assessments of the package on the table would need to await detailed scrutiny of the offers, the WTO Director-General, Renato Ruggiero, in a statement issued to the media said that a "substantial harvest" was on the table and these should not be lost (by not concluding the deal). "We have reached a point where decisions on this deal will be mainly political," he added.

Ruggiero stressed that a new round of services negotiations (covering all sectors, and thus financial services) was anyhow due in 2000 - presumably implying that even if it did not meet all the demands (of the US), these could be taken up in the next round.

The US position

Trade officials said that whether a deal could be struck or not depended on the United States.

The US position was described in media reports as having become complicated in the aftermath of the interim ruling from a WTO panel which appears to have rejected the US complaint against Japan (in the Kodak vs Fiji photo-film case), that the Japanese government practices had prevented foreign competition.

Soon after the news of the interim ruling, made available to the two parties on 5 December evening, became known, with Kodak and a few Congressmen denouncing it, the US Trade Representative, Ms Charlene Barshefsky, was reported as saying that she was weighing all options, including the possibility of unilateral trade sanctions under the US "Super 301 law". And US media reports said because of this "adverse" ruling, the US might find it difficult to accept a financial services package that some sections of industry, in particular the AIG insurance firm, do not find attractive.

Other trade diplomats who did not want to be identified said that this was a strange argument, but that if the US walked away again, it would be a case of giving up the bird in the hand for the chance of gaining two in the future.

Several negotiators said that they did not find any great pressures or tensions - unlike those evident for example, when the basic telecommunications deal was being negotiated and concluded earlier this year.

But it was not clear whether this meant that the US and EC, the two major demandeurs, have realized that nothing further could be got and it is best to conclude the negotiations and accept the package, or whether the US would still pull out.

The US announced at the meeting that it was putting in a revised offer, incorporating some "technical" changes. Trade officials said that this would clarify the restrictions on inter-state banking in line with the latest US Federal legislation.

Among the new offers, Brazil's was described as involving considerable improvement in insurance and re-insurance - where there is a public sector monopoly and is in a transitional phase towards greater competition. There would also be substantial improvements in the banking sector, it was explained by trade officials, who however, said that a detailed scrutiny would be needed to make a clear assessment. From the explanations and clarifications by trade officials involved it was not clear whether the improvements and market openings promised would take effect 30 days after entry of the financial services protocol (in 1999) or intent to be effective at some future date.

Among others, Japan which is under pressure from the EC to multilateralize its bilateral agreements (on liberalizing some financial sectors, including insurance) is reported as being in discussion with some trading partners on this issue. Japanese officials said that these related to trading partners too, multilateralizing their bilateral accords.

A series of bilateral meetings and contacts are taking place, with another meeting of the Committee, at an informal level, expected on 10 December afternoon.  (Third World Economics No.175, 16-31 December 1997)

The above article was originally published in the South-North Development Monitor (SUNS) of which Chakravarthi Raghavan is the Chief Editor.