Global Brain No.166: Briefing on the Financial Services Agreement (FSA) or General Agreement on Trade in Services (GATS).

From: dweston@island.net (David Weston)
Organization: FLORA Community WEB
Date: 20 Jan 1998 21:43:23 -0500

	For those interested in more detail on the FSA/GATS, go to webpage:
http://www.wto.org/wto/new/sumfin.html
	Also, please note that the name of this agreement is several, incl.
Financial Services Agreement (FSA), Financial Services Industry Agreement
(FSIA), Agreement on Fin. Services (AFS), Gen. Agreement on Trade in
Services (GATS), and in some cases government has put forward press
releases without any formal name! Makes you wonder, doesn't it?
	This agreement is more virulent than even the MAI, because it is a
financial, rather than just a trade agreement. And if you want to find out
how a system works, the best rule of thumb is 'follow the money'.
	Further, it should be noted that all these agreements are under the
World Trade Organisation's rules that require member states "to ensure the
conformity of its laws, regulations and administrative procedures with its
obligations as provided in the annexed Agreements." (WTO Paragraph 4 of
Article XVI).  The "annexed Agreements" include all the substantive
multilateral agreements relating to trade in goods and services and
agreement on intellectual property rights. This provision thus obligates
each member country to revise any national or sub-national laws in conflict
with the GATT/WTO. (Korten, 1995).
	Indeed, the WTO has been described by Korten as: "... a global
parliament composed of unelected bureaucrats with the power to amend its
own charter without referral to national legislative bodies."
	As we advised in October (SEE Global Brains Nos.103a, 117 & 118)
this agreement was to be 'initialed' by the Federal Government on 12th
December '97. It was, in Geneva. It is to be confirmed within weeks. This
agreement doesn't even have a six month or a 'five plus fifteen year'
'get-out' clause. We have the documentation showing that the Canadian
government is willing to sign this as a 'permanent' agreement. To quote
their own documentation: "To put it another way, the Fifth Protocol will
never expire."
	That is not only signing powers away to a financial dictatorship,
but is also in total conflict with the Canadian Constitution which states
clearly that no parliament can bind any future parliament. And to make the
point clear, that constitutional law applies to 'good' legislation as well
as 'bad'. If parliament wishes to bind future parliaments by signing
'permanent' agreements, that can only happen with a reviewed and revised
constitution. And that means going to the people of Canada for discussion
and debate and then referendum.
	Let's struggle for our democratic rights.

David J. Weston,
Social Advocate.
---------------------------------------------
 Global Brain No.166: Briefing on the Financial Services Agreement (FSA) or
General Agreement on Trade in Services (GATS) by Duff Conacher of the
Canadian Community Reinvestment Coalition (CCRC).

 The World Trade Organization Financial Services Industry Agreement
 (FSIA) affects our banking sector the most, as our insurance, trust,
 and investment brokerage sectors are already wide open to foreign
 financial institution entry and ownership, mainly as a result of
 changes to legislation governing these sectors enacted in 1993-94.

 The Agreement as a whole is not yet available, mainly because it is
 actually a series of agreements or positions of the 70 or so countries
 that signed the Agreement.  Each country has lowered the barriers to
 foreign financial institutions entering its financial services industry
 in different ways, because every country had different barriers in place.
 A compilation of these agreements has not yet been completed, and it
 usually takes two or three months after any international agreement to
 complete such a compilation.

 However, you can obtain a copy of Canada's final offer to the other
 countries involved, which is essentially the agreement that Canada
 signed. Canada's final offer can be obtained from Frank Swedlove,
 Director, Financial Sector Division, Department of Finance, L'Esplanade
 Laurier, 140 O'Connor St., Ottawa, Ontario, K1A 0G5, Tel: (613) 992-4679;
 Fax: (613) 943-8436.  I do not have Frank Swedlove's email address,
 however the email address for Jim Peterson, Secretary of State of
 International Financial Institutions (the Minister most directly
 responsible), is <peterj@parl.gc.ca> and his fax: (613) 995-2355.

 With regard to the commitments Canada made, they did not go further
 than the changes to financial institution legislation that were proposed
 in a Department of Finance discussion paper published late September
 1997. Generally the commitments are as follows:

 * allow foreign banks to set up branches in Canada, without having to
   set up a separate, incorporated subsidiary as they now have to do
   (e.g. Citibank Canada is the Canadian subsidiary of Citibank U.S. and
   currently has one branch, but in the future Citibank U.S. could close
   down Citibank Canada and simply open branches of Citibank U.S. here in
   Canada);

 * foreign bank branches will only be allowed to take deposits of more
   than $150,000.

 What do these changes mean?  First of all, let me make it clear that the
 Canadian Community Reinvestment Coalition (CCRC) has not taken a
 position on the Agreement except to call for full, meaningful public
 consultation before the Agreement is signed and implemented, and to
 point out some of the potential negative impacts of the Agreement.  The
 CCRC is a project of Democracy Watch's and is made up of 65 small
 business, community economic development, labour, anti-poverty and
 consumer groups from nine provinces and the Northwest Territories.  Just
 for clarification, I am the Chairperson and Spokesperson for the CCRC.

 According to the CCRC's analysis, not much will visibly change in terms
 of the financial institutions you see on street corners across the
 country as a result of the WTO Agreement.  Why not?  Because 80% of
 businesses (all small businesses) and 90% of individuals in Canada have
 less than $150,000 on deposit in a bank.  Therefore, foreign banks will
 only be able to open branches to serve 20% of businesses and 10% of
 individuals, in other words only a small portion of the market.  As a
 result, it is unlikely that many foreign banks will set up branches in
 Canada, and likely only in urban centres or other locations where there is
 a concentration of individuals or businesses with more than $150,000 on
 deposit in banks.  Another reason discouraging foreign banks from setting
 up branches here is that most big businesses and wealthy individuals can
 already deal with foreign banks if they want to, either through
 subsidiaries in other countries, or by simply opening accounts in other
 countries.

 However, the changes do have serious implications concerning the costs
 of banking, especially for small businesses and low and moderate-income
 individuals.  Why?  Well, foreign banks will be competing with Canada's
 banks for the deposits of big businesses and wealthy individuals, and
 the competition will likely lead to lower prices for these businesses
 and individuals.  Therefore, Canada's banks will lose revenue from the
 sale of products and services to these customers, both because foreign
 banks will take away some of the business, and also because prices will
 likely be lower.  How will Canada's banks replace this lost revenue.
 It is likely that the banks will increase their prices for all the
 customers who cannot deal with foreign banks because they have less than
 $150,000 on deposit with a bank.  In other words, the 80% of businesses
 and 90% of individuals in Canada with less than $150,000 on deposit in a
 bank will face higher service charges as a result of these changes.

 The only possible way that the changes will not have such a
 discriminatory effect on small businesses and low and moderate-income
 individuals, is if "deposit" is very broadly defined to include various
 investments or credit extended to customers.  However, even if the
 definition is broad, a majority of customers will still not be able to
 deal with a foreign bank.

 Concerning the rumour that these changes will lead to the privatization
 of the Bank of Canada, I have no information that would lead me to
 believe this, and I do not know how or where this rumour started.

 How will these changes be implemented?  As mentioned above, the
 Department of Finance released a discussion paper on changes to foreign
 bank entry at the end of September 1997, with consultation until the end
 of October 1997.  Because the proposals in the discussion paper were
 essentially the same as those in the final WTO Agreement, when
 Parliament opens again on February 2, 1998, it is likely that a
 resolution to ratify the Agreement, and legislation to make changes to
 Canada's financial institution laws in accordance with the Agreement,
 will be introduced early in the Parliamentary session.

 How should you respond to these proposed changes?  First, send a letter
 to your Member of Parliament, Finance Minister Paul Martin (email:
 <pmartin@fin.gc.ca> or fax: (613) 995-5176), Secretary of State for
 Financial Institutions Jim Peterson (email: <peterj@parl.gc.ca> or fax:
 (613) 995-2355), In your letter, as the CCRC has been doing for the past
 seven months, call for full, meaningful public consultation on the
 changes, both to ensure that there are not other, hidden changes being
 made, and also to explore fully the implications of the changes.  Tell
 your MP and the Ministers that a two-tier banking system in Canada is
 not acceptable (in which big businesses and wealthy individuals have
 access to foreign bank services but small businesses and low and
 moderate-income Canadians do not), although if you are not in favour of
 foreign banks being active in the Canadian market at all, your message
 will obviously be different.

 In addition, make it clear to your MP and the Ministers that these
 changes do not mean that Canada's big banks will suddenly face severe
 competition from foreign banks, since Canada's market has only been
 opened up in a very limited way (ie. only allowing foreign banks to take
 deposits of over $150,000).  It is important to let elected officials
 know that you don't believe that our market is now wide open.  Why?
 Because Canada's big banks are already using the spectre of foreign
 competition (even though it hardly exists right now) in their arguments
 that they should be allowed to merge, and sell insurance and auto leases
 directly from their branches. When these changes are made, Canada's
 banks will use the argument even more, even though foreign competition
 will likely not increase very much at all.  In other words, Canada's big
 banks are still protected, as they have been for 30 years, from foreign
 competition.  And the only real reason they want to get bigger is
 because they want to be bigger, not because they need to be bigger to
 serve their customers or survive and thrive as businesses.

 In addition, in your letter to elected officials, make it clear that
 the federal government should enact requirements for all banks, foreign
 or domestic, to disclose details about their lending, investment and
 service to customers.  Such requirements have existed in the U.S. for
 over 20 years, and before any bank can expand (e.g. open a branch or
 ABM) or merge or take over another bank, regulators review the
 disclosed information and grade the bank's performance.  If the bank
 receives a failing grade (ie. is discriminating against some customers
 or generally not serving its customers well) then the application to
 expand can be denied.  Such disclosure and review requirements would
 allow Canadians to hold banks operating in Canada accountable to high
 standards of service across the country.

 Another key accountability change is the creation of a financial
 consumer organization in Canada.

 For more information, please view the CCRC's home page at the
 following address:  <http://www.cancrc.org> (we are still making a few
 changes to the page, but it is more or less completed).  The page
 contains the CCRC's five position papers on the issues of the banking
 ombudsmen, access to basic banking services, disclosure of business
 lending statistics, the creation of a financial consumer organization in
 Canada, and the enactment of an overall accountability system for banks
 and other financial institutions in Canada.

 You can also contact me at the address below with any questions or if
 you would like to receive a full information package by mail concerning
 Democracy Watch's and the CCRC's work on banking issues and other
 democratic reform issues in Canada.

 I hope you find this information interesting and useful, and I hope
 you can join the CCRC in working for bank accountability in Canada.

 Sincerely,

 Duff Conacher, Coordinator
 Democracy Watch
 P.O. Box 821, Stn. B
 Ottawa, Ontario
 K1P 5P9
 Tel: (613) 241-5179
 Fax: (613) 241-4758
 email: dwatch@web.net
 Internet: http://www.dwatch.ca/dwatch
 .....................................

 Bob Olsen	Toronto		bobolsen@arcos.org   (:-)


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