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64.There is no denying the contagious effect of MRAs.[20] First, these effects stem directly from the "natural" extension of intra-EU MRAs to extra-EU MRAs with selected trade partners. The EU has already initiated bilateral talks not only with the US but also with Australia, New Zealand, Canada, and in 1995 with Switzerland and Japan. We are entering a second phase -after an initial phase where the EU has served as the hub of MRAs- where the spokes of the hub are starting to connect. As they negotiate MRAs with the EU, countries with otherwise important bilateral trade begin to talk directly. This is the case for the US and Canada who are starting to discuss MRAs in particular in the area of road transport. In any case, transitivity of rights of access might logically dictate such developments if MRAs are not to be encumbered by rules of origin. By the same token, the US and Canada have proposed to plurilateralize the negotiation of MRAs under the Quad framework to integrate bilateral initiatives. And the EU is now calling for negotiation of MRAs under an EU-NAFTA.[21]
65.There are also parallel MRA dynamics excluding the EU even if inspired by its experience. In keeping with their pioneering history in the field of trade diplomacy Australia and New Zealand are currently concluding a broad MRA covering all goods as well as professional services. By 1994, discussions on market access between the US and its partners in NAFTA, APEC, ASEAN and East European countries were also all "occupied with the merits and demerits of the EU proposal for MRAs."[22] APEC members set up a framework for exploring MRAs in their 1994 ministerial, followed in 1995 by participants in the FTAA project.[23] While these agreements are far for being concluded and are much less ambitious than intra-EU MRAs, their likely existence must be taken into account in thinking about the multilateral context. It must be note that such contagion effects is greatly magnified by the multiplication of MRAs between private bodies themselves. Thus, the example set by the Committees of EOTC operating in the EU is being taken up in other regions of the world and the long term aim is to a create a body for world-wide mutual recognition. Exhibit 7 (see separate annex) lists some the current MRA negotiations.
66.As the practice and legal basis for MRAs is progressively incorporated in the WTO framework, MRAs will become increasingly independent from their European origin. What is the prospect for world-wide mutual recognition, given the contagious effects alluded to above? If this prospect is to be enhanced, the mission of the WTO should be seen as threefold: ensuring the transparency and openness of individual bilateral agreements, helping to maximise the geographical reach of plurilateral MRAs, and providing an umbrella for the eventual integration of these disparate agreements under a global and decentralised framework.
67.Both unilateral and mutual recognition is encouraged in the WTO for services and goods. Article 7 of GATS encourages signatories to adopt measures, by way of bilateral agreements or "autonomously", in order "to recognise the education or experience obtained, requirements met, or licences or certification obtained in a particular country". Recognition under the TBT agreement for products is not as far reaching as it does not include recognition of substantive regulations: "Members are encouraged, at the request of other members, to be willing to enter into negotiations for the conclusion of agreements for the mutual recognition of results of each other's conformity assessment procedures...(article 6.3)." This clause serves as the legal basis for the span of MRAs currently negotiated around the world. The TBT also includes a stronger obligation regarding unilateral recognition of equivalence: "6.1. Members shall ensure , whenever possible, that results of conformity assessment in other Members are accepted, even when those procedures differ from their own ... (article 6.1)."
68.Such recognition clauses are very much at odds with the core tenants of the multilateral trading system -- unconditional most-favoured-nation treatment and diffuse reciprocity. These imply that broadly equivalent concessions are expected of all WTO signatories but not on a quid pro quo basis. But bilateral or plurilateral mutual recognition deals cannot be "multilateralised" automatically as provided by MFN, simply because concessions based on assessing current and future equivalence of regulatory systems are not fungible. Hence, under MR, MFN treatment is indeed conditional, not on some symmetrical lowering of trade barriers, but on actual compatibility of rules or equivalence of procedures. This fundamental contradiction between mutual recognition and MFN raises a number of questions that have not yet been fully clarified.
69.First, how can the broad notion of non-discrimination be salvaged while MRAs are exempt from MFN? While the signatories of the Uruguay Round have sought to ensure procedural if not actual non-discrimination in the wording of their recognition clauses, these attempts may be viewed at best as insufficient to ensure that customised rights of access granted through recognition do not become a means of discrimination between countries based on non-regulatory criteria. Three types of guarantees have been introduced but need to be reinforced:
a)Transparency
Under GATS, the Council must be informed "as
far in advance as possible" of recognition negotiations before they enter a
substantive phase. In addition and to the extent possible, the criteria for
recognition should be multilaterally agreed upon and based on co-operation with
relevant intergovernmental and non-governmental organisations. In practice,
however, the degree of transparency of MRA discussions is hard to ensure when
involving highly sensitive sectors, where multilateral criteria do not
pre-exist and when there is great asymmetry between regulatory practices and
cultures involved. In such cases, the best that might be hoped is greater
post-hoc transparency.
b)Openness:
Under GATS, members who grant recognition must
"afford adequate opportunity" for other interested members "to negotiate their
accession" to existing or future bilateral or plurilateral MRAs; or, if
recognition is granted unilaterally, "to demonstrate that education,
experience, licenses, or certification obtained in their territories should
also be recognised." The TBT simply "encourages" members to permit
participation of conformity assessment bodies of other members on their own
territory under conditions "no less favourable" than those accorded to their
own bodies or those of other members (a voluntary recognition and a voluntary
MFN clause in one). It is still unclear whether such obligations are formal or
substantive. Will signatories simply be asked to show that the "opportunity"
was indeed given (when? how?); or will they be obliged to give substantive
reasons for refusing to consider incorporation of an applicant in a
pre-existing MRA or an MRA negotiation. Most ambitiously, "adequate" might be
progressively interpreted to involve more proactive obligations (see below).
c)Equitable treatment:
Finally, if outside parties have
been given the opportunity but do not pass the test, the GATS specifies that a
Member must not use recognition as a means of discrimination between countries
in the application of its standards or criteria, or as a "disguised restriction
on trade in services." This will be the hardest provision to enforce, since, by
definition, host country requirements will be applied in a discriminatory
manner.
70.The second question raised by the contradiction between MR ad MFN is that of the conditions that parties to an MRA ought to be allowed to demand in addition to assurances regarding regulatory equivalence. In other words, what can such agreements be conditional on? Since they are voluntary, the answer could simply be that this is up to the parties themselves. But such open-endedness might leave MRAs vulnerable to the bargaining leverage of the strongest parties and the imposition of lopsided deals. Thus, the TBT specifies that Members may require that such agreements, "give mutual satisfaction regarding their potential for facilitating trade in the products concerned." This is in part what the EU has been demanding through its requirement of "balanced agreements" with the US, whereby actual gains in market access need to be considered in addition to the symmetrical lifting of regulatory requirements. While the intent is legitimate, such broadening of conditionality to encompass actual market access does increase the closed nature of MRAs and their potential trade distorting effects. "Mutual recognition areas" become closer to article 24 exemptions and might need to be submitted to compensatory constraints.
71.This raises a third question which its whether there should be a presumption of transitivity across MRAs: if the US negotiates an MRA with the EU and with some APEC countries, to what extent are the EU and the concerned APEC countries obliged to recognise each other's regulations? As mentioned, transitivity would preclude the need for "rules of origin" in mutual recognition zones and increase the consistency between such zones. Parties may be allowed to object to transitivity because the actual trade benefits may not be balanced (point above) or the compounded regulatory differentials through chain recognition may surpass their threshold of "acceptable" differences. But in this case, asymmetries in trade benefits and regulations must be significant and the burden of proof should be born by opponents of transitivity. This should not preclude the use of safeguards as outlined in the previous section and the granting of generous confidence-building periods to allow regulators to set up networks for mutual monitoring. By enforcing such transitivity the WTO could help decrease the closed nature of MRAs, "plurilateralise" bilateral agreements, and thus prepare the grounds for eventual world-wide mutual recognition.
72.A fourth question is what should be the legal obligations of countries short of mutual recognition? The answer to this question obviously changes the incentives for negotiating over MR in the first place. There are arguments on both sides. On one hand, a broad interpretation and strict enforcement of policed national treatment (even to the point of enforcing unilateral recognition) ensures a minimal level of liberalisation and may constitute an incentive for MRAs. Given their purely voluntary nature (WTO simply "encourages"), countries may simply refuse to negotiate MRAs with countries that approach them for fear that their product or services will not be competitive once mutual recognition is in place. It is not even clear that signatories are obliged to give reason for refusing to respond to demands for MRA negotiations. In such cases, the stringency of alternative obligations must make it clear that the country cannot simply get away with it. This is obviously the goal of the TBT embellishments on national treatment that are also included in GATS' article 6 regarding non-discriminatory regulations. They include familiar obligations to use least restrictive means, proportionality criteria, etc. But the question of whether given domestic standards and regulations conform to these obligations is extremely difficult to answer, especially for services where they are more vague and less tested. The current task of "article 6.4" working groups to establish disciplines on standards and regulations for services needs to be pursued even while some members already resort to the more ambitious MRA approach.
73.But such attempts at strengthening unilateral obligations should not overlook the fact that recognition is above all a process of mutual adaptation. Granting too much ground for imposing recognition by judicial fiat at the multilateral level endangers the legitimacy of the system as a whole and foregoes the benefits of regulatory co-operation that go along with MR. Even when unilateral recognition is voluntary, the prospect of falling under MFN obligations enforceable by dispute settlement bodies may discourage parties to extend unilateral recognition in the first place. This is true for GATS where the granting of national treatment is voluntary but could theoretically result in unilateral recognition. The very fact that MFN was not made conditional on the compatibility between regulatory regimes for concessions made in national schedules has greatly decreased their utility as mechanisms for addressing regulatory barriers to trade.
74.Finally, we may ask what fora are best suited for the negotiation of MRAs. For the moment, the plethora of bilateral agreements conducted on an ad-hoc basis serve as laboratories for future efforts. The EU is the only regional arrangement that can engineer mutual recognition on the same basis for all its members. Other fora (APEC, FTAA and even NAFTA) are more likely to serve as umbrella for a series of bilateral or plurilateral agreements -at least until some convergence of regulatory procedure is attained. The OECD could play an intermediary role by helping to develop guidelines for sustainable MRAs among its members and by exploring means of maximising the involvement of developing countries in these agreements. The WTO may preside over the multilateralisation of recognition obligations when agreement over essential requirements have been reached at the multilateral level, including by private bodies as in the field of professional services.
75.In the meanwhile, the WTO must first and foremost set constraints on the discriminatory nature of MRAs, but it also needs to encourage a more proactive approach to non-discrimination. This can be done, for instance, through the support of plurilateral programs for regulatory assistance, and "regulatory upgrading" in developing countries in order to increase their acceptability as members in mutual recognition regimes. The WTO can also encourage the development of regulatory databases, of a world wide system for accreditation of laboratories or the co-ordination of a global system for the accreditation or recognition of accreditors themselves.
76.In conclusion, a future world-wide reach of mutual recognition is likely to magnify both the potential conflicts inherent in the adoption of mutual recognition and the regulatory benefits that can be reaped. If mutual recognition is well managed at the world level, trade liberalisation and regulatory goals need not be seen as two conflicting objectives that need to be somehow weighted against one another. Mutual recognition agreements can serve as instruments to improve regulatory quality, by allowing for a better division of labour between overburdened regulators around the world, by allowing for more effective control at the source in the country of origin, by giving impetus to transfer of "regulatory technology," and by fostering regulatory co-operation as well as competition between regulators, quasi-public and private bodies as well as governments around the world.
[20] For an early discussion, see NicolaÔdis (1989)
[21] See speech by Leon Brittan on "EU-US Relationship",The Reuter European Community Report, April 27, 1995
[22] See Ludolph, op cit, p2.
[23] In March 1995 the Summit of the Americas in Cartaghena, Colombia, trade ministers included in the preparatory work to conclude a Free Trade Area of the Americas by the year 2005 a commitment to develop proposals for the mtual accreditation of testing facilities as a fist immediate action prior to more extensive negotiations of MRAs on testing and certification.
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