WASHINGTON, D.C. — The American Property Casualty Insurance Association (APCIA) today released a white paper entitled “Financial Services International Trade Jurisprudence – Revisiting the Prudential Exception and its Implications for Indonesia.” Steve Simchak, APCIA’s head of international and counsel, authored the paper.

The white paper examines the recent developments in financial services trade jurisprudence resulting from a reinsurance dispute between Argentina and Panama at the World Trade Organization (WTO). The dispute led to the examination of the “prudential exception” to financial services trade commitments for the first time. It also established a “rational relationship” test to determine whether a government can invoke the prudential exception in order to justify laws or regulations that are inconsistent with its trade commitments. These developments could have significant implications on several measures in force in Indonesia that restrict cross-border reinsurance access, violating Indonesia’s WTO commitments. The paper concludes that while applying the new “rational relationship” test, Indonesia’s reinsurance trade barriers could not be absolved by the prudential exception. This action has implications for Indonesia and suggests that the new jurisprudence could be applicable in other circumstances, as well.

“Strong trade enforcement is essential to building an environment in which insurers can compete fairly around the world. This is will expand opportunities for businesses and help consumers access critical financial services,” said Simchak.

“Developments in insurance trade law provide clarity on the types of regulations that are exempt from trade agreements through the prudential exception. This could make it more efficient for governments to hold others accountable for fulfilling their obligations to U.S. insurers and other financial service providers. In the case of Indonesia, this analysis makes it clear that the government is not living up to its commitments at the WTO.”