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INCREASING EFFICIENCY AND

ECONOMIC GROWTH THROUGH

TRADE IN FINANCIAL SERVICES

HEARING

BEFORE THE

SUBCOMMITTEE ON 

DOMESTIC AND INTERNATIONAL 

MONETARY POLICY, TRADE, AND TECHNOLOGY

OF THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

NOVEMBER 15, 2005

Printed for the use of the Committee on Financial Services

Serial No. 109–63

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES 

MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa 

RICHARD H. BAKER, Louisiana 

DEBORAH PRYCE, Ohio 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

ROBERT W. NEY, Ohio 

SUE W. KELLY, New York, Vice Chair 

RON PAUL, Texas 

PAUL E. GILLMOR, Ohio 

JIM RYUN, Kansas 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

CHRISTOPHER SHAYS, Connecticut 

VITO FOSSELLA, New York 

GARY G. MILLER, California 

PATRICK J. TIBERI, Ohio 

MARK R. KENNEDY, Minnesota 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

KATHERINE HARRIS, Florida 

RICK RENZI, Arizona 

JIM GERLACH, Pennsylvania 

STEVAN PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

MICHAEL G. FITZPATRICK, Pennsylvania 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

CAMPBELL, JOHN, California 

BARNEY FRANK, Massachusetts 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

DARLENE HOOLEY, Oregon 

JULIA CARSON, Indiana 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

BARBARA LEE, California 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

HAROLD E. FORD, JR., Tennessee 

RUBE ́ N HINOJOSA, Texas 

JOSEPH CROWLEY, New York 

WM. LACY CLAY, Missouri 

STEVE ISRAEL, New York 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

JIM MATHESON, Utah 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

ARTUR DAVIS, Alabama 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

DEBBIE WASSERMAN SCHULTZ, Florida 

GWEN MOORE, Wisconsin, 

BERNARD SANDERS, Vermont

Robert U. Foster, III, Staff Director 

(III)

SUBCOMMITTEE ON DOMESTIC AND INTERNATIONAL MONETARY POLICY, TRADE, AND

TECHNOLOGY

DEBORAH PRYCE, Ohio, Chair

JUDY BIGGERT, Illinois, Vice Chair 

JAMES A. LEACH, Iowa 

MICHAEL N. CASTLE, Delaware 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

MARK R. KENNEDY, Minnesota 

KATHERINE HARRIS, Florida 

JIM GERLACH, Pennsylvania 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

PATRICK T. MCHENRY, North Carolina 

MICHAEL G. OXLEY, Ohio 

CAROLYN B. MALONEY, New York 

BERNARD SANDERS, Vermont 

MELVIN L. WATT, North Carolina 

MAXINE WATERS, California 

BARBARA LEE, California 

PAUL E. KANJORSKI, Pennsylvania 

BRAD SHERMAN, California 

LUIS V. GUTIERREZ, Illinois 

MELISSA L. BEAN, Illinois 

DEBBIE WASSERMAN SCHULTZ, Florida 

GWEN MOORE, Wisconsin 

JOSEPH CROWLEY, New York 

BARNEY FRANK, Massachusetts 

(V)

C O N T E N T S 

Page 

Hearing held on: 

November 15, 2005 ........................................................................................... 1

Appendix: 

November 15, 2005 ........................................................................................... 43

WITNESSES 

TUESDAY, NOVEMBER 15, 2005

Bliss, Christine, Acting Assistant U.S. Trade Representative for Services and 

Investment, Office of the United States Trade Representative ....................... 7

Champion, Madeleine L., Managing Director, JPMorgan Chase, on Behalf 

of the Banker’s Association for Finance and Trade .......................................... 25

Evans, Hon. Donald L., Chief Executive Officer, Financial Services Forum ...... 26

Key, Dr. Sydney J., Former Staff Director, Subcommittee on International 

Development, Finance, Trade, and Monetary Policy, Committee on Banking, 

Finance, and Uurban Affairs, U.S. House of Representatives ......................... 32

Lackritz, Marc E., President, Securities Industry Association ............................ 30

Lowery, Clay, Assistant Secretary of International Affairs, Department of 

the Treasury ......................................................................................................... 6

Sorensen, Norman R., President and CEO, Principal International, Inc., on 

Behalf of the Coalition of Service Industries ..................................................... 23

APPENDIX 

Prepared statements: 

Oxley, Hon. Michael G. .................................................................................... 44

Crowley, Hon. Joseph ....................................................................................... 46

Bliss, Christine ................................................................................................. 47

Champion, Madeleine L. .................................................................................. 53

Evans, Hon. Donald L. ..................................................................................... 64

Key, Dr. Sydney J. ............................................................................................ 72

Lackritz, Marc E. .............................................................................................. 78

Lowery, Clay ..................................................................................................... 144

Sorensen, Norman R. ....................................................................................... 149

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Hon. Patrick McHenry: 

Responses to Questions Submitted to Christine Bliss ................................... 158

(1)

INCREASING EFFICIENCY AND 

ECONOMIC GROWTH THROUGH 

TRADE IN FINANCIAL SERVICES 

Tuesday, November 15, 2005

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON DOMESTIC AND INTERNATIONAL

MONETARY POLICY, TRADE, AND TECHNOLOGY, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 2:04 p.m., in room 

2128, Rayburn House Office Building, Hon. Deborah Pryce [chairwoman of the subcommittee] presiding. 

Present: Representatives Pryce, Biggert, Manzullo, Kennedy, 

Neugebauer, Oxley, Waters, Crowley and Frank. 

Chairwoman PRYCE. This hearing will come to order. I am very 

pleased to welcome all of you here today to this trade in financial 

services hearing. I would like to thank the witnesses for being here 

to discuss the importance of increasing efficiency and economic 

growth through trade. 

This hearing will focus on the importance and benefits of expanding free trade in financial services, and I believe this hearing is 

quite timely in light of the upcoming trade talks in Hong Kong 

next month. 

Just like manufactured goods and agricultural exports, the 

American financial services industry is fully dependent upon free 

and open international markets, and often faces unfair obstacles in 

its products and services. I look forward to hearing our witnesses 

assess the current state of financial trade and address ways to expand our exports and liberalize restrictive markets all across the 

globe. 

Financial services chapters of free trade agreements seek to reduce or eliminate restrictions on the types of services financial 

services firms may provide, quantitative restrictions on the amount 

of products foreign firms may sell in the domestic market, and the 

restrictions on foreign direct investments. They also seek to enhance regulatory transparency and ensure that foreign firms are 

treated on an equal footing with domestic ones. 

It is my hope that our witnesses from the Administration will address the status of the DOHA development round of negotiations 

in the World Trade Organization with respect to financial services, 

and especially the comments of Thursday, November 10, by Debbie 

Chio. Director General Lamy reported to WTO delegation heads 

that recent informal ministerial meetings were unsuccessful in 

2

reaching compromises on negotiations for trade barrier reductions. 

I would like to hear from our Administration witnesses, if they are 

able, that what, quote, trust deficit among negotiators exists, as 

Lamy noted. 

U.S. financial services firms are among the most competitive in 

the world. As importantly, the entry of these firms into foreign 

markets will not only bolster economic activity and fuel job creation 

in those economies, but also help build new export markets. Because of the critical importance of financial services firms to the 

United States and to the globe, in both senses of economic growth, 

the subcommittee urges U.S. negotiators to ensure that the final 

DOHA services declaration does underscore the importance of 

eliminating barriers to the financial services sector. 

I was pleased to read in Secretary Evans’ testimony, and I see 

quoted in today’s U.S. News bulletin, that he and I both agree: Increased liberalization in financial services trade also promotes economic development, capital formation, and regulatory transparency 

in developing countries. I commend the former Commerce Secretary for his role in promoting trade and support his claim that 

global development depends on financial freedom. 

We welcome our witnesses here today, and I look forward to 

hearing your testimony. 

I would now like to recognize my friend Barney Frank for an 

opening statement. 

Mr. FRANK. Thank you, Madam Chairwoman. I apologize on behalf of the ranking member of this subcommittee, Representative 

Maloney of New York, who is ill. This is a subject in which she has 

a great deal of interest and is closely monitoring, and obviously regrets that she couldn’t be here. And I should apologize because to 

some extent I am covering for her, but I have a schedule of other 

events as well, so I won’t be able to stay throughout. 

Two things I wanted to do. First of all, I am going to introduce 

one particular witness, if I can, Dr. Sydney Key, who will be testifying in the second panel. I should note that she is a former staff 

director of this subcommittee. When our side was in the Majority, 

I chaired this particular subcommittee, and I was very pleased that 

Dr. Key had agreed to come over and be the staff director for 2 

years, and a lot of very important work got done with regard to the 

inspection panel at the World Bank and the increased transparency. So it is very good for us to welcome back an alumna of 

the subcommittee, and in that capacity she will be testifying. 

I am also pleased to join in highlighting the importance of this 

issue. People elsewhere in the world ought to understand, obviously, that we have problems in the United States with not just the 

overall trade deficit, but the social consequences of that. There are 

problems that are caused in the United States by the terms of 

trade. There are areas where Americans used to work very hard 

where they don’t work anymore because trade has shifted these 

jobs elsewhere. We can regret that, but there is not always a lot 

that we can do about it. 

It is not in the interest of the world, it seems to me, for there 

to be more unhappiness in America about the terms of trade. We 

are talking today about an area where Americans can expect to do 

well, where we have significant advantage. People have said to us: 

3

Well, you know, you can’t expect to compete in these areas; you 

should compete in these other areas, these higher-end areas. 

If Americans are denied the opportunity to pursue economic activity in these areas where we can do well, it will have negative 

consequences in terms of the attitude here. That is, the importance 

of the liberalization of trade in financial services is important not 

simply for itself, but for people who worry about attitudes in America towards globalization. It is a grave error, I think, for people to 

think that you can expect America to continue to support openness 

in those areas where we are probably in the short term going to 

lose economic activity and not give us the access where we can gain 

some. And, properly done, this is something that generates wealth 

for the United States and that generates jobs here. Financial services elsewhere represent economic opportunity here. So it is that 

particular context I want to add. 

One other note. I was very glad in reading the testimony from 

the executive branch, from others, to note the absence of something, and that was any reference to the issue that we pursued 

elsewhere in our bilaterals of insisting that none of the countries 

we deal with have any controls whatsoever over the inflow of capital. I think the question of insisting on complete abolition of any 

restrictions on the inflow of capital, including efforts to try and discourage the inflow of short-term purely monetary investments, we 

have been pursuing that, I think it is a great mistake. 

I am struck by the number of people who generally support free 

trade, Professor Bhagweti at Colombia, the International Monetary 

Fund and elsewhere, who think that it is unwise to couple support 

for free trade with an insistence on the complete absence under 

any circumstances of capital controls. And I am pleased to note 

that we are here talking about liberalization of trade in financial 

services without insisting on that. I think it is very important to 

note that distinction. 

I would also add that, absence that, I think this becomes pretty 

noncontroversial in America. To the extent that our pushing for liberalization of trade in financial services gets linked to an insistence 

that no country be able to do anything about what they would consider an excessive volatility in the inflow of hot money, that would 

make something that can get broad support somewhat more controversial. So I am delighted that we have this in this form now, 

and in the form that this is, I think you will get a very united Congress pushing and strengthening the American position in these 

negotiations. And if we can ever resolve the foreign problem, we 

will get there. 

I know that is not the subject, but I do have to note when I hear 

some of my colleagues who are the strongest proponents of free enterprise and no government subsidy and getting the government 

out of the economy and having people stand on their own two feet, 

when I then see their support for the American agricultural program, I am left to conclude that in all the great free market texts, 

Von Mises and Von Hayek, etc., there was a footnote that says 

none of this applies to agriculture, and it is apparently written in 

German, so I can’t read it. 

But I do wish you well in trying to bring some rationality to our 

awful agriculture policy. But on this, as it is presented, without the 

4

insistence on an abolition of total capital controls, I think we have 

a broad consensus. 

Chairwoman PRYCE. I would like to recognize my colleague Ms. 

Biggert for an opening statement. 

Mrs. BIGGERT. Thank you, Madam Chairwoman. And I would 

like to thank you for holding this hearing. 

As we work to help jump-start U.S. exports, American businesses 

would do well to emulate the work of our financial services industry. Enjoying a $16 billion trade surplus, the U.S. financial services 

industry helps establish the economic infrastructure for other U.S. 

businesses to expand globally in developed and developing countries. 

Opening the trade lanes is another way that we can facilitate 

global economic growth and reduce world poverty. Foreign borrowers will benefit from an increase in the number of domestic and 

foreign financial services providers, which will increase competition 

and provide capital to help entrepreneurs become self-sufficient 

and contribute to economic growth. More importantly, it is another 

way that can help shrink the U.S. trade deficit and help U.S. financial institutions expand, contribute to the U.S. economy, and create 

more U.S. jobs. No one stands to gain more from trade liberalization and financial services than do our U.S. firms. When markets 

are opened and barriers are down, America wins. 

While many trade barriers have fallen during the past decade, 

there are more that need to fall. For the U.S. financial services sector to fully realize its potential at home and abroad, financial services laws, regulations, and standards need to be harmonized where 

underlying market conditions make this possible, although we need 

a better understanding of how prudent carve-outs can be implemented to supplement local market needs without undermining 

free trade in financial services opportunities. 

In recent years we have held many hearings to examine efforts 

that are under way to harmonize financial services standards and 

regulations globally. This year I joined other members of this committee to meet our counterparts in the European Parliament to discuss these matters. While the financial services sector is making 

progress, these efforts too often are put on hold pending resolution 

of more controversial issues such as agriculture. During my first 

term in Congress, I attended the WTO ministerial meeting and witnessed firsthand the intensity of these negotiations once we got 

them out of lockdown in the hotel. So I know some discrepancies 

are more difficult than others to resolve. 

That said, I am optimistic and anticipate that the DOHA round 

and other trade negotiations will reach a consensus on issues involving the nonfinancial services sector so that the financial services negotiations will have their day. And I expect that the U.S. position will prevail, and U.S. financial institutions will meet international standards that provide transparency and promise fluidity 

in business and market transactions, but that are cost-effective. 

A global market that is a free market can only benefit all countries and people, but especially the United States. I look forward 

to hearing the testimony of today’s witnesses on these matters and 

yield back. 

Chairwoman PRYCE. Thank you. 

5

I would like to recognize my colleague Mr. Crowley for an opening statement. 

Mr. CROWLEY. Thank you. I want to thank Chairwoman Pryce 

for holding this hearing this afternoon on the important issues of 

breaking down global barriers in the realm of financial services. It 

is good to have the ranking member of the Full Committee, Mr. 

Frank, here as well, and my other colleagues. 

Trade in financial services are an important issue for our country, and especially important for my home City of New York. The 

breaking down of global trade barriers in this sector will lead to 

massive economic growth and job creation both here in the United 

States and abroad. And this is an issue that I think Democrats and 

Republicans can and ought to agree upon. 

Where we used to worry about New York losing jobs to New Jersey and North Carolina, now we have to worry about jobs and capital moving from New York to Brussels or Bangkok or Bangalore. 

Representing New York City makes me want to see the industry 

continue to flourish and keep my constituents working for many of 

the companies that do business in these fields. That is why I have 

tried to be active both on this committee and the International Relations Committee to open barriers to financial services firms in 

places like India, the world’s largest democracy, and Vietnam, and 

other countries. And we have had some success, but more barriers 

need to be brought down. Additionally, I have championed bills and 

agreements that break down barriers and lead to more growth and 

jobs here in the United States and internationally. 

Trade agreements, like the one with Australia, the fifth largest 

investor in the U.S. equity markets, means more jobs for my constituents and the companies of my city who trade securities or 

work for these firms. These trade agreements will keep our economy growing and will increase the investment and opportunities 

for our country. 

I am interested to hear from our witnesses from the Trade Office, 

particularly, on the upcoming Hong Kong ministerial next month, 

and Ambassador Portman’s recent trip to India, and I look forward 

to hearing our witnesses today. And, with that, I yield back the 

balance of my time. 

Chairwoman PRYCE. I would like to welcome Representative 

Manzullo, and make note that, without objection, all Members’ 

opening statements will be made a part of the record, anyone who 

comes in later. 

I would like now to introduce our first panel. Clay Lowery serves 

as Assistant Secretary for International Affairs at the U.S. Department of the Treasury. Over the last year-and-a-half, Mr. Lowery 

served as the vice president of the Millennium Challenge Corporation and a member of its investment committee. Prior to serving on 

the MCC, he served as Deputy Assistant Secretary for Debt and 

Development Finance of the Treasury, and also worked as the National Security Council’s Director of International Finance. Welcome. 

And Christine Bliss is currently Acting Assistant U.S. Trade 

Representative for Services and Investment, responsible for overseeing all multilateral and bilateral services, negotiations, and policy issues. Ms. Bliss is the lead U.S. negotiator in the WTO services 

6

negotiations, and has negotiated the services and financial services 

chapter in the Morocco, CAFTA, and Bahrain free trade agreements. Welcome. 

And we will begin with Mr. Lowery. 

STATEMENT OF CLAY LOWERY, ASSISTANT SECRETARY OF 

INTERNATIONAL AFFAIRS, DEPARTMENT OF THE TREASURY 

Mr. LOWERY. Chairwoman Pryce, Ranking Member Frank, and 

members of the subcommittee, thank you for inviting me to testify 

about trade in financial services. 

As Secretary Snow has explained, the three goals of the Administration’s international economic policy are to increase economic 

growth, promote global financial stability, and advance U.S. interests. In many respects, nothing embodies these goals more than 

our work to promote financial services liberalization in the WTO 

and in other fora. 

The financial sector is the backbone of a modern economy, with 

virtually every sector of the economy depending on its services. Yet 

in developing countries, the financial sector is typically small and 

inefficient, and the barriers to financial services are still high. This 

means that entrepreneurs, small business owners, farmers, and 

other key drivers of employment and income creation either don’t 

have access to capital, or, if they do, it is extremely expensive. As 

those barriers to financial services are lowered, competition should 

increase, and the benefits of a lower cost of capital and a better allocation of resources to more productive uses should accrue, particularly to those developing countries where the barriers are relatively high. 

For instance, World Bank studies estimate that countries with 

open financial services sectors grow, on average, one percentage 

point faster than others, with the incremental growth rates being 

somewhat higher for developing countries. 

The benefits of financial service liberalization extend beyond economic growth, however. Foreign participation in the financial sectors of developing countries brings in the strong new players that 

provide greater liquidity to the market, greater loss-absorption capabilities, and enhanced risk-management techniques. 

The benefits of introducing global experience into the domestic 

market go far beyond their direct impact. There is a transfer of 

skills to local workers who go off to domestic firms where improvements in market practices are emulated, and a more competitive 

financial system also puts pressure on policymakers to make regulatory and supervisory structures more predictable and transparent, as well as to follow sound macroeconomic policies which are 

crucial to economic growth and financial stability. 

In short, trade in financial services holds the promise of significant economic benefits for all countries, including the United 

States. As I am sure that some of the speakers in your next panel 

will highlight, the financial services sector plays an indispensable 

role in America’s economy, providing individuals and businesses 

with depository services, credit, investment capital, and risk-transfer products, just to name a few areas. 

7

Financial services represent over 8 percent of our economy, 

which is roughly 70 percent greater than it was 25 years ago, and 

it employs roughly 6 million individuals. 

The WTO negotiations provide an opportunity to eliminate barriers in foreign markets to U.S. financial service firms, and improve the access of U.S. financial institutions to foreign markets. 

This helps our exporters continue to expand and develop new markets building upon U.S. competitive advantages in the provision of 

these services. 

Given how important the opening of markets to financial services 

is to economic growth, financial stability, and our national interests, we have been disappointed in the progress that has been 

made in the WTO on financial services. At Treasury, we work very 

closely with our colleagues from USTR, Trade, and other agencies 

to heighten our engagement over the last year. In just the past few 

months, led by Secretary Snow and Deputy Secretary Kimmitt, 

Treasury has highlighted the development benefits of open financial sectors and encouraged WTO members to put forward highquality offers in both multilateral fora, such as the G–20 and 

APEC, and through bilateral discussions in some of the most important developing countries, Brazil, China, India, and Korea, 

where Secretary Snow and Deputy Secretary Kimmitt have all 

traveled in the last few months. In fact, in each of the multilateral 

fora mentioned above, we have gained the endorsement for an ambitious DOHA round, but we will need to continue to push this 

issue and turn these words into concrete action. 

We also need to recognize that we need to complement the WTO 

discussions by advancing the case and the cause of liberalization 

elsewhere. We do this through bilateral and regional free trade 

agreements, which my colleague from USTR can explain better, 

and through financial dialogues, which I will briefly point out. 

For several years the Treasury Department and U.S. financial 

regulators have been conducting dialogues with our counterparts 

from a number of countries, Canada, Mexico, China, Japan, India, 

and the EU. These dialogues have three goals: one, promote a 

stronger global economy through sound regulation; two, encourage 

movement toward more competitive financial regimes; and, three, 

mitigate actual or potential cross-border friction in the financial 

services realm. In my written testimony I note some of the progress 

that we are making through these dialogues. 

Finally, I would like to thank the Chairwoman and the committee for calling this timely hearing, and I would be happy to take 

any questions you may have. 

[The prepared statement of Mr. Lowery can be found on page 144 

of the appendix.] 

Chairwoman PRYCE. Thank you very much. 

Now we will hear from Ms. Bliss. 

STATEMENT OF CHRISTINE BLISS, ACTING ASSISTANT U.S. 

TRADE REPRESENTATIVE FOR SERVICES AND INVESTMENT, 

OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE 

Ms. BLISS. Thank you. Chairwoman Pryce, Congressman Frank, 

Congressman Manzullo, and Congresswoman Biggert. The USTR 

appreciates the opportunity to appear before you today to describe 

8

our efforts to eliminate barriers to trade in financial services, particularly in the DOHA negotiations. 

The services sector is the fastest-growing sector of the U.S. economy, accounting for 8 out of 10 U.S. jobs, and it also provides the 

brightest ray of hope for growth in developing economies, accounting for nearly 60 percent of GDP in such economies. An ever-expanding services sector is key to ensuring that this growth continues. 

Now, you have heard from my colleague from Treasury about the 

important benefits of financial services liberalization both domestically and globally, and I would like to talk to you today about some 

of the ways in which we are going about and pursuing those benefits. 

With respect to the WTO negotiations, while the United States 

remains committed to a high level of ambition in the DOHA round 

and to achieve a final package of substantial and meaningful results, we do not expect to achieve by the Hong Kong ministerial the 

complete framework that we had previously envisioned. Our aim 

nonetheless is to make as much progress as we can by the time of 

the ministerial so that we can achieve a final package in 2006. 

We are seeking services market access commitments in key sectors providing meaningful new commercial opportunities for U.S. 

services suppliers, particularly in emerging markets such as Brazil, 

India, Malaysia, South Africa, Thailand, Indonesia, the Philippines, 

and Egypt, as well as several other countries. Financial services is 

at the top of the list of the key sectors that also includes telecommunications, energy services, express delivery, computer and 

related services, and distribution services. We are also seeking 

strengthened transparency disciplines for all services sectors. 

Now, in return, developing countries have asked for expanded 

market access in areas such as tourism, medical services, and professional services. They have also asked for further liberalization 

regarding the temporary entry of service suppliers, expanded disciplines on domestic regulation, and some ASEAN countries have 

asked for rules establishing an emergency safeguard mechanism 

for services. 

Some developing countries have also linked services liberalization to greater concessions in other areas of the DOHA negotiations, such as agriculture. And although we have been able to secure initial or revised offers from 69 out of the 148 WTO members, 

we still face a great challenge in terms of improving the quality of 

offers, particularly in financial services. 

Now, since the WTO 1997 Financial Services Agreement, the 

United States has continued to secure meaningful financial services commitments through the WTO accession agreements, and I 

will highlight China and Saudi Arabia in that regard. And, in addition, we continue this effort through the ongoing accession negotiations with Russia, Ukraine, Vietnam, and other economies. We are 

seeking to build on these financial services commitments in the 

WTO services negotiations through the bilateral request/offer process by asking countries to provide commitments covering cross-border services for insurance, encompassing marine, aviation, transport reinsurance, brokerage, and auxiliary services; and for bankVerDate 0ct 09 2002 17:57 Oct 03, 2006 Jkt 026757 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 F:\DOCS\26757.TXT HFIN PsN: TERRIE
9

ing, securities, and all other financial services in areas such as financial information and advisory services. 

With respect to commercial presence, we are including the right 

to establish new or to acquire existing companies in the form of 

wholly-owned subsidiaries, joint ventures, or branches. For both 

commercial presence and cross-border, we are seeking the removal 

of the discriminatory application of laws and regulations, and the 

removal of limitations such as monopolies, numerical quotas, and 

economic needs tests. And, finally, we are seeking transparency in 

the development and application of laws and regulations. 

To amplify these bilateral efforts, we are working with a group 

of about 13 countries of varying levels of development, including 

the European Union, Canada, Japan, and Switzerland, who share 

our interest in financial services liberalization, and we have developed a set of general benchmarks for financial services liberalization through what is being termed in Geneva as a plurilateral approach. USTR and Treasury are working hand-in-hand along with 

other U.S. agencies to get financial service negotiators from key 

countries around the world more involved in the negotiations, 

through bilateral requests as well as possible plurilateral approaches. As my Treasury colleague has explained in his oral statement and also in his written statement, Treasury is also reaching 

out to finance ministers to highlight the DOHA services negotiations, including financial services. 

Now, while we have secured some improvements in financial 

services in the offers submitted to date, there is considerable work 

ahead to bring the quality of those offers closer to our benchmarks. 

Why haven’t we made more progress to date? There is no simple 

answer. Sometimes the problem is existing barriers; other times 

the country is liberalized, but has not yet bound that liberalization 

or offered to bind that liberalization. And even though we are proposing essentially the same market access benchmarks for each 

country, countries are at differing stages of liberalization, they 

have different views on the benefits of liberalization, and they often 

question the need to bind their liberalization. 

Now, in addition, we hope that the United States’ most recent 

WTO offer on agricultural liberalization will enhance our ability to 

press these countries to improve their offers not only in agriculture, 

but in the other DOHA core market access areas of nonagricultural 

market access and service. 

Now, at the same time, the United States is also forging ahead 

to achieve a high level of financial services liberalization through 

regional and bilateral negotiations. The U.S. model FTA financial 

services chapter covers both investment and cross-border supply. It 

requires a negative listing for investment access, which means national treatment and other core obligations automatically apply unless the sector is carved out. It also includes strong disciplines on 

regulatory transparency, licensing, and other regulatory issues. 

In addition to our existing FTA’s that we previously negotiated, 

the Administration just announced the conclusion of the Oman 

FTA, which we expect to sign in mid-January. FTA negotiations 

are at an advanced stage with the Andeans currently, and that includes Colombia, Ecuador, and Peru. And we continue negotiations 

with the UAE, Panama, Thailand, as well as continuing our explorVerDate 0ct 09 2002 17:57 Oct 03, 2006 Jkt 026757 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 F:\DOCS\26757.TXT HFIN PsN: TERRIE
10

atory talks with the South African Customs Union countries of 

South Africa, Botswana, Lesotho, Namibia, and Swaziland. 

Chairwoman PRYCE. Ms. Bliss, if I could interrupt. Your time has 

expired, and your whole statement will be included in the record, 

if your could summarize. 

Ms. BLISS. Thank you very much. Just on that note, I would simply say that we wanted to highlight that our FTA negotiations 

have produced concrete benefits just as previously our multilateral 

negotiations have as well. So thank you for the opportunity to 

present this statement. 

[The prepared statement of Ms. Bliss can be found on page 47 

of the appendix.] 

Chairwoman PRYCE. I would like to welcome Ms. Waters and Mr. 

Neugebauer, and our Full Committee Chairman, Mr. Oxley. 

Mr. Chairman, would you like to make a statement? 

The CHAIRMAN. Thank you very much, Madam Chairwoman. I 

am just going to ask unanimous consent that my statement be 

made part of the record, and welcome our friends from Treasury 

and USTR, as well as the private sector representatives who will 

be on the second panel. 

I am looking forward to this hearing. Clearly, we thank you for 

your leadership on this important issue of financial services in the 

global economy and our trade relationships moving towards the 

DOHA round. And I yield back. 

Chairwoman PRYCE. Thank you, Mr. Chairman. 

Well, we will recognize all members for 5 minutes in which to 

ask questions and receive answers. And anybody who has further 

questions, we hope that we can submit those in writing to you. 

I will just begin by asking, what is the Treasury doing outside 

of WTO to obtain staunch commitments from our trading partners? 

And what can this committee do to be of assistance, if anything? 

Mr. LOWERY. Thank you, Madam Chairwoman. 

Treasury actually over the last few months has very much picked 

up our pace. You and your colleagues had written a letter to the 

Secretary asking us to engage in a better way or a stronger way 

on financial services, and that is exactly what we have done. We 

have been able to work through the G–7, the G–20, the IMF, the 

World Bank, and the APEC Finance Minister’s process to actually 

secure language to basically say that financial services are very important for DOHA, and we need an ambitious trade round in general and in financial services in particular. 

The reason we have done this is because finance ministers sometimes only are paying partial attention to what is going on in trade 

rounds, and so we wanted to make sure the finance ministers are 

as engaged as their trade ministers are, and I think we have been 

able to do that. 

In addition, Secretary Snow has just had recent trips to Brazil, 

India, and China, a couple of those trips right before Congressman 

Portman, Ambassador Portman, so as to basically talk to them 

about the importance of opening up their markets to our financial 

services firms. 

In terms of what I think this committee can do, it is hard for me 

obviously to be too strong on this, but I think the main thing is 

three things. One is the language that comes out of this committee. 

11

That is very important. Our trading partners do watch what you 

all say. Second is your votes. And third is, when you are traveling 

abroad, if there are things that we can do to help you, please let 

us know, because we think you are great ambassadors for the work 

we are trying to do. Thank you. 

Chairwoman PRYCE. Ms. Bliss, do you have anything to add to 

that? 

Ms. BLISS. Just very quickly. We—as I say, USTR works handin-hand with Treasury, and we think that the initiative that my 

colleague from Treasury just described is very important, because 

to be successful in the WTO, negotiations of services, we think it 

is critical that not only the trade ministries be involved, but the finance ministries as well. So we commend Treasury’s efforts and 

think they are critical particularly to get financial services experts 

to actively participate in the negotiations. So thank you. 

Chairwoman PRYCE. And can you elaborate on our main objectives in the DOHA/GATS negotiations? What precisely? 

Ms. BLISS. Yes. Just quickly, our major objectives are twofold. 

And that is, really, our central objective relates to increased market access. And here we have focused broadly on service sectors, 

but we are highlighting key sectors, and those I have listed in my 

statement. Financial services is the first sector. But in addition, 

telecommunications, computer-related distribution, energy services, 

and express delivery. Because if you look at those core sectors, that 

is where U.S. services exporters and financial service exporters 

really have the greatest stake and potential in global markets. So 

we are focusing in those areas. 

In addition, we are focusing on key emerging markets where we 

have a real stake in all of those sectors. And then, second, I would 

say we are also pursuing transparency disciplines which will enhance the market access commitments that we achieve in all of 

those sectors. 

So, just quite quickly, those are our primary objectives in the 

services negotiations. And we think that the ability to expand our 

commitments beyond the Uruguay round will be of tremendous 

benefit both at home and also in the broader objective of promoting 

development in the DOHA round. 

Chairwoman PRYCE. And by encouraging emerging and developing countries to liberalize their financial services sectors, do you 

have any feel for whether that would contribute to financial market 

instability? Either one of you? 

Mr. LOWERY. Actually, we actually believe that the reverse will 

happen, which is that by bringing access of having experts and true 

strong financial firms, you will bring more liquidity, you will bring 

better risk management techniques, and will actually create less 

volatility in financial sectors around the world. There are actually 

some WTO and IMF and World Bank studies on this which actually show that most of the evidence suggests that opening up markets actually brings greater financial stability to countries. 

Chairwoman PRYCE. Thank you both for being here, and I will 

now recognize Mr. Crowley. 

Mr. CROWLEY. Thank you again. Thank you both for your testimony today. 

12

Ms. Bliss, you mentioned Hong Kong ministerial on DOHA, and 

I know that Ambassador Portman is low on expectations in terms—

in light of what you said, there has been a diminishment of expectations. But what—and less an expansive framework, I guess, is 

the expectation now. What does that entail? What does that actually mean for us? 

Ms. BLISS. Thank you, Congressman. What I think Ambassador 

Portman has been trying to say is not that we have lowered our 

ambitions in any way or by the end of the day lowered our ambitions by the end of the round. It is just that what perhaps 6 

months ago had been expected by Hong Kong in terms of an agreement on what are called the modalities or the frame—the negotiating frameworks for agriculture and NAMA, that more progress 

would be made by Hong Kong, so that then you could go immediately from Hong Kong into a very active, intensive, hands-on negotiating mode post-Hong Kong. 

I think that is the level of—that is what has been ratcheted 

down a bit, realizing that probably won’t happen by Hong Kong. 

But that doesn’t mean that I think our expectation is that we 

aren’t going to try and achieve that, but it may just happen earlier 

next year rather than by Hong Kong. 

Mr. CROWLEY. Any idea when? I mean, these negotiations have 

been going on for some time now. Any idea when this might come 

to? 

Ms. BLISS. Well, I don’t think there has been any definitive decision made, but I would imagine there would be interest in having 

some kind of follow-up fairly quickly, early next year, to the Hong 

Kong meeting, with the hope that we could still finish by the end 

of 2006. 

Mr. CROWLEY. I know Ambassador Portman was in India; I was 

reading about his trip, and USTR’s general support for the expansion of mode 4 commitments. As you know, mode 4 relates to the 

temporary movement of business persons to another country in 

order to perform a service on site. This has been a critical and crucial issue for U.S. businesses in the developing world. What specific 

set of proposals has USTR made during the WTO services negotiations on that issue? 

Ms. BLISS. We have been very clear that we have been mindful 

of the sensitivities in the Congress to this issue. So we have, certainly since I have been involved in the services negotiations, been 

very careful not to advance any forward-leaning proposals with respect to mode 4 in the services negotiations. So we as the United 

States are not making any offers with respect to temporary entry. 

We certainly listen to the requests that are made of us by other 

countries, but we have not advanced any proposals on temp entry 

and are not at this time in the negotiations. 

Mr. CROWLEY. I will follow up in writing maybe a little bit more 

on that issue, because I know I have a short time. 

Again, I know that Ambassador Portman has been to India, as 

I mentioned. I am a former co-chair of the India Caucus myself and 

have taken a great deal of interest in the potential and actual expansion of economic ties between the United States and India, understanding that a great deal has been done to break down some 

of the barriers as pertains to the financial services sector within 

13

India that U.S. firms have been able to break through into the Indian commercial market. But I do know that there are still some 

barriers in terms of ownership of entities, U.S. corporations within 

India, a cap of 26 percent for most financial services, if not for all. 

Has there been any progress made towards expanding opportunity 

for ownership or percentage of ownership of American firms in 

India? 

Ms. BLISS. The Indian—what I can tell you in terms of our bilateral discussions, and that is one of our—I would say our key issues 

that we are pressing India for in the negotiations; that India has 

expressed some willingness to raise that number. But, in our 

minds, it is still not sufficient, and they have not yet offered to 

bind a greater opening that would be far beyond the current level. 

It would be over 70 percent at least, I think, that we are seeking. 

But I cannot report to you as yet that the Indians have expressed 

a willingness to offer to bind at level. So it is something we are still 

pressing very hard on. 

Mr. CROWLEY. It has been my experience that over 70 percent 

might be a pipe dream, at least for the short haul. And I don’t 

know if necessarily that is a more realistic position to take. Quite 

frankly, the number I have been hearing is no more than 49; 

maybe you might get to 51. 

But anyway, I appreciate it. My time is running out. I appreciate 

your both being here. With that, I yield back. 

Chairwoman PRYCE. Thank you. 

I would now recognize Chairman Oxley. 

The CHAIRMAN. Thank you, Chairwoman Pryce. 

First of all, let me ask Ms. Bliss, nontariff barriers, where are 

we in negotiation with other countries on nontariff barriers? Many 

times we hear complaints from the services sector, particularly the 

financial services sector, that in many ways nontariff barriers are 

much more pernicious than actual tariffs themselves. Where are we 

in those negotiations, and what progress are we making? 

Ms. BLISS. Well, let me take that question in a couple of parts. 

In terms of what we are trying to pursue in the WTO, let me say 

with respect to financial services, we are very actively pursuing the 

removal of services barriers. And I think to translate the term nontariff barriers in a services context, that would be removal of, for 

example, commercial presence requirements to supply services 

cross-border. So that is one of our chief goals in terms of allowing 

cross border-supply, whether it be in insurance or in banking, securities. 

And then with respect to mode 3, we are pursuing the freedom 

to establish with respect to legal forum whether it be in the form 

of a wholly-owned subsidiary or a branch, and to eliminate foreign 

equity restrictions. And so those are sort of general goals that we 

are seeking in the area of financial services. 

Let me turn briefly to our FTA’s, because we are pursuing liberalization on a negative list basis in the services context. We are 

very actively seeking the removal of barriers to services through 

the application of our national treatment requirement to eliminate 

discrimination, the market access obligation that goes directly to 

things like limiting the numbers of suppliers or any kind of quota 

that is put on, monopolies, economic needs tests. Then, in addition, 

14

we are also in the financial services context also able to secure disciplines with respect to the introduction of new products, which is 

a very useful element and can help circumvent the erection of regulatory barriers to the—for example, in the insurance sector. 

So I think—and then also let me mention in our accession, our 

WTO accession negotiations, I think we have made some real 

progress, perhaps Saudi Arabia being the most recent example of 

that, of where we have been able to secure very meaningful bilateral and multilateral commitments to eliminate barriers to services 

and financial services. For example, in Saudi Arabia we got quite 

a meaningful branching commitment in the insurance area. 

So I think in all of those areas we have made progress through 

our FTA’s. We are making progress through our WTO accession negotiations, and we also have the promise of great progress in terms 

of the WTO services negotiations. 

The CHAIRMAN. Is it easier in that sense to negotiate bilateral 

FTA’s than it is in the overall scheme of trying to do it within the 

DOHA round? 

Ms. BLISS. I suppose in terms of resources you could argue that, 

yes, it is. In terms of the overall trading system, while I think that 

bilateral agreements have great value, I think in the long term 

that it is also worthwhile to extend those disciplines that we have 

negotiated bilaterally to a multilateral context, and I think the 

whole system benefits as a result. 

So I suppose you could say, yes, it is somewhat easier or more 

manageable to go country by country, but I think so far we have 

tried to sort of balance doing both simultaneously, and I think so 

far we have been able to have some synergy between the two processes that we are benefiting from. 

The CHAIRMAN. One final question on services. What major countries have not made an offer on services yet? And what is your 

guess as to why those offers have not been forthcoming? 

Ms. BLISS. Well, in terms of the markets where we would have 

the greatest interest, I think the primary offender in that would be 

South Africa. And I am not sure I have a good answer for you, except that what they have told us is: one, lack of resources; and two, 

lack of coordination in their capital. And I can’t speak to the political aspects that may be involved there, but that has been a source 

of great frustration to us. And I would say South Africa in terms 

of market significance is probably the worst offender. 

The Asian countries have been slow, but they have—the markets 

that we care about the most there, for example, Malaysia, Thailand, the Philippines, all have finally submitted offers. Now, they 

are not sufficient, but they have submitted offers. So that is encouraging. But I would say the outliers at the point, South Africa 

is the most concern. 

The CHAIRMAN. Thank you. And pass on our best wishes to your 

new boss, and tell him that he has a lot of support up here on Capitol Hill, particularly from the Ohio delegation. 

I yield back. 

Chairwoman PRYCE. You have that right, Mr. Chairman. 

Ms. Waters is recognized. 

Ms. WATERS. Thank you very much, Madam Chairwoman. 

15

I have always had some concerns about global trade and concerns about WTO, but on these financial services negotiations, I am 

concerned about our neighbors in the Caribbean, for example, the 

Bahamas and some of those areas. The financial services sector 

really is one of the biggest underpinnings of those societies. They 

have tourism, and they have banking. So what happens when they 

have to compete with the G–8’s or the G–7’s in this competition for 

financial services? What will happen to those smaller Caribbean 

countries? 

Ms. BLISS. Let me just say something briefly, and then if my colleague from Treasury would want to say something as well. What 

I am—taking the Bahamas as an example. The way that the GATS 

works in the negotiations is that the countries are free to pick 

those subsectors and sectors in which they are able to make commitments and want to make commitments. And one of the things 

that we have made very clear, particularly when we are in discussions with the Caribbean nations or with the African nations that 

are perhaps not on the higher end of the developing countries scale, 

is that countries should look to those to make commitments in 

areas that are going to be of the greatest benefit of their economies 

and that will promote economic development. 

So for the Bahamas in particular, in the banking sector, what we 

would say to them generally is look in the banking sector in areas 

where opening and encouraging investment, which is what making 

commitments can do, to draw more investment to a country, will 

it be of benefit to you. But they are certainly not required to make 

commitments in every subsector or sectors in which they are particularly sensitive. 

And with respect to tourism, I think the idea there is that, again, 

opening up and making commitments in the area of tourism, to the 

contrary, rather than hurting an economy, should help it, because, 

again, it is drawing more investment, it is creating more jobs, it 

is creating more opportunities. 

Ms. WATERS. What did you mean when you talked about eliminating foreign equity restrictions? 

Ms. BLISS. Eliminating foreign equity restrictions in terms of 

countries that have capped the level of foreign investment, whether 

it is requiring investment only through joint ventures or saying 

that foreign equity can’t exceed ‘‘X’’ percent when an investment is 

made through a subsidiary or an acquisition of an existing company. What we are trying to do is to get those kinds of limitations 

reduced or eliminated. 

Ms. WATERS. Well, let me just say this: I have been involved over 

the years with what happened in the Eastern Caribbean on the banana trade, and little countries like Grenada literally just went 

belly up because they had to depend on the banana. That is really 

all they had. And the relationship that they had with the European 

Union helped them to be able to sell that banana on the European 

markets. But we, we took those countries to the WTO and challenged that relationship because of Chiquita bananas, and it just 

caused havoc in those little countries, and particularly, again, Grenada. 

And I was also in St. Kitts, and, of course, they can’t compete 

with sugar. Again, they depended a lot, and then they have all 

16

been trying to find other ways by which to support those economies. And I just worry that we have nothing in our negotiations 

with WTO to talk about what we do in these special cases, whether 

it is the banana or sugar or the financial services industry. We all 

know that—I mean, right or wrong, some of these places in the Bahamas have been tax shelters; that is how they made their money 

for years. But we have nothing in negotiations to talk about how 

we allow them to protect themselves. And to tell you the truth, I 

believe very strongly in joint ventures in equity. I believe that is 

how you grow your economies. That is how you hold onto some 

ownership. That is how you expand. And I would expect them to 

stand up for their right to have equity and to maintain ownership. 

So what do you say about that? 

Well, my time is over, but that is my question. 

Chairwoman PRYCE. And you can get back to Ms. Waters, if you 

would like to. 

Ms. WATERS. Thank you. 

Chairwoman PRYCE. Thank you very much. 

Ms. Biggert. 

Mrs. BIGGERT. Thank you. 

Mr. Assistant Secretary, does the U.S. Treasury have the resources to pursue financial services liberalization? 

Mr. LOWERY. Thank you. I guess it would be—resources are always tight, but we dedicate, we dedicate significant resources to 

these trade liberalization negotiations. We have offices that work 

on this. Obviously, something that has been very helpful to us, and 

we are working with some folks in Congress about this, are having 

attache positions. We have an attache currently in Japan which 

has been very helpful to us in our financial sector dialogue in 

Japan. We are opening up one in China, and we are trying to get 

somebody into the EU, and we would actually hope to even expand 

to maybe places like India, because this is something that we have 

seen as something that could be very helpful to us. 

So it is kind of a mix. We feel like we have scarce resources that 

we can do our jobs, but with more resources obviously we can do 

it in a more effective way. 

Mrs. BIGGERT. I guess that is kind of coming up in the appropriations soon. So you are not sure yet whether— 

Mr. LOWERY. That is my understanding. 

Mrs. BIGGERT. Okay. And, Ms. Bliss, about regulation. I guess we 

have some testimony today that highlighted the importance of increased regulatory transparency in the service sectors. The issues 

seem very basic and straightforward, and yet I understand that 

they are controversial. Is it true that a number of countries view 

these transparency proposals as an effort by the United States to 

export its standards, put those standards on other countries? 

Ms. BLISS. Well, I think, you know, in presenting the U.S. horizontal transparency proposal in the GATS negotiations, a number 

of countries have raised the question, ‘‘Are you trying to insist that 

your Administrative Procedure Act be transferred to other countries’ domestic legal systems?’’ And our response to that is no. I 

mean, we think that we do have a very superior model in the APA 

and how it works, but we recognize that there are different ways 

17

that countries can implement those essential elements of prior notice and comment and the other aspects of transparency. 

So I think I can fairly say that we have and are continuing a dialogue to convince countries that, no, we are not just trying to rubber-stamp our practices on other countries. It is the core principles 

that we are trying to embed in a horizontal fashion. 

Mrs. BIGGERT. How do you do this dialogue? Is this just in various meetings? Of course, maybe the rounds, but in other meetings, 

too, is this a discussion? 

Ms. BLISS. Well, there are several venues. One is that the United 

States did table a formal transparency proposal in the main negotiating body, which is the Committee on Trade and Services special 

session, which is the overall body that coordinates the negotiations. 

So it would be in that formal body we have that discussion with 

all members present. Then in addition there is a Working Party on 

Domestic Regulation that is a subcommittee, and we also have continuing discussions in that working party with members. And then, 

in addition, in our bilateral negotiations we also pursue discussions 

on transparency, and I should add, in particular, on financial services. 

Mrs. BIGGERT. Let me just come back to the Assistant Secretary—how do you get the word out, or how do you do negotiations? Is this just when you go to formal negotiations for trade, or 

is it in other contexts where you are out and about in foreign countries? 

Mr. LOWERY. It is through a variety of mechanisms. And to build 

on what Ms. Bliss said, through some of the financial dialogues 

that we have with countries, Treasury, in many respects, is bringing together all the different regulators, OCC, the Fed, FDIC, to 

talk them through the regulatory transparency and supervisory 

standards with these countries around the world. Some of these are 

developing countries, some of them are developed countries, and so 

we are trying to carry the dialogue through a variety of mechanisms. 

In addition, we actually have some technical assistance vehicles 

that we use to try to help countries to understand regulatory systems better because these are very important to their own financial 

systems as well as to something like the WTO round. 

Mrs. BIGGERT. Thank you. I have one minute here. 

I want to talk just a little bit about the travel visas, some of the 

countries, like India and Brazil, want to see that there are more 

of them so that their businesses can visit—their business members 

can visit the United States. When they do a transaction. 

Do you see any change in the type of visas that will be available? 

Or do you push for that? 

Ms. BLISS. What the Indians have indicated that they would like 

to see as a result of these negotiations are principally more uses 

for what they call contract service suppliers, which means that a 

service supplier comes to the United States, but it is being paid 

and has a contract with an employer outside of the United States. 

Also, for independent professionals that may come here to do work 

with or without a contract. They are particularly interested in seeing this in certain professional services, like engineering, just as an 

example. They are also interested in seeing a tie between that and 

18

what we do in domestic regulation on things like educational and 

professional qualifications. The Indians have not changed their position; they are very tough in insisting on that. And as I said, we 

have not made any sort of response or indicated any willingness to 

make an offer on that. 

But to answer your question, that is what the Indians are seeking. And to date, we have not made any sort of response. Other 

countries have. A number of other developing countries have included some form of contractual service supplier in their offers. 

Mrs. BIGGERT. Okay, thank you. 

Chairwoman PRYCE. Mr. Manzullo. 

Mr. MANZULLO. Thank you very much. 

I read an article several years ago by a young man by the name 

of Bob Vasteen, a friend of the Cato Magazine—Bob is chucking 

back there—that talked about financial services as paving the way 

for merchandise with regard to exports. And this is more of a comment than a question, but I am very, very much disturbed over the 

fact that our government is placing severe restrictions on people 

coming to this country for the purposes of buying equipment. And 

it also involves tourism. 

I was at the massive fabricators machine tool show and welding 

machine tool show in Chicago yesterday. I spend about 75 percent 

of my time in Congress working on manufacturing issues. And the 

host group, the Fabricators Manufacture Association, which is 

headquartered in Rockford, Illinois, was commenting on the fact 

that several Chinese who wanted to come to the United States and 

buy our equipment couldn’t make it, they just couldn’t get the 

visas. That also applied to a couple of booths that the Chinese 

wanted to set up with regard to their own equipment. And we had 

a particular situation in our area, Ingersol Milling Machines was 

on its death throes before it filed bankruptcy, and we desperately 

tried to bring over six Chinese engineers who wanted to buy an uncontrolled machine. And even though we have run into some really 

great people working in our government, and even though the 

Small Business Committee, which I chair, actually brokered a 

multi-visit yearly visa with China with regard to an MOU, I am 

just very much disturbed over the fact that we are losing conventions, and the United States is being looked upon as an unreliable 

supplier. And this has not been addressed adequately by the Administration. 

Unfortunately, everybody thinks that if you are Chinese, you are 

a terrorist. And we continue to carp and complain about the trade 

deficit, and yet we have incredible opportunities to sell equipment 

to the Chinese and we can’t get the people here. And I just don’t 

know why this is not a priority. We have had several hearings on 

it, we have got another hearing going this week involving the Canadian passport issue, we are going to make it more difficult for 

Canadians to come into this country in order to buy our stuff. 

And I think when we talk about tourism, which is obviously a 

service, we talk about opening our borders in negotiations. Why 

isn’t this negotiated in terms of—at your level, or even made part 

of the conversation? Or perhaps it is. It is a question, if you want 

to bite at it. 

19

Ms. BLISS. Well, let me just respond very briefly, and that is certainly the topic of the temporary entry of natural persons is what 

within the ambit of what is covered in GATS, but as I said previously, we have been very careful to be mindful of the sensitivities 

in Congress on the issue. So we have not made any proposals in 

the negotiations on it, but as I mentioned, there are other countries, developed countries in particular, that have included improvements in their GATS schedules in the area of visas and temp 

entry. But it is just that we, because of Congressional sensitivity, 

have not, have refrained. 

Mr. MANZULLO. There is sensitivity on this part. We are losing 

our manufacturing base. In fact, the opening statement—I believe 

in your statement, Ms. Bliss, you said that the service sector is the 

fastest growing sector of the U.S. economy, accounting for 8 out of 

10 U.S. jobs. I wouldn’t be proud of that statement. I mean, these 

are people that used to work in manufacturing, we have lost 15,000 

manufacturing jobs in Rockford, Illinois, and they have been replaced by many service jobs in the actual—and the average wage 

income of the American worker is going down. We are just not—

we are missing something really big here, and that is, the United 

States has the biggest problem of all the countries in bringing people here to buy our stuff. And no one seems to be able to put their 

arms around this thing. And I appreciate, because of Congressional 

sensitivities, well, I am sensitive the other way, can you help me? 

Chairwoman PRYCE. The gentleman’s time is expired. Mr. 

Neugebauer. 

Mr. NEUGEBAUER. Thank you, Madam Chairwoman. 

The first question I have for Mr. Lowery is what are the things 

that the Treasury is actually doing as far as trying to expand its 

services, I mean, what specific things are you involved in? 

Mr. LOWERY. Treasury is involved in, through various means, to 

try to expand services, first, through what I guess would best be 

called rhetoric, which is to get commitments and endorsements 

from multilateral fora where we are meeting with our finance ministry colleagues. 

Second is through our bilateral diplomacy—Secretary Snow has 

been travelling extensively—throughout Europe, Asia and South 

America to actually work with the countries on opening up their 

markets. 

And thirdly is through the actual negotiations themselves, and 

that is the Free Trade Agreement negotiations as well as the WTO 

negotiations. And as Ms. Bliss pointed out earlier in her Q&A period, we have actually been able to make some very significant 

progress for our financial firms in the FTA’s, and we are hoping we 

can make the same type of leaps forward in the WTO. 

Mr. NEUGEBAUER. Thank you. Ms. Bliss, there is a lot of discussion these days about the deficit, in fact, we got some bad news last 

month. I think the deficit was at an all-time high. And then that 

conversation turns to China. A couple of questions there: One, do 

you think we focus too much on trade with China? And two, what 

are some of the bright spots in our trade negotiations that are 

going on that would lead us to believe that we are moving towards 

things that would help us reduce that deficit? 

20

Ms. BLISS. Thank you. With respect to China, you know, I think 

we—certainly Ambassador Portman agrees that it is very important to keep the pressure on China, both in terms of implementing 

its existing WTO commitments and also pressing it in the GATS 

negotiations to improve those commitments. 

For example, in terms of insurance and China’s existing commitments, we certainly have been pressing China to reduce its capital 

requirements and to expand branching rights. And I think we have 

met with some success along those lines and made some progress. 

In terms of the GATS negotiations, we are pushing China so that 

life insurers will have the right to establish wholly-owned subs or 

to branch into similarly-owned securities. We are also trying to 

pursue the right to establish wholly-owned subs and to remove the 

restrictions on the scope of activities that securities firms can engage in. So we see those as very important, and don’t think there 

should be any emphasis taken off that effort. 

In terms of where there are some bright spots? I think there are 

some bright spots. And I think that the FTA, just because the time 

frames are shorter and we are able to produce results, having concluded those negotiations, I think if you look at what we achieved, 

for example, in CAFTA, Morocco, some of the earlier negotiations, 

we were able to achieve, for example, in the insurance sector 

branching rights which didn’t exist before. In the very concrete example of Costa Rica, Costa Rica agreed to a phase out of its insurance monopoly, which I think in the beginning of negotiations, we 

were very doubtful as to how much we can do, but I think that that 

was a significant achievement and the creation of new business opportunities. 

Some of the smaller, but nonetheless important, negotiations, the 

FTA’s in Oman and Bahrain, for example, we have been able to negotiate very clean commitments, particularly in the insurance sector and those areas, with very few carve outs either by the Omanis 

or Bahrainis. So that will bring opportunities for example in our 

insurance sector in that area of the world. 

So those are just a few examples, but I think particularly in the 

FTA context, because we do have some history there, we have been 

able to make some achievement. So we are progressively moving 

ahead. And then as I said earlier, hopefully having that build toward a positive result in the WTO context as well. 

Mr. NEUGEBAUER. So do I understand you are saying you feel 

like we, in the context of services, that we have been maybe more 

effective in the FTA’s and the bilateral and multilateral area than 

we have in the WTO area? 

Ms. BLISS. Only as I was saying, qualifying it because the time 

frames are shorter because of the FTA’s that we have negotiated, 

particularly some of the more recent ones, we have done them in 

a time frame of, say, 2 years or 3 years, so we have been able, from 

start to finish, see the results; whereas the multilateral process, 

necessarily, because it involves so many countries and particularly 

services, so many sectors, it takes more time. 

So I wouldn’t suggest that one process is better than the other, 

I think it is just because the time frames are shorter, we are able 

to see results from a bilateral side. 

Mr. NEUGEBAUER. Are the— 

21

Chairwoman PRYCE. The gentleman’s time has expired. 

Mr. Kennedy. 

Mr. KENNEDY. Well, thank you both for your testimony and your 

work on behalf of advancing markets for America abroad. 

One question we oftentimes get, and you may have covered, and 

I am sorry if I missed it, but how does Sarbanes-Oxley affect our 

ability to get other folks to come here, list on our markets and 

those type of things as an export of financial services; and is there 

anything there as we look at Sarbanes-Oxley authorization that we 

need to consider? 

Mr. LOWERY. Thank you for the question. We are in discussions 

in the EU through dialogue with, especially on Sarbanes-Oxley, so 

that they understand how does this affect their companies, and if 

they list in the United States. 

My understanding—and I apologize, I don’t have the details and 

we can probably get you better answers for the record in detail, but 

it is my understanding that it causes some issues, but we usually 

are able to find ways to smooth these things out. And many of the 

times it is mainly because of this regulatory dialogue that we have 

been able to establish over the last 2 or 3 years which was started 

off as a very informal dialogue that we have just been able to move 

forward, because it is kept at a very technical level, and it actually 

starts making countries more familiar with what we are trying to 

do through Sarbanes-Oxley. But let me get you a more detailed answer in writing. 

Mr. KENNEDY. That would be great. 

And as we look to expand opportunities for American financial 

services industries abroad, where would you assess the best opportunities to grow in terms of geography and in terms of categories 

of business? And what ifanything can we do here in Congress to 

help America be more competitive in those areas? 

Mr. LOWERY. Well, the next panel is going to be able to answer 

that question a lot better than I am, but I think from what I have 

been hearing is the best market opening opportunities are in the 

big emerging markets, China, India, and Brazil. And I think that 

is why we have been pushing very hard with those countries and 

working with them very closely, because we think that these are 

good expert markups for our financial services firms. 

I think that in terms of—as I said to an earlier question, I think 

that the way that Congress can help most is through its words, its 

actions, and when you are travelling abroad, there might be times 

when your diplomacy can help us as well. 

Ms. BLISS. I would just add to that—and I totally agree—that in 

addition to those markets, I think that also the Asean markets are 

ones that we are looking to as important, as well as South Africa 

and some of the Latin markets. And it is really across the whole 

range of the universe of financial services, banking securities and 

insurance that we are pushing and see the opportunities. 

Mr. KENNEDY. Because it struck me, as I visited some of those 

countries, that one of the big competitive advantages that we have 

in America is the way we allocate capital so efficiently, and we 

have expertise in this area. And are these countries, by leaving our 

people out, our securities firms and others, they are sort of depriving themselves of having that advantage for themselves. So I think 

22

it is a win-win situation for those other countries, for America. I 

appreciate your advocacy on it, I look forward to your being an advocate on your behalf. 

Chairwoman PRYCE. Well, I thank this panel very much for the 

time you have given us and for your expertise in this area, and we 

look forward to working with you and advancing this cost. Thank 

you very much. 

And as the next panel gets seated, I just want to announce that 

I have to leave for a meeting in the Capitol, and Ms. Biggert will 

be chairing this portion of the hearing. And I appreciate her help 

in that regard. And I will leave her to introduce you all. 

Mrs. BIGGERT. [presiding] I would like to welcome the second 

panel today here for your testimony, and I would like to introduce 

the panel. 

First we have Mr. Norman Sorensen as the senior vice-president, 

International Principal Financial Group and president of Principal 

International, Inc. 

Mr. Sorensen serves as chairman of the board of the U.S. Coalition of Service Industries. CSI is the leading U.S. business association representing countries across a broad spectrum of service sectors, welcome. 

Next we have Ms. Madeleine Champion. Ms. Champion is a managing director at JPMorgan Chase. She works with commercial 

bank clients doing business overseas. She is also the current president of the Banker’s Association for Finance and Trade, on whose 

behalf she is appearing today. Welcome. 

Also testifying today is Marc E. Lackritz, the president of the Securities Industry Association. He has served as president of SIA 

since 1992, representing approximately 600 security firms. Welcome. 

We have Dr. Sydney J. Key, who has written extensively on 

international trade in financial services, and is testifying in a personal capacity as a former staff director of the subcommittee. Her 

publications include the Doha round and financial services negotiations, press 2003, and the financial services chapter in the World 

Trade Organization legal, economic and political analysis. Welcome. 

And we will be joined by, in just a few moments, the 34th Commerce Secretary, now CEO of the Financial Services Forum, Don 

Evans. Secretary Evans was a core member of the President’s economic team and served as one of the President’s key advisors on 

international trade. And Secretary Evans has a busy schedule 

today and can only be with us for a short time, but will be leaving 

the president and COO of the Financial Services Forum, Robert 

Nichols, who is sitting at the table, and he will stay behind to answer questions that the committee might have. Mr. Nichols took 

over as president and COO of the Financial Services Forum in 

June 2005. 

Prior to this role, he served as the Assistant Secretary for Public 

Affairs at the Treasury Department, serving as head of the communications team at Treasury in the Bush Administration. 

So with that, we will begin with the testimony. And Mr. 

Sorensen, if you will begin, you are recognized for 5 minutes. 

23

STATEMENT OF NORMAN R. SORENSEN, PRESIDENT AND CEO, 

PRINCIPAL INTERNATIONAL, INC., ON BEHALF OF THE COALITION OF SERVICE INDUSTRIES 

Mr. SORENSEN. Thank you, Chairwoman Pryce, for the opportunity to testify today. Services account for 80 percent of U.S. gross 

domestic product, and 80 percent of U.S. jobs. Every new job in the 

services sector in the United States grows the industry further. 

The United States is the most competitive exporter of services, that has been said before, with a $50 billion surplus last year, $16 

billion accounted for by financial services in 2004 and the potential 

for expansion is vast. 

With the Doha round of WTO, services negotiations are floundering, that has been said before; it is true. The bottom line is that 

while there is a sufficient quantity of offers, their quality is poor 

and they provide little or no commercial opportunity. 

Liberalizing trade in financial services is essential to economic 

development. Easy access to low cost consumer credit, pensions, 

banking, insurance, and other services provide capital for businesses and improve people’s lives. I think the prior panelist covered 

that rather well. Well-regulated and open financial systems boost 

economic growth, according to many studies, including the World 

Bank. 

I have been asked to address issues relating to insurance, asset 

management, and pensions. I will be very brief. 

We believe trade liberalization across these three sectors brings 

substantial benefits in each. Insurance provides important benefits, 

including financial security, creation of pools of capital for investment in basic infrastructure, and protection against loss on a 

shared basis. Asset management companies contribute economic 

growth by channeling individual savings to finance enterprise, providing long-term stable capital and mutual funds to give small investors access to professional management and diversification. 

As many countries struggle to provide income support for aging 

populations—and that is a real hot subject these days, not only 

across the world, but also in the United States—they can benefit 

from state-of-the-art private pension products if they allow world 

class suppliers to offer those. For each of these sectors, industry 

has asked our trade negotiators to obtain the following: number 

one, the right to establish and own a majority share in those businesses—that has been said before; number two, the right to be 

treated the same as a domestic company; number three, the right 

to regulatory transparency and best practices; number four, the 

ability to trade across borders; and number five, protection of 

rights already acquired in a market. 

The insurance industry has developed a model schedule that 

countries use to schedule these benefits, which I would be glad to 

submit for the record if I may, Madam Chairwoman. 

Mrs. BIGGERT. Without objection, your whole testimony will be 

admitted, also. Thank you. 

Mr. SORENSEN. The negotiations are going badly for three main 

reasons. The first is that many of the important developing countries from whom we seek offers do not have sufficient incentives to 

make them. Number one, an agriculture breakthrough is the 

linchpin of the entire Doha WTO round undertaking. If the EuroVerDate 0ct 09 2002 17:57 Oct 03, 2006 Jkt 026757 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 F:\DOCS\26757.TXT HFIN PsN: TERRIE
24

pean Union and the United States can reduce barriers to imports 

from developing countries and modify their support and subsidy 

payments, those countries would make services offers of a material 

nature. 

Number two: a group of about 13 large developing countries will 

not liberalize their financial and other key markets because the 

United States is unable to discuss business travel facilitation. That 

has been discussed before. We need your committee’s and broad 

Congressional support to improve business travel facilitation in 

order to run our own businesses better here and abroad, and to get 

the negotiating leverage we need in Geneva. 

I met this morning with Secretary Gutierrez to basically make 

the same plea, which he hears from a number of other industry 

sectors as well. 

Number three, another group, including Asean nations, has advocated an escape clause or safeguard for services. They seek reassurance that imports of services will not destabilize their economies. 

We should be able to find a practical way to address those issues 

without impairing our own core interests. 

The Coalition of Service Industries does not believe that safeguards are in the interest of overall broad agreements, however, 

the practical necessities may require that both those countries’ interests and ours can be addressed through a work-around situation. 

Another factor in why the services talks are floundering is the 

difficulty of the so-called request and offer bargaining process 

which requires sector-by-sector, country-by-country negotiations; 

very complicated, very long, very deliberate, and some countries 

don’t have the capabilities to actually work this process. To simplify the process, a formula approach has been offered that would 

require countries to make fixed levels of commitments. The European Union has made particularly controversial proposals which 

have received no support. It could, however, diffuse the impasse it 

has created, but instead, it has used the stand-off to help justify 

its refusal to make further concessions in agriculture. So we go 

back full circle to the agriculture issue. 

Industry’s experience in this and previous WTO negotiations on 

financial services demonstrates that finance ministries must lead 

the negotiations, or they will be less successful. Secretary Snow 

and his team have now taken an active role, thanks in part to this 

committee’s demonstration of interest and evidenced by the letter 

that you, yourself, addressed to Secretary Snow which you endorsed. 

Chairwoman Pryce, I believe we can achieve our goals for financial and other services but this would require progress in agriculture, business travel facilitation, and safeguards. It would be 

very difficult for the U.S. financial services sector to support a 

Doha round outcome that failed to include a strong financial services liberalization component. Thank you very much. 

[The prepared statement of Mr. Sorensen can be found on page 

149 of the appendix.] 

Mrs. BIGGERT. Thank you. 

Ms. Champion, you are recognized for 5 minutes. 

25

STATEMENT OF MADELEINE CHAMPION, MANAGING DIRECTOR, JPMORGAN CHASE, ON BEHALF OF THE BANKER’S ASSOCIATION FOR FINANCE AND TRADE 

Ms. CHAMPION. Thank you, Madam Chairwoman. 

Although only a few of the largest U.S. banks operate on a truly 

global scale, international activities are an important part of the 

business of many U.S. banks, including all members of the Bankers 

Association for Finance and Trade. 

In conducting those activities, U.S. banks encounter a wide range 

of trade barriers. India, one of the fastest growing economies in the 

world, provides a good example. Foreign banks doing business in 

India are subject to overall limits on their assets, and their ability 

to invest in local banks is very restricted. Foreign banks are also 

subject to higher taxes and more rigorous capital requirements 

than local banks. 

China is another. Although China made a large number of commitments to open its markets to foreign participants when it 

gained accession to the WTO in 2001—and it has made impressive 

progress—banks from the United States and elsewhere continue to 

face significant obstacles. For instance, a single foreign investor in 

a Chinese bank may not own more than 20 percent of the equity, 

and total foreign investment in a single Chinese bank is limited to 

25 percent. 

The Chinese regulatory system is another impediment. A recent 

study of foreign banks in China found that new regulations are the 

most important issue they face and that the regulatory environment is regarded as the most difficult aspect of doing business 

there. 

India and China are not alone in this regard. U.S. banks face difficult challenges in many other WTO member countries, including 

Indonesia, the Philippines, Thailand, and Korea. I mention those in 

particular, because they are some of the biggest and most interesting foreign markets. China and India are especially significant, 

and obtaining trading barrier reductions in their markets are high 

priorities for many American banks. 

Of course, we also encounter barriers in countries that are not 

WTO members. Russia, which is seeking to join the WTO, is noteworthy. Russia prohibits foreign banks from operating through 

branches. Non-Russian banks are permitted to operate only 

through subsidiaries, and the Russian Central Bank has authority 

to impose an overall limit on foreign subsidiaries’ share of total 

Russian bank capital. 

We hope that the WTO’s Doha round of trade negotiations will 

lead to a significant reduction in trade barriers generally, as well 

as reductions in barriers imposed specifically on foreign banks. But 

multilateral negotiations are not the only avenue for reducing trade 

barriers. We also support our country’s bilateral negotiation of free 

trade agreements. Our banks will benefit from gaining greater access to foreign markets in whatever manner it is achieved. Local 

consumers and businesses in other countries also will benefit from 

the competition, management expertise, skills transferred, new operating methods, innovative products and services, and standards 

of conduct that U.S. and other foreign banks can bring to their 

markets. 

26

Open and competitive markets are the ultimate objective, and 

they share certain fundamental characteristics; national treatment, 

unrestricted market access, and transparency. We believe that 

countries participating in the Doha round should have these characteristics as goals for their own financial markets, and BAFT will 

use them as benchmarks in evaluating the Doha round’s progress 

with respect to banking services on a country-by-country basis. We 

also believe that countries like Russia, who wish to become WTO 

members, should make concessions that will bring their markets in 

line with these characteristics. 

U.S. banks can realize significant benefits from a general reduction in global trade barriers, and thus have much to gain in the 

Doha round. We are concerned, however, about the slow progress 

so far. Many countries have not made initial offers or revised offers, and the overall quality of the offers that have been made generally is regarded to be unsatisfactory. 

The success of the Doha round is important, and we urge all of 

the participating countries to redouble their efforts and make aggressive reductions in their trade barriers. The United States 

should take the lead in setting examples for others to follow. It has 

done so in the recent proposals to reduce agriculture subsidies and 

should do so across the board, including, in particular, with regard 

to business travel facilitation. 

BAFT greatly appreciates the efforts of the U.S. Treasury Department and USTR in promoting financial services liberalization 

within the WTO negotiations, as well as in free trade agreements. 

Securing broad service liberalization, specifically significant financial services liberalization, is essential to achieving a WTO agreement we can support. Thank you. 

[The prepared statement of Ms. Champion can be found on page 

53 of the appendix.] 

Mrs. BIGGERT. Thank you. Mr. Lackritz, if you don’t mind, we 

will move over to Secretary Evans, since he is on a tight schedule, 

and then we will come back to you. 

Mr. LACKRITZ. Not at all. 

Mrs. BIGGERT. Thank you. 

Welcome, Mr. Secretary. We did introduce you, so we will go 

ahead. And you know the drill, only this time you have a shorter 

period of time than when you are usually here— 

Secretary EVANS. Unfortunately. 

Mrs. BIGGERT. So you are recognized for 5 minutes. 

STATEMENT OF HON. DON EVANS, CHIEF EXECUTIVE 

OFFICER, FINANCIAL SERVICES FORUM 

Mr. EVANS. Thank you, Madam Chairwoman, very much. I am 

delighted to be here. It is an honor to present to both you and my 

good friend, Congressman Manzullo— 

Mrs. BIGGERT. You notice we are both here from Illinois. 

Mr. EVANS. Exactly, you have got Illinois covered. The manufacturing State, right? There you go. 

Chairwoman Biggert, thank you for the opportunity to participate in this important hearing on increasing efficiency and economic growth through trade in financial services. And thank you 

27

for your leadership on the critical issue of the importance of trade 

to our Nation’s economy and the broader global economy. 

I am here as the chief executive officer of the Financial Services 

Forum, a financial and economic policy organization comprised of 

the chief executives of 20 of the largest financial institutions with 

operations in the United States. 

The Forum’s purpose is to promote policies that enhance savings 

and investment, and that ensure an open, competitive, and sound 

global financial services marketplace. I strongly believe that two of 

the greatest challenges confronting the United States and the 

world today are the need to address persistent poverty and the 

need to effectively deal with the challenges associated with 

globalization. 

I am convinced that freer and more open trade is perhaps the 

most powerful tool at our disposal in both efforts, and that the 

multi-national framework known as the World Trade Organization 

is critical to maintaining an open global trading system governed 

by the rule of law. 

Madam Chairwoman, as you know, my schedule today is such 

that I am only here to make a brief oral statement, but I am going 

to leave behind my colleague and friend, Rob Nichols, to answer 

any questions. 

The World Trade Organization was established in 1994 during 

the Uruguay round of trade negotiations, the 8th round of multinational negotiations held under the General Agreement on Tariffs 

and Trade commonly known as GATS. The GATS was created in 

1947 as part of the world’s response to the devastation of World 

War II and the policy failures and Great Depression that led in 

part to that historic calamity. 

The organizing principle was simple and inspired—to promote 

global stability and security by extending economic opportunity and 

raising living standards around the world. And the results have 

been nothing short of phenomenal. Between 1950 and 1998, global 

economic output rose by 530 percent, while the volume of merchandise exports rose 1840 percent. Over that 50-year period, the ratio 

of trade to global output tripled, from about 7 percent to more than 

20 percent. In what has been the most dynamic era of economic development in human history, trade has become the basis for a prosperous world economy. Openness to trade has also become the distinguishing characteristic of the world’s most productive economies. 

Capitalizing on trading opportunities is a major reason why 

small but open economies such as Finland, Hong Kong, Singapore, 

and Taiwan are able to generate standards of living far higher 

than most of the largest and resource-rich countries, including 

China, India, Indonesia, and Brazil. Academic research has established that countries that have more open economies and that engage in international trade enjoy higher growth rates and faster reductions in poverty than more closed economies. 

The World Bank has also determined that over the past 2 decades, those developing countries that engaged in trade enjoyed faster growth in real wages. Indeed, since World War II, no nation has 

prospered without exploiting opportunities to trade. 

Of course, it hasn’t just been the rest of the world that has 

reaped the rewards of trade. Lest we forget—and too many of us 

28

it seems do forget—the United States of America has benefited 

enormously from freer and more open trade. The United States 

represents about 18 percent of global trade, and it is the world’s 

largest exporter. Since the creation of the WTO 10 years ago, U.S. 

exports of goods and services have increased 65 percent to more 

than $1 trillion, with manufacturing, agriculture, and high technology exports growing by 65, 38, and 67 percent, respectively. 

Thanks in large part to the passage of the North American Free 

Trade Agreement, NAFTA, over that same period, U.S. exports to 

Mexico more than doubled, while exports to Canada and the EU 

grew by 66 and 56 percent, respectively. The growth in exports to 

China has been even faster, nearly quadrupling over the past 10 

years. 

The recent passage of the Central American Free Trade Agreement, commonly known as CAFTA, will add to this progress by 

providing American exporters with clear access to a market of 44 

million customers, creating the second largest U.S. export market 

within Latin America—larger than Russia, India, and Indonesia 

combined. 

The relative importance of trade to the U.S. economy has also increased. Twenty years ago, the total value of U.S. exports and imports amounted to 17 percent of America’s GDP. Today, trade accounts for a quarter of our economic output and the jobs of more 

than 12 million American workers. 

By offering prosperity in return for peaceful exchange and market-led cooperation, trade has become the foundation for progress 

around the world. The critical task before us now is to build on our 

achievements of the past 60 years by extending freer and more 

open trade to those countries and regions that have not, as yet, enjoyed the developmental power of international trade. 

The Uruguay round of the early 1990’s was significant in that it 

expanded coverage of GATS rules beyond manufacturing goods to 

include agricultural trade, services, trade-related investment measures, intellectual property rights and textiles. But its most significant achievement was the creation of the WTO, to administer 

GATS agreements and to settle disputes among WTO members. 

WTO membership now includes 148 nations. Additions of significance over the past decade include not only China, but also Jordan, 

Cambodia, and several former Soviet republics. And just last week, 

Saudi Arabia won approval to become the WTO’s newest member 

next month. And membership negotiations for more than 20 other 

countries, including Russia, Vietnam, Ukraine, Afghanistan, and 

Iraq are ongoing. Such sustained interest in joining the WTO underscores the importance the world continues to associate with 

membership. 

The creation of the WTO was, in many ways, the culmination of 

a decade-long bipartisan American commitment to lead the world 

away from economic isolationism and toward an open rules-based 

global trading system. And the United States continues to exercise 

its leadership in WTO. For example, the United States aggressively 

uses WTO machinery to enforce hard-won trade-related rights. 

Since the creation of the WTO in 1994, the United States has 

brought more dispute settlement cases than any other member, 

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29

technology and telecommunication. The WTO also advances U.S. 

interests through more than 20 standing committees that meet regularly to administer agreements, allow members to exchange views, 

and to develop initiatives aimed at improving existing agreements 

and their operation. 

Simply put, in a world where about 95 percent of consumers live 

beyond our borders, the WTO is an essential tool for advancing 

U.S. interests. 

WTO countries are currently participating in the 9th round of 

negotiations called the Doha development round which was 

launched in Doha, Qatar, in November of 2001, in the immediate 

aftermath of the September 11th terror attacks. The main areas of 

focus in the negotiations are agriculture, industrial market access, 

services, trade facilities, WTO rules, and the promotion of economic 

development. 

Madam Chairwoman, I know I have gone past my time, would 

you like me to conclude my remarks? 

Mrs. BIGGERT. Yes. If you could bring your remarks to a close. 

Mr. EVANS. I sure will, I would be happy to do that. 

Mrs. BIGGERT. I know it is hard when you are used to longer 

time. 

Mr. EVANS. The global trading system is not perfect and will always remain a work in progress. And given the complexities—technological, political, and cultural—that stem from the accelerating 

pace of globalization, further trade liberalization is hard work. But 

that hard work is even more important today than it was following 

a catastrophic world war. 

To ensure that all nations reach the maximum benefit from 

trade, the global trading system must operate with predictability 

and transparency, without discrimination against the products of 

any nation, and providing the means to address unfair trade practices. This is a crucial responsibility of the World Trade Organization. We must keep in mind that while trade can cause transitional 

pain for some American workers, building walls around the United 

States would cause enormous permanent pain for all Americans. 

Imagine, for example, if U.S. computer companies were forced to 

make all their components at home; the cost of owning a computer 

would be much higher, so fewer businesses would have access to 

productivity-enhancing, wealth creating tools which help make 

them more profitable, grow fast, and better able to hire workers. 

By capitalizing on what different countries do best, trade lowers 

costs, frees up capital and other resources to be used productively, 

raises living standards, and promotes growth and development, all 

of which promotes faster job creation. The participation and leadership of the United States in the global trading system, by way of 

the WTO, remains a critical element for ensuring America’s continued prosperity and for meeting the challenges of ensuring a more 

stable and secure world. 

Madam Chairwoman, thank you for allowing me to extend my remarks. And to all the members of the committee, it was a delight 

to drop by here and see you. I know I have more extended remarks, 

that may be hard to believe, but I have more extended remarks 

that will be submitted for the record. Thank you very much. 

30

[The prepared statement of Mr. Evans can be found on page 64 

of the appendix.] 

Mrs. BIGGERT. Yes. Thank you very much, and thank you for 

being here. And your extended remarks will be included in the 

record. I appreciate you being here, thank you. 

Mr. EVANS. Thank you. I appreciate it. 

Mrs. BIGGERT. And thank you, Dr. Key and Mr. Lackritz, for 

your patience. I now would like to hear the testimony of Mr. 

Lackritz. I know that you have been here several times, welcome 

back, we are happy to have you here. 

STATEMENT OF MARC E. LACKRITZ, PRESIDENT, SECURITIES 

INDUSTRY ASSOCIATION 

Mr. LACKRITZ. Thank you, Chairwoman Biggert. It is a pleasure 

to be here, and thank you very much for the invitation to testify. 

Members of the subcommittee, and Chairwoman Biggert, I appreciate the chance to talk about the security industry’s objectives and 

goals for the Doha development round of the WTO negotiations. 

With a ministerial set to begin in less than a month, we really 

commend the subcommittee for holding this timely hearing. The 

subcommittee has a history of, a proud history, I think, of being a 

forceful, persuasive advocate for open, fair international markets, 

and we are confident that you will continue to work with U.S. negotiators in securing a commercially meaningful package of financial services commitments in the Doha round. 

Open, fair, free international markets enhance globalization by 

fostering economic growth, providing new opportunities, and increasing competition. Indeed, the purpose of trade liberalization is 

not simply to increase the volume of global commerce, but also to 

improve the quality of people’s lives. 

The evidence is clear, open economies are more likely to lift people out of poverty than economies that are stagnant and closed, 

and an open trading system for financial services is a win-win situation, bringing economic benefits to newly-emerging economies 

while increasing jobs here at home and the services trade surplus. 

The U.S. financial services sector is a key component in our economy in raising capital for new businesses, extending credit for corporate acquisitions, managing finances for retail customers, and 

providing risk management products and services to U.S. multinationals. Financial services firms affect every aspect of the economy. 

The U.S. financial services industry contributed $972 billion to 

U.S. GDP in 2004, about 8.3 percent of total GDP. More than 6.1 

million employees support the products and services these firms 

offer. Importantly, financial services firms generated a trade surplus of $16 billion in 2004 on the strength of a record $27 billion 

of exports. And our contribution to the U.S. economy total output 

has been especially impressive, since it has been increased by nearly 4 times of the last 15 years, which is double the rate of increase 

of the overall economy. 

We have consistently advocated trade liberalization that achieves 

three important objectives; first, commercial presence with national 

treatment; second, increased cross border assess; and third, transparent regulation. 

31

To fully achieve those objectives, our industry recently drafted a 

model schedule of commitments which I would ask, Chairwoman 

Biggert, to be included in the record along with my written statement. 

Mrs. BIGGERT. Without objection. 

Mr. LACKRITZ. Thank you. This would allow securities firms to 

serve their global customers most efficiently while safeguarding 

critical regulatory goals. The model schedule would apply to debt 

and equity trading, securities underwriting and placement, asset 

management and advisory services. 

A fundamental element of any WTO agreement is the absent 

ability to operate competitively through a wholly-owned commercial 

presence or other form of business ownership. Members should permit foreign suppliers of capital markets related services to establish a new commercial presence or acquire an existing commercial 

presence in the member’s own countries. Firms should be allowed 

to choose their corporate forum and should receive the same treatment as domestic businesses. 

In today’s capital markets, services are increasingly being supplied electronically without the consumer or the supplier leaving its 

home territory. WTO members, however, have made virtually no 

commitments with respect to cross border supply in three of the 

four sectors of greatest interest to our industry, trading, underwriting and asset management. The model schedule calls for members to make basic commitments to permit cross border supply 

without quantitative limits or so-called economic needs tests, and 

to accord such suppliers nondiscriminatory treatment. 

Regulatory transparency is as much a market access issue for securities firms as tariffs are for manufacturers. A nontransparent 

regulatory system can skew competition in favor of domestic suppliers even when the market is technically open to foreign suppliers. Financial regulation should be developed, adopted and enforced in a transparent, nondiscriminatory manner so that both 

providers and consumers know what the rules are and have confidence that they will be applied consistently and fairly. 

Chairwoman Biggert, our industry is the world leader in international technology, finance and innovation. If we are to retain our 

pre-eminence, however, we must be able to meet the demands of 

both our U.S. and our foreign clients. SIA would like to express our 

appreciation to both the Treasury Department and the USTR for 

their continued efforts as forceful advocates for open and fair global 

financial markets. And Chairwoman Biggert, the Doha round negotiations offer Congress and the Administration another opportunity 

to secure open and fair access to foreign markets for U.S. firms and 

their clients. We are eager to continue working with your subcommittee and the Administration to ensure that these important 

trade talks achieve favorable results for issuers, investors, and financial services firms around the world. Thank you very much. 

[The prepared statement of Mr. Lackritz can be found on page 

78 of the appendix.] 

Mrs. BIGGERT. Thank you very much, Mr. Lackritz. 

Dr. Key, you are recognized for 5 minutes. 

32

STATEMENT OF DR. SYDNEY J. KEY, FORMER STAFF DIRECTOR, SUBCOMMITTEE ON INTERNATIONAL DEVELOPMENT, 

FINANCE, TRADE, AND MONETARY POLICY, COMMITTEE ON 

BANKING, FINANCE, AND URBAN AFFAIRS, U.S. HOUSE OF 

REPRESENTATIVES 

Dr. KEY. I want to thank the chairwoman and members of the 

subcommittee for the opportunity to testify. 

This afternoon, I will try to put financial services liberalization 

in the General Agreement on Trade in Services in perspective by 

focusing on three issues: first, the relationship between marketopening efforts in the WTO, and the ongoing international work on 

strengthening domestic financial systems; second, the importance 

of undertaking binding commitments in the GATS; and third, the 

inclusion of regulatory transparency in the Doha round negotiations. 

I would like to begin by emphasizing that the presence of foreign 

firms can create more competitive and efficient domestic markets 

for financial services, thereby supporting economic growth and development and contributing to a more resilient domestic financial 

system. At the same time, however, structural reforms to strengthen domestic financial systems, including ensuring adequate prudential regulation and supervision, are essential to obtain the maximum benefits of liberalization while minimizing the risks. 

Work aimed at strengthening domestic financial systems is taking place in a variety of international fora. This work includes promoting cooperation and coordination among financial supervisors 

and setting voluntary, but widely accepted, international minimum 

standards and codes of good practices. As part of this effort, the financial sector assessment program of the IMF and the World Bank 

involves assessing the strengths and vulnerabilities of a country’s 

financial sector, and monitoring and helping to build institutional 

capacity for the implementation of the international standards and 

codes. 

Because measures to promote competitive markets and to 

strengthen domestic financial systems are complementary and mutually reinforcing, the relationship between financial sector regulation and liberalization has two distinct dimensions. On the one 

hand, liberalization requires reducing or removing anticompetitive 

regulations that pose unnecessary barriers to trade in services. On 

the other hand, liberalization also requires increasing the strength 

and quality of certain regulations and, in some areas, actually introducing new regulations. Thus, the process of liberalization involves reaching a consensus on where to draw the line between regulations that are simply anticompetitive barriers to trade and 

should, therefore, be eliminated and regulations that serve legitimate purposes. 

For financial services, the GATS contains what is known as the 

prudential carve-out for domestic regulation. It is designed to ensure that the obligations and commitments a country has undertaken in the GATS will not interfere with the ability of the national authorities to exercise their responsibilities for prudential 

regulation and supervision. This provision was included in the 

GATS at the insistence of financial regulators. They made it absolutely clear that the inclusion of financial services in a multilateral 

33

trade agreement would be unacceptable without a specific carve-out 

from the obligations of the agreement for prudential measures. 

The second point I want to emphasize is the importance of obtaining binding commitments in the GATS. A GATS commitment 

is permanent in the sense it cannot be withdrawn without compensation of trading partners. Failure to honor a GATS commitment could open a country to a dispute settlement proceeding and, 

ultimately, to WTO-sanctioned retaliatory measures by its trading 

partners. As a result, binding even the status quo,that is, existing 

levels of liberalization, is significant. 

Undertaking binding commitments in the GATS can also be an 

integral part of a country’s longer-term policy reform agenda. For 

example, China, as part of its WTO accession agreement, made 

phased commitments in the GATS to open its banking sector to foreign direct investment within 5 years, that is, by December 11, 

2006. In agreeing to this deadline, the Chinese government was 

also, in effect, setting a domestic political deadline for major reform 

of China’s banking system. 

Third, I would like to turn to the issue of how far the Doha 

round financial services negotiations should extend into the realm 

of domestic structural reform to deal with nondiscriminatory structural barriers to trade in financial services. 

One area that could usefully be negotiated in the WTO that goes 

beyond traditional market opening is regulatory transparency. 

Stronger GATS rules on regulatory transparency would help eliminate barriers to trade in services created by opaque regulatory regimes, and also help ensure that a country does not use its regulatory regime to undermine its specific commitments to open markets. 

In conclusion, I want to emphasize that a continuing challenge 

in financial services negotiations in the WTO is to provide support 

for and to build upon political and market forces that are creating 

pressures within a country for market opening and domestic structural reform. In this regard, a country’s readiness for reform is critical. As the GATS explicitly recognizes, liberalization of trade in 

services is an ongoing process. For financial services, this process 

is being driven largely by market forces and new technologies. It 

is also being driven by the growing recognition among policymakers 

that market opening can benefit host-country consumers of financial services and, at the same time, contribute to the resiliency of 

domestic financial systems. Thank you. 

[The prepared statement of Dr. Key can be found on page 72 of 

the appendix.] 

Mrs. BIGGERT. Thank you very much, Doctor. 

We will now proceed to the questions, and as in the first panel, 

each member is recognized for 5 minutes to ask questions, so I will 

recognize myself for 5 minutes. 

Mr. Lackritz, you talked about the model schedule for GATS 

commitments for capital market-related services. If the model 

schedule were to apply to the United States, how would it impact 

the ability of foreign exchanges to establish trading screens in the 

United States without registration within the SEC? 

Mr. LACKRITZ. Well, I think, in essence, we provide currently national treatment to anyone coming into our country to do business. 

34

So currently, if a foreign exchange wanted to come into this country—in fact, it has happened in Chicago where we had that issue 

in fact, it is probably the one you are most familiar with— 

Mrs. BIGGERT. Yes. 

Mr. LACKRITZ. So, in fact, it would provide the same kinds of opportunities for foreign exchanges to do business here under the 

same rules and regulations that U.S. exchanges would have. So we 

provide that national treatment. 

What we are trying to do with the model schedule is really to extend that kind of national treatment principle to some of these 

other developing countries that currently don’t provide national 

treatment, don’t permit establishment, don’t have broad cross-border commitments, and don’t have regulatory transparency. So we 

are trying to export that model really to other countries. 

Mrs. BIGGERT. I guess we have always had the most open markets, and that is what we are trying to instill in other countries, 

but sometimes it seems to be difficult. 

Has the SEC reacted to this proposal? 

Mr. LACKRITZ. We have had—yes. We have had ongoing discussions with the SEC about our proposal, and I think they have been 

very encouraging so far. And I think we have also worked with our 

Treasury Department and our USTR with respect to the proposal, 

and in addition, had consultations now with over 35 countries in 

the context of the WTO negotiations as well as the WTO secretaries. So we are making a very active and aggressive effort to try 

and move this effort along. 

Mrs. BIGGERT. Would that be the European? How have the Europeans and the Asian regulators reacted to the proposal? 

Mr. LACKRITZ. So far we have been very encouraged by the response. So far the response has been very positive, but obviously, 

the proof will be in the pudding. And as the round of ministerial 

takes place next month, and then the offers come forward hopefully 

after that. 

Mrs. BIGGERT. Mr. Nichols, Secretary Evans talked a lot about 

persistent poverty and the need to deal with the challenges associated with globalization, and he said that part of the challenge is 

to deal with the poverty, but really, if we have the open markets 

in the developing countries, this will alleviate the poverty. Could 

you expand a little bit on that? 

Mr. NICHOLS. Sure. Thank you very much for your question, Congressman, and I appreciate it. 

You know, one point, when we are talking about trade, in my experiences, we are often talking about import and export ratios and 

tariffs and it gets very technical, but the point that the forum 

would like to add to your hearing today and to the dialogue here 

is the impact it has on people, on actual people. And the World 

Bank just came out with a study that I would like to raise to your 

attention last week on the 9th that essentially said, with the successful achievement of a Doha trade round, they estimate that they 

will lift 32 million people from the poverty rolls. And I think as we 

are talking about trade, those are 32 million fantastic reasons for 

us to achieve success. 

35

Mrs. BIGGERT. Do you think that what we have done to eliminate 

the debt owed by many of the most impoverished countries will 

really help to introduce the concept of trade into those countries? 

Mr. NICHOLS. Debt relief is certainly an important part of the 

overall equation, but there is nothing better we can do to help 

emerging and developing nations than to establish strong trading 

ties, in fact, on the earlier panel, you asked the government witnesses about what markets that the financial services industry is 

looking to, and they answered correctly India and China are two 

that our members view as important opportunities. 

But I will tell you, in addition to what they would do for the financial services industry, speaking of China, there is somewhere in 

the area of 7- or 800-million people living in poverty in inland 

China. Over time, if that Nation embraces financial services, that 

will help lift those people from poverty into a middle class and that 

is important and good for the entire globe. 

Mrs. BIGGERT. Thank you. Mr. Sorensen, I think we are going to 

have plenty of time for this hearing, but I will ask the question 

now, I know you are in on a time schedule. Your testimony indicated that a number of major emerging markets are holding back 

on offering major improvements in services, liberalization, without 

progress in the United States on business travel visas. Your testimony, you had a recommendation how to resolve that issue. What 

kind of support is CSI receiving from other trade associations about 

this proposal? 

Mr. SORENSEN. The European Services Forum, the Hong Kong 

associations largely in the developed countries, the Australian associations, Japanese associations which mirror our desire to get this 

resolved in one way or another, are extremely supportive. We have 

seen tremendous support also from the Business Roundtable, who 

have endorsed our proposal and it is being discussed with a number of members of Congress in the Judiciary Committee. 

I think it will be a little while longer before we all get used to 

the fact that this is a proposal that allows for temporary entry of 

business people, technical people, and trainees, to come to the 

United States for a very defined period of time, with an exit. This 

is not an extension of permanent status; this is not an overstay 

time situation. The way it is done is by locking in the sponsorship 

company or entity that sponsors these individuals to come to the 

United States who will be subject to nonrenewal of their rights to 

do so should there be any violations. 

And so, this adds teeth, if you will, to avoid some of the leakage 

that has been going on among a number of these categories, and 

so there is tremendous support. The Europeans in particular, not 

only the European Services Forum, but also the European Commission, Mr. Mandelson, whom I met with a couple of months ago, was 

particularly anxious to see this move forward. Once the agricultural situation is resolved, this will be the next major issue to be 

dealt with. 

The final thing I will say is that this is reciprocal, so 148 countries would have the same obligations such that the United States, 

one of my trainees here, or one of my IT people would have a fasttrack entry into the Indian market or the Brazilian market, the 

36

Chinese market, all of which today offer tremendous delays similar 

to the delays that we have for temporary entry of personnel. 

Mrs. BIGGERT. Thank you. My time has expired. The gentleman 

from New York, Mr. Crowley, is recognized for 5 minutes. 

Mr. CROWLEY. I thank the gentlelady. An industry-related question, Mr. Sorensen. I have been working with such companies as 

New York Life and other insurance firms to pry open as I mentioned before the first panel, opportunities in the global market for 

services firms based here in the United States. We have seen successes in places like India and Vietnam, but I believe more needs 

to be done. There are far too many barriers for entries for financial 

services firms. I was wondering if anyone can comment on some of 

the things the U.S. financial services firms, in particular, the insurance industry, have been doing to get themselves into foreign markets and what things can be done better, what things can our government be doing to help them in this goal, and how does this help 

Americans here at home? 

Mr. Nichols, this may correspond to the Doha issues in terms of 

uplifting 32 million people in the world, but how does it affect people abroad as well? 

Mr. SORENSEN. I would be very, very brief on this. The insurance 

industry has developed a model schedule, it was developed in 2001, 

which has been submitted for the record. That schedule has been 

discussed with a number of foreign governments at the trade level, 

and at the insurance regulator level. Essentially, the Big 5, the Indians, the Chinas, the Brazils, Malaysia, and Indonesia, the response has been not overwhelmingly positive. On a scale of 1 to 10, 

we are at a 6 today. I would say that, for example, the ownership 

issues remain very, very large. One cannot own more than 26 percent of an insurance company in India today and although talk 

about the 49 percent access remains, that is still quite a ways to 

go. 

One cannot own any more than 20 percent of a bank in China 

or more than 49 percent of an asset management company in 

China. So there is this holdback process which is driven by a number of factors at the government level. One of them, when we allow 

too much free flow, there may be destabilization in some economies, which have closed capital markets, India and Malaysia, perfect examples. There is not a free trade or, correction, free flow of 

capital. So we need to break that holdback, we need to break that 

holdback in a number of ways. The insurance industry is only one 

example. I think we probably need several years. The Doha issue 

would be a tremendous accomplishment if we have success in 2006, 

which seems increasingly elusive, we are hoping that that will go 

a long ways to resolving our issues. 

Mr. CROWLEY. Anyone else want to comment on that? 

Mr. LACKRITZ. I would reemphasize the model scheduled in the 

securities areas, and what we have tried to do to get more establishment of commercial enterprises in developing countries markets 

to improve cross-border access and regulatory transparency. On top 

of that, we, this last year, held our first conference on capital markets in China, and we had more than 600 attendees—Chinese 

attendees—and a number of representatives of our firms who are 

capable of doing global business, talking about equity markets, 

37

debt markets, underwriting, trading, exchanges, regulation, and I 

think the momentum resulting from that actually helps to sort of 

spread the word about the benefits of this. I think the biggest challenge we have as an industry may be— 

Mr. CROWLEY. The benefits being that of transparency. 

Mr. LACKRITZ. And fully developed capital markets. That these 

really help the countries themselves. This is an effort to help the 

countries develop faster. As Secretary Evans mentioned in his testimony, as we have cited, better capital markets improve economic 

growth, they improve opportunities, they accelerate development. 

There are benefits all the way around. 

So I think a big challenge for us is to help educate some emerging markets about the benefits that more open systems, and more 

open financial services sectors really provide to their own countries, 

and I think that is the challenge that we face in addition to these 

negotiations and the commitments from our model schedule. 

Mr. CROWLEY. Maybe some of the benefits are self-evident, but 

what are some of the benefits our country could derive? 

Mr. LACKRITZ. First of all, any country dependent on one sector, 

for example, in financial services, runs the risk of destabilization, 

whereas if you have a broader array of sectors actively involved, 

you have sort of shock absorbers where there are market imbalances, and you have more diverse products and services that are 

available to customers to buy. So you have a more efficient capable 

allocation system where capital is going to go to its highest uses. 

You have more advisory services to help capital—people that have 

capital in those countries invest their capital most wisely. 

Most importantly, you have for the companies in those countries 

that are providing the jobs and the growth, you have greater access 

to global flows of capital, so they get more ready access at lower 

cost, much lower cost of capital for all those companies which helps 

to accelerate development as well. 

Mr. CROWLEY. Thank you. I also have one additional question if 

I can put that in writing and ask for your response. 

Mr. LACKRITZ. Great. 

Mrs. BIGGERT. Thank you. The gentleman from Illinois, Mr. Manzullo. 

Mr. MANZULLO. Thank you. Mr. Sorensen, you are extremely 

popular here today, and I don’t mean to diminish the roles of the 

other members of this distinguished panel, but I turn to page 5 of 

your testimony, business travel facilitation, and I just—I don’t 

think this town gets it. If you go down to the last paragraph where 

it says: The Congress. Do you see that? Says: The Congress, U.S. 

trade negotiators in the business community need to work together 

to shape a business travel facilitation initiative. You heard they 

won’t touch it. 

Mr. SORENSEN. This is true, Congressman. USTR won’t touch it, 

because they have been told not to. This is obviously a Judiciary 

Committee purview, and we understand that. 

Mr. MANZULLO. As part of the Small Business Committee, we 

don’t worry about minor things like jurisdiction. 

Mr. SORENSEN. It is fortunate, sir, that you are in that position, 

because I would say, sir, that there is some misunderstanding. I 

believe that temporary entry should be precisely that, and it should 

38

have teeth, in other words, it is not to overstay an H1B visa or 

something that allows a person from another country to enter this 

country and feel free to revise a status. So this would be a fasttrack thing for business people, technical people, trainees, and joint 

venture partners. 

Mr. MANZULLO. Any thought that we can do this by treaty? 

Mr. SORENSEN. I think we can. Basically, the issue here is convincing regulators not only in the United States but abroad. By the 

way, all of the developing countries are dying to have this become 

a lot easier because they are missing opportunities as well, as we 

are in the U.S. service industries. 

Mr. MANZULLO. We had a situation back in Rockford, Illinois, 

again with Ingersol, they sold machines, and they are not controlled, to the Indians. The State would not allow the Indians to 

come to the United States to train on their own machine that they 

bought here. Now you wonder why companies like that go out of 

business. We have one stamping machine tool company left in this 

country, out of Dayton. We have one cold forming machine company left, National Machinery. We are losing our machine tooled 

industry in dramatic strides. We are giving it away because someone comes around and says my gosh, you can use that for a military application. Well, I guess so, if you like purple hubcaps on 

your tanks. You can transfer any technology like that. 

But the problem that I have seen in Washington is this town 

does not understand the meaning of manufacturing and I am going 

to lay it at Mr. Greenspan’s feet, as much as I admire Dr. Greenspan, he has said consistently before this committee not to worry 

about the loss of manufacturing jobs, it will always be compensated 

for in high end—high end white collar service jobs. I say, give me 

an example of what you are talking about and then my 5 minutes 

runs out. I could never get an example. 

I was in Milan, Italy, at the tool trade show that takes place 

every 2 years, and I missed going to Frankfurt. I have traveled all 

over the world studying manufacturing and I have seen what has 

happened to us. We are being killed. 

He was right when he wrote that article merchandise exports follow financial exports because it paves the way for the exchange of 

currency, and also the trust of individuals necessary to raise the 

level of business expectations. We don’t have that here. Is there 

any specific legislation that you have in mind? 

Mr. SORENSEN. Yes, sir. Congressman, we have proposed, I don’t 

have it here unfortunately but I beg the Chairman’s indulgence to 

provide it later in writing, a 2-pager that I left with Secretary 

Gutierrez today, because we appealed to him this morning as well. 

It is a very simple document. It is not legislation yet. We hope that 

it will become a proposal for legislation to allow a fast-track process two ways, for not only—in fact, I have just received it, and so 

I submit this for the record. 

Mrs. BIGGERT. Without objection. 

Mr. MANZULLO. One of the things that I would suggest that you 

add to that list of what you call professionals, managers, consultants, highly-skilled experts and technicians, add to that manufacturing representatives or customers. 

Mr. SORENSEN. It is broad enough, Congressman, to include that. 

39

Mr. MANZULLO. I would like to work with you on that, and if you 

think that we could be of assistance. One thing we can do is raise 

hell about the problem. This is the type of stuff you like to shove 

in the face of people who are screaming about the trade imbalance. 

The very big things that we can sell ourselves, we can’t because we 

disinvite those people that want to buy our good stuff. 

Mr. SORENSEN. If I may, Chairwoman, with your indulgence, just 

2 more seconds. We don’t want what is happening and unfortunately, you quoted a number of instances in the manufacturing to 

happen to the services industry. I have three joint-venture partners. One in China—China Construction Bank, the third largest 

bank in China—is a joint-venture partner. I could not bring two or 

three joint-venture partners to the United States because of some 

potentially prudently laid out immigration policies that call for 

delays and screening and all this, and I offered bonds. I said I will 

pay a bond to make sure that this person returns 3 days later after 

he or she signs an agreement with us. 

Malaysia, the same situation. I had a joint-venture partner held 

in the airport for 2 days, a vice-chairman of a bank in Malaysia, 

a partner of ours. So, unfortunately, the pendulum has swung a little bit too far, but we do need to make sure that this proposal does 

not mean that this is another sort of visa thing for an open door. 

This is temporary entry for people that will have a beginning and 

an end and the entity would be the person to whom you would go 

to avoid overstays or leakage of the system. So it has teeth, which 

is what we want, and hopefully, the Judiciary Committee will listen. 

Mrs. BIGGERT. Thank you. I have just a couple more questions. 

Dr. Key, your testimony indicates that the process of liberalization 

involves among other things reaching a consensus on where to 

draw the line between regulations that are simply anticompetitive 

barriers to trade, and should, therefore, be eliminated, and regulations that serve legitimate purposes. That’s a quote. 

Do you think that the IMF and the World Bank’s work on standards and codes can minimize or eliminate unnecessary and inefficient regulatory differences? 

Dr. KEY. The international work in the IMF and World Bank and 

specialized bodies like the Basel Committee on Banking Supervision on minimum international standards and codes of good practices can provide a basis for a general consensus that certain kinds 

of rules are legitimate, prudential measures and are important to 

have. They don’t go so far as to say whether a particular national 

measure is appropriate, but they do represent a generally accepted 

view about the measures that are important for ensuring financial 

stability. 

Mrs. BIGGERT. Then how would you propose we assess differences among developed economies such as the U.S., the EU, and 

Japan? 

Dr. KEY. In terms of the regulatory— 

Mrs. BIGGERT. Yes. 

Dr. KEY. Prudential regulations that do not discriminate between 

foreign and domestic firms can have an impact as barriers to trade 

simply because they are different among countries, and for financial firms that are operating on a global basis that certainly can 

40

be a problem. I think the international work has gone a long way 

towards reducing this, but obviously there are still differences that 

remain because each country does bear the ultimate responsibility 

for its own regulation and supervision. 

The EU internally in its single market program has gone much 

further with its policy of mutual recognition based on harmonization of essential standards. However, that has been undertaken 

within a unique supernational structure and much more extensive 

harmonization than has occurred internationally. 

Mrs. BIGGERT. In Japan? 

Dr. KEY. Japan is part of the international work in a variety of 

fora on generally accepted international minimum standards and 

codes of good practices. 

Mrs. BIGGERT. Do you think a necessity test should exist when 

evaluating regulatory policy differences? 

Dr. KEY. No, not for prudential regulation. In the prudential 

carve-out in the GATS, finance officials who negotiated it made 

sure that it would not have a necessity test. They were concerned 

about having a WTO dispute settlement panel decide whether a 

particular prudential rule was necessary or least trade restrictive 

and wanted to avoid any possibility of subjecting prudential rules 

to that kind of test. There is, however, an antiabuse provision that 

says a country may not use the prudential carve-out to avoid its 

obligations or commitments under the GATS. 

Mrs. BIGGERT. Ms. Champion, your testimony indicates that 

BAFT intends to publish score cards regarding how open the financial sectors are for WTO members. 

Ms. CHAMPION. Yes, we plan to evaluate the offers being made 

by particular countries in the WTO negotiations, with respect to 

banking products and financial services. 

Mrs. BIGGERT. Is this going to be published? 

Ms. CHAMPION. Yes, we plan to publish our score card. 

Mrs. BIGGERT. So you don’t expect to provide a name and shame 

mechanism to pressure countries to enhance their liberalization. 

We did this with the computers January 1st of the year 2000, with 

publishing—actually, the Government Reform Committee gave a— 

Ms. CHAMPION. Y2K. 

Mrs. BIGGERT. —gave a score card to all the agencies in the 

United States. In how they were doing and whether they are going 

to be ready for Y2K and businesses and everything, so I just wonder if you were going to have that kind of thing. It did help, I 

might add. 

Ms. CHAMPION. Just a final comment, we do plan to publish our 

conclusions. 

Mrs. BIGGERT. How will BAFT treat the EU countries. Will you 

rate each one separately or rate them in a block? 

Ms. CHAMPION. We will look at them separately. 

Mrs. BIGGERT. Thank you. Well, I guess I am the last man standing or the last woman sitting so we will bring this to a close, and 

the Chair notes that some members may have additional questions 

for this panel, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 30 

days for members to submit written questions to these witnesses 

and to place their responses in the record without objection, and I 

41

want to thank all of you for being such excellent witnesses. We 

really appreciate you coming and this has been, I think—it is too 

bad this is a Tuesday and many of our members aren’t back yet, 

since we go into session tonight, but I think this is an issue that 

needs a lot of attention. It is very important to—certainly to this 

country, and our economic global economy and how we are in the 

world. 

So I really appreciate all of you having been here. And with that, 

this hearing is adjourned. 

[Whereupon, at 4:23 p.m., the subcommittee was adjourned.] 

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A P P E N D I X

November 15, 2005

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