RESTRICTED  WORLD TRADE  
ORGANIZATION  S/C/W/322 
26 October 2010 
 (10-5581) 
Council for Trade in Services Original:   English 
 
 
 
COMMUNICATION FROM HONG KONG, CHINA AND JAPAN 
 
Review of Article II (MFN) Exemptions  
 
Questions from Hong Kong, China and Japan 
 
 
 The following communication, dated 22 Oc tober 2010 from the delegation of Hong Kong, 
China and Japan is being circulated to the Members of the Council for Trade in Services. 
  
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 1. Recalling the MFN principle is the cornerstone  of the WTO system, any MFN exemptions 
under Article II: 2 of the GATS, as the name impli es, must be the exceptions, and such exemptions 
should not be maintained for an indefinite period. 
2. In light of that, the Annex on Article II Ex emptions of the GATS mandates the Council for 
Trade in Services to review all exemptions granted fo r a period of more than five years and the review 
shall, among others, examine whether the conditions wh ich created the need for such exemptions still 
prevail. 
3. For the purpose of the review of the MFN exemp tions by the Council for Trade in Services in 
accordance with the Annex on Article II Exemptions of the GATS, we would request the Members 
concerned to provide answers to the following qu estions in respect of their MFN exemptions. 
I. GENERAL QUESTIONS 
General Questions 
4. For each of the MFN exemptions listed in  the Secretariat’s sectoral compilation 
(JOB/SERV/29), we would appreciate it if all Me mbers maintaining any MFN exemptions would 
respond to the following general questions by the delegations of Hong Kong, China; Japan; Korea; 
Mexico; and the Separate Customs Territory  of Taiwan, Penghu, Kinmen and Matsu: 
Q1 Please indicate whether the exemption has b een used for any actual measure since its 
introduction and since the previous review in 2004/05, and if so provide information on the 
use. 
 Q2 Please explain whether the conditions which creat ed the need for the exemption still prevail 
and for how long it has been implemented.   
 
Q3 Please describe whether any action has been take n or is being contemplated to eliminate the 
conditions which created the need for the exemption.  Please explain why if not. S/C/W/322 
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  Q4  If the exemption pertains to any international agreements or arrangements, please explain the 
rationale behind maintaining such an exempti on under the existing multilateral framework for 
trade in services, and how such measures based on reciprocity can be considered compatible 
with the multilateral trading system.  In additi on, if such measures are based on the agreement 
covered by Article V of GATS, please explain wh y the exemption is maintained in light of 
Article V of GATS. 
 
II. SPECIFIC QUESTIONS ON HORIZONTAL EXEMPTIONS 
5. Hong Kong, China and Japan would like to requ est the Members concerned of the following 
horizontal MFN exemptions to respond to the following specific questions (page number refers to 
JOB/SERV/29) - 
Q5 Canada (page 3):  We note that Canada has briefly explai ned in the first review its reason for 
the inclusion of compulsory arbitration of i nvestor-states investment disputes in the MFN 
exemption list.  We still wonder whether the ag reements on the promotion and protection of 
foreign investments are necessarily under the amb it of GATS.  Hence, we are interested in 
knowing the views of Canada as to the in terface between investment promotion and 
protection agreements and the GATS.  Also  we would like to know why “compulsory 
arbitration”, among other differential instrument s in such agreements, is singled out for 
inclusion in Canada’s MFN exemption list. 
 
Q6 EU and their Member States (page 8, 1st entry):  It is noted that the measures concerned 
are taken by Denmark and applied to Sweden, Finland, Iceland and Norway.  Now with 
Finland and Sweden becoming EU member states,  we are interested in knowing whether and 
how the application of the measures has been ch anged.  Indeed, the bigger systemic question 
is the rationalization of the MFN exemptions scheduled by the new member states of the EU 
acceded since the conclusion of the UR, which are now set out in separate schedules.  While 
we note the efforts of the EU in updating and consolidating the schedules (e.g. in EU’s 
Conditional Revised Offer in TN/S/O/EEC/Rev.1 of  29 June 2005), we are grateful for advice 
and plans of the EU on how this can be done before the conclusion of the DDA. 
 
Q7 USA (page 27, 4th entry):  In response to our question in the previous review, the US has 
referred to Sections 891 and 896 of the US Internal Revenue Code (IRC) and advised 
Members that no regulations had been issued and the provisions had never been invoked.  We 
were grateful for the reply and are interested in knowing whether as at today the statement is 
still current.  
  
 To follow up on the Sections of the IRC1 referred to by the US, we would like to know 
whether the proclamation of the US President (to take the measures), in such events as 
envisaged in the Sections, is discretionary or mandatory? 
 
 Separately, we would also like to know whet her a "less favourable taxation" measure referred 
to in this entry may include treatment less fa vourable than that set out in the GATS schedule 
of specific commitments of the US?  
 
                                                      
 1 Sections 891 and 896 appear not to cover m easures permitting less favourable taxation for 
"products "of a foreign country.  Indeed, the notion of MFN exemption is not a feature under the GATT.  Given 
that the present review is conducted under the Council fo r Trade in Services, questions pertaining to trade in 
goods will not be raised here.  S/C/W/322 
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   And if such targeted conducts (e.g. discrimin atory taxes against the US) existed in other 
Members and were deemed to be in violati on of the Members’ WTO obligations, would the 
US first consider and exhaust WTO DSM before resorting to this measure? 
 
Q8 Malaysia (foreign equity participation, page 16):   It is noted that the exemption purports to 
allow discretionary non-MFN treatment in r espect of all countries on foreign equity 
participation, which appears a major blanket car ve-out from the MFN principle.  Since there 
were not any convincing explanations made at the last review, please advise if any action has 
been taken or is being contemplated to elimin ate the conditions which created the need for the 
exemption.  Please explain why if not.  Also, if possible, please provide any specific examples 
of the “waiver of measures” for transparency. 
 
Q9 Thailand (bilateral agreement, page 23):   The intended duration of the exemption is 10 
years.  At the Meeting of the Council Review of MFN Exemptions held on 30 November 2004, Thailand advised that the reasons for the Treaty of Amity and Economic Relations still 
prevailed, while they stated at the first re view of MFN Exemptions that liberalization 
measures taken by their government would eventually render the exemption unnecessary. Would Thailand give an update on measures take n to eliminate the exemption and advise 
whether they intend to eliminate the exemp tion as scheduled? Also, please update the number 
of nationals and companie s who had benefited from the Treaty for transparency. 
 
III. SPECIFIC QUESTIONS ON SECTORAL EXEMPTIONS 
6.  Furthermore, we would appreciate the Members concerned of the following sectoral MFN 
exemptions could respond to the following specific questions (page number refers to JOB/SERV/29)  
(a) Business Services 
 
Q10 Malaysia (page 35):  Please advise if 20 per cent foreign content limitation for advertising is 
waived in reality for Brunei Darussalam, Indonesi a, Philippines, Singapore, Thailand.  In that 
case, in which laws or regulations the waiver is provided for.  It is noted that the conditions 
creating the need for the exemption are to pr omote intra-ASEAN tourism.  Does Malaysia 
intend to add Vietnam to the Countries to whic h the measure applies? Does Malaysia intend 
to extend the intended duration of five years? 
 (b) Communication Services 
 (i) Telecommunication Services
 
Q11 Brazil (page 37):   Is there any relevant measure/inte rnational agreement implemented since 
the introduction of this exemption?  Apart from reciprocity, are there any other factors that 
Brazil may take into consideration for not im plementing the relevant measures on a MFN 
basis? 
 
Q12 India (pages 37-38):  Given the development of the telecommunications sector in the recent 
years, please advise whether the uncertainty in the international negotiation on accounting 
rate, a reason given for the maintenance of the exemption in the 1st review, still exists and 
confirm whether it is still necessary to mainta in the exemptions. Among the named countries 
to which the measure applies, have they all been accorded the same preferential treatment? 
 
Q13 Turkey (page 39):   We note that the measures apply to "neighbouring countries and/or 
countries covered by Economic Cooperati on Organization and Black Sea Economic 
Cooperation".  We should be grateful if Tu rkey could list out the countries concerned. S/C/W/322 
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  Q14 USA (page 39):   We note that in its initial offer the US has offered to terminate this MFN 
exemption.  It seems that the conditions cr eating the need for this exemption no longer 
prevail.  We appreciate the US’ offer and woul d like to know the concrete timetable for the 
termination of the relevant exemption. 
 
(ii) Audiovisual Services  
Q15 Australia (page 42, 2nd entry):   At the Meeting of the Council Review of MFN exemption 
held on 30 November 2004, Australia indicated th at the conditions which created the need for 
the exemption still prevailed.  Would Australia  please advise us whether this exemption has 
ever been activated since the Review in 2005?  On the condition that this exemption has never 
been invoked, would Australia cons ider terminating the exemption? 
 
Q16 Brazil (page 43):  Please provide a list of countries with whom Brazil has signed co-
production agreements and indicate whether such agreements are time limited, and explain 
how these agreements contribute to the cultural exchange and facilitate access to financial 
resources. 
 Q17 Canada (pages 45-46):  Please provide a list of countries with whom Canada has signed co-
production agreements and indicate whether such agreements are time limited, and explain 
how these agreements contribute to the great er diversity and international exchange. 
 
Q18 EU and their Member States (page 52, 1
st entry):   Please provide examples on the 
redressive duties imposed in response to unfai r pricing practices.  How these duties help 
correct the situation? 
 
Q19 EU and their Member States (page 52, 2nd entry):  Please provide examples on measures 
taken to prevent, correct or counterbalance adverse, unfair or unreasonable conditions or 
actions.  How these measures help correct the situation? 
 
Q20 EU and their Member States (page 53, 2nd entry):  It is mentioned that "European 
countries" are the ones to which the measure appli es.  We should be grateful if the list of 
countries could be listed out? 
 
Q21 India (page 56):  Please provide a list of countries with whom India has signed co-production 
agreements and indicate whether such agreemen ts are time limited, and explain how these 
agreements contribute to the cultural exchange. 
 Q22 Singapore (page 64):   It is noted that Singapore will keep the possibility of removing this 
exemption under review.  Would Singapore pl ease provide information about the latest 
review and its results?   
 
Q23 Vietnam (page 70):   With regard to the countries to  which these measures apply to, please 
provide some examples of "bilateral or plurilate ral agreements".  In addition, it would be 
appreciated if the actual examples of promoting "cultural links" or "cultural values" described 
in the conditions are provided.  Please explain the concrete condition of "origin criteria" 
referred to in second and third measures.  Do es it mean that only Vietnamese audiovisual 
works are eligible to be accorded preferentia l treatment or audiovisual works of those 
countries with which cultural cooperation agr eements are concluded can also meet the 
criteria? 
    S/C/W/322 
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  (c) Construction and Related Engineering Services 
 Q24 Indonesia (preferential shortlisting, page 71):   With regard to the countries to which 
preferential shortlisting is applied, please confir m that such preferential treatment had never 
been extended to any new ASEAN countries other than the five countries listed in the MFN 
Exemption list, as explained at the first review of MFN Exemptions held on 5 July 2000 
(paragraph 128, S/C/M/45).  Furthermore, pl ease provide, if any, the number of such 
international biddings with preferen tial shortlisting on an annual basis. 
 
 
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