WORLD TRADE
ORGANIZATIONS/CSS/W/103
21 September 2001
(01-4494)
Council for Trade in Services
Special SessionOriginal:  Spanish
COMMUNICATION FROM MEXICO
Most Favoured Exemptions:  Negotiation
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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Most-Favoured-Nation Exemptions:  Negotiation
1. The purpose of this contribution is to share with the Members the position of Mexico1 on the
subject of the exemptions to Article II of the Ge neral Agreement of Trade in Services (hereinafter
referred to as the GATS) in relation to the negotiations of market access mandated by Article XIX of
the GATS.
I. INTRODUCTION
2. The Most-Favoured-Nation principle (hereinafter referred to as MFN) constitutes one of the
fundamental pillars of the multilateral trading system.  Because of its importance, this principle was
included in Article II of the GATS and it is understood as a general obligation that applies to any
measure affecting trade in services, regardless of whether the Member has acquired specific
commitments on market access or national treatment.
3. The GATS allows, in certain cases and under st rict conditions, Members to be exempted from
fulfilling this general obligation.  One of these exemptions2 is the Annex to Article II of GATS
(hereinafter referred to as the Annex).  This Annex was introduced during the GATS negotiations
because of the practical impossibility during the Ur uguay Round of eliminating all restrictions to the
unrestricted fulfilment of MFN treatment.  Nevertheless, it was recognized that these exemptions
constitute an irregular situation with respect to one  of the determining elements of the extraordinary
development of the world economy during the post-war era.  For that reason, the Annex guarantees
the expiry of such exemptions with the aim of achieving the application of the MFN principle to all
members alike, with no deviation and within the shortest possible time-period.
4. Regardless of the expiry date noted in the exemption, or otherwise by default 10 years from
the entry into force of the GATS, the Annex provides for the possibility of speeding up the
elimination of these inconsistent measures through negotiation.  Paragraph 6 of the Annex
categorically states that " in any event they shall be subject to negotiation in subsequent trade
liberalizing rounds ".
                                                     
1 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.
2 The other two concern the economic integration pro cess (Article V) and to the mutual recognition of
licences (Article VII).S/CSS/W/103
Page 2
5. Thus, the Council for Trade in Services also recognized in the negotiating guidelines and
procedures3 the importance of the elimination of these inconsistent measures, by mandating that such
measures would be a part of the negotiating process, while guaranteeing the appropriate flexibility for
developing country Members.
II. IMPORTANCE OF THE SERVICES SECTOR
6. Since the entry into force of the GATS in 1995, the services sector is the largest and
fastest-growing sector in the world economy, repres enting more than 60 per cent of total output, and
in many countries an even higher share in employment.4
7. In the mid-1990s, the services sector accounted for more than 60 per cent of GDP in Korea
and Brazil, and 80 per cent of GDP in the USA.5  It is important to note that some services have a
more important role in the development process than their direct participation in the GDP alone.  Due
to their linkages with other activities, different services are the source of major externalities, with an
important impact on the general economic development of countries.
8. In the year 2000, Mexico registered a 15 per cent growth in exports and an 18 per cent in
imports of services.  These figures situated Mexico among the countries with the highest growth in the
services sector.6  In recent years, the services have accounted for more than 60 per cent of Mexican
GDP.
9. Countries that are competitive producers and exporters of any product require access to
efficient services.  In markets where supply is insufficient, imports of basic services can be as
important as imports of goods.  Thus, liberalization of trade in services leads to benefits in all other
economic activities.  Countries with a liberalized services market have developed, among other
things, greater efficiency through more competition, lower prices, more innovation, more
transparency and reliability, more foreign direct in vestment flows, more transfer of technology, and
more employment.
III. OBJECTIVE
10. One of the main objectives of the GATS is to promote the expansion of trade in services
"under conditions of transparency and progressive liberalization and as a means of promoting the
economic growth of all trading partners and the development of developing countries ".  In this
respect, Mexico considers that during the on-going negotiations significant progress must be made onthe elimination and reduction of MFN exemptions.  To that end, a commitment of all Members is
required in order to agree on a programme to elim inate those exemptions.  Mexico would be in a
position to contribute with the elimination of its MFN exemptions as part of this multilateral exercise.
11. Furthermore, all exemptions are subject to negotiation in accordance with paragraph 6 of the
Annex, and the procedures for their to tal elimination need to be drawn up.
12. Mexico considers that a successful market access negotiation is only possible in a balanced
environment that takes into account the capacity and the level of development of developing
countries.  Needless to say, negotiations in which the main advocates of market access proportionallymaintain the most MFN inconsistent measures is by no means a balanced situation and are unlikely to
succeed.  In this regard, it is fundamental that Members proceed to eliminate such exemptions as
soon as possible .
                                                     
3 Paragraph 6, document S/L/93, 28 March 2001.
4 WTO, GATS:  Fact and Fiction, March 2001
5 WTO, S/C/W/26
6 WTO, Annual Report 2001S/CSS/W/103
Page 3
IV. PROPOSAL
13. In order to achieve this objective, Mexico proposes the following:
(a) To include in the agenda for the Council for Trade Services, the subject of
exemptions under the Special Session of the heading " Termination of Exemptions:
Follow-up ";
(b) to agree, during the sectoral discussions, on a work programme under which
Members will eliminate their exemptions with  the aim of completing their elimination
during 20027;
(c) at the same time, to agree upon the procedures for the notification of early elimination
of exemptions.  Once this has been implemented, to carry out the notification
provided for in paragraph 7 of the Annex;  and
(d) due respect should be given to the fl exibility provided for in the negotiating
guidelines and procedures for developing country Members.
14. The adoption of procedures to ensure the prompt elimination of MFN exemptions during the
ongoing negotiations would certainly be an essential factor for deriving full benefit from the
negotiating proposals on market access put forward by Members on their own merits, thus benefitting
the multilateral trading system as a whole.
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7 See document S/CSS/W/42/Suppl.1, Japan.