Financial Services in the Transatlantic Trade and Investment Partnership
The Transatlantic Trade and Investment Partnership (TTIP) can deepen the already substantial ties that bind the United States and the European Union in the world's largest economic and strategic alliance. Since both sides have included financial services in prior trade pacts, they implicitly recognized that the TTIP would also cover this sector. But what will be included in the financial services chapter is still subject to debate. Particular concerns arise about how the TTIP could impact the still unsettled European financial reforms and the introduction of new US rules pursuant to the Dodd-Frank legislation of 2010 or other potential US regulatory initiatives. The authors believe that the TTIP can complement the extensive efforts already in train in financial forums by making regulatory policies more transparent and by creating opportunities for trade and investment in financial services in both markets. A broader role for TTIP in harmonizing financial regulation is not an appealing idea—and not one that sits well with current US official thinking.
An Update on EU Financial Reforms
The European Union will have to put forth significant effort to develop its own financial regulation system in the absence of strong momentum towards global standards. Nicolas Veron compares US and EU regulatory responses to the global financial crisis and then breaks down the specific areas of reform in which the European Union has acted or is expected to act. The successful creation of the European Supervisory Authorities is the main achievement so far and could lead over time to a distinct European financial regulatory philosophy.
Framework for the International Services Agreement
Services trade continues to be the most dynamic part of world trade, and service sectors have long been the largest destination of foreign direct investment flows. Countries can reap huge potential gains through greater liberalization of services trade and investment, including increased job creation, greater economic efficiency, more variety, and lower costs of doing business. Despite these positive attributes, liberalization of services at the multilateral level has been stuck in the ill-fated Doha Development Round for over ten years now. Failure in the World Trade Organization (WTO) can cause long-term damage to the multilateral trading system because action on services liberalization will then inevitably become the exclusive province of regional trade agreements. The way forward within the WTO framework is through an International Services Agreement (ISA) in which self-selected WTO members voluntarily agree to new rules and market access commitments, but the agreement itself is open to all WTO members who are willing to accept its disciplines and commitments. The authors consider the important questions of who will participate in an ISA and what the agreement itself might contain. It would be important to attract the largest and most successful emerging countries (Brazil, Russia, India, China, and South Africa), which account for a sizeable share of world services trade, but this will probably not happen at the outset, because the BRICS have so far opposed services liberalization. The authors attempt to quantify the gains participating countries would reap from varying degrees of liberalization. They suggest a large range of possible export gains to the United States. At the lower end, using a standard partial equilibrium model, an ISA might facilitate a jump in US service exports by $14 billion annually. At the upper end, extrapolating from the scale of business services trade within US territory, the United States might realize export gains of $300 billion annually.