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WTO Financial Services Agreement

by marco Mon Feb 8th, 2010 at 09:25:06 AM EST

In this morning's Salon, ARGeezer flagged a story about The OTHER Reason that the U.S. is Not Regulating Wall Street: In short, the U.S. (along with the European Union and about thirty other countries) has legally bound itself to WTO rules which make legislating certain key financial reforms impossible.

As "George Washington", the author of that article, puts it:

Even if some politicians tried to stand up to Wall Street - or even if we "throw out all of the bums" currently in political roles - the U.S. would still be locked into the WTO's scheme for helping the financial giants to grow ever bigger and to take ever-bigger and ever-riskier gambles.

He also references a Democracy Now interview with Lori Wallach, founder of Public Citizen's Global Trade Watch, excerpts of which are below the fold.  This interview took place during the during the G-20 summit in Pittsburgh last September.

I don't know how accurate "George Washington"'s and Wallach's descriptions of this issue are, nor how consequential it is to begin with, but after reading through her interview, I was alarmed enough to be very skeptical (if admiring) of Wallach's hopeful words that:

... we need to make such a ruckus about it that basically a huge spotlight is shined on the issue, because there are a lot of very powerful financial service interests.

<...>

So it's not just a matter of what we need domestically, though it's critical. You don't want Granny's pension robbed, your mortgage gone. But on top of that, for the other countries, we've got to fix these WTO rules and stop the Doha round.

front-paged by afew


Report: US-Initiated WTO Rules Could Undermine Regulatory Overhaul of Global Finance | Democracy Now! interview with Lori Wallach

(my bold)

On EU efforts to rde-regulate the financial sector through the Doha WTO expansion:


JUAN GONZALEZ: Well, tell us about your sense of what will happen in terms of financial regulation.

LORI WALLACH: There's an incredible contradiction, where the summit communiqué is going to, on one hand, talk about regulating finance, and at the same time, they're going to talk about adopting the Doha WTO expansion, and a huge part of that agreement is deregulating finance.

And the problem is that the G-20 commitments aren't binding. It's a commitment of faith on the countries about what they're going to do domestically. But the WTO rules are very binding and enforceable by sanctions. And so, it's hard to know if it's ignorance or it's cynicism, but if the Doha round goes into place, all of the world's countries will have a commitment not only to keep in place the existing WTO deregulation dictates on finance, but to deregulate further, right in the midst of what seems to be a global commitment to re-regulate.

JUAN GONZALEZ: Now, is there any--among the countries now that are going to be getting increased attention, in terms of the G-20's growing role now in world economic affairs, are there any countries, specifically, that are trying to lead a fight for a greater regulation?

LORI WALLACH: Well, see, this is the most peculiar aspect of it. The European Union, as you just mentioned, Angela Merkel, among others, have been pushing for more regulation, and in fact they want the G-20 to have a--to establish a global floor of regulation. The US hasn't been for that. It's not going to be in this communiqué, but they've really been pushing. But simultaneously, it's the European Union that is the major instigator of deregulation.

And so, the big development is we finally were able to get documents that actually explain what the plan is for the WTO Doha round, and it's the European Union that's been pushing the worst of it. I mean, they literally want a provision that is a standstill, a freeze in place, on regulation, while simultaneously they're calling for re-regulation. You can't have it both ways.

On the Financial Services Agreement (FSA), "too big to fail", and Geither's central role:

JUAN GONZALEZ: Lori, I'd like to ask you about the role of Treasury Secretary Tim Geithner. Here in the United States, he's supposed--he's leading the efforts now to increase regulation over the financial sector. But he played a previous role under the Clinton administration in what was happening at the WTO in terms of financial deregulation. Could you talk about that?

LORI WALLACH: Yeah. This is actually a serious problem. So, most people don't even realize that the World Trade Organization has an agreement called the Financial Services Agreement that explicitly applies to over a hundred countries and mandates major deregulation. Just for instance, it has a rule that you cannot have a domestic law, even if it applies equally to foreign and domestic companies, that limits the size of a financial service firm--insurance, banking, securities. So when everyone talks about putting into place rules about "too big to fail," there's a WTO dictate that says you can't do that. A lot of other really extreme deregulation rules. That agreement was never brought to a vote in Congress, so a lot of members of Congress have no idea it's there.

Well, one interesting fact we found was, although Daddy Bush started negotiation, Clinton is the one who locked it up. And it was actually Geithner, when he was in the Treasury Department working for Robert Rubin during the Clinton administration, who was the lead Clinton administration Treasury Department negotiator. So he is, in a way, the guy who closed the deal. And so, he knows about it. He has to know about the existing agreements. And so, theoretically, he should be the guy who's most aware of the perils, in the sense that he was part of the whole Clinton-era deregulation, including domestically.

I mean, the busting of Glass-Steagall, which, by the way, we listed in the WTO as one of our commitments, to reform Glass-Steagall, because it created firewalls between insurance, securities, banking. It, you know, kept banks from gambling with our savings--good idea. The WTO commitment lists reforming Glass-Steagall, getting rid of it. That all happened during Clinton. So not just at the WTO, but domestically, a lot of the folks who came from the Clinton administration who are now in the Obama administration--Larry Summers, Geithner--were in on this.

So, now Geithner is talking about re-regulating domestically, needs to get on that WTO piece, but cannot have a Doha round that has more deregulation. I mean, the basic principle here should be do no further harm. But then they have to go back and fix the WTO rules. ...

Understanding on Commitments in Financial Services ("deregulation on steroids"), and the onion futures exception:

JUAN GONZALEZ: So, you're saying, in effect, that if the Congress attempted, in one way or other, to reinstitute a form of Glass-Steagall or to regulate the ability of--the growth of these too-big-to-fail banks, that the United States could be running into conflict with the World Trade Organization Financial Services Agreement?

LORI WALLACH: So this agreement was in 1999, which was at the peak of the sort of lunacy for deregulation. So it, itself, the Financial Services Agreement, for instance, has a rule that applies that you can't regulate according to size. The US then took on additional commitments, as did about thirty other countries, mainly rich ones, but a couple of developing countries, and that's called the Understanding on Commitments in Financial Services. And that agreement is deregulation on steroids. So the US actually has a specific WTO commitment that's called "standstill", and in that commitment, we've agreed to basically lock ourselves into the place of deregulation that we were in 1999.

Now, obviously, Congress is talking about re-regulating, but in our WTO commitments, we've basically agreed, in the areas we've bound--and we've bound everything. We did take one very important exception in the area of derivatives. That would be for onion futures. We bound every other kind of security, stock, derivatives, but we took a reservation for onion futures. It's a really scary set of limitations. Now, it's obvious that there's an imperative politically to re-regulate. The question is, if sincerely there's going to be re-regulation, this backdoor deregulation has got to be closed. So the existing WTO rules have to be changed, and obviously the Doha round's further deregulation has to be stopped.

Who wrote the FSA?

But a big part of this is, we need to make such a ruckus about it that basically a huge spotlight is shined on the issue, because there are a lot of very powerful financial service interests. By the way, they are the ones who wrote, largely, the Financial Services Agreement, in cahoots with the government. There's a book from an American Express guy talking about how he and AIG and the others wrote these rules. Those guys want more of the same. I mean, one of the agreements that we found would be put into place automatically if the Doha round were adopted, as the G-20 communiqué calls for, is a limit on accounting regulation, regulation of the accounting sector, that was co-written by Arthur Andersen. I could not make this up. This is actually the document. It's done. And so, the last thing we need are these limits.

And so, basically, the work that we all have at hand is to beat the banksters on a variety of fronts. It's going to be a big fight domestically, but we're not going to be successful domestically, nor around the world, where in less powerful countries--and maybe the US and Europe get away cheating the rules a little bit at the WTO, but the other countries around the world don't have that discretion. So it's not just a matter of what we need domestically, though it's critical. You don't want Granny's pension robbed, your mortgage gone. But on top of that, for the other countries, we've got to fix these WTO rules and stop the Doha round.

Display:
In the conclusion of his piece, "George Washington" cites an article entitled "The Next Big Thing: Neomedievalism" from April 15, 2009 by Parag Khanna of the New America Foundation,

arguing that the power of nations is declining, and being replaced by corporations, wealthy individuals, the sovereign wealth funds of monarchs, and city-regions.

We either stand up, or we slip back into a darker age.


The march of civilizations is a series of defenses that man has put up against the dread of pure existence.
by marco on Mon Feb 8th, 2010 at 06:19:48 AM EST
For those who think onion futures have something to do with a satirical webmag -- wrong! This is a reference to the Onion Futures Act of 1958. Proposed, of course, by well-known Congressman K Z Onion Jr?

Wrong again. It's an act prohibiting the futures market in onions.

Onion Futures Act - Wikipedia, the free encyclopedia

The law was enacted after national protests from onion farmers who accused the futures traders at the Chicago Mercantile Exchange of cornering the market for onions, a form of market manipulation that they claimed resulted in absurdly low prices for their crops.

The law was proposed by Republican Congressman Gerald Ford, who later became the President of the United States.

by afew (afew(a in a circle)eurotrib_dot_com) on Mon Feb 8th, 2010 at 07:37:22 AM EST
When life is stranger than fiction...
by Nomad on Mon Feb 8th, 2010 at 09:46:05 AM EST
[ Parent ]
It's a standing joke in the US futures industry that futures and options are legal on anything except onions.

I remember having a laugh with my equivalent (Head of Compliance etc) at the big French exchange, then called MATIF, when he said that their Le Havre delivery potato futures contract represented < 0.01% of MATIF trading volume and > 80% of his problems.

That rang a bell, because the UK potato contract, then on the Baltic Exchange, was essentially a game of 'chicken' between two different cabals/shooting parties of UK potato farmers.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon Feb 8th, 2010 at 12:51:54 PM EST
[ Parent ]
I feel almost inclined to don an anti-globalist scarf and start smashing windows.

This read was one continuous WTF? but this probably took the cake with the icing:

they are the ones who wrote, largely, the Financial Services Agreement, in cahoots with the government. There's a book from an American Express guy talking about how he and AIG and the others wrote these rules. Those guys want more of the same. I mean, one of the agreements that we found would be put into place automatically if the Doha round were adopted, as the G-20 communiqué calls for, is a limit on accounting regulation, regulation of the accounting sector, that was co-written by Arthur Andersen. I could not make this up. This is actually the document. It's done. And so, the last thing we need are these limits.

And there are still bankers around saying "It wasn't me!...

by Nomad on Mon Feb 8th, 2010 at 09:52:31 AM EST
Nomad: I feel almost inclined to don an anti-globalist scarf and start smashing windows.

yeah, i never went in for the whole anti-globalist headbanger scene, but if it turns out that there is substance to this FSA conspiracy theory, i would become much more sympathetic to them.

i do wonder why this FSA issue hasn't been aired in the alternative media/blogosphere before.  (or if it has, i completely missed it.)

The march of civilizations is a series of defenses that man has put up against the dread of pure existence.

by marco on Mon Feb 8th, 2010 at 10:45:42 AM EST
[ Parent ]
I suspect it's not hard to guess. It's not exactly fun to do.

The American bills are increasingly spelled out by active citizens and translated to blogs partly because the American blogosphere is starting to realize these bills have immediate impacts - so there is definitely improvement, and it happened because of a larger political engagement of the blog-public. To a lesser degree, EU bills are read, mostly by NGOs and lobbyists, and perhaps they're read by the rare EU afficionados (that would be some of us here).

But who really enjoys digging through bulky, dry documents, such as the WTO decsision? Or, say, the IPCC 4AR to filter for errors?

by Nomad on Mon Feb 8th, 2010 at 11:38:58 AM EST
[ Parent ]
Nomad: The American bills are increasingly spelled out by active citizens and translated to blogs partly because the American blogosphere is starting to realize these bills have immediate impacts - so there is definitely improvement, and it happened because of a larger political engagement of the blog-public.

Yes, and in fact, my comment was completely unfair to Lori Wallach herself.  Besides writing about this matter on Public Citizen's Global Trade Watch since the financial crisis broke out in 2008, she testified to the Congressional Subcommittee on Terrorism, Nonproliferation and Trade about it in March 2009:

(my bold)

On behalf of Public Citizen's 100,000 members, I thank the Chairman and the Committee for the opportunity to share my organization's views on U.S. foreign economic policy in the global crisis.

<...>

The devastation being caused by the global economic crisis to the lives and livelihoods of hundreds of millions of people around the world is not merely the result of bad practices by certain mega financial service firms, but the foreseeable outcome of one system of global economic governance - or more accurately anti-governance - that has been put into place and now must be replaced.

<..>

... In the body of this testimony, I go into some detail on one little-known aspect of the current failed economic governance system: the radical deregulation requirements contained in the WTO's Financial Service Agreement (FSA). This aspect of the WTO operates to export worldwide the extreme financial service deregulation that has triggered this crisis. Agreeing to review and renegotiate these WTO financial service deregulation terms must be a key element of the G-20 process aimed at addressing the crisis.

Continue reading Lori Wallach's full testimony... (PDF)



The march of civilizations is a series of defenses that man has put up against the dread of pure existence.
by marco on Mon Feb 8th, 2010 at 11:47:33 AM EST
[ Parent ]
I don't pretend to know -- but who can point to a copy of this Financial Services Agreement? I realize it's not a clincher, but Wikipedia doesn't even have an article on it.

The General Agreement on Trade in Services (GATS, 1995, signed at the end of the Uruguay Round) includes financial services and contains two annexes on them. From the first Annex:

2. Domestic Regulation

(a) Notwithstanding any other provisions of the Agreement, a Member shall not be prevented
from taking measures for prudential reasons, including for the protection of investors, depositors, policy
holders or persons to whom a fiduciary duty is owed by a financial service supplier, or to ensure the
integrity and stability of the financial system. Where such measures do not conform with the provisions
of the Agreement, they shall not be used as a means of avoiding the Member's commitments or
obligations under the Agreement.

...

3. Recognition

(a) A Member may recognize prudential measures of any other country in determining
how the Member's measures relating to financial services shall be applied. Such recognition, which
may be achieved through harmonization or otherwise, may be based upon an agreement or arrangement
with the country concerned or may be accorded autonomously.

(b) A Member that is a party to such an agreement or arrangement referred to in
subparagraph (a), whether future or existing, shall afford adequate opportunity for other interested
Members to negotiate their accession to such agreements or arrangements, or to negotiate comparable
ones with it, under circumstances in which there would be equivalent regulation, oversight, implementation
of such regulation, and, if appropriate, procedures concerning the sharing of information between the
Page 309
parties to the agreement or arrangement. Where a Member accords recognition autonomously, it shall
afford adequate opportunity for any other Member to demonstrate that such circumstances exist.

...

4. Dispute Settlement

Panels for disputes on prudential issues and other financial matters shall have the necessary
expertise relevant to the specific financial service under dispute.

From which I understand (though not understanding all), that prudential regulation to ensure the stability of the financial system is not forbidden; that countries may agree on regulation; that disputes may arise as on other trade matters.

So it doesn't sound to me, on a quick scan, as if signatories are locked into a system where they may not regulate if they see the need.

But perhaps the writers quoted above are referring to other legal texts, in which case some direct references, rather than opinions, would be useful.

by afew (afew(a in a circle)eurotrib_dot_com) on Mon Feb 8th, 2010 at 12:30:48 PM EST
[ Parent ]
I had not read that text, but agree with your interpretation: i.e. member countries can implement "domestic regulation" that does not "conform with the provisions of the Agreement" without violating the terms of the agreement as long as it is done "for prudential reasons" and not "as a means of avoiding the Member's commitments or obligations under the Agreement."

However, one Jayati Ghosh quotes the exact same passage, but interprets it in the exact opposite sense (her emphasis):

networkideas.org - The WTO as Barrier to Financial Regulation

The section on domestic financial regulation in the Annex makes the following point:
''Notwithstanding any other provisions of the Agreement, a Member shall not be prevented from taking measures for prudential reasons, including for the protection of investors, depositors, policy holders or persons to whom a fiduciary duty is owed by a financial service supplier, or to ensure the integrity and stability of the financial system. Where such measures do not conform with the provisions of the Agreement, they shall not be used as a means of avoiding the Member's commitments or obligations under the Agreement'' [emphasis added].

So, if countries have already made commitments to allow certain kinds of financial activities of foreign financial institutions, they cannot impose any prudential regulations (even when they are necessary for the stability and viability of the system) if they run counter to such commitments! What this means is that much of the regulation now being considered or proposed in developed countries would run counter to this provision in the Annex to GATS. Any such regulation could be opposed by another member country whose financial firm is affected by such rules. Given the cross-border proliferation and complex entanglements of financial institutions, it seems to be almost inevitable that such challenges will occur.

As for the FSA (which was added in 1999 and thus four years after the Annex excerpted above), I linked to the Understanding on Commitments in Financial Services ("deregulation on steroids"), whose "standstill" clause (also linked above, though embedded in the text) is cited in various places I have found this issue discussed:

Any conditions, limitations and qualifications to the commitments noted below shall be limited to existing non-conforming measures.

I thought the Understanding on Commitments in Financial Services was an addendum or section within a larger "Financial Services Agreement", but as it gets its own section on the WTO Agreements page, I am wondering if it is in fact the FSA itself.

The march of civilizations is a series of defenses that man has put up against the dread of pure existence.

by marco on Mon Feb 8th, 2010 at 01:21:43 PM EST
[ Parent ]
I think the FSA is contained in the GATS, its Annexes on Financial Services, and the Understanding.

I don't find the terminology particularly clear. In fact I find that any (country) with enough lawyers can play around with it.

So I agree with santiago below. The direction all this takes is: weaker countries are supposed to open up their markets while the stronger do what they like.

by afew (afew(a in a circle)eurotrib_dot_com) on Mon Feb 8th, 2010 at 02:35:10 PM EST
[ Parent ]
afew: I don't find the terminology particularly clear. In fact I find that any (country) with enough lawyers can play around with it.

Yes, maybe it's because I'm not used to reading this sort of verbiage, but I got the impression that it was written quite deliberately to be ambiguous and confusing.

The march of civilizations is a series of defenses that man has put up against the dread of pure existence.

by marco on Mon Feb 8th, 2010 at 05:32:17 PM EST
[ Parent ]
Congressional Subcommittee on Terrorism, Nonproliferation and Trade

Right alongside the Committee on Bread, eggs, milk and squick.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Mar 7th, 2010 at 01:05:35 PM EST
[ Parent ]
These treaties also tend to be secret for the general population while they are being worked on, and only released when agreement has been reached between the relevant parties. And then there is no possibility of changing anything, just ratify or be left outside.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Fri Feb 12th, 2010 at 05:22:57 AM EST
[ Parent ]
The zerohedge piece I mean, not your diary.  

The US and the EU simply are not, and never really have been, politically constrained by WTO agreements.  Instead the WTO has served as kind of organizing tool for the purpose of attempting to constrain policies regarding trade, investment, and property rights particularly directed at developing countries.  Both the US and the EU habitually flaunt their WTO commitments in favor of domestic priorities.  For example, US House Agriculture Chair Colin Peterson famously responded when questioned about how the latest US farm law egregiously violates WTO agreements, "I want to write a Farm Bill that's good for American agriculture. If somebody wants to sue us at the WTO, we've got a lot of lawyers in Washington."

The FSA serves rather as more of a discursive tool for financial industry interests than anything else. It allows them to frame the argument just as the cited article does -- that we would be somehow violating the law (as if that's a very big deal) if we tried to regulate banks better.  The best way to combat the argument is to simply not buy into it.  As Rep. Petersen said regarding agricultural policy, "So let 'em sue us."  

by santiago on Mon Feb 8th, 2010 at 01:31:38 PM EST
The best way to combat the argument is to simply not buy into it.  As Rep. Petersen said regarding agricultural policy, "So let 'em sue us."

The problem with that approach would be were the relevant parts of the Executive Branch to take the position that we should comply because of our treaty obligaions, etc. etc. Worse would be if legislation passed by Rep. Peterson and others were ruled in violation of treaty obligations by SCOTUS, which, with the five corporatists on the court, is increasingly likely.

I would say that the best way to combat the argument is to use its possible consequences and its specific language to wind up everyone from anti-WTO activists and progressives to America First conservatives, Ron Paul libertarians and nativists to create a political firestorm that reduced the whole document and process to cinders.

The entire field of trade agreements needs to be revisited and re-done with an eye to making the agreements favorable to increasing the wage rates and benefits in developing countries and stopping the current race to the bottom on labor and environmental issues. That would constitute "not letting a good crisis go to waste."

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Feb 8th, 2010 at 02:20:44 PM EST
[ Parent ]
Maybe, but the problem with that approach is that it makes financial regulation a subset of international trade policy, which means that it puts an unnecessary obstacle in the way of passing and implementing new and better financial regulations.
by santiago on Mon Feb 8th, 2010 at 02:52:02 PM EST
[ Parent ]
Well, if we let the banks and other financial institutions write the legislation and the rules it would be, as it is now. A better system would be to require minimum standards of stability far higher than what we currently have, more like the USA in 1980, and then start looking at trade agreements through a lens of stable financial systems, where finance is a service provider, not the driver of the entire system.

Getting from here to there is, of course, highly problematic, but that should not preclude us from pursuing the goal of a workable, sustainable system. The alternative is that we devote all of our efforts and attention to dealing with serial bubbles and their aftermath until the system collapses. That seems to be the path we are on and where it is leading us. So I don't see that as a viable alternative, just the most likely outcome.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Feb 8th, 2010 at 04:25:11 PM EST
[ Parent ]
You could well be right, but it's always worth challenging some of the implicit claims underlying statements like this:

The alternative is that we devote all of our efforts and attention to dealing with serial bubbles and their aftermath until the system collapses. That seems to be the path we are on and where it is leading us.

Are periodic, worldwide collapses in the financial services industry -- every several decades --  really that big of a calamity? And couldn't the social cost of trying prevent any such rare event from ever occurring outweigh the costs of experiencing and mitigating them?  

I mean, for you, personally, has this crisis been truly devastating, or was it more of an inconvenience or an interruption of your 1st world consumption pattern, or, like it has been for the vast majority of people who will never lose their jobs or homes,  is it just an inconvenient, third-person spectacle event, like witnessing a train crash.

It could be just as true that it is better for policy to merely mitigate deprivation when it occurs rather than try to eliminate the risk of such rare events from ever occurring.

by santiago on Tue Feb 9th, 2010 at 12:16:07 PM EST
[ Parent ]
santiago:

Are periodic, worldwide collapses in the financial services industry -- every several decades --  really that big of a calamity?

Yes. How many people have to be homeless or bankrupt before you think this is an issue?

santiago:

And couldn't the social cost of trying prevent any such rare event from ever occurring outweigh the costs of experiencing and mitigating them?  

What social cost?

If you tax banks and speculators fairly the social cost isn't just zero, it becomes a social benefit.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue Feb 9th, 2010 at 12:56:06 PM EST
[ Parent ]
You assuming a lot of claims that haven't been explicitly warranted.

For one thing, you're not counting the possibility of benefits that many people -- not just bankers and their ilk -- might have gained through the existing system and might still be gaining as their debts are forgiven while the crisis unwinds.  How many more people were able to get homes that otherwise would not have been able to through easy lending and credit availability during the last few decades, for example?

Although bad things are happening to lots of people, good things have also happened to many others (or even the same people) over the last century in the system as it has been.  You have to account for both sides of the social balance sheet in order to be honest about it. Again, you may be right, but if you are the data should support it too -- not just an assumption. What does the data really say about the costs AND the benefits?

Keynesian policy advice in the 1930's was to mitigate the bad outcomes rather than try to predict and avoid them.  When the Great Depression occurred, there actually were many incidences of severe deprivation in the industrialized world -- famine and starvation occurred.  This time, although by many economic statistics it was just as bad, if not worse, than the Great Depression, there are no documented incidences of starvation that have occurred as a result. That says a lot about how policy has already been implemented to adequately address such crises, and one implication might be that the system needs only tweaks now, not revolutionary changes.

by santiago on Tue Feb 9th, 2010 at 01:37:52 PM EST
[ Parent ]
Starvation is less likely now because we have safety nets - which bankers and the financial industry have always argued against.

The question is less about how many people have been able to get homes, but how many will still be in them when they retire - never mind owning them outright, which is what earlier generations were able to achieve.

Remember also that this banking fail has destroyed vast amounts of housing stock, especially in the US.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue Feb 9th, 2010 at 03:13:05 PM EST
[ Parent ]
That's the whole point: we have safety nets now. That's called public policy at work, and it might very well be be enough, with some minor tweaks.  

It is very possible that only reason that "The question is less about how many people have been able to get homes, but how many will still be in them when they retire - never mind owning them outright ..." may be because the same policy frameworks that allowed people to get into such high levels of home ownership or housing quality/space per person (for renters) is due to the less regulated lending environment in the first place, so you can't honestly approach the issue without accounting for the possible benefits first, somehow.

There are two ways to do it that come to mind: One is to find data which shows that the benefits were actually quite low and the costs of the crisis high, especially to the most vulnerable people.  Another way is to show that the proposed policy changes would probably not have reduced the benefits people have enjoyed had they been in place already.  I haven't seen anyone address something like either of these questions yet, buy let me know if you have.

by santiago on Tue Feb 9th, 2010 at 03:28:13 PM EST
[ Parent ]
It's good to have it pointed out that worrying about what WTO says we should or shouldn't do could well be concern-trolling.

I do think the story underlines the pervasiveness of the financial (strangle)hold on institutions - which I probably find the most disconcerting.

by Nomad on Tue Feb 9th, 2010 at 03:41:42 AM EST
[ Parent ]
santiago: US House Agriculture Chair Colin Peterson famously responded when questioned about how the latest US farm law egregiously violates WTO agreements, "I want to write a Farm Bill that's good for American agriculture. If somebody wants to sue us at the WTO, we've got a lot of lawyers in Washington."

The original article that ARGeezer linked to on Zero Hedge excerpts its key points from a "policy primer" from Public Citizen Global Trade Watch (Lori Wallach's organization) titled "The Connection between the World Trade Organization's Extreme Financial Service Deregulation Requirements and the Global Economic Crisis" (PDF).

This primer discusses the confusing yet critical "prudential exception" clause in the General Agreement on Trade in Services about "Domestic Regulation" that afew pointed to above.  In particular, it discusses the "self-cancelling" nature of the verbiage, and asserts that "it in fact provides no safeguard for [domestic] financial stability measures that may conflict with the WTO deregulation obligations":

GATS Annex on Financial Services contains a "Domestic Regulation" provision that makes clear that only countries' domestic financial stability measures that are not "used as a means of avoiding the Member's commitments or obligations under the Agreement" are permissible if they do not conflict with the pact's deregulation requirements.16 That is to say, even if regulatory measures are taken for prudential reasons, they are not safeguarded from the WTO's array of deregulation requirements, if they in effect undermine these regulatory constraints. Some have disingenuously called this provision the "prudential exception" or "prudential carve-out," but because it is self-cancelling, it in fact provides no safeguard for financial stability measures that may conflict with the WTO deregulation obligations. Bizarrely, given the loophole already eviscerating the provision, the financial service industry has been lobbying in the context of ongoing GATS negotiations for a narrow interpretation that would limit "prudential" measures to regulations concerning only solvency and financial disclosure.17

16 Annex on Financial Services, paragraph 2(a) states that "Member shall not be prevented from taking measures for prudential reasons, including for the protection of investors, depositors, policy holders or persons to whom a fiduciary duty is owned by a financial service supplier, or to ensure the integrity and stability of the financial system. Where such measures do not conform with the provisions of the Agreement, they shall not be used as a means of avoiding the Member's commitments or obligations under the Agreement."
17 The Commission on the Future of Health Care in Canada, summary report on Globalization and Health, Putting Health First: Canadian Health Care Reform, Trade Treaties and Foreign Polic (prepared by the Canadian Centre for Policy Alternatives), October 2002. Available at http://www:healthcarecommission.ca.

If this interpretation of the clause is as unambiguous as this paper makes it out to be (i.e. unambiguous in a WTO "court"), how could lawyers -- even U.S. or E.U. lawyers -- argue their way out of it?

santiago: The US and the EU simply are not, and never really have been, politically constrained by WTO agreements.  Instead the WTO has served as kind of organizing tool for the purpose of attempting to constrain policies regarding trade, investment, and property rights particularly directed at developing countries.

Supposedly trade sanctions are the way that the WTO enforces obedience to its agreements and regulations, but I never understood how that worked.  Is it conceivable that as China's economic and financial clout continues to grow, the Chinese government could use/leverage the WTO (e.g. via sanctions) finally to impose consequences on the US and EU for such violations of these agreements?

The march of civilizations is a series of defenses that man has put up against the dread of pure existence.

by marco on Tue Feb 9th, 2010 at 06:04:19 AM EST
[ Parent ]
It really isn't as unambiguous as your citation makes it out to be. There is really very little in WTO agreements that could be called "unambiguous," and this isn't by accident either.  Could national courts and legislatures interpret nations' commitments to WTO as superseding other domestic policy commitments and act accordingly? Yes, but at least to date there isn't a strong record of this occurring. (A good source for this area of political science is Pablo Pinto of Columbia University in NY.) Instead the WTO serves as more of a voluntary policy commitment among member states to seek outcomes to domestic power contests in ways that reduce barriers to trade and investment.

There are built in costs to members' noncompliance to their commitments -- and noncompliance is usually a result of inability to overcome domestic opposition, not strategic willfulness on the part of the national authority responsible for foreign policy. The penalties for non-compliance come in the form of "allowing" affected member governments to impose trade sanctions of their own on imports from states that have been determined, through by an elaborate, multinational decision and appeal process, of being in violation of their commitments. Even then, states impose sanctions only if the they can muster sufficient domestic support for them - there is no automatic sanctions coming from the WTO as such, so this isn't in any way a level playing field among countries.  Such sanctions serve as a domestic political weapon to help encourage pro-trade factions to prevail in domestic policy contests by encouraging exporters to also support policies which liberalize competing imports.  

There is, therefore, nothing at all deterministic about WTO agreements.  Rather it just provides some political tools that may, or may not, help pro-trade coalitions within nation-states prevail over anti-trade coalitions.  Stronger international institutional arrangements such as NAFTA or the EU provide somewhat better weapons for domestic the pro-trade factions, but even then the outcomes are far from unambiguous.

by santiago on Tue Feb 9th, 2010 at 11:52:59 AM EST
[ Parent ]
Thanks for these detailed responses.

On China's (current and/or future) ability to make use of WTO agreements and regulations to force more international compliance (even by the EU and USA), are you equally skeptical?

The march of civilizations is a series of defenses that man has put up against the dread of pure existence.

by marco on Thu Feb 11th, 2010 at 03:05:12 AM EST
[ Parent ]


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