Financial Market Supervision: Canada’s Perspective

James K. Jackson
Specialist in International Trade and Finance

The international financial crisis of 2008-2009 spurred policymakers in the United States and elsewhere to consider changing the way they supervised financial institutions and financial markets to reduce the prospects of experiencing another global financial crisis. Canada’s financial system, in particular, garnered attention, because it has seemed to be more resistant to the failures and bailouts that have marked banks in the United States and Europe. In particular, some observers assessed the merits of the way Canada supervises and regulates its banks as one possible model for the United States. There likely are aspects of Canada’s financial supervisory framework that may offer an approach to supervising financial markets that may be useful for the United States to consider. However, the smaller scope of Canada’s financial system and its economy likely lessen the transferability of systems or procedures used in Canada to the vastly more complex U.S. financial system. This report presents an overview of Canada’s financial system and its supervisory framework and draws some distinctions between that system and the current U.S. framework.


Date of Report: April 4, 2013
Number of Pages: 21
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Japan-U.S. Relations: Issues for Congress

Emma Chanlett-Avery
Specialist in Asian Affairs

Mark E. Manyin
Specialist in Asian Affairs

William H. Cooper
Specialist in International Trade and Finance

Ian E. Rinehart
Analyst in Asian Affairs

Japan is a significant partner for the United States in a number of foreign policy areas, particularly in terms of security priorities, from hedging against Chinese military modernization to countering threats from North Korea. The post-World War II U.S.-Japan alliance has long been an anchor of the U.S. security role in East Asia. The alliance facilitates the forward deployment of about 49,000 U.S. troops and other U.S. military assets based in Japan in the Asia-Pacific.

Japan has struggled to find political stability in the past seven years. Since 2007, six men have been prime minister, including the current premier Shinzo Abe, who also held the post in 2006- 2007. His Liberal Democratic Party (LDP) returned to power in a landslide election in December 2012. Japan’s leaders face daunting tasks: an increasingly assertive China, a weak economy, and rebuilding from the devastating March 2011 earthquake, tsunami, and nuclear disaster. In recent years, opposition control of one chamber of parliament has paralyzed policymaking in Tokyo and made U.S.-Japan relations difficult to manage despite overall shared national interests. Abe is unlikely to pursue controversial initiatives before the next national elections, for the Upper House of parliament (called the Diet) in July 2013. Perhaps most significantly, the United States could become directly involved in a military conflict between Japan and China over the Senkaku/Diaoyu islets in the East China Sea.

Comments and actions on controversial historical issues by Prime Minister Abe and his cabinet have raised concern that Tokyo could upset regional relations in ways that hurt U.S. interests. Abe is known as a strong nationalist. Abe’s approach to issues like the so-called “comfort women” sex slaves from the World War II era, history textbooks, visits to the Yasukuni Shrine that honors Japan’s war dead, and statements on a territorial dispute with South Korea will be closely monitored by Japan’s neighbors as well as the United States.

The massive and immediate humanitarian relief provided by the United States following the March 2011 “triple disaster” bolstered the bilateral alliance, but difficult issues remain, particularly those related to the stationing of marines on Okinawa. Washington and Tokyo have agreed to relocate several thousand marines from Okinawa to Guam and other locations in the region, but the two governments have been unable to make tangible progress on implementing a 2006 agreement to relocate the controversial Futenma Marine Corps Air Station to a less densely populated location on Okinawa. In addition, the U.S. Congress has restricted funding for the realignment because of concerns and uncertainty about the cost of the realignment plans.

Japan is one of the United States’ most important economic partners. Outside of North America, it is the United States’ second-largest export market and second-largest source of imports. Japanese firms are the United States’ second-largest source of foreign direct investment, and Japanese investors are the second-largest foreign holders of U.S. treasuries. In April 2013, the United States and the 10 other countries participating in the Trans-Pacific Partnership (TPP) free trade agreement (FTA) negotiations completed discussions with Japan and invited Tokyo to join the talks. Accordingly, the Obama Administration notified Congress of its intent to launch negotiations no earlier than 90 calendar days hence.

Japan’s membership in the TPP, if an agreement is reached, would constitute a de facto U.S.- Japan FTA. Congress must approve implementing legislation if the TPP is to apply to the United States. Japan’s participation in the talks could enhance the credibility and viability of the TPP, which is a core component of Administration efforts to “rebalance” U.S. foreign policy priorities toward the Asia-Pacific region. If successful, the negotiations could reinvigorate a bilateral economic relationship that has remained steady but stagnant, by forcing the two countries to address long-standing, difficult issues. On the other hand, failure to do so could indicate that the underlying problems are too fundamental to overcome and could set back the relationship.


Date of Report: May 1, 2013
Number of Pages: 38
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Foreign Trade Barriers– Brazil

The U.S. goods trade surplus with Brazil was $11.6 billion in 2011, an increase of $104.3 million from 2010. U.S. goods exports in 2011 were $42.9 billion, up 21.2 percent from the previous year. Corresponding U.S. imports from Brazil were $31.4 billion, up 30.9 percent. Brazil is currently the 8th largest export market for U.S. goods.

U.S. exports of private commercial services (i.e., excluding military and government) to Brazil were $16.5 billion in 2010 (latest data available), and U.S. imports were $5.2 billion. Sales of services in Brazil by majority U.S.-owned affiliates were $24.7 billion in 2009 (latest data available), while sales of services in the United States by majority Brazil-owned firms were $972 million.

The stock of U.S. foreign direct investment (FDI) in Brazil was $66.0 billion in 2010 (latest data available), up from $55.2 billion in 2009. U.S. FDI in Brazil is led by the manufacturing and finance/ insurance sectors.


Date of Report: May 16, 2013
Number of Pages: 8
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Egypt and the IMF: Overview and Issues for Congress

Rebecca M. Nelson
Analyst in International Trade and Finance

Jeremy M. Sharp
Specialist in Middle Eastern Affairs

Congress, which annually oversees and appropriates $1.55 billion in bilateral foreign aid to Egypt, is following the political and economic situation in Egypt closely. Economic conditions in Egypt have deteriorated rapidly since the 2011 “revolution.” Political uncertainty abruptly reduced foreign capital flows into Egypt; growth, while still positive, has slowed substantially; the central bank is at risk of running out of foreign exchange reserves; and unemployment has increased from 9.2% before the revolution to 12.3% in 2012. Many policymakers and analysts fear that the fragile economic conditions in Egypt jeopardize the country’s political transition and broader stability in the region.

Egyptian authorities and the International Monetary Fund (IMF) have been in negotiations for more than two years over an IMF loan to Egypt in exchange for policy reforms that, if successful, could stave off economic collapse and create more “inclusive” growth. The IMF reached tentative agreements with first the military-controlled Supreme Council of the Armed Forces (SCAF) in June 2011 and later with Egyptian President Mohammed Morsi in November 2012. The November 2012 program would have provided $4.8 billion in assistance, and other donors pledged about $9.7 billion in additional financing once the IMF program was in place. No agreement has been finalized or implemented to date.

Egyptian authorities have been reluctant to commit to economic reforms that may be politically unpopular and increase the country’s debt. Pressure to cut fuel subsidies is a particular issue. More broadly, many Egyptians associate the IMF programs in the late 1980s and 1990s with adverse social outcomes. On its part, the IMF has resisted a program that does not have sufficient conditionality consistent with its lending policies. Continuing political concerns and uncertainty in Egypt have also contributed to the delay. In the absence of an IMF agreement, the Egyptian government has recently secured financial support from Libya and Qatar. 

Issues for Congress 

Some lawmakers who oppose ongoing U.S. bilateral assistance to Egypt may oppose any existing or future IMF support of Egypt, on several potential grounds. Some may be concerned that in the rush to stabilize Egypt, the Administration could be too lenient in terms of the reforms it seeks from the Egyptian government. Others may not want the Administration to overly politicize an IMF loan. They fear that the application of too much pressure on the Morsi government could make accepting a possibly unpopular IMF deal too politically controversial to pursue and that the lack of IMF involvement in Egypt could undermine U.S. interests in the region.

The United States makes the single largest financial commitment to the IMF, and, with the largest voting power at the IMF, the United States wields a high degree of influence over IMF decisions. If Congress wanted to shape U.S. policy toward Egypt at the IMF, it could pass a “legislative mandate” legislation directing the U.S. representative at the IMF to use its “voice and vote” to push for certain policies toward Egypt at the IMF.

Lawmakers may also want to use the terms of IMF conditions as “benchmarks” for the provision of existing or new bilateral economic aid to Egypt. Congressional concerns about bilateral debt relief are, in part, related to the absence of an IMF agreement. Additionally, legislative language (S.Amdt. 44) proposed in March 2013, but not adopted, would have tied U.S. bilateral economic assistance to Egypt to, among other things, an IMF program.


Date of Report: April 29, 2013
Number of Pages: 18
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U.S. International Investment Agreements: Issues for Congress

Shayerah Ilias Akhtar
Specialist in International Trade and Finance

Martin A. Weiss
Specialist in International Trade and Finance

Foreign direct investment (FDI) is an increasingly important driver of the global economy. In the absence of an overarching multilateral framework on investment, bilateral investment treaties (BITs) and investment chapters in free trade agreements (FTAs), collectively referred to as “international investment agreements,” have emerged as the primary mechanism for promoting a rules-based system for international investment. These agreements contain provisions on nondiscriminatory treatment of investments by the host country, limits on expropriation of investments, and access to impartial binding procedures to settle investment-related disputes with host governments, among other things. FTA investment chapters generally contain provisions identical or similar to those in U.S. BITs.

As FDI flows have expanded, the number of international investment agreements also has increased, both between developed and developing countries and between developing countries. Presently, there are over 3,000 BITs globally. The United States has concluded 47 BITs, 41 of which have entered into force. Of the 14 FTAs agreed by the United States, 12 contain investment provisions. Investment dynamics also have given rise to more investment disputes. In 2011, the number of investment disputes filed in international arbitration forums was 47, its highest level ever for a single year. Congress plays an active role in developing and implementing U.S. policy on FDI through its oversight and legislative responsibilities. Congress can set investment negotiating objectives for U.S. trade agreements in trade promotion authority (TPA). Unlike FTAs, which require a full vote of Congress on implementing legislation, BITs, as international treaties, require only Senate ratification.

The United States, which remains both a major source for and a major destination of FDI, uses international investment agreements to reduce restrictions on foreign investment, provide nondiscriminatory treatment for foreign investment, and reduce other market-distorting measures to maximize the benefits of such investment, while balancing other U.S. policy interests. In April 2012, the Obama Administration announced the conclusion of its review of the U.S. Model BIT, the template which the United States uses to negotiate BITs and investment chapters in FTAs. The 2012 Model BIT maintains the “core” or substantive investor protections affirmed in the 2004 Model BIT. It also clarifies that BIT obligations apply to state-owned enterprises (SOEs); limits performance requirements; strengthens labor and environmental provisions; clarifies which financial services provisions may fall under a prudential exception (such as to address balance of payments problems); expands transparency obligations; and increases requirements for stakeholder input in the standards-setting process.

The conclusion of the Model BIT review may generate momentum to conclude previously launched negotiations with countries such as China and India, or to launch investment negotiations with other U.S. trading partners. Investment policy issues feature prominently in other ongoing U.S. trade negotiations, including the proposed Trans-Pacific Partnership (TPP) FTA, as well as the anticipated Transatlantic Trade and Investment Partnership (TTIP) negotiation. In addition to considering negotiating priorities for these and proposed BITs with major emerging economies, Members may also want to consider the effectiveness of BITs in promoting and protecting investment.


Date of Report: April 29, 2013
Number of Pages: 22
Order Number: R43052
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