Regulatory and Institutional Issues arising from Services Trade

1

• Regulatory and Institutional Issues arising from
  Services Trade
• Mina Mashayekhi
• Officer in Charge, Division on International
  Trade in Goods and Services, and Commodities
  (DITC), UNCTAD

2
Outline of Presentation

• Why regulate?
• Regulating infrastructure services sectors
• Key regulatory and institutional lessons
• Regulatory Capacity-building in Developing
  countries
• Trade agreements and Domestic Regulation
  Negotiations
• Conclusions

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Why regulate? (1)

• Regulation aims at
• correcting market failures
• creating stable and competitive market
  environments
• promoting benefits from services trade
  liberalization while minimizing attendant costs
• achieving other key domestic policy objectives
  (e.g. protecting consumers, developing domestic
  supply capacity, protecting the environment,
  maintaining cultural diversity and ensuring
  universal access to essential services)
• Regulatory systems include
• regulatory measures (regulatory substance)
• -Economic regulation
• -Technical regulation
• regulatory institutions (regulatory governance)

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Why regulate? (2)

• While the case for regulating services is widely
  acknowledged there is less agreement on what is
  good regulation
• Broadly, good regulation should achieve the
  following i) promote economic growth, ii)
  promote social welfare and environmental
  sustainability, iii) result in outcomes that meet
  expectations of key stakeholders (e.g.,
  consumers, operators, investors)
• Regulation should be effective (i.e. achieving
  planned goals) and efficient (i.e. achieving
  goals at minimum costs)
• For many DCs, regulatory frameworks are still at
  an emerging stage

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Why regulate? (3) - Sectoral Regulation and
Competition regulation

• Differences
• - correcting market failures vs. enhance
  consumer welfare
• - General and ex ante vs. case by case and
  ex post
• Common feature Anti-competitive practices, e.g.
  abuse of market power
• Countries allocate variously regulatory
  jurisdiction between the institutions
• Clarity of role and coherence avoid duplication
  and conflicts, and enhance implementation
• Sufficient coordination required for coherence to
  pre-empt forum-shopping and double jeopardy.

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Regulating Infrastructure Services

• Accra Accord mandate
• UNCTADs Multi-year Expert meeting on Services,
  Development and Trade the Regulatory and
  Institutional Dimension (2009-2011) with
  attention to infrastructure services -
  telecommunications, financial services, energy,
  transport and water supply
• Efficient and accessible infrastructure services
  contribute to economic/social development,
  economic diversification, domestic supply
  capacity, export competitiveness, MDGs, and
  countries' integration into world economy
• Several empirical studies have confirmed the
  positive correlation between efficient
  infrastructure services and competitiveness, and
  higher income levels.

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A few figures on the importance of
Infrastructure Services and Trade

• Important in output, trade employment
• Global ISS annual revenue at 14 trillion (2009)
  24 of world GDP. DCs account for 30
• Trade in ISS significant and dynamic. DCs share
  increased from 21.4 (2002) to 25.4 (2008).
  Exports in ISS important for smaller DCs as a
  share of GDP
• Represent 13 of world employment (2008) can be
  a major source of job creation. 5 of ISS trade
  through Mode 4 support 2 million jobs worldwide
• But investment needs in ISS are huge
• over 1 trillion will still be needed during the
  next decade to support continuous growth and
  poverty reduction goals

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Trends in Infrastructure Service Reforms

• RIFs are essential in these sectors to ensure
  development benefits
• Historically, IS provided by Governments
• 30 yrs ago, trend towards commercialization and
  privatization with increased competition and
  trade in IS
• -unbundled and opened sectors to private
  participation (privatization, PPPs, concessions,
  BOT, FDI and trade)
• IFI market reforms and SAPS have impacted IS in
  some DCs
• Regulatory systems an important components of
  reforms
• Mixed outcomes and cases of regulatory failure
• Technology and innovation lead to more
  complex/new services
• Need for a rethink and proper design of RIFs

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Key Lessons (1)-Integrated Coherent Strategy

• Development of ISS and RIFs need to be anchored
  in a comprehensive, integrated and coherent
  strategy of growth, development and trade with
  accompanying sectoral development planning,
  macro-economic, social, trade, investment,
  competition, environmental policies
• -Brazil's "accelerated growth program" created
  effective links between infrastructure service
  development with public procurement and domesitc
  productive and innovative capacity
• -G-20 endorsed Muti-Year Action Plan on
  Development to reduce infrastructure deficits

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Key Lessons (2) Regulatory Institutional
Issues

• Quality of regulation and institutional capacties
  matter more than ownership (State/SOEs, PPPs,
  private)
• 1) Major national efforts in assuring quality
  RIFs
• -EU Smart Regulation seeks to ensure the
  quality of regulation throughout the policy cycle
  (simplification evaluation of benefits/costs,
  including through impact assessment guidelines)
• - Australia's Office of Best Practice
  Regulation using regulatory impact assessment to
  ensure regulation meets policy objectives with
  minimal cost for business and communities
• 2) private participation should not be
  considered a priori a better regulatory option
  simply because of the relative wealth of
  knowledge on the regulation of private firms, as
  compared to that of SOEs

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Key Lessons (3)- Regulatory and Institutional
Issues

• 3) SOEs can play a useful role in particular
  in transport and energy supply
• Regulatory governance determines quality of
  regulations
• - Legal, financial administrative
  independence for autonomous and accountable
  decision making is mportant for credibility of
  institutions
• Best fit for a sector depends on
• - economic attributes
• - technological considerations,
• - countries economic, social, institutional and
  political endowment
• - human and administrative resources
• Meaningful stakeholder involvement important to
  balancing different interests

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Regulation by Independent Regulatory Agency (IRA)

• IRAs are typically established to facilitate
  private participation
• Governments signal commitment to eliminating
  political influence and dominant firms in markets
• Between 1990 and 2003, countries with IRAs
  increased from
• - 5 to 67 (telecommunications)
• - 4 to 54 (electricity) and
• - 1 to 23 (water)
• Establishing IRAs is not sufficient quality
  (credibility and stability) matters
• Many positive results in telecom and electricity
  (less so in water and transport)

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Universal Access

• Aims at enhancing access to services for the
  poor, remote and other marginalized groups
• USOs are sometimes imposed on service providers
  to expand service delivery or to deliver at
  affordable prices
• Challenge is to achieve balance between
  connecting the unconnected and making services
  more affordable for those already connected
• USOs should be realistic and clearly defined
  leave sufficient incentives for implementation
  be adaptable and take account of technological
  changes
• UNCTAD survey the majority of respondents did
  have a specific UA policy, universal access
  obligations for some or all suppliers was the
  main approach used (72 of responses) followed
  by universal service fund (32.2 ) and subsidies
  to consumers (22 ).

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Regulatory Capacity-building in Developing
countries

• Challenge in designing RIFs appropriate to the
  country's situation
• Many challenges faced by DCs related to scarcity
  of qualified staff
• - lack of targeted training
• - lack of attractive employment conditions
• - qualified staff attracted to private sector
• Remedies include i) outsourcing regulatory
  functions, ii) pooling regional resources, and
  iii) twinning between developed and developing
  country regulatory institutions
• Tools to address DCs capacity constraints
  include
• - contracting out certain utility functions
  to external agents
• - limiting regulatory discretion and
  minimizing regulatory complexity
• - building up core qualified, skilled and
  experienced staff
• - relying on external advice for specialized
  tasks
• - establishing multi-sectoral agencies
  central-level (instead of local) regulators etc.
• Regulatory cooperation is important

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Trade Agreements and Regulation

• Many SouthSouth and NorthSouth Agreements
  include provisions relating to RIFs, (cooperative
  mechanisms, training, regional centers of
  excellence, etc.)
• EUCARIFORUM EPA (telecom and financial chapters)
  contains regulatory provisions
• Andean Free Trade Agreement and MERCOSUR contain
  sector-specific regulatory frameworks (e.g.
  telecom) to complement liberalization
• EU integration CB and TA offered to assist
  new/future Members implement the "acquis
  communautaire", covering regulations and
  institutions
• Inclusion of services in the MTS and RTAs raised
  concerns over potential conflict between services
  liberalization and regulation and the impact of
  trade rules on national regulatory autonomy

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Regulatory Provisions in Trade Agreements

• Various RTAs have incorporated WTO-additional
  rules and disciplines on domestic regulation,
  particularly on telecom and FS
• Close collaboration is needed between regulatory
  authorities and trade ministries policy advice
  and assistance for RIFs in relation to trade
  liberalization negotiations are crucial
• The emphasis of trade agreements should be on the
  management of regulatory diversity reflecting
  each countrys legal traditions on the content
  and form of its regulations rather than a
  reduction of regulations per se

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GATS

• GATS recognizes governments right to regulate
  subject to their liberalization commitments
• -GATS-Positive list approach allows Members to
  attach conditions and limitations to MA and NT
  commitments
• GATS Coverage includes key regulatory tools,
  institutions and specific sectoral provisions
  (e.g. Telecom Reference Paper requiring IRAs,
  Annex on Financial Services)
• GATS obligations can in some way guide towards
  good regulatory practices (e.g. transparency, due
  process)
• Disciplines on Domestic Regulation being
  negotiated concerns that necessity tests could
  unduly constrain domestic prerogatives

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Disciplines on Domestic Regulation (1)

• Negotiated text should recognize the asymmetries
  between countries regulatory frameworks
• Extent of obligations
• - regulatory experiences/studies/survey confirm
  asymmetry between developed and developing
  country RIFs
• - extent of obligations undertaken by Members
  could be determined in function of the sectors
  where they have taken commitments
• - extent of obligation undertaken by DC could be
  selected on the basis of regulatory preparedness
• Negotiations should preserve the right to
  regulate and DCs policy space to adapt
  regulations to changing circumstances
• Impact of trade rules on national regulatory
  autonomy needs careful country-specific and
  sector specific analysis and audit

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Disciplines on Dom Reg (2)

• Transparency requirements
• - transparency/due process requirements are
  common in RIF and are considered part of best
  practices and key principle for evaluating RIFs
• - a priori transparency requirements may be
  incompatible with certain countries judicial
  systems
• - comprehensive advice on compliance with
  regulation for DC services providers would
  underpin effective market access for these
  providers

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Disciplines on Dom Reg (3)

• Pro-development provisions/flexibilities for DCs
• - undue constraints on dom reg would be
  particularly problematic for DCs
• - in given cases most development-friendly can
  be more important criterion than least trade
  restrictive
• - could include i) general exception for
  development, ii) temporary suspension or
  development exceptions, iii) carve-out or
  phase-in periods for DCs
• Focus on Mode 4 impacts
• - dom reg disciplines facilitates the
  realization of Mode 4 exports
• - the text on qualification requirements merits
  particular attention
• - professional experience, in addition to
  educational qualifications, should be taken into
  account

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Conclusions

• For reform of and trade in services to generate
  pro-development outcomes, they need to be
  accompanied by appropriate policies and RIFs and
  anhored in a coherent and comprehensive strategy
• No one-size-fits-all model for RIFs but
  best-fit-approaches should take into account
  local context of economic and social development
• Role of StateThe States ability to provide
  effective RIFs for services is central for
  overall economic performance
• RIFs should be flexible enough to adapt to
  rapidly changing market conditions, technological
  developments, pressing global challenges
• Trade agreements, including ongoing WTO
  negotiations on disciplines for domestic,
  regulation is relevant for policy space to adapt
  to changing circumstances given Developing
  countries' underdeveloped domestic RIFs
• Multi-stakeholder consultations involving civil
  society, consumer groups and the private sector
  are thus important
• DCs resource constraints can make it difficult
  to implement RIFs without financial and technical
  and capacity building assistance
• Enhanced regulatory cooperation is important,
  particularly South-South

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Thank you for your attentionmina.mashayekhi_at_unc
tad.org