INTERGOVERNMENTAL POLICY ADVISORY COMMITTEE
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1 INTERGOVERNMENTAL POLICY ADVISORY COMMITTEE M E M O R A N D U M IGPAC Comments on the US Proposal for Horizontal Transparency Disciplines for Domestic Regulation for WTO General Agreement on Trade in Services (GATS) Negotiations Submitted to the United States Trade Representative: Christine Bliss, Christopher Melly, Daniel Watson Office of Services and Investment Tiffany Moore, Assistant USTR for Intergovernmental Affairs & Public Liaison Christina Sevilla, Director for Intergovernmental Affairs by Kay Wilkie, IGPAC Chair and IGPAC Members on May 12, 2006
2 IGPAC members sincerely appreciate the opportunity to comment on the US Proposal for Horizontal Transparency Disciplines in Domestic Regulation in the GATS. IGPAC members would like this memorandum to serve the following objectives: to offer comments on this US proposal for horizontal transparency disciplines; to clarify IGPAC s affirmative interests related to domestic regulation, and through offering such clarification, to enhance USTR-IGPAC consultation on GATS and related trade policy issues while GATS negotiations are underway. IGPAC members have had most informative consultations with USTR colleagues to deepen our understanding of the negotiating process undertaken by the Working Party on Domestic Regulations (WPDR) and to advance IGPAC priorities. As GATS general obligations apply to all levels of government, IGPAC members are mindful of potentially significant impacts on state and local governments; notably the proposals to limit regulations to those that serve national policy objectives, given that GATS language calls for regulatory measures to be based on objective and transparent criteria, and to be not more burdensome than necessary to ensure the quality of the service. As the 5/31/05 correspondence to the USTR from 29 state attorneys general indicated, state and local officials have stated that the least-burdensome requirement would unacceptably encroach upon our states regulatory authority. Description of the US Proposal for Horizontal Transparency Disciplines in Domestic Regulation: Response Mechanisms. The US proposal expands mechanisms for responses from inquiry points to include responses to interested persons, in addition to responses to Member governments. Publication requirements. The US proposes to: expand the publication requirement to be accessible to interested persons. expand the type of information that must be publicized to include: information about processing deadlines, rights of appeal, and notification with regard to violations of the terms of a license, and require publication of measures in plain language. Advance notice and comment. The US proposes to require governments to provide notice and respond to comments made by all interested persons, not just other members. Licensing procedures. The United States proposal requires members to establish clear, and publicly available licensing procedures. The proposal mandates prompt notification (within a reasonable period of time), notification of applicants of the status of their applications, and, when applicable, providing applicants with the reasons for denial. Specific IGPAC concerns relating to this US horizontal transparency proposal include: Regarding Publication provisions: - a clear definition of to the extent practicable is essential to ensure that this term represents a flexible, should or best effort standard, that would not impose any unreasonable burden on state/local governments. IGPAC members remain concerned about the potential manner in which the term practicable might be defined and interpreted by WTO authorities and dispute panels, (i.e. as meaning possible rather than economically feasible or affordable), and would appreciate greater certainty; - general requirements and advance publication, notification, timing, and other provisions proposed for sectors with specific commitments must not create obligations amounting to an unfunded mandate on state and local governments.
3 Regarding Regulation of Services Subject to Licensure: Provisions related to procedures and qualifying examinations must not represent an unfunded mandate, and must be deferential to the jurisdictions, laws, authority and policy objectives of state/local governments. It must also be understood that these provisions not require harmonization of divergent procedures at the state or local level. IGPAC Affirmative Interests for GATS Domestic Regulation Negotiations: IGPAC members would like to assist the USTR in its upcoming negotiations by illustrating the distinctive, differentiated role of subfederal governments, which often do not operate in the same manner as federal governments; by suggesting limitations to subfederal application of some proposals; and by identifying areas where clarification of precise meanings of various proposals in terms of states obligations is needed. Recognition of the diversity and sovereignty of law-making jurisdictions. The NAFTA provides a useful model for explicitly recognizing the state and provincial basis for setting regulatory objectives in the context of national treatment. [Article 301 (2) The provisions of paragraph 1 regarding national treatment shall mean, with respect to a state or province, treatment no less favorable than the most favorable treatment accorded by such state or province to any like, directly competitive or substitutable goods, as the case may be, of the Party of which it forms a part. ] Under the GATS, the United States is obligated, under Article I(d)(3)(ii) to ensure the observance of the commitments made by the United States by its state and local governments. Indeed, WTO implementing legislation authorizes the Executive Branch to sue states in federal court to enforce the GATS, using a burden of proof as to whether a state or local law is inconsistent with the agreement in question. Hence, the potential for preemption under trade agreements remains a concern for state and local governments. Recognition of the diversity of policy objectives, and related statutes, practices and regulations, in different jurisdictions. In our constitutional system, states are empowered to set regulatory standards reflective of their individual, and evolving, policy objectives. State and local governments thereby serve as powerful laboratories for innovation and for advancing the democratic process: some states may opt for especially stringent regulation of the energy sector; others may establish high qualification standards for nursing; while some mayors advance strategies for reducing greenhouse gas emissions. The GATS provision that licensing standards should not be a restriction on the supply of the services ignores the fact that some domestic licensing schemes do intend exactly such a restriction for many valid reasons, including avoiding excess costs from unused capacity, and ensuring the quality of the services and the viability of the providers by ensuring an adequate market exists. Moreover, protections in Article XIV are all subject to the overriding limitation that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where like conditions prevail, or a disguised restriction on trade in services. The latter provision suggests that any measure that restricts trade in services cannot be allowed, even if it otherwise meets all of the requirements of the subsections of Article XIV. Since there are many proper police and regulatory measures that do indeed intend to restrict certain forms of trade in services, this limitation again inherently overrides the rest of Article XIV in significant ways. Establishment of a deferential standard of review for the evaluation of necessity and burdensomeness, using a rational basis review that assumes the validity of state/local laws. The not more burdensome than necessary language in Article VI is plainly inconsistent with the US standard of review of regulations. While we understand that the language is not fully binding as yet, the Article binds its signatories to strive to implement such language. We assume the USTR intends to abide by the commitments that the US has already made in the GATS as to the way in which it should negotiate on specific proposals. If so, then the current GATS negotiations now underway related to domestic regulation surely have the potential to at least affect the way in which governments regulate industry within their borders. -2-
4 Clarification of coverage in light of complex commitment schedules with overlapping industry sectors and uncertain impacts on state/local jurisdictions. The IGPAC Services Working Group developed a six-point framework to analyze areas for clarification that should be useful to this process: 1. Should certain measures be off-limits (e.g. regulation of gambling)? 2. Is the sector open-ended (e.g., distribution of energy) or do state measures affect the sector indirectly? This could be due to vagueness in the text, or it could be that the sector has changed since Are there multiple subsectors that could cover state measures? (e.g. business services and health facilities) 4. Are applicable CPC classifications overly broad or ambiguous? (e.g. health facility CPC classifications include health services like nursing). 5. Are scheduled limits on a commitment incomplete with respect to state/local measures? (e.g., limits on land ownership). 6. Are notations in the U.S. schedule either vague (thus overbroad) or ambiguous as to whether the note is intended as a limit on the commitment or as a disclosure of measures that are not carved out by the scheduled limits? Withdrawal by the US of the gaming/gambling services commitment. IGPAC has repeatedly stated a range of significant concerns related to the inclusion of gambling as a covered service, including: whether the public morals exception can be applied at the state level; impact on the special treatment that states are required by federal law to give to Native American tribes; challenges to state lottery operations; etc. We respectfully maintain that it would seem to make more sense for the federal and state government authorities to analyze these issues and their potential implications sooner rather than later, ideally before possible future challenges. While the Appellate Body s decision plainly does not address every possible issue, it offers substantial guidance, and its analysis of federal laws would seem applicable to the same issues should they arise in state laws. IGPAC is not alone in expressing concerns about this case. Attorneys general from 29 states wrote the USTR on May 31, 2005: The prospect of [future] WTO challenges to [state-level gambling] prohibitions should alone be sufficient to give U.S. negotiators enormous motivation to use the current GATS negotiations to secure a rule change that makes explicit the right of a WTO signatory to ban undesirable activity in a GATS covered sector. Inclusion of subfederal representation on selected standard-setting bodies that the WTO recognizes for purposes of reasonableness, burdensomeness or least-trade restrictiveness under GATS and other WTO agreements. Some examples of areas of particular importance to states include: energy; health care (e.g. medical record privacy, facility licensing, staffing considerations), and wastewater treatment and recovery. Note that as state and local resources are limited, participation may not always be feasible but should be welcomed if circumstances permit. Trade Capacity Building: create linkages between USTR, IGPAC and USDOS International Leadership Program and National Council for International Visitors affiliates throughout the US. Specifically, through encouraging visits to the US by subfederal officials from other countries in such areas as economic and trade development, services oversight and regulation, etc., state and federal officials could exchange information on best practices and improve mutual professional development with international counterparts. IGPAC and ITAC: encourage networking and share information on rosters and membership. IGPAC members and business leaders would benefit from becoming more acquainted with Advisory Committee members from the same states or cities similarly active in providing input to the USTR, and would gain mutual awareness and understanding of offensive interests, priorities and perspectives. -3-
5 Concluding Comments: IGPAC members appreciate our on-going discussions with USTR colleagues, which have informed these comments. IGPAC members suggest that GATS negotiations and other trade agreements strive: 1) for requirements that are sufficiently limited and consensual that they can be applied across the board (nondiscrimination is such a policy, limits on numbers of providers are not), and 2) for clarity in the provisions to which parties agree. Since ambiguities in the existing language have been brought to light, it should be possible in negotiations to either eliminate the ambiguity, or eliminate the requirement, in the event that no consensus can be reached on the given requirement. If these two touchstones are used, we believe any agreements reached are far less likely to continue to raise concerns for governmental entities. We understand that the US proposal is limited at this time to transparency issues and that the issues dealt with therein are ones that are relatively noncontroversial and may well have the potential to be applied widely. However, we do believe the relatively limited concerns expressed above with respect to this proposal need to be addressed. During the GATS negotiating process, to the extent that the USTR considers proposals from other countries dealing with more controversial areas, an opportunity may exist to deal with broader IGPAC concerns as well. As previous IGPAC reports have indicated, state and local governments generally support trade liberalization and the expansion of market access. State and local governments also work to safeguard federalism, and seek greater consultation between federal and state governments during the formulation of trade policies, negotiation of trade and investment agreements, resolution of trade disputes, and implementation of trade development programs (per IGPAC recommendations initially made 8/5/04). We look forward to pursuing these goals with active USTR support. -4-
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