. /.  RESTRICTED  WORLD TRADE  
ORGANIZATION  S/WPDR/W/44 
22 March 2011 
 (11-1414) 
Working Party on Domestic Regulation Original:   English 
  
 
COMMUNICATION FROM BRAZIL, CANADA AND  
THE UNITED STATES 
 
Views on the Issue of the Necessity Test in the Disciplines on Domestic Regulation
 
  
 The following communication dated 22 March 2011  from the delegations of Brazil, Canada 
and the United States is being circulated to the Members of the Working Party on Domestic 
Regulation with a view to contributing to the de bate on the necessity test in the disciplines on 
domestic regulation under Article VI:4 of the GATS. 
 
 This communication is made without prejudice to  the final positions of the co-sponsors on the 
other aspects of the negotiations of disciplines on dom estic regulations, including possible alternatives 
to the necessity test.  
_______________ 
 
 1. The co-sponsors of this pa per have highlighted on several occasions that they support 
negotiation of clear and effective disciplines on dom estic regulation of services under Article VI.4 of 
the GATS.  They have also emphasized the importan ce that they attach to the right of Members to 
regulate in order to meet national policy objectives, wh ich is clearly recognized in the preamble to the 
GATS.  Since the right to regulate is a sovereign right, the disciplines on domestic regulation must not 
unduly undermine that right.  The co-sponsors are con cerned;  however, the necessity test may have 
this precise effect.   2. The co-sponsors understand that the objective of  the disciplines on domestic regulation is to 
avoid a situation in which measures related to domestic regulation undermine commitments taken 
under Articles XVI and XVII of the GATS.  Howeve r, the necessity test, as proposed by various 
Members, aims at assessing the need or merit of a certain measure to achieve a domestic public policy 
objective, irrespective of whether it has any effect  on these commitments or even any effect on trade 
in services.  This means that the regulator could be told to choose a less burdensome measure if any 
other Member believes that the approach taken wa s not "necessary" to fulfil this objective.  This 
threatens the crucial discretion that regulators must ma intain to enable them to adequately take into 
account legitimate policy objectives in their own jurisdiction.   3. A measure can be adopted for a number of legitimate reasons, many of which pertain to non-
trade concerns, generally linked to societal norms a nd rules.  The necessity test would allow another 
WTO Member to challenge the way the regulator ch ose to address the non-trade concern even with no 
demonstrated effect on trade by claiming that anot her measure, allegedly less burdensome, could have 
been taken to achieve the same policy objective.  In such disagreements, the argument would come 
down to the legitimacy of the non-trade concern and how the regulator chose to address it rather than 
whether or not that measure undermines market acce ss or national treatment commitments (which can 
already be addressed under GATS).   
 S/WPDR/W/44 
Page 2  
 
  4. This situation is pa rticularly untenable because it applies not to discriminatory measures 
(which would be captured by Article XVII) but to non-discriminatory  measures, which are applied 
equally to foreign and domestic services or fore ign and domestic suppliers.  We emphasize that 
discriminatory measures are already disciplined under Article XVII (National Treatment);  the 
proposed necessity test would only apply when a Me mber requires the same regulatory steps of its 
domestic service suppliers as it requires of foreign service suppliers. 
 5. Moreover, as indicated in the Secretariat’s su mmary of the necessity test  jurisprudence in the 
WTO (S/WPDR/W/27/Add.1), there is no single interpretation of "necessary" in the WTO; the interpretation varies depending on the purpose and cont ext.  This makes it difficult to determine, in 
advance, how a panel will interpret the test, and it ma kes it risky to rely on interpretations grounded in 
other contexts.  All we know, with certainty, is that  the meaning would be determined by a panel or 
Appellate Body;  this means that it is, above all,  a jurisprudential creation with the potential to 
seriously circumscribe domestic policy choices.   
6. For these reasons, the existence of necessity t est language in other WTO Agreements should 
not be used as a justification for its inclusion in  the disciplines on domestic regulation for services. 
Each agreement has its own context and purposes, which does not necessarily fit the reality of the 
regulation of trade in services.  For instance, concerning the TBT and SPS agreements, Members are 
frequently able to use scientifically tested eviden ce underpinning standards for the products covered 
by these agreements. In the area of services, it is not possible to apply the same type of scientific 
testing to service suppliers, i.e.  human beings.  Regulators of services need broader discretion to 
make judgments about the applicants appearing befo re them, balancing factors such as ensuring both 
the quality and availability of the service in light of  societal norms and values.  Furthermore, even 
where "necessary" is used elsewhere in the services  context (i.e. in the GATS), it applies much more 
narrowly to a more specific sub-set of issues, so the implications cannot be said to be the same. 
 
7. Finally, it is important to bear in mind that  the mandate of Article VI of the GATS does not 
require a necessity test.  Members are asked to de velop "any necessary disciplines" but the outcome is 
not pre-determined by Article VI.  The list of elem ents mentioned in Article VI:4 only establishes the 
"aims" of the disciplines; so long as the sp ecific disciplines negotiated meet these aims, the 
Article VI:4 mandate is fulfilled.  Moreover, the lis t of objectives is not exhaustive, and the reference 
to necessity only pertains to the quality of the servi ce ("not more burdensome than necessary to ensure 
the quality of the service":  Article VI:4(b)).    8. For all of these reasons, the co-sponsors believe th at the necessity test is inconsistent with the 
broader objective of developing clear and effective disciplines on domestic regulation.  In our view, 
the necessity test would be both a vague and unpred ictable standard, ultimately defined by a panel 
rather than WTO Members, which would open the door to second-guessing experienced regulators 
about some of the most sensitive policy choices made  by Members.  The co-sponsors also believe that 
a necessity test is simply not necessary in the broader context of the GATS.  In our view, strong specific procedural disciplines negotiated in the WPDR, combined with existing GATS requirements 
for national treatment and reasonable administration of  all measures, gives Members all the legal tools 
they need to address regulatory practices they view as inappropriate.  Should the proponents of the 
necessity test, however, continue to believe in the need for some sort of additional standard, they 
could propose, for consideration, other alternativ es bearing in mind the concerns we have set out 
above.   
 
__________