Developing Nations Need to Back GATT
Multilateral efforts have resumed in Geneva to reach a general agreement on trade and services, or GATT, including banking. Once again, the positions of industrial countries led by the United States seem far apart from the developing countries.
Before the collapse of the Uruguay round talks last December, freer exchange of financial services had been discussed for five years - without result. If progress is to be achieved this time, Latin American and Asian economies must embrace liberalization instead of fighting it.
Close Watch on Brazil, India
The Treasury Department, in its most recent national treatment survey, strongly criticized the "substantially closed" financial systems in Latin America and Asia. It identified discrimination against foreign banks in eight Asian and four Latin American nations. Brazil and India, which have championed the side of developing countries in the GATT financial debate, received particularly poor reviews.
In India, the international units of American Express, Bank America, Citicorp, and others face restraints on capital and transactions that local rivals do not. Branch networks are also limited by quota. As a result, foreign-held loans and deposits are tiny for a country of 850 million people.
In Brazil, international bank access has "regressed significantly," in the Treasury's words. A moratorium on overseas entry and expansion has been in place since 1988. Institutions grand-fathered at the time - including Bank of Boston, Chase Manhattan, Citicorp, and J.P. Morgan - are prohibited from engaging in lucrative tax-collection business.
In general, developing countries continue to deny foreign banks the rights to establishment, equality, and policy transparency. They fear that opening their borders to financial services and disclosing their rules would smother local competition and undermine economic management.
Several nations, most notably in Southeast Asia, concede the possibility of selective liberalization, with certain preconditions. Movement could occur when indigenous banks are sufficiently strong to withstand international challenge. But, even then, as proposed, national treatment and establishment powers would not be granted automatically.
Industrial nations acknowledge that overseas bank investment could be restricted on grounds of national security or safety. But they argue that protecting local industry prevents transfers of the skills and technology necessary to forge international-class banks and to meet the payment demands of increasingly export-oriented domestic firms.
In the United States, anger at persistent bank barriers in Asia and Latin America has generated growing support for the Riegle-Garn Fair Trade in Financial Services bill, which would authorize sanctions against foreign banks here whose countries discriminate against American financial companies.
The Riegle-Garn measure was originally directed at Japan, where the asset and loan shares of American banks are a fraction of what Japanese banks hold in the United States - allegedly due to regulatory obstacles imposed by Tokyo.
But the Treasury's recent national treatment study cited "important evolution" in lifting structural and informal hurdles in Japan.
The agency, clearly distressed at the slow deregulation pace in the two areas, has dropped its former opposition to Riegle-Garn.
In an era of keen worldwide competition, failure to observe reciprocity will increasingly invite enforcement action - unilateral, bilateral, and multilateral.
Asian and Latin American governments, by welcoming foreign bank participation under the GATT and other auspices, can transform the financial services debate from one of mutual recrimination to one of mutual benefit.
Mr. Kleiman is president of Kleiman International Consultants Inc., New York.