Domestic Regulation Related Barriers faced by Developing Countries in Developed Country Markets by Suparna Karmakar Developing Countries and Services Negotiations 6-7 June, 2006 New Delhi

25 years of ICRIER - Linking India to the World Economy Services Negotiations in Doha Round Annex C of the Doha Declaration mandates Market Access Negotiations under GATS as a part of single undertaking DDA also calls for rules negotiations under GATS: the unfinished business from the Uruguay Round Domestic Regulations (DR): one of the critical areas of discussion where progress is visible Mandate – Article VI:4 of GATS, that calls for disciplines on domestic regulation Para 7 of Guidelines for Negotiations (S/L/93) - Specific mandate for development of disciplines on ‘professional services’ before the end of the Round: Members ‘shall’ develop disciplines

25 years of ICRIER - Linking India to the World Economy Services Negotiations in Doha Round, contd… Para 5 of Annex C of the Hong Kong Declaration reiterates the above DDA position Call for intensification of negotiations by developing texts using the proposals and illustrative list of possible elements contained in WPDR document JOB(05)/280

25 years of ICRIER - Linking India to the World Economy Domestic Regulation Issues In the absence of explicit tariff barriers, as compared to goods, over the years, countries have more intensively regulated services on grounds of protecting consumer interest and ensuring quality and excellence of professional services Challenges for enhancing market access in developed countries under both cross-border trade (Mode 1) and movement of natural persons (Mode 4) lie in the range of state-imposed regulatory barriers, including burdensome visa formalities, registration and licensing requirements, fee structure, stringent quotas and qualification requirements, and discriminatory taxes, levies and standards faced by the developing country service providers

25 years of ICRIER - Linking India to the World Economy Domestic Regulation Issues, contd… Further, most professions are closely regulated, often self-regulated, usually though their trade associations’ voluntary standards: quasi-regulation Entry restrictions are usually based on standards set in educational qualifications and experience, and related licensing requirements and procedures, and different technical standards ostensibly to ensure quality of service Mandate is to discipline DRs in professional services: Is such disciplining merited? GATS recognizes the sovereign right of WTO Member governments to regulate, and introduce new regulations on, the supply of services within their territories in order to meet national policy objectives, and the particular need of developing countries to exercise this right

25 years of ICRIER - Linking India to the World Economy Domestic Regulation Issues, contd… However, there is also the requirement that these regulations are not ‘more trade restrictive than necessary’ and are ‘least burdensome’ Disciplines will therefore be aimed at ensuring that the qualification requirements and procedures, technical standards and licensing requirements and procedures do not constitute ‘unnecessary’ barriers to trade in professional services Inter-linkages of Domestic Regulation (Article VI) with Market Access (Article XVI) and National Treatment (Article XVII) obligations Disciplines on all services or only those in which the Member has taken specific commitments? Depth of disciplinary action: entails obligations on federal and sub-federal levels, and quasi-government institutions

25 years of ICRIER - Linking India to the World Economy GATS & Right to Regulate: US-Gambling Case The main issue here relates to the regulatory autonomy of the Member country, and the fear that such disciplines will compromise on sovereignty by requiring that trade considerations to prevail over legitimate national policy objectives A reciprocal concern is that of National Right becoming a Disguised Barrier The Appellate Body by broadly interpreting the per se prohibited market access restrictions seem to have considerably expanded the reach of GATS prohibitions by ruling that the US restrictions on cross-border supply of gambling and betting services was de facto a quantitative restriction, and even though it was not explicitly quantified in the US domestic laws, it is tantamount to a violation of the GATS commitments This narrows the distinction between domestic regulation requirements and market access barriers, creating more inter-linkages and interpretational confusion

25 years of ICRIER - Linking India to the World Economy Barriers Faced in Developed Countries Existing domestic regulations deemed to be having the most restrictive impact on market access are: Regulations relating to Visa requirements and work permits – economic needs tests, numerical quotas and duration/time limits for stay Discriminatory policies favoring domestic service providers – especially requirements relating to citizenship and residency (even for sitting examinations), and linkages with commercial presence requirements (mandatory legal registration in host countries limits mode 1 access the most) Non-recognition of professional qualifications & experience – issues of equivalence and accreditation of qualification and professional licenses

25 years of ICRIER - Linking India to the World Economy Barriers Faced, contd… Transparency - inadequate information available, or information not readily available, to non-governmental market participants about new or proposed regulations; arbitrary administration of domestic laws Examples of some onerous requirements and barriers: heterogeneous federal and sub-federal licensing and qualification requirements and procedures, which makes a license or qualification recognition obtained in one state not valid in other states to be licensed as a professional, there is a requirement or pre-requirement in certain sectors for membership of an affiliate professional organization which while having no regulatory authority over the profession (i.e. union, country club), but to be a member of this organization, the licensee must be a resident of the territory or have lived in the territory for the past six months

25 years of ICRIER - Linking India to the World Economy Barriers Faced, contd… overly complicated qualification and licensing requirements onerous licensing requirements and restrictions on registration (e.g. residency requirements), which prevents foreign engineers from signing off on drawings and managing projects necessity to obtain/renew the same license in every regional government; short effective period of licence requirement of indemnity insurance or bonds prior to licensing licensing fees are prohibitive; multiple licenses to be taken cumbersome authorization requirements; permit required for every project restrictive regulations relating to zoning (in favor of the local suppliers)

25 years of ICRIER - Linking India to the World Economy Barriers Faced, contd… long delays and procedural complications and also for verification of applicant's qualifications acquired in the territory of another Member requirements pertaining to fluency in language of or previous working experience in the host country, which in some cases is not relevant to ensure the quality of service non-transparent registration procedures and regulatory environment different sub-federal regulations for recognition of qualifications and qualification procedures excessive administrative costs that do not reflect fees charged unpredictable and long timeframe for registering process: viz. arising out of requirements like all important documents must be certified by local Public Notary

25 years of ICRIER - Linking India to the World Economy Barriers Faced, contd… prior approval from competent authority for employment of managers and supervisors, directors specific requirements vis-à-vis composition of Board of Directors lengthy censorship procedures; too many censoring agencies with different criteria local standards requirements: in some federal system Members, the sub-federal governments maintain different technical standards from one another the internal documents of a foreign establishment have to be written in a local official language long delays when government approval is required, and, if approval is denied, no reasons or information given on what must be done to obtain approval in the future nor any corrections allowed

25 years of ICRIER - Linking India to the World Economy India’s stand on DR Disciplines (QRP) India supports the need for reaching an agreement on Disciplines on DR in the interest of enhancing market access in Services, in particular Mode 4 access India, supported by Chile, Mexico, Pakistan and Thailand, has submitted a proposal to WPDR on disciplining qualification requirements and procedures (QRP). The latest Room Document of May 1, 2006 is in continuation of JOB(05)/50 Stringent qualification norms for various professional services act as a big restriction in the movement of service providers from developing countries

25 years of ICRIER - Linking India to the World Economy India’s stand on QRP, contd.. Key elements of the Proposal: Qualification requirements and procedures are transparent, pre-established, publicly available and objective Members should accept professional experience as a substitute for educational requirements All measures should be based on objective and transparent criteria Where the verification process finds deficiencies in the qualifications, Members must identify the additional requirements relating to course work, training or work experience service that suppliers must fulfill to meet the qualification required to supply the service Members should provide opportunity to service suppliers to fulfill these additional requirements through examinations, course work, practical training or professional experience

25 years of ICRIER - Linking India to the World Economy India’s stand on QRP, contd.. Additionally, service suppliers should be allowed to fulfill such additional requirements in their home country or in third countries Residency or work experience in host country should not be a condition for eligibility for such examinations unless necessary for meeting national policy objectives Members should provide justification in case such additional requirements can be met only in the host country Members shall ensure that requirement of fluency in host country language shall not in itself constitute a restriction to sitting for examinations and based on national policy objectives Members shall ensure that the fees charged have regard to administrative costs and are not an impediment in themselves

25 years of ICRIER - Linking India to the World Economy India’s stand on QRP, contd.. Members shall ensure that the frequency of examinations should be at reasonable intervals and also that exams be open for all eligible applicants including foreign and foreign qualified Members shall provide an opportunity for review of decisions relating to fulfillment of qualification requirements; in case of rejection, service suppliers should be given an opportunity to resubmit applications and related documents Recommendations on S&DT and Technical Assistance Conformity of Disciplines and Timeframe for Compliance should account for Members’ level of regulatory development and institutional capacities TA is necessary for regulatory capacity building at home and in meeting particular host country markets