REGULATORY

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• REGULATORY
• DISCIPLINES IN TRADE AGREEMENTS
• Dr. Sherry Stephenson
• Director, Department of Trade, Tourism and
  Competitiveness, OAS
• Canberra, May 3, 2007

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THESIS STATEMENT

• MODERN TRADE AGREEMENTS ARE AS MUCH ABOUT
  REGULATORY DISCIPLINES AS THEY ARE ABOUT SERVICES
  LIBERALIZATION

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Regulatory Rights and Trade Agreements

• WTO does NOT pronounce on the content of national
  regulation or on government policy objectives
  in Preamble to GATS
• Regional trade agreements (RTAs) follow the same
  approach the government right to regulate is
  intact

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What then is the role of trade rules in
addressing regulations?

• Three main functions
• 1. Trade rules may help to encourage good
  regulatory practices
• And provide impetus to domestic economic reform
  efforts
• 2. Trade rules can address possible cases where
  regulation is used for protection
• And balance this with the right to regulate
• 3. Trade rules can help to encourage regulation
  that supports liberalization
• Effective liberalization can require (re)
  regulation

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KEY QUESTIONS

• How do trade agreements discipline these
  measures?
• Which type of trade agreement does this more
  effectively?
• i.e. GATS-type, or new RTAs?

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Various types of regulatory measures can
negatively affect services trade

• Denial of market access
• Discrimination against services or services
  providers
• Lack of information on applicable service regime
  
• Anticompetitive commercial practices
• Insufficient objectivity or effectiveness of the
  regulation designed to address the competence,
  capacity, etc. of the foreign service or service
  provider
• Insufficient impartiality in administrative
  processes related to the regulations (ex. the
  granting of licenses)
• Insufficient objectivity or effectiveness of
  qualitative norms affecting the service or
  service provider (competence, capacity, etc.)

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Provisions in Trade Agreements to address
Regulatory Issues

• Quotas or quantitative restrictions
• addressed by Art. XVI in GATS
• addressed by MA Article in RTAs

• Internal discriminatory practices
• addressed by Art. XVII in GATS
• addressed by NT Article in RTAs

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Provisions in Trade Agreements to address
Regulatory Issues

• Domestic regulations
• addressed by Art. VI in GATS
• addressed by DR Article in recent RTAs

• Transparency
• addressed by Art. III in GATS
• addressed by chapter on Transparency in recent
  RTAs

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• REGULATORY DISCIPLINES UNDER THE WTO SERVICES
  AGREEMENT (GATS)

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Disciplines on Market Access Restrictions under
GATS

• Article XVI Limitations on
• The number of service suppliers
• The total value of service transactions or
  assets
• The total number of service operations
• The total number of natural persons that may be
  employed
• The participation of foreign capital
• Specific types of legal entity.

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Disciplines on National Treatment Restrictions -
GATS

• Art. XVII Unlimited restrictions
• Examples of National Treatment Limitations
• Restrictions on the international movement of
  payments and remittances
• Recognition requirements for professional
  qualifications
• Requirements for practice and experience in the
  country
• Nationality/and or residency requirements
• Restrictions on the acquisition of real estate
• Partnership requirements with local firms.

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Disciplines on Transparency under GATS

• Article III
• Obligation to publish all measures affecting
  services trade and make them publicly available
• Obligation to notify all new measures affecting
  services trade and/or changes to existing
  measures at all on an annual basis

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Disciplines on Domestic Regulation under GATS

• GATS Article VI In sectors where commitments
  are undertaken
• VI4 - Necessity test to be applied
• VI6 - Procedures to verify competence in place
• In all sectors, with or without commitments
• VI1 - Reasonable, objective and impartial
  administration of measures of general application
• VI2 - Procedures for the review of
  administrative decisions affecting trade in
  services
• VI3 - Decisions on applications to be made
  within a reasonable period

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Core of regulatory discipline Necessity test

• GATS objective is to ensure that domestic
  regulations DO NOT CREATE UNNECESSARY BARRIERS TO
  TRADE (Article VI4)
• that measures relating to qualification
  requirements and procedures, technical standards
  and licensing requirements are, inter alia
• Based on objective and transparent criteria, such
  as competence and the ability to supply the
  service
• Not more burdensome than necessary to ensure the
  quality of the service
• In the case of licensing procedures, not in
  themselves a restriction on the supply of the
  service.

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Domestic Regulation Discipline - Provisional
application

• Article VI5
• (a) In sectors in which a Member has undertaken
  specific commitments, pending the entry into
  force of disciplines developed in these sectors
  pursuant to paragraph 4, the Member shall not
  apply licensing and qualification requirements
  and technical standards that nullify or impair
  such specific commitments

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Are GATS disciplines on Domestic Regulation
adequate?

• Controversial issue for past 10 years in Working
  Party on Domestic Regulation
• Stronger disciplines are found in
• WTO TBT Agreement Art. 2.2-3
• WTO SPS Agreement Art. 2.2, Art. 5.6
• GATS Disciplines on Domestic Regulation in the
  Accountancy Sector
• Necessity text also found in
• GATS Annex on Telecommunication, para. 5(3)
• GATS Art. XIV on General Exceptions

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WTO Disciplines on Accountancy go further

• Necessity test
• Measures should not be more trade-restrictive
  than necessary to fulfill a legitimate
  objective.
• defined as, among others protection of
  consumers, quality of the service, professional
  competence, and integrity of the profession
• Transparency
• Not just provide information on requirements,
  procedures and technical standards but also
• state reason for the measure and its relation to
  legitimate objective, and
• provide opportunity for public comment

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Disciplines on Domestic Regulation for
Accountancy a model?

• Licensing requirements
• Known in advance, public objective
• Alternatives for the residency requirement
• Reasonable affiliation to professional body
• Reasonable administrative costs
• Licensing procedures
• Known in advance, public
• Only strictly necessary documentation required

• Qualification requirements
• Take into account degrees earned abroad on the
  basis of equivalency
• Provide examination for the activity
• Qualification procedures
• Verification of diplomas in a reasonable time
  frame
• Carry out exams in a reasonable time frame

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Ways to strengthen regulatory disciplines under
GATS

• To reduce impact of excessively burdensome
  regulations on services trade
• Strengthen NATIONAL TREATMENT
• Stronger TRANSPARENCY disciplines
• HARMONIZATION of norms
• MUTUAL RECOGNITION
• Adoption INTERNATIONAL STANDARDS
• SECTOR-SPECIFIC DISCIPLINES

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• REGULATORY DISCIPLINES FOR SERVICES IN REGIONAL
  TRADE AGREEMENTS

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Evolution in thinking in RTAs on Regulatory
Issues during 1990s

• Increased importance attributed to regulatory
  disciplines
• Sector-specific regulatory discipline elaborated
  further
• Transparency disciplines strengthened
• Domestic Regulation provision added
• DR provision
• Viewed as third pillar for services
  liberalization, along with market access and
  national treatment
• seen as necessary to discipline non-quantitative,
  non-discriminatory regulations that can act as
  barriers to trade

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Approach of RTAs to Regulatory Disciplines

• Area where regional agreements have followed and
  drawn from the multilateral GATS disciplines but
  have gone further
• RTAs have been reluctant to engage in
  rule-making in the DR area
• But RTAs have strengthened application of DR
  article and have evolved additional regulatory
  sectoral disciplines and transparency disciplines

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Approach of recent RTAs towards Services
Regulation

• Article on domestic regulation in services and
  investment chapter identical to GATS Article VI.3
  and 4, but permanent in nature and of general
  application
• Treatment of regulatory issues with respect to
  licensing and certification for professional
  services in Annex on Professional Services
• Separate chapters with regulatory disciplines for
  telecommunications and financial services
• Same approach followed by all NAFTA-type
  agreements negotiated by U.S. and by Mexico and
  Chile

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Recent US FTAs deal with regulatory issues
explicitly

• Evolution in FTAs with respect to Regulatory
  Disciplines after 2000 (under new TPA Act)
• US-Chile (2003)
• US-Singapore (2003)
• US-CAFTA (2004)
• US-Australia (2004)
• US-Morocco (2004)
• US-Peru (signed 2006)
• US-Colombia (signed 2007)
• US-Panama (signed 2007)
• US-South Korea (signed 2007)
• All contain similar approach covering regulatory
  issues spread out through the agreement.

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1. Chapter on Transparency

• Applies to all matters under the agreement,
  including services
• Disciplines on contact points publication
  notification and provision of information
  administrative proceedings prior comment
  advance publication and judicial review and
  appeal
• Additional transparency disciplines present in
  Cross-Border Trade in Services Chapter,
  Investment Chapter Professional Services Annex
  Temporary Movement Chapter Telecommunications
  Chapter and Financial Services Chapter

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2. Chapter on Cross-Border Trade DR Provision

• Includes Article on Domestic Regulation with
  identical text to that contained in GATS Article
  VI.3 and VI.4
• BUT
• Article is of general application to all
  services,
• Article is a definitive, not a provisional text
• Cross Reference to Investment chapter means that
  mode 3 is also covered (investment in goods and
  services)

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3. Annex on Professional Services

• Contains regulatory disciplines to address
  licensing and qualification requirements
• Additional objectives
• --To develop mutually acceptable standards and
  criteria for licensing and certification of
  professional services providers
• --To provide recommendations on mutual
  recognition agreements
• US-Chile FTA specific sections on foreign legal
  consultants and engineers work programs to be
  undertaken to provide for temporary licensing

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4. Sector Specific Regulatory Disciplines

• Telecommunications chapter
• Set of pro-competitive regulations
• Stronger than WTO Reference Paper
• Financial services Chapter
• Self-contained
• Transparency, procedural disciplines
• Market-access commitments for investment and
  services

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Sectoral Disciplines with Domestic Regulation
component

• AT MULTILATERAL LEVEL
• Reference Paper on Telecommunications
• Accountancy Disciplines
• AT REGIONAL LEVEL NAFTA-type RTAS
• Chapter on Telecommunications
• Annex on Professional Services
• Chapter on Financial Services
• Chapter on Temporary Entry Business Person

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Objective of regulatory disciplines in recent RTAs

• To ensure that regulations are not more
  burdensome than necessary to ensure the quality
  of the service
• To ensure that regulations do not undermine
  liberalization undertakings
• But allowing regulatory autonomy to remain
  intact.

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Regional Trade AgreementsDisciplines on
Domestic Regulation in RTAs (since mid-1990s)
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Strengths of recent RTAs with respect to
Regulatory Disciplines

• Promote gains in transparency
• Lock-in the status quo in all sectors
• Encourage a domestic regulatory audit of service
  sector regimes
• Apply national treatment and the necessity test
  in form of a general obligation to all service
  sectors

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Focus of recent RTAs

• On expanding and deepening transparency
  provisions
• On strengthening sector-specific regulatory
  disciplines
• On generalizing application of the existing
  necessity test rather than further defining
  concept of necessity
• Definition of what is an appropriate level of
  regulatory intervention may be left open to
  future panels

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Some Conclusions

• There has been little progress likely at
  multilateral level on developing deeper
  regulatory disciplines for services other than
  telecoms
• RTAs have gone further
• Gap in rule-making and in application of rules
  between WTO and RTAs will continue to widen

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• Thank You!

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1. Strengthened National Treatment

• Best alternative to expanded domestic regulation
  disciplines?
• AT MULTILATERAL LEVEL NT is conditional only
  applies to listed service sectors
• AT REGIONAL LEVEL New and high quality RTAs
  following the negative list approach provide for
  general application of the NT discipline (i.e. to
  all service sectors, subject to limited
  exceptions or non-conforming measures)
• extremely strong discipline

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1. Strengthened National Treatment

• Best alternative to expanded domestic regulation
  disciplines?
• AT MULTILATERAL LEVEL NT is conditional only
  applies to listed service sectors
• AT REGIONAL LEVEL New and high quality RTAs
  following the negative list approach provide for
  general application of the NT discipline (i.e. to
  all service sectors, subject to limited
  exceptions or non-conforming measures)
• extremely strong discipline

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2. Transparency

• AT MULTILATERAL LEVEL
• GATS Art. III requirements
• --publication
• --notification of changes in regulations that
  significantly affect foreign services/ service
  providers
• --
• Requirements in Accountancy Disciplines
• --provide reason for the measure and its
  relation to legitimate objective
• --provide, when possible, opportunity for public
  comment before the adoption of new measures

• AT REGIONAL LEVEL
• Separate chapter on Transparency ---Applies to
  all matters under the agreement, including
  services. Covers contact points publication
  notification and provision of information
  judicial review and appeal and administrative
  proceedings
• --Opportunity for prior comment
• --Written response to comments
• Additional transparency disciplines for services
  in Cross-Border Services Chapter Financial
  Services Chapter Temporary Entry Chapter

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3. Harmonization of Standards

• AT MULTILATERAL LEVEL
• No attempt to carry out harmonization of
  services standards
• AT REGIONAL LEVEL
• No attempt to carry out harmonization in most
  RTAs
• Exceptions
• Andean Community (sectoral norms)
• CARICOM (establish common standards for
  accreditation of qualifications- professional
  services)
• European Union (sectoral norms)

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4. Mutual Recognition / Equivalence

• AT MULTILATERAL LEVEL
• GATS Art. VII on Recognition allows for
  conclusion of recognition agreements
• Intends to assure such arrangements may be
  acceded to by other WTO members
• Guidelines for Mutual Agreements or Arrangements
  in the Accountancy Sector.
• AT REGIONAL LEVEL
• Many RTAs contain article on Mutual Recognition
  that encourages conclusion of such agreements
• Annex on Professional Services in NAFTA-type
  agreements encourages the development of mutually
  acceptable professional standards
• Section on Foreign Legal Consultants and
  Engineers mandates consultations with
  professional bodies

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5. International standards

• The existence of international standards would
  facilitate implementation of a necessity test
• International standards would also assist in the
  development of MRAs
• Development of international standards could
  clearly have a trade facilitating effect.
• However, at present there are few internationally
  agreed standards for services.

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6. Sector-Specific Disciplines

• Useful to clarify, elaborate or supplement
  horizontal disciplines in sectors with unique
  characteristics
• Network-based infrastructure services
• Services with asymmetries of information
• Social services (universal service objective)
• Specific sectoral treatment carried out through
  individual chapters, annexes, etc.
• Specific treatment can also be provided for Mode
  4

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Sectoral Disciplines with Domestic Regulation
component

• AT MULTILATERAL LEVEL
• Reference Paper on Telecommunications
• Accountancy Disciplines
• AT REGIONAL LEVEL NAFTA-type RTAS
• Chapter on Telecommunications
• Annex on Professional Services
• Chapter on Financial Services
• Chapter on Temporary Entry Business Person

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• REGULATORY DISCIPLINES FOR SERVICES IN REGIONAL
  TRADE AGREEMENTS