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UNCTAD/CD-TFT 1
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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
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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
• UNCTAD’s 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 South–South and North–South Agreements include provisions relating to RIFs, (cooperative mechanisms, training, regional centers of excellence, etc.)• EU–CARIFORUM 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 country’s 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 State:The State’s 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
