EU Asks U.S. to Revise Rules for Service Sector

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Host of Regulations at Issue As Bush Seeks Freer Trade; Alarm Likely at Local Level
By Neil King Jr., Wall Street Journal, 25 February 2019

WASHINGTON -- As the Bush administration seeks freer global trade in services, the European Union is taking aim at the sector and requesting changes in how U.S. state and federal authorities regulate everything from liquor sales to accounting.

The EU requests, included in a confidential document put forward as part of continuing global trade talks, are likely to raise alarm among state and local authorities, who would be required to alter rules governing businesses ranging from land ownership to insurance. The 34-page paper was leaked to Ralph Nader's group Public Citizen.

The Bush administration is set to respond by the end of March with a list of changes it is willing to make to service-sector regulations.

Some of the EU positions have been known for months, but the final list includes new language regarding accounting standards, cross-border insurance and the retail sale of electricity, all highly controversial topics. Consumer groups, as well as a growing number of state officials, contend that the secretive talks within the World Trade Organization could undermine the ability of local authorities to oversee vital economic services.

"What we hear is going on in these WTO talks will run smack up against laws in states like mine, but for now it's behind closed doors," said Mark Pocan, a Democrat in the Wisconsin State Assembly. The big issues in his state, he said, are privatization of public water supplies and rules governing electricity distribution.

The EU push coincides with new scrutiny in Washington of the role that government, and particularly state and local governments, play in limiting competition. The Federal Trade Commission, under Bush appointee Timothy Muris, is seeking to open regulated markets across the economy, from prescription drugs to caskets makers, and has created a task force to examine anticompetitive restrictions on Internet commerce, such as state rules limiting auto sales or interstate shipment of wine. The agency also is preparing to charge that Unocal Corp. used state regulation and its patents on a clean-fuel formula to lock up a monopoly in the West Coast gasoline market.

And the wisdom of state regulation in telecommunications was a major issue last week at the Federal Communications Commission, where Chairman Michael Powell was outvoted in his effort to largely eliminate the role states play in overseeing wholesale rates that the four big regional Bell telephone companies charge competitors for using their lines.

U.S. Trade Representative Robert Zoellick has made opening up global trade in services a central plank of his strategy in the Doha round of WTO trade talks, which are meant to wrap up at the end of next year. Persuading the rest of the world to accept U.S. banks, insurers and overnight-delivery companies would be a boon to U.S. business, but promises to reciprocate in the U.S. are already raising the ire of environmental and labor groups.

The EU demands mirror those that the U.S. regularly makes on its trading partners to lift government rules that tend to favor domestic companies over U.S. competitors.

An area of chief concern to labor is the push by the EU and other countries to open the U.S. market to contract workers offering services ranging from computer software to equipment maintenance and landscape architecture. Environmental groups, meanwhile, oppose efforts to open all water and sewage services to foreign competition. Such a move, they contend, would allow other countries to overturn local water regulations and break up public utilities if they posed a "barrier to trade" within the world trade system.

"What is startling is how much of the U.S. economy is up for grabs here and how broad the impact might be," said Lori Wallach, head of Public Citizen's Global Trade Watch. Ms. Wallach obtained the EU document last week. It wasn't clear when it was submitted to U.S. trade negotiators.

The EU document also indicates that European officials may be ready to further challenge the requirement that businesses operating in the U.S. abide by U.S. accounting standards, as opposed to international standards used in Europe. The Securities and Exchange Commission has rebuffed several recent requests to allow the domestic use of international accounting standards, which critics say are overly subjective and lack clear rules. The EU, in its request to the U.S., calls this practice "a regulatory trade barrier" that must be resolved.

The EU also is requesting that the U.S. expand the cross-border sale of "large-risk" insurance services, a proposal that some experts say could weaken controls over insurers offering services to businesses or even individuals. The EU's earlier requests sought to open the U.S. market to foreign sales of mutual funds; the new document seeks to expand that to the sale of financial derivatives, especially futures.

Some of the previously known EU objectives could have a bigger effect on individual states. For instance, the EU wants to eliminate rules in 16 states that give state authorities the sole right to sell packaged liquor. The document also seeks to lift restrictions in nine states on foreign ownership of land and to remove certain residency and citizenship requirements for practicing law.

Some of the requests aren't likely to go far. For instance, the EU wants the U.S. drop its centuries-old prohibition on foreign ships moving cargo between U.S. ports, an unlikely move in these times of heightened security. The document also includes a request that the U.S. allow foreign companies and governments to acquire 100% ownership of U.S. radio stations. The EU also wants the U.S. Postal Service to cede its monopoly over bulk, first-class letter delivery.

Both U.S. and EU trade officials declined to comment on the EU requests.

The service negotiations are part of a long effort to deepen provisions within the General Agreement of Trade in Services, which was part of the sweeping 1994 Uruguay Round of global trade talks. The U.S. made its formal request of the EU and other countries last summer in documents that remain undisclosed.


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