The ‘New NAFTA’: Now is the Time to Prepare for the USMCA

Part 2: Financial Services
Aerial view of water and dock covered in shipping containers
For more than two decades, a broad range of cross-border financial transactions between the United States, Canada, and Mexico were ruled by the 1994 NAFTA.

In January 2017, the NAFTA's three leaders agreed that the time was at hand to “modernize” the (now) 24 year-old pact, launching months of negotiations that ended on September 30, 2018. Now, all three countries must ratify the pact and equally importantly, promulgate “uniform regulations” that will implement the USCMA’s various chapters. By most accounts, this will take place throughout 2019 with the USCMA coming into force possibly in early 2020.

According to the Office of the United States Trade Representative the United States exported approximately $115 billion in financial services in 2016, yielding about $41 billion surplus for trade in financial services. By further leveling the playing field, it is anticipated that the USMCA will grant the three countries wider market access to financial service firms operating in each other’s countries.

The USTR has released the full text of the negotiated pact on its website and can be read here. The Chapter on Financial Services is in Chapter 17 of the USCMA. This alert will provide readers with an overview of the changes the USMCA would make from the current NAFTA and their implications for the financial services industry.

Under National treatment and Most-favored-nation treatment principles, financial service firms are ensured to receive equal treatment as local suppliers and firms from any other country, respectively. Market access principles also prohibit host nations from imposing certain quantitative restrictions that would limit the export of financial services to the host country. The USMCA, when it comes into force, will strengthen national treatment protections for the covered financial services industry in all three countries. Enumerated “rules of the road” will ensure transparency and fair treatment.

A key development in the USMCA is that, unlike the current NAFTA – or any other preceding US trade agreement – there is now a provision prohibiting local data storage requirements, an essential factor impacting the financial services industry. Accordingly, Canada, the US, and Mexico may not impose local data storage requirements on financial service firms as long as 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 host nation financial services sector will also be enhanced through increased regulatory transparency.

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