U.S. Resumes Effort to Liberalize Trade in Financial Services Worldwide

Seventeen months after a round of talks on liberalizing trade in financial services failed to produce results, the Clinton administration remains determined to open new overseas markets for U.S. banks.

In a letter recently sent to finance ministers of countries currently participating in a second round of World Trade Organization talks in Geneva, Treasury Secretary Robert E. Rubin stated that the United States won't water down demands that developing countries open their financial markets to free competition.

No agreement will be successful, Mr. Rubin warned, unless banks and other financial institutions are able "to establish and operate in the form of their choice, including branches."

The letter added that financial institutions seeking to enter new markets must also be allowed to have majority control over the entities they establish and enjoy the same rights as local financial institutions.

U.S. banks have been keen to enter emerging markets in Asia, Eastern Europe, and Latin America. Many of these markets, however, continue to closely restrict the entry of foreign banks or the scope of their activities.

Discussions by the World Trade Organization, the international association that regulates world trade, on a worldwide agreement on liberalizing entry into local financial markets resumed in Geneva last month. A previous round of talks ended in December 1995 without any results after most developing countries declined to allow banks from the United States and other industrialized countries greater access to their local markets.

The dispute has pitted the United States against several fast-growing Asian and Latin American countries such as South Korea, Taiwan, Malaysia, Indonesia, India, Brazil, and Argentina.

Banking sources expressed guarded optimism that negotiators might yet reach an agreement before the next deadline at the end of this year. But they also noted that proposals recently presented by developing countries hold out little hope for substantive change.

"I'd love to see the light at the end of the tunnel but it seems to be a very long tunnel," remarked Thomas L. Farmer, general counsel of the Washington based-Bankers Association for Foreign Trade.

"Most of these countries still don't see that it is in their interest to have modern financial markets," he said.

Mr. Farmer noted that a host of restrictions, including bans on local currency lending, regulations that limit foreign banks to own even minority stakes in financial institutions, and restrictions on cross-border branching by foreign banks still prevail in many developing countries.

He added that the United States is prepared to accept a gradual easing of barriers to foreign banks in developing countries. But he also warned that the United States will likely opt for bilateral talks on trade in financial services if multilateral talks fail.

"Nothing is likely to happen until these countries change their view of how to run their economies," Mr. Farmer said.

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