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8.Conceptually, policed national treatment, harmonization and mutual recognition can be considered as the three alternative approaches to trade liberalisation. Historically, however, mutual recognition has come about as a "residual" alternative to either of the other two, as is best illustrated by the history of its progressive emergence in the EU.[5] To illustrate this point, it is useful to draw on the traditional distinction between negative and positive economic integration.[6] Classical analysis of customs unions and traditional commercial law or GATT law consider trade liberalisation as an exercise in negative integration, e.g."the removal of discrimination in national economic rules and policies under joint and authoritative surveillance." Positive integration -e.g. "the transfer of public market-rule-making and policy-making powers from the participating polities to the union level"- concerns macro-economic or monetary integration and the "approximation of laws," as called for by Articles 2 and 100 of the Treaty of Rome. Trade liberalisation in Europe rather quickly came to be seen as requiring a mix between national treatment and harmonization as the operative norms corresponding to negative and positive integration respectively. For a long time, under the so called "old approach," approximation of laws was seen as requiring detailed harmonization and, "pending" such harmonization, national treatment was policed by the Commission and the European Court of Justice in an increasingly constraining manner.
9.Mutual recognition is often presented as a form of negative integration in that it consists of an obligation which restricts the freedom of member states and does not involve the transfer of power to a supranational level. In this sense, it constitutes an extreme form of national treatment if non discrimination is taken to mean that foreign and domestic actors ought to be granted the same rights of access, or equality of opportunity, even if this implied that national regulations would be applied in a discriminatory manner to the latter. By the same token, the ECJ, responsible for upholding liberalisation commitments embodied in the Treaty of Rome, came to enforce mutual recognition. The key to this development was a subtle matter of degree, a shift from a negative to a positive test applied to domestic regulations. Policed national treatment implied a negative test: should the conditions required for market entry of nationals and foreigners, be considered as restrictions or barriers to trade ("equivalent" to that of tariffs and quotas) and therefore be removed unilaterally under existing liberalisation commitments? Mutual recognition appeared by judicial fiat when the Court turned to a positive test: should home country standards be recognised as "equivalent" to those of the host country, and therefore replace them. In Cassis de Dijon, and the ensuing case law, authoritative judicial review led to the notion of "recognition of equivalence" as an extreme interpretation of negative integration requirements (while directed at one party, a judicial injunction of "recognition of equivalence" is "mutual" through jurisprudencial generalisation).
10.Judicial and political MR must be distinguished both semantically and in their effects. Both judicial an political MR apply the general principle enunciated in the introduction: lawful in one jurisdiction, lawful everywhere. But, by definition, only political MR constitutes a contractual norm. The job of Courts or dispute resolution panels is to decide when the general principle can be enforced legally and when it needs to be the result of a contractual norm. In doing so the ECJ refined a set of criteria which led it to extend judicial MR to most non-health and safety matters [and some other matters].[7] Nevertheless, even the ECJ has exercised considerable caution in enforcing mutual recognition by fiat, from the beginning with services regulations and increasingly for goods regulations(Mitouard case law). Lessons need to be drawn here for the multilateral level.
11.More generally, political MR casts a wider net for liberalisation for four main reasons. First a political deal introduces greater certainty and immediacy for exporters -even if the Court was to eventually cover their products. Second, political fiat can afford to be bolder than judicial fiat. Regulatory differences that may be considered "legitimate" by the ECJ and therefore not amenable to MR by judicial fiat, can nevertheless be considered as "acceptable" as the basis for mutual recognition agreements: government representatives can decide to take a leap of faith. Third, political MR does not have to be an up or down decision: it usually sets in place a process involving the progressive expansion of the scope of mutual recognition, whereby each step prepares the ground for the next. Differences become acceptable with time. Finally, and to the extent that both judges and government representatives would consider existing differences as an unacceptable, the latter have the option of resorting to prior minimal harmonization that the former do not have.
12.This leads to the remark that confining mutual recognition to an extreme case of negative integration does not capture its essence, whereby states do not only agree to abstain from a given behaviour, but do so on the condition that the control they give up will be replaced by an "equivalent control" on the part of home countries. As a matter of fact, mutual recognition has indeed traditionally been referred to as part of the so-called "harmonization process." As states engage in a collective assessment of the extent of harmonization necessary as a prerequisite for free movement, mutual recognition can be seen as the residual of harmonization. National regulations are hence mutually recognised to the extent that they have not been harmonized, or to the extent that they differ in the "ways in which essential requirements are applied." To view mutual recognition as a form of positive integration, as a transfer rather than a giving up of regulatory authority, implies taking into account the high level of regulatory co-operation involved in its adoption rather than equating it with a form of deregulation.
13.In sum, mutual recognition has come to be seen as the "residual" of either one of two processes: assessing the legitimacy of an individual host country's regulations in light of the equivalence of a home country regulations (negative integration); and assessing the degree of necessary harmonization beyond which member states' rules ought to be considered as mutually equivalent (positive integration). Mutual recognition must be adopted to the extent that policed national treatment is insufficient to ensure effective market access and to the extent that harmonization is undesirable or unfeasible. The negative/positive integration dichotomy is reductionist, mutual recognition is in fact a hybrid at the intersection of both processes.
14.If mutual recognition like policed national treatment does indeed pertain to both realms of integration, it is precisely its place at their intersection which makes for its unusual properties. It amounts to creating transitional jurisdictions, which cut across national jurisdictions but do not result in the introduction of a supranational jurisdictional layer. Mutual recognition constitutes a powerful instrument to enhance the contestability of markets precisely because it consists in retaining regulatory heterogeneity across polities -like policed national treatment - while introducing a single rule or standard across boundaries from the point of view of producers -like harmonization. At the same time, this instrument is a controversial one because, contrary to both these options it leads to the competition between regulatory systems -- rather than a single rule --within each national jurisdiction. Both the rational for and the resistance to the adoption of mutual recognition is grounded in the properties of such transnational application of laws and regulations and jurisdictional control, as summarised in the table below.
|
Trade norm: Single Rule?... |
National Treatment |
Harmonization |
Mutual recognition |
|
...from economic actors' viewpoint |
No |
Yes |
Yes |
|
...from a symmetric viewpoint |
No |
Yes |
No |
|
...within systemic jurisdiction |
Yes |
Yes |
No |
15.Finally, and in order to properly assess the specific function of mutual recognition, we need to refer back to the fundamental distinction between recognition of actual substantive regulations and the recognition of regulatory control.[8] In addition to mandating substantive regulations, governments require that exporters comply with certification (e.g. goods), licensing (e.g. professionals), control (e.g. manufacturing processes) or supervision (e.g. banks) by the regulatory authorities of the host country or increasingly by quasi-public or private entities operating on their behalf. This second dimension of regulatory regimes underscore the centrality of mutual recognition as a mechanism for liberalisation. First, unless we envisage the creation of supranational agencies responsible for the enforcement of rules, mutual recognition of home country conformity assessment (for products) or control (for services) is the only alternative to host country control. Moreover, even in cases where countries adopt the same rules or both rely on international rules, such mutual recognition of conformity assessment is generally not extended as a matter of course.[9] As a result, when we say that harmonization provides a single rule from the economic actors' viewpoint, it does not necessarily follow that it provides a single point of control. Mutual recognition is thus the only path to market access.
16.The developments sketched call for a reversal of perspective about mutual recognition both from a policy and from a conceptual standpoint. Contrary to the traditional view that MR should be turned to as a "residual" option if policed national treatment is not enough and full harmonization not feasible, commercial diplomacy should adopt mutual recognition as the core paradigm for dealing with regulatory barriers to trade. The creation of transnational jurisdictions is the only way to provide transnational actors with a single authority of control or conformity assessment. Liberalisation exercises need to adopt mutual recognition as their starting assumption, even while some degree of residual host country control or prior harmonization may be deemed necessary. Such a reversal of perspective implies that it is policed national treatment and harmonization that ought to be considered as deviations from the core MR paradigm.
17.Both the EU approach to completing the Single Market and the Trans-Tasman MRA between New-Zealand and Canada reflect such as a reversal of perspective. The process adopted in these contexts suggests a pattern that can be followed elsewhere, even if in less ambitious fashion[10]? To simplify, both exercises follow a similar sequence:
a)Visible public commitment to full trade liberalisation on the part of politicians with explicit reference to mutual recognition as the central mechanism to attain it. At this point, MR is adopted as a core paradigm rather than an operational norm.
b)Announcement that mutual recognition will enter into force by a given deadline, although the deadline is likely not to be completely compulsory. In Europe, 31 December 1992 did not create automatic legal effect for MR in areas that had not been addressed yet but was to be considered an "expression of political will". The Trans-Tasman agreement is more constraining since exemptions must be notified before the deadline.
c)Negotiations between regulators over the precise terms of agreement, including residual power to the host state and/or minimal harmonization prior to mutual recognition. In short, regulators attempt to abide by the new mandate created by politicians while at the same time doing it "their" way through "managed mutual recognition".
d)MR-based directives or MRAs enter into force, with given sectors, products or services falling under one of the four categories described below:
Category 1: MR is an end in itself.
_This applies to areas where differences are acceptable -e.g. where they are modest, where they are considered to have no serious implications or where regulators on all sides agree that the benefits of MR are worth the regulatory risks. It may later fall into Category 3 if differences widen at a later stage.
Category 2: MR is an end in itself but requires pre-conditions.
_This option is especially relevant to recognition of conformity assessment or home country control where there is no alternative to MR as a mechanism for liberalisation. This applies to areas where some degree of enhanced mutual familiarity with each other's regulatory system needs to develop before mutual recognition can be enforced. Preconditions can include exchange of information or regulatory co-operation or regulatory convergence, but contrary to Category 3, such convergence is not an end in itself and needs not necessarily be permanent.
Category 3: MR is a means to an end, to reach agreement on "essential requirements."
_MR can be used to give a sense of urgency to harmonization, in areas that are considered too critical for outright mutual recognition. As opposed to the classic harmonization or standardization process, however, discussions occur against the backdrop of MR. In some cases, MR is actually adopted but performs a stop-gap function pending the adoption of regional or global regulations (similar to Category 1 in effect if not intent). In most cases, it is the prospect of eventual MR (backed up by public commitments) and the injunction to minimise the degree of harmonization to essential requirements which provide the impetus. In order to maximise such impetus, the Trans-Tasman MRA set in place a temporary exemption mechanism, covering 12 months. Part of the difficulty is to decide which cases may warrant an extended timetable.
Category 4: temporary or permanent exemptions from MR.
_These are cases too sensitive for mutual recognition and where harmonization is not feasible, if for instance regulations reflect unique local conditions or where the control over operations can only be done from the host state. Under a generalised MR assumption, these cases need to be explicitly excluded.
18.In the context of a generalised application of mutual recognition as in Europe, governments need to make decisions over the product scope falling under each one of these categories. Under more limited agreements, they may concentrate on one of these categories. The scope covered by category 1 as opposed to the other three categories, as well as the approach taken within categories 2 and 3, will determine the extent to which MR is being managed to take into account regulatory imperatives.
[5] For a history of mutual recognition in the EU contrasting the three approaches, see for instance NicolaÔdis (1993) or Pelkmans (1995).
[6] The distinction was introduced by Tinbergen (1954) and developed by Pinder (1968)
[7] In Gebhar, 1995, for instance, the ECJ states: "national measures liable to hinder or make less attractive the exercise of fundamental freedoms guaranteed by the Treaty must fulfill four conditions: they must be applied in a non discriminatory manner [classic national treatment]; they must be justified by imperative requirements in the national interest; they must be suitable for the attainment of the objective which they pursue [least restrictive means], and they must not go beyond what is necessary order to attain it [proportionality]."
[8] For goods we refer to standards versus conformity assessment, for services to regulation vs home country control.
[9] This point is often overlooked by those who present harmonization as a complete alternative to mutual recognition. See for instance Sykes, op cit, 1996
[10] Despite their difference in scope, the European approach and Trans-Tasman agreement reflect the same basic philosophy. See "Council of Australian Governments and the Goverments of New-Zealand". A proposal for the Trans-Tasman mutual recognition of standards for goods and occupation. Australian Government publishing office, April 1995. The Trans-Tasman MRA has been finalised in June 1996 and covers all products except exemptions as well as professional services referred to as "occupation".
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