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

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

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

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

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?

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.)

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

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

REGULATORY DISCIPLINES UNDER THE WTO SERVICES AGREEMENT (GATS)

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.

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.

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

Disciplines on Domestic Regulation under GATS GATS Article VI : In sectors where commitments are undertaken: VI:4 - “Necessity” test to be applied VI:6 - Procedures to verify competence in place In all sectors, with or without commitments: VI:1 - Reasonable, objective and impartial administration of measures of general application VI:2 - Procedures for the review of administrative decisions affecting trade in services VI:3 - Decisions on applications to be made within a reasonable period

Core of regulatory discipline “Necessity” test GATS objective is to ensure that domestic regulations DO NOT CREATE UNNECESSARY BARRIERS TO TRADE (Article VI:4) … 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.

Domestic Regulation Discipline - Provisional application Article VI:5 “(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 …”

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

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

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

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

REGULATORY DISCIPLINES FOR SERVICES IN REGIONAL TRADE AGREEMENTS

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

Approach of RTAs to Regulatory Disciplines Area where regional agreements have followed and drawn from the multilateral GATS disciplines but have gone further RTA’s 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

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

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.

CHAPTERS CONTAINING REGULATORY DISCIPLINES AFFECTING SERVICES RTAs Agreements CHAPTERS CONTAINING REGULATORY DISCIPLINES AFFECTING SERVICES   CROSS-BORDER TRADE INVESTMENT TELECO - MMUNICATIONS FINANCIAL SERVICES ELECTRONIC COMMERCE TRANSPARENCY TEMPORARY ENTRY OF BUSINESS PERSONS COMPETITION CHILE-USA (01 January 2004 ) CHAPTER 11 CHAPTER 10 CHAPTER 13 CHAPTER 12 CHAPTER 15 CHAPTER 20 CHAPTER 14 CHAPTER 16 SINGAPORE-USA (01 January 2004) CHAPTER 8 CHAPTER 9 CHAPTER 19 AUSTRALIA-USA (01 January 2005 ) PERU-USA (12 April 2006) COLOMBIA-USA (22 November 2006) PANAMA-USA Not signed yet CHAPTER 18 KOREA-USA

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

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)

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

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

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

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.

Regional Trade Agreements Disciplines on Domestic Regulation in RTA’s (since mid-1990s)

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

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

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 RTA’s will continue to widen

Thank You!

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

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

2. Transparency AT MULTILATERAL LEVEL AT REGIONAL 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

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)

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

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.

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

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

REGULATORY DISCIPLINES FOR SERVICES IN REGIONAL TRADE AGREEMENTS