Trade liberalization is increasingly important to U.S. financial services providers. The financial and insurance services sectors account for one-fifth of the U.S. economy. The Domnican Republic-Central America Free Trade Agreement (DR-CAFTA) will open new opportunities for these sectors to grow in the region, helping those economies to thrive while also expanding new opportunities for growth in the United States.

DR-CAFTA levels the playing field for U.S. financial services.

• The U.S. finance and insurance markets are largely open to imports from all countries, including Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and the Dominican Republic. The same cannot be said for current U.S. access to those countries’ finance and insurance markets.
• DR-CAFTA breaks new ground for U.S. financial services export opportunities to the region. Costa Rica, which has the most developed insurance sector in the region, committed for the first time to liberalize its insurance market. DR-CAFTA also contains provisions allowing the establishment of foreign insurance providers through branches or subsidiaries and new rules permitting cross-border provision of marine, aviation and transportation insurance.
• DR-CAFTA also liberalizes the region’s banking and securities sectors. Parties must provide market access for financial institutions without limits on the value of transactions, number of operations or number of persons employed. Central American parties must permit cross-border trade in financial services and allow other parties’ financial institutions to provide any new financial services that it would permit its own institutions to provide. DR-CAFTA contains specific binding commitments affecting asset management services. El Salvador, Guatemala, Honduras and Nicaragua have committed to allow branch banking.

Elimination of trade barriers promises growth for U.S. financial services providers.

• Financial services and insurance markets of Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and the Dominican Republic currently are small, but they are expected to grow as a result of DR-CAFTA. The provisions of DR-CAFTA place U.S. financial services providers in an optimal position to grow within those markets.
• U.S. insurance providers are interested in entering all segments of Costa Rica’s insurance markets, including direct sales to Costa Rican consumers and companies.
• The right to branch directly from one Central American market to another will increase opportunities for U.S. insurers in the region. In addition, as trade increases, U.S. insurers are expected to increase sales of marine, aviation and transportation insurance on cargoes.

DR-CAFTA meets Trade Promotion Authority (TPA) negotiating objectives for financial services.

• A number of the principal negotiating objectives established by Congress in TPA are relevant to American financial services providers, including the elimination of regulatory and other barriers that deny national treatment and market access or that unreasonably restrict the establishment or operations of service suppliers and the reduction or elimination of artificial or trade-distorting barriers to foreign investment.
• TPA instructed U.S. negotiators to seek trade agreements that foster economic growth, raise living standards, promote U.S. employment and enhance the global economy. This negotiating objective is particularly relevant to the U.S. financial services and insurance sectors, which find new opportunities in growing markets, both at home and abroad.
• DR-CAFTA includes the investor-state dispute settlement mechanism that is vital to providing U.S. investors the opportunity to ensure that their investments are protected against arbitrary, discriminatory and unfair government actions.

Financial services sector providers endorse DR-CAFTA.

• Congressional approval of DR-CAFTA will promote economic growth in these developing countries, with appropriate links to new growth in the American financial services and insurance markets.
• DR-CAFTA breaks new ground for the financial and insurance sectors and thus is an important building block in our overall trade strategy to open markets for U.S. businesses and workers through a network of free trade agreements and through the World Trade Organization (WTO).
• DR-CAFTA includes commitments on insurance and financial services that were difficult for several DR-CAFTA parties to make. Nonetheless, DR-CAFTA leaders recognized the ultimate benefits to growth and development of their economies that would flow from those commitments. Congress should recognize that leadership with its strong support for DR-CAFTA.