RESTRICTEDWORLD TRADE
ORGANIZATIONS/C/M/59
14 May 2002
(02-2670)
Council for Trade in Services
REPORT OF THE MEETING HELD ON 19 MARCH 2002
Note by the Secretariat
1. The Council for Trade in Services held a meeting on 19 March 2002.  The agenda for the
meeting is contained in document WTO/AIR/1738.  The Chairman proposed that the Council adopt
the agenda as circulated.
2. The Council so agreed.
A. ARTICLE II (MFN) EXEMPTIONS
(I) PROCEDURES FOR TERMINATION, REDUCTION AND RECTIFICATION
OF ARTICLE II (MFN) EXEMPTIONS
3. The Chairman drew the Council's attention to the Revised Draft Procedures for the
Certification of Terminations, Reductions and Rectifications of Article II (MFN) exemptions
(S/C/W/202/Rev.1), which the Secretariat had prepared on the basis of an emerging consensus at aninformal meeting held on 22 February 2002.
4. The representative of India stated that the revised draft contained a number of important
changes, such as on the early termination of Article II exemptions, as well as an additional sentence in
paragraph 4, which would limit the grounds on which Members could object to proposed reductions
or rectifications of MFN exemptions. His delegation required more time to reflect on these changes.
5. The representative of Cuba stated that her delegation also required further time to study the
revised draft procedures.
6. In reply to a question by the representative of Turkey, as to whether there should be a
deadline for the removal of objections, a representative of the Secretariat stated that the objective of
the procedures was to allow for changes to a treaty to take place.  As with all modifications to treaties,
such changes could only be effected on the basis of consent of the other parties to the treaty.  The
specified time period to register an objection allowed Members to verify that the proposed reductionwas actually a reduction of the level or scope of the MFN exemption.  Likewise, in the case of a
proposed rectification, the time period for objection allowed Members to verify that the proposed
change was a true technical rectification. Where an objection was raised it was up to the parties to
resolve the issue.  A modification could not be effected unless the objection was withdrawn and all
Members thereby agreed to the proposed change.
7. The representative of Japan stated that the envisaged procedures for termination, rectification
and reduction of MFN exemptions should be put into place before the start of the "request – offer"
process.  He supported the additions made in paragraph 4 of the revised draft, specifying that a
Member may not object on grounds of loss of preferential treatment resulting from the proposedS/C/M/59
Page 2
modification.  As regards termination of MFN exemptions, two possible situations could be the basis
for such a request: one was the termination of the measure itself, the other case being a situation
where a Member had changed its understanding of whether a given measure required a listing of an
MFN exemption.  In the latter case, a member may retain the actual measure, but may remove it from
its list of MFN exemptions.  While his delegation supported the revised procedures generally, heconsidered it useful to seek clarification under which of these two scenarios termination would be
sought by the requesting Member.  This could be done through a small insertion under paragraph 2 of
the revised draft, stating that notifications on the termination should contain the reasons for the
termination.
8. The representative of the United States stated that the third sentence in paragraph 4 was not
appropriate for inclusion into the procedures.  The sentence could introduce an element of uncertainty
into the certification process, as Members might disagree as to the basis for other Members' objection.Further, paragraph 6 of the draft related to the entire set of procedures, and not only to one section.
He suggested to make this more explicit in the text.
9. The representative of Poland welcomed the revised draft procedures.  While her delegation
could go along with the draft in the proposed form, she wondered whether the draft should address the
possibility of changes to MFN exemptions that were necessary in cases where Members introduced anew classification to any given sector.
10. The representative of New Zealand welcomed the revised draft which his delegation was
ready to adopt without further changes.  On the question raised by Poland, he believed that changes to
MFN exemption lists due to changes in classification were already covered by the draft.
11. The Chairman stated that in light of the sugges tions made by some delegations, as well as the
request for additional time by others, further consultations would be required.  These consultations
should be held with a view to clarifying the situatio n and arriving at a consensus on the draft, so that a
decision could be taken by the Council at its next formal meeting.
12. The Council so agreed.
(II) OTHER ISSUES ARISING FROM THE REVIEW
13. The Chairman recalled that during the review of MFN exemptions, a number issues had
arisen which delegations had subsequently discussed in the Council.  At the last meeting Korea had
presented a communication, contained in document S/ C/W/204. Earlier in the process, papers had
been submitted by Mexico (S/C/W/196), Hong Kong, China; Japan and Korea, (S/C/W/173), and
Hong Kong, China, (Job No. 7775).
14. The representative of Poland echoed comments made at an earlier meeting by the delegations
of Switzerland and the European Communities on paragraphs 11 and 14 of the communication of
Mexico.  In her view, the lack of a concrete date for the termination of MFN exemptions did not
require Members to eliminate such exemptions af ter ten years.  Such exemptions were, however,
subject to negotiations. The Annex on Article II Exemptions allowed Members to maintain
exemptions for a longer period than ten years.  Commenting on the document of Korea, she agreed
with the view expressed in paragraph 13, that the removal of exemptions was voluntary.  She
concurred that increased transparency with regard to the inscribed exemptions was needed.  She also
agreed with other delegations that MFN exemptions could under no circumstances grant less
favourable treatment than set out in the Member's schedule of specific commitments.  Her delegation
was flexible as regards directing the work concerning the MFN exemptions to the Committee on
Specific Commitments.S/C/M/59
Page 3
15. The representative of Hong Kong, China recalled his delegation's paper, contained in
Job No. 7775, on MFN exemptions which purported to grant less favourable treatment than the
Member's schedule of specific commitments.  He believed that such exemptions were ultra vires  and
had no legal effect. To date, no delegation had indicated any problems with the content of that paper.
If Members found the conclusion drawn by Hong Kong, China acceptable, he suggested that thoseexemptions in question should be deleted.  He invited Members having problems with this position to
make their views known.
16. The representative of Mexico stated that it was precisely the lack of agreement in the
interpretation of MFN exemptions without termination date that had prompted his delegation to
submit its paper.  In principle, the possibility of exceptions which went beyond the timeframe of ten
years did exist.  He recalled that at the end of the Uruguay Round the principle agreement had been to
limit MFN exemptions to ten years.  However, as it was difficult for some Members to commit to this,
it was agreed that some exemptions could run over  a longer period.  However, where this was the
case, that period had to be expressed explicitly in the exemption.
17. The representative of the European Communities stated that it was difficult to reconcile the
diverging views on the question whether the duration of ten years was the maximum or an indicative
period.  He reiterated, and supported the same point made in the Korean submission, that Memberscould either voluntarily relinquish the exemptions, or address them in the course of the upcoming
negotiations.  This would be the most promising way to deal with the question of MFN exemptions, in
light of the diverging views on this matter in the Council.
18. The Chairman suggested that given the lack of new submissions, the issue could be taken up
again upon request by any Member, or upon receipt of any new communication.
19. The Council so agreed.
B. PROPOSALS FOR A TECHNICAL REVIEW OF GATS PROVISIONS
20. The Chairman recalled that the Council had continued its discussion on proposals for a
technical review of the GATS at the December meeting.  At that meeting, Brazil had presented a
paper, contained in Job (01)/165, on MFN, national treatment and "like circumstances".  The ensuingdiscussion had brought up several issues where greater clarity could be provided to the Agreement.
The Chairman stated that if a technical review were to underpin the mandated services negotiations,
substantive work would have to be carried out over the coming months, and a clearer view was
necessary of how and to what extent that work should proceed.  He requested that delegations address
in their interventions those issues that had formed the core of the Council's work on this issue, i.e.
Articles XVI, XVII, and XX:2; Article XVI, para graphs 1 and 2; Article XXVIII(g) and paragraph
5(b) of the Annex on Financial Services; and MFN,  national treatment and like circumstances. He
further suggested that Members in their comments al so address how and to what extent the Council's
work on the proposals for a technical review should continue.
21. The representative of Mexico, referring to the different definitions of the term "service
supplier" in Article XXVIII(g) and paragraph 5(b) of the Annex on Financial Services, stated that his
understanding from previous meetings was that the Secretariat believed that both definitions could co-exist, given that one referred specifically to the financial sector.
22. A representative of the Secretariat stated that the definition of "financial service supplier" in
paragraph 5(b) of the Annex on Financial Services served two purposes: defining what a supplier of
financial services was, but also stipulating that such service suppliers did not include public entities.
The objective of having such a provision in the Annex was to build on the definition of ArticleXXVIII (g), and to relate it in specific terms to fi nancial services.  The difference in wording in theS/C/M/59
Page 4
Annex providing that a "financial service supplier" meant "any natural or juridical person of a
Member wishing to supply a service" as opposed to the definition contained in Article XXVIII (g)
would not necessarily suggest any substantive difference between the two terms.  Reference to a
service supplier in the Agreement did not necessarily  imply that that service supplier had to already
have acquired the status of a service supplier in the country in question.
23. The representative of Hong Kong, China was interested in all technical review issues that had
been raised so far, and stated that his delegation might contribute further thoughts on these issues.  His
intervention at this meeting related to Brazil's paper which addressed fundamental issues concerning
the interpretation of two very important provisions in the GATS.  He requested clarification on the
following questions from either the delegate of Brazil or from the Secretariat: Brazil had suggested
that if the concept of "like services" was interpreted to apply across modes, then the MFN obligation
under Article II would require affording the same tr eatment to services and service suppliers across
different modes.  This, it was argued, would be contradictory and ambiguous with regard to the
architecture of the GATS under which the Members scheduled their specific commitments by modes.
The delegate of Hong Kong, China wondered whether this would indeed be the case. Would the
requirement to accord "treatment no less favourable" necessarily mean the same treatment across all
modes, as obviously the circumstances of these services or these service suppliers were different.Another question related to Brazil's suggestion that the problem was the definition of "likeness".  Was
it perhaps rather a problem of how commitments were scheduled?  As far as national treatment
limitations were concerned, Members were already scheduling those according to different modes.
The specification of the modes under which Members made their commitments already qualified the
commitments.  His delegation believed that this qualification would entail that Members wererequired to afford "like" treatment only to services and service suppliers within the same mode.
24. The representative of Brazil considered that a technical review generally had merit.  He
supported examination of the relationship and overlap between Articles XVI and XVII.  Secondly, the
relationship between paragraphs 1 and 2 of Article XVI should be looked at.   With regard to the
definition of "service supplier" and "financial service supplier", his delegation believed that this wasnot a relevant issue.  There was no contradiction between the two definitions, since the definition
contained in Annex of Financial Services applied only to that sector.
25. Another issue of interest was of course the one on MFN, national treatment, and like
circumstances on which his delegation had presented a paper at the last meeting.  Even though it
might seem obvious to everybody that the structure of the Agreement, i.e the definition of trade in
services by four modes of supply, allowed Members to exercise extreme discrimination between each
one of these modes of supply.  A Member could leave one of these modes totally unbound and make afull commitment on market access and national treatment in another mode.  Many Members had done
so in practice.  However, the text of Article XVII  did not corroborate that perception, as it spoke of
"treatment no less favourable" that had to be given to services and services suppliers.
26. His delegation's concern was informed by dispute settlement reports relating to services,
specifically by the findings in the Panel Report on "Canada – Certain Measures Affecting theAutomotive Industry".  The Panel Report was useful to illustrate to Members one of the aspects his
delegation was addressing in its paper.  Paragraph 10.307 of the Panel Report stated the following:
"We note that the CVA requirements in the MV TO 1998 and SROs do not discriminate between
domestic and foreign services and service suppliers operating in Canada under modes 3 and 4.  This
observation, however, does not suffice to conclude that the requirements of Article XVII are met.  Inour view, it is reasonable to consider for the purposes of this case that services supplied in Canada
through modes 3 and 4 and those supplied from the territory of other Members through modes 1 and 2
are 'like' services.  In turn, this leads to the conclusion that the CVA requirements provide an
incentive for the beneficiaries of the import duty exemption to use services supplied within the
Canadian territory over 'like' services supplied in or from the territory of other Members throughS/C/M/59
Page 5
modes 1 and 2, thus modifying the conditions of competition in favour of services supplied within
Canada.  Although this requirement does not distinguish between services supplied by service
suppliers of Canada and those supplied by service suppliers of other Members present in Canada, it is
bound to have a discriminatory effect against services supplied through modes 1 and 2, which are
services of other Members."
27. He drew Members attention to paragraph 6 of Brazil's paper, where reference was made to the
interpretation of like services and service suppliers on the basis of the approach of "aims and effects"
which was also referred to as "like circumstances".  The concept of "like circumstances" should be
understood such that the services and service suppliers must be within the scope of application any
given regulation, but needed not necessarily be requi red to comply with it, as otherwise this would
allow extreme discretion on the part of the regulator, thus affecting the very standard of treatment that
would be expected.
28. The representative of the United States was not convinced of the appropriateness or need for a
technical review of any of the provisions raised by Members to date with the possible exception of
Article XX:2.  However, others had already noted the difficulties with this Article in the discussion of
the scheduling guidelines in the Committee on Specific Commitments.  It was not clear that more
progress could be made in this body.  In general, it was questionable whether a so-called technicalreview could be conducted in the middle of negotiations.
29. On the paper presented by Brazil, he first requested clarification as to Brazil's intention with
the paper.  It was presented under the agenda item "proposals for a technical review," but it was not
clear whether Brazil was actually proposing changes to any of the GATS provisions noted in the
paper.  Secondly, while Brazil suggested that "likeness" could never apply across modes, hisdelegation considered that the particular circumst ances of a case might need to be examined to
determine "likeness".  Thirdly, Brazil referred to what it believed were differences between the GATS
concept of "like services and service suppliers" and the concept of "in like circumstances" used in
bilateral and plurilateral free trade agreements.  The United States was party to both sets of
agreements and did not see a difference between the two concepts.  He therefore disagreed with theapproach in at least some of the conclusions drawn by Brazil.  He commented further that paragraph 5
of Brazil's paper appeared to suggest that all serv ice suppliers operating within the same sector would
be considered "like" service suppliers.  He was not convinced that this would always be the case.
Paragraph 6 of the paper stated that services and/or service suppliers would be considered "like" only
if they were subject to the same regulatory fram ework.  Again he was not convinced that those were
the criteria that defined "likeness".
30. The representative of Canada reiterated his delegation's support for a technical review to
would examine specific issues raised in submissions by Members.  In line with the general
understanding, such a review would be aimed primarily at ensuring legal consistency and improving
the clarity of some GATS provisions.  It should not address the substantive content of GATS
obligations.
31. Commenting on Brazil's paper, he recognized the validity of some of the points made, such as
the legitimacy of regulating a given service in different ways depending on how it was provided i.e.
through different modes.  The GATS provisions as currently drafted could not be seen as preventing
Members from doing so.  The notion of specifying the degree of commitments by mode of supply was
relevant only for Part 3 obligations such as market access and national treatment.  He could see
nothing in Article II that would support the conclusion that situations could be distinguished based onthe mode of supply.  With regard to the quote from the Panel Report on “Canada – Certain Measures
Affecting the Automotive Industry" which Brazil had offe red to illustrate its points, he stated that the
issue of “likeness” under the GATS had yet to be truly addressed by a Panel and the Appellate Body.
In other cases, such as "Japan – Alcohol" the Appell ate Body had made it clear that the determinationS/C/M/59
Page 6
of likeness was to be made on a case-by-case basis.  Thus, contrary to what Brazil appeared to suggest
in its paper, there was no automaticity as to what was "like".  The Appellate Body Report had made
clear, on page 23 that "no one approach to exercising judgment will be appropriate for our cases.  The
criteria in ‘border tax adjustments’ should be examined but there can be no one precise and absolute
definition of what is ‘like’.  The concept of ‘likeness’ is a relative one that evokes the image of anaccordion.  The accordion of ‘likeness’ stretches and squeezes in different places as different
provisions of the WTO Agreement are applied.  The width of the accordion in anyone of those places
must be determined by the particular provision in which the term ‘like’ is encountered as well as by
the context in the circumstances that prevail in any given case to which that provision may apply".
The Panel in "Canada – Certain Measures Affecting the Automotive Industry" had followed the same
kind of logic, limiting its conclusion that services supplied in Canada through mode 3 and 4, and those
supplied from another Member through mode 1 and 2, were “like” services to the purpose of the case.Hence, the Panel had confirmed that the concept of "likeness" had to be assessed on a case-by-case
basis.
32. He further considered that the questions raised by Brazil went far beyond a mere technical
review of certain provisions of the GATS but touched upon core legal elements of two of the most
important obligations of the GATS.  The amendment or modification of the GATS that seemed to beimplied in Brazil's paper in order to define “l ikeness” by referring to the concept of "like
circumstances" could give rise to incompatibilities and inconsistencies in the application of GATS
Articles.  Before transplanting into the GATS concepts from other trade agreements, one needed to
take into account the differences in structure between the GATS and such other trade agreements.
33. The representative of the European Communities supported a technical review that examined
some of the issues that had been mentioned, such as the relationship between Articles XVI and XVII.
As the substantive phase of the negotiations was approaching, he welcomed any clarity that could be
brought to those Articles and to the scheduling of commitments.
34. The representative of Brazil stated that the intention of the paper had not been to turn the
GATS upside down.  Far from that, his delegation had merely aimed at clarifying a basic issue.  He
did not take issue with Canada's point that “likeness” had to be established on a case-by-case basis.
However, the paper was motivated by the necessity to set at least a minimum of parameters given that
under the GATS trade occurred by four different modes.  Conversely, in the goods area, to which
Canada's quoted example from the Appellate Body referred, there was only one way of trading,
i.e. across the border.  He further did not think that  setting basic parameters of mode specificity would
entail that service suppliers should be considered to be “like” whenever they were operating under the
same jurisdiction.  Services suppliers could be "unlike" even if they were operating within the samesector, depending on the service they were providing.  This was a point that the Panel had addressed
in the “ EC Banana III ” Report with regard to distribution services.
35. The Chairman concluded that most delegations agreed that a technical review was generally
of value. As far as particular issues were concerned, numerous delegations had mentioned the use of
examining Articles XVI, XVII and XX:2.
36. The representative of the United States stat ed that his delegation saw merit in examining
Article XX:2, not, however Articles XVI and XVII.
37. The representative of Uruguay stated that there was still a lack of clarity on the possible
provisions which required clarification through a technical review.
38. The Chairman suggested that informal consultatio ns be held to allow delegations to further
clarify, with a view to reaching consensus, subjects that could form part of a technical review.S/C/M/59
Page 7
39. The Council so agreed.
C. REVIEW OF THE UNDERSTANDING ON ACCOUNTING RATES IN
TELECOMMUNICATIONS
40. The Chairman recalled that the Council, at its December meeting, had continued its
discussion of the review of the Understanding on Accounting Rates in basic telecommunications, on
the basis of two submissions by Australia, in J ob(01)/73 and Job(01)/111.  In addition, Australia had
submitted a new communication contained in Job(02)/25.
41. The representative of Australia stated that the discussions over the course of the review had
indicated that Members needed more information in order to determine if the conditions giving rise to
the Understanding remained valid.  Therefore, she proposed that the Secretariat coordinate a survey of
Members practices relating to accounting rates.  The results of such a survey would help Members to
evaluate the extent to which a removal of the moratorium would give rise to MFN issues.  Inparticular, she proposed that Members respond to three questions: (1) Did the Member government
regulate (i.e. impose 'measures') in relation to the determination of particular cases or categories of
telecommunications accounting rates? (2) If so, how were these measures disclosed? (3) If measures
were discretionary, what criteria determined whether or not government regulation would be applied?
(e.g. did all bilateral accounting rate agreements require approval? Did only certain methods ofsettlement require approved rates? Did only certain scheduled services attract application of measures,
while other services did not? Did measures appl y only when a party requested arbitration? Were
parallel rates applied to like services from all providers in the market?).
42. Regarding the first point, she acknowledged that almost all countries had some form of
generic legislation for the regulation of accounting rates with reserved powers for governmentintervention on inter alia  public interests grounds.  The purpose of the question was not to uncover
that type of information, but rather to learn about the extent to which those powers were applied in an
arbitrary ad hoc  and discriminatory manner to specific cases.  The whole issue was discrimination and
not whether a country applied accounting rates or not.
43. The representative of Uruguay requested clarification as to whether Australia's invitation to
provide information for the purpose of a survey extended only those Members who had made
commitments under the Fourth Protocol of basic telecommunications
44. The representative of New Zealand endorsed Australia's paper and vowed to provide
responses to the questions posed.
45. The representative of Australia clarified that the invitation to respond to the three questions
was addressed to all Members, not only those who were signatories of the Fourth Protocol.
46. The representative of Mexico reiterated his delegation's position that the conditions that had
given rise to the understanding remained in effect.  He considered the review concluded and therefore
could not agree to any further continuation of the exercise.
47. The representative of Brazil was not convinced of the desirability that the Secretariat
coordinate the proposed survey of Members practices.   In keeping with the principles of the WTO, it
should be a Member driven exercise.  Members could voluntarily provide the information on the basisof the questions posed by Australia.
48. The representative of Cuba reiterated the view that the "raison d'être" of the moratorium
continued to exist.  The accounting rates system was the principle system used in developing
countries. She supported Mexico’s view that the Council should not be continuing the exercise of theS/C/M/59
Page 8
review.  She agreed with the comments made by Brazil to the effect that Members could voluntarily
provide the information considered relevant, as indeed some Members had already done last year.
49. The representative of the United States stated that his delegation viewed the purpose of the
"gentlemen's agreement" as providing Members with the certainty they needed to maintain
differentiating accounting rates by agreeing not to  challenge the MFN consistency of the accounting
rates through dispute settlement.  While not opposed to the standing agreement, his delegations did
not see its continued necessity as more and more telecommunications markets had become
competitive and the relevance of accounting rates, which were vestiges of a monopoly era, had
declined substantially.  Any extension of the gentlemen's agreement must not stray from its original
purpose, which was to refrain from challenging accounting rates on a MFN basis.
50. The representative of Australia stated that the proposed survey was meant to be a voluntary
exercise and that she would be grateful if the Secretariat could compile the responses and circulate
them, either before the July meeting, or if more time was needed after the summer break.  She took
issue with the assertion by some delegations that accounting rates were the principle method for most
developing countries to terminate or have settlements with developed countries.  There was
considerable evidence that the use of accounting rates was becoming less and less predominant and
that the majority of developing countries no longer used this method as their principle way of settlingaccounts with developed countries, or with each ot her.  The proposed survey might help to highlight
the incidence of how accounting rates were used, and cases where they might be discriminatory.  Her
delegation was interested in addressing this issue during the course of the review.
51. The representative of Cuba concurred that a great number of countries were indeed using new
systems in the termination of international traffic.  Nonetheless, the accounting rate method continued
to be the most customarily used method.  The ITU had confirmed that understanding.
52. The Chairman suggested that the Council take note of Australia's contribution and the
statements made.  He suggested that Members further reflect on this issue.  In the meantime,
delegations could of course voluntarily reply to the questions presented by Australia, and the
Secretariat could circulate the replies for all Members information.
53. The Council so agreed.
D. IMPLEMENTATION OF COMMITMENTS BY THE PEOPLE'S REPUBLIC OF
CHINA – STATEMENT BY THE UNITED STATES
54. The Chairman stated that the Unites States had requested that this item be put on the agenda
of the Council’s meeting.
55. The representative of the United States stated that his delegation had requested the
opportunity to discuss China's implementation of its commitments under the GATS, specifically those
commitments regarding insurance and express deliver y services.  He raised these issues at this
meeting, and would seek similar opportunities in other WTO bodies as necessary, for several reasons.
First, unlike most acceding parties to the WTO, China had not been required to demonstrate that its
domestic laws and measures conformed to its commitments prior to its date of accession. Largely in
recognition of this special treatment, WTO Members had established a unique review process tomonitor China's implementation of its WTO commitm ents. This process was called the Transitional
Review Mechanism.  That mechanism would meet  annually for eight years, with a final review
scheduled to take place in year ten.  WTO Members were to raise their concerns regarding China's
implementation throughout the course of the year within the relevant WTO bodies and Committees.
Any concerns Members wished to raise would subseque ntly be reflected in the annual review at the
end of the year.S/C/M/59
Page 9
56. Second, the United States believed that China's government had every intention to honour its
WTO commitments. That said, China would undoubtedly experience technical difficulties in revising
its central and sub-central legal system, especially given the scope and range of its specific
commitments. The United States and other WTO Members were providing considerable technical
assistance to China through official and non-governmental channels to aid the government in makingthe transition to a rules-based system. Equally important to China's implementation efforts was
Member-driven, expert surveillance from bodies such as the Council for Trade in Services. It was his
responsibility to highlight problems as they arise, to bring problems to the attention of those in
China's State Council that were ultimately responsible for Chinas WTO compliance. In this way, the
United States believed it was more apt to resolve problems before they led to formal dispute
settlement procedures.
57. Turning to insurance services, his delegation had carefully reviewed China's new insurance
regulations that had become effective on February 1. He had several concerns.  First and foremost was
the denial of the right for foreign non-life insurers to branch and sub-branch, which had immediate
and serious consequence to United States commercial interests.  This was not the same issue that
arose between his and the Chinese delegations at the end of China's accession negotiations last fall.
The issue he was concerned about would also affect others WTO Members' companies operating inChina.  China had very clearly scheduled a commitment to allow non-life firms to establish as
branches in China upon accession and to permit in ternal branching in accordance with the lifting of
China's geographic restrictions (see WT/ACC/CHN/49/Add.2).  In addition, China had committed in
paragraph 313 of the Working Party report that "the qualifications for foreign insurers applying for a
license to enter China's market would not apply to foreign insurers already established in China that
were seeking an authorization to establish branches or sub-branches" (see WT/ACC/CHN/49,
paragraph 313).  In the specific case that concerned the United States at this juncture, a non-life
insurer that was established as a branch in Shanghai had requested permission to sub-branch in
Guangzhou, a city that had opened to foreigners upon accession.  Despite China's very clear GATS
commitments, China's insurance regulatory author ity insisted that non-life firms who wished to
branch or sub-branch could not do so unless they first establish as a subsidiary. Establishing as a
subsidiary was costly, and did not make sense when the firm was already in the market as a branch.
The specific firm was committed to China's market and had been operating within China's laws for
many years.  It merely wanted to expand its business as it did elsewhere, and as China's government
very clearly had agreed to permit under its WTO obligations.
58. As a second point, the United States had concerns with the lack of transparency in the
relevant laws and regulations. The measures were somewhat difficult to decipher because they had tobe read in conjunction with three other insurance laws, and it was unclear which law took precedence.
The new law was drafted without a great deal of clarity, which was particularly a concern with respect
to insurance licensing. Requirements seemed to be open-ended, permitting considerable bureaucratic
discretion and very little certainty to the foreign in surer seeking to operate lawfully in China's market.
He understood China's insurance regulatory authority was planning on issuing additional,supplementary rules and he would therefore appreciate the opportunity to review these measures
before they became effective.
59. In addition to these two core concerns, the United states was not convinced that China's very
high and redundant solvency requirements were appropriate.  The United States had shared China's
requirements with those state insurance regulators who had experience in foreign insurance markets,including China, and they had reached the same conclusion. United States  regulators were as
concerned as China's in meeting their prudential responsibilities, and United states consumers were as
concerned as China's in safeguarding their policies.  However, solvency standards could be
established in such a way that was reasonable, objective and non-discriminatory. From a practical
perspective, most large multinational insurers migh t be able and willing to meet the new solvency
requirements. But the question was whether the Chinese joint venture partner (which was required forS/C/M/59
Page 10
life insurance) would be able to come up with such an extraordinary amount of cash. If not, then
foreign insurers would effectively be limited from participating in the market, unless they paid their
partner's cash contribution in addition to their own.  China had opened its insurance markets under the
WTO, but it might be concluded that the price of admission had just doubled.
60. He hope that the insurance regulators from China would consult with their counterparts in the
United States to bring China's requirements in line with other trading partners. His delegation, was
ready to assist in this effort, as were United States regulators.
61. In conclusion, he urged China to comply with its WTO obligations and allow non-life
insurance companies to branch without setting up a subsidiary, under conditions of transparently
prepared and applied laws and regulations.
62. Turning to express delivery services, the United States representative stated that since its
accession to the WTO on 11 December 2001, authorities in China had issued measures that cut backon the activities and market access of foreign-invested firms that had been licensed and operating in
China for some time. These actions called into  question China's compliance with its horizontal
commitment on acquired rights and undercut China's commitments related to express delivery
services.  On 24 December 2001, China had issued a regulation that required express delivery
companies which were already licensed by MOFTEC to provide the services in question, to fileso-called "entrustment" applications with China's postal authorities in each province where they
currently operated. This requirement was problematic for several reasons: the requirement of filing in
each province and locality was overly burdensome; and the postal authorities had broad discretion in
acting on the applications that were filed.  Given that the postal authorities were direct competitors
with foreign-invested express delivery companies, his delegation was very concerned that they would
exercise their discretion in a way that restricts trade.
63. A second measure, issued in February, went  even further. It placed new, unwarranted
restrictions on the services that had previously b een provided by foreign-invested express delivery
companies. Since well before China's accession, United States companies had been licensed to
provide international express delivery services (except for private letters). With the new measure,China was cutting back on these previously licensed services in several respects: most notably,
foreign-invested express delivery companies would only be able to handle certain documents or
packages weighing more than 500 grams or make deliveries for which they were charging a higher
price than China Post's Express Mail Service, or EMS.
64. The measure thus limited the acquired rights of existing foreign service suppliers in China by
narrowing the scope of activities and operation of ex isting licensed enterprises in China.  He urged
China to modify or rescind these two measures immediately
65. The representative of Canada stated that his delegation shared the interest that the United
States had expressed in the implementation of China's commitments, particularly as far as insurance
services were concerned.  Canada was currently considering China's new regulation with respect to
insurance and was evaluating this regulation's consistency with China's WTO commitments.  The
China Insurance Regulatory Commission (CIRC) had not yet been available to discuss these issues,but his delegation looked forward to cooperation between the China Insurance Regulatory
Commission and Canada's regulatory authorities in future.
66. The representative of the European Commun ities shared the United States' concerns with
regard to recent regulations adopted by the Chinese authorities on express delivery services.  In
particular, he was concerned with the obligation for already licenced companies to submit to a newlicensing procedure at municipal level as well as to confirmation at provincial level throughout China.
Secondly, the new regulations were limiting or narrowing the scope of activities that internationalS/C/M/59
Page 11
express service suppliers were previously allowed to  conduct in China.  He sought confirmation from
the Chinese authorities that they intended to im plement the commitments they had undertaken upon
accession to the WTO.  Pending the process of approval of the new licensees the current scope of
activities of express delivery service suppliers must not be reduced, and after issuance of the new
licences, the scope of permitted service activities must  remain the same as before the entry into force
of these new regulations.
67. On insurance services, his delegation believed that the issues raised by the United States
indicated a larger, more general, problem related to the lack of clarity of the Chinese implementation
of its insurance commitments.  The most recent regulations did not contain any concrete criteria on
the basis of which internal branching was to be decided.  The regulations also included a number of
very vague provisions, set unspecified criteria, and frequently made cross-references to other
unspecified laws which made it very difficult for operators to appreciate the exact conditions foroperating in the Chinese market.  The European Communities had repeatedly encountered strong
difficulties in finding ways of communicating its views to the Chinese regulator, yet hoped for such
an occasion in the near future.
68. The representative of Switzerland supported the statement made by the European
Communities.
69. The representative of Japan welcomed the accession of the Peoples' Republic of China to the
WTO.  He strongly hoped that China would implement its commitments.  He considered the
possibility of extending technical assistance to China, as his delegation had done in the past.  He was
particularly interested in the question of branching in the insurance sector which previous speakers
had referred to, as well as the question of transparency and the application and implementation ofChina's commitments on an MFN basis.
70. The representative of China took note of the statements made by the previous speakers.  Due
to the complexity of the matter, he refrained from making any substantive comments.  His delegation
had explained to the delegation of the United Stat es that the matter raised was not as simple as
described in today's statement and the real situation needed to be clarified.  He considered that thestatements made by the previous speakers, including that of the United States were not part of the
transitional review mechanism as laid down in the Protocol on China's Accession.  There was only
one annual review within the provisions of Section 18 of the Protocol.  Therefore, none of the
statements made at this meeting should be included in the annual review within the framework of the
transitional review mechanism. He stated that the delegate from the United States had earlier
explained to him that his statement was not part of that review.
71. The Chairman suggested that the Council take note of the statements made.
72. The Council so agreed.
E. APPOINTMENT OF NEW CHAIRPERSON OF THE COUNCIL
73. The Chairman first reported on the consultations on the Chairpersons of the subsidiary bodies
of the Council for Trade in Services.  The result of extensive consultations, held in various formats,
had yielded the following proposals for Chairpersons for 2002: Committee on Financial Services:Mr. Habib (Pakistan); Working Party on GATS Rules: Mr. Chan (Hong Kong, China); Committee on
Specific Commitments: Mr. Bergström (Sweden); and the Working Party on Domestic Regulation:
Mr. Rodrigues dos Santos (Brazil).  He hoped that this proposal of a slate of names could be accepted,
bearing in mind also that the appointments had al ready been due at the meetings of the subsidiary
bodies that were held during the previous week.  Fo rmally, the appointments would take place only at
the next meetings of the subsidiary bodes, i.e. in mid-year.  Any work to be carried out in theS/C/M/59
Page 12
meantime fell officially under the mandate of the present Chairs.  He suggested that the designated
Chairs and the present Chairs work out a smooth transition.  For all practical purposes, he suggested
that the incoming chairs should work as if they had been appointed already.
74. The Chairman then moved to the appointment of  the Chairperson of the Council for Trade in
Services.  He stated that the rules of procedure for the Council for Trade in Services stipulated that the
Council elect its Chairperson for each year at the end of its first regular meeting of that year.
Therefore, and in accordance with the outcome of the consultations conducted by the Chairman of the
General Council in this regard, he proposed that the Council appoint Ambassador Mary Whelan
(Ireland) to be its Chairperson.
75. The Council so agreed.
__________