5.2 Specific commitments and the “water”: Evidence from Brazil

Box 5.2 Specific commitments and the “water”: Evidence from Brazil

Echandi (2020), using an index methodology, analyzes specific commitments in Brazilian trade agreements relative to the maximum possible level of commitments.

There is a significant gap between (a) the level of concessions on market access and national treatment assumed by Brazil in its international agreements, and (b) the level that the country could actually implement, even assuming that Brazil would not undertake any commitment to reform any existing law or regulation.

This “water” between applied policies and international commitments is the lowest in the case of the Southern Common Market (MERCOSUR) Services Protocol, equivalent to 38 percent. For the 2018 Brazil–Chile Free Trade Agreement (FTA), it is 62 percent; for the 2019 MERCOSUR–EU FTA, it is 87 percent; and for GATS, it is as high as 95 percent.

Brazil’s treaties tend not to include mechanisms (a) to ensure full transparency of nonliberalized barriers to services trade, or (b) to lock in unilateral openings that could occur in future ratchets. But Brazil could make its service treaties work better with domestic trade reforms through minor technical steps. These should not entail any political cost or reform of the regulatory status quo for services. With these technical steps, Brazil could quickly catch up with the commitments shown by Republic of Korea and the Pacific Alliance countries (Chile, Colombia, Mexico, and Peru). In other words, Brazil could quickly position itself among the international leaders of countries by undertaking service commitments in its trade agreements without a single reform to any national law or domestic regulation.

Brazil’s evolution in the architecture of its trade in services chapters could be better leveraged to make these treaties more useful, thus complementing the government’s current efforts to liberalize trade in services, attract investment, and foster policy coherence. Without undertaking political costs in eliminating additional restrictions to trade in services, agreements negotiated by Brazil could be adjusted to significantly improve the country’s capacity to • • Lock in the existing opening for trade in services in Brazil; Increase the confidence of service providers by improving regulatory transparency and the • predictability of remaining barriers to trade; and Lock in future domestic reforms, reducing services trade protectionism.

Source: Echandi 2020.

The legal implementation of commitments that change regulatory frameworks face several challenges. Depending on the internal procedures, specific stakeholders or interested groups might oppose the change in the status quo of certain provisions. Examples are the public sector monopolies in telecommunications and insurance in Costa Rica, adjustments to the television quota in Colombia, and the specific nationality of lawyers in Chile.

For administrative implementation, the functioning of government agencies and delegated authorities (for example, engineering boards) that intervene in the supply of a service must abide by specific provisions in agreements. This is the case for some transparency commitments. It usually implies developing particular functions (such as contact points) and procedures (such as providing information on application decisions). A specific challenge occurs when the obligations introduce criteria to evaluate

government behavior, such as the objective and impartial administration of domestic regulation commitment measures.

The administrative implementation of commitments to make institutions operate under specific features and characteristics is also challenging. For some institutions, changes and adjustments might be easy. For others, owing to resource limitations or institutional deficiencies, they could be difficult. For example, some telecommunications obligations call for stronger supervisors to investigate and impose exemplary sanctions where doing so would require the structural reform of the agencies.

Additional challenges arise when commitments regarding measures adopted or maintained by one party—at all levels of government (central, regional, or local) or by nongovernmental institutions with delegated powers—affect the supply of services by agents in another country. Coordination and monitoring in these two dimensions represent clear challenges. This is especially challenging when multiple licenses are required to provide services, as is generally the case in the health, financial, and telecommunications sectors.

Types of commitments

Commitments in PTAs can be categorized into two broad types:

• Obligations “to do” that refer to specific guarantees to access a market • Obligations “to abstain” that limit some government actions.

In most cases, these commitments do not require any change. Most countries can easily commit not to change a legal or administrative regime, according to the agreed-upon regulations (that is, nondiscrimination for specific service providers). Other commitments require either legal or administrative changes. An additional type of commitment refers to future changes that might imply the maintenance of certain treatment conditions (standstill) or a commitment, once treatment is changed to make it less restrictive, not to regress (ratchet).

Another variation among regulations in PTAs is that they could be mandatory, voluntary, subject to reservations and limitations, or requiring best efforts. The treatment varies based on the type of regulation. For example, regulations relating to such characteristics as market access, local presence, national treatment, MFN, performance requirements, or the nationality of directors are generally mandatory. Still, they normally allow for sectoral or specific reservations.

Treatment also varies with acceptability to the negotiating parties, usually given the development of the legal and regulatory framework and related institutions. Regulations evolve and, in some cases, they go from best practices and soft law to hard law. When regulations are voluntary or call for best efforts, challenges arise over the willingness of national agents to incorporate them into their own regulation and practices, even though they contribute to the framework of service provision and anticipate deeper provisions in future agreements.