Chapter Fourteen

Financial Services

Article 1401: Scope

1. This Chapter shall apply to measures adopted or maintained

by a Party relating to:

(a) financial institutions of another Party;

(b) investors of another Party, and investments of such

investors, in financial institutions in the Party's

territory; and

(c) cross-border trade in financial services.

2. Only Articles 1109 (Transfers), 1110 (Expropriation and

Compensation), 1111 (Special Formalities and Information

Requirements), 1113 (Denial of Benefits), 1114 (Environmental

Measures) and Articles 1115 to 1136 (Settlement of Disputes

Between a Party and an Investor of Another Party) of Chapter

Eleven (Investment) and Article 1211 (Denial of Benefits) of

Chapter Twelve (Cross-Border Trade in Services) shall apply to

this Chapter. Article 1802(2) (Publication) shall not apply to

this Chapter.

3. In the event of any inconsistency between a provision of

this Chapter and any other provision of this Agreement, the

former shall prevail to the extent of the inconsistency. This

paragraph does not apply to Article 2103 (Taxation).

4. Nothing in this Chapter shall prevent a Party from being the

exclusive service provider in its territory with respect to the

following:

(a) activities forming part of a public retirement plan or

statutory system of social security; and

(b) activities conducted by a public entity for the account

or with the guarantee or using the financial resources

of the government or of any other public entity.

5. Article 1407 shall not apply to the granting by a Party to a

financial service provider of an exclusive right to provide a

financial service referred to in paragraph 4(a).

6. Each Party shall comply with Annex 1401.6.

Article 1402: Self-Regulatory Organizations

Where a Party requires financial service providers of

another Party to be members of, participate in, or have access

to, a self-regulatory organization to provide a financial service

in the territory of that Party, the Party shall ensure observance

by such organization of this Chapter.

Article 1403: Regulatory Measures

1. Nothing in this Part shall be construed to prevent a Party

from adopting or maintaining reasonable measures for prudential

reasons, such as:

(a) the protection of investors, depositors, financial

market participants, policy-holders, policy-claimants

or persons to whom a fiduciary duty is owed by a

financial service provider or financial institution;

(b) the maintenance of the safety, soundness, integrity or

financial responsibility of financial service providers

or financial institutions; and

(c) ensuring the integrity and stability of a Party's

financial system.

2. Nothing in this Part applies to non-discriminatory measures

of general application taken by any public entity in pursuit of

monetary and related credit policies or exchange rate policies.

This paragraph shall not affect a Party's obligations under

Article 1106 (Performance Requirements), Article 1109 (Transfers)

and Article 2104 (Balance of Payments).

Article 1404: Establishment

1. The Parties recognize the principle that financial service

providers of a Party should be permitted to establish financial

institutions in the territory of another Party in the juridical

form determined by the provider.

2. The Parties also recognize the principle that financial

service providers of a Party should be permitted to participate

widely in the market of another Party through the ability:

(a) to provide in that other Party's territory a range of

financial services through separate financial

institutions as may be required by that Party;

(b) to expand geographically within that territory; and

(c) to own financial institutions without the application

of ownership requirements specific to foreign financial

institutions.

3. Each Party shall permit financial service providers of

another Party that are not already established in its territory

to establish financial institutions in the Party's territory. A

Party may:

(a) require such financial service providers to incorporate

such financial institutions under its laws; or

(b) impose other terms, conditions and procedures on

establishment that are consistent with Article 1407.

4. At such time as the United States liberalizes its existing

measures to permit commercial banks of another Party located in

its territory to expand throughout significantly all the United

States market either through subsidiaries or direct branches, the

Parties shall review and assess market access in each Party,

subject to Annex 1404.4, with respect to the principles in

paragraphs 1 and 2 with a view to adopting arrangements

permitting investor choice as to juridical form of establishment

by commercial banks.

5. Each Party shall permit financial institutions of another

Party to transfer and process information outside the territory

of the Party in electronic or other form as is necessary for the

conduct of ordinary business of such institutions.

Article 1405: Cross-Border Trade

1. No Party may adopt any measure restricting any type of

cross-border trade in financial services by financial service

providers of another Party that is permitted on the date of entry

into force of this Agreement, except to the extent set out in

Part B of the Party's Schedule to Annex VII.

2. Each Party shall permit persons located in its territory,

and its nationals wherever located, to purchase financial

services from financial service providers of another Party

located in the territory of that other Party or another Party,

provided that the Party is not required, in order to fulfill this

obligation, to permit such providers to do business or solicit in

its territory. Subject to paragraph 1, each Party may, for this

purpose, define "doing business" and "solicitation."

3. Without prejudice to prudential regulation by other means, a

Party may require registration of financial service providers of

another Party and financial instruments.

4. The Parties shall consult on future liberalization of cross-

border trade in financial services, as set out in Annex 1405.4.

Article 1406: New Financial Services

1. Each Party shall permit a financial institution of another

Party to provide any new financial service of a type similar to

those that the Party permits its financial institutions, in like

circumstances, to provide under its domestic law. A Party may

determine the institutional and juridical form through which such

service may be provided.

2. A Party may require authorization for the provision in its

territory of a financial service referred to in paragraph 1.

Where such authorization is required, a decision shall be made

within a reasonable period of time and may only be refused for

prudential reasons.

Article 1407: National Treatment

1. Each Party shall accord to investors of another Party and

financial service providers of another Party national treatment

with respect to the establishment, acquisition, expansion,

management, conduct, operation and sale or other disposition of

investments in financial institutions in its territory.

2. Each Party shall accord to the financial institutions of

another Party national treatment.

3. Where a Party permits the cross-border provision of a

financial service, it shall accord national treatment to

financial service providers of another Party in the provision of

such cross-border service.

4. "National treatment" means treatment no less favorable than

that accorded by a Party to its own investors, financial service

providers and financial institutions in like circumstances.

5. A measure of a Party, whether it accords to financial

service providers or financial institutions of another Party

different or identical treatment compared to that it accords to

its own providers or institutions in like circumstances, shall be

deemed to be consistent with paragraph 4, if it accords equal

competitive opportunities.

6. A measure accords equal competitive opportunities if it does

not disadvantage financial service providers of another Party in

their ability to provide financial services as compared with the

ability of domestic financial service providers in like

circumstances to provide financial services.

7. Differences in market share, profitability or size shall not

by themselves constitute denial of equal competitive

opportunities, but shall not be precluded from being used as

evidence regarding the issue of whether a Party's measure accords

equal competitive opportunities.

8. With respect to measures of a province or state, paragraph 4

means:

(a) treatment no less favorable than the most favorable

treatment accorded in like circumstances by such

province or state to financial service providers of the

Party of which it forms a part, including that province

or state; or

(b) in the case of a financial service provider of another

Party established in another province or state of the

Party, treatment no less favorable than it accords in

like circumstances to a financial service provider of

the Party established in such other province or state.

Article 1408: Most-Favored-Nation Treatment

1. Each Party shall accord to investors of another Party,

investments of such investors and financial service providers of

another Party treatment no less favorable than that it accords to

investors, investments of investors and financial service

providers of any other Party or non-Party in like circumstances.

2. Each Party may recognize prudential measures of another

Party or non-Party in determining how the Party's measures

relating to financial services shall be applied. Such

recognition, which may be achieved through harmonization or

otherwise, may be based upon an agreement or arrangement with the

Party concerned or may be accorded unilaterally.

3. A Party recognizing measures by means of an agreement or

arrangement referred to in paragraph 2 shall afford adequate

opportunity for another Party to negotiate its accession to such

an agreement or arrangement, or to negotiate a comparable one

under circumstances in which there would be equivalent

regulation, oversight, implementation of such regulation, and, if

appropriate, procedures concerning the sharing of information

between the Parties. Where a Party accords recognition

unilaterally, it shall afford adequate opportunity for another

Party to demonstrate that such circumstances exist.

Article 1409: Staffing

1. No Party may require financial institutions of another Party

to engage, as top managerial or other essential personnel,

individuals of any particular nationality.

2. No Party may require that more than a simple majority of the

board of directors of a financial institution of another Party be

composed of nationals of the Party, persons residing in the

territory of the Party, or a combination thereof.

Article 1410: Transparency

1. Each Party shall, to the extent practicable, provide in

advance to all interested persons any measure of general

application that the Party proposes to adopt in order to allow an

opportunity for such persons to comment upon the measure. Such

measure shall be provided:

(a) by means of official publication;

(b) in other written form; or

(c) in such other form as permits an interested person to

make informed comments on the proposed measure.

2. Each Party shall make available to interested persons the

information that applications affecting the provision of

financial services must contain.

3. At the request of an applicant, the competent regulatory

authority shall provide information concerning the status of an

application. If such authority requires additional information

from the applicant, it shall notify the applicant without undue

delay.

4. Each Party shall make an administrative decision on a

completed application of a financial service provider of another

Party within 120 days, and shall promptly notify the applicant

of the decision. An application shall not be considered complete

until all relevant hearings are held and all necessary

information is received. Where it is not practicable for a

decision to be made within 120 days, the competent authority

shall notify the applicant without undue delay and shall endeavor

to make the decision within a reasonable time thereafter.

5. Nothing in this Agreement requires a Party to disclose

information related to the affairs and accounts of individual

customers or any confidential or proprietary information the

disclosure of which would impede law enforcement or otherwise be

contrary to the public interest, or prejudice legitimate

commercial interests.

6. Each Party shall ensure that inquiry points exist, at the

latest 180 days after the date of entry into force of this

Agreement, to which all reasonable inquiries from interested

persons may be directed regarding any measures of general

application taken by that Party with respect to this Chapter.

Responses shall be provided in writing as soon as practicable.

Article 1411: Transfers

Without prejudice to other provisions of this Agreement that

would permit such actions to be taken, a Party may prevent or

limit transfers by a financial service provider or a financial

institution to, or for the benefit of, an affiliate of or person

related to such provider or institution, through the equitable,

non-discriminatory and good faith application of its measures

relating to maintenance of the safety and soundness of its

financial institutions.

Article 1412: Schedules

1. Articles 1404 through 1409 do not apply to:

(a) any existing non-conforming measure that is maintained

by:

(i) a Party at the federal level, as set out in Part A

of its Schedule to Annex VII;

(ii) a state or province, as set out by a Party in Part

A of its Schedule to Annex VII within the period

referred to in that Part; or

(iii) a local government;

(b) the continuation or prompt renewal of any non-

conforming measure referred to in subparagraph (a); or

(c) an amendment to any non-conforming measure referred to

in subparagraph (a) to the extent that the amendment

does not decrease the conformity of the measure, as it

existed immediately before the amendment, with Articles

1404 through 1409.

2. A Party shall set out any non-conforming measure maintained

at the state or provincial level in Part A of its Schedule to

Annex VII within the periods provided therein.

3. Articles 1404 through 1409 do not apply to any measure

adopted or maintained by a Party that is consistent with the

terms set out by the Party in Part B of its Schedule to Annex

VII.

4. A Party shall describe in Part C of its Schedule to Annex

VII any specific commitment it is making to any other Party.

5. For the purposes of Article 1413(2), each Party shall

specify in Part D of its Schedule to Annex VII its governmental

agency responsible for financial services.

6. A Party shall describe in Part E of its Schedule to Annex

VII any terms and conditions that an enterprise of another Party

must meet to be considered an enterprise of such other Party for

the purposes of restrictions specified in that Part.

7. Any reservation or exception set out by a Party in Annexes I

through VI under this Part shall be deemed to constitute

reservations or exceptions for purposes of Articles 1404 through

1409.

Article 1413: Consultations

1. Any Party may request consultations with another Party at

any time regarding any matter arising under this Agreement that

affects financial services. The other Party shall give

sympathetic consideration to such a request. The results of

consultations under this Article shall be reported during the

annual meeting of the Committee provided for in Article 1414.

2. Consultations under this Article shall be conducted by

officials of the governmental agencies responsible for financial

services specified in Part D of each Party's Schedule to Annex

VII.

3. A Party may request that regulatory authorities of another

Party participate in consultations under this Article to discuss

that other Party's measures of general application that may

affect the operations of financial service providers in the

requesting Party's territory.

4. Such regulatory authorities shall not be required to

disclose information or take any action that would interfere with

individual regulatory, supervisory, administrative or enforcement

matters.

5. Where a Party requires information for supervisory purposes

concerning a financial service provider in another Party's

territory, it may approach the competent regulatory authority in

the other Party's territory to seek the information.

6. Each Party shall comply with Annex 1413.6.

Article 1414: Financial Services Committee

1. The Parties hereby establish the Financial Services

Committee. The principal representative of each Party shall be

the officials referred to in Article 1413(2).

2. Subject to Article 2001(2)(d) (The Free Trade Commission),

the Committee shall:

(a) supervise the implementation of this Chapter and its

further elaboration;

(b) consider issues regarding financial services that are

referred to it by a Party;

(c) participate in the dispute settlement procedure

pursuant to Article 1416; and

(d) examine technical issues under this Chapter, including

interpretation of this Chapter.

3. The Committee shall meet annually to assess the functioning

of this Agreement as it applies to financial services. The

Committee shall inform the Commission of the results of each

annual meeting.

Article 1415: Dispute Settlement

1. Disputes arising under this Chapter shall be resolved in

accordance with the procedures of Chapter 20 (Institutional

Arrangements and Dispute Settlement Procedures) and this Article.

2. In addition to the roster established under Article 2009

(Roster), the Parties shall establish and maintain a roster of up

to 15 individuals who are willing and able to serve as financial

services panelists. Financial services roster members shall be

appointed by consensus for terms of three years and may be

reappointed.

3. Financial services roster members shall have expertise or

experience in financial services law or practice, which may

include the regulation of financial institutions, and shall be

chosen strictly on the basis of objectivity, reliability and

sound judgment. Such members shall also meet the qualifications

set out in Article 2009(2)(b) and (c).

4. Where a Party alleges that a dispute arises under this

Chapter, Article 2011 (Panel Selection) applies to the selection

of panelists, except that:

(a) the panel shall be composed entirely of panelists

meeting the qualifications in paragraph 3, where the

disputing Parties agree;

(b) in any case other than that set out in subparagraph (a)

(i) each disputing Party may select panelists meeting

the qualifications of Article 2010(1)

(Qualifications of Panelists) or paragraph 3 of

this Article, as the Party deems appropriate, and

(ii) if the Party complained against alleges Article

1403 as a defense in the dispute, the chair of the

panel must meet the qualifications of paragraph 3

of this Article.

5. Notwithstanding Article 2019(2) (Non-Implementation -

Suspension of Benefits), in any dispute where a panel finds a

measure to be inconsistent with the obligations of this Agreement

and the measure affects:

(a) only the financial services sector, the complaining

Party may suspend benefits only in the financial

services sector;

(b) the financial services sector and any other sector, the

complaining Party may suspend benefits in the financial

services sector that have an equivalent effect as the

measure or matter complained of has in the financial

services sector; or

(c) only a sector other than the financial services sector,

the complaining Party may not suspend benefits in the

financial services sector.

Article 1416: Investment Disputes in Financial Services

1. Where an investor of another Party submits a claim under

Articles 1116 or 1117 to arbitration under Section B of Chapter

Eleven (Settlement of Disputes Between a Party and an Investor of

Another Party) against a Party and the disputing Party alleges

Article 1403 as a defense, on request of the disputing Party, the

Tribunal shall refer the matter to the Committee for a decision.

The Tribunal may not proceed pending receipt of a decision or

report under this Article.

2. The Committee shall decide the issue of whether and to what

extent Article 1403 is a valid defense to the claim of the

investor. The Committee shall transmit a copy of its decision to

the Tribunal and to the Commission. The decision shall be

binding on the Tribunal.

3. If the Committee has not decided the issue within 60 days of

the receipt of the referral under paragraph 1, the disputing

Party or the Party of the disputing investor may request the

establishment of a panel pursuant to Article 2008(1) to decide

the issue. The matter shall proceed as a dispute under Article

1415. The panel shall transmit its final report to the Committee

and to the Tribunal. The report shall be binding on the

Tribunal.

4. If no request for the establishment of a panel pursuant to

paragraph 3 has been made within 10 days following the expiration

of the 60-day period referred to in paragraph 3, the Tribunal may

proceed to decide the matter.

Article 1417: Definitions

For purposes of this Chapter:

cross-border trade in services and cross-border provision of a

service means "cross-border trade in services" and "cross-border

provision of a service" as defined in Article 1213 (Definitions);

financial institution means any financial intermediary or other

enterprise that is authorized to do business and regulated or

supervised as a financial institution under the laws of the Party

in whose territory it is located;

financial institution of another Party means a financial

institution in the territory of a Party that is controlled by

nationals or enterprises of another Party;

financial service means any service of a financial nature,

including insurance, and any service incidental or auxiliary to a

service of a financial nature;

financial service provider of another Party means any national or

enterprise of a Party that is engaged in the business of

providing financial services in the territory of a Party and that

is providing or intends to provide financial services through an

investment in the territory of another Party or through cross-

border provision into the territory of another Party;

investment means "investment" as defined in Article 1138

(Definitions), except that:

(a) where the loan is extended to a financial institution,

regardless of the original maturity of the loan, it

shall only be an investment to the extent it is treated

as regulatory capital; or

(b) where the loan is granted by a financial service

provider or a financial institution, the loan shall

only be an investment if it is made on a cross-border

basis and it has an original maturity of at least three

years (other than a loan to a Party or state enterprise

thereof);

new financial service means a service of a financial nature,

including a service related to an existing service or the manner

in which a product is delivered, that is not provided by any

financial service provider in the territory of a Party but which

is provided a financial service provider in the territory of

another Party;

public entity means a Party, a central bank or monetary authority

of a Party, or any financial institution owned or controlled by a

Party;

service provider of a Party means "service provider of a Party"

as defined in Chapter 12 (Cross-Border Trade in Services); and

self-regulatory organization means any non-governmental body

including any securities or futures exchange or market, clearing

agency, or other organization or association, that exercises

regulatory or supervisory authority over financial service

providers or financial institutions that are members or

participants thereof, or that have access thereto.

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ANNEX 1401.6

Country Specific Commitments

Articles 1702(1) and (2) of the Canada - United States Free

Trade Agreement are incorporated into this Agreement and Canada

and the United States agree to act in accordance with and be

governed by those Articles.

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ANNEX 1404.4

Review of Market Access

The review of market access referred to in Article 1404(4)

shall not include the market access limitations specified in Part

B of the Schedule of Mexico to Annex VII.

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ANNEX 1405.4

Consultations on Liberalization of Cross-Border Trade

By January 1, 2000, the Parties shall consult on further

liberalization of cross-border trade in financial services. Such

consultations shall include the possibility of allowing a wider

range of insurance services to be provided on a cross-border

basis in the territory of each Party. With respect to Mexico,

such consultations on cross-border insurance services shall

determine whether the limitations on cross-border insurance

services specified in Part A of the Schedule of Mexico to Annex

VII shall be maintained, modified, or eliminated.

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ANNEX 1413.6

Future Consultations and Arrangements

Section A - Limited Scope Financial Institutions

Three years after the date of entry into force of this

Agreement, the Parties shall consult on the aggregate limit on

limited scope financial institutions described in paragraph 8

of Part B of the Schedule of Mexico to Annex VII.

Section B - Payments System Protection

1. If the sum of the authorized capital of Foreign Commercial

Bank Affiliates (as such term is defined in Part B of the

Schedule of Mexico to Annex VII), measured as a percentage of the

aggregate capital of all commercial banks in Mexico, reaches 25

percent, then Mexico may request consultations with the other

Parties on the potential adverse effects arising from the

presence of commercial banks of the other Parties in the Mexican

market and the possible need for remedial action, including

further temporary limitations on market participation.

2. In considering the potential adverse effects, the Parties

shall take into account:

(a) the threat that the Mexican payments system may be

controlled by non-Mexican persons;

(b) the effects foreign commercial banks established in

Mexico may have on Mexico's ability to conduct monetary

and exchange-rate policy effectively; and

(c) the adequacy of various provisions agreed under this

Chapter to protect the Mexican payments system.

3. If no consensus is achieved through consultations, which

shall be completed in an expeditious time frame, a panel shall be

convened under the procedures of Article 2008 (Request for an

Arbitral Panel) of the Agreement to render a non-binding

recommendation to the Parties no later than 60 days after the

panel is convened.