WTO announces agreement on rules on domestic regulation

What are the rules on domestic regulation of services?

Broadly speaking, domestic regulation provisions cover the administrative steps that a service provider has to go through in order to provide their service in the territory of another WTO member. Neither the WTO nor the General Agreement on Trade in Services (GATS) prohibit regulation as long as it is necessary and justifiable in relation to a specific objective.

Since these provisions may differ from one WTO member to another, navigating through them may pose a challenge for many service providers. Therefore, such common rules provide more transparency on the applicable laws for service providers and, as a result, reduce regulatory barriers that service provides encounter when operating across borders.

Article VI.1 of the GATS obliges WTO members to make sure that: ‘all measures of general application affecting trade in services are administered in a reasonable, objective and impartial manner.’

These include measures relating to licensing requirements and procedures, qualification requirements and procedures, and technical standards of other member countries. For example, it must take no longer than a reasonable time to consider an application from a service provider from another WTO member, or there must be an appropriate procedure to verify the competence of professionals.

Part 4 of the same Article envisages that that the Council for Trade in Services (CTS) must establish necessary disciplines on domestic regulation that further specify the scope and application of these provisions. While work on these disciplines has been carried out many years, for a long time they have not progressed far.

This changed in December 2017, when a group of nearly 60 WTO Members launched the Joint Initiative on Services Domestic Regulation (SDR).

Joint initiatives are designed to progress matters where there is common ground, that is plurilateral, despite being stalled at multilateral level.

In September 2021, participating countries agreed on a final text for the reference paper setting disciplines on services domestic regulation.

What is in the reference paper on domestic regulation?

The reference paper contains specific rules that elaborate on the provisions in Article VI of GATS and relate to licensing requirements and procedures, qualification requirements and procedures, and technical standards affecting trade in services.

It covers submission of applications, processing of applications, application timeframes, electronic applications and acceptance of copies, fees, assessment of qualifications, recognition, independence (in reaching and administering the decisions), publication and information available, opportunity to comment before entry into force, enquiry points, technical standards, and development of measures.

For the first time, the disciplines refer to equality between men and women:

’22. If a Member adopts or maintains measures relating to the authorization for the supply of a service, the Member shall ensure that: […]

(d) such measures do not discriminate between men and women.’

More specifically, the rules oblige members to accept electronic applications and copies of necessary documents. It also sets out rules that are designed to ensure that the application process follows specific steps that increase transparency, such as publishing timeframes and the time it will take to assess the completeness of an application, as well as mandating what information must to be provided to applicants.

Other provisions include holding any required examination for recognition at reasonably frequent intervals and providing a reasonable time period so applicants can request to take the examination.

It also encourages member countries to support their professional bodies that are interested in establishing dialogues on issues relating to recognition of professional qualifications, licensing or registration.

Significantly, while the agreement was negotiated by a group of WTO members, it will apply to all WTO members.

Why is it important for services?

Services play an important role in facilitating the globalised market, both directly and indirectly. For the UK, services account for about 80% of the economy both in terms of output and of employment (source).

A study published by the Organisation for Economic Co-operation and Development (OECD) at the same time as the release of the reference paper valued the cost saving of the SDR at 6% of trade costs across all services sectors in the G20 or $140 billion AUD annually.

However, differences in regulation increase costs for businesses by making it necessary for firms to adopt different production technologies for different types of transactions. These costs accrue regardless of whether the markets are more or less restrictive for the service.

Is it also important for legal services?

In short, yes. Currently, GATS does not sufficiently reflect the complexity of multiple national regulatory regimes that apply to legal services.

Individual members can determine their own market access and national treatment restrictions, leaving cross-border service providers to reconcile a range of different legislative and regulatory regimes. This leads to higher compliance costs, uncertainty for businesses and often conflicting positions and protections for individuals.

For example, there are different requirements on whether a lawyer can enter a country and advise on the laws of their home jurisdiction. Some countries will permit a lawyer to fly-in and advise their client on a matter affecting their home jurisdiction, others will require a lawyer to first be registered as a foreign lawyer before they can advise on laws of their home jurisdiction, and some further impose costs and approval to be registered as a foreign lawyer and advise on the laws of their home jurisdiction, and so on. This is before one even considers requalifying to advise on the laws of the foreign country.

Does that mean lawyers could have their qualifications recognised internationally?

Not quite. Recognition agreements apply differently to the legal services sector due to the distinction between domestic and foreign law. Unlike other regulated professions, legal service providers not only face different systems of qualification when they move internationally, but also different legal systems. These are not always directly transferrable.

This is one of the reasons why many lawyers rely on home title practice as the preferred mode of international practice (as per the above example). This is recognition of a lawyers’ qualification to practice the law of the jurisdiction in which they qualified when they are in overseas markets.

As such, the Law Society considers the recognition of professional qualifications as the recognition of existing home country qualifications and experience for the purposes of requalification into a host state profession.

If, however, a lawyer would like to requalify into a host state profession, they often have to undertake at least part of (although sometimes a full) academic course, and/or complete relevant practical experience requirements, and/or sit an exam.

Many of these stages include a series of administrative procedures such as submitting an application, undertaking an assessment and paying a fee. Increasing the clarity and information available, especially on the basic requirements of the process, would improve the process altogether.

At the same time, if professional bodies are interested in starting a dialogue issues relating to recognition of professional qualifications, the SDR encourages members to support them. This dialogue between relevant bodies can facilitate the recognition of solicitors’ qualifications and experience, and sometimes even leads to an agreement.

Such agreements can also cover issues on access to host country courts, conflict between host and home state rules of professional conduct and recognition of business structures.

So, what’s next?

The next step in the process, already underway, is for the participating members in the services domestic regulation initiative submit their schedules of commitments to the Council for Trade in Services.

These schedules contain information about how members will implement the key promises of the agreement, for example, how a country will simplify its procedures for registration of foreign lawyers. This must be done by the end of 2022. So far, 41 members have already submitted their schedules.

However, this agreement must also be seen in its wider context. The WTO has been under considerable pressure in recent years. The Doha negotiating round, started in 2001, has stalled ever since as members failed to agree on issues such as agricultural subsidies and intellectual property rights.

The COVID-19 pandemic tested the limits of the effectiveness of the multilateral trading system. And, until recently, the Trump administration blocked the appointment of the members of the WTO Appellate Body and the election of the WTO Director General.

The new director-general, Ngozi Okonjo-Iweala of Nigeria, was confirmed only after the change in US administration. And finally, the ministerial conference planned for early December this year was cancelled last minute due to the new variant of the coronavirus.

Therefore, the success of this agreement has been seen by many as a potential turning point for the institution. Indeed, the deal was welcome by many stakeholders, including professional and business services associations.

The conclusion of the discussions also sends an important message that services – historically overlooked at the WTO level – are a key and crucial feature of future trade discussions.

And this is not the last stop for services. The WTO members are negotiating other areas of international trade in similar plurilateral initiatives. Most relevant for services are the joint initiatives on e-commerce and investment facilitation for development.

Catherine Brims, international policy adviser (North Asia & the Pacific) and Anna Drozd, EU policy adviser