On 5 October 2015, the 12 Trans-Pacific Partnership (TPP) countries signed the largest free trade agreement in a generation. The full 6,000 plus page text, which has just been released, is an agreement which our Government expects to lead to a $2.7 billion increase in New Zealand's GDP by 2030. While this agreement has many facets, in promoting economic growth, regional integration and open trade, and setting new global standards, what does it mean for the financial services sector in New Zealand?
There are two parts of the TPP Agreement that will be of particular interest to participants in the financial services sector in New Zealand: Chapter 10 Cross-Border Trade in Services and Chapter 11 Financial Services. Both chapters signal a potentially significant liberalisation of market access for cross-border service providers.
Under the Cross-Border Trade in Services chapter, no TPP country is permitted to:
- Impose quantitative restrictions on the supply of services (for example, a limit on the number of suppliers or the number of transactions)
- Require a specific type of legal entity or joint venture, or
- Insist on a supplier having local presence in order to supply a service.
Markets must be fully open to service suppliers from TPP countries. There are country-specific exceptions (non-conforming measures) contained in country-specific annexes attached to the TPP Agreement. For example, financial reporting requirements under New Zealand's Companies Act 1993
and Financial Reporting Act 2013
. TPP parties also agree to administer measures of general application in a reasonable, objective and impartial manner, and to accept requirements for transparency in the development of new services regulations.
The Financial Services chapter provides cross-border and investment market access opportunities while retaining the ability of TPP parties to regulate financial markets and institutions, and to take emergency measures in times of crisis. As well as the usual core obligations found in other trade agreements, the chapter provides for the sale of certain financial services across borders to a TPP party from a supplier in another TPP party without requiring suppliers to establish operations in the other country in order to sell their service. Subject to registration or authorisation of cross-border financial services suppliers of another TPP party in order to ensure appropriate regulation and oversight, if a domestic supplier is permitted to provide the service then a supplier of a TPP party is also permitted to do so. Again, there are country-specific exceptions to some of these rules. For example, for KiwiSaver at least one director of the corporate trustee and one director of the fund manager must be a New Zealand resident, and the monopoly that the Earthquake Commission and the Accident Compensation Corporation each have is preserved. Special rules are included to recognise the importance of regulatory procedures to expedite the offering of insurance services by licensed suppliers, and the chapter includes special commitments on portfolio management, electronic payment card services and transfer of information for data processing.
Possibly the most controversial part of the TPP Agreement is that the Financial Services chapter provides for the resolution of disputes relating to certain provisions through 'neutral and transparent investment arbitration'. Specifically, a special 'Investor State Dispute Settlement' mechanism to facilitate the application of the prudential exception, and other exceptions in the chapter, in the context of investment disputes. Specific provisions are included on investment disputes relating to the minimum standard of treatment, as well as provisions requiring arbitrators to have financial services expertise. Importantly, exceptions are included to preserve broad discretion for TPP financial regulators to take measures to promote financial stability and the integrity of their financial system, including a prudential exception and exception of non-discriminatory measures in pursuit of monetary or other policies.
The conclusion of the TPP negotiations may well mark the beginning of a new era in global financial services. However, it will likely be some time before there is any clarity in how the new rules will play and the extent of benefits that will be realised by TPP countries, including New Zealand.
At 6,000 plus pages it will take some time to digest the full text of the TPP Agreement. Helpfully, the Ministry of Foreign Affairs and Trade has recently published fact sheets on certain sections of the TPP Agreement which are available on their website.
We will continue to keep you updated on further dissemination of the detail and as policy is developed to implement the terms of the agreement. If you have any questions, or require further information regarding any aspect of this update, please contact us.