Building a Global Framework in Foreign Securities Markets
The U.S. has a long history of building investor relationships that fuel its economic growth. The U.S.’ working relationship with foreign nations has resulted in a tremendous amount of trade. In 2009 alone, the U.S. Census Bureau reported the following:
• Total U.S. exports: 1,570,797,000,000 goods and services
• Total U.S. imports: 1,945,705,000,000 goods and services
These robust figures reflect strong investor relationships within a global framework that includes three vital regions of the globe.
1. Europe — The European Union (EU) established diplomatic relations as early as 1953. In 1995, the New Transatlantic Agenda (NTA) provided the foundation for the relationship. The ambitious agenda of cooperation between the EU and the U.S. is moving forward via constant, intensive dialogue. This dialogue takes place at various levels, from the annual summit meetings between EU and U.S. leaders to technical work among experts.
2. Asia — The U.S. and Asia have an enormous stake in each other’s continuing prosperity. This outcome is linked to the preservation of the open international economic order, which faces challenges at both the interstate diplomatic level and at the domestic political level.
3. Latin America — Latin America and the U.S. not only have free-trade agreements, but many Latin American countries also have bilateral investment treaties (BIT). These investment treaties outline the conditions of foreign direct investment. Some of the items in the treatment include fair and equitable treatment, protection from expropriation, free transfer of means, and full protection and security.
Improving the Framework
Two common suggestions that financial analysts believe may improve the current global framework are an improved global clearance and settlement system, and the creation of a global “passport.”
In some cases today, cross-border capital flows are hampered by a lack of standardization, manual procedures, incompatible technologies, excessive costs, multiple service providers, and a relatively high rate of errors and costly trade failures. These shortcomings, when coupled with the dramatic rise in cross-border investing, the increased complexity of investment strategies, global public pension reform, an aging world population, and the compression of the settlement cycle, make it an important issue to examine and improve upon.
The creation of a so-called passport would enable securities firms that have received approval to do business in countries that have similar standards and regulations to operate more freely throughout the world, without having to meet unique regulatory burdens in each country.
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