Lifestyle the December 2013 issue

Border Crossing

New trade agreements open new possibilities for the insurance industry to cross borders with relative ease.
Posted on December 24, 2011

Passage has been a top priority for business in all three countries.

Approval came after the Obama administration held fast to its demands that Congress renew the Trade Adjustment Assistance (TAA) program that helps retrain workers displaced by outsourcing. Republicans opposed the measure, but a compromise was reached after they pushed through cuts and a 2014 program sunset provision. Copies of all of the agreements can be found at

Why now? The slumping economy has businesses desperately seeking other markets to which to export their goods and services. The trade agreements purportedly will boost U.S. exports by $13 billion. For the other nations, the U.S. market is fertile ground for cars, textiles and other goods and services. South Korea, Panama and Colombia are expected to benefit significantly by increasing their exports to the United States.

It’s also about jobs, a point the White House and the Republicans apparently agree on (sometimes). The administration estimates the agreements will create 250,000 good-paying jobs. Since the Republicans recently used that number, I’m taking it as valid. However, in the interest of transparency, there will be winners and losers in the economy. Jobs will grow in sectors benefiting from the new trade opportunities, while other sectors will face new competition. That’s where the TAA kicks in, and that’s why the president was so adamant about extending the program.

Overall, trade agreements do help grow the economy. Between 2000 and 2010, for example, total U.S. exports increased by more than 60%. In countries where agreements were in place, exports grew by more than 90%.

How does this affect our sector? The three agreements greatly expand opportunities for financial service businesses wanting to do business in those countries. In fact, the South Korean agreement has become the model for trade agreements for the financial services industry. The Panama and Colombia agreements include many of the same provisions but with some differences.

What are the benefits for brokers? The agreements offer new business opportunities for intermediaries. Key provisions of the financial services section of the South Korean agreement include:

National Treatment: A U.S. company will be treated no less favorably than a domestic company. U.S. brokers will be able to establish a business in the country and provide the same scope of business as a domestic firm along with the ability to acquire, expand and invest. South Korean brokers coming to the U.S. also will receive national treatment. Essentially, this means a broker entering the other territory is subject to the same rules as a local firm and can provide the same scope of services.

Most Favored Nation: This simply means the parties to the agreement will not be treated less favorably than another country that is not party to the agreement.

Market Access: This allows a company to establish business in a non-home country. Neither party to the agreement can impose limitations on the number of financial institutions established or on the total value of financial service transactions, assets and output. Nor can a party require an economic needs test. In addition, neither country can limit the number of natural persons employed or restrict the type of legal entity or joint venture the business may use.

Both countries are allowed to adopt prudential measures to protect investors, consumers and others to whom a fiduciary duty is owed by a financial institution or to ensure the financial integrity of the financial system in the country.

Cross-border trade: This is an important provision and allows financial services companies to provide cross-border services without having to establish an office or subsidiary in the non-home country. It also allows a country’s nationals to buy services abroad. For example, a citizen of South Korea could go online and buy insurance from a U.S. broker not established in South Korea. However, either party to the agreement can require the financial service provider of the other party to register before offering cross-border service into its territory. The provision does not permit a financial service provider to do business or solicit in another territory. Each country has the right to define “doing business” and “solicitation.”

For insurance specifically, the agreement allows cross-border trade for marine, commercial aviation, transportation and goods in international transit. The agreement also allows cross-border trade for reinsurance, retrocession and insurance intermediation. Services such as consulting, actuarial, risk management and claims settlement also can be provided cross-border.

As the service sector grows and becomes a larger part of many countries’ economies, agreements such as these are important to economic growth. They also help insurance brokers provide services to clients wherever they are located.

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