A guest post by Aik Hoe Lim and Bart De Meester [1]:
Recent disputes concerning Article 2.2 of the TBT Agreement – in particular US - Tuna II (Mexico) and US - Clove Cigarettes – have focused attention on measures that, even when not discriminatory, may constitute barriers to trade in goods. The WTO Technical Barriers to Trade agreement, which builds on the Tokyo Round code, has sought to reduce the trade-distortions that may follow from measures that apply without any distinction to domestic and foreign goods through the use of a 'necessity test'.
In contrast, the GATS has in this respect much more limited disciplines. Articles II and XVII – the latter again depending on specific commitments – prohibit WTO members to discriminate among services and service suppliers of a different origin. Article XVI of the GATS prohibits – to the extent WTO members have made specific commitments – six types of market access restrictions, which are mainly quantitative in nature. Outside the scope of these articles, there are no further substantive disciplines of the type found in the TBT Agreement with respect to non-discriminatory 'domestic regulation'.
Yet, domestic regulation of services sectors has a significant impact on services trade and access conditions. As provided in Article VI:4 of the GATS, WTO members have agreed to negotiate a set of disciplines to ensure that such regulations are not unduly burdensome on trade. There are many good reasons why services markets need regulation, amongst others protecting consumers, tackling fraud and tax evasion, or making services available to all citizens on equitable conditions. At the same time, cumbersome licensing and qualification procedures, non-transparent criteria, burdensome and redundant requirements, and administrative "red-tape" can impede trade even if this was not their intention. The sheer diversity of regulatory systems and standards in international markets can also significantly raise the costs of compliance for the service supplier. Procedural complexity might also serve to hide protectionist intentions and give rise to good governance issues.
To what extent can and should domestic regulation be disciplined under a trade agreement and how to distinguish protectionism from the pursuit of legitimate public policy objectives? There are no obvious answers. Yet, services trade agreements in the 21st century will increasingly have to grapple with complex regulatory issues. Since the establishment of the WTO, members in the GATS Working Party on Domestic Regulation have grappled with the question of what additional disciplines are required on licensing, qualification and technical standards to ensure that they are not more burdensome than necessary to achieve legitimate policy objectives. Negotiations on a Trade in Services Agreement (TiSA) and the latest wave of regional trade agreements face similar challenges. Such efforts raise a number of questions:
(i) First, a principal concern hampering negotiations in the WTO seems to be that trade disciplines on domestic regulation might result in a loss of regulatory freedom for Members to pursue non-trade objectives. Such disciplines are often perceived to extend quite far beyond the traditional trade concern of non-discrimination to the fundamental societal question of the balance between regulation and market freedom. Yet, one may wonder whether the intent of the WTO members behind the Article VI:4 mandate was not more modest. With the scope of VI:4 being limited to measures relating to licensing and qualification requirements and procedures, and technical standards, could a parallel be drawn with the recently concluded WTO Trade Facilitation Agreement? Much attention has been given to reducing costs and delays for goods trade through measures that provide predictability, simplicity and uniformity in customs and other border procedures. No such instrument exists in services trade. Could streamlining licensing procedures, single windows for application, indicative time frames for processing applications, simplification of documents and forms, be viewed as "trade facilitation" for services suppliers? Would pursuing domestic regulation disciplines as a package of measures aimed at "services trade facilitation" help improve understanding and reduce concerns of unwarranted intrusion into the domestic regulatory and policy making process?
(ii) Second, the mandate in Article VI:4 also specifies indicative objectives, namely that measures relating to licensing and qualification requirements and procedures, and technical standards should be based on objective and transparent criteria, and not more burdensome than necessary to ensure the quality of the service. Yet, what would be the appropriate benchmark upon which these criteria should be reflected in new disciplines? It is worth recalling that the WTO 1998 Disciplines on Domestic Regulation in the Accountancy Sector already contain a ‘necessity test’, similar to that in the TBT and SPS Agreements, which requires WTO members to ensure that ‘measures are not more trade restrictive than necessary to achieve a legitimate objective’. The negotiations, so far, have found no common view on the question of whether a ‘necessity test’ of the type already found in the TBT or SPS Agreements, or a variation of it, should be used in domestic regulation disciplines in services. Should members take the current opportunity to design such a test themselves, rather than allow WTO jurisprudence to design such a test in the context of a concrete dispute?
(iii) Third, how could any disciplines on domestic regulation be incorporated into the GATS? While this might seem to be an issue that is best left till the end of the negotiations, could clarity on the options available have an impact on the substance of the disciplines? One option is that any eventual disciplines would be integrated into GATS as an Annex. Such an approach would have the advantage of uniform application of the disciplines across the entire WTO membership. However, it also has the disadvantage of being relatively inflexible as the obligations would have to be taken at the same level of ambition without exception. Another option is to use GATS Article XVIII, which allows WTO members to schedule additional commitments on any regulatory matter that concerns measures not covered by market access and national treatment. The procedure depends solely on the acceptance by each individual member to incorporate the disciplines into its schedule. Since members decide individually to undertake additional commitments, there is considerable flexibility both in terms of application across the membership, as well as the obligations undertaken. On the other hand, the flexibility of the additional commitments route could also be viewed as a disadvantage, as it would provide less certainty as to whether the disciplines would be fully applied by all members, as compared to the adoption of an Annex.
Such questions, as well as specific regulatory challenges, are discussed in our book, "WTO Domestic Regulation and Services Trade: Putting Principles into Practice" through essays and case studies. Many issues remain unsettled and much is unknown. If we might borrow from Simon Lester, "the question is, how do we craft these rules so as to define the boundaries of international economic law in an appropriate way?" [2] We would be interested in hearing your views on the issues and to receive your feedback on the book.
We would also like to invite you to our book launch at the WTO Secretariat building on 7 May 2014. The event will start at 12.30 with sandwiches and refreshments followed by a panel discussion. Should you be interested in attending, please do send us an email ([email protected]).
Aik Hoe Lim and Bart De Meester
For more information on the book, please see
http://www.cambridge.org/pt/academic/subjects/law/international-trade-law/wto-domestic-regulation-and-services-trade-putting-principles-practice
[1] Aik Hoe Lim is Counsellor in the Trade in Services Division of the WTO, where he is Secretary to the Working Party on Domestic Regulation. Bart De Meester is Member of the Legal Service of the European Commission. The views expressed in the book and this blog post are of a personal nature and do not necessarily reflect those held by their respective organizations and/or their Members.
[2] Simon Lester, "Finding the Boundaries of International Economic Law", Journal of International Economic Law, 2014, 17, 3-9.
