WORLD TRADE
ORGANIZATIONS/CSS/W/80
4 May 2001
(01-2371)
Council for Trade in Services
Special SessionOriginal:  Spanish
COMMUNICATION FROM MERCOSUR
Distribution Services
The following communication has been received from the delegations of Argentina, Brazil,
Paraguay and Uruguay with the request that it be circulated to the Members of the Council for Trade
in Services.
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1. The States parties to MERCOSUR (Argentina, Brazil, Paraguay and Uruguay) submit this
proposal for consideration by Members.1  Its purpose is to promote the liberalization of this important
sector and contribute to increasing participation by developing countries in trade in services.Article IV of the General Agreement on Trade in Services ("Increasing Participation of Developing
Countries") states clearly in paragraph 1:
"1.  The increasing participation of developing country Members in world trade shall be
facilitated through negotiated specific commitments, by different Members pursuant to
Parts III and IV of this Agreement, relating to:
…(c)  the liberalization of market access in sectors and modes of supply of export interest to
them."
I. INTRODUCTION
2. In modern market economies, the distribution sector is an essential link between producers
and consumers.  The realization that greater competition in this sector can make it more efficient and
contribute to improving the functioning of markets has led to greater deregulation and liberalization of
the sector over the last decade.  Furthermore, international trade in these services has grown
considerably thanks to the expansion of foreign direct investment and the development of newtechnologies and distribution channels.
3. In the Services Sectoral Classification List  (MTN.GNS/W/120) drawn up during the Uruguay
Round and based largely on the United Nations Provisional Central Product Classification (CPC), the
definition of the distribution sector includes four main services:
Commission agents' services CPC 621
                                                     
1 This proposal is not a legal text.  It is submitted solely for the purpose of negotiation and does not
prejudge the position of MERCOSUR or its member  States regarding the issues raised in it.S/CSS/W/80
Page 2
Wholesale trade services CPC 622
Retailing services CPC 631, 632, 6111, 6113, 6121
Franchising CPC 8929
4. Commission agents or intermediaries can be distinguished as a category by the fact that they
carry out commercial activities on behalf of others.  In other words, they sell products supplied and, as
a rule, owned by others to retailers, wholesalers or other persons.  Wholesale trade services consist of
the sale of goods to retailers, to industrial, commercial, institutional or professional consumers or to
other wholesalers.  Retailers sell products for personal or household consumption.  Providers of
franchising services sell specific rights and privileges, for example the right to use a given design in
retail sales or a trade mark.
5. The Uruguay Round negotiations on distribution services having been no more than a first
attempt to consolidate the opening of markets worldwide, trade barriers still exist in this sector.
Some, such as obstacles to the distribution of agricultural products, affect developing countries in
particular.  Prohibitions on the establishment of a commercial presence by intermediaries or
distributors of agricultural products prevent developing countries from implementing comprehensive
export strategies for products and services of interest to them, from promoting their exportsadequately, establishing alliances and networks to gain access to external markets, and from applying
the capacity and know-how they have acquired in producing and exporting agricultural products to the
export of related services.
6. Developing countries are denied free access to distribution services for some products of vital
export interest to them either because items are expressly excluded from commitment schedules orbecause there is a total absence of commitments in certain sectors.  There are no economic reasons
why a product which meets all import requirements (tariffs, quotas, import licences, sanitary or
phytosanitary standards and technical standards) should not be distributed as efficiently as possible.
II. ANALYSIS OF EXISTING COMMITMENTS
7. Forty-four Members of the WTO have made commitments on at least one of the four
subsectors of distribution services subject to negotiations.
2
8. Many Members have excluded the distribution of certain products from the scope of their
commitments.  The most commonly excluded products belong to the categories of arms, ammunition
and explosives;  pharmaceutical, medical and orthopaedic goods;  agricultural raw materials and live
animals;  food, beverages and tobacco;  precious metals;  and motor vehicles.  Furthermore, some
Members have excluded certain products subject to import permits or licences from the scope of their
commitments.  It is a well-known fact that agricultural products are usually subject to importlicensing, particularly in high-income countries which have highly protectionist agricultural policies.
9. In fact, 16 schedules exclude distribution for at least one agricultural product and two national
schedules exclude from their distribution commitments products which are subject to import permits
or licences.  With one exception, none of these 18 countries are developing countries.
III. BARRIERS TO TRADE IN DISTRIBUTION SERVICES
10. Sectoral exclusions are the main barrier to trade in distribution services.  The situation
regarding current commitments has been explained in paragraph 8.
                                                     
2 The schedules of Austria, Finland and Sweden ar e counted separately, since they have not yet been
integrated in the schedule of the European Communities and their member States.S/CSS/W/80
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11. The general foreign investment regime or the regime governing this sector crucially affects
conditions of market access in many countries.  The main obstacles encountered include:
- Restrictions on the level or percentage of foreign equity ownership;
- limitations on the type of legal entity required;
- limitations on ownership of specific assets (such as land);- limitations on the scope of operations (restrictions on the number and location of
outlets).
12. Similarly, the requirement to form a joint venture with local suppliers curtails the freedom of
foreign suppliers to decide on the optimal business arrangement.  Sometimes, even the possibility of
setting up joint ventures is either restricted or prohibited outright, which is particularly damaging to
developing exporting countries as it obstructs their access to distribution networks.
13. More generally, economic needs tests to determine whether a new entrant will be admitted to
the market reduces regulatory transparency and gives administrative authorities a large measure of
discretion.
14. Tax discrimination also affects foreign distribution service providers adversely.
IV. PROPOSAL
15. The States parties to MERCOSUR propose:
(i) That all Members of the WTO make specific commitments in the distribution sector,
particularly in wholesale trade services, retailing services and franchising services;
(ii) that restrictions to market access and national treatment be eliminated and
commitments "without limitations" be taken (i.e. by entering "none" in the market
access and national treatment columns);
(iii) in particular, that the exclusions affecting distribution services for certain products of
special interest to MERCOSUR be eliminated.  It is proposed that Members takecommitments "without limitations" in the following sectors/subsectors:
- Wholesale trade services of agricultural raw materials and
live animals CPC 6221;
- Wholesale trade services of food, beverages and tobacco CPC 6222
- Wholesale trade services of textiles, clothing and footwear CPC 6223
- Wholesale trade services of household appliances, articles
and equipment CPC 6224
- Wholesale trade services of pharmaceutical and medical goods
and cosmetics CPC 6225
- Wholesale trade services of miscellaneous consumer goods CPC 6226
- Food retailing services CPC 631
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