RESTRICTED  WORLD TRADE  
ORGANIZATION  WT/DSB/M/170 
6 July 2004 
 
 (04-2915) 
Dispute Settlement Body 
1 June 2004  
 
 
 
MINUTES OF MEETING 
 
Held in the Centre William Rappard  
on 1 June 2004  
 
Chairperson:  Ms Amina Mohamed (Kenya) 
 
  Prior to the adoption of the agenda, the item concerning the Panel Report in the case on 
"Canada – Measures Relating to Exports of Wheat and Treatment of Imported Grain" was removed 
from the proposed agenda following the United Stat es' decision to appeal the Panel Report.   
 
1. Mexico – Measures affecting telecommunications services 
(a) Report of the Panel (WT/DS204/R) 
1. The Chairperson
 recalled that at its meeting on 17 April 2002, the DSB had established a 
panel to examine the complaint by the United States .  The Report of the Panel, contained in document 
WT/DS204/R, had been circulated on 2 April 2004 as an unrestricted document pursuant to the Procedures for the Circulation and Derestriction of WTO Documents contained in WT/L/452.  The 
Panel Report was before the DSB fo r adoption at the request of the United States.  This adoption 
procedure was without prejudice to the rights of Members to express their views on the Panel Report. 
2. The representative of the United States
 said her delegation was pleased to request the 
adoption of the Panel Report.  As Members were aw are, this dispute had been the first WTO panel 
proceeding to deal with telecommunications serv ices.  The United States welcomed the Panel's 
thorough analysis of both the GATS Annex on Tel ecommunications and the Reference Paper.  She 
said that delegations would recall that the Re ference Paper was included in many Members' 
Schedules.  At the present meeting, the United States wished to take the oppo rtunity to highlight a 
number of specific aspects of the Panel Report.  Fi rst, the United States noted with approval the 
Panel's recognition of the importance of the pro-competitive regulatory principles contained in the GATS Annex on Telecommunications and the Refere nce Paper.  The United States welcomed the 
Panel's careful analysis of the nature of cross- border telecommunications services and the regulatory 
concepts of major supplier status and cost-orien tation.  Second, the United States welcomed the 
Panel's confirmation that international interconn ection, including through accounting rate regimes, 
was included within the scope of Section 2 of the Re ference Paper.  Third, her delegation wished to 
underscore the Panel's finding that the obligati ons of the GATS Annex on Telecommunications 
applied to measures of a Member that affected suppliers of basic telecommunications services of any other Member, as the obligations would apply to measures affecting any other service supplier of 
another Member.  Fourth, as a general matter, the Un ited States noted that in undertaking its analysis, 
the Panel made reference to a number of documents  outside the agreements themselves, specifically 
the Draft Model Schedule and a Note by the Chairman of the Negotiating Group on Basic 
Telecommunications.  The United States commended th e Panel's use of these documents for the sole 
purpose of confirming the ordinary meaning of the relevant agreement text, as provided under WT/DSB/M/170 
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 Article 32 of the Vienna Convention on the Law of  Treaties (Vienna Convention).  Panels should not 
overstate the legal significance of such documents. 
3. Fifth, her delegation disagreed with the Pane l's conclusion that a specific provision in 
Mexico's GATS Schedule allowed Mexico to prohibi t the supply of cross-border services using leased 
capacity in Mexico.  The United States strongly disag reed with some of the Panel's discussion in 
reaching that conclusion concerning the obligations of Article XVI:2 of the GATS, particularly as 
those elements of the discussion did not derive from th e actual text of that provision.  However, on the 
whole, the United States, once again, commended the Panel for its careful and diligent work in this 
dispute and thanked the members of the Panel and the Secretariat for their efforts.  Finally, the 
United States was pleased to inform the DSB that it had been able to reach an agreement with Mexico 
with respect to the steps necessary to comply with  the recommendations and rulings that the DSB was 
about to adopt and on the reasonable period of tim e for compliance.  A copy of the agreement was 
provided for circulation to all Members.  The car eful structure and discussion of the Panel Report 
provided a useful framework under which the parti es were able to reach agreement.  The US 
experience in this dispute provided an excellent ex ample of the ways in which Members could use the 
dispute settlement procedures to facilitate the r esolution of a dispute in a mutually satisfactory 
manner. 
4. The representative of Mexico
 said that his country had strong concerns of a systemic nature 
about some of the Panel's findings and recomme ndations, especially regarding the way Mexico's 
commitments under the GATS had been interpreted.  However, Mexico had decided not to exercise its 
right to challenge the Report in view of the unde rstanding reached with the United States as to the 
actions needed to comply with the Panel's recommend ations.  A copy of that agreement had just been 
notified to the DSB and Mexico hoped that it would be circulated shortly to all Members.  Mexico had 
thus placed its interest in resolving this dispute be fore its systemic concerns.  Mexico understood that 
the main purpose of the WTO dispute settlement m echanism was to resolve disputes.  For Mexico, 
this was not merely a diplomatic statement.  He noted that out of the 11 cases initiated by WTO 
Members against Mexico seven had be en solved in consultations.  Me xico had avoided going as far as 
appeal in the great majority of the cases and in only one instance there had been an Article 21.5 
procedure. 
5. At the present meeting, Mexico wished to make some comments on the Panel Report.  In 
Mexico's view, certain parts of the reasoning and fi ndings of the Panel showed a number of flaws.  
This was particularly important in light of th e ongoing services negotiations and in view of the 
implications for all WTO Members.  For the reasons  that Mexico would summarize in its statement, 
the Report could not and must not be used as a re ference or a basis for interpreting WTO services 
commitments.  He said that Mexico's statement would address the following points:  (i) the international telecommunications regime;  (ii) cross- border trade in services;  (iii) the interpretation of 
limitations on Members' GATS Schedules;  (iv) the inte rpretation of Section 1 of  the Reference Paper;  
and (v) Annex on Telecommunications. 
6. With regard to the international telecommunications regime, Mexico noted that in the early 
days of the basic telecommunications negotiations a clear distinction had been made between the 
terms:  accounting rate, termination charge and interconnection charge.  There had never been an 
intention to regulate the accounting rate regime.  Th e fact that the Reference Paper, entered by many 
Members, could not logically be applied to  the accounting rate regime was reflected, inter alia , by the 
fact that settlement payments were made on the basis not of each minute of international 
telecommunications traffic, but of the excess generate d by carriers that originated more traffic than 
they terminated.  In other words, accounting a nd settlement rates differed substantially from the 
charges associated with interconnection.  Mexican in ternational accounting rate s were consistent with 
both ITU and US Federal Communications Commission benchmarks.  Therefore, Mexico was 
surprised that the Panel should find them to be inconsistent with WTO ob ligations.  Mexico also  WT/DSB/M/170 
 Page 3 
 
 
 failed to understand why, in finding that Mexico's  rates were not cost-based, the Panel had examined 
rates for telecommunications traffic that were illega l under the law of Mexico and that of other WTO 
Members.  Were the Panel's findings regardi ng Mexico's Reference Paper and the Annex on 
Telecommunications to be applied as benchmark fo r the interpretation of other cases, the adverse 
effect on the accounting rate regime would be subs tantial for all Members, irrespective of whether 
they had obligations of the kind set forth in the Reference Paper. 
7. With regard to cross-border trade in services,  Mexico said that the Panel's approach to 
interpreting mode 1  of service supply – cross-border supply – was highly problematic.  First, the 
Panel had found that the service supplied was not th e simple transmission of a voice message "up to" 
the connecting operator's network;  rather, it had defined the service as spanning both operators' 
networks.  It had suggested that the service be consid ered as a "single, cross-border service".  Such an 
interpretation negated the meaning of the terms "trade in services" and "supply of services" in 
paragraphs 1 and 2 of Article I of the GATS.  Properly interpreted, the definition of the service 
described only what was traded or supplied, it did not  describe how the service was traded;  i.e., it did 
not indicate which supplier provided the service and by what mode the service was delivered to the 
consumer.  The Panel's definition of services wrongly  combined two distinct legal categories.  To 
illustrate that point, Mexico referred to the followi ng definition of services given by the Panel – "long 
distance call transmission services between internati onal points".  A correct definition would simply 
have been "long distance call transmission services".  
8. Second, the Panel had essentially found that th ere was "cross-border" supply of a service 
where a US supplier sold to US customers services from the United States to Mexico.  It had found 
that the fact that such a service must be supplie d jointly by US and Mexico service suppliers was 
legally irrelevant.  It had also found that an entity  could be regarded as supplying all aspects of the 
service even when elements of the service were sub-cont racted to another firm in another country.  In 
making these findings, the Panel had overlooked the f act that two service suppliers were involved in 
the transaction and that each one supplied its own services.  The "joint provision" of a service could 
never be treated as cross-border supply through m ode 1, since it involved the participation of two 
suppliers of the same service.  To find otherwise would be inconsistent with the recognition that a 
commercial presence or nationality requirement preven ted cross-border trade.  The "zero quota" on 
cross-border trade that was associated with a co mmercial presence or nationality requirement would 
simply be avoided by sub-contracting with a natio nal service supplier.  If the Panel's interpretation 
were accepted, the fact that a WTO Member requi red a foreign service supplier to contract with a 
national supplier would not be a limitation on cro ss-border trade.  Thus, a WTO Member would be 
free to impose the requirement to sub-contract with its own nationals without this being considered a 
barrier to cross-border trade and a breach of its market access commitments.  Such a result would be absurd and was clearly not the intent of the negotiato rs.  If they were to be applied outside the context 
of this dispute, the Panel's reasoning and findi ngs would have serious implications for the 
interpretation of the GATS Schedules of other WTO Members, particularly those that included 
limitations on commercial presence and specifically in respect of services such as pipeline transmission services and electricity transmission ser vices, which involved similar integration services 
on both sides of a border. 
9. With regard to the interpretation of limitati ons in Members' GATS Schedules, Mexico noted 
that although efforts had been made during the ser vices negotiations to standardize the scheduling of 
limitations, there was significant variation in the appr oaches used by Members.  This, in itself, created 
ambiguity in the language of the Schedules.  In such circumstances, it was most important to apply rigorously the rules of interpretation laid down in  the Vienna Convention.  Clearly, the Panel had 
overlooked these rules in its interpretation of Mexico 's mode 3 limitation for commercial agencies.  
The Panel had found that Mexico's scheduling in th e market access column of the services supplied by 
commercial agencies through commercial presence wa s not a market access limitation within the 
meaning of any of the sub-paragra phs of paragraph 2 of Article XV I of the GATS.  In making this WT/DSB/M/170 
Page 4  
 
 finding, the Panel had overlooked the broad context provided in Article XVI of the GATS.  In view of 
that entry in the market access column of Mexico's Schedule, the question the Panel ought to have 
asked was not whether the entry fell within any of the sub-paragraphs of Article XVI:2 of the GATS, 
but in which of the sub-paragraphs the entry fell.  Bearing in mind the variation in the approaches of 
different Members, to the extent that there was ambiguity in the wording of the entry the finding 
ought to have been that the entry fell under at least one of the sub-paragraphs of Article XVI:2 of the 
GATS.  By finding that the entry fell under none of the sub-paragraphs, the Panel had given no 
meaning to the limitation.  Such an outcome was plai nly contrary to the general rule of interpretation 
embodied in Article 31 of the Vienna Convention.  If it were to be applied in another context, the 
Panel's interpretation would mean that entries prope rly made in a Member's Schedule could be devoid 
of meaning in a dispute settlement proc edure.  Such a precedent was dangerous. 
10. With regard to the interpretation of Section 1 of the Reference Paper, Mexico said that the 
Panel's interpretation of the obligations in Secti on 1 of Mexico's Reference Paper represented an 
unprecedented effort to apply competition law to  government measures in a manner never 
contemplated by the GATS negotiators.  The Panel had held that each of the following government-
imposed requirements were "anti-competitive practi ces":  (i) the requirement of uniform settlement 
rates:  i.e., all national carriers had to charge the same, uniform settlement rates;  (ii) the requirement 
of proportionate return;  i.e., national carriers had to share the revenue from incoming calls in 
proportion to their share of outgoing calls;  and (iii) the requirement that the carrier with the greatest 
market share of outgoing calls to a particular count ry must negotiate the se ttlement rate with that 
country.  In so holding, the Panel had rejected the argument that these requirements were government 
measures and not "anti-competitive practices" by entiti es.  It had specifically rejected the plea that 
mandatory government actions should not be subject to  Section 1 of the Reference Paper.  In doing so, 
it had adopted an interpretation that could place gove rnment regulation in telecommunications at risk, 
since any regulation would, to some extent, be an ti-competitive.  This was certainly not the outcome 
that had been expected by Mexico or any othe r WTO Member that had undertaken commitments 
under Section 1 of the Reference Paper.  Indeed, as was argued by the EC in its third-party submission 
to the Panel, Section 1 of Mexico 's Reference Paper did not require a Member to open its market to 
full competition and, if Mexico chose not to allo w competition between telecommunications operators 
on a certain matter, there was no scope for anti-comp etitive practices relating to that matter.  It was 
not possible to restrict competition where competition was not allowed.  In that context and in light of Article VIII of the GATS, which provided for lim ited competition between service suppliers, it was 
particularly troubling that the Panel had found that  Mexico might not in fact restrict competition 
between its telecommunication operators.  It was also significant that the Panel had disregarded the evidence that the measures at issue had pro-competitive purposes and effects.  In other words, they 
had been adopted in order to promote competition in the Mexican market.  Instead, the Panel had 
viewed the market in question as a limitation on the ability of US carriers to obtain the lowest possible 
rate for purchasing telecommunications transport se rvices in Mexico.  This narrow and one-sided 
view of the market distorted the Panel's analysis a nd had set a precedent that could easily be abused in 
future.  Finally, the Panel had acted as though it were an authority on competition, without having 
conducted the type of detailed economic analysis of the pertinent market, and of the effects of the 
measures at issue that would normally be expected of an authority on competition.  In Mexico's view, 
the Reference Paper did not authorize a WTO panel to  play such a role, nor did WTO panels have the 
means or the authority to conduct the type of inves tigation and analysis needed for a proper analysis 
of competition. 
11. With regard to the Annex on Telecommunicat ion, Mexico said that there were also 
fundamental flaws in the Panel's interpretation of  the GATS Annex on Telecommunications.  First,  
while it was true that the Annex referred to "access to and use of" a Member's Public 
Telecommunications Transport Networks and Servic es (PTTNS) for the "supply of a service included 
in its Schedule", its provisions could apply only to the extent th at the scheduled services could be 
supplied through the access to and us e of another Member's PTTNS.  Contrary to the Panel's findings,  WT/DSB/M/170 
 Page 5 
 
 
 this was not possible for basic telecommunication services. Basic telecommunications services were 
correctly defined as the transport of information to cu stomers or data.  As such, they were also "public 
telecommunications transport networks and services".  By definition, Mexico's suppliers of "public 
transport networks and services" could not trans port telecommunications transport services supplied 
by other suppliers.  Clearly, basic telecommunicati ons services could only be the means of transport 
used for other economic activities.  They could be  viewed as a means of transport for the same 
commercial activity;  i.e., the transport and transm ission of data.  By finding that the Annex covered 
measures that affected access to and use of PTTNS  with regard to all services, including basic 
telecommunications services, the Panel had wrongly broadened the scope of the Annex.  Second, 
foreign suppliers of basic telecommunications ser vices relied on "access to and use of" a Member's 
PTTNS to supply their services;  their market access rights were governed so lely by the Member's 
Schedule of Specific Commitments.  While the Pane l rightly found that the Annex, by virtue of 
paragraph 2(c)(i), did not require a Member to authorize the supply of a basic telecommunication transport service "other than as provided for in its Schedule", it misinterpreted Mexico's Schedule of 
Specific Commitments and had rendered meaningless the restrictions entered by Mexico.  Mexico had 
entered those limitations in order to prevent s uppliers of other Members from supplying basic 
telecommunications services on a cross-border basis into Mexico, and through mode 3 (commercial 
presence) for commercial agencies.  In finding that the limitations at issue had no such effect, the 
Panel imposed on Mexico obligations that Mexico had not undertaken during the negotiations.  The 
Annex on Telecommunications had been negotiated to apply to "value added" services and to other 
services supplied through the PTTNS, several years before the negotiations on basic 
telecommunications services had been completed.  The Panel had nonetheless interpreted the Annex 
as imposing direct limitations on international acc ounting rates.  It must be worrying for other 
Members that any panel should interpret in a Me mber's Schedule commitme nts that had not been 
offered.  Finally, he said that Mexico had serious co ncerns that the results of the Panel Report before 
the DSB at the present meeting would have an imp act on the ongoing negotiations on trade in services 
and could set a precedent, notwithstanding the ag reement reached by the parties to the dispute. 
12. The representative of Japan
 thanked the Panel and the Secret ariat for this detailed and high 
quality Report.  Japan recognized that this was a ve ry difficult case since it was the first major dispute 
settlement case in the area of ser vices which involved telecommunication.  Japan appreciated the 
Panel's efforts to examine difficult points of ar gument such as examining the applicability of the 
Reference Paper to "the accounting rate system", th e interpretation of the term  "cost-oriented" and the 
interpretation of  the concept of anti-competitive prac tices.  Japan had participated in this proceeding 
as a third party and wished to make the following observations on the Panel's findings.  First, his country regretted that the Panel Report had not fu lly addressed the issues raised by Japan in its 
third-party submission in spite of their importance.   For example, the Panel Report had not examined 
the point related to the "uniform accounting rate system", which Mexico had adopted as well as many 
other Members, including the United States.  Second,  Japan had argued in its third-party submission 
that the examination of "special meaning" of "cos t-oriented" should be conduc ted with extreme care.  
His delegation considered that an interpretation of  this term should be examined "in accordance with 
the ordinary meaning to be given to the terms of  the treaty in their context".  Only under the 
circumstances where it could be clearly established that Members had intended "a special meaning" to be given to the term "cost-oriented", Members s hould allow for such a special meaning.  In other 
words, Japan considered that a mere existence of a " de facto  standard", in an organization in which 
many WTO Members participated, was not sufficient to establish that WTO Members had intended to give a special meaning to the term.  Accordingly, even if the term "cost-or iented" was used in the 
technical context in an international telecommu nication field, such as in the International 
Telecommunication Union, Japan considered that such  use alone would not be sufficient to conclude 
that it satisfied the requirement of Ar ticle 31 (4) of the Vienna Convention. 
13. The representative of Canada
 said his country was pleased to note that the United States and 
Mexico had agreed to settle this matter and looked fo rward to receiving the text of this agreement.  WT/DSB/M/170 
Page 6  
 
 Canada noted, of course, that agreements betw een Members in settling disputes might not detract 
from the rights of other Members, and so Canada  would be following this settlement closely and 
would be reviewing the agreement in that light.  Wi th reference to Mexico's statement, his delegation 
would  send it back to Ottawa for review, but Ca nada would like to emphasize the following point of 
systemic interest.  Panel Reports, once adopted by th e DSB, could not be set aside and forgotten.  
While there was no stare decisis  in the WTO, the reasoning of a dopted panel reports did have, and 
must be given, due weight in future cases. 
14. The representative of Mexico
 said that he was surprised by th e last point that had been made 
by Canada since it had come from the same dele gation that had once calle d one panel report a one-
time aberration. 
15. The DSB took note  of the statements and adopted  the Panel Report contained in 
WT/DS204/R. 
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