Optimism over new financial services deal

Date: 12/06/1997

By Chris Johnstone

CAUTIOUS optimism appears to be the order of the day in the EU and its thriving financial services sector as countries decide whether to advance to a more open trading environment, stall or even step back from agreed liberalisation.

The omens appear promising that enough countries will sign up to a market-opening deal which would benefit banks and insurance companies when the World Trade Organisation talks on financial services culminate at the end of the year.

In 1995, when the main guest - the United States - refused to turn up for the final talks, the process was only rescued from catastrophe by the EU stitching together a financial services accord regardless.

This time, Washington has agreed to take part in initial negotiations and, unlike last time around, has promised to table its own market-opening offer. Nevertheless, it is still warning that it will not show up at the final event if it is not happy with the other guests and their proposed treatment of US firms.

Failure this time would not only add up to a lost opportunity to move forward, but could also mean countries backtracking on existing commitments.

Trade Commissioner Sir Leon Brittan's team is preparing a new invitation, in the form of an improved offer, to encourage the rest of the world to produce results.

Officials are currently casting around for ways to make the Union's existing offer more appealing in order to give an extra push to the contributions from other countries. The result should be discussed by member states on 24 June and tabled at the WTO in mid-July.

Unfortunately, the EU can only give a limited impetus to the procedure. The Union already claims the moral high ground in the area of financial services with the most open market in the world, and the new offer is unlikely to make that much difference.

Foreign firms are already free to open banking and insurance businesses on Union soil and the extra titbits Sir Leon is throwing in will merely serve to oil the hinges of an already open door. At best, the move will have some effect in encouraging others.

Those in need of most encouragement come from fast-developing countries, especially in Latin America and South East Asia. (The Asian offers were cited by the US as the reason for its absence in 1995.)

Here, according to the European financial services sector, the US stance is complicated by internal rivalry between its domestic companies.

The big boys already established on the financial services market have, in some cases, won concessions on such issues as share participation in local banks and insurers which go beyond what these countries are prepared to offer.

Giants like the American Insurance Group are pushing the Clinton administration to 'grandfather' their existing privileged positions in any new offers. Home-bound market minnows are simply looking for the door to be opened so they can operate easily on foreign soil.

“The hardliners appear to be coming back in the US. If we do not have a grandfathering of the big companies' rights there could be problems for the whole deal,” said a spokesman for the Banking Federation of the European Union.

The federation, European Insurance Committee, and British Invisibles, a lobby for the UK financial services sector, are meeting regularly with their counterparts in the US Coalition of Service Industries to pinpoint obstacles and pave the way for a world agreement.

Problems could also be posed by the Americans' demanding deadlines for market opening. They are said to be keen to see delivery within five years but with some countries, such as Indonesia, talking about completing its liberalisation by 2020, they risk being disappointed.

On the surface, the issues between the EU and US appear less complicated.

But while European banks and insurance companies already have the right to set up in the US, many hurdles still face deals across state boundaries and between financial sectors. European companies would like a WTO agreement to speed up the pace of existing reform and give them the framework to discipline the US if it drags its feet.