RESTRICTED  WORLD TRADE  
ORGANIZATION  S/C/W/258 
28 June 2005 
 (05-2758) 
Council for Trade in Services Original:   English 
   
COMMUNICATION FROM CHINA, HONG KONG CHINA, JAPAN,  
KOREA, MEXICO AND THE SEPARATE CUSTOMS TERRITORY OF  
TAIWAN, PENGHU, KINMEN AND MATSU 
 
Joint Statement on the Second Review of Article II (MFN) Exemptions
 
 
  The following statement, delivered at the C ouncil for Trade in Services at its meeting on 
24 June 2005 is circulated to Members of the Counc il at the request of the co-sponsoring delegations. 
 
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I. INTRODUCTION 
1. The co-sponsors of this statement would like to thank the Chairperson of the Council for 
Trade in Services for conducting the second review of Article II (MFN) Exemptions, and also to thank 
all the Members who have actively participated in the dedicated sessions of the Council held on 
30 November 2004 and 23 February 2005 for the purpose of the review.  We would also like to thank the Secretariat for their efforts in preparing th e useful background materials for the review.  
 
II. IMPORTANCE OF MFN PRINCIPLE AND CONTEXT FOR MFN EXEMPTIONS 
2. The co-sponsors of this statement would like to reiterate that the MFN principle is the 
cornerstone of the multilateral trading system and that any deviation from the MFN principle should 
be treated with utmost seriousness as it could unde rmine the basis for non-discriminatory trade among 
WTO Members.  Under the GATS framework, MFN exemptions are - 
(a) One-off : In accordance with Article II and the Annex on Article II Exemptions, a 
Member is exempted from its MFN obligations , at the entry into force of the GATS, 
only if their inconsistent measures are lis ted in, and meets the conditions of, the 
Annex on Article II Exemptions.  Any new ex emptions applied fo r afterwards shall 
be dealt with by waiver. 
(b) Time-limited : In accordance with the Annex on  Article II Exemptions, an MFN 
exemption terminates on the date provided for in the exemption, and in principle such exemptions should not exceed a period of 10 years, in addition to being subject to negotiation in subsequent trade liberalizing rounds. 
(c) Subject to review : In accordance with the Annex on Article II Exemptions, all MFN 
exemptions are subject to review by the Council for Trade in Services, and in such a 
review the Council shall, inter alia, examin e whether the conditions  which created the 
need for the exemption still prevail. S/C/W/258 
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 3. The context for MFN exemptions as set out ab ove represents the balance of the agreement 
reached at the time of the Uruguay Round and forms an integral part of the GATS framework.  They 
are also part and parcel of the prerequisites under which a Member can be exempted from its MFN 
obligation.  In particular, given the supposedly time- limited nature of MFN exemptions and in view of 
the in-principle time-limit of 10 years, MFN exempt ions should as a norm expire within 10 years, and 
maintaining exemptions beyond 10 years should be the exception rather than the norm.  A substantive 
and meaningful review to examine, and a pos itive conclusion on, whether the conditions which 
created the need for the exemptions still prevail are thus instrumental to fulfilling the prerequisites for 
continuing to maintain the exemptions.   
III. OBSERVATIONS ON THE SECOND REVIEW OF MFN EXEMPTIONS 
4. A number of Members have put forward both ge neral and specific questions for the purpose 
of the review
1.  In this regard, we would like to express our appreciation of the answers provided by 
many Members towards the questions that have been  put forward for the purpose of the review.  In 
particular, we are grateful to those Members who ha ve indicated that they are ready to remove their 
MFN exemptions, in the context of their offers in  the on-going services negotiations or otherwise.  
We are especially pleased to note that some Members have offered to remove all their MFN 
exemptions in their offers.   
5. We are also grateful to those Members who ha ve addressed in a substantive and meaningful 
manner as to why the conditions which created the need for the exemptions still prevail.  Such 
answers have enhanced the transp arency of those MFN exemptions and facilitated the understanding 
of other Members for the purpose of the review .  A number of Members have provided further 
clarifications regarding their MFN exemptions, including the measures covered by the MFN 
exemptions, the countries to which the measures appl y, and the conditions whic h created the need for 
the exemptions.  For the purpose of enhancing th e specificity of the descriptions of the MFN 
exemptions and ensuring their legal clarity and certa inty, we urge Members to revise the descriptions 
of their MFN exemptions to reflect the clarifications made.   
6. Many answers have also raised important issues concerning MFN exemptions such as 
treatment less favourable than specific commitment s, durations of exemptions, exemptions for 
economic integration, reciprocity conditions for ma rket access, measures subject to GATS provisions 
or exceptions, expanded application of exemptions to new measures or agreements, etc., that the co-
sponsors consider deserve further deliberations.  For instance, a number of Members have confirmed 
that their MFN exemptions do not purport to grant less favourable treatment than what have been 
committed in their schedules of specific commitments.   We are of the view that this is the only 
position which is consistent with the provisions of the GATS and would urge all Members to ensure 
that treatment accorded under any MFN exemptions ar e no less favourable than the respective specific 
commitments.  The co-sponsors reserve the right s to revert to these issues at a later date. 
7. However, we would like to register our di sappointment that a number of questions put 
forward for the purpose of the review have remain ed unanswered or have not been answered in a 
substantive and meaningful manner.  We are also disappointed that many Members have indicated that they would continue to maintain their MFN exemptions notwithstanding the supposedly time-
                                                     
 
 1  Please see documents JOB(04)/131 dated 22 Septem ber 2004 from Chile, China, Hong Kong China, Japan, 
Korea, Mexico and Chinese Taipei, S/C/W/246 dated 19 November 2004 from Japan, S/ C/W/247 dated 19 November 2004 
from Hong Kong, China, S/C/W/248 dated 19 November  2004 from Korea, S/C/W/250 dated 23 November 2004 from 
Chinese Taipei, S/C/W/251 dated 23 Nove mber 2004 from Mexico, paragraphs 32 of  S/C/M/76 containing questions from 
China, paragraphs 141-143 of S/C/M/76 containing questions  from the United States, S/C/W/252 dated 28 January 2005 
from Chinese Taipei, S/C/W/253 dated 8 February 2005 from H ong Kong, China, S/C/W/254 dated 9 February 2005 from 
Norway, S/C/W/255 dated 11 February 2005 from China,  and S/C/W/256 dated 11 Fe bruary 2005 from Korea.  S/C/W/258 
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 limited nature of MFN exemptions, without any a ttempt to address the conditions which created the 
need for the exemptions with a view to eliminati ng those exemptions.  In particular, some answers 
have merely stated that the conditions which created  the need for the exemptions still prevailed, or 
that the legislation or instrument for which an exem ption is purported to cover continued to exist, and 
thus the exemptions will continue to be mainta ined.  Some answers have failed to clarify what 
precisely are the measures to which the exemptions apply, what were the conditions which created the 
need for the exemptions in the firs t place especially what the exemptions  were to be used for, whether 
the conditions have continued to exist since thei r introduction and still exist in reality especially 
whether the exemptions have been used for any actual measures, and whether the conditions still 
prevail including whether any action has been take n or contemplated to eliminate such conditions. 
8. The co-sponsors of this statement are of the view that these answers hardly meet the 
requirements of the review for the Council to exam ine whether the conditions which created the need 
for the exemption still prevail, for which the Memb ers maintaining the exemptions should provide the 
information and justification to the Council.  In par ticular, in order to enable the Council to review in 
a substantive and meaningful manner whether the co nditions which created the need for an exemption 
still prevail, the Member maintaining the exempti on must provide sufficiently clear information on 
the MFN exemption and the conditions which created the need for it, and substantiate as to why the 
conditions still prevailed notwithstanding the time-li mited nature of the MFN exemptions especially 
the in-principle 10-year duration.  The failure to address the review in a substantive and meaningful 
manner and to substantiate that th e conditions which created the need for the exemptions still prevail 
contravenes the provisions of Article II and th e Annex on Article II Exemptions and upsets the 
balance of the agreement reached at the time of the Uruguay Round.  We are thus of the view that 
such exemptions should cease to have effect. 
IV. NEGOTIATIONS OF MFN EXEMPTIONS 
9. The co-sponsors of this statement also recognise that MFN exemptions are subject to 
negotiations in subsequent rounds of trade liberalizat ion negotiations, and are prepared to engage with 
Members in pursuing their elimin ation in the on-going services negotiations.  We will share our 
thoughts on negotiations for elimination of MFN exemp tions in due course in the appropriate forum.  
 
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