Mutual recognition

Mutual recognition describes the situation where 2 (or more) countries agree to accept and recognise regulatory outcomes or steps from each other’s regimes.

Mutual recognition includes:

  • A country retaining its own regulation or standards, while recognising the regulation or standards of another country, and vice versa.
  • A country accepting conformity assessments (such as test results or certificates of compliance) issued by bodies in another country, and vice versa.

The rationale for mutual recognition

A commonly used option to support cross-border trade in goods and services

Mutual recognition can be used to facilitate cross-border trade in goods and services, and investment. Mutual recognition of conformity assessments, a traditional focus of these arrangements, is used to particularly support cross-border flows of goods

Mutual recognition of regulation or standards can work well between countries with a very high level of trust in each other’s institutions, regulatory decision-making and capabilities. It often happens where the countries have a strong trading relationship and broadly similar regulatory environments, as is the case between New Zealand and Australia.

For the purposes of this toolkit, the use of a work product prepared by one regulator for its domestic regulatory approval process by the regulator of another country is treated as a form of mutual recognition. These arrangements are reciprocal in nature. They help speed up the regulatory approval process and reduce costs, while leaving the ultimate decision about granting the approval to the domestic regulator under their own laws.

Benefits and risks

Benefits include lower costs for businesses and smoother trading

Mutual recognition offers benefits, including:

  • It can be an attractive form of cooperation, as it allows each country to maintain its own regulatory settings and standards, while removing the cost for business of having to comply with 2 (or more) sets of regulatory requirements or standards.
  • It can provide a high level of certainty to firms operating in those markets.
  • It can increase market access and trade flows by reducing costs and saving time for business.
  • It can be a building block towards harmonisation.
  • It can support regulatory competition and drive best practice.

Risks include resourcing needed for ongoing coordination

Mutual recognition has some potential shortcomings:

  • It may only be viable when there is already a high level of convergence between the policy and regulatory settings, or standards, of the participating countries.
  • It requires a high level of trust and confidence in each other’s institutions and processes. Without that, there may be concerns about undercutting existing domestic settings (a “race to the bottom”).
  • It generally requires a commitment to ongoing policy coordination, including around planned regulatory changes, which requires resourcing.
  • Ongoing policy coordination may reduce flexibility for the parties to determine their own policy and regulatory settings over time.
  • It requires buy-in from regulators who are key to making this work well.

Case studies

Case Study: Making it easier for engineering graduates to work in other countries

The Washington Accord is an international accreditation agreement for 4-year professional engineering degrees. It allows graduates of accredited degrees to register in any signatory country without needing additional qualifications.

Case study: The Washington Accord

Case Study: Allowing managed funds from one country to be offered to investors in other participating countries

The Asia Region Funds Passport involves the mutual recognition of managed fund licensing requirements. This means fund managers can offer their products to retail investors in other member countries without having to meet multiple licensing requirements.

Case study: The Asia Region Funds Passport

Case study: Speeding up the process of examining patents

The Global Patent Prosecution Highway involves a patent office relying on the search and examination process already carried out by another patent office to accelerate the patent examination process.

Global Patent Prosecution Highway Programme