Liberalisation of Trade in Services (LOTIS) Committee

Minutes of meeting, Tuesday, 25 January 2000 @ HM Treasury, Parliament Street, SW1

Present:

Chair
Sir Nicholas Bayne, KCMG

Secretary
Neil Jaggers, BI
Alistair Abercrombie, BI
Timothy Baker London, Investment Banking Association
Graham Bartlett, Department of Trade and Industry
John Cooke, Association of British Insurers
Alastair Evans, Lloyd’s
Lucy Findlay, Confederation of British Industry
Matthew Goodman, Goldman Sachs International
Mark Hatcher, PricewaterhouseCoopers
Ian Kemsley, HM Treasury
Philip Marsden, Linklaters & Alliance
Malcolm McKinnon, Department of Trade and Industry
Victoria Powell, FSA
Clare Reilly, AUTIF
Ian Williams, Prudential Corporation
Alan Young, Association of British Insurers

Guests from the European Commission

David Deacon
Nicoletta Giusto
Matthew King
Antonio Fernández-Martos
Christian Servenay

Apologies

Jonathan Andrew (Standard Chartered), Alastair Ballantyne (Morgan Stanley), Anthony Belchambers (The Futures & Options Association), Charles Bridge (Department of Trade and Industry), Rhian Browning (London Stock Exchange), Mark Brownrigg (Chamber of Shipping), Roger Davis (PricewaterhouseCoopers), Robin Griffith (Clifford Chance), Nick Lowe (International Underwriting Association) Alastair Newton (Foreign and Commonwealth Office), June O’Keefe (Law Society), John Thirlwell (British Bankers’ Association), Robert Tsang (Arthur Andersen).

Preliminaries

1. The Chairman gave a warm greeting to our guests from the European Commission. Led by David Deacon (Head of the Unit on Insurance, pension funds and external aspects of financial services in the Internal Market Directorate-General) they introduced themselves: Christian Severnay (Financial Services), Matthew King (International aspects of financial services), Antonio Fernández-Martos (From D-G for Trade, Services Unit) and Nicoletta Giusto (Securities Unit). LOTIS Committee members then introduced themselves.

2. Before starting formal proceedings, the Chairman announced that he had decided that the time had come for him to relinquish the LOTIS Chair, having spent nearly four years in the job. He sought the blessing of the Committee in the appointment as his successor of Christopher Roberts, formerly the UK’s chief international trade negotiator at the DTI and now senior trade adviser in London for the law firm Covington and Burling. A full transcript of the Chairman’s statement is attached to these Minutes.

3. Agenda Item 1 – Minutes of Meeting of 8 November 1999 approved. No Matters Arising which were not to be covered later in the meeting.

4. Agenda Items 2 and 3: Services Negotiations after Seattle. The Chairman said that this should be a forward look rather than one looking back over Seattle and analysing what had gone wrong there. He welcomed the presence of such a strong team from the Commission and invited them to lead off. David Deacon asked Antonio Fernández-Martos to outline the current situation in Geneva and said that later they would like to hear what LOTIS Members wanted from the negotiators, especially with regard to the USA.

5. Antonio Fernández-Martos said there was a lot of confusion at the WTO but people were getting in touch with each other again. On 7th February, the General Council would hold an important meeting where members would voice their starting positions on how to proceed, e.g. on the possibility of setting up negotiating groups on services and agriculture. There was no sign that the positions of WTO members had changed on the major issues. The Commission wished to push for the built-in agenda on agriculture and services to go ahead; this should allay certain suspicions from other members. There was enough to be getting on with on services. The position of the Community was still to prefer a comprehensive agenda but they needed to see what others thought.

6. Matthew King referred to the ideas developed by the Commission last year to highlight the major goals for financial services, building on the 1997 Agreement; to what extent to push for more under Mode 3 and to what extent to push for cross-border commitments notably on account of E-Commerce priorities.

7. Regulatory issues had also come to the forefront and they had studied papers from the FLG, USCSI and the ESF. In the Commission, they were not entirely convinced about pushing for a pro-competitive regime, as called, because of questions this might raise from the regulators concerning the prudential carve-out. Care was needed over the extent of the WTO’s role regarding regulatory procedures. They had tried an alternative approach, fitting the precepts of the Basle, IOSCO and other regulatory groups to WTO guidelines. They did not want to put developing countries off coming to Geneva.

8. Matthew King said that they had considered how to deal with US barriers given that the USA was part of a MFN agreement. However, the Commission did not want to undermine the important alliance between the private sector in the EU and US vis a vis third countries.

9. How to get emerging markets back to the WTO table? Were they ready? Had the Koreans and Thais, for example, been willing to open in 1997 more because of IMF pressure at the time than because of a genuine conviction about liberalisation? Because of these questions, he said that the Commission had worked up a researched report on the benefits of opening which they hoped would lead to a more liberal approach on the part of developing countries.

10. Discussion

The Chairman invited comments on the five main issues raised by the Commission visitors:

(i) Views on how to start services negotiations in Geneva

(ii) Priorities for investment/commercial presence and cross border trade

(iii) Regulatory issues – pro-competitive principles

(iv) How to deal with US as a target country

(v) How to bring emerging markets back to the table.

11. John Cooke said that the GATS negotiations had technically begun. He saw merit in moving ahead now on services and folding them into a wider negotiation later. There was plenty to deal with. On priorities, he saw movement on Mode 3 as very important for companies wishing to set up an operation. He saw merit in pressing for Pro-competitive regulatory principles (PCRPs); while recognising the pressures on the prudential carve-out (which was never very well defined) there was a risk that countries would still use the carve-out as an excuse for protectionism. He agreed that the way to get the developing markets back in was to get the benefits of liberalisation across to them.

12. Alastair Evans said Lloyd’s were concerned about both direct market and reinsurance presence and about cross-border trade for brokers. The US problem for them was over laws on credit for reinsurance where US states posed limits and requirements amounting to very high dollar deposits. The prudential carve-out was no doubt used by the USA as a protective measure in this. In Nick Lowe’s absence, he said that the IUA were in full agreement with Lloyd’s.

13. Matthew Goodman drew a distinction on PCRPs between definition and objective. He suggested getting rid of the term "pro-competitive" but holding on to the concept, especially the need for transparent regulation. IOSCO had latched onto this. On the US, he said he had a slight conflict, representing an EU company of American parentage although they were in favour on the substance i.e. liberalisation. In the securities sector he thought there were relatively few issues left because of the unwinding of Glass-Steagall. He said they would be concerned if in the effort to go after the US we lost the value of the private sector alliance. Tim Baker said he agreed with that view. Philip Marsden echoed Matthew’s argument on PCRPs. He said he had a concern about use of the term itself but it was right to beef up fairness, transparency and reasonableness.

14. Clare Reilly said that their European Federation FEFSI had lobbied the EC on US barriers. For AUTIF’s members the USA represented 60% of the global market as opposed to 30% in the EU and 10% elsewhere.

The EU’s highly regulated product, UCITS, was not recognised in the US. They were concerned that UCITS and UCITS managers should have access to US markets and that there should be some trade off with US products that were allowed here.

15. For the DTI Malcolm McKinnon said the question in Geneva and Brussels was what to do next. The WTO General Council Meeting on 7th February would focus on overall strategy. Services and agriculture had legally started although nothing had happened in practice. UK wanted to hear if other countries wished to link services and agriculture. An informal Services Council meeting would take place a week or so later, then a formal meeting on 25 February. The position in Geneva was fluid with mixed messages from WTO members. Some, like Hong Kong and Japan, were keen to start; others, like Argentina and Brazil were against starting without a linkage. The UK’s view was that we had to start with negotiating guidelines; these may or may not be based on the declaration agreed in Seattle.

16. In the EU, the Article 133 Services Committee meeting earlier in January saw the UK (supported by Sweden, Germany and Finland) in favour of pressing ahead with services talks. Others (Ireland, Denmark, Belgium, Luxembourg and the Netherlands) wanted the EU to be rather cautious in services and to take due account of the broader picture regarding a round. In the middle were France, Austria and Greece. On negotiating guidelines, there was a general belief within the EU that it would be difficult for the EU or the US to make the running. Some felt that a small WTO member, such as Hong Kong or Singapore, might be encouraged to take the initiative by resurrecting the Seattle services text. The US shared this view that the industrialised world should not be perceived to be pushing its own agenda at this juncture.

17. The view strongly taken by UK and Sweden was that there was no objection to pushing ahead with services in advance of a comprehensive round. It was inadvisable to stage another Ministerial meeting until it was a guaranteed success. The time horizon for the next round would be longer. The argument therefore was that the main WTO round would gather up later whatever position was reached in the services negotiations.

18. Malcolm McKinnon went on to say that PCRPs could be dealt with in the context of market access discussions, or in a negotiating group on services, should one be set up, or in a cross-sectoral process. He referred to a Commission paper on "Pro-Competitive Principles and Domestic Regulation. "[This was subsequently circulated to LOTIS members and comments on their behalf were sent back by Alistair Abercrombie on 7th February].

19. Ian Kemsley said that the Treasury had promoted the idea of changing from the term PCRPs to the formula of "Transparent, fair and effective," but saw difficulties in doing so cross-sectorally as the Commission were now seeking to promote the concept in the WTO. On other matters, he said that there were differing views in HMT on whether to include Investment in the next found. He suggested using High Level LOTIS Group contacts to try to get the Americans to move from their fixed positions. He thought the private sector transatlantic alliance would not be threatened by targeting the US for removal of barriers, arguing that the Americans would enjoy a robust negotiation. While there were shared UK and US interests in favour of moving the EU ahead in the completion of the single market in financial services, we had no interest in giving it to the Americans for nothing. Outside of the WTO, he saw merit in carrying on negotiations on the lines of EU-Mexico and EU-Mercosur.

20. Before handing the discussion back to the Commission representatives, the Chairman summed up thus far by saying:

(i) The UK financial services sector wanted to see services negotiations properly started. They could subsequently be encompassed within a comprehensive round. The procedural fog in Geneva was unwelcome. The close alliance with the Americans had come under strain because of different views about timing lobbying missions to Geneva.

(ii) Agreement to confront US barriers, but we would want to rebuild the transatlantic alliance because of its track record.

(iii) PCRPs as a concept could be applied to services as a whole but then should be dealt with sector by sector. We could see why financial services regulators did not like the term, hence the different wording now being accepted. But others (e.g. in professional services) might wish to hang onto the "pro-competitive" formulation.

21. Responses from the Commission representatives were as follows:

Matthew King said that the Transatlantic Economic Partnership allowed us to proceed with some of these issues, as did the bilateral arrangements mentioned by Ian Kemsley. Antonio Fernández-Martos confirmed that the EC did not consider the guidelines from Seattle to exist any more. Giving his personal view on PCRPs, David Deacon said that if the carve-out were attacked via the disputes panel procedures in Geneva, it would scare off the supervisors and regulators from developing countries. A better approach was to leave such things to the IMF and press for best endeavours from IAIS, IOSCO, BASLE etc. On the US, he thought we could take advantage of their insurers being on our side. He emphasised that the Commission really needed the help of the private sector practitioners on the US question.

22. The Chairman said that our support for PCRPs was not intended to be threatening. We wanted them to be voluntary. It was up to member countries to bind the principles if they wanted to. Our aim was to ensure that countries did not hide behind carve-out for protectionist reasons.

23. Charles Haswell asked whether the EC tied the aims for further opening of markets in the WTO into the negotiations with states seeking accession to the EU but from their response, this did not appear to be the case.

24. Agenda Item 3 – Tasks for the Private Sector. The Chairman said we would take the topics forward with LOTIS members by correspondence. He invited Charles Haswell to speak about BI's new communications strategy. In doing so, Charles said that we were considering ways of getting the message across more effectively about the benefits of free trade. We thought this required a very wide ranging campaign and a combined effort between government and private sector. Not all NGOs would be turnable and this was enabling certain governments with protectionist tendencies to hide behind them.

25. Neil Jaggers said that BI had tabled a draft paper to go to the House of Lords Inquiry into what should be the EU agenda in the WTO post-Seattle. The main thrust of the paper was to argue for services negotiations to proceed forthwith. He asked for Committee members' comments as soon as possible, apologising for the short notice. Lucy Findlay said that the CBI had given oral evidence to the House of Lords Committee earlier in the day and they had enjoyed a constructive and non-combative hearing which had concentrated on the philosophy of free trade.

26. Neil Jaggers said that members would be kept informed about the Cameron May conference to be held in London on12 May. This was not being hosted by BI as we had incorrectly stated in the recent issue of VISIBILITY. The essential thing was that it was being held with the support of the ABI and BI, both organisations advising on the content of the programme and speakers.

27. Any Other Business

The Chairman referred to John Mogg's recent presentation in the City and what he had said about Data Protection. He asked for LOTIS's approval of the idea of an FLG letter on the subject which would provide a combined approach from both sides of the Atlantic.

The next meeting of the Committee would be on Tuesday, 21 March. [It was arranged later that this would be held at the Department of Trade and Industry, Kingsgate House, 66-74 Victoria Street, London SWlE 6SW, in the BOTB Board Room.]