The Necessity Test and Trade in Services: Unfinished Business?

Abstract

The necessity test is a fundamental principle in the World Trade Organization (WTO) system. It seeks to strike a balance between two important goals: preserving the freedom of WTO Members to set and meet their regulatory objectives through measures of their own choosing, while discouraging them from adopting or maintaining measures that unduly restrict trade. This paper analyses the necessity test in relation to trade in services. Under the General Agreement on Trade in Services (GATS), the test is used as both an exception and an obligation. The test in the form of an exception draws heavily on Article XX General Agreement on Tariffs and Trade (GATT) jurisprudence and its content is well established. In contrast, its structure as an obligation is still under negotiation. While the elements for the adoption and interpretation of the test in the form of an obligation appear to be on the table, a lack of political momentum makes progress extremely unlikely. At the same time, discussions in other fora, notably the Trade in Services Agreement (TISA) and the Transatlantic Trade and Investment Partnership (TTIP), may change the situation. However, these negotiations are still ongoing, which begs the question of whether the necessity test will remain unfinished business.