In a frantic round of last-minute horse-trading, negotiators from 70 countries today sealed a global financial services agreement that would eliminate competitive barriers in the multi-trillion-dollar banking and insurance arena, particularly in the developing world.
The World Trade Organization pact, now subject to ratification by all the signatory countries, would cover more than 95% of the global trade in financial services.
U.S. financial services and insurance firms, among the most competitive in the world thanks to massive consolidation and aggressive competition at home, are expected to be major beneficiaries of the accord.
"We have done it," said an exuberant Renata Ruggiero, WTO director general, at the conclusion of Geneva negotiations that extended several hours past Friday's deadline.
President Clinton praised the negotiators for reaching an agreement in difficult economic times, particularly in view of the vast differences of opinion between the developing and developed countries.
The Clinton administration was anxious to bolster its free-trade agenda after its recent failure to get fast-track negotiating authority through Congress.
"In the wake of recent financial instability, it is particularly encouraging that so many countries have chosen to move forward rather than backward," the president said in a written statement.
WTO officials said individual nations would have to ratify the pact by Jan. 30, 1999, and it would go into force on March 1 of that year.
While the specifics of the agreement have not been released, it is intended to force governments to remove barriers that discriminate against foreign firms and encourage the deregulation of financial and insurance markets.
Total world banking assets are worth more than $20 trillion, insurance premiums are valued at $2 trillion, and jobs in the financial sector represent 3% to 5% of total world employment, according to the WTO, which was established in 1995 to set rules for global trading and to provide a multilateral arena to resolve disputes among its 131 members.
But financial services has historically been one of the last arenas opened to foreign competition because of concerns over economic sovereignty. Developing countries fear both the competitive threat from powerful U.S., Japanese and European institutions and a loss of government control over economic development strategies.
Because of the difficulty of reaching an agreement, financial services was excluded from the World Trade Organization when the Geneva-based group was established. Telecommunications trade, another sensitive area, was added to the WTO's coverage last year.
The major opposition to the financial services agreement came from countries such as Malaysia and South Korea, which are under severe pressure to shore up their weakened banks as a result of the currency and stock market turmoil that has crippled the region.
But proponents of the agreement say it will help stem the Asian economic crisis by sending a message that a shaky international financial system will now operate under a set of global rules.
They also say it will greatly expand access to banking, insurance and securities markets in developing economies, increase capital flows and raise the standards of domestic financial services industries.
The deal clearly represents a major opportunity for U.S. firms, which will find it much easier to set up bank branches and brokerage offices and sell insurance policies in signatory countries. The financial services sector would be subject to WTO rules, with a dispute settlement process to resolve violations of the accord.
Jackson Huddleston, a management consultant in Seattle who worked for nearly two decades as a banker in Tokyo, said U.S. financial institutions have a technological advantage that puts them far ahead of most overseas competitors.
But he also pointed out that Japan's recently merged Bank of Tokyo-Mitsubishi behemoth still tops the list of the world's largest banks, and the proposed marriage of Union Bank of Switzerland and Swiss Bank Corp. would result in the No. 2 bank worldwide.
"This is certainly favorable to the United States," he said of the agreement. "It makes us more competitive in the area where we're strong, though it doesn't mean we're the only game in town."
Jan Jobe, chairman of the Principal Financial Group, a U.S. insurer, said in a statement that the agreement will "help nurture the financial services industries in developing nations [and] strengthen the presence of many North American and European insurers."
He said a majority of U.S. insurance companies now back the WTO agreement, though it isn't "perfect."
Malaysia's government, which blames foreign investors and speculators for triggering its current financial crisis, wanted to restrict foreign ownership of insurance firms to no more than 51%. But the United States insisted that firms such as American International Group already operating in the country be allowed to keep 100% of their investments.
Thailand, which agreed to close 56 bankrupt financial companies as a condition for receiving a $17.2-billion bailout from the International Monetary Fund, had resisted pressures to raise its 49% limit on foreign ownership of banking ventures.
Indonesia, on the other hand, offered Friday to lift restrictions on foreign holdings in non-bank financial services and guarantee that overseas investors can hold on to existing stakes.
Associated Press and Bloomberg News contributed to this report.
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