Service on Free Trade Agreements
15 March 2009
EU Observer, 11 March 2009
Brussels pushing finance deregulation
in third world
EUOBSERVER / BRUSSELS
— While EU and other global leaders have talked tough about re-regulating
the financial sector in the wake of the economic crisis, they remain
committed to pushing through banking deregulation in the developing
world via trade deals.
This strategy is undermining poverty reduction in these countries and
is reproducing the same type of circumstances that led to the crisis
in the first place, warns a new report published on Wednesday (11 March)
by the World Development Movement, an UK-based anti-poverty NGO.
Both via the WTO negotiations on a General Agreement on Trade in Services
(GATS) and potential EU bilateral or regional trade deals with 34 countries
in Latin America, Asia and the Mediterranean, the bloc continues to
push for the lifting of restrictions on how Western banks operate in
The EU In 2002, via "GATS" global trade talks, requested that
94 countries open up their financial industry, 20 of which were least
developed countries and 30 were low income countries.
A financial services component of GATS would mean that countries would
not be able to introduce new rules that are more restrictive than those
already operating, making it difficult to pass laws on risky trading
such as "short-selling" or to limit the numbers of service
providers or the number of transactions.
All new financial services would also have to be permitted, giving the
green light to the very same complex financial products that have been
held responsible for the creation of the toxic asset problem in the
Also under GATS, full ownership by foreign banks would be allowed, which
can make it hard for a host country’s financial supervisor to monitor
the foreign bank’s activities and to ensure it is acting in the interests
of the host country.
Even in the EU, the problem of foreign bank ownership is exacerbating
the crisis in the east. The tap of credit to much of eastern Europe
- where most of the banks are owned by Austrian, Swedish and other EU
parent companies - today has been all but turned off, as the owners
focus on provision of credit in their home markets.
After seven years of talks, however, countries are still haggling over
a GATS deal, and the EU has sought bilateral and regional trade deals
to get over the impasse.
The bilateral strategy, known as "Global Europe," seeks to
remove regulations on European financial service companies, along with
other liberalising measures in a range of sectors, in case a deal at
the WTO level is not reached.
The EU trade deals already signed with Chile and Mexico
contain substantial chapters on financial services, while the Caribbean
Economic Partnership Agreement with the EU signed in October last year
contains many of the financial liberalisation clauses proposed in GATS.
Similar pressure on central American nations is being brought to bear
to open up their financial sectors.
The report reveals that where banking liberalisation has occurred, looking
in particular at India and, crucially, Mexico - home to one of the most
liberalised financial sectors in the world, with 80 percent foreign
ownership, poor people and small businesses see their access to credit,
bank accounts and other financial services restricted.
At the same time, where such credit does exist, it is in the form of
credit cards, car loans or mortgages, boosting spending on consumer
items rather than productive sectors of the economy such as farming
On Monday (9 March), UK
Prime Minister Gordon Brown himself spoke out against the "do as
we say, not as we do" attitude of Western countries regarding economic
policies promoted to the developing world.
At an international development conference in London,
he announced that he would push the World Bank and other wealthy nations
to create a new fund for developing countries to help the poor through
the crisis, although he did not attach any figures to the idea.
While there, he criticised the imposition of "economic orthodoxy"
on the developing world.
"Too often in the past our responses to such crises have been inadequate
or misdirected - promoting economic orthodoxies that we ourselves have
not followed and that have condemned the world’s poorest to a deepening
cycle of poverty," he said.
The World Development Movement (WDM) however, says that there is an
acute contradiction between such leaders’ words and deeds in pushing
for financial deregulation in the third world.
"On the one hand, Gordon Brown has developed a mantra of tough
talk on the re-regulation of banks," said Benedict Southworth,
the director of WDM. "On the other, together with other European
leaders, he is aggressively pushing free trade deals which demand that
developing countries follow a deregulated and liberalised banking model."
"That model has clearly and spectacularly failed here and has also
failed poor people in the developing countries," she added.
The study highlights how the presence of European banks in developing
countries has resulted in foreign banks cherry-picking the richer customers,
resulting in an overall decline in services and credit for others, and
notably to rural areas.
In urban areas where foreign banks are concentrated, low-income householders
and small businesses struggle to meet the criteria to open an account,
let alone to receive a loan.
In response, WDM is calling for financial services liberalisation to
be reoved from from proposed bilateral and multilateral EU trade deals.
An official with the European Commission told EUobserver that they were
studying the report very closely, but that the report’s authors had
"confused liberalisation with deregulation."
"Market access for European financial service providers in no way
restrains the ability of countries to regulate financial services,"
the official said. "The question is whether such moves become protectionist."
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