CFRR Head addresses the WTO Council for Trade in Services
30 June 2010, Geneva
On 30 June, the Head of the CFRR, Mr. John Hegarty addressed a meeting of the World Trade Organization’s Council for Trade in Services (CTS). Currently chaired by the Norwegian Ambassador to the WTO, H.E. Mrs. Elin Østebø Johansen, the CTS operates under the guidance of the General Council of the WTO. The CTS is responsible for overseeing the functioning of the General Agreement on Trade in Services (GATS) and so plays a central role in the ongoing Doha Round of trade liberalization negotiations. All 153 WTO member countries participate in the work of the CTS.
The General Agreement on Trade in Services (GATS) covers all internationally-traded services – including accountancy services – and it also defines four ways (or “modes”) of trading services:
services supplied from one country to another, officially known as “cross-border supply” (in WTO jargon, “mode 1”)
consumers or firms making use of a service in another country, officially described as “consumption abroad” (“mode 2”)
a foreign company setting up subsidiaries or branches to provide services in another country, officially known as “commercial presence” (“mode 3”)
individuals travelling from their own country to supply services in another, officially described as “presence of natural persons” (“mode 4”)
Most obstacles to trade in services arise from differences between countries’ systems of domestic regulation (e.g. differences in standards and in qualification and licensing requirements), so that moves to remove barriers to international trade in services often require changes to national regulations. When the GATS was negotiated in the early 1990s, there was limited appetite to do this in the field of accountancy services. The WTO has since developed some guidelines in this area – the “Guidelines for Mutual Recognition Agreements or Arrangements in the Accountancy Sector” and the “Disciplines on Domestic Regulation in the Accountancy Sector” – but these have so far had only a limited impact.
In 2009, as an input to the Doha Round negotiations to achieve greater liberalization trade in services, the CTS requested the WTO Secretariat to update a previous study from 1998 analyzing trade in accounting services. At its meeting on 30 June 2010 the CTS discussed this updated paper.
As part of this discussion, Mr Hegarty made a presentation drawing on World Bank work (attached) on the major developments in the regulation of financial reporting which had taken place since the 1998 paper was prepared. These developments were driven in large part by the lessons learned from the Enron and similar scandals and the financial crises of 1997-98 (which largely affected Asia) and of 2007 onwards (which have affected most of the world). As these regulations were often in place without full regard for their impact on trade, new barriers to international trade in accountancy services have emerged, and fresh efforts will be required to overcome them. In addition, while it has long been accepted that systems of domestic regulation can create obstacles to trade in accountancy services, it is also increasingly being recognized that removing impediments to trade can improve the effectiveness of regulation. In particular, trade in accountancy services can help to address a lack of domestic capacity in areas such as auditing, which are essential to sound regulation. As a result, freeing trade in accountancy services can help to improve the quality of domestic financial reporting, thus aiding financial stability and so helping to support economic growth. Mr Hegarty cited several recent measures adopted in the European Union, especially through the Statutory Audit Directive, as examples of liberalizing approaches that could be considered for replication at a global level.
Prior to joining the World Bank, Mr. Hegarty was extensively involved in the Uruguay Round of trade negotiations which led to the 1994 General Agreement on Trade in Services (GATS), the creation of the WTO in 1995 (as successor to the GATT), and the establishment of the WTO Working Party on Professional Services (1995). He also participated in the discussions which led to the Guidelines for Mutual Recognition Agreements or Arrangements in the Accountancy Sector (1997) and the Disciplines on Domestic Regulation in the Accountancy Sector (1998). Mr. Hegarty was a member of the European Tradable Services Network, which advised the European Commission during the Uruguay Round; EU Sector Coordinator (Accountancy Services) on the Transatlantic Committee on Standards, Certification and Regulatory Policy under the Transatlantic Business Dialogue (TABD); and Chairman of the Policy Committee of the European Services Forum, the body which has advised the European Commission on trade in services issues once the WTO had been established, and during preparations for negotiations under what became the WTO Doha Development Round.