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TWN Info Service on WTO and Trade Issues (Dec06/03)

1 December 2006


Developing countries voice opposition to 'necessity test' in GATS domestic regulation

At an UNCTAD expert meeting on universal access to services held in November, diplomats of several developing countries voiced opposition to the inclusion of the 'necessity test' principle in disciplines being negotiated for domestic regulation in the General Agreement on Trade in Services (GATS) of the WTO.

The diplomats, including from Brazil, Kenya and the Philippines, were speaking as part of a panel on 'Trade in Services, GATS and Universal Access' during the UNCTAD meeting.

The panel discussed the GATS negotiations on Domestic Regulation and the impact on governments' ability to regulate Universal Service.

Below is a report of the panel discussion.

With best wishes
Martin Khor
TWN

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Developing countries voice opposition to 'necessity test' in GATS
By Riaz K Tayob:  Geneva, 21 Nov 2006

At an UNCTAD expert meeting on universal access to services held last week, the diplomats of several developing countries voiced opposition to the inclusion of the 'necessity test' principle in disciplines being negotiated for domestic regulation in the General Agreement on Trade in Services (GATS) of the WTO.

The diplomats, including from Brazil, Kenya and the Philippines, were speaking as part of a panel on 'Trade in Services, GATS and Universal Access' during the UNCTAD meeting.

The panel discussed the GATS negotiations on Domestic Regulation and the impact on governments' ability to regulate Universal Service.

The Chairman of the WTO's Working Party on Domestic Regulation, Singapore diplomat Peter Govindasamy, said that WTO members were far from agreement. (The WTO members had been negotiating a set of rules on domestic regulations, as part of the Doha work programme, before the Doha talks were suspended across the board at the end of July).

Govindasamy indicated that there was opposition from many countries to the "necessity test" (that had earlier been proposed as a key principle in the rules), while further discussion was still needed on standards and qualifications.

Several developing country diplomats at the panel also indicated their inability to accept the "necessity test" principle.

Addressing the session, Ambassador Fernando de Mateo y Venturini of Mexico, who is Chairman of the Council for Trade in Services at the WTO, said that "little by little we will get back to trade negotiations" after the "suspension of the suspension." He was referring to the apparent decision made at a WTO meeting last week for a "soft resumption" of the WTO negotiations.

He also reminded the meeting that 31 October was supposed to have been the deadline for final requests and offers in the GATS negotiations.

Govindasamy, speaking on the GATS negotiations on establishing disciplines on Domestic Regulations, said he had circulated a paper on the negotiations under "his own responsibility." He emphasised that it is not a "negotiating text containing compromises or agreed language" but a working paper intended to facilitate consultation.

He added that "we are far from agreement." He flagged a number of points. The active participation of developing countries who have submitted a number of proposals was welcomed. There is a section on development issues in the proposals. A section of the paper also states that LDCs shall not be bound by the disciplines that affect their sector specific interests.

He said a couple of delegations had made Universal Service proposals. There was also opposition to the 'necessity test'. Negotiations on 'standards' and 'qualifications' required more discussion. He concluded by saying that the negotiations needed to find the appropriate balance between rigour and safeguarding of regulatory autonomy.

Mr J. V. Chan-Gonzaga of the Philippine Mission said that the perspective of developing countries was to preserve the full flexibility over the decision as to whether to bind commitments in sectors. A decision to bind commitments under GATS is "perpetual and irrevocable", it locks in choices and limits policy flexibility.

He added that the process of liberalisation should take place with due respect for sovereignty. Chan-Gonzaga said the Domestic Regulation proposal by Brazil, Philippines and Indonesia recognised the right to universal access (to services) and for countries to regulate and to introduce new obligations (on service providers).

He said their proposal avoided the "not more burdensome than necessary" approach. (He was referring to a phrase widely called the "necessity test" in WTO circles, which according to some interpretations has to be met when countries introduce qualifications, standards and licensing requirements for service providers).

He added that special and differential treatment for developing countries was an integral element of the GATS negotiations.

In addition, the Philippines was a proponent of establishing safeguards in the GATS. Developing country members must be given the flexibility to review the commitments they had made in terms of the impact they have. The challenge, he stated, was to go beyond economic integration and to take developing countries out of the poverty trap.

Rabson Wanjala of Kenya said that availability and affordability of services were critical. He advised that countries should exclude basic services from their GATS commitments, mentioning health, education and water. The challenge was how to strike a balance between predictable access while preserving the right to regulate.

He proposed that the necessity test should not be applicable in the rules to be established in domestic regulation. He said that "the necessity test does not guarantee enough flexibility." He added that a measure that is least restrictive in one sector may be most burdensome in another sector. He questioned how this could be dealt with in the negotiations.

Rabson added said the application of the necessity test and "least trade restrictive" measure was not consistent with the reality on the ground. He added that the primary objective of regulator was not to provide market access but to regulate the market.

He said that while the Africa, Caribbean and Pacific (ACP) countries supported the transparency principle, they felt that foreign stakeholders should not have the right to intervene in the formulation of a country's regulations on services. (He was referring to proposals by some developed countries that foreign states be given the right to provide inputs before a country's regulations are made).

This could impact on their right to regulate, he said. He also noted that the proposed requirement to use "objective criteria" for regulations may also conflict with public interest criteria which may be subjective. He cited the regulation of public utilities as a case in point.

Wanjala also pointed out that license fees (charged to private service providers, are typically used by some African countries for financing Universal Access) are under question in the Domestic Regulation negotiations.

Brazilian diplomat George Marques mentioned some of the difficulties faced in the negotiations. He said that regulatory frameworks have to evolve and adapt, and that one cannot make a distinction between process and substance when it comes to regulation. In addition, some proposals before Working Party increased the level of uncertainty and the litigation risk at the WTO.

Referring to problems arising from the "necessity test", he stressed that ultimately the decision as to what is 'necessary' or not is determined by the WTO dispute settlement panel. He said that the necessity test is the most risky of the proposals in the negotiations, because it is not clear what is meant by 'necessity.'

Further, he said, bodies that set the rules and standards also were not transparent enough. He used the International Bank of Settlements in financial services as an example. While their services were useful, not all developing countries were adequately represented but they were obliged to follow the standards set, he said.

An Argentine diplomat alluded to another uncertainty and said that it is unclear how GATS rules apply to public-private partnerships and to other types of concessions.

Elliot Page of the Anitgua and Barbuda Mission said both the ACP and the Small and Vulnerable Economies groups had made proposals to the Working Party. He said it seemed that some of the disciplines were being crafted to promote growth not development and seemed "excessively intrusive." He said services are vital for their economies and that "we can't afford to make mistakes." He enquired from the WTO's Adlung whether the right to regulate was "sacrosanct" under the GATS.

Adlung said he could not comment on whether the right to regulate was religiously sacrosanct. He said that the Panel and the Appellate Body frequently interpreted the agreement in the light of the Vienna Convention and the preamble of the GATS.

Christopher Melly, Deputy Assistant USTR, said that the US does not seek to pursue liberalisation of water and electric power through the GATS.

Mitra Nassir from the Trade Representative Office of Iran pointed out that demands being made of countries seeking accession to the WTO are very high and often exceed the obligations typically asked of other developing countries.

In closing the meeting, Ms. Puri said that the meeting provided an opportunity for discussion to explore the interface of the policies of trade, economics and competition to deliver Universal Service.

Universal Service is a profound issue that has wider ramifications and the meeting offered an opportunity "to separate fact from fiction." Some wisdom has been distilled from policies that have worked well in some countries, she said, cautioning however that they may not necessarily be replicable in other countries.

 


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