EU, U.S. Continue to Spar Over Treatment of Financial Rules

The International Trade Practice Center on Bloomberg Law® provides in one comprehensive, time-saving resource.

By Stephen Joyce

July 5 — The Treasury Department and the financial-services industry in the U.S. and European Union continue to disagree over how the financial sector will be treated in an EU-U.S. trade agreement as negotiators prepare for the next round of trade talks.

The 14th round of Transatlantic Trade and Investment Partnership (TTIP) negotiations is scheduled to begin July 11 in Brussels, and negotiators for both sides continue to hold opposing views on several topics, including financial services.

Both sides generally agree the trade deal should include a separate chapter on financial services. However, the Treasury Department is resisting an EU request to insert language promoting EU-U.S. cooperation on financial regulation, and that is a chief sticking point to concluding the chapter

The EU's response? If the treaty doesn't address financial regulatory cooperation it won't address something the U.S. wants: enhanced market access for financial services.

While the EU is concerned with “extraterritoriality,” under which U.S. regulators might attempt to impose components of U.S. financial laws such as the Dodd-Frank Act on European entities, the U.S. is concerned that any TTIP language aiming to harmonize laws between the two sides effectively could dilute the power of such laws, Mayer Brown LLP partner Timothy Keeler told Bloomberg BNA.

And as difficult as they already are, TTIP negotiations about financial services could be further complicated by the U.K.'s June 23 vote to exit the EU, Keeler and others said (127 ITD, 7/1/16).

Industry Pushes for Cooperation

A chief premise of the trade deal publicly stated by senior EU and U.S. trade officials is to conclude a comprehensive treaty establishing lasting high-quality standards, not merely strike another free trade agreement between two trading blocs.

A European Commission trade specialist told Bloomberg BNA that in upcoming negotiations, the EU will push to include the following elements related to financial services in TTIP:

  •  a framework for implementing internationally agreed-upon financial regulatory and supervisory standards;
  •  a commitment to hold consultations in advance of any new financial rules that might materially affect the provision of financial services between the EU and U.S.;
  •  a commitment from both sides to assess whether the other's jurisdictional rules are equivalent in outcomes or create barriers to trade; and
  •  avoidance of financial rules that would negatively affect the other party's jurisdiction.

The U.S. side, meanwhile, is seeking in TTIP more traditional objectives typically found in trade deals, such as non-discriminatory treatment of U.S. institutions with respect to their operations in the EU.

Treasury Department spokesmen declined to comment on the negotiations.

Preventing Disruption

Peter Matheson, managing director of the Securities Industry and Financial Markets Association, told Bloomberg BNA any financial services regulatory harmonization language in TTIP should be forward looking and not be used either to revisit past EU-U.S. disagreements or create some sort of future punitive mechanism concerning financial regulation.

Instead, treaty language should ensure future rules and laws allow financial services companies to engage in commerce in either jurisdiction with minimal disruption.

“It means that the rules that apply in the EU and the rules that apply in the United States are consistent enough that they do not negatively impact cross-border transatlantic business. So if you're operating in the European Union in the financial services industry, you're still able to operate in the United States without having a completely different business model or operations,” Matheson said.

A successfully negotiated financial services section of TTIP will probably possess a prudential exemption allowing either side to violate agreement terms in the event of financial instability in its home market.

Logical Landing Spot

The standoff between negotiators might end if TTIP establishes a process for resolving regulatory disputes when one party asserts the other is being too extraterritorial in applying its jurisdictional rules, said Keeler, a former chief of staff in the Office of the U.S. Trade Representative. The U.S. would avoid prescriptive rules and gain market access, while the EU would gain a process to resolve extant regulatory disputes.

“It seems to me that could be a logical landing spot, and it could be pretty easy to go from not talking to each other with arms crossed to, okay you [the U.S.] get market access if we [the EU] get a resolution process. And that dynamic doesn't change whether the U.K. is in the EU or not,” Keeler said.

Keeler said the presumed British exit from the EU following the June 23 “Brexit” vote could distract negotiators, preventing them from their stated goal of completing the agreement's text by the end of 2016. “It was going to be difficult enough to finish TTIP before the end of the year, and when you add [the Brexit vote], it just seems more unlikely” the trade deal will be completed by Dec. 31, he said.

Others agreed. “Brexit is definitely a shock to TTIP, which will significantly reduce the chances of any agreement being reached. The first question in negotiations is knowing who you are negotiating with. It is not clear who is on the other end in a U.S.-EU negotiation at the moment,” Aaron Klein, policy director at The Brookings Institution's Initiative on Business and Public Policy, said in a statement sent to Bloomberg BNA.

To contact the reporter on this story: Stephen Joyce in New York at

To contact the editor responsible for this story: Jerome Ashton at

Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.

Request International Trade Practice Center on Bloomberg Law