WTO agreement set to benefit India

Bonn, Feb 28: Developing countries including India are to benefit from inflows of capital and financial expertise brought in by foreign i...

Bonn, Feb 28: Developing countries including India are to benefit from inflows of capital and financial expertise brought in by foreign investors as a global trade pact to open banking, securities and insurance markets wider to foreign companies becomes effective from tomorrow.The pact on financial services was concluded in December 1997 when 71 member-countries of the Geneva-based World Trade Organisation (WTO), including India, agreed to relax or eliminate restrictions on foreign banks and other financial institutions.

All the 133 member-states of the WTO can avail themselves of the wider opening of the financial markets of the countries part of the pact, a WTO official said, adding that emerging markets will grow in both volume and scope as foreign investment is attracted by these markets.

An estimated 95 per cent of the world’s financial services activities will open wide to participation by foreign companies once the 71 countries, which have agreed to the financial services pact, put its provisionsinto effect.In a statement, World Trade Organisation director general Renato Ruggiero said that at a time of instability in global financial markets, the financial services agreement provided a solid foundation for improvement of financial practices, enlarging the pool of capital available to businesses and consumers, and increasing transparency of financial operations around the world.

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The agreement brings trade in the financial services sector worth trillions of dollars under the World Trade Organisation’s multilateral rules on a permanent and most favoured nations basis.According to a World Trade Organisation paper, world banking assets amounted to around 40 trillion dollars in 1994 and foreign assets of deposit banks 8.6 trillion dollars in 1995. Whereas foreign exchange turnover in the world’s major foreign markets accounted to 1.2 trillion dollars in 1995, outstanding futures and options in interest rates, currencies and stock market indices amounted to 10 trillion dollars. Trade officials from thecountries, whose governments have already ratified this pact, at a meeting in Geneva early this week, set June 15 as the date up to which the 18 countries have to ratify the pact. Those yet to ratify include Australia, Luxembourg, Brazil and Poland.

In late 1997, when the pact was being negotiated, many Asian countries were in the midst of a financial crisis and those pressing these countries to open financial markets wider to foreign companies had asserted that this would bring best practices in the banking, securities and insurance industries to their countries.

Though the commitments of various countries party to the pact vary widely, there are some common trends. They include improvements in the number of licenses available for the establishment of foreign financial institutions, guaranteed levels of foreign equity participation in subsidiaries or affiliates of banks, insurance companies and other financial institutions and the participation of foreign-owned institutions in asset management and otherfinancial services such as clearing and settlement services.

While the emphasis is on opening up markets, the agreement recognises the need for adequate prudential regulation of all banking, securities and insurance service providers, a World Trade Organisation official said. (PTI)