Memorandum by British Bankers' Association
(BBA)
The BBA is the leading association for the UK
banking and financial services sector, speaking for 228 banking
members from 60 countries on the full range of UK or international
banking issues and engaging with 35 associated professional firms.
Collectively providing the full range of services,
our member banks make up the world's largest international banking
centre, operating some 150 million accounts and contributing £50
billion annually to the UK economy.
1. The British Bankers' Association welcomes
the opportunity to give evidence to the inquiry. This initiative
of the Sub Committee is judged to be extremely timely in view
of recent developments and the current situation in the trade
policy arena.
2. Trade liberalisation in financial services
is a high priority issue for the banking community in Europe.
This is particularly the case for the UK where banking and financial
services account for approximately 10% of GDP, contribute around
£25 billion to the balance of trade and are responsible for
a quarter of all UK corporation tax receipts. The international
orientation of many firms in the City of London and elsewhere
in the UK has been a key factor in the sector's success and so
in the major contribution that banking and financial services
makes to the UK economy as a whole. The further opening up of
financial markets internationally has an important part to play
in maintaining this momentum.
Question 1: What are the future prospects
for multilateral trade negotiations? What effect will the rising
number of bilateral agreements have on the existence and further
development of multilateral agreements?
3. We are very supportive of the multilateral
trade negotiation process. The key feature here is that liberalisation
is extended, through the "most favoured nation" provision,
to all WTO members resulting in unrivalled economic welfare benefits.
Estimates of the annual global GDP gains accruing from the most
recent multilateral agreement, the Uruguay Round, vary somewhat
but a figure of $100 billion is probably on the conservative side.
4. It is acknowledged that progress with
the Doha Development Round has been far from smooth. There are
various reasons for this. To begin with, it was perhaps to be
expected that the rapid growth of WTO membership would make the
achievement of consensus a more challenging undertaking. In addition,
it seems that progress may have been hampered by there being different
interpretations of the term "development round"—leading
to inconsistent expectations as to the intended balance of give
and take between more and less development jurisdictions. But
perhaps the main reason why more has not been achieved so far
has been the overriding priority accorded to agriculture and the
shadow this has cast over other elements of the Round.
5. It is very disappointing that relatively
little attention has been focussed on the services sector in the
discussions, despite the fact that services account for close
to 70% of global GDP. At the time of writing, few specific offers
have been forthcoming and substantive negotiations are still awaited.
The continued absence of a breakthrough on services would call
into question the possibility of the ratification of any DDR settlement.
6. Looking to the future, both the DDR endgame
and beyond, it would be wrong to despair of achieving further
liberalisation through the multilateral route—particularly
in view of the massive potential welfare gains that can accrue
from this channel of engagement. Whilst the political and logistic
obstacles to be overcome should not be underestimated, we believe
that multilateral discussions are still capable of yielding positive
results.
7. It is widely acknowledged that in an
ideal world the multilateral approach would be optimal channel
of choice for further trade liberalisation, But in circumstances
where progress at the multilateral level is not possible, or offers
only limited prospects for progress, the bilateral route provides
a valuable alternative way forward. Moreover, it is not necessarily
the case that progress at the bilateral or regional level should
hinder the prospects for further WTO success. In some ways, the
two channels can be complementary. For example, a feature of bilaterals
and RTAs is that they often require domestic reform, so preparing
the ground for further multilateral advancement.
Question 2: What role can European trade policy
play to stimulate growth and create jobs in Europe?
8. Energetic pursuit of the trade liberalisation
agenda is essential for the wellbeing of the European economy.
This applies not only to the EU's offensive interests but also
the legitimate aspirations of our trading partners. Protectionist
tendencies, whether on current or capital account, discourage
domestic reform, erode competitiveness and invite reprisals.
9. To stimulate growth and create jobs it
is imperative that the EU's stance in international trade negotiations
plays to the strength of the European economy. This means recognising
that the services sector, including financial services, is the
engine of economic growth in Europe and reflecting this in trade
policy prioritisation. Whilst the political realities are acknowledged,
the fact nevertheless remain that if the EU continues to place
a disproportionate emphasis on agriculture in future trade discussions
the European economy will be the loser.
10. As to means, it is clear that the EU
can no longer adopt a policy of self denial when other major trading
partners have been pressing forward with RTAs and bilateral FTAs
in parallel with the DDR. The BBA warmly welcomes the Commission's
decision to open FTA negotiations with India, Korea and ASEAN
and, if these are successful, would press for the opening of talks
with other emerging markets.
Question 3: What should be the relationship
between European trade policy and policies on development, climate
change and depletion of natural resources?
11. Turning first to the relationship between
trade policy and development, we believe strongly that trade liberalisation
is a positive force for economic development—and there is
ample evidence to show that the more outward looking developing
countries tend consistently to grow faster than other developing
nations. We would echo the recent statement by the European Services
Forum that for "developing and emerging economies in particular
access to the world class infrastructure provided by European
financial and telecommunications companies, as well as, for example,
transport, logistics, water and waste management and energy related
services companies and many others is crucial for their future
growth and development". In the case of our own industry,
there is a wealth of evidence which demonstrates that opening
up to international financial institutions makes a real contribution
to development. In retail markets such firms can increase competition
and choice and broaden the services menu, leveraging on their
experience in a variety of other jurisdictions (both developing
and mature). Restrictions on international banks' retail operations
in many developing countries are typically the result of pressure
from vested interests, with the cost of such patronage falling
mainly on domestic consumers and businesses. In the wholesale
area too international firms are ideally placed to make a difference,
for example in the development of liquid capital markets which
are often essential for the financing of critical infrastructure.
12. As to policies on climate change and
sustainable development, we strongly support actions to curb carbon
emissions and to assist in the provision of such essential services
as clear water and sustainable power. Many BBA members are deeply
involved in financing such projects as well as other development
friendly initiatives, including the provision of microfinance
to sole traders and small businesses. There is a place for co-operation
that combines elements of trade and investment liberalisation
with measures to protect the environment—the extractive
sector is a case in point. That said, we do not think that trade
agreements should be coupled with environmental, or social, accords
as a matter of course. In fact we believe that as a general rule
trade liberalisation is sufficiently important to be pursued in
its own right, with other public policy issues being addressed
separately on their merits. First and foremost this is for practical
reasons. Trade negotiations are typically challenging enough in
themselves without the need to bolt on non-commercial matters
which add further layers of complexity. It is inevitable that
if trade talks are bundled together with broader political issues
progress will be slower and the risk of failure greater, to the
detriment of the developing countries concerned. Trade stimulates
economic growth and the evidence suggests that as poorer countries
get richer they usually invest heavily in environmental improvements.
Question 4: Have developing countries benefited
from multilateral trade agreements? What steps should European
trade policy take to help less developed countries reap the benefits
of global trade?
13. We believe that the last completed multilateral
trade agreement, the Uruguay Round, was beneficial for developing
countries—as reflected in the rise in their share of global
exports between 1995 and 2003 from 26 to 31%. It is, of course
accepted that there were differing outcomes for different groups
of countries. This illustrates that fact that trade openness is
a necessary, but not a sufficient, condition for development.
Other factors, including the willingness to embrace domestic reform
and the conduct of economic policy, are also very relevant.
14. As far as banking and related services
are concerned, it is considered that the best way to help less
developed countries reap the benefits of global trade is to encourage
them to make their financial markets more open to international
firms—for the reasons set out in our response to Question
3. An important consideration here is the rapidly shifting patterns
of trade and investment. We are now witnessing rapid growth in
trade between emerging market economies (as opposed to more traditional
trading relationships). International banks are particularly well
placed to help SMEs in developing countries exploit these new
opportunities. Local banks simply do not have the networks required.
15. Also, Europe must ensure that there
are no unnecessary restrictions on financial firms from less developed
countries doing business in the EU.
Question 5: Is there still a need for Trade
Defence Instruments, and if so, how can these be designed to ensure
that their effects are targeted and proportionate?
16. This issue is of limited relevance for
banking and financial services.
Question 6: What is the best approach for
ensuring that Intellectual Property Rights are protected? Do these
rights hinder development goals—and, if so, how can an appropriate
balance be struck?
17. This issue is of limited relevance for
banking and financial services.
Question 7: Services represent 77% of European
GDP and employment. What are the best mechanisms to remove barriers
to trade in services? Is the GATS still fit for purpose?
18. As the question notes, services account
for almost 80% of European GDP and employment—and services
exports globally are growing more rapidly than trade in goods.
This should make the sector a top priority for the EU in international
trade negotiations. The fact that little progress appears to have
been made on services in the DDR discussions is therefore deeply
disappointing. Whilst appreciating the difficult negotiating environment
and the obstacles facing EU negotiators, it is considered that
a materially greater level of ambition is essential for the services
discussions.
19. One of the difficulties in achieving
further liberalisation on services concerns the nature of existing
barriers. Unlike NAMA, where it is possible to agree a single
across the board formula for tariff reductions, service industries
such as banking face a plethora of different restrictions, particularly
in emerging markets, which need to be addressed in detail on a
case by case basis. Such detailed consideration has not been accorded
any political priority in the DDR.
20. As noted, we believe the Commission
was right to launch the FTA discussions last year alongside the
DDR negotiations. In the prevailing circumstances all avenues
have to be pursued. Despite their "second best" status,
bilateral trade talks have a number of obvious merits. Not only
are they less cumbersome and time consuming than the multilateral
channel but they also allow for greater focus and prioritisation
both in regard to specific trading partners and key offensive
interests. There is also evidence that major emerging markets
are sometimes more comfortable with such specific deals rather
than global WTO settlements.
21. We also attach great importance to the
regulatory dialogues that the Commission is having with the authorities
in a number of jurisdictions (including the US, China and India).
In the case of financial services, restrictions rationalised on
prudential or other regulatory grounds can be just as damaging
as overt trade barriers in limiting the business opportunities
open to European firms in many foreign markets. In some cases
the restrictions in question are little more than thinly veiled
protectionism but in others they do reflect genuine (if sometimes
misguided) regulatory concerns. As the EU-US Transatlantic Dialogue
has illustrated, provided there is goodwill on both sides the
dialogues can offer considerable scope for constructive engagement.
22. As to whether GATS is still fit for
purpose, we refer to our observations on Question 1. Despite the
difficulties being faced in the current WTO discussions, we think
it would be a serious mistake to give up on the multilateral route
to further liberalisation going forward. That said, it is recognised
that if the DDR effectively ends in failure, it could be quite
some time before the players involved could summon the energy
and enthusiasm to try again. As matters stand, there is already
a sense of frustration in the financial services industry that
the time devoted to the trade agenda has not so far yielded tangible
results.
23. Clearly the key problems for the DDR
have arisen with the substance of the negotiations. But with over
150 countries now members of the WTO there have also been major
logistic challenges. Once the dust has settled after the DDR it
may be worthwhile to review the structure and process for multilateral
trade negotiations to explore the scope for efficiency gains that
might facilitate progress on substance.
Question 8: Is there still a role for the
WTO in the 21st Century?
24. Following on from the above, we consider
there is still an important role for the WTO.
25. Also, it should not be forgotten that
in addition to facilitating multilateral trade negotiations the
WTO has other important functions: trade dispute resolution, overseeing
implementation of trade agreements, technical assistance and training,
and research and analysis.
29 February 2008
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