YJIL Symposium: Response to Mark Wu
I am grateful to Mark Wu for penning a thoughtful response to some of the ideas in “Trade 2.0.” I am fortunate to have such an expert commentator. Wu agrees with my aims, but worries that the political will may be lacking to effect my proposals. He also offers four other hurdles to implementation. I consider each concern below, beginning (in the interest of easy cross-reference) with the one he labels “first,” and concluding with a response to the political will objection.
First, Wu is concerned that GATS Article XIV will prove a major hurdle to liberalization of trade in services conducted electronically. Article XIV allows countries to derogate from their liberalization obligations if necessary to protect public morals or the public order. This escape valve seems a wise measure to prevent the imposition of sanctions in cases where a particular trade liberalization would imperil domestic morals or domestic order. The proponents of GATS recognized, however, that claims of public morals or public order might be used to disguise protectionist regulation, and thus the WTO properly limited the invocation of Article XIV to cases where there is no “reasonably available alternative” to the GATS derogation (U.S. – Gambling). In U.S. – Gambling, the United States successfully invoked Article XIV nonetheless because Antigua failed to show that there was a “reasonably available alternative” to the U.S. regulation. But a future complainant may not be so reticent to press the possibility of a reasonably available alternative. Indeed, the European Union has hinted that it may lodge a complaint against the United States for failing to live up to its gambling commitments. Presumably, unlike Antigua, it would press the possibility of achieving, through means other than a prohibition on online supply, the laudable American objectives of protecting youth, preventing fraud, and minimizing problem gambling. The European Commission has made its opinion plain: it suggests that “[t]he enactment of UIGEA [the Unlawful Internet Gambling Enforcement Act of 2006] showed that alternative measures that are WTO consistent (such as authorization/licensing under sufficiently strict conditions) are reasonably available to the US.”
Wu notes that licensing would not violate the principle of technological neutrality and thus poses a substantial hurdle for foreign providers. But licensing need not be an insurmountable hurdle, or even one that is overwhelmingly expensive. That is where the principle of dematerialization kicks in—requiring a nation to minimize the physical presence requirements for obtaining the appropriate credential. But as the European Commission observation about the possibility of “licensing under sufficiently strict conditions” for gambling suggests, foreign nations may well be content with licensing as a condition of supplying a service in a market. Foreign competitors are often quite willing to undergo the educational procedures necessary to provide the service at the level demanded locally. Licensing indeed seems like a reasonable solution in many instances for identifying competent service providers to consumers.
Second, Wu argues that implementing liberalization commitments will lead to backlash. Some nations may indeed back out of earlier commitments, as permitted under GATS Article XXI. However, this can itself a demanding process. Article XXI requires that the member withdrawing a commitment must negotiate “any necessary compensatory adjustment” with trading partners who are adversely affected by the withdrawal. The U.S. is seeking to withdraw its gambling commitments but this opens up the possibility of the nations who might believe that this adversely affects them to seek compensatory adjustments in their trading with the United States. Of course, it would be useful to move to a negative list approach, where countries must specify what is excluded from the liberalization commitment (rather than, under the current positive list approach, specifying what is included) but that seems a major liberalization that may be difficult to achieve in current negotiations for the global regime (though the negative list approach is, as I note in Trade 2.0, part of regional commitments in place today).
Third, Wu is concerned that developing countries may not find much reason to sign on to further liberalization. But here his objection is a quite narrow: he says he is not speaking of “India, the Philippines, Estonia, or even Ghana,” nor of “small states, such as Antigua or Barbuda,” but rather states such as “Togo, Pakistan, Haiti, and Burkina Faso — with a relatively weak services infrastructure.” Indeed, this latter set of countries may not have the pressure from domestic exporters to seek services trade liberalization. And yes, the services incumbents there may feel threatened by foreign competition. But there are at least four reasons why this hurdle may not prove insurmountable. First, individual consumers and corporations and businesses that consume services might stand to benefit from liberalization, even if some local suppliers might lose. Second, the services industry is very dynamic; new domestic service providers might enter the global scene in ways they had never before anticipated. Haiti and Pakistan, and Togo and Burkina Faso, may yet find their global services niches. Third, given the many subjects covered by trade — from goods, to intellectual property, to services — there seems room for give and take between domains. Finally, throughout the history of trade negotiation, some states have feared for their domestic suppliers, but yet states have managed to move towards liberalization.
Fourth, Wu notes that there may yet be a race to the bottom, in the sense of a compliance with local oppressive rules. This remains a serious concern. In another paper, yet-to-be-published, titled “Googling Freedom,” I suggest that states should impose extraterritorial obligations to respect international free speech norms on the part of their service providers as they extend themselves overseas.
Fifth, as mentioned above, Wu worries about the lack of political will to liberalize trade in services. My argument is that there has been very substantial liberalization already. GATS marks the first time that services have been part of the global trade order. Regional agreements from NAFTA to the European Union to CAFTA-DR already commit countries to substantial liberalization in services. Of course, GATS is not nearly as liberal as GATT — but we might remember that we have had sixty years within which to progressively liberalize trade in goods. The fact that the Doha round of negotiations (for goods and services) has been slow-going is less than ideal, but the arrow of recent history points towards liberalization. Whether or not this projection holds true for the near term, the world’s nations have yet to work through the implications of the liberalization commitments they have already made. The Appellate Body will be forced to develop a coherent framework even without further liberalization.
My hope is that Trade 2.0 might be of some help in that difficult task of developing a coherent framework for the liberalization of trade in services.