meaningfully in negotiations that offered an opportunity not merely to make binding commitments but also to mobilize assistance for national regulatory reform. Market-opening negotiations now take their course in the WTO or in regional fora with only ad hoc links to international assistance for regulatory reform, including that from institutions like the International Monetary Fund and the World Bank. It would help to establish a credible mechanism for regulatory assistance to support liberalization commitments by developing countries. Then, developing country policy makers would be reassured that any regulatory inadequacies that could undermine the benefits of liberalization would be diagnosed and remedied before any market-opening commitments take effect.

A second obvious reason for cooperation is that regulatory divergence segments markets. Firms must fulfill separately the regulations of each market—such as financial and accounting standards—which reduces the scope for exploiting economies of scale and the intensity of competition in each segment. Regulatory convergence through harmonization or mutual recognition of regulations—or a combination of the two, as has tended to happen in the European Union—creates an integrated market for competition, economies of scale, and GVCs to flourish.

A less obvious case for regulatory cooperation is that even countries with sound national regulatory institutions can find it difficult to address market failures related to services trade that originate outside their jurisdiction. A country will be reluctant to open its financial markets unless it is confident that it can prevent market instability and protect its consumers from unsound foreign financial institutions, or to let its citizens’ data flow to other jurisdictions unless it is reasonably certain that that data will be kept secure, or to open its transport and Internet-based services markets unless it is convinced that the gains from liberalization will not be appropriated by international oligopolies. In some cases, such as the supply of services through locally incorporated subsidiaries, the importing country can, at least in principle, deal unilaterally with market failure because the provider is in its jurisdiction. But doing so requires adequate regulatory capacity and could increase the costs of trade by fragmenting markets (say, by requiring local capital adequacy or local servers). In other cases, such as cross-border banking, transport, or dataprocessing services, addressing market failure efficiently requires the cooperation of the regulator in the exporting country.

A solution to these problems is the assumption of obligations not just by importing countries but also by exporting countries when negative externalities are transmitted through exports of services. Regional and multilateral negotiations are now structured in a way that requires importing countries alone to make binding commitments to market opening, regardless of the conditions in, or cooperative efforts by, source countries. Instead, market access commitments by importing countries could be made transparently and predictably conditional on the fulfillment of specific conditions by exporting countries. These exporter commitments need not be in the context of trade agreements but could be secured in other existing or new fora for international regulatory cooperation. Then, regulators in importing countries would be reassured that exporting countries will cooperate to protect their consumers’ privacy, financial security, and well-being from the consequences of international market failures.

# **_An example of exporting country regulatory commitments: Data flows_**

International data flows provide an example of how such exporting country commitments work. By allowing communication and coordination of production across countries, such commitments have probably been the most important reason for the emergence of GVCs. Governments are taking different 23