1. Introduction
Since the WTO Doha Round was launched in 2001, talks have continued in order to meet the negotiation deadline set for the end of 2006. As you may know, the World Trade Organization (WTO) is an international organization that is the pillar of the multilateral free trade system, comprising approximately 150 formal members.
WTO negotiations cover a wide range of areas, including services negotiations, which the Financial Services Agency is involved in. The Agency is mainly responsible for financial services, and, approximately, once every other month, FSA officials in charge travel to Geneva, the location of the WTO's secretariat, to conduct negotiations with officials from other countries on liberalization.
In this newsletter, I will attempt to briefly explain the WTO financial services negotiations while interjecting my personal views that are based on my experience with actual negotiations.

2. Position of Financial Services Negotiations
Financial services negotiations represent one area of services negotiations. Much of the time, attention in Japan focuses on WTO negotiations regarding trade in goods, particularly in the area of agriculture. The importance of services negotiations, however, cannot be overlooked when one looks at the macroeconomic structure of Japan. The "Japan's Basic Strategy for the WTO New Round Negotiations" (released in October 2002 on the Foreign Ministry's website), which present Japan's overall strategies, mention the fact that service industries account for over 60% of Japan's economy.
The fact that services represent a large portion of the Japanese economy does not automatically mean that all services are important in the context of WTO negotiations. We need to clearly determine which specific service industries are internationally competitive in what types of business operations. Then, what can we say about financial services in this respect?
Following the collapse of the bubble economy, the international competitiveness and presence of Japan's financial services sector declined as international business operations were streamlined or slashed. With non-performing loan write-offs largely behind them, however, Japanese financial institutions are now moving in the direction of reinvigorating their international operations, mainly in emerging market economies of Asia. Some of you may have noticed frequent newspaper coverage of Japanese non-life insurance companies and banks expanding their international operations. Financial and economic stimulation in Asian emerging market economies as the result of financial liberalization by itself would be beneficial to both these countries and Japan, which has strong ties to Asia.
Recognizing these factors, the Financial Services Agency has placed importance on its negotiations to liberalize financial services. In its "Program for Further Financial Reform -Japan's Challenge: Moving toward a Financial Services Nation," released in December 2004, the Agency advocates for active participation in WTO negotiations. At the same time, the Government of Japan positions financial services as one of the most important areas of services negotiations.

3. Goal of WTO Negotiations
The goal of WTO financial services negotiations, in essence, is the facilitation of the activities of Japanese financial institutions in foreign markets. Financial markets of major developed countries are relatively open. In contrast, some emerging market economies, which have grown at a fast pace, discriminate against foreign financial institutions or have regulations to hinder their activities.
Various restrictive provisions, such as a ceiling on the percentage of equity participation in banks by foreign financial institutions and a ban on certain business activities conducted by foreign insurance companies, are incorporated in these countries' WTO liberalization schedules. Negotiations are therefore conducted to have such restrictions either removed or eased.
Frequently, Japanese corporations that expand to foreign markets, and especially those that are small and medium-sized, are financed by Japanese financial institutions. As a consequence, interest in Asian emerging market economies, in which many Japanese corporations have expanded in recent years, is growing. The Financial Services Agency is therefore conducting on-going negotiations for liberalization, mainly with these countries.

4. Historical Development of Negotiations and Problems Encountered
In December 2001, the Financial Services Agency commenced its survey mainly through industry organizations, to find out what is desired from WTO member countries in the area of liberalization. Based on the results of the survey, the Agency formulated its initial request in June 2002. Following this request, the Agency conducted bilateral negotiations mainly with Asian emerging market economies, including China, India and ASEAN member countries. Offers made by these countries entailed some improvements but were not satisfactory. The FSA prioritized its request to only the areas of key concerns, and resumed its negotiations by presenting the revised request in February 2005. Once again, however, the agency was unable to secure satisfactory offers.
These negotiations are carried out in a cycle that starts with a survey of Japanese financial institutions' needs, and moves on to the submission of a request, bilateral negotiations for liberalization, an offer from the negotiating country, and re-negotiation. The process itself is not particularly complex, but it is not easy to secure a solid outcome.
Inherently, countries that receive requests are under no obligation to commit themselves to additional liberalization measures. It is therefore theoretically possible for them to continue refusing requests. One might think that establishing standard criteria of commitment for liberalization would solve the problem. Unlike tariff negotiations, however, it is extremely difficult to set objective numerical targets to be achieved by individual countries in service negotiations.
Other reasons for the difficulty that are specific to financial services negotiations include the cautious stance taken by many developing countries toward their financial markets, which are the economic infrastructure in any country, due to their experience related to financial crises. Another reason is that the whole structure of negotiations tends to be one-sided, in that developed countries, which have already achieved liberalization, demand concessions from developing countries.
Furthermore, the fact that the status of negotiations at the WTO is not necessarily communicated accurately or promptly to the financial authorities (who are called "financial experts" in the WTO language) of developing countries is a large obstacle to negotiations, although this may seem trivial at first glance. To feel out an agreement that would be acceptable to both developed countries and developing countries, it is important that financial authorities of developed countries and those of developing countries exchange opinions about the possibilities of liberalization while also touching upon the regulatory aspects so that the concerns of developing countries are gradually assuaged. However, even building foundations for such talks becomes a challenge when responsible officials of financial authorities do not actively take part in negotiations. By capitalizing on the channels of communication that were built during the EPA negotiations, the Financial Services Agency is calling upon the financial authorities of Asian emerging market economies to actively participate in financial services negotiations.

5. Approaches Taken by the Financial Services Agency
The Financial Services Agency constantly strives to facilitate negotiations so as to promote liberalization of emerging markets by overcoming the challenges described above. Specifically, we have adopted the following approaches:
The first one is collaboration with countries that promote liberalization. Some of Japan's requests to foreign countries contain over 20 items. Considering that many of these requests contain multiple elements, a considerably greater number of demands are placed in reality.
It is impossible to reach a point of concession in negotiations without a careful discussion of individual elements. This, however, takes an enormous amount of time. In almost all services negotiations, careful discussions cannot be held unless we study the relevant laws and regulations of the country with which we are negotiating in detail and resolve all the questions one by one.
For this reason, we make it a point to exchange information with liberalization promoting members, such as the United States and EU, to efficiently move forward with discussions. We also work to reach consensus with other liberalization promoting members concerning the basic policies of negotiations so that we are in step with one another.
The second tactic is the prioritization of our negotiation agendas, combined with flexibility. Oftentimes, officials of developing countries in charge of negotiations are overwhelmed by wide-encompassing requests from various countries. It is therefore important to recognize the need to facilitate internal consultation on the side of requested members and prioritize the contents of our requests or add flexibility to what we request (such as incorporation of a phase-in period or limitations on the scope of liberalization). This will ensure that the developing countries do not develop a fear that they are being pressured in the direction of liberalization by developing countries simply to meet their own business interests. A determination must therefore be made as to which request items are important for business and their feasibility based on information about the negotiating country's laws and regulations, as well as their domestic development.
The third is to ensure compatibility with the negotiation policies of the Japanese government. Since negotiations are not meant to end with just an exchange of opinions, interests have to be reconciled through bargaining at the final stage. Such bargaining includes bargaining in individual fields within the service sector, bargaining in the entire service sector, as well as bargaining in the entire WTO negotiations that contain sectors other than the service sector too. Positioning of financial services as Japan's "offensive" chip in these expansive bargaining scenes is the key to successful financial services negotiations. For this reason, we not only keep close contact with the officials of the Japanese Mission in Geneva who are in charge of financial services, but also maintain a close working relationship with the Foreign Ministry officials who coordinates the entire negotiations by sharing information about the substance of requests and coordinating negotiating strategies taking account of the entire WTO negotiations.

6. Conclusion: Latest Progress and Future Outlook
Before concluding, I would like to touch upon the latest development in the WTO negotiations and their future outlook.
With the negotiation deadline approaching at the end of 2006, the Hong Kong Ministerial Conference was held last December. Reflecting a strong sense of crisis among the member countries about service negotiations, the Hong Kong Ministerial Declaration agreed to initiate plurilateral negotiations in each of the service fields.
Plurilateral negotiations are negotiations that are participated in by some member countries, or more precisely by the requesting and requested countries. In the financial services sector, pro-liberalization countries, including Japan, the United States, EU, and Canada, jointly presented the collective request on financial services to emerging market economies, such as China, India and ASEAN members, on February 28, 2006.
It is envisaged that the collective request will send a clearer message to requested members by presenting uniform liberalization targets; pro-liberalization countries individually presented their request until such joint action. Moreover, given that plurilateral negotiations will be conducted sector by sector, emerging market economies are expected to send their financial experts to the negotiation tables, which we believe will lead to more productive and constructive negotiations than in the past. While there is not much time left before the negotiation deadline, we hope to actively conduct negotiations so as to facilitate the international activities of Japan's financial institutions.