EU Private Sector Perspectives:
Liberalisation of Asean’sFinancial Services Sector
- Pascal Kerneis, Managing Director of the European Services Forum
|From Europe’s perspective and
considering the success of its own economic integration project the
recent decision by Asean member countries to accelerate their economic
union by bringing forward the inception date of the Asean Economic
Community (AEC) from 2020 to 2015 is a positive, not least for the
competitiveness and continued development of the regions economies.
Intra-Asean trade has, according to a previous article in this
magazine, doubled to $300 Billion in the last decade.
At least as important for the Community’s economic prosperity is the
level of ambition among Asean governments to bolster foreign trade with
partners including among others, Europe. Putting forward substantive
new commitments at the World Trade Organization (WTO) to reduce
external trade barriers in key sectors like financial services would go
a long way to accomplishing this goal.
know-how that is transferable to domestic firms, but also foreign
capital that can be put to work in order to help finance pension
schemes and long term infrastructure projects in areas such as roads,
bridges, ports, water and sanitation, and energy.
One important catalyst for continued economic growth in the Asean
community is access to a full range of financial services and it is
here that European businesses have a lot to offer. Not only can
European financial service providers bring with them new outlets for
domestic savings and
When able to compete in a level playing field environment, foreign
financial companies also enhance the competition on the domestic market
and bring innovation. Foreign banks and insurers can thus offer to the
domestic consumers either better pricing, new choice in financial
services, better quality.
This in turn lowers the cost of doing business for domestic companies
thereby raising economic competitiveness—something that is ultimately
beneficial to the local economy. Foreign banks can also act to ensure
that credit continues to flow to industry in times when domestic banks
are failing to meet demand. It is equally the case that foreign banks
and insurance providers, through the investments they make in the host
country tend to build a long term relationship and remain in that
country for long periods of time.
Unfortunately, based on the barriers that continue to confront European
and other financial services companies in Asean countries, the region’s
economic progress is potentially falling short of its full potential.
European financial companies face restrictions that often involve
foreign equity caps (25 % for incorporated banks in Thailand; 30 % in
Similar equity restrictions exist for foreign insurance companies like
in Malaysia (30% for new comers, 49% in Singapore. The absence of
majority control is a major disincentive for businesses when
considering a new business venture. The real assets of services
companies are the know-how and the management expertise; without the
majority control, it will not invest in the same way, and will
certainly not transfer the knowledge to its majority partner.
More obscure restrictions are also applied through various quota
measures as in the case of Indonesia where geographical limitations
mean that foreign banks, through joint ventures, are allowed in only 11
cities. A myriad of other barriers including limitations on doing
business in local currency, burdensome administrative procedures, and
non-transparent measures such as economic needs tests all act as a
deterrent for European businesses entering Asean markets.
The prospect for a change of thinking among the Asean countries so as
to improve their own access to financial services is far from obvious.
As part of the WTO’s 1997 Financial Services Agreement, commitments by
Asean countries were rather weak. This was likely a reflection of the
turmoil caused by the Asian financial crisis.
Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand made
very few commitments to open their markets to foreign financial
services companies while Myanmar made no offer. But, more than a decade
later in the WTO’s current Doha Round we see that Brunei, Myanmar, the
Philippines, and Thailand have still not tabled an offer that includes
financial services while Malaysia, Singapore, and Indonesia have done
little to improve upon their 1997 offers. What is troubling is the
continued reluctance among the Asean countries, with the exception of
Vietnam and Cambodia, to take a serious step towards liberalisation in
Signs are pointing to a WTO Ministerial Conference in the latter half
of May 2008 providing Asean countries with one last opportunity to take
concrete steps towards greater liberalisation in financial services.
The benefits of liberalisation in financial services are well known
while the risks can be offset by putting in place the proper domestic
European financial companies are keen to see Asean governments break
new ground when it comes to their offers in this Doha round. Allowing
majority foreign ownership would enhance the overall business climate
in the region. Binding existing practices and consolidating autonomous
domestic reforms made since the Uruguay Rounds 1997 Financial Services
Commitments would improve the security and visibility that companies
need to do business.
Asean, with its $1 trillion economy, a population of over half a
billion cannot stand idle in the face of fierce competition by its
neighbours China and India. Let us hope that the Community’s
governments realize that their future prosperity lies not only between
themselves, but with the rest of the world as well.
Should Asean financial authorities consider that they are not in
position in taking commitments at the multilateral WTO level, European
financial institutions would strongly advise to engage in bilateral
negotiations with the European negotiators in the framework of the
Asean EU FTA, so as to further reform and liberalise their financial
services sectors which in turn will contribute to a further integration
with the two regions.
Pascal Kerneis is the Managing Director of the European Services Forum
(ESF). ESF is the voice of the European Services Industry in the
international trade in services negotiations. The ESF is involved in
the activities of over 20 European services sectors and includes a
membership totalling more than 80 European services companies and trade
For more information, please visit: www.esf.be