WORLD TRADE
ORGANIZATIONS/CSS/W/42/Suppl.1
14 May 2001
(01-2469)
Council for Trade in Services
Special SessionOriginal:  English
COMMUNICATION FROM JAPAN
MFN Exemption:  Analysis and Proposal
Supplement
The following communication has been received from the delegation of Japan with the
request that it be circulated to the Members of the Council for Trade in Services.
_______________
I. INTRODUCTION
1. Approximately 400 MFN exemptions are listed in  the Annex on Article II Exemptions to the
General Agreement on Trade in Services. The  MFN principle is one of the most important pillars for
realizing trade liberalization in a multilateral framework and is one of the most fundamental principles
of the WTO Agreement.  Thus, an MFN exemption is a deviation from this important principle.  The
Annex on Article II Exemptions specifies the condition that are exempt from obligations under
paragraph 1 of Article II, such as, "in principle, such exemptions should not exceed a period of
10 years", or "in any event, they shall be subject to negotiation in subsequent trade-liberalizing
rounds".  Bearing this in mind, the MFN exemptions are subject to the current services negotiationspursuant to paragraph 6 of the Guidelines and Pr ocedures for the Negotiations (S/L/93), and their
elimination and reduction should be one of the most important topics of discussion in order to
progressively achieve a higher level of liberalization.  Japan stated in its proposal (S/CSS/W/42)
submitted in December 2000, that it shares with other Members, for example Hong Kong, China
(S/CSS/W/6), the idea of eliminating all registered  MFN exemptions by the end of 2004, or at the
conclusion of the current negotiations, whichever comes earlier.
2. Meetings on MFN exemption review were held last year as ad hoc sessions of the Council for
Trade in Services.  These have enabled us to exchange background information on the registered
measures, including the conditions that created the need for the exemptions at the outset.  We are very
much in favor of promoting further the on-going pro cess to follow up these discussions.  The results
of the MFN exemption review, and the subsequent discussions, should be effectively used during the
future negotiations regarding the elimination and reduction of MFN exemptions.
3. This paper provides a basic analysis of all registered MFN exemptions based on data
compiled on a country and sector basis, thereby allowing a common understanding among Members.
Based on the findings of this analysis, Japan proposes that developed countries take the initiative toreduce their exemptions during the preparation process leading up to the negotiations on eliminating
and reducing MFN exemptions.  All the details of this analysis are based on the Secretariat note
(Job 1551).S/CSS/W/42/Suppl.1
Page 2
II. COUNTRY SHARE OF REGISTERED EXEMPTIONS.
4. Of the total 401 MFN exemptions registered with the WTO, we have included only 331 in our
analysis.  The remaining exemptions, relating to  maritime transport (63 measures) and to the
accounting rates of telecommunications (7 measures), have been excluded from this analysis.  The
reason for excluding (1) maritime transport is that the negotiations in this sector have been suspended,and also that the MFN obligation described in both Article II and the Annex on Article II Exemptions,
has not been applied to any Member unless it has made specific commitment.  The analysis of this
sector will can possibly be conducted after the conclusion of the current service negotiations, or (2)
the accounting rates of telecommunications is that the MFN obligation in this sector has neither been
applied, in accordance with the understanding on the accounting rates in telecommunications reached
during the negotiations on basic telecommunications.
5. By classifying all Members into 5 groups according to the amount of their registered
measures, we find that merely 13% of Members (17 Members) have registered 51% of all registered
MFN exemptions.  Thus we note that a large proportion of the total exemptions are registered by only
a limited number of Members.
Country share of registered MFN exemptions
21%
28%
21%30%D: 7-9measures
(9 Members)7%
C: 4-6measures
B: 1-3measuresA: 0 measuresE: 10-measures
(8 Members)6%
A: 0: 61Members
B: 1-3: 39Members
C: 4-6: 18Members
D:7-9: 9 Members
E: 10-: 8 MembersOuter circle: Ratio of the number of the Member group classified          according to the num ber of their registered measures.
Inner circle: Ratio of the number of measures   
registered by each Member group13% (D+E) of Members have 51% (d+e) of total   exemptions
 a(0%
 (61 Members)45%
 (39 Members)29% (18 Members)13% 
b  
 d  c S/CSS/W/42/Suppl.1
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III. CLASSIFICATION OF REGISTERED EXEMPTIONS ACCORDING TO THE
STAGE OF ECONOMIC DEVELOPMENT
6. By dividing the Members into developed, developing and least-developed countries (based on
the World Bank classification), and examining their usage of MFN exemptions we have found that
developed countries, accounting for 36% of the number of Members, have registered 47% of themeasures, while developing countries, accounting for 53% of the total number of Members, have
registered 45% of the exemptions.
Registered MFN exemptions according to  the stage of economic development
 
47%
45%8%
Developed country
36%
Developing country
53%LDC
11%
Developed country: GNP per capita > $9360Developing country: GNP per capita > $760Outer circle: Ratio of the number of the Member group       
     classified according to the number of their registered 
     measures.Inner circle: Ratio of the number of measures registered      by each Member groupS/CSS/W/42/Suppl.1
Page 4
7. Significantly, those countries with more than 7 exemptions are mostly developed countries.
Developed countries, which account for 64% of the Members, have registered 68% of the exemptions.
(Reference)
The number of registered MFN exemptions by coutries(74Members)
11
384 117
138
15
1 2
05101520253035
11 16
The number of exemptionsThe number
 
of Members
Developed Developing LDCRegistered MFN exemptions according to  the stage of economic development
(17 Members registering more than 7 exemptions, 165 exemptions)
68%23%9%
Developing country
24% Developed country
64%LDC
12%
Developed country: GNP per capita > $9360Developing country: GNP per capita > $760Outer circle: Ratio of the number of the Member    
   group classified according to the number of their    registered measures.
Inner circle: Ratio of the number of measures 
   registered by each Member groupS/CSS/W/42/Suppl.1
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IV. CLASSIFICATION OF REGISTERED EXEMPTIONS BY SECTOR
8. There are 75 cross-sectoral exemptions and many of them relate to either the movement of
natural persons (VISA requirements, etc.), or to investment (purchase of real estate, preferential
measures, etc.).
9. With regard to single-sectoral registered MFN exemptions (258 exemptions), many of them
relate to audiovisual services (29%), financial services (20%) and road transport services (17%).Cross-sectoral registered MFN exemptions (75 meassures)
movement
of natural persons 
38%others
33%
investment
29%
Single-sectoral registered MFN ex epm tions (258 m easures)
29%
Financial
20%Road transport
17%Bus iness
9%Air transport 9%Com m unication/ 
other 5%Transport/other 3%
Internal transport :4%Culture 2%Distribution 1%
Tourism 0%Health 0%Construction 1%
Audiovisual:78
Financial:51
Road transport:45
Busines s:22
Air transport:22
Com m unication/other:12
Internal waterways:10
Transport/other:7
Cultural:4
Distribution:3
Construction:2
Health related:1
Tourism :1S/CSS/W/42/Suppl.1
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10. By dividing the Members into 6 geographic regions, and examining their use of exemptions
within the above mentioned 3 sectors, the following results can be seen below.
V. CONCLUSION
11. As shown in the above analysis, MFN exemptions are not equally registered by all Members.
Rather, only a handful of Members occupy a large proportion of their total exemptions.  Thus, toachieve our goal of eliminating MFN exemptions, it is indispensable for Members to seriously
endeavor to reduce them.
12. In view of advancing the current services negotiations, it is not appropriate for developed
countries to maintain the total number of MFN exemptions registered, especially since they are
expected to set an example by opening their large markets to all Members, including developing
Members.  Thus, in order to achieve further liberalization in the future, in cooperation with
developing Members, developed countries with many exemptions should take the initiative to reducetheir exemptions as much as possible.
13. Japan has already proposed that all registered MFN exemptions should be eliminated by the
end of 2004, or at the conclusion of the current negotiations, whichever comes earlier.  So as a first
step in realizing this goal, developed Member s should eliminate by the end of 2001 all MFN
exemptions that only have a nominal significance and have never been applied in reality.Furthermore, developed countries should endeavor to eliminate as early as possible those MFN
exemptions which have real implications and which are currently in use, preferably by the end of
2002.
__________
Ratio of the number of registered MFN exemptions in 3 sectors from 6
i
3147
23748
18
129
6122
16 2 13
0% 20% 40% 60% 80% 100%Road transportFinancialAudiovisual
Asia
Europ
North
Ai
Latin
Ai
Africa
Oceani