SERVICES: DOMESTIC REGULATION LEAPS FORWARD, MARKET ACCESS STANDS STILL

A consolidated draft text of disciplines on domestic regulation in services trade was issued on 10 July by the chair of the Working Party on Domestic Regulation (WPDR).

Domestic regulatory measures take the form of qualification and licensing requirements and procedures or technical standards with which both foreign and local entities must comply in order to be able to supply services in a WTO Member's territory. Such measures, while legitimately intended to regulate the provision of services, could potentially be capable of unduly restricting trade. Thus, the General Agreement on Trade in Services (GATS) contained a built-in mandate for Members to negotiate disciplines on domestic regulation. Ministers in Hong Kong recognised the progress achieved in discussions on the issue, and instructed Members to develop disciplines for adoption as part of the Doha Round single undertaking.

After several months of further debate and submissions from a wide range of Members and groupings, including the US, the EU, Japan, Switzerland, Brazil, India, Mexico, Hong Kong, Chile, Colombia, the Philippines, China, Pakistan, Thailand, the African, Caribbean, and Pacific (ACP) Group, the African Group, and the Group of Small and Vulnerable Economies (SVEs), WPDR Chair Peter Govindasamy (Singapore) was tasked to prepare a 'consolidated working paper' by the end of June.

The draft was initially presented to Members at the 11 July WPDR session. It proposes making disciplines applicable across all services sectors in which a Member has made binding liberalisation commitments. The paper presents different options for a number of contentious issues. With regard to the so-called 'necessity test' -- a controversial element of the disciplines which seeks to ensure that regulatory measures are "not more restrictive of trade than necessary to fulfil national policy objectives" -- the paper takes note of the opposition of many Members (see BRIDGES Weekly, 28 June 2006).

Sources say that most delegates appeared to welcome the draft "as a basis" for negotiating the text to be adopted at the end of the round. However, the US and the EU, did not immediately share this view, and were quite critical of it in their initial interventions. However, they tempered these views towards the end of the meeting, leading one trade observer to opine that they may have "bashed the draft prematurely" before having had a chance "to get a better sense of the room" or where other Members stood.

Another trade expert said that it could well be the other Members that were "premature" in welcoming the chair's working paper as a basis for further discussions, suggesting that the WPDR's meetings scheduled for next week might see some of these same delegations start "nit-picking" the draft. This source said that the US and the EU may simply have had more resources to examine and analyse the draft, circulated a scant 24 hours before the meeting, and were thus more sensitised to its flaws.

The US is primarily interested in disciplines which will improve the transparency with which domestic regulatory measures are formulated and implemented. Apart from enhanced transparency, the US believes that disciplines which apply 'horizontally' across all services sectors are of limited value. Such horizontal disciplines, according to the US, are bound to be 'too general' and will fail to address the specific characteristics of a particular sector.

The EU, on the other hand, is more focused on having disciplines on licensing procedures that foreign services suppliers have to go through in order to obtain a license or permit to supply a particular service. Licensing requirements and procedures are mostly relevant to corporations seeking to invest through the establishment of a branch, subsidiary or operations in another country -- and the establishment of such commercial presence is carefully regulated by most WTO Members.

Developing countries have generally fanned out into three basic groupings: Brazil leads those keen on preserving and emphasising Members' right to regulate and introduce new regulatory measures. This approach appeals to the ACP, African and SVE groupings, which see their regulatory frameworks as still being in a nascent stage of development. Hong Kong is at the forefront of another group, which includes Mexico, Chile, Taiwan and Korea, advocating strong 'horizontal' disciplines as a means of reducing the unduly trade-restrictive effects of domestic regulatory measures. Along with India, countries including Thailand, Pakistan and Peru (joined by Mexico and Chile) are pushing for disciplines focusing on qualification requirements and procedures, which this group sees as the most relevant regulatory measures affecting 'mode 4' or the temporary movement of workers abroad -- an area of strong offensive interest for these countries in the negotiations.

Many trade observers say that domestic regulation is the only area of the services talks which has been showing concrete progress. Negotiations on Members' bilateral and plurilateral market access requests have come to a virtual standstill as a result of the lack of forward movement in agriculture and non-agricultural market access (NAMA).

Although the Council for Trade in Services Special Session had been deferred from June to the week of 10-14 July in anticipation of a breakthrough in the agriculture and NAMA discussions, it turned out to be notable primarily for the substantially decreased level of plurilateral and bilateral market access negotiations.

Many delegations, especially those which have strong interests in securing improved market access across a wide range of services activities, are increasingly concerned that the offers of market access commitments already on the table may be "as good as it gets."

ICTSD reporting.