- Services regulations differ more across Latin America and the Caribbean than across other regions.
- Countries can reduce these differences through mechanisms such as mutual recognition, data-protection arrangements, and trade agreements.
- Successful episodes of regulatory cooperation have translated into measurable increases in services trade.
Restrictive trade policies in services can limit the supply from foreign providers and international competition, reducing variety and consumer choice, raising prices, lowering quality, and ultimately weakening the competitiveness of the domestic sector.
Beyond the level of restrictions behind services trade policies, having dissimilar service regulations between countries can also limit trade flows, as suppliers have to comply with different regulations across destination markets.
Our recent Inter-American Development Bank (IDB) publication examines how regulations governing trade in services differ across Latin America and the Caribbean (LAC) and assesses the impact of these differences on services trade.
Based on World Trade Organization and World Bank data, Figure 1 presents a measure of regulatory heterogeneity called regulatory distance. This measure ranges from zero to one, although Figure 1 expresses the values as percentages. A regulatory distance equal to zero means that two countries impose the same regulations on a given service; at the other extreme, a regulatory distance equal to one implies that the regulations of both countries on the service are all different. For example, two countries may require foreign providers of professional services to meet certain qualification and certification requirements. The more similar these requirements are, the smaller the regulatory distance between the two countries, and vice versa.
The figure shows the average regulatory distance across LAC countries in specific sectors. In transportation services, for example, the average regulatory distance is 58%. This means that more than half of the regulations that countries in the region impose in this sector are different.
Our IDB publication highlights two additional findings. First, when compared to the European Union (EU), Asia (consisting of the Asian members of the Regional Comprehensive Economic Partnership -RCEP), and North America (Canada and the United States), Latin America and the Caribbean exhibits the highest level of regulatory heterogeneity, on average, in all but one sector (tourism).
Second, regulatory differences between Latin America and the Caribbean and other regions are generally greater than differences among countries within the region. In other words, regulatory gaps are substantial within the region and even larger between the region and its external partners.
Differences in regulations across countries impose costs on providers, who must adapt their services to comply with rules in each destination market. This tends to reduce trade. Econometric estimates in our recent publication confirm that greater regulatory distance between two countries leads to lower levels of services trade. The finding supports an agenda towards greater international regulatory cooperation in services.
Analyzing specific cases of regulatory convergence can provide useful insights into how countries can harmonize their regulations in services, illustrate the impact on trade and, in a broader sense, demonstrate that pursuing this agenda is feasible. Let’s take a look at two illustrative cases below.
EU Adequacy Decisions on Data Protection for Argentina and Uruguay
Digitally delivered services trade is closely related to data flows and the regulations surrounding them. For example, when a digital service is delivered by subscription, there can be a cross-border flow of personal data (identifying information, financial information, etc.). Other examples include consulting assignments or professional services that, when delivered digitally, frequently involve the transfer of personal information about either the supplier or the purchaser.
The EU data protection regime sets conditions for firms to transfer personal data outside the EU to ensure data privacy protection in third countries. These conditions typically involve costly and lengthy procedures, including authorization by a data protection authority from a Member State for the transfer of personal information of EU citizens.
An adequacy decision functions akin to recognition arrangements that are commonly used by countries to reduce the trade costs associated with national regulatory standards for health and product safety. When the European Commission determines that a country ensures an adequate level of data protection, an adequacy decision agreement can be signed, which significantly lowers the length and procedures for data transfers. With such an agreement in place, for example, no specific authorization from any Member State is required for the transfer of personal information to an adequate country.
A recent study supported by the IDB (Ferracane, et al, 2025) examines the experiences of Argentina and Uruguay in obtaining data-adequacy decisions from the European Union, with Chile and Mexico actively pursuing such recognition but not yet having secured it. Securing these decisions required both countries to undertake regulatory reforms to establish national data privacy and protection frameworks deemed equivalent to those of the EU. Broadly, this involved adopting comprehensive data protection laws and creating dedicated institutional authorities with the mandate to enforce them.
An econometric analysis in the study includes the evolution of exports before and after recognition for countries that obtained the decision, as well as the evolution of exports in countries that never obtained such recognition. The estimation, only available for Argentina, shows that adequacy led to an increase in bilateral exports of digitally delivered services to the EU of around 28%. The result shows that mechanisms aimed at promoting regulatory cooperation and convergence can foster trade in services across countries.
Beyond their specific trade impacts, adequacy decisions appear to have evolved into platforms for sustained international cooperation and regulatory alignment in the field of data protection. Another example of such a platform is the Ibero-American Data Protection Network (RIPD), which supports regulatory frameworks aimed at regional convergence in personal data protection standards. These are examples of mechanisms that provide fora for dialogue on data governance and, among other issues, the identification and dissemination of good regulatory practices to promote regulatory convergence and facilitate cross-border data flows in services.
Regulatory Convergence through Free Trade Agreements
Another avenue for reducing regulatory disparities in services is the use of services chapters of Free Trade Agreements. To the extent that these chapters encourage regulatory convergence among signatory countries, they can have positive effects on trade in services. A study supported by the IDB (Benguria, 2025)1 examines this channel in depth, focusing on the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The agreement was signed in 2018 by 11 countries in the Asia-Pacific region (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam), with the United Kingdom joining later.
The CPTPP liberalized all service sectors, but some were subject to more extensive commitments. For example, the agreement includes additional provisions aimed at facilitating trade in professional services. In particular, the CPTPP includes provisions for the recognition of professional qualifications, licensing, and certification. Member countries may recognize foreign credentials either unilaterally or through agreements involving regulatory cooperation or temporary licensing regimes. The agreement also establishes a Professional Services Working Group, builds on existing efforts under the APEC (Asia-Pacific Economic Cooperation) framework for engineering and architectural services, and outlines approaches to facilitate the participation of foreign lawyers through various modes of practice.
The analysis focused on Chile and assessed whether its exports to CPTPP member countries increased relative to the rest of the world following the agreement’s entry into force. The results show that the CPTPP boosted Chilean service exports to member countries by 27.6%. Furthermore, the agreement facilitated entry into new service categories and destination markets, with particularly strong effects for smaller trade flows. In professional services, where the agreement introduced additional provisions, exports grew even more by 38.2%.
From Regulatory Convergence to Trade Growth
The two cases above demonstrate that promoting regulatory convergence in services is a practical and achievable objective with concrete trade benefits. Reducing the significant disparities in regulations governing trade in services in the region can stimulate trade flows between the countries involved.
Narrowing regulatory gaps in services is part of a broader agenda to remove barriers associated with a lack of or limited coordination across countries that hold back trade and growth in the region, an agenda in which the IDB works with countries to strengthen integration. For policymakers in the region, the takeaway is concrete: mutual recognition arrangements, data-adequacy frameworks, and the services chapters of trade agreements are practical tools to advance regulatory convergence.
To explore the evidence behind these findings, read our recent publication on regulatory barriers to trade in services in LAC.
1 Benguria, F. (2025), Estimating the Export Impact of Services Provisions in Trade Agreements: Evidence from Chile. Unpublished document. Inter-American Development Bank.