As the US Congress and regulatory officials consider ways to tighten auditing and accounting rules to prevent a repeat of the Enron debacle, a little-known global agreement that places untested new requirements on the domestic regulation of professional services such as accounting is quietly advancing -- with the help of firms like Arthur Andersen, Enron's much-criticized auditor.
The new rules would give the WTO oversight of domestic regulation of accounting. Any new national regulation could be challenged by other countries as unfair if it was "more trade restrictive than necessary."
Critics of the new rules say such a standard could hobble a government's ability to regulate scores of services. But US officials say the requirement,simply will prevent governments from setting discriminatory rules, limitations and quotas that interfere with the right of foreign service companies to enter their markets.
So far, the new rules, which are being drafted by the WTO with the help of executives from Arthur Andersen and other companies, have attracted little outside attention. They fall under the General Agreement on Trade in Services, or GATS, a 1994 pact that seeks to liberalize trade in everything from architecture to real estate brokerage, the way the General Agreement on Tariffs and Trade, or GATT, has done for many goods.
The services agreement has generated none of the public controversy that has swirled around the organization's attempts to promote merchandise trade. Even after street protests disrupted the group's Seattle conference in 1999, talks on services moved forward.
But after the Enron collapse drew public attention to controversial accounting practices, public interest groups and critics of free global trade have begun to worry that the services agreement may stand in the way of efforts to curb future abuses.
"The Enron-Andersen crisis just shows that governments need to retain the ability to experiment with deregulation and then, if they realize they've gone too far, to re-regulate," said Ellen Gould, an independent consultant and researcher working on contract with Georgetown University. "What the WTO and these agreements seek to do is make deregulation a one-way street."
Even critics agree that in the current atmosphere, unfair-trade complaints would be unlikely against the measures now being discussed. But they ask how the new rules will be interpreted when future issues arise, and a government proposes measures disliked by a trading partner.
"What we really need to ask is to what degree are global agreements like this going to limit our ability to regulate services domestically," said Patricia Arnold, an associate professor of business at the University of Wisconsin's Milwaukee campus. "The long-term goal of GATS is to eliminate barriers in the cross-border trade in services."
US trade officials said such fears are overblown. They point to recent changes in banking regulations, also covered by the services agreement, that were not challenged by any nation on trade grounds.
"We think that these things are written sufficiently broadly enough not to cause any problems," said a senior trade official.
Joshua Ronen, a professor of accounting at New York University, said the detailed agreement on accounting now being drawn up does not specify what licensing requirements or exam standards nations use; it merely insists that any such regulations be legitimate and transparent. "I don't think they will have any impact on any reform the United States has in mind," Ronen said.
GATS was adopted in 1994 by the 140 nations of the trade organization in response to dramatic growth in services, which accounted for one-fifth of all cross-border trade in 1999, or more than US$1.35 trillion in all. Trade in services has grown faster than trade in merchandise for 20 years.
The agreement covers nearly all services except those provided solely by governments and those involved in air transportation. Member nations may choose which of 160 named services to liberalize, and developing nations are given leeway to offer some protection for local companies.
Accounting was one of the first services for which detailed rules were written. Charles Leonard, a spokesman for Arthur Andersen, said the firm was part of an international accounting group that helped draft them.
"We were striving for openness and transparency in national standards," he said.
The rules do not take formal effect until 2005, but member nations have already agreed not to impose any new regulations that do not meet the proposed standard for openness.
It is not clear how that commitment applies to the measures now being debated in Washington. During the process of drafting the agreement several years ago, US officials raised questions about whether prohibiting an accounting company from doing both auditing and consulting work for the same client would be viewed as restricting trade. Such a measure is being considered in Washington now.
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