Source: http://www.sice.oas.org/tpcstudies/uscaftachl_e/CompStudy12.htm
Timestamp: 2019-06-17 04:41:57
Document Index: 669735433

Matched Legal Cases: ['Art.12', 'Art.12', 'Art.12', 'Art.12', 'Art.12', 'Art.12', 'Art.12', 'Art.12', 'Art.12', 'Art.12', 'Art.12', 'Art.12', 'Art.12', 'Art.12', 'Art.12', 'Art.12', 'Art.12', 'Art.12', 'Art.12', 'Art.12', 'Art.12', 'Art.12', 'Art.12', 'Art.12', 'Art.12', 'Art.12', 'Art.12', 'Art.12', 'Art.12', 'Art.11', 'Art.12', 'Art.12', 'Art.12', 'Art.12', 'Art.12', 'Art.12', 'Art.12', 'Art.12', 'Art.12', 'Art.12', 'Art.12', 'Art.12', 'Art.12', 'Art.12', 'Art.12', 'Art.12', 'Art.12', 'Art.11', 'Art.10', 'Art.10', 'Art.10', 'Art.11', 'Art.10', 'Art.11', 'Art.12', 'Art.21', 'Art.19', 'Art.12', 'Art.12', 'Art. 12', 'Art.12', 'Art.12', 'Art.12', 'Art.12', 'Art.12', 'Art.12', 'Art.12']

Comparative Guide Chile - U.S. FTA and DR - CAFTA - Chapter 12: Financial Services
Financial services have virtually identical treatment in the Chile-U.S. FTA and DR-CAFTA, except for a limited number of provisions. Both Agreements contain a separate Chapter on Financial Services, which incorporates by reference selected Articles from other Chapters in the Agreement.
Except for an Article on Domestic Regulation (Art.12.14) in DR-CAFTA, both Chapters contain an identical list of Articles, including on: Scope and Coverage (Art.12.1); National Treatment (Art.12.2); Most-Favored-Nation Treatment (Art.12.3); Market Access for Financial Institutions (Art.12.4); Cross-Border Trade (Art.12.5); New Financial Services (Art.12.6); Treatment of Certain Information (Art.12.7); Senior Management and Board of Directors (Art.12.8); Non-Conforming Measures (Art.12.9); Exceptions (Art.12.10); Transparency (Art.12.11); Self-Regulatory Organizations (Art.12.12); Payment and Clearing Systems (Art.12.13); Expedited Availability of Insurance Services (Chile-U.S. FTA Art.12.14 and DR-CAFTA Art.12.15); Financial Services Committee (Chile-U.S. FTA Art.12.15 and DR-CAFTA Art.12.16); Consultations (Chile-U.S. FTA Art.12.16 and DR-CAFTA Art.12.17); Dispute Settlement (Chile-U.S. FTA Art.12.17 and DR-CAFTA Art.12.18); Investment Disputes in Financial Services (Chile-U.S. FTA Art.12.18 and DR-CAFTA Art.12.19); and Definitions (Chile-U.S. FTA Art.12.19 and DR-CAFTA Art.12.20).
The texts also contain annexes on cross-border trade (Chile-U.S. FTA Annex 12.5 and DR-CAFTA Annex 12.5.1) and specific commitments (Chile-U.S. FTA Annex 12.9 and DR-CAFTA Annex 12.9.2). In addition, Annex 12.11 to the Chile-U.S. FTA Chapter clarifies Chile’s application of Article 12.11 on Transparency, whereas DR-CAFTA includes Annex 12.9.3 on additional information regarding financial services measures. Authorities responsible for financial services are set out in Annex 12.15 to the Chile-U.S. FTA Chapter and in Annex 12.16.1 (entitled Financial Services Committee) to DR-CAFTA.
As regards market opening, both Chapters follow a positive list approach for cross-border trade in financial services (Chile-U.S. FTA Annex 12.5 and DR-CAFTA Annex 12.5.1) and a negative list approach for investments in financial services, except Chile for future measures on insurance services –where non-conforming measures are listed for a positive list of subsectors.
Scope and Coverage: both Chapters cover (Art.12.1) measures related to a) financial institutions of another Party, b) investors of another Party, and investments of such investors, in financial institutions in the Party’s territory, and c) cross-border trade in financial services. Financial services include (Chile-U.S. FTA Art.12.19 and DR-CAFTA Art.12.20) all insurance and insurance-related services and all banking and other financial services (excluding insurance), as well as services incidental or auxiliary to a service of a financial nature. Covered financial institutions must be authorized to do business and regulated or supervised as a financial institution under the law of the Party in whose territory it is located. Investments in non-regulated institutions are covered under the Investment Chapter. In addition, the provision on scope and coverage in both Chapters incorporates by reference a number of Articles from the Chapters Cross-Border Trade in Services (Denial of Benefits) and Investment (Transfers, Expropriation and Compensation, Special Formalities and Information Requirements, Denial of Benefits and Investment and Environment). The texts differ in that DR-CAFTA, but not the Chile-U.S. FTA, incorporates an obligation to permit bilateral transfers and payments related to cross-border trade in financial services (Art.11.10). Another significant difference between the two texts is a paragraph in DR-CAFTA stating that unless the Dominican Republic and each of Costa Rica, El Salvador, Honduras, or Nicaragua agree on a set of reciprocal non-conforming measures, the Chapter does not apply to financial institutions to the extent they supply banking services, investments of such investors, in such financial institutions, or cross-border trade in banking services between the Dominican Republic and each of these Central American countries. A similar provision applies more broadly to financial services between the Dominican Republic and Guatemala.
Non-Discriminatory Treatment: both Chapters re-state the National Treatment (Art.12.2) and Most-Favored-Nation treatment (Art.12.3) obligations to address the special sensitivities of financial services. The two obligations are of general application and extend to both cross-border financial services suppliers (or modes one, two and four) and investments (encompassing (a) and (b) above) in financial services. When membership, participation or access to self-regulatory organizations is required for the supply of financial services, these organizations must also comply with the national treatment and most-favored-nation obligations (Art.12.12). The national treatment obligation applies for the entire life cycle of the investment (Art.12.2.1 and 12.2.2) and to the cross-border supply of the financial services specified in a separate annex (Chile-U.S. FTA Art.12.5 and DR-CAFTA Art.12.5.1). The MFN text in DR-CAFTA is modified to acknowledge the plurilateral context of the Agreement (this is done throughout the Agreement).
Recognition of Prudential Regulations: recognition of prudential regulations of a non-Party is allowed under the MFN Article (Art.12.3) in both texts. DR-CAFTA also permits recognition of prudential measures of another Party. Recognition may be accorded unilaterally, through harmonization or via a mutual arrangement.
Transparency and Administration of Domestic Regulations: both texts recognize the importance of transparent regulations and policies governing the activities of financial institutions and financial service suppliers for market access and their operations (Art.12.11). In DR-CAFTA the promotion of regulatory transparency is an obligation, whereas in the Chile-U.S. FTA it is not. DR-CAFTA also contains a transparency clause (Art.12.9.3) with respect to which the Parties list (in Annex 12.9.3) supplementary information regarding certain aspects of financial services measures of a Party that the Party considers are not inconsistent with its obligations. The Chile-U.S. FTA text also recognizes the importance for market access (and operations) of reasonable, objective and impartial administration governing the activities of financial institutions and financial service suppliers. DR-CAFTA omits this text from the relevant Article, but includes a broader obligation in a separate Article (Art.12.14) under which all measures of general application to which the Chapter applies shall be administered as above. Both texts incorporate best endeavors clauses relating to the prior publication and prior comment on proposed regulations, which to the extent practicable, should be addressed in writing. They also acknowledge the importance and commit to ensure transparency in the rules of general application adopted by self-regulatory institutions (Art.12.11) and highlight the relevance of maintaining and developing regulatory procedures to expedite the offering of insurance services by licensed suppliers (Chile-U.S. FTA Art.12.14 and DR-CAFTA Art.12.15).
Disclosure of Information: neither text requires its Parties to disclose information relating to the financial affairs and accounts of individual customers of financial service suppliers, or confidential information relevant for law enforcement or the commercial interests of enterprises (Art.12.7).
New Financial Services: both Chapters on financial services permit (under Art.12.6) foreign financial institutions to supply any new financial service that domestic financial institutions are allowed to provide. The Chile-U.S. FTA allows the provision of such services, provided that their introduction does not require the Party to adopt a new law or modify an existing law. The text in DR-CAFTA is slightly different as it requires that the foreign provision of the new service be made “without additional legislative action,” without specifying the scope of such term. The obligation to allow the provision of new financial services is also subject to request or notification to the relevant regulator in the Chile-U.S. FTA, but not in DR-CAFTA. The Article allows, in both Agreements, that the Parties determine the institutional and juridical form through which the new financial service may be supplied. Although not explicitly mentioned in the Chile-U.S. FTA, such a prerogative is limited in both Agreements by a prohibition to “restrict or require specific types of legal entity or joint venture through which a financial institution may supply a service” (Art.12.4(b)). Under both texts the Parties are required to make a decision about the authorization of a new financial service in reasonable time and allow refusal only for prudential reasons. This applies in the Chile-U.S. FTA when the Party “would permit the new financial service and authorization is required”, whereas in DR-CAFTA it applies only when “authorization is required”.
Exceptions: exceptions for the adoption of prudential measures, measures taken in pursuit of monetary and related credit policies or exchange rate policies, limits on transfers and measures relating to the prevention of deceptive and fraudulent practices or to deal with the effects of default on financial services contracts are permitted under both Agreements (Art.12.10). Obligations with regard to financial services (Chapter 12), investment (Chapter 10), telecommunications (Chile-U.S. FTA Chapter 13 and DR-CAFTA Chapter 14) and electronic commerce (Chile-U.S. FTA Chapter 15 and DR-CAFTA Chapter 13) do not limit non-discriminatory measures taken in pursuit of monetary and related credit policies or exchange rate policies, but they do limit prudential measures to the extent that they are used to avoid a Party’s obligations under such provisions. This is also the case with the provisions on competition policy, designated monopolies and state enterprises (Chapter 16) and cross-border trade in services (Chapter 11) in the Chile-U.S. FTA, but not in DR-CAFTA -except for the cross-border provisions on market access, domestic regulation and transparency in developing and applying domestic regulations that apply to covered investments (Art.11.1.3). Under both Agreements, measures taken by a public entity in pursuit of monetary and related credit policies or exchange rate policies shall not affect a Party’s obligations with respect to performance requirements (Chile-U.S. FTA Art.10.5 and DR-CAFTA Art.10.9) and transfers (Art.10.8) on investments. In DR-CAFTA, such measures shall also not affect obligations with respect to transfers and payments on cross-border supply of services (Art.11.10). However, for prudential reasons, members to both Agreements may indeed limit transfers on investment (notwithstanding Art.10.8 “Transfers” in both FTAs) and cross-border supply of financial services (notwithstanding Art.11.10 “Transfers and Payments” of DR-CAFTA). Note that in the Chile-U.S. FTA there is no obligation to permit transfers and payments on cross-border transactions and that prudential measures are defined very broadly. They may be taken through regulatory or administrative authorities, as well as those who have regulatory responsibilities with respect to financial institutions, such as ministries or departments of labor (ftnt. 4, Art.12.10).
Dispute Settlement: dispute settlement is covered in both texts under four different Articles. These are analyzed in turn below.
Financial Services Committee: a Financial Services Committee is established in both the Chile-U.S. FTA and DR-CAFTA (Arts.12.15 and 12.16, respectively). In the Chile-U.S. FTA, however, the Committee is subject to supervision by the Free Trade Commission (established under Art.21.1), whereas in DR-CAFTA the Committee is required to merely inform the Commission (established under Art.19.1) of the results of each meeting. Another difference in the texts is that in the Chile-U.S. FTA, the Committee shall participate in both state-state and investor-state disputes, while in DR-CAFTA the Committee is excluded from state-state disputes.
Consultations: Article 12.16 in the Chile-U.S. FTA and 12.17 in DR-CAFTA allows Parties to request (in writing in the Chile-U.S. FTA text) consultations with another Party regarding any matter arising under the Agreements that affects financial services. For Chile and the U.S., such consultations are subject to the provisions in the Dispute Settlement Chapter (Art.12.17.2) only to the extent that the Parties do not agree otherwise. In DR-CAFTA, consultations are always subject to the dispute settlement provisions in the financial services Chapter.
State-to-State disputes: a separate Article in both Chapters (Chile-U.S. FTA Art.12.17 and DR-CAFTA Art. 12.18) reformulates the State-to-State dispute resolution procedures under Chapter 22 (Chile-U.S. FTA) and Chapter 20 (DR-CAFTA ) to address the special sensitivities of financial services. The texts differ in a number of ways. In DR-CAFTA, for instance, rules dealing with “Domestic Proceedings and Private Commercial Dispute Settlement” of Chapter 20 (Section B) do not apply to financial services. The Chile-U.S. FTA text contains a paragraph on consultations (see Consultations above), which is excluded from the relevant Article in DR-CAFTA. Differences are also found in the procedures for panel selection. Both texts apply the procedures for panel selection in Article 22.9 (Chile-U.S. FTA) and Article 20.9 (DR-CAFTA) and modify them to incorporate the qualifications for financial services roster members (and also financial services panelists in DR-CAFTA) established in Article 12.17 (Chile-U.S. FTA) or Article 12.18 (DR-CAFTA). On such qualifications both texts establish similar rules. Differences are also found in the number of nationals and non-nationals that must compose the roster of individuals eligible for a dispute settlement panel and in that DR-CAFTA, and not the Chile-U.S. FTA, incorporates the possibility of appointing a replacement where a roster member is no longer available to serve. Both texts permit the Parties to agree that the panel not be composed entirely of panelists versed in financial services, but only DR-CAFTA establishes the selection procedures to be followed in these cases. Finally, both texts establish that where a panel finds the measure to be inconsistent with the obligations of the Agreement, benefits may be suspended under certain conditions (Chile-U.S. FTA Art.12.17.6 and DR-CAFTA Art.12.18.5). Although the drafting differs, the scope of the provisions seems to be the same.
Investor-State Disputes: with minor differences in language the Chile-U.S. FTA and DR-CAFTA establish (under Arts. 12.18 and 12.19, respectively) that investor-state disputes are subject to the provisions in the investment Chapter, unless the disputing party invokes the Article on exceptions (12.10) of the financial services chapter. In such cases, the tribunal shall refer the matter in writing to the Financial Services Committee for a decision. Here, DR-CAFTA introduces a significant change in text by which the Financial Services Committee may allow the financial services authorities of the relevant Parties to decide whether Article 12.10 applies. DR-CAFTA also clarifies in Article 12.19.6 that arbitration “tribunal” is to be understood in terms of Article 10.19 of the investment Chapter. This definition is found in Article 12.19 (Definitions) in the Chile-U.S. FTA Chapter.
Market Access Commitments: the Chapters distinguish between market access for cross-border trade in financial services and investments (as defined above) in financial services. Different approaches are also followed for banking and insurance services.
Cross-border trade: cross-border trade in financial services is allowed under Article 12.5, which is virtually identical in both texts. According to this Article, the Parties shall permit, under terms and conditions that accord national treatment, cross-border financial service suppliers of another Party to supply the services specified in a separate annex (Chile-U.S. FTA Art.12.5 and DR-CAFTA Art.12.5.1) – i.e. a positive list approach. It also permits the purchase of financial services from cross-border financial service suppliers by persons located in a Party’s territory and its nationals wherever located. A Party may subject cross-border suppliers to prudential regulations and require registration of the supplier and financial instruments. Specific commitments with respect to the cross-border supply of investment advice and portfolio management services supplied to domestic collective investment schemes (Chile-U.S. FTA Annex 12.9 and DR-CAFTA Annex 12.9.2) supplement the commitments made in the cross-border Annex. Said Annex distinguishes between insurance and insurance-related services and banking and other financial services (excluding insurance) and between modes of supply as shown in the tables below. For the sectors listed in the respective Annexes, non-conforming measures are scheduled (Art.12.9) in Annex III of Chile-U.S. and Annex III of DR-CAFTA (see section Annexes on Non-Conforming Measures below).
Investment: for market access on investments in financial services, both Chapters follow a negative list approach, except Chile for future measures on insurance services, supplemented by specific commitments in separate Annexes (Chile-U.S. FTA Annex 12.9 and DR-CAFTA Annex 12.9.2). Non-conforming measures are listed in Annex III of Chile-U.S. and Annex III of DR-CAFTA, pursuant to Article 12.9 (see section Annexes on Non-Conforming Measures below). Specific commitments contained in the respective annexes include: voluntary savings plans in Chile (by March 1, 2005) and foreign banking in El Salvador. Member countries to both Agreements also commit to expedite the availability of insurance services and allow branching in insurance three to four years (Costa Rica by January 2008 for most insurance services) after the agreement enters into force. In addition, both texts grant to established financial institutions access to payment and clearing systems operated by public entities, and to official funding and refinancing facilities available in the normal course of ordinary business -this excludes access to lender of last resort facilities (Art.12.13).
For future measure on insurance services, Chile combines a positive list of subsectors with non-conforming measures with respect to market access (Art.12.4). Chile scheduled life and general insurance, insurance brokerage and reinsurance and retrocession (including brokerage).
Article 12.4 in both Agreements lists the types of quantitative restrictions and limits on restrictions or requirement of a specific type of legal entity or joint venture for the supply of the service, that a Party may not adopt or maintain with respect to investors (Chile-U.S. FTA) or financial institutions (DR-CAFTA) of the other Party. DR-CAFTA clarifies that "financial institutions of another Party” includes financial institutions that investors of another Party seek to establish in the territory of the Party.’ This text incorporates a similar concept to that found in the definition of “investor of a Party” in the Chile-U.S. FTA Chapter, which states that an investors of a Party includes an investor that “attempts to make, is making, or has made an investment in the territory of the other Party…”.
For Costa Rica and members to the Chile-U.S. FTA, the Market Access provision needs to be read in conjunction with the right of establishment granted to foreign providers with respect to certain financial services (Section A of the Annex in the Chile-U.S. FTA and Section H.III.2 in DR-CAFTA). Members to the Chile-U.S. FTA grant the right of establishment in banking and other financial services (excluding insurance). Chile also grants this right in Pension Fund Management Services (Administradoras de Fondos de Pensiones). In DR-CAFTA, Costa Rica grants the right of establishment in insurance services supplied directly to the consumer. This commitment applies by January 1, 2011.
Table 12.1: Insurance and insurance-related services
Chile U.S.
(Chile-U.S. FTA) U.S.
(DR-CAFTA) Costa Rica Dominican Republic El Salvador Guatemala Honduras Nicaragua
From the territory of one Party into the territory of the other Party (i.e. mode 1)
1.MAT insurance X17 X X X X X X X X
2.Reinsurance and retrocession X X X X X X X X X
3.Insurance intermediation
Brokerage X 19 X X X * X X X X X
Agency X X X * X X
4.Services auxiliary to insurance
Consultancy X X X X * X X X X X
Actuarial services X X X X * X X X X X
Risk assessment services X X X X * X X X X X
Claim settlement services X X X * X X X X X
By a national of a Party in the territory of the other Party, but does not include the supply of a service in the territory of a Party by an investment in that territory (i.e. mode 4)
1.Insurance (1,2,3,4 above) X21 X X X X X X X
Table 12.2: Banking and other financial services (excluding insurance)
(all cross-border modes)
Provision and transfer of financial information X X X X X X X X X
Financial data processing X22,23 X X X X X 24,25 X X X 26,27
Related software X X X X X
Auxiliary financial services X X X X X X X X X
Credit reference and analysis 28 X X X X X X X
Investment research and advice X X X X X X X X X
Portfolio research and advice X X X X X X X X X
Advice on acquisitions and on corporate restructuring and strategy X X X X X X X X X
Other advisory services X X X X X X X X X
12DR-CAFTA also incorporates an obligation to permit transfers and payments related to cross-border trade in services.
13The Dominican Republic and El Salvador will implement their commitments regarding investment advice and portfolio management services, no later than four years after the entry into force of the Agreement, by adopting a special laws regulating collective investment schemes. Guatemala and Nicaragua committed to adopting in the future laws allowing insurance companies (Guatemala) and pension funds (Nicaragua) to manage collective investment schemes.
14El Salvador will develop and issue prudential and other requirements that must be met by Salvadorian banks in order for them to receive authorization to apply for the establishment of branches in the United States.
15Honduras and the United States (subject to state restrictions) already permitted insurance branching in the WTO. In addition, Chile reserved the right to establish requirements such as on capital and ownership, technical reserves, branch-parent relationship and transfers-investments and risky patrimony relationship. The United States, in turn, committed to review regulations that do not allow entry of non-U.S. insurance companies as a branch in a number of States.
16Maritime shipping and commercial aviation and space launching and freight (including satellites); goods in international transit.
17Specifies that the commitment refers to “international” MAT insurance and uses the wording “maritime transport” instead of “maritime shipping.” It also excludes space launching and freight (including satellites).
18Costa Rica also allows the cross-border supply of surplus lines of insurance.
19Brokerage of insurance risks (excluding reinsurance brokerage) apply one year after the entry into force of the Agreement or when Chile has made and implemented the necessary amendments to its pertinent legislation.
*Costa Rica allows the cross-border provision of these services as related to MAT insurance, reinsurance and retrocession and surplus lines as of entry into force of the agreement. For all other lines of insurance, these services will be permitted by July 1, 2007.
20Services auxiliary to insurance provided to an insurance supplier only.
21The U.S. commitment in the Chile-U.S. FTA is not limited to the insurance services listed for mode 1.
22 Subject to prior authorization by the relevant regulator.
23Where financial information or financial data involve personal data, the treatment of such personal data shall be in accordance with the host country law regulating the protection of such data.
25 See footnote 23.
26 See footnote 22.
27 See footnote 23.
28 Chile reserved the right to allow the cross-border supply of credit reference and analysis services in the future. Should Chile decide to allow the provision of such services, it is entitled to reverse this measure in the future.