THE WHITE HOUSE
Office of the Press Secretary
PRESS BRIEFING BY AMBASSADOR CHARLENE BARSHEFSKY ASSISTANT TO THE PRESIDENT FOR INTERNATIONAL ECONOMIC POLICY
DAN TARULLO, AND DEPUTY SECRETARY OF THE TREASURY LARRY SUMMERS
The Briefing Room
10:57 A.M. EST
MR. TOIV: Let me tell you what we're going to have available for you this morning to further explain the financial services agreement reached in Geneva. First we're going to have a briefing by Dan Tarullo, who is the Assistant to the President for International Economic Policy; Ambassador Charlene Barshefsky and Deputy Treasury Secretary Larry Summers.
Then available to you at the stakeout afterwards are going to be two representatives of the insurance industry, Gary Benanav, who is chairman and CEO of New York Life Worldwide Holding, and Nikki McNamee, who is senior vice president for policy at the American Council of Life Insurance.
You should already have some paper, a statement by Secretary Rubin and Ambassador Barshefsky, with a further explanation of the agreement. And I think we're also going to have some letters from the three affected industries praising the agreement. And we'll have that out to you at some point this morning.
MR. TARULLO: Thank you, Barry. Good morning. I know how much everyone prefers being here rather than at Tyson's Corner this morning. We'll try to get the facts out to you in as efficient a way as possible.
We're pleased with the financial services agreement reached in Geneva yesterday -- late last night, actually, Geneva time. This is the latest in a series of quite successful sectoral liberalization efforts that the President and the administration have pursued in the last year.
We began late in 1996 with the ITA -- the Information Technology Agreement. We carried forward early this year with the basic telecoms liberalization agreement in the WTO. Just last month in Vancouver we negotiated the nine sectorial liberalization agreements. And now we have the culmination of a 10-year effort, 10-year priority effort by the United States to achieve a good, solid agreement for liberalization in financial services.
As you also probably know, two years ago, two and a half years ago, the United States declined to participate in what was then a potential financial service agreement because the quality of market access offers was not adequate under the circumstances. I think that decision has been borne out as a correct one by the results in Geneva over the last week.
It is, in the President's view, as you probably noted in the statement that he released last night, a particularly significant event that there should have been a financial services agreement now in the wake of the recent financial instability in Asian markets. The indications are that the rest of the world understands the importance of moving forward, rather than backward, on financial services liberalization. And as Deputy Secretary Summers can explain, the kinds of commitments being made by countries in the rest of the world are much more likely to strengthen financial markets, making them more liquid and more stable.
The President has taken an interest in these negotiations, particularly, obviously, as they have intensified over the course of the last several months. We have had discussions on a number of occasions about financial services, he's been asking after them. At Vancouver last month he raised the financial services negotiations with the other APEC leaders, indicating the importance he attached to a successful conclusion of those negotiations which in part would give confidence to financial markets on the direction of liberalization throughout the world.
The financial services talks are a little bit unusual in the way we pursue trade talks, in that this is essentially a joint venture between USTR and the Treasury Department. USTR and Treasury, I think, have worked extraordinarily successfully here. We had a joint negotiating team in Geneva with Deputy USTR Jeff Lang and Assistant Secretary Timothy Geithner from the Treasury Department.
Here now to provide more substance on each of the major components of the negotiation are Ambassador Charlene Barshefsky, the United States Trade Representative, and Deputy Secretary Larry Summers. Charlene will go first, focusing mostly, but not exclusively, on insurance; and then Larry will touch on banking and securities.
AMBASSADOR BARSHEFSKY: Let me say that we're obviously very pleased to have concluded this WTO market opening agreement in financial services, which will open markets around the world to U.S. suppliers of banking, securities, insurance and financial data services.
Seventy-one countries made substantial market opening commitments. These are both developed and developing countries, encompassing over 95 percent of the world's financial services markets by revenue. Today, of course, financial services are a multi-trillion dollar industry, which is expected to grow exponentially over the coming years. This is a global deal with commitments from Latin America to Europe to the Middle East, Africa and Asia.
The range of services covered is broad -- from traditional banking services, such as depositing and lending; to security services, including trading in equities and derivatives; and the full range of insurance services, such as the sale of traditional life and non-life products, brokerage and reinsurance. The improved market access offers provided for the in the deal won't just create opportunities for financial services firms, but it will also help strengthen the financial infrastructure that is critical for virtually every other major trading sector. Everyone needs financial services, companies depend on them, from small entrepreneurial enterprises to multi-nationals.
The deal that we secured late last night is dramatically improved from the one that was concluded in the WTO in 1995, and in which we participated only tangentially. At that time, there were 45 offers on the table. With this deal, 102 WTO members now have made market opening commitments in the financial services sectors, 70 of which made improved commitments in this latest round of negotiations. The commitments before us now encompass about $18 trillion in global securities assets, $38 trillion in global bank lending and about $2.5 trillion in worldwide insurance premiums.
Let me take a moment and talk briefly about the insurance side of the deal and Larry, as Dan said, will talk for a minute about the banking and securities side of the deal.
Among the 70 improved offers, 61 countries will now allow foreign, including U.S., majority ownership of insurance services providers. MOst of that ownership is at 100 percent, the rest is 51 percent or above. This represents over 93 percent of worldwide insurance premiums. So these are extraordinarily significant improvements.
Similarly, with respect to broad-scale market access beyond investment, the agreement provides for an unprecedented level of market opening -- 52 countries have guaranteed broad market access in all insurance subsectors, life, non-life, reinsurance brokerage, and auxiliary services. Those 52 countries represent over 90 percent of global insurance premiums. In addition, another 14 countries committed to broad market access in selected insurance subsectors of particular interest to the United States.
While we are pleased about the outcome of the negotiations, we will spend the next 13 months prior to ratification during which we will seek improvements on market access and cross-border activities with specific countries. In this regard, we have carved out from our offer and our obligations any country that has or adopts a policy of forced divestiture of existing rights in the insurance sector. At issue most particularly is the current practice of the Malaysian government which is to force the divestiture of rights previously acquired by foreign insurance providers. This practice of forced divestiture is unacceptable and wholly inconsistent with the market opening character of the WTO agreement.
Our broad carve-out with respect to the insurance sector for those who force divestiture will stay in effect, and in particular, will continue to apply to Malaysia until Malaysia rectifies the practice.
With that, let me conclude by thanking Ambassador Jeffrey Lang, my Deputy, as well as Wendy Cutler, Laura Lane, Bill Kane and Don Abelson, all of USTR who have worked so hard on this agreement. They have my very deepest appreciation. And with that, let me turn this over to Larry Summers.
DEPUTY SECRETARY SUMMERS: Let me first say that it has been a long road to this important agreement. It has been a priority since the beginning of the Uruguay Round under both Republican and Democratic administrations. It has been a priority for both industry and government, and we have worked together towards this objective. And we have benefitted closely from the steadfastness of the Senate and House Banking and Trade Committees in maintaining the strong American position that has led to this agreement.
Financial services is the quintessential 21st century industry. It is growing rapidly. It is based on information technology. It is based on telecommunications. And it is truly global. And that is why this agreement, following on the telecommunications and information technology agreements, completes a triple play of agreements building a foundation for a 21st century economy.
This agreement is good for America and good for the global economy. It is good for America because financial services are one of our most competitive industries. We export nearly seven times what we import in the financial services industry. And our securities industry has grown four times as rapidly as our GDP since 1977. And financial services are an industry where America is the world's leader.
Our position for the last five years has been that the United States would not enter into an agreement unless, and until, adequate liberalization commitments were forthcoming from other countries. That was a necessary condition, because our financial market has been fully open.
We made clear that we had four coordinees in this agreement: substantial progress with respect to majority ownership; and in all industrialized countries and most emerging markets, foreign providers will now be permitted to be majority owners of local operations; assurance of existing rights in these markets, and existing rights of foreign providers will be assured in markets accounting for well over 90 percent of global trade in financial services; the right to participate fully throughout markets, and that, too, will be provided; and, finally, the right of national treatment, something that has been achieved in virtually every country.
So we have made substantial progress for American industry. But I would suggest that we have also made important progress for the global economy, progress that is particularly important at a time of financial uncertainty. We have seen a recognition by more than 100 countries of the important benefits that global financial markets can bring; of the reality that participation of foreign financial institutions can bring know-how, can bring the capital base that a global institution can provide and can provide important services to local businesses and local entrepreneurs. We have seen a recognition that financial openness is essential to economic growth in today's global economy.
This agreement is a strong foundation for even more progress in this area in the years ahead. We will continue to work bilaterally and multilaterally to build on this foundation by supporting continued openness of financial markets around the world. A particular priority will be to address a key outstanding issue regarding the forced divestiture of major equity stakes in important industries. It is vital for our industry and vital for the global financial services market that we find a solution to this problem, and our officials will be working hard to achieve that objective as we go forward.
Finally I would just like to thank the Treasury team that brought us to this point: Tim Geithner, Assistant Secretary of International Affairs led the Treasury team in Geneva during the final stages of the negotiations and has really managed this issue within the Treasury Department for the last five years; Meg Lundsager, our Deputy Assistant Secretary for Trade and Investment Policy, has lived and breathed financial services liberalization since March; and Matthew Hennessey and Michael Kaplan, have provided crucial inputs in this negotiation. You all have the deepest appreciation of Secretary Rubin and this administration for your contributions to this accomplishment. Thank you.
Q Can you tell us, does any of this require implementing legislation now?
MR. TARULLO: No, no change in U.S. law whatever.
AMBASSADOR BARSHEFSKY: If I can just supplement that. To the extent there were laws on the books, federal and-or state, that pertained to the areas covered by the agreement, those laws either had already been changed or were changed over the course of the number of years the negotiations are pending or we grandfathered them as is.
Q Can you explain a little bit more about the Malaysian situation, what the carve-out -- what does that mean exactly, and what you'll be doing to try and solve that problem, and what happened in the last stage of the negotiations with Malaysia?
AMBASSADOR BARSHEFSKY: We had urged Malaysia in the strongest possible terms to cease its practice of forcing the divestiture of equity holdings of foreign companies in Malaysia. This pertained in specific in the insurance sector. Malaysia, while it made some concessions in this area, has not abandoned this policy and it presents a continuing and serious risk and threat to foreign insurance providers, including U.S. insurance providers.
What we did in the closing phase of the negotiation was to take an MFN exception as against any country in this sector that forces divestiture. That means the United States can discriminate against any such country now or in the future should that practice take hold. In the instant situation, as a practical matter, the only country right now that is affected by that carve-out is Malaysia and the carve-out will, of course, remain in force until the practice is rectified.
Q Is it restricted to insurance industry, the discrimination the MFN exception, or can it go to bananas or whatever else you want?
AMBASSADOR BARSHEFSKY: No, no, no, it's restricted to the insurance industry. On the banking side, as Larry has said, the grandfathered rights acquired are all encompassing and now, because of an international agreement in bindings will be legally enforceable. So our problem is the gap and coverage on the insurance side where the practice, at least in Malaysia, still prevails.
Q If I can just follow up on that. First of all, is the MFN exception, will that take place after they have forced a company to divest, or how does that work? Do you have to wait for them to violate --
AMBASSADOR BARSHEFSKY: If they have a law on the books and never implement the law, then the exception would likely not apply. But that is not the case here. That is to say, Malaysia is currently implementing a program of forced divestiture.
Q Ambassador Barshefsky, following up on that question, what precedent is there for the type of MFN carve-out that you have taken in this specific instance? Are you concerned that this might raise questions or undermine the principle of MFN and the U.S. adherence to this core principle of the multilateral system?
AMBASSADOR BARSHEFSKY: MFN ensures that nations are not discriminated against as between one and another. In this case, we have carved out as a general rule applicable to all countries on an equal basis an exception to MFN should countries now or in the future force divestiture of acquired assets in the insurance sector. That is fully MFN consistent and enforceable.
Q Can I ask Secretary Summers, there are reports out today that the IMF is going to consider next week $160 billion quota increase -- take this to the board. Would you just address generally what you think the IMF resources are of whether that kind of size of increase is needed?
DEPUTY SECRETARY SUMMERS: The IMF, as it has demonstrated, has substantial resources and has in its current resources substantial resources to make available in the event should that need arise further resources if other situations requiring resources were to become necessary. It will be important over time to supplement the resources of the IMF both to supplement the contingency resources available to the IMF and the IMF's ordinary resources. And that's why it is an important priority going forward for the U.S. Congress to approve the new arrangement to borrow, which provides an important spare fuel tank, if you like, for the IMF, and for the Congress to approve the quota increase that was agreed that would increase the resources available for the IMF to lend by over $60 billion.
But at this point, the resources are there and the priority is for the Congress to act so that they will continue to be there because the greater confidence that we have in the availability of resources to respond to emergencies makes it less likely that they will ever be needed.
Q One follow up on that. Given, though, that Congress hasn't approved the quota increase, now we have these reports that even more is going to be needed? Is that going to make it harder to get this initial --
DEPUTY SECRETARY SUMMERS: I think the priority now is for congressional action with respect to the NAB which, as you know, became caught up in a range of other issues at the end of the last -- issues extringent to it at the end of the last session and for when the quota increases put before Congress next year we believe it will be an important priority for Congress to approve the increase.
But I just want to say that when we are discussing confidence in financial markets, what is most important is not the public flow of capital, but the private flow of capital. And the agreement here and the commitments embodied in it should be an important contributor to confidence that will catalyze the flow of private capital. And so this agreement is an important response to what is most crucial in a situation like that we are facing, which is the creation of confidence.
Q Can you talk a little bit about the backdrop of the Asian situation and how that influenced the final days of negotiations, whether it worked in your favor in terms of shaking out some agreements or did you feel pressure that you couldn't walk away without one because of it?
DEPUTY SECRETARY SUMMERS: Our position has been a constant for five years. We would not accept an agreement unless and until adequate commitments were forthcoming. That was our position because we believed that to accept any agreement that fell short would be to reduce confidence, reduce the possibility of opening markets, and sacrifice both our domestic objective and sacrifice the potential contribution to the global economy.
I think the analyses and considerations that have gone on within individual countries during these last few months, particularly in some of the countries that have experienced difficulties, have reenforced the sense that there is no viable alternative for countries that wish to grow rapidly to participation in the global economy and participation of global financial institutions is an important part of participation in the global financial economy.
A number of country, particularly in Latin America, that faced very serious banking problems several years ago have found that the participation of foreign financial institutions has been an important source of capital in their economies and has been an important source of confidence. Just as we've seen in the United States that interstate banking, by encouraging diversification and providing access to deep pools of capital can be an important source of confidence, so also the enhanced participation and security for global financial institutions makes resources available to investors at lower cost.
AMBASSADOR BARSHEFSKY: Let me just make a comment. There was never any question but that we would walk away if the deal was not a good deal. There was not a second thought in the minds of Bob Rubin or Larry, Dan, myself as to that proposition. Countries had already known in '95 -- we participated, as I said, only tangentially because the offers were not sufficient. They also knew in the WTO telecom talks, we walked away as well, waiting another nine months before substantially improved offers were forthcoming.
Here I think countries recognized that they would have to come forward with improved offers or a deal simply would not be concluded. And then we had the phenomenon in the last week or so of the negotiation where a large number of countries came forward with improved offers, recognizing that the United States was still saying even on Monday that this would really not be possible if good offers were not forthcoming.
So you had very substantial improvements in the offers of countries like Indonesia, which was a world-class offer; Argentina, Brazil, the Philippines, Japan, even India made some movement on banking which was unexpected and welcome. So a psychology took hold these last four or five days with countries recognizing that the United States would not commit to keep its market open in a -- sense without reciprocal good offers from other countries, and that's what happened.
Q -- to these offers do you think?
AMBASSADOR BARSHEFSKY: I think so, yes.
Q What do you say to the -- that I'm reading here from Egypt that this is one-way traffic -- that's a quote here -- benefitting industrialized countries?
MR. TARULLO: I think that in many respects what Larry has been saying this morning answers that question. This is not a zero sum game in which more efficient capital flows, stronger financial institutions and stronger financial markets redound only to the benefit of the United States or Europe, for that matter. The stronger financial markets that will come from liberalization and openness will help stabilize economies and provide the basis for sustained and sustainable growth. And in that sense I think it resembles the -- in that sense, it resembles the Telecommunications Agreement. Without a strong world-class up to date telecommunication system, countries are not going to be able to grow in the global economy without a strong, world-class, up to date competitive financial services sector, countries are going to have difficulty maintaining the kinds of strong capital flows that they'll need.
DEPUTY SECRETARY SUMMERS: If I could just add one thing. Financial services will now be a two-way street. The American market has been open for many years. Now, other markets will be open as well. That will be good for our firms and it will be good for their citizens.
Q Mr. Summers, the IRS report released yesterday indicated that the use of benchmarks in at least the Oklahoma and Arkansas district was commonplace. What is the IRS doing to correct this problem and do you think that the problem is widespread?
DEPUTY SECRETARY SUMMERS: This is unacceptable. It will change. The report did point up practices which, as Secretary Rubin made clear in his statement today, are not acceptable. We are investigating the situation in a number of other districts and there may well be serious problems. Commissioner Rossotti announced a set of interim steps designed to make sure that this practice does not continue. And when we have all the facts, we will take the appropriate actions.
As the President said, speaking about IRS legislation several months ago, no American can tolerate or be willing to accept abuse by the nation's tax collectors. And that feeling is nowhere shared more strongly than by the vast majority of 100,000 employees of the IRS. Where these problems are present, we have to undercover them, we have to stop them, we have to change the practices and culture that make them possible. And that is the charge that has been given to new Commissioner Rossotti and it is one that he is pursuing with very great energy.
Q -- have any phase-in periods, like over a few years, instantaneous phasing?
AMBASSADOR BARSHEFSKY: For the most part, the commitments take effect on ratification. There are some instances where there are phase-ins. But, by and large, in this area the commitments tend to take effect up front, rather than further down the road. So there are some phase-ins but, by and large, the commitments come into play quite early.
Q When's ratification?
AMBASSADOR BARSHEFSKY: Let's see, January 29 -- don't ask me why 29 -- 1999, so that's 13 months; effective date would be March 1, I believe. There's typically a slight gap between the ratification and effective date. March 1, '99.
Q Some of the narrowest concessions at the end came from South Korea, where you've been pressing for some time. Given this extraordinary moment of leverage in negotiations in South Korea, why is it that they were so reluctant to offer more?
DEPUTY SECRETARY SUMMERS: I think South Korea announced its intention to take quite substantial steps directed at liberalizing and opening its financial markets in the context of the OECD accession some months ago and most recently in the context of their IMF program. And those steps are forthcoming and are, as we speak, providing important new opportunities for American firms.
As we move through the ratification process, we will be urging the South Koreans to provide the extra measure of confidence that comes from the scheduling of those commitments which have already been made within the WTO.
Q Why were you unable to do that during these negotiations?
DEPUTY SECRETARY SUMMERS: I think that at this point, David, we were able to make what I think is important progress, and I think that the South Korean government, which has made these commitments quite recently, is working on its approach in the context of the trade negotiation versus the financial negotiations.
AMBASSADOR BARSHEFSKY: Let me add one thing. On the insurance side, Korea came forward by and large with a series of commitments quite consistent with its OECD commitments. The issue tended to revolve around the question: which of that range of commitments would be bound and thereby legally enforceable under WTO dispute settlement, and which would be unbound, at least for a period of time.
And because Korea itself expressed some question about the particular direction in which it wanted to go, bound versus unbound, we agreed with them that we would continue over the next 13 months to work out the issues that remain.
MR. TARULLO: We'll take two more. Here's number one.
Q Back on the Asian markets, how soon, if at all, will we see an impact there as a result of this agreement?
DEPUTY SECRETARY SUMMERS: I would hope that the existence of this agreement would be a contributing factor, along with the full set of policies taken in particular countries that can contribute to confidence almost immediately, and that over time the greater participation of foreign financial institutions and expansion of existing foreign financial institutions can contribute to attracting capital and contribute to making capital available at lower costs, and in those ways can contribute to increasing confidence.
The extent will differ from country to country, but I think the willingness of countries to take this step at this difficult time is a demonstration of their recognition that the path of openness and integration offers them the best prospect for continuing the remarkable economic growth that has been the Asian story for the last several decades.
AMBASSADOR BARSHEFSKY: Let me make one other follow-on just briefly. As we looked at the APEC meetings in Vancouver, you had the Asian community agreeing to further reduce tariffs to zero in nine sectors of their economies. That's quite remarkable given the current situation, but it simply reinforces what Larry has said, with respect to their perception as to what they need to actually do now, particularly in light of this loss of confidence with respect to the world community.
I think it's one of the reasons we saw from a number of Asian nations, like the Philippines, like Indonesia, remarkably improved offers. And it is what is leading to very intensified negotiations on our follow-on agreement to the Information Technology Agreement, the ITA-2, in which Asia is a substantial participant and a very active participant in the broadening of that initiative to cover even more products for tariff reductions to zero.
MR. TARULLO: Last question, right here.
Q In Vancouver it was reported that China had made a significant new offer regarding its accession to the WTO and that it was then going to be discussed with U.S. officials in Geneva. I wonder, first of all, can you tell us generally what the offer was? And what is the status of the talks in Geneva?
AMBASSADOR BARSHEFSKY: China came forward, of course, first off at the summit between the President and President Jiang with a commitment that it would join on to the ITA, the Information Technology Agreement. This was very significant because China had previously indicated it would not join the ITA at all, number one; and number two, it would not reduce to zero any tariffs. ITA, of course, is a zero-tariff commitment on all products associated with the Information Superhighway, whether telecom, integrated circuits, semiconductors, computers, and so on. So this was a very significant commitment on the part of China.
Since then they've indicated to us they will also go to zero in three or four other sectors, and they have committed to participation in some of the APEC sectoral liberalizations. So we think that is important.
Subsequent to the summit, China came forward in Vancouver with an offer with respect to market access, which would very substantially reduce China's tariff levels over time, but the period of time was not long, which would eliminate non-tariff barriers to trade over a period of time, and a number of other commitments.
Because these were general in nature, we decided that we would hold on it until we talked with them further. It's one thing for a country to indicate their average tariffs will go way down, but you need to know where your products fall. Are they on the average? Are they below the average? Or do they fall above the average tariff level?
So until that's rectified, we won't be able -- I can't really assess for you the precise impact on the U.S. except to say that China, I think, evidenced the will to try to move the negotiations forward, and that is very welcome indeed.
MR. TARULLO: Thank you, that's it for the questioning. As we indicated earlier, Mr. Benanav and Ms. McNamee will be at the stake-out in just a few minutes to give an industry perspective on this whole set of negotiations.
END 11:35 A.M. EST