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

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

3. 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

4. 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

5. 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?

6. 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.)

7. 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

8. 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

9. REGULATORY DISCIPLINES UNDER THE WTO SERVICES AGREEMENT (GATS)

10. 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.

11. 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.

12. 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

13. 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

14. 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.

15. 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 …”

16. 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
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

17. 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

18. 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

19. 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

20. REGULATORY DISCIPLINES FOR SERVICES IN REGIONAL TRADE AGREEMENTS

21. 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

22. 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

23. 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

24. 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.

25. 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

26. 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

27. 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)

28. 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

29. 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

30. 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

31. 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.

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

33. 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

34. 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

35. 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

36. Thank You!

37. 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

38. 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

39. 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

40. 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)

41. 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

42. 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.

43. 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

44. 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

45. REGULATORY DISCIPLINES FOR SERVICES IN REGIONAL TRADE AGREEMENTS