The World Trade Organization`s Covered Agreement: What You Need to Know

The World Trade Organization (WTO) is an international organization responsible for regulating and promoting global trade. As part of its mandate, the WTO negotiates agreements between member nations to facilitate trade and reduce trade barriers.

One of the most significant recent agreements negotiated by the WTO is the “covered agreement.” This article will outline what the covered agreement is, how it came about, and what it means for global trade.

What is the covered agreement?

The covered agreement is a bilateral agreement between the United States and the European Union (EU) that regulates the insurance and reinsurance sectors. It was signed in 2017, and it has been in effect since 2020.

The agreement has three main components:

1. Regulatory recognition: The agreement establishes a framework for regulatory cooperation between the US and EU. Under this framework, US and EU insurance and reinsurance regulators will recognize each other’s regulations and supervisory practices.

2. Group supervision: The agreement allows for the supervision of multinational insurance and reinsurance groups by a lead regulator. This means that if a company is operating in both the US and EU, it will be supervised by one regulator who will oversee its activities in both jurisdictions.

3. Reinsurance collateral: The agreement eliminates the collateral requirements that US states impose on non-US reinsurers. This change will allow non-US reinsurers to operate in the US without having to post significant amounts of collateral.

Why was the covered agreement negotiated?

The covered agreement was negotiated to address several longstanding issues in the insurance and reinsurance sectors. One of the primary goals of the agreement is to reduce regulatory fragmentation and promote regulatory cooperation between the US and EU.

Before the covered agreement, US and EU regulators had different regulatory requirements for insurance and reinsurance companies. This meant that companies operating in both jurisdictions had to comply with multiple, sometimes conflicting, sets of regulations. The covered agreement harmonizes these regulations and reduces the burden on companies.

The agreement also eliminates the collateral requirements that US states impose on non-US reinsurers. This requirement was seen as a significant barrier to entry for non-US reinsurers, and its elimination will make it easier for these companies to operate in the US market.

What does the covered agreement mean for global trade?

The covered agreement is a significant development in the area of trade in services, which is becoming an increasingly important part of global trade. The agreement demonstrates that the US and EU are committed to reducing regulatory barriers in the insurance and reinsurance sectors, which will make it easier for companies to do business across borders.

The agreement also sets a precedent for regulatory cooperation in other sectors. As the world becomes more interconnected, it is essential for regulators to work together to avoid conflicting regulations and unnecessary barriers to trade.

In conclusion, the covered agreement is a positive development for global trade. It demonstrates that the US and EU are committed to reducing regulatory barriers in the insurance and reinsurance sectors, and it sets a precedent for regulatory cooperation in other sectors. As the world becomes increasingly interconnected, it is important for regulators to work together to promote trade and reduce barriers to entry.