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FTA finance talks with US: BOT baulks at three-year time frame

The Nation, Thailand

FTA FINANCE TALKS WITH US: BOT baulks at three-year time frame

14 January 2006

By Wichit Chaitrong and Anoma Srisukkasem

Bank insists sector will open up gradually; no progress made on insurance.

After the sixth round of free-trade negotiations with the United States drew to a close yesterday, the Bank of Thailand said that Bangkok would continue to push for a gradual opening of its financial sector rather than within three years as the US has proposed. That way, local financial institutions can prepare for future competition under a fully liberalised system, said Tarisa Wattanagase, deputy governor of the central bank.

In addition, the central bank is not yet able to supervise financial institutions under a “consolidated supervisory” framework, which would cover all subsidiaries of every financial institution, making regulating them more efficient.

“We could gradually open it [the financial sector]. It’s not that we aren’t doing anything right now. Otherwise, it would have no stimulation and would not be good for anybody,” she added.

The central bank is considering imposing foreign staff limit in the financial sector and allowing foreign banks to open more branches and ATMs before allowing them to open new banks - the last stage of liberalisation, according to Tarisa.

The US government wants Thailand to accelerate the pace of opening its securities and mutual fund sectors from the 10 years Bangkok has proposed. The US position is that 10 years is too long, citing Singapore’s liberalisation of its financial market within three years of signing a free-trade agreement with the US.

But Tarisa said that the Thai market should not be compared to Singapore’s.

Unlike Thailand, Singapore has not endured a financial crisis in recent times. Therefore, the health and maturity of financial institutions in Singapore is stronger than of those in Thailand. For example, Thai financial institutions need to reduce their non-performing loans to strengthen their balance sheets.

Meanwhile, negotiations on market access for insurance services failed to progress during the talks, largely because Thailand is loath to open the market to US companies.

US negotiators wanted Thailand to award new life assurance licences to US firms and asked Thailand to allow more US life insurers to open branches here, said Potjanee Thanavaranit, director-general of the Insurance Department.

Life insurance market liberalisation was put on the table for the first time yesterday.

“We did not make a new offer because the US firm American International Assurance Co [AIA] has already captured half of the life assurance market share,” said Potjanee. AIA, a division of the American International Group, managed to elbow its way into the market through a special condition under the Alien Business Law.

Potjanee said that at this point, Thailand would not allow AIA, which currently operates one branch, to open additional outlets in Thailand.

American firms have to enter into joint ventures with local partners if they want to do business here.

The Insurance Department is in the midst of amending the law to raise the ceiling of foreign holdings in life assurance and non-life insurance companies to 49 per cent from the current 25 per cent. Once that change takes effect, the department would wait another 10 years before revisiting market liberalisation for foreign firms, Potjanee added.

The US also asked for cross-border services, which would allow firms based in the US to sell insurance products to Thai customers directly.

Washington also wants those firms to sell their services to Thai customers when they travel to the US. Potjanee said that Thailand already allowed such cross-border transactions as well as overseas sales, although Thais cannot use their insurance premiums for tax reduction here.

Thailand asked the US to allow Thai insurers that want to do business in the US to sell their products nationwide and not subject them to the laws and regulations of individual states, she said. The US does not agree because insurance laws are different in every state and all insurers - even US companies - must be licensed in every state in which they do business.

Thailand also informed the US that there were many insurance companies operating in the local market and that the property and casualty insurance industry has asked for a transitional period of 15 years before liberalising the market.

The two sides discussed market access in the telecommunications, securities, insurance and banking sectors on the last two days of the sixth round of negotiations, which started on Monday. Thai officials, who asked not be named, said there were huge gaps between the two sides’ proposals.

Thailand during the last two days of talks disappointed the US, which was unhappy over its protectionist stance on the service sector, while Thailand during the first three days was disenchanted by the US proposal on patent periods for pharmaceuticals.

The two sides will meet again in six weeks and each side will table a new list of offers and demands.

But it was apparently very difficult to narrow the gap this past week.