[Congressional Record Volume 141, Number 107 (Wednesday, June 28, 1995)]
[Senate]
[Pages S9311-S9312]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


                    DON'T SIGN A BAD DEAL IN GENEVA

 Mr. BOND. The world's attention is focused on today's deadline 
for a resolution of the auto parts trade dispute between the United 
States and Japan. At the same time, however, another critical trade 
deadline looms largely unnoticed.
  On June 30, the United States must decide whether to lock open its 
financial services markets regardless of whether our trading partners 
do the same. We would do this by surrendering our right to take an 
exemption from the most-favored-nation [MFN] provision of the World 
Trade Organization's General Agreement on Trade in Services [GATS].
  For many years, it has been the policy of the United States to 
provide open access and national treatment to foreign financial firms 
that want to enter our market, regardless of foreign barriers to entry 
by U.S. firms. During the past decade, our Government, actively aided 
by our financial services industry, has worked to open foreign 
financial markets. The Uruguay round of the GATT negotiations, which 
began in 1986, aimed at achieving for the first time multilateral 
standards for open trade in financial services. Our negotiators sought 
commitments from other countries that would guarantee substantially 
full market access and national treatment to U.S. financial firms in 
foreign markets. Unfortunately, those negotiations ran into 
difficulties as some of our trading partners with the most restrictive 
practices in financial services were reluctant to make the market 
opening commitments needed to bring them to a successful conclusion.
  In December 1993, as the Uruguay round concluded in Geneva, 
negotiators agreed to include financial services within the GATS. That 
agreement establishes a multilateral framework of principles and rules 
for trade in financial services, including the principles of national 
treatment and MFN status. However, members were bound by these 
principles only to the extent they made commitments in their GATS 
offers. Unfortunately, the commitments made by many countries to open 
their markets to foreign financial institutions under that framework 
were far less than the United States had hoped for. As a result, the 
United States, as it was legally permitted to do, took an exemption 
from the GATS MFN obligation with respect to new establishment and new 
powers for foreign financial firms. The purpose of doing so was to 
allow our Government to differentiate among members of the World Trade 
Organization in regard to providing their firms a guarantee they would 
always have full access with national treatment in our market. In 
essence, we did not want to lock our market open, while other countries 
were given GATS protection to continue restricting access to theirs.
  The Uruguay round final agreement provided that for 6 months after 
the GATS went into effect, countries would suspend their MFN exemption 
and continue to negotiate.
  The stakes in these talks are enormous. Exports of financial products 
and services represent one of the greatest potential export markets the 
United States will have in the coming century. We are far ahead of most 
of the rest of the world in development of our markets and of new 
financial instruments. One need only think of the billions of people in 
China, India, Indonesia, Brazil, and other developing nations who have 
no insurance, who do not have access to an ATM machine, who have not 
ever invested in mutual funds or who do not yet even have saving 
accounts. As these countries develop and personal income levels rise, 
U.S. firms can and should play a role in providing those services.
  Even more important is the impact of financial services on other 
trade and investment. The ability of other American industries to sell 
their goods overseas depends, in large part, on the support of American 
banks and securities firms in those markets. As U.S. Trade 
Representative Mickey Kantor recently told the Senate Banking 
Committee, ``if you can't get your financial services companies into a 
market, it has a negative effect upon your ability to get your products 
into the market and, of course, that has a negative effect on the U.S. 
economy.''
  The United States has approached these talks with a call for fair and 
open markets. We have offered--and urged all other countries to offer--
 a system of national treatment, whereby foreign institutions would be 
treated the same as domestic ones.

  Unfortunately, it appears likely that come midnight on June 30, we 
will not have seen sufficient progress to justify signing an agreement. 
Although several countries have put forward offers that would provide 
national treatment, the WTO's MFN rule prevents us from guaranteeing 
these countries national treatment in our market without giving it to 
all other WTO members as well. Thus, for example, if the United States 
and the European Union accept each other's offers and guarantee each 
other national treatment, other countries not doing the same would 
still reap the benefit of that agreement and get national treatment in 
both Europe and the United States without offering equal access to 
their market. These free riders would be getting the benefit of the 
agreement without giving anything in return.
  Many of the offers on the table today are simply unacceptable. India, 
for example, has closed its insurance market to all private companies. 
Brazil maintains a total prohibition on new foreign financial firms 
entering their market. Korea continues to restrict foreign access to 
its financial markets. A number of Southeast Asian nations have placed 
on the table offers that could require United States financial 
companies to divest their current holdings in local firms. These are 
some of the fastest growing and potentially most lucrative markets in 
the world. Signing an agreement under these conditions, would lock in 
these barriers and provide countries a legal right under the WTO to 
enforce them. That would deny our financial firms access to good 
markets, and would hurt our ability to get U.S. goods and investments 
into those markets. We would be insane to sign an agreement which would 
legitimize these barriers and effectively shut American firms out of 
these markets in perpetuity while locking our market open to firms from 
these same countries.
  There is an alternative for U.S. negotiators, however; we can reject 
a bad agreement, maintain our MFN exemption, and begin to negotiate 
bilateral agreements with countries that want 

[[Page S9312]]
open financial markets. Under such a plan, the United States could 
immediately sign agreements with the European Union, Switzerland, 
Norway, and other countries that are offering national treatment. We 
could then continue to negotiate with other nations, using access to 
our lucrative American market as a lever to get them to open their own.
  There is no question the United States is under strong international 
pressure to surrender our MFN exemption. Earlier this year, a senior 
British trade official flew to Washington to pressure United States 
Treasury officials to sign an agreement in Geneva--regardless of 
whether it makes sense for the United States. And the head of the WTO 
argued recently that the United States must make the right decision and 
sign whatever agreement is on the table when the deadline rolls around.
  Proponents of a deal argue that failure to conclude an agreement will 
weaken the WTO. But that argument is hogwash. To the contrary, the 
worst thing we could do would be to sign an agreement that sanctions 
closed markets and unfair barriers. That would weaken support for the 
WTO far more than failure to reach an agreement in Geneva. The American 
people rightly expect that free trade must be a two-way street.
  In recent days, some have proposed an extension of the talks as one 
way to deal with the lack of progress. I believe an extension makes 
sense since it will allow us to build on the progress that has been 
made to date. I believe strongly, however, that for the United States 
to maintain its leverage during any extended talks--whether in the 
multilateral WTO forum, or on a bilateral basis--the United States must 
exercise its MFN exemption. To do otherwise would remove any incentive 
for countries such as Korea, which wants to expand in our market, to 
negotiate in good faith. Exercising our MFN exemption would not require 
the United States to retaliate against other countries or to, in any 
way, close off its market. It would merely give us the right to do so 
at a later date, if we decided it was in our best interest to do so. 
Granting MFN, on the other hand, would lock our market open--and 
thereby remove our leverage in the talks.
  U.S. negotiators should stand firm. The United States has played the 
sucker far too many times in international trade negotiations. The 
stakes this time are simply too high. Handshakes and promises of future 
action are not good enough. If the final written offers are not 
significantly better than those on the table today, U.S. trade 
officials should act in our clear national interest, and walk away from 
the table.


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