Will US campaign-funders sink WTO deal again?

GENEVA: On 10 December, with 48 hours to go for the conclusion (on 12 December) of the Financial Services trade talks, media reports that the US insurer, American International Group (AIG), which contributes handsomely to election funds of both parties, and key Senators, was calling the shots to block a deal.

In 1995, at the instance of the AIG, American negotiators at the very last minute, scuppered a financial services deal and filed Most-Favoured Nation (MFN) exemptions, guaranteeing only existing access to existing suppliers in its market.

The view that bilateral pressures and threats of reciprocity would bring the developing countries to yield to the Americans have not succeeded.

Earlier this year, before the Asian crisis, there were reports that most of the US financial service industries had come around to the view that a WTO deal would be better, even if there was no full liberalization now.

But in the aftermath of the crisis, and the IMF conditionality packages that are forcing major Asian countries to yield, through conditionality, what they have been refusing to do at the WTO, appears to have encouraged the US private sector to take a harder line, arguing that "full liberalization" by developing countries was anyhow on the way, and why yield to something less at the WTO.

A report in the Wall Street Journal, and other reports in the US media over the last few days, have identified the AIG as the one that forced the US government to walk away from a deal in 1995, and that the AIG, and its Congressional supporters (including Republican Senator, Alfonso D'Amato and Democratic Senator, Paul Sarbanes) have been pressing the administration not to agree to a deal that does not guarantee AIG's continued full ownership of the insurance business in developing countries, even though the countries concerned commit themselves only to a lower level of equity at the talks.

AIG head, Maurice "Hank" Greenberg has been quoted in the WSJ as saying that the US had no business opening up its insurance markets to foreigners, unless the foreigners do the same to the US insurers. But developing country insurers, or banks and other such financial service firms, are not exactly queuing up to enter the US market, and "compete" and benefit. It is all a one-way deal, with US insurers benefiting by earnings and profits from the developing world (some of which, the AIG has apparently used for campaign funding).

The AIG connection

The AIG and its head, M. Greenberg, were heavy contributors to both parties, the WSJ report said, citing the Washington- based Center for Responsive Politics, which tracks campaign funding. The AIG and its "political action groups" are said to have given $485,440 to Republican candidates and $442,990 to Democratic candidates. D'Amato, a recipient of such funds, the WSJ said, had sent letters to Treasury Secretary, Robert Rubin, and US Trade Representative, Charlene Barshefsky urging a tough stance, and that there had been a similar letter from Sarbanes.

With the US funding of the IMF, and IMF policies in the Asian crisis, already under fire in the WTO, the administration is portrayed as not wishing to upset the IMF funding, and hence more likely not to clinch a deal.

There were reports at the WTO corridors on 10 December, that there could be last-minute efforts to continue the negotiations, or roll over or extend the existing ad hoc agreement of 1995, to the year 2000 with the second round of services negotiations to take place then.

But several developing countries were concerned that such a move would not only mean more pressures on them (from the US, the WTO head and the IMF acting to push the US trade interests), but would weaken their hands in other negotiations.

As it is, the developing countries have been frustrated by the way the Agreement on Textiles and Clothing (ATC) is being implemented, without any commercially meaningful trade liberalization. And there is now talk that this issue should be part of the next round. As one developing country diplomat said: "We have already paid a very heavy price for the ATC, and we are now going to be asked to pay more for the developed countries merely carrying out their commitments."

However, unless the developing countries, or at least the major ones who are the targets, take a stand and insist that either a deal be struck now on financial services or everyone should be able to exercise their options and withdraw and modify their offers, including those set in the 1995 accord, they would lose the game.

The WTO Committee on Trade in Financial Services (CTFS) was due to hold on 10 December evening, an informal high-level meeting, with participation of finance and trade officials from capitals, to take stock.

US officials would not say whether the package of offers on the table would satisfy the US and an accord could be concluded.

"It will go down to the wire," the official said.

Ruggiero, on 8 December, had said (after the CTFS meeting) that the offers on the table was a "substantial harvest" and the decision to conclude was now a "political one" - remarks which were clearly directed against the US, and one to which the US officials reportedly have taken objection.

The WTO head, over the last several weeks, in talks with developing country officials during his travels around the world, and by phone from Geneva, has been applying pressure on them to put substantial offers of liberalization on the table - even as their economies were being hit by speculators taking advantage of the existing levels of liberalization and access to their foreign exchange and equity markets for foreign funds and operators.

The WTO and the International Monetary Fund (which has succeeded in bringing Asia firmly under its control and hegemony) have been promoting the view that the solution to the financial and economic crisis of these countries lie in more liberalization, and allowing more foreigners to come in and take over domestic enterprises.

In addition, the WTO has been advancing the view that developing countries could protect their economies through prudential regulations and safeguards. But their arguments and reasonings are wearing thin.

A number of mainstream orthodox economists, and economic writers of the pro-business Western media, have been challenging the view that the problems of the financial and economic crisis in Asian countries could be cured by a faster pace of liberalization of capital flows.

It is not only heterodox economists who have been critical of the IMF's conditionality policies and the WTO's pressures on the developing world to liberalize the financial sector which would benefit US and EC corporations. A wide swathe of mainstream orthodox economists have been equally critical.

While these are in the context of the IMF conditionalities, they have equal validity and application to the WTO drive for financial liberalization.

Martin Wolf, a Financial Times columnist, writing on 9 December, said that "by insisting on faster liberalization of capital inflows, the IMF may exacerbate financial vulnerability".

US and WTO pressures on Malaysia

Whether, under US or IMF pressure, some of the other ASEAN countries (Indonesia, the Philippines and Thailand) where the AIG operates, have been reported as having agreed to commit themselves in their financial services schedules, that whatever the level of equity ownership they agree for everyone, those holding more equity now could continue to hold it.

Malaysia, where as a part of what is described as "social engineering", there is a law requiring local participation in equity, has been balking at this demand. It has agreed only to 51% ownership.

The full blast of media attention, and US and WTO pressures appear now to be directed at Malaysia - portraying it as one likely to sink the deal, and thus being set up for blame.

Whether it would influence Malaysia to yield is not clear.

But trade diplomats in Geneva have said that the WTO head has been on the phone to Kuala Lumpur, trying to persuade the Finance Minister, Mr. Anwar Ibrahim, to yield over the AIG issue.

But Anwar has been quoted by the media, after the telephone talk, as saying that Malaysia could not do so. (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.