RESTRICTEDWORLD TRADE
ORGANIZATIONWT/REG38/M/4
11 June 2002
(02-3245)
Committee on Regional Trade Agreements
Thirty-second Session
EXAMINATION OF THE FREE TRADE AGREEMENT
BETWEEN CANADA AND CHILE, SERVICES
Note on the Meeting of 3 June 2002
Chairperson:  Ms. Margaret Liang (Singapore)
1. The meeting was convened in document WTO/AIR/1805.
2. Under Agenda Item D.I, the Committee on Regional Trade Agreements (CRTA) took up the
examination of the services aspects of the Free Trade Agreement between Canada and Chile(CCFTA).  The following topics were discussed:
A. General Remarks
B. Section I – Background Information on the Agreement
C. Section II – Trade Provisions
3. The Chairperson said that the Committee would examine for the first time the services aspects
of the CCFTA.  The factual examination of the goods aspects of this Free Trade Agreement (FTA)
had already been completed.  The notification of CCFTA, Services, could be found in document
S/C/N/65.  Due to its large volume, a single copy of th e text of the Agreement had been distributed to all
delegations at the time of its notification, and disk ettes containing the full text had also been made
available.  She recalled that the decision to refer this Agreement for examination in the CRTA had been
taken on 23 March 2001 by the Council for Trade in Services, as contained in document S/C/M/52.
Pursuant to paragraph 7(a) of Ar ticle V of the GATS, the CRTA would examine the services aspects of
the CCFTA and report to the Council for Trade in Services on its consistency.
A. General Remarks
4. The representative of Canada, speaking also on behalf of Chile, said that the Agreement had
been conceived with the goals of strengthening the bonds of friendship and cooperation that existed
between the Parties, by creating an expanded ma rket for goods and services produced in their
territories;  to contribute to the harmonious development of world trade;  and to provide a catalyst to
broader international cooperation.  On 13 November 1997, WTO Members had been notified of the
signing of the CCFTA and its entry into force.  The CCFTA rules were based upon the fundamental
principles of the multilateral trading system, namely national treatment, most-favoured-nation (MFN)
treatment and transparency.  Since its entry into force in July 1997, the CCFTA had met and indeed
exceeded its objectives to eliminate barriers to trade in, and facilitate the cross-border movement of,
goods and services between the territories of the Parties;  promote conditions of fair competition in
the free-trade area;  increase substantially investment opportunities in the territories of the Parties;create effective procedures for the implementation and application of the Agreement, for its joint
administration and for the resolution of disputes;  and establish a framework for further bilateral,
regional and multilateral cooperation.  He then described the services component of the Agreement,
which the Parties considered to be fully consistent with the provisions of GATS Article V.  InWT/REG38/M/4
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accordance with GATS Article V:1, the Agreement had substantial sectoral coverage and provided for
the absence or elimination of substantially all discrimination, in the sense of GATS Article XVII,
between and among the Parties.  It covered all four GATS Modes and provided for comprehensive
coverage of cross-border trade in services, which included Modes 1, 2 and 4.  It applied to measures
respecting, inter alia , the production, distribution, marketing, sale and delivery of a service;  the
purchase or use of or payment for a service;  and the access to, and use of, transportation systems.
Disciplines included national treatment and MFN treatment, the right to provide a service without
local presence, as well as a mechanism to deal with  mutual recognition of professional services.  In
the area of investment/commercial presence (Mode 3), the CCFTA provided a comprehensive
definition of investment;  required national treatment and MFN treatment; imposed disciplines to
eliminate performance requirements;  it limited nationality and residency requirements for boards of
directors;  it ensured strict disciplines on capital transfers and  expropriation;  and, in addition tostate-to-state dispute settlement, it also provided for investor-state dispute settlement.  The CCFTA
contained specific rules with respect to measures relating to public telecommunications transport
networks and services, and value-added telecommunications services. The CCFTA also dealt with the
temporary movement of natural persons (Mode 4), providing access for a broadly defined group of
business visitors, traders and investors, intra-company transferees, and a lengthy list of professionals.While the vast majority of trade took place without problems, the CCFTA provided effective dispute
settlement procedures when differences arose.  Further, CCFTA working groups had been established
to seek solutions that reduce the occurrence of disputes in several areas, including temporary entry.
Finally, he emphasized the commitment of the CCFTA member governments to the multilateral
trading system, which had been echoed repeatedly in the Articles of the CCFTA, as well as by thestatements and actions of the governments themselves in the implementation of the Agreement.  The
Parties believed that the CCFTA, which built upon WTO disciplines, promoted both the economic
growth and efficiency of its Parties and international trade liberalization.
5. The representative of Chile noted that this was the first free trade agreement which Chile had
notified to the WTO under Article XXIV of th e GATT 1994 and Article V of the GATS.  The
negotiations with Canada had represented a new approach to international economic negotiations,
through third generation agreements.  That had been the first Chilean negotiation with a developed
country, and also the first negotiation which had included such varied subjects as disciplines relating
to cross-border services, investment, competition policies and intellectual property.  Following the
structure that had been adopted in the North American Free Trade Agreement (NAFTA), the most
relevant and logical approach had been taken, namely that of dealing with investment as a whole,
regardless of the sector concerned, and with cross-border services independently, given their natureand characteristics.  As regards specific commitments, both for investment and cross-border services,
the following had been agreed:  a standstill for di scriminatory measures, though with a clause for
automatic incorporation of any future autonomous liberalization (Annex I);  future measures
(Annex II);  exemptions from MFN treatment in respect of investment in a few sectors;  and a final
Annex on quantitative restrictions.  This structure meant that Chile had carried out an analysis andstudy of, and even research into, its entire legal system of laws, decrees or regulations that had any
relationship with, or might have affected, the disciplines under the Agreement.  This had represented
an enormous amount of work owing to the complexity  and scope of the subject, especially in the case
of services, and considerable help had been provided by Canada.  As a result, his country had been
able to do some "house cleaning" and very few reservations had been made in Annex I.  A veryimportant and sensitive matter, and one of the last points in the negotiations, had been the investment
chapter, in which it had been agreed to include an Annex safeguarding the powers of the Chilean
Central Bank to apply certain monetary and exchange policy measures which had been part of a
defence strategy in the crises that had occurred in various parts of the world, and had contributed to
alleviate their repercussions on his country.  He reiterated the Parties' readiness to reply to anyquestions.WT/REG38/M/4
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6. The representatives of the United States, the European Communities  and Japan  noted that
their delegations would submit questions in writing in the coming weeks.
B. Section I – Background Information on the Agreement
7. Noting that his delegation considered the Agreem ent to be quite comprehensive in scope, the
representative of  Australia said that it appeared that  one major service sector, namely financial services,
had been carved out of the Agreement.  However, given the Parties' commitment to seek further
liberalization in this sector, he wondered whether they could provide details on any progress achieved in
this sense.  The representative of Canada said  that, in conformity with the provisions of
Annex G-01.3(b), officials from both c ountries had undertaken preliminary exchanges in order to assess
the desirability of moving ahead with bilateral ne gotiations in the area of financial services.  These
discussions were still underway.
C. Section II – Trade Provisions
8. The representative of Korea noted that while one of the Parties had indicated that Annex III
referred to exceptions to MFN, it s eemed to her that it related to sectoral agreements concluded either
before the CCFTA's entry into force,  or to be concluded afterwards.  She requested clarification on the
objective of the Annex and the implications vis-à-vis  relations with other agreements.  The
representative of Chile replied that the aim of A nnex III, which had followed the NAFTA format, was to
exclude all regional trade agreements concluded by one of the CCFTA Parties prior to its entry force,
and also to exclude some sectors which had their own specificities, such as air and maritime transport
services and telecommunications.  The Parties woul d be happy to further elaborate the response upon
receipt of the question in writing.
9. The representative of the United States noted that reference had been made to balance-of-
payments (BOP) difficulties under the Standard Fo rmat, under the heading on Safeguards, and he was
not sure that it pertained there.  Further, he w ondered why that provision had been included in the
Agreement since it was already provided for in th e WTO Agreement.  The representative of Canada
replied that in filling in the Standa rd Format the Parties had been influenced by discussions held in the
Council for Trade in Services on the development of  an emergency safeguard mechanism in the area of
services, thus using a wider definition of safeguards.  Agreeing with the observation made, he noted  that
the information had been included for the sake of comprehensiveness.  The BOP provision was standard
in any trade agreement, and given that its mechanisms  were similar to those of safeguard measures, the
Parties had decided to make reference to it under that Section of the Standard Format.  The
representative of Chile noted that in the Wo rking Group on the Relationship between Trade and
Investment, discussions had indicate d that BOP provisions amounted to one type of safeguards in the
area of investment;  this had been reflected in the Doha Ministerial Declaration which referred to
"exceptions and balance-of-payments safeguards".  In that sense, reference to BOP safeguards would
apply to Mode 3 in the services aspects of the CCFTA, and it had been included accordingly in the
Standard Format.
10. The representative of Malaysia asked whether safeguard measures aimed at addressing
"serious balance-of-payments difficulties" referred to BOP difficulties in the services sector overall or
sector-specific.  He requested the Parties to elaborate on the kind of disciplines set out in the BOP
Article.  The representative of Canada replied that  the BOP provisions were found in Chapter O of the
Agreement dealing with general exceptions;  therefore, the scope of the BOP derogation went well
beyond services to cover all the elements of the Agreement.  He then quoted the first paragraph of
Article O-04, which read:  "Nothing in this Agreement shall be construed to prevent a Party from
adopting or maintaining measures that restrict transfers where the Party experiences serious balance of
payments difficulties, or the threat thereof, and such restrictions are consistent with this Article."  The
rest of the Article described the conditions that the Party invoking the BOP derogation had to meet,WT/REG38/M/4
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the key criteria being that any account exchange rest rictions had to be notified to the International
Monetary Fund (IMF) for review under Article VIII,  and that the measure taken met the requirements
set therein.  Article O-04 described other conditions related to the measure adopted or maintained
under that derogation, inter alia , that it should be  temporary and phased out progressively as the BOP
situation improved;  consistent with the Articles of Agreement of the IMF;  applied in a non-discriminatory manner;  and avoiding unnecessary damage to the commercial, economic or financial
interests of the other Party.  The language of that  Article had been largely inspired by that of the
NAFTA.  Very similar BOP derogations were found in other regional trade agreements.
11. The Chairperson said that the first round of examination of the services aspects of the Free
Trade Agreement between Canada and Chile had allowed the Committee to clarify a few questions.
Some delegations had noted that they were still analyzing the Standard Format and that written
questions would be submitted in the near future.  She invited those representatives wishing to askquestions to forward them to the Secretariat by 21 June and the Parties to submit replies  in writing not
later than 26 July.
12. The Committee took note of the comments made.
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