WORLD TRADE
ORGANIZATIONS/WPDR/W/14
1 May 2001
(01-2241)
Working Party on Domestic Regulation Original:  English
COMMUNICATION FROM THE EUROPEAN COMMUNITIES
AND THEIR MEMBER STATES
Domestic Regulation:  Necessity and Transparency
The following communication has been received from the European Communities and their
Member States with the request that it be circulated to the Members of the Working Party on
Domestic Regulation.
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1. The mandate for the Working Party on Domestic Regulation (S/L/70), in accordance with
GATS Article VI.4, calls on the Working Party to develop any necessary disciplines to ensure that
measures relating to licensing requirements and procedures, technical standards and qualificationrequirements and procedures do not constitute unnecessary barriers to trade in services.
2. For the European Communities and their Member States , this mandate and the ongoing work
in the Working Party have to be seen in the context of the preamble of the GATS:
Recognizing the right of Members to regulate, and to introduce new regulations, on
the supply of services within their territories in order to meet national policy
objectives and, given asymmetries existing with respect to the degree of development
of services regulations in different countries, the particular need of developingcountries to exercise this right.
3. Hence, the GATS recognizes the sovereign ri ght of Member governments to regulate the
supply of services in their territories; Members have the right to regulate, and to introduce new
regulations, on the supply of services within their territories in order to meet national policy
objectives. At the same time, the Preamble states the wish of WTO Members for an expansion oftrade in services under conditions of transparency and progressive liberalization. This wish has
become all the more important as the development of electronic commerce increases the possibilities
to provide services over communications networks.
4. The objective of the work done under Article VI:4 is to provide increased transparency,
predictability and certainty for regulators and operators. To recall, Article VI:4 calls for thedevelopment of disciplines which should aim to ensure that qualification and licensing requirement
are, inter alia,
(a) based on objective and transparent criteria, such as competence and the ability to
supply the service;
(b) not more burdensome than necessary to ensure the quality of the service;S/WPDR/W/14
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(c) in the case of licensing procedures, not in themselves a restriction on the supply of
the service.
5. This communication addresses some of the concepts relating to the development of regulatory
disciplines, as they were discussed in the WPDR, and is intended to reflect the European
Communities and their Member States' thinking on these concepts as it has evolved during thediscussion. It also builds on the submissions made by other Members. The main focus lies on
necessity and transparency.
6. The European Communities and their Member St ates consider that it has been useful to
identify and analyse the main criteria to be reflected in possible necessity requirements.  An
examination should now be undertaken of the way in which such concepts would best be applied to
individual sectors.  It will then be possible to evaluate the content and relative value of general or
sector-specific disciplines, or any combination of the two with a view to a final decision on new rules.
At present Article VI.5 already provides rules of general application in connection with the
nullification or impairment of commitments taken.  New disciplines negotiated under Article VI.4
should develop new levels of guarantee providing increased transparency, predictability and certainty
for regulators and operators. Concepts, which are not open to clear application without the further
evaluation of specifically relevant criteria, might prove more valuable as overall guidelines rather thanadopted as general disciplines.  It is the purpose of this work further to clarify Members’ obligations
and not to create an unpredictable mandate for dispute settlement procedures to do so.
A. S
COPE OF ARTICLE VI:4 D ISCIPLINES AND THE CONCEPT OF NECESSITY
7. Regulatory measures by Members affecting trade in services can restrict national treatment or
limit the access to the market, in which case they are subject to scheduling for committed sectors inaccordance with Articles XVI and XVII; or they can af fect trade in services without falling within the
scope of these two articles, in which case they are subject to Article VI which aims at minimising the
trade-restrictive effect of domestic regulation. As concluded by the Working Party on Professional
Services, there shall be no overlap between Articles  XVI and XVII, which belong to Part III of the
GATS, and Article VI, which belongs to Part II on general obligations and disciplines. It wouldtherefore follow that measures subject to Articles XVI and XVII do not fall under the scope of
Article VI.
8. To recall, Article XVI refers to measures which are mainly of a quantitative nature, and may
or not be discriminatory in their application, while Article XVII covers measures of a qualitative
nature which discriminate between domestic and foreign service suppliers. Domestic regulation
measures under Article VI are non-discriminatory, i.e. they apply to domestic and foreign service
suppliers alike, and of a predominantly qualitative nature.
9. Central to the question of the scope of disciplines is how to differentiate between measures
falling under Article XVI and XVII and measures subject to Article VI, in particular VI:4. The
European Communities and their Member States think that the list of examples of the kind of
measures to be addressed under GATS Article VI:4 disciplines, which the Secretariat is  compiling on
the basis of Members input and existing material, will help focus the debate.
10. Only the categories in Article VI.4 should be included in the disciplines to be developed:
there is no reason why the mandate of Article VI.4 should be modified. Nevertheless, these are
relatively broad as shown in their defini tion contained in paragraph 4 of S/C/W/96:
“...qualification requirements, that is to say substantive requirements which a
professional service supplier is required to fulfil in order to obtain certification or a
licence; qualification procedures, administrative or procedural rules relating to theS/WPDR/W/14
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administration of qualification requirements; licensing requirements, comprising
substantive requirements other than qualification requirements, which a service
supplier is required to comply with in order to obtain a formal permission to supply a
service; licensing procedures, administrative procedures relating to the submission
and processing of an application for a licence; and technical standards, requirements
which may apply both to the characteristics or definition of the service and to themanner in which it is performed”.
11. Further work on these items based on these definitions, and the examples of actual measures
which will be compiled, will be necessary and useful to clarify the scope and content of any
disciplines.
12. Certain self-regulatory measures should also be  subject to disciplines. This would follow from
Article I:3 of GATS which includes under the 'measur es by Members' all measures taken by 'non-
governmental bodies in the exercise of powers delegated by (…) governments or authorities.' If self-
regulation by industry is to achieve the regulatory objectives set by government or authorities (i.e. not
voluntary standards set by industry), this would be considered as done under delegated power from
government.
13. As to the scope of measures which should be addressed by the disciplines developed under
Article VI:4, the European Communities and their Member States are of the view that measures taken
in the exceptional circumstances provided for in XIV and XIVbis, should not be considered to be
subject to the disciplines on domestic regulation. The European Communities and their Member
States are of the opinion that any disciplines to be developed under Article VI:4 for Financial Services
and their impact on measures taken for prudential reasons, as defined in Article 2(a) and (b) of theAnnex on Financial Services should be subject to a further detailed analysis in the context of the
specific status of  financial services under the GATS.
1. Scope of, and criteria for, the definition of necessity:
14. The European Communities and their Member States are of the opinion that it is useful to
have a definition of the concept of necessity that is horizontal in nature. This definition (which couldthen form part of disciplines, like the « general provisions » in the 'Accountancy Disciplines'), should
build on the concepts in Article VI.4 (including objectivity and transparency, not more burdensome
than necessary to ensure the quality of the service, not be applied in a manner that restrict trade in
services more than required in order to achieve the underlying objective) and be relevant to all sectors
in a horizontal way. This should ensure that the concept of necessity is addressed in a coherent
manner across all sectors. The disciplines should go beyond this and become an expanded version and
interpretation of the concept of necessity for specific sectors or groups of sectors. The new round ofnegotiations will provide the context to identify those sectors where regulatory issues related to
Article VI:4 would require more detailed work on possible sectoral formulation of disciplines. The
'Accountancy Disciplines' are a good example of a set of sector-specific disciplines.
15. This approach does not prejudge the European Communities' and their Member States'
position on the question whether the disciplines should be applicable to all sectors, regardless ofspecific commitments, or only to sectors where a Member has undertaken commitments. The
European Communities and their Member States reserve their right to come back on this issue at a
later stage.
16. An approach to the concept of necessity, which is coherent across all sectors, but allows for
sectoral interpretation, would not restrict the regulatory freedom of Members in order to meet
national policy objectives , as stipulated by the preamble, but should rather serve to assess the level of
trade-restrictiveness of a measure. In this assessm ent, technical and economic feasibility, includingS/WPDR/W/14
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the level of development of a Member, as well as the specific nature of the sector in which the
measure is used, should be considered.
17. The European Communities and their Member States have introduced the concept of
'proportionality' into the discussion as a means for assessing the trade impact of a domestic regulation
measure falling under the disciplines of Article VI:4. A measure should be considered not more trade-restrictive/not more burdensome than necessary if it is not disproportionate to the objective[s]
pursued. This means that the degree of trade-restrictiveness meeting the requirements of necessity will
depend on, and be assessed against, the specific objective[s] pursued, while the validity, or rationale,
of the policy objective[s] must not be assessed. As to the wording of a definition of necessity, the
European Communities and their Member States view  'not more burdensome than necessary'  and
'not more trade restrictive than necessary' as meaning essentially the same, and are preferred over the
concept of 'least trade restrictive'. The latter w ould, as the European Communities and their Member
States view it, unduly restrict the choice of the re gulatory tools available. Clearly, Members would
need to further analyse the implications of the two former, or consider different, formulations and to
work on how such concepts might then be applied in disciplines in order to achieve clear results.
18. Article VI:5(b) refers to the use of international standards of relevant international
organisations.  There is justification for the view that measures by Members that implementinternational standards of the relevant international organisations in the sense of footnote 3 of the
GATS be deemed to be not more trade restrictive than necessary. However, there may be
circumstances in which international standards play a different role which would mean that such a
conclusion could not necessarily automatically be drawn. Therefore, the application of international
standards in sectors where they exist should not be obligatory for Members. It would be useful, in thecontext of further work, in particular with regard to  the different sectors, to examine more closely the
international standards which already exist and which may prove relevant for the development of
disciplines under Article VI:4.
2. Legitimate Objectives
19. Members have discussed intensively the question of including an illustrative, non-exhaustive
list of legitimate objectives in order to clarify the concept of necessity. The discussion has shown that
there is considerable concern that such a list could restrict the autonomy of Members in defining
national policy objectives and regulating to achieve these objectives.
20. The European Communities and their Member States do not consider such a list as an
indispensable requirement for the work on necessity.
21. During the discussion, reference was made to the example of lists of legitimate objectives
contained in other WTO agreements (TBT and SPS) and to the illustrative list in the accountancydisciplines. However, both the Agreement on TBT and the Agreement on SPS have a more restricted
scope, and are of a more technical nature, than the GATS. As for the accountancy disciplines, also
here the focus is restricted to regulatory measures governing that profession.  The GATS is much
broader in its scope, and measures under Article VI:4 would, due to the broad nature of the
agreement, serve a multitude of legitimate policy objectives. The European Communities and theirMember States do not think that the inclusion of lists of legitimate objectives in other WTO
agreements, or even the accountancy disciplines, justifies or requires that a similar list be included in
generally applicable disciplines under Article VI:4.
22. If Members decide to include a list of legitimate objectives, the European Communities and
their Member States view it as important that the distinction between the objectives of Article XIVand XIVbis, and those of Article VI:4 is made clear.S/WPDR/W/14
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Summarising the above, the European Communities and their Member States consider that the
following elements would be useful in the definiti on of the concept of necessity. This should not
be seen as an exhaustive list, and there are undoubtedly more elements, which will have to be
taken into account.
• A measure that is not the least trade restrictive to trade will not be considered more
burdensome/more trade restrictive than necessary so long as it is not disproportionate to the
objective stated and pursued.
• The concept of proportionality, were it to be applied in a discipline, would have to relate to
the type of measure at stake. It would also have to take account of the technical and economiccontext, including the level of development of a Member, the specific nature of the sector in
which the measure is used, and also of the risks that non-fulfilment would present.
• The fact that one Member imposes stricter rules than another Member does not mean that the
former’s rules are disproportionate. Measures taken by a member which set stricter
requirements than international standards shall not, a priori , be considered disproportionate.
• There is justification for the view that measures by Members that implement international
standards of the relevant international organisations in the sense of footnote 3 of the GATS bedeemed to be not more trade restrictive than necessary. However, there may be circumstances
in which international standards play a different role which would mean that such aconclusion could not necessarily automatically be drawn. Even where such an approach is
justified, it should in no way imply an obligation of Members to implement international
standards.
23. In the light of these general conclusions, the European Communities and their Member States
consider that attention should now focus on the specific mandate of Article VI:4 to identify what are
the relevant objective criteria upon which domestic regulation should be based. This will also require
a more detailed examination of regulatory functions in specific sectors. The work done in the context
of the development of the accountancy disciplines, as well as during the negotiations of the
telecommunications reference paper, could prove useful in this context.
B. T
RANSPARENCY
24. The development of communications networks, and as a consequence of e-commerce,
enhances the importance of the issue of transparency: suppliers of services can increasingly provide
services from abroad and need to know which regulations they should abide by.
25. The European Communities and their Member States agree with Australia that Article III is
the standing guideline for work on transparency. The requirements in Article III are quite far reaching,
and apply to all relevant measures of general application , and thereby by implication also to
measures addressed under Article VI:4.
26. The accountancy disciplines add to these requirements. The European Communities and their
Member States believe that some of these additional requirements could prove useful also for generaldisciplines under Article VI:4, namely:
• Members shall make publicly available, or shall ensure that their competent authorities make
publicly available, including through the enquiry and contact points:S/WPDR/W/14
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− where applicable, information describing the activities and professional titles which 
are regulated or which must comply with specific technical standards;
− requirements and procedures to obtain, renew or retain any licences or professional
qualifications and the competent authorities' monitoring arrangements for ensuringcompliance;
− information on technical standards;  and
− upon request, confirmation that a particular professional or firm is licensed to
practise within their jurisdiction.
• Members shall inform another Member, upon request, of the rationale behind domestic
regulatory measures.
• Details of procedures for the review of adm inistrative decisions, as provided for by
Article VI:2 of the GATS, shall be made public, including the prescribed time-limits, if any,for requesting such a review.
27. Members have discussed extensively the concept of prior consultation as a means to
improving regulatory transparency. The discussion has shown that for some Members, this would orcould be incompatible with their regulatory and legislative systems. There is also legitimate concern,
in particular by developing country Members, that an obligation to establish prior consultation
mechanisms would constitute a significant administrative burden.
28. The European Communities and their Member States recognise that prior consultations on the
introduction of regulatory measures can prove useful. However, we are of the opinion that the
different regulatory and legislative systems of Members need to be respected, and we therefore do not
see any scope for introducing obligations for establishing prior consultation mechanisms as a result ofdisciplines under Article VI:4.  The provisions of the accountancy disciplines, which recognise this
difficulty, and call upon Members to endeavour  to provide opportunity for comment  when introducing
new measures, could provide valuable guidance for the current work on regulatory disciplines.
29. With regard to creating new notification obligations, the European Communities and their
Member States consider that, given the existing obligations of Members under Article III, priorityshould be given to implementation of existing obligations. The European Communities and their
Member States feel that new notification obligations would add to the administrative burden, in
particular of developing countries Members, without significantly improving the transparency of the
regulatory system of Members.
C. L
INK BETWEEN NECESSITY AND TRANSPARENCY
30. More transparency can play a role in determining whether a measure is necessary:
transparency allows Members and services suppliers to have the relevant information concerning the
regulatory regime in a Member necessary to assess the “necessity” of a particular measure.
31. Transparency can in itself also reduce the trade-restrictiveness of measures: a more
transparent regulatory environment helps suppliers in their operation by increasing legal certainty andidentifying potential obstacles and ways to overcome them. As a result of more transparency,
measures can become less burdensome and thus be able to meet the requirements of necessity.S/WPDR/W/14
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32. The European Communities and their Member States think that rules on necessity and
transparency should complement each other; transparency is useful to enhance legal certainty and
reduce the trade restrictiveness of regulatory systems but is not, in itself, sufficient. While
transparency provisions will contribute to providing the information, provisions on necessity will
impose the disciplines.
33. Both the work on transparency and on necessity should proceed in parallel with the common
objective of establishing a trade-friendly regulatory environment.
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