[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]




 
                       INCREASING EFFICIENCY AND
                        ECONOMIC GROWTH THROUGH
                      TRADE IN FINANCIAL SERVICES

=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                       DOMESTIC AND INTERNATIONAL
                 MONETARY POLICY, TRADE, AND TECHNOLOGY

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                           NOVEMBER 15, 2005

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 109-63


                    U.S. GOVERNMENT PRINTING OFFICE
26-757                      WASHINGTON : 2006
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512ï¿½091800  
Fax: (202) 512ï¿½092250 Mail: Stop SSOP, Washington, DC 20402ï¿½090001


                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa                 BARNEY FRANK, Massachusetts
RICHARD H. BAKER, Louisiana          PAUL E. KANJORSKI, Pennsylvania
DEBORAH PRYCE, Ohio                  MAXINE WATERS, California
SPENCER BACHUS, Alabama              CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware          LUIS V. GUTIERREZ, Illinois
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma             MELVIN L. WATT, North Carolina
ROBERT W. NEY, Ohio                  GARY L. ACKERMAN, New York
SUE W. KELLY, New York, Vice Chair   DARLENE HOOLEY, Oregon
RON PAUL, Texas                      JULIA CARSON, Indiana
PAUL E. GILLMOR, Ohio                BRAD SHERMAN, California
JIM RYUN, Kansas                     GREGORY W. MEEKS, New York
STEVEN C. LaTOURETTE, Ohio           BARBARA LEE, California
DONALD A. MANZULLO, Illinois         DENNIS MOORE, Kansas
WALTER B. JONES, Jr., North          MICHAEL E. CAPUANO, Massachusetts
    Carolina                         HAROLD E. FORD, Jr., Tennessee
JUDY BIGGERT, Illinois               RUBEN HINOJOSA, Texas
CHRISTOPHER SHAYS, Connecticut       JOSEPH CROWLEY, New York
VITO FOSSELLA, New York              WM. LACY CLAY, Missouri
GARY G. MILLER, California           STEVE ISRAEL, New York
PATRICK J. TIBERI, Ohio              CAROLYN McCARTHY, New York
MARK R. KENNEDY, Minnesota           JOE BACA, California
TOM FEENEY, Florida                  JIM MATHESON, Utah
JEB HENSARLING, Texas                STEPHEN F. LYNCH, Massachusetts
SCOTT GARRETT, New Jersey            BRAD MILLER, North Carolina
GINNY BROWN-WAITE, Florida           DAVID SCOTT, Georgia
J. GRESHAM BARRETT, South Carolina   ARTUR DAVIS, Alabama
KATHERINE HARRIS, Florida            AL GREEN, Texas
RICK RENZI, Arizona                  EMANUEL CLEAVER, Missouri
JIM GERLACH, Pennsylvania            MELISSA L. BEAN, Illinois
STEVAN PEARCE, New Mexico            DEBBIE WASSERMAN SCHULTZ, Florida
RANDY NEUGEBAUER, Texas              GWEN MOORE, Wisconsin,
TOM PRICE, Georgia                    
MICHAEL G. FITZPATRICK,              BERNARD SANDERS, Vermont
    Pennsylvania
GEOFF DAVIS, Kentucky
PATRICK T. McHENRY, North Carolina
CAMPBELL, JOHN, California

                 Robert U. Foster, III, Staff Director
Subcommittee on Domestic and International Monetary Policy, Trade, and 
                               Technology

                       DEBORAH PRYCE, Ohio, Chair

JUDY BIGGERT, Illinois, Vice Chair   CAROLYN B. MALONEY, New York
JAMES A. LEACH, Iowa                 BERNARD SANDERS, Vermont
MICHAEL N. CASTLE, Delaware          MELVIN L. WATT, North Carolina
FRANK D. LUCAS, Oklahoma             MAXINE WATERS, California
RON PAUL, Texas                      BARBARA LEE, California
STEVEN C. LaTOURETTE, Ohio           PAUL E. KANJORSKI, Pennsylvania
DONALD A. MANZULLO, Illinois         BRAD SHERMAN, California
MARK R. KENNEDY, Minnesota           LUIS V. GUTIERREZ, Illinois
KATHERINE HARRIS, Florida            MELISSA L. BEAN, Illinois
JIM GERLACH, Pennsylvania            DEBBIE WASSERMAN SCHULTZ, Florida
RANDY NEUGEBAUER, Texas              GWEN MOORE, Wisconsin
TOM PRICE, Georgia                   JOSEPH CROWLEY, New York
PATRICK T. McHENRY, North Carolina   BARNEY FRANK, Massachusetts
MICHAEL G. OXLEY, Ohio


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    November 15, 2005............................................     1
Appendix:
    November 15, 2005............................................    43

                               WITNESSES
                       Tuesday, November 15, 2005

Bliss, Christine, Acting Assistant U.S. Trade Representative for 
  Services and Investment, Office of the United States Trade 
  Representative.................................................     7
Champion, Madeleine L., Managing Director, JPMorgan Chase, on 
  Behalf of the Banker's Association for Finance and Trade.......    25
Evans, Hon. Donald L., Chief Executive Officer, Financial 
  Services Forum.................................................    26
Key, Dr. Sydney J., Former Staff Director, Subcommittee on 
  International Development, Finance, Trade, and Monetary Policy, 
  Committee on Banking, Finance, and Uurban Affairs, U.S. House 
  of Representatives.............................................    32
Lackritz, Marc E., President, Securities Industry Association....    30
Lowery, Clay, Assistant Secretary of International Affairs, 
  Department of the Treasury.....................................     6
Sorensen, Norman R., President and CEO, Principal International, 
  Inc., on Behalf of the Coalition of Service Industries.........    23

                                APPENDIX

Prepared statements:
    Oxley, Hon. Michael G........................................    44
    Crowley, Hon. Joseph.........................................    46
    Bliss, Christine.............................................    47
    Champion, Madeleine L........................................    53
    Evans, Hon. Donald L.........................................    64
    Key, Dr. Sydney J............................................    72
    Lackritz, Marc E.............................................    78
    Lowery, Clay.................................................   144
    Sorensen, Norman R...........................................   149

              Additional Material Submitted for the Record

Hon. Patrick McHenry:
    Responses to Questions Submitted to Christine Bliss..........   158


                       INCREASING EFFICIENCY AND
                        ECONOMIC GROWTH THROUGH
                      TRADE IN FINANCIAL SERVICES

                              ----------                              


                       Tuesday, November 15, 2005

             U.S. House of Representatives,
         Subcommittee on Domestic and International
            Monetary Policy, Trade, and Technology,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 2:04 p.m., in 
room 2128, Rayburn House Office Building, Hon. Deborah Pryce 
[chairwoman of the subcommittee] presiding.
    Present: Representatives Pryce, Biggert, Manzullo, Kennedy, 
Neugebauer, Oxley, Waters, Crowley and Frank.
    Chairwoman Pryce. This hearing will come to order. I am 
very pleased to welcome all of you here today to this trade in 
financial services hearing. I would like to thank the witnesses 
for being here to discuss the importance of increasing 
efficiency and economic growth through trade.
    This hearing will focus on the importance and benefits of 
expanding free trade in financial services, and I believe this 
hearing is quite timely in light of the upcoming trade talks in 
Hong Kong next month.
    Just like manufactured goods and agricultural exports, the 
American financial services industry is fully dependent upon 
free and open international markets, and often faces unfair 
obstacles in its products and services. I look forward to 
hearing our witnesses assess the current state of financial 
trade and address ways to expand our exports and liberalize 
restrictive markets all across the globe.
    Financial services chapters of free trade agreements seek 
to reduce or eliminate restrictions on the types of services 
financial services firms may provide, quantitative restrictions 
on the amount of products foreign firms may sell in the 
domestic market, and the restrictions on foreign direct 
investments. They also seek to enhance regulatory transparency 
and ensure that foreign firms are treated on an equal footing 
with domestic ones.
    It is my hope that our witnesses from the Administration 
will address the status of the DOHA development round of 
negotiations in the World Trade Organization with respect to 
financial services, and especially the comments of Thursday, 
November 10, by Debbie Chio. Director General Lamy reported to 
WTO delegation heads that recent informal ministerial meetings 
were unsuccessful in reaching compromises on negotiations for 
trade barrier reductions. I would like to hear from our 
Administration witnesses, if they are able, that what, quote, 
trust deficit among negotiators exists, as Lamy noted.
    U.S. financial services firms are among the most 
competitive in the world. As importantly, the entry of these 
firms into foreign markets will not only bolster economic 
activity and fuel job creation in those economies, but also 
help build new export markets. Because of the critical 
importance of financial services firms to the United States and 
to the globe, in both senses of economic growth, the 
subcommittee urges U.S. negotiators to ensure that the final 
DOHA services declaration does underscore the importance of 
eliminating barriers to the financial services sector.
    I was pleased to read in Secretary Evans' testimony, and I 
see quoted in today's U.S. News bulletin, that he and I both 
agree: Increased liberalization in financial services trade 
also promotes economic development, capital formation, and 
regulatory transparency in developing countries. I commend the 
former Commerce Secretary for his role in promoting trade and 
support his claim that global development depends on financial 
freedom.
    We welcome our witnesses here today, and I look forward to 
hearing your testimony.
    I would now like to recognize my friend Barney Frank for an 
opening statement.
    Mr. Frank. Thank you, Madam Chairwoman. I apologize on 
behalf of the ranking member of this subcommittee, 
Representative Maloney of New York, who is ill. This is a 
subject in which she has a great deal of interest and is 
closely monitoring, and obviously regrets that she couldn't be 
here. And I should apologize because to some extent I am 
covering for her, but I have a schedule of other events as 
well, so I won't be able to stay throughout.
    Two things I wanted to do. First of all, I am going to 
introduce one particular witness, if I can, Dr. Sydney Key, who 
will be testifying in the second panel. I should note that she 
is a former staff director of this subcommittee. When our side 
was in the Majority, I chaired this particular subcommittee, 
and I was very pleased that Dr. Key had agreed to come over and 
be the staff director for 2 years, and a lot of very important 
work got done with regard to the inspection panel at the World 
Bank and the increased transparency. So it is very good for us 
to welcome back an alumna of the subcommittee, and in that 
capacity she will be testifying.
    I am also pleased to join in highlighting the importance of 
this issue. People elsewhere in the world ought to understand, 
obviously, that we have problems in the United States with not 
just the overall trade deficit, but the social consequences of 
that. There are problems that are caused in the United States 
by the terms of trade. There are areas where Americans used to 
work very hard where they don't work anymore because trade has 
shifted these jobs elsewhere. We can regret that, but there is 
not always a lot that we can do about it.
    It is not in the interest of the world, it seems to me, for 
there to be more unhappiness in America about the terms of 
trade. We are talking today about an area where Americans can 
expect to do well, where we have significant advantage. People 
have said to us: Well, you know, you can't expect to compete in 
these areas; you should compete in these other areas, these 
higher-end areas.
    If Americans are denied the opportunity to pursue economic 
activity in these areas where we can do well, it will have 
negative consequences in terms of the attitude here. That is, 
the importance of the liberalization of trade in financial 
services is important not simply for itself, but for people who 
worry about attitudes in America towards globalization. It is a 
grave error, I think, for people to think that you can expect 
America to continue to support openness in those areas where we 
are probably in the short term going to lose economic activity 
and not give us the access where we can gain some. And, 
properly done, this is something that generates wealth for the 
United States and that generates jobs here. Financial services 
elsewhere represent economic opportunity here. So it is that 
particular context I want to add.
    One other note. I was very glad in reading the testimony 
from the executive branch, from others, to note the absence of 
something, and that was any reference to the issue that we 
pursued elsewhere in our bilaterals of insisting that none of 
the countries we deal with have any controls whatsoever over 
the inflow of capital. I think the question of insisting on 
complete abolition of any restrictions on the inflow of 
capital, including efforts to try and discourage the inflow of 
short-term purely monetary investments, we have been pursuing 
that, I think it is a great mistake.
    I am struck by the number of people who generally support 
free trade, Professor Bhagweti at Colombia, the International 
Monetary Fund and elsewhere, who think that it is unwise to 
couple support for free trade with an insistence on the 
complete absence under any circumstances of capital controls. 
And I am pleased to note that we are here talking about 
liberalization of trade in financial services without insisting 
on that. I think it is very important to note that distinction.
    I would also add that, absence that, I think this becomes 
pretty noncontroversial in America. To the extent that our 
pushing for liberalization of trade in financial services gets 
linked to an insistence that no country be able to do anything 
about what they would consider an excessive volatility in the 
inflow of hot money, that would make something that can get 
broad support somewhat more controversial. So I am delighted 
that we have this in this form now, and in the form that this 
is, I think you will get a very united Congress pushing and 
strengthening the American position in these negotiations. And 
if we can ever resolve the foreign problem, we will get there.
    I know that is not the subject, but I do have to note when 
I hear some of my colleagues who are the strongest proponents 
of free enterprise and no government subsidy and getting the 
government out of the economy and having people stand on their 
own two feet, when I then see their support for the American 
agricultural program, I am left to conclude that in all the 
great free market texts, Von Mises and Von Hayek, etc., there 
was a footnote that says none of this applies to agriculture, 
and it is apparently written in German, so I can't read it.
    But I do wish you well in trying to bring some rationality 
to our awful agriculture policy. But on this, as it is 
presented, without the insistence on an abolition of total 
capital controls, I think we have a broad consensus.
    Chairwoman Pryce. I would like to recognize my colleague 
Ms. Biggert for an opening statement.
    Mrs. Biggert. Thank you, Madam Chairwoman. And I would like 
to thank you for holding this hearing.
    As we work to help jump-start U.S. exports, American 
businesses would do well to emulate the work of our financial 
services industry. Enjoying a $16 billion trade surplus, the 
U.S. financial services industry helps establish the economic 
infrastructure for other U.S. businesses to expand globally in 
developed and developing countries.
    Opening the trade lanes is another way that we can 
facilitate global economic growth and reduce world poverty. 
Foreign borrowers will benefit from an increase in the number 
of domestic and foreign financial services providers, which 
will increase competition and provide capital to help 
entrepreneurs become self-sufficient and contribute to economic 
growth. More importantly, it is another way that can help 
shrink the U.S. trade deficit and help U.S. financial 
institutions expand, contribute to the U.S. economy, and create 
more U.S. jobs. No one stands to gain more from trade 
liberalization and financial services than do our U.S. firms. 
When markets are opened and barriers are down, America wins.
    While many trade barriers have fallen during the past 
decade, there are more that need to fall. For the U.S. 
financial services sector to fully realize its potential at 
home and abroad, financial services laws, regulations, and 
standards need to be harmonized where underlying market 
conditions make this possible, although we need a better 
understanding of how prudent carve-outs can be implemented to 
supplement local market needs without undermining free trade in 
financial services opportunities.
    In recent years we have held many hearings to examine 
efforts that are under way to harmonize financial services 
standards and regulations globally. This year I joined other 
members of this committee to meet our counterparts in the 
European Parliament to discuss these matters. While the 
financial services sector is making progress, these efforts too 
often are put on hold pending resolution of more controversial 
issues such as agriculture. During my first term in Congress, I 
attended the WTO ministerial meeting and witnessed firsthand 
the intensity of these negotiations once we got them out of 
lockdown in the hotel. So I know some discrepancies are more 
difficult than others to resolve.
    That said, I am optimistic and anticipate that the DOHA 
round and other trade negotiations will reach a consensus on 
issues involving the nonfinancial services sector so that the 
financial services negotiations will have their day. And I 
expect that the U.S. position will prevail, and U.S. financial 
institutions will meet international standards that provide 
transparency and promise fluidity in business and market 
transactions, but that are cost-effective.
    A global market that is a free market can only benefit all 
countries and people, but especially the United States. I look 
forward to hearing the testimony of today's witnesses on these 
matters and yield back.
    Chairwoman Pryce. Thank you.
    I would like to recognize my colleague Mr. Crowley for an 
opening statement.
    Mr. Crowley. Thank you. I want to thank Chairwoman Pryce 
for holding this hearing this afternoon on the important issues 
of breaking down global barriers in the realm of financial 
services. It is good to have the ranking member of the Full 
Committee, Mr. Frank, here as well, and my other colleagues.
    Trade in financial services are an important issue for our 
country, and especially important for my home City of New York. 
The breaking down of global trade barriers in this sector will 
lead to massive economic growth and job creation both here in 
the United States and abroad. And this is an issue that I think 
Democrats and Republicans can and ought to agree upon.
    Where we used to worry about New York losing jobs to New 
Jersey and North Carolina, now we have to worry about jobs and 
capital moving from New York to Brussels or Bangkok or 
Bangalore. Representing New York City makes me want to see the 
industry continue to flourish and keep my constituents working 
for many of the companies that do business in these fields. 
That is why I have tried to be active both on this committee 
and the International Relations Committee to open barriers to 
financial services firms in places like India, the world's 
largest democracy, and Vietnam, and other countries. And we 
have had some success, but more barriers need to be brought 
down. Additionally, I have championed bills and agreements that 
break down barriers and lead to more growth and jobs here in 
the United States and internationally.
    Trade agreements, like the one with Australia, the fifth 
largest investor in the U.S. equity markets, means more jobs 
for my constituents and the companies of my city who trade 
securities or work for these firms. These trade agreements will 
keep our economy growing and will increase the investment and 
opportunities for our country.
    I am interested to hear from our witnesses from the Trade 
Office, particularly, on the upcoming Hong Kong ministerial 
next month, and Ambassador Portman's recent trip to India, and 
I look forward to hearing our witnesses today. And, with that, 
I yield back the balance of my time.
    Chairwoman Pryce. I would like to welcome Representative 
Manzullo, and make note that, without objection, all Members' 
opening statements will be made a part of the record, anyone 
who comes in later.
    I would like now to introduce our first panel. Clay Lowery 
serves as Assistant Secretary for International Affairs at the 
U.S. Department of the Treasury. Over the last year-and-a-half, 
Mr. Lowery served as the vice president of the Millennium 
Challenge Corporation and a member of its investment committee. 
Prior to serving on the MCC, he served as Deputy Assistant 
Secretary for Debt and Development Finance of the Treasury, and 
also worked as the National Security Council's Director of 
International Finance. Welcome.
    And Christine Bliss is currently Acting Assistant U.S. 
Trade Representative for Services and Investment, responsible 
for overseeing all multilateral and bilateral services, 
negotiations, and policy issues. Ms. Bliss is the lead U.S. 
negotiator in the WTO services negotiations, and has negotiated 
the services and financial services chapter in the Morocco, 
CAFTA, and Bahrain free trade agreements. Welcome.
    And we will begin with Mr. Lowery.

STATEMENT OF CLAY LOWERY, ASSISTANT SECRETARY OF INTERNATIONAL 
              AFFAIRS, DEPARTMENT OF THE TREASURY

    Mr. Lowery. Chairwoman Pryce, Ranking Member Frank, and 
members of the subcommittee, thank you for inviting me to 
testify about trade in financial services.
    As Secretary Snow has explained, the three goals of the 
Administration's international economic policy are to increase 
economic growth, promote global financial stability, and 
advance U.S. interests. In many respects, nothing embodies 
these goals more than our work to promote financial services 
liberalization in the WTO and in other fora.
    The financial sector is the backbone of a modern economy, 
with virtually every sector of the economy depending on its 
services. Yet in developing countries, the financial sector is 
typically small and inefficient, and the barriers to financial 
services are still high. This means that entrepreneurs, small 
business owners, farmers, and other key drivers of employment 
and income creation either don't have access to capital, or, if 
they do, it is extremely expensive. As those barriers to 
financial services are lowered, competition should increase, 
and the benefits of a lower cost of capital and a better 
allocation of resources to more productive uses should accrue, 
particularly to those developing countries where the barriers 
are relatively high.
    For instance, World Bank studies estimate that countries 
with open financial services sectors grow, on average, one 
percentage point faster than others, with the incremental 
growth rates being somewhat higher for developing countries.
    The benefits of financial service liberalization extend 
beyond economic growth, however. Foreign participation in the 
financial sectors of developing countries brings in the strong 
new players that provide greater liquidity to the market, 
greater loss-absorption capabilities, and enhanced risk-
management techniques.
    The benefits of introducing global experience into the 
domestic market go far beyond their direct impact. There is a 
transfer of skills to local workers who go off to domestic 
firms where improvements in market practices are emulated, and 
a more competitive financial system also puts pressure on 
policymakers to make regulatory and supervisory structures more 
predictable and transparent, as well as to follow sound 
macroeconomic policies which are crucial to economic growth and 
financial stability.
    In short, trade in financial services holds the promise of 
significant economic benefits for all countries, including the 
United States. As I am sure that some of the speakers in your 
next panel will highlight, the financial services sector plays 
an indispensable role in America's economy, providing 
individuals and businesses with depository services, credit, 
investment capital, and risk-transfer products, just to name a 
few areas.
    Financial services represent over 8 percent of our economy, 
which is roughly 70 percent greater than it was 25 years ago, 
and it employs roughly 6 million individuals.
    The WTO negotiations provide an opportunity to eliminate 
barriers in foreign markets to U.S. financial service firms, 
and improve the access of U.S. financial institutions to 
foreign markets. This helps our exporters continue to expand 
and develop new markets building upon U.S. competitive 
advantages in the provision of these services.
    Given how important the opening of markets to financial 
services is to economic growth, financial stability, and our 
national interests, we have been disappointed in the progress 
that has been made in the WTO on financial services. At 
Treasury, we work very closely with our colleagues from USTR, 
Trade, and other agencies to heighten our engagement over the 
last year. In just the past few months, led by Secretary Snow 
and Deputy Secretary Kimmitt, Treasury has highlighted the 
development benefits of open financial sectors and encouraged 
WTO members to put forward high-quality offers in both 
multilateral fora, such as the G-20 and APEC, and through 
bilateral discussions in some of the most important developing 
countries, Brazil, China, India, and Korea, where Secretary 
Snow and Deputy Secretary Kimmitt have all traveled in the last 
few months. In fact, in each of the multilateral fora mentioned 
above, we have gained the endorsement for an ambitious DOHA 
round, but we will need to continue to push this issue and turn 
these words into concrete action.
    We also need to recognize that we need to complement the 
WTO discussions by advancing the case and the cause of 
liberalization elsewhere. We do this through bilateral and 
regional free trade agreements, which my colleague from USTR 
can explain better, and through financial dialogues, which I 
will briefly point out.
    For several years the Treasury Department and U.S. 
financial regulators have been conducting dialogues with our 
counterparts from a number of countries, Canada, Mexico, China, 
Japan, India, and the EU. These dialogues have three goals: 
one, promote a stronger global economy through sound 
regulation; two, encourage movement toward more competitive 
financial regimes; and, three, mitigate actual or potential 
cross-border friction in the financial services realm. In my 
written testimony I note some of the progress that we are 
making through these dialogues.
    Finally, I would like to thank the Chairwoman and the 
committee for calling this timely hearing, and I would be happy 
to take any questions you may have.
    [The prepared statement of Mr. Lowery can be found on page 
144 of the appendix.]
    Chairwoman Pryce. Thank you very much.
    Now we will hear from Ms. Bliss.

   STATEMENT OF CHRISTINE BLISS, ACTING ASSISTANT U.S. TRADE 
   REPRESENTATIVE FOR SERVICES AND INVESTMENT, OFFICE OF THE 
               UNITED STATES TRADE REPRESENTATIVE

    Ms. Bliss. Thank you. Chairwoman Pryce, Congressman Frank, 
Congressman Manzullo, and Congresswoman Biggert. The USTR 
appreciates the opportunity to appear before you today to 
describe our efforts to eliminate barriers to trade in 
financial services, particularly in the DOHA negotiations.
    The services sector is the fastest-growing sector of the 
U.S. economy, accounting for 8 out of 10 U.S. jobs, and it also 
provides the brightest ray of hope for growth in developing 
economies, accounting for nearly 60 percent of GDP in such 
economies. An ever-expanding services sector is key to ensuring 
that this growth continues.
    Now, you have heard from my colleague from Treasury about 
the important benefits of financial services liberalization 
both domestically and globally, and I would like to talk to you 
today about some of the ways in which we are going about and 
pursuing those benefits.
    With respect to the WTO negotiations, while the United 
States remains committed to a high level of ambition in the 
DOHA round and to achieve a final package of substantial and 
meaningful results, we do not expect to achieve by the Hong 
Kong ministerial the complete framework that we had previously 
envisioned. Our aim nonetheless is to make as much progress as 
we can by the time of the ministerial so that we can achieve a 
final package in 2006.
    We are seeking services market access commitments in key 
sectors providing meaningful new commercial opportunities for 
U.S. services suppliers, particularly in emerging markets such 
as Brazil, India, Malaysia, South Africa, Thailand, Indonesia, 
the Philippines, and Egypt, as well as several other countries. 
Financial services is at the top of the list of the key sectors 
that also includes telecommunications, energy services, express 
delivery, computer and related services, and distribution 
services. We are also seeking strengthened transparency 
disciplines for all services sectors.
    Now, in return, developing countries have asked for 
expanded market access in areas such as tourism, medical 
services, and professional services. They have also asked for 
further liberalization regarding the temporary entry of service 
suppliers, expanded disciplines on domestic regulation, and 
some ASEAN countries have asked for rules establishing an 
emergency safeguard mechanism for services.
    Some developing countries have also linked services 
liberalization to greater concessions in other areas of the 
DOHA negotiations, such as agriculture. And although we have 
been able to secure initial or revised offers from 69 out of 
the 148 WTO members, we still face a great challenge in terms 
of improving the quality of offers, particularly in financial 
services.
    Now, since the WTO 1997 Financial Services Agreement, the 
United States has continued to secure meaningful financial 
services commitments through the WTO accession agreements, and 
I will highlight China and Saudi Arabia in that regard. And, in 
addition, we continue this effort through the ongoing accession 
negotiations with Russia, Ukraine, Vietnam, and other 
economies. We are seeking to build on these financial services 
commitments in the WTO services negotiations through the 
bilateral request/offer process by asking countries to provide 
commitments covering cross-border services for insurance, 
encompassing marine, aviation, transport reinsurance, 
brokerage, and auxiliary services; and for banking, securities, 
and all other financial services in areas such as financial 
information and advisory services.
    With respect to commercial presence, we are including the 
right to establish new or to acquire existing companies in the 
form of wholly-owned subsidiaries, joint ventures, or branches. 
For both commercial presence and cross-border, we are seeking 
the removal of the discriminatory application of laws and 
regulations, and the removal of limitations such as monopolies, 
numerical quotas, and economic needs tests. And, finally, we 
are seeking transparency in the development and application of 
laws and regulations.
    To amplify these bilateral efforts, we are working with a 
group of about 13 countries of varying levels of development, 
including the European Union, Canada, Japan, and Switzerland, 
who share our interest in financial services liberalization, 
and we have developed a set of general benchmarks for financial 
services liberalization through what is being termed in Geneva 
as a plurilateral approach. USTR and Treasury are working hand-
in-hand along with other U.S. agencies to get financial service 
negotiators from key countries around the world more involved 
in the negotiations, through bilateral requests as well as 
possible plurilateral approaches. As my Treasury colleague has 
explained in his oral statement and also in his written 
statement, Treasury is also reaching out to finance ministers 
to highlight the DOHA services negotiations, including 
financial services.
    Now, while we have secured some improvements in financial 
services in the offers submitted to date, there is considerable 
work ahead to bring the quality of those offers closer to our 
benchmarks. Why haven't we made more progress to date? There is 
no simple answer. Sometimes the problem is existing barriers; 
other times the country is liberalized, but has not yet bound 
that liberalization or offered to bind that liberalization. And 
even though we are proposing essentially the same market access 
benchmarks for each country, countries are at differing stages 
of liberalization, they have different views on the benefits of 
liberalization, and they often question the need to bind their 
liberalization.
    Now, in addition, we hope that the United States' most 
recent WTO offer on agricultural liberalization will enhance 
our ability to press these countries to improve their offers 
not only in agriculture, but in the other DOHA core market 
access areas of nonagricultural market access and service.
    Now, at the same time, the United States is also forging 
ahead to achieve a high level of financial services 
liberalization through regional and bilateral negotiations. The 
U.S. model FTA financial services chapter covers both 
investment and cross-border supply. It requires a negative 
listing for investment access, which means national treatment 
and other core obligations automatically apply unless the 
sector is carved out. It also includes strong disciplines on 
regulatory transparency, licensing, and other regulatory 
issues.
    In addition to our existing FTA's that we previously 
negotiated, the Administration just announced the conclusion of 
the Oman FTA, which we expect to sign in mid-January. FTA 
negotiations are at an advanced stage with the Andeans 
currently, and that includes Colombia, Ecuador, and Peru. And 
we continue negotiations with the UAE, Panama, Thailand, as 
well as continuing our exploratory talks with the South African 
Customs Union countries of South Africa, Botswana, Lesotho, 
Namibia, and Swaziland.
    Chairwoman Pryce. Ms. Bliss, if I could interrupt. Your 
time has expired, and your whole statement will be included in 
the record, if your could summarize.
    Ms. Bliss. Thank you very much. Just on that note, I would 
simply say that we wanted to highlight that our FTA 
negotiations have produced concrete benefits just as previously 
our multilateral negotiations have as well. So thank you for 
the opportunity to present this statement.
    [The prepared statement of Ms. Bliss can be found on page 
47 of the appendix.]
    Chairwoman Pryce. I would like to welcome Ms. Waters and 
Mr. Neugebauer, and our Full Committee Chairman, Mr. Oxley.
    Mr. Chairman, would you like to make a statement?
    The Chairman. Thank you very much, Madam Chairwoman. I am 
just going to ask unanimous consent that my statement be made 
part of the record, and welcome our friends from Treasury and 
USTR, as well as the private sector representatives who will be 
on the second panel.
    I am looking forward to this hearing. Clearly, we thank you 
for your leadership on this important issue of financial 
services in the global economy and our trade relationships 
moving towards the DOHA round. And I yield back.
    Chairwoman Pryce. Thank you, Mr. Chairman.
    Well, we will recognize all members for 5 minutes in which 
to ask questions and receive answers. And anybody who has 
further questions, we hope that we can submit those in writing 
to you.
    I will just begin by asking, what is the Treasury doing 
outside of WTO to obtain staunch commitments from our trading 
partners? And what can this committee do to be of assistance, 
if anything?
    Mr. Lowery. Thank you, Madam Chairwoman.
    Treasury actually over the last few months has very much 
picked up our pace. You and your colleagues had written a 
letter to the Secretary asking us to engage in a better way or 
a stronger way on financial services, and that is exactly what 
we have done. We have been able to work through the G-7, the G-
20, the IMF, the World Bank, and the APEC Finance Minister's 
process to actually secure language to basically say that 
financial services are very important for DOHA, and we need an 
ambitious trade round in general and in financial services in 
particular.
    The reason we have done this is because finance ministers 
sometimes only are paying partial attention to what is going on 
in trade rounds, and so we wanted to make sure the finance 
ministers are as engaged as their trade ministers are, and I 
think we have been able to do that.
    In addition, Secretary Snow has just had recent trips to 
Brazil, India, and China, a couple of those trips right before 
Congressman Portman, Ambassador Portman, so as to basically 
talk to them about the importance of opening up their markets 
to our financial services firms.
    In terms of what I think this committee can do, it is hard 
for me obviously to be too strong on this, but I think the main 
thing is three things. One is the language that comes out of 
this committee. That is very important. Our trading partners do 
watch what you all say. Second is your votes. And third is, 
when you are traveling abroad, if there are things that we can 
do to help you, please let us know, because we think you are 
great ambassadors for the work we are trying to do. Thank you.
    Chairwoman Pryce. Ms. Bliss, do you have anything to add to 
that?
    Ms. Bliss. Just very quickly. We--as I say, USTR works 
hand-in-hand with Treasury, and we think that the initiative 
that my colleague from Treasury just described is very 
important, because to be successful in the WTO, negotiations of 
services, we think it is critical that not only the trade 
ministries be involved, but the finance ministries as well. So 
we commend Treasury's efforts and think they are critical 
particularly to get financial services experts to actively 
participate in the negotiations. So thank you.
    Chairwoman Pryce. And can you elaborate on our main 
objectives in the DOHA/GATS negotiations? What precisely?
    Ms. Bliss. Yes. Just quickly, our major objectives are 
twofold. And that is, really, our central objective relates to 
increased market access. And here we have focused broadly on 
service sectors, but we are highlighting key sectors, and those 
I have listed in my statement. Financial services is the first 
sector. But in addition, telecommunications, computer-related 
distribution, energy services, and express delivery. Because if 
you look at those core sectors, that is where U.S. services 
exporters and financial service exporters really have the 
greatest stake and potential in global markets. So we are 
focusing in those areas.
    In addition, we are focusing on key emerging markets where 
we have a real stake in all of those sectors. And then, second, 
I would say we are also pursuing transparency disciplines which 
will enhance the market access commitments that we achieve in 
all of those sectors.
    So, just quite quickly, those are our primary objectives in 
the services negotiations. And we think that the ability to 
expand our commitments beyond the Uruguay round will be of 
tremendous benefit both at home and also in the broader 
objective of promoting development in the DOHA round.
    Chairwoman Pryce. And by encouraging emerging and 
developing countries to liberalize their financial services 
sectors, do you have any feel for whether that would contribute 
to financial market instability? Either one of you?
    Mr. Lowery. Actually, we actually believe that the reverse 
will happen, which is that by bringing access of having experts 
and true strong financial firms, you will bring more liquidity, 
you will bring better risk management techniques, and will 
actually create less volatility in financial sectors around the 
world. There are actually some WTO and IMF and World Bank 
studies on this which actually show that most of the evidence 
suggests that opening up markets actually brings greater 
financial stability to countries.
    Chairwoman Pryce. Thank you both for being here, and I will 
now recognize Mr. Crowley.
    Mr. Crowley. Thank you again. Thank you both for your 
testimony today.
    Ms. Bliss, you mentioned Hong Kong ministerial on DOHA, and 
I know that Ambassador Portman is low on expectations in 
terms--in light of what you said, there has been a diminishment 
of expectations. But what--and less an expansive framework, I 
guess, is the expectation now. What does that entail? What does 
that actually mean for us?
    Ms. Bliss. Thank you, Congressman. What I think Ambassador 
Portman has been trying to say is not that we have lowered our 
ambitions in any way or by the end of the day lowered our 
ambitions by the end of the round. It is just that what perhaps 
6 months ago had been expected by Hong Kong in terms of an 
agreement on what are called the modalities or the frame--the 
negotiating frameworks for agriculture and NAMA, that more 
progress would be made by Hong Kong, so that then you could go 
immediately from Hong Kong into a very active, intensive, 
hands-on negotiating mode post-Hong Kong.
    I think that is the level of--that is what has been 
ratcheted down a bit, realizing that probably won't happen by 
Hong Kong. But that doesn't mean that I think our expectation 
is that we aren't going to try and achieve that, but it may 
just happen earlier next year rather than by Hong Kong.
    Mr. Crowley. Any idea when? I mean, these negotiations have 
been going on for some time now. Any idea when this might come 
to?
    Ms. Bliss. Well, I don't think there has been any 
definitive decision made, but I would imagine there would be 
interest in having some kind of follow-up fairly quickly, early 
next year, to the Hong Kong meeting, with the hope that we 
could still finish by the end of 2006.
    Mr. Crowley. I know Ambassador Portman was in India; I was 
reading about his trip, and USTR's general support for the 
expansion of mode 4 commitments. As you know, mode 4 relates to 
the temporary movement of business persons to another country 
in order to perform a service on site. This has been a critical 
and crucial issue for U.S. businesses in the developing world. 
What specific set of proposals has USTR made during the WTO 
services negotiations on that issue?
    Ms. Bliss. We have been very clear that we have been 
mindful of the sensitivities in the Congress to this issue. So 
we have, certainly since I have been involved in the services 
negotiations, been very careful not to advance any forward-
leaning proposals with respect to mode 4 in the services 
negotiations. So we as the United States are not making any 
offers with respect to temporary entry. We certainly listen to 
the requests that are made of us by other countries, but we 
have not advanced any proposals on temp entry and are not at 
this time in the negotiations.
    Mr. Crowley. I will follow up in writing maybe a little bit 
more on that issue, because I know I have a short time.
    Again, I know that Ambassador Portman has been to India, as 
I mentioned. I am a former co-chair of the India Caucus myself 
and have taken a great deal of interest in the potential and 
actual expansion of economic ties between the United States and 
India, understanding that a great deal has been done to break 
down some of the barriers as pertains to the financial services 
sector within India that U.S. firms have been able to break 
through into the Indian commercial market. But I do know that 
there are still some barriers in terms of ownership of 
entities, U.S. corporations within India, a cap of 26 percent 
for most financial services, if not for all. Has there been any 
progress made towards expanding opportunity for ownership or 
percentage of ownership of American firms in India?
    Ms. Bliss. The Indian--what I can tell you in terms of our 
bilateral discussions, and that is one of our--I would say our 
key issues that we are pressing India for in the negotiations; 
that India has expressed some willingness to raise that number. 
But, in our minds, it is still not sufficient, and they have 
not yet offered to bind a greater opening that would be far 
beyond the current level. It would be over 70 percent at least, 
I think, that we are seeking. But I cannot report to you as yet 
that the Indians have expressed a willingness to offer to bind 
at level. So it is something we are still pressing very hard 
on.
    Mr. Crowley. It has been my experience that over 70 percent 
might be a pipe dream, at least for the short haul. And I don't 
know if necessarily that is a more realistic position to take. 
Quite frankly, the number I have been hearing is no more than 
49; maybe you might get to 51.
    But anyway, I appreciate it. My time is running out. I 
appreciate your both being here. With that, I yield back.
    Chairwoman Pryce. Thank you.
    I would now recognize Chairman Oxley.
    The Chairman. Thank you, Chairwoman Pryce.
    First of all, let me ask Ms. Bliss, nontariff barriers, 
where are we in negotiation with other countries on nontariff 
barriers? Many times we hear complaints from the services 
sector, particularly the financial services sector, that in 
many ways nontariff barriers are much more pernicious than 
actual tariffs themselves. Where are we in those negotiations, 
and what progress are we making?
    Ms. Bliss. Well, let me take that question in a couple of 
parts. In terms of what we are trying to pursue in the WTO, let 
me say with respect to financial services, we are very actively 
pursuing the removal of services barriers. And I think to 
translate the term nontariff barriers in a services context, 
that would be removal of, for example, commercial presence 
requirements to supply services cross-border. So that is one of 
our chief goals in terms of allowing cross border-supply, 
whether it be in insurance or in banking, securities.
    And then with respect to mode 3, we are pursuing the 
freedom to establish with respect to legal forum whether it be 
in the form of a wholly-owned subsidiary or a branch, and to 
eliminate foreign equity restrictions. And so those are sort of 
general goals that we are seeking in the area of financial 
services.
    Let me turn briefly to our FTA's, because we are pursuing 
liberalization on a negative list basis in the services 
context. We are very actively seeking the removal of barriers 
to services through the application of our national treatment 
requirement to eliminate discrimination, the market access 
obligation that goes directly to things like limiting the 
numbers of suppliers or any kind of quota that is put on, 
monopolies, economic needs tests. Then, in addition, we are 
also in the financial services context also able to secure 
disciplines with respect to the introduction of new products, 
which is a very useful element and can help circumvent the 
erection of regulatory barriers to the--for example, in the 
insurance sector.
    So I think--and then also let me mention in our accession, 
our WTO accession negotiations, I think we have made some real 
progress, perhaps Saudi Arabia being the most recent example of 
that, of where we have been able to secure very meaningful 
bilateral and multilateral commitments to eliminate barriers to 
services and financial services. For example, in Saudi Arabia 
we got quite a meaningful branching commitment in the insurance 
area.
    So I think in all of those areas we have made progress 
through our FTA's. We are making progress through our WTO 
accession negotiations, and we also have the promise of great 
progress in terms of the WTO services negotiations.
    The Chairman. Is it easier in that sense to negotiate 
bilateral FTA's than it is in the overall scheme of trying to 
do it within the DOHA round?
    Ms. Bliss. I suppose in terms of resources you could argue 
that, yes, it is. In terms of the overall trading system, while 
I think that bilateral agreements have great value, I think in 
the long term that it is also worthwhile to extend those 
disciplines that we have negotiated bilaterally to a 
multilateral context, and I think the whole system benefits as 
a result.
    So I suppose you could say, yes, it is somewhat easier or 
more manageable to go country by country, but I think so far we 
have tried to sort of balance doing both simultaneously, and I 
think so far we have been able to have some synergy between the 
two processes that we are benefiting from.
    The Chairman. One final question on services. What major 
countries have not made an offer on services yet? And what is 
your guess as to why those offers have not been forthcoming?
    Ms. Bliss. Well, in terms of the markets where we would 
have the greatest interest, I think the primary offender in 
that would be South Africa. And I am not sure I have a good 
answer for you, except that what they have told us is: one, 
lack of resources; and two, lack of coordination in their 
capital. And I can't speak to the political aspects that may be 
involved there, but that has been a source of great frustration 
to us. And I would say South Africa in terms of market 
significance is probably the worst offender.
    The Asian countries have been slow, but they have--the 
markets that we care about the most there, for example, 
Malaysia, Thailand, the Philippines, all have finally submitted 
offers. Now, they are not sufficient, but they have submitted 
offers. So that is encouraging. But I would say the outliers at 
the point, South Africa is the most concern.
    The Chairman. Thank you. And pass on our best wishes to 
your new boss, and tell him that he has a lot of support up 
here on Capitol Hill, particularly from the Ohio delegation.
    I yield back.
    Chairwoman Pryce. You have that right, Mr. Chairman.
    Ms. Waters is recognized.
    Ms. Waters. Thank you very much, Madam Chairwoman.
    I have always had some concerns about global trade and 
concerns about WTO, but on these financial services 
negotiations, I am concerned about our neighbors in the 
Caribbean, for example, the Bahamas and some of those areas. 
The financial services sector really is one of the biggest 
underpinnings of those societies. They have tourism, and they 
have banking. So what happens when they have to compete with 
the G-8's or the G-7's in this competition for financial 
services? What will happen to those smaller Caribbean 
countries?
    Ms. Bliss. Let me just say something briefly, and then if 
my colleague from Treasury would want to say something as well. 
What I am--taking the Bahamas as an example. The way that the 
GATS works in the negotiations is that the countries are free 
to pick those subsectors and sectors in which they are able to 
make commitments and want to make commitments. And one of the 
things that we have made very clear, particularly when we are 
in discussions with the Caribbean nations or with the African 
nations that are perhaps not on the higher end of the 
developing countries scale, is that countries should look to 
those to make commitments in areas that are going to be of the 
greatest benefit of their economies and that will promote 
economic development.
    So for the Bahamas in particular, in the banking sector, 
what we would say to them generally is look in the banking 
sector in areas where opening and encouraging investment, which 
is what making commitments can do, to draw more investment to a 
country, will it be of benefit to you. But they are certainly 
not required to make commitments in every subsector or sectors 
in which they are particularly sensitive.
    And with respect to tourism, I think the idea there is 
that, again, opening up and making commitments in the area of 
tourism, to the contrary, rather than hurting an economy, 
should help it, because, again, it is drawing more investment, 
it is creating more jobs, it is creating more opportunities.
    Ms. Waters. What did you mean when you talked about 
eliminating foreign equity restrictions?
    Ms. Bliss. Eliminating foreign equity restrictions in terms 
of countries that have capped the level of foreign investment, 
whether it is requiring investment only through joint ventures 
or saying that foreign equity can't exceed ``X'' percent when 
an investment is made through a subsidiary or an acquisition of 
an existing company. What we are trying to do is to get those 
kinds of limitations reduced or eliminated.
    Ms. Waters. Well, let me just say this: I have been 
involved over the years with what happened in the Eastern 
Caribbean on the banana trade, and little countries like 
Grenada literally just went belly up because they had to depend 
on the banana. That is really all they had. And the 
relationship that they had with the European Union helped them 
to be able to sell that banana on the European markets. But we, 
we took those countries to the WTO and challenged that 
relationship because of Chiquita bananas, and it just caused 
havoc in those little countries, and particularly, again, 
Grenada.
    And I was also in St. Kitts, and, of course, they can't 
compete with sugar. Again, they depended a lot, and then they 
have all been trying to find other ways by which to support 
those economies. And I just worry that we have nothing in our 
negotiations with WTO to talk about what we do in these special 
cases, whether it is the banana or sugar or the financial 
services industry. We all know that--I mean, right or wrong, 
some of these places in the Bahamas have been tax shelters; 
that is how they made their money for years. But we have 
nothing in negotiations to talk about how we allow them to 
protect themselves. And to tell you the truth, I believe very 
strongly in joint ventures in equity. I believe that is how you 
grow your economies. That is how you hold onto some ownership. 
That is how you expand. And I would expect them to stand up for 
their right to have equity and to maintain ownership. So what 
do you say about that?
    Well, my time is over, but that is my question.
    Chairwoman Pryce. And you can get back to Ms. Waters, if 
you would like to.
    Ms. Waters. Thank you.
    Chairwoman Pryce. Thank you very much.
    Ms. Biggert.
    Mrs. Biggert. Thank you.
    Mr. Assistant Secretary, does the U.S. Treasury have the 
resources to pursue financial services liberalization?
    Mr. Lowery. Thank you. I guess it would be--resources are 
always tight, but we dedicate, we dedicate significant 
resources to these trade liberalization negotiations. We have 
offices that work on this. Obviously, something that has been 
very helpful to us, and we are working with some folks in 
Congress about this, are having attache positions. We have an 
attache currently in Japan which has been very helpful to us in 
our financial sector dialogue in Japan. We are opening up one 
in China, and we are trying to get somebody into the EU, and we 
would actually hope to even expand to maybe places like India, 
because this is something that we have seen as something that 
could be very helpful to us.
    So it is kind of a mix. We feel like we have scarce 
resources that we can do our jobs, but with more resources 
obviously we can do it in a more effective way.
    Mrs. Biggert. I guess that is kind of coming up in the 
appropriations soon. So you are not sure yet whether--
    Mr. Lowery. That is my understanding.
    Mrs. Biggert. Okay. And, Ms. Bliss, about regulation. I 
guess we have some testimony today that highlighted the 
importance of increased regulatory transparency in the service 
sectors. The issues seem very basic and straightforward, and 
yet I understand that they are controversial. Is it true that a 
number of countries view these transparency proposals as an 
effort by the United States to export its standards, put those 
standards on other countries?
    Ms. Bliss. Well, I think, you know, in presenting the U.S. 
horizontal transparency proposal in the GATS negotiations, a 
number of countries have raised the question, ``Are you trying 
to insist that your Administrative Procedure Act be transferred 
to other countries' domestic legal systems?'' And our response 
to that is no. I mean, we think that we do have a very superior 
model in the APA and how it works, but we recognize that there 
are different ways that countries can implement those essential 
elements of prior notice and comment and the other aspects of 
transparency.
    So I think I can fairly say that we have and are continuing 
a dialogue to convince countries that, no, we are not just 
trying to rubber-stamp our practices on other countries. It is 
the core principles that we are trying to embed in a horizontal 
fashion.
    Mrs. Biggert. How do you do this dialogue? Is this just in 
various meetings? Of course, maybe the rounds, but in other 
meetings, too, is this a discussion?
    Ms. Bliss. Well, there are several venues. One is that the 
United States did table a formal transparency proposal in the 
main negotiating body, which is the Committee on Trade and 
Services special session, which is the overall body that 
coordinates the negotiations. So it would be in that formal 
body we have that discussion with all members present. Then in 
addition there is a Working Party on Domestic Regulation that 
is a subcommittee, and we also have continuing discussions in 
that working party with members. And then, in addition, in our 
bilateral negotiations we also pursue discussions on 
transparency, and I should add, in particular, on financial 
services.
    Mrs. Biggert. Let me just come back to the Assistant 
Secretary--how do you get the word out, or how do you do 
negotiations? Is this just when you go to formal negotiations 
for trade, or is it in other contexts where you are out and 
about in foreign countries?
    Mr. Lowery. It is through a variety of mechanisms. And to 
build on what Ms. Bliss said, through some of the financial 
dialogues that we have with countries, Treasury, in many 
respects, is bringing together all the different regulators, 
OCC, the Fed, FDIC, to talk them through the regulatory 
transparency and supervisory standards with these countries 
around the world. Some of these are developing countries, some 
of them are developed countries, and so we are trying to carry 
the dialogue through a variety of mechanisms.
    In addition, we actually have some technical assistance 
vehicles that we use to try to help countries to understand 
regulatory systems better because these are very important to 
their own financial systems as well as to something like the 
WTO round.
    Mrs. Biggert. Thank you. I have one minute here.
    I want to talk just a little bit about the travel visas, 
some of the countries, like India and Brazil, want to see that 
there are more of them so that their businesses can visit--
their business members can visit the United States. When they 
do a transaction.
    Do you see any change in the type of visas that will be 
available? Or do you push for that?
    Ms. Bliss. What the Indians have indicated that they would 
like to see as a result of these negotiations are principally 
more uses for what they call contract service suppliers, which 
means that a service supplier comes to the United States, but 
it is being paid and has a contract with an employer outside of 
the United States. Also, for independent professionals that may 
come here to do work with or without a contract. They are 
particularly interested in seeing this in certain professional 
services, like engineering, just as an example. They are also 
interested in seeing a tie between that and what we do in 
domestic regulation on things like educational and professional 
qualifications. The Indians have not changed their position; 
they are very tough in insisting on that. And as I said, we 
have not made any sort of response or indicated any willingness 
to make an offer on that.
    But to answer your question, that is what the Indians are 
seeking. And to date, we have not made any sort of response. 
Other countries have. A number of other developing countries 
have included some form of contractual service supplier in 
their offers.
    Mrs. Biggert. Okay, thank you.
    Chairwoman Pryce. Mr. Manzullo.
    Mr. Manzullo. Thank you very much.
    I read an article several years ago by a young man by the 
name of Bob Vasteen, a friend of the Cato Magazine--Bob is 
chucking back there--that talked about financial services as 
paving the way for merchandise with regard to exports. And this 
is more of a comment than a question, but I am very, very much 
disturbed over the fact that our government is placing severe 
restrictions on people coming to this country for the purposes 
of buying equipment. And it also involves tourism.
    I was at the massive fabricators machine tool show and 
welding machine tool show in Chicago yesterday. I spend about 
75 percent of my time in Congress working on manufacturing 
issues. And the host group, the Fabricators Manufacture 
Association, which is headquartered in Rockford, Illinois, was 
commenting on the fact that several Chinese who wanted to come 
to the United States and buy our equipment couldn't make it, 
they just couldn't get the visas. That also applied to a couple 
of booths that the Chinese wanted to set up with regard to 
their own equipment. And we had a particular situation in our 
area, Ingersol Milling Machines was on its death throes before 
it filed bankruptcy, and we desperately tried to bring over six 
Chinese engineers who wanted to buy an uncontrolled machine. 
And even though we have run into some really great people 
working in our government, and even though the Small Business 
Committee, which I chair, actually brokered a multi-visit 
yearly visa with China with regard to an MOU, I am just very 
much disturbed over the fact that we are losing conventions, 
and the United States is being looked upon as an unreliable 
supplier. And this has not been addressed adequately by the 
Administration.
    Unfortunately, everybody thinks that if you are Chinese, 
you are a terrorist. And we continue to carp and complain about 
the trade deficit, and yet we have incredible opportunities to 
sell equipment to the Chinese and we can't get the people here. 
And I just don't know why this is not a priority. We have had 
several hearings on it, we have got another hearing going this 
week involving the Canadian passport issue, we are going to 
make it more difficult for Canadians to come into this country 
in order to buy our stuff.
    And I think when we talk about tourism, which is obviously 
a service, we talk about opening our borders in negotiations. 
Why isn't this negotiated in terms of--at your level, or even 
made part of the conversation? Or perhaps it is. It is a 
question, if you want to bite at it.
    Ms. Bliss. Well, let me just respond very briefly, and that 
is certainly the topic of the temporary entry of natural 
persons is what within the ambit of what is covered in GATS, 
but as I said previously, we have been very careful to be 
mindful of the sensitivities in Congress on the issue. So we 
have not made any proposals in the negotiations on it, but as I 
mentioned, there are other countries, developed countries in 
particular, that have included improvements in their GATS 
schedules in the area of visas and temp entry. But it is just 
that we, because of Congressional sensitivity, have not, have 
refrained.
    Mr. Manzullo. There is sensitivity on this part. We are 
losing our manufacturing base. In fact, the opening statement--
I believe in your statement, Ms. Bliss, you said that the 
service sector is the fastest growing sector of the U.S. 
economy, accounting for 8 out of 10 U.S. jobs. I wouldn't be 
proud of that statement. I mean, these are people that used to 
work in manufacturing, we have lost 15,000 manufacturing jobs 
in Rockford, Illinois, and they have been replaced by many 
service jobs in the actual--and the average wage income of the 
American worker is going down. We are just not--we are missing 
something really big here, and that is, the United States has 
the biggest problem of all the countries in bringing people 
here to buy our stuff. And no one seems to be able to put their 
arms around this thing. And I appreciate, because of 
Congressional sensitivities, well, I am sensitive the other 
way, can you help me?
    Chairwoman Pryce. The gentleman's time is expired. Mr. 
Neugebauer.
    Mr. Neugebauer. Thank you, Madam Chairwoman.
    The first question I have for Mr. Lowery is what are the 
things that the Treasury is actually doing as far as trying to 
expand its services, I mean, what specific things are you 
involved in?
    Mr. Lowery. Treasury is involved in, through various means, 
to try to expand services, first, through what I guess would 
best be called rhetoric, which is to get commitments and 
endorsements from multilateral fora where we are meeting with 
our finance ministry colleagues.
    Second is through our bilateral diplomacy--Secretary Snow 
has been travelling extensively--throughout Europe, Asia and 
South America to actually work with the countries on opening up 
their markets.
    And thirdly is through the actual negotiations themselves, 
and that is the Free Trade Agreement negotiations as well as 
the WTO negotiations. And as Ms. Bliss pointed out earlier in 
her Q&A period, we have actually been able to make some very 
significant progress for our financial firms in the FTA's, and 
we are hoping we can make the same type of leaps forward in the 
WTO.
    Mr. Neugebauer. Thank you. Ms. Bliss, there is a lot of 
discussion these days about the deficit, in fact, we got some 
bad news last month. I think the deficit was at an all-time 
high. And then that conversation turns to China. A couple of 
questions there: One, do you think we focus too much on trade 
with China? And two, what are some of the bright spots in our 
trade negotiations that are going on that would lead us to 
believe that we are moving towards things that would help us 
reduce that deficit?
    Ms. Bliss. Thank you. With respect to China, you know, I 
think we--certainly Ambassador Portman agrees that it is very 
important to keep the pressure on China, both in terms of 
implementing its existing WTO commitments and also pressing it 
in the GATS negotiations to improve those commitments.
    For example, in terms of insurance and China's existing 
commitments, we certainly have been pressing China to reduce 
its capital requirements and to expand branching rights. And I 
think we have met with some success along those lines and made 
some progress.
    In terms of the GATS negotiations, we are pushing China so 
that life insurers will have the right to establish wholly-
owned subs or to branch into similarly-owned securities. We are 
also trying to pursue the right to establish wholly-owned subs 
and to remove the restrictions on the scope of activities that 
securities firms can engage in. So we see those as very 
important, and don't think there should be any emphasis taken 
off that effort.
    In terms of where there are some bright spots? I think 
there are some bright spots. And I think that the FTA, just 
because the time frames are shorter and we are able to produce 
results, having concluded those negotiations, I think if you 
look at what we achieved, for example, in CAFTA, Morocco, some 
of the earlier negotiations, we were able to achieve, for 
example, in the insurance sector branching rights which didn't 
exist before. In the very concrete example of Costa Rica, Costa 
Rica agreed to a phase out of its insurance monopoly, which I 
think in the beginning of negotiations, we were very doubtful 
as to how much we can do, but I think that that was a 
significant achievement and the creation of new business 
opportunities.
    Some of the smaller, but nonetheless important, 
negotiations, the FTA's in Oman and Bahrain, for example, we 
have been able to negotiate very clean commitments, 
particularly in the insurance sector and those areas, with very 
few carve outs either by the Omanis or Bahrainis. So that will 
bring opportunities for example in our insurance sector in that 
area of the world.
    So those are just a few examples, but I think particularly 
in the FTA context, because we do have some history there, we 
have been able to make some achievement. So we are 
progressively moving ahead. And then as I said earlier, 
hopefully having that build toward a positive result in the WTO 
context as well.
    Mr. Neugebauer. So do I understand you are saying you feel 
like we, in the context of services, that we have been maybe 
more effective in the FTA's and the bilateral and multilateral 
area than we have in the WTO area?
    Ms. Bliss. Only as I was saying, qualifying it because the 
time frames are shorter because of the FTA's that we have 
negotiated, particularly some of the more recent ones, we have 
done them in a time frame of, say, 2 years or 3 years, so we 
have been able, from start to finish, see the results; whereas 
the multilateral process, necessarily, because it involves so 
many countries and particularly services, so many sectors, it 
takes more time.
    So I wouldn't suggest that one process is better than the 
other, I think it is just because the time frames are shorter, 
we are able to see results from a bilateral side.
    Mr. Neugebauer. Are the--
    Chairwoman Pryce. The gentleman's time has expired.
    Mr. Kennedy.
    Mr. Kennedy. Well, thank you both for your testimony and 
your work on behalf of advancing markets for America abroad.
    One question we oftentimes get, and you may have covered, 
and I am sorry if I missed it, but how does Sarbanes-Oxley 
affect our ability to get other folks to come here, list on our 
markets and those type of things as an export of financial 
services; and is there anything there as we look at Sarbanes-
Oxley authorization that we need to consider?
    Mr. Lowery. Thank you for the question. We are in 
discussions in the EU through dialogue with, especially on 
Sarbanes-Oxley, so that they understand how does this affect 
their companies, and if they list in the United States.
    My understanding--and I apologize, I don't have the details 
and we can probably get you better answers for the record in 
detail, but it is my understanding that it causes some issues, 
but we usually are able to find ways to smooth these things 
out. And many of the times it is mainly because of this 
regulatory dialogue that we have been able to establish over 
the last 2 or 3 years which was started off as a very informal 
dialogue that we have just been able to move forward, because 
it is kept at a very technical level, and it actually starts 
making countries more familiar with what we are trying to do 
through Sarbanes-Oxley. But let me get you a more detailed 
answer in writing.
    Mr. Kennedy. That would be great.
    And as we look to expand opportunities for American 
financial services industries abroad, where would you assess 
the best opportunities to grow in terms of geography and in 
terms of categories of business? And what ifanything can we do 
here in Congress to help America be more competitive in those 
areas?
    Mr. Lowery. Well, the next panel is going to be able to 
answer that question a lot better than I am, but I think from 
what I have been hearing is the best market opening 
opportunities are in the big emerging markets, China, India, 
and Brazil. And I think that is why we have been pushing very 
hard with those countries and working with them very closely, 
because we think that these are good expert markups for our 
financial services firms.
    I think that in terms of--as I said to an earlier question, 
I think that the way that Congress can help most is through its 
words, its actions, and when you are travelling abroad, there 
might be times when your diplomacy can help us as well.
    Ms. Bliss. I would just add to that--and I totally agree--
that in addition to those markets, I think that also the Asean 
markets are ones that we are looking to as important, as well 
as South Africa and some of the Latin markets. And it is really 
across the whole range of the universe of financial services, 
banking securities and insurance that we are pushing and see 
the opportunities.
    Mr. Kennedy. Because it struck me, as I visited some of 
those countries, that one of the big competitive advantages 
that we have in America is the way we allocate capital so 
efficiently, and we have expertise in this area. And are these 
countries, by leaving our people out, our securities firms and 
others, they are sort of depriving themselves of having that 
advantage for themselves. So I think it is a win-win situation 
for those other countries, for America. I appreciate your 
advocacy on it, I look forward to your being an advocate on 
your behalf.
    Chairwoman Pryce. Well, I thank this panel very much for 
the time you have given us and for your expertise in this area, 
and we look forward to working with you and advancing this 
cost. Thank you very much.
    And as the next panel gets seated, I just want to announce 
that I have to leave for a meeting in the Capitol, and Ms. 
Biggert will be chairing this portion of the hearing. And I 
appreciate her help in that regard. And I will leave her to 
introduce you all.
    Mrs. Biggert. [presiding] I would like to welcome the 
second panel today here for your testimony, and I would like to 
introduce the panel.
     First we have Mr. Norman Sorensen as the senior vice-
president, International Principal Financial Group and 
president of Principal International, Inc.
    Mr. Sorensen serves as chairman of the board of the U.S. 
Coalition of Service Industries. CSI is the leading U.S. 
business association representing countries across a broad 
spectrum of service sectors, welcome.
    Next we have Ms. Madeleine Champion. Ms. Champion is a 
managing director at JPMorgan Chase. She works with commercial 
bank clients doing business overseas. She is also the current 
president of the Banker's Association for Finance and Trade, on 
whose behalf she is appearing today. Welcome.
    Also testifying today is Marc E. Lackritz, the president of 
the Securities Industry Association. He has served as president 
of SIA since 1992, representing approximately 600 security 
firms. Welcome.
    We have Dr. Sydney J. Key, who has written extensively on 
international trade in financial services, and is testifying in 
a personal capacity as a former staff director of the 
subcommittee. Her publications include the Doha round and 
financial services negotiations, press 2003, and the financial 
services chapter in the World Trade Organization legal, 
economic and political analysis. Welcome.
    And we will be joined by, in just a few moments, the 34th 
Commerce Secretary, now CEO of the Financial Services Forum, 
Don Evans. Secretary Evans was a core member of the President's 
economic team and served as one of the President's key advisors 
on international trade. And Secretary Evans has a busy schedule 
today and can only be with us for a short time, but will be 
leaving the president and COO of the Financial Services Forum, 
Robert Nichols, who is sitting at the table, and he will stay 
behind to answer questions that the committee might have. Mr. 
Nichols took over as president and COO of the Financial 
Services Forum in June 2005.
    Prior to this role, he served as the Assistant Secretary 
for Public Affairs at the Treasury Department, serving as head 
of the communications team at Treasury in the Bush 
Administration.
    So with that, we will begin with the testimony. And Mr. 
Sorensen, if you will begin, you are recognized for 5 minutes.

 STATEMENT OF NORMAN R. SORENSEN, PRESIDENT AND CEO, PRINCIPAL 
  INTERNATIONAL, INC., ON BEHALF OF THE COALITION OF SERVICE 
                           INDUSTRIES

    Mr. Sorensen. Thank you, Chairwoman Pryce, for the 
opportunity to testify today. Services account for 80 percent 
of U.S. gross domestic product, and 80 percent of U.S. jobs. 
Every new job in the services sector in the United States grows 
the industry further.
    The United States is the most competitive exporter of 
services, that has been said before, with a $50 billion surplus 
last year, $16 billion accounted for by financial services in 
2004 and the potential for expansion is vast.
    With the Doha round of WTO, services negotiations are 
floundering, that has been said before; it is true. The bottom 
line is that while there is a sufficient quantity of offers, 
their quality is poor and they provide little or no commercial 
opportunity.
    Liberalizing trade in financial services is essential to 
economic development. Easy access to low cost consumer credit, 
pensions, banking, insurance, and other services provide 
capital for businesses and improve people's lives. I think the 
prior panelist covered that rather well. Well-regulated and 
open financial systems boost economic growth, according to many 
studies, including the World Bank.
    I have been asked to address issues relating to insurance, 
asset management, and pensions. I will be very brief.
    We believe trade liberalization across these three sectors 
brings substantial benefits in each. Insurance provides 
important benefits, including financial security, creation of 
pools of capital for investment in basic infrastructure, and 
protection against loss on a shared basis. Asset management 
companies contribute economic growth by channeling individual 
savings to finance enterprise, providing long-term stable 
capital and mutual funds to give small investors access to 
professional management and diversification.
    As many countries struggle to provide income support for 
aging populations--and that is a real hot subject these days, 
not only across the world, but also in the United States--they 
can benefit from state-of-the-art private pension products if 
they allow world class suppliers to offer those. For each of 
these sectors, industry has asked our trade negotiators to 
obtain the following: number one, the right to establish and 
own a majority share in those businesses--that has been said 
before; number two, the right to be treated the same as a 
domestic company; number three, the right to regulatory 
transparency and best practices; number four, the ability to 
trade across borders; and number five, protection of rights 
already acquired in a market.
    The insurance industry has developed a model schedule that 
countries use to schedule these benefits, which I would be glad 
to submit for the record if I may, Madam Chairwoman.
    Mrs. Biggert. Without objection, your whole testimony will 
be admitted, also. Thank you.
    Mr. Sorensen. The negotiations are going badly for three 
main reasons. The first is that many of the important 
developing countries from whom we seek offers do not have 
sufficient incentives to make them. Number one, an agriculture 
breakthrough is the linchpin of the entire Doha WTO round 
undertaking. If the European Union and the United States can 
reduce barriers to imports from developing countries and modify 
their support and subsidy payments, those countries would make 
services offers of a material nature.
    Number two: a group of about 13 large developing countries 
will not liberalize their financial and other key markets 
because the United States is unable to discuss business travel 
facilitation. That has been discussed before. We need your 
committee's and broad Congressional support to improve business 
travel facilitation in order to run our own businesses better 
here and abroad, and to get the negotiating leverage we need in 
Geneva.
    I met this morning with Secretary Gutierrez to basically 
make the same plea, which he hears from a number of other 
industry sectors as well.
    Number three, another group, including Asean nations, has 
advocated an escape clause or safeguard for services. They seek 
reassurance that imports of services will not destabilize their 
economies. We should be able to find a practical way to address 
those issues without impairing our own core interests.
    The Coalition of Service Industries does not believe that 
safeguards are in the interest of overall broad agreements, 
however, the practical necessities may require that both those 
countries' interests and ours can be addressed through a work-
around situation.
    Another factor in why the services talks are floundering is 
the difficulty of the so-called request and offer bargaining 
process which requires sector-by-sector, country-by-country 
negotiations; very complicated, very long, very deliberate, and 
some countries don't have the capabilities to actually work 
this process. To simplify the process, a formula approach has 
been offered that would require countries to make fixed levels 
of commitments. The European Union has made particularly 
controversial proposals which have received no support. It 
could, however, diffuse the impasse it has created, but 
instead, it has used the stand-off to help justify its refusal 
to make further concessions in agriculture. So we go back full 
circle to the agriculture issue.
    Industry's experience in this and previous WTO negotiations 
on financial services demonstrates that finance ministries must 
lead the negotiations, or they will be less successful. 
Secretary Snow and his team have now taken an active role, 
thanks in part to this committee's demonstration of interest 
and evidenced by the letter that you, yourself, addressed to 
Secretary Snow which you endorsed.
    Chairwoman Pryce, I believe we can achieve our goals for 
financial and other services but this would require progress in 
agriculture, business travel facilitation, and safeguards. It 
would be very difficult for the U.S. financial services sector 
to support a Doha round outcome that failed to include a strong 
financial services liberalization component. Thank you very 
much.
    [The prepared statement of Mr. Sorensen can be found on 
page 149 of the appendix.]
    Mrs. Biggert. Thank you.
     Ms. Champion, you are recognized for 5 minutes.

 STATEMENT OF MADELEINE CHAMPION, MANAGING DIRECTOR, JPMORGAN 
 CHASE, ON BEHALF OF THE BANKER'S ASSOCIATION FOR FINANCE AND 
                             TRADE

    Ms. Champion. Thank you, Madam Chairwoman.
    Although only a few of the largest U.S. banks operate on a 
truly global scale, international activities are an important 
part of the business of many U.S. banks, including all members 
of the Bankers Association for Finance and Trade.
    In conducting those activities, U.S. banks encounter a wide 
range of trade barriers. India, one of the fastest growing 
economies in the world, provides a good example. Foreign banks 
doing business in India are subject to overall limits on their 
assets, and their ability to invest in local banks is very 
restricted. Foreign banks are also subject to higher taxes and 
more rigorous capital requirements than local banks.
    China is another. Although China made a large number of 
commitments to open its markets to foreign participants when it 
gained accession to the WTO in 2001--and it has made impressive 
progress--banks from the United States and elsewhere continue 
to face significant obstacles. For instance, a single foreign 
investor in a Chinese bank may not own more than 20 percent of 
the equity, and total foreign investment in a single Chinese 
bank is limited to 25 percent.
    The Chinese regulatory system is another impediment. A 
recent study of foreign banks in China found that new 
regulations are the most important issue they face and that the 
regulatory environment is regarded as the most difficult aspect 
of doing business there.
    India and China are not alone in this regard. U.S. banks 
face difficult challenges in many other WTO member countries, 
including Indonesia, the Philippines, Thailand, and Korea. I 
mention those in particular, because they are some of the 
biggest and most interesting foreign markets. China and India 
are especially significant, and obtaining trading barrier 
reductions in their markets are high priorities for many 
American banks.
    Of course, we also encounter barriers in countries that are 
not WTO members. Russia, which is seeking to join the WTO, is 
noteworthy. Russia prohibits foreign banks from operating 
through branches. Non-Russian banks are permitted to operate 
only through subsidiaries, and the Russian Central Bank has 
authority to impose an overall limit on foreign subsidiaries' 
share of total Russian bank capital.
    We hope that the WTO's Doha round of trade negotiations 
will lead to a significant reduction in trade barriers 
generally, as well as reductions in barriers imposed 
specifically on foreign banks. But multilateral negotiations 
are not the only avenue for reducing trade barriers. We also 
support our country's bilateral negotiation of free trade 
agreements. Our banks will benefit from gaining greater access 
to foreign markets in whatever manner it is achieved. Local 
consumers and businesses in other countries also will benefit 
from the competition, management expertise, skills transferred, 
new operating methods, innovative products and services, and 
standards of conduct that U.S. and other foreign banks can 
bring to their markets.
    Open and competitive markets are the ultimate objective, 
and they share certain fundamental characteristics; national 
treatment, unrestricted market access, and transparency. We 
believe that countries participating in the Doha round should 
have these characteristics as goals for their own financial 
markets, and BAFT will use them as benchmarks in evaluating the 
Doha round's progress with respect to banking services on a 
country-by-country basis. We also believe that countries like 
Russia, who wish to become WTO members, should make concessions 
that will bring their markets in line with these 
characteristics.
    U.S. banks can realize significant benefits from a general 
reduction in global trade barriers, and thus have much to gain 
in the Doha round. We are concerned, however, about the slow 
progress so far. Many countries have not made initial offers or 
revised offers, and the overall quality of the offers that have 
been made generally is regarded to be unsatisfactory.
    The success of the Doha round is important, and we urge all 
of the participating countries to redouble their efforts and 
make aggressive reductions in their trade barriers. The United 
States should take the lead in setting examples for others to 
follow. It has done so in the recent proposals to reduce 
agriculture subsidies and should do so across the board, 
including, in particular, with regard to business travel 
facilitation.
    BAFT greatly appreciates the efforts of the U.S. Treasury 
Department and USTR in promoting financial services 
liberalization within the WTO negotiations, as well as in free 
trade agreements. Securing broad service liberalization, 
specifically significant financial services liberalization, is 
essential to achieving a WTO agreement we can support. Thank 
you.
    [The prepared statement of Ms. Champion can be found on 
page 53 of the appendix.]
    Mrs. Biggert. Thank you. Mr. Lackritz, if you don't mind, 
we will move over to Secretary Evans, since he is on a tight 
schedule, and then we will come back to you.
    Mr. Lackritz. Not at all.
    Mrs. Biggert. Thank you.
    Welcome, Mr. Secretary. We did introduce you, so we will go 
ahead. And you know the drill, only this time you have a 
shorter period of time than when you are usually here--
    Secretary Evans. Unfortunately.
    Mrs. Biggert. So you are recognized for 5 minutes.

STATEMENT OF HON. DON EVANS, CHIEF EXECUTIVE OFFICER, FINANCIAL 
                         SERVICES FORUM

    Mr. Evans. Thank you, Madam Chairwoman, very much. I am 
delighted to be here. It is an honor to present to both you and 
my good friend, Congressman Manzullo--
    Mrs. Biggert. You notice we are both here from Illinois.
    Mr. Evans. Exactly, you have got Illinois covered. The 
manufacturing State, right? There you go.
    Chairwoman Biggert, thank you for the opportunity to 
participate in this important hearing on increasing efficiency 
and economic growth through trade in financial services. And 
thank you for your leadership on the critical issue of the 
importance of trade to our Nation's economy and the broader 
global economy.
    I am here as the chief executive officer of the Financial 
Services Forum, a financial and economic policy organization 
comprised of the chief executives of 20 of the largest 
financial institutions with operations in the United States.
    The Forum's purpose is to promote policies that enhance 
savings and investment, and that ensure an open, competitive, 
and sound global financial services marketplace. I strongly 
believe that two of the greatest challenges confronting the 
United States and the world today are the need to address 
persistent poverty and the need to effectively deal with the 
challenges associated with globalization.
    I am convinced that freer and more open trade is perhaps 
the most powerful tool at our disposal in both efforts, and 
that the multi-national framework known as the World Trade 
Organization is critical to maintaining an open global trading 
system governed by the rule of law.
    Madam Chairwoman, as you know, my schedule today is such 
that I am only here to make a brief oral statement, but I am 
going to leave behind my colleague and friend, Rob Nichols, to 
answer any questions.
    The World Trade Organization was established in 1994 during 
the Uruguay round of trade negotiations, the 8th round of 
multi-national negotiations held under the General Agreement on 
Tariffs and Trade commonly known as GATS. The GATS was created 
in 1947 as part of the world's response to the devastation of 
World War II and the policy failures and Great Depression that 
led in part to that historic calamity.
    The organizing principle was simple and inspired--to 
promote global stability and security by extending economic 
opportunity and raising living standards around the world. And 
the results have been nothing short of phenomenal. Between 1950 
and 1998, global economic output rose by 530 percent, while the 
volume of merchandise exports rose 1840 percent. Over that 50-
year period, the ratio of trade to global output tripled, from 
about 7 percent to more than 20 percent. In what has been the 
most dynamic era of economic development in human history, 
trade has become the basis for a prosperous world economy. 
Openness to trade has also become the distinguishing 
characteristic of the world's most productive economies.
    Capitalizing on trading opportunities is a major reason why 
small but open economies such as Finland, Hong Kong, Singapore, 
and Taiwan are able to generate standards of living far higher 
than most of the largest and resource-rich countries, including 
China, India, Indonesia, and Brazil. Academic research has 
established that countries that have more open economies and 
that engage in international trade enjoy higher growth rates 
and faster reductions in poverty than more closed economies.
    The World Bank has also determined that over the past 2 
decades, those developing countries that engaged in trade 
enjoyed faster growth in real wages. Indeed, since World War 
II, no nation has prospered without exploiting opportunities to 
trade.
    Of course, it hasn't just been the rest of the world that 
has reaped the rewards of trade. Lest we forget--and too many 
of us it seems do forget--the United States of America has 
benefited enormously from freer and more open trade. The United 
States represents about 18 percent of global trade, and it is 
the world's largest exporter. Since the creation of the WTO 10 
years ago, U.S. exports of goods and services have increased 65 
percent to more than $1 trillion, with manufacturing, 
agriculture, and high technology exports growing by 65, 38, and 
67 percent, respectively.
    Thanks in large part to the passage of the North American 
Free Trade Agreement, NAFTA, over that same period, U.S. 
exports to Mexico more than doubled, while exports to Canada 
and the EU grew by 66 and 56 percent, respectively. The growth 
in exports to China has been even faster, nearly quadrupling 
over the past 10 years.
    The recent passage of the Central American Free Trade 
Agreement, commonly known as CAFTA, will add to this progress 
by providing American exporters with clear access to a market 
of 44 million customers, creating the second largest U.S. 
export market within Latin America--larger than Russia, India, 
and Indonesia combined.
    The relative importance of trade to the U.S. economy has 
also increased. Twenty years ago, the total value of U.S. 
exports and imports amounted to 17 percent of America's GDP. 
Today, trade accounts for a quarter of our economic output and 
the jobs of more than 12 million American workers.
    By offering prosperity in return for peaceful exchange and 
market-led cooperation, trade has become the foundation for 
progress around the world. The critical task before us now is 
to build on our achievements of the past 60 years by extending 
freer and more open trade to those countries and regions that 
have not, as yet, enjoyed the developmental power of 
international trade.
    The Uruguay round of the early 1990's was significant in 
that it expanded coverage of GATS rules beyond manufacturing 
goods to include agricultural trade, services, trade-related 
investment measures, intellectual property rights and textiles. 
But its most significant achievement was the creation of the 
WTO, to administer GATS agreements and to settle disputes among 
WTO members. WTO membership now includes 148 nations. Additions 
of significance over the past decade include not only China, 
but also Jordan, Cambodia, and several former Soviet republics. 
And just last week, Saudi Arabia won approval to become the 
WTO's newest member next month. And membership negotiations for 
more than 20 other countries, including Russia, Vietnam, 
Ukraine, Afghanistan, and Iraq are ongoing. Such sustained 
interest in joining the WTO underscores the importance the 
world continues to associate with membership.
    The creation of the WTO was, in many ways, the culmination 
of a decade-long bipartisan American commitment to lead the 
world away from economic isolationism and toward an open rules-
based global trading system. And the United States continues to 
exercise its leadership in WTO. For example, the United States 
aggressively uses WTO machinery to enforce hard-won trade-
related rights.
    Since the creation of the WTO in 1994, the United States 
has brought more dispute settlement cases than any other 
member, casing involving products ranging from apples and dairy 
to biotechnology and telecommunication. The WTO also advances 
U.S. interests through more than 20 standing committees that 
meet regularly to administer agreements, allow members to 
exchange views, and to develop initiatives aimed at improving 
existing agreements and their operation.
    Simply put, in a world where about 95 percent of consumers 
live beyond our borders, the WTO is an essential tool for 
advancing U.S. interests.
    WTO countries are currently participating in the 9th round 
of negotiations called the Doha development round which was 
launched in Doha, Qatar, in November of 2001, in the immediate 
aftermath of the September 11th terror attacks. The main areas 
of focus in the negotiations are agriculture, industrial market 
access, services, trade facilities, WTO rules, and the 
promotion of economic development.
    Madam Chairwoman, I know I have gone past my time, would 
you like me to conclude my remarks?
    Mrs. Biggert. Yes. If you could bring your remarks to a 
close.
    Mr. Evans. I sure will, I would be happy to do that.
    Mrs. Biggert. I know it is hard when you are used to longer 
time.
    Mr. Evans. The global trading system is not perfect and 
will always remain a work in progress. And given the 
complexities--technological, political, and cultural--that stem 
from the accelerating pace of globalization, further trade 
liberalization is hard work. But that hard work is even more 
important today than it was following a catastrophic world war.
    To ensure that all nations reach the maximum benefit from 
trade, the global trading system must operate with 
predictability and transparency, without discrimination against 
the products of any nation, and providing the means to address 
unfair trade practices. This is a crucial responsibility of the 
World Trade Organization. We must keep in mind that while trade 
can cause transitional pain for some American workers, building 
walls around the United States would cause enormous permanent 
pain for all Americans. Imagine, for example, if U.S. computer 
companies were forced to make all their components at home; the 
cost of owning a computer would be much higher, so fewer 
businesses would have access to productivity-enhancing, wealth 
creating tools which help make them more profitable, grow fast, 
and better able to hire workers.
    By capitalizing on what different countries do best, trade 
lowers costs, frees up capital and other resources to be used 
productively, raises living standards, and promotes growth and 
development, all of which promotes faster job creation. The 
participation and leadership of the United States in the global 
trading system, by way of the WTO, remains a critical element 
for ensuring America's continued prosperity and for meeting the 
challenges of ensuring a more stable and secure world.
    Madam Chairwoman, thank you for allowing me to extend my 
remarks. And to all the members of the committee, it was a 
delight to drop by here and see you. I know I have more 
extended remarks, that may be hard to believe, but I have more 
extended remarks that will be submitted for the record. Thank 
you very much.
    [The prepared statement of Mr. Evans can be found on page 
64 of the appendix.]
    Mrs. Biggert. Yes. Thank you very much, and thank you for 
being here. And your extended remarks will be included in the 
record. I appreciate you being here, thank you.
    Mr. Evans. Thank you. I appreciate it.
    Mrs. Biggert. And thank you, Dr. Key and Mr. Lackritz, for 
your patience. I now would like to hear the testimony of Mr. 
Lackritz. I know that you have been here several times, welcome 
back, we are happy to have you here.

 STATEMENT OF MARC E. LACKRITZ, PRESIDENT, SECURITIES INDUSTRY 
                          ASSOCIATION

    Mr. Lackritz. Thank you, Chairwoman Biggert. It is a 
pleasure to be here, and thank you very much for the invitation 
to testify. Members of the subcommittee, and Chairwoman 
Biggert, I appreciate the chance to talk about the security 
industry's objectives and goals for the Doha development round 
of the WTO negotiations.
    With a ministerial set to begin in less than a month, we 
really commend the subcommittee for holding this timely 
hearing. The subcommittee has a history of, a proud history, I 
think, of being a forceful, persuasive advocate for open, fair 
international markets, and we are confident that you will 
continue to work with U.S. negotiators in securing a 
commercially meaningful package of financial services 
commitments in the Doha round.
    Open, fair, free international markets enhance 
globalization by fostering economic growth, providing new 
opportunities, and increasing competition. Indeed, the purpose 
of trade liberalization is not simply to increase the volume of 
global commerce, but also to improve the quality of people's 
lives.
    The evidence is clear, open economies are more likely to 
lift people out of poverty than economies that are stagnant and 
closed, and an open trading system for financial services is a 
win-win situation, bringing economic benefits to newly-emerging 
economies while increasing jobs here at home and the services 
trade surplus.
    The U.S. financial services sector is a key component in 
our economy in raising capital for new businesses, extending 
credit for corporate acquisitions, managing finances for retail 
customers, and providing risk management products and services 
to U.S. multinationals. Financial services firms affect every 
aspect of the economy.
    The U.S. financial services industry contributed $972 
billion to U.S. GDP in 2004, about 8.3 percent of total GDP. 
More than 6.1 million employees support the products and 
services these firms offer. Importantly, financial services 
firms generated a trade surplus of $16 billion in 2004 on the 
strength of a record $27 billion of exports. And our 
contribution to the U.S. economy total output has been 
especially impressive, since it has been increased by nearly 4 
times of the last 15 years, which is double the rate of 
increase of the overall economy.
    We have consistently advocated trade liberalization that 
achieves three important objectives; first, commercial presence 
with national treatment; second, increased cross border assess; 
and third, transparent regulation.
    To fully achieve those objectives, our industry recently 
drafted a model schedule of commitments which I would ask, 
Chairwoman Biggert, to be included in the record along with my 
written statement.
    Mrs. Biggert. Without objection.
    Mr. Lackritz. Thank you. This would allow securities firms 
to serve their global customers most efficiently while 
safeguarding critical regulatory goals. The model schedule 
would apply to debt and equity trading, securities underwriting 
and placement, asset management and advisory services.
    A fundamental element of any WTO agreement is the absent 
ability to operate competitively through a wholly-owned 
commercial presence or other form of business ownership. 
Members should permit foreign suppliers of capital markets 
related services to establish a new commercial presence or 
acquire an existing commercial presence in the member's own 
countries. Firms should be allowed to choose their corporate 
forum and should receive the same treatment as domestic 
businesses.
    In today's capital markets, services are increasingly being 
supplied electronically without the consumer or the supplier 
leaving its home territory. WTO members, however, have made 
virtually no commitments with respect to cross border supply in 
three of the four sectors of greatest interest to our industry, 
trading, underwriting and asset management. The model schedule 
calls for members to make basic commitments to permit cross 
border supply without quantitative limits or so-called economic 
needs tests, and to accord such suppliers nondiscriminatory 
treatment.
    Regulatory transparency is as much a market access issue 
for securities firms as tariffs are for manufacturers. A 
nontransparent regulatory system can skew competition in favor 
of domestic suppliers even when the market is technically open 
to foreign suppliers. Financial regulation should be developed, 
adopted and enforced in a transparent, nondiscriminatory manner 
so that both providers and consumers know what the rules are 
and have confidence that they will be applied consistently and 
fairly.
    Chairwoman Biggert, our industry is the world leader in 
international technology, finance and innovation. If we are to 
retain our pre-eminence, however, we must be able to meet the 
demands of both our U.S. and our foreign clients. SIA would 
like to express our appreciation to both the Treasury 
Department and the USTR for their continued efforts as forceful 
advocates for open and fair global financial markets. And 
Chairwoman Biggert, the Doha round negotiations offer Congress 
and the Administration another opportunity to secure open and 
fair access to foreign markets for U.S. firms and their 
clients. We are eager to continue working with your 
subcommittee and the Administration to ensure that these 
important trade talks achieve favorable results for issuers, 
investors, and financial services firms around the world. Thank 
you very much.
    [The prepared statement of Mr. Lackritz can be found on 
page 78 of the appendix.]
    Mrs. Biggert. Thank you very much, Mr. Lackritz.
    Dr. Key, you are recognized for 5 minutes.

    STATEMENT OF DR. SYDNEY J. KEY, FORMER STAFF DIRECTOR, 
SUBCOMMITTEE ON INTERNATIONAL DEVELOPMENT, FINANCE, TRADE, AND 
   MONETARY POLICY, COMMITTEE ON BANKING, FINANCE, AND URBAN 
             AFFAIRS, U.S. HOUSE OF REPRESENTATIVES

    Dr. Key. I want to thank the chairwoman and members of the 
subcommittee for the opportunity to testify.
    This afternoon, I will try to put financial services 
liberalization in the General Agreement on Trade in Services in 
perspective by focusing on three issues: first, the 
relationship between market-opening efforts in the WTO, and the 
ongoing international work on strengthening domestic financial 
systems; second, the importance of undertaking binding 
commitments in the GATS; and third, the inclusion of regulatory 
transparency in the Doha round negotiations.
    I would like to begin by emphasizing that the presence of 
foreign firms can create more competitive and efficient 
domestic markets for financial services, thereby supporting 
economic growth and development and contributing to a more 
resilient domestic financial system. At the same time, however, 
structural reforms to strengthen domestic financial systems, 
including ensuring adequate prudential regulation and 
supervision, are essential to obtain the maximum benefits of 
liberalization while minimizing the risks.
    Work aimed at strengthening domestic financial systems is 
taking place in a variety of international fora. This work 
includes promoting cooperation and coordination among financial 
supervisors and setting voluntary, but widely accepted, 
international minimum standards and codes of good practices. As 
part of this effort, the financial sector assessment program of 
the IMF and the World Bank involves assessing the strengths and 
vulnerabilities of a country's financial sector, and monitoring 
and helping to build institutional capacity for the 
implementation of the international standards and codes.
    Because measures to promote competitive markets and to 
strengthen domestic financial systems are complementary and 
mutually reinforcing, the relationship between financial sector 
regulation and liberalization has two distinct dimensions. On 
the one hand, liberalization requires reducing or removing 
anticompetitive regulations that pose unnecessary barriers to 
trade in services. On the other hand, liberalization also 
requires increasing the strength and quality of certain 
regulations and, in some areas, actually introducing new 
regulations. Thus, the process of liberalization involves 
reaching a consensus on where to draw the line between 
regulations that are simply anticompetitive barriers to trade 
and should, therefore, be eliminated and regulations that serve 
legitimate purposes.
    For financial services, the GATS contains what is known as 
the prudential carve-out for domestic regulation. It is 
designed to ensure that the obligations and commitments a 
country has undertaken in the GATS will not interfere with the 
ability of the national authorities to exercise their 
responsibilities for prudential regulation and supervision. 
This provision was included in the GATS at the insistence of 
financial regulators. They made it absolutely clear that the 
inclusion of financial services in a multilateral trade 
agreement would be unacceptable without a specific carve-out 
from the obligations of the agreement for prudential measures.
    The second point I want to emphasize is the importance of 
obtaining binding commitments in the GATS. A GATS commitment is 
permanent in the sense it cannot be withdrawn without 
compensation of trading partners. Failure to honor a GATS 
commitment could open a country to a dispute settlement 
proceeding and, ultimately, to WTO-sanctioned retaliatory 
measures by its trading partners. As a result, binding even the 
status quo,that is, existing levels of liberalization, is 
significant.
    Undertaking binding commitments in the GATS can also be an 
integral part of a country's longer-term policy reform agenda. 
For example, China, as part of its WTO accession agreement, 
made phased commitments in the GATS to open its banking sector 
to foreign direct investment within 5 years, that is, by 
December 11, 2006. In agreeing to this deadline, the Chinese 
government was also, in effect, setting a domestic political 
deadline for major reform of China's banking system.
    Third, I would like to turn to the issue of how far the 
Doha round financial services negotiations should extend into 
the realm of domestic structural reform to deal with 
nondiscriminatory structural barriers to trade in financial 
services.
    One area that could usefully be negotiated in the WTO that 
goes beyond traditional market opening is regulatory 
transparency. Stronger GATS rules on regulatory transparency 
would help eliminate barriers to trade in services created by 
opaque regulatory regimes, and also help ensure that a country 
does not use its regulatory regime to undermine its specific 
commitments to open markets.
    In conclusion, I want to emphasize that a continuing 
challenge in financial services negotiations in the WTO is to 
provide support for and to build upon political and market 
forces that are creating pressures within a country for market 
opening and domestic structural reform. In this regard, a 
country's readiness for reform is critical. As the GATS 
explicitly recognizes, liberalization of trade in services is 
an ongoing process. For financial services, this process is 
being driven largely by market forces and new technologies. It 
is also being driven by the growing recognition among 
policymakers that market opening can benefit host-country 
consumers of financial services and, at the same time, 
contribute to the resiliency of domestic financial systems. 
Thank you.
    [The prepared statement of Dr. Key can be found on page 72 
of the appendix.]
    Mrs. Biggert. Thank you very much, Doctor.
    We will now proceed to the questions, and as in the first 
panel, each member is recognized for 5 minutes to ask 
questions, so I will recognize myself for 5 minutes.
    Mr. Lackritz, you talked about the model schedule for GATS 
commitments for capital market-related services. If the model 
schedule were to apply to the United States, how would it 
impact the ability of foreign exchanges to establish trading 
screens in the United States without registration within the 
SEC?
    Mr. Lackritz. Well, I think, in essence, we provide 
currently national treatment to anyone coming into our country 
to do business. So currently, if a foreign exchange wanted to 
come into this country--in fact, it has happened in Chicago 
where we had that issue in fact, it is probably the one you are 
most familiar with--
    Mrs. Biggert. Yes.
    Mr. Lackritz. So, in fact, it would provide the same kinds 
of opportunities for foreign exchanges to do business here 
under the same rules and regulations that U.S. exchanges would 
have. So we provide that national treatment.
    What we are trying to do with the model schedule is really 
to extend that kind of national treatment principle to some of 
these other developing countries that currently don't provide 
national treatment, don't permit establishment, don't have 
broad cross-border commitments, and don't have regulatory 
transparency. So we are trying to export that model really to 
other countries.
    Mrs. Biggert. I guess we have always had the most open 
markets, and that is what we are trying to instill in other 
countries, but sometimes it seems to be difficult.
    Has the SEC reacted to this proposal?
    Mr. Lackritz. We have had--yes. We have had ongoing 
discussions with the SEC about our proposal, and I think they 
have been very encouraging so far. And I think we have also 
worked with our Treasury Department and our USTR with respect 
to the proposal, and in addition, had consultations now with 
over 35 countries in the context of the WTO negotiations as 
well as the WTO secretaries. So we are making a very active and 
aggressive effort to try and move this effort along.
    Mrs. Biggert. Would that be the European? How have the 
Europeans and the Asian regulators reacted to the proposal?
    Mr. Lackritz. So far we have been very encouraged by the 
response. So far the response has been very positive, but 
obviously, the proof will be in the pudding. And as the round 
of ministerial takes place next month, and then the offers come 
forward hopefully after that.
    Mrs. Biggert. Mr. Nichols, Secretary Evans talked a lot 
about persistent poverty and the need to deal with the 
challenges associated with globalization, and he said that part 
of the challenge is to deal with the poverty, but really, if we 
have the open markets in the developing countries, this will 
alleviate the poverty. Could you expand a little bit on that?
    Mr. Nichols. Sure. Thank you very much for your question, 
Congressman, and I appreciate it.
    You know, one point, when we are talking about trade, in my 
experiences, we are often talking about import and export 
ratios and tariffs and it gets very technical, but the point 
that the forum would like to add to your hearing today and to 
the dialogue here is the impact it has on people, on actual 
people. And the World Bank just came out with a study that I 
would like to raise to your attention last week on the 9th that 
essentially said, with the successful achievement of a Doha 
trade round, they estimate that they will lift 32 million 
people from the poverty rolls. And I think as we are talking 
about trade, those are 32 million fantastic reasons for us to 
achieve success.
    Mrs. Biggert. Do you think that what we have done to 
eliminate the debt owed by many of the most impoverished 
countries will really help to introduce the concept of trade 
into those countries?
    Mr. Nichols. Debt relief is certainly an important part of 
the overall equation, but there is nothing better we can do to 
help emerging and developing nations than to establish strong 
trading ties, in fact, on the earlier panel, you asked the 
government witnesses about what markets that the financial 
services industry is looking to, and they answered correctly 
India and China are two that our members view as important 
opportunities.
    But I will tell you, in addition to what they would do for 
the financial services industry, speaking of China, there is 
somewhere in the area of 7- or 800-million people living in 
poverty in inland China. Over time, if that Nation embraces 
financial services, that will help lift those people from 
poverty into a middle class and that is important and good for 
the entire globe.
    Mrs. Biggert. Thank you. Mr. Sorensen, I think we are going 
to have plenty of time for this hearing, but I will ask the 
question now, I know you are in on a time schedule. Your 
testimony indicated that a number of major emerging markets are 
holding back on offering major improvements in services, 
liberalization, without progress in the United States on 
business travel visas. Your testimony, you had a recommendation 
how to resolve that issue. What kind of support is CSI 
receiving from other trade associations about this proposal?
    Mr. Sorensen. The European Services Forum, the Hong Kong 
associations largely in the developed countries, the Australian 
associations, Japanese associations which mirror our desire to 
get this resolved in one way or another, are extremely 
supportive. We have seen tremendous support also from the 
Business Roundtable, who have endorsed our proposal and it is 
being discussed with a number of members of Congress in the 
Judiciary Committee.
    I think it will be a little while longer before we all get 
used to the fact that this is a proposal that allows for 
temporary entry of business people, technical people, and 
trainees, to come to the United States for a very defined 
period of time, with an exit. This is not an extension of 
permanent status; this is not an overstay time situation. The 
way it is done is by locking in the sponsorship company or 
entity that sponsors these individuals to come to the United 
States who will be subject to nonrenewal of their rights to do 
so should there be any violations.
    And so, this adds teeth, if you will, to avoid some of the 
leakage that has been going on among a number of these 
categories, and so there is tremendous support. The Europeans 
in particular, not only the European Services Forum, but also 
the European Commission, Mr. Mandelson, whom I met with a 
couple of months ago, was particularly anxious to see this move 
forward. Once the agricultural situation is resolved, this will 
be the next major issue to be dealt with.
    The final thing I will say is that this is reciprocal, so 
148 countries would have the same obligations such that the 
United States, one of my trainees here, or one of my IT people 
would have a fast-track entry into the Indian market or the 
Brazilian market, the Chinese market, all of which today offer 
tremendous delays similar to the delays that we have for 
temporary entry of personnel.
    Mrs. Biggert. Thank you. My time has expired. The gentleman 
from New York, Mr. Crowley, is recognized for 5 minutes.
    Mr. Crowley. I thank the gentlelady. An industry-related 
question, Mr. Sorensen. I have been working with such companies 
as New York Life and other insurance firms to pry open as I 
mentioned before the first panel, opportunities in the global 
market for services firms based here in the United States. We 
have seen successes in places like India and Vietnam, but I 
believe more needs to be done. There are far too many barriers 
for entries for financial services firms. I was wondering if 
anyone can comment on some of the things the U.S. financial 
services firms, in particular, the insurance industry, have 
been doing to get themselves into foreign markets and what 
things can be done better, what things can our government be 
doing to help them in this goal, and how does this help 
Americans here at home?
    Mr. Nichols, this may correspond to the Doha issues in 
terms of uplifting 32 million people in the world, but how does 
it affect people abroad as well?
    Mr. Sorensen. I would be very, very brief on this. The 
insurance industry has developed a model schedule, it was 
developed in 2001, which has been submitted for the record. 
That schedule has been discussed with a number of foreign 
governments at the trade level, and at the insurance regulator 
level. Essentially, the Big 5, the Indians, the Chinas, the 
Brazils, Malaysia, and Indonesia, the response has been not 
overwhelmingly positive. On a scale of 1 to 10, we are at a 6 
today. I would say that, for example, the ownership issues 
remain very, very large. One cannot own more than 26 percent of 
an insurance company in India today and although talk about the 
49 percent access remains, that is still quite a ways to go.
    One cannot own any more than 20 percent of a bank in China 
or more than 49 percent of an asset management company in 
China. So there is this holdback process which is driven by a 
number of factors at the government level. One of them, when we 
allow too much free flow, there may be destabilization in some 
economies, which have closed capital markets, India and 
Malaysia, perfect examples. There is not a free trade or, 
correction, free flow of capital. So we need to break that 
holdback, we need to break that holdback in a number of ways. 
The insurance industry is only one example. I think we probably 
need several years. The Doha issue would be a tremendous 
accomplishment if we have success in 2006, which seems 
increasingly elusive, we are hoping that that will go a long 
ways to resolving our issues.
    Mr. Crowley. Anyone else want to comment on that?
    Mr. Lackritz. I would reemphasize the model scheduled in 
the securities areas, and what we have tried to do to get more 
establishment of commercial enterprises in developing countries 
markets to improve cross-border access and regulatory 
transparency. On top of that, we, this last year, held our 
first conference on capital markets in China, and we had more 
than 600 attendees--Chinese attendees--and a number of 
representatives of our firms who are capable of doing global 
business, talking about equity markets, debt markets, 
underwriting, trading, exchanges, regulation, and I think the 
momentum resulting from that actually helps to sort of spread 
the word about the benefits of this. I think the biggest 
challenge we have as an industry may be--
    Mr. Crowley. The benefits being that of transparency.
    Mr. Lackritz. And fully developed capital markets. That 
these really help the countries themselves. This is an effort 
to help the countries develop faster. As Secretary Evans 
mentioned in his testimony, as we have cited, better capital 
markets improve economic growth, they improve opportunities, 
they accelerate development. There are benefits all the way 
around.
    So I think a big challenge for us is to help educate some 
emerging markets about the benefits that more open systems, and 
more open financial services sectors really provide to their 
own countries, and I think that is the challenge that we face 
in addition to these negotiations and the commitments from our 
model schedule.
    Mr. Crowley. Maybe some of the benefits are self-evident, 
but what are some of the benefits our country could derive?
    Mr. Lackritz. First of all, any country dependent on one 
sector, for example, in financial services, runs the risk of 
destabilization, whereas if you have a broader array of sectors 
actively involved, you have sort of shock absorbers where there 
are market imbalances, and you have more diverse products and 
services that are available to customers to buy. So you have a 
more efficient capable allocation system where capital is going 
to go to its highest uses. You have more advisory services to 
help capital--people that have capital in those countries 
invest their capital most wisely.
    Most importantly, you have for the companies in those 
countries that are providing the jobs and the growth, you have 
greater access to global flows of capital, so they get more 
ready access at lower cost, much lower cost of capital for all 
those companies which helps to accelerate development as well.
    Mr. Crowley. Thank you. I also have one additional question 
if I can put that in writing and ask for your response.
    Mr. Lackritz. Great.
    Mrs. Biggert. Thank you. The gentleman from Illinois, Mr. 
Manzullo.
    Mr. Manzullo. Thank you. Mr. Sorensen, you are extremely 
popular here today, and I don't mean to diminish the roles of 
the other members of this distinguished panel, but I turn to 
page 5 of your testimony, business travel facilitation, and I 
just--I don't think this town gets it. If you go down to the 
last paragraph where it says: The Congress. Do you see that? 
Says: The Congress, U.S. trade negotiators in the business 
community need to work together to shape a business travel 
facilitation initiative. You heard they won't touch it.
    Mr. Sorensen. This is true, Congressman. USTR won't touch 
it, because they have been told not to. This is obviously a 
Judiciary Committee purview, and we understand that.
    Mr. Manzullo. As part of the Small Business Committee, we 
don't worry about minor things like jurisdiction.
    Mr. Sorensen. It is fortunate, sir, that you are in that 
position, because I would say, sir, that there is some 
misunderstanding. I believe that temporary entry should be 
precisely that, and it should have teeth, in other words, it is 
not to overstay an H1B visa or something that allows a person 
from another country to enter this country and feel free to 
revise a status. So this would be a fast-track thing for 
business people, technical people, trainees, and joint venture 
partners.
    Mr. Manzullo. Any thought that we can do this by treaty?
    Mr. Sorensen. I think we can. Basically, the issue here is 
convincing regulators not only in the United States but abroad. 
By the way, all of the developing countries are dying to have 
this become a lot easier because they are missing opportunities 
as well, as we are in the U.S. service industries.
    Mr. Manzullo. We had a situation back in Rockford, 
Illinois, again with Ingersol, they sold machines, and they are 
not controlled, to the Indians. The State would not allow the 
Indians to come to the United States to train on their own 
machine that they bought here. Now you wonder why companies 
like that go out of business. We have one stamping machine tool 
company left in this country, out of Dayton. We have one cold 
forming machine company left, National Machinery. We are losing 
our machine tooled industry in dramatic strides. We are giving 
it away because someone comes around and says my gosh, you can 
use that for a military application. Well, I guess so, if you 
like purple hubcaps on your tanks. You can transfer any 
technology like that.
    But the problem that I have seen in Washington is this town 
does not understand the meaning of manufacturing and I am going 
to lay it at Mr. Greenspan's feet, as much as I admire Dr. 
Greenspan, he has said consistently before this committee not 
to worry about the loss of manufacturing jobs, it will always 
be compensated for in high end--high end white collar service 
jobs. I say, give me an example of what you are talking about 
and then my 5 minutes runs out. I could never get an example.
    I was in Milan, Italy, at the tool trade show that takes 
place every 2 years, and I missed going to Frankfurt. I have 
traveled all over the world studying manufacturing and I have 
seen what has happened to us. We are being killed.
    He was right when he wrote that article merchandise exports 
follow financial exports because it paves the way for the 
exchange of currency, and also the trust of individuals 
necessary to raise the level of business expectations. We don't 
have that here. Is there any specific legislation that you have 
in mind?
    Mr. Sorensen. Yes, sir. Congressman, we have proposed, I 
don't have it here unfortunately but I beg the Chairman's 
indulgence to provide it later in writing, a 2-pager that I 
left with Secretary Gutierrez today, because we appealed to him 
this morning as well. It is a very simple document. It is not 
legislation yet. We hope that it will become a proposal for 
legislation to allow a fast-track process two ways, for not 
only--in fact, I have just received it, and so I submit this 
for the record.
    Mrs. Biggert. Without objection.
    Mr. Manzullo. One of the things that I would suggest that 
you add to that list of what you call professionals, managers, 
consultants, highly-skilled experts and technicians, add to 
that manufacturing representatives or customers.
    Mr. Sorensen. It is broad enough, Congressman, to include 
that.
    Mr. Manzullo. I would like to work with you on that, and if 
you think that we could be of assistance. One thing we can do 
is raise hell about the problem. This is the type of stuff you 
like to shove in the face of people who are screaming about the 
trade imbalance. The very big things that we can sell 
ourselves, we can't because we disinvite those people that want 
to buy our good stuff.
    Mr. Sorensen. If I may, Chairwoman, with your indulgence, 
just 2 more seconds. We don't want what is happening and 
unfortunately, you quoted a number of instances in the 
manufacturing to happen to the services industry. I have three 
joint-venture partners. One in China--China Construction Bank, 
the third largest bank in China--is a joint-venture partner. I 
could not bring two or three joint-venture partners to the 
United States because of some potentially prudently laid out 
immigration policies that call for delays and screening and all 
this, and I offered bonds. I said I will pay a bond to make 
sure that this person returns 3 days later after he or she 
signs an agreement with us.
    Malaysia, the same situation. I had a joint-venture partner 
held in the airport for 2 days, a vice-chairman of a bank in 
Malaysia, a partner of ours. So, unfortunately, the pendulum 
has swung a little bit too far, but we do need to make sure 
that this proposal does not mean that this is another sort of 
visa thing for an open door. This is temporary entry for people 
that will have a beginning and an end and the entity would be 
the person to whom you would go to avoid overstays or leakage 
of the system. So it has teeth, which is what we want, and 
hopefully, the Judiciary Committee will listen.
    Mrs. Biggert. Thank you. I have just a couple more 
questions. Dr. Key, your testimony indicates that the process 
of liberalization involves among other things reaching a 
consensus on where to draw the line between regulations that 
are simply anticompetitive barriers to trade, and should, 
therefore, be eliminated, and regulations that serve legitimate 
purposes. That's a quote.
    Do you think that the IMF and the World Bank's work on 
standards and codes can minimize or eliminate unnecessary and 
inefficient regulatory differences?
    Dr. Key. The international work in the IMF and World Bank 
and specialized bodies like the Basel Committee on Banking 
Supervision on minimum international standards and codes of 
good practices can provide a basis for a general consensus that 
certain kinds of rules are legitimate, prudential measures and 
are important to have. They don't go so far as to say whether a 
particular national measure is appropriate, but they do 
represent a generally accepted view about the measures that are 
important for ensuring financial stability.
    Mrs. Biggert. Then how would you propose we assess 
differences among developed economies such as the U.S., the EU, 
and Japan?
    Dr. Key. In terms of the regulatory--
    Mrs. Biggert. Yes.
    Dr. Key. Prudential regulations that do not discriminate 
between foreign and domestic firms can have an impact as 
barriers to trade simply because they are different among 
countries, and for financial firms that are operating on a 
global basis that certainly can be a problem. I think the 
international work has gone a long way towards reducing this, 
but obviously there are still differences that remain because 
each country does bear the ultimate responsibility for its own 
regulation and supervision.
    The EU internally in its single market program has gone 
much further with its policy of mutual recognition based on 
harmonization of essential standards. However, that has been 
undertaken within a unique supernational structure and much 
more extensive harmonization than has occurred internationally.
    Mrs. Biggert. In Japan?
    Dr. Key. Japan is part of the international work in a 
variety of fora on generally accepted international minimum 
standards and codes of good practices.
    Mrs. Biggert. Do you think a necessity test should exist 
when evaluating regulatory policy differences?
    Dr. Key. No, not for prudential regulation. In the 
prudential carve-out in the GATS, finance officials who 
negotiated it made sure that it would not have a necessity 
test. They were concerned about having a WTO dispute settlement 
panel decide whether a particular prudential rule was necessary 
or least trade restrictive and wanted to avoid any possibility 
of subjecting prudential rules to that kind of test. There is, 
however, an antiabuse provision that says a country may not use 
the prudential carve-out to avoid its obligations or 
commitments under the GATS.
    Mrs. Biggert. Ms. Champion, your testimony indicates that 
BAFT intends to publish score cards regarding how open the 
financial sectors are for WTO members.
    Ms. Champion. Yes, we plan to evaluate the offers being 
made by particular countries in the WTO negotiations, with 
respect to banking products and financial services.
    Mrs. Biggert. Is this going to be published?
    Ms. Champion. Yes, we plan to publish our score card.
    Mrs. Biggert. So you don't expect to provide a name and 
shame mechanism to pressure countries to enhance their 
liberalization. We did this with the computers January 1st of 
the year 2000, with publishing--actually, the Government Reform 
Committee gave a--
    Ms. Champion. Y2K.
    Mrs. Biggert. --gave a score card to all the agencies in 
the United States. In how they were doing and whether they are 
going to be ready for Y2K and businesses and everything, so I 
just wonder if you were going to have that kind of thing. It 
did help, I might add.
    Ms. Champion. Just a final comment, we do plan to publish 
our conclusions.
    Mrs. Biggert. How will BAFT treat the EU countries. Will 
you rate each one separately or rate them in a block?
    Ms. Champion. We will look at them separately.
    Mrs. Biggert. Thank you. Well, I guess I am the last man 
standing or the last woman sitting so we will bring this to a 
close, and the Chair notes that some members may have 
additional questions for this panel, which they may wish to 
submit in writing.
    Without objection, the hearing record will remain open for 
30 days for members to submit written questions to these 
witnesses and to place their responses in the record without 
objection, and I want to thank all of you for being such 
excellent witnesses. We really appreciate you coming and this 
has been, I think--it is too bad this is a Tuesday and many of 
our members aren't back yet, since we go into session tonight, 
but I think this is an issue that needs a lot of attention. It 
is very important to--certainly to this country, and our 
economic global economy and how we are in the world.
    So I really appreciate all of you having been here. And 
with that, this hearing is adjourned.
    [Whereupon, at 4:23 p.m., the subcommittee was adjourned.]


                            A P P E N D I X



                           November 15, 2005


[GRAPHIC] [TIFF OMITTED] T6757.001

[GRAPHIC] [TIFF OMITTED] T6757.002

[GRAPHIC] [TIFF OMITTED] T6757.003

[GRAPHIC] [TIFF OMITTED] T6757.004

[GRAPHIC] [TIFF OMITTED] T6757.005

[GRAPHIC] [TIFF OMITTED] T6757.006

[GRAPHIC] [TIFF OMITTED] T6757.007

[GRAPHIC] [TIFF OMITTED] T6757.008

[GRAPHIC] [TIFF OMITTED] T6757.009

[GRAPHIC] [TIFF OMITTED] T6757.010

[GRAPHIC] [TIFF OMITTED] T6757.011

[GRAPHIC] [TIFF OMITTED] T6757.012

[GRAPHIC] [TIFF OMITTED] T6757.013

[GRAPHIC] [TIFF OMITTED] T6757.014

[GRAPHIC] [TIFF OMITTED] T6757.015

[GRAPHIC] [TIFF OMITTED] T6757.016

[GRAPHIC] [TIFF OMITTED] T6757.017

[GRAPHIC] [TIFF OMITTED] T6757.018

[GRAPHIC] [TIFF OMITTED] T6757.019

[GRAPHIC] [TIFF OMITTED] T6757.020

[GRAPHIC] [TIFF OMITTED] T6757.021

[GRAPHIC] [TIFF OMITTED] T6757.022

[GRAPHIC] [TIFF OMITTED] T6757.023

[GRAPHIC] [TIFF OMITTED] T6757.024

[GRAPHIC] [TIFF OMITTED] T6757.025

[GRAPHIC] [TIFF OMITTED] T6757.026

[GRAPHIC] [TIFF OMITTED] T6757.027

[GRAPHIC] [TIFF OMITTED] T6757.028

[GRAPHIC] [TIFF OMITTED] T6757.029

[GRAPHIC] [TIFF OMITTED] T6757.030

[GRAPHIC] [TIFF OMITTED] T6757.031

[GRAPHIC] [TIFF OMITTED] T6757.032

[GRAPHIC] [TIFF OMITTED] T6757.033

[GRAPHIC] [TIFF OMITTED] T6757.034

[GRAPHIC] [TIFF OMITTED] T6757.035

[GRAPHIC] [TIFF OMITTED] T6757.036

[GRAPHIC] [TIFF OMITTED] T6757.037

[GRAPHIC] [TIFF OMITTED] T6757.038

[GRAPHIC] [TIFF OMITTED] T6757.039

[GRAPHIC] [TIFF OMITTED] T6757.040

[GRAPHIC] [TIFF OMITTED] T6757.041

[GRAPHIC] [TIFF OMITTED] T6757.042

[GRAPHIC] [TIFF OMITTED] T6757.043

[GRAPHIC] [TIFF OMITTED] T6757.044

[GRAPHIC] [TIFF OMITTED] T6757.045

[GRAPHIC] [TIFF OMITTED] T6757.046

[GRAPHIC] [TIFF OMITTED] T6757.047

[GRAPHIC] [TIFF OMITTED] T6757.048

[GRAPHIC] [TIFF OMITTED] T6757.112

[GRAPHIC] [TIFF OMITTED] T6757.113

[GRAPHIC] [TIFF OMITTED] T6757.062

[GRAPHIC] [TIFF OMITTED] T6757.063

[GRAPHIC] [TIFF OMITTED] T6757.064

[GRAPHIC] [TIFF OMITTED] T6757.065

[GRAPHIC] [TIFF OMITTED] T6757.066

[GRAPHIC] [TIFF OMITTED] T6757.067

[GRAPHIC] [TIFF OMITTED] T6757.068

[GRAPHIC] [TIFF OMITTED] T6757.069

[GRAPHIC] [TIFF OMITTED] T6757.070

[GRAPHIC] [TIFF OMITTED] T6757.071

[GRAPHIC] [TIFF OMITTED] T6757.072

[GRAPHIC] [TIFF OMITTED] T6757.073

[GRAPHIC] [TIFF OMITTED] T6757.074

[GRAPHIC] [TIFF OMITTED] T6757.075

[GRAPHIC] [TIFF OMITTED] T6757.076

[GRAPHIC] [TIFF OMITTED] T6757.077

[GRAPHIC] [TIFF OMITTED] T6757.078

[GRAPHIC] [TIFF OMITTED] T6757.079

[GRAPHIC] [TIFF OMITTED] T6757.080

[GRAPHIC] [TIFF OMITTED] T6757.081

[GRAPHIC] [TIFF OMITTED] T6757.082

[GRAPHIC] [TIFF OMITTED] T6757.083

[GRAPHIC] [TIFF OMITTED] T6757.084

[GRAPHIC] [TIFF OMITTED] T6757.085

[GRAPHIC] [TIFF OMITTED] T6757.086

[GRAPHIC] [TIFF OMITTED] T6757.087

[GRAPHIC] [TIFF OMITTED] T6757.088

[GRAPHIC] [TIFF OMITTED] T6757.089

[GRAPHIC] [TIFF OMITTED] T6757.090

[GRAPHIC] [TIFF OMITTED] T6757.091

[GRAPHIC] [TIFF OMITTED] T6757.092

[GRAPHIC] [TIFF OMITTED] T6757.093

[GRAPHIC] [TIFF OMITTED] T6757.094

[GRAPHIC] [TIFF OMITTED] T6757.095

[GRAPHIC] [TIFF OMITTED] T6757.096

[GRAPHIC] [TIFF OMITTED] T6757.097

[GRAPHIC] [TIFF OMITTED] T6757.098

[GRAPHIC] [TIFF OMITTED] T6757.099

[GRAPHIC] [TIFF OMITTED] T6757.100

[GRAPHIC] [TIFF OMITTED] T6757.101

[GRAPHIC] [TIFF OMITTED] T6757.102

[GRAPHIC] [TIFF OMITTED] T6757.103

[GRAPHIC] [TIFF OMITTED] T6757.104

[GRAPHIC] [TIFF OMITTED] T6757.105

[GRAPHIC] [TIFF OMITTED] T6757.106

[GRAPHIC] [TIFF OMITTED] T6757.107

[GRAPHIC] [TIFF OMITTED] T6757.108

[GRAPHIC] [TIFF OMITTED] T6757.109

[GRAPHIC] [TIFF OMITTED] T6757.110

[GRAPHIC] [TIFF OMITTED] T6757.111

[GRAPHIC] [TIFF OMITTED] T6757.049

[GRAPHIC] [TIFF OMITTED] T6757.050

[GRAPHIC] [TIFF OMITTED] T6757.051

[GRAPHIC] [TIFF OMITTED] T6757.052

[GRAPHIC] [TIFF OMITTED] T6757.053

[GRAPHIC] [TIFF OMITTED] T6757.054

[GRAPHIC] [TIFF OMITTED] T6757.055

[GRAPHIC] [TIFF OMITTED] T6757.056

[GRAPHIC] [TIFF OMITTED] T6757.057

[GRAPHIC] [TIFF OMITTED] T6757.058

[GRAPHIC] [TIFF OMITTED] T6757.059

[GRAPHIC] [TIFF OMITTED] T6757.060

[GRAPHIC] [TIFF OMITTED] T6757.114

[GRAPHIC] [TIFF OMITTED] T6757.115

[GRAPHIC] [TIFF OMITTED] T6757.061

