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07 December 2018
For more than two decades a broad range of cross-border financial transactions between the United States, Canada and Mexico have been ruled by the 1994 North American Free Trade Agreement (NAFTA).
In January 2017 the NAFTA's three leaders agreed that it was time to modernise the 24-year-old pact, launching months of negotiations that ended on 30 September 2018. Now, the United States must ratify the pact and promulgate uniform regulations that will implement the United States-Mexico-Canada Agreement's (USMCA's) various chapters. This is set to take place throughout 2019, with the USMCA possibly coming into force in early 2020.
According to the Office of the United States Trade Representative (USTR), the United States exported approximately $115 billion in financial services in 2016, yielding about $41 billion surplus for trade in financial services. By further levelling the playing field, it is anticipated that the USMCA will grant the United States wider market access to financial service firms that are operating in each other's countries.
The USTR has released the full text of the negotiated pact on its website. The financial services section can be found in Chapter 17 of the USCMA. This article provides an overview of the changes that the USMCA would introduce and their implications for the US financial services industry.
Under national treatment and most-favoured-nation treatment principles, financial service firms must receive equal treatment as local suppliers and firms from any other country, respectively. Market access principles also prohibit the United States from imposing certain quantitative restrictions that would limit the export of financial services to another member nation. When it comes into force, the USMCA will strengthen national treatment protections for the covered financial services industry in the United States. Enumerated 'rules of the road' will ensure transparency and fair treatment.
Unlike the current NAFTA, or any other preceding US trade agreements, a key development in the USMCA is that there is now a provision which prohibits local data storage requirements – an essential factor affecting the financial services industry. Accordingly, the United States may not impose local data storage requirements on financial service firms, provided that the local financial regulator has access to the data for the purpose of carrying out its regulatory, supervisory mandate. This is expected to ease the expense and complication of operating redundant facilities. Access to the United States' financial services sector will also be enhanced through increased regulatory transparency.
Some of the key distinctions from the NAFTA include as follows:
For further information on this topic please contact Lamine Hardaway, Birgit Matthiesen or David R Hamill at Arent Fox LLP by telephone (+1 202 857 6000) or email (firstname.lastname@example.org, email@example.com or firstname.lastname@example.org). The Arent Fox LLP website can be accessed at www.arentfox.com.
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