Power players in the financial services industry are threatening to sit out the push for President Obama’s Pacific Rim trade deal unless the administration addresses one of their main objections to the pact.
Banks, insurance companies and other financial companies oppose a provision in the 12-nation Trans-Pacific Partnership (TPP) that would give foreign governments the ability to require that U.S. businesses maintain data servers within their borders, fearing it could create high costs and security risks.
The Securities Industry and Financial Markets Association (SIFMA) and the Financial Services Roundtable (FSR) say that while they are prepared to devote substantial resources to lobbying Congress in support of the TPP, the Obama administration must first rework the data provision to guarantee that their electronic data can move freely across borders.
Francis Creighton, executive vice president of government affairs at the FSR, praised the trade deal but said group won’t begin lobbying Congress for it until the data flow issue is resolved.
“We can’t actively go up to Capitol Hill and push for it even though we want to get this done,” Creighton said.
“That’s how serious this is. We would rather see nothing happen than pass TPP with this provision.”
The financial groups have been working for months with the Obama administration to fix the issue. U.S. Trade Representative Michael Froman has reported progress, but a resolution has not yet been reached.
Treasury said that conversations are continuing with movement toward a solution.
“Treasury is engaged in a dialogue with both regulators and the financial services industry,” a spokesperson told The Hill.
“Conversations are ongoing and are moving in a positive direction.”
Ken Bentsen, president and CEO of SIFMA, said his group is inclined to support trade agreements like the TPP but cannot abide by the data server provision.
“It’s a problem, and it sets a very bad precedent, so it’s hard for us to be supportive of something which we otherwise would be very supportive of,” Bentsen said.
“We think this is step backwards,” he said.
Bentsen said the problem stems from a push by U.S. regulators, who felt strongly about making sure that they could have access to information from U.S.-based firms, particularly in periods of economic turmoil. Financial groups say regulators are far too focused on where the data is stored, given the interconnectivity of global networks.
“Our feeling is that, again, this was more an acquiesce to U.S. financial regulators who didn’t want to give that up, and so I think they’re trying to see if they can work around it,” Bentsen said.
“They’re talking to the industry and seeing if they can come up with some side agreements since they can’t obviously reopen the whole thing,” he said.
Creighton said U.S. regulators have ways to get the supervisory information they need without the TPP provision.
An April report from the Information Technology & -Innovation Foundation stated that the rationale for the exception is “faulty and redundant.”
“The carve-out validates the false belief that storing data outside a nation is somehow inherently riskier than storing it locally,” the report said.
The report concluded that concerns about access to
financial data that arose during 2008 financial crisis have mostly been addressed through the Dodd-Frank financial reform law.
Financial services groups are seeking a side agreement that would extend the TPP protections against localization
requirements for data servers.
The White House needs all the help it can get trying to pass the TPP this year, with liberals staunchly opposed to the agreement and Republicans in Congress hesitant to back it.
The trade deal could get a vote after the November elections, but passage is far from assured, with the three remaining presidential candidates — Republican Donald Trump and Democrats Hillary Clinton and Bernie Sanders — all opposed to the agreement.
Creighton said the TPP stands a much better chance to pass Congress with the full backing of the financial industry because “we have much stronger relationships with many members of Congress than this administration.”
Of the three biggest issues that have arisen with the TPP, including language on tobacco labeling and pharmaceuticals, the data storage is the easiest one to deal with, Creighton said.
Enthusiasm for the trade deal has been hard to come by in Congress. Senate Majority LeaderMitch McConnell (R-Ky.) has already said a vote on the TPP won’t happen until after the elections, while Speaker Paul Ryan (R-Wis.) — a staunch supporter of trade agreements — has expressed concerns with the pact.
But even if the trade deal doesn’t pass this Congress, it doesn’t mean it’s gone for good, industry officials say.
“There’s still a path to getting it done, because in Washington, nothing just dies,” Creighton said.