RESTRICTED
WORLD TRADE WT/REG4/1/Add.2
15October 1996
ORGANIZATION(96-4260)
Original: English Committee onRegional Trade Agreements
NORTH AMERICAN FREE TRADE AGREEMENT
Questions andReplies -Services
Addendum
Document WT/REG4/1 contains jointreplies oftheParties totheNorth American FreeTrade
Agreement (NAFTA) toquestions received following theinvitation inGATT/AIR/3607, of29June
1994,andGATT/AIR/3642,of24October1994.Thisdocumentcomplementstheinformationcontained
indocument WT/REG4/1/Add.1. Itreproduces thereplies toadditional questions addressed tothe
Parties primarily related totrade inservices.WT/REG4/1/Add.2
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TABLE OFCONTENTS
Pages
GENERAL QUESTIONS 3
III. TECHNICAL BARRIERS TOTRADE 9
IV. GOVERNMENT PROCUREMENT 9
V. INVESTMENT, SERVICES AND RELATED MATTERS 10
Investment (Chapter 11) 10
Cross-Border Trade inServices (Chapter 12) 11
Telecommunications (Chapter 13) 17
Financial Services (Chapter 14) 18
Temporary Entry forBusiness Persons (Chapter 16) 23
VII. ADMINISTRATIVE AND INSTITUTIONAL PROVISIONS 24
ANNEX 1 25
NOTIFICATION 26WT/REG4/1/Add.2
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GENERAL QUESTIONS
1. Presentation ofthescope oftheNAFTA inrelation totheGATS: Complete thedescription
oftheagreement asrequested, inter alia,according tothe"guidelines fornotification"
adopted bytheCouncil forTrade inServices, indicating themodes ofsupply covered,
theeffect ontrade inservices (e.g.restrictions/liberalization measures) andtheimpact
ofthemeasure(s) oncommitments intheMember 'sschedule(s) andArticle IIexemption
list(s), ifrelevant, aswellasindicating Members specifically affected, ifany.
Theservices provisions ofNAFTA fullycomply withtherequirements under Article Vof
GATS. Inparticular, NAFTA, including Chapters 11,12,13,14and16,cover allfourModes of
GATS. Mode 2isincluded inthedefinition ofcross border services inChapter 12.
Intheareaofinvestment (Mode 3),NAFTA Chapter 11provides acomprehensive definition
ofinvestment (exceeding thatofGATS Article XXVIII), requires national treatment andMFN, imposes
disciplines toeliminate performance requirements, limits nationality andresidency requirements for
boards ofdirectors, ensures strict disciplines oncapital transfers, onexpropriation and,inaddition
tostate-to-state dispute settlement, alsoprovides forinvestor-state dispute settlement.
NAFTA Chapter 12provides forcomprehensive coverage ofcross border trade inservices
(Mode 1),including consumption intheterritory ofanother party (Mode 2),andincluding, interalia,
production, distribution, marketing, saleanddelivery ofaservice; thepurchase oruseoforpayment
foraservice; andaccess toanduseoftransportation systems. Disciplines include national treatment,
MFN, therighttoprovide aservice without alocalpresence aswellasamechanism todealwithmutual
recognition ofprofessional services.
Chapter 13deals withmeasures relating topublic telecommunications transport networks and
services andvalue-added telecommunications services, ensuring disciplines largely equivalent tobut
incertain respects exceeding GATS withregard toaccess toanduseofpublic telecommunication
transport networks andservices (forexample NAFTA requires thataccess bebased oneconomic costs).
Chapter 14deals withfinancial services, ensuring disciplines ofnon-discriminatory rightof
establishment, cross border trade, national treatment andMFN. Thesubstantive commitments of
allNAFTA Parties meetorexceed theircommitments under GATS.
Chapter 16dealswiththetemporary movement ofnatural persons (Mode 4),providing access
forabroadly defined group ofbusiness visitors, traders andinvestors, intra-corporate transferees, and
alengthy listofprofessionals.
2. Could youindicate, bysectors and/or modes ofdelivery, themost important restrictions
totrade inservices which have been, orwillbewithin areasonable period oftime,
eliminated asaconsequence oftheNAFTA provisions -please indicate reference tothe
corresponding provisions.
NAFTAservicesprovisionsmeetorexceedGATSobligationsandcommitments.Thedisciplines
under Chapters 11,12,13and14include national treatment, MFN and,inthecaseofChapter 12,
therightofnon-establishment. While reservations tothese principles havebeenlodged inAnnexes I,
IIandVII, newmeasures must conform withthegeneral NAFTA obligations.
3. Could youindicate, fortheroll-back effects described inanswering theabove question,
thedifference inthe(higher) levelofliberalization achieved among theNAFTA members
ascompared withthelevelofMFN commitments undertaken onthesame issue bythoseWT/REG4/1/Add.2
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members intheirGATS schedule. Could youreciprocally indicate inwhich sectors and/or
forwhich issues theoutcome oftheGATS negotiations hasachieved, orislikely toachieve
inthenearfuture, alevelofliberalization among theParties, higher thantheoneresulting
from thedisciplines and/or commitments undertaken bytheParties intheNAFTA?
Asnoted, NAFTA services provisions meetorexceed GATS obligations andcommitments.
There areundertakings withrespect torollback inareas likefinancial services, landtransportation,
investment, specialty airservices, professional services andcertain business services. Oneshould also
refertotheliberalization commitments oftheParties setoutinAnnex VI.Inaddition, theNAFTA
Commission hasestablished aServices andInvestment Working Group thatistasked withmonitoring
andimplementing NAFTA obligations, including further liberalization intheareas ofservices and
investment.
4. Could youindicate forwhich sectors, ifany, andinwhich respect, theliberalization
achieved among NAFTA parties leads totheharmonization (dejureordefacto), forthe
parties 'service providers -ontheonehand, andforthird parties 'service providers -on
theother, of:
- theconditions applicable totheir effective market access intheNAFTA zoneon
theonehand,
- theconditions applicable totheir subsequent operations intheNAFTA zone, on
theother.
Service providers andtheir services areaccorded national treatment, MFN etc. NAFTA
Chapter 11applies toalltypes ofcommercial presence unless "investors ofanon-Party ownorcontrol
theenterprise andtheenterprise hasnosubstantial business activities intheterritory oftheParty under
whose lawitisconstituted ororganized". Similarly, Chapter 12indicates that"aParty maydeny
thebenefits ofthisChapter toaservice provider ofanother Party where theParty establishes thatthe
service isbeing provided byanenterprise thatisowned orcontrolled bypersons ofanon-Party and
thathasnosubstantial business activities intheterritory ofanyParty".
5. Could youindicate towhat extent areservices sectors effectively1covered bytheNAFTA
provisions, inrelation towhich modes, which provisions (i.a.National Treatment, MFN,
Standard related measures, Government Procurement, Subsidies, ...)which level of
government (Fed., Sate/Province; Local), inrespect ofwhich ofthethree Parties tothe
agreement? [such anassessment issought inparticular forthefollowing sectors:
- Maritime transport andrelated auxiliary services (including services construed
as"cabotage" inland waterways forwarding services, andservices auxiliary toall
modes oftransport); Rental/leasing services oftransport equipments, withorwith-
outcrew;BasicTelecommunicationservices;Printing,publishing,andothersimilar
services; Energy related services; R&D services.]
MFN andNational Treatment arealsoprovided forintheNAFTA.
1Taking intoaccount allreservations already undertaken bytheParties, aswellasreservations forsub-federal
measures forwhich scheduling must becompleted byJanuary 1,1996.WT/REG4/1/Add.2
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Canada andtheU.S.: Maritime transport andrelated auxiliary services arecurrently excluded
fromChapters 11and12provisions through Annex IandIIreservations. Rental/leasing oftransport
equipment isfullycovered. Basic telecommunications services isexcluded from Chapter 11and12
provisions through anAnnex IIreservation. Printing, publishing andother similar services generally
aresubject totheprovisions ofAnnex 2106 covering cultural industries. Energy related services are
fullycovered, asareresearch anddevelopment services.
Mexico. Mexico, ingeneral, hasasubstantial coverage atFederal andStates levels withsome
specific sectoral reservations, suchas:maritime transport andrelated auxiliary services, rental/leasing
oftransport equipment toprovide busortruck transportation, printing, publishing andother similar
services when related tonewspaper publishing, aswellasresearch anddevelopment services. Every
reservation isspecified ineachannex.
6. Towhich extent arefiscal measures affected bytheNAFTA provisions? more, orlessthan
under theGATS disciplines?
Answer: Pending
7. Could youprovide areasoned opinion concerning therelative strength oftheNAFTA
provisions ascompared tothecorresponding GATS provisions ("comparable", "stronger",
or"weaker") withregard toeachofthefollowing issues:
Transparency (Article III);Disclosure ofConfidential information (Article IIIbisand
Telecommunication Annex); Domestic regulations (Article VI);Recognition (Article VII);
Monopolies andexclusive service suppliers (Article VIII); Business practices (Article XI);
Government procurement (Article XIII); General Exceptions (Article XIV); Subsidies
(Article XV); Market Access (Article XVI); National Treatment (Article XVII).
Transparency -NAFTA provides forgreater transparency thanGATS principally byvirtue
ofthefactthatallservices arecovered bythedisciplines oftherelevant services chapters unless excluded
bywayofareservation. Itistherefore notpossible to"hide" restrictions simply bynotlisting sectors,
asinGATS. There isalsoageneral requirement (Article 1802) that"each Party shallensure thatits
laws, regulations, procedures andadministrative rulings ofgeneral application ...are promptly published
orotherwise made available...". Also, inArticle 1801 there isarequirement for"contact points"
equivalent toobligations inArticle IIIofGATS.
Disclosure ofConfidential information -Article 2105 states that"Nothing inthisAgreement
shallbeconstrued torequire aParty tofurnish orallow access toinformation thedisclosure ofwhich
would impede lawenforcement orwould becontrary totheParty'slawprotecting personal privacy
orthefinancial affairs andaccounts ofindividual customers offinancial institution". Article 1111.2
states thatinvestor information thatisconfidential willbeprotected from disclosure forthepurpose
ofcollecting statistics. Article 1302.5 alsostates thatnothing inthechapter ontelecommunications
services "shall beconstrued toprevent aParty from adopting orenforcing anymeasure necessary to
(a)ensure thesecurity andconfidentiality ofmessages; or(b)protect theprivacy ofsubscribers topublic
telecommunications transport network orservices". There arealsoprivacy provisions withrespect
todispute settlement. These provisions areequivalent totherelevant provisions inWTO/GATS.
Domestic Regulations -Article 1210 ofNAFTA specifies that"with aviewtoensuring than
anymeasure adopted ormaintained byaParty relating tothelicensing orcertification ofnationals
ofanother Party doesnotconstitute anunnecessary barrier totrade, eachParty shallendeavour toensure
thatanysuchmeasure...is based onobjective andtransparent criteria...is notmore burdensome than
necessary...and doesnotconstitute adisguised restriction onthecross-border provision ofaservice."WT/REG4/1/Add.2
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Thisapplies toallservices (i.e.,reservations notpossible) andnot,asinArticle VIofGATS, to"sectors
where specific commitments areundertaken".
Recognition -Article 1210.2 states that"where aParty recognizes, unilaterally orbyagreement,
education, experience, licences orcertifications obtained intheterritory ofanother Party orofanon-
Party ...theParty shallafford another Party anadequate opportunity todemonstrate thateducation,
experience, licenses orcertifications obtained...should alsoberecognized ortoconclude anagreement
orarrangement ofcomparable effect." Thisclosely follows thewording inArticle VIIofGATS.
Monopolies andExclusive Service Providers -Article 1502.3 imposes obligations withrespect
tothebehaviour ofmonopolies andstateenterprises totheeffect that"(a)suchentities shallactin
amanner thatisnotinconsistent withtheParty'sobligations under (the)Agreement...(b) actssolely
inaccordancewithcommercialconsiderationsinitspurchaseorsaleofthemonopolygood....(c)provides
non-discriminatory treatment toinvestments ofinvestors, togoods andtoservice providers ofanother
Party initspurchase orsaleofthemonopoly goodorservice...(d) doesnotuseitsmonopoly position
toengage, either directly orindirectly, including through itsdealings withitsparent, itssubsidiary
orotherenterprisewithcommonownership,inanticompetitivepracticesinanon-monopolizedmarket..."
Such provisions meet, andexceed inspecificity, theobligations outlined inArticle VIIIofGATS.
BusinessPractices-PursuanttoArticle1504theNAFTACommissionhasestablishedaWorking
Group onTrade andCompetition. Within fiveyears ofthedateofentry intoforce oftheagreement,
theWorking Group isrequired toreport on"relevant issues concerning therelationship between
competition lawsandpolicies andtrade inthefreetrade area". Article IXofGATS provides only
forlimited bilateral consultations onthisissue, ifrequested, andmakes theprovision ofinformation
subject totherequirements ofdomestic law.
Government Procurement -Services arecovered under NAFTA government procurement
provisions. They arenotyetcovered under GATS although theyare,ofcourse, currently thesubject
ofaWorking Party.
General Exceptions -General exceptions under Chapter 21aresimilar tothose under GATS
Article XIVcovering national security andtaxation (seeanswer toquestion 1(i))aswellasprovisions
under 2101.2 withrespect tohealth, safety andconsumer protection. Theprovision under 2101with
respect tohuman, animal orplant lifeorhealth doesnotcover services, perse,andinthatsense the
listofgeneral exceptions would appear tobemore limited thaninthecaseofArticle XIVofGATS.
Subsidies -Subsidies areexempted from thekeyprovisions under Chapters 11and12.We
notethatGATS doesnotdealwithsubsidies, perse,aside fromtheirpossible relevance asmeasures
affecting trade inservices which arebound byspecific national treatment commitments.
Market Access -Acentral NAFTA discipline isnational treatment which ensures, interalia,
thatservice suppliers from other Parties willbeinaposition toprovide services onthesame basis
asdomestic suppliers. Thisissupplemented bytheprinciple ofnolocalpresence requirements, which
goesbeyond theGATS.
National Treatment -Asnoted, thisisacentral principle forChapters 11,12,13and14.
Indeed,nationalsofotherPartiescouldreceivebettertreatmentinsub-nationaljurisdictionsthannationals
ofadifferent sub-national jurisdiction ofthatParty.
8. Given theanswers provided toprevious questions 146,147, 164,165,168,areNAFTA
disciplines actually affecting inanywaytheability for"local" authorities -tobedefined
under eachparty 'slaw-toadopt andimplement anymeasure which mayadversely affectWT/REG4/1/Add.2
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trade inservices, beyond theprohibition of"new" performance requirements setforth
inArticle 1108? Ifnotthecase, could youindicate thenature, orthematerial scope of
themeasures (licensing requirements, standard related measures, fiscal orother kindof
measures) which canbeimplemented atlocal level, withaview toassess thepotential
impact ofsuchmeasures foreffective liberalization?
Asindicated inresponse toquestions fromSwitzerland, itisverydifficult toquantify theeffect
ontrade inservices ofmeasures atthelocallevelalthough these areassumed toberelatively modest.
Most licensing having animpact ontrade inservices lieswithstateorprovincial authorities. Inany
event,localauthoritiesareprohibitedfromintroducingnewmeasuresinconsistentwithnationaltreatment,
MFN etc.
9. Since itdoesnotseem feasible toestimate thepercentage ofservices trade between the
parties which iscovered bytheAgreement (seeQuestion 163andanswer inWTO Doc.
WT/REG4/1), could youprovide yourbestqualitative estimate concerning thesegments
ofthetrade (interms ofsector/mode ofdelivery) which arethemost likely toberapidly
expanded asaconsequence oftheNAFTA alone, asitstands atthemoment (i.e.irrespective
offuture developments)? Could youfurther explain which oftheplanned future
developments arelikely totrigger further trade expansion within anapproximate 5years
timehorizon (forthesame orfornewsector/mode segments)?
NAFTA provisions inChapters 11(Investment), 12(Cross-border Services), 13(Telecoms),
14(Financial Services) and16(Temporary Entry) which should facilitate increased trade inservices
generally inmodes 1,2,3and4,include suchsectors aslegal, engineering andarchitectural services,
enhanced telecommunications, financial services, landtransportation, specialty airservices, business
services anddistribution services.
10. Pursuant totheanswer given toprevious question 175,could youelaborate thearguments
leading youtotheconclusion thattheNAFTA meets thecriteria setforth inArticle V
GATS? (seealsoquestions 1to6,44to47)
TheNAFTA fullymeets therequirements ofsubstantial sectoral coverage outlined inGATS
Article V(1.a)since onlyasmall number ofsectors areexcluded. Allother sectors areautomatically
covered. Asnoted, NAFTA covers allfourGATS modes: cross-border tradeandconsumption abroad
(Chapter 12),commercial presence (Chapter 11)andmovement ofnatural persons (Chapter 16)in
addition torelated provisions inChapters 13and14.ThelevelofNAFTA commitments either equals
orinmany casesexceeds thatfound ineventhemostliberal schedules under GATS. Moreover, NAFTA
services commitments mustbeevaluated, asoutlined inArticle V(2),aspartofawider framework
ofeconomic integration covering, interalia,investment, temporary entry, competition policy and
government procurement.
11. (EC)Pursuant totheanswer given toprevious question 176,could youindicate, inrelation
toeachparty totheNAFTA, forwhich sectors orsub-sectors subsidy schemes, atfederal
and/or sub-federal levels, might beconsidered particularly relevant?
TheNAFTA doesnotcontain provisions regarding subsidies intrade inservices.
Analysis oftherelevance, orlackthereof, ofsubsidy measures forparticular sectors orsub-
sectors hasnotyetbeenconducted. Aswell, there isnodefinition ofsubsidies orgrants relating to
services trade.WT/REG4/1/Add.2
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12. Thefootnote totheabove-mentioned provision read “Thisconditions isunderstood in
terms ofnumber ofsectors, volume oftrade affected andmodes ofsupply. Inorder to
meetthiscondition, agreements should notprovide fortheapriori exclusion ofanymode
ofsupply. “Inthisconnection, theAgreement, initsvarious chapters, refers toInvestment
andCross-Border Trade inServices. How arethese concepts reconciled withthemodes
ofsupply defined inArticle I,paragraph 2oftheGATS?
Asnoted, NAFTA covers allfourGATS modes: cross-border trade (Chapter 12),including
consumption intheterritory ofanother party, commercial presence (Chapter 11)andmovement of
natural persons (Chapter 16).Also, Chapter 14onfinancial services covers allmodes.
13. Thechapters oninvestments, services andfinancial services make noprovision forfuture
negotiations inrespect ofthereservations made bymember countries, thusruling out
progress towards thesubsequent liberalization ofmeasures initially negotiated. Inthis
regard,isitconsideredthattheliberalizationalreadynegotiatedisconsistentwithArticleV,
paragraph 1(b)oftheGATS, inthesense thattheAgreement “provides fortheabsence
orelimination ofsubstantially alldiscrimination, inthesense ofarticle XVII, between
oramong theparties...either attheentry intoforce oftheAgreement oronthebasis or
areasonable timeframe... ”?Ifthatisnotthecase, howisitplanned tocomply with
thatcondition within areasonable period oftime?
NAFTA already complies withtherequirement inArticle V.1.(b). Inaddition, NAFTA meets
thestipulations inthefootnote toArticle V.1(a) inthatittakes anegative listapproach. There areno
apriori exclusions.
NAFTA specifically foresees future negotiations ongovernment procurement inservices,
eliminationofquantitativerestrictions,anongoingworkprogramontemporaryentryofbusinesspersons,
professionalservicesaswellaspossiblenegotiationofbasictelecomsandlandtransportation.Inaddition,
Parties canagree atanytimetonegotiate further liberalization withrespect toanyelement ofthe
agreement.
14. Article V,paragraph 3(a)states that“where developing countries areparties toan
agreement ofthetypereferred toinparagraph 1,flexibility shallbeprovided forregarding
theconditions setoutinparagraph 1,particularly withreference tosubparagraph (b)
thereof, inaccordance withthelevelofdevelopment ofthecountries concerned, bothoverall
andinindividual sectors andsubsectors. ”NAFTA ismade upofcountries atdifferent
levels ofdevelopment. Issuchflexibility applied totheleast-developed country Member
ofthatAgreement? Isso,which oftheconditions listed inArticle V,paragraph 1(b)of
GATS aresubject tosuchflexibility andhowisitapplied inpractice? Please beexplicit
asfaraspossible. Inmore general terms, what doyouconsider theAgreement 'sposition
regarding theflexibility envisaged fordeveloping countries intheabove-mentioned
paragraph?
NAFTA standards areveryhighandfullymeetthecriteria setoutinArticle V:1.TheNAFTA
hasasubstantial sectoral coverage. Anydifferences between theParties orsensitivities withregard
tospecific sectors weretaken intoaccount andaddressed intherespective schedules totheNAFTA 's
Annexes.WT/REG4/1/Add.2
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15. TheAgreement exempts certain services sectors from theliberalization granted (schedules
ofreservations). Inthisregard, howiscompliance secured withthecondition laiddown
inArticle V,paragraph 1(a)ofGATS totheeffect thatintegration agreements should
have substantial sectoral coverage?
TheNAFTAfullymeetstherequirementsoutlinedinGATSArticleV(1.a)ofsubstantialsectoral
coverage since onlyasmall number ofsectors areexcluded bycertain Parties. Allother sectors are
automatically covered.
III. TECHNICAL BARRIERS TOTRADE
16. Recognition: Could NAFTA parties indicate their views concerning thenotification of
Chapter 9(Standard related measures) andsubsequent implementing actions, according
toArticle VII,para. 4(a)and(c)?
Article 909:Notification, Publication, andProvision ofInformation isintended toensure
transparency inthedevelopment oftechnical regulations andstandards which mayhaveaneffect on
tradeingoods. Theobligations inthearticle ensure thattechnical regulations forproducts aredeveloped
withthefullknowledge ofaffected parties inmember countries andtheirviews arealsotaken into
account withrespect toproposed regulations before theyarefinalized.
Article 909doesnothaveanyrelationship toGATS Article VIIonreciprocal recognition of
professional designations orthenotification requirements contained inpara4.
17. Chapter 9;scope: Thecurrent scope forthisChapter inthefieldofServices islimited
tothose sectors referred toinpara. 5(a)ofthesame Article (i.e.Land transport, and
Telecommunications, asdefined inthisChapter) Does itimply thatStandard related
measures taken inanyother Services sectors could beimplemented inconsistent withall
principles andprovisions oftheNAFTA asawhole, oralternatively, thatsuchmeasures
could deviate from theprinciples andprovisions ofChapter 9only?
Standard-related measures relating toservices notcovered byChapter 9maynotbeinconsistent
withtheNAFTA, provided thattheycomply withallother applicable provisions oftheNAFTA.
IV. GOVERNMENT PROCUREMENT
18. Government procurement: Theschedule oftheUSintheAnnex 1001.1a-1 doesnotinclude
areference toUSTR. Areprocurement contracts passed bythisFederal Agency actually
exempted from theprovisions oftheNAFTA, orisitcovered under thereference tothe
Executive Office ofthePresident?
AsisthecaseintheWTO Government Procurement Agreement, anditspredecessor, theTokyo
Round Code, USTR iscovered bytheExecutive Office ofthePresident.
19. CantheNAFTA Parties givesome estimates onthevolume ofpublic procurement in
relation tototaldemand intheservice sector?
Information onpublic procurement wasprovided intheanswer toquestion inthegoods package
(please seeSection IV,questions 137/140)WT/REG4/1/Add.2
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V. INVESTMENT, SERVICES AND RELATED MATTERS
Investment (Chapter 11)
20. Article 1101(1): Does thisarticle (together withthedefinitions concerning enterprises
ofaparty andinvestor) alsoinclude enterprises which areconstituted under thelawsof
aparty totheagreement andowned orcontrolled byinvestors ofnon-NAFTA countries?
Are there any specific requirements concerning ownership (maximum limits of
participation, etc)? Please state allexceptions totheincorporation principle.
Article 1101(1) includes enterprises constituted ororganized under thelawsofaparty and
owned orcontrolled byinvestors ofnon-NAFTA countries. There arenospecific requirements
concerning ownership ofsuch enterprises bynon-NAFTA investors such asmaximum limits of
participation.
Twoqualifications toChapter Eleven 'scoverage ofenterprises constituted ororganized under
thelawsofapartyandowned orcontrolled byinvestors ofnon-NAFTA countries appear inArticle 1113
(Denial ofBenefits).
First, aparty maydenythebenefits ofthechapter toinvestments owned orcontrolled bynon-
Party investors ifthedenying party:
(a) doesnotmaintain diplomatic relations withthenon-Party; or
(b) adopts ormaintains measures withrespect tothenon-Party thatprohibit transactions
withtheenterprise orthatwould beviolated orcircumvented ifthebenefits ofthis
Chapter were accorded totheenterprise ortoitsinvestments.
Second, aparty maydenythebenefits tonon-Party investors ifsuchinvestors 'enterprise has
nosubstantial business activities intheterritory oftheParty under whose lawitisconstituted or
organized.
21. Article 1102(2): Does Article 1102(2) alsoapply toenterprises constituted under thelaws
ofaparty totheagreement andowned orcontrolled byinvestors ofcountries thatare
notparty totheagreement? Arethere anyspecific requirements concerning ownership?
Article 1102, together withevery other provision ofChapter Eleven, applies toenterprises
constituted ororganized under thelawsofaparty andowned orcontrolled byinvestors ofNAFTA
andnon-NAFTA countries. There arenospecific requirements concerning ownership.
22. Article 1107(2): Can theparties give more detailed information onthemajority
requirements?
Amajority means simple majority.
23. Article 1108(1a)(i-iii) Arethere plans tobring existing non-conforming measures, especially
oflocal governments, intoconformity withtheprinciple ofnational treatment, withthe
MFN principle, aswellaswiththeprinciples ofarticles 1106 and1107? CanthepartiesWT/REG4/1/Add.2
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estimate thevolume oftrade ininvestments affected bysuchnon-conforming measures
andlistthemostaffected sectors? Isthere atransparency requirement formeasures taken
atthelocal level? What were thereasons forexcluding local level measures from the
requirement oflisting?
TheNAFTA Parties arenotaware ofanyexisting non-conforming measures atthelocallevel.
Given thatnolocalmeasures haveeverbeenbrought toourattention, webelieve thatifsuchmeasures
exist, theyareinsignificant. Accordingly, there arenoplans toeither identify oreliminate possible
localmeasures.
Annex Icurrently identifies non-conforming measures atthefederal levelandspecify which
willbephased out.
Information onprovincial andstate-level measures wasexchanged bytheNAFTA Parties on
March 31,1996.
Noinformation isavailable onthevolume oftradeandinvestment affected bynon-conforming
measures.
24. Article 1108(b): Could theparties elaborate onthis? Arethose exemptions to
Articles 1102/1103/1106/1107 indefinite oraretheylimited intime?
Allnonconforming measures atstateandprovincial level existing onJanuary 1,1994, are
reserved. Onlythose reservations contained inAnnex IorIIwhich specify aphase-out aretime-limited,
allothers falling under Article 1108(b) areindefinite. However, asmentioned above, Parties canagree
atanytimetonegotiate further liberalization withrespect toanyelement oftheAgreement, including
reservations under Article 1108(b).
25. Article 1108(5): CantheParties bemore specific about thesectors concerned thatare
excluded from Articles 1102/1103/1106/1107?
Thereservation ofsectors foreachcountry differs. Annexes II,IIIandIVidentify thesesectors.
Examples ofsectors inwhich theU.S.hasfederal reservations are:atomic energy, telecommunications,
airtransportation, customs brokers. Atthestatelevel, reservations onthelicensing ofprofessionals
areidentified inAnnex I.InthecaseofCanada, thereareimportant sectoral reservations inareas such
associal services, particularly health. Examples ofMexico 'sfederal reservations are:
telecommunications, energy andpostal services.
26. Article 1108(7): Cantheparties estimate thevolume ofpublic investment andgivemore
specific information onsubsidies andgrants? Aregrants andsubsidies (including
beneficiaries) made public?
National Treatment, MFN andmanagement andBoard ofDirectors commitments donotapply
topublic procurement andpublic subsidies andgrant policies.
Cross-Border Trade inServices (Chapter 12)
27. Isitright toassess that,pursuant toArticle 1207, aParty isnotbound toschedule under
Annex V,anyquantitative restrictions relating tosectors forwhich thatParty isnotboundWT/REG4/1/Add.2
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inrelation toother provisions oftheAgreement? Ifso,canitberightly assessed thatthis
would constitute asignificant limitation totheleveloftransparency achieved bytheNAFTA
concerning alarge amount ofbarriers totrade? Ifnot,why?
Allservice sectors, except those specifically excluded (e.g. airtransport andbasic
telecommunications), arecovered inAnnex V.
While Parties arenotbound toschedule theirnon-discriminatory quantitative restrictions, there
wasacomprehensive effort toidentify andlistallsuchmeasures inAnnex V.Wearenotaware of
anynon-discriminatory quantitative restrictions thathavebeenomitted Inaddition, eachParty shall
notify theother Parties ofanyquantitative restriction thatitadopts, other thanatthelocalgovernment
level, afterthedateofentry intoforce ofNAFTA andshallsetouttherestriction initsSchedule to
Annex V.
28. Cross-border trade inservices; Liberalization ofnondiscriminatory measures: Could
NAFTA Parties provide further clarification concerning measures listed inAnnex VI
pursuant toArticle 1208: isitanexhaustive listofthemeasures undertaken bytheparties
infavour oftheliberalization ofcross border trade inservices? doesitcorrespond tothe
effective roll-back ofprevious restrictions, given reference intheschedules toalready
enforced legislation? Dothemeasures described intheAnnex VIschedules ofCanada
andtheUSconcerning foreign legal consultants correspond toaliberalization ofcross
border trade, since itprovides forthepermission to"provide foreign legal consultancy
services, andtoestablish forthatpurpose"? CantheUScommitment to"notconsider
thenationality oftheaffected stations forthepurpose offavouring aUSstation..." be
construedastheliberalizationofaNon-DiscriminatoryMeasure?DidMexiconotundertook
anycommitments toliberalize nondiscriminatory measures affecting theprovision ofcross
border trade inservices?
Canada andUnited States -No,thisisnotanexhaustive listofmeasures undertaken infavour
oftheliberalization ofcross border trade inservices. Please refertoouranswer toEUquestions 1(a)
and1(b). Representatives ofprofessional legalbodies fromthethreeNAFTA countries arecontinuing
tomeettodevelop recommendations ,pursuant toNAFTA Annex 1210.5, section B.Atthistime
itisnotpossible todetermine whether thelisting inAnnex VIamounts toarollback. Themeasures
setoutinAnnexVIaddressboththeprovisionofcross-borderservicesandinvestment("establishment").
Yes,themeasure applies tocross border trade inservices.
Mexico. Yes,Mexico undertook liberalization commitments forcross-border tradeinAnnex VI
on:(1)Entertainment Services (Cinema); (2)Foreign Legal Consultants and(3)Rental/Leasing of
Land Transportation Equipment. These commitments reflect aliberalization inthose areas, given that
thecorresponding measures, attheentry intoforce ofNAFTA, were more restrictive.
29. Given theanswers provided toprevious questions 167and168,isitright toassess that,
concerning quantitative restrictions, theNAFTA does notimply anylegally binding
standstill obligation? Should theconcept of"nondiscriminatory quantitative restrictions"
under theAgreement beconstrued ascorresponding fullytothescope forthemeasures
which fallunder Article XVIGATS?
Thecommitment isasstated intheanswer toquestion 167. InChapter 12ofNAFTA,
quantitative restrictions aredefined interms ofnon-discriminatory limitation oneither thenumber of
service providers ortheoperations ofservice providers. Such limitations normally areintheform
ofquotas, monopolies oreconomic needs tests. Forthemost partthiscaptures theitems setoutin
GATS Article XVI.2 withtheexception ofXVI.2(f) which deals withdiscriminatory provisions withWT/REG4/1/Add.2
Page13
respect totheownership orfinancing ofservice providers. InNAFTA, suchissues aredealtwithas
national treatment issues.
30. Given theanswer provided toprevious question 170,isitright toassess that, concerning
citizenship andresidency requirements, theNAFTA doesnotimply anylegally binding
standstill obligation? Andthatincaseofnoncompliance, thebreach could benotbrought
todispute settlement, butcompensated bymirror image reciprocity counter-measures?
DoNAFTA parties consider thatthese citizenship andresidency requirement constitute
quantitative, ordiscriminatory measures?
NAFTA doeshavealegally binding standstill obligation. Theunique feature ofArticle 1210(3)
isthatintheapplicable circumstances theNAFTA Parties haveagreed inadvance astotheappropriate
remedy forabreach oftheobligation of1210.3 toeliminate citizenship andpermanent residence
requirements forprofessional service providers. Thismakes resort todispute settlement unnecessary
where thecircumstances fallwithin Article 1210(3). Citizenship andresidency requirements are
discriminatory measures.
31. Pursuant totheanswer given toprevious question 171,could NAFTA parties clarify the
following: Isitconceivable that:(1)aforeign supplier establishing acommercial presence
begranted anoperating licence forthesupply of(i.a.road) transport services -without
having tosatisfy aneconomic needs test,but(2)besubsequently denied thepossibility
toregister thecorresponding transport equipment onthebasis ofeconomic needs orpublic
convenience andnecessity tests? Could Canada elaborate ontheconditions ofregistration
oftransport equipment astheUSandMexico did?
Canada hasde-regulated inter-provincial trucking, applying onlyafitness (i.e.safety) test.
AllCanadian provinces except British Columbia haveeliminated public convenience andnecessity tests.
InB.C., theremaining testapplies totheoperating license, nottocommercial establishment perse.
InCanada, vehicles areregistered attheprovincial level. Fortransport vehicles tooperate
inmore thanoneprovince, thevehicle mustberegistered ineachprovince. However, mechanisms
forreciprocity ofregistration between theprovinces existandarereadily available.
32. Article 1201(2c). Aspointed outintheanswer to162,subsidies arenotcovered byNAFTA
chapter 12andthustheMFN, national treatment andother provisions ofthatchapter
donotapply tosubsidies. Cantheparties elaborate inamore specific manner ontheir
subsidies andgrants policy andprovide dataonthevolume ofsubsidies inthedifferent
service sectors?
Subsidies arenotcovered bydisciplines ofNAFTA Chapter 12(asnoted inourprevious answer
toquestion 162ofWT/REG4/1). Inaddition, there arenotransparency obligations inChapter 12
thatwould require theexchange ofinformation among themembers onsubsidy policies orpractices.
Inthisregard, nocomprehensive dataisavailable onsubsidies orgrants andthusanyinformation would
beneither comprehensive norreliable. Consequently, NAFTA Parties havenotdeveloped anycommon
basis forthedevelopment orexchange ofdata.WT/REG4/1/Add.2
Page14
33. Article 1205oftheNAFTA saysthataParty maynotrequire aservice provider ofanother
Party toestablish ormaintain arepresentative office oranyform ofenterprise, ortobe
resident initsterritory forthecross-border service provision.
(a) Dotheservice providers ofanon-NAFTA butWTO member country, whoprovide
thecross-border services, receive adifferent treatment regarding theabove-
mentioned conditions?
(b) What willbethetreatment ofservice providers ofaParty totheCommerce Treaty
between theNAFTA andathird party, which hasaMFN clause?
(a) Thebenefits available tonon-NAFTA service providers which areservice providers
ofMembers ofGATS arethose specified inGATS andintherespective schedules
ofthethree NAFTA Parties.
(b) Acomplete answer tothisquestion canonlybemade following anexamination ofthe
particular treaty ontradeandcommerce inrespect ofwhich MFN treatment isclaimed.
34. Article 1206: Cantheparties estimate thevolume oftrade incross border services affected
bymeasures taken atthelocal level? Isthere atransparency requirement regarding
measures taken atthelocallevel? What istheimportance ofmeasures taken atthelocal
levelforcross border trade?
Itisimpossible tomeasure thevolume oftrade incross-border services affected bymeasures
taken atthelocallevel. Wearenotaware ofanyexisting non-conforming measure atthelocallevel.
With respect totransparency atthelocal level, there isnorequirement under NAFTA tolistnon-
conforming measures maintained bylocalgovernment (e.g., national treatment, MFN, localpresence
requirement, boards ofdirectors). However, itshould benoted thatthedefinition ofstateorprovince
includes localgovernments unless otherwise specified. Moreover, there isageneral provision (1802)
which encourages transparency bysupporting efforts topromptly publish orotherwise make available
measures ofgeneral application.
35. Article 1206(1a)(ii): Cantheparties givesome information onhowfarthescheduling
ofsubnational reservations hasproceeded during thelasttwoyears?
Bymutual agreement, allnon-conforming stateorprovincial measures existing onJanuary 1,
1994havebeenreserved andlistswereexchanged forinformation purposes bytheParties onMarch 31,
1996. Theprocess leading uptothelisting ofsuchmeasures wasdesigned toensure theircomprehensive
transparency.
36. Article 1207: Cantheparties estimate whatpartofcross border trade inservices issubject
toexisting quantitative restrictions? Onthevolume andpercentage ofquantitative
restrictions applied atthelocal level inrelation tomeasures taken atother levels of
government? What werethereasons forthedecision nottonotify orschedule restrictions
atthelocal level?
Parties havenodataavailable ontheshare ofcross-border trade inservices which issubject
toexisting quantitative restrictions. Asnoted, thetaskofmeasuring theeffect ofquantitative measures
atthelocallevelisevenmore difficult. Local measures wereconsidered tohaverelatively littleimpact
ontrade inservices.WT/REG4/1/Add.2
Page15
37. Article 1210.3: With respect toprofessional services, what activities aresubject to
citizenship and/orpermanent residency requirements? Can theparties givesome
information onhowfartheefforts tofulfil their obligations toeliminate citizenship and
residency requirements have been successful uptonow? Dothere existanycitizenship
and/or permanent residency requirements insectors other thanprofessional services?
Pursuant toArticle 1206, theNAFTA allows eachParty tolodge reservations aimed at
maintainingexistingnon-conformingmeasuresorpreservingtheabilitytotakenon-conformingmeasures
inspecific sectors, sub-sectors oractivities. Federal measures were inscribed asofentry intoforce
oftheAgreement. Allnon-conforming measures inforce atthedateofimplementation atthe
state/provincial, municipal andother localgovernment levelhavebeengrandfathered.
Withrespect totherequirement tophase outcitizenship andpermanent residency requirements,
Canada haseliminated permanent residency requirements asperArticle 1210.3 forpatent agents and
trade mark agents.
Mexico haseliminated citizenship andpermanent residency requirements, inaccordance with
andsubject toArticle 1210.3.
38. Article 1207: Cantheparties inform theworking group onthenegotiations thathave
taken place during thelasttwoyears? Hasthere beenanyprogress removing quantitative
restrictions? Have newmeasures been implemented?
There havebeennonew"negotiations", perse,overthepasttwoyears although there has
beenongoing discussions bytheNAFTA Working Group onInvestment andServices. Parties have
not,asyet,engaged innegotiations aimed atremoval ofquantitative restrictions. Atthesame time,
wearenotaware oftheintroduction ofnewquantitative restrictions.
39. Article 1210-3 oftheNAFTA refers totheelimination byaParty ofthecitizenship and
residency requirements within twoyears. What progress hasbeen made upuntil now?
Isthisclause applicable totheWTO member countries? What about aParty toanMFN-
based Commerce Treaty?
Pursuant toArticle 1206, theNAFTA allows eachParty tolodge reservations aimed at
maintainingexistingnon-conformingmeasuresorpreservingtheabilitytotakenon-conformingmeasures
inspecific sectors, sub-sectors oractivities. Federal measures wereinscribed asofentry intoforce
oftheAgreement. Allnon-conforming measures inforceatthedateofimplementation atthemunicipal
andother localgovernment levelhavebeengrandfathered.
Anycitizenship and/or residency requirements maintained atthestateorprovincial levelwere
required tobereserved against Articles 1202 (National Treatment) and1205 (Local Presence). By
mutual agreement, allnon-conforming measures existing onJanuary 1,1994 havebeenreserved.
Federal non-conforming measures pertaining tocitizenship andresidency requirements were
inscribed asofentry intoforce oftheNAFTA. Canada hassince removed citizenship andpermanent
residency requirements forpatent agents andtrade mark agents.
Citizenship andpermanent residency requirements onlyapply toprofessional services. Mexico
haseliminated citizenship andpermanent residency requirements, inaccordance withandsubject to
Article 1210.3.WT/REG4/1/Add.2
Page16
Thebenefits oftheelimination ofcitizenship andresidency requirements under theNAFTA
neednotbeextended tonon-NAFTA Parties. However, governments andself-regulatory authorities
arealways freetoextend thebenefits ofsuchliberalization onanMFN basis.
Professional Services (Chapter 12-Annex 1210.5)
40. Concerning foreign legalconsultants, isthere anydifference between theNAFTA Parties
andathird party intheconditions ofacceptance, scope ofactivities andrequirements
forservices provisions? Ifso,please explain them.
Under Annex 1210.5, Section B,theprofessional bodies representing eachofthethreeParties
haveundertaken todevelop recommendations respecting aNAFTA model ruletogovern theprovision
offoreign legalconsultancy services.
41. Please explain thedifferences, ifany,intherequirements foracceptance offoreign legal
consultants fromother Parties, according tothenationality ortheresidential qualifications
(e.g.permanent residence). Forexample, when aforeign legal consultant intheU.S.,
whohasJapanese nationality, provides aservice inanother NAFTA party, willhe/she
berequired tofulfil thesame requirements astheforeign legal consultant whohasU.S.
nationality? Ifdifferent requirements exist, please explain them.
Seeanswer toprevious question
Denial ofBenefits (Chapters 10,11and12-Articles 1005, 1113 and1211)
42. Thesupply ofstatistics concerning theorigin ofcapital forinvestments made inMexico
constitutes anindispensable dataformonitoring theimplementation ofArticle 1113 (1)
(a)ofNAFTA.Equivalentinformationandtransparencydataarealsonecessarytomonitor
theimplementation ofarticle 1005onpublic procurement aswellasArticle 1211concerning
thesupply ofservices.
Mexico hasnever applied Articles 1005, 1113 or1211. Aspreviously noted, theapplication
ofthedenial ofbenefits ruleisafactual matter. Consequently, when enforced, available andrelevant
information atthatmoment willbeused.
43. With respect tocross-border services, Article 1211 oftheFTA establishes thatbenefits
maybedenied toservice-supplying enterprises owned orcontrolled byenterprises ofnon-
Parties totheFTAorpersons ofanon-Party, where thelatter enterprises orpersons have
nosubstantial business activities intheterritory ofanyParty totheFTA. What arethe
criteria applied under theFTA todefine ownership andcontrol ofenterprises supplying
cross-border services? Arethese criteria applied inadvance intheform ofauthorization,
orpostfacto?Dothedefinitions setoutinArticle XXVIII(n) oftheGATS apply inthe
context oftheFTA? Howmaythislimitation bereconciled withthecommitments relating
tounrestricted national treatment which theFTAmembers haveincluded intheirrespective
schedules annexed totheGATS?
There arenocriteria specified inthetextoftheAgreement regarding "ownership" or"control".
Article 1211 refers tobenefits under theNAFTA. Itdoesnotaffect theParties 'obligations under
Article XVII oftheGATS.WT/REG4/1/Add.2
Page17
44. Incontrast toanundertaking established onNAFTA territory, whose capital doesnot
originate within NAFTA andwhich isnotconsidered toundertake substantial business
activities, willanenterprise whose capital doesoriginate inNAFTA, butwhich doesnot
undertake substantial business activities intheNAFTA zone, nevertheless begranted
regional treatment instituted bytheAgreement?
Anenterprise constituted ororganized under thelawofaNAFTA Party isanenterprise of
aParty forthepurposes ofNAFTA andthusreceives national treatment andMFN withrespect to
itsprovision ofservices
45. Istheanswer supplied bytheParties (cf.WT/REG4/1 point 152,pages 47/48) -according
towhich itisuptotheenterprise which isbeing denied aNAFTA benefit tobear the
burden ofproof, compatible withthewording oftheclauses concerning thedenial of
benefits, which provide that"theParty establishes thattheservices isprovided byan
enterprise thatisowned orcontrolled bypersons ofanon-Party andthathasnosubstantial
business activities intheterritory ofanyParty."?
Itisclearthattheburden ofrelying uponanexception restsontheperson whoseeks toapply
thatexception. Inadispute itwillultimately betheresponsibility ofthedenying Party toestablish
thattheconditions referred toinArticles 1113 or1211 exist. Theanswer given previously wasnot
intended tobedirected atthelegal burden arising inthedispute settlement context butwassimply
meant toindicate thattheenterprise inquestion would haveanopportunity todemonstrate thatitdid
engage insubstantial business activities. Upon reflection, itisapparent thattheresponse didnotclearly
convey thatintent.
46. Noanswer hasbeengiven sofarwithregard tothecriteria usedbyaParty toaccept or
deny theexistence ofa"substantial" business activity inthezone(cf.WT/REG 4/1point
151,p.47). Itisnecessary toknow what these criteria are,inparticular toallow the
enterprise thepossibility tobring forward therequested elements ofproof.
Aspreviously noted, theapplication ofthedenial ofbenefits ruleisafactual matter andwill
havetobeapplied onacase-by-case basis depending upon thespecific circumstances ofaparticular
business. WenotethatGATS alsousestheterm"substantive business" inArticle XXVIII.m.
47. Have there already been cases inwhich theParties totheAgreement have requested
informationinaccordancewithArticle1803,and/orundertakenconsultationsinaccordance
withArticle 2006inorder toensure appropriate implementation ofthe"denial ofbenefit"
provisions?
No.
Telecommunications (Chapter 13)
48. Pursuant totheanswer given toprevious question 177,could youdescribe, forillustrative
purpose, some examples ofpossible measures thataparty could taketoensure thatcross-
subsidization from monopoly tocompetitive activities doesnotadversely affect persons
ofother parties? Under such examples, should the"other parties" beunderstood tobeWT/REG4/1/Add.2
Page18
limited totheNAFTA parties, orcould itbeconstrued tocover alsopersons (service
suppliers) ofthird parties?
Asanillustrative example, theGovernment ofCanada recently revised along-standing policy
whereby localtelephone services weresubsidized bylong-distance services. Henceforth, thepricing
ofbothtypes ofservice willreflect realcosts andmarket conditions.
UnderthetermsofNAFTA,theprovisionsoftheagreementextendtoNAFTAParties,although
suppliers fromthirdparties would likely alsobenefit from suchinitiatives iftheyqualify asNAFTA
service suppliers (seeanswer to1(c)).
49. Why arethere noMFN provisions inthechapter dealing withtelecommunications?
TheMFN provisions ofChapters 11(Investment) and12(Cross-Border Trade inServices)
apply tovalue-added telecommunications, totheextent thatvalue-added telecommunications arenot
included intheAnnexes. Withrespect tobasictelecommunications, NAFTA Parties chose tonegotiate
basictelecommunications inGATS andtherefore exempted thissector frombasic NAFTA obligations
likeMFN.
Financial Services (Chapter 14)
50. Could Mexico provide thenecessary statistics concerning theorigin ofinvested capital
intheinsurance sector, aswellascomparative figures between themaximum authorized
thresholds (setforth inannexes VII.B.para. 2and7,andVII.C. para. 6)andtheactual
total amounts reached bysubsidiaries offoreign companies, making sure thatthe
participation ofNAFTA companies which benefit from thederogations setforth inthese
annexes arenotcomputed against thequotas provided forinpara. 2and6ofannex VII.B.?
Itwould alsobeinteresting toknow theactual minimum amount ofMexican interests
ascompared withtheminimum threshold required under para. 7ofannex VII.B. incase
ofinvestments being made byinsurance companies originating from theNAFTA zone.
Origin ofinvested capital intheinsurance sector (number ofcompanies) determined bythe
place oforigin ofthemain office:
Europe: 5; Asia: 1;United States ofAmerica :5;Canada: 0
Fortheaggregate limits andavailable quotas for1995 and1996, please refertoAnnex I.
51. According towhich criteria canMexico request (annex VII.B. para12)financial companies
originating inNAFTA toholdthetotality ofthecapital ofanundertaking established in
Mexico? HasMexico already used thisprovision? How many times andunder which
circumstances?
Under Annex VII.(B) 12.Mexico mayrequire thataforeign affiliate bewholly owned byan
investor ofanother NAFTA Party. According tothisprovision, Mexico maydenyauthorization to
establishanaffiliateofanyforeignfinancialinstitution,establishedinanyNAFTAParty,whichiswholly
owned byaninvestor fromanother country which isnotaParty ofNAFTA. Mexico hasnotapplied
theforegoing provision. Therefore, affiliates offoreign financial institutions wholly owned bynon-
NAFTA investors havebeenauthorized.WT/REG4/1/Add.2
Page19
52. Arethequotas asapplicable toproviders ofconsumer credit, credit cardservices, etc...
(CPC 8113) according tothelatest Mexican offer onfinancial services, offering any
available margins still,oraretheyexhausted?
There arevarious types offinancial intermediaries inMexico, authorized toprovide consumer
credit, credit cardservices, andother credit services inMexico. Such institutions arethefollowing:
commercial banks, limited scope financial institutions, andfinancial factoring companies.
Please seethetable(attached asAnnex 1)forNAFTA market limits for1995 and1996.
Inaccordance withtheresolution thatsetstheindividual andAggregate Market Share Limits
applicable toAffiliates ofForeign Financial Institutions established pursuant totheNorth American
FreeTradeAgreement,publishedonNovember27,1995,thereisstillapercentageofthequotaavailable
forthefinancial intermediaries mentioned intheforegoing paragraph. (Annex 1).
53. According towhich criteria canMexico restrict theexternal expansion oftheactivities
undertaken byanyforeign entity established onitsterritory (cf.para12ofannex VII.B.,
lastsentence)? DidMexico already utilized thisprovision? How many times andunder
which circumstances?
UnderAnnexVII.(B)12.Mexicomayalsorestrictanyforeignfinancialaffiliatefromestablishing
agencies, branches, orother direct orindirect subsidiaries intheterritory ofanyother country. Mexico
hasapplied theprovision through article 45-JoftheCredit Institutions Law, which establishes that
affiliates offoreign financial institutions maynotestablish branches orsubsidiaries intheterritory of
another country. Mexico isconstantly applying theNafta provision mentioned above, through the
provisions intheFinancial Laws applicable toevery financial intermediary.
54. According towhich criteria canMexico block aforeign bank orsecurities company from
investing intoaMexican industrial orcommercial enterprise (cf.annex VII.C. para.1)?
HasMexico already usedthisprovision? Howmany times andunder which circumstances?
Initially Mexico applied theprovision contained inannex VII(C) 1.duetotheprovisions in
theCredit Institutions LawandtheSecurities Lawthatexpressly prohibited thepossibility thatfinancial
institutionsinvestinindustrialcorporationsestablishedinMexico.IntheamendmentstovariousFinancial
Laws, published onFebruary 15,1995, theprovision thatestablished theseparation between financial
institutions andindustrial corporations wasrepealed.
55. Hastheadoption ofthe"Interstate Banking andBranching Act" intheUSledMexico
andCanada toreview theconditions applicable toaccess totheirmarket (article 1403.3)?
TheReigle-Neal Interstate Banking andBranching Efficiency Actof1994, which provides
national treatment forforeign banks, willpermit commercial banks toexpand throughout theentire
United States bymeans ofacquisitions and,depending onthechoices made bytheindividual states,
alsobybranches. Although themajor changes required bythelegislation havenotyetbecome effective,
theUnited States believes thattheywilleventually serve asabasistoinitiate thereview andassessment
ofmarket access asprovided inArticle 1403.3 oftheNAFTA. InCanada 'sview, theactions taken
bytheindividual states under thelegislation willhavetobeassessed before itcanbedetermined whether
ornottherequirement forareview hasbeentriggered
MexicoisintheprocessofreviewingtheReigle-NealInterstateBankingandBranchingEfficiency
Act.Tothateffect, Mexico willassess theactions implemented byindividual states regarding this
legislation inorder todetermine whether ornottherequirement forareview hasbeentriggered.WT/REG4/1/Add.2
Page20
56. HasMexico undertaken astudy concerning thedesirability ofextending thescope of
activities offoreign securities companies (annex VII.C. para. 3)?
Mexico isintheprocess ofelaborating suchstudy.
57. With regard tofinancial services:
(a) Article VoftheGATS establishes asanecessary condition foranintegration
agreement liberalizing trade inservices thatsuch anagreement should have
substantial sectoral coverage. Inthisconnection, what arethespecific financial
services andwhatisthevolume oftrade affected bytheFTAinthefinancial sector?
(b) Article 1403, paragraph 4,oftheFTA establishes asacondition forthe
establishment offinancial enterprises thattheinvestors concerned should not
already ownorcontrol afinancial institution intheParty ’sterritory inwhich they
desire toestablish suchaninstitution. Inthese cases, howwould thisprovision
bereconciled withthenational treatment provisions? What arethelimits onthe
number ofenterprises thataParty mayestablish intheterritory ofanother in
thefinancial services sector?
(a) Unlike theGATS which contains anillustrative listofactivities included asfinancial services,
Chapter 14oftheNAFTA isbased onaninstitutional approach. Article 1401oftheNAFTA,
which deals withthescope andthecoverage oftheChapter, indicates thatthefinancial
institutions, theinvestors andtheinvestments made byinvestors, aswellasthecross-border
trade infinancial services areallcovered bytheprovisions ofthisChapter. Article 1416
provides adefinition ofallthese terms.
Dataonthevolume oftrade inthefinancial sector arenotavailable.
(b) Article 1403.4 saysthataninvestor ofanother Party thatdoesnotownorcontrol afinancial
institution ontheParty'sterritory inwhich itdesires toestablish aninstitution hastheright
toestablish suchaninstitution inthatParty'sterritory. Inbrief, itstates thatfinancial institutions
oftheParties havearighttoestablish ineachother'sterritory.
There arenolimits onthenumber ofenterprises thatforeign financial institutions mayestablish
inCanada andtheUnited States, provided thattheymeetprudential requirements. Withrespect
toMexico, please refertoquestion 184(document WT/REG4/1).
58. Isaservice provider ofaWTO member country, whohascommercial presence inone
party oftheNAFTA, required tomeet thesame requirements andconditions thatare
applied toservice suppliers whohavecommercial presence inthatcountry ofother NAFTA
parties? What about thecaseofservice providers oftheMFN-based Commerce Treaty?
Ourunderstanding ofwhatisbeing asked inthefirstpartofthisquestion iswhether anon-
NAFTA country company (sayaJapanese bank) andaNAFTA country company (sayaU.S.bank)
aresubject tothesame requirements oncetheyhavebothestablished inanother NAFTA country (say
Canada). Aspermitted under Article VoftheGATS, NAFTA countries extend toeachother different
(andpreferential) treatment thanthatavailable tonon-NAFTA country companies.
With respect tofinancial services:WT/REG4/1/Add.2
Page21
With respect toCanada, these requirements donotdiffer significantly. Infact,there isonly
onedifference anditrelates tothesub-branching regime (i.e.therulesrelating totheopening ofnew
branches onceforeign banks haveestablished foreign bank subsidiaries inCanada). While foreign
banksubsidiaries thatarecontrolled bynon-NAFTA residents arerequired toseekMinisterial approval
priortoopeningnewbranches,thosecontrolledbyNAFTAcountryresidentsareexempted.Inpractice,
thisisaminor difference, given thatrequests putforward bynon-NAFTA residents havealways been
approved.
Withrespect toMexico, thereisnodifference inrequirements andconditions between aNAFTA
andanon-NAFTA service provider established inaNAFTA country.
InU.S.practice, there isnodistinction between thetreatment accorded toaNAFTA country
andanon-NAFTA country withrespect tobanking.
Withrespect tothesecond partofthequestion, acomplete answer canonlybemade following
anexamination oftheparticular treaty ontrade andcommerce inrespect towhich MFN treatment
isclaimed.
59. Annex VII(C) Canada, p.4,item1oftheNAFTA: CanCanada specify themain market
access andnational treatment guarantees provided bytheBank Act, theInsurance
Companies Act,theTrust andLoan Companies ActandtheInvestment Companies Act?
Dotheydiffer inanyrespect from thespecific commitments undertaken byCanada under
theSecond Protocol oftheGATS andunder theDecision onCommitments inFinancial
Services agreed inJuly1995?
Annex VII(C) -Canada p.4item1oftheNAFTA Agreement: From ourperspective, this
question doesnotrelate toNAFTA. Wehavenonetheless provided aresponse.
Bank Act
Under theBank Act,foreign banks must haveacommercial presence inCanada inorder to
dothebusiness ofbanking. Market access andnational treatment areguaranteed, subject toafew
exceptions.
Foreign banks mustincorporate subsidiaries inCanada toundertake thebusiness ofbanking.
Nooneperson (Canadian orforeign) mayownmore than10percentofanyclassofshares
ofaSchedule Ibank.
Ministerial approval isrequired forforeign banksubsidiaries toopenmore thanonebranch.
Withrespect tocross-border trade, foreign banks areprohibited tosolicit inCanada. Canadians
are,however, freetoseekontheirowninitiative banking services inother countries.
Insurance Companies Act
Under theInsurance Companies Act,market access andnational treatment areguaranteed,
subject toafewexceptions.
Thecross-bordersupplyofinsuranceservicesispermittedonlyformarineandnuclearinsurance.WT/REG4/1/Add.2
Page22
Canadians aregenerally freetoseekontheirowninitiative anyinsurance services inother
countries, except foraCanadian insurer, other thanalifeinsurer orreinsurer, purchasing
reinsurance services.
Forthatinsurer, reinsurance services purchased fromanon-resident islimited tonomore than
25percentofitsrisks.
IfaCanadian purchases direct insurance other thanlife,personal accident sickness ormarine
insurance forriskwithin Canada fromanon-resident insurer, anexcise taxof10percentis
applicable onnetpremiums paid(unless suchinsurance isnotavailable inCanada). Asimilar
provision applies totheintermediation ofinsurance relating tocommercial aviation, space
launching, freight andgoods ininternational transit.
Trust andLoan Companies Act
TheTrust andLoans Companies Actrequires foreigners toincorporate inCanada (federally,
orprovincially byprovincial legislation) inorder tooffertrustandloans services inCanada. Market
access andnational treatment areguaranteed.
Exceptions under all3federal financial institutions legislation
Inaddition tothefewmarket access andnational treatment exceptions specific tothedifferent
statutes mentioned above, twoexceptions arecommon totheBank Act,theInsurance Companies Act
andtheTrust andLoans Companies Act.
Afederally-regulated financial institution having capital inexcess of$750million isrequired,
within fiveyears ofhaving reached thethreshold, tohave35percentofitsvoting shares widely-
heldandlisted andposted fortrading onaCanadian Stock Exchange.
Aminimum ofonehalfofthedirectors must beeither Canadian citizens ordinarily resident
inCanada orpermanent residents ordinarily resident inCanada.
Investment Companies Act
Under theInvestment Companies Act,there isoneexception tomarket access.
Theacquisition ofcontrol ofaCanadian business (except forbanks) byanonCanadian issubject
toapproval foralldirect acquisition ofCanadian businesses withassets notlessthananamount
determined eachyear(in1994, itwassetat$C153 million).
Comparison toGATS Protocol andDecision ofJuly1995
Thefinancial institution legislation under federal jurisdiction isfullyconsistent withallour
GATS commitments under market access andnational treatment under theSecond Protocol oftheGATS
andtheDecision ofCommitments inFinancial Services agreed upon inJuly1995.
Inparticular, theBank Act,theTrust andLoan Companies Act,theInsurance Companies Act
andtheInvestment Companies Actwereamended inDecember 1994, viatheWorld Trade Organization
Agreement Implementation Act,toeliminate thefollowing foreign ownership andmarket share
restrictions -commitments made under theUruguay Round negotiations:WT/REG4/1/Add.2
Page23
the10percentindividual, and25percentcollective, limitations ontheforeign ownership
ofCanadian-controlled federally-regulated insurance companies andtrustandloanscompanies;
the25percentcollective limitation ontheforeign ownership ofSchedule Ibanks; and
the12percentassetceiling onthesizeoftheforeign banksector inCanada.
60. Annex VII(C) Canada, p.4,item2oftheNAFTA: What aretherequirements tobemet
byforeign bank subsidiaries toqualify foracompany controlled bytheUnited States or
Mexican residents? Could Canada specify therequirements andtimeframe oftheapproval
procedure thatforeign bank subsidiaries notcontrolled byUnited States orMexican
residents have toundergo inorder toobtain approval toopen abranch?
Annex VII(C) -Canada, p.4,item2ofNAFTA -Aforeign banksubsidiary inCanada must
bedirectly heldbytheparent company. Thismeans thataforeign banksubsidiary established inanother
NAFTA country cannot directly ownaforeign banksubsidiary inCanada. Accordingly, anon-NAFTA
foreign bank(theparent) cannot, through itsownership ofaforeign banksubsidiary inMexico orthe
United States, takeadvantage ofNAFTA provisions regarding theopening ofnewbranches inCanada.
Itisworth noting thatthedirect ownership ruleequally applies toNAFTA andnon-NAFTA foreign
banks.
Foreign banksubsidiaries owned bynon-NAFTA country banks havetosubmit theirrequests
toopen newbranches totheOffice oftheSuperintendent ofFinancial Institutions (OSFI) .These
requests areusually handled within afewweeks.
Temporary Entry forBusiness Persons (Chapter 16)
61. Paragraph 2oftheGATS Annex onmovement ofphysical persons excluded from the
scopeoftheagreementmeasuresaffectingnaturalpersonsseekingaccesstotheemployment
market ofamember andmeasures regarding citizenship, residence ofemployment on
aphysical basis. What treatment isgiven under theFTAtoservice suppliers seeking access
totheemployment market ofoneofitsmember countries ortrying toobtain residence,
citizenship oremployment onapermanent basis?
NAFTA Chapter 16deals withthe"temporary entry ofbusiness persons" anddoesnotdeal
withaccess totheemployment market orresidence andcitizenship inanyoftheParties onapermanent
basis. Inthose instances, immigration lawsandregulations arenotaffected byNAFTA.WT/REG4/1/Add.2
Page24
VII. ADMINISTRATIVE AND INSTITUTIONAL PROVISIONS
Institutional Arrangements andDispute Settlement Procedures (Chapter 20)
62. Could theParties clarify theeffect ofArticles 103.2 and2005.6 with regard totheir
obligations asWTO Members, inparticular withregard toArticle XXIII ofGATT and
toArticle 3oftheUnderstanding onRules andProcedures Governing theSettlement of
Disputes?
NAFTA Parties mayelecttopursue dispute settlement under GATS orNAFTA withrespect
tomeasuresormatterscoveredbybothagreements.However,Article2005.6statesthatonceaparticular
forum hasbeenselected, itshallbeusedtotheexclusion oftheother.WT/REG4/1/Add.2
Page25ANNEX 1
Individual andAggregate Market Share Limits Under NAFTA
(Figures asofJune1996, inforce untilApril 30,1997)
Financial Institution System Individual Limit Aggregate Limit
1996Aggregate Limit
1997Available Quota
1996Available Quota
1997
Banks l.5% 10.8% 12.2% 5.0% 6.4%
pesos 101,431,661,000 1,521,474,915 10,954,619,388 12,374,662,842 5,071,583,050 6,491,626,304
dollars 13,345,271,184 200,194,068 1,441,397,288 1,628,245,084 667,313,559 854,161,356
Securities Firms 4.0% 14.0% 16.0% 5.4% 7.4%
pesos 6,654,222,000 266,168,880 931,591,080 1,064,675,520 361,989,677 495,074,117
dollars 875,555,526 35,022,221 122,577,774 140,088,884 47,630,221 65,141,331
Insurance Companies (Casualty) 1.5% 9.0% 10.0% 5.8% 6.8%
pesos 4,460,186,990 66,902,805 401,416,829 446,018,699 258,690,845 303,292,715
dollars 586,866,709 8,803,001 52,818,004 58,686,671 34,038,269 39,906,936
Insurance Companies (Life) 1.5% 9.0% 10.0% 6.4% 7.4%
pesos 1,710,753,588 25,661,304 153,967,823 171,075,359 109,488,230 126,595,766
dollars 225,099,156 3,376,487 20,258,924 22,509,916 14,408,346 16,657,338
Financial Institution System Aggregate
Limit 1996Aggregate
Limit 1997Available Quota
1996Available Quota
1997
Leasing Companies 14.0% 16.0% 6.2% 8.2%
pesos 3,321,241,834 464,973,857 531,398,693 204,256,373 270,661,209
dollars 437,005,504 61,180,771 69,920,881 26,875,839 35,615,949
Factoring Companies 14.0% 16.0% 2.1% 4.1%
pesos 711,449,025 99,602,864 113,831,844 15,082,719 29,311,700
dollars 93,611,714 13,105,640 14,977,874 1,984,568 3,858,803
Limited Scope 3.0% 3.0% 2.8% 2.8%
pesos 1,213,971,102,179 36,419,133,065 36,419,133,065 33,869,793,751 33,869,793,751
dollars 159,733,039,760 4,791,991,193 4,791,991,193 4,456,551,809 4,456,551,809
*Total amount oftheassets ofbanks plustheassets oflimited scope financial institutions
Exchange Rate=7.6Mexican PesosWT/REG4/1/Add.2
Page26
NOTIFICATION
1. Member(s) notifying. Ifapplicable, theSubcentral government orauthority ornon-
governmental bodies involved should bespecified.
Canada, Mexico andtheUnited States ofAmerica
2. Notification under Article(s):
V
3. Dateofentry intoforce/duration:
January 1,1994
4. Agency responsible forenforcement ofthemeasure:
Governments ofCanada, Mexico andtheUnited States ofAmerica
5. Complete description ofthemeasure* indicating themodes ofsupply covered, the
effect ontrade inservices (e.g.restrictions/liberalization measures) andtheimpact of
themeasure oncommitments intheMember 'sschedule andArticle II(MFN)
exemption list,ifrelevant:
Trade inservices components oftheNorth American FreeTrade Agreement
6. Members specifically affected, ifany:
7. Textavailable from:
- Enquiry Form
- WTO Secretariat X
- Other sources (address, fax
andtelephone ofother body)
___________________
*Including international agreements, recognition measures orother types.