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FDI and the right to regulate: Lessons from trade law

The problem of domestic regulation versus international trade and international investment. Note: This is part of a larger PDF - THE DEVELOPMENT DIMENSION OF FDI: POLICY AND RULE MAKING PERSPECTIVES Proceedings of the Expert Meeting held in Geneva from 6 to 8 November 2002

Some analyses of domestic regulation disciplines – compilation for MC11 (2017)

This is a recent analysis of proposed (by a number of countries) Disciplines on Domestic Regulation from Sanya Reid Smith of TWN, an NGO that has been involved in WTO matters for a long time. It was made before the recent WTO Ministerial Conference in Buenos Aires. You can see that its the WTO which is disciplining the countries domestic regulations. ------------------------------------------ Introduction Domestic regulation disciplines on services are being negotiated in a number of trade agreements including at the World Trade Organization (WTO), in the Trade in Services Agreement (TISA) 1 and in other free trade agreements (FTAs) such as the Regional Comprehensive Economic Partnership (RCEP) 2 and those being negotiated by the European Union (EU) 3 . It seems that domestic regulation disciplines (DRD) will also be negotiated at the Eleventh WTO Ministerial Conference (MC11) from 10-13 December 2017 in Buenos Aires, Argentina. 4 The European Union, Australia, New Zealand, Switzerland etc (‘EU et al’) released their DRD proposed text on 1 December 2017. 5 "These proposed DRD would restrict laws and regulations re services licensing etc, even non-discriminatory laws which apply to domestic and foreign companies equally. Yet, as United Nations Conference on Trade And Development (UNCTAD) staff note, services regulation is important for a number of reasons including: protecting consumers, ensuring universal access to essential services cultural diversity, quality, safety, correcting market failures (eg: information asymmetry where the service provider has more information than the consumer, natural monopolies, negative externalities (eg environmental degradation from transport) where those not directly involved suffer costs). 6 After highlighting that many regulatory frameworks are still at an emerging stage in developing countries the UNCTAD staff conclude that ‘it is key for developing countries that international rules for services trade preserve the right to regulate (RtR) and grant the necessary policy space to experiment in the search for those policies that best suit individual countries’ specific, developmental needs.’ Given this, the UNCTAD staff note that ‘one would expect developing countries to take a cautious, rather than an offensive approach towards the development of these disciplines, with their main goal to preserve the RtR.’ 7 This compilation includes excerpts from existing analyses of the same DRD proposed in the WTO or in TISA." ----------------------------------- Compiled by Sanya Reid Smith, Third World Network

Track 2 of the GATS

The GATS is a scheme to remake society and the world of work, lowering wages and increasing competitive pressures to make business more profitable for trans-national corporations globally. Part of this scheme is recognition of professional qualifications so that professionals can be treated like interchangeable parts in a machine.

The Limited Case for Permitting SME Procurement Preferences in the WTO Agreement on Government Procurement

"Any agreement to liberalize procurement markets should deal with the reality that some states have longstanding policies supporting firms owned and controlled by historically disadvantaged individuals, rooted in the constitutional orders of those states. Substantial noneconomic rationales, grounded in notions of social justice and human rights, support these programmes, but the domain of these rationales as they are currently understood is limited to domestic societies. This limitation affects all negotiations to liberalize trade across national borders, in that states (or their leaders) do not hold the view that they have obligations to support the programmes of other states in the area of social justice. I argue that all WTO members should have an equal opportunity to implement noneconomic policies having to do with promoting justice within their borders for their citizens. "

Regional Trade Agreements and Trade in Services

Ortino, Federico, Regional Trade Agreements and Trade in Services. in BILATERAL AND REGIONAL TRADE AGREEMENTS: COMMENTARY, ANALYSIS AND CASE STUDIES, Lester & Mercurio, eds, Cambridge University Press, Forthcoming. Available at SSRN: https://ssrn.com/abstract=995781 .... Quote: "‘measures by Members’ means measures taken by central, regional or local governments and authorities as well as non-governmental bodies in the exercise of powers delegated by central, regional or local governments or authorities. However, GATS only requires Members to take such reasonable measures as may be available to them to secure compliance with GATS rules by sub-central and non-governmental bodies (Article I.3(a)). ‘Measures by Members affecting trade in services’ include measures in respect of (i) the purchase, payment or use of a service; (ii) the access to and use of, in connection with the supply of a service, services which are required by those Members to be offered to the public generally; (iii) the presence, including commercial presence, of persons of a Member for the supply of a service in the territory of another Member (Article XXVIII(c)). This list being indicative, the inquiry centers around the term ‘affecting’. WTO jurisprudence has interpreted broadly the term ‘affecting’. A measure affects trade in service when the measure ‘modifies the conditions of competition in supply of a service.’ In other words, GATS disciplines apply, in principle, to any measure of a Member to the extent it affects the supply of a service, regardless of whether such measure directly governs the supply of a service, or whether it regulates other matters but nevertheless affects indirectly trade in services. Furthermore, in line with GATT/WTO jurisprudence, in order to determine whether a measure ‘affects’ trade in services, there is no need to determine actual effects, rather it is enough to demonstrate a potential effect on trade".

TISA - backdoor services liberalisation on a global level!

The Trade in Services Agreement (TISA) currently under negotiation on the side-line of the World Trade Organization (WTO) poses significant deregulatory threats for the majority of services sectors. International trade in services is dealt with by the General Agreement on Trade in Services (GATS) and its annexes. Each WTO country so far autonomously decides which sectors are to be opened up to cross-border competition. Services sectors liberalisation is carried out once governments gave their explicit agreement to do so (positive lists). TISA intends to reverse this logic and implement a negative listing of liberalisation commitments. Only explicitly targeted sectors in the agreement would not be subject to further liberalisation. This poses significant risks of liberalising all services sectors of the economy unless explicitly exempted from the agreement. TISA would contain “Standstill” and “Ratchet” clauses. Standstill clauses effectively freeze the degrees of regulation in particular sectors and countries are no longer free to implement more strident regulatory provisions. A recently leaked text showed that the financial services industry, through TISA, intends to freeze international financial regulatory efforts by setting a minimum regulatory floor which could not be subsequently superseded by any government wishing so. Ratchet clauses effectively impede government to reverse achieved liberalisation floors. Once a sector is liberalised, there cannot be a turning back. These clauses mean that governments will no longer be able to challenge decisions and choices made by previous governments. The combination of the ratchet and standstill clauses renders the reversal of liberalisation levels impossible. Additionally, TISA could prescribe necessity tests for regulatory measures. Governments would have to prove the necessity of a regulatory instrument before implementing it. For example, in a discussion of universal coverage, a Government would have to prove the necessity of re-regulating already privatised services such as postal services.

General Agreement on Trade in Services: negotiations concerning Domestic Regulations under GATS Article VI(4)

(November 24, 2000) "In the current preparatory negotiations on services (part of the “built-in” agenda at the WTO) governments are developing positions regarding GATS Article VI(4) which requires the development of “disciplines” on countries’ domestic regulations over services. Specifically, the article seeks to prevent “unnecessary barriers to trade” in regulations regarding “qualification requirements and procedures, technical standards and licensing requirements” and to ensure that regulations are “not more burdensome than necessary to ensure the quality of the service.” In our view, this entire exercise is unjustified. There should be no role for the WTO in overseeing non-discriminatory domestic regulations (those which do not discriminate in standards and qualifications based on nationality.) This exercise represents a wholly unwarranted intrusion of trade law into important domestic public safety laws".

OECD Services Trade Restrictiveness Index - Regulatory database

This is the index hosted by the OECD (one of several indices of trade restrictiveness) that countries can use to consult if their services regulations comply with "Minimal Trade Restrictiveness" rules that limit what a country can regulate. For example, WTO rules require that measures (basically all national laws, regulations or policies, at the federal, state or local level ) be 'not more burdensome (on corporations) than necessary to ensure the quality of the service'.

The Scope of GATS and of Its Obligations by Bregt Natens, Jan Wouters

Bregt Natens, Jan Wouters - KU Leuven - Leuven Centre for Global Governance Studies Date Written: August 1, 2013 Abstract The GATS preamble already highlights the inevitable conflict between on the one hand achieving progressively higher levels of liberalization of trade in services in order to expand trade in services and promote growth, and on the other hand the right to introduce new regulation to meet national policy objectives. Hence, it was clear from the outset that the balance between trade liberalisation and domestic regulatory autonomy would be key in interpreting the constructively ambiguous GATS. The outcome of this exercise depends on three factors: the interpretation of (i) GATS’ overarching objectives, (ii) of the general scope of GATS and of the obligations arising from it (and the exceptions to them) and (iii) of the inherent individual flexibility of GATS. Whilst also touching on the first, this contribution mainly focuses on the second factor by addressing the scope of GATS, of its unconditional obligations, of obligations applying to sectors for which specific commitments have been scheduled and of obligations in GATS Annexes. Additionally, it provides an overview of the structure of GATS obligations. The third factor is mainly addressed throughout textboxes which provide an illustrative insight into how the European Union has used the inherent GATS flexibility to shape its obligations. Keywords: WTO, World Trade Organization, GATS, General Agreement on Trade in Services, services, scope, obligations, governmental authority exception

Ellen Gould discusses GATS on Talking Stick TV.

Video - Ellen Gould is a trade expert whose insight here is quite accurate. See what she tells us here about domestic regulations, technical standrds, licensing, medical standards, everything. Lots of info on what they want to do with healthcare. The WTO could sanction us if we wanted our doctors to meet higher standards than those in the developing countries. (around 25:00) The WTO also wants us to allow for profit offshoring of poor patients. Which would be subject to the same problems as the for profit system does now, except likely worse, with less accountability.

The Potential Impact of the World Trade Organization's General Agreement on Trade in Services on Health System Reform and Regulation in the United States. (2009)

In this 2009 paper, the late Nicholas Skala, explained the "GATS" agreement, its implications for US healthcare reform and why we urgently need to apply for and pursue a specific procedure (Article XXI) to withdraw from the GATS in order to avoid built in traps for the unwary, for example, to get single payer health care. This is all necessary because previous Administrations quite foolishly signed away our rights to regulate dozens of services including those relevant to healthcare financing and delivery (and many others, literally most of our economy) away in the GATS when we entered the WTO. Skala also explains how additions made to GATS in 1998 further prevented and hamstrung regulators, If they attempt to expand instead of deregulate existing social services without leaving GATS or formally modifying the US's "Schedule of Specific Commitments" using Art. XXI FIRST. (See 'Recommendations' section) Otherwise, we cannot improve anything and attempts to expand the Affordable Care Act will encounter numerous GATS provisions like "standstill" and "rollback", which are meant to protect foreign investors profits, locking them in at the Feb 1998 level. If a demand is made in the WTO, compel us to make cuts to restore that previous level of regulation. The level at the end of February 1998 is carved in stone as a regulatory ceiling we are not supposed to exceed. TISA also embeds the GATS dates apparently. GATS can also impact jobs and a newer agreement also globalizes procurement of services, requiring the opening of the economy to temp worker companies if they can provide services cheaper than US firms, potentially taking control over a very wide range of once public & quasi-public government funded and subsidized activities, unless they qualify for a very few, narrow exemptions, such as the 'governmental authority exclusion' defining what can be a 'public service'. (see that keyword on the left, below) If you only read a few papers on GATS on this site, make sure this is one and also read that keyword. Also see "explainer" tagged items.