Negotiated Openness: U.S.-Japan Financial Negotiations and the Network of Financial Officials

Abstract

This study examines the role of intergovernmental negotiations in facilitating liberalization of finance in terms of market opening to foreign business. The theoretical focus is on the significance of the international network of financial officials. Recognized as a highly technical area, the financial issues have been often separated from other issue areas in trade negotiations, and administered by a small number of governmental financial experts. However, in reality, the exclusivity of financial officials on this issue largely resulted from their preexisting international network; these officials behaved strategically to maintain this exclusivity in such an institutional context. Yet, financial issues became politicized overtime and more actors, including politicians and governmental agencies other than financial authorities participated in the negotiations after the late 1980s. I argue that the structure of intergovernmental negotiations can have a significant impact on the outcomes of those negotiations. If negotiations are held exclusively among a small number of financial officials who share the understanding of the issues on the table and have long-term relationships with each other, the demands and offers in the negotiations tend to be more moderate and realistic, and the outcomes involve incremental changes. On the other hand, when the issues are politicized and more actors are involved, the demands tend to be tougher and the negotiations often break off. To assess this assertion, this study examines the United States-Japan financial negotiations, which were the world's first intergovernmental negotiations on financial liberalization, started in 1983. Initiated as bilateral negotiations, the financial negotiations were later incorporated into a multilateral framework, which changed the institutional settings. This study divides a series of bilateral negotiations into four periods. In the first period, the financial authorities started the bilateral negotiation. The second period followed in the late 1980s and the early 1990s, when the involvement of the American Congress had brought a considerable change in the nature and the outcome of the negotiation. In the third time period, the bilateral negotiations were held under the multilateral framework of the General Agreement on Tariffs and Trade (GATT). The case of financial services negotiations and that of insurance are compared in this period, as different sets of actors were involved in them. In conclusion, the study discusses the implications of the United States-Japan financial negotiations for the more recent developments in opening up the financial markets of newly industrialized economies.