Servicing Citi's Interests
GATS and the Bid to Remove Barriers
to Financial Firm GIobalization
by Antonia Juhasz
Multinational Monitor, April 2002
There may be no force greater in the drive to expand the reach
and power of financial corporations worldwide than Citigroup.
Born out of a merger between Citibank and Travelers Group that
was only legalized after the fact by a rollback in the U.S. Iaws
prohibiting combinations between banks and insurance companies,
Citigroup is now prioritizing a deregulatory agenda for financial
services on a worldwide scale
Citigroup-which already maintains operations in more than
100 countries-hopes to use the World Trade Organization's General
Agreements on Trade in Services (WTO's GATS) to pry open new markets
around the world while restricting the ability of governments
to regulate their behavior. The result could be increased monopolization
of global financial markets, decreased consumer and social protections,
decreased access to financial services and increased global economic
Citigroup is extremely well-connected politically. The company
and its predecessors have never been shy about flexing their political
muscle. Citigroup was born out of the 1998 merger of Citibank
and Travelers Group in clear violation of U.S. Iaws designed to
protect consumers and the economy. Citi and Travelers merged under
a loophole that gave them a temporary exemption from the merger
prohibition, launched an aggressive lobbying blitz, and eliminated
the laws blocking their way.
Citi leveraged its influence to help create the service agreement
at the WTO, and is using it today in its push to have the agreement
expanded and strengthened.
"Without the enormous pressure generated by the American
financial services sector, particularly companies like American
Express and CitiCorp, there would have been no services agreement
and therefore perhaps no Uruguay Round [the negotiations that
led to the WTO's creation] and no WTO," David Hartridge,
then director of the services division of the WTO, said in 1997.
Citigroup is not alone in the push for liberalization of trade
in services. But it is a key player in the corporate coalition
driving this agenda.
The GATS was adopted in 1994 as part of the newly established
WTO system, bringing services under the framework of the world's
largest and most powerful international trade body. Services-as
opposed to goods-are described as anything you can not drop on
your foot. They include education, health care, Social Security,
water for drinking and sanitation purposes, prisons and telecommunications.
Citigroup is most interested in financial services, including
insurance, banking, securities, asset management and pension funds.
Services have historically been kept out of international
trade agreements because they cover issues that are essential
to human and societal well-being. Services also posed special
difficulties; where a manufacturer can simply ship goods across
borders, service providers must often set up shop in a foreign
country if they are to deliver cross-border services. For these
and other reasons, the existing GATS is relatively weak. Major
corporations, with Citigroup among those at the head of the pack,
are pushing for a strengthened and expanded GATS in ongoing negotiations
at the WTO.
Citigroup has several avenues of direct and indirect influence
over U.S. government negotiating positions on The GATS.
* Citigroup is a leading member of the highly influential
U.S. Coalition of Service Industries (CSI). Formed in 1982, CSI
is the foremost industry lobbying group on services trade. According
to CSI, it formed "to ensure that U.S. trade in services,
once considered outside the scope of U.S. trade negotiations,
would become a central goal of future trade liberalization initiatives.
It played a major role in shaping the GATS.
* For the last six years, Citi - group h a s benefited from
a seat at one of the most powerful tables in U.S. trade negotiations,
the U.S. Department of Commerce Industry Sector Advisory Committee
(ISAC). Citigroup has been represented, either directly or through
its membership in the CSI on the Services ISAC (ISAC 13) every
year since at least 1997 (the earliest date for which membership
lists are publicly available).
Representation on ISAC 13 provides Citigroup with a unique
and direct influence on the development of U.S. government negotiating
positions. According to the 2001 ISAC annual report, "The
advice provided through the advisory committee constitutes a very
unique and committed way for the entire industry to formulate
a position for the sector.... It has become an intrinsic part
of developing U.S. positions for all negotiations."
* Citigroup was a principal co-sponsor of the 1999 World Services
Congress (WSC)-a hallmark event for the advocates of services
liberalization. Many of the recommendations found in the closing
paper of the conference that included leading representatives
from industry, the WTO and government, were mirrored, often verbatim,
in U.S. negotiating positions that followed.
* In February 2002, Citigroup was a corporate co-sponsor of
a Commerce Department-Coalition of Service Industries joint event,
Services 2000, "a Business-Government dialogue on U.S. Trade
Expansion Objectives." According to the Department of Commerce,
"the conference will give U.S. service industries the opportunity
to help shape the U.S. negotiating agenda through industry-specific
roundtables." Lionel Johnson, VP International Government
Relations of Citigroup, Inc. moderated the round table on Banking,
Securities and Funds Management.
Citizen organizations have no comparable level of influence
in U.S. government trade policy. Thanks to a successful 1999 legal
suit against the Clinton Administration to open the ISACs to representation
from non-industry groups, there are now two public interest organizations
on the 17 ISACs (each of which have one-to-two dozen members).
One is on ISAC 3, dealing with chemicals and the other is on ISAC
12, dealing with forest products.
While "civil society and public interest organizations
are consulted periodically, primarily during briefings that are
intended mainly for the United States Trade Representative's office
to provide updates on the status of negotiations," says David
Waskow , trade policy coordinator for the Washington, D.C.-based
Friends of the Earth-US, U.S. trade "negotiators have said
explicitly at these briefings that their primary task is to represent
U.S. industry." No such deference is shown to citizen group
positions, Waskow says.
WHAT CITIGROUP WANTS
Above all, corporations providing financial services want
increased access to global markets with as little government control
as possible. The first step to achieve this goal is a GATS requirement
that governments remove restrictions on the level of foreign ownership
in the financial services sector. In a November 1998 submission
to the U.S. government, for example, CSI recommends that "foreign
investors should have the right to establish through a wholly
owned presence or other form of business ownership, and to operate
competitively through established vehicles available to national
Similarly, in a July 13, 2001 submission to the WTO, the U.S.
government requests that the GATS, "remove restrictions on
suppliers ability to establish preferred form of commercial presence,
whether as subsidiary, branch or joint-venture; and at the level
of equity participation preferred by the service supplier."
These proposals would enable financial service providers to
enter another country's market and, for example, buy existing
banks without having to have a domestic partner. Inclusion of
such a provision in the North American Free Trade Agreement (NAFTA),
paved the way for Citigroup's purchase of Mexico's largest commercial
In a January 2002 report, "GATS: A Disservice to the
Poor," the World Development Movement (WDM) points to Aotearoa/New
Zealand as a cautionary tale of the consequences of foreign control
of finance. The full liberalization of financial banking services
has left every one of Aotearoa's/New Zealand's banks, including
the Bank of New Zealand, under foreign control. Affordable financial
services and low-cost loans have dried up-so much so that the
government has proposed setting up a new bank, the People's Bank,
to be owned and operated by the government itself.
Mandating local ownership requirements has a variety of potential
benefits in addition to facilitating access to credit for all
sectors of society. It can curtail profit repatriation- the drain
of capital out of a country. It may deter disloyal behavior; foreign
finance companies are much more likely to flee in times of crisis.
And ensuring that a foreign company holds some domestic assets
within the country in which it is operating can help ensure it
can satisfy any legal liabilities it might incur.
Another example of domestic regulations that are threatened
by GATS negotiations include laws requiring foreign businesses
to hire a certain percentage of local workers. Local hiring requirements
help increase employment and facilitate the transfer of knowledge
from the foreign service provider to the local community.
However, industry statements and U.S. negotiating positions
stress instead the need to encourage temporary entry of natural
persons through the GATS so that they can use their own experts
and managers rather than drawing on local expertise or training
Strengthened GATS rules would prevent countries from favoring
financial service providers with a record of sensitivity to racial
and/or economic inequalities, environmental conditions or the
rights of workers. They would block countries from giving preferences
to community-based banks on the grounds that they are superior
in providing services and credit to lower-income or geographically
central concern cited by opponents of GATS-style deregulation
and liberalization is that most countries in the world simply
do not have adequate regulatory structures in place to handle
the economic power and marketing prowess of global financial companies
like Citigroup. For example, most developing countries do not
have counterparts to U.S. laws such as the Community Reinvestment
Act -obligating banks to make credit available in lower-income
neighborhoods-and the Truth in Lending Act-requiring full disclosure
to consumers of the cost of loans. Most do not have sophisticated
regulatory authorities to comb through finance company books and
ensure they comply with prudential standards. Laws that protect
consumers from aggressive and socially irresponsible advertising
and marketing practices are also missing in most countries-a major
concern for many in developing countries who fear the impact of
aggressive campaigns to use credit cards and the prospect of becoming
U.S.-style "debtor societies."
Countries seeking to implement these consumer and financial
regulatory protections may find GATS blocking their way. But the
larger problem is one of sequence: with the financial sector opened
up, the lobby against adoption of such rules may be too strong
to overcome. Even those countries with such laws in place could
potentially see them "rolled back" by an expanded GATS.
The record of Citigroup above all financial firms in this
area is clear: As its very birth attests, Citigroup has and will
use its ever-expanding influence to eliminate laws that run counter
to its aims. GATS could become the newest tool in an arsenal designed
to create a world where Citi and other corporate interests reign
Antonia Juhasz is project director with the San Francisco-l~ased
International Forum on Globalization.