TWN Info Service on WTO and Trade Issues (Oct09/05)
21 October 2009
Third World Network

Necessity test for domestic regulation of services
Published in SUNS #6793 dated 15 October 2009

Geneva, 14 Oct (Riaz K. Tayob) -- The reinstatement of "the necessity test" into disciplines on Technical Standards has figured in informal discussions at the 9 October meeting of the Working Party on Domestic Regulation (WPDR), a subsidiary body of the WTO's Council for Trade in Services (CTS).

The discussions were on an Australian proposal to reinstate "the necessity test" in the [on Technical Standards contained in the] Informal Note of 20 March 2009 by the Chairman of the WPDR on Disciplines On Domestic Regulation Pursuant to GATS Article VI: 4.

The Chairman's note was prepared on his own responsibility and distributed as a room document as "Draft Disciplines - Second Revision" (20 March 2009). For the 9 October meeting of the Working Party, the Chair had also prepared and distributed an Annotated Agenda (dated 6 October).

The Australian proposal was based on Job (06)/193, previously submitted to the Working Party on Domestic Regulation (WPDR) along with other members, including Hong Kong-China and Chile.

In the informal discussions, responding to the Australian proposal, the EC appears to have voiced its opposition - on the basis that the proposal had already been rejected in earlier discussions, and bringing it back into the text would alter the balance reached in the Chair's text.

In other comments, Switzerland is reported to have new suggestions, based on the language used in the Technical Barriers to Trade Agreement in the GATT, according to a developing country trade diplomat.

The 20 March Note did not include "the necessity test". It, however, includes other disciplines, for sectors where specific commitments have been undertaken (i. e. liberalised), measures relating to licensing requirements and procedures, qualification requirements and procedures, and technical standards shall be pre-established, based on objective and transparent criteria and relevant to the supply of the services to which they apply.

According to another developing country trade diplomat, while unclear, the EC is understood to have opposed the proposal allegedly on the grounds that the text is not to be re-opened. However, the EC also said that if other members wanted to (open the text), the EC would be willing to consider this, the trade diplomat said.

[According to former trade negotiators from developing countries, when the GATS was being negotiated in the Uruguay Round (in the era of the dominant neoliberal economic concepts), the idea of future work to formulate disciplines under Art. VI: 4 of the GATS was brought up and formulated at the instance of developing countries who were chary of the developed countries (like the US and EU) seemingly making concessions to developing countries in various services sub-sectors, but defeating them in practice through application of so-called technical standards.- SUNS]

The 20 March Note on the Chair's own responsibility was aimed at registering progress in discussions that have taken place in the Working Party since February 2008, and purports to only reflect drafting suggestions on a few issues which enjoyed wide support by delegations during discussions, but not other issues on which differences persist.

In the note, the Chair also said that it has refrained from suggesting any compromise language, so as not to influence future consideration of these issues. The absence of any drafting changes regarding those issues should not be construed to solidify the language as it stands.

The Note says:

-- The purpose of these disciplines is to facilitate trade in services by ensuring that measures relating to licensing requirements and procedures, qualification requirements and procedures, and technical standards are based on objective and transparent criteria, such as competence and the ability to supply the service, and do not constitute disguised restrictions on trade in services.

-- Members recognize the right to regulate, and to introduce new regulations, on the supply of services within their territories in order to meet national policy objectives and, given asymmetries existing with respect to the degree of development of services regulations in different countries, the particular need of developing countries to exercise this right. These disciplines should not be construed to prescribe or impose particular regulatory approaches or any particular regulatory provisions in domestic regulation.

-- It recognises needs of individual developing country Members in implementing disciplines on domestic regulation, particularly difficulties relating to level of development, size of the economy, and regulatory and institutional capacity; and the difficulties developing countries may face in meeting the regulations of other members.

-- Applies to measures by Members relating to licensing requirements and procedures, qualification requirements and procedures, and technical standards affecting trade in services where specific commitments are undertaken. They do not apply to measures to the extent that they constitute limitations subject to scheduling under Article XVI (market access) or XVII (national treatment).

The 20 March Note provides definitions for "Licensing requirements"; "Licensing procedures"; "Qualification requirements"; "Qualification procedures" and "Technical standards". And also includes sections on transparency, development and institutional provisions.

The General Provisions chapter in the 20 March Note states that:

-- Measures relating to licensing requirements and procedures, qualification requirements and procedures, and technical standards shall be pre-established, based on objective and transparent criteria and relevant to the supply of the services to which they apply.

-- Nothing in these disciplines prevents Members from exercising the right to introduce or maintain regulations in order to ensure provision of universal service, in a manner consistent with their obligations and commitments under the GATS.

Technical standards were discussed in the WPDR on 9 October. The 20 March Note disciplines are:

-- paragraph 40: Members are encouraged to ensure maximum transparency of relevant processes relating to the development and application of domestic and international standards by non-governmental bodies.

-- paragraph 41: Where technical standards are required and relevant international standards exist or their completion is imminent, Members should take them or the relevant parts of them into account in formulating their technical standards, except when such international standards or relevant parts would be an ineffective or inappropriate means for the fulfilment of national policy objectives.

The Australian proposal on 9 October states, "Each member shall ensure that any measures relating to application, monitoring, compliance and enforcement of technical standards are not more burdensome than necessary to ensure that a service conforms with the relevant technical standards, taking into account the risks that non-fulfilment would create."

In the discussions, on paragraph 40, Bolivia asked for clarity on what is meant by "maximum transparency" and questioned why transparency would not suffice.

The Annotated Agenda presents a preliminary assessment of technical work so far and states that good discussions were had on "Development" and on "Definitions", but that several of the issues addressed to date need to be further refined.

The Annotated Agenda states that for joint technical work to progress, it is indispensable that all delegations engage on the substance of the issues. The work will advance only through focussed and constructive proposals, and not, as experienced during the last rounds of consultations, if delegations maintain unspecified reservations with regard to certain issues. The Chair also encouraged delegations that have experienced only little support for proposals in earlier rounds of discussions, to explain the underlying problems that their proposals seek to address, and to come up with ideas that might garner more support among Members.

The Annotated Agenda states that the Chapter on Technical Standards, in the 20 March Note, provides disciplines with regard to transparency in the development and application of standards by non-governmental bodies, and prescribes that relevant international standards should be taken into account by Members formulating their own standards, unless they are ineffective or inappropriate for the fulfilment of national policy objectives.

On the language of paragraph 40, the Chair reports that doubts were raised in earlier discussions as to the ability of Member governments to ensure transparency in processes of, particularly international, non-governmental bodies, according to the Annotated Agenda.

In the Annotated Agenda, the Chair posed possible questions for discussion:

-- Does paragraph 40 address a concern that should be covered by the disciplines? Or, would it be sufficient to ensure transparency in the development of domestic technical standards, regardless of whether these are based on any voluntary standards developed either by domestic or international bodies? If the latter be the case, would any language beyond what is presently contained in paragraph 15 [the general paragraph on transparency in the 20 March Note], be needed?

-- If paragraph 40 was considered necessary, could doubts that were raised regarding the ability of Member governments to ensure transparency in processes of non-governmental bodies, be addressed by clarifying that this discipline applies only where governments are involved in the relevant processes?

The Annotated Agenda states that there have not been extensive discussions of paragraph 41. A proposal was made to clarify the term "international standards" by adding a footnote expressing that these refer to standards by international bodies whose membership is open to the relevant governmental and non-governmental bodies of at least all Members of the WTO, and would exclude organizations that did not follow the principle of "one country, one vote". Other delegations considered that a footnote as contained in GATS Article VI: 5 (b) would be preferable. (This last does not have the principle of "one country, one vote").

On this, the Chair posed possible questions for discussion on paragraph 41, "Do Members accept the principle expressed in paragraph 41, i. e. that international standards should be taken into account in the formulation of technical standards by Members? If yes, would the proposed clarifications of the nature of the bodies which develop international standards be useful? If not, should there be mention of any relationship between domestic standards formulated by Members, and international technical standards in the disciplines? If so, how could this relationship be expressed?"

In the Annotated Agenda, the Chair suggests the convening of two rounds of informal consultations. The first during the November cluster, addressing chapters V-VIII, Licensing Requirements; Licensing Procedures; Qualification Requirements; and Qualification Procedures. The second in December, possibly during the week of Senior Officials' meetings (14-18 December 2009), addressing the remaining chapters (I. Introduction; II. General Provisions; IV. Transparency; and XI. Institutional Provisions).

At the 5 and 6 October meeting of the Council on Trade in Services, members considered a Draft Annual Report of the Council, which included reports submitted to it from its subsidiary bodies for transmission to the General Council, including the WPDR, Working Party on GATS Rules (WPGR) and the Committee on Specific Commitments (CSC). The Annual Report was adopted at the 9 October CTS Special Session.

The draft WPDR Annual Report to the Council states that at the 26 June meeting, the Chair reported on her consultations with Members on future work. She reported that large gaps in ambition for the disciplines remained, and progress of the work was linked to market access negotiations. The draft also states that the Chair's revised draft was a basis for future work.

The draft WPDR report had indicated that "Delegations were open to a reality check on the disciplines as a complementary element to technical work." In the discussions on this on 5-6 October, India expressed concerns about this and asked that it be removed, according to a trade diplomat.

In the negotiations on subsidies under the WP on GATS Rules /WPGR), according to the CTS Annual Report, delegations continued their consideration of topics to be taken up in informal technical discussions as well as the communication from Hong Kong-China and Mexico on non-actionable subsidies (Job (07)/27).

Delegations also considered a Secretariat Note providing an "Overview of Subsidy Disciplines Relating to Trade in Services in Economic Integration Agreements" (S/WPGR/W/46/Add. 1 and Corr. 1). At the meeting of 30 March, an OECD representative presented a study on subsidies for services, in particular, the case of export subsidies.

The recent financial crisis and responses to it have re-emphasised the need to have more discussions on subsidies and their trade distorting effects, some delegations said at the informal meeting, according to a developing country trade diplomat.

The Report of the Committee on Specific Commitments (CSC) to the CTS states that three informal meetings were held since its 2008 Annual report. The committee addressed three items, the relationship between old and new commitments, scheduling issues, and classification issues (S/CSC/M/47, S/CSC/M/48 and S/CSC/M/49).

Further, substantive discussions were held on the relationship between existing commitments currently in force and new commitments that would result from the current negotiations. Issues addressed under this item included, (1) the incorporation methods and their implications, (2) the incorporation instrument, and (3) the verification exercise.

The meeting on 24 June agreed that the replacement method should be the working assumption to incorporate the results of the current market access negotiations into the GATS. The Secretariat was requested to prepare a compilation of past practice in terms of incorporation and verification.

On Scheduling Issues, the CSC report states that the committee briefly touched upon issues related to Economic Needs Tests (ENTs). The Secretariat was requested to update the 2001 background note on these tests (S/CSS/W/118), but the committee had yet to agree upon the scope of the updating.

Regarding Classification issues, a suggestion was made at the meeting of 24 June that the CSC discuss new service in various sectors based on the sectoral research undertaken by the Secretariat. It was agreed that the suggestion would be subject to the Chair's consultations.

The Annual Report of the Committee on Trade in Financial Services to the CTS (2009) states that the committee held a number of formal and informal meetings since its last report. The issues addressed by the committee included the acceptance of the Fifth Protocol to the GATS; technical issues; and recent developments in financial services trade.

As part of the committee's work on technical issues, the Chair held informal discussions on topics that included issues related to mode 1 and mode 2 commitments on financial services and micro-finance.

At its 24 June meeting, the report states, several suggestions for further work were made. The US put forward a proposal in a room document to discuss issues related to the liberalisation of trade in non-life insurance services.

South Africa announced its intention to submit a proposal to discuss certain aspects of the financial crisis and the policy response to it from the perspective of trade in financial services. Pakistan announced its intention to submit a proposal to discuss issues related to the development of e-banking. +