RESTRICTEDWORLD TRADE
ORGANIZATIONS/C/M/50
5 March 2001
(01-1060)
Council for Trade in Services
REPORT OF THE SECOND SESSION OF THE REVIEW MANDATED
UNDER PARAGRAPH 5 OF THE AIR TRANSPORT ANNEX
HELD ON 4 DECEMBER 2000
Note by the Secretariat
1. The Council for Trade in Services held a meeting on 4 December 2000 devoted to the Review
of Air Transport.  The agenda for the meeting is contained in document WTO/AIR/1452.
2. The Chairman proposed that the Council adopt the agenda as circulated.
3. The Council so agreed.
4. As an introduction the Chairman asked the Secretariat to recall the negotiating history of the
Annex and the basic principles of the GATS.
5. The Secretariat recalled that the origins of this  review lay in an understanding reached in the
Uruguay Round when it was agreed to exclude traffic rights and all services related to them from the
coverage of the Agreement.  It was then also ag reed that this exclusion from coverage, which was
unique among service sectors, should be reviewed after five years "with a view to considering the
possible further application of the Agreement in this sector".  The existence of a complex structure of
bilateral agreements on air services which many Members want to retain, was the main rationale of
the exclusion.
6. The drafting of the Annex created a problem of interpretation since it indicated that traffic
rights and services directly related to the exercise of traffic rights were excluded from coverage, butthen went on to specifically include three services  as if they were an exception from the exclusion of
traffic rights.  But the relationship with hard rights of, for instance, repair and maintenance, which
was specifically defined as relating to aircraft which are removed from service, appeared very remote.
This ambiguity perhaps accounted for the fact that some Members had taken commitments outside the
three services specifically included.  The absence of a definition of what constitutes a service directlyrelated to traffic rights posed a question as to the real coverage of the Agreement.
7. It should be noted also that certain difficulties inherent in traffic rights, such as the allocation
of scarce resources like landing slots, are hard to fit into a structure based on the MFN principle but
not impossible to reconcile, as shown by the examples of banking licences and radio frequencies.
Trade law was about opportunity, not about outcomes, so the MFN problem related to the criteria bywhich scarce resources were allocated.  On the other hand, there were many large and important
businesses in the air transport context which would seem to have little or nothing to do with the
exercise of traffic rights and where it would appear that competition and investment could be
valuable.S/C/M/50
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8. So it seemed that the review should have two purposes, the first being to clarify what
Members understand the present coverage of the Agreement to be, bearing in mind that some
commitments already go beyond the three specifically included services, and the second to decide
whether Members want to maintain the current exclusion of traffic rights and all services directly
related to them.
9. In considering these questions it should be borne in mind that coverage by the Agreement did
not necessarily imply liberalization.  A service could be covered by the Agreement and Members
were totally free, as in all other services, to decide whether or not they wanted to make commitments
on it.  Nor did coverage by the Agreement imply deregulation.  The grant of a commitment to provide
a service was a grant of a right to supply it subject to whatever regulations were in force.  It did not
carry any implication that regulations would be changed to facilitate foreign participation and a
fortiori  it had no implications for safety.  Hence any suggestion that the WTO would take over the
functions of other organizations in relation to safety was wholly erroneous.
I. EXAMINATION OF THE DEVELOPMENTS IN THE SECTOR
10. The Chairman opened the floor on item 2A of the agenda "developments in the sector" and
asked delegations to introduce their new submissions or to make general statements.
11. Australia indicated that over the past year or so, it had been active in a number of forums
looking at alternatives to the bilateral system.  In both the plurilateral discussions arising from APEC
for example and in the OECD work on a multilateral air freight agreement, drafters had struggled to
translate the bilateral mechanism into a multilateral context.  From Australia's perspective, the benefit
of the bilateral system was not in the mechanism its elf but in the control it gives to governments over
the pace and direction of liberalizing access to their aviation markets.  While Australia hadenthusiastically supported regional and plurilateral agreements and sectorally specific multilateral
agreements as important opportunities for liberalizing international aviation, they did represent a loss
of control over the pace and direction of liberalization that made the bilateral system so attractive.
They were therefore not the perfect option for liberalization.  Australia's concern was to ensure that,
no matter what mechanism would eventually replace the bilateral system, it could be used to maintaincontrol of the pace and direction of liberalizing access to aviation markets.  From Australia's
perspective the GATS was the only mechanism beyond the bilateral system that allowed its Members
to do this and it was for this reason that Austra lia was interested in exploring the possibility of
extending the coverage of this Annex.
12. The representative of ICAO introduced its document Job No. 7769, dated 30 November 2000.
He indicated that ICAO had produced this document under the item "developments in the sector"
because there had been a lot of very recent developments in ICAO which should be drawn to theattention of the Council.  ICAO was very actively involved in a number of the issues of the air
transport review and had produced policy guidance in certain areas on market access, regulation of
capacity and tariffs, broadened criteria for airline ownership and control, leasing of aircraft, computer
reservation systems, etc.
13. Following a worldwide conference in June 2000, ICAO had also revised its policies on the
economic regulation of airport and air navigation services to reflect a more commercial approach
while guarding against potential abuse of monopoly.  This work had been circulated to Members by
the WTO Secretariat in S/C/W/188.  With regard to the issue of the single or dual till for airport
revenues, mentioned as a major and difficult issue by the WTO Secretariat document, ICAO was
pleased to indicate that it had managed to reach an agreement with Airports Council International andIATA and that the revised policies would include an amendment to that particular issue.  ICAO also
noted in its paper a growing convergence of econom ic safety, security, liability and environmental
issues and was concerned by the simultaneous tendency towards diverging regulations.  For instanceS/C/M/50
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in ground handling, liberalization is proceeding at a great pace and this has raised a number of safety
concerns.  That is why the ICAO air navigation comm ission had just decided that there was a need to
introduce new aviation standards for ground handling.  This was a good example of the inter-
relationship of the economic and the safety aspects.
14. ICAO had just been given a mandate by its Members to intensify its efforts in the field of
economic regulation and was therefore preparing a broad programme dealing with a wide variety of
aspects of air transport liberalization, including:  a comprehensive study on ownership and control,
which is already underway;  a re-examination of market access issues with emphasis on traffic rights;
designation of carriers;  capacity and airport access;  a review of earlier work on tariff regulation;
product distribution; conditions of carriage and competition law;  an analysis of safeguard measures
for the sustainability of air carriers and to ensure the participation of developing countries.  In this
exercise ICAO intended to check all this work against three basic WTO criteria:  MFN, nationaltreatment and transparency.  ICAO was also developing a template air services agreement for
liberalization.  ICAO shared the concern expressed by Australia about the different forms that
regional liberalization was taking and the potential for the establishment of blocs which could only be
joined on conditions that had already been established by the bloc.  Finally, the ICAO representative
indicated that the ICAO Council had just decided that ICAO should convene a worldwide meeting ofICAO contracting States in the form of a conference to address issues and policy options in the field
of air transport regulation.  A decision regarding the timing and actual coverage of that meeting will
be taken in the next couple of months.
15. As indicated in its paper, ICAO wished to cont inue to share its expertise with WTO Members
and the Secretariat and to participate actively in future work, notably on the classification ofinternational air transport activities.  ICAO regarded its work and the work of the WTO in this field as
complementary rather than competitive, but wa s concerned however to avoid duplication.  ICAO
intended to continue to play an active role in purs uit of safeguarded liberalization of international air
transport.  Its paramount objective was to ensure that safety was not compromised by economic
considerations and consequently that safety and economic regulation were not treated in isolation.
16. The Chairman asked the Secretariat to report on the state of preparation of the documentation
for the review.  The Secretariat indicated that in addition to the documentation made available for this
meeting (document S/C/W/163/Add.1 and 2) it was planning to provide four further papers in order to
cover the remaining item (n)) of document Job No. 2451 "Commercial Air Transport Services".  The
first paper will deal with the various elements of bilateral air services agreements on such things as
routes, capacity, tariffs and designation.  The second paper will deal with ownership and cooperation
among airlines, including alliances and codesharing.  The third will deal with slot allocation, and thefourth will deal with specific subsectors, including non-scheduled services, cargo services and
multimodal operations.  Those papers will be produced one at a time and therefore will need several
months of elaboration if they are to be provided with the same degree of detail as the preceding ones.
17. The Chairman opened the discussion on the documentation item by item starting with
fuelling.  As an introduction the Secretariat indicated that the detailed study of this subsector seemed
to show, notably in classification terms, that the link with hard rights was extremely thin, mainly
because those services were also delivered to planes not flying under a hard right regime (general
aviation, the military), and were not part of bilateral agreements or conditioned by the holding of
traffic rights.  Switzerland indicated that, in its view, this service was generally considered as part of
ground handling services, as indicated by the Secretariat and should therefore be dealt with in this
context.
18. On ground handling, the Secretariat  indicated that it had tried first to give a definition which
had proved difficult as there were several definitions and several criteria possible.  For instance, one
could distinguish by the type of provider, be it self handling, mutual handling, third-party handling, orS/C/M/50
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handling by the airport itself.  One could also distinguish by the type of operation:  air side and land
side, administrative side and operational side, full service and specialised service.  After careful
consideration it appeared that among all these classifications, the one which was the most operative
for possible classification and scheduling purposes was the classification made by the IATA
International Ground Handling Council (IGHC) which divided ground handling into 14 subsectors.The definition of those subsectors as well as their possible CPC correspondence can be found in
table 2, page 8 of document S/C/W/163/Add.1.  Those correspondences were in many instances not
air transport services items but many other kinds of services, for instance security, land transport or
catering.  The remaining correspondences were air transport-related items and not pure air transport in
CPC classification terms, which means nothing in legal terms, but which was however something
interesting to note.
19. The Secretariat had attempted, in its paper, to describe the evolution of the sector between
1993 and 1999.  Considerable changes had taken place during this period both in regulatory and in
economic terms.  In regulatory terms, the most  important movement had been the EU's internal
liberalization; until the mid-90s only the US market was really liberalized and open to foreigners.
Detailed data on the degree of liberalization were available for all major airports of the world, thanks
to IATA.  The detailed study of this data showed that the ground handling market had only reallyemerged over the last 10 years.  From a business operated mainly by airlines on their own account or
by airports it had become a business in its own right, operated by spin-off airline subsidiaries working
for other airlines or by independent handlers.  Although detailed regulatory data were lacking, it
appeared clearly that there was competition all over the world, except to a certain extent in the Middle
East and Africa.  This considerable degree of liberalization was not bound under the GATS, exceptfor a few Members that had taken commitments in ground handling.
20. On ground handling and fuelling the European Communities underlined the fact that this part
of the industry had become a business in its own right and that liberalization, notably through the
possibility of self handling and third-party handling, had become a common feature.  One of the tasks
of the review was to clarify the existing scope of the GATS.  It appeared to the Community thatground handling services were already covered by the GATS since they did not affect the rights of
Members to distribute traffic rights, or the right of air carriers to use them.  In the European
Communities' view, there was no longer a link between air traffic rights and ground handling.
Liberalizing ground handling would simply promote the efficient use of the existing traffic rights that
were already in the possession of air carriers.  In addition, where so-called self handling by airlines
was permitted for certain services, the European Communities were of the opinion that this possibility
should be available to all individual airlines on a neutral, transparent and non-discriminatory basis.Therefore the GATS coverage should be confirmed for those services in a detailed manner.  To be
more precise, those services were the following:
- first the four subsectors which were related to the handling of cargoes and passengers:
- passenger handling, i.e. assisting the arrival, departure and transfer of passengers;
- baggage handling;
- freight and mail handling;  and
- ramp handling, i.e. the marshalling and moving of aircraft, loading and unloading the
aircraft, the transport of passengers, freight and supplies into the terminals.
21. A second category of service subsectors in fact dealt with the aircraft itself, and they were:
- aircraft services, i.e cleaning the aircraft, heating and cooling, removal of snow and
ice;
- fuel and oil handling;S/C/M/50
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- aircraft maintenance (already covered specifically by the Annex);
- flight operations and crew administration, that is all the preparation of the flight, in-
flight and post-flight assistance;
- catering services, i.e. the administration, storage, preparation and delivery of food
supplies;  and
- ground administration.
22. New Zealand indicated that it fully agreed with the position expressed by the European
Communities and that the examination of the documentation prepared by the Secretariat had
reinforced its opinion that ground handling services were not directly related to traffic rights.
23. Australia expressed its support for the positions of the European Communities and New
Zealand.  Australia's ground handling standard clause for bilateral air services agreements provided
for both self handling and third-party administration.  In answer to a question posed by Australia, the
Secretariat confirmed the existence of a greater tendency towards liberalization in the area of cargo
handling notably because of fewer constraints on slots and of the emergence of globalized logisticscompanies including all multimodal aspects of transport, logistics, ground handling, freight
forwarding, express delivery and courier services.
24. Turkey stated that it was in favour of including ground handling in the scope of the
Agreement.
25. Canada indicated it had come to the conclusion that ground handling services, in general,
needed to be considered as services directly rela ted to traffic rights and therefore subject to the
exclusion of the Air Transport Annex.  That did not entirely exclude all those services which aresubitems under the item of ground handling services.  But these were services which were mentioned
in other parts of the WTO Secretariat's paper, areas such as catering services, airport management
services, and cleaning and disinfecting, as being a part of "any other supporting services".  Canada
considered these services not to be directly related to traffic rights and therefore possibly to be
included within services now covered by the GATS.  This position was expressed without prejudice toany positions that Canada might take in the future with respect to negotiations.
26. As a general comment the US indicated that they considered it useful to hear Members' views
on the coverage of the Annex but cautioned that, as a legal matter, the Council for Trade in Services
meeting for the purpose of the review did not have  the authority to reach conclusions regarding any
interpretation of the Annex.  On ground handling, the US recalled that ground handling had been
extensively discussed in the Uruguay Round talks in which the Air Annex was framed, and that therehad been a great deal of discussion about whether ground handling should be covered.  But there hadnever been any question that it was directly related to the exercise of traffic rights because without the
possibility to either perform or secure ground handling, traffic rights could simply not be exercised.
27. As mentioned by the Secretariat in its general introduction the main rationale behind the
exclusion of the Annex was to exclude services which were covered by bilateral agreements.  The
Secretariat documents dealt with items covered by the bilateral agreements such as wet leasing or
ground handling.  For ground handling, 80 of the 100 or so US bilateral agreements included ground
handling provisions which implied that all bilateral partners, and in fact many more Members, were in
the same situation.  The most recent interventions and papers suggested that because ground handling
had been liberalized and because it was performed by parties other than airlines, it was perhaps no
longer directly related to traffic rights.  This was a confusion between the service and the provider ofthe service, and it was the US understanding that coverage was determined by the characteristics of
the service itself and not by who provided it.  So for all these reasons, the US believed, as did Canada,
that for the most part the services that were within ground handling were directly related to traffic
rights, in that traffic rights could not be exercised without the provision of those services.S/C/M/50
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28. Brazil indicated it considered ground handling to be a service directly related to traffic rights
and therefore excluded from the coverage of the agreement.  Brazil shared the US' views that the
review should not involve interpre tation of the agreement, since this was a matter for negotiation.  El
Salvador noted that the interpretation problem arose from the absence of a definition of what
constituted a service related to traffic rights.  This needed to be clarified.
29. Hong Kong, China indicated that its airport authority was a statutory body owned by the
government which, amongst other things, was required to conduct its business according to prudent
commercial principles.  There were consequently different providers in many areas of ground
handling and those providers were selected and given a franchise through a tender procedure.
Discussions had already taken place in another forum about what franchises might mean in the
context of government procurement.  However, if competition is clearly an objective, there is a need
for allocation by some sort of franchise arrangement since for technical and safety reasons this couldnot be a free for all system.  Hong Kong, China inquired about the opinion of other Members on this
point.
30. Hong Kong, China suggested that there were basically two positions being expressed by
Members:  those like the EU, Australia and New Zealand, arguing that ground handling was already
included in the  scope of the GATS, and those like the United States, Canada and Brazil who
considered that ground handling was related to traffic rights and therefore excluded.  On substance
Hong Kong, China was leaning towards the view of the EU.  But on procedure Hong Kong thought
that an explicit decision was needed on what was directly related to the exercise of air traffic rights.
In that respect Hong Kong, China was puzzled by the comment made by the US and echoed by Brazil,
that a decision on this matter was not something that this Body could take.  If the CTS in SpecialSession could not make this decision under paragraph 5 of the Annex, which body could make the
decision?
31. The Dominican Republic expressed its support for the views of Hong Kong, China.  Ground
handling services were essential facilities for tourism.  There were many examples where ground
handling services were owned by the air transpor t company that had a dominant position in airports
that are essential for connections to important tour istic destinations.  This made it possible for the
dominant carrier  to discriminate against any airline that may come in and compete and supply services
for connections to tourist destinations.  The case was similar to telecommunications, when the
dominant service provider used the transmission network to prevent interconnection by new
companies wishing to have effective market access which should be possible as a result of
liberalization commitments or domestic reform commitments. Transport and traffic rights are not
currently included in the coverage of the GATS, but in the final analysis it is of fundamental
importance to find a way to avoid having this exclusion result in a discrimination against countries
which depend on tourism to increase their share in trade in services. This very important issue affects
a large number of developing countries but it could also affect developed countries that require
connections in the larger airports.  Due account of this point should be taken when the time comes to
make a decision on the scope of the exclusion of hard rights.
32. Morocco considered that ground handling services were directly linked to air traffic rights and
thus excluded from the GATS. Members should not reach any definitive conclusions on this matter
because it was a matter of negotiation and should be kept separate from the review.
33. Australia inquired about the procedures applicable and the bodies competent for an
amendment or interpretation of the Annex.
34. The European Communities indicated that it had liberalized ground handling through a
directive applicable as of 2001, which provided for more competition through the opening up of the
ground handling market to third parties, and at the same time giving airlines the freedom toS/C/M/50
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self-handle.  The directive recognized that there was a question of allocation of scarce resources, but
this is something well known in the GATS, as s hown by the telecommunications area.  The GATS is
perfectly able to deal with a lack of capacity and space, so there was no contradiction between
opening up to competition and managing scarce resources.
35. On procedures the European Communities recalled that the ongoing negotiations already
covered the three explicitly covered services.  In addition, some Members believed that ground
handling in particular was covered by the GATS.  Some Members had even undertaken commitments
on these services.  So the question arose as to how to fit those elements into the ongoing negotiations.
36. The European Communities challenged as reductive the view expressed by the United States
that ground handling was related to traffic rights because it was needed to exercise the traffic rights.
This was true also for runways, passengers, maintenance, etc.  The key question that had been
identified by many Members was really whether ground handling was related or not to traffic rightsand on this, clearly, there was a need to pursue reflection and work.  In that respect the position
expressed by Canada, that part of ground handling services, like cleaning and disinfection or aircraft
fuelling, would in fact already be covered by GATS, indicated that there was much further work to
do.
37. Switzerland supported the views expressed by the European Communities on the coverage by
the actual scope of the GATS of ground handling services.  Physical constraints and limitations that
were linked to safety and security issues were an important question.  Switzerland understood that
Members were entirely free to impose any restrictions deriving from elements of safety and security
on a non-discriminatory basis.
38. Mexico supported the view of Brazil, US, Canada and Morocco that the Council was not
entitled, nor able to interpret what was and was not covered by the Annex.  Paragraph 5 authorized a
discussion of the possibility of extending the Annex and at this time, Mexico was not ready to do so.
However, interpreting legal texts did not fall within the competence of the Council.  This exercise was
purely educational and a simple exchange of information amongst Members.  Mexico remained open
to hear comments and positions on air transport expressed in the Council for Trade in Services, butMexico's policy was to give specific, case-by-case treatment to the topic of air transport with each one
of the WTO Member States concerned.  Thus, Mexico considered it would not be appropriate to
extend the Annex, nor to enter into a process of deciding what was or what was not covered in the
Annex.
39. Chile agreed with delegations who had stated that ground handling services included a
number of services that still remain to be defined and that there was a need to determine whether or
not they were directly related to air traffic rights.  Many of them were not directly related to air trafficrights and therefore should be covered under the GATS.
40. New Zealand agreed with Hong Kong, China that paragraph 5 set out the tasks for the
Members.  New Zealand fully recognized that Article IX.2 of the Marrakesh Agreement contained
provisions on the interpretation of the WTO agreements but noted that it was also up to Members
themselves, individually and collectively, to interpret the agreements.  In that regard, New Zealandviewed ground handling services as not being directly related to the exercise of traffic rights.
Paragraph 2(b) of the Annex provided some guidance as to the perimeters for this exclusion:  it
stipulated that the services in question had to be directly related to the exercise of traffic rights.  This
implied that the supply of such services necessitated the holding of designated traffic rights.
41. The Chairman then opened the floor on airport services
.  As an introduction, the Secretariat
indicated that the paper was divided in two.  The first part described how the airport business has
evolved.  The second part was about the charging system on which there are complex internationalS/C/M/50
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rules established by ICAO and implying MFN, national treatment and a relation to costs.  Those
provisions were not unlike certain GATS provisions such as access to/use of infrastructures in
maritime transport or on cost-orientation in the telecom Annex, or interconnection obligations in the
reference paper.  Hence the Secretariat had thought that it was worth describing these in detail.
42. The Secretariat had also tried to give a definition of airport services and had been greatly
helped in that respect by ICAO work.  This classification and possible CPC correspondences were
reproduced in page 30-35 of document S/C/W/163/A dd.1.  The conclusions that could be drawn from
the examination of the correspondences were similar to those on ground handling.  There were many
services which appeared in other parts of the CPC than the air transport section.
43. The paper then tried to describe the US$40 billion airport business and its recent evolution.
In the past airports were clearly public utilities, government-owned, served by civil servants and
financed by the States.  Now this is progressively changing, with more and more private airports orprivately managed airports, or semi-autonomous ai rports (still government-owned, but managed
commercially). The paper also described other significant evolutions such as for instance, airport
grouping, the hub and spoke system, the development of secondary hubs, the development of low-cost
airports, the impact of new technologies, environmental constraints and also what may happen with
the big planes of the future like the A380 or the stretched 747.  The second part described the ICAOcharging system and its similarities and differences from comparable WTO provisions.  There were
essentially two differences:  on the one hand, the ICAO provisions were less binding as there was
only a moral obligation on States to apply it.  On the other hand, it was much more detailed than the
GATS provisions.
44. Australia indicated it had undertaken one of the most comprehensive airport privatizations:
all of the major international, interstate and general aviation airports owned by the Australian
government will have been leased to the private sector by the time the programme has been
completed.  The Australian government in June 1997 sold 50-year leases with an option of a further
49 years for 3 of Australia's major airports, Melbourne, Perth and Brisbane, and the new owners took
over the operation of those airports on 2 July 1997.  As a second phase, Australia leased or soldanother 10 regular public air transport airports and a further four general aviation aerodromes as well,
leaving only the Sydney basin airports unleased.  Th e sale or the lease of those Sydney-basin airports
will only take place after the completion of an envir onmental assessment of options for the site of the
second Sydney airport and the resolution of the inevitable noise issues associated with airports.
However, to ensure that Sydney airport is able to compete effectively with the privatized airports, the
government corporatized the remaining federal ai rports in July 1998.  While these will remain in
public ownership, they operate on a fully commercial basis and under the same regulatory regime asprivate airports.  The programme has resulted in th e complete restructuring of the airport business in
Australia, creating a privately-owned, commerci ally driven competitive industry to replace a
publicly-owned airport network.  It has also m eant the establishment of a complete regulatory
framework under which the airports can operate and the application of a consistent set of environment
and planning requirements to ensure that the public interest is fully protected. It also included apricing policy which enabled airport users to share the expected productivity gains from the airports
and the achievement of substantial sales proceeds for the government.  The airports are leased for
50 years.  The majority of Australian air ownership is guaranteed and there are limits on airline
ownership of airports.  Most importantly the government has also ensured that the old public sector
monopoly was not replaced by a private sector monopoly by including provisions guaranteeing
diversity of ownership.  Airport users were obtaining real reductions in aeronautical charges through a
price cap on charges set for individual airports.  Control of airport planning and development
remained with the government as an overall regulatory function.  The airports will continue to be
subject to existing government controls relating  to safety curfews, security and environmental
assessment of competition policy.  Finally the Ai rport Act provided for open access to all airport
users.S/C/M/50
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45. The European Communities noted that ICAO's chargi ng system was in fact very similar to the
WTO principles, involving MFN, national treatment and transparency, and that it was less binding.
One could even talk of a convergence between ICAO's work and the WTO founding principles. If
there was a step to make to decide that airport se rvices are within the disciplines of GATS the step
would not be big, and one should look closely at this convergence and similarities.  The EuropeanCommunities noted also that many airport services, were  not related to traffic rights and not even
related to air transport.  That was the case for instance of:  security, fire fighting, meteorology,
restaurants and bars, duty free shops, automobile parking and rentals.  This would have to be taken
into account in future discussions.
46. New Zealand indicated that the examination of table 2 and 13 of the Secretariat document had
reinforced its view that, in general, airport services  could not be seen to be directly related to the
exercise of traffic rights.  With regard to the question of scarce resources, safety and environmentalconcerns, New Zealand saw the GATS framework as being complementary to structures of other
international organizations and national governments as it provided sufficient flexibility to
accommodate those regimes.
47. Canada indicated that it had a system of airports operated under local charters, administered
by local airport authorities under the regulation of the federal government.  The federal government
was the owner of the airport but not the operator.  These locally-operated airports were able to
function in a more commercial and cost-efficient manner and were more responsive to local needs.
These airports were operated under federal regulation and federal authority and were therefore a
service provided in the exercise of governmental authority.  However, Canada considered that airport
management services, i.e. services that were provided to the airport or contracted out by the authorityof the airport to companies, could be considered to be  services not directly related to traffic rights and
therefore subject to the GATS.
48. The Chairman then opened the floor on air navigation services
.  As an introduction, the
Secretariat explained that it had tried to give a definition and to provide some classification elements.
In this case, the CPC had not been of great help because it only covered a small part of air navigation
services are defined by ICAO.  ICAO had made a very detailed and complex classification which
appeared in pages 6-9 of document S/C/W/163/Add.1. This ICAO classification was being revised to
reflect technological evolution and to include CNS (Communications Navigation Surveillance) and
ATM (Air Traffic Management), that is to say the use of satellite communication to manage the whole
air navigation system.
49. The description of air navigation services themselves showed a series of complex problems or
features.  Air navigation is very closely linked to safety and even more so to the policing of thetraffic.  The air controller ensured that the rules we re abided by. The service appeared to be provided
on a natural monopoly basis.  However this natural monopoly could be either bundled (all the aspects
of air navigation services provided by one supplier) or unbundled (each aspect of the service delivered
by a different provider in a monopoly situation on its segment).  Another element was that
governmental and private suppliers were coexisting with international public suppliers.  Across theocean for instance, there were many forms of intergovernmental cooperation.  There were both police
and management functions, and the borderline between  them was somewhat difficult to draw.  The
administrative or commercial nature of the fee collected was another difficult question.  The main
problem appeared clearly to be congestion.  In order to alleviate congestion constant investment was
needed.  Hence a growing tendency to try to have those investments financed by the private sector, orat least financed by sources other than the regular budget of the State.  Hence also attempts to reform,
for instance to separate regulatory functions from administrative functions or to find institutional ways
to make the service more commercially responsive.  This had had some bearing on ownership. There
was only one case in which it was foreseen to privatize air navigation services (UK NATS) and to
open them up to foreign ownership.  In about 40 countries there were, technically speaking, someS/C/M/50
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private bodies but they were all government-owned and there was no foreign ownership.  Still there
was clearly a move towards more commercial consideration.  As for airports, ICAO had devised a
complex charging system which had the same principles as for airports (MFN, national treatment,
transparency) and the same legal structure (a general binding article in the Chicago Convention and
less binding and more detailed rules).
50. The European Communities acknowledged that the question of air navigation services was a
difficult one.  There were some points on which further clarification was needed.  Safety and police
preoccupations clearly had to prevail.  The natural monopoly situation and the existence of only one
planned true privatization were also facts to be considered.  But these elements had to be reconciled
with other aspects.  In particular, the fact that the aim of the review, that is to say the clarification of
the scope of the Annex and of the relationship of a given service with traffic rights, applied also to air
navigation services.  Based on the Secretariat documents, the European Communities did not haveenough material to make that decision.  So the European Communities inquired if it was possible to
receive much more focused documentation on this question.  A distinction should be made between
those services which were directly related to the exercise of traffic rights and the others.  With regard
to the point made by Canada regarding the application of Article I of the GATS, it would be very
useful to have more clarity about whether or not there was a possible exclusion under the argumentthat these services may be provided in the exercise of governmental authority.  The European
Communities thought, for their part, that these services were not provided in the exercise of
governmental authority and did not fall under Article I of the GATS, but would appreciate more
clarity on that and more material to make a decision on that point.
51. Hong Kong, China,  indicated it  would be interested in discussing further whether the various
elements of air navigation services fell under paragraph 2 or potentially paragraph 3 of the Annex.
The question of supply and the exercise of governmental authority seemed to be more a question of
fact.  Hence it could vary between different countries.
52. Canada indicated that it had come to the preliminary conclusion that air navigation services
were services supplied in the exercise of governmental authority and were therefore, at least from
Canada's perspective, not covered by the GATS.  A conclusion on whether this was a service directly
related to traffic rights, was not necessary for Canada since this was a service supplied in the exercise
of governmental authority.
53. The Chairman then opened the floor on general aviation services .  As an introduction the
Secretariat indicated that this sector grouped three main types of activities;  air taxi, aerial work and
fractional ownership management services.  This latter type of service was a new one and growing
exponentially in developed countries. The Secretariat had attempted to provide elements ofclassification and correspondences with CPC. The study of the sector showed that its regulatory
structure was somewhat similar to that of commercial aviation (civil aviation ministries, licensing
regimes) but that its economic importance (as many hours flown as commercial aviation and twice the
number of pilots employed) was generally ignored or underestimated.
54. El Salvador inquired on the relationship between general aviation and the scope of the Annex
as defined in paragraph 1 ("measures affecting trade in air transport services, whether scheduled or
non-scheduled and ancillary services").  The Secretariat answered that air taxi was clearly a form of
non-scheduled air transport service.  For aerial work and fractional ownership management services it
could effectively be argued that they were not air transport activities nor even ancillary ones since the
correspondences with CPC were with non-air transport items.  However, it was not up to theSecretariat to make such a judgement and in addi tion the regulatory structures (licencing regime,
aviation authorities) were similar.  That was why, for the sake of completeness and also to draw the
attention of the Members to the economic importance of the sector and the value of commitments on
it, the Secretariat had included all aspects of general aviation in its preparatory documentation.S/C/M/50
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55. The United States stated that air taxis provided on one's own account were not covered by the
GATS, and that air taxi services provided for compensation or for hire were covered by the exclusion
of traffic rights under paragraph 6(b) of the Annex.  Those services were covered by US bilateral
agreements with adjacent countries.
56. Returning to airport services and air traffic control services , Australia  noted the similarity
between certain GATS provisions such as the telecommunications reference paper and the telecom
Annex and the principles set out in Article 15 of the Chicago Convention.  For example, Article 15 of
the Chicago Convention provided that uniform conditions should apply to the use of airport and air
navigation facilities in the contracting State by all other contracting States, in other words MFN, and
that charges imposed by a contracting State for the use of such airports or air navigation facilities
should not be higher for aircraft of other contracting States than those paid for by its national aircraft
engaged in similar international operations, or in other words national treatment.
57. Cuba was of the view that a more complete review was required in order to have clearer
definitions of those services that were already included in the GATS.  There is also a need to clarify
aspects relating to classification, which were still creating a number of difficulties.  There were two
fundamental issues, to be settled before Members could turn to considering the inclusion of  any new
services under the Annex.  Cuba had questions on the idea mentioned in the Australian paper that thereview would not imply any obligations on Member s.  However, with regard to MFN on items
already covered, Cuba was in favour of eliminating MFN exemptions.  For instance Cuban airlines, at
present, did not have access to the largest computerized reservation services, such as Sabre and
Galileo.  For Cuba, ICAO must remain the internat ional, multilateral forum to cover air transport
services.
58. El Salvador insisted on the need to clarify the actual coverage of the Annex.  In that respect
some delegations had referred to some differences of  interpretation  and that showed the need to have
this question discussed in further detail.
59. The Chairman underlined that it was up to Members, not the Secretariat, to establish or clarify
definitions.
60. On general aviation services, New Zealand  found the Secretariat analysis extremely useful
and clarified that its contribution did not address this question because this was a small sector of New
Zealand's economy.  The examination of table 11,  page 41 of document S/C/W/163/Add.2 confirmed
New Zealand's opinion that general aviation fell within the scope of the GATS as it was currently
drafted because it was not directly related to the exercise of air traffic rights.  New Zealand noted also
that there were numerous general aviation services with an agricultural focus, which made it very
important for New Zealand and others.  The same went for scenic flights and the relationship that thisactivity had with tourism.
61. The European Communities supported this position.  Table 11 in particular was very useful in
examining the issue.  One had to be careful not to confuse on the one hand the operating licence, and
on the other hand the traffic right, which are two completely different concepts. This was why the
European Communities thought that the general aviation services listed in table 11 did not correspondto any of the traffic rights in the sense of the Annex.  Some of these services were in fact already
classified under business services, in particular photography, observation and some of the
construction work.  So duplication should be avoided.  There was indeed a grey area, concerning air
taxi or fractional ownership programmes and probably further reflection should be devoted to it as
there may be some links with the traffic rights.S/C/M/50
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62. El Salvador agreed that air taxi was a grey area and insisted that there were many other grey
areas on ancillary services and services not directly related to traffic rights that Members should
tackle.
63. The Chairman then opened the floor on general aspects of commercial air transport services .
As an introduction the Secretariat indicated that it had tried to describe in economic terms what had
happened in terms of traffic and financial trends, and region by region, with a specific accent on the
developing world because it is one of the rare areas where some detailed elements were available for
these countries.  The paper also contained elements on the evolution of employment.  It then
described the two main regulatory evolutions, privatization on the one hand and bilateral liberalization
and regional integration on the other.  In that respect the paper explained the content of the "open sky
agreements", gave a complete list of those agreemen ts and their main provisions, listed all countries
involved in liberal agreements to date and descri bed, with the help of ICAO, the main provisions of
the various regional agreements as well as those of the European liberalization.  Finally, it elaborated
on the draft transatlantic Common Aviation Area and on what was at the time the draft APEC
multilateral agreement.
64. The United States indicated that they had concluded four more open skies agreements with
Morocco, Rwanda, Malta and Benin in addition to those listed.
65. Brazil indicated that it did not consider the two agreements it maintained with Chile and New
Zealand to be classic open skies agreements.  These were extremely liberal agreements in certain
areas but the classic concept of an open skies agreement was much broader than those.
66. Japan indicated that the development in interna tional air transport services between Japan and
partner countries had been realized under a bilateral regime.  More liberalized aspects such as
multiplication of designated airlines, increase of access and frequency to domestic points in Japan,
and the extension of the codesharing arrangement had been achieved through bilateral negotiations.
In the course of bilateral negotiations, Japan's basic position was that competition should be promoted
while ensuring the benefit of consumers and fair competitive conditions.  With regard to the bilateral
relationship between Japan and the US, in 1998, Japan concluded some arrangements to secure equalopportunity for both countries' airlines.  Under this  agreement for incumbent airlines there were no
limitations in terms of routes and capacity.  Japan and the US had now started further consultations
with the aim of realizing sufficient liberalization.  Japan underlined that air services relationships were
highly limited because of the scarce resources of infrastructure.  Japan had a list of 33 countries who
wanted to serve Narita airport and were currently waiting  to conclude an agreement with Japan.
Another 15 countries had concluded air services agreements with Japan but were not allowed to
operate at Narita airport.  Finally Japan noted that the APEC plurilateral open sky arrangementbetween certain APEC economies, not including Japa n, was one of the measures used to implement
the eight APEC recommendations for more competitive air services on a voluntary basis by an APEC
economy, taking account of the diversity of each economy in areas such as market scale, geographic
characteristics and social and economic development in air services.
67. Uruguay thanked the Secretariat for its documentation in general, but noted that some of the
evolution described in the papers notably on aircraft repair and maintenance services, computer
reservations services and the selling and marketing  of air transport services only began to take place at
national level.  For Uruguay, in principle, the negotiations on air transport should remain at a bilateral
level and ICAO should be strengthened as the spec ialized forum in dealing with all the different
issues relating to commercial aviation.  As already stated in the first meeting Uruguay believed, likeothers, that in this particular case, this review was not a negotiation.  Finally if there were any doubts
as to the interpretation, it was clear that the agreement which established  the WTO, and in particular
Article IX, paragraph 2, stipulated that the competence for interpreting the WTO agreements residedS/C/M/50
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with the Ministerial Conference or the General Council and not in this particular body, as had been
suggested by some delegations.
68. The European Communities indicated that th ey were continuing their reflection on
liberalization and regional integration:  the four documents to be issued by the Secretariat would be
directly relevant to this question.  The European Communities shared the view expressed by Australiathat the bottom-up structure of the GATS allowed Members to decide individually to what extent they
accepted market opening.  The coverage of the GATS did not mean that Members had to make
commitments, it did not mean that they had to open their markets, it did not mean privatization, nor
did it mean deregulation.  The specific structure of GATS could well constitute an advantage for air
transport services including for the question of traffic rights.  In the GATS there is a possibility for
governments to make choices which are based on their national interest.  In the same way, progressive
liberalization under the GATS could be pursued in a controlled manner which was very relevant in thecontext of development and Article IV of the GATS.  So, the fact that under the GATS there was a
possibility of a phased approach for aviation reform which respects different development levels is
something that Members should indeed take into account.  It was clearly not a take-it or leave-it
approach, and that certainly differentiated it from the regional integration or the regional
liberalization.  That was why the Community found all the Australian observations in that regardparticularly interesting and relevant in the cont ext of this part of the Secretariat document.
69. After some clarifications given by the European Communities, Brazil indicated that it saw no
substantial differences between the concept of "conditional" MFN and the application of the principle
of reciprocity that has to date prevailed in the ICAO regulations.  Therefore this was a sort of reverse
reasoning to that of the one that was being applied by other delegations in the sense that there weresimilarities between ICAO and the WTO.  But Brazil remained attached to the classical, unconditional
MFN clause as far as the WTO was concerned.
70. On airport services, Colombia
 recognized that globalization had brought about more flexible
set-ups in most of the air transport-related economi c activities.  Colombia would therefore be in a
position to consider alternatives for progress towards greater liberalization in some of these activities.Specifically, it would be open to a discussion on ancillary services and all types of transport that are
related to air transport, particularly the ground handling related services.  Colombia would also be
willing to include rental and leasing services, as well as  catering services
, ground handling services
and other complementary services like cleaning and disinfection of aircraft in the Annex.  However,
regarding any remaining related activities that were described in the WTO Secretariat document 2459
regarding air traffic rights including rights, flight frequency, aircraft capacity, codesharing and so on,
Colombia wished to maintain these services outside the liberalization process in the WTO.  Therationale for that exclusion was the existence of an international scheme which had been set up around
the International Civil Aviation Organization (IC AO) which had made it possible for its Member
States to have an orderly and sure development of civil aviation with a legal structure, while
respecting the principle of sovereignty and showing adaptability to varying degrees of development of
the ICAO Member States.
71. New Zealand completed the Secretariat open skies agreement list by adding its agreements
with Luxembourg, Chile (yet to come into effect ), Peru (to be signed), and Samoa, the latter
agreement included an exchange of seventh freedom passenger rights which was relatively rare in
these agreements.  New Zealand also indicated that the Australian/New Zealand single aviation
market arrangement had recently been extended by removing the previous capacity cap on fifthfreedom services beyond the two countries.  New Zealand agreed with Brazil, that it would not be
reasonable to characterize the Brazil-New Zealand air services agreement as an open skies agreement,
as it still contained a capacity restriction.S/C/M/50
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72. Morocco stated that it had made specific commitments for market access of the sectors
covered by the Air Transport Annex.  The review of this Annex should not be assimilated to
negotiations, this was simply an opportunity for the various delegations to exchange their experiences
and views.  This exercise should also take into account the development dimension.  This Annex,
which entered into force in 1995, has not yet brought sufficient clarity as to a better understanding andclassification of the subsectors covered.  A prior procedure to an extension of the scope of the
Agreement would be to better define what is already contained in the Annex regarding selling and
marketing as well as leasing .  Another possibility would be to include the elimination of barriers to
trade and the discriminatory imposition of fees as well as constraints linked to providing slots.  As the
specialized UN agency for aviation, ICAO had drawn up a legal framework and shown its efficiency
in drawing up technical standards.  The prevailing dynamics seemed to be the growing intervention of
non-specialized agencies in air transport, but this could fragment the system on which air transportwas based thereby reducing the efficiency of mechanisms for the management of procedures and
standards which in the long run may harm safety and security standards drawn up by ICAO.
73. Because of the particular characteristics of this sector, the role of ICAO in air transport, on an
international level as well as economic regulation of international civil aviation, should be reaffirmed.
GATS has long term implications on ICAO and on air transport.  There must be a close and effectivecooperation between ICAO and the WTO, particularly to consider the scope of the present annex as
well as any possible implications of an extension of GATS to air transport services in conformity with
ICAO's own resolutions.
74. Under the pressure of international trade instit utions and certain regional initiatives, the idea
of including hard rights and related services in a multilateral regime has gained momentum.Liberalization of the world market was decisive in ensuring durable economic development.
However, one may question if the more appropriate framework for liberalization in this area is a
multilateral framework falling under a trade organization.  Could this framework respect the
compatibility of the principles of air transport with trade, particularly regarding reciprocity?  Would it
be possible to imagine arrangements other than multilateral ones which could provide for progressiveliberalization, thus ensuring sustainable participation of developing countries pursuant to ICAO
resolutions?  How can regulatory duplication be avoided if the Chicago Convention were to be
replaced by GATS rules when there is a conflict that such standards between two competing
regulatory systems?  What would be the linkage with commitments in areas such as distribution,
telecommunications and financial services?  How would GATS market access principles and national
treatment principles apply to traffic rights?  Is it possible to provide for an MFN exemption?  The so-
called conditional application of MFN would only make it applicable to those countries who hadaccepted liberal principles.  This would marginalize de facto other countries.  Even if a multilateral
framework could succeed, market access in industrialized countries would not be achieved since there
were invisible obstacles such as environmental restrictions and limitation of slots available in over-
burdened airports.  In the light of these elements how could a broader application of the scope of this
Annex be envisaged?
75. Another question was whether States are willing to include air traffic rights, and particularly
charter, freight and passenger activities in a general multilateral framework to push liberalization
forward in a more radical way, running the risk of putting this sector under severe pressure for
concessions in other activities and other sectors.  This would undoubtedly lead to compensation being
sought in other sectors, thus perhaps sacrificing air transport to other negotiations in other sectors.  Isthis the best framework to push progressive liberalization forward?  The difficulty would lie in the
implementation of a dual regime, multilateral and bilateral, not all States would be willing to take the
same commitments.  Nevertheless, the air transport sector was aware of the irreversibility of
liberalization and that liberalization will eventually lead to a multilateral framework.  However, the
need to have a progressive approach making it possible for effective participation of all air carriershad to be taken into account.  Morocco therefore considered that ICAO was the most appropriateS/C/M/50
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framework for consideration of all the economic and legal aspects of air transport.  This was
something that should not be entrusted to a multi lateral agency which is not specialized in air
transport.
76. Egypt indicated it had adopted a new and liberal approach to air transport.  However, it
underlined the regulatory and economic sensitivity a nd complexity relating to this sector;  and the
specific handling it required, even under the most favorable conditions, particularly in a developing
country.  Therefore Egypt shared the positions expressed by a number of delegations on the need for
extreme caution in looking into the clarification of the scope of the air transport annex and the
expansion of its coverage.
77. This did not prevent Egypt from progressively liberalizing the air transport sector.  For
instance since 1995, Egypt has undertaken a gradual liberalization of a number of air-transport-related
services, such as non-scheduled flights in and out of the majority of Egypt's international airports.Charter flight operations now enjoy a virtual "free sky" arrangement over Egypt.  In a further step
towards a more liberal regime, the Government of Egypt was formulating a long-term plan aiming at
gradually liberalizing scheduled flight operations.  On the other hand, and as part of regional
commitments within the Arab and African sphere s, Egypt had undertaken to liberalize a number of
services, such as ground services and air cargo.  There was no doubt that these will be a precursor to awider-ranging liberalization effort.  Finally, Egypt recalled the need for a more flexible approach to
developing and least-developed country needs in the review process.
78. On the question of the ability of the Council fo r Trade in Services to consider or decide on
matters emerging from the review, Hong Kong, China noted that paragraph 5 of the Annex states that
"the Council for Trade Services shall review … wi th a view to considering the possible further
application of the Agreement in this sector".  Hong Kong, China had assumed that this meant that
paragraph 3 could be expanded and if so, one would expect the CTS to consider and come to a view
on each one proposed.  Hong Kong, China had also thought that the CTS might have the authority to
decide on its own if the list in paragraph 3 of the Annex should be expanded and if so by what
measures.  After all, the list might be viewed as no more than a listing of a few service sectors.  Itwould be a strange situation if the WTO agreement had to be invoked every time Members wished to
add another sector to the list of sectors covered by the GATS.  Nevertheless, Hong Kong, China had
noted the comments of some Members about the relevance of the WTO agreement and would reflect
further on them.
II. OPERATION OF THE ANNEX
79. The Chairman opened the floor on agenda item 2B.  He recalled that there was no document
by the Secretariat on this item since the debate on the proposals made by the Secretariat in document
Job No. 2451, had not come to the conclusion that the Secretariat should prepare such a document.
However, there were enough elements in the various submissions by Members thus far on the
assessment of the functioning of the annex, to trigger and structure the debate.  The Chairman first
opened the floor for general comments.
80. The European Communities presented its communication S/C/W/168, which essentially dealt
with the question of the coverage of the annex.  They  reserved their right to come back with a further
submission on the question of traffic rights after having seen the new documents from the Secretariat.
The main issue was to try to clarify the scope and the fundamental question was really in fact whether
a precise definition could be given as to what was directly related to traffic rights. The European
Communities found three different categories of services for which it would be useful to reach anunderstanding.S/C/M/50
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81. The first category was the services which were specifically mentioned in the Annex as being
covered by the GATS, that is repair and maintenance, selling and marketing and computer reservation
systems.
82. The second category was constituted by all the facilitating services which were not
specifically mentioned in the Annex and these were essentially ground handling services, airportmanagement services, leasing or rental services concerning aircraft without operators and some
services which were auxiliary to all modes of trans port when delivered in an air transport context.  On
ground handling services, the European Communities repeated that they believed that the GATS
could be considered to cover ground handling without affecting the right of Members to distribute
traffic rights or the right of air carriers to use them.  Liberalizing ground handling was simply
promoting the efficient use of the existing traffic rights that were already in the possession of air
carriers.
83. The third category was constituted by a number of other services for which the discussion
should continue, because these were services which seemed to overlap to some extent with the
exercise of traffic rights or which touched on sensitive issues, but on which Members should reflect
on whether or not some coverage by the Agreement is appropriate.  This was the case of franchising
and wet leasing, on which the European Communities would come back at a later stage with a furthersubmission.  Finally they reiterated that safety, security and employment were important elements to
be taken into account in any discussion on air transport, including on the issue of ground handling.
84. New Zealand introduced its submission S/C/W/ 185.  New Zealand only expected preliminary
comments.  The air transport sector constituted an anomaly under the GATS.  It was, after all, the
only services sector subject to specific sectoral exclusions from the GATS.  New Zealand fullyrecognized that this situation had grown out of the dilemma of reconciling the practice of bilateral
reciprocity which had traditionally dominated air services negotiations with the MFN principle
underlying the multilateral trading system, however it noted that this dilemma was not unique to air
transport services.  The uniqueness and regulatory specificity of the sector making it unfit for the
WTO was to a certain extent a myth.  The GATS framework provided a flexible mechanism capableof accommodating the regulatory challenges of any se rvices sector, including air transport.  Indeed,
many of the regulatory concerns traditionally addressed in bilateral air services agreements found
close parallels in existing GATS provisions or other elements of the multilateral trading system and
New Zealand's paper explored such parallels.  It also recalled that many areas currently regulated by
governments or by intergovernmental agreements (e.g. aviation safety and security) would not be
affected by the possible further application of the GATS.  In a number of aviation services Members
could, and in a few cases already had, taken market access and national treatment commitments underthe GATS.  These included services auxiliary in all modes of transport (including cargo handling and
storage and warehouse services):  airport management services;  general aviation services and other
supporting services for air transport.
85. The MFN dilemma was not unique to air transport services and had been successfully
resolved by the GATS in similarly complex and important services sectors, such astelecommunications and maritime services.  What was perhaps particular to the air transport sector
was the extent of the network of bilateral arrangemen ts governing traffic rights.  This suggested that a
creative mechanism to effect a transition from a predominantly bilateral reciprocity framework to a
multilateral approach would need to be developed.  The current trend towards the conclusion of open
skies agreements and their expansion to take in multiple players (e.g. the recently concludedMultilateral Agreement on the Liberalization of Inte rnational Air Transportation) served as something
of a "stepping stone" on which work in the WTO might seek to build.
86. The Chairman then opened the floor for discussion on the operation of the Annex in specific
subsectors.S/C/M/50
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87. New Zealand indicated that the issue of computer reservation systems  was covered in its
recent negotiations on a multilateral agreement with Chile, Brunei, Australia and US.  In that respect,
New Zealand was interested in more details on the previous comments by the United States on the
inadequacy of the GATS for CRS.
88. The Chairman gave the floor to the Secretariat  on the question of the legal ability of the
Council for Trade in Services to amend or interpret the Annex.  The Secretariat indicated that there
was not a definitive legal answer to the question.  Firstly, it was clear that we were some way yet from
reaching any decisions.  The answer depended on wh at sort of decision would be taken.  At least two
possibilities could be envisaged.
89. Firstly, Members could decide to make a formal interpretation of the Annex in the guise of
clarifying the present coverage, for example, they could say "after consideration, it is the view of the
Council that services not directly related to traffic rights and therefore covered by the GATS wouldinclude the following… ".  If it was to be a formal interpretation, the WTO Agreement, Article IX.2
stipulated that the Ministerial Conference and the General Council had the exclusive authority to
adopt interpretations of the multilateral trade agreements.  So if there was a formal interpretation it
would be done in the General Council or by the Ministers.  But the WTO Agreement then went on to
say that in the case of an interpretation of a multilateral trade agreement in Annex 1, which covers theGATS, they shall exercise their authority on the basis of a recommendation by the Council overseeing
the functioning of that agreement.  So it was clearly laid down, that this Council would make a
recommendation on the interpretation and the General Council would adopt it.  This seems to leave
very little scope for them not to adopt it.  Those superior bodies exercise their authority on the basis of
a recommendation which means that the substantiv e work would be done in the Council for Trade in
Services and then the formal adoption would take place in the General Council.
90. The second level of decision Members might take, would be to change the coverage of the
agreement.  The Annex now states that traffic rights and all services directly related to their exercise
are excluded.  But if Members wanted to change that by saying that some services which are directly
related would now be added to the coverage of the agreement, that would constitute an amendment of
the Annex which was part of the GATS.  So it would fall under Article X of the WTO Agreement
where it says that the Councils listed in paragraph 5 might submit proposals to amend the provisions
of the corresponding multilateral trade agreement to the Ministerial Conference.  In other words, this
Council could submit a proposal to amend the GATS to the General Council.  And it stipulated that
the proposal would have to remain on the table for 90 days and after that 90 days any decision by the
Ministerial Conference to submit the amendment should be taken by consensus.  Anyway, the basic
procedure would be the same:  the Council for Trad e in Services would have the responsibility to
submit a proposal for amendment to the General Council, representing the Ministerial Conference,
and the amendment would be adopted by consensus.
91. In the case of the interpretation, the adoption of an interpretation was not by consensus but by
a three-fourths majority.  But this text did not indicate that a three-fourths majority was required to
put the recommendation forward, so presumably a consensus in the Council for Trade in Services isneeded, but only a three-fourths majority in the General Council.  This was a point that required more
thought.  It was however clear that in both cases the operational function was with the Council for
Trade in Services and that the procedural decision would be taken at the next level.
92. Answering New Zealand's request, the United States indicated that their concern regarding
CRS was that those services were covered by bilateral agreements either explicitly or through the
mention of the fair and equal opportunity to compete principle which has been interpreted to include
computer reservation system services.  Bilateral agr eements have worked very well to ensure that the
services could be provided freely.  They have provided an effective mechanism for the resolution of
disputes which have occurred a few times.  Indeed in every such case, before the full disputeS/C/M/50
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resolution procedures provided for in the bilaterals could run their course, there has been an agreed
negotiated settlement of the issues concerned.  It has not been demonstrated that the GATS would
provide a superior market access or a superior dispute resolution system for the CRS services.
93. The Dominican Republic considered the absence of statements on the item "operation of the
annex" of the agenda as eloquent proof of the need for further discussion on this point.  The
Dominican Republic thanked the Secretariat for its clarification on procedures and agreed with its
opinion.
94. On the statement made by the delegate of the USA on the coverage of the computer
reservation systems in the bilateral agreements, the Dominican Republic stated that bilateral
agreements might have adequately addressed the issue of market access as well as dispute settlement
for the countries that had entered into bilateral agreements and for the countries which applied the
codes of conduct for CRS, but that was not the case for those countries that had not been as fortunateand that were not Members of a bilateral agreement.
95. The provisions of Article IV of the GATS on the increasing participation of developing
countries through access to information networks had to be abided.  In the case of tourism, CRS were
indeed essential because they were the systems which "put on the map" the touristic offers made and
described the different touristic locations. The CRS therefore should be the subject of multilateralcoverage in the WTO.  This did not in any way prejudge the content of the specific offers put forward
by countries which was where it was decided whether the coverage would in fact involve binding
commitments by the countries concerned.
96. The United States clarified that they did not challenge the coverage of the  CRS
 by the Annex
but just recalled that they historically opposed this inclusion. Then once this inclusion was decided,
the United States had taken MFN exemptions to avoid conflict with bilateral regimes.
97. On the relationship between the review and the negotiations the Secretariat recognized that
the review was a separate process from the negotiations:  it worked under a separate mandate and in
principle, it was not a negotiation, but a cooperative effort to clarify the current coverage of the
agreement and to decide, in cooperation, whether Members wanted to extend it.  The relationship withthe negotiations was that, having agreed to extend or not to extend the coverage, the coverage, as it
would be defined at the end of this review, would become the basis for negotiations on market access
which would take place.  So the negotiation and the review were related in the sense that should
Members agree to extend the coverage, it would of course become possible to negotiate market-access
commitments on the newly covered services, but in itself this was not part of that negotiation.
98. El Salvador insisted on the need to clarify what was covered by the Annex and inquired about
the commitments made by other "Members" in the grey areas which might be argued to be null and
void by some, which was not a satisfactory situation.
99. On CRS, the United States  clarified that in comparing the bilateral dispute settlement process
with the DSU, they considered that they had results superior to those that they could have obtained in
the DSU.  The United States recognized that the dispute settlement system provided for within the
WTO was a great source of help for resolving disputes where there was no other regime by whichthey could be settled.  However in the case of air transport services, including those directly related
services that were covered in the Air Annex, there wa s a superior alternative, i.e. the bilateral dispute
settlement process, and that is why some othe r Members took MFN exemptions in that regard.
100. Australia made a request for a paper to be issued by the Secretariat on the procedures for
interpretation and amendment as well as on the relationship of the review with negotiations.  The
Secretariat answered that all the points made would be duly reflected in the minutes, therebyS/C/M/50
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achieving the purpose of the paper requested.   As a complement to its previous point on the
relationship between the review and the negotiations the Secretariat indicated that the business of this
review was to decide on the current and future cove rage of the Agreement in air transport services,
either to leave it as it stands or to change it.  This was not a question for the negotiation.  The
negotiation was about what Members would do subsequent to that.  There was an unusual aspect tothis review, however, which is that Members did no t really have a clear default situation at their
disposal.  Doing nothing would not leave Members wi th a clear situation as the debate showed that
there were different views about what the current coverage is.
101. The European Communities noted that any agreem ent to extend or not to extend the coverage
of the Annex, or to clarify the scope of the Anne x was in fact an important step in preparing the
market access negotiations and this was something Members should not underestimate.  It meant that
discussions probably would have to be pursued and if so, in a much more focused way.  The keyquestion was the definition of the services related to traffic rights.  In that respect, paragraph 5 of the
new submission by New Zealand was very interesting in the sense that it gave a very simple criterion
which could be used:  whether in order to supply th ese services one would need to hold the designated
traffic rights.  Therefore the European Communities requested the Secretariat to draw up a table
highlighting, for each of the service sectors discussed so far, whether or not one needs to hold all thetraffic rights in order to supply these services.  This proposal was supported by the Dominican
Republic, Switzerland , El Salvador  and New Zealand  and opposed by the United States , and Canada
on the ground that such a paper would implicitly preempt the definition of services related to traffic
rights in a manner which those Members could not agree on.
102. The Chairman concluded that there was no consensus to request such a paper from the
Secretariat even if it was informal.
103. Switzerland indicated that the New Zealand propos al to draw a line between services which
were and were not covered by the GATS was an interesting approach which should be analysed
further.  This was an opportune moment for the discussion of the continuation of the work.
Switzerland would be open to a study of an inclusion of a whole range of categories of services,except those which were derived directly from air traffic rights for the liberalisation of which the
WTO was not the appropriate forum.  However, on air traffic control and air navigation services
Switzerland had very serious reservations.  These concerned security and also the States's exercise of
sovereignty over its own territory.
104. The European Communities questioned the United States and Canada, on where they drew
the line between services related to traffic rights and services not related to traffic rights.
105. The United States answered that it was their in tention to exclude those services that were the
subject of bilateral agreements from the coverage of the Annex.  The bilateral agreements covered
certain related services because they were found necessary in the exercise of traffic rights.  This was
the way the bilateral agreements had evolved over the last several decades.  The test that had to be
used was what was necessary for the exercise of bilateral rights, not what services were bilateral rights
necessary for, in that respect, the New Zealand proposal had inverted the test.  One needed only tolook at the specific services that were specified in paragraph 3 of the Annex.  They were named in this
paragraph because they were determined to be directly related to the exercise of traffic rights.  For
instance selling and marketing of air transportation was done in the US by many airlines that did not
have traffic rights to serve the US.  They did not need any bilateral rights to sell and market airtransportation, but selling and marketing of air transportation was necessary for the exercise of trafficrights anywhere.  A clear test was what was in the bilateral agreements.  CRS and ground handling
were also in bilateral agreements and therefore directly related to traffic rights.S/C/M/50
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106. The Chairman, in view of the divergences expressed so far, suggested that another meeting of
the review be held in the future, focusing in particular on the clarification of the annex and on its
operation.  It was so agreed.  The Chairman indicated that he would hold consultations in order to
decide on the date of this meeting.
107. New Zealand noted it was interested in the US' interpretation of what was included and
excluded in the Annex.  Its view however differe d.  The language of the Annex did not contain such
words as "in bilateral agreements".  The language of the Annex was fairly clear and yet the difference
between the relationship of paragraph 2 and 3 could be seen to be somewhat ambiguous.  New
Zealand's paper tried to devise a test based  on either traffic rights, however granted, or services
directly related to the exercise of traffic rights.  This language told what was outside the scope of the
annex.  In trying to clarify what was inside the scope, Members should keep their focus on the
language because it provided sufficient guidance.
108. Canada also answered the request by the European Communities on where to draw the line by
indicating that it could not be absolutely definitive on this question.  However, Canada had used as the
criteria to define "services directly related to traffic rights" the services which are traditionally
negotiated in bilateral agreements as a "rule of thumb".
109. The European Communities expressed its support to New Zealand's position on the criteria.
In addition, it noted that computer reservation systems were in fact covered in many of the bilateral
agreements but were nevertheless covered by the GATS.  The question at stake here was not a
question of rule of thumb, but a question of legal analysis which needed to be fairly detailed and
accurate.
110. El Salvador noted that as Members will get involved in a negotiating process, there will be an
exchange of commitments, and it is important to know therefore what the different countries are in
fact offering.  On the other hand, it would also be very complicated if the whole issue were to be left
unsolved for the future.  The jurisprudence would in any case evolve as result of all the different
disputes that might crop up between now and that  was not a good approach either because the cost
involved in deciding what the definition would be, would become a very heavy burden on countries.So one has to come to a definition of what it is that is covered by this Annex in order to have greater
transparency and to clarify the object of future negotiations.  A lot more thought should be devoted to
the issue of bilateral agreements.  The impact of including them and perhaps of the advisability of
having some reference to these within the MFN aspect in GATS should be studied.
111. Argentina reserved its position on the criteria proposed by New Zealand.  It recalled however
that the Secretariat document S/C/W/59 stated in paragraph 4 that "traffic rights are defined in
paragraph 6(d) of the Annex.  The expression "services directly related to the exercise of traffic rightsis not defined, but the fact that paragraph 3 is presented as an exception to the exclusion in paragraph
2 implies that the three covered services are regard ed as "directly related".  Each of these covered
services is defined in paragraph 6(a), (b) and (c) respectively".
112. Hong Kong, China indicated as a preliminary view that it felt that the New Zealand approach
was the correct one.  Clearly, one should look at the exact language of the Annex and consider what
the words mean.  And the Annex in 2(b) did say "directly related to the exercise of traffic rights".  On
New Zealand's conclusion further internal reflection was needed.
113. New Zealand indicated that the wording of paragraph 3 was ambiguous and that therefore in
its examination New Zealand had not taken as a given that these services in paragraph 3 were directly
related to the exercise of traffic rights.  Paragraphs 4-11 of the New Zealand paper provided thebackground and rationale for the New Zealand views on this area.S/C/M/50
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114. Australia requested that the Secretariat provide an executive summary of its documentation
for the next meeting.  The Secretariat undertook to do so.  In answering a request by Mexico  the
Chairman indicated that the agenda would cover all areas dealt with in the first two meetings, drawing
on the additional documentation to be prepared by the Secretariat and would have a special focus on
the clarification of the Annex.  Several delegations requested that the Secretariat documentation beavailable at least one month in advance in the three official languages.  The Secretariat undertook to
do its best in this regard, due account being taken of the constraints on resources.
III. OTHER BUSINESS
115. Brazil indicated it would soon be circulating a submission on the air transport review.
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