Bridges Weekly Trade News Digest • Volume 5 • Number 17 • 8th May 2001

Services: EC Pushes to Make ‘Necessity Test’ Predictable

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The EC on 1 May released a communication to the Working Party on Domestic Regulation (WPDR), pointing to the need to define the requirement of necessity contained in Article VI:4 of the General Agreement on Trade in Services (GATS) on domestic regulation.

The WPDR is part of the subsidiary bodies to the Council for Trade in Services, where Members strive to advance ‘unfinished business’ from the Uruguay Round in the GATS rule-making process. This process includes the development of disciplines on emergency safeguards, subsidies, domestic regulations and government procurement, and is currently held alongside negotiating sessions.

GATS Article VI:4 (c) calls on the WPDR to develop any necessary disciplines to ensure that national measures relating to licensing requirements and procedures, technical standards and qualification requirements and procedures do not constitute ‘unnecessary’ barriers to trade in services. It is thus one of the provisions involved in the ongoing heated debate on whether the GATS inhibits Member governments’ rights to regulate as it contains the requirement that measures affecting trade in services must not be more trade restrictive than necessary.

In its communication, the EC said Members’ obligations in relation to the necessity concept must be clarified in order to avoid the creation of “an unpredictable mandate for dispute settlements procedures to do so.” In the view of the EC, a definition of the concept of necessity that is horizontal in nature, i.e. applicable to all sectors of services, would be useful in this regard.

“An approach to the concept of necessity, which is coherent across all sectors, but allows for sectoral interpretation, would not restrict the regulatory freedom of Members in order to meet national policy objectives, as stipulated by the (GATS) preamble, but should rather serve to assess the level of trade-restrictiveness of a measure,” the communication stated.

As a means for assessing the trade impact of a domestic regulation falling under the disciplines of Article VI:4, the EC paper points to the concept of ‘proportionality’, which already has standing in the EU.

According to this principle, a measure should not be considered more trade-restrictive than necessary if it is proportionate to the objective (s) pursued. Hence, while the degree of permissible trade- restrictiveness will depend on the specific objective sought, the validity or rationale of the policy objective itself must not be assessed. (for an illustration of the application of the proportionality principle, see EC landmark environmental case “Danish bottles”, ECJ [1989] 302/86, http://curia.eu.int).

As to the wording of a definition of necessity, the communication stressed that the EC view ‘not more burdensome than necessary’ or ‘not more trade restrictive than necessary’ as preferred over the concept of ‘least trade restrictive’. “The latter would, as the European Communities and their Member States view it, unduly restrict the choice of the regulatory tools available.”

In previous meetings, WTO Members have identified the ‘necessity test’ as a key issue within the WPDR, and other Members, including Australia, have submitted communications on the issue.

For more details, see the EC communication, 1 May 2001, S/WPDR/W/14; Note by the Secretariat, 1 March 1999, S/C/W/96; Communication from Australia on necessity, 19 July 1999, S/WPDR/W/1. These documents are available at the WTO web site, http://www.wto.org/).

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