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Wednesday, 4 August, 1999, 11:18 GMT 12:18 UK
Deadline for financial services deal
Talks to make it easier for banks, insurance companies and other financial firms to operate outside their home nations are drawing to a close at the World Trade Organisation in Geneva. Business correspondent Andrew Wood reports:

Negotiators from 132 countries have until 2300 GMT on Friday to agree a deal.

It is the second attempt the WTO has made to come up with a pact liberalising trade in financial services. The idea is that consumers get a better deal if there is more competition for their business.

Many developing countries refuse to allow foreign companies to offer insurance policies, private pensions or bank accounts - or else they can only do it as a junior partner in a joint venture with a local firm. Any agreement should try to make it easier for foreign firms to compete on equal terms with domestic financial companies.

The European Union, the US and Japan account for 90% of the world's market for financial services. Companies in those countries are facing severe competition at home so they are eager to find new markets for their services abroad.

There is plenty of potential: growing middle-classes in newly industrialised countries have more spare cash to save; and governments are realising that pension bills are growing out of control and cannot be paid out of taxes. Instead they are turning to private firms to manage pension funds, which invest contributions on the stockmarket. The growth in share values and the income from dividends and bonds are used to pay future pensions.

US agreement again the key

As with the Kyoto agreement on limiting emissions of greenhouse gases, success depends on the United States. Except this time it is the Americans who are telling the developing world that it needs to take tougher action, rather than the rest of the world chiding Washington.

The last attempt at concluding a deal two years ago collapsed when the United States walked out of negotiations almost at the last minute. An interim deal was stitched together by the European Union.

Those talks were unfinished business left over from the lengthy Uruguay round of GATT talks (General Agreement on Tariffs and Trade) which led to the founding of the WTO.

There is a lot of brinkmanship in the talks, with negotiators saying they are optimistic one day that a deal will be done, the next day they are gloomy. On Thursday, a Japanese official was reported to say that the chances for a deal were "fifty-fifty".

So far close to 100 countries have some kind of commitment to allow more foreign competition in their markets. There have been 49 new offers in the past eight months from 63 countries - the 15 European Union nations act together.

Catching the "tigers" at a difficult time

The talks come at a sensitive time for East Asian countries - which have been battered by currency crises. But WTO representatives say that countries such as Indonesia and Thailand need to attact foreign capital once again. By liberalising their financial services industries, it will be easier to rebuild the confidence of international investors.

Washington walked away from talks two years ago because it said the emerging "tiger" economies of South East Asia were not being generous enough in their offers to open up markets.

US negotiators are reported to be happier with concessions from them this time but to still want South Korea and Malaysia to be bolder. Malaysia has offered to increase the stake foreigners are allowed to hold in insurance companies from 30% to 51%.

Many other countries, whose firms are at the moment excluded from the Malaysian market, are happy with the new opportunity. But one American company, AIG, which for historical reasons has a 100%-owned company in Malaysia, is unhappy. It does not want to be forced to sell 49% of its shares. And AIG is a powerful lobbyist in Washington.

American negotiators are also under pressure from politicians to come up with a good deal after a WTO panel rejected a complaint from US photographic film companies against Japan.

The financial services talks are unaffected by President Clinton's failure last month to persuade Congress to renew his "fast-track" negotiating powers for trade deals as no US laws would need to be changed by an agreement.

See also:

11 Dec 97 | Business
Far East shares turmoil
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