U.S.- CAFTA-DR Free Trade Agreement
Financial Services
Improving the conditions for financial institutions to provide services is a key component of the U.S. trade liberalization agenda. The financial sector is a critical component of a nation's economy: it not only contributes directly to output and employment but also provides an essential infrastructure for the functioning of the entire economy.
The CAFTA-DR countries' commitments in the financial services sector include core obligations of national treatment, most-favored nation treatment, and additional market access obligations for investment. The Agreement also includes provisions on cross-border trade in financial services, new financial services, regulatory transparency, and objective and impartial administration of domestic regulation. In addition, the Agreement includes important commitments relating to branching, asset management and use of foreign-based portfolio managers by mutual funds.
Banking and Securities
The financial sectors of Central America are generally quite open to foreign investment. The Agreement locks in rights for U.S. financial service suppliers to establish wholly owned subsidiaries or joint ventures. Also, banks are ensured the ability to establish a direct branch from abroad in most countries. Central America has committed without reservation to allow its citizens to consume banking and securities services abroad and will also allow U.S.-based firms to offer services cross-border to Central Americans in areas such as financial information and data processing, and financial advisory services.
Asset Management Services
Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and the Dominican Republic made no commitments in asset management in the 1997 GATS Financial Services Agreement. The CAFTA-DR provides legal certainty that U.S. asset management firms will be afforded national treatment, non-discrimination and the right of establishment in these countries. In addition, the Agreement includes a specific commitment to permit the cross-border provision of portfolio management services by asset managers located abroad to collective investment schemes located in Central American countries. This important commitment allows a U.S. firm to achieve economies of scale and use its global expertise in serving its clients in those countries. El Salvador and the Dominican Republic have agreed to adopt necessary laws and regulations within four years to implement this commitment, and Guatemala and Nicaragua will implement commitments as soon as the appropriate laws are passed and regulations established. The financial services transparency commitments in the Agreement also benefit the asset management industry.
Insurance
The insurance commitments contained in the financial services chapter of the Agreement are comprehensive and generally provide good treatment for insurance providers. Commitments are similar among Nicaragua, Guatemala, El Salvador, Honduras, and the Dominican Republic with slight differences in terms of timing of implementation of commitments. Significant liberalization was achieved with the removal of economic needs tests and foreign equity limitations. These insurance commitments are significant improvements over current WTO obligations. For example, branching restrictions in El Salvador are to be lifted within three years; those in Guatemala, Nicaragua and the Dominican Republic will be eliminated within four years. Commitments on expedited availability of new products are also included. Perhaps most significantly, Costa Rica's insurance sector, which is currently dominated by a monopoly, will be opened for the first time under this Agreement. Liberalization will be achieved through a phased-in approach, with an initial, limited opening when CAFTA-DR enters into force for Costa Rica.
All major aspects of insurance are covered, including life, non-life, reinsurance, intermediation and services auxiliary to insurance. Key cross border insurance products and services are covered (marine, aviation and transport (MAT), reinsurance and intermediation), similar to those in the Chile and Singapore FTAs, with additional commitments to allow services necessary to support global accounts and surplus lines.
Prepared by the International Trade Administration