WTO deal ‘good’ for EU banks

Date: 25/02/1999

By Renée Cordes

EU BANKS will be able to expand more easily into the US and emerging markets under an international accord which comes into force next month.

The 52 countries which have ratified a World Trade Organisation agreement on liberalisation in the financial services sector have pledged to remove barriers to foreign banks, insurers and securities companies. At the same time, EU member states have also pledged to open up their own financial markets to foreign institutions.

“At a time of instability in international financial markets, this agreement provides a solid foundation for improvement of financial services, for enlarging the pool of capital available to businesses and consumers, and for increasing the transparency of financial operations,” said WTO Director-General Renato Ruggiero.

The US has agreed to ease the requirements it currently imposes on foreign banks which want to set up a branch or agency to obtain a licence to operate, and lift some of the curbs imposed by individual states on insurance brokers or agencies such as citizenship requirements.

“It should be good for EU firms,” said Karel Lannoo, an analyst with the Centre for European Policy Studies. “One thing they have always objected to is the lack of access to the US market.”

In addition, the agreement is expected to open up opportunities for European banks which want to open branches in emerging markets such as Asia, Latin America, Africa and eastern Europe, which have agreed to allow foreign firms to establish wholly owned asset management subsidiaries on their soil.

While WTO trade negotiators have hailed the EU financial services market as generally liberal, they say the new global agreement will make significant improvements in eliminating a large number of national measures standing in the way of market access.

Vienna has, for example, pledged to eliminate a requirement that foreign banks examine opportunities in their own markets fully before investing in Austria; Belgium has agreed to lift measures requiring financial institutions to conduct securities trading only through stock exchange firms incorporated in Belgium; and the UK has agreed to eliminate local incorporation requirements for financial institutions selling government bonds.

All EU member states but one have ratified the WTO agreement, with Luxembourg expected to follow suit in the next few months.

“This is the line that EU economic and finance ministers have always taken,” said a spokesman for the Austrian finance ministry. “Austria is trying very hard to improve Vienna's attractiveness as a financial centre. While this is only a small step, it sends an important signal to investors.”

If any country violates the agreement, a bank would be able to complain to the European Commission, with either party given the right to appeal against the institution's initial ruling on the complaint.

Trade officials say that a party found to have breached the accord would also be given time to implement any recommendations attached to the ruling before disciplinary action was taken.