[A-List] Financial regulatory crisis and GATS
Michael.Keaney at mbs.fi
Wed Mar 6 05:04:05 MST 2002
Thanks to Ian Murray for this. We've been following developments in the
accounting field here for some time now, noting how different interests
are vying with each other for influence in the impending set of global
accounting standards that appear to be on their way. Prior to Enron it
looked very much like the US, via the Arthur Levitt-appointed Paul
Volcker, was going to win the day against a divided Europe. Thereafter,
however, suddenly it looked like Europe-style regulation as typified by
the UK's Financial Services Authority and the agenda promoted by the
IASC's David Tweedie would stand a better chance. Now, enter a
previously unconsidered actor...
ps Maybe if this doesn't work out, we could find a new role for NATO.
March 1, 2002
W.T.O. Pact Would Set Global Accounting Rules
By ANTHONY DePALMA
As Congress and regulatory officials consider ways to tighten
auditing and accounting rules to prevent a repeat of the Enron
(news/quote) debacle, a little- known global agreement that
places untested new requirements on the domestic regulation of
professional services like accounting is quietly advancing -
with the help of firms like Arthur Andersen, Enron's much-
The new rules would give the World Trade Organization oversight
of the domestic regulation of accounting. Any new national
regulation could be challenged by other countries as unfair if
it was "more trade restrictive than necessary."
Critics of the new rules say such a standard could hobble a
government's ability to regulate scores of services. But
American officials say the requirement will simply prevent
governments from setting up discriminatory rules, limitations
and quotas that would interfere with the right of foreign
service companies to enter their markets.
So far, the new rules, which are being drafted by the World
Trade Organization with the help of Arthur Andersen and other
companies, have attracted little outside attention. They fall
under the General Agreement on Trade in Services, or GATS, a
1994 pact that seeks to liberalize trade in many areas, like
architecture and real estate brokerage services, the way the
General Agreement on Tariffs and Trade, or GATT, has done for
The services agreement has generated none of the public
controversy that has swirled around the organization's attempts
to promote merchandise trade. Even after street protests
disrupted the group's Seattle conference in 1999, talks on
services moved forward.
But since the Enron bankruptcy proceedings drew public attention
to accounting practices, public interest groups and critics of
free trade have begun to worry that the services pact may hamper
efforts to curb abuses.
"The Enron-Andersen crisis just shows that governments need to
retain the ability to experiment with deregulation and then, if
they realize they've gone too far, to re-regulate," said Ellen
D. Gould, an independent consultant and researcher working on
contract with Georgetown University. "What the W.T.O. and these
agreements seek to do is make deregulation a one-way street."
Even critics agree that in the current atmosphere, unfair-trade
complaints would be unlikely against the measures now being
discussed. But they ask how the new rules will be interpreted
when future issues arise, and a government proposes measures
disliked by a trading partner.
"What we really need to ask is to what degree are global
agreements like this going to limit our ability to regulate
services domestically," said Patricia J. Arnold, an associate
professor of business at the University of Wisconsin's Milwaukee
campus. "The long-term goal of GATS is to eliminate barriers in
the cross- border trade in services."
American trade officials said such fears were overblown. They
point to recent changes in banking regulations, also covered by
the services agreement, that were not challenged by any nation
on trade grounds.
"We think that these things are written sufficiently broadly
enough not to cause any problems," a senior trade official said.
Joshua Ronen, a professor of accounting at New York University,
said the detailed agreement on accounting now being drawn up did
not specify licensing requirements or exam standards for
individual nations; it merely insists that any such regulations
be legitimate and transparent. "I don't think they will have any
impact on any reform the United States has in mind," he said.
GATS was adopted in 1994 by the 140 nations of the trade
organization in response to brisk growth in services, which
accounted for one-fifth of all cross-border trade in 1999, or
more than $1.35 trillion in all. Trade in services has grown
faster than merchandise trade for 20 years.
The agreement covers nearly all services, except those provided
solely by governments and those involved in air transportation.
Developing nations are given leeway to offer some protection for
Accounting was one of the first services for which detailed
rules were written. Charles Leonard, an Arthur Andersen
spokesman, said the firm was part of an international accounting
group that helped draft them. "We were striving for openness and
transparency in national standards," he said.
The rules do not take formal effect until 2005, but member
nations have already agreed not to impose any new regulations
that do not meet the proposed standard for openness.
It is not clear how that commitment applies to the measures now
being debated in Washington. During the process of drafting the
agreement several years ago, American officials raised questions
about whether prohibiting an accounting company from doing both
auditing and consulting work for the same client would be viewed
as restricting trade. Such a measure is being considered in
Mercuria Business School
michael.keaney at mbs.fi
More information about the A-List