[CTC] Treasury unveils financial data fix to build TPP support

Wed May 25 16:24:26 PDT 2016

Treasury unveils financial data fix to build TPP support

By Doug Palmer <https://www.politicopro.com/staff/doug-palmer> and Victoria Guida <https://www.politicopro.com/staff/victoria-guida>, POLITICO

05/25/16 05:01 PM EDT

The Treasury Department is changing its approach to the handling of financial data storage in future trade deals in a bid to improve the chances for passage of the embattled Trans-Pacific Partnership.

The move represents a major Obama administration effort to resolve one of the highest-profile complaints about the deal: The Asia-Pacific pact leaves financial services out of a rule that would ban governments from requiring companies to store data within their borders — a exception demanded by Treasury in deference to U.S. regulators, who couldn't get access to some data stored overseas during the financial crisis.

The TPP carve-out left a sour taste in the mouths of U.S. financial firms, whose complaints resonated with influential members of Congress, such as Senate Republican Conference Chairman John Thune <https://cd.politicopro.com/member/51242> (R-S.D.) and House Foreign Affairs Committee Chairman Ed Royce <https://cd.politicopro.com/member/51596> (R-Calif.).

The disappointment was especially bitter because the TPP’s general prohibition against data localization requirements that thwart trade and investment was hailed by manufacturers and other service industry sectors as one of the most significant achievements of the agreement. 

“We have worked closely with U.S. financial regulators, Congress and the financial services industry to develop a new approach to financial services under data localization obligations in our trade and investment agreements,” a Treasury Department spokesperson said. “We believe we have made progress in addressing concerns as we seek to eliminate protectionist and trade-distorting data localization measures imposed by foreign governments in the financial services sector, while also ensuring that U.S. financial regulators have access to the information they need for regulatory and supervisory purposes.”

The financial services industry’s reaction Wednesday: cautious optimism over a potential turning point that could turn them into cheerleaders for the deal instead of one of its most powerful detractors.

"The initial reaction is that it's a positive development and an encouraging one and represents a significant change in U.S. policy," Christine Bliss, president of the Coalition of Services Industries, told POLITICO. "But we have to have broader consultations and see how the proposal would be expressed in text and see how the administration would carry out this new policy with respect to TPP countries."

According to sources familiar with the matter, financial industry officials look forward to seeing how the new policy will be drafted and implemented in practice under future trade agreements. They also said the industry will continue to work with the administration to address the issue in TPP countries, especially Vietnam and Malaysia, two big developing-country markets of major concern.

Even if the new language is enough to satisfy industry, the administration still faces an uphill battle in mollifying Senate Finance Committee Chairman Orrin Hatch <https://cd.politicopro.com/member/51191>(R-Utah) and the pharmaceutical industry over the length of data protection for biological drugs. Their support would bring Obama one step closer to securing approval of the legacy-clinching trade pact before he leaves office in 2017.

"This is an important, collaborative solution that will help build momentum for reaching consensus in other areas of TPP,” U.S. Trade Representative Michael Froman said in a statement. “It shows that when we dig into the details with stakeholders and members of Congress we can find common ground approaches that satisfy a range of priorities. As we continue our collaborative work on how TPP will be implemented and enforced, we expect the already strong support for TPP to continue to grow. "

The four-part plan outlined by Treasury would not change the provisions of the TPP, which involves the United States, Japan and 10 other Pacific Rim countries. Instead, the United States would push the proposal in future trade deals, including the Transatlantic Trade and Investment Partnership with the European Union, the Trade in Services Agreement with the EU and 21 other economies and a bilateral investment treaty with China.

Treasury would also push the proposal with new entrants to the TPP, creating a potentially tricky situation where different rules apply among old and new members. That’s one reason financial services companies would like to see the issue fixed within TPP, despite the administration’s position that it can’t reopen negotiations on the pact, which was signed in February.

A number of TPP countries are a party to the services talks, including Australia, Canada, Chile, Japan, Mexico, New Zealand and Peru. But TPP members Vietnam, Malaysia, Singapore and Brunei are not in the TISA talks, leaving them outside the scope of Treasury’s proposal. However, the Obama administration is expected to try to address concerns with those countries on a bilateral basis.

Treasury and the Office of the U.S. Trade Representative developed the new proposal through extensive consultation with financial regulators as well as feedback from Congress and stakeholders, Treasury said in a one-page summary of the proposal obtained by POLITICO.

“This proposal goes further than any previous U.S. trade or investment agreement in seeking to ban data localization requirements for financial services,” the paper said.

The plan would broadly prohibit data localization requirements for financial services companies in future trade deals as long as “financial regulators have access to information stored abroad,” it said.

The proposal also would add a new “movement of information” obligation that would bar parties to future trade agreements from preventing the transfer of information across borders for licensed financial services transactions.

If regulators are concerned about access to information stored abroad, they would be required to give companies an opportunity to discuss and potentially address any concerns before imposing data localization measures on them.

Lastly, the proposal would allow the United States to hold trading partners accountable for the failure to comply with the data localization and transfer provisions through binding state-to-state dispute settlement.

For weeks, industry and members of Congress had signaled that talks between Treasury and industry were moving in the right direction, with House Ways and Means Committee Chairman Kevin Brady  <https://cd.politicopro.com/member/51295>(R-Texas) saying last week that he expected a fix “sooner rather than later.”

Treasury Secretary Jack Lew earlier this month expressed confidence that the administration could calm industry fears over the data issue. “I don't believe it will ultimately be an issue that is an obstacle to making progress on TPP, which I believe we will get done this year,” the secretary said.

Adam Behsudi contributed to this report.
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