1. Introduction
The General Agreement on Trade in Services (GATS) is a highly incomplete contract.Footnote 1 The obligations enshrined therein were drafted in an ambiguous manner, whereas their scope has remained unclear in the absence of any substantial effort by the WTO legislative to clarify it after the Uruguay Round.Footnote 2 This is all the more striking in the case of GATS obligations relating to domestic regulation.Footnote 3 Such a constellation inevitably gives a more prominent role to the WTO adjudicating bodies. However, harnessing regulatory diversity in trade in services through adjudication is becoming increasingly challenging and controversial, as the US–Gambling sagaFootnote 4 amply demonstrated. Whereas coming to grips with origin-neutral measures that protect domestic interests was one of the objectives of the Uruguay Round, compliance with this duty becomes daunting due to the fact that trade-restrictive effects are typically generated by origin-neutral regulatory measures.
The condemnation by international courts of non-discriminatory domestic measures brings about varying reactions from domestic circles, as it challenges anachronistic views about sovereignty and state prerogatives. There may be several ways to properly address these criticisms nowadays.Footnote 5 Nevertheless, like any international court, the WTO adjudicator (the agent) meets the expectations of the WTO Members and indirectly their citizens (the principals)Footnote 6 and adequately completes the WTO contract if it chooses the path of consistency, legal coherence, detailed argumentation, and sophisticated judicial reasoning.Footnote 7 In so doing, it should properly take into account the balance established in the WTO Agreements ‘between the jurisdictional competences conceded by the Members to the WTO and the jurisdictional competences retained by the Members for themselves’.Footnote 8 Again, this does not alter the fact that constructive ambiguity, which has been the drafting method par excellence throughout the history of the GATT and the WTO,Footnote 9 leaves the WTO adjudicator with little guidance as to the collective preferences of the WTO Membership. Absent any precise guidance from the WTO legislative and executive branch, which the judicial branch could utilize, the identification of the common intention of Members regarding a given issue can only be based on judicial constructions, which inevitably cannot satisfy the interests of every single WTO Member.Footnote 10
Just as is the case with domestic courts, for the successful accomplishment of their delicate mission, the WTO adjudicating bodies cannot but use ‘proxies’. By proxies we understand those objective elements (e.g. legal principles, international standards, and so on) that can be used to enlighten the uninformed party (i.e. the judiciary) as to the intent of the regulating Member and thus ensure equality of competitive opportunities among the service suppliers active in a given market, while respecting that Member's regulatory autonomy. Notably in the case of origin-neutral measures, which purportedly aim to guarantee a certain level of quality in the delivery of services, the WTO adjudicator has to be particularly vigilant in the examination of the facts at issue and their legal characterization. It is exactly in such difficult cases that the use of proxies is warranted, as they typically serve to reach a reasonable conclusion, even when based on limited evidence.Footnote 11
The use of proxies allows for informed judgments and adds to the legitimacy and acceptability by the WTO Members of these judgments, simply because Members themselves have agreed on their validity and their important guiding function that they can overall play. The principles of necessity and transparency, together with the use of international standards, are the most important legal instruments or yardsticks that the WTO drafters bestowed upon the Panels and the Appellate Body to allow for the detection of regulatory arbitrariness and protectionist abuse. This emergence of proxies during the Uruguay Round was deemed necessary in view of Members' determination to shift their interest from non-discrimination to bringing some discipline to origin-neutral measures that may have deleterious effects on trade, as they could substantially undermine market access commitments. The obligations enclosed in several WTO agreements and notably the Agreement on Technical Barriers to Trade (TBT), the Agreement on Sanitary and Phytosanitary Measures (SPS), and the GATS fully manifest this determination.
Now that the WTO negotiations on domestic regulation in services have taken a critical turn, this paper aims to make a clear and thought-provoking case for the efficient incorporation of the principles of necessity and transparency into the forthcoming regulatory disciplines on domestic regulation. These principles constitute the most important ‘protectionism revelation’ proxies.Footnote 12 The paper argues for the inclusion in the final text of disciplines that give flesh to these proxies. This is necessary, not only for the sake of loyalty to their previous commitments, but also in order to improve the quality and trade-responsiveness of their domestic regulations in services. This is particularly relevant for the principle of necessity and the so-called necessity test which appears to be one of the most controversial issues under discussion in the current services negotiations.Footnote 13
Section 2 describes the framework within which Members negotiate the content of the rules on domestic regulation and the challenges that they face. Section 3 critically discusses the most recent Draft rules on domestic regulation, their novelties, and their shortcomings. Based on the wording of the GATS and the proposals advanced to date as to the most adequate protectionist revelation test, Section 4 puts forward a possible framework for such a test that is likely to attract considerable support among Members, whilst Section 5 explains why the application of a necessity test by the WTO adjudicator is inevitable. Last, but not least, Section 6 tackles a few practical issues, which, if not carefully considered, could render the forthcoming rules dead letter. Section 7 concludes.
2. Tackling non-discriminatory regulatory conduct in services at a global level – the long and winding road
Since regulatory intensity and diversity is the common theme in manifold services sectors, and border measures are essentially inapplicable in the case of trade in services, ‘within-the-border’ domestic regulations that are unduly burdensome are targeted as the most restrictive potential barriers to trade in services.Footnote 14 The WTO in general does not interfere with Members' regulatory sovereignty and this is expressed in no uncertain terms. In the GATS, this is made most obvious in the structure of the agreement: while measures limiting market access or violating national treatment are explicitly prohibited in sectors where commitments were undertaken unless scheduled, the right to maintain or introduce origin-neutral measures aimed at quality assurance is upheld and Members are not required to eliminate such measures. Nevertheless, economic theory suggests – and practice has shown – that Members always have a short-term incentive to ‘cheat’ while their trading partners comply with their WTO obligations.Footnote 15 Such measures, because of the a priori WTO deference towards regulatory autonomy, are the ‘ideal’ gateway for a Member to substantiate its intention to circumvent the WTO obligations. Therefore, rules governing such measures have to be agreed on if market access guaranteed through specific commitments is to be effective.
In the Uruguay Round, the GATS drafters failed to agree on the content of an instrument that would allow the minimization of the negative impact on trade of regulatory conduct. At the end of that Round, negotiators fell short of concluding the legal framework in four areas of rulemaking, that is domestic regulation, emergency safeguards, government procurement, and subsidies. These areas constitute the ‘built-in’ agenda for the ongoing services negotiations that began in early 2000.
As to domestic regulation, notably Article VI:4 GATS incorporates a legal mandate by requiring that Members adopt the necessary rules (so-called ‘disciplines’) that would ensure measures relating to qualification requirements and procedures (QRP), licensing requirements and procedures (LRP), and technical standards (TS) are, inter alia, (a) based on objective and transparent criteria, (b) not more burdensome than necessary to ensure the quality of the service, and (c) with respect to procedures, not in themselves a restriction on the supply of a given service. Priority was given to professional services and the Working Party on Professional Services (WPPS) was thereby established. The WPPS completed its task by developing disciplines on domestic regulation in the accountancy sector in December 1998.Footnote 16 In May 1999, the Council for Trade in Services (CTS) established the Working Party on Domestic Regulation (WPDR), which assumed the work of WPPS and is charged with the development of meaningful and coherent disciplines on domestic regulation, which would be horizontally applicable (i.e. across services sectors). Through this legal mandate, Members are required to restore the balance between the three prongs leading to effective market access (i.e. GATS Articles XVI, XVII, and VI) and establish regulatory disciplines for measures relating to QRP, LRP, and TS, including the procedures for enforcing these standards (‘the covered measures’).
Domestic regulation is the only area of rulemaking where tangible progress has been witnessed during the ongoing round of services negotiations. Again, this is not a coincidence, but an informed decision by Members to advance this agenda item even with a rather apparent lack of enthusiasm for achieving progress in the other negotiating areas at present.Footnote 17 Absent border barriers in services trade, the effectiveness of the rules on domestic regulation in services at the global level determines the effectiveness of the GATS overall.
It also bears mention that, in their preferential trade agreements (PTAs), most Members usually entrust the concretization of rules on domestic regulation to the WTO. In the overwhelming majority of PTAs, even if liberalization in other areas may be substantial,Footnote 18 the negotiating parties find it intractable to go beyond Article VI GATS when bilateral discussions focus on domestic regulation. In this case, after essentially reproducing the wording of Article VI GATS in their bilateral accord, they incorporate a clause which requires them to revise their discipline on domestic regulation in services, based on the results of the negotiations under the aegis of the WPDR. PTAs such as those between the United States and Singapore,Footnote 19 the United States and Chile,Footnote 20 Australia and Singapore,Footnote 21 or the European Free Trade Association (EFTA) and ChileFootnote 22 highlight this trend.Footnote 23 The semantics are clear: Members recognized that collective action by means of multilateral cooperation was the only avenue suitable to address the issues raised in an efficient and least trade-distorting manner. In an era of increasing preferentialism in trade relations, this explicit, ‘against-the-preferential-odds’ delegation at the multilateral level challenges conventional wisdom about the superiority of PTAs in terms of rule-making and instead demonstrates the limits of preferential solutions in several areas. It further confirms the extant attractiveness of the WTO as the only forum that can achieve the application of certain rules across the board.
At the Hong Kong Ministerial Conference in December 2005, Members pledged to agree on a text that would incorporate concrete regulatory disciplines on non-discriminatory non-quantitative domestic regulations before the end of the current negotiating round.Footnote 24 Members currently negotiate within the WPDR based on a draft text and subsequent revisions prepared by the WPDR Chair and circulated in the form of room documents. This secrecy is just another element reminiscent of the delicate phase that negotiations on domestic regulation have entered. Regulatory capture is just around the corner and domestic services industries do not seem to have realized the full potential of the forthcoming disciplines.
The importance and ground-breaking nature of the forthcoming disciplines is obvious: adherence to these disciplines when regulating the supply of services through origin-neutral measures would reflect the minimum level of protection and transparency from which service suppliers benefit globally.Footnote 25 Once the forthcoming disciplines are adopted, service suppliers will be benefiting from rights that were not previously available to them – sometimes not even in their home countries. The creation of these disciplines constitutes a tentative endeavour by WTO Members to move away from the traditional negative integration approach and achieve positive integration, at least as regards those measures affecting trade in services which relate to qualifications, licensing, and technical standards.
Additionally, post-Doha the completion of the Article VI:4 mandate will bring about national regulatory audits to ensure compliance with the ensuing regulatory disciplines. This ‘screening’ exercise will facilitate trade by inducing domestic regulatory reforms at all levels of government and by improving regulatory quality. It will also promote informal forms of regulatory cooperation among domestic regulators and lead to minimum harmonization of domestic regulations, which aim to ensure the quality of the services supplied. In the medium term, Members will be identifying similarities between their regulatory systems in certain services sectors and be aware of the costs of maintaining a rigid stance towards foreign suppliers.
Thus, the GATS promotes a managed approximation of laws which will generate strong and justified pressures for mutual recognition agreements (MRAs).Footnote 26 The repercussions are paramount: this regulatory programme under construction at the global level will be infused into domestic counterparts. The adoption of procedural and substantive norms at the global level will increasingly constrain the margin of manoeuvre of domestic regulators when regulating domestically. The latter will no longer be merely national actors, but will have to assume an additional role as agents of the GATS rules on domestic regulation to ensure compliance and uniform application of these rules in all Members.Footnote 27 This global regime is aimed to protect the interests and concerns of other Members and foreign service suppliers by ensuring the compliance of domestic regulators with these globally applicable rules. In this respect, ensuring effective enforcement at the domestic level becomes crucial, as explained in Section 6.
3. The draft disciplines on domestic regulationFootnote 28
Members' sovereign prerogative to regulate and to introduce new regulations on the supply of services to pursue legitimate objectives is explicitly recognized in the GATS Preamble and in paragraph 3 of the draft disciplines on domestic regulation.Footnote 29 The disciplines are neutral as to the regulatory approach chosen, leaving ample scope for domestic regulators. Nevertheless, regulatory discretion is not unlimited; rather, it is circumscribed by Article VI:4, which considers the creation of effective, enforceable, and operationally useful regulatory disciplines, an apposite remedy against Members' incentives to circumvent multilateral obligations. Through the adoption of regulatory disciplines pursuant to Article VI:4, the GATS essentially aims to facilitate drawing the line of equilibrium between multilateral interest in progressive liberalization of trade in services and each Member's interest in preserving its regulatory autonomy.Footnote 30
The disciplines constitute the first serious attempt, as well as a unique opportunity, to concretize the primary GATS objective and to achieve it in certain categories of domestic regulations relating to qualifications, licensing, and technical standards. In what follows, we will proceed to a presentation of the most important aspects of the proposed disciplines on domestic regulation. In the second part of this section, we will attempt a first critical assessment of the disciplines and suggest several effective ways to improve the proposed disciplines on domestic regulation. In these efforts, we draw several lessons from the European Union's recent initiative for better regulation and simplification of procedures in legislating the internal market of services, i.e. the infamous Services Directive.Footnote 31 Finally, we conclude this section with a critical evaluation of the development provisions of the disciplines.
3.1 An analysis of the draft disciplines on domestic regulation – focus on improving procedures
The Draft incorporates regulatory disciplines that aim to enhance the objectivity and transparency of domestic measures relating to licensing, qualifications, and standards and ensure observance of contemporary dictates of due process in the domestic regulatory making. Its scope is limited to measures that affect trade in services in committed sectors.Footnote 32 Additionally, it attempts to draw the line between Article VI measures and measures falling under Articles XVI and XVII. While the latter escape the purview of the disciplines, the manner in which Members administer (or apply)Footnote 33 these measures would still be subject to the disciplines.Footnote 34 Furthermore, the Draft requires that the covered measures be pre-established, based on objective and transparent criteria, and relevant to the supply of the service to which they apply. This provision hints at the overall objective of the draft disciplines to limit the otherwise broad regulatory authority of Members, avert regulatory arbitrariness and unnecessary bureaucracy, and ensure the creation or preservation of a stable, predictable and trade-friendly regulatory environment for service suppliers.
Depending on the category of measures at issue, the level of detail varies. The overall structure and content of the Draft reveals Members' willingness to focus on the development and adoption of a workable set of global rules relating to procedural issues when it comes to domestic regulations affecting trade in services. The procedural novelties in the disciplines are significant and accord with the overall contemporary trend of growing engagement with good governance principles, such as transparency, participation, reasoned decision, availability of legal remedies, and review.Footnote 35 The procedural disciplines of the Draft are the most refined and call for the simplification and streamlining of the applicable procedures to ensure that they do not constitute in themselves a restriction on the supply of services.Footnote 36 In this sense, the draft disciplines elaborate on the procedural obligations set out in Articles III and VI GATS.
3.1.1 Procedural and regulatory transparency
The Draft contains fairly detailed provisions that streamline and guarantee transparent application processes. Furthermore, the Draft requires that Members publish, or make otherwise publicly available, detailed information regarding the covered measures. This information will, inter alia, relate to the procedures to be followed or the timeframe for processing of applications, but also to the legal content of the measures, such as licensing or qualification criteria. Such information need not be notified to the WTO, but only published promptly,Footnote 37 through printed or electronic means. The Draft foresees extending to any service supplier the use of enquiry and contact points created pursuant to Articles III and IV GATS in the aftermath of the Uruguay Round, and thus detailed information could flow through these points. To date, these government-to-government information points have barely been used, as those who are the most interested in receiving this type of information, that is the traders, do not have access to them.
The Draft, inter alia, urges countries to provide a single point of contact or competent authority to deal with a supplier's application (one-stop-shops), process applications, and administer application procedures and examinations in an objective manner, and to ensure the reasonableness of fees requested. In case an application for a licence or for assessment and verification of qualifications is dismissed, the authorities are required to inform the applicant in writing and without undue delay of this dismissal and the timeframe for an appeal against this decision. If requested to do so, the authorities have to explain the reasons that led to the dismissal of the application, and a service supplier should in principle be able to ascertain the reasons for a decision that has a negative affect.Footnote 38 This give-reason requirement is an essential good-governance obligation and diminishes authorities' leeway for making arbitrary or unreasonable decisions.Footnote 39
The amalgam of the transparency provisions contained in the forthcoming regulatory disciplines constitutes a critical building block underpinning the further liberalization of trade in services, as these provisions require regulatory reforms and help identify trade-restrictive measures. The disciplines will also lead to significant positive integration in the regulation of the covered measures and guarantee minimum levels of legal certainty and due process.
3.1.2 Licensing and qualification requirements
Regarding licensing requirements, the disciplines merely call upon Members to reflect on the need for using non-discriminatory residency requirements for licensing and the existence of other instruments which could attain the public policy objective pursued. This soft wording does not appear in the case of qualification requirements. Residency requirements as part of qualification requirements are treated more strictly, as they are ruled out if they are a precondition for the assessment and verification of the competence of a given service supplier, unless they are scheduled as limitations to the national treatment obligation.Footnote 40 In more general terms, residency requirements have been discussed intensively first within the WPPS and later within the WPDR. Discussions suggest that there is no common rule of thumb as to when residency requirements can be regarded as national treatment limitations and thus need to be scheduled. The fact that rules on non-discriminatory residency requirements are included in the Draft is welcome, as it will greatly contribute to the elimination of one of the major barriers to international trade in services which service suppliers currently encounter.
Furthermore, the Draft is more detailed with regard to qualification requirements and calls for fair and flexible assessment of qualifications and professional experience. The disciplines also generalize Article VI:6 GATS to apply across services sectors. The latter provision, as it stands, applies only to professional services in which commitments were undertaken. In conducting this comparative examination of qualifications and experience, the competent authorities should satisfy themselves that the qualifications, including diplomas and practical training, are at least equivalent to those possessed by the national suppliers.Footnote 41 Equivalence is not predicated upon the similarity of the different elements, but upon their comparability. For the sake of comparison, Article VI:6 in its current form has much more limited scope in that it does not explicitly impose any obligation other than the verification of competences, such as establishing the equivalence between home country and host country requirements.Footnote 42 This can be one of the reasons for the current poor record of compliance with this obligation.
In the Draft, a prominent role is given to professional experience acquired as a complement to diplomas and other educational qualifications, as the competent authorities are required to take due consideration thereof when they verify the competence of the applicants. Thus, the Draft takes a pragmatic, business-friendly stance towards economic reality and mobility of human capital. The proposed disciplines go so far as to offer the possibility of fulfilling any additional educational requirements in the home country or in a third country.
3.1.3 Licensing and qualification procedures
Simplifying procedures relating to granting a licence or evaluating qualifications is one of the main objectives of the proposed disciplines, which endorse principles and rules found in modern administrative states in several instances. Complex procedures and manifold domestic authorities reviewing a single application by a service supplier usually dissuade mobility and thus hinder trade in services. The European Union (EU) experience is revealing:Footnote 43 Within its Lisbon Strategy, it undertook several steps to simplify and improve existing legislation (acquis communautaire), to better design new regulation, and to reduce administrative and other burdens by regularly contacting regulatory impact assessment.Footnote 44 The EU ‘Better Regulation Initiative’ is considered as central in completing the internal market.Footnote 45
The Draft requires that the competent authorities enforcing licensing procedures be impartial, operationally independent of, and not accountable to any supplier of the services for which the licence is warranted. Due process and good governance are the principles that inform the disciplines relating to licensing and qualification procedures. The Draft advocates a streamlining and standardization of these procedures and the diminution of regulatory arbitrariness and unnecessary red tape and bureaucracy to the benefit of all service suppliers seeking to supply their services in foreign markets. Creating one-stop-shops and clearly defining the stages from the moment of application to the moment of administrative decision by the competent authority are two important requirements of the disciplines.
3.1.4 Technical standards
With respect to technical standards, the Draft clarifies that such standards also include the procedures relating to the enforcement of these standards. Furthermore, it requires that Members take into account relevant international standards, unless these would not achieve the national policy objective(s) pursued in an effective and appropriate manner. This provision echoes Article 2.4 TBT, the important difference being that under the TBT provision Members have an obligation to use such standards as a basis for their technical regulations. This provision is likely to replace Article VI:5(b) once the disciplines on domestic regulation are adopted.
Additionally, the Draft encourages Members to harness the behaviour of non-governmental bodies when they develop and apply domestic or international standards, thereby recognizing the increasingly important role that non-governmental standard-setting bodies can play in hindering access to the supply of a given service, even if the standards they develop are mostly of a voluntary nature.
3.1.5 Institutional perspectives
The Draft equally contains institutional provisions. A new Committee on Domestic Regulation is thereby created that will be responsible, not only for supervising the implementation of the prospective disciplines, but also for ensuring adherence to the other obligations of Article VI.Footnote 46 As a ‘double’ guarantee, the Council for Trade in Services shall also review the operation of the disciplines if one Member so requests.
3.2 Critical assessment of the disciplines and scope for improvement
3.2.1 Procedural and regulatory transparency
Transparency is a significant ‘protectionism revelation’ proxy. Enhanced transparency is an object and purpose not only of the GATS, but of the WTO in general.Footnote 47 WPDR discussions on transparency have been intense and effective, since several countries consider that this is one of the areas where rules applicable across services sectors would seem sensible.Footnote 48
Considering the potential administrative burden involved, the draft disciplines use hortatory, best-endeavour language to initially encourage Members to publish GATS Article VI:4-relevant measures in advance to enable service suppliers, both foreign and domestic, to comment. Additionally, Members are encouraged to address collectively in writing the substance of these comments.
Contrary to paragraph 6 of the draft accountancy disciplines, this ‘soft’ requirement for prior comment procedures concerns all measures of general application, and does not distinguish between measures that significantly affect trade in services and measures that do not. Prior notice and comment procedures applied at all levels of regulatory authority are conducive to the internationalization of decision-making and increase the legitimacy, accountability, representativeness, and – ultimately – acceptance of the proposed measures by the service suppliers.Footnote 49 While allowing foreigners to play a role in domestic regulatory making goes against conventional wisdom about sovereignty and may cause political tensions domestically, positive integration certainly presupposes a partial transfer of sovereign regulatory powers to a higher level of governance. Such a constellation may lead to an increase in transaction costs in the short run, as it requires that domestic authorities ensure the proper functioning of notice and comment procedures. However, transaction costs would most likely diminish in the medium to long run, as the risk of litigation will also become less likely. This is so because prior notice and comment procedures can function as early warning systems and as conflict avoidance techniques because foreign suppliers can raise their objections at the point when any domestic regulation is drafted. Thus regulatory sovereignty should be understood as embedded within a new concept of cooperative sovereignty and responsibility in a post-national settingFootnote 50 that strives for a closer form of positive integration and minimum harmonization, which do give voice to all those affected by administrative decisions taken at all levels of governance.
Such procedures have been implemented at the national level in several countries and have improved the function of domestic regulatory processes. The EU experience of introducing and gradually reinforcing a ‘culture of consultation and dialogue’Footnote 51 is instructive in this respect.Footnote 52 Ensuring the coherence and consistency of the procedures that precede the adoption of legislation leads to the more active involvement of stakeholders and to more optimal regulatory results.Footnote 53 This is another example of the inspiration that international law draws from national jurisdictions.Footnote 54 The former borrows instruments from the toolbox of the domestic regulatory frameworks in place and transforms – or better, adjusts – them before crystallizing them into the form of an international obligation (in this case an obligation to offer procedural participation rights to foreign constituents and trading partners).Footnote 55 More generally, participation in international institutions can improve the functioning of domestic democracy by increasing openness, accountability, and transparency.Footnote 56
However, the lack of a provision in the Draft equivalent to Article 2.5 TBT and paragraph 5 of the draft accountancy disciplines requiring that Members, upon request, explain the rationale behind domestic measures and their connection to a legitimate objective weakens the ‘bite’ of the transparency provisions included in the draft disciplines. In the categories of measures covered by the disciplines where the scope of regulatory discretion is virtually unlimited, such a provision would significantly facilitate the distinction between necessary and unnecessary impediments to services trade. It would also facilitate the settlement of disputes, as it would shift the burden of proof to the regulating (i.e. responding) party. Even so, informal requests will in all likelihood be directed to the host countries when complaints are filed domestically, leading to consultations and, if necessary, to recourse to the dispute settlement proceedings.
3.2.2 Licensing and qualification requirements
As underscored earlier, the Draft merely calls upon Members to reflect on the need for using non-discriminatory residency requirements for licensing. Residency requirements are, however, treated more strictly when they relate to qualification requirements, as they are ruled out if they are a precondition for the assessment and verification of the competence of a given service supplier unless they are scheduled as limitations to the national treatment obligation.Footnote 57
This obligation, as it is drafted now in the section of the Draft relating to qualification requirements, begs the question of whether the use or existence of residency requirements overall is practically precluded. In addition, it is not clear whether residency can be a prerequisite for sitting examinations. In the draft accountancy disciplines, the text states in no uncertain terms that this is not allowed.Footnote 58 It would be helpful if Members were to clarify this provision to also outlaw any residency requirements for sitting examinations. For instance, the EU Services Directive is clearer in this respect in considering as prohibited any requirement that service suppliers be resident within the territory.Footnote 59
With regard to equivalence of qualifications, the Draft essentially excludes the possibility for domestic authorities to request full requalification of service suppliers, seeking the recognition of equivalence of their qualifications. Thus, the Draft goes far beyond the highly unsatisfactory provision relating to equivalence contained in paragraph 19 of the draft accountancy disciplines and thus demonstrates the level of maturity reached within the negotiating group (the WPPS and later the WPDR) dealing with the Article VI:4 negotiations since the end of the Uruguay Round. According to the Draft, professional experience and other qualifications should be evaluated and compensate for a possible deficiency of academic qualifications. This liberal approach should be applauded. Nevertheless, the Draft does not echo the far-reaching obligations contained in Articles 4.1 SPS or 2.7 TBT according to which (albeit in the TBT in a somewhat smoother manner) Members are required to accept the measures of SPS or TBT measures of other Members as being equivalent to their own, even if they differ. Pursuant to Article 4.1 SPS, the importing Member has to accept such equivalence if the exporting Member can demonstrate that the attainment of the desired level of protection domestically is ascertained. Article 2.7 TBT, however, suggests that ‘positive consideration’ shall be given to accepting equivalence, unless the importing Member believes that such measures do not adequately attain the objectives of their own measures. In this case, it appears that the burden of proof will be on (or at least easily shift to) the importing Member. Members may want to consider these TBT and SPS provisions in the specific case of technical standards.
As a last point, it is worth mentioning that the case for horizontal – as opposed to sectoral – disciplines on domestic regulation is even stronger when it comes to qualification requirements and procedures. In the EU context, early sectoral attempts failed to achieve the desired liberalization and to enhance mobility of service suppliers. This changed with the adoption of a general system for the recognition of qualifications around the early 90s.Footnote 60
3.2.3 Licensing and qualification procedures
A significant novelty of the draft is the creation of one-stop-shops. This requirement will facilitate mobility of service suppliers, especially in federal countries where competences were earlier distributed along the various levels of government. Added value is also evident in those cases where the point of contact is also the authority directly competent to issue the documents necessary for the supplier to access a service activity.
The provisions of the Draft on licensing and qualification procedures build on the existing transparency obligations within the GATS as well as on Article VI:2. According to the Draft, the competent authorities enforcing the licensing procedures are explicitly required to be impartial, operationally independent of, and not accountable to any supplier of the services for which the licence is warranted. Surprisingly, however, this obligation does not apply to the domestic authorities in charge of verifying and assessing qualifications. This omission is inexplicable and creates unnecessary confusion regarding the motives of the drafters. Operational impartiality and independence of the competent domestic authorities administering domestic qualification procedures seem to be equally essential, as in the case of licensing procedures. Consider, for instance, a committee, composed exclusively of domestic lawyers, verifying qualifications of lawyers. The danger of prejudiced and negative decisions appears to be relatively high.Footnote 61 In this case, one would expect that other experts such as judges, prosecutors, and civil servants from the Ministry of Justice would partake in such verification procedures.
Another reason to criticize this imbalance is the nuanced definition of qualifications vis-à-vis licensing adopted in the aftermath of the Uruguay Round. Licensing requirements are defined as ‘substantive requirements, other than qualification requirements’. Hence a requirement relates to licensing only to the extent that it does not relate to qualifications. The aforementioned imbalance would create an incentive for the responding party to ‘name’ all requirements as being qualifications rather than licensing requirements to avoid the administrative burden of an obligation to create impartial and independent authorities. Recall here that while juridical persons are subject to licensing requirements only, natural persons can be subject to both licensing and qualifications requirements. Therefore, the latter may be subject to unjustifiable restrictions, which could potentially dissuade them from offering their services. This can potentially create an unjustified imbalance to the detriment of natural persons.
Of course, a possible rationale behind the requirement of establishing impartial and operationally independent authorities relates to the legacy of regulating network industries where typically a licence is warranted in order to be able to supply a given service. Even so, however, this fails to explain why authorities verifying qualifications should not be equally required to be impartial and operationally independent. As it is, the Draft unduly confounds terms and situations and leaves plenty of room for misinterpretations and sophisticated legalistic creativity that can have harmful effects on the expansion of trade in services. Members would be well-advised here to opt for simplification and levelling of the playing field as regards qualifications versus licensing. An additional element to consider is the utility of having different definitions and categorizations for licensing and qualifications. For the sake of comparison, the EU Services Directive avoids leaving too much room for misleading interpretations by adopting a sweeping definition of the terms ‘requirement’ and ‘authorization scheme’.Footnote 62
3.2.4 Technical standards
Regarding technical standards, the Draft echoes Article 2.4 TBT, but differs from it in that Members are required to take into account (rather than use) relevant international standards (or parts thereof) as a basis for their technical standards, unless they constitute ineffective or inappropriate means for achieving the public policy objective pursued. GATS negotiators are wary of accepting an obligation which would be as strong as the one contained in Article 2.4 TBT. This cautious approach seems to have certain advantages, notably when one takes into account the lack of representativeness and thus legitimacy that may characterize the processes that lead to the adoption of certain international standards. On the other hand, however, this stance creates a precarious vicious circle in that Members do not have any incentive to partake seriously and actively in international standard-setting efforts.
In EC–Sardines, the Appellate Body spelt out the scope of Article 2.4 TBT. First, it agreed with the Panel that a standard is relevant when ‘it has a bearing upon, relates to or is pertinent to’ the contested measure. It further found that a given measure cannot be considered to be using an international standard as a basis if the content of that measure contradicts it. Rather, the relevant international standard should be used ‘as the principal constituent or fundamental principle for the purpose of enacting the domestic measure, alluding to a very strong and close relationship between the two’.Footnote 63 Furthermore, the Appellate Body underscored that it is for the complainant to adduce evidence demonstrating the effectiveness and appropriateness of the international standard at issue.Footnote 64 This position is counterintuitive: the Appellate Body was hard-pressed in its attempt to reject the argument that the complainant is the informed party in such a case and therefore better-suited to adduce evidence against the appropriateness of a given international standard. This preference for the wording adopted in TBT over that adopted in SPS is yet another element demonstrating Members' willingness to make the task of the complaining party in establishing a prima facie case even more difficult.
Additionally, the Draft incorporates a best-effort provision encouraging Members to ensure maximum transparency when non-governmental bodies develop and apply domestic or international standards. Similar provisions, albeit with a stronger ‘bite’, are included in Articles 3.1 TBT and 13 SPS. Non-governmental bodies can play a decisive role, as several services sectors are self-regulated by non-governmental bodies. Delegation of public power to private parties upgrades the role of the latter regarding market access and supply of a given service. Therefore, close monitoring and transparency of their activities can allow for objective and accelerated entry into a profession or industry, while preserving and enhancing the desired level of quality of the service supplied. Members could be even bolder in this regard and adopt principles that non-governmental bodies should abide by. For this, they could get inspiration from the TBT Code of Good Practice.
This provision on the development of standards alludes to the ever-increasing role of non-state actors in this field. The fact that such standards were mostly of a voluntary nature led many to believe that the impact of these activities is minimal. However, notably, after the adoption of the TBT and SPS Agreements, which create an obligation for WTO Members to use international standards and a presumption of WTO-consistency for those Members adopting such standards, standard-setting activities by non-governmental bodies have taken centre stage. While non-binding, standardization processes resemble lawmaking. As their role in determining the very access to markets becomes more prominent as a result of globalised markets and the concomitant collapse of the rigid public versus private divide,Footnote 65 demands for improvements in the efficiency, transparency, legitimacy, and accountability of standardization bodies have grown in prominence.Footnote 66
3.2.5 Institutional perspectives
The Draft creates a Committee on Domestic Regulation which will be supervising the implementation of the disciplines. Nevertheless, a serious weakness of the institutional part of the Draft is that it neither requires nor formalizes close cooperation or mutual assistance between national regulators of services industries. For several categories of service suppliers, establishing a type of cooperation (even if only loose, initially) would allow for more effective supervision of service activities globally. For instance, assessment of qualifications could be undertaken more efficiently if a type of network was in place that would allow communication and exchange of information between the authority in charge of assessing qualifications in the host country and the authority that emitted the document certifying qualifications in the home country. In this respect, the WTO Secretariat could maintain a repository of the domestic competent authorities for all the subjects relating to licensing, qualifications, or technical standards. Members would be required to notify such information to the Secretariat, which would store all this information electronically to allow for expedited identification of the relevant counterparts in other Members.
3.3 The development dimension of the draft disciplines on domestic regulation – missing another opportunity?
The Draft includes several development-friendly provisions such as phased-in periods for developing countries, the duration of which remains to be decided, and the obligation to provide technical assistance to developing countries and LDCs. Both the administrative burden and the lack of the necessary regulatory capacities make such provisions indispensable. However, it is doubtful whether exempting the LDCs from applying the rules on domestic regulation described above constitutes an approach which is commensurate with the developmental needs of these countries and conducive to the development of their service industries.Footnote 67 Instead of creating concrete incentives for these countries to improve their regulatory and institutional frameworks governing the supply of services domestically and for developed countries to assist in this effort, the Draft merely adopts a purportedly respectful but static stance that will have dubious benefits in the long run.
The development provisions of the Draft recognize the importance of international standard-setting for increased market access especially in developed-country markets, technology transfer, and increased trade. This is not unrelated to the experience from the implementation of the TBT and SPS Agreements. Thus, the Draft requires that developed country Members, when they design their technical assistance programmes directed towards developing countries and LDCs, assist in the establishment of technical standards by such countries, but also that they facilitate the participation of these Members in the relevant international standard-setting organizations. Thus, à la Articles 11.2 TBT and 10.4 SPS, the Draft alludes to the usefulness of well-intentioned standardization that reflects the interests and views of a broader group of countries and thus can be considered as sufficiently legitimate.
The previous discussion reveals once more the close links of the adoption of the Article VI:4 regulatory disciplines with the expansion of trade through mode 4. Qualification or licensing requirements and procedures that ensure objectivity, transparency, and impartiality; promote administrative simplification and the expedited clearance of applications; and that prevent fees being set at prohibitive levels constitute essential prerequisites for any further increase in international labour flows.Footnote 68 However, as emphasized earlier, there are several instances where the Draft appears to offer conditions under licensing procedures that are more favourable than qualification procedures. For instance, while in both cases Members are encouraged to accept certified copies instead of original documents,Footnote 69 the Draft recognizes the efficiency of allowing electronic applications only for those relating to licensing. This red-tape-avoidance requirement is equally important in the case of verification of qualifications and therefore should also apply to domestic procedures relating to the evaluation of qualifications. Currently, several countries are in the process of further simplifying their legislation and reducing unnecessary bureaucracy. For instance, the EU has pursued a strategy that aims at the identification of overlaps, gaps, inconsistencies, obsolete measures, and the potential for reducing regulatory burdens, regardless of whether applications of natural or legal persons are at stake.Footnote 70 While mainly driven by domestic forces, such initiatives have a positive spillover on foreign suppliers seeking access to those markets.
Overall, the draft disciplines on domestic regulation are a critical, tentative step towards ‘good’ regulation, as they promote good governance. The Draft attempts to codify in a single text the proposals that have been submitted by Members. Nevertheless, it seems not to be taking account of the most ambitious proposals submitted and this has raised considerable controversy within the WPDR as to whether the text is balanced overall.Footnote 71 The Draft can certainly be improved along the lines we suggested earlier. On the other hand, the Draft can be development-friendly in a more active manner. Whereas implementation of the draft disciplines will be a critical challenge for developing countries, regulatory cooperation and information exchange as well as technical assistance at an interstate level becomes paramount, notably when implementation is compromised by information deficits, ignorance, or collective action problems.Footnote 72 A streamlined approach is all the more necessary for those countries whose constitutional and administrative law tradition may not include this type of sophisticated procedure and this level of openness.
4. A proposal for a necessity test applicable to all services sectors
In the case of origin-neutral measures, the quest for a balance between the competing rights of expanding multilateral trade in services, on the one hand, and avoiding any circumvention of market access commitments and GATS substantive obligations, on the other, can only be successful if proxies are developed which the WTO adjudicator can use.Footnote 73 In the GATS, vernacular so-called ‘necessity tests’ have long been used in other WTO agreements as the prevailing benchmarks for identifying and disciplining unduly burdensome or protectionist regulatory behavior.Footnote 74 Because Article VI:4 seeks the creation of disciplines ensuring that the covered measures do not constitute unnecessary barriers to trade in services, the creation of a horizontal necessity test lies at the heart of this mandate.Footnote 75 Thus, a textual interpretation of the mandate contemplated by Article VI:4 already hints at the need to agree on what would be unnecessarily restrictive of trade in services; in other words, a necessity test. Such a test would allow the attenuation of the most egregious requirements and procedures entrenched in domestic regulatory regimes and, in the medium-to-long term, would lead to extensive recognition of foreign qualifications, licensing, or standards, since domestic authorities will be called upon to compare the equivalence of foreign requirements or processes.Footnote 76
To avoid judicial activismFootnote 77 and interpretive loans from other WTO agreements which may not be apposite in the context of services, it is submitted that Members should consider the adoption of a horizontally applicable necessity test that would be clear, effective, and operationally useful. Surely, such a test would include several concepts that accommodate the domestic demands for regulatory flexibility. While constructive ambiguity has traditionally been deemed beneficial and allowed agreement to be reached among Members,Footnote 78 in this case, it can jeopardize the long-term viability of the regulatory disciplines and therefore intensive endeavours to clarify ex ante the content of necessity in services can be essential.
It is argued that a necessity test drafted along the following lines could enjoy a ‘critical mass’ of support:
In sectors where specific commitments are undertaken, Members shall ensure that measures relating to qualification requirements and procedures, licensing requirements and procedures and technical standards are not prepared, adopted, applied, or administered with a view to creating unnecessary barriers to trade in services. For this purpose, Members shall ensure that these measures are (a) based on objective and transparent criteria, such as competence and the ability to supply a service; (b) not more trade-restrictive than necessary to fulfil a national policy objective,Footnote * including ensuring the quality of the service; and (c) in the case of licensing and qualification procedures, not in themselves a restriction on the supply of the service.
Members shall endeavour to ensure that measures relating to qualification requirements and procedures, licensing requirements and procedures and technical standards in sectors where commitments have not been undertaken do not constitute unnecessary barriers to trade in services.
The proposed test adopts an open-ended list of legitimate objectives, including ensuring the quality of the service delivered, which a Member may want to pursue. In this test, the covered measures should not aim to unduly hamper trade in services, starting from the stage at which they are prepared and up to the stage of application or administration. Nevertheless, contrary to the necessity test adopted in the draft accountancy disciplines,Footnote 79 the proposed necessity test, which is meant to be generally applicable, does not cover the effects of the covered measures.
Traditionally, GATT/WTO law is not concerned with trade effects in that no evidence on this score is required for a violation of a WTO provision to be established.Footnote 80 Furthermore, the ‘aims and effects’ doctrine that was developed in the GATT yearsFootnote 81 was not endorsed by the Appellate Body in the WTO years, as exemplified by US–Gasoline and EC–Bananas III. Instead, the WTO judiciary has advanced the concept of ‘protective application’, which focuses on the design, architecture, and revealing structure of a measure.Footnote 82 In the proposed necessity test, a proper identification of protectionist intent (‘with a view to’) would also warrant a thorough scrutiny of the design, architecture, and structure of the measure.
In the proposed necessity test, the quest for alternatives is intentionally ‘managed’ to allow for a certain room for manoeuvre for the regulators and allay their concern of conceding regulatory autonomy.Footnote 83 Indeed, the proposed interpretive footnote aims to qualify or narrow the pool of measures that can be regarded as alternatives and combines previous WTO rulings on necessity, notably the Appellate Body's findings in EC – Asbestos,Footnote 84US – Gambling,Footnote 85 and Brazil – Tyres.Footnote 86 It bears mention that the inclusion of this necessity test would not affect the development-friendly provisions described above, such as phase-in periods for the application of the disciplines to developing countries or the exemption for LDCs. As noted earlier, however, the forthcoming disciplines, and the application of the principle of necessity in particular, can lead to the improvement of the efficiency and trade-responsiveness of any domestic regulatory framework.
In addition, Members could contemplate the possibility of adopting an interpretive rule, suggesting that the existence of doubt concerning the availability or effectiveness of a less-trade-restrictive and reasonably available measure should benefit the respondent in accordance with the maxim in dubio mitius. Although such a statement seems already to be reflected in the WTO case-law, Members, especially those which regard the inclusion of a necessity test with suspicion, may consider as a relief the introduction of such a rule to the forthcoming disciplines.
As it stands, the Draft is unbalanced in that it focuses mainly on the procedural aspects of the Article VI:4 mandate, but it neglects the equally important and clear substantive aspect of the mandate enshrined in Article VI:4(b) GATS. Hence, not incorporating a necessity test in the future disciplines under Article VI:4 would go against the letter and spirit of the Members' legal mandate.Footnote 87 More crucially, however, it would cast doubt on the effective enforcement of the prospective disciplines in the future. In the absence of a necessity test, the WTO adjudicator, when called upon to rule over the consistency of a domestic regulation measure with the disciplines, could use its own benchmarks or a sort of test based on the principle of necessity, since the latter principle will be creeping into the disciplines anyway, as we discuss in the next section. This, nonetheless, would mean that Members have missed the unique opportunity to design themselves a necessity test that would encompass concepts and elements that allow for more flexibility when regulating.
Another fact which strongly calls for the adoption of a precise, effective, and enforceable necessity test is that the WTO adjudicator will read all applicable GATS provisions, i.e. both Article VI:4 as it stands and the new disciplines in a way that gives meaning to all of them harmoniously, in accordance with the fundamental principle of effectiveness.Footnote 88 Disregarding the utmost objective of the legal mandate enshrined in Article VI:4, which is to ensure that measures relating to LRP, QRP, and TS do not constitute ‘unnecessary barriers to trade in services’, would amount to an interpretation that reduces parts of the GATS to ‘redundancy or inutility’,Footnote 89 contrary to the principle of effet utile to which the WTO adjudicator adheres. At a minimum, Article VI:4 in its current form would be considered as context when interpreting the regulatory disciplines.Footnote 90 Can such a constellation be considered as judicial activism? The question should be answered in the negative. Already the first paragraph of the Draft provides that Members have agreed on regulatory disciplines ‘pursuant to Article VI:4 of the GATS’. This means that the Draft actually hints at the interpretation by the WTO adjudicating bodies of the regulatory disciplines in the aforementioned manner. Therefore, it appears that necessity will form part of the interpretive tools in the toolbox of the WTO adjudicator regarding measures falling under Article VI:4, regardless of whether the disciplines incorporate a necessity test.
5. The unavoidable adoption of a necessity test
For various Members, including the United States, Brazil, and several developing countries and LDCs, the inclusion of a necessity test in the draft disciplines on domestic regulation appears to be regarded as a deal breaker. Due to these objections to the application of the principle of necessity across services sectors, the most recent Draft replaces the requirement that measures be ‘not more burdensome than necessary’ to ensure the quality of a service with the requirement that the covered measures should not constitute ‘disguised restrictions on trade in services’. Furthermore, these measures should be ‘relevant to the supply of the services to which they apply’. Thus the necessity test has been replaced by a ‘disguised trade restriction’ test and a ‘relevance’ test. We analyse each of these two types of tests in turn.
The ‘disguised trade restriction’ test is reminiscent of the language (and the test) of the chapeau of Articles XX GATT and XIV GATS.Footnote 91 Consistent GATT/WTO case-law suggests that the concept of a ‘disguised restriction to trade’ has been associated with discrimination and the manner in which a certain measure is applied or administered.Footnote 92 In US–Gasoline, the Appellate Body emphasized that concealed or unannounced restriction does not exhaust the term ‘disguised trade restriction’.Footnote 93 This term clearly includes disguised discrimination and it can be read as also encompassing restrictions resulting in arbitrary or unjustifiable discrimination. However, WTO case-law also suggests that disguised trade restriction can exist even where there is no discrimination. This seems to be the intent of the WPDR negotiators who advance this language, i.e. to cover measures which, while not discriminating de jure or de facto, still constitute disguised trade restrictions, that is restrictions that are not merely inadvertent or unavoidable, but rather foreseeable violations of WTO obligations.Footnote 94 The choice of this term will inevitably lead the WTO adjudicator to interpret it according to previous WTO case-law, which classified as disguised trade restrictions several acts or omissions, such as the treatment of similarly situated trading partners in a different manner; the lack of serious, good faith consultations with other trading partners (or, alternatively, with some of them, but not others) to find a commonly agreed solution; or the fact that significant costs that are only incumbent on the exporters are not taken into account when regulating, while the costs that domestic producers bear are. Hence, just as with the application of a necessity test, under the new ‘disguised trade restriction’ test, the pursuit of less trade-restrictive alternatives and the comparison of regulatory conduct in similar situations will be important evidence for the WTO adjudicator. Therefore, the proposed test in its application will be interpreted as a sort of necessity test.
By the same token, a ‘relevance’ test would be construed as a ‘soft’ necessity test. An interpretation along the lines of the US–Shrimp case law regarding Article XX(g) seems plausible. This means that the measures adopted need not be necessary, but they should be at least directly connected with, or primarily aimed at, the objective pursued and this connection should be a close and real one.Footnote 95 This test would again operate similarly to a necessity test, notably if we consider the judicial restraint in cases involving objectives of vital importance and the description of necessity as a continuum in Korea–Beef.Footnote 96
In sum, it is submitted that these two tests that were aimed at replacing the unjustifiably tarnished necessity test may still be interpreted through recourse to concepts that are inherently associated with the principle of necessity under the GATT/WTO. Therefore, instead of denying the need for the inclusion of a necessity test in the forthcoming rules harnessing domestic regulations, negotiators may want to concentrate their efforts on finding the best recipe for a wording that will gather broad support.
6. Practical issues relating to the draft disciplines on domestic regulation
6.1 Legal nature of the disciplines
Members have yet to decide on the most appropriate way to incorporate the disciplines in the GATS. If Members choose the option of an Annex, a slight, but still consensus-based amendment of the GATS would probably be necessary. This amendment would, inter alia, include an agreement on the future of Article VI:5 in the post-Doha era. While Article VI:5(a), alias the transitional substantive provision of Article VI, could easily be deleted, a similar solution would not be suitable for Article VI:5(b) referring to international standards. The Draft, as it stands, only covers technical standards and thus cannot be regarded as incorporating Article VI:5(b). It seems reasonable that Members start considering the possibility of including a new paragraph in the disciplines, most appropriately under the section on ‘General Provisions’ which would incorporate Article VI:5(b). This would allow a broader discussion among Members with respect to the appropriate role of international standards when examining the necessity of a given measure. Recall that the GATS, when compared to the TBT and SPS, adopts a much ‘softer’ stance vis-à-vis international standards. The Annex, just like the other GATS Annexes, would form an integral part of the GATS by virtue of Article XXIX GATS. The option of a reference paper which would require Members to make positive commitments under the additional commitments column of their Schedules would not ensure a uniform application of the disciplines and should rather not be considered as a meaningful option.
6.2 Justiciability and enforcement
Through Article VI and the completion of the mandate contemplated by paragraph 4, the GATS creates multilaterally established private rights against domestic administrators and regulators and adds a multilateral layer of scrutiny regarding the adherence of the competent authorities to the rule of law and due process in a non-discriminatory manner.Footnote 97 This is yet another example of the changing patterns in international law and its effects on domestic rule-making and is revealing of a trend towards increasing regulatory cooperation or even convergence.Footnote 98 These newly created private rights have to be protected and a multilateral scrutiny may be too time-consuming or technically difficult to undertake. To avoid the draft disciplines becoming dead letter, Members have to ensure that their regulators and judicial or other review organs abide by the draft disciplines when they regulate or when a service supplier has recourse to those organs, respectively.
As to judicial review in particular, it is argued that the requirement of Article VI:2 GATS regarding the creation of prompt review mechanisms is not sufficient. Rather, Members would be well-advised to agree on a provision (or set of provisions) that allows for the possibility of negatively affected service suppliers directly invoking before national courts their rights stemming from the disciplines. Such a supplier-oriented approachFootnote 99 would appear as going against the current view that, generally, the WTO agreements are not recognized by national courts as producing direct effect in domestic legal orders.Footnote 100 In the EU, for instance, settled case-law suggests that the nature and economy of these agreements prevents the ECJ from examining the legality of EU acts based on the rules included in these agreements and thus no rights are thereby conferred to private parties.Footnote 101 However, in this specific case, and due to the peculiar nature of future complaints, Members should consider this option if the forthcoming disciplines are to have any meaningful effects and really facilitate the everyday operation of service suppliers worldwide. The problem appears more acute with respect to natural persons. To better illustrate this, consider the case of individuals or natural persons negatively affected by the disrespect of their rights by the host State who will most probably be unable to convince their government to file a complaint before the WTO due to the insignificant economic rents.
What also seems worthy of reflection is why matching the sophisticated level of detail set out in Part III of the TRIPS Agreement does not make sense in the case of the draft disciplines on domestic regulation under GATS. For instance, the procedural rights contemplated by Articles 41:2 and 3 or 42 TRIPS are also incorporated in the Draft, albeit not articulated in a similarly powerful manner. TRIPS and enforcement of intellectual property rights seems to offer a useful model in the quest for strong enforcement mechanisms in the case of the forthcoming disciplines governing domestic regulations in services.
Taking again the example of the EU, it bears mention that the ECJ has been more lenient when an issue relating to intellectual property rights and the TRIPS Agreement is raised before the Court. For instance, in Hermès International, the ECJ found that the national courts within the EU are obliged to apply national rules relating to provisional measures for the protection of intellectual property rights in the light of the text and the finality of the TRIPS and not only in the light of the EU legislation at issue.Footnote 102 More interestingly, in Merck, the ECJ found that, in cases where the EU has not exercised its competences – or, at least, to a sufficient extent – in a given field (in the case at issue, the minimum duration of patent protection), a national legal order and its courts can accept the direct effect of a given TRIPS provision and thus give private parties the right to invoke that provision directly.Footnote 103 Again, the ECJ merely allows for a TRIPS-consistent (if possible) application in cases where Community legislation already exists.Footnote 104 Despite the last statement, however, it appears that under certain circumstances, the ECJ would not outlaw the recognition of direct effect of a multilateral obligation at the national level.
Another option which may enhance the possibilities of apposite enforcement of the forthcoming disciplines is the establishment of a complaint mechanism within the new Committee on Domestic Regulation, empowering private parties to notify to that Committee the regulatory barriers they have encountered. Similarly, the Trade Policy Review Mechanism (TPRM) could also be used as a means of exercising pressure to recalcitrating governments. While this appears to be useful, as it would allow governments to pinpoint violations of the disciplines and to raise this in their consultations with other governments, the main weakness of the TPRM is the periodicity of reviews, which is contingent on the shares of world trade of the countries being reviewed. Thus, the big developed economies are reviewed every two years, while smaller economies are reviewed less frequently (4–6 years). It follows that such ‘name and shame’ strategies may have limited chances of success, notably when they are not accompanied by an effective mechanism that will examine the consistency of certain measures and practices with the disciplines on domestic regulation.
A similar, albeit possibly more promising option is to establish a complaint mechanism at the national level, e.g. within the one-stop-shop dealing with applications, that will receive complaints made by service suppliers and which will be notified and monitored by the Committee on Domestic Regulation. Under this option, Members could consider allowing private parties to directly refer to the multilateral disciplines and describe how the rights conferred to them were violated at the domestic level.
These are only a few of the options that Members may consider to avoid rendering the forthcoming disciplines unenforceable. It would be erroneous to take the proper application and enforcement of the disciplines for granted. In a multilateral trading system, which is traditionally based on State-to-State resolution of disputes, low-level private-to-State disputes may not find their way to the WTO adjudication system unless alternative routes are offered to these private parties to enforce their rights or seek remedies for administrative decisions, which may adversely affect their interests. It is contended here that Members should consider these possible options before concluding their negotiations on domestic regulation in the current Round to give full meaning to the disciplines and allow for their proper enforcement at the national level.
7. Concluding remarks
Liberalization of trade in services is only useful when it goes hand in hand with the promotion of sound domestic regulation. The Draft goes toward this direction, but there is important scope for improvement, particularly with respect to the substantive obligations of the disciplines. For it is erroneous to believe that sound regulation only entails transparent and objective procedures. The substance of the domestic regulation is crucial, as it can neutralize any market access concessions.
In view of the critical turn that the GATS negotiations on the creation of rules governing domestic regulations have taken, this paper attempted to draw the attention of negotiators to several essential issues which have to be carefully considered before the end of these negotiations on domestic regulation. It identified several shortcomings of the draft disciplines in their current form and put forward various proposals which may improve the efficacy of the disciplines and allow for a more satisfactory and expedited enforcement at the national level of the procedural rights created at the multilateral level. The paper makes a strong case for the inclusion in these disciplines of a necessity test applicable across services sectors. It goes on to advance a concrete wording which may enjoy a critical mass of support. GATT and WTO tradition has confirmed that necessity and transparency are key proxies for drawing the fine line between legitimate regulatory interference and disguised protectionism. At the risk of stating the obvious from a good governance perspective, operational regulatory disciplines that embody a necessity test and strong transparency disciplines are in the interest of all Members and would facilitate the expansion of international trade in services when implemented.
In addition, and from a dispute resolution perspective, notably when interpreting non-discriminatory measures, the import of such protectionism-revelation proxies is beyond doubt. The absence of a horizontally (i.e. across sectors) applicable necessity test would render any regulatory disciplines on domestic regulation of limited value, for no benchmark would be available to the WTO adjudicator against which to judge the challenged measures. Worse, the use of other tests may still lead to their interpretation as a sort of a soft necessity test, the content of which will be specified by the WTO adjudicating bodies. Therefore, to avoid undesirable judicial interpretations, Members should reconsider the value of ex ante completing the contract by adopting a straightforward necessity test with commonly agreed caveats.Footnote 105
The current negotiations constitute a unique opportunity to create a meaningful and operational set of rules to improve domestic regulations governing service supply worldwide. Negotiations at the horizontal level have advanced admirably smoothly. However, allowing this set of rules to remain incomplete reduces the likelihood of the situation being remedied in the future due to the considerable transaction costs that negotiations of this type entail. This situation exemplifies the need under certain circumstances to be sufficiently courageous and prospicient to elaborate on certain aspects of the disciplines on domestic regulation before the end of this Round.
In addition, the prospects for a deal in this area at the multilateral level have never been better. This is evident from the myriad PTAs that accept the superiority of the negotiations at the multilateral level and pledge to transpose the results of these negotiations, once they are finalized, to their bilateral deals. Regardless of whether they adopt a negative or positive list approach, all PTAs outsource, explicitly or implicitly, the development of such disciplines at the multilateral level. Thus, in this specific area, Members strive for coherence by favouring multilateral negotiations that would lead to the creation of minimum standards or rights of private parties in their capacity as service suppliers. In an era of growing fragmentation of international trade regulation, domestic regulation is the expression of Members' willingness to achieve coherence when it comes to the arguably most important category of measures affecting trade in services. Thus, along with the mandate included in Article VI:4 GATS, there is another set of mandates contemplated by these PTAs, which constitutes a sort of carte blanche in favour of the negotiators at the multilateral level.
This is also revealing of the level of responsibility that the GATS negotiators bear. Creating enforceable rules on domestic regulation and translating Article VI:4 into operational and meaningful obligations has proven to be particularly challenging. More importantly, it has revealed the clear limits of peripheral experimentation in key areas of rule-making (i.e. rules that are not directly related to market access or liberalization outcomes), with increasing deference of the periphery (i.e. PTAs covering services) towards the centre (i.e. the GATS) with regard to solutions to the bulk of the unfinished rule-making agenda in services trade.
