How do WTO Rules Affect the Accountancy Profession?

1. How do WTO RulesAffect the Accountancy Profession? Peter K Morrison Trade in Services Division WTO IFAC SMP/SME and Developing Nations Consultative Conference Prague, March 10-11, 2005

2. What we need to cover • What is the WTO and the GATS? • How does the GATS affect the accountancy profession? • How are SME/SMPs and developing country status taken into account? • Where is the WTO headed on liberalization of accountancy rules?

3. What is the WTO? • An institution • 148 member governments • A set of agreements • GATT: trade in goods • GATS: trade in services • TRIPS: intellectual property • A court to enforce obligations • Panel and Appellate Body procedures • A negotiating forum • Uruguay Round (1986-94) • Doha Round (2000 - ?)

4. General Agreement on Trade in Services: (GATS): What does it cover? • “measures by Members” • laws, regulations, actions of any type • by governments at any level, or • private bodies acting under delegated powers • ... affecting trade in services • in any service sector except • in the exercise of government authority • air transport services • directly or indirectly • ... through any of 4 modes of supply

5. Trade in services: 4 modes of supply • Cross-border • e.g. accountancy advice over the internet • Consumption abroad • e.g. accounting services received in other countries or over the internet • Commercial presence • e.g. foreign offices of accountancy firms • Movement of natural persons • e.g. accountants practising abroad individually or through an established foreign accountancy firm

6. Most-Favored Nation Treatment (MFN) (Art II) • no discrimination between two foreign suppliers or services • covers both explicit and de facto discrimination • applies to all Members and all services • whether or not service sector is scheduled • unless exemption obtained on joining WTO • example • acceptance of accountants only from a closed list of countries

7. Market Access (Art XVI) • no quantitative-type restrictions • whether discriminatory or not • no limitations on • number of service suppliers • total value of service transactions or assets • number of service operations or output • number of persons that may be employed • form of legal entity used to supply service • maximum foreign investment permitted • but, does not cover measures resulting in de facto quantitative limitations • applies only to extent listed in a country’s Schedule

8. National Treatment (Art XVII) • no discrimination between national and foreign suppliers • covers both formal and de facto discrimination • examples: • citizenship requirement: formal national treatment inconsistency • residence requirement: de facto national treatment inconsistency • applies only to extent listed in a country’s Schedule

9. Additional Commitments (Art XVIII) • any other undertaking that a Member may wish to take on • Example: regulatory undertakings on • transparency • maintenance of pro-competitive market • future phase-ins

10. Example: Schedule of Georgia

11. Example: MFN Exemption List of Dominican Republic

12. Mutual Recognition Agreements (MRAs) (Art VII) • a Member may recognize qualifications or experience granted in a particular foreign country • through harmonization or otherwise • through agreement or autonomously • Provided • not in discriminatory way and not a disguised restriction on trade in services • adequate opportunity is given to other Members be similarly recognized • where appropriate, based on international standards • 1997 Guidelines on MRAs in Accountancy (S/L/38) • practical guidelines on how to negotiate MRAs

13. MFN discriminatory measures National Treatment discriminatory measures Market Access quantitative restrictions Additional commitments any other undertakings Trade Barriers and GATS:Main provisions adequate?

14. MFN discriminatory measures National Treatment discriminatory measures Market Access quantitative restrictions Additional commitments any other undertakings Disciplines on Domestic Regulation “good governance” “qualitative” requirements qualifications technical standards licensing Needed: Disciplines on Domestic Regulation (Art VI)

15. Domestic Regulation:Good Governance Obligations • In all sectors: • Review of administrative decisions: must be in place for decisions affecting trade in services (Art VI:2) • In sectors where commitments undertaken: • Administration of measures of general application: must be reasonable, objective and impartial (Art VI:1) • Decisions on applications: must be given in reasonable period (Art VI:3) • Verification of competence of professionals: must be adequate procedures: (Art VI:6)

16. Domestic Regulation:Negotiation of further disciplines (Art VI:4) • Purpose: to ensure that measures relating to • qualification requirements and procedures • technical standards and • licensing requirements do not constitute unnecessary barriers to trade • Negotiating mandate: to develop disciplines to ensure that these measures are: • based on objective and transparent criteria • not more burdensome than necessary to ensure the quality of the service • in the case of licensing procedures, not in themselves a restriction on supply

17. Result: 1998 Accountancy Disciplines • Necessity test • Accountancy measures may not be more trade-restrictive than necessary to fulfil a legitimate objective: • the protection of consumers • the quality of the service • professional competence • integrity of the profession • Does not cover • Measures within scope of GATS Articles XVI (market access) and XVII (national treatment) • Implementation • Applies to all Members with accountancy commitments • Takes effect at end of the current trade round • In the interim, no Member to take new measures contrary to these principles

18. 1998 Accountancy Disciplines:Matters covered • transparency of regulations (paras 3-7) • residency requirements (para 9) • membership of professional organizations (para 10) • use of firm names (para 11) • administrative fees (para 13) • licensing procedures (paras 14-18) • equivalency and verification (paras 19-24) • use of international standards (para 26)

19. Current Doha Round Negotiations: Issues in Accountancy Services • Improved specific commitments • Better access for online services • Better access for natural persons (mode 4) • Necessity test • What are legitimate policy objectives? • When are less restrictive trade measures reasonably available? • Transparency • beyond those already in GATS Article III? • Equivalence • Members to take account of requirements fulfilled in other countries? • International standards • presumption in favour of, or requirement to base regulation on, international standards?

20. Developing countries, SME/ SMPs and the GATS • Request-Offer procedure • Respect for the following principles: • progressive liberalization • increasing participation of developing countries • appropriate flexibility for individual developing countries • special priority for least-developed countries • consideration for needs of small services suppliers especially from developing countries (GATS Arts IV, XIX; Negotiating Guidelines (S/L/93, March 2001); Modalities for the Special Treatment of Least Developed Countries (TN/S/13, Sept. 2003))

21. The way ahead ... May 2005: Submission of revised services offers Dec 2005: Hong Kong Ministerial Conference End 2006: Conclusion of Doha Round?