RESTRICTEDWORLD TRADE
ORGANIZATIONS/C/M/38
13 September 1999
(99-3754)
Council for Trade in Services
REPORT OF THE MEETING HELD ON 19 AND 20 JULY 1999
Note by the Secretariat
1. The Council for Trade in Services held a meeting on 19 and 20 July 1999.  The agenda for the
meeting is contained in document WTO/AIR/1136.
2. Two items of other business had been raised, by the representative of Japan on the paper
"Japan's Proposal on MFN Exemption Review", and by the representative of Costa Rica on the
ratification of the Fifth Protocol.  On the proposed agenda, the representative of Turkey suggested
inverting the order of discussion on items B and C, so that, in accordance with Article XIX:3 of the
GATS, discussions on the assessment of trade in services be followed, rather than preceded, by those
on negotiating guidelines and procedures.
3. The Chairman proposed that the Council adopt the agenda as circulated, with the reversal of
items B, on negotiating guidelines and procedures, and C, on the assessment of trade, and the addition
of the two points raised under other business by the delegations of Japan and Costa Rica.
4. The Council so agreed.
A. WORK PROGRAMME ON ELECTRONIC COMMERCE – REPORT TO THE
GENERAL COUNCIL (S/C/W/115)
5. The Chairman noted that, as agreed at the previous Council meeting, the Secretariat had
prepared a draft report on the work the Services Council had undertaken up to that moment on
electronic commerce in the context of the Work Programme adopted by the General Council.  Two
informal meetings had been held, on 5 and 15 July, during which the draft report had been discussedand accordingly revised by the Secretariat.  The revised draft for this meeting was contained in
document S/C/W/115 and in the informal note dated 16 July, document No. 3833/Rev.2, which
highlighted the changes introduced to the second revision dated 7 July.  The Chairman added that the
text was the result of long discussions and he hoped that delegations would find the different views
expressed during the meetings reflected therein.  In order to facilitate the consideration of the text, theChairman invited the representative of the Secretariat to present the changes introduced.
6. The representative of the Secretariat presented the draft report, highlighting the paragraphs to
which changes had been made and indicating the delegations who had suggested them.
7. The Chairman suggested that the Council discuss the draft report taking it section by section.
The essence of the discussion, which took place in formal mode, is reflected in the changes introduced
to the draft report and contained in a revised draft in document S/C/W/115/Rev.1.  The Chairman
noted that the Services Council's adoption of the Progress Report was on an ad referendum.  He
proposed that the deadline for delegations' comments  on the text be 26 July, with a view to shortly
thereafter submitting the agreed Progress Report to the General Council.S/C/M/38
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8. The Council so agreed.
9. The representative of Canada stated that his delegation had circulated a communication, dated
19 July 1999, titled "Global Electronic Commerce:  A Canadian Perspective".
B. ASSSESSMENT OF TRADE
10. The Chairman recalled that the UNCTAD Secretariat had been invited to make a presentation
to the Services Council on the work it had undertaken which might be relevant to the assessment of
trade mandated by Article XIX of the GATS.  They had been unable to do so at the previous Council
meeting, but were present at this meeting and had also provided an informal paper dated 16 July 1999.
The Chairman invited the representative of the UNCTAD Secretariat to present the paper.
11. The representative of the UNCTAD Secretariat gave an overview of the paper titled
"Assessment of Trade in Services of Developing Countries:  Possible Contribution by UNCTAD".
He said that there was a paucity of internationally comparable statistics on services, and that balanceof payments data related mainly to cross border tr ade.  On the basis of the information which was
available the following observations could be dr awn:  Services contributed to growth and
transformation of developing countries;  developing countries had a deficit in trade in services, except
as it related to tourism and travel and worker remittances;  developing countries' services imports
were growing faster than their services exports;  since 1995, developing countries services exports hadincreased by 6 per cent, largely driven by Asian exports;  the top 20 exporters were mainly from
developed countries; and there was no empirical evid ence that FDI flows to developing countries had
increased since the adoption of the GATS.  Yet, given the paucity of disaggregated data, any
assessment of trade in services had to be based primarily on qualitative analysis.  Services contributed
to long-term economic development and reinforced economic efficiency.  However, developingcountries often lacked coherence in their services policies;  this might act as a constraint to potential
investors and as a barrier to trade.  For many developing countries, exports of services represented the
only means of diversification out of excessive dependence on exports of primary commodities.
12. On the basis of its work, UNCTAD had identified “niche” opportunities for expansion of
trade in six services sectors, in which developing countries had revealed actual comparativeadvantage, particularly through movement of natural persons.  Partly because of technological
changes, these opportunities changed rapidly and thus required capacity for prompt adaptation.
UNCTAD's work had also identified four categories of characteristics which were shared by several
services sectors.  First, most developing countries were faced with supply constraints and did not
possess the preconditions for building competitive serv ices sectors.  Second, interdependence existed
among the four modes of supply, so that trade through one mode often led to increased trade though
other modes;  this called for the liberalisation of all factors of production.  Third, there was a lack ofcommercially meaningful commitments on mode 4, except for intra-corporate transferees.  Fourth,
service suppliers from developing countries often faced a number of other barriers.  Other issues of
relevance to the assessment of trade identified in the paper included competition-related issues, such
as the high degree of concentration in many services markets or the structure of distribution and
information channels, electronic commerce, access to information and transfer of technology.
13. The representative of UNCTAD added that services trade liberalization could make a major
contribution towards social and developmental goals.  However, it required that liberalization
commitments take into account the specificities of the national services sector concerned and the
relationships between sectors, including, for example, an adequate regulatory structure.  The process
under Article VI of the GATS was important in ensuring that the benefits of liberalization weremaximized.S/C/M/38
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14. A last section of the paper listed selected documents on services prepared by the UNCTAD
Secretariat which might be of use to the assessment.  When the representative of Canada asked
whether such documents were available electronically, the UNCTAD representative explained that
electronic dissemination had been started:  Documents issued after 1998 were already accessible, and
most of the remaining ones would be towards the latter part of the summer holidays.
15. Most delegations offered preliminary comments on the paper, which they had received only
shortly before the meeting, and said they would revert to it in greater detail at the next meeting of the
Council.
16. The representative of Uruguay observed that the work carried out by the UNCTAD
Secretariat complemented the work by the WTO Secretariat.  It was an important part of the
assessment, offered a framework for the evaluation of trade in services and helped developing
countries carry out their own assessment.  The representative of Brazil valued UNCTAD's paper for
its conceptual contribution to Members' own assessment, and called on the Services Council to make
use of some of the papers produced by the UNCTAD Secretariat, such as document TD/B/COM.1/21,
to stimulate discussion on the assessment.  The representative of Guatemala reiterated that the paper
was valuable and that it identified the problems faced by developing countries in participating inworld trade in services.
17. The representative of Switzerland said that the sectoral workshops carried out in UNCTAD as
part of the Midrand mandate and the paper prepared by its Secretariat for the Services Council were
amongst the many useful inputs to the process leading to the launching of a new round of services
negotiations.  Of the paper prepared for the Services Council, he supported the positive consideration
of pro-competitive issues and of domestic regulation.  He noted the point that liberalization shouldtake place in a regulatory framework which was present ex ante, as well as developing countries'
interest in mode 4-trade and the role of the inter-linkage between modes for effective export
transactions.
18. On the need for capacity building in developing countries, the representative of the European
Communities observed that the work of the WTO and the UNCTAD Secretariats and of the joint body
of the ITC was useful.  Members were also contributing in relation to technical assistance, with
respect to which the need for coherence and a focused approach was stressed.  It was also noted that
UNCTAD was a standing observer to the Council for Trade in Services, and were encouraged to
participate in meetings, so that the Council could benefit from its work.  The representative of
Argentina indicated the need to address not only the issue of capacity building, but also the main
obstacles to trade faced by suppliers from developing countries, such as subsidies and other financial
support granted by developed countries, discriminatory access to information channels anddistribution networks, as mentioned on page 5 of the UNCTAD Secretariat paper.
19. The representative of the United States said that UNCTAD's contribution and the list of
documents were useful background to inform Members' views on the assessment, and that more
discussion was needed to decide which aspects of the UNCTAD Secretariat paper should be reflected
in the assessment, so that developing countries' interests could be clearly stated and taken into accountin the new round of services negotiations.  The representative of Japan noted that some elements in
the paper coincided with his delegation's assessment,  such as the role of services in reinforcing
economic efficiency, and welcomed further analysis of the paper, as a basis for Members' own
assessment.
20. The representative of Egypt wondered whether the background documents produced by the
WTO Secretariat had been supplied to the UNCTAD Secretariat.  The Chairman responded in the
affirmative, also noting that UNCTAD, being an observer to the Council, had access to them.S/C/M/38
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21. More generally, the representative of Turkey said that his delegation attached great
importance to a comprehensive assessment of trade in services being carried out before negotiating
guidelines and procedures were established.  He noted that work on the assessment in the Services
Council had started in parallel with the discussion on the guidelines, but that developing and least-
developed countries in particular still faced difficul ties in making their own assessment, both at the
national and at the multilateral level.  In addition, quantification difficulties and insufficient input
from the private sector posed problems in identifying sectors and priorities of interest to a great
number of Members.  Such difficulties would remain as a major challenge for most Members until the
assessment was completed.  The representative of Mexico concurred.
22. In summing up the discussion on this item, the Chairman said that Members had welcomed
the paper by the UNCTAD Secretariat.  As many delegations had made very preliminary comments
on the paper, the Council would revert to it at its next meeting for further discussion.
C. PREPARATION FOR NEGOTIATIONS UNDER ARTICLE XIX OF THE GATS –
NEGOTIATING GUIDELINES AND PROCEDURES
23. The Chairman recalled that the Council had had a substantive discussion on negotiating
guidelines and procedures at its previous meeting.  In addition to written submissions, delegations had
engaged in a useful exchange on the different possible elements of the negotiating guidelines.Although there were divergent views on the procedural question relating to the role of the Services
Council in the preparation of the guidelines, ther e seemed to be agreement on the usefulness of
continuing the discussion on the subject.  The Chairman drew Members' attention to the paper
submitted by the delegation of Japan, circulated as document S/C/W/116 in the Council for Trade in
Services and as document WT/GC/W/252 in the General Council.  He then invited the delegation ofJapan to present the paper.
24. In introducing the paper, the representative of Japan said that the objective of the next round
of services negotiations, as stated in Article XIX, was to achieve progressively higher levels of
liberalization.  Guidelines and procedures should be broad and general, aimed at securing deeper
liberalization commitments and at elaborating effective rules for trade in services.  The scope of thenegotiations should cover all sectors and modes of supply;  particular attention might be paid to some
sectors, such as maritime transport services.  In terms of issues, Members should address those which
were "mandated" in various parts of the GATS and other related decisions.  Negotiations on specific
commitments could be conducted by combining different approaches, such as request offer and
formulas, with due flexibility for developing countrie s;  MFN exemptions were to be reviewed by the
Council for Trade in Services, as prescribed in the relevant Annex to the GATS, at the earliest
possible stage, so that their elimination and reduction during the negotiations could be facilitated.Disciplines on domestic regulation should be developed taking a horizontal approach, but not
excluding the possibility of taking also a sectoral one;  work on GATS rules should continue, in
particular on safeguards.  Members needed to pay special attention to special and differential
treatment for developing countries, and in this context the flexibility stipulated in Article XIX:2
should be incorporated in the negotiating guidel ines.  The need for improvement on the scheduling
guidelines and classification had been stated by many delegations, but, for the sake of the legal
stability and reliability of the system, it should be limited to cases where revision was necessary.
25. The Chairman opened the floor to delegations' comments on the paper presented by Japan and
on negotiating guidelines and procedures in general.
26. The representative of Turkey indicated that his delegation had also submitted a paper on the
subject to the General Council, and presented its main elements.  Turkey's view was that the existing
GATS architecture should be preserved, and negotiations should be conducted within this
architecture, to cover all sectors and modes.  With the aim of achieving progressively higher levels ofS/C/M/38
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liberalization of trade in services, market access and national treatment commitments should be
improved, and MFN exemptions reviewed.  For the purpose of establishing modalities for the
treatment of autonomous liberalization, as prescribed by Article XIX:3, greater clarity on the concept
of "autonomous liberalization" was needed.  Disciplines on domestic regulation should be set up to
complement further liberalization of commitments, taking into account legitimate policy objectives,development concerns and sectoral specificities.  Negotiations on the question of safeguards, on
subsidies and on government procurement should continue with a view to achieving satisfactory
results.  As concerned procedures, negotiations should be conducted in a practical and flexibile way,
with an open-ended approach;  private sector's involvement in sectoral discussion might be considered
positively.  A request and offer approach should be adopted;  horizontal formulas could also be
considered during the negotiations, as long as they were not used as a leverage to impose
commitments and did not prejudice Members' rights and obligations.  Negotiations should last threeyears, and their result be an integral part of a single undertaking.  The Chairman proposed that
Turkey's paper to the General Council be circulated also to the Council for Trade in Services.
27. By way of preliminary comments, the representativ e of Peru said that, as stated in the Geneva
Ministerial Declaration, the General Council was the competent body for the establishment of
negotiating guidelines and procedures, but the Services Council could nonetheless provide a technicalinput for the General Council to make informed decisions.  His delegation was however flexible on
this point.  On the scope of the negotiations, Article XIX covered essentially specific commitments, to
be improved to achieve progressively higher levels of liberalization.  Three elements of Article XIX
could be included in the guidelines:  flexibility for developing countries, special treatment for least-
developed countries and modalities for the treatment of autonomous liberalization.  A fourth elementcould be added, namely a reference to Article IV of the GATS.  Bound commitments should form the
basis of the negotiations, and a political standstill should be reached thereon.  The negotiations should
last no more than three years in principle and result in a single undertaking covering all sectors and
modes, with due respect for the flexibility in Artic le XIX:2 with respect to national policy objectives
and levels of development.  A preference was expressed for conducting the negotiations in variousstages of request and offer.  The forum of the negotiations should be the General Council, with
subsidiary bodies, such as the Services Council, possibly dealing with specific issues.  However, the
constraints of smaller delegations should be taken into account.  Negotiations on specific
commitments should not affect the continuation of the on-going negotiations on GATS rules and on
disciplines for domestic regulation, which should con tinue in conformity with the GATS and with the
procedures established in the Services Council.
28. The representative of the European Communities proposed structuring the discussion on this
agenda item on the basis of the various sections of the Japanese paper.  As preliminary comments, he
said that further examination of formula approaches was needed, as the distinction between horizontal
and sectoral ones was unclear; no agreement on this issue should be expected before the Seattle
Ministerial.  He was also not convinced that a review of MFN exemptions should be carried out
before the Ministerial, because of practical difficulties and of the need to consider them in the widercontext of the negotiations.  He agreed with Japan's position on disciplines for domestic regulation,
and stressed the need to refine the concepts of transparency, necessity, equivalence and international
standards, as well as the need to promote pro-competitive principles similar to the
telecommunications Reference Paper.  On emergency safeguards, it was noted that the choice between
horizontal and sector-specific approach was still open.  He also concurred with Japan's proposal thatthe flexibility for developing countries stipulated in Article XIX:2 be incorporated in the guidelines.
29. The representative of Hungary said that his delegation was still shaping its position, but in
principle agreed with most of the general lines pu t forward in Members' submissions.  The aim of the
next round of negotiations was to secure meaningful market access and national treatment
commitments, with a view to achieving progressively higher levels of liberalization and promoting theinterests of all participants.  The scope should be comprehensive, with all sectors and modes covered.S/C/M/38
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The elaboration of GATS rules and of disciplines on domestic regulation was relevant to the extent
that it facilitated and accelerated liberalization, and could contribute to freer trade in services.
Therefore, early agreement on these items would be desirable.  MFN exemptions needed to be
reviewed in accordance with the Annex.  He also stated that further elaboration of the reference to
Article VII:5 in the submission by Argentina would be helpful.
30. The representative of Hong Kong, China sought further elaboration from the delegation of
Japan on the priority to be given to maritime transport services and on some of the proposal for
possible horizontal formulas, such as grandfathering .  On Peru's suggestion that rule-making should
follow a separate track from the negotiations, he  noted Hungary's comment that rules should be
developed early in the new round, and invited further consideration of the issue.  He asked the
representative of Argentina to explain why work in the area of recognition on the basis of
Article VII:5 had been included in his delegation's paper in the section concerning the scope of thenegotiations.  Finally, he reiterated that work on subsidy disciplines held considerable interest, and his
delegation had submitted a paper responding to the information exchange on subsidies mandated by
Article XV in the Working Party on GATS Rules.
31. Commenting on the Japanese submission, the representative of Switzerland agreed with the
European Communities' suggestion that it be used as a basis to structure the debate, provided that the
issue of autonomous liberalization, which was missing, was also addressed.  He added that principles
and modalities for the treatment of liberalization undertaken autonomously should be agreed in Seattle
and be applied to all services sectors.  It was important that the debate in the Council focus on the
guidelines, and not with issues belonging to the negotiations proper.  For example, it might be
possible to prioritise among sectors, but only in the context of the negotiations, and not in theguidelines.  Similarly, the distinction between ho rizontal and sectoral formulas and the associated
examples were relevant and useful, but a matter for negotiations.  He also doubted the usefulness of
reviewing MFN exemptions before the new round.  He agreed with Hong Kong, China’s emphasis on
the development of subsidy disciplines.  Support was given to the inclusion in the guidelines of the
flexibility for developing countries stipulated in Article XIX:2 of the GATS.  As concerned the paperby Argentina, a question similar to the one raised by Hong Kong, China on the mention of Article VII
was asked.
32. The representative of Norway expressed optimism on reaching agreement on negotiating
guidelines and procedures.  On the submissions by Pakistan and India as they related to mode 4, she
recognized the interests of developing countries, and noted that negotiations on mode 4 were covered
by the mandate of Article XIX.  In addition, she said that the proposal to exclude the application of
economic needs tests for certain sectors, which in itself is a formula-type approach, was interesting.However, she emphasised that her delegation saw the issue of social security as outside the scope of
the GATS.  She found the Argentinian suggestion th at only a request and offer approach be used in
negotiating specific commitments rather hasty;  he r delegation otherwise supported Argentina's views
on practical arrangements for the negotiations.  On the reference to "modalities" for the special
treatment of least-developed countries under Article IV:3 in Uruguay's submission, she observed thatthis Article only mentioned "special priority", and wondered whether Uruguay was proposing
anything different.  She stated that on specific commitments, the objectives of including more sectors
and deepening the commitments seemed to gather consensus;  however the questions which needed
attention were those of autonomous liberalization an d of formulas.  On the former, Norway believed
that the binding of autonomous liberalization had to be part of the package of concessions and had tobe given credit for;  this was not in conflict wi th the European Communities' stated objective of
negotiations closing the gap between commitments and actual market practice, in itself also a possible
formula.  On formulas, she agreed with Japan that consensus on exploring this approach should be
reached by Seattle, but noted that agreement on specific formulas would be difficult.  The reviews of
MFN exemptions and of the Annex on Air Transport Services, though not as such part of the newround, would be important background for negotiators and should be started as soon as possible.S/C/M/38
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Agreement seemed to be emerging that, while respecting the existing GATS architecture, GATS
articles in addition to those falling under the Working Party on GATS Rules might need to be
reviewed.  It was important to address all issues, pertaining to different articles, raised by Members
during the preparatory process, such as those related to Articles XX and XVI in the Committee on
Specific Commitments.  On pro-competitive disciplines mentioned by some delegations, she said thatwritten contributions on the subject, other than on basic telecom, would be helpful.
33. The representative of India stressed that the basic architecture of the GATS should not be
changed or compromised as a result of Members' proposals.  On the scope of the negotiations, he
observed that there seemed to be consensus that no sector or mode should be a priori excluded, but he
was cautious about Japan's suggested prioritisation of sectors.  The basic approach to negotiations on
specific commitments was the request and offer one;  others could only be of a supplementary nature,
should not negate the basic structure of the GATS and could not reasonably be agreed upon in specificterms before Seattle.  On domestic regulation, he noted that the mandate, under Article VI:4, for the
development of horizontal disciplines was on a different footing from the call for pro-competitive
disciplines, which might be relevant for some sectors only.  He called for the deadline on negotiations
on safeguards to be met in the Working Party on GATS Rules.  As concerned special and differential
treatment for developing countries and increasing their participation in services trade, the flexibilityconcept in Article XIX:2, was only one way, the other being the opening up of sectors and modes of
export interest to them.  To Norway's comments, he responded that as long as social security
provisions were barriers that affected trade in services, they could not be considered to be outside the
purview of the GATS.  A similar perspective had to be adopted for economic needs tests, to the extent
that these were measures affecting trade in services.  On scheduling and classification, attempts toimprove the clarity and understanding of specific commitments were welcome.
34. Commenting on the Japanese submission, the representative of Egypt said that there was
broad consensus that the scope of the negotiations should cover all sectors and modes.  In setting the
agenda, respect for the issues already mandated in the GATS was important, but it was necessary to
go over and above these, and give priority also to sectors of interest to developing countries.  Doubtswere expressed about the possibility of using formula approaches, in addition to the traditional request
and offer one, as these represented departures from the GATS architecture.  He reiterated
Switzerland's mention of the need to address the tr eatment of autonomous liberalization.  On GATS
rules, he observed that an emergency safeguard mechanism would be an important incentive for
developing countries to make greater commitments in the new round.  He supported the proposal that
the concept of flexibility for developing countries stipulated in Article XIX:2 be included in the
guidelines.
35. The representative of the United States indicated that his delegation was preparing a
submission on negotiating guidelines and procedures, which would be circulated in the near future.
On Japan's paper, he said that the objectives stated  therein followed to some extent those laid out in
Article XIX;  he wondered whether it was possible to be more specific, keeping in mind in particular
the requirement to provide effective market access and to remove restrictions, and called for morediscussion on objectives.  He shared the European Communities' perspective that it might be more
appropriate to take up the review of MFN exemptions  in the context of the negotiations themselves,
keeping in mind paragraph 6 of the Annex on Article II Exemptions.  He also requested further
clarification on Japan's suggestion that a special category of services be devised for negotiating
purposes.  On using the Japanese paper to structure the debate, he said that some delegations,including his own, held different views on the issu es to be discussed.  Noting some delegations'
comments about formula approaches, he said that formulas were not just for the benefit of developed
countries.  They were valuable in that they made it was possible to build a common negotiating
approach, intended to benefit all participants.  Formulas were effective and efficient negotiating tools,
also in view of the concerns of smaller delegations, which had problems taking part in complicatedrequest and offer procedures.  Formulas helped ensure that all sectors and modes of interest toS/C/M/38
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developing countries were addressed in the negotiations.  He noted that the proposals by India and
Pakistan contained a general approach to mode 4 which approached a formula;  it suggested the type
of commitments that developed countries might undertake with respect to economic needs tests and to
classifications of occupations, which could be assimilated to model schedules.  He found merit in
Peru's suggestion that some issues could be considered separately from the negotiations, and referredin particular to the work on GATS rules.  On autonomous liberalization, he said that discussions
should use binding of such liberalization as a basis.  As concerned the suggestion in Uruguay's
submission that developed countries adopt commercially meaningful commitments in areas of interest
to developing countries, he invited delegations to be more specific, so that the interests of all could be
served.
36. Common threads could be identified in the discussion, the representative of New Zealand
observed.  In her view, these could be grouped in three categories.  First, objectives and principles of
the negotiations.  Article XIX offered guidance and could be drawn on.  The scope of the negotiation
had to cover all sectors and modes.  Second, the work programme, which should include specific
commitments, MFN exemptions, disciplines on domestic regulation under Article VI:4 and the three
areas dealt with in the Working Party on GATS Rules, with her delegation holding a clear interest in
subsidies and government procurement work.  Third, modalities;  a request and offer approach wasconsidered an important basis, but there seemed to be willingness to explore other approaches.  A
time-frame of three years was envisaged, and the results were to be part of a single undertaking.  To
advance the discussion, she suggested that delegations consolidate the common elements and work on
where disagreement still existed.
37. Commenting on the paper by Japan, the representative of Australia said that her delegation
also viewed maritime transport services as unfinished business, to be completed in the next round.
Differently from Japan, some revision of the services classification in document MTN.GNS/W/120
was considered necessary.  She sought clarification on Japan's proposal that a separate category of
services be devised for negotiating purposes, and on the reference to Article VII:4 in the Argentinian
submission.  She agreed with the suggestion in Ar gentina's submission that approaches other than
request and offer could be used to reach uniform criteria with respect to sectoral classification or
model schedules, but observed that formulas could go beyond these two approaches, and concurred
with the United States that formulas could be used by all Members to achieve negotiating goals
efficiently and practically;  she wondered why Egypt felt that formulas departed from the GATS
architecture.  On autonomous liberalization, she said that full credit should be given for commitments
undertaken autonomously beyond Members' schedules, and that the value-added of binding should be
offered as a negotiating trade-off.  She also wondered whether Uruguay were supporting request andoffer as the only approach to the negotiations.  She welcomed Turkey's suggestion that negotiations be
comprehensive, last three years, and that their results be part of a single undertaking, but noted that
not reopening the negotiating agenda after the Seattle Ministerial might prove too inflexible, as over a
three-year period new developments might need to be taken into consideration, and as some Members
might feel that the negotiations were constrained if issues of concern to them could not be raised.
38. The representative of Canada said that his delegation had a pragmatic approach with respect
to the choice between request and offer and formula approaches, and suggested using the formulation
"appropriate negotiating approaches".  On classification, he was more optimistic about the possibility
of progress than the delegation of Japan.  As concerned practical arrangements, he echoed Argentina's
call for consideration of the needs of smaller delegations, and suggested that benchmarks to track theprogress of the negotiations might be considered.  He said that it might be useful to consider how to
consolidate the Council's discussion of this agenda item, and that in this respect the suggestion of an
open-ended list could be revisited.
39. The representative of Korea said that the objective of the negotiations was to achieve
progressively higher levels of liberalization in all services sectors by improving market access andS/C/M/38
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national treatment commitments.  He shared Japan's view on maritime transport services;  they were
infrastructural services which facilitated trade in goods, and deserved attention.  On MFN exemptions,
he called for a review to be conducted by the Serv ices Council before the end of the current year, as
mandated in the Annex on Article II Exemptions.  He said that MFN exemptions should be reduced or
eliminated during the next round of negotiations.  He associated himself with Peru on the need for thenegotiations on domestic regulation and on GATS rules to be completed at the latest before the
conclusion of the next round;  in particular, the early completion of the negotiations on emergency
safeguards was essential to facilitate further liberalization.
40. The representative of Pakistan said that his delegation's submission on mode 4 would be
further discussed in the General Council, and that he would respond to comments and questions from
delegation on the paper, and on the negotiating guidelines and procedures, in that forum.  By way of
preliminary comments, he expressed reservations on formulas and on the proposed time-frame of thenegotiations.
41. The representative of Argentina noted that the preparatory process on a framework for the
new round of negotiations was concentrated in the General Council and that his delegation's
submission was meant as a contribution to the process.  Responding to questions on the reference to
Article VII in his delegation's paper, he observed th at Article VII:5 states that, wherever appropriate,
recognition should be based on multilaterally agreed criteria.  Voluntary guidelines on mutual
recognition agreements (MRAs) had been agreed for the accountancy sector;  the possibility of
applying them to other sectors should be explored.  Generally, more work was necessary to ensure
that recognition agreements did not become barriers to trade in services.  The UNCTAD Secretariat's
submission on the assessment had also identified MRAs as amongst the barriers faced by developingcountry suppliers.  There was a built-in mandate to explore what could be done in this area.  On
autonomous liberalization, as way of preliminary co mment, he observed that binding was a tool.  In
Article XIX there was a recognition that, since the Uruguay Round, some Members had liberalized
and not modified their policies and had thereby benefitted their trading partners.  Binding was
important, but accessory and not necessary from the prospective of the countries having undertakenautonomous liberalization.  As concerned modalities for the negotiations, request and offer was the
basic approach;  it might be supplemented by other approaches, such as model schedules, which had
been usefully employed in the past.  However, formulas were not necessarily a panacea, and
exceptions had to be foreseen within formulas, or the flexibility and progressive nature of the GATS
would be lost.  Article IV contained a basic formula in the liberalization of all sectors and modes of
interest to developing countries.  He observed that his delegation's suggestion on the practical
arrangements for the negotiations had been inspired by similar comments by other delegations.
42. The representative of Uruguay said that his delegation would comment further on Japan's
submission at the next meeting of the Council for Trade in Services or at the General Council.
Members' proposals were discussed in the Services Council with the aim of helping the General
Council draw up negotiating guidelines and procedur es which the body entrusted with such work, as
was clear from the Geneva Ministerial Declaration and reflected in paragraph 50 of the minutes of theprevious Services Council meeting.  Responding to questions from delegations, he noted first, on
Norway's point, that Article XIX:3 clearly referr ed to modalities for the treatment of autonomous
liberalization and for the special treatment for least-developed countries, and, second, on the United
States' comment, that developed countries should  adopt commercially meaningful commitments in
areas of interest to developing countries to make  Article IV meaningful and effective.  The UNCTAD
Secretariat paper had indicated areas which might be of interest to developing countries;  during the
course of the negotiations, developing countries would themselves identify their own interests.  On
the European Communities' proposal that the Japanese paper be used to structure the discussion, the
concerns expressed by the United States were echoed;  he said it was important to consider the
proposals submitted by all Members, and not just one.S/C/M/38
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43. The representative of Turkey reiterated that his delegation's paper was intended to contribute
to the discussion on negotiating guidelines and procedures, and had been tabled only in the General
Council as the competent forum on the issue.  He also felt that more discussion was needed on the
meaning and implications of formula approaches.
44. Responding to questions from delegations, the representative of Japan agreed that the
negotiations should cover all sectors and modes and that prioritising among sectors was difficult, but
also felt that due consideration should be given to sectors, such as maritime transport, where this was
needed or justified.  On his delegation's suggestion on classification, he observed that grouping sub-
sectors could enhance the effectiveness of the negotiations, and thus groupings might be created, but
solely for negotiating purposes and without altering the existing classification.  His delegation hoped
to provide further comments at future meetings of the Committee on Specific Commitments.
45. The representative of Mauritius observed that two issues needed to be further clarified:
Modalities for the treatment of autonomous libera lization and formula approaches.  An understanding
on these two elements was important in order to move the process forward.
46. The representative of Australia asked the WTO Secretariat if it believed that all issues
necessary to the establishment of negotiating guidelines and procedures had been addressed in
delegations' submissions.  The representative of the Secretariat responded that he felt that the list of
elements raised in Members' submissions was quite comprehensive and provided a good basis for
setting up guidelines and procedures.  He suggested that delegations should aim at making the
mandate flexible and open-ended.  He added that an informal summary of the proposals on services,
tabled either in the Services Council or in the General Council, had been prepared by the Secretariat
for its internal use, and interested delegations could obtain a copy from the Trade in ServicesDivision.
47. The Chairman noted that several delegations needed to consider further the comments made
in what had been a very extensive and thoughtful discussion.  A few points of convergence were
already evident on the scope of the negotiations, such as the fact that a priori no sector or mode should
be excluded and the issues to be addressed with respect to rule-making.  A degree of convergence alsoexisted on the modalities, in that the basis for negotiating was a request and offer approach.  Three
broad groups of issues could be identified for further discussion of this agenda item:  First, the
objectives, scope and principles of the negotiations, including the concerns of developing countries;
second, liberalization of commitments, including Members' schedules and MFN exemptions;  third,
rule-making activities, on domestic regulation, subsidies, government procurement and safeguards,
and including also the clarification of certain GATS provisions.  He suggested that the Council would
take note of the statements made and revert to this item at its next meeting.
D. PROCEDURES FOR THE IMPLEMENTATION OF ARTICLE XXI OF THE GATS –
DRAFT PROCEDURES PROPOSED BY THE COMMITTEE ON SPECIFIC
COMMITMENTS (S/C/W/114, S/CSC/W/21)
48. The Chairman recalled that Article XXI:5 of the GATS calls upon the Council for Trade in
Services to establish procedures for the modification of schedules.  At its meeting on 29 May 1997,
the Council had decided to refer this task to the Committee on Specific Commitments.  The
Committee had concluded its task and the draft pro cedures were contained in document S/CSC/W/21,
which had been circulated to delegations.  The Chairman also drew attention to document S/C/W/114,
which contained a draft decision by the Council adopting the procedures.  He invited the Chairman of
the Committee to present the draft.
49. Mr Juan Marchetti of Argentina, Chairman of the Committee on Specific Commitments, said
that the Committee recommended that the Council for Trade in Services adopt the draft decision.  HeS/C/M/38
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thanked all Members for their participation and flexibility, which had made it possible to arrive at a
satisfactory compromise.
50. The representative of Japan said that his delegation was joining the consensus, but wanted to
reiterate one of the points they had already stated at the meeting of the Committee on Specific
Commitments, namely that, as Members had not been able to reach a common understanding on thescope of retaliatory measures as prescribed by Article XXI:4(b), more work on this was needed, and
should continue in the Council for Trade in Se rvices, as well as in the General Council.
51. The Chairman proposed that, with the insertion of the date of 19 July 1999 at the end of the
second paragraph of document S/C/W/114, the Council for Trade in Services adopt the draft decision
contained therein.  The Council so agreed.
52. The representatives of the European Communities, Canada  and the United States  thanked the
Chairman of the Committee for his work.  The Chairm an extended his thanks to the Chairman of the
Committee, on behalf of all Members, for a tireless exercise and congratulated him on the success.
E. REVIEW OF THE ANNEX ON AIR TRANSPORT SERVICES UNDER
PARAGRAPH 5 OF THE ANNEX – COMMUNICATION FROM NEW ZEALAND,
CHILE AND SINGAPORE (S/C/W/113)
53. The Chairman drew Members' attention to the joint submission by the delegations of
New Zealand, Chile and Singapore, contained in document S/C/W/113, which addresses the review of
air transport and the operation of the GATS Annex pursuant to its paragraph 5.  He invited the
delegations concerned to introduce the paper.
54. The representative of New Zealand presented the paper, which builds on the submission made
by his delegation in November in the context of the Information Exchange Programme, on behalf of
his delegation and the delegations of Chile and Singapore.  He stated that the review of the air
transport sector and of the operation of the GATS Annex pursuant to its paragraph 5 was timely, in
view of the work carried out in other fora, in cluding UNCTAD, the OECD, and the on-going work in
APEC, and in view of the important industry developments and regulatory reforms which had taken
place in the sector.  He noted two elements of the paper:  First, New Zealand's experience in the sectorwas just one illustration, and other Members' examples were equally relevant;  second, the list of
elements in the proposed matrix was not exhaustive, and, for example, non-scheduled charter services
were an additional element to be studied.  He suggested that background material along the lines
suggested in the paper should be prepared without delay, for the Council for Trade in Services to be
better placed to undertake the mandated review before the end of the year.
55. The representative of Chile said that his delegation favoured incorporating air transport
services into the GATS, so as to open traditiona lly restricted markets and to allow air transport
services to develop without major State intervention, except for the areas of air navigation safety,
protection of consumers and to maintain free competition.  In 1979, Chile had adopted a policy
allowing any enterprise, Chilean or foreign, to offer all types of commercial air navigation services,
including cabotage.  Over the past twenty years, domestic air travel had increased by nearly 1000 per
cent;  in 1988, air passengers transported equalled 25 per cent of the population, and international airtraffic exceeded 3 million passengers and 220 million tonnes of cargo, with an annual growth rate of
14 and 13 per cent, respectively.  The Chilean experience had shown that bilateral systems were not
effective and did not always make it possible to develop air transport services in accordance with
countries' needs.  One of the advantages of subjecting air transport to GATS rules would be the
possibility of involving the dispute settlement understanding.  This had lead Chile to be one of thesponsors of this joint document.S/C/M/38
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56. By way of preliminary comments, the representative of Japan concurred that classification
issues, in particular of ground handling services, were important, and that examining the work of
other bodies, for example on competition regulation, was useful.  Very careful study of the matrix
proposal was needed in order to decide how to proceed.
57. The representative of Australia observed that information-gathering was important for the
review process, and found the paper's proposals on future action useful.  She asked if the matrix
concept, which was difficult to conceptualize, could be further expanded upon, possibly with a model
example, and proposed that non-scheduled services be added to the items listed.  She suggested that
background information be prepared by the end of September, rather than by the end of the year, to
give Ministers in Seattle the opportunity to comm ent on the air transport review issue and on how to
address it.  She further proposed that this item be placed on the monthly agenda of the Council for
Trade in Services, until different arrangements were in place.
58. The representative of the United States said the paper was useful to organize the review, and
wondered whether it would be possible to de-restric t it so that it could be shared with the private
sector.  He noted that the three delegations which had sponsored the paper had an open-skies
agreement with the United States and another twelve similar agreements.  As a preliminary
comments, he agreed that collecting information on the work of other bodies, at a multilateral andregional level, was useful, but observed that some was still on-going, and that only completed work
should be used.  On the matrix proposal, he said that more study was necessary, because separating
the various elements of traffic rights might create difficulties, as ancillary services needed to be
developed more extensively and compiling Members' policies required that different distinctions be
made.  His delegation was nonetheless interested in participating actively in the discussion and hopedthat the Council would move expeditiously to prepare and undertake the review.
59. More time to study the submission was requested by the representative of Hong Kong, China,
who in the meantime sought a number of clarifica tions.  He wondered about the reference to "GATS
scheduling considerations" in paragraph 12 and asked for elaboration of the classification distinction
between domestic and international air transport in the same paragraph;  he requested clarification ofthe mention of a "multilateral approach to competition regulation" in paragraph 13, and echoed
Australia's concerns about the matrix proposal, wh ich appeared complex and resource-intensive.  He
found that discussions on the desirability of a separate negotiating group to take forward work on the
review were premature at that stage.  The representative of Canada said that he would comment on the
paper at the next meetings of the Council.  The representative of Argentina said that his delegation
had not formed a position on the paper, and especially on paragraph 13, but would come back to it at
future meetings.  He was grateful for additional information, along the lines of the clarificationssought by Hong Kong, China.
60. The representative of the European Communitie s made some preliminary comments.  He said
that classification issues were very important, and referred in particular to the need to better identify
auxiliary services;  he agreed with the proposal th at the Secretariat examine the issue with respect to
ground handling and air cargo services.  He also concurred that information on the work of otherbodies was useful.  He sought clarification on the reference to competitive regulation in paragraph 13,
and explained that his delegation would oppose the singling out of air transport services as the only
sector where multilateral competitive regulation would be examined;  pro-competitive principles had
to be analysed with respect to all services sect ors.  The matrix concept in paragraph 14 required
further analysis;  it was also unclear whether the mention of Members' own policy approaches in thesame paragraph referred to their current policies or their future negotiating positions, as in the latter
case the reference would have been premature.  On the proposal that background information be
collected by September and that the review be started early, he indicated that the European
Communities' consultations with industry were far from concluded, and that they would therefore not
be ready to engage in a detailed review.  He wondered whether it was appropriate that the review takeS/C/M/38
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place before the start of the negotiations;  there was nothing in the GATS to that effect, and it seemed
logical that the review be an integral part of the negotiations, given the sensitivity of the sector.
61. The representative of New Zealand observed that Members had recognized the importance of
work on this issue, and addressed some of the comments which had been made.  On the reference to
classification and GATS scheduling, the thought had been expanded by examples, on ground handling
and air cargo services and others could be drawn both from auxiliary services and from those
identified in the Secretariat background paper on air transport services.  She noted that information on
the work of other bodies was considered useful.  Fu rther input and thought on the matrix proposal had
been requested by several Members;  her delegation would contribute ideas, but a collective
endeavour was important.  On the European Communities' comment, she noted that paragraph 5 of the
Annex required that the review be started before th e beginning of next year, but added that she did not
envisage that it would be completed before the start of the new round of negotiations.  As concernedtiming and organization of the review, and the concern that discussions of such issues might be
premature, she observed that her delegation also felt that the question of the tasking of a body to take
up the review could best be addressed in the context of the organizational structure of the services
negotiations.
62. Summing up the discussion on this item, the Chairman said that more time was needed before
definitive comments could be made on this issue.  In general, delegations agreed that there was a need
to assemble background material, but several wanted to study the suggestions made in the paper in
greater detail before committing themselves further.  In this light, for the time being the Secretariat
could contact other bodies, to gather information on the work they had carried out and which could be
of relevance to the review.  At the next meeting,  Members could revert to the issue, to make more
definitive comments, clarify how to proceed and agree on further work.
F. OTHER BUSINESS
63. The Chairman said that two issues had been raised under this agenda item.  A communication
had been received from the delegation of Japan on the review of MFN exemptions, and the delegation
of Costa Rica wished to make a statement on their ra tification of the Fifth Protocol to the GATS.  He
invited the delegation of Japan to present their paper which had been circulated as document
S/C/W/117.
64. The representative of Japan presented the paper submitted by his delegation.  He stated that
MFN exemptions were a serious deviation from one  of the most important principles of the GATS,
and should be reduced to a minimum in the next services negotiations.  Paragraphs 3 and 4 of the
Annex on Article II Exemptions contained a mandate for the Council for Trade in Services to review
all exemptions granted for a period of more than fi ve years, to examine whether the conditions which
had created the need for the exemption still prevailed.  The review and the negotiations were two
separate processes;  however, the review would be  an extremely valuable contribution for exemptions
to be reduced to a minimum during the next round of negotiations, and should be started in the
Council as soon as possible.  He suggested that th e Council ask the Secretariat to prepare a document
compiling an updated list of existing MFN exemptions, as a basis for the review.  On how to conductthe review, he suggested that it could take place either sector by sector or starting from a particular
type of exemption, such as reciprocity in mode 3, or preferential measures on the basis of bilateral
agreements.
65. The representative of Hong Kong, China said that Japan's paper was important and timely.
MFN exemptions were a serious deviation and they figured also in Hong Kong, China's paper on
negotiating guidelines and procedures.  He strongly supported the proposal that the Secretariat
compile a list of exemptions, and would consult his authorities on the modalities for such a review.
An additional possible approach to conduct the revi ew would be to look at principles on how toS/C/M/38
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remove the most common exemptions, or to consider the reasons why exemptions had been taken in
the first place and how their elimination could be facilitated.  The representatives of Chile, Australia ,
New Zealand and Korea  welcomed Japan's submission and concurred that the request that the
Secretariat draw up a list of exemptions was timely.  The representative of Korea observed that also in
his delegation's submission to the General Council it was stated that MFN was the most important
principle of the multilateral trading system, and suggested that the review be started before the end of
the year.  The representative of Chile said that the review mandated by the Annex and the negotiations
could be parallel processes.  He called for the review to start in September and added that the list bythe Secretariat might need to be compiled by sectors, as well as by countries.  The representative of
Australia concurred, and added that on the basis of such as list the Council could then decide how to
proceed.  The review process was an opportunity for transparency, and should be started as early aspossible before the start of the next round.  In accordance with the Annex, each Member could make astatement to the Council on its exemptions, justifyi ng the need to continue them, spelling out any
adjustment measures leading to their eventual removal and notifying a timetable for their removal.
66. The representative of Norway was in favour of the review starting as soon as possible, and
observed that a compilation of MFN exemptions had existed already and should not prove too
controversial an issue.  He said it was important to think about how to tackle the fact that the MFNprinciple did not apply in the maritime transport sector, and to look in the review at the justifications
for having any exemptions in this area.  The representative of Argentina had no objections to
examining the terms of the Annex, but observed that the proposed list by the Secretariat was notopportune yet, as it would be accelerating a process that his delegation saw as incorporating itself in
the services negotiations, and would imply revising  the Annex before the review of the Annex on air
transport, in spite of their having similar deadlines.  He agreed to having this item included for
discussion at the next Council meeting.
67. The representative of the European Communities observed that all exceptions to a rule were
considered "serious deviations" by virtue of their being exceptions, but MFN exemptions could not be
serious departures from what was legally accepted.  The issue needed to be examined further beforerecommending that substantial discussions take place at the next Council meeting.  He indicated that
it was premature to ask the Secretariat to draw up a list.  The representative of the United States said
that he needed more time to review Japan's paper.  He observed that the provisions on timing of the
Annex on Article II Exemptions were not identical, but still similar, to those in the Annex on Air
Transport Services, where the suggestion was that the review take place during the next round of
negotiations.  He found Chile's suggestion that the two processes could run in parallel a useful one.
He wondered what the expected outcome of the review of MFN exemptions was.
68. The representative of Turkey agreed with the remarks made by the European Communities
and said that discussing the substance of the issue at the next Council meeting was premature.  He
echoed the United States' comment that the reviews mandated in the Annex on MFN exemptions and
in the Annex on air transport had to be given the same treatment in terms of timing.  The
representative of Uruguay concurred that starting the review at the next Council meeting was
premature and that there was no shortage of time.
69. The Chairman indicated that, as this issue had been raised under the agenda item "Other
Business", Members were not expected to have a substantive discussion, but that note would be taken
of the statements made.  He suggested that the ag enda for the next Council meeting would include this
issue as an item and the Council would revert to it then.
70. The representative of Costa Rica stated that his country had completed the internal process of
ratification of the Fifth Protocol to the GATS, and would be seeking the opinion of the Secretariat and
other WTO Members to see whether the Protocol could be reopened for his country's acceptance or
whether it was necessary to wait until more countries in the same situation were ready to accept.S/C/M/38
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71. The representative of the United States note d that other countries remained outstanding in
their ratification and asked the Secretariat to inform the Council at its next meeting on the status of
acceptances.  He urged remaining countries to move expeditiously to complete their ratification
procedures.
72. The Chairman said that the next meeting of the Council for Trade in Services would take
place on Tuesday, 21 September 1999.  He also anno unced that Mr. Harald Fries of Sweden, former
Chairman of the Working Party on GATS Rules, was attending his last Services Council meeting;  on
behalf of the membership, he thanked him for the effort and time he had dedicated to trade in services
during his time in Geneva, wished him all the best for the future and welcomed his colleague,
Mr. Niklas Bergström.
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