WORLD TRADE
ORGANIZATIONWT/REG125/4
5 March 2003
(03-1267)
Committee on Regional Trade Agreements Original:  Spanish
FREE-TRADE AGREEMENT BETWEEN CHILE AND MEXICO
SERVICES ASPECTS
Communication from the Parties
I. BACKGROUND INFORMATION ON THE AGREEMENT
1. Membership and dates of signature, ratification and entry into force
The Parties to the Agreement are the Government of the Republic of Chile and the
Government of the United Mexican States.  The Free-Trade Agreement between Chile and Mexico
was signed on 17 April 1998 and entered into force for both Parties on 1 August 1999.  The
Agreement was approved for Mexico by the Senate of the Mexican Republic on 23 November 1998
and published in the Federal Official Journal on 28 July 1999.  Chile published the Agreement in theOfficial Journal of 31 July 1999.
The Agreement was notified to the Council for Trade in Services on 14 March 2001, in
accordance with Article V.7(a) of the General Agreement on Trade in Services (GATS).
2. Type of agreement
The Parties to the Free-Trade Agreement between Chile and Mexico, pursuant to
Article XXIV of the General Agreement on Tariffs and Trade 1994 (GATT 1994) and Article V of the
GATS, agreed to establish a free-trade area.
This Agreement was preceded by an Economic Complementarity Agreement (ACE No. 17),
signed on 22 September 1991, under the umbrella of the Latin American Integration Association(LAIA).  This instrument was notified pursuant to the provisions of the Decision of
28 November 1979 (L/4903) pertaining to the Enabling Clause.
3. Scope
The Agreement covers the four modes of service delivery established in Article I.2 of the
GATS.  The Chapter on Cross-border trade in services deals with cross-border supply, consumption
abroad and presence of natural persons (modes 1, 2 and 4) and the Chapter on Investment with
commercial presence (mode 3).
The Chapter on Services applies to measures adopted or maintained by a Party relating to
cross-border trade in services by service providers of the other Party.
In principle, the Agreement covers all services sectors.  Negotiations on market access for
financial services are under way (Article 20-08).  However, the rules relating to transfers,
expropriation and dispute settlement between a Party and an investor of the other Party (9-02.4(a)) areapplicable as far as commercial presence is concerned.
Air services are covered by the following:WT/REG125/4
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(a) Chapter 11, with regard to domestic and international air transportation services,
whether scheduled or non-scheduled, and related services in support of air services;
(b) Chapter 10, with regard to:
(i) Aircraft repair and maintenance services during which an aircraft is
withdrawn from service;
(ii) specialty air services;
(iii) computer reservation system (CRS) services;  and
(c) Chapter 9, with regard to commercial presence.
The provisions concerning telecommunications services and temporary entry for business
persons are established in Chapters 12 and 13, respectively.
The Chapter on Cross-border trade in services does not apply to procurement by a Party or a
State enterprise or to subsidies or grants provided by a Party or a State enterprise.
Each of the Parties maintains in its Schedule in Annex I the existing non-conforming
measures to which the provisions on national treatment (Articles 9-03 and 10-03), most-favoured-nation treatment (Articles 9-04 and 10-04), performance requirements (9-07), senior management and
boards of directors (Article-08) and local presence (A rticle 10-06) do not apply.  Annex I provides for
non-conforming measures maintained by the Parties at the national or federal or state level and the
continuation or prompt renewal of or amendment to  any non-conforming measure to the extent that it
does not become more restrictive than at the time of entry into force of the Agreement.  The Schedulein Annex II sets out the sectors, subsectors and specific economic activities with respect to which a
Party may adopt or maintain measures to which certain Articles in the Chapters on Investment and
Services are not applicable.
Furthermore, in its Schedule in Annex III, Mexico specifies the activities reserved to the
Mexican State.  The Parties establish their most-favoured-nation treatment exceptions in Annex IV
and their quantitative restrictions in Annex V.
With regard to investment (commercial presence, mode 3), the Agreement establishes a
prohibition on performance requirements, providing that neither Party may impose or enforce any
commitment or undertaking in connection with the establishment, acquisition, expansion,
management, conduct or operation of an investment of an investor of a Party or of a non-Party in its
territory:
(a) To export a given level or percentage of goods or services;
(b) to achieve a given level or percentage of domestic content;
(c) to purchase, use or accord a preference to goods produced or services provided in its
territory;
(d) to relate in any way the volume or value of  imports to the volume or value of exports
or to the amount of foreign exchange in flows associated with such investment;
(e) to restrict sales of goods or services in its territory that such investment produces;WT/REG125/4
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(f) to transfer technology, a production process or other proprietary knowledge to a
person in its territory;  or
(g) to act as the exclusive supplier of the goods it produces or services it provides for a
specific regional or world market.
Article 9-07 does not preclude enforcement of any commitment, undertaking or requirement
between private parties.
Neither Party may require that an enterprise that is an investment of an investor of the other
Party appoint to senior management positions individuals of any particular nationality.  A Party may
require that a majority of the board of directors, or any committee thereof, of an enterprise of that
Party that is an investment be of a particular nationality or resident in the territory of the Party,
provided that the requirement does not impair the ability of the investor to exercise control over itsinvestment (Article 9-08).
The Agreement provides that, subject to prior notification and consultation, a Party may deny
the benefits of the Chapter on Services to a service provider of the other Party if it is established that
the service is being provided by an enterprise that has no substantial business activities and that isowned or controlled by persons of a non-Party (Articles 9-14 and 10-13 of the Chapters on Investment
and Cross-border trade in services, respectively).
The Parties are required, through future negotiations to be arranged by the Commission, to
seek further liberalization in the different services  sectors with a view to eliminating the remaining
restrictions.
4. Economic and trade data
Chilean Foreign Direct Investment in Mexico
(in US$ million)
Year Investment
1995 8.2
1996 3.4
1997 42.9
1998 7.1
1999 6.4
2000 4.3
2001 3.8
2002  ¹ 12.3
¹ January-September 2002.
Source:  Ministry of the Economy, General Directorate of Foreign Investment.
Mexican Foreign Direct Investment in Chile (1974-2002)
(in US$ million)
Sector Investment
Construction 2.6
Industry 96.8
Services 38.9
Transport and Telecommunications 2.7
Total 141.0
Source:  Chilean Foreign Investment Committee, September 2002.WT/REG125/4
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II. PROVISIONS AFFECTING TRADE IN SERVICES
1. (a) Provisions of the Agreement which are relevant to the scope of the GATS:
Chapter 1 General provisions
Chapter 2 Definitions of general application
Chapter 9 InvestmentChapter 10 Cross-border trade in services
Chapter 11 Air transportation services
Chapter 12 Telecommunications
Chapter 13 Temporary entry for business persons
Chapter 16 Transparency
Chapter 17 Administration of the Agreement
Chapter 18 Dispute SettlementChapter 19 Exceptions
Chapter 20 Final provisions
(b) These provisions constitute an Agreement liberalizing trade in services between the
Republic of Chile and the United Mexican States, within the meaning of Article V.1of the GATS, given that:
• It provides for substantial sectoral coverage of all service activities, subject to
the exceptions under Articles 10-02 and 10-07 of the Chapter on Cross-
border trade, Articles 9-02 and 9-09 of the Chapter on Investment and the
general exceptions under Chapter 19.  These exclusions are fully consistent
with the exceptions provided for in Ar ticles II, V, XIV and XIVbis of the
GATS.
• It provides for the liberalization of trade through all modes of supply:
(i) Cross-border trade;
(ii) consumption abroad;
(iii) commercial presence;  and
(iv) presence of natural persons (Article 10-02.1, and Article 9-02(b)).
• It provides for the absence or elimination of substantially all discrimination
through elimination of existing discriminatory measures and prohibition ofnew or more discriminatory measures (Article 10-07.1).
• The Parties are required to set out any quantitative restriction that they
maintain at the national or federal or state level in their Schedules inAnnex V and to endeavour periodically to negotiate the liberalization of such
restrictions.
• The Parties, through future negotiations to be arranged by the Commission,
are required to seek further liberalization in the different services sectors.
(c) The Republic of Chile and the United Mexican States negotiated their respective
Schedules of Specific Commitments and Lists of MFN Exemptions during the
Uruguay Round.  The entry into force of this Agreement did not involve any
modification of or amendment to these Schedules/Lists.  The purpose of theWT/REG125/4
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Agreement is to facilitate trade among the Parties.  None of its provisions aims to
raise the level of restrictions on trade in services in respect of any other WTO
Member.
2. Rules of origin
Chapter 2 of the Agreement establishes the following definitions:
• Enterprise  means any entity constituted or organized under applicable law, whether
or not for profit, and whether privately- or government-owned, including any
foundation, corporation, trust, partnership, sole proprietorship, joint venture or other
association;
• State enterprise  means an enterprise that is owne d or controlled through ownership
interests by a Party;
• enterprise of a Party  means an enterprise constituted or organized under the law of a
Party;
• national  means a natural person who is a citizen of a Party, as established in
Annex 2-01.  The term also includes persons who are permanent residents in theterritory of that Party under its law;
• person of a Party  means a national or an enterprise of a Party.
Chapter 9 on Investment establishes the following definitions:
• Investment  means:
(a) An enterprise;
(b) an equity security of an enterprise;
(c) a debt security of an enterprise:
(i) Where the enterprise is an affiliate of the investor;  or
(ii) where the original maturity of the debt security is at least three years,
but does not include a debt security, regardless of original maturity, of a State or a
State enterprise;
(d) a loan to an enterprise:
(i) Where the enterprise is an affiliate of the investor;  or
(ii) where the original maturity of the loan is at least three years,
but does not include a loan, regardless of original maturity, to a State enterprise;
(e) an interest in an enterprise that entitles th e owner to share in income or profits of the
enterprise;WT/REG125/4
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(f) an interest in an enterprise that entitles  the owner to share in the assets of that
enterprise on dissolution, other than a debt security or a loan excluded from
subparagraph (c) or (d);
(g) real estate or other property, tangible or intangible, acquired in the expectation or
used for the purpose of economic benefit or other business purposes;  and
(h) interests arising from the commitment of capital or other resources in the territory of
the other Party to economic activity, such as under:
(i) Contracts involving the presence of an investor’s property in the territory of
the other Party, including concessions or construction or turnkey contracts;
or
(ii) contracts where remuneration depends substantially on the production,
revenues or profits of an enterprise.
• Investment of an investor of a Party  means an investment owned or controlled
directly or indirectly by an investor of such Party.
• Investor of a Party  means a Party or State enterprise thereof, or a national or an
enterprise of such Party, that seeks to make, is making or has made an investment.
• Enterprise of a Party  means an enterprise constituted or organized under the law of
a Party or a branch located in the territory of a Party and carrying out business
activities there.
Chapter 10 establishes the following definitions:
• Enterprise of a Party  means an enterprise constituted or organized under the law of
a Party or a branch located in the territory of a Party and carrying out business
activities there.
• Service provider of a Party  means a person of a Party that seeks to provide or
provides a service.
Furthermore, the Chapters on Investment (9-14) and Services (10-13) set out the
circumstances in which denial of benefits is permitted.
3. Standards/recognition
The Agreement requires the Parties to ensure that the licensing or certification of nationals of
the other Party does not constitute an unnecessary barrier to trade.  To this end, the Parties arerequired to ensure that any such measure is based on objective and transparent criteria, is not more
burdensome than necessary and does not constitute a disguised restriction on the cross-border
provision of a service (Article 10-12.2).
Each Party agrees to eliminate, after the date  of entry into force of this Agreement, any
citizenship or permanent residency requirement that it maintains for the licensing or certification of
professional service providers of the other Party (Article 10-12.3).  Furthermore, the Parties are
required to consult periodically with a view to de termining the feasibility of removing any remaining
citizenship or permanent residency requirements for licensing or certification (Article 10-12.4).
Annex 10-12 encourages the relevant bodies to develop standards and criteria for the licensing,
certification and mutual recognition of professional service providers (paragraph 3).WT/REG125/4
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4. Safeguards
The Agreement contains general provisions with regard to balance-of-payments difficulties
experienced by either Party (Article 19-06.1).  Measures adopted or maintained as a result of balance-
of-payments difficulties or the threat thereof must avoid unnecessary damage to the commercialinterests of the other Party, not be more burdensome than necessary, be of a temporary nature and be
phased out as the balance-of-payments situation improves (paragraph 3).
A Party may adopt or maintain a measure under the Article on Balance of Payments that gives
priority to services that are essential to its economic programme, provided that the measure is not
imposed for the purpose of protecting a specific industry or sector (Article 19-06.4).
5. Subsidies and State aid
As mentioned above, the Chapter on Services does not apply to subsidies or grants provided
by a Party or a State enterprise, including government-supported loans, guarantees and insurance.
Furthermore, nothing in this Chapter prevents a Party from providing a service or performing
a function such as law enforcement, correctional services, income security or insurance, social
security, social welfare, public education, public training, health and child care, in a manner that is not
inconsistent with the Chapter on Services (Article 10-02.4).
6. Government procurement
The Chapter on Services does not apply to procurement by a Party or a State enterprise.  The
Agreement contains no provisions on government procurement;  nothing provided in respect of the
progressive liberalization of trade in services may therefore be construed as imposing any obligation
with respect to such procurement.
7. Sector-specific provisions
The Agreement covers all of the sectors in the Mexican Classification of Activities and
Products (CMAP) in the case of Mexico and, in the case of Chile, covers those in the Central Product
Classification (CPC), as established by the United Nations Statistics Division, except as stated in
Annexes I, II and III to the Schedules of both countries.
III. GENERAL PROVISIONS OF THE AGREEMENT
1. Exceptions and reservations
General exceptions under the Agreement are laid down in Chapter 19, which incorporates
those under Article XX of the General Agreement on Tariffs and Trade 1994 and Article XIV of the
General Agreement on Trade in Services.
Furthermore, the Chapter provides for exceptions relating to national security, in particular
trade in weapons and transactions in goods, services and technology carried out for the purpose of
provisioning a defence establishment.  The Chapter also excludes internal taxation measures,
providing that rights under tax conventions are not affected and that the latter prevail in the event ofany inconsistency.
As regards balance of payments, the Agreement provides for the adoption of measures
restricting transfers in the event of serious balance-of-payments difficulties or the threat thereof.  TheWT/REG125/4
Page 8
Party concerned is required to submit the restrictions imposed to the International Monetary Fund for
review.  Such measures must avoid any unnecessary damage and be of a temporary nature.
2. Accession
Pursuant to the Montevideo Treaty of 1980 (Agreement Establishing the Latin American
Integration Association - LAIA), this Agreement is open for accession, after negotiation, to the other
countries party to the 1980 Treaty.  Once the terms have been negotiated by Mexico and Chile and the
acceding country, accession will be formalized by an Additional Protocol to this Agreement, which
will enter into force 30 days after being deposited at the LAIA General Secretariat (Article 20-06).
3. Dispute settlement procedures
The dispute settlement mechanism is established in Chapter 18 of the Agreement.  This
Chapter applies to the settlement of disputes arising between the Parties regarding the application or
interpretation of this Agreement or wherever a Party considers that an existing or proposed measure of
the other Party is liable to prove inconsistent with the obligations of this Agreement or cause
nullification or impairment (Article 18-02).
The Agreement states that the complaining Part y may opt for the procedure provided by the
World Trade Organization or that established by this Agreement.  Once a forum has been selected, it
must be used to the exclusion of the other (Article 18-03).
If the mechanism established by the Agreement is chosen, it first provides for consultations
among the Parties.  If this fails to resolve the di spute, either Party may refer the matter to the Free-
Trade Commission, which then initiates a conciliation or mediation phase.
If, within a specified period of time, the Parties still fail to agree, either Party may request in
writing the establishment of an arbitral panel made up of five members, acting in conformity withrules of procedure to be laid down by the Commission .  Panellists are normally selected from a roster,
drawn up by the Parties, of experts with international expertise and experience.  Each Party selects
two panellists who are citizens of the other Party.  The chair is designated jointly by the Parties;
should they prove unable to reach consensus, one of the Parties, chosen by lot, selects as chair an
individual from the roster who is not a citizen of either Party.
Within 90 days of the selection of the last panellist, the panel issues an initial report
containing findings of fact, a determination as to whether the measure at issue is inconsistent with the
Agreement, and a recommendation.  Once the Parties have submitted their comments on the initial
report, the arbitral panel issues its final report, which is binding on the Parties unless they agree
otherwise.  The measure found to be inconsistent should be repealed wherever possible.  If the Parties
fail to reach a mutually satisfactory settlement, the complaining Party may suspend the application of
benefits of equivalent effect to the respondent Party, as far as possible in the sector affected by the
measure.  Where the respondent Party deems the benefits suspended by the complaining Party to be
excessive, it may request the establishment of an arbitral panel to rule on the matter.
Furthermore, Chapter 9 of the Agreement provides for arbitration allowing investors of a
Party to bring action against a foreign State for breaches of investment obligations which result in
financial loss.  The purpose of this mechanism is to award restitution of the investment to the investor
or monetary damages for the financial loss caused by the breach and, where applicable, procedural
costs.  The panel may not, however, order payment of punitive damages.
This mechanism assures equal treatment among investors of the Parties in accordance with
the principle of international reciprocity and due process before an impartial tribunal.WT/REG125/4
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4. Relation with other trade agreements
In Article 1-03 of the Agreement, the Parties affirm their existing rights and obligations under
the Agreement Establishing the World Trade Organization, the Montevideo Treaty of 1980  and other
agreements to which they are party.  In the ev ent of any inconsistency between the aforementioned
instruments and this Free-Trade Agreement, the latt er prevails to the extent of the inconsistency.
Under Article 1-06, in the event of any inconsis tency between this Agreement and the specific
trade obligations set out in (i) the Convention on In ternational Trade in Endangered Species of Wild
Fauna and Flora;  (ii) the Montreal Protocol on Subs tances that Deplete the Ozone Layer;  and (iii) the
Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and Their
Disposal, such obligations prevail to the extent of the inconsistency.
5. Institutional framework
The main body created under the Agreement is the Free-Trade Commission comprising the
officials mentioned in Annex 17-01(1) or their designees.  The Commission convenes once a year and
its terms of reference are to supervise proper implementation of the Agreement, to evaluate the results
of such implementation, to consider any other matt er that may affect the operation of the Agreement;
to settle disputes that may arise regarding its interpretation or application;  to supervise the work of
committees, sub-committees and groups of experts;  to establish and delegate responsibilities;  to
seek the advice of non-governmental experts;  to establish rules and procedures;  and to convene
meetings.
The Secretariat comprises national Sections and is required to set up an office in each
country.  Its role is to provide assistance to the Commission and administrative support to panels
established under Chapter 18 (Dispute Settlement) and to support the work of the committees, sub-
committees and groups of experts.
IV. OTHER
The full text of the Agreement is available on the following Web sites:
www.economia.gob.mx
www.direcon.cl
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