How the WTO will affect the valuation profession

Canadian Appraiser, The, Spring 2003 by Clark, Peter

Earlier this year, the World Trade Organization (WTO) consulted a limited number of international professional service organizations as to whether or not the disciplines designed to promote freer trade in accountancy would be appropriate in their professions. In 1998, the Department of Foreign Affairs and International Trade (DFAIT) consulted the Appraisal Institute of Canada (AIC) in response to a Canada-wide round of committee hearings on the subject of professional services. The WTO is due to conclude negotiations on services by January 1, 2005. To meet this deadline, during the next 18 months, there will be significant activity at the federal government level and at the WTO.

In 1994, the Uruguay round of trade negotiations was completed. One result was the creation of the WTO. For the first time, the Uruguay round also included negotiations on trade in services including professional services. It was felt that, because of the importance of the regulation of professional services, commitments on market access and national treatment alone would not be sufficient to allow for effective market access. For this reason, the representatives of certain professions had urged negotiators throughout the round to adopt a more specific approach to their sectors.

The result was the Ministerial Decision on Professional Services, which established the Working Party on Professional Services and defines its mandate. The Working Party does not negotiate new commitments in the area of professional services, but it does contribute to the development of additional rules that will govern the future regulation of professional services. The Decision on Professional Services stipulates that, as a matter of priority, the Working Party shall deal with the accountancy sector.

In 1998, WTO members adopted Disciplines on Domestic Regulations in the Accountancy Sector. It was then agreed to develop more generally applicable disciplines for professional services, rather than a myriad of sector-specific professional disciplines. One of the outcomes of the recent WTO Doha round was that members set the deadline of January 1, 2005 to conclude the services negotiations. One final point of considerable significance; under the General Agreement on Trade in Services (GATS), valuation is classified as a professional service under the finance/accounting heading, while real estate services is classified as a business service.

As a result of the adoption of the Accountancy Disciplines in December 1998, the WTO members subsequently embarked upon a major expansion of their efforts to develop regulatory disciplines under Article VI:4 of GATS. This article refers to three types of regulation (licensing requirements, qualification requirements and procedures, and technical standards) and mandates the development of 'any necessary disciplines.' In April 1999, an expanded Working Party was mandated to develop generally applicable disciplines, and to possibly develop disciplines as appropriate for individual sectors or groups of sectors, including professional services.

The Disciplines on Domestic Regulation in the Accountancy Sector are quite concise, although fairly general, and extend to only 26 paragraphs over three pages. They are divided into eight sections: Objectives, General Provisions, Transparency, Licensing Requirements, Licensing Procedures, Qualification Requirements, Qualification Procedures, and Technical Standards.

The General Provisions mandate a 'necessity test' for all applicable regulatory measures to ensure that they are not more trade restrictive than necessary to fulfil a specified legitimate objective. Examples of legitimate objectives mentioned in the disciplines are "the protection of consumers (which includes all users of accounting services and the public generally), the quality of the service, professional competence, and the integrity of the profession." In paragraph 5, under Transparency, WTO members are required, upon request, to explain the specific objectives intended by their accountancy regulations. In paragraph 6, also under Transparency, members are asked to provide an opportunity for trading partners to comment on proposed accountancy regulations, and to give consideration to such comments.

Other important provisions of the Accountancy Disciplines include the requirement in paragraph 9 (Licensing Requirements) that members consider less trade restrictive alternatives to residency requirements; the requirement in paragraph 15 (Licensing Procedures) for reasonable documentation; and the requirement in paragraphs 19 and 21 (Qualification) that account be taken of qualifications earned abroad and of the role that mutual recognition agreements can play in verification of qualifications or establishing equivalency of education.

While the IVSC has provided an initial response on behalf of its member organizations, and stated that it believes the Accountancy Disciplines would be generally appropriate to the valuation profession, reference was made to the wider scope of the new World Association of Valuation Organizations (WAVO) regarding qualifications and technical standards.