RESTRICTEDWORLD TRADE
ORGANIZATIONS/C/W/196
20 September 2001
(01-4489)
Council for Trade in Services Original:  Spanish
COMMUNICATION FROM MEXICO
Issues Related to the MFN Exemptions Review:  Duration
The following communication has been received from the delegation of Mexico with the
request that it be circulated to Members of the Council for Trade in Services.
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Issues Related to the MFN Exemptions Review1:  Duration
1. The purpose of this paper is to share Mexico's views on one of the most important topics
resulting from the review mandated by the Annex to Article II of the General Agreement on Trade inServices (hereinafter referred to as the Annex and the GATS, respectively);  namely, the duration of
the exemptions to the Most-Favoured-Nation Principle (hereinafter referred to as MFN).
2
I. INTRODUCTION
2. The MFN principle is one of the most important pillars of the multilateral trading system and
constitutes a fundamental basis of the WTO Agreement.  Its importance is reflected by the fact that
the principle is contained in the three main Agreements of the WTO:  in Article I of the GeneralAgreement on Tariffs and Trade, Article IV of the Agreement on the Trade-Related Aspects of the
Intellectual Property Rights, and Article II of the General Agreement on Trade in Services.
3. In services, the MFN principle is an obligation of general application on all measures
affecting trade in services
3, regardless of the specific commitments which Members included in their
schedules.  Under this principle, any benefit relating to the services covered by the GATS should be
granted on an unconditional basis to all Members.
4. Nevertheless, Members are allowed to temporarily deviate from the fulfilment of this
obligation in the following cases:
(a) Through the fulfilment of the conditions established in the Annex;
                                                     
1 The Council for Trade in Services, at its session on 6 October 2000,  agreed to include in its agenda a
special item to address general issues resulting from the review of exemptions to Article II of the GATS.
2 Mexico reserves its right to modify at any time ideas expressed in this document.  This contribution
has no legal effect and does not prejudge Mexico's position on the issues addressed.
3 The term "measures" should be understood in the context of Article I:3 of the GATS.S/C/W/196
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(b) for the local production and consumption of services in contiguous frontier zones of
adjacent countries4;  and
(c) for the purposes of Economic Integration Agreements, Labour Markets, Recognition
of professional qualifications, licences and regulations, and financial institutions.5
II. ANNEX ON ARTICLE II EXEMPTIONS
5. One of the main conditions agreed upon in the Annex to allow a Member to take measures
inconsistent with Article II of the GATS is the temporary nature  of such measures.  Since it is a
structural principle of the multilateral trading system, Members considered that these exemptions
should necessarily have a limited time-frame.
6. Among the mechanisms to ensure the elimination of such exemptions, the Annex contains the
following:
(a) Review , after a specified period, of the conditions which gave rise to the need for the
exemption.  In practice, if such conditions no longer exist, the inconsistent measures
should be brought into conformity in accordance with paragraph 1 of GATS
Article II;
(b) termination  of the duration of the exemption, which is determined by the termination
date contained in the exemption itself;  and
(c) negotiations . Regardless of the review or the foreseen duration, exemptions are
subject to negotiations in subsequent trade liberalizing rounds as established in
paragraph 6 of the Annex.6
7. In any case, according to paragraph 6 of the Annex on Article II, in principle those
exemptions should not exceed a 10-year term.
8. The temporary nature of exemptions has been recognized in various submissions, which note
that they must be eliminated within that time-frame.  Likewise, it is important to highlight the fact that
the drafters included a review mechanism for those ex emptions lasting longer than five years, starting
with the first review after a five-year period from the entry into force of the WTO Agreement.
9. Mexico supports the view of those delegations that emphasize the temporary nature of these
"deviations" from the multilateral trading system.  This temporary nature is included in different
provisions of the Annex, the most important of which is the "Duration of the Exemption".
III. DURATION, THE "10 YEARS" AND THE TERM "IN PRINCIPLE":  NO
CONFLICT
10. After a careful analysis of exemptions listed by some Members, one can see the different
approaches taken by them in relation to the du ration of the exemptions.  The following are some
examples:
                                                     
4 GATS Article II:3.
5 GATS Articles V, V- Bis and VII, and Annex on Financial Services.
6 As a result of the General Council's decision, Mexico will address the exemptions issue within the
context of negotiations in the special session of the Council for Trade in Services.S/C/W/196
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(a) Various exemptions were included with an " undetermined ", " indefinite ",
"unspecified " duration, or they use terms such as " near future " and " fulfilment of
objectives ";
(b) a more limited number of exemptions specify the 10-year period 7;  and
(c) other references used by Members include the duration of other international
agreements, reciprocity actions, economic integration agreements, etc.
11. Hence it appears that only in a few cases ha ve exemptions complied with the implicit
condition of establishing a termination date.
12. Mexico has no intention of giving a legal interpretation of the content and scope of the Annex
or the preparatory work for the listing of exemptions.  However, Mexico,  like other Members, thinks
that it is necessary to analyse the basic concepts of an instrument designed to liberalize trade inservices and to support the economic development of WTO Members.  In this context a study on the
temporary nature and duration of exemptions is fundamental.
13. The first concept that needs to be analysed is that of the " conditions " as laid down in
paragraph 1 of the Annex.  According to the definition of this concept, condition means "(a) thing
needed to make something else possible;  thing on which another thing depends … (b) thing
required as part of an agreement, a contract, etc.
8  From this definition, it follows that the
recognition of exemptions depends upon the fulfilment  of certain necessary steps (which may or may
not be taken) for the exemption to be valid.
14. Paragraph 3 of the Annex includes the first reference to the temporary  nature of exemptions.
When it provides for the Council for Trade in Serv ices to examine exemptions granted for a period
longer than five years, it encompasses the time-frame limitation in a precise and concrete manner.
When there is no indication as to when an exemption will expire, how else can one determine which
exemptions are granted for a longer or shorter period than five years?  The temporary nature of theexemption, determined by its duration as a necessary condition of its validity, presupposes the
possibility of choice between exemptions for longer or shorter than five years.
15. Furthermore, paragraphs 5, 6 and 7 are contained in the "Termination" Section of the Annex,
in which conditions are given for the recognition of exemptions.  Each of those paragraphs therefore
has to be analysed in the context of the Annex and the GATS as a single whole consisting of
inseparable instruments.
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IV. PARAGRAPH 5
16. Paragraph 5 of the Annex establishes that exemptions to the obligations in paragraph 1 of the
GATS Article II will terminate on the date provided for in the exemp tion itself.  This provision
represents the core of the temporary nature of all exemptions, even if there is no explicit requirementto mention a date, due to the following:
                                                     
7 There are other exemptions establishing periods of more than 10 years, or 10 years but renewable.
8 OXFORD UNIVERSITY PRESS.  Oxford Advanced Learner's Dictionary of Current English. 1989,
Fourth Edition.
9 Paragraph 1 of the Vienna Convention on the Interpretation of Treaties, Article 31, stresses:  "1.  A
treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the
treaty in their context and in the light of its object and purpose ."  (Emphasis added).S/C/W/196
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(a) It is a multilateral statement of will that implies that  all exemptions must terminate
or expire ;
(b) it determines the moment at which such an  exemption must come to an end:  " on the
date provided for in the exemption ".  With this, the drafters' intention was to ensure
that all exemptions had a deadline;  and
(c) as mentioned in paragraph (b) above, the terms such as " indeterminate "10,
"indefinite "11, "unspecified ", or references such as " near future " and " fulfilment of
objectives " deviate from the conditions contained in the Annex that exemptions must
terminate at the specified point in time.
17. The absence of the expiry date provided for in the Annex would signify the continued
existence of measures inconsistent with one of the main GATS principle on a permanent basis.
V. PARAGRAPH 6
18. Mexico considers that the drafters overcame the above-mentioned problem by means of
paragraph 6 of the Annex.  The following elements of the paragraph are most significant:
(a) It determines the period for the termina tion of exemptions with the phrase " In
principle, such exemptions should not exceed a period of 10 years ".  The inclusion
of this deadline makes good the omission of a date due to the use of terms and
concepts mentioned in the above section.
(b) The term " In principle … " is not in conflict with the expiry date.  On the contrary:  it
gave Members the possibility of establishing a time-frame that could exceed or fallshort of the 10-year period, thus allowing for exemptions relating to extraordinary
conditions and needs that would presumably exceed 10 years.
19. With all due reservations , it seems that there is an emerging consensus that the concept " In
principle … " qualifies the "10-year" period.  However, that concept does not seem to be replaced by
the expiry date, as contained in paragraph 5, i.e., to pretend that references such as "undetermined"
are authorized by the concept "in principle", could deviate from the spirit and purpose of the Annex.
Thus, unless a time-frame has been included in the exemption, the Annex provides for the
duration of 10 years.
VI. PARAGRAPH 7
20. Paragraph 7 of the Annex includes another clear reference to the temporary nature of the
exemptions, in requiring a notification to the Council on Trade in Services at the termination of theexemption period.  Once again, terms such as "unde termined" deviate from the letter and spirit of the
Annex, because it becomes inapplicable for the lack of a reference to the expiry date.
21. Furthermore, during the preparatory work for the inclusion of exemptions, procedures to
achieve clarity and precision were elaborated with the aim of avoiding any future interpretationproblems in the scheduling of exemptions.
12  To be more precise, those procedures note that under the
column "Foreseen Duration", Members should include the date  on which they intend to bring the
measure into conformity with paragraph 1 of Article II of the Agreement.  Similarly, in the illustrative
                                                     
10 Idem  8.   The meaning is " not fixed or exact ;  vague, indefinite.
11 Idem  8.   The meaning is "Not clearly defined or stated;  lasting an unspecified time ."
12 Job 2061.   Explanatory note by the Secret ariat.  See paragraph 7(vi) and example chart.S/C/W/196
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table attached to the procedures, a precise reference is made to the " termination date of the
exemption " inscribed under the column "Foreseen Duration".
22. For all the above reasons, it seems that the term "undetermined" runs counter to the
explanatory notes established for this process.
VII. PROCEDURES FOR THE TERMINATION OF EXEMPTIONS
23. From the discussions in the ordinary meetings of the Council for Trade in Services, and on the
basis of the Chilean proposal on procedures to eliminate or reduce MFN exemptions, the Secretariat
has identified various scenarios for which certain legal procedures for the elimination of exemptions
would be necessary.13  Mexico supports this approach since it would constitute the most pragmatic
and simple way to resolve the elimination or reduction of MFN exemptions.  In drawing up suchprocedures, it is important to avoid prejudging their results and to aim at the early elimination of the
exemption, in line with the date included in the list or the length of time specified in paragraph 6 of
the Annex.
VIII.  CONCLUDING REMARKS
24. During the review carried out in the Council for Trade in Services under its mandate in
paragraphs 3 and 4 of the Annex, Mexico invited Members to reflect on the subject of the duration of
exemptions.
14  Although some useful informative references were made, it was not possible to
succeed in specifying the precise nature of some of the entries listed in relation to the duration of the
exemptions.  Thus, the Council was in no position to adopt any conclusions.
25. Mexico considers that the discussions on general issues resulting from the MFN review
provide Members with an excellent opportunity to go into these fundamental issues in greater depth
and take decisions on them.
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13 Job(01)/106.   See paragraph 12.
14 See paragraphs 6 and 7 of document S/C/W/139.