WORLD TRADE
ORGANIZATIONS/C/W/204
30 November 2001
(01-6117)
Council for Trade in Services Original:  English
COMMUNICATION FROM THE REPUBLIC OF KOREA
Examination of MFN Exemption Measures
The following communication has been received from the delegation of the Republic of
Korea with the request that it be circulated to the Members of the Council for Trade in Services.
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I. BACKGROUND
1. The two special review sessions for the MFN exemption measures during the year 2000
proved to be successful in sharing information in  detail on the nature of the current exemption
measures. During the review sessions, some, if not many, members stated that they have not invoked
MFN exemption measures since 1995, and some even indicated the willingness to eliminate those
measures on a voluntary basis.
2. After the review sessions, Hong Kong, China, Japan and Korea submitted a joint proposal
(S/C/W/173) on matters arising from the review. Th e joint proposal has identified many issues for
further discussion. In this vein, Hong Kong, China has specifically proposed through Job. 7775 that
members who have MFN exemptions which purport to grant less favorable treatment than that set out
in a specific commitment should review  and delete the said exemptions.
3. Japan has recently circulated an analysis  and proposal (S/CSS/W/42/Suppl.1) on MFN
exemptions. This analysis showed that only a handful of members occupy a lager portion of the total
MFN exemptions, and Japan proposed that developed countries with many exemptions especially
should take the initiative to reduce their exemptions as much as possible.
4. In June this year, OECD issued a very co mprehensive in-depth study on MFN exemptions
(TD/TC/WP(2001)25). This study showed, among other things, more than half of the exemptions
were taken in sectors that might be said to have provided for relatively limited multilateral
liberalization.
II. RELATIONSHIP BETWEEN MFN EXEMPTIONS AND ECONOMIC STATISTICS
5. Korea has conducted a study on the relationship between MFN exemptions and a number of
economic statistics. The study revealed that the number of MFN exemptions is inversely related to the
level of economic development as shown in Table 1. As can be seen from the Table 1, higher income
group members have more MFN exemptions on the whole as well as on average, and that a larger
number of lower income group members have not sought MFN exemptions at all.S/C/W/204
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6. Interesting results were also obtained by examining the relationship between the MFN
exemptions and services trade statistics. Using the WTO data on trade in commercial services,1 a
statistically significant positive relationship was found between the number of MFN exemptions and
the trade balances in commercial services among members. This relationship is rather surprising since
it could imply that countries with more favorable trade performance in commercial services havemaintained more MFN exemptions. Since there was no causality test, this relationship could also be
said to indicate that MFN exemptions may serve to improve BOP. However, similar result was
obtained for the relationship of the MFN exemptions and the total amount of trade in commercial
services, which would not support the previous ar gument that MFN exemptions would improve BOP.
TABLE 1. RELATIONSHIP BETWEEN MFN EXEMPTIONS AND INCOME GROUP
Members with MFN exemptions
2 Members without
MFN exemptions
Avg. number of
measuresNumber of
measuresNumber of
membersIncome Group3
Number of members
6.1 164 27 High 10
4.5 95 21 Upper Middle 6
4.1 82 20 Lower Middle 10
4 60 15 Low 26
7. Another interesting result from a study carried out by a Korean researcher is that the number
of MFN exemptions is also positively related to the level of specific commitments. His study counted
the number of sub-sectors where specific commitments were made,4 and then assigned the same
weight for each sub-sector. Such calculation was done for 11 sectors, again equally weighted.
According to this calculation, members who made a higher level of commitment also maintain a
larger number of MFN exemptions. All these findings seem to suggest that more developed countriesmaintain more specific commitments and at the same time more MFN exemptions.
III. COMPLIANCE WITH MFN GUIDELINES
8. Job 2061 of September 15, 1993 provided a guideline to the members how an MFN measure
is to be listed. According to that guideline, a measure, not just the names of laws or agreements, is to
be listed which gives preferential treatment for certain countries, and the duration of the measureshould not exceed 10 years in principle.
9. According to the OECD paper me ntioned in paragraph 4 above, only 9 of the 424 exemptions
are said to apply for a duration of 10 years, and 10 exemptions specified that the exemption measures
will be reviewed for removal. The Korean study mentioned in paragraph 7 further showed that as
many as 98 measures explicitly or implicitly indicate future treatments, not existing treatments, and
111 measures did not clearly mention what are the preferential treatments.
                                                     
1 International Trade Statistics 2000, WTO
2 Based on Job. 1551
3 World Bank definition
4 Quality of commitments was not considered.S/C/W/204
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IV. FURTHER EXAMINATION INTO THE CURRENT MFN EXEMPTIONS
10. As has been pointed out by Hong Kong, China in its proposal of Job. 7775, an exemption
measure is to specify the preferential treatment over those in specific commitments. If specific
commitments were made, and at the same time, MFN exemption was listed for those commitments,
such exemption would not relieve a member of extending its commitments to all other members.However, such cases are quite wide spread in th e current MFN exemptions. The Korean study pointed
out that as many as 53 measures potentially indicate less favorable treatment, since these measures
were taken against the specific commitments listed in the national schedules.
11. Also concerned is the breadth of certain exemption measures. Some exemptions seek
complete exemption for any measures in a sector, or even across all sectors. These measures are not
prohibited from being listed by any provisions or guidelines, but such broad exemptions are against
the general goal of multilateral liberalization through the WTO. According to the quoted Koreanstudy, there are 34 such measures. One interesting point is that these measures for less preferential
treatment and for broad exemptions are slightly more listed by lower income group members.
12. Certain measures would require further examination as to whether they can be listed as
exemptions. Examples would include those which purport to give less favorable treatment for
unilateral retaliation, and those which provide differential pricing arrangements as intelecommunications.
V. CONCLUSIONS
13. Previous review sessions and in-depth studies  have shown that the current status of MFN
exemptions certainly needs to be improved, and there have been several proposals from the members
for continued discussion and improvement. In this regard, Korea proposes that members give seriousconsideration for the voluntary removal of the current MFN exemption measures at the earliest
possible date. Members with many MFN exemptions should take the lead in removing exemptions.
Korea further proposes a parallel discussion in the Committee on Specific Commitments on the
revision of the current guideline of listing MFN exemptions (Job 2061). Joint proposal by Hong
Kong, China, Japan and Korea (S/C/W/173) would provide a good basis for discussion.
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