Wikileaks published an April draft of a critical section of pending “trade” deal called the Trade in Services Agreement, which is being negotiated among 50 countries, including the US, the member nations of the EU, Australia, Canada, Chile, Costa Rica, Hong Kong, Iceland, Israel, Japan, Liechtenstein, Mexico, New Zealand, Norway, Panama, Peru, South Korea, and Switzerland. TISA would liberalize, as in reduce the ability of nations to regulate, a large range of services.
The document that Wikileaks exposed on Thursday is a portion of the financial services section. It is clearly designed to serve the pet interests of big international players. This agreement is designed to institutionalize the current level of deregulation as a baseline and facilitate the introduction of new products, further ease the movement of funds, data, and key personnel, and facilitate cross-border acquisitions and other forms of market entry.
It is distressing to see how the media is pointedly ignoring this damning Wikileaks revelation. As of this hour, my Google News search does not show a single mainstream media outlet reporting on this story. The usual left-leaning stalwarts like Huffington Post, TruthOut, Firedoglake, and CommonDreams have articles up, along with Business Insider and RT. The only country where major news organizations have taken the story up are in Australia, and that appears to be due to the fact that approval of this deal would end Australia’s restrictions on foreign ownership of banks.
Our World is Not for Sale describes the scope:
In February of 2014, negotiations began on six priority topics: financial services, telecommunications and e-commerce, domestic regulation and transparency, professional services, maritime transport, and the so-called “Mode 4” of the GATS, which refers to natural movement of persons. In addition, participants had extensive discussions on road transport, delivery services and air transport. But there are many more sectors and proposals that have been submitted: is also known that the EU has submitted a proposal on Government Procurement in Services, and on Postal Services, just as examples.
The Wikileaks release today makes clear why interested parties are uncertain about these negotiations. They impose even greater secrecy requirements than the toxic trade deals know as the TransPacific Partnership and the Transatlantic Trade and Investment Partnership. The TISA text is classified for five years after it becomes effective or negotiations are terminated, which exceeds the four-year blackout imposed by the TTP and the TTIP.
The financial services annex that Wikileaks published is only a portion of the entire deal, but even so, what we can discern is alarming. The agreement defines financial services as broadly as possible, and includes insurance, payments systems (as in credit and debit cards), asset management, brokerage, trustee and custodial services, and ancillary services, like brokerage, consultancy, and data services. It also allows executives and “specialists” to enter countries freely on a temporary basis.
As I read the text, it bars reregulation. From Article X.15 Non-discriminatory measures (emphasis ours):
2. With respect to the non-discriminatory measures referred to in [subparagraphs [x(a) and (b) (immediately above)]] a Party shall endeavor not to limit or restrict the present degree of market opportunities, nor the benefits already enjoyed by financial service suppliers of another Party as a class in the territory of the Party, provided that this commitment does not result in unfair discrimination against financial service suppliers of the Party applying such measures.
And this section (Article X.17: Prudential Measures) gives you a good idea of what the priorities are:
1. Notwithstanding any other provision of the Agreement, a Party shall not be prevented from [PA, EU: taking] [US: adopting or maintaining] measures for prudential reasons, including for:
(a) the protection of investors, depositors, [PA, US financial market users], policy-holders or persons to whom a fiduciary duty is owed by a financial service supplier; or
(b) to ensure the integrity and stability of a Party’s financial system.
2. Where such measures do not conform with the provisions of this Agreement, they shall not be used as a means of avoiding the Party’s commitments or obligations under the Agreement.
That reads like a Catch-22: “You can protect the safety of your financial system, provided they don’t interfere with all the other provisions that allow furrniners to operate freely in your market, introduce new products, and move funds cross border readily or just look like you are being mean to banks.”
And it includes cute provisions like this:
Each Party shall list in its Schedule pertaining to financial services existing monopoly rights and shall endeavor to eliminate them or reduce their scope.
Fannie and Freddie are arguably monopoly providers. So does this mean that Barclays can demand to be allowed to become a GSE too? Or does this simply require that Fannie and Freddie be wound down?
Wikileaks also provided an extensive analysis by Professor Jane Kelsey of the Faculty of Law, University of Auckland. She stresses that it’s not possible to reach hard conclusions, given that this draft is now stale and that it represents only a portion of the entire pact. But she sees it as deeply troubling. I urge you to read her comments in full. Representative extracts:
The rules apply to measures that ‘affect’ the supply of financial services through foreign direct investment (commercial establishment) or offshore provision by remote delivery or services purchased in another country (cross-border). They also aim to ‘discipline’ governments in favour of a light handed and self-regulatory model of financial regulation. The substantive rules target what the financial services industry sees as obstacles to its seamless global operations, including:
1. limits on the size of financial institutions (too big to fail);
2. restrictions on activities (eg deposit taking banks that also trade on their own account);
3. requiring foreign investment through subsidiaries (regulated by the host) rather than branches (regulated from their parent state);
4. requiring that financial data is held onshore;
5. limits on funds transfers for cross-border transactions (e-finance);
6. authorisation of cross-border providers;
7. state monopolies on pension funds or disaster insurance;
8. disclosure requirements on offshore operations in tax havens;
9. certain transactions must be conducted through public exchanges, rather than invisible . over-the counter operations;
10. approval for sale of ‘innovative’ (potentially toxic) financial products;
11. regulation of credit rating agencies or financial advisers;
12. controls on hot money inflows and outflows of capital;
13. requirements that a majority of directors are locally domiciled;
14. authorisation and regulation of hedge funds; etc….
The governments that were pushing these talks moved outside the formal WTO boundaries to pursue TISA. They call themselves the ‘Really Good Friends of Services’. Their goal is to make TISA the new platform for financial services. The US has said it wants to establish new negotiating rules in TISA, get enough countries to sign on that will enable it to be incorporated into the WTO, and then have the same rules adopted for negotiations at the WTO.11 The European Commission has said TISA will use the same concepts as the GATS so that it can ‘be easily brought into the remits of the GATS.’12
It is not clear how that might happen. Either two thirds or three quarters of the Members would need to agree to TISA coming under the WTO’s umbrella, even as a plurilateral agreement.13 Countries like Brazil and India have been very critical of TISA, and the US has not allowed China to join. But the pressure on WTO Members will be immense. If the plan did succeed, many South governments that resisted the worst demands of the GATS and the services aspects of the Doha round will find they end up with something more severe.
If TISA remains outside the WTO its coverage will be limited to the signatories. That is dangerous itself. The countries that were at the centre of global finance and were responsible for the GFC will be bound to maintain the rules that allowed that to happen. The minimal reforms they have adopted post-GFC will become the maximum permitted regulation. Several recent IMF papers have referred to the ‘state of denial’ among affluent economies about the potential for further devastating crises if they maintain the current policy and regulatory regime.14 They also point out that many developing countries that took prudent steps after their experience with the Asian Financial Crisis and similar traumas are much less exposed.15 Yet the architects of TISA aim to force those countries to adopt the flawed rules they had no role in negotiating, either as the new ‘best practice’ for FTAs or through the WTO.
Yves here. As you can see, this pact is wildly misguided. It’s tantamount to giving a pyromaniac a can of gasoline and a blowtorch. As Andrew Haldane of the Bank of England pointed out, financial services firms find it profitable to create risk:
Tail risk within financial systems is not determined by God but by man; it is not exogenous but endogenous. This has important implications for regulatory control. Finance theory tells us that risk brings return. So there are natural incentives within the financial system to generate tail risk and to avoid regulatory control. In the run-up to this crisis, examples of such risk-hunting and regulatory arbitrage were legion. They included escalating leverage, increased trading portfolios and the design of tail-heavy financial instruments.
Similarly, Carmen Reinhardt and Ken Rogoff, how analyzed 800 years of information on financial crises, found that their frequency and severity was highly correlated with the level of cross border capital flows. We already have money washing around the world that has nothing to do with facilitating commerce; for instance, Claudio Borio and Piti Disyatat wrote in an important 2011 BIS paper that for the US, cross border capital flows were 60 times the value of the US current account deficit.
If readers had any doubt, this Wikileaks release should settle conclusively that Obama’s finance-friendly policies were not the product of his letting Geithner manage that store, but one of his major initiatives. A deal that cedes national sovereignity and puts in place the conditions for an even more spectacular financial train wreck is treasonous. But loyalty to communities or countries is so 20th century, and Obama has always styled himself as someone who looks forward, not back.