On its face, it looks like this provision restricts national treatment of financial services to those cross-border services, unless a TISA country says it also applies to foreign direct investment (establishing a commercial presence). But that is impossible to verify.
It seems likely that the commitments for national treatment use a negative list, but again that is impossible to verify.
StandstillSo far, this analysis suggests that TISA parties can decide what financial services to commit to these rules, but the US wants to limit the extent to which they can pick and choose within those sectors.
The crucial provision is Art X.4, which would apply a standstill to a country's existing financial measures that are inconsistent with the rules. That means governments must bind their existing levels of liberalization for foreign direct investment on financial services, cross-border provision of financial services and transfers of personnel. The current rules will be the most restrictive of financial services that a government would be allowed to use. They would be encouraged to bind in new liberalization beyond their status quo.
Australia wants to keep more flexibility, with the standstill to apply from the date TISA comes into force. That would allow governments to adopt new regulations before that date, thereby securing themselves more regulatory space than they have now. It also expressly allows for the rollover of such measures.
It is not apparent from the leaked text whether a ratchet applies to lock in any new liberalisation of financial services.
Art X.7 (commercial presence) and Art X.8 (cross-border trade) show the EU and US are taking a hard line by saying that these scheduling arrangements define a country's commitments on a financial service or sector. Australia wants the broader ability to list conditions and qualifications on the services listed in the schedule (similar to what Hong Kong China proposed in Art X.3.1).
The implications are huge. The aim is to secure much more extensive levels of commitments than exist in the GATS, or were promised in the Doha round, or even exist in most FTAs. It would also commit governments to maintain the current failed system of financial regulation. A TISA party could be sued if it sought to tighten financial rules that were put in place during the last three decades, which were marked by reckless or ill-considered liberalisation or deregulation. In the realm of financial services, this is high risk indeed.
Expedited Availability of Insurance (Art. X.21)Article X.21 requires regulatory procedures to be designed to expedite the ability of licensed insurers to offer insurance services across borders and in country. Examples of expedition include a time limit for disapproving an insurance product, after which the product must be allowed; exempting various kinds of insurance from requiring product approval; and allowing unlimited new products.
The GFC illustrates the implications. Credit default swaps (CDS) were one of the innovative products at the core of the crisis. Swaps operate as a form of insurance: the buyer of the swap accepts the risk that a borrower might default and pays up if they do, in return for receiving income payments. An estimated 80 percent were 'naked' CDSs, where the investor taking the insurance does not even own the asset being insured 17 -- they were basically betting on whether insured assets owned by someone else would fail. Around $60 trillion was tied up in CDSs in 2008. 18 AIG, a key instigator of the financial services rules, held $440 billion exposure to CDSs when the bubble burst, and was bailed out by US taxpayers.
Art X.21 is a license for similar disasters. As the GFC showed, governments can be slow and reluctant to regulate financial products, especially if they are complex and the insurer or the entire industry is pressuring them. The transparency provisions, described below, add to their leverage. Often regulators will only discover the dangers of an insurance product when it is too late. There is growing pressure to shift from regulating in ways that welcome and tolerate risk-taking to regulation that judges financial services providers and products on their merits. This provision would help to shield insurance products from that trend.
Data processing and transfer (Art X.11)The entire services lobby wants to stop governments from requiring data to be processed and stored locally. The firms that dominate cloud-based technology are mostly US-based. US firms also dominate the information and communications technology sector in general. The right to hold data offshore is especially important for the finance industry because finance is data. The US insurance and credit card industries have been especially vocal in their opposition to 'localisation' requirements.
Art X.11 has two proposals. One is from the EU and Panama and is couched in negative terms: a party shall not prevent such transfers. The state's right to protect personal data, personal privacy and confidentiality is limited by an obligation not to use that right to circumvent the provisions of TISA. This is a catch-22: the government cannot adopt any privacy etc measures if they arguably breach any provisions of TISA. But they could have taken such measures anyway!
The US proposal is much more direct. It wants a blanket right for a financial services supplier from a TISA party to transfer information in electronic or other form in and out of the territory of another TISA party for data processing where that is an ordinary part of their business. It is hard to think of a form of financial service where data processing is not part of the business. This obligation is stated in a positive, unfettered form. There is no pretence of any right for the state to protect personal privacy and data.
At first sight that protection might be found in Art X.18, as proposed by the US and EU. But the provision is negatively worded: nothing shall be construed to require a Party to disclose information regarding the affairs and accounts of individual consumers. That means TISA does not affect states' ability to require disclosure of information, presumably to the government, about individuals. It is not concerned with protecting personal privacy or preventing those who hold the personal data from abusing it for commercial or political purposes.
When data is held offshore it becomes almost impossible for states to control data usage and impose legal liability. Protecting data from abuse by states has become especially sensitive since the Snowden revelations about US use of domestic laws or practices to access personal data across the world.
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