Today's FT has an editorial complaining about the extraterritorial inspections of Ernst & Young (in London) carried out recently by the Public Company Accounting Oversight Board under Sarbanes-Oxley (SOX). The FT's point is that this work is duplicative of UK inspection, and imposes additional (and impliedly unnecessary) costs on UK audit offices. The FT's recommendation is to reciprocate under the EU audit directive, by requiring EU inspection of U.S. audit offices. The idea is to impose reciprocal pain in order to induce agreement to a regime of mutual recognition.
While there might be more mature methods to deal with U.S. "extraterritoriality" in this context, it is also not clear that the UK inspection system meets the SOX standards. So some degree of harmonization may need to precede mutual recognition.
It may be that the EU would have some legal rights under WTO law. In 1998, the Committee on Trade in Services adopted the Disciplines on Domestic Regulation in the Accountancy Sector (the “Accountancy Disciplines”),[1]developed by the GATS Working Party on Professional Services (now the Working Party on Domestic Regulation). These disciplines apply to all member states that have made specific commitments in accountancy (positive list) but do not apply to national measures listed as exceptions under Articles XVI and XVII (negative list). They generally articulate further and tighten the principle of necessity: that measures should be the least trade restrictive method to effect a legitimate objective. In fact, these provisions replicate requirements that have been imposed in the EC pursuant to the ECJ’s single market jurisprudence. In particular, Member states are required to ensure that measures relating to licensing requirements and procedures, technical standards and qualification requirements and procedures are not prepared, adopted or applied with a view to or with the effect of creating unnecessary barriers to trade in accountancy services. Such measures may not be more trade restrictive than necessary to fulfill a legitimate objective, including protection of consumers, the quality of the service, professional competence and the integrity of the profession. This necessity requirement is substantially stronger than that contained in Article VI:5 of GATS.
[1] WTO, Disciplines on Domestic Regulation in the Accountancy Sector, S/L/64, 17 December 1998, reprinted in WTO Focus, December 1998, 10-11.