Fifteen years after the initiation of the negotiations on domestic regulation in pursuant to Article VI:4 of the General Agreement on Trade in Services (GATS) and three years after the last attempt to consolidate proposed disciplines on domestic regulation into a text, the collection WTO Domestic Regulation and Services Trade: Putting Principles into Practice, edited by Aik Hoe Lim and Bart de Meester, serves the ambitious objective of connecting the ‘regulatory’ and ‘trade policy’ worlds in the context of services trade. Two worlds that coexist but that have rarely had an opportunity to exchange on the nexus between the liberalization of trade in services and domestic regulation and, more importantly, on the disciplines that are developed by the Working Party on Domestic Regulation ‘to ensure that measures relating to licensing requirements and procedures, technical standards and qualification and procedures do not constitute unnecessary barriers to trade in services’. The absence of significant writings on domestic regulations in the services sector and their implications for international trade in services makes this collection particularly interesting. Scholars have thus far focused on addressing the more traditional forms of barriers to trade in services that are market access and national treatment limitations.

Hamid Mamdouh, in his chapter on lessons from the GATS experience regarding services liberalization and regulation, refers to the rationale for the negotiations on domestic regulation affecting services trade: the significant transformation – and development – of the services economy and the resulting change in the role of governments. Over the last three decades, services have evolved from government functions provided by public utilities into privately supplied and commercially exchanged valued-added intangible products. This ‘paradigm shift’ has prompted governments to become supervisors or regulators of the competitive services markets in pursuit of public interest. The GATS drafters confirmed the regulatory autonomy of WTO Members, but acknowledged that domestic regulations may be overly burdensome and have trade-restrictive effects. As an agreement could not be reached during the Uruguay Round on the treatment of non-discriminatory and non-quantitative measures, WTO Members were mandated to develop horizontal disciplines, disciplines for individual sectors, and general disciplines for professional services. The present volume examines options for the development of general disciplines on domestic regulation on the basis of a review of WTO principles by scholars in law and economics and through the use of case studies by services regulators and international trade experts concerning nine different services sectors in nine countries.

In the first part, concerning impediments to services trade, regulatory theory, and principles, Tinne Heremans asks the fundamental question: why regulate in the first place? Based on a review of economic theories of regulation and the types of regulatory instruments used, she highlights the tensions between market principles and realities and the ‘corrective’ and ‘redistributive’ purposes of regulations that governments pursue to ensure collective or public interests goals. Hildegunn Kyvik Nordås then addresses the cost of domestic regulation on trade in services and, in particular, the cost of complying with different domestic regulations. Interestingly, she concludes that, because regulatory barriers will always exist, harmonization of regulations – rather than regulatory reforms aimed at eliminating trade barriers – may be the preferable option to stimulate trade, competitiveness, and productivity.

In the following parts, other scholars draw on existing WTO rules to frame the key features of the future disciplines on domestic regulation. Andrew Mitchell and Tania Voon review the requirements of reasonableness, impartiality, and objectivity in GATS Article VI:1 in light of the provisions of Article X.3(a) of the General Agreement on Tariff and Trade (GATT). Panagiotis Delimatsis examines the tests set forth to implement GATT Article XX, Article 2.2 of the Agreement on Technical Barriers to Trade (TBT Agreement) and Article 5.6 of the Agreement on the Application of Sanitary and Phytosanitary Measures (SPS Agreement) to propose a generally applicable ‘necessity test’ or alternative tests that would balance the regulatory autonomy of WTO Members and the limitation of ‘more burdensome than necessary’ or trade-restrictive regulations. Some of the case studies, however, reveal shortcomings in trying to establish a parallel between provisions regarding the regulation of goods and services. The immateriality of services, the diversity of services, and the limited number of standards or generally recognized practices are just three of the differences that render the establishment of necessity test complex. Markus Krajewski then examines the concept of legal certainty in different national and international legal systems and concludes that it does not conflict with regulatory flexibility. Joel Trachtman, in the chapter on mutual recognition of services regulation, develops the view that, while mutual recognition can contribute to liberalization of trade in services, it must be embedded in a process of governance to address the inherent limits of mutual recognition and to benefit all WTO Members regardless of their level of development. As developed in the case studies, mutual recognition has, often with the harmonization of rules, served to improve market access.

The case studies that are set forth in third part are very instructive, as they cover the regulation of traditional services industries, such as legal services, higher education, and postal services; and more novel services, including information and communications technology, mobile banking, and telemedicine, in developing and developed countries. These illustrate the very different objectives of regulations, the challenges regulators are confronted with, and the diversity of the limitations that regulations may impose on the commerce of services. The case studies also highlight some of the common features of regulation and the practical solutions to ensure that regulation promotes liberalization and does not produce negative trade effects. Aik Hoe Lim and Bart de Meester, in their concluding remarks, identify six common schemes based on the case studies. First, re-regulation, i.e., the introduction of a new reinforced regulatory framework, rather than deregulation, is a successful vector of liberalization. As noted by Henry Gao with respect to the telecommunication reform in China, Krishna Oolun on the evolution of the information and communications technology sector in Mauritius, and Masamichi Kono, Koichi Iwai, and Yoshitaka Sakai on the liberalization of financial services in Japan, the successful opening of a services sector must generally be preceded by the introduction of new rules to stimulate and allow for fair competition. Second, existing disciplines on market access and national treatment do not address all forms of barriers to trade in services. The chapters on the liberalization of postal services in Australia by Siva Somasundram and Iain Sandford and retail food distribution services in Israel by Tomer Broude and Lior Herman both highlight the importance of competition rules in open markets. Third, fragmented regulation and supervision are challenges for services, particularly new types of services. The study of mobile financial services in Uganda by Kaggwa Sewankanbo and Yusuf Tiku Abdallah notes that, because these services are based on a combination of more traditional services, they fall under the supervision of different authorities which limits their trade potential. Erica Moeser and Laurel Terry, further to their review of the US legal services sectors, which is based on state disciplines, and Ruosi Zhang, in his analysis of logistics services in China, reach similar conclusions. Fourth, international standards and mutual recognition can greatly facilitate services trade, as illustrated by the study of the Malaysian higher education system by Tham Siew Yean and Nik Kamal Nik Mahmod. Fifth, transparent, reasonable, objective, and impartial rule-making and supervision is essential. The regulatory impact analysis introduced by Australia that is analysed by Darell Porter and Lauren Wight is precisely aiming to implement these principles. Sixth, a ‘necessity test’ is to be established to ensure that regulations are not more burdensome than necessary. However, the case studies also reveal that, depending on the service activity involved, there can be great differences in both the policy objectives pursued and in the form of instruments used to balance the ability to regulate and trade liberalization.

The case studies offer a stimulating overview of the challenges that regulators are typically confronted with. These are likely to become even more complex with the development of new forms of services. The case studies are also helpful to understand the complexity of developing disciplines applicable to all services sectors, and the necessary balance between the right of governments to regulate and their obligation not to impose trade-restrictions through regulation. According to the editors, the negotiations on domestic regulation could finally result in the adoption of disciplines if WTO Members were less ambitious and, in line with the GATS Article VI:4 original mandate, only addressed licensing and qualification requirements and procedures as well as technical standards. However, the editors also recognize that the central question of the ‘necessity test’ remains a major stumbling block despite the positive precedent of the 1998 Accountancy Disciplines, which, similarly to the TBT and SPS Agreements, require that ‘measures are not more trade restrictive than necessary to achieve a legitimate objective’.

As noted by Roberto Azevêdo, the WTO Director-General, in the foreword, this collection is a valuable contribution to a better understanding of the complex and sensitive interplay between domestic regulation and the liberalization of trade in services. By initiating a dialogue between the trade and regulatory communities, and proposing pragmatic solutions based on this dialogue to strengthen trade disciplines to promote further liberalization while preserving Members’ regulatory freedom, it achieves its objective. Regardless of the continuation and possible outcome of the negotiations taking place in the WTO, the assessment made in WTO Domestic Regulation and Services Trade: Putting Principles into Practice is pertinent for bilateral, regional, and plurilateral negotiations on trade in services and for domestic authorities intending to autonomously promote liberalization in the commerce of services through regulation. This makes the collection a must-read for both trade in services negotiators and services regulators.