Short cut or long road? Equivalence, international standards and the GATS

Short cut or long road? Equivalence, international standards and the GATS Julia Nielson, OECD WTO Workshop on Domestic Regulation Geneva 29 March 2004

Structure of presentation • Introduction • Key terms • Key legal provisions • Equivalence • Article VI.6 (verifying competence) • Recognition (GATS Article VII) • Guidelines on Mutual Recognition in the Accountancy Sector • Accountancy Disciplines • Mutual Recognition Agreements (MRAs) • International standards • Article VII.5 • Article VI.5 • Accountancy Disciplines • Concluding thoughts

Introduction – key terms • Equivalence • Where a host country’s regulatory goals are addressed by home country regulation, the host country should accept the home country’s regulation as equivalent. • Where aspects of the regulatory goals are not met, host country can set additional requirements (compensatory measures) • E.g., local knowledge (seismic forces in architecture) or scope of licensed activities

Introduction – key terms • Equivalence • Recognition is based on the principle of equivalence is the basis for recognition • Usually accorded bilaterally or plurilaterally, or unilaterally • Equivalence, and recognition, are not harmonisation • Often seen as a way of avoiding harmonisation of requirements • Although could be argued that some “essential harmonisation” facilitates establishment of equivalence and thus recognition

Introduction – key terms • International standards • By contrast, these are an attempt to develop a common understanding on a desirable set of standards for a given product or service. • More of a collective act whereby a group of countries – or professional bodies – agree to adhere to a set of standards which they believe meet their regulatory objectives.

Key legal provisions • Equivalence • GATS Article VI.6 (adequate procedures to verify the competence of professionals from any other WTO Member) • Article VII (Recognition) • Guidelines for Mutual Recognition in the Accountancy Sector • Accountancy Disciplines (regarding qualification requirements) • International standards • GATS Article VII (Recognition) • GATS Article VI.5 • Accountancy Disciplines (regarding technical standards)

Structure of presentation • Introduction • Key terms • Key legal provisions • Equivalence • Article VI.6 (verifying competence) • Recognition (GATS Article VII) • Guidelines on Mutual Recognition in the Accountancy Sector • Accountancy Disciplines • MRAs • International standards • Article VII.5 • Article VI.5 • Accountancy Disciplines • Concluding thoughts

Equivalence • First, have very basic general obligation Article VI.6 • Where specific commitments in professional services are undertaken, each member shall provide for adequate procedures to verify the competence of professionals from any other member. • Procedures, not substance • “Adequate” is not defined • MFN – must have a procedure for all other members • Does not require the establishment of equivalence between home and host country requirements, nor recognition.

Equivalence Article VII (Recognition) • Permits derogation from MFN by allowing members to recognise the education or experience obtained, requirements met or licenses and certifications granted in some members but not others. • Acknowledges that recognition will be accorded unilaterally, bilaterally or plurilaterally and that a requirement to extend recognition MFN would result in little recognition being granted and few MRAs. • Recognition happens outside the GATS.

Equivalence Article VII cont’d • However, several important limits to this derogation: • Must afford adequate opportunity to other interested members to negotiate their accession to the agreement or to negotiate a comparable one; • To facilitate this, members must • Notify existing, new or modified recognition measures to the CTS • Notify CTS of opening of negotiations of an MRA as far in advance as possible. • Cannot discriminate amongst WTO Members in the application of standards or criteria for recognition • I.e., can apply whatever standards you like, but they must be the same for all members • Does not imply that all WTO members will meet those standards, however.

Equivalence Article VII cont’d • GATS applies to measures taken by governments • Applies to non-governmental bodies in the exercise of powers delegated by the central, regional or local governments and authorities. • What is the status of recognition agreements which are are reached between professional bodies? • Depends on whether exercising delegated powers • Not clear how specific those delegated powers need to be to bind states at international law • Some agreements have been notified under GATS Article VII, others not. • Some notified but states that is not a a government-to-government agreement. • Some agreements notified under GATS Article V (Regional Integration) • Do Article VII disciplines apply?

Equivalence • Article VI.6 and Article VII are different • MFN requirement vs MFN derogation • Recognition vs “adequate procedures to verify competence” • But are linked – • 1995 Decision on Professional Services: In making recommendations on accountancy shall concentrate on: • Facilitating the effective application of Article VI.6 by establishing guidelines for the recognition of qualifications

Equivalence WTO Guidelines for Mutual Recognition Agreements or Arrangements in the Accountancy Sector • Completed May 1997 • Provide practical advice for governments or other negotiating entities entering in MRAs on accountancy services. • Voluntary and non-binding • Acknowledges that differences mean that recognition will continue to be bilateral, not multilateral • But hope that bilateral recognition agreements will increase, expanding recognition more broadly.

Equivalence Guidelines on MRAs cont’d • Cover both process for negotiating and substance of MRAs, e.g., • Process - what should be included in notifications of opening and closing of negotiations, follow up actions, encouraged to develop single negotiating entity. • Content – what should be covered e.g., participants, purpose and scope, conditions (including at sub-national level), qualifications (minimum levels of education, experience), registration mechanisms, implementation. • When compensatory measures might be required (e.g., knowledge of local law) and what they entail (exams, training). • Also procedures – contact points, length (exams arranged with reasonable periodicity), documentation requirements, fees (in proportion to costs incurred), appeals.

Equivalence • Finally, have the Accountancy Disciplines • 1995 Decision on Professional Services mandates the implementation of the work program to develop disciplines under Article VI.4, with priority to the accountancy sector • Disciplines were finalised in December 1998 • Enter into force at the end of the current round of negotiations • Apply only to accountancy sector and only where specific commitments have been made

Equivalence Accountancy Disciplines cont’d • Under VI Qualification Requirements • A member shall ensure that its competent authorities take account of qualifications acquired in the territory of another member, on the basis of equivalency of education, experience and/or examination requirements [paragraph 19].

Equivalence Accountancy Disciplines cont’d • That is, regulators are obliged to take account of qualifications already received in the home country and to modify any additional requirements imposed upon services suppliers accordingly. • This is only to “take account of” and only on the basis of equivalency – it does not prejudge the regulator’s decision regarding the extent of equivalency and does not require recognition. • If regulator doesn’t feel that regulatory goals are met, can still impose additional requirements (complementary measures).

Equivalence Accountancy Disciplines cont’d • Generally, qualification requirements must be no more trade restrictive than necessary to fulfil a legitimate objective. • Further, specifically, must take account of accountancy qualifications already earned • To what extent are they equivalent with own requirements/qualifications? • Any additional steps to meet equivalence with the required qualifications (e.g., additional training) should also not be more trade restrictive than necessary to fulfil a legitimate objective • Can require additional training, but not back to pre-school.

Equivalence Accountancy Disciplines cont’d • Members note the role which mutual recognition agreements can play in facilitating the process of verification of qualifications and/or in establishing equivalency of education [paragraph 21]. • MRAs establish equivalency of qualifications already earned • And thus can facilitate assessment of whether measures relating to qualification requirements are the least trade-restrictive necessary to fulfil a legitimate objective. • i.e., Indirectly could also contribute to judgement about extent to “necessity test” is being met. • As a practical matter, existence of MRAs means that the necessity test question is unlikely to arise. • Also, Article VI.6 also unlikely to arise where have MRA.

Equivalence MRAs • Obviously very useful in meeting GATS requirements and facilitating trade • But progress has been modest – although many are works in progress (watch this space) • Most agreements between developed countries • Tend to reflect regional or historical ties • Most in the already internationalised professions • E.g., accounting, architecture, engineers, nurses • Extent of recognition varies • Automatic recognition; partial recognition plus bridging courses; recognition subject to further assessment and testing; a degree of facilitation; cooperation and dialogue. • Most progress made where professions has taken the lead • While some RTAs encourage the development of MRAs, generally leave them to be negotiated subsequently by competent authorities

Equivalence MRAs - why limited progress? • Wide range of practices and cultural assumptions • Fear of loss of regulatory sovereignty • Absence of formal licensing or qualification systems in some countries • Absence of recognition frameworks or experience • MRAs often led by industry associations – may be lacking or not interested in facilitating access • Lack of awareness in the professions of the benefits of MRAs • Resource intensive and complex negotiations • Lack of incentive to negotiate MRAs in absence of real market access interests (or relevant commitments)

Equivalence Summary • Where have an MRA • Have clearly met requirement to take account of equivalence of qualifications already earned (AD) • As a practical matter avoid necessity test and Article VI.6 • But relatively few MRAs out there and prospects for progress difficult • Demand driven and resource intensive • Guidelines on MRAs in Accountancy Sector could help by encouraging development of more, or simply more consistent, MRAs • Could these guidelines be used as a template for the development of MRAs in other professions? • International standards might also facilitate the development of more MRAs.

International standards Article VII.5 (Recognition) • Wherever possible, recognition should be based on multilaterally agreed criteria. • In appropriate cases, Members are to work in cooperation with relevant inter-governmental and non-governmental organisations towards the establishment and adoption of common international standards and criteria for recognition and common international standards for the practice of relevant services trades and professions.

International standards Article VII.5 (Recognition) • Does not require the use of international standards • In appropriate cases, wherever possible • Acknowledges the role of non- and inter- governmental bodies • Relevant bodies are those whose membership is open to at least all WTO members.

International standards Article VI.5 (Domestic Regulation) • In determining whether a member is in conformity with the obligation not to apply licensing and qualification requirements and technical standards that nullify or impair specific commitments, account shall be taken of international standards of relevant international organizations applied by that member. • Same definition relevant organisations as in Article VII.5 • Introduces the idea that international standards are relevant to the assessment of whether a measure is more trade restrictive than necessary • But, unlike agreements in goods (TBT, SPS), it does not create a presumption that a measure in conformity with international standards is presumed to be necessary.

International standards • 1995 Decision on Professional Services draws these two elements together • In drawing up disciplines on accountancy, asked to concentrate on • The use of international standards and, in doing so, [to] encourage the cooperation with the relevant international organizations as defined in Article VI.5 (b), so as to give full effect to Article VII.5

International standards Accountancy Disciplines • VIII Technical Standards • In determining whether a measure is in conformity with the obligations [that a measure be not more trade restrictive than necessary to fulfil a legitimate objective], account shall be taken of internationally recognised standards of relevant international organizations applied by that member. • “Internationally recognised” standards, not just international standards • Take account of – again no presumption of conformity

International standards In sum • Relevant to the assessment of whether measure is more trade restrictive than necessary • Would facilitate the operation of a necessity test • Also could facilitate development of more MRAs covering more members • Might facilitate implementation of Article VI.6 requirement to have adequate procedures in place to verify the competence of professionals from any other WTO Member • Might make it easier to do this for all WTO members.

International standards • However, there are relatively few international standards in services • Probably for same reason as recognition has proven difficult to achieve • Also, need large scale trade to make it worthwhile – expect to increase in coming years • Questions also arise about the capacity of all WTO Members to participate in standard setting.

Concluding thoughts • MRAs one way to meet the Accountancy Disciplines’ requirement to take account of qualifications already achieved on the basis of equivalence • Could contribute to ensuring that measures relating to qualification requirements are not more trade restrictive than necessary • A necessity test can also be a way of defending the rights of those countries who are currently excluded from MRAs by ensuring that they are not subject to unnecessarily trade restrictive requirements. • Need Article VI.6 general requirement for those countries not covered by MRAs.

Concluding thoughts • The existence of international standards would facilitate implementation of a possible necessity test • International standards would also assist in the development of MRAs • Might also facilitate implementation of VI.6 obligation to have adequate procedures to verify the competence of professionals from any other WTO Member. • Development of international standards could clearly have a trade facilitating effect.

Concluding thoughts • However, both MRAs and international standards have proven difficult and slow to develop. • The difficulties encountered in determining whether different measures met the same regulatory objective suggest that it might also be difficult to make such determinations in the context of a necessity test. • Development of Article VI.4 disciplines and MRAs or international standards are slow for similar reasons.

Thank you

Short cut or long road? Equivalence, international standards and the GATS