Bridges Weekly Trade News Digest • Volume 10 • Number 23 • 28th June 2006
Services ‘Cluster’ Focuses On Domestic Regulation, LDC Treatment
WTO Members addressed domestic regulation and special treatment for least-developed countries (LDCs) during the services ‘cluster’ from 19-23 June. Market access negotiations based on plurilateral and bilateral requests, which normally take place during services clusters, have been deferred to the week of 10 July, in anticipation of an agreement being struck this week in the agriculture and industrial goods negotiations.
Some delegations have been reluctant to commit to opening their services markets without knowing what was on offer in these other, higher-profile negotiating areas. Sources suggest that demandeurs in the services negotiations hope that a modalities deal on agriculture and non-agricultural market access will encourage Members to engage more intensively in the services talks, if not offer more extensive liberalisation commitments.
The issue of disciplines on domestic regulation is part of the so-called ‘rules-based’ aspect of services negotiations (as opposed to the market access component). Article VI(4) of the General Agreement on Trade in Services (GATS) mandates Members to develop disciplines aimed at ensuring that domestic regulatory measures, such as technical standards and qualification or licensing requirements and procedures do not constitute unnecessary barriers to trade in services. Given the relatively advanced level of discussions on this issue, ministers at Hong Kong instructed Members to finalise the disciplines before the end of the Doha Round and as part of the single undertaking. In recent weeks, developed and developing countries have submitted what a WTO official characterised as a ‘critical mass’ of formal and informal proposals on a broad set of issues relating to the disciplines.
All the submissions stress the need to strike a balance between respecting Members’ right to regulate and curbing regulatory measures that could potentially undermine market access. One area where this tension is particularly evident is in the sensitive debate over the so-called ‘necessity test’ for regulatory measures. While the GATS mandate stipulates that qualification and licensing requirements should not be ‘more burdensome than necessary to ensure the quality of a service,’ some Members are concerned that such a test may constrain their ability to introduce regulations which seek to implement national policy objectives that go beyond simply ensuring the quality of a service.
A number of developing countries including Colombia and the Philippines had previously sought to assuage this concern by expanding the necessity test so that regulatory measures in pursuit of such national policy objectives would be deemed ‘necessary’ and thus permissible. Others, such as the group of African, Caribbean, and Pacific (ACP) countries, proposed doing away with the necessity test entirely, in addition to exempting least-developed countries from the obligation to comply with any eventual disciplines. On the other hand, Members such as Hong Kong, Chile, Korea, Australia, New Zealand and Taiwan argue that disciplines that do not subject regulatory measures to a necessity test may prove largely "toothless" in ensuring that they do not unduly restrict trade. However, what may spell the death knell for the necessity test is that Brazil and the US, two major Members from opposing sides of the services talks, remain firmly opposed to incorporation of such a test in the disciplines.
Members have asked the chair of the Working Party on Domestic Regulation, Peter Govindasamy (Singapore), to develop a draft consolidated text of the disciplines by the end of the month. Sources expect him to produce draft treaty language on issues where there is apparent consensus or broad support, and simply present Members with ‘options’ for those on which they differ. They suggest that the text will include draft disciplines on transparency, qualification and licensing procedures, but ‘options’ on qualification and licensing requirements and technical standards. If the necessity test is incorporated, this may at the most be through a reference in the preamble of the disciplines.
Operationalisation of LDC modalities discussed
During a 23 June meeting of the Council for Trade in Services Special Session (CTS-SS) delegates also addressed how to operationalise a September 2003 decision (TN/S/13) that LDCs are to be given ’special priority’ aimed at boosting their participation in global services trade . The Hong Kong Declaration mandated Members to "develop methods for the full and effective implementation" in the negotiations of these so-called ‘LDC modalities.’
The LDC modalities exhort other Members to offer LDCs binding market access commitments in areas of interest to them, such as the temporary movement of labour (’Mode 4′ in WTO parlance). They also encourage countries to help LDCs develop their domestic services capacity.
Thus far, however, although some Members such as the US, Canada, the EU, Japan and Norway have indicated their intention to implement the LDC modalities, as well as the kind of measures they plan to take, LDCs have seen this as vague and insufficient to truly address their concerns.
In this respect, Zambia tabled a proposal on behalf of the LDC Group seeking to operationalise the notion of ’special priority,’ and to craft a mechanism for providing such treatment to LDCs.
The Zambian paper contends that there are no provisions under existing rules that would allow countries to accord ’special priority’ to LDCs without having to extend it to all Members in order to comply with the WTO’s core most-favoured nation (MFN) treatment obligation prohibiting discrimination among trading partners. It argues that the Hong Kong mandate instructs Members to make this possible. To this end, Zambia proposes the creation of a new mechanism which would allow Members to provide "non-reciprocal special priority… only to LDCs," in areas of export interest to them. LDCs are particularly keen for instance on obtaining specific commitments providing Mode 4 quotas in favour of LDCs.
Some delegations believe that the Zambian proposal would create an exception to the WTO’s MFN principle, and is thus inconsistent with the principle and structure of the GATS. Others suggested that it was not inconsistent and would require nothing more than a technical change.
One developing country delegate suggested that though Members are open to other types of preferential treatment for LDCs, such as duty- and quota-free market access for their merchandise exports, the Zambian proposal is not feasible.
A source close to negotiations questioned whether the objections to the LDC proposal were legitimate or a means for avoiding a substantive discussion on the issue.
Mandelson calls for stocktaking on services
EU Trade Commissioner Peter Mandelson has invited a select group of 22 ministers for a stocktaking exercise on the services talks early on 1 July, in advance of the Trade Negotiations Committee meeting scheduled later that morning. Some trade officials suggest that Mandelson may simply be trying to take advantage of ministers’ presence to raise the profile of a negotiating area in which the EU has a clear offensive interest. However, one trade expert suggested that the meeting might indicate that Brussels is confident that key Members will make the concessions necessary to reach an agreement on agriculture and industrial goods, and wants to get the ball rolling on the services market access negotiations that are to follow. Another source suggested that the opposite may be the case, and that Mandelson may be looking to use other Members’ reluctance to agree to substantial services liberalisation commitments to deflect attention from the EU’s inability to offer deeper cuts to its farm tariffs.
ICTSD reporting.