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It would be a big missed opportunity if the final agreement of the Transatlantic Trade and Investment Partnership excludes a sector as significant as financial services, says Steve Simchak, director of international affairs at the American Insurance Association. Doing so could leave U.S. insurers in a neutral or even worse position than they are in now. In the months ahead, financial services issues should be included.
The Transatlantic Trade and Investment Partnership, known as T-TIP, is an ambitious trade and investment agreement under negotiation between the U.S. and the European Union. By all accounts, it could be a model of cooperation when it's completed.
In the meantime, the bargaining positions would hurt rather than help the transatlantic insurance market and the investments that underpin it.
The U.S. and European Union share common economic values. Unfortunately, the most recent offer from the E.U. would exclude the financial services industry, including insurance, from the overall negotiation — a troubling omission. It's hard to even imagine a broad trade agreement between the U.S. and Europe that doesn't include provisions that deal with so large and important a sector as financial services. In addition, the close ties between the U.S. and the E.U. make it even harder to believe that the negotiations have so far led to such a discouraging position.
At the current pace, new opportunities will be left unrealized and current problems won't be addressed in the T-TIP. In fact, following negotiations on the scope of the agreement, the E.U. took the entire issue of financial services market access off the table and financial services negotiators didn't participate in the last round of talks. Beyond the absence of financial services trade negotiations, negotiations over investment protections also have stalled while the E.U. reviews its own positions.
Since Europe would like the T-TIP to replace the existing investor protections, a weak investment section of the T-TIP could leave U.S. investors vulnerable and with fewer protections than they have now. Even if it does not override existing agreements, an agreement that leads to weaker protections than the current standard raises questions about the utility of negotiating such an agreement at all. Insurers on both sides of the Atlantic agree and have voiced their concerns about the current path of negotiations.
It doesn't have to be this way. This partnership was envisioned as a model agreement that would strengthen trade and investment ties between the U.S. and the E.U. and could serve as the basis from which the U.S. and E.U. could negotiate pacts with other countries around the world. That could still happen, of course. But the last offer from the E.U. is a major setback.
Insurers and other types of financial services providers have not been excluded from a U.S. Free Trade Agreement negotiation in almost three decades, and for good reason. Our global economy is ever more interconnected, and financial services issues need to be considered and resolved. If the talks continue down the current path, market access and regulatory cooperation opportunities will be lost, and new protections for investors could be weaker than existing protections in the U.S. and the nine E.U. member states where we have existing investment agreements in force.
Why does that particularly matter in the case of the U.S. and the E.U.? Because the U.S. and European insurance markets are the two most integrated insurance markets in the world, though barriers to trade and investment remain. Bilateral trade and investment in the insurance sector alone exceeds $185 billion a year, and the E.U. and U.S. together represent 74% of global premium income. In addition, more than 13 million American and E.U. jobs are supported by total transatlantic trade and investment. Furthermore, financial services, including insurance, are the “glue that binds” together trade routes for other sectors like manufactured goods and agricultural produce. It's important that we get this part of the agreement not only finished, but right.
The insurance industry has supported and continues to support completion of a high-quality T-TIP. Furthermore, industry representatives on both sides of the Atlantic representing all types of insurance have unambiguously called for full inclusion of financial services negotiations in the T-TIP. Specifically, creating a high level of market access across borders must be a priority. The agreement should address anti-competitive practices from state-owned enterprises and the ability of insurers to store and process corporate data in a server location of their choosing, an issue known as “data flows.” Perhaps most important, the final agreement must include strong investment protections, including investor-state dispute settlement that build upon the existing investment treaties that the U.S. already has with nine E.U. member states.
The U.S. Trade Representative will meet with his European counterpart this month in a “stock taking” exercise to review the negotiations. Having now gone through multiple negotiating rounds without financial services talks and without investment negotiations, the U.S. insurance industry hopes that both sides will seize this chance for a reinvigorated push to include the vital financial sector. The issue has unfortunately become politically charged and thus the attention and engagement of cabinet-level officials is needed.
It would be an enormous missed opportunity if the final agreement that was meant to represent the highest standard of trade commitments excludes a sector as significant as financial services. Doing so could leave U.S. insurers in a neutral or even worse position than they are in now. Property/casualty insurers in the U.S. have made it abundantly clear that the T-TIP is an important priority, and the industry will continue to point out the need for financial services to be addressed in the T-TIP, until insurance is back on the negotiating agenda. The stakes are too high to do otherwise.
The good news is that it is not too late for the negotiators to change course and re-embrace the ambitious goal of creating the highest standard agreement ever, which was envisioned at the launch of negotiations. As negotiations continue in the months to come, both sides need to come to the table ready to discuss financial services issues and create a framework that maximizes opportunity for all.
Steve Simchak is director of international affairs at the American Insurance Association in Washington. He can be reached at email@example.com and 202-828-7133.
A Deepwater Horizon-related coverage dispute highlights the need for corporations to square their commercial contracts with their insurance policies. Christopher C. Loeber and Kelly A. Lloyd with the law firm Lowenstein Sandler L.L.P. discuss the interplay between indemnification agreements and “additional insured” provisions and the importance of retaining insurance coverage counsel to help navigate some very significant pitfalls.