Doha round clears a hurdle to free trade

Reports that international trade liberalisation talks are back on track have generated little comment in the insurance sector.

Yet the recent breakthrough in World Trade Organisation (WTO) negotiations is good news for the industry and an important step forward in efforts to open up global financial services markets.

That is not to say that the deal struck at August discussions in Geneva will have any immediate impact on our industry. But certainly it brings the prospect of a reduction in barriers to international insurance trade a great deal closer.

The Geneva talks were just the latest stage in a process that began nearly three years ago; a process that has become known as the 'Doha round' after the November 2001 meeting in Doha, Qatar that kicked it off.

There, WTO members focused initially on markets for agricultural and manufactured goods. Insurance and financial services have always been lower down the Doha round agenda and will not be fully discussed until agreement is reached in these other areas.

That is why the recent breakthrough is such a welcome development. Negotiations floundered, largely over farming subsidies, at a summit in Cancun, Mexico in September 2003. Now that dispute has been generally resolved, issues surrounding our own industry will be pushed closer towards the limelight.

The new mood of optimism is in sharp contrast to the gloominess that followed the collapse of the Cancun meeting.

"The news is that the Doha round is back on track," EU trade minister Pascal Lamy was reported to have triumphantly declared in Geneva.

He added: "In Cancun, I said the round was in intensive care. Today, it's not only out of the hospital but it is doing well."

Originally, the Doha round was scheduled to be complete by January 1, 2005. That deadline has now been effectively deferred until the Sixth WTO Ministerial Conference in Hong Kong next December.

Over the next 12 months, therefore, there will hopefully be some important dates for progress on the liberalisation of insurance and reinsurance trade.

The International Underwriting Association of London's (IUA) immediate priority is to help ensure European Union negotiators are fully up to date with the industry's needs and desires concerning free trade.

A starting point for talks has in the past been the production of a comprehensive list of 'common insurance barriers'. This list will now be fully updated to ensure it contains the most current information and an attempt will be made to prioritise some of the items within it.

The EU negotiates WTO agreements on behalf of all its member countries and the IUA has worked hard to ensure that insurance and reinsurance concessions are among its priorities.

The IUA participates in the process through its membership of the British Insurers' European Committee (BIEC), a body which also involves the Association of British Insurers (ABI) and Lloyd's. BIEC enables representations to the European Commission to be made both directly and, sometimes, through the Comite Europeen des Assurances (CEA, the federation of insurance associations in Europe).

In addition, the IUA exerts its influence through the membership of the Liberalisation of Trade in Services (LOTIS) committee, which is managed by International Financial Services London (IFSL - formerly British Invisibles).

The IUA also supports the Financial Leaders Group (FLG), a US/European grouping of high-level businessmen who ensure that business views on WTO are represented in negotiations. The FLG generally functions on a very similar wavelength to the IUA; its particular strength is its transatlantic nature and ability to propose well-crafted international solutions that are acceptable to both US and European authorities. A model WTO schedule for liberalising insurance regimes has been produced by the group.

WTO bargaining operates through multilateral agreements under which each participating country offers concessions according to its own individual economic and cultural circumstances. Europe, the USA and Japan have started service sector negotiations by making separate proposals to open up their markets to foreign companies in exchange for others making similar concessions.

Many countries have so far sat back on the issue, waiting to see what happens in negotiations on other economic sectors before making any commitments.

However, if enough countries do follow, the result will be a significant lowering of barriers to insurance and reinsurance trade.

The EU proposals cover cross-border MAT (marine, aviation and transport) and reinsurance business, but not, at present, large risks. Together with Lloyd's, the IUA has argued that this is an omission that should be amended.

A successful conclusion to the Doha round could add £280bn to the world economy by 2015, the World Bank has estimated.

However, there is still some way to go. The WTO is often criticised for operating mostly in the interests of richer nations at the expense of less-developed countries.

Certainly, the EU and US maintain powerful negotiating positions and continue to dampen the potential export earnings of poorer countries with quite strict economic protection measures in many industries.

While cheaper imports might bring overall benefits to an economy, the political and social costs to individual communities of removing such barriers can be prohibitive. This fundamental conflict has been at the root of the setbacks and delays in the current round of talks.

However, the extensive long-term gains to be enjoyed by the global economy as a whole far outweigh any localised short-term losses that trade liberalisation may impose. It is a recognition of this truth that has kept the 'Doha round' on track, despite a rather rocky road.

Progress now was also seen as crucial in case further delays were caused by the US presidential elections in November and a change in the European Commission in the autumn.

Hopes are now high that the Doha round will be completed on schedule and will be able to offer some important opportunities in the opening up of international insurance and reinsurance markets.