US embassy cable - 05OTTAWA3103

UNCLAS SECTION 01 OF 03 OTTAWA 003103 
 
SIPDIS 
 
DEPARTMENT FOR EB/IFD, EB/OMA, WHA/EPSC, AND WHA/CAN 
TREASURY FOR WILBUR MONROE 
STATE PASS FEDERAL RESERVE BANK FOR ANN MISBACK 
STATE PAS SEC FOR SHAUNA STEELE 
STATE PASS OCC FOR GERALYNN BATISTA 
STATE PASS COMMODITIES FUTURES TRADING COMMISSION FOR 
WARREN GORLICK 
COMMERCE FOR ISRALY ECHEGARAY 
 
E.O. 12958: N/A 
TAGS: EFIN, ETRD, ECON, PREL, CA, MX 
SUBJECT: SPP:  FIRST FINANCIAL SERVICES WORKING GROUP 
MEETING YIELDS DELIVERABLES 
 
 
1.  Introduction and Summary:  Treasury DAS for 
International Monetary and Financial Policy Mark Sobel led 
the U.S. delegation to the first Security and Prosperity 
Partnership (SPP) Working Group meeting and the 11th NAFTA 
Financial Services Committee meeting near Ottawa on October 
4, 2005.  The 
session was chaired by Gerry Salembier, Director for 
Financial Institutions at Finance Canada and the Mexican 
delegation was led by Guillermo Zamarripa Escamilla, head of 
the Bank and Savings Unit at the Ministry of Finance 
(Hacienda).  Canada will draft a record of the meeting for 
clearance by Mexico and the U.S. in which the report on SPP 
issues will be 
covered in a format that can be presented as a separate 
report to 
the leaders, highlighting completion of the first items in 
the work plan.  There was agreement that the U.S. will host 
the 2006 meeting, with details to be confirmed later.  End 
Introduction and Summary. 
 
NAFTA Chapter 14 
---------------- 
 
2.  The meeting opened with a review of NAFTA Chapter 14 
issues, with 
most discussion on nominees for the Financial Services 
roster.  Canada and Mexico have proposed five roster 
members each; the US has proposed four and confirmed that we 
hope to be able to reveal the fifth 
nominee within a few weeks, after Congressional 
consultation.  There was consensus on exploring the 
possibility of flexibility in the length of nominees' 
terms.  There were no legislative notifications relating to 
federal reservations in Section A of the Schedules to Annex 
VII. 
 
SPP Work Plan 
------------ 
 
3.  The morning session was devoted to reviewing progress 
on the SPP work plan for the Financial Services Working 
Group.  Following is a brief and by no means comprehensive 
summary of some of the major points raised in the 
discussions.  (Numbers are keyed to the June 2005 SPP Report 
to Leaders.) 
 
-- 1.  Further collaboration on training programs for bank, 
securities and insurance regulators and supervisors:  The 
parties will report to Leaders that two items in the work 
plan have been completed.  These items 
comprise an inventory of existing technical assistance 
training programs for financial regulators, their value, 
and whether there is need for more extensive training 
programs.  It was agreed that the existing program is 
comprehensive and should be continued.  The parties also 
outlined initiatives to boost financial literacy and 
financial education, agreeing that things are on a positive 
track and can continue independently of the SPP process. 
 
-- 2.  Automatic Clearinghouse Issues:  The U.S. and Mexico 
reported progress, but agreed more work will be needed before 
making the ACH process bi-directional. 
 
-- 3.  Tax issues:  Negotiations are underway between the 
U.S. 
and Canada and the working group will evaluate progress at 
the end of the year.  The Canadian side flagged concerns 
about a non-agenda item - the 30% withholding tax on 
clients of branches of U.S. insurance companies in Canada. 
 
-- 4.  Banking/Tax issues:  On tax issues, the FSWG 
recognized 
that U.S. and Canadian negotiators are working on revision of 
the bilateral tax treaty, and it was agreed to update those 
elements of the work plan towards the end of this year. 
The FSWG will report that an item regarding information 
sharing on interest income by Canadian nationals will be 
dropped from the work plan as it has progressed as much as 
possible. 
 
-- 5.  Banking and insurance issues: the Mexican delegation 
noted that the sectors are very distinct in Mexico.  The 
fact that 80% of bank capital is foreign changes the 
dynamic.  On insurance issues, experts will be meeting 
later this month and their findings will be incorporated 
into the FSWG's final meeting report. 
 
-- 6.  Securities issues: Salembier reminded WG participants 
that in Canada regulatory jurisdiction is provincial and 
stressed the Federal government's commitment to remedying 
that "piece of unfinished business."  The Finance minister 
met last week with provincial counterparts to discuss 
evolution 
towards a single national securities regulator.  Salembier 
noted that Quebec has temporarily exempted the London Stock 
Exchange from recognition requirements as a step towards 
facilitating exchange access. The Toronto Stock Exchange 
(TSX) 
continues its strong advocacy for access to U.S. trading 
screens.  The SEC invited the TSX to meet with the new 
chairman to explain their proposal.  Salembier, in an 
aside, noted that firms would welcome clarification from 
the SEC on when contacts in the U.S. trigger the 
"solicitation" recognition threshold. 
 
-- 7  With regard to reciprocity/harmonization of insurance 
requirements for motor carriers, the GOC side hoped that 
"in the spirit of progress" they would see a more 
forthright response from the U.S. to get the process 
underway.  The U.S. 
side responded that the Insurance Trilateral Working Group 
would follow up on this and other issues in the near 
future, and their results could be incorporated into the 
report. 
 
-- 8.  Annuities: The issues under this category remain 
bracketed.  The Mexican delegation stressed that reform of 
Mexico's social security system is a thorny domestic issue 
that will be handled in channels other than the SPP. 
 
-- 9.  Supervisory and Regulatory Standards:  There was some 
discussion of the nature of this item on the work plan, but 
agreement that the parties will continue to cooperate in 
facilitating application of standards and, where 
appropriate, working towards convergence. 
 
-- 10.  Financing for Development:  The Canadian chair of the 
FSWG explained that despite efforts to interpret the scope 
of the working group as broadly and comprehensively as 
possible, establishing a grant to fund development in 
Mexico fell outside his area of jurisdiction and might be 
more usefully pursued by another SPP working group.  The U.S. 
expressed similar views.  It was agreed that although this 
item is bracketed and is unlikely to progress under 
the auspices of the FSWG, it will remain on the work plan 
unless or until the Mexican Presidency decides it should be 
removed. 
 
NAFTA Financial Services Committee 
---------------------------------- 
 
4.  The meeting continued in the afternoon with updates by 
each party on regulatory and legislative developments and 
the financial services aspects of other international 
agreements.  Mexico provided a preview on plans for changes 
in bank regulation, covering complementary services 
companies, capitalization standards, multiple scope 
financial institutions and bank investments.  Other plans 
include a project on sanctions implementation on financial 
institutions, a new securities market law and reform of the 
insurance laws. 
 
5.  Canada reviewed upcoming legislative initiatives 
including the 5-year review of financial sector 
legislation, enhancements to the anti-money laundering and 
anti-terrorist financing regime and changes in private 
defined benefit pension plans. 
 
Update on Fireman's Fund 
------------------------ 
 
6.  Mexico provided an update on the status of this NAFTA 
Chapter 11 case, and Canada, stressing its neutrality in 
matters of fact, provided copies of its submission on the 
prudential carve-out. 
 
Visit Canada's Classified Web Site at 
http://www.state.sgov.gov/p/wha/ottawa 
 
WILKINS