The World Financial Pact: Washington Plays Hard To GetDean Foust
For 50 years, the U.S. has been the driving force behind expanded world trade--and a key player in forging every global pact. So where were the Americans on July 28, when 43 countries signed a deal in Geneva to liberalize cross-border trade in financial services?
Cooling their heels. The Clinton Administration was so convinced that the agreement was stacked against the U.S. that Treasury Secretary Robert E. Rubin balked at the final deal. The unprecedented rebuke sends a clear message to trading partners: The U.S., the world's most open financial market, will not tolerate a one-way street with other nations that still barricade their domestic service industries. "The offers from other countries weren't sufficient," says Rubin.
Rubin & Co. are gambling that they can pry open other markets one by one, because they have something emerging economies desperately need: capital and financial knowhow. The U.S. pullback from the pact "offers a point of departure for future negotiations," says Deputy U.S. Trade Representative Jeffrey M. Lang.
Most trade experts agree that the global deal, the first negotiated under the new World Trade Organization, does little for the U.S. Banks, insurers, and securities firms still have only limited access to the heavily protected markets of such miracle economies as Malaysia and South Korea. The Clintonites fretted that joining the deal would have expanded access to the U.S. while foreclosing opportunities to U.S. companies abroad.
HAT IN HAND. The plan: Wait for foreign nations to come hat in hand. After all, Asian nations alone need $1 trillion to finance such infrastructure projects as bridges and highways. So the need for financing will be overwhelming. Consider Thailand, where manufacturers are setting up production abroad, because financing is more plentiful. To help fill the void, the Thais have promised to license five new foreign banks by 1997.
That's music to the ears of U.S. banks and insurance companies, which are moving aggressively to penetrate other protected but potentially lucrative markets such as India. There, the average middle-class consumer spends just $18 a year for insurance vs. $2,000 in the U.S. Cigna Corp., for one, believes India will loosen its state-run monopoly's grip on insurance. "The business sector will push the government to move more quickly," predicts H. Edward Hanway, president of Cigna International. Hanway plans to open a New Delhi office by next spring.
Still, some execs who have wrestled with foreign barriers doubt that the lure of capital alone will do the trick. They want bilateral negotiations backed by U.S. threats of retaliation. "The idea that market forces will prevail is unduly optimistic," says Robert C. Pozen, general counsel for Boston-based Fidelity Investments.
In Korea, Fidelity has been barred from marketing funds denominated in the Korean won, or from building its own distribution network. Fidelity met similar obstacles in Japan, where it had to meet steep capital requirements and was excluded from bidding for the bulk of $1 trillion in retirement savings. But thanks to a bilateral deal signed last January, Japanese regulators slashed Fidelity's capital requirement by 75% and let U.S. fund managers make a bigger play for corporate and pension funds.
By walking away from the WTO pact, the U.S. showed its resolve to play on its terms. Now comes a greater challenge. The Clintonites must persuade America's trading partners to embrace reciprocal trade. Otherwise, the U.S. will be an open market--but the odd man out.