• Divyashree Suri

#2: Technically Unbarred: GATS & Technical Regulations

Introduction

The Agreement on Technical Barriers to Trade (“TBT”) addresses the technical requirements and mandatory standards imposed by countries on imported goods. As discussed previously, the TBT does not extend to the trade of services. One of the primary reasons behind this is that the TBT was first negotiated upon in the late 1970s, when only the General Agreement on Tariffs and Trade (“GATT”) was in existence. The General Agreement on Trade in Services (“GATS”) was made a part of the World Trade Organization (“WTO”) regime almost two decades after the TBT came into force. Another reason for failing to extend the TBT to trade in services, is that services are regulated differently than goods. For trade of goods, the standard of the final output (i.e. the good being imported) must be regulated. On the other hands, the point of concern in trade of services are the inputs which go into the services (i.e. entry of services, credibility of service supplier, etc.). The GATS framework does not require the adoption of the TBT in its entirety. It requires a specialized multilateral agreement which deals with the concerns arising out the lack of a framework which governs technical standards.


The main concern which arises out of the lack of a similar framework for trade in services is that it allows countries to increase the level of protectionism in trade in services in a manner that may not violate their Schedule of Concessions under the GATS per se. Countries may adopt non-objective and non-transparent procedures to grant licenses and qualifications for the supply of services. For example, the United States of America continues to have the ‘convenience and needs’ test as a part of its licensing and acquisition process in the financial services sector. The Federal Reserve is required to take into account the ‘convenience and needs’ of the community while accepting an acquisition application for control over a bank. This involves looking into the quality of the applicant’s services (hours of operation, interest rates, size of available loans, etc.). There is no set standard for such a quality test, and the transparency of such a test is questionable. Further, the lack of a TBT-like framework for trade in services also leads to the inability of developing countries to comply with complex licensing requirements and procedures to go unaddressed. This limits the access to international services markets for developing countries.


Gaps in the Existing GATS Framework

While the GATS does touch upon the domestic regulations adopted by countries which may act as technical barriers to trade, it is insufficient and has several gaps which have not been filled yet. Article VI of the GATS addresses domestic regulations introduced by countries which govern or affect trade in services. Article VI:4 and VI:5 of the GATS covers technical standards and licensing requirements in trade of services. Article VI:4 states that no technical standards or licensing requirements should ‘constitute unnecessary barriers to trade in services’. It further allows the Council for Trade in Services to develop necessary disciplines with regard to technical barriers. However, despite an ongoing negotiation on the development of such disciplines since April 1999, there has been no tangible outcome under Article VI:4 yet. The development of such disciplines could potentially solve the issues arising out of the lack of a TBT-like framework under the GATS.

In the pendency of the disciplines being adopted by the Council of Trade in Services, Article VI:5 acts as a respite to a certain extent. It does not permit countries to apply technical barriers to trade in services if they do not comply with the following criteria: (a) based on an objective and transparent criteria; (b) are not unnecessarily bundersome; and (c) should not be a restriction on the supply of services. While this may act as a touchstone for protectionist trade barriers, it is too broad and vague to provide any actual relief in case of unfair trade barriers being imposed by countries.


There are several problems which remain unaddressed in the current GATS regime with regard to technical barriers on trade:


1) Definitions: Annex 1 of the TBT clearly lays down the definition of what constitutes a ‘technical regulation’, ‘standard’, ‘conformity assessment procedure’, and so on and so forth. In the current GATS regime, it is unclear about what may qualify as a technical barrier to trade in services. Terms such as ‘technical standards’, ‘licensing requirement’, ‘qualification procedures’ are undefined and vague. In the event a discipline/multilateral agreement were to be adopted by the WTO members, it would ensure clarity of what constitutes a technical barrier of trade in terms of services.


2) Manner in which Regulation/Standard may be adopted: The TBT covers the following aspects in its legal text:


Table 1: Difference between the TBT and Article VI of the GATS with regard to Manner in which Regulation/Standard may be adopted

Note 1: Other nuances such as the imposition of technical barriers by Local Government Bodies and Non-Governmental Bodies, International and Regional Systems, Committee of Technical Barriers to Trade, etc. are helpful in policy making with regard to adopting technical barriers to trade with regard to goods. However, none of these provisions exist for GATS.


A bare perusal of the above table shows that Article VI of the GATS only covers the structural portion of the regulation of technical standards imposed by countries but does not have any guidelines for countries to abide by to ensure strict transparency or a fair and reasonable procedure. A framework which lists down guidelines to be followed while drafting legislations and building procedures with regard to licenses, standards, and qualifications is very much needed. This must include, inter alia, the appointment of regulatory authorities, time taken by authorities to respond to applications, the manner of rejection of applications, testing of services to ensure they ‘qualify’ under the qualifications requirement adopted by the country, relevant tests and verification of services, and the adoption of technical barriers to trade.


3) Developing Countries: As mentioned previously, developing countries may not always be able to comply with the strict standards of services and complex licensing procedures adopted by developed countries. The GATS lays strong emphasis on the involvement of developing countries in the growth of trade in services. Technical barriers to trade in services discourage developing countries to participate in trade in services, and therefore, leaves them disadvantaged. This goes against the intention of the GATS negotiators. The TBT, on the other hand, ensures special and differential treatment of developing country members under Article 12 of the TBT. Article 11 of the TBT also mandates developed countries to prove technical assistance to developing countries to ensure that technical regulations do not act as an obstacle to trade for them.


Conclusion

It is clear that with the growing reliance on the trade of services, the procedure of developing the disciplines under Article VI:4 of the GATS must be expedited. Some of the concerns listed above have substantively been addressed in the Chairman's Progress Report on the Disciplines on Domestic Regulation pursuant to GATS Article VI:4, which was published in 2011. In 2017 and 2019, 59 WTO Member Countries issued the first and second Joint Initiative on Services Domestic Regulation respectively. In the Joint Initiatives, they reaffirmed their commitment to the outstanding and urgent requirement to fill the gaps regarding domestic regulation in the GATS. The issue was scheduled to be taken up again in June 2020 at the Twelfth Ministerial Conference. However, with the looming pandemic, the conclusion of the negotiations is unlikely any time soon.

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