Lessons for GATS Article VI from the SPS, TBT and GATT Treatment of Domestic Regulation

Abstract

One of the most important and difficult issues in international trade is the relationship between international trade liberalization and domestic regulatory autonomy. This issue has been addressed in a variety of ways in the goods sector, and is still being worked out according to a dynamic process of substantive and institutional change. While regulatory autonomy is needed to allow local regulation to respond to local conditions, there are times when regulatory autonomy is abused as concealed protectionism, or is not sufficiently motivated to provide efficient regulation. While transparency can help to reduce concealed protectionism, it cannot alone eliminate the more persistent and the more deeply embedded inefficiencies. In relation to this tension between trade liberalization and domestic regulatory autonomy, services trade is at least comparable to goods trade. Of course, there are significant differences between goods and services trade, and among services trade sectors, but there are sufficient similarities to make it worthwhile to study the approaches to domestic regulatory autonomy in goods in connection with discussions of intensified approaches to domestic regulatory autonomy in services. Under the SPS Agreement, the TBT Agreement, and the GATT, regulatory autonomy is constrained. This paper compares these three sources of WTO law relating to goods, and compares them to the GATS, with the purpose of advancing an array of options for services negotiators, and of suggesting how negotiators might discriminate among these options. There seem to be no general, or horizontal, reasons to treat services regulation, as a whole, differently from goods regulation. It may be that certain areas of services regulation merit special treatment of one kind or another. For example, the fact that much of financial regulation takes the form of institutional regulation accentuates the kind of jurisdictional problem associated with the product-process distinction in the goods field. That is, the institution offering cross-border banking services may be located (at least in formal terms) in Luxembourg, while it offers services in the United Kingdom. While trade may be facilitated by a regime of mutual recognition (which in fact exists in the European Communities), and while it may seem natural to allow a Luxembourg bank to be regulated by Luxembourg, there is the possibility for adverse externalization (e.g., BCCI). There are also possibilities for races to the bottom, accentuated by possibilities for externalization. Therefore, it seems worthwhile to evaluate the range of disciplines offered by the SPS Agreement, the TBT Agreement and the GATT, for horizontal adoption in the field of services. This can initially be accomplished in selective sectors, on a trial basis, as in the field of accountancy. Where standards like necessity or proportionality are to be used, it would be wise to use consistent language, unless a different meaning is desired. However, in this field, there seems little reason to use different formulations for the same concept in different sectors. This would appear to apply to areas like discrimination, necessity, proportionality, performance regulation rather than design regulation, requirements of recognition, reference to international standards and other more general disciplines. More specific rules, such as harmonization of regulation, either alone or as a prerequisite for specified types of recognition, obviously must be accomplished on a sectoral, or even an issue by issue, basis.