9th May 1999
If by June 15 the Australian government signs the Fifth Protocol of the General Agreement on Trade in Services (GATS) – another treaty of the World Trade Organisation -- then Australia's banks will be left exposed to foreign takeovers, by virtue of an international treaty that has achieved only scant public scrutiny.
Our politicians are absorbed in the GST and Republic debates while this serious threat to Australia's economic sovereignty is about to happen without any serious public debate on the implications of signing the Fifth Protocol of GATS.
* The Joint Standing Committee on Treaties has approved the signing of the
Protocol, on the grounds that it is consistent with current government policy
("Report 19, The Fifth Protocol to the General Agreement on Trade in Services
an Five Treaties Tabled on 30 June 1998", March 1999).
* The Multilateral Agreement on Investment (MAI) was defeated after about
18 months of exposure and opposition.
* It is now URGENT that the Fifth Protocol be EXPOSED and STOPPED.
* What the World Trade Organisation says Australia is offering by signing
the Fifth Protocol of GATS:
"Eliminates a prohibition on the acquisition of control of any of Australia's
four main banks. Also eliminates a measure which prohibits banks (resident
or non-resident) from holding shares in the Commonwealth Bank of Australia
and other entities from holding more than five percent of its issued share
capital (B)", ("Non-attributable summary of the main improvements in the
new financial services commitments", WTO medial release, 26 February 1998).
* What the Australian Department of Foreign Affairs and Trade "National Interest
Analysis" says of Australia's offer under the Fifth Protocol":
"1. Elimination of the prohibition on banks (resident and non-resident) from holding shares in the Commonwealth Bank of Australia (CBA) and other entities from holding more than five per cent of its issued share capital. This followed the completion of the sale of the CBA on 19 July 1996 …
"4. Removal of the blanket prohibition on foreign takeovers of the four major banks. However, Australia's schedule of commitments will continue to make clear that foreign acquisitions remain subject to the national interest test under Australia's foreign investment policy guidelines and the Foreign Acquisitions and Takeovers Act 1975."
Comment: The DFTA says that the "national interest test" will still be applied to any proposed takeovers of Australian banks, but Australia's "Schedule of Specific Commitments: Supplement 4", (Ref: GATS/SL/6.SUPPL.4) does not make this at all clear.
* URGENT ACTION:
1. Alert other organisations, especially those involved in the STOP THE MAI CAMPAIGN, to this the back door change to the "four pillar" policy of the government.
1. Urgently lobby politicians of all persuasions to STOP THE FIFTH PROTOCOL OF GATS being signed.
Fifth Protocol of GATS: open season on Australian banks?
Patrick J Byrne, Researcher Officer and National Executive Member of the National Civic Council. Email: freedom@connexus.net.au
If the Australian government signs the Fifth Protocol of the General Agreement on Trade in Services (GATS) by June 15, then Australia's banks will be left exposed to foreign takeovers, by virtue of an international treaty that has achieved only scant public scrutiny.
The Fifth Protocol of GATS is another treaty of the World Trade Organisation. It follows on the controversial Multilateral Agreement on Investment (MAI), which caused world-wide public protests that resulted in the agreement effectively being shelved last year.
In Australia, a Joint Standing Committee on Treaties inquiry concluded that the MAI should not be signed "until a thorough assessment has been made of the national interest and a decision is made that it is Australia's interest to do so".
The GATS treaty was signed in 1994. It aims at liberalising trade in a wide range of service industries. Subsequently, various Protocols were to be negotiated and signed.
The Fifth Protocol of GATS aims to eventually open up various services industries (banking, insurance, and other financial services) to foreign competition, investment and takeovers. Countries that are signatories to the agreement make offers as to particular service industries they are initially prepared to open up to foreign competition. Further offer can be made later.
Among other things, Australia's "Schedule of Specific Commitments" offers to allow foreign takeovers of Australian banks.
Given that the Treasurer had still not clearly declared open season for foreign multinationals on the Australian banks, it was rather extraordinary that in February 1998 Australia's representatives at the Fifth Protocol negotiations should have pre-empted any revision of government policy by offering to remove the blanket ban on bank takeovers as part of a binding international treaty.
It smacked of a change of Federal government policy via the back door.
The Government, or Treasury, or whoever was responsible for putting up Australia's Schedule, could have sought an exemption for Australian banks until such time as the government formally reviewed its "four pillar".
For example, the European Union has set out a range of exemptions in relation to the refusal to permit foreign corporations to obtain licences to operate in banking, the insurance industry and investment services in the financial industry.
Australia's Joint Standing Committee on Treaties did hold an inquiry into the Fifth Protocol. It was advertised last year as one of eight treaties under consideration, but gave no indication as to the Treaty's significance for Australia's banking industry.
A number of submissions objected to the proposal to allow foreign takeovers of Australian banks. However, in its recent report on the Fifth Protocol, the Committee disputed their concerns. It accepted Treasury's argument that the Fifth Protocol would not automatically allow foreign takeovers of any of Australia's big four banks.
Treasury and the Committee claimed that any attempted takeovers would be subject to the Foreign Acquisitions and Takeovers Act 1975, "involving consideration by the Foreign Investment Review Board, the Australian Prudential Regulation Authority, the Australian Competition and Consumer Commission, and, ultimately, by the Commonwealth Treasurer. This process will be unchanged by accepting the Fifth Protocol," the Committee said.
However, the WTO appears to think differently to Treasury and the Joint Standing Committee on Treaties.
A WTO statement of February 26, 1998, said that Australia's offer under the Fifth Protocol, "eliminates a prohibition on the acquisition of control of any of Australia's four main banks. [It] also eliminates a measure which prohibits banks (resident or non-resident) from holding shares in the Commonwealth Bank of Australia and other entities from holding more than five percent of its issued share capital."
If a foreign takeover bid is made for an Australian bank, which jurisdiction will decide if it can go ahead once the Fifth Protocol is signed? Will it be decided "ultimately by the Commonwealth Treasurer", as Treasury and the Treaties Committee claim? Or will it be decided by a disputes committee of the WTO, as stated in the 1994 GATS agreement that Australia has already signed? Or will it be decided in an Australian court, particularly if any of the GATS Treaty should be enacted into Australian law?
The GATS treaty imposes serious obligations, and an enforcement mechanism, on countries that ratify the Treaty.
In the case of say a foreign takeover dispute, if no agreement can be reached with other aggrieved signatories to GATS, the case goes to a WTO arbitration panel. If found against, Australia would be liable to pay compensation to those disadvantaged by a breach of the Treaty. If Australia refuses to pay compensation, or decided to unilaterally modify or withdraw from the Treaty, other nations would have the right to take commensurable trade retaliation measures against Australia.
Article XXI of GATS allows a signatory to modify or withdraw from any of its trade liberalisation commitments, but only after three years. Three months' notice must be given and Australia would have to "enter into negotiations with a view to reaching agreement on any necessary compensatory adjustment".
It is quite extraordinary that after the public outcry over the MAI, the Fifth Protocol of GATS may well be signed within seven weeks without any serious public debate.
-- Patrick J Byrne Researcher Officer and National Executive Member of the National Civic Council. Email: freedom@connexus.net.au