The Hill: Modern-day NAFTA must account for modern financial services firms

By Peter Matheson

The following op-ed was published in The Hill on July 13, 2017. 

Free and fair trade agreements, like the North American Free Trade Agreement (NAFTA), expand opportunities for American companies to compete in global markets. Through them, the Trump administration can meet its stated goals to increase exports, create American jobs and boost U.S. economic growth.

Trade agreements allow our nation’s financial services firms to facilitate economic growth and development by broadening the range of vehicles for savings and investment, lowering the cost of capital for businesses and entrepreneurs and expanding the markets that customers in manufacturing, agriculture and other sectors can sell into.

NAFTA already helps the U.S. benefit from its competitive advantage in financial services. We have a $4.3-billion surplus in financial services trade with Canada and a $1.1-billion surplus with Mexico, according to the Bureau of Economic Analysis.

Yet, the world has changed a lot since NAFTA was enacted in 1994. Since then, the financial services sector – like many other sectors – has integrated new technologies, offered better goods and services and complied with a regulatory regime that is constantly evolving.

A NAFTA modernization can bring our current agreement fully into the 21st century. The U.S. Trade Representative set the negotiation clock ticking on May 18, with a 90-day notification to Congress, which would allow negotiations to begin this summer.

SIFMA has made the four recommendations for negotiators to ensure that American financial firms have the maximum opportunity to generate trade and growth through competition based on a level playing field: 

  1. Expand the free flow of goods and services

U.S., Canadian and Mexican financial services institutions should continue to enjoy each other’s economies by maintaining and expanding the existing market access. NAFTA modernization should not only codify existing levels of openness in financial services, but also identify potential ways to expand market access to benefit broader economic goals. 

  1. Address the rise of digital protectionism

Digital protectionism impedes the ability to transfer data across borders and locate servers where needed. Since NAFTA’s initial negotiation, the development of information technology in commerce and business has been enormous, so it is crucial for our financial services firms operating in a global environment to be able to decide where and how to structure information technology infrastructure. A modernized agreement must effectively address this issue. 

  1. Ensure consistent policies for global financial centers

U.S. financial services firms operating globally must comply with multiple regulatory agencies. The NAFTA renegotiation presents an opportunity to build on the existing Financial Services Committee that presently exists and enhance regulatory coordination among the participating economies to help prevent unnecessary divergences.

  1. Create a level playing field for foreign and domestic firms

Enhancing investor protections in the investor-state dispute settlement mechanism, NAFTA should ensure that the financial sector has the same broad coverage of investor protections and investor-state dispute settlement (ISDS) as the enforcement mechanism, as afforded to other sectors.

We were pleased to share these recommendations in last month’s public hearings and hope to see a place for financial services in the administration’s objectives for NAFTA, when announced on July 17.

While the European Union and Japan move forward with their own broad trade agreement, we must take this opportunity to ensure the U.S. secures trade agreements that help grow our economy. As part of that process, it is in our own national interest to ensure American financial services firms can continue to compete in overseas markets. NAFTA, therefore, should be comprehensive, and a modernized agreement should assign a central place for financial services.

Peter Matheson serves as managing director of international policy & advocacy at The Securities Industry and Financial Markets Association (SIFMA), a U.S. industry trade group representing securities firms, banks and asset management companies.