Liberalisation of Trade in Services (LOTIS) Committee

Minutes of meeting, Thursday, 23 September 2019 in the Corporation of London’s Marketing Suite

Present:

Chair
Sir Nicholas Bayne, KCMG

Secretary
Neil Jaggers BI
Alistair Abercrombie BI
John Cooke Association of British Insurers
Martin Corry Department of Trade and Industry
Alastair Evans Lloyd’s of London
Christopher Farrow LIBA
Matthew Goodman Goldman Sachs International
Mark Hatcher PricewaterhouseCoopers
Ian Kemsley HM Treasury
Tim Kidd Bank of England
Malcolm McKinnon Department of Trade and Industry
Lisa Rabbe Goldman Sachs International
Gavin Robert Linklaters
John Thirlwell British Bankers’ Association
Ian Williams Prudential Corporation
Ben Wilson Reuters

Apologies
Jonathan Andrew (Standard Chartered Bank), Anthony Belchambers, (Futures and Options Association), Charles Bridge, (Department of Trade and Industry), Mark Brownrigg (Chamber of Shipping), Roger Davies (PricewaterhouseCoopers), Robin Griffith (Clifford Chance), Nick Lowe, (LIRMA), Jackie McHenry (Institute of Chartered Accountants), Henry Manisty (Reuters), Joanne Menges (London Stock Exchange), Alexander Merriman (Bank of England), Michael Morris, Alastair Newton (FCO), Julie Patterson (AUTIC), Victoria Powell (FSA), Lee Roberts (Morgan Stanley), Robert Tsang (Arthur Andersen) and David Wood (CBI).

Preliminaries

The Chairman welcomed Matthew Goodman, Mark Hatcher, Gavin Robert and Ben Wilson, all of whom were attending their first meeting; also Alistair Abercrombie, attending his first meeting since he joined BI.

AGENDA

1. Minutes of last meeting - approved. Matters arising – none.

2. Financial Services – Priorities for GATS 2000

Looking ahead to the end-November WTO Ministerial Meeting in Seattle, the Chairman said that it was hoped that, at its meeting on 15 November, the High Level LOTIS Group would endorse a number of papers setting out priorities for the WTO negotiations in services sectors of interest to BI members. A paper on maritime transport had been approved already by the LOTIS Committee; and, for this meeting, three contributions on financial services had been circulated (ie those from the ABI, AUTIF and LIBA). The aim now should be to draw together a paper for the High Level Group, identifying (i) general objectives and priorities common to the different parts of the financial services sector; (ii) specific points relating to the individual financial services sectors and; (iii) priority countries, including China, Taiwan and Vietnam, who were negotiating their accession to the WTO. BI would draft such a paper for clearance during October. He hoped that it would also be possible to prepare an issues paper on professional services.

The Chairman said that he would recommend to the High Level LOTIS Group that, in advance of the Seattle meeting, a small LOTIS delegation should call on the Secretary of State for Trade and Industry and, if possible, the Chancellor in order to outline BI members’ interests in the next round of WTO negotiations.

Kit Farrow said that he had been able to produce only a short contribution. The philosophy therein was reasonably familiar. As far as the country-by-country detail was concerned, he was dependent on his members and they had not been terribly forthcoming. Most, however, were not UK-owned and there was sometimes a difficulty regarding perceived collaboration with the UK authorities in such exercises. John Thirlwell agreed that it was difficult to identify specific barriers but noted that a number of countries – both in Europe (eg Italy) and outside (eg Singapore) - were making full use of the GATS prudential carve-out. As far as sectoral disciplines were concerned, he said that, in banking, the Basle Accord represented a commonly-accepted set of principles. He wondered whether there might be some scope for using this as a way through the log-jam. Malcolm McKinnon asked whether, with regard to banking and difficulties encountered within the EC, the BBA was being driven by divided loyalties. John Thirlwell observed that the main problem was that, although British banks found themselves in the middle of a huge European market place, they could not exploit that situation. British banks were being bought out but they could not do the same elsewhere.

John Cooke said that the ABI’s paper was essentially a summary of the comments it had fed into DTI’s consultation exercise. It therefore needed some updating. It should note, for example, the importance of e-commerce, even though not a great deal of insurance business, particularly in the area of personal lines, was yet being done on the Internet. In addition, the paper needed to say more about pro-competitive regulation. John Thirlwell wondered why the ABI paper did not touch on problems experienced in Europe. John Cooke said that the paper looked at difficulties experienced with third countries, with whom the EU would be negotiating in the next round. Gavin Robert thought it would be useful, nevertheless, to cite EU member states’ barriers in order to get a full picture of the EC’s negotiating strengths and weaknesses. The Chairman agreed that this was an opportunity to do so. It might influence the shape of the EU’s opening offer. He knew that Andrew Buxton was keen to do something like this. Kit Farrow said that LIBA members felt strongly that the EC should avoid introducing new rules frustrating electronic commerce. He wondered whether this battle could also be taken forward by means of this exercise.

Ian Williams said that barriers in the US were important. How should they be handled? Alastair Evans noted that, at the BI conference on 21 September, Tim Carroll of the Insurance Underwriting Association had drawn attention to some of the difficulties experienced in overseas markets. Legal form requirements were a particular concern for Lloyd’s, who, in individual countries, had to lobby specifically to get Lloyd’s recognised as a legal form. This was a major problem outside the EU. It was also a problem for accountants. Another problem area was the US. Various alien reinsurers, including but not limited to Lloyd’s, have had to establish US trust funds to enable their US cedants to obtain credit for reinsurance under the discriminatory provisions of US state laws based on the NAIC Model Law on credit for reinsurance. Such alien reinsurers are required to establish a trust fund equal to 100% of their gross liabilities to US companies, plus a surplus of $20 million ($100 million in the case of Lloyd’s). US licensed reinsurers need not establish a trust fund because cedants may take credit for reinsurance contracts concluded with them. These state laws are discriminatory and counter to the national treatment principle embodied in the GATS. It seemed, however, that, since the US had not scheduled the measures as a restriction under GATS, they would probably defend them as compatible with the prudential carve-out.

John Cooke agreed that the ABI paper was thin as regards problems encountered in the US; and it was certainly the case that, at the end of the earlier WTO negotiations, the US had got off extremely lightly. That said, he felt that some UK companies with a presence in the US might not be too keen to elevate issues. But he agreed that there was a need to analyse the situation vis-à-vis the US fully. The Chairman said that the UK private sector should continue to form alliances with the US whenever it could but that it should reflect on the changes which it should like to bring about in US practice.

Matthew Goodman, while generally sympathetic to the broad objective behind addressing pro-competitive regulation, felt that, at some stage, the meaning of the term needed to be spelled out fully. As regards the situation with the US, he said that, in principle, the UK private sector should not hesitate to raise its concerns On pro-competitive regulation, the Chairman said that there were some markets where, even if foreign companies could get in, they could not really do anything (eg selling new financial products). He noted that the approach followed in the telecoms negotiations had been, firstly, to agree the principles which were necessary and then to write them into countries commitments. Gavin Robert felt that, conceptually, the telecoms situation had been different, as negotiators had been addressing problems arising from the presence of dominant suppliers. Turning to the listing of barriers, he recommended that the resulting matrix should distinguish between actual restrictions and the way in which measures were administered. John Cooke noted that, in their paper on pro-competitive regulatory principles for insurance, the Financial Leaders Working Group Insurance Evaluating Team representatives had effectively attempted to transpose the telecoms principles to their sector.

Ian Kemsley had some concerns about the approach to pro-competitive regulation. He felt that there were a lot of ambiguities in what had been mooted so far by some of the negotiators. He believed that there was a real danger of upsetting some important players, for example the regulators in different countries. He said that DGXV shared this view and preferred to work, for example in the context of ASEM, on analysing the benefits and costs of liberalisation. As regards the US, he stressed the importance of avoiding a situation where the Americans were forcing the agenda in the Financial Leaders’ Group, for example on pensions, where they would again target Japan. He noted that, ideally, the Treasury would like to see the EC giving ground on agriculture and the US making concessions in services. Turning again to differences within the Commission, he said that it seemed that DGI wanted, as far as it was possible, to pursue the services negotiations in a horizontal manner. The Treasury was clearly anxious that DGXV should not be excluded from the process.

Malcolm McKinnon agreed that there was a direct link between the identification of obstacles within the EC and the shape of the EC’s services offer in the negotiations. As regards the US, he agreed that it was important to continue to build alliances but he felt that the objectives in the next WTO round were different from those in the 1997 financial services negotiations, when. largely, the key had been to get the US to sign up to the deal. This time the EC could not allow the US to avoid negotiating on the various US restrictions which existed. As regards regulation, he noted that competition was only one angle and that there were wider reasons for regulation. Discussion had begun in the WTO Working Party on Domestic Regulation but he was not sure how this would develop. He agreed that it would be necessary to work closely with the regulators and that it was important to define clearly what the area of work would be so as not to antagonise key players. In that context, he noted that, for some months, many people involved in services had been using the acronym PCRPs (ie pro-competitive regulatory principles), although in the TEP the US had proposed to use the term "trade-related regulatory principles". Neil Jaggers said that the term pro-competitive regulation had been in common usage for a year or so and that it was getting late in the day to re-define it.

The Chairman agreed that more thought would have to be given to the subject of pro-competitive regulation, particularly as regards a definition indicating where the industry wanted to go. Ian Kemsley said that the key points were what were people aiming at and what would the impact be. Clearly, the reaction of the regulators was critical, so a way would have to be found of working with them.

3. Government Report on Developments in Geneva and Brussels

Malcolm McKinnon said that the WTO Council for Trade in Services (CTS) had continued to meet on a monthly basis. At its meeting on 21 September, the CTS had had a half-day discussion about the trade assessment required under GATS Article XIX. The developing countries had continued to press for more information but they were now saying that the assessment should be regarded as a continuous process, one which would never finish. The important thing was to avoid allowing the developing countries to drag their feet. As regards the negotiating guidelines also required under Article XIX, it was likely that they would be drafted into the Seattle Declaration. It was now clear that, because of the political nature of the exercise, drafting work would take place in the WTO General Council rather than in the CTS. There had been some helpful papers from Japan and Hong Kong, which attempted to draw the elements of the guidelines together. By way of contrast, the US had tabled a paper which, because it pushed too hard on too many elements of the guidelines, had upset many delegations. He undertook to pass a copy of the US paper to the Committee. He said that the UK had always felt that, if the guidelines were over-prescriptive, it would be more difficult to conclude the negotiations. As regards horizontal questions, work was continuing within the Community but nothing had been tabled in Geneva as yet. Some ideas which were under consideration were those developed on the subject by the OECD Secretariat. He noted that there had also been some further work in Geneva on classification questions.

Turning to the internal EC process, Malcolm McKinnon said that there had recently been a meeting in Lapland, at Director General level, on the Millennium Round as a whole. There had been a short discussion on services, although little had come out of it. Generally speaking, everything seemed to be moving forward satisfactorily, although the French continued to express concern about horizontal approaches and the possible effect on audiovisual services. Horizontal approaches, therefore, might prove to be more tricky than the Commission had first thought. Important dates on the EC calendar were an informal meeting of Trade Ministers in Florence on 1 October and a meeting of the General Affairs Council on 11 October, at which Council conclusions vis-à-vis the Seattle meeting were to be approved. Ian Kemsley listed the other possible areas for the round which the Treasury regarded as particularly important: investment, competition, government procurement. John Cooke was concerned that the US should avoid painting itself into a corner. He wondered whether they were seeking to limit themselves regarding areas for negotiation. Malcolm McKinnon noted that the Americans were now talking in terms of "a broad-based round" but not "a comprehensive round".

The Chairman reported briefly on a meeting of the European Services Network’s Policy Committee which had taken place on 22 September. The process of preparing issues papers for the Commission was continuing. The latest draft paper was one on the temporary movement of persons, which had been prepared by Mark Hatcher and which had been well received by the Committee. Another agenda item had been investment and there had been strong support for the UNICE and Commission positions, which was to support inclusion of the subject in the WTO round. There had not been unanimity, however, since IBM Europe had not been able to join the consensus.

4. BI Conference, 21 September

Commenting on the success of the BI conference on "How to Open Services Markets Worldwide", the Chairman stressed that this had been a joint effort by BI and its members. He said that the proceedings of the conference would be made available as soon as possible. Neil Jaggers said that it would be extremely helpful if BI members could complete, and return, the questionnaires which were issued with the conference packs. He said that the conference proceedings would be circulated as widely as possible. Any suggestions from BI members would be useful. Malcolm McKinnon said that a Lloyd’s List article following the conference, suggesting that a trade row was brewing in the shipping area, had been unhelpful. The Chairman felt that, as the article had focused on remarks made in his conference speech by the Director General of the Chamber of Shipping, it was for the Chamber to consider whether to respond.

5. Forthcoming Events

(i) WTO Ministerial, Seattle, 30 November to 3 December

The Chairman said that, in addition to Andrew Buxton, he and a number of LOTIS Committee members would be going to Seattle. He hoped that there would be opportunities to have some briefing sessions with the Government delegation. He noted that the ESN was discussing with the US Coalition of Service Industries participation in the "services day" on 2 December. Any private sector participant who wanted to attend the "services day" should send his or her name to the ESN Secretariat as soon as possible.

The Chairman said that, at its meeting on 22 September, the ESN had considered whether to add its name to a statement for the Seattle meeting which had been prepared by the lobby group "The US Alliance for Trade Expansion". Clearly, the principle of having a joint statement was good and could be valuable. However, the ESN had decided that this particular draft statement was not sufficiently ambitious and that, therefore, it should not add its name. He proposed that LOTIS should adopt a similar position. This was agreed.

(ii) World Services Congress: Atlanta, 1-3 November

Neil Jaggers outlined the purpose of this event, provided an up-date on preparations and circulated the most recent material sent out by the US CSI. He noted that BI was a supporting organisation for the event and that he, Lord Hurd, Andrew Buxton and Jeremy Seddon would be attending. He encouraged BI members to consider doing likewise. The timing - a month before the Seattle meeting - was excellent; and it would coincide with the first meeting of the Global Services Network on 31 October. Mark Hatcher noted that Peter Smith of PricewaterhouseCoopers would be chairing a session at the Congress on the subject of "Creating an open market for global accountancy".

(iii) Cameron May Post-Seattle Conference

Neil Jaggers noted that BI and the ABI were supporting a conference on the GATS 2000 negotiations, which Cameron May was organising in late-March/early-April.

6. Any Other Business and Next Meeting

There was no "Other Business". The Chairman said that it would be useful to hold another meeting of the Committee before the meeting of the High-Level LOTIS Group. He proposed 3.00pm on Monday, 8 November.