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Prior Authorisation

Prior authorisation is when an organisation needs to gain some type of prior approval before delivering a good or service within a country. A typical example might be a firm who requires a licence prior to operating in a sector.

Motivations for prior authorisation

Prior authorisation is common as part of good regulatory practice to ensure well organised sectors.

In sectors where digital services and applications become important, such technology is likely to become part of regulatory practices. In fact, the need for prior authorisation may be more important with the growth of digital. The growth in applications and online services may lead to more fragmented sectors, and potentially involve higher risks requiring more closer regulatory oversight.

Digital latecomer countries may find that key sectors have growing competition from foreign platforms that operate with minimal in-country presence. Here stronger regulatory oversight may be important.

One example of the important of prior authorisation is in FinTech sectors in developing countries. There have been a rapid expansion of applications, but alongside this has been reports of unethical practices, services suddenly closing and predatory activities. Licencing regimes in areas such as P2P services, bitcoin, micro-lending and mobile money can reduce some of these risks.

Beyond regulation, prior authorisation rules is used as a more active policy in some countries, allowing or preventing competition. In areas such as e-commerce, payments and data, prior authorisation regimes might be used as a way to actively shape sectors, for example by authorising mainly domestic firms.

Can motivations be differentiated?

This latter approach to authorisation of digital goods can potentially operate as an industrial policy by supporting infant industries. Those pushing liberalised digital trade may demand trade rules to reduce the latter approach while not preventing common-sense regulation.

In trade rules this is done through reducing so-called authorisation schemes “exclusively targeted to electronic services”. Additional clauses might allow “public policy” exclusions so to differentiate between regulation and industrial policy. Such wording, for example, has been part of draft EU-Indonesian EPA negotiations.

While such wording appears to offer clear differentiation on paper, this might not be sound in practice. Firstly, preventing prior authorisation schemes “exclusively targeted to electronic services” may be overly broad. New types of digital applications are specifically pushing demands for regulation due to the way they operate.

This is already being seen in the cases of food delivery and taxi apps in some countries. National or municipal regulations are being introduced focusing on apps specifically because these apps lead to problematic impacts.

Secondly, the current form of clauses lack clarity in terms of what is a “legitimate public policy objective” and what is “proportionate”. While this may work on paper, in implementation there is potentially risks that this might limit the motivation for countries to undertake genuine prior authorisation regimes. Smaller nations may feel it too risky to undertake even legitimate public policy if they anticipate political pressure from large app providers in response.