Regulating Trade in Services in the EU and the WTO: Trust, Distrust and Economic Integration

Citation

Xiao Huang, F. (2013), "Regulating Trade in Services in the EU and the WTO: Trust, Distrust and Economic Integration", Journal of International Trade Law and Policy, Vol. 12 No. 1, pp. 98-101. https://doi.org/10.1108/14770021311312520

What makes integration, in particular economic integration? Does trust account for economic integration? Two trade and EU law scholars Lianos from the University College London and Odudu from the University of Cambridge, in their thought‐provoking edited book, attempt to answer these questions by using the case of the EU and the WTO on trade in service. The significance of services has long been known, accounting for more than two‐thirds of global GDP (WTO, 2010). The preamble to the 2006 EU Service Directive also emphasises its contribution to the European economy with “70 per cent of GDP and employment in most Member States” (Directive 2006/123/EC, 2006).

The formulation of economic integration theory was initiated by Viner (1950), one of the inspirers of the early Chicago School of Economics, who described trade creation and trade diversion effects caused by economic integration. In the literature, the degree of integration has been assessed by a variety of criteria such as trade flows (Tollison and Willett, 1973), and macroeconomic variables consisting of output, saving, investment and consumption (Stock and Watson, 1989; Johnson and Soenen, 2002).

Instead of defining what factors contributing to the progress of integration, this book proposes a relatively new approach: the trust theory. Such trust concerns interdependence and mutual recognition in the process of harmonisation, despite the efforts of establishing uniform rules. Trust involves multidimensional relationships between states, public and private actors, international and national institutions. It could also be in any form of inter‐personal similarity between different trust partners, or system trust via a third party.

This book is a rich and insightful collection of essays from scholars, lawyers, trade experts and political scientists. It aims to examine the concept of “trust” in the economic integration and to what extent trust is recognised by regulatory authorities in the field of trade in services at both European and international levels. It is the fruitful result of the Modern Law Review workshop jointly initiated by the Centre for Law and Governance in Europe at the University College London and the Centre for European Legal studies in the University of Cambridge in 2009. 27 participants discussed the regulation of services in the European internal markets and the WTO.

In terms of the structure, the book is divided into six parts containing 14 chapters together with the introduction, with the wide coverage of the trade regulation at both European and international levels, the recent case laws of the European courts and the studies on the interaction between the services directive and the different spheres of economic activities (social services and financial services).

Part I only contains one chapter, which introduces the concept of economic integration and its competing views. It establishes a solid theoretical foundation for the continuing debates in this volume. Lianos and Le Blanc start by challenging functionalism on the presumption of the existence of separate functions and the failure of such theory to explain the dependent variable of European integration. Having recognised the limits of the functionalist logic, they suggest two alternatives: economic integration and the trust theory of integration. The former could be understood as a process of efficient institutional creation via the forms of competition, cooperation and co‐opetition. In contrast to institution‐based harmonisation, the latter adopts a broader concept of trust to accommodate different forms of integration across national boundaries.

Part II of this volume applies the trust theory into services, in particularly from the EU perspective. The four chapters in this part could be considered as an extension to the previous chapter which is theoretical in nature by clarifying and detailing the notion of trust.

Chapter 2 with the title “forms of mutual recognition in the field of services” is authored by Hatzopoulos. It reconsiders the conceptual framework of mutual recognition in services by concluding that mutual recognition is “the most far‐reaching regulatory technique for the completion of the Internal Market” (p. 97).

Hatzopoulos's article is followed by Davies's consideration of the relationship between mutual recognition and harmonising regulation through an example of the services directive. The services directive develops a communicative means to promote trust and cooperation. This would lead to limited voluntary harmonisation, and perhaps free movement as a result. Meanwhile, the author also acknowledges the potential problems of the single market such as enforcement and inadequacies of the substantive rules as well as the resistance to trust.

Subsequently, a question with regard to the same topic arises in Chapter 4: whether the EU could be a model for international trade. Kerber and Van Den Bergh criticise the view that the introduction of the principle of mutual recognition could simultaneously remove trade barriers, enable regulatory competition and avoid a centralisation of competences. But this principle leads to a number of inconsistencies and problems due to misunderstanding of its function. I in principle agree with their view that mutual recognition does not offer a solution to harmonisation and centralisation. Instead, it is a dynamic process for the reallocation of regulatory powers in a multi‐level system of regulations, and therefore has consequences for the vertical allocation of competences.

Chapter 5 by Bovis examines the harmonisation process in the areas of public procurement and public services and their interaction under EU law. The presence and characteristics of public procurement markets and the need to attain greater allocative efficiency, while ensuring at the same time greater quality of public services, also require a degree of state intervention. However, this chapter could be better if sufficient statistical evidence or citations of literature are added to justify public procurement as “the heart of an ordo‐liberal interpretation of the European integration process” (p. 168).

Part III consists of Chapters 6 and 7 which are in common on the linkage of economic integration to regulatory pluralism.

In Chapter 6 Lianos and Gerard find that regulatory pluralism could be an economic integration tool by reviewing the EU Internal Market Law and the case law of the European court. The choice of coordination tools, such as open method of coordination, instead of harmonisation measures is justified by the need to preserve regulatory diversity and consequently economic efficiency.

Nicolaïdis continues the regulatory topic in Chapter 7, and comes up with the “regulatory peace theory” referring to a stable state of cooperation among regulators from different jurisdictions. But notably missing from this chapter is any reference to the difficulties of achieving this stable state of cooperation in reality due to the conflicts of interests and politics.

Part IV moves on from high levels of trust among national regulators and international institutions to the involvement of private parties in the economic harmonisation process.

Chapter 8 is devoted to examining the horizontal effect of the free movement provisions on private parties by Schepel. To put it simply, private parties are directly bound by the EU law. Whatever a “total constitution” (fundamental rights) or a “total market” (market freedom) is the inescapable consequence of the court's case law.

The aim of Chapter 9 is to explore the impact of codes of conduct on the liberalisation of professional services. The Member States are required to take accompanying measures to encourage professional associations to implement at national level the pan‐European codes of conduct. Hence, the code of conduct would be transposed from EU level to national level and become gradually binding. According to Delimatsis, examples of relevant issues include ethics, professional secrecy, integrity, impartiality, business structure and advertising.

Part V is devoted to understanding the notion of trust in the social sphere. De Schutter in Chapter 10 examines the debates on the impact of the transborder provision of services on the protection of workers. Then in the next chapter, Joerges and Rödl emphasise that one of policy objectives is to safeguard individual and social freedom. Law can only remain democratically legitimate if it “protects democratic autonomy and compensates for the democratic deficits of political fragmentation” (p. 399). An analysis of the case law in Chapter 12 by Bailleux reveals that trust is the behind reason for the ambivalent relationship between fundamental rights and free movement. European states or citizens can use fundamental rights to bolster trust among their allies and express distrust towards a non‐member state.

The last part of this book envisages the trust theory in the WTO framework. The WTO members enter into trust agreement on the conditions of the language, geographic, educational proxies, which are explored by Marchetti and Mavroidis in Chapter 13. The last chapter authored by Howse, uses telecommunications as an example to illustrate the difficulties of the WTO adjudicator in interpreting WTO treaty norms by drawing on normative material from specialised regimes. Indeed, the last two chapters expand the implication of the trust theory, which is not only limited to regional countries, but also applying to global trade.

Taken as a whole, this book will be an invaluable, coherent and relevant guide to legal and trade communities. Those who are not familiar with world trade or the EU services directive may want to read it as a collection of stimulating issues. Scholars in the field who are already well informed on the doctrine of free movement can still benefit from Lianos and Odudu's (2012) volume by focusing on various theories of economic integration taking into account of the legal, economic, political and social spheres. Of course, if the book has to be criticised, that would be the theoretical foundation. It could be more convincing and comprehensive if the prerequisites of trust and the barriers to such trust are well analysed.