CONTENTS Page 1 1 2334566778 The Emerging Markets Leverage for U.S. Negotiators General Agreement on Tariffs and Trade U.S.-Japan Framework for a New Economic Partnership Conclusion Section-By-Section: Section 1. Short Title; Table of Contents Section 2. Effectuating the Principle of National Treatment for Banking Section 3. Effectuating the Principle of National Treatment for Securities Section 4. Financial Interdependence Study Section 5. Conforming Amendments Regulatory Impact Statement Changes in Existing Law Cost of Legislation Appendices: January 26, 1994, letter to Chairman Riegle from Secretary of the Treasury Lloyd Bentsen, and United States Trade Representative Michael Kantor S. 1527 (III) 2656 103D CONGRESS 2d Session SENATE REPORT FAIR TRADE IN FINANCIAL SERVICES ACT OF 1994 MARCH 15 (legislative day, FEBRUARY 22), 1994.-Ordered to be printed Mr. RIEGLE, from the Committee on Banking, Housing, and Urban Affairs, submitted the following REPORT [To accompany S. 1527] INTRODUCTION On January 27, 1994, the Senate Committee on Banking, Housing, and Urban Affairs (the "Committee”) marked up and ordered to be reported the Fair Trade in Financial Services Act of 1994. The bill amends the International Banking Act of 1978, the Securities Exchange Act of 1934, and the Investment Advisers Act of 1940, with the aim of encouraging the same national treatment of U.S. banks and securities firms abroad that foreign banks and securities firms enjoy in this country. The Committee voted 17 ayes to 2 nays in favor of adopting the Fair Trade in Financial Services Act of 1994 and reporting it to the Senate for consideration. The ayes were: Chairman Riegle and Senators Sarbanes, Dodd, Sasser, Shelby, Kerry, Bryan, Boxer, Campbell, Moseley-Braun, Murray, D'Amato, Bond, Faircloth, Bennett, Roth, and Domenici. Opposed were Senators Gramm and Mack. SUMMARY OF PROVISIONS For almost half a century, the United States has extended to foreign financial institutions national treatment, i.e., the same competitive opportunities that domestic financial institutions enjoy in our market. This policy has applied to banks and securities firms of all countries, regardless of the treatment U.S. banks and securities firms receive in those countries. This bill is intended to encourage foreign countries to offer not only de jure national treatment (national treatment in law) but also de facto national treatment to U.S. financial institutions that operate or seek to operate in those countries. De facto national treatment means offering the same competitive opportunities, including effective market access, to foreign financial institutions as are available to the host countries' domestic financial institutions. The Act requires the Secretary of the Treasury (the U.S. negotiator for financial services) to determine whether a foreign country provides de facto national treatment for U.S. financial services organizations, including banks, broker/dealers, and investment advisers. If national treatment does not exist, the Secretary must negotiate for it. If negotiations are not succeeding, the Treasury Secretary, after consultation with the Secretaries of State and Commerce, the U.S. Trade Representative, and the appropriate Federal banking agency or the Securities and Exchange Commission (SEC), may publish in the Federal Register a determination that a specific country denies national treatment to U.S. institutions. Such publication gives discretion to the Secretary of the Treasury to recommend that the appropriate Federal banking agency or the SEC deny an application or applications filed by banking or securities firms from the discriminating country to establish U.S. operations. The banking regulators would have to comply with the Secretary's recommendation, unless they determine any such recommendation would seriously impair the safe and sound operation of the U.S. financial system, or would compromise their ability to resolve a failed institution. The SEC would have to comply with the Secretary's recommendation, unless the SEC determines that any such recommendation would result in a serious adverse impact on the maintenance of fair and orderly securities markets or the protection of investors. This legislation does not require the Secretary to recommend the denial of an application or applications. Such action would be totally within the discretion of the Secretary. The Secretary could recommend denial of none, some, or all of the applications from institutions from the discriminating country. Any such denials would not force foreign financial firms to shrink their existing operations. Opportunities for future expansion in the U.S. market, however, could be restricted for countries. The bill is designed to give U.S. negotiators new leverage to open foreign financial markets, not close our own. LEGISLATIVE HISTORY 101ST CONGRESS The Fair Trade in Financial Services Act was first introduced by Chairman Riegle on January 29, 1990, as S. 2028. Senators Garn, Dixon, Shelby, Graham, Kerry, Bryan, Heinz, D'Amato, Pressler, and Wirth were original cosponsors. The Committee held a hearing on S. 2028 on April 5, 1990. Witnesses at the hearing were: David C. Mulford, Under Secretary of the Treasury for International Affairs; David Silver, President of the Investment Company Institute; Charles C. Kim, representing the Independent Bankers Association of America; Eric W. Hayden, President of Investors Bank & Trust Co.; and Gunter Pauli; Chief Executive Officer of the European Service Industries Forum and Member-elect of the European Parliament. On May 24, 1990, the Committee held a mark up at which S. 2028 was incorporated into S. 1379, the "Defense Production Act Amendments of 1989." The measure was reported out of the Committee by voice vote, with Senator Mack stating his opposition to the Fair Trade in Financial Services portion for the record. S. 1379 was incorporated into H.R. 486, the "Defense Production Act Amendments" on October 3, 1990, and was passed by the Senate that same day. On October 23, 1990, the conference Committee filed a Conference Report which contained the Fair Trade in Financial Services portion of the legislation, The House agreed to the DPA Conference Report containing the Fair Trade in Financial Service provisions on October 25, 1990. The Senate adjourned on October 27, 1990, before considering the Conference Report, and hence it failed to become law. 102D CONGRESS On February 5, 1991, at the beginning of the 102d Congress, Chairman Riegle reintroduced the Fair Trade in Financial Services Act as Title IV of S. 347, the "Defense Production Amendments Act of 1991." Senators Garn, Dixon, Heinz, Sarbanes, D'Amato, Dodd, and Sasser were cosponsors. On February 21, 1991, S. 347 passed the Senate. On October 10, 1991, the House passed S. 347 by striking the bill and replacing it with H.R. 3039, its version of the DPA bill, which did not contain any provisions of Fair Trade in Financial Services. The Conference committee dropped the Fair Trade in Financial Services Act from the final Conference Report before it was filed in the House on October 5, 1992. The Fair Trade in Financial Services Act was also included as Subtitle C of Title VI of S. 543, the Comprehensive Deposit Insurance Reform and Taxpayer Protection Act of 1991, reported by the Senate Banking Committee on October 1, 1991. While included in the version that passed the Senate, this provision along with several other portions of the Senate bill were not included in the Conference Report. 103D CONGRESS On October 7, 1993, Senators Riegle, D'Amato, Bryan, Kerry, Domenici, Sasser, Shelby, Campbell, Boxer, Murray, and Sarbanes, a majority of members of the Banking Committee, introduced S. 1527, the Fair Trade in Financial Services Act of 1993. On October 26, 1993, the Committee held a hearing on S. 1527. The following witnesses either testified in favor of the bill or submitted written testimony supporting it: congressman Charles Schumer; Congressman Jim Leach; Congressman Fortney Pete Stark; Laura Tyson, Chair of the Council of Economic Advisers; Lawrence Summers, Under Secretary of the Treasury for International Affairs; Rufus Yerxa, Deputy U.S. Trade Representative; Daniel Tarullo, Assistant Secretary of State for the Bureau of Economic and Business Affairs; Matthew Fink, President of the Investment Company Institute; Marc Lackritz, President of the Securities Industry Association; Stephen J. Vardier, Senior Legislative Counsel of the Independent Bankers Association of America; John S. Reed, Chairman and Chief Executive Officer of Citicorp/Citibank, on behalf of the Coalition of Service Industries; and John R. Price, Man |