As a real estate practitioner doing what you do best—selling real estate in your local market—you may have skipped the last three articles in this space dealing with Regional Integration Agreements (RIAs). Those articles outlined some of the implications to your global real estate practice of the fifteen nation European Union (EU), the Association of Southeast Asian Nations, now with prospects of adding China, Korea and Japan (ASEAN + 3), and of MERCOSUR, the South American regional common market that includes Brazil, Argentina, Bolivia, Paraguay, and (for some pur-poses) Chile.
Keeping current on international developments with long-term implications—especially those as complex as RIAs—may seem a low priority, given the urgency of an active local real estate business. Yet the profound significance these changes have for real estate, both inside and outside the region in question, compounded by the speed with which regional integration is occurring, add up to a strong argument in favor of staying informed of the trends.
NAFTA begins to eliminate barriers
The North American Free Trade Agreement (NAFTA) came into effect in January 1994. It links the U.S., Canadian, and Mexican economies by dramatically reducing intra-regional tariffs and taking other action in support of free trade. Like the RIAs discussed previously, NAFTA contemplates the elimination of barriers to trade in services as well as in goods.1
It seeks to substantially increase opportunities for Foreign Direct Investment (FDI) within the territories of its member countries.2
Chapter Twelve of NAFTA deals explicitly with cross-border trade in services, defined so as to include real estate services. The general rules in Chapter Twelve require each member country to afford professionals from other member countries the same treatment as it affords its own in terms of the ability to practice their professions without regard to citizenship or
whether they maintain a permanent residence or place of business in its territory. In other words, because of NAFTA, a Mexican real estate professional can sit for a state real estate broker’s license exam in the U.S., or a Canadian provincial license exam and, on passing, can be licensed to practice in that jurisdiction. Similarly, a U.S. professional has that right in
Canada where the licensing system is similar to the U.S., and, conversely, a Canadian in the U.S. In Mexico, however, where there is no licensing requirement for domestic real estate professionals, citizens of both the U.S. and Canada can practice without a license.
Chapter Sixteen of NAFTA obligates member countries to afford certain businesspersons from other member countries temporary entry visas without the need for employment authorization (such as the U.S. “green cards”). This is a tricky area but, generally, the principal applies to real estate pro-fessionals, depending on what they intend to do and how they will be paid.
Cross-border activities have not really begun yet, given the complexities of NAFTA’s bureaucratic process. In time, however, these rules will create fully permeable borders for the real estate professions in the three member countries, resulting in a significant expansion of territorial opportunities for the real estate professional. This will be especially true in urban areas
divided by an international boundary such as El Paso-Ciudad Juarez, Brownsville-Matamoras, Fort Erie-Buffalo and Windsor-Detroit.
As NAFTA matures, and citizens and regulators within the three member countries implement its provisions, the North American real estate market will achieve greater integration and transparency. Without exaggeration, we will soon see thriving major cross-border MLS systems. The personal networks of real estate professionals in each member country will increas-ingly extend into the other countries. Over the long run, expect to see much closer relations between the Canadian Real Estate Association (CREA), the Associación Mexicana de Profesionales Inmobiliarios (AMPI), and the NATIONAL ASSOCIATION OF REALTORS
®” (NAR).
FTAA expands the initiative
Though most North Americans have at least a vague awareness of NAFTA, very few know of an effort—started in December 1994 by some 34 coun-tries in the Western Hemisphere—to establish the Free Trade Area of the Americas (FTAA). The formal FTAA initiative was born at a Summit of the Americas in Miami less than a year after the official launch of NAFTA.
The ambition for FTAA is to develop an RIA, similar to NAFTA in intent, scope and effect, for the entire Western Hemisphere. As with NAFTA, an objective of FTAA will be the elimination of barriers to free trade in serv-ices as well as goods. A trade negotiation committee is currently working on a comprehensive treaty. A negotiating group on services has been meeting for several years in pursuit of the free trade objectives.
Recently, at the Sixth Summit of the Americas in Quebec City, the initiative to launch an FTAA was reaffirmed by the participating countries. President Bush strongly supports FTAA, and has asked the Congress for “fast track” authority to simplify the process of ratification once an FTAA treaty is ready for ratification.
The FTAA countries include Antigua and Barbuda, Argentina, Bahamas, Barbados, Belize, Bolivia, Brazil, Canada, Colombia, Chile, Costa Rica, Dominica, Dominican Republic, Ecuador, El Salvador, Grenada, Guatemala, Guyana, Haiti, Honduras, Jamaica, Mexico, Nicaragua, Panama, Paraguay, Peru, St. Kitts and Nevis, St. Lucia, St. Vincent and the
Grenadines, Suriname, Trinidad and Tobago, the United States, Uruguay, and Venezuela.
GATS embraces worldwide free trade
It is too soon to predict the probability of FTAA’s reaching fruition. But even without FTAA, there is every reason to believe that the principle of free trade in services will expand, both through RIAs and, ultimately, as a result of the General Agreement on Trade in Services (GATS), a compre-hensive multilateral agreement signed by 140 nations worldwide and
administered by the World Trade Organization (WTO).
GATS became effective in January 1995. It is a framework treaty for pro-moting
cross-border trade in services. At the time of signing, an estimated US$1 trillion—20% of all trade—could be attributed to cross-border trade in services. Clearly, a sector of this size is already enormously important. Over the intermediate term, this sector is likely to be expanded as the pro-visions of GATS and its chief implementation device, the Country Schedule of Commitments, kick in.
Initially, the GATS thrust in the service sector was expected to be limited to banking, insurance, accountancy, telecoms, transport systems, tourism, health, and construction services. Real estate services have now been added. Individual countries will decide, through their Country Schedules, whether or not to apply free trade principles to the real estate brokerage
and agency sector on a “most favored nation” basis. The United States, in its Country Schedule, has affirmed that real estate services will be afforded this treatment, with only a few exceptions.3 Mexico, on the other hand, has made no such commitment for real estate services under GATS, even though it has an existing commitment under NAFTA;4 Canada has made
such a commitment, but with a fair number of exceptions.5 All in all, nearly thirty of the 140 signatories of GATS have afforded real estate services some version of “most favored nation” treatment.6 GATS adds a layer of complexity, but also critical momentum, to opening trade in
professional real estate services.
WTO defines
Advocates of lowering barriers to trade in services marshal the free trade arguments of classical economics in support. According to the WTO, they include:7
more competition,
lower prices,
faster innovation,
higher employment,
greater transparency and predictability, and
technology transfers.
Comparable backing for reducing impediments to free trade in services across borders is associated with all of the RIAs discussed here. But is God or the devil in the details? Some countervailing arguments might include:
loss of quality control over professional services,
predatory cost-cutting and pricing of services, and
inaccessibility of legal remedies to pursue malfeasant foreign professionals.
As our world shrinks and trade barriers disappear, how can you make sense of the factors inherent in free trade in services that could materially complicate what used to be a local practice?
Consortium provides solutions
One instrument available to you is the International Consortium of Real Estate Associations (the Consortium), founded in May 2001 by national real estate associations from more than twenty countries at a meeting in Washington, DC. The multi-party legal agreement that created the
Consortium obligates it to take an assertive, lead role in establishing global standards to govern international real estate transactions.
A major question is whether it would be possible for the Consortium to work effectively toward international real estate standards without a com-prehensive understanding of the EU, ASEAN + 3, MERCOSUR, NAFTA/FTAA, WTO/GATS, and such other multilateral initiatives affecting the real estate profession. In the near term, the Consortium is developing an Internet-based referral system designed to facilitate cross-boundary business transactions with minimal legal and regulatory impediments. But over the long term, as the referenced regional and worldwide initiatives take effect, barriers to foreign professionals practicing in your jurisdiction,
and to your penetration into theirs, will be dramatically reduced. To date, the voice of the global real estate profession has been relatively silent on whether, and how, these barriers should be lowered.
The Consortium is an ideal entity to take the lead on behalf of the profession to make sense of the complex and rapidly evolving international structures relating to free trade in real estate services. It can interpret the motives and objectives of RIAs and the WTO. It can help its Member Associations and the professionals they serve to understand these initiatives and to develop policy relative to them. If practitioners are to be a proactive force in international real estate, the Consortium has no time to waste.
1 NAFTA, Article 102 (1) (a).
2 NAFTA, Article 102 (1) (c).
3 Exceptions include the requirement of citizenship to become a licensed broker in Mississippi, New York and South Dakota. U.S. Schedule of Commitments under the General Agreement on Trade in Services, p. 37.
4 http://gats-info.eu.int/gats-info/nwtosvc.pl?COUNTRY=Mexico&SECCODE=01
5 Some provinces require a “commercial presence”; others require residency.
http://gats-info.eu.int/gats-info/nwtosvc.pl?COUNTRY=Canada&SECCODE=01.d.b
6 http://gats-info.eu.int/gats-info/gatscomm.pl?MENU=eee
7 http://www.wto.org/english/tratop_e/serv_e/gats_factfiction3_e.htm |
