The new TPP (or more precisely, CPTPP) text is out. It includes a detailed financial services chapter. I’ll be blogging about it more in the future, but one clause immediately caught my eye:
Article 11.12: “If a Party accords recognition of prudential measures[…] that Party shall provide adequate opportunity to another Party to negotiate accession to the agreement or arrangement, or to negotiate a comparable agreement or arrangement.”
This is quite an interesting commitment. Mutual recognition agreements, as I have explained elsewhere, are agreements that ultimately allow one regulator to recognize another regulator’s regime as essentially the same, or at least of sufficient robustness that it can waive domestic rules (like registration, capital, disclosure and other requirements) for for firms operating in the foreign regulator’s jurisdiction. Here, the concept is brought a step forward, essentially requiring that where two countries enter into such an arrangement, other countries in the block should be given a similar opportunity to negotiate a similar accord. In doing so, the agreement grants mutual recognition mechanisms an “MFN lite” status since there is no formal requirement that mutual recognition be ultimately granted.
It’s an interesting idea, but I sense it could backfire when CPTPP seeks to enlarge by adding other countries that have large, heavily regulated financial systems. Suppose the United States, for example, contemplates joining the new block. It’s unclear to me whether or not any Administration would be interested in forcibly undertaking mutual recognition negotiations with all the members of the bloc, individually, every time it completes a mutual recognition deal–especially given the very different stages of financial sector and regulatory maturity of the countries in the block. And even if the United States one day joined, this kind of requirement could end up generating disincentives for future harmonization/mutual recognition programs with the member countries with which the US has long had close regulatory philosophies and relationships. Indeed, the strategy could even complicate streamlining NAFTA rules between the US, Mexico and Canada, as well as obstruct any deepening or operationalization of mutual recognition programs in place with Canada and Australia.
Then again, if the US did hypothetically join–you could well expect the CPTPP to be perhaps the first block that a post-Brexit UK would seek to join. #GlobalBritain