RESTRICTEDWORLD TRADE
ORGANIZATIONS/C/M/54
27 August 2001
(01-4111)
Council for Trade in Services
REPORT OF THE MEETING HELD ON 9 JULY 2001
Note by the Secretariat
1. The Council for Trade in Services held a meeting on 9 July 2001. The Council elected
Ambassador Jara of Chile as interim Chairman for th e meetings of the regular and special sessions, as
the Chairman of the Council, Ambassador Amorim of Brazil, was unable to chair these meetings.
2. The agenda for the meeting is contained in document WTO/AIR/1584.  Under Other
Business, the representative of Panama stated that he wanted to make a statement on discriminatory
measures, contained in some Members' tax legislation, which had an adverse effect on services and
services suppliers in Panama.  The representative of Brazil said that he wanted to make a statement
concerning the proposed date of the Review of the Annex on Air Transport Services.  The Chairman
noted that the initially foreseen item on "Cooperation between ICAO and the WTO" had not been
included on the agenda, as ICAO was unable to attend this meeting.  The item would be taken up at
the next regular Council meeting in October.
3. The Chairman proposed that the Council adopt the agenda as circulated, with the addition of
the items raised under Other Business.
4. The Council so agreed.
A. ARTICLE II (MFN) EXEMPTIONS – ISSUES ARISING FROM THE REVIEW
5. The Chairman recalled that the Council had discussed various substantive issues arising from
the review of MFN Exemptions at its last meeting, stimulated by the communications from Japan;
Korea and Hong Kong, China (S/C/W/173) as well as Hong Kong, China (Job 7775).  One of the
issues initially raised in document S/C/W/173 and later elaborated upon in a communication by Chile
(Job (01)/34) related to the question of procedures for the termination, reduction or rectification of
MFN exemptions.  Upon request by the Council, the Secretariat had produced a note on this issue
(Job (01)/106).  The Chairman suggested discussing first the joint paper by Japan; Korea and HongKong, China; together with the separate communication from Hong Kong, China, as these
contributions raised a number of closely related substantive issues.
6. The representative of Hong Kong, China stated that the formulation in Articles XVI and XVII
clearly indicated the illegality of any MFN exemptions that purported to give the Member applying
such exemptions the right to grant less favourable tr eatment than that set out in its schedule of specific
commitments.  This argument was supported by other agreed WTO documents and guidelines, as
detailed in her delegation's contribution.  She encouraged Members to confirm this legal position, and
take forward the discussion on the removal of such MFN exemptions, in line with the procedures
suggested by Chile.  Referring to a comment made by the representative of the Dominican Republic at
the previous meeting regarding MFN exemptions in  the tourism sector that granted less favourable
treatment than that set out in the schedule of specific commitments, she stated that  Hong Kong, China
would urge the removal of such MFN exemptions.S/C/M/54
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7. The representative of Japan supported the comments made by Hong Kong, China, and
suggested that this legal position be reflected in guidelines on MFN exemptions that would be agreed
in the future.
8. The representative of Korea supported the statements made by Hong Kong, China and Japan.
9. In response to a suggestion by the United States that delegations should take up this matter
bilaterally with those Members concerned, the repres entative from Hong Kong, China stated that the
issue of MFN exemptions that granted less favourable treatment than that set out in a schedule of
specific commitments was of systemic importance and should therefore be addressed in the Council.
10. The Chairman concluded that certain issues raised under this agenda item had attracted more
attention than others.  For the next meeting, he suggested approaching the items in the papers
systematically to develop a better understanding of how to address these issues.  He requested
delegations to reflect on how to approach these issues  in the long run.  He then drew the attention of
Members to the question of procedures for the termination, reduction or rectification of MFN
exemptions, and the informal note on the legal aspects involved which had been produced by the
Secretariat upon request by Members, contained in JOB (01)/106.
11. A representative of the Secretariat stated that the note addressed the three situations of:
(i) rectification of a technical error in an MFN exem ption list;  (ii) termination of an MFN exemption;
and (iii) reduction of the scope or level of an MFN exemption.  It was noted that the GATS did not
provide any specific procedures that addressed these situations.  Therefore, it was up to Members to
decide if and how to address that procedural vacuum.  In so far as the termination of MFN exemptions
was concerned, the Annex on Article II (MFN) Exemptions foresaw only one scenario in which an
MFN exemption would have a specific termination da te.  In which cases the exemption would simply
terminate on the specified date and the Member concerned would not need to take any action.
However, there were no provisions for cases where the termination date was not inscribed in the
exemption, nor for cases where a Member decides to terminate an exemption prior to the date
inscribed therein.  Concerning the reduction of the scope or level of an MFN exemption, it seemed
that Members needed to take a policy decision first on whether such modifications should be allowed,and if so, what would be the appropriate procedure.  Finally, he noted that there would be no
impediment to applying the same certification procedure for all three cases.
12. The representatives of Chile and Korea
 supported the conclusions contained in the Secretariat
note and suggested that appropriate proced ures be developed as early as possible.
13. The delegation of Japan concurred with the conclusions drawn in the Secretariat note
regarding termination and rectification of technical errors, and agreed that an appropriate procedure
be drafted.  The more complex issue of reduction of MFN exemptions required further examination.
14. The representative of Mexico stated that his delegation agreed in principle with the
conclusions drawn in the Secretariat note, but needed to reflect further about the issues raised in
connection with the termination of MFN exemptions.
15. The representatives of the European Communities and the United States  agreed on the need
for procedures in the areas addressed in the Secretariat note which they needed to examine in greater
detail.
16. The Chairman suggested that the Council take note of the statements made and revert to the
item at the next meeting.
17. The Council so agreed.S/C/M/54
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B. RECTIFICATION OF A TECHNICAL ERROR IN AN MFN EXEMPTION LIST
18. The Chairman drew the Council's attention to the communication from the Dominican
Republic (S/C/W/175) concerning a technical rectification in its list of Article II (MFN) exemptions
with regard to legal services.  The technical error in question had existed since the conclusion of the
Uruguay Round.  He recalled that at the last meeting, Members in principle did not have any
substantive problem with the rectification of the error; however, some Members had suggested that it
might be preferable to develop the appropriate procedures for rectifications of MFN exemptions first
and to apply them to the case of the Dominican Republic afterwards.  From the discussion under the
previous agenda item, the Chairman concluded that the Council was not yet in a position to resolve
this issue at the present meeting.  He suggested that the present item be omitted from the agenda of
the next meeting and the issue be addressed once the question of procedures for rectifications of MFN
exemptions was settled.
19. The Council so agreed.
C. ARTICLE II (MFN) EXEMPTION IN BASIC TELECOMMUNICATIONS
20. The Chairman recalled that the Council had considered at its last meeting a "Draft Decision
on the Exemption from Article II (MFN) listed by Brazil in Basic Telecommunications," (S/C/W/192)
submitted by the delegation of Brazil.  He noted that the draft decision would allow Brazil to maintain
its MFN exemption resulting from the negotiations and listed under the Fourth Protocol, which would
take legal effect upon the entry into force of Brazil's schedule of specific commitments in basictelecommunications.  In parallel, Brazil had initiated a certification procedure for its schedule of
commitments in basic telecommunications, S/C/W/191.  Prior to the 45-day deadline for objections,
the delegations of the United States (S/L/94); Hong Kong, China (S/L/95); the European
Communities and their Member States (S/L/96); as well as Japan (S/L/97) had notified their
objections to the draft schedule of commitments in basic telecommunications.
21. The representative of Brazil recalled that his country had unilaterally decided - absent any
legal obligation - to present a new offer in basic telecommunications.  He noted that since the
circulation of the schedule for certification, four Members had filed objections to the schedule.  The
main argument presented in those objections was that the prerogative of the Executive Branch to
establish limits regarding the foreign participation in the capital composition of telecommunications
service providers was equivalent to leaving the mode 3 commitments contained in the schedule
unbound.  His delegation did not agree with that assessment and reiterated that the offer had sought tolock in a high level of liberalization for all se rvices included in the basic telecom model schedule
developed in the negotiations of the Fourth Protocol. Furthermore, Brazil had also been willing to
adopt the Reference Paper on Basic Telecommunications.
22. However, to his delegation's disappointment, and despite consultations at all stages of the
process, it had not been possible to arrive at a mutually satisfactory solution with Brazil's tradingpartners, given that their demands exceeded what could have been acceptable even in the context of
negotiations, let alone by a unilateral offer.  Accordingly, his delegation was left with no alternative
but to withdraw the draft schedule of specific commitments in Basic Telecommunications.  He
requested that the item on the draft decision on the MFN exemption be withdrawn from the agenda of
the Council.
23. The representative of Brazil emphasized the important steps his country had taken in
liberalizing its telecommunications sector, opening to all foreign suppliers the possibility of
establishment in the market under a regulatory regime founded on the principles of transparency,
non-discrimination and competition, thus guaranteeing the interests of consumers, of foreignS/C/M/54
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companies, as well as of Brazilian civil society as a whole.  Brazil remained committed to those
principles and stood ready to resume discussions in the context of the mandated services negotiations.
24. The representatives of the European Communities; the United States;  Hong Kong, China ;
Japan; and Korea ; while welcoming Brazil's efforts which contained many positive elements, stated
that the horizontal limitation under mode 3 would affect the legal certainty and predictability of the
commitments in the schedule.  They looked forward to continuing discussion with the delegation of
Brazil.
25. The representative of Brazil reiterated that hi s delegation remained ready to resume talks on
the issue in the context of the mandated services negotiations.
26. The Council took note of Brazil's statement that it would withdraw its draft schedule of
specific commitments in basic telecommunications, and of the other statements made.
D. REVIEW OF THE UNDERSTANDING ON ACCOUTING RATES IN BASIC
TELECOMMUNICATIONS
27. The Chairman drew the attention of the Council to a proposal on Terms of Reference for a
Telecommunications Accounting Rates Review (Job (01)/73) from Australia.
28. The representative of Australia stated that his delegation's objective was that all
telecommunications systems be operated within the agreed trade rules  and to have clarity that the
basis of payment rates was consistent between countries. The report adopted by the Group on Basic
Telecommunications in February 1997 had based its decision to apply a moratorium on dispute
settlement in relation to accounting rates on three premises. The first premise was that the accounting
rate system was the usual method of terminating international traffic.  Secondly, the accounting ratesystem by its nature involved differential rates; and thirdly, that the submission of further MFN
exemptions should be avoided.  These original premises needed to be re-examined as part of the
review of the moratorium.  With regard to the first premise, he noted that as much as half of all traffic
now passed outside the accounting rate system - for example, via the Internet - or was routed in ways
to exploit the least costly rout e between two end-points.  With regard to the second premise, he
contended that although the accounting rate system involved differential rates, this did not imply that
government measures regulating those rates had to discriminate in their application in an MFN-
inconsistent way between countries.  Instead, where go vernments intervened in the setting of rates, the
factors underlying the determination of rates should be applied consistently between countries.  He
stressed that this did not mean that rates had to be uniform.  They could be differentiated, yet the
factors taken into account in setting those rates should be applied consistently to all countries.  With
regard to the third premise, he stated that the trend towards liberalization of internationaltelecommunications services and the declining use of accounting rates, provided propitious conditions
for a removal of the moratorium.  All internationa l telecommunications services should be recognised
as traded services, and international settlements ar ising from such services should be subject to the
GATS principles of MFN and transparency.
29. In order to further clarify the Australian position, he addressed several questions that his
delegation had been asked in the past.
1  First, it was sometimes argued that the removal of the
moratorium, and with it the ability of members to engage in discriminatory government measures on
accounting rates, would result in a loss of revenue for developing countries. He stated that statistics
clearly indicated that the proportion of international traffic using the accounting rate system was
declining, as was the level of accounting rates themselves, particularly toward the end of the 1990s.Therefore, claims about potential revenue loss were exaggerated.  Secondly, it was sometimes argued
                                                     
1 Subsequently circulated as Job (01)/111.S/C/M/54
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that the issue of accounting rate reform should be le ft to the ITU.  In Australia's view, whilst the ITU
had legitimate jurisdiction to examine accounting rate issues, it had no mandate or capacity
concerning government commitments to internati onal trade rules. Therefore, any issue concerning
trade-related government measures on telecommunications settlements must be addressed through the
GATS. He further emphasized that there was no conflict between ITU recommendations onaccounting rates and the GATS principles on trade in services. The ITU Standardization Sector
Recommendation D 150, "General Tariff Principles," provided ample flexibility for Members to apply
any of five differential international telephony systems in ways that complied with the GATS and its
Annex on Basic Telecommunications.
30. The representative of Cuba stated that the current moratorium on accounting rates should be
maintained, because the conditions that prevailed at time of the original decision still existed.  While
new services had appeared under the ITU recommendation D 150, the imbalance in termination oftraffic from developing to developed countries still existed, with detrimental effects for the revenue of
developing countries.  The issue should be further analyzed by the ITU.
31. The representative of the European Communities stated that it was important to further reduce
the costs of telecommunication services.  He shared the view of other delegations that the moratorium
had not expired.  In the long term, the question of accounting rates by public authorities woulddisappear.  The issues of concern to Australia could well be addressed in the current negotiations.
32. The representative of Mexico stated that the conditions that had originally given rise to the
moratorium still existed at present.
33. The representative from the United States stated that while his delegation did not oppose
extension of the accounting rates moratorium, he concurred with Australia that further justification of
its need was required. At a minimum, it was unclear as to whether the moratorium was currently in
effect. That uncertainty provided neither legal certainty nor a solid basis for establishing domestic
policy.  Opening markets to competition would eliminate any rationale for mandated accounting rates:
where competition was sufficient, market forces would set the rates at a more cost-based level.
Indeed, in the United States a substantial portion of international traffic - over 50% - was now settledoutside the accounting rate system.  Members that hindered the transition to reasonable market based
rates by clinging to the accounting rate system would further entrench incumbent operators in their
dominant positions, thus diminishing consumer benefits such as lower prices and higher volumes of
international calling.  His delegation supported an earlier call by Australia that a deadline for a
decision on re-instituting the moratorium should be established.  Unless countries with an interest in
re-establishing the moratorium could demonstrate a clear need for it,  the issue should be considered
closed and evidence that there was no need for a moratorium should be deemed established.
34. The Chairman suggested that the Council take note of the statements made and revert to the
item at the next meeting.
35. The Council so agreed.
E. ELECTRONIC COMMERCE
36. The Chairman recalled that at the last meeting, only a very brief discussion on electronic
commerce had taken place.  At the time, most delegations felt that they would like first to digest a
very substantive discussion that had taken place under the auspices of the General Council on this
issue. At that discussion, Members had agreed that the subsidiary bodies should continue their work
and report back to the General Council.  Delegations had also addressed a number of sectoral issues inwhich the Services Council could possibly make further progress.  He recalled that many of theseS/C/M/54
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issues had already been discussed in the Services Council and the status of that discussion was
reflected in the Council's report to the General Council (S/L/74).
37. The representative of the European Communities stated that his delegation had suggested in
its communication S/C/W/183 that the Council focus on classification and the application of the
telecom annex and the reference paper.  He was looking forward to receiving comments on these orany other issues that delegations wished to address under electronic commerce.
38. The representative of Turkey  stated that while electronic commerce provided inexpensive and
rapid access to new markets, legal adjustments affe cting the competitive environment of world trade
were required. Such adjustments should provide Members with equal opportunities to compete.  She
also supported the views reflected in the communication from the European Communities.
39. The representative of Uruguay, speaking on behalf of Mercosur , drew the Council's attention
to Mercosur's communication to the General Counci l, WT/GC/W/434.  On the basis of the reports by
the Services Council to the General Council, the Mercosur communication identified a number of
sectoral issues on which the Services Council should continue its work.
40. The Chairman suggested that the Council re vert to the item at the next meeting.
41. The Council so agreed.
F. TECHNICAL REVIEW OF THE GATS
42. The Chairman recalled that issue of a technical review of GATS provisions had been
considered at various stages over the course of the last year.  A very constructive exchange of views
had taken place at the last meeting over a proposal by the delegations of Australia; the European
Communities and their Member States; Hong Kong, China; Japan; Norway and Switzerland;(Job (01)/40) to place the item of technical review of GATS provisions on the agenda on a regular
basis.  The Chairman noted that during the discussions, many delegations had expressed support for
the idea of a technical review in principle, and that delegations agreed that any review needed to
preserve the existing structure and principles of the GATS.  He recalled that some Members were in
favour of a more closely defined scope and time frame for the review.  He drew the attention of theCouncil to an informal paper by Japan, (Job (01)/107), which made suggestions with regard to
possible issues to be addressed in a technical review.
43. The representative of Japan stated that there were many issues that would lend themselves to
consideration in a technical review.  In its communication Japan had focussed in particular on GATS
Article XX:2 as a possible starting-point for a technical review.  In Japan's view, it was difficult to
distinguish whether the limitation inscribed in the column of Market Access restricted national
treatment disciplines in cases where commitments we re scheduled in accordance with Article XX:2 of
the GATS.  This difficulty could undermine the clarity of schedules.  To clarify this issue, he
suggested that Members should consider applying paragraph 18 of the scheduling guidelines to all
specific commitments that will be made in the future.  This could be done either by adoption of an
understanding on the interpretation of Article XX:2; through an amendment to Article XX:2; or by
adding paragraph 18 to the guidelines for the request-offer process.  In the future, Japan would alsowish to discuss certain ambiguous points relating to the interpretation of Article V.
44. The representative of Norway stated that five years after the GATS had entered into force, it
appeared that certain provisions in the agreement were possibly not as clear as originally intended.  In
addition, the legal consistency of some provisions had come into question.  He believed that a
technical review of these provisions would help to clarify some of the issues.  However, it would bepremature to present a final exhaustive list of issues for the review, as progress with the mandatedS/C/M/54
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negotiations might bring new issues to the attention of Members.  He suggested to begin the technical
review on the basis of two issues set out in a Secretariat background note (Job (01)/17).
45. The representative of Hong Kong, China stated  a technical review should progress on the
basis of Members contributions.  The issues identified by Japan and the Secretariat could serve as a
starting point.
46. The representative of the United States stated that the small number of issues suggested for
review to date did not justify a technical review.
47. The representative of Mexico stated that the five years experience in implementing a complex
agreement such as the GATS had been too short to decide whether certain of provisions of the GATS
required changes.  Problems related to Article XX:2 could be addressed in the context of making
future commitments, and issues related to the coverage of Articles XVI and  XVII could be taken up
where concrete problems in the schedules of Members existed.  In any case, if a technical review wasto be agreed, a set of topics and a calendar, and perhaps also time-limits for discussion, would have to
be agreed.  The representative of Mexico further stated that it had not been multilaterally agreed to
place an item with the title "Technical Review of the GATS" on the agenda.  While he recognized the
need for the present discussion, he stated that the title of the item should have clearly indicated that
the technical review was a request or a proposal by a limited number of delegations.
48. The representative of Uruguay, speaking on behalf of Mercosur
, supported the point made by
Mexico on the title of the agenda item.  Formally, the title should have been "Request for a Technical
Review" together with the names of the requesting Members.  While any delegation could table a
proposal, it was important to clearly indicate this in the agenda of a meeting. On the substance of the
issue, he reiterated that a list of issues was an important prerequisite for starting a technical review.
Article V was a fundamental part of the GATS and reflected a very delicate balance of rights and
obligations of Members.  Mercosur members could under no circumstances accept that Article V be
covered by any technical review of the GATS.
49. The representative of Cuba supported the comments made by Mexico and Uruguay.
50. The representative of Hungary supported the proposal for conducting a technical review, and
also supported the view that a list of issues to  be taken up in the review should be established.
However, such a list should leave the door open for Members to raise other issues of technical nature,
provided that the Council for Trade in Services agr eed to their consideration at a later stage.  There
was no need to establish a deadline for the review.  He supported consideration of the two issues
given as examples in the Secretariat note (Job(01)/17), namely the overlap between the Articles XVI
and XVII, and the relationship between paragraphs. 1 and 2 of Article XVI.  He also supported
considerations of Article XX:2; as for Article V of the GATS, he agreed with Mercosur that this wasnot a suitable issue for a technical review.
51. The representative of Switzerland supported the approach taken by Japan, i.e. to tackle
technical issues case-by-case on the basis of Members' submissions.  Instead of defining a complex
work programme with a detailed time frame it was more pragmatic to address technical problems as
they arise and once a Member tables a proposal.  He proposed to include in the review an ambiguitybetween the definition of "service supplier" in GATS Article XXVIII:(g), where the term was defined
as "any person that supplies a service", vis-à-vis bullet 5(b) of the Annex on Financial Services, which
described a financial service supplier as "any natural or juridical person of a Member wishing to
supply or supplying financial services."
52. The representative of Korea stated that a technical review of GATS provisions was necessary
to enhance the overall legal clarity of the Agreement.  He supported the issues suggested forS/C/M/54
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examination in the communication from Japan and believed the process of submitting issues for
discussion should continue case-by-case on the basis on written submissions.
53. The representative of the European Communities stated that the most beneficial way of
conducting a review was to proceed pragmatically on a case-by-case basis, starting with the issues set
out in the Japanese contribution, the note by the Secretariat, and the additional issue identified bySwitzerland at this meeting.  She encouraged those countries that had identified other issues to come
up with papers, which set out the problems and proposed possible ways for their resolution.
Commenting on the formal point raised by Mexico and Uruguay, she stated that the conclusions of the
Chairman at the last meeting clearly stated that th e Council would revert to this item at the present
meeting; hence there was no reason to change its title.
54. The representative of the Dominican Republic stated that the title of the agenda item could
give the false impression of consensus among Members on the question of initiating a technical
review.  He suggested that technical problems shou ld be taken up in the context of the implementation
mechanism in the General Council.  The technica l issues that required changes to the GATS were
comparable to issues, arising in other agreements, for which certain Members sought resolution.
55. The representative of New Zealand stated that any delegation could inscribe any item in the
agenda of the Council and that his delegation would engage on any item inscribed in the agenda.  He
supported the view that a technical review should s eek to resolve issues of a technical nature, and
concurred with other delegations that issues related to Article V were of a substantive nature.
56. The representative of Australia stated that the present negotiating process would be enhanced
and enforced through the possibility of identifying provisions in the GATS which constituted a source
of uncertainty and a common view should be reached on how they should be understood.  Thetechnical review should proceed in parallel with the negotiations.  While there may not be a large
number of issues in total, some of the issues constituted a significant source of uncertainty and a lack
of clarity.
57. The representative of Singapore supported the view that the review should be conducted on
the basis of Members' submissions.  A possible time frame for the review could be the timeframe for
the negotiations.  Like other delegations he did not consider Article V as a technical issue suitable for
review.
58. The representative of Kenya emphasized the importance of Article V and supported the
comments made by those delegations that were critical of its inclusion in a technical review.
59. The representative of Japan, in response to a question by Brazil , stated that the reference in
paragraph 4 of Job (01)/107 to "the procedural guidelines for negotiations on request and offer" which
were "to be adopted at the CTS", was foreshadowing that once the services negotiations entered intothe stage of request-offer negotiations, the Council would adopt a decision on the procedure guiding
these negotiations.  It was Japan's view that a clarification of Article XX:2 would also clarify the
exact content of Members' offers without producing any legally binding disciplines.  It was beneficial
to start negotiations on the basis of a common understanding of this issue.
60. The representative of Malaysia stated that his delegation's earlier apprehension to agree to a
technical review were confirmed by Japan's proposal to include Article V in such a review.
Examining this Article had implications for the whole structure of the GATS.  He was further
concerned by an open-ended timeframe and an open-ended format and structure of the review.
61. The representative of Argentina stated that Members should be cautious not to introduce
issues that were not sufficiently mature, considering the short time that the GATS had been existing.S/C/M/54
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It was necessary to define the scope of a technical review very accurately.  It should be clear that any
technical review should produce greater technical clarity and remove ambiguities, but should not alter
the substance of the commitments made.  In making proposals, Members should indicate the practical
impact of the technical issues identified.  On the issue raised by Switzerland, he believed that the was
no lack of definitional clarity.
62. The representative of Canada stated that the discussions had shown that drawing up a
concrete programme for a review led to difficulties.  He preferred to continue examination of any
issue based on submissions by Members.
63. The representative of Indonesia stated that there should be an agreed definite notion of the list
of issues, rather than starting an open-ended exerci se.  A time frame needed to be established for the
review.
64. The Chairman concluded that while not all Members were persuaded by the necessity of a
review, no Member had voiced outright opposition to a review.  There appeared to be consensus that
the overall objective of any review would be to improve legal certainty and clarity of the Agreement,
without changing its structure or principles.  He stated that delegations did recognize that any Member
had the right to bring to the attention of the Council any subject it deemed appropriate. He suggested
that in the future, the present item should be inscribed on the agenda as "Proposals concerning aTechnical Review of GATS provisions." The Chairman noted that some delegations would like to see
a definite list of issues and a time frame for the technical review, while others believed it would be
more productive to approach issues as they arose on the basis of Members' submissions.  He
suggested that the Council revert to the matter at its next meeting, and discuss in substance the various
provisions that had to date been presented for a technical review. The substantive discussion couldtake place on an item-by-item basis, addressing the following issues: (i) Article XX:2; (ii) Articles
XVI – XVII; (iii) paragraphs 1 and 2 of Article XVI, and (iv) Article XXVIII:(g) together with
paragraph 5 (b) of the Annex on Financial Services.
65. The Council so agreed.
G. OTHER BUSINESS
66. The representative of Panama stated that his delegation was concerned to see that some WTO
members had adopted or intended to adopt, in their tax legislation, discriminatory measures affecting
services and services suppliers in Panama.  This issue had been come to be known commonly as the
problem of "financial black lists".
67. Some of these measures or intentions seemed to be based on studies that were drawn up in
1998 and 2000 by the Committee on Fiscal Affairs of the Organization for Economic Cooperation andDevelopment (OECD), in the context of the so-cal led programme on "Harmful Tax Competition."  He
noted that other measures that had already been app lied with negative effects on trade in services in
Panama may well have their own justification.  In either case, the measures considered or being
applied had an effect on transactions with countries that were classified by these countries as tax-
havens or jurisdictions with low levels of taxation; he stressed that these measures violated theMembers obligations under the GATS.
68. Among the countries that were considering or applying these measures the view was
prevalent that the competitiveness of Panama's tax-collection system affected their own tax collection
and had an impact on the allocation of capital internationally.  In reality, the measures were applied as
a reaction to Panama's competitiveness through lower levels of taxation, but were labelled harmful taxpractices.S/C/M/54
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69. The representative of Panama underlined that none of the characteristics that were qualified as
harmful tax practices applied to the Panamanian tax regime, which was a progressive, modern and
transparent tax system that set tax percentage rates at levels consistent with those that were
customarily applied internationally.  Unlike the systems of some of the jurisdictions that imposed or
considered imposing measures in this case, the Panamanian system did not discriminate in favour offoreigners and non-residents to the detriment of national residents.
70. Furthermore, Panama applied an advance system of mutual legal assistance for an exchange
of information with other States and it had an excellent record of cooperation in that area.  If the
measures applied were in design consistent wi th the basic principle of most-favoured nation, as
incorporated in the GATS, their application in the case of Panama would be unjust.  Regardless of any
abstract injustice, the measure proposed by the OECD and those applied presently by some WTO
members were in his delegation's view in violation of the GATS.
71. The measures in question were or would be applied with the objective of collecting tax
earnings and particularly earnings abroad from some tax payers who did not report to the jurisdiction
where the measures were applied.  The effect of the measures was that the Panamanian service
suppliers were denied any benefits and that transactions were more complicated and difficult; as a
result the competitiveness of Panamanian suppliers was reduced, investments discouraged and so on.All this was done on a discriminatory basis and in violation of the MFN principle.
72. The general exception provided for in the GATS, were not relevant for these types of
measures that his delegation was challenging.  The exceptions provided for under Article XIV:(d) and
e related to the tax regime and allow for differ ent treatment only in two cases: one, when the
difference in treatment was aimed at ensuring the equitable or effective imposition or collection ofdirect taxes in respect to services or service suppliers of other Members.  Secondly, when the
difference in treatment was the result of an agreement on the avoidance of double taxation or
provisions on the avoidance of double taxation in any other international agreement or arrangement
by which the Member was bound.
73. The second exception was not applicable, because the measures were not applied on the basis
of any agreement to avoid double taxation.  The purpose of the measures instead was to recover losses
resulting from tax evasion of the countries on tax payers, be they nationals or residents, for fiscal
purposes.
74. The first exception did apply either as its use was limited to the imposition or collection of
direct taxes in respect to services or service supplier of other members.  It was difficult to imagine
how the Panamanian tax regime could have an impact on the ability of other jurisdictions to impose
and collect taxes on Panamanian services or suppliers that required the application of discriminatorymeasures, measures distinct to those used in the cases of other suppliers other than nationality.
75. He concluded that his delegation had contacted the delegations of some of the countries
concerned, i.e Mexico, Argentina, Venezuela and others and discussed the concerns.  He hoped that
future discussions would help to avoid discrimination would lead to the complete elimination of the
present discriminatory measures.
76. The representative of Brazil suggested to find another date for the review of the Annex on Air
Transport Services, scheduled for October 2001, as this meeting coincided with the meeting of the
33rd Assembly of ICAO.
77. The Chairman suggested that based on indications by delegations, a new date should be fixed
for the meeting on the Review of Air Transport Services.
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