Thank you for your letter regarding the possible dumping of financial services. Our staff has discussed this issue and general market access issues with European Community participants in the Uruguay Round of the services trade negotiations. More specific concerns about actual cases of dumping, including financial services, have been raised by some of our private sector advisors. We have asked them for more information about the nature of the problem. We will use this information, along with the information you have provided, in determining the commitments we press for in the Uruguay Round. I welcome your advice on this important subject. Sincerely, Robert A. Mosbacher Committee on Banking, Finance and Urban Affairs U.S. House of Representatives Washington, D.C. 20515 Dear Mr. Chairman: This is in response to your letter of May 15, 1990, to Secretary Brady regarding dumping of financial services. Dumping of financial services is a complicated subject which raises many questions. First, to what extent can the concept of dumping be applied to financial services? What are the appropriate criteria for determining whether "dumping" and injury have occurred? How is the extent of the "dumping" quantified? What is the appropriate remedy? This last question is especially pertinent since the traditional GATT approach imposing antidumping or countervailing duties on goods at the border does not seem relevant for financial services which are generally offered by firms established in the local market. - It is not uncommon for large financial institutions of whatever nationality to price their services very finely in order to gain entry into a new market or expand market share. When such activities involve funding in one currency and lending in another, determining the relationship between the cost of providing a service and its final price becomes complex since pricing decisions will involve judgments about future exchange rates, interest rate differentials and hedging options. Applying the trade model of dumping to such circumstances is therefore difficult. Nonetheless, whether or not it is dumping, the Treasury Department is indeed concerned about foreign financial service providers, banks in particular, gaining an unfair advantage over U.S. competitors because of regulations in the home market which could provide a competitive advantage by making funds available at lower cost. The "fairness" issue is one of a number of problems which we are discussing in the Uruguay Round negotiations on financial services. We intend to pursue the matter during upcoming meetings in the fall. With regard to Japan, the U.S. Government, led by Treasury, has addressed specific financial markets issues within a comprehensive framework in the U.S.-Japan Working Group on Financial Markets. At the latest round of these talks (May 21-22), the United States pressed Japan on a number of issues, including the pace and scope of interest rate deregulation, foreign access into Japanese markets and certain business lines (especially asset management), and various foreign exchange and other restrictive laws. The Treasury has urged rapid action to complete the deregulation process in Japan. This would reduce the advantage regulations provide to Japanese financial firms through domestic access to low cost funds. The Treasury believes that after seven years of discussions, Japan should be able to complete interest rate deregulation by next April. The position of the Ministry of Finance in Japan is to try to complete the process in three years. We have expressed our strong concerns on this issue to the Japanese. In closing, let me assure you that Treasury is pushing in the Uruguay Round for rules on financial services which will ensure that U.S. firms have the opportunity to compete equally with their foreign counterparts. We will, of course, also keep up our efforts in bilateral fora and through the forthcoming National Treatment Study. We would welcome any additional views you may have on this subject, and especially any information on specific practices which concern you. Please let me know whenever we may be of service. Sincerely, Betalaw Bryce L. Harlow OPENING STATEMENT OF THE HONORABLE JOHN J. LaFALCE, CHAIRMAN TASK FORCE ON THE INTERNATIONAL COMPETITIVENESS OF U.S. FINANCIAL INSTITUTIONS Hearing on the Uruguay Round Negotiations on Financial Services July 17, 1990 Today the Task Force will hear from representatives of the Administration on two key issues affecting the ability of U.S. financial services firms to compete in global markets: (1) the status of the negotiations on the development of a financial services agreement occurring as part of the Uruguay Round; and (2) the issue of "financial dumping" that is, the concern that foreign financial institutions may be selling financial services below cost in the U.S. market. - Advances in computer and telecommunications technology are leading to the rapid globalization of the financial services industry. Companies need not look only to domestic providers for finance, and financial firms can, at least in theory, follow their customers around the world. This globalization process has the potential to increase the efficiency of world capital markets and provide the widest possible array of financial services at the lowest possible price to consumers all over the world. This can occur, however, only if this new global market is an open market. The GATT has long been the multilateral mechanism through which countries have attempted to ensure an open world trading system. But the GATT has been slow in keeping up with the times. Long focussed on issues in manufacturing trade, the GATT has historically not dealt with services and investment areas that are becoming increasingly more important elements in world trade. The U.S. has, until recent years, maintained a clear competitive edge in the service sector. In financial services, in particular, U.S. firms are known for product and technological innovation. But the competitive edge that U.S. financial firms have historically enjoyed is at risk if our firms cannot introduce new technologies and market their products freely overseas at the same time that foreign firms operate freely in our own domestic market. While I am pleased that the development of a financial services agreement is finally being taken up within the GATT, I am seriously concerned by what appears to be little progress to date. Negotiations are to conclude this fall and yet we have 1 little to show for months of effort. It is my understanding that U.S. negotiators have put forward a proposal for the elimination of certain specific barriers, but the specifics of any agreement have yet to take shape. This agreement must be more than a paper framework to be filled in at some later date it is imperative that specific barriers be eliminated and that more open markets be achieved. If the agreement does not accomplish those goals, we might be better off with no agreement at all. - - the The There are some key issues on which I would appreciate the Administration's views. One issue I believe is of central importance in these negotiations is that of "linkage" provision for cross-retaliation between services and goods. issue is a highly controversial one, but I am concerned that without such linkage retaliation cannot be made effective. Another central issue is the question of temporary entry of key personnel. A financial services agreement will be of no use if a market is perfectly open, but U.S. firms are precluded from bringing in sufficient personnel to effectively establish their financial services operations. Knowledge and expertise are key elements of competitiveness within the industry, and such skills are not necessarily fungible. If the use of existing expertise is denied, meaningful market access cannot be achieved. Our negotiators must also be watchful regarding how the agreements reached within the Uruguay Round impact on EC Directives of key concern to the U.S. financial services industry. In particular, we must be attentive to any impact that agreements made in the Uruguay Round might have on the Second Banking Directive, the pending investment services directive, or the EC Capital Directive. Today we will also explore the issue of "financial dumping." In the course of the Task Force deliberations, concern has been expressed that some foreign firms are effectively underpricing in the U.S. market. I know this problem is of particular concern to Chairman Annunzio who recently wrote to the Treasury on this issue. It is not clear to me that U.S. antidumping laws and procedures provide an appropriate mechanism for addressing this problem, if indeed, the charge regarding the actions of foreign firms is justified. If that is indeed the case, I would appreciate the Administration's views on whether additional legislation is necessary in this area, and whether the issue might be appropriately discussed as part of the GATT financial services negotiations. Ladies and gentlemen, the Task Force thanks you for your appearance here today, and looks forward to your testimony. 2 |