G-20’s Bizarre Contradiction: We All Pledge to Re-Regulate Financial Services … and Further De-Regulate Financial Services

WASHINGTON -  Today's G-20 commitments to enhance financial service regulation
clash with deregulation requirements in the World Trade Organization's
(WTO) 1999 Financial Services Agreement. Instead of G-20 leaders
calling for completion of WTO "Doha Round" negotiations that include
further finance deregulation, they needed to agree to fix the existing
WTO rules that facilitated the current crisis, Public Citizen said
today.

"It is crazy that the G-20 leaders vowed to re-regulate the
financial system while simultaneously undermining their ability to
actually do so," said Lori Wallach, director of Public Citizen's Global
Trade Watch division. "Instead of agreeing to change WTO rules that now
obligate 105 nations to continue the extreme finance deregulation
policies that got us into this economic mess, the G-20 leaders called
for completion of a WTO expansion that includes additional financial
deregulation."

The London summit communiqué also includes a commitment "to refrain
from raising new barriers to investment or to trade in goods and
services" and to "rectify promptly any such measures."

"Instead of targeting only actual protectionism, this overreaching
pledge commits countries to eliminate non-trade measures that many have
employed to stop certain risky financial activities and stimulate
economic activity," said Wallach. "What is supposed to be an
anti-protectionism pledge is so broadly cast that it snares policies
totally unrelated to trade, such as tough new financial service
regulations that will incidentally limit trade and investment in risky
financial services."

The WTO and various corporate lobbies have launched a global
campaign to gin up fears about a supposed new wave of protectionism. A
WTO report issued last week described "significant slippage" in the
global commitment to free trade and included a long list of recent
"trade measures" as evidence. Yet the list included unilateral tariff
cuts, domestic food and product safety protections, WTO-legal
procurement policies and anti-dumping actions. Indeed, the report
stated that "There is no indication of an imminent descent into high
intensity protectionism involving widespread resort to trade
restriction and retaliation." The G-20 declaration identifies falling
demand as the lead reason trade flows have declined, while also noting
growing protectionist "pressures."

"The manufactured hysteria about creeping protectionism has caused a
bit of G-20 communiqué schizophrenia," said Wallach. "One page of the
communiqué identifies ‘major failures ... in financial regulation and
supervision' as ‘fundamental causes of the crisis' and commits to
‘action to build a stronger, more globally consistent supervisory and
regulatory framework for the future' while the next page reaffirms the
leaders' commitment to concluding the WTO Doha Round negotiations that
require further deregulation of finance."

The G-20 communiqué also suggests that completion of the Doha Round
could "boost the global economy by at least $150 billion" annually.
That the G-20 communiqué would include such a figure is worrisome,
given that the WTO, which is the source of this claim, provides no
basis for its calculation and in 2005 declared that the Doha Round
could account for up to $90 billion in boosted global economic
activity, a figure it published in response to widespread criticism of
it 2003 claims that the Round would generate $539 billion in new
activity.

"Implementing the G-20's ambitious goals will require changes to
existing WTO rules that lock in domestically and export worldwide the
extreme financial services deregulatory agenda that fostered the global
economic crisis," Wallach said. "It also will require the replacement
of the WTO Doha Round agenda with new negotiations that liberate from
the WTO's constraints the domestic policy space that is needed to
re-regulate the runaway financial services industry and stimulate the
economy."

WTO Financial Services Agreement rules:

• Forbid governments from limiting the size of banking, insurance
  and other financial service firms. As Simon Johnson, former chief
  economist of the International Monetary Fund has said, "too big to fail
  is too big to exist." Yet WTO rules explicitly forbid signatory
  governments from limiting the size of foreign financial service firms,
  even if such limits are equally applied to domestic firms;
• Forbid governments from establishing "firewalls" that, for
  instance, prevent firms involved in commercial banking or in providing
  insurance from gambling peoples' savings on risky investment businesses;
• Forbid establishment of new regulation or reinstatement of
  regulations removed to comply with the WTO. The WTO FSA "standstill
  rule" agreed to by the United States and other Organization for
  Economic Cooperation and Development (OECD) member countries explicitly
  forbids countries from establishing any new regulatory policies that
  might roll back their deregulatory commitments. These commitments were
  made by previous governments with respect to a vast array of insurance,
  banking and other financial services; and
• Limit the degree of government oversight. Under current rules,
  domestic regulations are subject to review by WTO tribunals to make the
  subjective determination of whether "they are not more burdensome than
  necessary." Also forbidden are moves by member countries to "apply
  licensing and qualification requirements and technical standards that
  ... could not reasonably have been expected of that Member at the time
  the specific commitments in those sectors were made." This requirement
  conflicts with the widely accepted imperative of adopting new
  regulation of financial services.