The CAFTA-DR-U.S. Negotiations on Financial Services: The Experience of Costa Rica
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financial institutions or cross-border financial services providers belong or in which they participate must observe the obligations of chapter 12. Domestic regulation. Inspired by the contents and rationale of GATS article VI, article 12.14 of CAFTA-DR-U.S. provides that except with respect to nonconforming measures listed in annex III of chapter 12, each CAFTA-DR-U.S. country must ensure that all measures of general application to which the chapter applies are administered in a reasonable, objective, and impartial manner. Exceptions. In addition to the rules and disciplines discussed in this annex, chapter 12 contains a series of provisions that clarify that the goals of trade promotion and liberalization of the agreement cannot be pursued at the expense of other key public policy objectives. In particular, chapter 12 includes five different exceptions, which, in turn, can be classified in two categories. First are those exceptions that can exempt the CAFTA-DR-U.S. countries from complying with any of the obligations of the chapter, and second are those that can be invoked to avoid compliance with obligations contained in chapter 12 and other chapters. Among the first category of exceptions, chapter 12 includes three relevant provisions. The first relates to public retirement plans or systems of social security. Article 12.1, paragraph 3, explicitly states that chapter 12 does not apply to measures adopted or maintained by a CAFTA-DR-U.S. country related to activities or services forming part of a public retirement plan or statutory system of social security or of public financial resources. However, the same provision clarifies that chapter 12 will apply if the CAFTA-DR-U.S. country allows any of these activities or services to be conducted by its financial institutions in competition with a public entity or a financial institution. In the particular case of Costa Rica, the pension system is based on three pillars: first, the basic state social security program (managed by the CCSS); second, the fund of obligatory pensions; and third, voluntary complementary pension schemes. Although the first pillar remains reserved for the state, the second and third pillars are open to competition, both among the diverse state financial groups and the private sector. Chapter 12 thus applies to the second and third pillars of the pension system. The second exception relates to the possibility of limiting transfers under certain circumstances. A CAFTA-DR-U.S. country may be authorized to prevent or limit transfers by a financial institution or