RESTRICTEDWORLD TRADE
ORGANIZATIONS/C/M/61
23 September 2002
(02-5084)
Council for Trade in Services
REPORT OF THE MEETING HELD ON 17 JULY 2002
Note by the Secretariat1
1. The Council for Trade in Services held a meeting on 17 July 2002.  The agenda for the
meeting is contained in document WTO/AIR/1862.  The Chairperson proposed that the Council adopt
the agenda as circulated.
2. The Council so agreed.
A. NOTIFICATION MADE TO THE COUNCIL PURSUANT TO GATS ARTICLE V:7
3. The Chairperson drew the attention of Members to the joint notification pursuant to Article V
(Economic Integration) of the European Communities and their Member States and the United
Mexican States contained in document S/C/N/192.  She suggested that the Council take note of the
notification and that the agreement notified under Article V:7 of the GATS be referred to the
Committee on Regional Trade Agreements.
4. It was so agreed.
B. PROPOSALS FOR A TECHNICAL REVIEW OF GATS PROVISIONS –
ARTICLE XX:2
5. The Chairperson recalled that the Council had held, at its June meeting, a preliminary
discussion on Article XX:2.  In response to a request by delegations, the Secretariat had prepared a
background note, Job(02)/89, on the drafting hist ory and scope of paragraph 2 of Article XX.
6. A representative of the Secretariat stated that paragraph 2 of Article XX was devised as a
scheduling or book-keeping convention for the listing of measures which fell within the scope of both
Articles XVI and XVII.  He recalled that the discus sion which had led to the adoption of that text at
the time had not addressed the situation where an entry in either the market access or nationaltreatment columns read "unbound" while a commitment was inscribed in the other column.  The
Secretariat note contained a reference to the discussion that took place in the Committee on Specific
Commitments on paragraph 2 of Article XX; that discussion, however, did not also touch upon the
question of the overlap and the problems that might result from it.
7. The representative of Hong Kong, China stated that paragraph 4 of the Secretariat note
showed that the drafters of GATS had been fully aware of the overlap between Articles XVI and XVII
and that Article XX:2 had been intended to establish a scheduling convention arising from the
recognition of the overlap.  He noted that previous discussions concerning the scheduling guidelines
had referred to the potential ambiguities in sche dules of specific commitments arising from the
scheduling convention in Article XX:2;  Members had attempted to resolve the issue by inserting thesentence in paragraph 18 of the present scheduling guidelines.  These observations confirmed the
                                                     
1 This document has been prepared under the Secretariat's own responsibility and without prejudice to
the positions of Members and to their rights and obligations under the WTO.S/C/M/61
Page 2
view of his delegation that the source of the problem was the way Members scheduled their
commitments, rather than the intrinsic overlap between Articles XVI and XVII, which had been fully
understood and perhaps deliberately established by the drafters of the agreement.  A solution was
hence more likely to be found in a scheduling convention that would ensure that Members schedule
their commitments with sufficient clarity, rather than by changes to the GATS itself.
8. It seemed that paragraph 18 of the scheduling guidelines was inadequate to address the
problems left over by Article XX :2, not only because the scheduling guideline in question was not
strictly binding, but also because it did not cater to the situations described in paragraph 8 of
JOB(02)/89, i.e. entries of "unbound" in the market access column and "none" in the national
treatment column.  In that case, paragraph 18 of the scheduling guidelines was likely not applicable at
all as there were no measures that were inscribed in the market access column.  On the other hand, the
reverse scenario, i.e. an entry of "none" in the market access column and "unbound" in the nationaltreatment column, would perhaps pose less of a pr oblem than the scenario have just alluded to.
Specifically, by virtue of Article XX:2, measures inconsistent with both market access and national
treatment had to be inscribed in the market access column.  The very fact that in this scenario no
measure was inscribed in the market access column logically implied that any measure scheduled in
the national treatment column was not inconsistent with both market access and national treatment,which meant that they could only be inconsistent  with national treatment.  Thus any measures
scheduled in the national treatment column, or even an unbound in the national treatment column
which embraced all possible measures, could not purport to limit market access.
9. If his understanding was correct, the problem with Article XX:2 could perhaps be
summarized as follows: for a measure scheduled in the market access column, it was not always clearwhether that measure was inconsistent with both market access and national treatment, and in turn
whether the measure provided a condition or qualification to national treatment, or if the measure was
only inconsistent with market access.  On that premise, it was possible to suggest a scheduling
convention to address the ambiguity.  The convention could provide that any measure, including an
unbound one, that was scheduled in the market access column should be taken as inconsistent withmarket access only, unless an indication was made otherwise in the schedule.  Such a convention
would be fair as it was each Member’s responsibility to ensure the clarity of its schedule of
commitments, and no one other than the Member itself was in a position to state whether a measure in
the schedule was inconsistent with both market access and national treatment or just one of the two.
If such a scheduling convention was considered a possible solution to the problem, the next question
was how to give effect to such a convention.  Before reflecting on this, the delegate of Hong Kong,
China invited reactions from other Members on the principal idea, and was interested in listening to
any other ideas and solutions that other Members may have in mind.  He further noted that whatever
solution Members would agree to, one would have to address the question of the application of such a
convention to existing commitments.  In this regard, he noted that the suggestion of consolidation of
schedules which was explored in the Committee on Specific Commitments, may provide a possible
opportunity for such technical adjustments to be made.
10. The representative of Japan stated that the ambiguity of certain commitments caused
problems both for the interpretation of future commitm ents to be made in the ongoing negotiations, as
well as for the interpretation of past commitments  already made during and after the Uruguay Round
negotiations.  As Members embarked on this new round of negotiations, a clear understanding was
necessary of how commitments would be scheduled in the situation described in paragraph 8 of theSecretariat note.  His delegation would not like to find itself in a situation where, when reading a
schedule, there was doubt whether a quantitative restriction scheduled by a Member was permitted
only in its non-discriminatory form, or also in its discriminatory form.  The issue should be addressed
on the basis of the analysis offered by the Secretariat and by the delegation of Hong Kong, China.  He
concurred with the analysis by Hong Kong, China that a situation where no market access limitationswere maintained, and national treatment was left unbound, was less grave than the opposite situation
in which market access was left unbound, yet a full commitment was made under national treatment.S/C/M/61
Page 3
11. Responding to a question raised by Canada at the last meeting about preferences of how to
address this issue in practical terms, his delegation was open as far as modalities were concerned, but
believed that an amendment to the GATS would cause problems as it would only enter into force after
the negotiations had been finalized, hence not providing guidance at present and throughout the
negotiations.  Clarification through an interpretative note or an addition to the scheduling guidelinescould be a more practical way of addressing this issue.
12. The representative of Switzerland stated that his delegation was surprised by the large number
of schedules of commitments that were affected, as pointed out in paragraph 9 of the Secretariat note.
In light of such a large number of uncertainties, Members needed to resolve the problem and clarify
these commitments and their legal status.  The Secretariat note pointed out that Article XX:2 had been
designed to avoid overlap and repetition of entries in the schedules.  He suggested that some repetition
might not have been a bad idea, given the degree of uncertainty that prevailed in this matter at present.He was glad to contemplate suggestions put forw ard by Hong Kong, China regarding the conventions
that might be able to solve the problem.
13. The representative of Brazil, making preliminary observations, stated that clarifying Article
XX:2 was an important task that should be taken up by Members in the context of an eventual
technical review of the Agreement.  This would ensure legal certainty and clarity with regard toMembers specific commitments, which was in the interest of delegations seeking improved market
access and national treatment commitments in the cont ext of the current services negotiations; it was
also in the interest of those delegations offering improved commitments in these negotiations.
14. As regards the questions posed by Canada at the last meeting in June, his delegation believed
that it was a priority to look at the substantive issues first in a pragmatic and objective way andperhaps address the procedural part of incorporating any changes arising from a possible technical
review.  At this stage, he did not consider it overly complicated to incorporate technical clarifications
into the Agreement by way of an interpretative note or a note of understanding of the Articles
concerned.  His delegation was interested in looking at substance first.
15. The representative of Canada reiterated that technical clarifications should in no way affect
the balance of rights and obligations arrived at by Members.  However, as there were numerous
schedules, where the precise scope of the market access and national treatment commitment could not
be clearly inferred, she believed that Members should give careful consideration to whether any
potential technical clarification of this issue should affect existing commitments.  She noted that
paragraph 7 of Job(02)/89 made the important point that in the scheduling guidelines it was
considered that it had to be established on a case-by-case basis whether a measure was inconsistent
with both Articles XVI and XVII.  Some of these case-by-case understandings might come up in moredetail as Members progressed in the negotiations next year.  Like Brazil, Switzerland, Hong Kong,
China and Japan, her delegation thought that there were definite linkages between this issue and work
regarding the consolidation of old and new schedules.
16. The representative of Uruguay stated that while he was open to listening to any proposals
made by Members on the possibility of technical problems that exist in the GATS, there was no
agreement as to whether a technical review should be conducted.  At present, Members were merely
identifying problems.  A substantive discussion on the problems was necessary to look at possible
solutions before agreeing to formally engage in a technical review.
17. A representative of the Secretariat stated that the points raised by the delegation of Hong
Kong, China illustrated that the situation as it stood lent itself to interpretation.  It would not be
impossible in the case of a dispute for a panel to interpret the current provisions and arrive at a
conclusion as to what the scope of a certain commitment was.  What was at stake was whether such a
conclusion by a panel would actually correspond with the common understanding of the Membership
of the legal scope of the different Articles.  The issue at hand was not of a complex nature: obligationsS/C/M/61
Page 4
under Articles XVI and XVII could be undertaken independently.  There was no hierarchy between
these Articles, and Members could undertake commitments on market access and national treatment
or on one of the two.  As there was an overlap between the scope of the two Articles, the question
arose in cases where Members had taken commitments under one but not the other Article as to
whether what falls within the area of the overlap would fall on the bound or unbound side.  IfMembers chose to arrive at a common interpretation of the issue, it should be clear that this would be
an interpretative statement as opposed to a mere book-keeping convention which was what currently
existed in Article XX:2.  There was an important difference in legal terms between the two.
18. The representative of Brazil offered another interpretation to the example brought up by Hong
Kong, China, where a Member had entered unbound in the market access column, and none under
national treatment.  The interpretation by Hong Kong, China suggested that even though a Member
had left the market access column unbound that Member would be committing that those measureswere not taken in their discriminatory form, because the Member had entered none under national
treatment.  Another interpretation could be drawn from Article XX:2 which said that measures
inconsistent with both Articles XVI and XVII shall be inscribed in the column relating to Article XVI.
In this case the inscription would be considered to provide a condition or qualification to Article XVII
as well.  In this concrete case, there was no measure scheduled under Article XVI.  It was leftunbound, meaning that the Member was taking no commitment whatsoever in relation to the six
categories of measures listed under paragraph 2 of Article XVI.  It could be argued that that Member
would be allowed in the future to schedule, in the market access column, a measure that fell under one
of those six market access restrictions, and was at the same time also discriminatory under national
treatment, even though there was a none inscribed under Article XVII.  This could be possible,because the entire spectrum of market access was left unbound in the first place.
19. The respresentative of Hong Kong, China stated that one scenario he had envisaged implied a
"none" in the market access column and an "unbound" in the national treatment column.  In his earlier
intervention he had suggested that Article XX:2 coul d be used to guide in the reading of schedules in
such a way that measures inconsistent with both market access and national treatment had to bescheduled in the market access column; otherwise they were not to be taken as inconsistent with
market access and national treatment.  If that was the case he saw a problem only with the first
scenario where market access was unbound, and none had been entered in the national treatment
column.  He was not suggesting that unbound should be interpreted as not to apply to the national
treatment obligations, or that unbound must necessarily not cover those measures inconsistent with
both market access and national treatment.  He was merely suggesting a scheduling convention which
resolved that if a Member did not indicate otherwise, then the measure, if put under the market accesscolumn, should be interpreted as being inconsistent only with market access and not also with national
treatment.  This would of course not prevent Members from indicating that individual measures
inscribed under the market access column would be inconsistent with both market access and national
treatment.  However, the onus for providing such clarity should be on the Member who was
scheduling the commitment.
20. The Chairperson noted that delegations had not had much time to consider the Secretariat
note in greater detail and may likely wish to obtain the views of their capitals.  She proposed to hold
informal consultations in October with a view to clarifying how to refine the discussion on this issue
in the next formal session.  In response to a request by Canada, she suggested that the Secretariat
prepare a short chart elaborating the scenarios raised by Brazil and Hong Kong, China, and elaborateon the issues not only with regard to making new commitments but also in relation to existing
commitments.
21. It was so agreed.S/C/M/61
Page 5
C. IMPLEMENTATION OF COMMITMENTS BY THE PEOPLE'S REPUBLIC OF
CHINA - STATEMENT BY THE UNITED STATES
22. The Chairperson recalled that at the last two meetings the delegation of the United States had
requested that an item on the implementation of commitments by China be placed on the agenda.  An
identical request had been made ahead of this meetin g.  She recalled that the delegation of the United
States had made it clear that the item was raised independently from the Review Mechanism
established under Section 18 of the Protocol of Accession of China.  It was important to note that this
item was not linked to the following agenda item, which dealt with preparations in connection with
the Review Mechanism.
23. The representative of the United States stated that his intervention was following up on two
items that his delegation had raised at the past two meetings: i.e. insurance and express delivery
services. With respect to insurance services, he reiterated that China had clearly and unambiguously
committed to allow non-life firms to establish as a branch in China upon accession and to permit
internal branching in accordance with the lifting of China's geographic restrictions.  In addition, China
had committed in paragraph 313 of the Working Party Report that "the qualifications for foreign
insurers applying for a licence to enter China's market would not apply to foreign insurers alreadyestablished in China that were seeking an authorisation to establish branches or sub-branches".
Notwithstanding these clear GATS commitments China' s insurance regulatory authority insisted that
non-life firms that wished to branch or sub-branch could not do so unless they had first established as
a subsidiary, which was a costly and unjustifiable proposition.  His delegation continued to have
concerns about the lack of transparency in the relevant laws and regulations and the excessivediscretion this afforded China's insurance regulato ry authority.  At least one foreign insurance
company seeking a licence had fulfilled all licencing requirements yet remained unlicensed to date.
Another company had been informed that the ha rshest possible interpretation of an open-ended
requirement would be applied to its application for a licence.  As previously discussed, China's very
high and redundant solvency requirements were unjustified by international norms or China'sreasonable needs to maintain a healthy insurance mark et-place.  The United States believed that the
effect, if not the design, of these requirements was to limit the ability of foreign insurers to make
necessary joint venture arrangements and thus limited the viability of foreign participation in China's
insurance market.
24. Turning to express delivery services, the representative of the United States recalled that his
delegation had, at the last two meetings of the Se rvices Council, raised concerns with two post-
accession measures that called into question China's compliance with its horizontal commitment onacquired rights and undercut China's commitments related to express delivery services.  Under the
first measure, issued in late December 2001, China would require express delivery companies already
licenced by the Ministry of Foreign Trade and Economic Co-operation to file so-called entrustment
applications with China's postal authorities.  A second measure issued in February of this year placed
new unwarranted restrictions on the same foreign-in vested express delivery companies.  Essentially,
through weight and rate limitations this measure narrowed the scope of activities and operation of
these companies in China and therefore limited their previously acquired rights.  The United States
understood that the Chinese authorities had postponed the effective date of the two measures in
question until mid-August so that they could continue internal discussions in addressing these and
other concerns that had been raised.  He appreciated these efforts and hoped they would lead to anacceptable solution.  As it stood, there were indications that China's postal authorities could be
backing away from the measure restricting the scop e of activities and operation of foreign-invested
express delivery companies through weight, rate and other limitations.  However, they were still
seeking to regulate express delivery companies through an entrustment application process.  This new
requirement would give inappropriately broad discretion to the postal authorities.  Given that thepostal authorities were direct competitors of foreign-invested express delivery companies, he was very
concerned that the postal authorities would exercise their discretion in a way that restricted trade.  At
this time he requested the Chinese delegation to convey his delegation's views to Beijing and heS/C/M/61
Page 6
appreciated any update that the Chinese delegation might be able to provide on the status of this
matter.
25. The representative of the China took note of the statement by the delegation of the United
States, which she would report back to capital.  Since joining the WTO last December China had
made every possible effort to implement its accession commitments.  As her delegation had statedrepeatedly, China was willing to clarify its trading partners’ misunderstandings through a bilateral
process.  Bilateral consultations had been on-going since the United States made its first consultation
request to China and the most recent of these meetings had taken place on 9 July 2002.
Understandably, it was a time-consuming process and her capital was still working hard on the issues
concerned.  She believed that it was inappropriate to spend the valuable time of most Members of this
Council on this item.  Finally, she hoped that if any Member requested that this item be put on the
agenda of the next meeting of the Council, China would be consulted.
26. The representative the European Communities stat ed that the issues raised on insurance and
express delivery services had also been mentioned by his delegation at past meetings of this Council,
and he had similar concerns regarding the two measures that were referred to on express delivery
services.  The European Communities had held consultations with the Chinese authorities and
welcomed that the date that had originally b een set for the entrustment application had been
postponed.  He looked forward to continuing the discussion with the Chinese authorities in a
constructive spirit to find a solution to this problem.
27. The representative of Canada noted that in the past, his delegation had raised its concerns in
the area of insurance and he hoped to be continuing discussions with the Chinese authorities with a
view to resolving some of the outstanding concerns.
28. The Chairperson proposed that the Council take note of the statements made under this
agenda item.
29. It was so agreed.
D. PREPARATIONS IN CONNECTION WITH SECTION 18 OF THE PROTOCOL ON
THE ACCESSION OF THE PEOPLE'S REPUBLIC OF CHINA
30. The Chairperson drew the attention of the Council to Section 18 of the Accession Protocol of
China, which provided for an annual review of the implementation by China of the WTO Agreement
and of the related provisions of China's Accession Protocol.  As indicated in Section 18, the Services
Council was one of the bodies in which this review had to be conducted.  The results of the Services
Council's review, as well as those of other bodies re ferred to in Section 18 of the Protocol, would then
be reported to the General Council, which in tu rn would conduct its own review.  She recalled that
Members had had a first exchange of views on how best to prepare for this review at the last meeting.
The delegation of the United States had proposed an approach that foresaw that China would submit
information relevant for the conduct of the review 90 days in advance of the meeting;  Members then
would provide any questions 60 days in advance;  and the answers to these questions would be
provided by China at least 30 days in advance of the review.  The delegation of China had maintained
that the review should take place at the last meeting of the year and, once a date was chosen,
preparations could begin.  In the meantime, China would welcome any questions by Members and
would do its best to address these questions in the review.
31. She reported to the Council that she had received a letter from the Chairman of the General
Council, informing her that he was intending to schedule the review by the General Council at the
General Council's last meeting 2002, which would be held on 10 and 11 December.  In the letter, the
Chairman also underscored the importance for the General Council to receive the results of preceding
reviews sufficiently ahead of its meeting to permit useful discussion.  He therefore hoped the ServicesS/C/M/61
Page 7
Council could resolve all outstanding issues in conne ction with the preparation of the review, so as to
ensure that the review in the Services Council coul d take place in line with the overall timeframe.
The Chairperson stated that in order to report on a timely basis to the General Council, the Services
Council would need to conduct it s own review, in her view, during its October cluster of meetings
which were scheduled for the period of 21 October to 1 November.  She requested of Memberswhether this timing for the review was acceptable in principle.
32. The representative of the China read out paragraph 1 of Section 18 of China's Protocol
accession to refresh Members' memories of the specific wording of that paragraph.  She stated that
she was not in a position to comment on or to join a consensus concerning the timing of the review at
this meeting.  Preliminarily, she stated that in formal discussions were underway in Geneva on this
horizontal issue, and she hence preferred to wait until the results of those discussions had become
clear.
33. The representative of the United States concurred with the reasons set out by the Chairperson
and believed that the Council must review China's implementation during its October meeting.  To
facilitate that review China needed to provide releva nt information quickly for it to be translated and
circulated to Members well in advance of the meeting.  Members also needed to provide China with
questions soon so that China had an opportunity to reply far enough in advance to allow fortranslation and circulation.  He was of the view that  these questions could not be put off any longer if
the Council was to conduct a meaningful review at its October meeting.  He requested the Chair to
consult with China and other Members so that these details could be worked out in the next few days,
in particular in light of the impending August recess.
34. The representative of Canada stated that the transitional review mechanism was an important
provision of China's Accession Protocol that would maintain transparency and build confidence
among WTO Members that China's obligations would be met.  China had the opportunity during this
transitional review mechanism to give Members an appreciation of the large scope of its
implementation efforts.  He supported constructive measures to begin this process, and underscored
that it needed to be ensured, as the Chair and the delegation of the United States had indicated, thatsufficient time was available for the Services Council to conduct its review, as set out in Section 18 of
China's Protocol of Accession, and in order to report to the General Council in time for its December
meeting.  He therefore agreed with the Chair's sugg estion to begin the review in the Services Council
in October.
35. The representative of the European Communitie s noted that the issue had also been the
subject of recent consultations by the Chairman of the General Council.  As the last meeting of the
General Council was on 10-11 December, the only possibility left to conduct the review by theServices Council was during the October meeting.  He stressed that the transitional review mechanism
was an important exercise.  The review offered an occasion to achieve four objectives: (i) to ensure
transparency on the implementation of China's commitments;  (ii) to see how the transposition had
been done; (iii) to see whether difficulties had arisen in specific cases; and (iv) to see cases of success
in the implementation of the commitments by China.   There was no question of re-opening or going
beyond what had been agreed in the Protocol of Accession of China.  It was important that the Chair
consult with the Chinese delegation to work out the details of how the exercise should be conducted
and prepared in time for the October meeting.
36. The representative of Japan supported the statements made by the United States, Canada, and
the European Communities.  If the Services Council  were to have the review before the General
Council review in December, the only option would be to conduct the review in the Services Council
in October.  In order for the review to be constructive and fruitful, the delegation of Japan felt that
certain procedural arrangements needed to be made  before the October meeting.  He requested the
Chair to consult regarding the arrangements so th at Members knew well in advance of the October
meeting how to proceed with the review process.S/C/M/61
Page 8
37. The representative of China stated that she had taken note of the statements made and would
report them to her authorities.  She welcomed and was open to any consultations.  Responding to a
query by the Chairperson concerning a possible indication as to when documentation could be
available for any possible review meeting in October, the representative of China stated that thenotification of documents and procedures were item s that were subject to horizontal discussions.
38. The Chairperson stated that the Services Council had an obligation to carry out the review
before the end of the year and report in a meanin gful way to the General Council for its review on
10 and 11 December.  If the Council was to discharge its responsibilities, it would need to carry out its
own review in the October-November cluster of meetings, i.e. between 21 October and 1 November.
In order to prepare for that meeting delegations needed to have some sense as to whether or not the
review was to take place at that time.  She took note of the statement by the Chinese representative
that China was anxious to comply with its obligations in this regard.  She suggested holdingconsultations with the delegation of China before the end of the week and hoped to inform Members
of the Council of the outcome of these consultations before 1 August.
39. The Council so agreed.
__________