RESTRICTED  WORLD TRADE  
ORGANIZATION  S/C/M/78 
17 May 2005 
 (05-1980) 
Council for Trade in Services   
  
 
REPORT OF THE MEETING HELD ON 23 FEBRUARY 2005 
 
Note by the Secretariat
1 
  
1. The Council for Trade in Services held a meeting dedicated to the Review of Article II 
Exemptions (MFN) on 23 February 2005.  The meeting was opened by Ambassador Peter Brño 
(Slovak Republic) and then chaired by the newl y elected Chairperson, Ambassador Claudia Uribe 
(Colombia).  The agenda for this meeti ng was contained in document WTO/AIR/2503. 
2. Under other business the Chairman
 informed delegations that c onsultation on the appointment 
of the chairpersons of the subsidiary bodies of  the Council for Trade in Services were still taking 
place, while Members were trying to ensure coordina tion with the parallel consultations held by the 
Chairman of the Council for Trade in Goods on the na mes of the chairpersons of the goods subsidiary 
bodies.  He said that he expected to circul ate a first slate of names as soon as possible. 
3. The Chairman  suggested that the agenda be adopted as circulated. 
4. The Council so agreed . 
A. APPOINTMENT OF THE NEW CHAIRPERSON 
5. The Chairman , based on the consensus reached in the General Council, asked Ambassador 
Claudia Uribe of Colombia to take over the Chai r of the Council for Trade in Services.  Before 
leaving, he expressed confidence that with her expe rience and wisdom she would be able to guide the 
future work of the Council skilfully and efficiently.  He said that during the past year he had enjoyed 
working with delegations and appreciated their c ooperative and constructive spirit in fulfilling the 
mandate of the Council.  Firstly, he thanked Members for trusting him to chair the Council and for 
their active participation.  Secondly, he thanked th e Chairpersons of the subsidiary bodies for their 
professional work.  Thirdly, he thanked Hamid Ma mdouh, Peter Morrison and other members of the 
Secretariat whose effective and professional perform ance could always be relied upon.  Fourthly, he 
thanked the interpreters for their excellent job. 
6. The new Chairperson , Ambassador Claudia Uribe of Colombia, thanked Ambassador Peter 
Brno for his kind words and all Members for the trus t and confidence they had given her to carry out 
the functions of chairperson of the Council.  She expressed confidence that with Members' 
cooperation and with the assistance of the Secret ariat the work of the Council would move forward 
fruitfully. 
7. Many delegations intervened throughout the me eting to thank the outgoing Chairman and to 
welcome the new Chairperson. 
                                                      
 1  This document has been prepared  under the Secretariat's own responsibility and without prejudice to 
the positions of Members and to their rights and obligations under the WTO. S/C/M/78 
Page 2  B. REVIEW OF ARTICLE II EXEMPTIONS 
8. The Chairperson
 recalled that this was the second meeting of the Council's second review of 
MFN exemptions, mandated by the Annex on Article II (MFN) Exemptions.  It had been agreed that 
this review should be conducted on a sector-by-sect or basis through a question-and-answer process, 
following the previous practice. 
9. She recalled that the first meeting of this review took place on 30 November 2004.  At that 
meeting, the Council examined MFN exempti ons listed for all sectors, business services, 
communication services, construction and related engineering services, and distribution services.  She said that, as indicated in the agenda, this meeti ng would address all the MFN exemptions listed for 
education services, financial services, health-related and social services, tourism and travel related 
services, recreational, cultural and sporting services and transport services.  The Council would also 
address outstanding issues arising from the meeting of 30 November 2004. 
10. The Chairperson
 also recalled that it had been agreed that Members wishing to raise questions 
should submit their questions in writing well in a dvance of the meeting and that the responding 
Members were free to answer questions either in writi ng or orally at the meeting.  She pointed out that 
a few delegations had already submitted questions fo r the purpose of the review at this meeting.  
These questions were contained in documents S/C/W/252, S/C/W/253, S/C/W/254, S/C/W/255, 
S/C/W/256 and had been circulated to Members.  They were respectively from Chinese Taipei, Hong 
Kong China, Norway, China and Korea. 
11. In order to have an orderly and efficient discussion, the Chairperson  suggested that the 
Council take each sector on the agenda in turn and open the floor for delegations who had received 
questions in that particular sector to respond.  She emphasised that it w ould be desirable if the 
responding Members could structure their interven tions as much as possible on the basis of the 
questions addressed to them.  Discussions were to be  conducted in formal mode with the possibility of 
switching to informal mode if Members so desired.  
I. EDUCATION SERVICES  
12. The Chairperson  opened the floor  for delegations w ho had received questions on education 
services to respond.  No delegation wished to take floor under this issue. 
II. FINANCIAL SERVICES  
13. The Chairperson  recalled that there were 51 MFN exemptions listed for financial services.  
She opened the floor for delegations who had recei ved questions on financial services to respond. 
14. The representative of Switzerland  recalled that Switzerland ha d one exemption in financial 
services and that his authorities had been looking at it very carefully together with the partner country 
concerned, Liechtenstein, and were working towards eliminating this exemption in  the context of 
their revised offer.  Although, until the offer was fi nalised he could not confirm its elimination, he 
said that it was most likely that the exemption would be eliminated in the revised offer of Switzerland. 
15. The representative of Liechtenstein  recalled that her delegation had received two questions 
from Hong Kong, China on financial services.  The first one was the same as the one received by 
Switzerland and had been answered by the Swiss delegation.  The other question concerned the 
situation whereby Liechtenstein granted a permit of  establishment only to in surance companies which 
were supervised by the Swiss Insurance Supervision Authority.  This condition dated back to the time 
when Liechtenstein did not have its own legisla tion for insurance companies.  After joining the 
European Economic Area (EEA), Liechtenstein drafte d its own insurance legislation, based on the EC 
legislation.  Therefore, the cited MFN exemption had no legal basis in Liechtenstein and was no 
longer applied in practice.  She noted th at its removal was a mere technicality.  S/C/M/78 
 Page 3 
 
 
16. The representative of Canada  stated that her delegation had received two questions from 
Chinese Taipei with respect to th eir two exemptions in financial services.  The first question 
concerned the exemption on insurance intermedia tion, which reserved preferential access to the 
Ontario insurance services market and to non-resi dent individual insurance agents from the United 
States.  This exemption was maintained as part of a reciprocal arrangement with the United States.  It 
applied to United States agents because insuran ce laws and licensing requirements in the United 
States were similar to those of Ontario.  Since On tario agents might wish to do business in the United 
States, it was important that the Province had reci procal arrangements with the United States State 
Insurance Regulators, regarding licensing and qua lifications requirements.  She explained that 
preferential access meant unrestricted access for Un ited States insurance agents to the Ontario 
insurance markets. 
17. The second question concerned the MFN exemption on lending of all types and trading of all 
accounts of certain securities by loan and investment companies, which reserved preferential treatment in the Province of Quebec for the alloca tion of licences to loan and investment companies 
that were incorporated under the laws of the Pa rliaments of the United Kingdom and Ireland.  Such 
preferential treatment was a result of an historical pr eference reflected in legislation.  This preference 
could be found in Section 1 of the Loi sur les Sociét és des Prêts et de Placements, Chapter S.30 of the 
Laws of Quebec, which stipulated that any loan or investment corporation, institution or company 
duly constituted under the laws of the Parliaments of the United Kingdom and Ireland or Canada or 
similar institutions incorporated in Quebec could exercise the same rights for the purpose of lending 
or investing funds.  This Act was adopted more than a century ago when relations for obtaining 
capitals were established essentially with the coopera tion of Great Britain.  She concluded by stating 
that the intended duration of both exemptions was undetermined. 
18. The representative of Israel
 noted that they had received specific questions from Chinese 
Taipei in document S/C/W/252 and Hong Kong, Ch ina in document S/C/W/253 as well as general 
questions from a group of Members contained in document JOB(04)/131.  He pointed out that his 
delegation was able to confirm that thus far the MFN exemption on financial services and banking 
had not been applied since its intr oduction.  He further noted that the questions received had prompted 
an internal review in Israel and that the author ities were currently reviewing this exemption with a 
view to further liberalizing the banking sector.  His delegation would keep Members informed of any 
future development in this respect. 
19. The representative of Turkey  said that her delegation had received questions from Chinese 
Taipei, Hong Kong, China and Korea.  She stated that in Turkey's initial offer the exemption on 
financial services had been deleted and that the removal of this exemption at the end of the 
negotiations depended on the overall results  of the Doha Round of negotiations. 
20. The representative of the European Communities  recalled that his delegation had received a 
number of questions on its exemptions on financial services.  The first set of questions concerned 
Austria's exemption providing for more favourable tr eatment than provided in specific commitments 
for financial service suppliers of countries that offer competitive opportunities and effective market 
access to Austrian services suppliers equivalent to those offered by Austria.  He stated that the 
conditions that justified the need for this exempti on still prevailed as Austria still wanted to maintain 
the possibility of providing more favourable treatment in this sector to services providers of countries 
that were open to Austrian services providers. 
21. Other questions also concerned two similar ex emptions of Hungary and the Slovak Republic 
that provided more favourable treatment subject to c onditions of reciprocity in other countries.  Also 
the conditions which created the need for these two exemptions still prevailed as those countries 
wanted to maintain the possibility of providing for more favourable treatment to services providers of 
countries that were open to their own services providers. S/C/M/78 
Page 4  
22. Finally, the European Communities had receive d a question regarding its MFN exemption on 
financial services applicable to Switzerland.  This  MFN exemption had been deleted in the initial 
offer of the European Communities.  The question received referred to the date of entry into force of 
the removal of the exemption.  He recalled that the initial offer of the European Communities, like 
those of all other Members, was conditional and indi cated that if the European Communities were to 
maintain the deletion of this MFN exemption in th eir revised offer, the removal of the exemption 
would be conditional on the outcome of the DDA nego tiations and would enter into force together 
with the overall DDA package. 
23. The representative of Singapore
 said that Singapore had two MFN exemptions on financial 
services, the first relating to the currency inte r-change agreement between Singapore and Brunei 
Darussalam and the second relating to the ASEAN Re insurance Corporation.  Firstly, regarding the 
currency inter-change agreement be tween Singapore and Brunei, he not ed that this agreement arose 
from special historical and economic ties between Singapore and Brunei.  This agreement remained in force and would be maintained until either Brunei  or Singapore terminated it by giving notice.  
Secondly, regarding the exemption relating to the ASEAN Reinsurance Corporation, he noted that 
Singapore was prepared to consider removing this MFN exemption in the context of the DDA 
services negotiations. 
24. The representative of Colombia
 answered the questions posed by Hong Kong, China on the 
financial services exemption.  She confirmed that th eir existing regulations di d not require reciprocity 
when the authorities were determining the granting of a licence for the establishment of a commercial 
presence.  She pointed out that this explanation was contained in document S/C/W/172.  She added that its removal was being considered and th at it depended on the ongoing DDA negotiations. 
25. The representative of the United States
 recalled that her delegation had received a number of 
questions on their financial services MFN exemp tions.  Chinese Taipei had asked two different 
questions on the exemptions generally, the first rega rding the possible termination of the exemptions.  
She clarified that the duration of the exemptions w as indefinite.  Secondly, Chinese Taipei  had asked 
whether the exemptions had been used for actual measures since their introduction, and specifically 
the exemption on permission to establish state-li censed branches or agencies in banking and other 
financial services sector excluding insurance.  She sai d that no information on the application of these 
measures by the relevant states was available. 
26. Hong Kong, China had posed two questions rela ting to the MFN exemption on differential 
treatment of countries based on reciprocity.  She rep lied that the conditions that created the need for 
this exemption continued to prevail.  Anot her question from Hong Kong, China concerned the 
exemption on broker dealers registered under Unite d States law and having their principal place of 
business in Canada.  She responded that the establis hed preference was maintained under SEC Rule 
15c3-3, promulgated under the Securities Act of 1934.   This rule allowed a Broker Dealer registered 
under United States law, having his principal place of business in Canada, to retain its required 
reserves in a bank in Canada subject to the supe rvision of Canada.  All other broker-dealers were 
required to maintain the required reserves in a Unite d States bank.  The duration of this measure was 
indefinite. 
27. Regarding some questions on the exemptions  on banking and financial services, excluding 
insurance, conditioning the permission to establish state-licensed branches or  agencies or to own 
commercial banks subsidiaries on a reciprocity test, she noted that these Stat e measures were designed 
to dissuade other countries, many of whom had limited or no market access commitments in these 
sectors, from discriminating against United States s uppliers.  She said that the possibility of such 
discrimination continued to exist and so did the per ceived need for this exemption.  She pointed out 
that, as indicated in the list, the exemption applied potentially to all countries, while her delegation was not aware of any instances of applications of these measures by the relevant States.  
  S/C/M/78 
 Page 5 
 
 
28. Regarding the coverage of this exemption, sh e said that it covered permission to establish 
state-licensed branches, agencies or other re presentative offices or to own commercial bank 
subsidiaries and was based on a reciprocity test in the relevant State.  She added that it was not 
necessarily the case that Members who did not provide reciprocal treatment would be accorded treatment less favourable, as this wa s a matter which remained within  the discretion of the relevant 
State authority. 
29. Another question concerned the MFN exemption relating to a Michigan State provision that 
permitted corporate central credit unions to place de posits in banks chartere d in Canada or the 
European Common Market but not in banks chartered in other foreign countries.  She replied that the 
need for this exemption was not created by any agreement between the United States and Canada or 
Europe, as it was specific to the State of Michigan.  As to whether this exemption had been motivated 
by actual measures by any specific country, she rep lied that generally the mechanisms that were 
provided were intended to deter cer tain behaviour by some countries that had denied United States 
firms market access in the past. 
30. Concluding, she added that none of the listed exemptions referred to a specific regional 
agreement and none of them were based on such an agreement. 
31. The representative of Peru
 recalled that his delegation had received questions from Chinese 
Taipei, Hong Kong, China and Korea (JOB(04)/ 115) on their two MFN exemptions on financial 
services.  The first exemption contained a reserva tion not to apply MFN to countries which did not 
automatically and unconditionally applied it Peru.  The second exemption, regarding national 
treatment for foreign investment, reserved the right of Peru to adopt exceptionally and for reasons of 
public and national interest measures to counter pr otectionist and other discriminatory measures of 
other countries.  The questions posed concerned the or igin, nature and applicability of the exemptions.  
The exemptions were covered by Article 5 of La w 26:702 on financial services.  According to the 
Peruvian Banking and Insurance Regulatory Body , this provision had been applied since 1994, 
notwithstanding significant foreign investment received  by Peru in this sector, nor had any regulations 
been adopted pursuant to it.  The subject of these exemptions had not arisen nor had they caused any 
problems between the banks and the Peruvian gov ernment, including at the time of granting the 
authorisations for banking operations by foreign ser vice providers.  He informed Members that Peru 
would make an assessment of the future of these exem ptions in the context of the bilateral market 
access negotiations. 
32. The representative of Hong Kong, China  intervened on a point of organization of work.  He 
recalled that at the last dedicated session a numbe r of delegation indicated they were still in the 
process of preparing responses to the question on th e sectors discussed and many had asked whether it 
would be possible for those delegations to provide the outstanding answers and for others to make 
follow-up question on the responses received at this  second session.  He, therefore, wondered whether 
at the end of this second session the Council coul d revert to outstanding issues of the sectors 
addressed in the first session. 
33.   He then thanked the delegations of Switzerla nd, Liechtenstein, Israel, Turkey, the European 
Communities and Singapore for answering the ques tions posed by Hong Kong, China and looked 
forward to seeing the elimination of the cited MFN exemptions.  He noted that these MFN exemptions 
were no longer needed as the conditions that ha d created the need for these exemptions no longer 
prevailed.  On the answer provided by Canada on its MFN exemption on lending of all types he asked 
which was exactly the preferential treatment at i ssue, as there was no quota in Canada's schedule for 
financial services.  In the view of his delegation,  the preference had to be accorded to the named 
countries, i.e. the United Kingdom and the Republic of Irela nd on top of the treatment that was being 
accorded to all other WTO Members.  He asked Cana da to clarify how was that preferential treatment 
being accorded.  Regarding the MFN exemptions taken by Austria on licensing of branches and 
subsidiaries, where the list of countries to whic h this exemption applied was subject to further S/C/M/78 
Page 6  
consideration, he asked the European Communities to  clarify the exact list of countries to which this 
exemption applied.  His delegation took note of  the fact that the European Communities had 
responded that the MFN exemptions taken on a reci procal basis were intended only to cover the 
granting of more-favourable-treatment to certain members and not less-favourable treatment than already committed in the schedule of the European Communities. 
34. Regarding the reciprocity MFN exemption of th e United States for the establishment of state-
licensed branches, agencies, etc., he asked clarif ications as to the reference by the United States 
delegation to the possibility of granting less favourable treatment by the State authorities than inscribed in the schedule as, in hi s delegation's view, that would be inconsistent with the schedule of 
specific commitments of the United States.  He reiterated his delegation's view that any MFN 
exemption would only be able to cover more favour able treatment than what was being accorded 
under the schedule of specific commitments and not the other way around. 
35. He also made a general point on the reciprocit y based MFN exemptions, noting that financial 
services was the sector with the largest number of this  type of MFN exemptions.  He emphasised that 
in the answers provided so far no member had indi cated there had been any instances where they had 
needed to invoke MFN exemptions based on recipr ocity.  He characterised those MFN exemptions as 
of a defensive nature.  He recalled that a couple of delegations, including the delegation of Colombia, 
had indicated they would consider the elimination of their reciprocity exemptions in the ongoing 
negotiations.  He said that all these positive gestures indicated that Members had the possibility and 
the willingness to consider elimination of such ki nds of MFN exemptions based on reciprocity, but 
only on the understanding that this retaliatory MFN exemptions would not be used by other Members.  
He suggested that a possible solution to this dile mma consisted in the en bloc removal of such 
reciprocity MFN exemptions. 
36. The representative of Korea
 said that his delegation's remarks were not specific to financial 
services but aimed at clarifying their interest in this  review exercise.  He argued that his delegation 
was not seeking to examine whether domestic re gulatory measures which Members had a right to 
maintain were justified or not, but thought that pr oviding the reasons why the situation still prevented 
Members from bringing MFN exemptions in conformity with the GATS would have helped 
understanding the current constraints faced by Member s.  His delegation requested this information in 
order to evaluate how ambitious Members could be on the outcome of the services negotiations and 
find the right balance between their ambition and the reality. 
III. HEALTH-RELATED AND SOCIAL SERVICES  
37. The Chairperson  opened the floor for delegations w ho had received questions on health-
related and social services to respond. 
38. The representative of the European Communities  said that his delegation had received a 
question on Cyprus' MFN exemption applicable to human health services and providing medical 
treatment to Cypriot citizens in selected countries wh ere bilateral co-operation existed.  He informed 
Members that cooperation existed in this field with WTO Members such as the United States and 
Israel and the conditions that created the need for th is exemption still prevailed.  He added that such 
co-operation was not based on reciprocity. 
39. The representative of Hong Kong, China  responded that the representative of the European 
Communities had referred to agreem ents with Israel and the United States, while the exemption made 
no reference to the United States.  He, therefore,  wondered whether this agreement with the United 
States had been entered into after the exemption itself had been inscribed.  On this point, he reiterated 
that in the view of his delegation MFN exemptions  could only apply to pre-existing measures and not 
to future measures.  He reserved the right to return to this issue at a later stage in the discussions.  He 
pointed out, however, that if the agreement betwee n Cyprus and the United States had entered into 
force after the inscription of the MFN exemption, it should have been regarded as a future measure.  S/C/M/78 
 Page 7 
 
 
40. The representative of the European Communities  said that his delegation disagreed with the 
interpretation made by Hong Kong, China that onl y pre-existing measures would be covered by MFN 
exemptions.  He stressed that the MFN exemption on human health at issue applied to all countries 
with which medical cooperation might have been  desirable at present or in the future. 
IV. TOURISM AND TRAVEL RELATED SERVICES  
41. The Chairperson  opened the floor for delegations who had received questions on tourism and 
travel-related services to respond. 
42. The representative of th e European Communities  indicated that his delegation had received 
questions regarding an MFN exempti on for tourist guides in Lithuania.  He answered that the reasons 
that justified the creation of this exemption were in particular the existence of long-term relations with 
neighbouring countries, such as Russia.  These rela tionships and the cooperation between the Russian 
speaking communities in Lithuania and Russia were s till very important and alive.  For these reasons, 
the conditions which created the need for th is exemption still prevailed at that time. 
43. The representative of Mexico  said that his delegation had received a question from Hong 
Kong, China on one of the two MFN exemption that Mexico maintained in this sector regarding the 
conditions that first lead to the exemption and its dur ation.  He pointed out that Mexico was analysing 
whether these were in force or not and considering the effectiveness of this exemption.  He recalled 
that his delegation was among those who considered th at exemptions must be limited to 10 years as 
pointed out in the Annex.  He indicated that this  exemption originated from conditions also affecting 
neighbouring countries, such as the United States, so  that Mexico was willing to collaborate with the 
authorities of these countries in determining whethe r the conditions for maintaining the exemption 
still prevailed or not.  He added that once such a jo int review had taken place, Mexico would be in the 
position to communicate whether the exemption was still n eeded or not.  It concluded by stating that it 
was the hope of his delegation to undertake this revi ew soon and to arrive at the possible elimination 
of the exemption should its existence no longer be justified. 
44. The representative of Hong Kong, China  responded to the point made by the European 
Communities in relation to the MFN exemption of L ithuania regarding the applicability of exemptions 
to future agreements.  The representative of the European Communities had argued that exemptions 
may refer to all countries with which the agreements  are, or will be, in force and as long as the 
agreement still continued he considered that the need for the MFN exemption still prevailed.  Hong 
Kong, China, however, wondered, with respect to fu ture agreements, how could there have been any 
conditions which created the need for the MFN exem ption when the agreements themselves were not 
in existence previously.  In the view of the H ong Kong, China, MFN exemptions should be based on 
the conditions creating the need for the exemption and in examining the conditions that created the 
need for MFN exemptions Members needed to know the conditions that created such exemptions in 
the first place. 
45. The representative of th e European Communities  replied that his delegation disagreed with 
such an interpretation of the applicability of MFN exemptions.  The conditions for the creation of the 
exemption was not the pre-existence of bilateral ag reements but, as indicated in the exemption itself, 
the preservation and promotion of the cultural identit y in Lithuania.  These conditions existed at the 
time the MFN exemption was scheduled, they existe d at the time of the Second Review and would 
continue to exist.  The measures covered by this exemption applied to all those countries with which 
agreements were in force or would in force be in the future.  These agreements could evolve and 
could be reviewed.  This was the case with Russia with whom the European Communities were 
reassessing their cooperation, so that new measures could be taken within the framework of existing 
agreements or of new agreements which would al so be covered by this MFN exemption.  He 
concluded by pointing out that the conditions wh ich created the need for this exemption were 
indicated in the last column of the list, i.e. the preservation and promotion  of cultural identity. S/C/M/78 
Page 8  
46. The representative of Mexico
 said that his delegation shared the interpretation provided on 
this issue by Hong Kong, China and did not believe  that MFN exemptions were about giving "blank 
cheques" to Members so that in future they coul d depart from their MFN obligations with respect to 
new measures.  In the view of his delegation, MF N exemptions could only cover measures that were 
in existence at the time of the entry in to force of the relevant exemption. 
47. The representative of the United States  intervened to make a legal clarification on the point 
discussed by the preceding delegations: in the view of  her delegation, there was nothing in Article II 
and in the Annex on Article II Exemptions that  prevented a Member which has listed an MFN 
exemption from applying it to both existing and future measures, as long as such measures were 
within the scope of the listed exemption. 
V. RECREATIONAL, CULTURAL AND SPORTING SERVICES  
48. The Chairperson  opened the floor for delegations who ha d received questions on recreational, 
cultural and sporting services to respond.  No delega tion wished to take the floor under this item. 
VI. TRANSPORT SERVICES  
49. The Chairperson  recalled there were 163 MFN exemptions listed in transport services.  She 
opened the floor for delegations who had recei ved questions on transport services to respond. 
50. The representative of Korea  answered a question from Chinese Taipei on computer-
reservation systems.  He stated that his delegation ha d deleted this MFN exemption in its initial offer, 
recognising that market developments permitted at th at time the extension of MFN treatment in that 
area.  He added that such a deletion had also been  made with a view to removing any possibility that 
the exemption could result in less favourable treatme nt than as provided under Mode 1 in this sector 
in Korea's initial offer of commitments in the DDA negotiations. 
51. The representative of Costa Rica  addressed questions received from Hong Kong, China on 
their MFN exemptions for passenger and freight la nd transport services.  He stated that these 
exemptions were necessary for national developmen t and fully justified under the laws of Costa Rica 
and the provisions of the GATS Annex on Article II Exemptions.  The measures had been notified as 
being indefinite in duration, however, his dele gation hoped that the ongoing negotiations would allow 
them to reflect on the continued need for these ex emptions.  He indicated that the land transport 
exemptions were based on cooperation with regiona l partners under the releva nt regional integration 
agreements and granted more favour able treatment to the nationals of the regional partners.  The 
exemptions continued to be applicable at that tim e and no measure had been taken to modify them.  
He indicated that several of these MFN exemptions were justified within the framework of Central 
American Integration even though not necessarily b ased on the existence of a regional agreement.  
The requirement of reciprocity was included in orde r to ensure equal conditions of access for national 
suppliers, bearing in mind the cooperation system existing among the countries of the region.  He added that Costa Rica had not taken on any specific commitments in this sector and that, therefore, the 
exemptions did not affect any commitments in the schedule of Costa Rica. 
52. The representative of Romania
 said that the Romanian authorities had carefully analysed each 
and every exemption from MFN treatment as well as th e conditions which imposed such a treatment.  
She informed Members that for the time being,  those conditions had not  changed and therefore 
Romania was not in a position to make any chang es to its list of MFN exemptions.  Her delegation 
understood that all questions put to Romania had to be  examined in the contex t of the exercise carried 
out in the review and that this was in accordance with the Annex on Article II exemptions.  She also 
responded to a question put to her delegation by Ko rea that the MFN exemption for road transport 
services was relevant to Mode 1 and that the conditi ons which determined the need for the exemption 
relating to the sales and marketing services of air transport remained the same.  S/C/M/78 
 Page 9 
 
 
53. The representative of Uruguay  provided information on the MFN exemption relating to land 
transport services and more specifically internationa l land transport.  She pointed out that this 
exemption was based on an agreement with limited scope of the Latin American Integration System 
(ALADI).  This was a framework agreement whic h permitted egalitarian and objective treatment and 
eliminated asymmetries in the transport sector among the countries of region.  The agreement 
governed transport among the Members of ALADI and in  this respect this was a sectoral exemption at 
the basis of the MERCOSUR transport policy.  She a dded that at that time the conditions that created 
the need for that exemption still prevailed. 
54. The representative of Norway  addressed a question from Chinese Taipei on the termination 
dates of the exemptions, noting that the dates of te rmination had not been decided.  On whether the 
exemptions had been used, his delegation had recei ved no confirmation that the exemptions in this 
sector had ever been used in practice.  Respondi ng to a question from Korea on the CRS exemption he 
clarified that the MFN exemption was directed towa rds the service supplier.  He confirmed that the 
exemption related to the unbound entry in the nati onal treatment column.  He added that the CRS 
exemption relates to the code of conduct for CRS systems and it did not include any limitations 
concerning Article XVI of the GATS, so that Norway  had not inscribed any limitations in the market 
access column.  However, as the code of conduct coul d result in national treatment limitations, they 
had inscribed some limitations in the national treatment column.  
55. The representative of Iceland  made reference to a technical error in the document, which had 
been used as the basis to  prepare Iceland's initial offer in the DDA: the CRS exemption did not appear 
in the consolidated schedule and, therefore, it did no t appear either in the in itial offer.  She informed 
Members that Iceland was in a position to terminat e this exemption.  Accordingly, her delegation 
would insert this exemption in the revised offer by us ing the standard editorial conventions, i.e. italics, 
strikethrough, bold and shading.  The MFN exemption would be included in the offer in strikethrough 
text, indicating that it would be deleted, subject to the successful conclusion of the DDA negotiations. 
56. The representative of Turkey  indicated that Turkey maintained five MFN exemptions 
applicable to transportation services.  These exemp tions resulted from agreements to which Turkey 
was a part or from Turkey's related legislation.  A ll the exemptions were still in force and Turkey did 
not foresee any specific dates of termination. 
57. Concerning more specifically the questions on the exemption on road transport services, she 
made clear that the Bilateral Road Transport Agreements had the purpose of strengthening and 
expanding economic ties between the two contracti ng parties, thus facilitating the movement of 
passengers and goods in transit across their territories  and between the two countries.  She added that 
the signatories of Bilateral Road Transport Agreements , with a view to promoting transit and transport 
of goods and passengers, took all the measures serving the aim of simplifying and accelerating the permission procedures, customs and other formalities to the maximum extent possible.  These agreements did not cover any provisions regard ing the establishment procedures of the foreign 
transportation firms.  In its specific commitmen ts Turkey had kept Mode 1 unbound and required 
authorisation from the Ministry of Transport for Mode  3.  These agreements were related to Mode 1, 
that is to say, the supply of transportation services without establishing in a country.  These 
agreements were still in force so that the exemptions  would be kept in Turkey's MFN exemption list.   
58. She pointed out that the exemption regarding the income and corporate tax rates in Turkey's 
list reflected the principle of reciprocity which exis ted in legislation.  Article 25 of Corporate Tax 
Law, defined the Council of Ministers as the competen t authority to reciprocally decrease the rates of 
income and corporate tax collected from foreign ro ad, maritime and transport companies down to zero 
or increase to a new rate not exceeding one fold of the existing rate, on a country-by-country basis 
either for each transportation type separately or fo r all types of them.  Additionally, in Article 103 of 
Income Tax Law, there was a similar provision co vering non-resident tax payer supplying air, road 
and maritime transportation from the income tax perspective. S/C/M/78 
Page 10  
59. She also added that also the exemption regardi ng the value added tax in Turley's list reflected 
the principle of reciprocity which existed in legisl ation.  According to the Value Added Tax Law No. 
3065, transit or bilateral transportation services c ould be excluded from VAT upon the decision of 
Council of Ministers.  This exception was granted, on condition of reciprocity, to the related countries' 
tax payers who did not have the residence, lega l and business centre in Turkey.  This exemption 
comprised the transportation types which began and terminated in a foreign country passing through 
Turkey or which began in a foreign country and term inated in Turkey or wh ich began in Turkey and 
terminated in a foreign country. 
60. Regarding the questions posed to Turkey on the third transportation exemption mentioned on 
page 111 of JOB (04)/114, she replied that the co verage of this MFN exemption was reflected in 
Article 55 of Turkey's Customs Law which was still in force.  According to Article 55 of Turkey's 
Customs Law, the Council of Ministers was authorized  to adopt prohibitions, restrictions and to apply 
different procedures or tariffs, on a reciprocal b asis for goods and transport service suppliers of 
foreign countries which did not have an agreement w ith Turkey in the fields  of trade, customs, 
transportation or had partially or totally suspende d provisions of such agre ement unilaterally or had 
adopted prohibitions and restrictions for Turkish transport service suppliers, vessels or aircraft or 
applied discriminatory practices against Turkish nationals. This Article, as mentioned in the 
exemption, covered the principle of reciprocity, whic h meant that Turkey did not apply restrictions or 
prohibitions to any countries, whether WTO members or not, if such countries did not apply any restrictions and prohibitions to Turkey. 
61. Regarding the questions on the rail transport ex emption, she stated that Turkey, Syria, Iran 
and Iraq were members of Europe-Asia Tariff (TEA) for commodity transport by rail.  TEA members 
had the authority to reduce the transport price of thei r own corridors in different ratios.  Therefore, the 
Turkish State Railways also provided reduction on  railway transport price among these countries 
according to distance (in kilometres), nature and re gime of transported commodity.  Additionally, 
reciprocal usage of wagons was possible between Turkish State Railways and Syria, Iran, Iraq and 
Lebanon Railways according to CMO (Comférences des Chemins de Fer du Moyen-Orient).  The 
renting fee of freight wagons was also determined r eciprocally according to this agreement.  At the 
time there was no agreement providing for renting fee exemption. 
62. The representative of South Africa
 first answered a question received from Chinese Taipei on 
the financial services exemption.  She noted that  this MFN exemption had not expired and was 
indefinite and that the needs for this exemption still existed, i.e., the promotion of the Southern 
African Customs Union (SACU).  She recalled that her delegation had receive d questions on transport 
services from two countries, Korea and Hong Kong, China.  As for the question seeking confirmation 
that the exemption pertained to Mode 1, she noted  that this was a confusing question and perhaps 
could be discussed in bilateral negotiations as the unbound in that sector was for technical feasibility 
reasons.  In general, as far as the exemption was concerned it was for an indefinite period and there 
was no intention to remove it.  Regarding th e question from Hong Kong, China on whether the 
exemption had been used for any measures she cl arified that it was for the purpose of regional 
arrangements and the regulation of regional transport in the Southern region.  No action had been 
taken to eliminate it because it formed the basis of  regional transportation protocols which formed 
part of the Regional Integration Process.  Such pr eferences were given under the terms of the regional 
arrangements (SADC regional integration process) but did not amount to an FTA in terms of Article V so that an MFN exemption was necessary. 
63. The representative of Peru
 answered questions on a maritime and land transport exemption, 
on behalf of the ANDEAN countries, indicating that  that this exemption was necessary and took into 
account the ANDEAN regional integration process wh ich had a wider scope than the WTO.  As 
regards its relationship to Article V, the measure was directly related to Article V.  He indicated that 
Peru was prepared to comply with the required no tifications under Article V and on this basis they 
were coordinating with the other ANDEAN countries.  S/C/M/78 
 Page 11 
 
 
64. The representative of New Zealand , regarding a question on maritime passenger and freight 
services from Chinese Taipei, indicated that his delega tion had included deletion of such exemption in 
its initial offer in the ongoing DDA negotiations. 
65. The representative of Canada  answered a question on aircraft repair and maintenance services 
from Chinese Taipei noting that the exemption pr ovided preferential treatment to some foreign 
suppliers of repair and maintenance services as define d in Article I:2(b) of the GATS.  The exemption 
applied to all countries and was indeterminate.  Ca nada had also filed an equivalent MFN exemption 
in the NAFTA and Canada – Chile Free Trade Agreements. 
66. The exemption related to aircraft repair and maintenance services provided by services 
suppliers located outside of Canada.  Under th e existing Canadian regi me, repair, overhaul and 
maintenance work on Canadian registered aircra ft and related aeronautical  products had to be 
performed by Canadian certified providers based in  Canada.  Operations out side Canada were only 
eligible if they were conducted by sub-organiza tions or approved maintenance organisations located 
in Canada.  Therefore, no foreign-based repair  and maintenance provider could perform work on a 
Canadian aircraft or an aeronautical product that was engaged in air transport unless it was a sub-
organization of an approved mainte nance organization located in Canada and had been certified by 
Canadian authorities to provide such services.  Canada, however, had concluded agreements or 
technical arrangements with certain countries recogni sing the certification of repair and maintenance 
providers issued by the national regulators of the foreign countries involved.  These agreements were 
between countries or between civil aviation auth orities and varied in scope according to the 
circumstances and compatibility between national system s.  Canada had bilateral agreements with the 
United States, France and Israel and had technical arrangements between the civil aviation authorities 
of Singapore, Brazil, Austria, Germany,  the Netherlands and the United Kingdom. 
67. In deciding whether to conclude an agreement or arrangement with a foreign country, Canada 
took into consideration the degree of compatibility in  the certification procedur e and the standards of 
enforcement of the counterpart's regulatory system.  In particular, parties to a bilateral agreement had 
to consider the different regulatory methods used and the degree to which the other system could be 
integrated into their own.  Only those foreign re pair and maintenance service providers of countries 
with which Canada had an agreement or technical  arrangement could perform  and certify maintenance 
work on Canadian registered aircraft and other aer onautical products, without the need for separate 
Canadian certification or the requirement to be  a sub-organization of an approved maintenance 
organization located in Canada.  Canada had taken reservations under various international 
agreements to prevent the automatic extensi on of such certification to third countries. 
68. She concluded by pointing out that this MFN exemption remained necessary to ensure the 
integrity of Canada's safety standards.  Rega rding question 14 in document S/C/W/252, the answer 
was that the exemption had been used a number of times and Canada had entered into bilateral 
agreements, and technical arrangements with a number  of countries.  Such agreements were available 
on the Internet.  The agreement was supposed to be accompanied by an implementation plan, which in 
turn stipulated the standards, processes and pr ocedures under which maintenance and repairs were 
conducted in order to be acceptable to the agreemen t's signatories.  This process was established in 
accordance with the domestic regulations CAR- 571.04 through CAR-571.08,  pertaining to the 
performance of specialised maintenance for aircraft operations and CAR-IV and VII, pertaining to the 
installation of new and used parts. 
69. The representative of China  addressed questions concerni ng her delegation's two MFN 
exemptions in the maritime transport sector.  The first exemption concerned cargo sharing, which was 
governed by bilateral agreements, so that the dura tion was subject to the effective duration of the 
agreements concerned.  She pointed out that, if tr ading partners wanted to discuss this exemption in 
bilateral negotiations, her delega tion would be available.  The other exemption concerned the 
establishment of joint ventures and wholly owned su bsidiaries for ships owned or operated by carriers S/C/M/78 
Page 12  
of the parties to bilateral agreements.  She info rmed Members that her authorities had conducted a 
review of this exemption and considered that the conditions that created th e need for the exemption 
still prevailed so that the exemption would be main tained.  On a more general note, she emphasised 
that her delegation had only two MFN exemptions in services, which constituted a great contribution 
to the multilateral trading system.  Therefore, he r delegation expected other Members to reduce the 
number of MFN exemptions to the minimum (for in stance a maximum of one or two exemptions for 
each Member), as this would provide im petus to the ongoing negotiations. 
70. The representative of India
 recalled that his delegation ma intained two exemptions in 
maritime transport, the first related to cargo shar ing, based on certain bilateral agreements.  He 
pointed out that these agreements were still in for ce and, therefore, the conditions which created the 
need for the exemptions still prevailed.  The sec ond exemption related to cargo reservation under the 
United Nations Code of Conduct for Liner Conferences.   This was an international convention and the 
MFN exemption allowed India to fulfil its obligations  under the Convention.  He noted, however, that 
his authorities had considered that the implementati on of Convention had not come to fruition so that 
the MFN exemption was being reviewed in capital. 
71. The representative of Switzerland  in replying to questions received, pointed out that the MFN 
exemption on internal waterways transport services ha d an indefinite duration and had been used in 
practice.  The conditions that created the need for the exemption still prevailed and were based on the 
Manheim Convention.  Regarding the MFN exempt ion on air transport services, its duration was 
linked to the development of multilateral agreed ru les which in his delegation's view were not yet 
sufficiently developed.  As far as his delegation was aware, the measures had never been used in 
practice.  Concerning the exemption on road tran sport services, the intended duration was linked to 
the multilateral liberalization of road trans port services and the measure had been used. 
72. The representative of Liechtenstein  answered two questions received from Hong Kong, China 
on her delegation's MFN exemption on road transport ser vices.   She referred to the answers provided 
by Switzerland, which had the same MFN exem ption, based on the Customs Union between 
Switzerland and Liechtenstein and the Swiss bilateral transport ag reement which also applied to 
Liechtenstein.  Regarding international agreements in  the field of air transport, on the basis of a 
bilateral agreement between Switzerland and Liech tenstein the Swiss regime also applied to 
Liechtenstein, so that the Swiss answer to the CRS questions covered also Liechtenstein. 
73. The representative of Egypt  recalled that her delegation had received a question on its 
exemption on road transport services from Hong Ko ng, China on whether the exemption intended to 
cover measures that granted less favourable treatment.  In this regard her delegation confirmed that 
the measures mentioned in the exemption granted more  favourable treatment to the listed countries as 
the exemption aimed mainly at pr omoting the intra-Arab trade.  Regarding the duration of the 
exemption, she pointed out that the exemption ha d not expired as the agreement mentioned in the 
exemption was still in force. 
74. The representative of Chile  noted that the exemptions in the maritime transport sector were 
based on the principle of reciprocity, which was esta blished in the law which regulated the sector and 
which allowed the relevant authority to permit the en try of foreign suppliers to provide services.  She 
informed delegations that her authorities in capital had started a consultation process with the sectoral 
authorities regarding the MFN exemptions in the maritime transport sector in order to review their application and the criteria that determined th eir inclusion.  Her delegation hoped that these 
consultations would produce favour able results in the future. 
75. On a general note, her delegation was concerned by the interpretation given by the European 
Communities and by the United States of the scope of  application of Article II and of the Annex on 
Article II Exemptions.  In particular, her delegati on regarded the second paragr aph of Article II to be 
clear in delimiting the scope of the application of th e exemptions to the general obligation.  Paragraph 
2 referred clearly to the measures which were inco mpatible with the most-favoured-nation obligation  S/C/M/78 
 Page 13 
 
 
and in referring to "measures" it referred to the meas ures which were in force at the time of the entry 
into force of the Agreement.  In the view of her delegation, this point was important from a systemic 
point of view.  She invited other delegations to provi de their points of view on this point in order to 
have an exchange of views at this meeting. 
76. The representative of Colombia  answered questions on an MFN exemption on land transport 
services indicating that the reasons for this exemp tion were measures negotiated within the broader 
framework of economic integration of the Andean region.  These measures were still in force and the 
exemption was still valid. 
77. The representative of Bolivia  answered questions on an MFN exemption on road transport 
services.  She pointed out that Bolivia was a signato ry to the international road transport convention 
of the countries of the "Cono Sur", which had been  ratified with Law 11.58 in May 1990.  Article 15 
of this convention established that the convention di d not provide restrictions to transport and free 
movement facilities, which the signatory countries mi ght have granted each other.  By means of this 
Convention the signatory countries agreed on the n eed to adopt a single set of legal norms which 
reflected the essential principles agreed by the gover nments.  Particularly, those principles which 
recognised international road transport as a service of  public interest, fundamental for the integration 
of the "Cono Sur" and according to which recipr ocity must be understood as the most favourable 
regime to optimise the efficiency of said services.  Also in the convention it was established that the 
legal framework must contribute to the effective inte gration of the countries of the region, taking into 
account the geographic and economic needs and char acteristics of each and every one of them.  
Regarding the ANDEAN regulations, the decision approved by the Commi ssion of the Cartagena 
Agreement on transport and its different modalitie s, whose provisions may be consulted on the 
website "www.comunidadandina .org", have as their objective to ensure an effective integration of the 
member countries. 
78. She then cited all the relevant regulations.  Decision 331: multi-modal transport;  Decision 
359, regulation of Decision 289: international passe nger road transport; Decision 398: international 
passenger road transport, replacing Decision 289; D ecision 399: international road transport of goods, 
replacing Decision 257.  Successively, the Commission of the ANDEAN Community approved the following decision:  Decision 561, modification of Decision 398: international passenger road 
transport, technical conditions for the certification and road worthiness of buses in service.  She concluded by saying that the substance of the deci sions on this matters as well as the regulations of 
"Cono Sur" had as their objective to ensure the va lues, principles and advantages of a sub-regional 
and regional integration. 
79. The representative of the United States
 replied to questions on the MFN exemption on air 
transport services (CRS) posed by Chinese Taipei and Hong Kong, China.  She noted that the duration 
of this exemption was indefinite and that under this  exemption the United States maintained bilateral 
and multilateral air services agreements as well as  other arrangements with about 100 aviation 
partners, many of these arrangements including pr ovisions on selling and mark eting and CRS.  She 
added that the United States continued to nego tiate agreements with provisions on selling and 
marketing of air transportation. 
80. Responding to questions on the exemption on ro ad transport services regarding trucking 
licences, she said that under the Bu s Regulatory Reform Act of 1982 the United States had provided a 
moratorium on the ability to issue trucking licences fo r persons from contiguous States.  At that time 
United States carriers were denied reciprocal access to domestic and cross-border motor carrier 
operations in Canada and Mexico.  The President  of the United States lifted the moratorium for 
Canada in October 1982 after the United States and Canada reached a bilateral understanding, 
providing for access to Canada by United States moto r carriers.  The moratorium continued to be in 
effect for cross-border trucking operations in Me xico.  The duration of this MFN exemption was 
indefinite. S/C/M/78 
Page 14  
81. On the MFN exemption pertaining to space launch services, she replied that the justification 
for the exemption was that commercial launch ser vices and the development and production of new 
launch vehicles still remained closely related to g overnment and government support.  Therefore, the 
market for commercial launch services was, and would remain in the future, subject to distortions as 
compared to a normal commercial environment.  She said that her delegation reserved its right to condition access to the market in order to provid e the required flexibility to address these potential 
distortions.  Countries with which the United States  has entered into agreements included Russia, 
Ukraine and the European Communities. 
82. Returning to the road transport exemptions and the relevant moratorium she noted that this 
exemption did not result in any country being accord ed treatment less favourable than specified for 
road transport in the schedule of the United States.  She reiterated her delegation's interpretation of 
Article II and of the Annex on Article II Exempti ons, which, as a legal matter, covered exemptions 
with respect to existing measures as well as future  measures, which fell within the scope of an MFN 
exemption that had been included in a Member's schedule.  For instance in the area of bilateral 
investment agreements her delegation was aware that  many countries have agreements in place but 
they might also wish to negotiate future agreements. 
83. Members could have taken MFN exemptions  covering the ability to negotiate such 
agreements, provided such exemption clearly described the type of agreements to be covered.  This 
was an example of existing and future measures.  She stressed that her delegation did not mean to 
imply that if a Member had taken a MFN exemption in one sector it could then extend it to other sectors not listed in its schedule.  Any departure from MFN had to be specifically related to the scope of what was described in a Member's list of MFN exemptions. 
84. The representative of Norway
 replied to a question from Korea which had asked whether the 
MFN exemption on road transport related to the unbound entries on cross-border supply in Norway's 
list of specific commitments.  He stated that hi s authorities had confirmed that the MFN exemption 
related to the mentioned unbound entries. 
85. The representative of Cuba  stated that the exemption Cuba maintained in maritime transport 
services had not expired and had an indefinite durati on.  The conditions that had created the need for 
the exemption still prevailed because the bilateral trade and maritime navigation treaties to which 
Cuba was part were still in for ce.  Under these treaties Cuba granted certain privileges to countries 
with which it had concluded such  agreements.  These bilateral agreements which existed in the 
maritime transport sector, particularly the freight  transportation sector, were conventions which 
facilitated trade and freedom of movement among th e parties, and were based on the granting of 
facilities which did not create obstacles to trade with  third countries.  None of these agreements had 
been denounced by any of the parties and Cuba had an  interest in maintaining bilateral relations on the 
basis of these agreements.  This exemption did not involve measures which provided less favourable 
treatment than those granted in Cuba's sche dule of specific commitments.  Indeed, freight 
transportation, Mode 1, was not bound in C uba's schedule so that no MFN based specific 
commitments to provide market access to foreign services and service providers had been undertaken 
by Cuba.  Therefore, Cuba could grant, and in f act granted, to some Members who were parties to 
these bilateral treaties a more favourable treatment  than that bound in its schedule of specific 
commitments. 
86. Regarding reciprocity, she said that Cuba imposed the condition of reciprocity to the 
agreements on maritime transport services alt hough, in her delegation's view, a Members could 
impose specific conditions of reciprocity, provid ed they had a list of MFN exemptions which 
provided for more favourable treatment than grante d in the schedule of speci fic commitments for the 
same sector.  She pointed out that Cuba's MFN ex emption was based on international agreements and 
that her government wanted to maintain these ex emptions because of the interests in preserving 
historical ties with some countries in the maritime transport sector.  She also informed Members that 
Cuba had signed 19 bilateral agreements on mariti me transport: 11 of these agreements had been  S/C/M/78 
 Page 15 
 
 
ratified, while for the other 8 ratification was pe nding.  The contents of these agreements included 
measures to facilitate maritime transport amongst th e parties; measures to facilitate freedom of 
movement; definition of maritime transport services  necessary to promote trade; facilities related to 
crews and port authorities; questions related to  documentation and migratory measures regarding 
existing international conventi ons; and cooperation and technical assistance to be provided. 
87. The representative of Mexico  recalled that his delegation had received one question on the 
MFN exemption Mexico maintained on road transport.  He noted that this exemption was still in force 
due to the fact that, although road trans port in general was c overed by NAFTA, NAFTA's 
implementation in this sector had not yet been completed.  He indicated that once implementation had been fully completed, this exemption might no longer be necessary.  However, pending 
implementation, preferential treatment was grante d to buses registered in the United States to 
facilitate tourism towards Mexico.  He concluded by stating that the conditions that created the need 
for the exemption still prevailed as when  the agreement came into force. 
88. The representative of Hong Kong, China
 commented on the issue of applicability of MFN 
exemptions to existing and future measures that had been touched upon already by the European 
Communities, the United States, Mexico and Chile.  He  recalled that Article II paragraph 2 referred to 
the fact that a Member could maintain a measure in consistent with paragra ph 1 provided that measure 
was listed in and met the conditions of the Annex on Article II exemptions.  Paragraph 1 of the Annex 
specified the conditions under which a Member, at the entry into force of the GATS, was exempted 
from its obligations under pa ragraph 1 of Article II. 
89. He remarked that these provisions provided th e context of the application of Article II 
exemptions, that is to say those conditions – exis ting already at the entry into force of the GATS – 
under which a Member could maintain measures incons istent with the MFN obligation.  In the view 
of his delegation a Member could not, according to  the cited GATS provisions, reserve the ability to 
expand the scope of its MFN exemption by entering  into new agreements and thereby expanding the 
scope and conditions on which the exemption was based .  On the other hand, if a Member had a pre-
existing bilateral agreement and had inscribed an MFN exemption on the basis of that agreement, 
such exemption could also cover measures taken under that particular agreement in the future. 
90. He said that his delegation was confused by the suggestion from some delegations that an 
exemption could also cover measu res inconsistent with Article II under future agreements or 
conditions and thought that such broad coverage could not be legally accommodated under the current 
GATS framework.  He emphasised that MFN exempti ons were not meant to give Members a blank 
cheque for an open-ended departure from the MF N obligation.  Any MFN departure had to be 
specifically prescribed and the scope of application of the MFN exemption had to be clearly specified 
at the time the exemption was inscribed in the list.   Anything outside the scope of the conditions and 
needs which had been inscribed in the list would not be in compliance with the Annex on Article II 
exemptions. 
91. He further noted that some of the answ ers provided had touched upon MFN exemptions 
relating to regional integration agreements.  In some of those instances there had also been an 
indication of the intention to comply with the provis ions of Article V and, therefore, to eliminate the 
MFN exemptions once such compliance would take pl ace.  He said that, from the perspective of his 
delegation, if compliance with Article V was not an issue there was no particular need for any 
exemption to cover an economic integration agreemen t.  Indeed if some Members were allowed to 
provide coverage to economic integration agreemen ts by means of MFN exemptions, an issue of 
equity would arise with respect to those Memb ers who had not taken MFN exemption relating to 
economic integration and had to comply with the provisions of Article V. 
92. Regarding an answer from Canada on aircraft repair and maintenance he enquired to what 
extent MFN exemptions could become an obstacle to negotiations of market access commitments in S/C/M/78 
Page 16  
the sense that trading partners would still be subject to certain less favourable or unfavourable 
treatment under those MFN exemptions no matter what  kind of reciprocal market access conditions 
they would be prepared to make in the context of  negotiations.  He wondered to what extent this 
would become an incentive for Members not to un dertake any market access commitments at all. 
93. In general, regarding MFN exemptions of a defensive or retalia tory nature based on 
reciprocity, he wondered to what extent Members wo uld be ready to engage in specific commitments 
negotiations in those sectors in which they had inscr ibed those types of exemptions, considering that 
they had not undertaken any commitments at that time.  Indeed, if they were considering any 
commitments in those sectors, then they would have  to delete the MFN exemptions, as they would not 
be able to grant any less favourable treatment than  in their schedule of specific commitments and the 
conditions of reciprocity would no longer be applicable.  He emphasised that his delegation 
considered the maintenance of those exemptions  as a hurdle to the work on the DDA negotiations. 
94. Regarding an answer provided by China on ma ritime transport he further enquired which 
were actually the countries to which the exemption applied and, in particular, with which countries 
China had already entered into bilateral agreements at the time the exemption entered into force and 
whether there was any agreement which could come after the exemption.   
95. He then commented on the reply that the United States had provided on the MFN exemption 
on space transport, indicating the need to maintain that exemption due to possible distortions caused 
by the continued presence of government support and involvement.  On this point he invited the 
United States to share their views in the informa tion exchange on subsidies that was taking place in 
taking place in the Working Party on GATS Rules, if it considered that this was a sector where the presence of government involvement could cause distortions. 
96. The representative of the European Communities
 recalled that on internal waterways transport 
the European Communities maintained MFN exempti ons covering the 12 Member States, which were 
Members of the EU in 1994, as well as separate ex emptions for Austria, the Czech Republic, the 
Slovak Republic and Hungary.  He pointed out that the main condition that had created the need for 
these exemptions was the regulation of transport capacity of inland waterway, taking into account 
geographical specificity and historical development.  At that time there were several bilateral and 
plurilateral agreements with other European c ountries which were not Members of the European 
Union, regulating the access to the inland waterway transport market.  Hence, the conditions that 
created the need for these exemptions still prevailed. 
97. He further noted that in the area of air transport services the European Communities had 
exemptions for CRS and marketing of air transpor t services.  He said that the development of 
multilateral agreed rules for the operation of CRS was considered insufficient to  lift the need for these 
exemptions.  The international environment for co mpetition in this sector was improving but there 
were not yet any multilateral rules for the operation of  CRS and, in the view of his delegation, the 
conditions that created the need fo r these exemptions still prevailed. 
98. He recalled that in the field of rail, passenge r and freight transport the European Communities 
maintained MFN exemptions that applied to the Czech Republic and the Sl ovak Republic covering for 
the moment bilateral agreements on rail transport with Ukraine, which justified the continued need for 
these exemptions.  Regarding road transport servi ces, he noted that the European Communities had 
MFN exemptions covering existing or future agr eements on international road haulage, including 
combined transport by road and rail.  The need  for this exemption was linked to the regional 
characteristics of cross-border road transport services.   He confirmed that this exemption applied to 
Mode 1 cross-border provision of transport services.   The exemption had b een taken on grounds of 
regional characteristics of road transport services wh ich had not changed, hence, the continued need 
for this exemption.  On the MFN exemption in road  transport, passengers and freight applicable to 
Finland, he noted that this exemption had been taken on grounds of regional characteristics of road 
transport services, in particular considering the sp ecific natural conditions, especially in winter, in  S/C/M/78 
 Page 17 
 
 
Nordic regions, such as possible traffic restrictions  and other regulatory measures that are covered in 
bilateral agreements among countries of the region.  The reasons that had created the need for the 
exemption still prevailed.  Regarding an MFN exem ption in the road transport sector, passenger and 
freight, applicable to Lithuania and Estonia, he noted  that this exemption had been taken in order to 
protect the transport infrastructure and the enviro nment and to regulate traffic rights in these two 
countries.  He confirmed that these two exemptions provided for more favourable treatment than that 
provided for the various modes of delivery in the schedules of commitments of those two countries. 
99. He then replied to questions on two exemptions in the field of road transport applicable to 
Austria which provided for value-added tax exempti on on the basis of reciprocity and exemption from 
vehicle tax in Austria under certain conditions on the grounds of declaration of reciprocity.  For those 
two exemptions the European Communities wanted to  maintain the more-favourable treatment that 
Austria provided to service providers of the countries  covered by the benefits of vehicle tax and VAT 
exemptions and had no intention at that stage to remove those tax exemptions, as this would have 
amounted to restricting trade in road transport in the countries concerned.  Therefore, the conditions 
that had created the need for these exemptions still prevailed.  Regarding a road transport exemption 
scheduled by the European Communities for Cyprus , he recalled that the European Communities had 
indicated in the Review of 2000 that this exemption needed to be maintained until Cyprus had become 
a full member of the European Union.  As a conseque nce, in the consolidated list of MFN exemptions 
the European Communities were considering the re moval of this exemption.  However, until the 
consolidated list entered into force this exemption would be maintained. 
100. The representative of Bulgaria,  in replying to questions 1 to 4 found in document S/C/W/253, 
specified that the conditions whic h had created the need for these exemptions still prevailed and that 
the respective bilateral agreements continued to be in force.  She noted that such exemptions were 
considered necessary, considering that there were  no multilateral rules on transport services, which 
could arrange the respective relations in a different way. 
101. In replying to question 10 in document S/C/W/256 she stated that the conditions creating the 
need for the exemption still prevailed and her dele gation did not think that the exemption resulted in 
less favourable treatment.  She noted that the curre nt civil aviation regime in Bulgaria envisaged 
granting of rights for sale of transport services and ma rketing of suppliers with which the country had 
been bound by means of bilateral air transport agr eements. As of today, Bu lgaria had concluded 85 
such agreements. 
102. Regarding question 102 posed by Hong Kong, China in document S/C/W/253 on cargo 
handling services and storage and warehouse services in  sea and river harbours, she said that Bulgaria 
did not consider that less favourable treatment wa s being granted under that exemption since Bulgaria 
had not undertaken specific commitments in the sect or.  Its specific commitments related to storage 
and warehouse services auxiliary to road transpor t.  Bulgaria had conc luded 21 agreements on 
maritime merchandise shipping which contained preferential provisions relating to loading, 
unloading, warehousing and storage of goods in sea harbours. 
103. On a question from Hong Kong, China relating to reciprocity upon exemption from certain 
taxes in road transport, she stat ed that Bulgaria had signed arrangements with 45 European countries 
envisaging the reciprocal exemption of certain tr ansportations, upon mutual agreement between the 
countries, from taxes for the use of road system a nd bridges.  Bulgaria had not undertaken specific 
commitments in this sub-sector, which might be affected by the exemption. 
104.  Replying to questions on an exemption on maritime transport services she informed 
delegations that Bulgaria had thus  far concluded two agreements with  India and Cuba.  Regarding an 
exemption on internal waterways, she noted that  the exemption related to passenger and freight 
transportation by internal waterways and was pursu ant to the participation of Bulgaria in the 
Convention on the regime of navi gation on the Danube river and its A dditional Protocol (the so called S/C/M/78 
Page 18  
Belgrade Convention). Under the Convention, the navigation on the Danube was free and open to 
citizens, merchant vessels and goods of all countries based on parity of port and navigation taxes, as 
well as the conditions for merchant shipping.  Ex ception was granted with respect to cabotage.  
Parties to the Convention were 11 countries. 
105. In replying to questions on an exemption on air transport services she noted that with 
“obligations relating to transport services” Bulgaria referred to the obligations  of the country under 
GATS.  Regarding to questions posed on the exempti on on rail transport, she stated that Bulgaria was 
a party to a number of multilateral and bilateral arrangements with countries from Europe and Asia.  
Such arrangements, aimed at facilitating and im proving the cooperation among the countries, at 
regulating technical, operating and or ganizational conditions with a vi ew to ensuring quality and safe 
transportation of passengers and freight by rail. A ll arrangements had been concluded for indefinite 
period, however, they contained provisions for denunciation.  Th e MFN exemption on passenger and 
freight transportation by rail needed to be maintained as long as the conditions prevailed. 
106. On the road transport exemption, she replie d that the measures covered by the exemption 
were in accordance with Article XIV(d) of GATS, as  far as they aimed at avoiding double taxation.  
On the other side, these measures envisaged reciproc ity upon exemption from certain taxes and fees.  
Payable were taxes and fees for the use of the road  system and bridges in the host country, but the 
joint commission, established under the arrangement, ha d the right to exempt certain transportations 
from road taxes on reciprocal basis. Bulgaria consid ered that inscribing the exemption in the schedule 
contributed to transparency with regards to the regulatory framework in the transport services sector 
in Bulgaria.  Concluding she noted that Bulgaria was party to 45 bilateral ro ad transport arrangements 
as well as to a number of plurilate ral and multilateral arrangements. 
107. The representative of Thailand
 regarding Thailand's exemptions on VAT collection on 
international maritime transport informed delega tions that since 1988 in practice all WTO Members 
had enjoyed a zero VAT rate on the selling and ma rketing of maritime services in Thailand and, 
therefore, in the view of her delegation, all countries were receiving the same treatment.  The 
conditions that gave rise to this exemption still  prevailed because Thailand had not modified the 
relevant laws although in practice it had not treated  anyone differently.  She also pointed out that 
under this exemption MFN was accorded upon condition that there was reciprocity on VAT collection 
and it was in this sense that the measure was inconsis tent with Article II, paragraph 1, which required 
Members to accord MFN treatment immediately a nd unconditionally to any other Member.  There 
was no relationship between this exemption and a ny specific commitments Thailand may have had on 
market access and national treatment.  Regard ing Thailand's exemption on cargo sharing, she 
informed Members that measures which required MFN exemption were no longer in force in the 
maritime navigation agreement between Thailand and Vietnam as well as a similar agreement between Thailand and the People's Republic of Ch ina.  Thailand was, therefore, considering 
withdrawing these exemptions in the context of the DDA negotiations. 
108. Replying to a question on the exemption on cargo sharing between Thailand and the United 
States, she confirmed that transport was excluded from the scope of the Treaty between Thailand and 
the US, with the exception of interna tional maritime transport of goods. 
109. Regarding the CRS MFN exemption she informed  Members that currently any CRS operator 
could operate in Thailand, but the Department of Aviation was considering a new law that might have 
an impact on the CRS operators.  Therefore, Tha iland wanted to maintain the exemption, as the 
conditions that had created the need for the exempti on still prevailed.  Regarding the exemption on air 
transport and maintenance services, she said that  the Department of Aviation, responsible for 
overseeing this area, was deliberating on an amendment to the Thai Air Transport Act, which constituted the legal basis for the exemption, howev er, in the meantime Thailand would maintain the 
exemption as the conditions that had created the need for it still prevailed.  On the questions posed on 
the road transport services exempti on, she informed Members that sp ecific commitments in this area 
guaranteed a minimum of 49% foreign equity pa rticipation and that the exemption for treaty  S/C/M/78 
 Page 19 
 
 
reciprocity requirement applied only in cases where there was more than 50% foreign equity participation when such foreign participation was allowed under Thai law.  At that stage Thailand 
wanted to maintain this MFN exemption. 
110. The representative of Jordan
 in replying to a question from Japan on an MFN exemption on 
land transport services, indicated that the measures subject to exemption included stamp fees, fuel 
fees and other administrative fees.  Regarding the questions received on other services sectors she 
informed Members that her authorities had conducted a review of all Jordan's MFN exemptions and 
the result was that the exemptions were still in forc e and the conditions that had created the need still 
prevailed.  She specified that the exemption included in Jordan's  list of MFN exemptions accorded 
more favourable treatment than that specified in Jordan's schedule of specific commitments.  Jordan 
believed that such exemptions were compatible with the provisions of the GATS Agreement and of 
the Annex on Article II exemptions. 
111. The representative of Singapore  recalled that Singapore had two MFN exemptions in the 
transport services sector, the first relating to certa in maritime auxiliary services such storage, 
warehousing, freight forwarding, in land trucking, container stati on and depot services and the second 
MFN exemption on CRS.  With regard to the ma ritime transport exemption, he noted that the 
conditions which had created the need for the exemp tion continued to prevail.  Singapore considered 
these MFN exemptions necessary, due to the fact th at some countries were not according Singaporean 
companies satisfactory access to these sectors in the te rritories.  With respect to the CRS exemption, 
the conditions that had required this exemption re mained, essentially the conditions and level of 
market access granted in air transport services we re still governed by other multilateral, bilateral 
services agreements. 
112. The representative of Japan  commented on Thailand's reply to questions concerning its 
exemption on VAT collection in the maritime tr ansport sector.  He wondered whether the law 
stipulating preferential treatment was in force or not and whether Thailand intended to terminate the 
exemption or not.  He recalled that the purpose of this review exercise was to determine whether the 
conditions which had created the need  for such measures inconsistent w ith MFN still prevailed.  In the 
view of his delegation this was not clear from Thaila nd's response.  He argued, therefore, that if the 
conditions which had created the need for the law did not prevail any longer, then Thailand should 
have taken necessary internal action to terminate the exemption. 
113. The representative of Costa Rica  commented on Canada's answer on its exemption on aircraft 
repair and maintenance services.  He asked if it was possible to have a written version of their answer.  
He recalled that Costa Rica indicated its interest in  this sector at various times during the Special 
Session of the Council for Trade in Services and felt  that this exemption constituted an obstacle to 
negotiations on market access, particularly as it co ncerned preferential treatment which in practice 
resulted in an area of exclusivity for certain Me mbers.  Costa Rica found it difficult to understand 
how a measure of this type fulfilled the objectives of  maintaining high standards of safety and asked 
Canada to review alternative and non-discriminat ory measures, which enab led it to guarantee the 
same high safety standards. 
114. He said that his delegation shared the concer ns about ensuring safety in this sector, but 
believed that the discriminatory measures in plac e were not there exclusively to fulfil safety 
requirements but rather to discriminate amongst th e different suppliers, especially those who could 
provide services through Mode 2, i.e., consumption abroad. 
115. The representative of the United States  responding to the points made by Hong Kong, China 
on space launched services said that she had not expr essed the view that the United States government 
in any way subsidized or was involved in this sect or, but that the United States were concerned that 
there was government involvement and support in othe r countries.  She added that perhaps this was 
not the proper forum to urge delegations to replace their MFN exemptions by engaging in an exercise S/C/M/78 
Page 20  
which had been going on for some years in the Work ing Party on GATS Rules, an exercise to which 
the United States were committed under the mandate of Article XV GATS. 
116. The representative of Canada
 responding to the question from Costa Rica on Canada's 
exemption on aircraft repair and maintenance servi ces, said that this issue had been raised with 
Canada before and that her delega tion took note of Costa Rica's concerns and was willing to provide 
its statement in written form.  The statement had been  given to the Secretariat and, therefore, would 
be reflected in the minutes of the meeting. 
117. The representative of Indonesia  responded to questions received at this meeting as well at the 
last meeting.  He said that Indonesia's initial offer reflected the elimination of all its MFN exemptions 
from its schedule of commitments.  He explained that the elimination of Indonesia's MFN exemption list was in response to the requests received, howev er, in the name of fair trade negotiation, his 
delegation expected other Members to do the same in their initial offers.  He concluded by saying that 
in this regard Indonesia would examine carefully th e state of play at this session of the MFN Review 
in order to revise its initial offer. 
118. The representative of Hong Kong, China
 expressed appreciation for Indonesia's offer to 
eliminate all its MFN exemptions.  He said that  his delegation looked forward to seeing other 
Members following that example.  He recalled that there were two separate tracks of discussion, one 
on the review of MFN exemptions in accordance with the mandate under the Annex on Article II Exemptions and another on the elimination of MF N exemption in the context of the current DDA 
negotiations.  The latter, in the view of his delegati on, was an issue to be raised in the Special Session 
of the Council for Trade in Services.  
119. He then commented on the response from the Eu ropean Communities that the removal of the 
exemption of Cyprus on road transport would be conditional upon the entry into force of the 
consolidated schedule of the European Communities.  He said that the accession of Cyprus to the 
European Union had already taken effect and, th erefore, the accession itself was not conditional upon 
the entry into force of the consolidated schedul e of the European Communities and their Members 
States.  He argued that the conditions which had created the need for the MFN exemption no longer 
prevailed once Cyprus had acceded th e European Union and, in this regard, he sought clarifications 
from the European Communities on why a condition ha d been created between the elimination of the 
exemption and the coming into force of the consolid ated schedule of the Euro pean Communities.  He 
also asked the representative of European Communiti es to clarify which consolidated schedule he was 
referring to.  Whether he was referring to the work ing document, prepared by the delegation of the 
European Communities for the purpose of presenting th eir initial offer, which had no legal status or, 
alternatively and specifically, their initial offer,  which was still subject to negotiations and which 
would not have legal status until the en d of the current Round of negotiations. 
120. Regarding the response from the United States, he noted that as far as the delegation of Hong 
Kong, China was concerned, there h as been a clear indication on the part of the United States that in 
the space-launch services sector, one of the reasons  the United States need ed to maintain an 
exemption was the presence of government support which may cause market distortions.  He noted 
that this was an answer his delegation had been seek ing to certain questions that were being discussed 
in the Working Party on GATS Rules and looked forw ard to further discussions on this subject in the 
WPGR. 
121. The representative of th e European Communities
, responding to questions on the exemption 
of road transport of Cyprus, stated that although th e conditions that had creat ed the need for an MFN 
exemption may no longer be present, that did not bring about the automatic deletion of the existing 
exemption list.  He argued that the delegation of  Hong Kong, China had answered its own question 
when he had pointed out that the draft list of commitments and exemptions covering the Community 
as a whole was not in force, while the current lis t of exemptions for Cyprus, and for the other 
countries which had acceded to European Uni on in recent years, remained in force.  S/C/M/78 
 Page 21 
 
 
122. The representative of Korea  replied to the statement by the European Communities that 
market developments in CRS did not yet allowed mu ltilateral rules in this sector.  He wondered what 
aspects of the CRS were not ready for multilateral rules and whether ground-handling services, not specifically covered by the GATS, were ready for mu ltilateral rules, considering market developments 
in this sector. 
123. The representative of European Communities
 replied to Korea that he had explained that the 
conditions that warranted the need for an exempti on in the sector of CRS remained in force.  The 
conditions were present because the development of multilateral rules in that sector seemed to be 
insufficient.  No agreed multilateral rule in that sector existed, as in a number of regions of the world 
there were still imperfect conditions  of competition.  His delegation did not see the situation gradually 
improving and was not hopeful that it would be po ssible to re-assess the initial conditions that 
warranted the need to list the exemption.  For the time being, new conditions did not prevail. 
VII. OUTSTANDING POINTS ARISING FROM THE DISCUSSIONS AT THE MEETING OF 
30 NOVEMBER 2004  
124. The representative of Egypt  answered questions from Hong Kong, China and Mexico 
referring to Egypt's horizontal exemptions on Mode F our.  She said that the agreement referred to in 
the exemption was not be covered by Article V bis of the GATS Egypt as it was aimed at defining the 
status of the nationals of the respective countries with which Egypt had a la bour agreement and who 
worked in the territory of one of the parties.  The nationals of these countries were granted full 
national treatment.  These agreements might not full y comply with the stringent conditions of Article 
V bis which provided for the full integration of the labour market.   
125. She informed Members that the agreements mentioned in the ex emptions were still in force 
and would be enforced unless denounced by the contrac ting parties.  To date no agreement had been 
denounced.  On the question whether Egypt intended to  enter into similar agre ements, she noted that 
at that time Egypt had no plans to sign similar ag reements and, as shown in its initial offer, no other 
country had been added to the existing list. 
126. The representative of Bulgaria  replying to questions posed by  Hong Kong, China in document 
S/C/W/247on Bulgaria's exemption on legal services, st ated that this exemption was still in force and 
was applied according to Bulgaria's legislation.  She noted that the exemption stemmed from the 
commitments of Bulgaria under a preferential agreem ent signed prior to the accession of Bulgaria to 
the WTO, which envisaged, inter alia , economic integration in the area of trade in services, including 
legal services.  Regarding the relationship with speci fic commitments, she pointed out that Bulgaria's 
exemption on legal services was not meant to na rrow down the specific commitments undertaken by 
Bulgaria.  Bulgaria granted full national treatment to service providers and consumers in a specific legal services sub-sector, i.e., foreign legal consultants advisory services on international public law 
and law of jurisdiction (home country law) where th e service supplier was a qualified lawyer (part of 
CPC 861).  In contrast, the MFN exemption on lega l services referred to other sub-sectors according 
to the CPC classification. 
127. In replying to questions on Bulgaria's exempti on on medical and dental services, she said that 
this exemption was still in force and that at that time Bulgaria was party to 29 bilateral agreements, 
containing clauses for medical assistance.  These ag reements provided for the rendering of free 
medical assistance deemed necessary to secure the return of the patient back to his country without 
endangering his life and/or the provision of medical services to diplomats.  The conditions requiring 
the scheduling of this exemption still prevailed and we re subject to the national policy of Bulgaria in 
the field of health care.  Regarding the rationale for maintaining such exemption and its relationship 
with specific commitments, she recalled that the possibility for listing MFN exemptions was 
envisaged in GATS Article II:2.  Further, the gui delines for the scheduling of specific commitments, 
as adopted by the Council for Trade in Services on 23 March 2001 (document S/L/92), foresaw that a S/C/M/78 
Page 22  
Member could accord treatment more favourable to  some Members in a sector than the minimum 
standard specified in the schedule, as long as a ll other Members received at least that minimum 
standard of market access and national treatment  appearing in the schedule.  She recalled that 
Bulgaria had scheduled in its specific commitments  the required minimum standard of market access 
and national treatment for medical and dental services. 
128. In addressing questions from Mexico on the issue of reciprocal treatment in professional 
services, she stated that the sch eduled MFN exemption on legal ser vices was in accordance with the 
Bulgarian legislation, the Law on Attorneys.  The law set out the specific terms and requirements for 
the permanent practice of the attorney’s profession in Bulgaria by foreign lawyers.  According to the 
law, a citizen of a foreign country who was qualified as an attorney under the law of his country could 
appear before judicial organs of the Republic of Bu lgaria as a counsel for the defence or a ward of a 
citizen of his country on a specific case, together wi th a Bulgarian attorney, when this was stipulated 
by an agreement between the Bulgarian and the re spective foreign country, or on mutual basis (the 
beneficiaries countries were determined by the Mini ster of Justice).  This practice was subject to 
preliminary authorization.  On another question from Mexico, touching on the issue of reciprocity in 
the recognition of a profession, she replied that reciprocity was guaranteed by the respective 
international agreements to whic h Bulgaria was a party.  Finally on the issue of obstacles to 
concluding mutual recognition agreements or conven tions, she replied that, keeping in mind the broad 
coverage of business services and the relationships  they encompassed, in all cases the decision to 
enter into a particular mutual recognition agre ement was subject to prior consideration and 
assessment. 
129. The representative of China
 referred to the questions his delegation had raised in document 
S/C/W/255 and had not yet been addressed by the con cerned delegations.  He said that his delegation 
looked forward to receiving the answers either orally at the next meeting or in writing.  He welcomed 
the initiative taken by Indonesia in removing all its  MFN exemptions and encouraged other Members 
to follow suit, either in the context of the MFN Review or in the DDA negotiations. 
130. The representative of Chile  recalled that at the last mee ting his delegation had undertook to 
provide a list of bilateral investment treaties to wh ich Chile was part, specifying the duration of such 
agreements.  He informed delegations that this list had been prepared and would be handed to the 
Secretariat for circulation to Members. 
131. In addressing a question posed by Mexico , the representative of Liechtenstein  stated that there 
were no obstacles to conclude mutual recognition ag reements or conventions with Liechtenstein.  
Regarding some questions on the Mode Four exem ptions, he recalled that when Liechtenstein 
negotiated its GATS schedule of specific commitments the conditions in this sector were different, as 
Liechtenstein had not yet joined the European Economic Area while the EFTA Convention of 1972 
still covered mainly trade in goods with some faci litation provisions for Mode Four.  Since then, 
however, Liechtenstein had joined the EEA and th e EFTA Convention had been upgraded to include 
free movement of persons.  Both the EEA and EFTA  Convention had been notified to the Committee 
on Regional Trade Agreement (CRTA) under Article V of the GATS.  Therefore, Liechtenstein had 
deleted in its initial offer the Mode 4 MFN exempt ion relating to the EC and the EFTA countries.  
The Mode 4 exemption relating to Switzerland c oncerned a broad contractual framework between 
Liechtenstein and Switzerland.  Some of the treaties part of this framework dated back to the 1920s.  
The relationship between the two countries went fu rther than the EFTA Convention.  His delegation 
believed that on the basis of long lasting histori cal and contractual links between the two countries, 
the conditions for these exemptions still prevailed. 
132. Regarding the questions from China and Hong Kong, China on reciprocity requirements he 
stated that his delegation believed that the conditions  for these exemption still existed.  In particular, 
China had mentioned that one of the reciprocity MFN exemptions appeared to be a market access 
limitation rather than MFN exemption.  He undert ook to study this assertion further on behalf of his 
delegation.  Finally, regarding questions from H ong Kong, China and Japan on distribution services,  S/C/M/78 
 Page 23 
 
 
he noted that Liechtenstein's ex emption on distribution services had b een deleted in its initial offer as 
this exemption was no longer deemed necessary, due to the revision of the EFTA Convention, which 
had been notified to the CRTA. 
133. The representative of Israel  recalled that at the last session Israel had promised to complement 
its answers to a question posed by Hong Kong, Ch ina regarding its audiovisual services exemption 
and requesting it to indicate how the treatment was differentially applied and how this exemption was 
intended to apply to Israel's specific commitments in this sector.  She replied that the treatment was 
differentially applied by giving grants to works co-produced with persons of countries with which 
Israel had co-production agreements.  The exempti on applied to Israel's specific commitments on 
Mode 3 under national treatment. 
134. The representative of Singapore  answered some questions posed by China regarding 
Singapore's MFN exemption on Mode 4.  He replied that Singapore's traditional sources of supply of 
foreign workers included Malaysia, partly because of historical leg acy as well as other countries, such 
as China.  Regarding the periodic review of th ese MFN exemptions, he pointed out that Singapore 
reviewed periodically its preferential measures acco rded to workers from traditional sources of supply 
in the light of domestic and national policy considera tions.  Such considerations included the need to 
maintain social order and/or security.  However, these exemptions did not detract from Singapore horizontal commitments on intra-corporate transfer ees, specialists, managers and executives, which 
applied regardless of the fact that such natural persons were from traditional or non-traditional sources 
of supply. 
135. The representative of the Dominican Republic
 restated for the record the replies her 
delegation had provided at the past meeting and which had not been fully reflected in the report of 
that meeting.  She pointed out that the MFN exemptions did not affect the specific commitments due to the fact that the affected sectors and mode s of supply were "unbound" in the schedule of 
commitments of the Dominican Republic.  All the ex emptions were based on legislation in force in 
the Dominican Republic and the permit required, wh ich was called “exequatur”, was an authorization 
from the executive power for the ex ercise of any of those professional services.  She emphasised that 
the “exequatur” was required of Dominican citiz ens as well as of foreigners and that it was a 
legal/administrative procedure similar to the granting of a license, as in order to obtain it, it was not 
necessary to pass an examination.  Concluding, she stated that the c onditions that had created the need 
for the exemptions still prevailed a nd were based on the legislation in  force.  Her delegation did not 
foresee, for the time being, the elimination of any of the listed exemptions. 
136. The representative of Hong Kong, China
 said that his delegation was still examining many of 
the answers given and wanted to comment on some of  these in relation to the broader issues of this 
Review.  Firstly, he commented on the MFN exemptions  on Mode 4, referring to the replies recorded 
in paragraph 54, 56, 72 and 75 of the report of the last session.  He noted that in these answers 
references were made to immigration requirements, visas, access to employment and work permits.  
He wondered whether those types of measures should  be considered outside of the scope of GATS 
according to the Annex on Movement of Natural Persons, as some Members had indicated during the 
deliberations of the Working Party on Domestic  Regulation (WPDR) concerning visa requirements 
and procedures.  If this was the case, the need for those MFN exemptions should be called into 
question. 
137. Secondly, he commented on the issue of less favourable treatment, referring to the answers 
from the United States as recorded in paragraphs 77,  78 and 82 of the report of the last meeting.  In 
particular, the United States had responded that th ey did not consider the question Hong Kong, China 
had raised of whether the MFN exemption purported to grant less favourable treatment to be relevant 
to the MFN Review.  He said that his delegation fe lt that this question was relevant to the Review 
because if the conditions that had created the need for the exemption were based on the premise that 
the MFN exemption was needed to grant less-f avourable treatment than in the schedule of S/C/M/78 
Page 24  
commitments, then the conditions would be in th emselves contrary to the provisions of the GATS 
and, therefore, they would no longer prevail.  He emphasised that his delegation considered the 
question relevant and looked forward to  substantive answers to the questions. 
138. Also on the issue of less-favourable treatment, he referred to the answer given by the 
representative of United States in paragraph 81 of th e report of the last meeting that the relevant 
provisions in the internal revenue  code had never been invoked.  He wondered how such provisions 
could be invoked in respect of those sectors where the United States had undertaken national 
treatment commitments, if the circumstances ever arose.   That is to say, how would the United States 
apply less favourable taxation measures in respect of certain countries when it had full national 
treatment commitments and had not inscribed any lim itations in respect of taxation measures.  In 
those cases, his delegation believed that the specifi c commitments would require no discrimination of 
foreign service and service suppliers in respect of taxation, unless such measures could be covered by 
the relevant general exceptions.  Regarding the answ er provided by the United States, and recorded in 
paragraph 79 of the record of the last meeting, that the geographically contiguous countries to which 
the exemption applied were only Canada and Mexico , he argued that, therefore, the exemption should 
be listed as applicable to these two countries only and not to "all countries". 
139. Concerning the replies from Singapore contained in  paragraph 112 of the record of the past 
meeting he stated that his delegation was not clear about the inconsistency with  Article II of this MFN 
exemption.  The fact that there was a requirement of approval on a case-by-case basis did not indicate any MFN inconsistency.  He noted that in ma ny cases Members had requirements of approval for 
various licensing or authorisation procedures a nd Members could apply approval on a case-by-case 
basis but that did not necessarily imply any MFN in consistency or any discrimination.  He asked 
Singapore to provide further clarifications as to wh at was the MFN inconsistency.  He further noted 
that in paragraph 113 Singapore had indicated they  needed the MFN exempti on because they were not 
able to grant MFN-based recognition to law de grees from all WTO Members for admission to the 
Singapore bar.  He remarked that if that was the case there seemed to be a presumption that if there 
was no such MFN exemption then recognition would have to be accorded on an MFN basis.  His 
delegation sought further views and clarificati on on what exactly that would imply and how 
recognition would have to be accorded on a MFN basis. 
140. He then commented on the answers provided by  the European Communities in paragraph 138 
of the records of the last meeting, responding to questions on their MFN exemption in the audiovisual 
sector.  The European Communities had explained th at the exemptions were intended to counter 
unfair pricing practices as well as to counter unilateral actions from other Members.  He said that his 
delegation wanted to know how any other Member s, under the general MFN obligation, would be 
able to take measures against unfair practices or unilateral action without ha ving MFN exemptions of 
their own.  In other words, his delegation wanted to know if a Member, which had no MFN 
exemptions and was bound by the GATS to accord MF N treatment, could or not to take measures 
against unfair pricing practices or unilateral actions by the European Communities or their Member 
States.  Why was there a need for those MFN exem ptions?  Were the exemptions needed only to 
apply to those Members who had similar retaliatory  or defensive exemptions?  His delegation took 
note of the fact that, as far as it could gather from the list of MFN exemptions, there was only one other WTO Member which had inscribed a similar MF N exemption to that effect.  He concluded by 
asking for clarifications from the European Co mmunities as to whether the scope of that MFN 
exemption was only to be applied to that particular Member. 
141. The representative of Singapore
 said that his delegation had taken note of the questions posed 
by Hong Kong, China and that he would revert to them once it had had the opportunity to consult with 
his authorities in capital. 
142. The representative  of the European Communities  in replying to Hong Kong, China's question 
on paragraph 138 of the report of last meeting, st ated that the scope of the MFN exemption was 
explicitly defined in that paragr aph.  The geographical application of these exemptions covered all  S/C/M/78 
 Page 25 
 
 
countries, as clearly specified in the list.  The fact that the other Members did not have exemptions of 
the same type was not relevant because the unfair practices or the unreasonable conditions could also 
be applied on an MFN basis. 
143. The representative of Hong Kong, China  stated that the substantive answers provided by 
delegations had been crucial in moving forwar d the Review and enhanc ing the understanding by 
Members of the scope of MFN exemptions and the conditions which created the need for the 
exemptions.  His delegation felt that this had contribu ted to a greater clarity on various aspects of the 
MFN exemptions.  However, his delegation also felt that there were still a number of outstanding 
questions which needed to be answered.  Some an swer, also, had not fully addressed the issues that 
had been raised by Members for the purpose of conducting the Review.  He then referred to some 
specific issues that needed further clarification. 
144. For instance, a large number of Members had indicated that certain MFN exemptions were no 
longer needed and that they were prepared to re move the exemptions in the negotiations.  Some 
Members had already indicated such intentions in  their initial or revised DDA offers.  Although Hong 
Kong, China appreciated that this action was taki ng place in the context of negotiations, it expected 
those exemption to be deleted at the end of the ne gotiations.  Indeed, the very fact that the Members 
had indicated that those exemptions were no longer  needed was an indication of the fact that the 
conditions which had created the need no longer prev ailed and it would have been remiss if those 
exemptions were not removed at the end of the negotiations.   
145. Another issues concerned the specificity of entr ies in the list of MFN exemptions.  A number 
of the answers given by delegations had helped Me mbers to have greater specificity concerning the 
exemptions themselves, including the measures to wh ich they applied, the scope of application and 
the conditions which had created the need in the firs t instance.  In general, Hong Kong, China felt that 
with respect to some MFN exemptions a greater degree of specificity was still desirable in the 
answers.  He said that his delegation would be lo oking for explanations that would allow Members to 
be able to clearly identify what exactly was the scope of the measures covered by the MFN 
exemptions as well as what specifically was the inconsistency of those measures with the MFN 
obligation.  His delegation would also look for expl anations that clearly indicated to which country 
the measures covered by the MFN exemption applied,  having regard to the scope of the measures as 
well as the conditions which created the need for the exemptions.  Members should also be put in the 
position to clearly understand what were the conditions which had creat ed the need for the exemptions 
initially, whether they continued to exist, whether they still existed and whether they still prevailed.  
Specifically, Hong Kong, China would seek an unde rstanding on whether the exemption was still 
needed at all, whether it had been used for any actual measures and whether any steps had been taken 
to eliminate the conditions or the exemptions.  Finally, they sought clarification that would allow Members to ascertain when the exemption would te rminate.  There were many gaps that still 
remained in the answers received and they looked fo rward to filling these gaps in further discussions. 
146. Among the points his delegation wanted to revert  to at a future time, he mentioned (i) the 
scope of application of MFN exemptions in respect of pre-existing conditions and future conditions of 
needing departure from Article II; (ii) the need to comply with existing GATS provisions, e.g., Article 
V or Article V bis; (iii) MFN exemptions based on reciprocity; and (iv) less favourable treatment.   He 
noted that many Members did confirm that thei r MFN exemptions were only for granting more 
favourable treatment than what they had accorded  in the commitments and were certainly not 
intended to grant less favourable treatment.  There were, however, still questions that remained open, 
for instance the application at the sub-federal level. 
147. He emphasised that an inherent conflict between reciprocity conditions and the MFN 
principle existed.  A number of delegations, incl uding the United States, the European Communities, 
Singapore and Costa Rica had referred to unsatisfa ctory market access or competition conditions in 
their trading partners regime as the reasons why th ey maintained those type of exemptions.  Hong S/C/M/78 
Page 26  
Kong, China questioned whether a Member should take  a defensive approach to obtain market access 
by inscribing MFN exemption rather than an offens ive approach seeking market access in the context 
of the negotiations.  In their view these reciprocity  MFN exemptions posed an obstacle to negotiations 
and to the undertaking of commitments by Members.   He recalled that, as stated in the negotiating 
guidelines, there should be no a priori  exclusion of any sectors or modes from the negotiations, while 
the existence of massive reciprocity exemptions had the effect of carving out certain sectors from the 
negotiations or at least had the effect of maki ng the negotiations in those sectors difficult.  He 
wondered to what extent reciprocity MFN exempti ons had been filed for re taliatory or defensive 
purposes.  Many Members had confirmed that those exemptions had not been invoked at all so that 
his delegation wondered whether there was any sc ope for removing them on a multilateral basis. 
148. Regarding the issue of the duration of MFN ex emption he recalled that the delegation of 
Mexico had referred to the issue of 10 years dura tion and how to define the terms "indefinite", 
"indeterminate" or "unspecified" which were used in  the exemption lists.  He said that his delegation 
felt that the clause of paragraph 6 of the Annex on Article II Exemption "in principle such exemptions ... should not exceed a period of 10 years" wa s part of the conditions for maintaining MFN 
exemptions, because the whole Annex itself specif ied the conditions under which a Member could 
maintain measures inconsistent with the MFN obliga tion, as stated in paragraph 1 of the Annex.  
Therefore, any MFN exemption extending beyond 10 years should be the exception rather than the norm.  His delegation believed that unless an exce ption has been justified no Member should be 
allowed to maintain any MFN exemption beyond  10 years, because this would not meet the 
conditions specified in  the Annex.  He conclude d by noting that a number of answers had provided 
clarification on the scope of MFN exemptions and had attempted to explain the reasons why they 
needed to be maintained beyond 10 years, but that many others had not provid ed such explanations or 
justifications for maintaining the exemptions at all. 
149. The representative of Korea
 expressed appreciation for the explanations provided by 
Members of their exemptions, which had clearly enha nced Members' understanding in this area.  He 
acknowledged that the GATS was an international ag reement younger than others, which were based 
on geographical proximities or historical relationships , but at the same time he wondered whether the 
GATS should remain a compilation of multiple bilate ral or regional relationships and as a collection 
of exceptions.  His delegation wondered if multilateralism should also imply having a common goal, global liberalization of trade in services, with a co mmon instrument in the MFN obligation.  In this 
respect Korea wanted to share its systematic conc ern, as set out in the report of the Consultative 
Board on the Future of the WTO, that if measures were not taken to improve the international trade 
climate and functioning of the WTO, the MFN-based system run the risk of turning into a "least-
favoured-nation" framework. 
150. Against this backdrop, he noted that some Me mbers had mentioned that deletion of the MFN 
exemption measures depended on the outcome of the DDA negotiations, particularly in relation to the 
market access negotiations.  He wondered, however, whether the lack of progress in this important 
area may have negative implications for the market  access negotiations and whether the debate on the 
applicability of future measures such as bilateral i nvestment treaties had also some bearing in this 
respect.  He said that his delegation, in reviewing the minutes of the last two meetings of the Special 
Sessions of the Council for Trade in Services, ha d found that many Members had stressed the 
importance of negotiations based on rules.  His de legation questioned whether Members were in fact 
negotiating on the basis of rules, when there remain ed so many exceptions to a principle of paramount 
importance, such as MFN. 
151. Regarding the issue of duration, Korea presume d that when negotiators in the Uruguay Round 
agreed on the paragraph 6 of the Annex on Article  II Exemptions, they had an understanding that 
those exceptional measures could be brought into confor mity within 10 years.  In this respect, his 
delegation asked whether this was an aspect of implementation of existing rules rather than of 
negotiation of further liberalization.  In this rega rd, China had made a point highlighting the need for 
some kind of coordination in both fora.  He furthe r stated that his delegation was surprised by the  S/C/M/78 
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explanation provided by some Members of the need for differential treatment, particularly on the code 
of conduct in the area of computer reservation services.  His delegation wondered whether this lack of trust towards the private business sector was one of the important obstacles or constraints that Members were faced with.  Although his delegation di d not have a particular solution to this problem 
at this moment, it wondered whether there was an y GATS-consistent way to address these concerns. 
152. The representative of Chinese Taipei
 thanked those delegati ons which had provided 
substantive answers to the questions posed by her de legation and felt that the Review had been quite 
meaningful and valuable to help Members understa nd why MFN exemptions still prevailed.  She said 
that her delegation felt that an exemption constitute d a derogation from the MFN principle, which was 
an important cornerstone of the multilateral tradin g system.  Her delegation was pleased to have 
received positive messages for certain Members whic h were willing to terminate their exemptions, 
however, it was still concerned about the exemptions still prevailing in different sectors.  Based on a 
factual assessment of the state of play in nego tiations provided by the Chairman of the Special 
Session of the Council for Trade in Services it had emerged that there were more than 400 MFN 
exemptions still in place.  As Chinese Taipei had onl y been party to the multilateral trading system for 
the past three years, it could not fully understand the background of MFN exemption in the drafting of 
the GATS during the Uruguay Round, but fully shar ed the views expressed by Korea on how to solve 
this problem, because it thought MFN exemptions still ha d some impact on the liberalization  of trade 
in services.  Therefore, Chinese Taipei proposed to follow in bilateral negotiations paragraph 6 of the 
Annex on Article II Exemptions, which stated that MFN exemption should be subject to negotiations. 
153. The Chairperson  said that the Council had had substan tive discussions on the sectors and that 
discussion on outstanding issues could continue at the following meeting once a decision had been 
taken on the date of the next review.  She suggested  that the Council takes note of all the statements 
made by delegations at this meeting. 
154. The Council took note . 
C. DETERMINATION OF THE DATE OF ANY FURTHER REVIEW 
155. The Chairperson  open the floor on this item of the agenda, recalling the language of 
paragraph 4(b) of the Annex on Article II Exempti ons that stated that "the Council for Trade in 
Services in a review shall: [...] determine the date of any further review". 
156. The representative of Japan  said his delegation thought that there were still some outstanding 
questions and would also like to reflect on the questions given in the first and second dedicated 
sessions.  Japan wanted to keep this item on the agenda of the Regular Session of the Council for 
Trade in Services at the next cluster of meetings , so that Members could continue discussion on this 
issue.  Japan's position was that the MFN was one of  the key elements of the GATS structure and the 
Annex on Article II Exemptions stated that in principle MFN exemptions should not exceed a period of 10 years and that period had expired at the en d of the previous year.  His delegation was pleased 
that during the review a number of delegations ha d expressed their intentions to terminate their 
exemptions, but at the same time, it was concerned th at many delegations intended to maintain their 
exemptions.  In the view of his delegation, this situation was irregular a nd was upsetting the balance 
of rights and obligations which was struck at the end of the negotiations of the Uruguay Round.  His delegation proposed to continue discussions on the MFN exemptions at the next Services cluster. 
157. The representative of the United States
 sought a clarification from Japan.  Her delegation 
understood that Japan wanted to keep an item, presu mably the review of Article II exemptions, on the 
agenda for the next cluster and wanted to know wh at exactly was Japan's intention and interest in 
continuing these discussions.  Did Japan intend to continue the Review or was there something in 
particular Japan intended to continue to discuss at the next meeting? S/C/M/78 
Page 28  
158. The representative of  Hong Kong, China
 noted that there were a number of outstanding 
questions which were still unanswered.   His delegation also felt that there were some answers that had 
yet to fully address the issues that were relevant to the Review and, therefore, Hong Kong, China 
agreed with Japan on the need to revert to the ag enda item of the Review of MFN exemptions at the 
next meeting of the Services Council.  He said th at his delegation was aware that time was a very 
scarce resource and wanted to take up any outstan ding issues in the Regular Session of the Services 
Council rather than take up another time slot in the already crowded Services cluster.  On the 
determination of the date of a furt her review, he said that his dele gation would have been in a better 
position to consider the relevant issues, after Memb ers had had an opportunity to consider a more 
complete set of answers to the questions raised for the purpose of  this review.  Hong Kong, China 
hoped that these answers would be forthcoming at th e next meeting of the Services Council so that 
Members would be able to be in the positions to ta ke concrete views on the issue of the review itself 
and on the date of any further review.  Finally,  he said that his delegation thought it would be 
appropriate for Members to assess, after evaluati ng the answers received in these two dedicated 
sessions, what kind of follow-up actions would be needed arising from the Review, either in the 
Services Council or in another forum. 
159. The representative of Mexico  agreed with the positions expressed  on this point by Hong Kong 
China and Japan, insofar as his delegation had not h eard answers to all the questions they had made.  
This alone was a good reason to keep this item on the agenda.  Moreover, based on the initial 
responses to the questions posed by some Members, there were still additional elements that deserved 
to be addressed in these answers.  He also not ed that, after the announcement made by several 
delegations of changes to their offers, including the elimination of MFN exemptions, it would have 
been important to have a forum to discuss the se revised offers to follow up on these issues.  
Therefore, his delegation was of the view that that  there was certainly enough material to continue 
discussions on MFN exemptions at the next meeting. 
160. The representative of the United States  said that her delegation was conscious that there were 
some answers still outstanding and suggested that tho se delegations which had indicated that some of 
their questions had not been responded could indicate what those questions were and forward them to 
the Chairperson, so that Members c ould have an idea of what those ga ps were.  On the other hand, she 
said that if the intention of some delegations was to continue the discussion indefinitely and not to 
conclude this review, her delega tion would have been concerned that the Council was not following 
the mandate of the Annex on Article II Exemptions.  In particular her delegation wondered whether 
some additional questions based on the answers to th e original questions indicated a proliferation of 
questions.  Her delegation was concerned that wh en a Member had responded to a question, some 
delegations continued to pose more questions so  as to entangle the responding Member into a 
continuous debate, in a manner that was beyond the scope and the intention of this Review. 
161. Expressing concern about the intentions implicit in  some of the questions and statements by 
some delegations, she restated paragraph 6 of the Annex on Article II Exemptions that "in principle 
such exemptions should not exceed a period of 10 y ears.  In any event, they shall be subject to 
negotiation in subsequent trade lib eralizing rounds".  She expressed hope that trading partners would 
keep paragraph 6 in mind in its entirety when addr essing questions to Members in the course of the 
Review.  She emphasised that the mandate of the Re view was to "examine wh ether the conditions that 
created the need for the exemptions still prevail .... a nd determine the date of any further review".  She 
noted that her delegation wanted to address the second part of the mandate without any undue delay.  
If Members felt the United States had not answered clearly the questions posed, her delegation would 
have been happy to clarify and respond to any outst anding questions at the next meeting, as long as it 
was clear that if the Council conti nued to discuss further responses at the next meeting, it would then 
move to paragraph 4(b) of the Annex on Article II Exemptions.  She concluded by indicating that her 
delegation had been much enlightened by some of  the statements made concerning MFN exemptions 
and interpretations and was interested in clarif ying its understanding and interpretations but did not 
want to extend the process any fu rther than necessary.  Finally she asked the representative of Japan if 
he could respond to her previous question.  S/C/M/78 
 Page 29 
 
 
162. The representative of Canada  also expressed concern that some delegations appeared to imply 
that the Review would not be closed until all an swers to all questions were received or indeed, 
answers needed to be of a certa in quality.  His delegation did not want to undertake a never-ending 
process, but rather to have a focused and productive re view.  In this respect, he noted that a cascading 
series of questions, counter-questions and clarif ications did not help any Member, especially 
considering the current workload an d expected increase in workload fo r all delegations leading up to 
the Hong Kong Ministerial Conference.  He recalled that  Article II exemptions were also part of the 
bilateral negotiation process and, as Mexico had men tioned, this was an issue that Members would 
pursue in their bilateral discussions concerning initia l and revised offers.  Re garding organization of 
work, he said the Regular meeting of the Servi ces Council in the next cluster should allow for 
coverage of outstanding points arising from the di scussion at the previous two meetings as well as 
have an agenda item devoted to th e determination of the date of an y further review.  He suggested, 
however, that delegations may also want to consider  to hold informal consultations on the date of any 
further review in advance of the next cluster. 
163. The Chairperson  said that she would be consulting w ith delegation on the suggestions made 
by Canada. 
164. The representative of Japan  replied to the questions from the United States restating the 
mandate of review as stipulated in paragraph 4 of the Annex to "examine whether the conditions that 
created the need for the exemptions still prevail ... a nd determine the date of any further review".  As 
far as the first part of paragraph 4 was concerned, he said that th ere were still outstanding questions 
which had not yet been answered as well as answ ers which did not address the questions fully nor 
explained that the conditions which had created the n eed for the exemption still prevailed.  Therefore, 
his delegation wanted to reflect on all answers pr ovided in these two sessions and then come back to 
the questions.  For this reason they suggested to have another round in the Regular Session of the 
Services Council in the next cluster. 
165. The representative of the European Communities  noted that all delegations present had 
entered into very serious discussions during this  second Review of MFN Exemptions, by providing 
good and useful information.  However, he noted th at his delegation shared the same concerns of 
other delegations on the issue of  follow-up questioning which seemed to fall outside the scope of the 
Review as defined in paragraph 4 of the Annex on Ar ticle II Exemptions.  He suggested that if some 
of the questions were not answered delegations mi ght want to consider having a written exchange of 
questions and answers.  Delegations who felt they  had not received an appropriate answer would 
approach the delegation concerned directly in wr iting on the understanding that the answers would be 
circulated to all Members.  He said that his de legation was concerned that unless Members proceeded 
to the second part of the paragraph 4 mandate (date of  next review), they might end up continuing this 
exercise indefinitely with a dedicated session at every Regular Session of the Council for Trade in 
Services. 
166. The representative of the United States  echoed the interventions of Canada and of the 
European Communities and reminded delegations, who sought to have a protracted exchange of 
questions and answers, that the mandate in the A nnex on Article II Exemptions did not provide for 
such a type of exercise and that the delegations wh o had formulated the questions were not the judge 
of what constituted a satisfactory examination.  Sh e recalled that her delegation had also formulated 
questions, but recognised the mandate in paragraph 6 of the Annex, which used the word "shall" with 
respect to the MFN exemptions being subject to ne gotiations in subsequent trade liberalizing rounds, 
and which stated that "in principle" exemptions would exist for a period not exceeding 10 years.  Therefore, in the view of her delegation, to put extra emphasis on the first sentence of paragraph 6 would be outside of the mandate of the Review. 
167. The representative of Hong Kong, China
 reiterated that there were certain outstanding issues 
arising from both dedicated sessions and that his de legation suggested keeping an agenda item on the S/C/M/78 
Page 30  
Review of Article II Exemptions at the next metin g of the Regular Session of the Services Council.  
He noted the concerns expressed by United States,  Canada and the European Communities but argued 
that an agenda item for one more meeting did not necessarily mean an agenda item for every meeting thereafter.  He suggested that the Chairperson might  want to conduct informal  consultations regarding 
the issue of the date of the next Review in advance of  the next meeting for delegations to be prepared.   
168. Concerning the statement by the United Stat es on paragraph 6 of th e Annex on Article II 
Exemption, he referred back to his previous statem ent contained in paragraph 30 of the minutes of the 
previous meeting.  Regarding the alleged risk of an endless loop of questions, he said that his 
delegation had asked initial questions and follow-questi ons in the spirit of pursuing the mandate of the 
review, similarly to the questions put forward by the United States at the last dedicated session, as 
recorded in paragraphs 142 and 143 of the minutes of th at meeting.  He noted that those questions by 
the United States were a good example of outstanding  questions which his delegation was interested 
in addressing, as indicated in paragraph 1 46 of the minutes of the last meeting. 
169. The representative of Japan
 said that his delegation had no inte ntion of protracting the Review 
and was grateful for answers provided so far by Members.  He noted that the mandate under paragraph 4 of the Annex provided that the Council in a review shall "examine whether the conditions 
which created the need for the exemption still preva il" and this examination, in the view of his 
delegation, was not finished yet because there were still outstanding answers as well as clarifications 
to the answers provided in the dedicated sessions.  His delegation wanted to have another chance to 
come back to those issues and in this respect it w as open to the suggestion made Canada.  Regarding 
the suggestion made by the European Communities, to resort to written questions and answers, his 
delegation did not think this was the proper way of conducting the Review, and favoured the mainly 
oral interaction used thus far, which had proved useful, enlightening and educational in favouring a 
better understanding of the situation of those Members who wanted to maintain their MFN 
exemptions. 
170. The representative of Chinese Taipei
 recalled that in her previous statement she had 
mentioned that MFN exemptions shall be subject to negotiations under para graph 6 of the Annex on 
Article II Exemptions and accordingly her delegati on was pursuing these negotiations at the bilateral 
level, however, she had refrained from mentioning  the multilateral setting as it was not clear what 
multilateral negotiations meant as opposed to the curr ent Review.  She wondered whether this Review 
was like a trade policy review so every Member w ould explain that the conditions that created the 
need for their exemptions prevailed and then the following step would subject to bilateral 
negotiations.  She wondered in which forum the nego tiations would proceed in the future considering 
that paragraph 6 stated that MFN exemptions shall be subject to negotiations.  She agreed with the 
suggestion by Canada that the MFN exemption revi ew be put on the agenda on the next Regular 
Session of Services Council so that Members had a chance to address the outstanding questions.  
171. The representative of Mexico  agreed with the proposal from Canada to have discussion on the 
outstanding issues at the next Regular Session of th e Services Council, while at the same time holding 
informal consultations on the date of any further review.  
172. The representative of the United States  endorsed the proposal of Canada with a caveat.  
Although her delegation woul d support entertaining any outstandi ng questions and would respond to 
them at the next meeting, it would not accept never-ending questioning after its responses.  She 
emphasised that this review was not a judicial ex ercise and that Members should not be questioned in 
the context of the review as if they had done something wrong.  She said that her delegation had 
followed the procedures of the Annex, re-stated its interpretation of the Annex, and respected those 
delegations who put forward differe nt interpretation, although the wo rds of the Annex were clear.  
She stated, therefore, that her delegation was prepared to discuss outstanding issues of the MFN review at the next meeting, provided it was cl ear that the item would not remain on the agenda 
indefinitely beyond the next meeting and Members ag reed to move to paragraph 4(b) of the Annex 
also at the next meeting.  S/C/M/78 
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173. The representative of China  intervened to express support for Canada's suggestions on how to 
address the outstanding issues and the date of the next review. 
174. The representative of Philippines  also agreed with Canada's suggestion about informal 
consultations on the date of the next review and on keeping the MFN Review as an agenda item for 
the next meeting.  He said that he thought ther e was never any suggestion that the MFN review be 
kept as an agenda item indefinitely, but that th e objective was to continue the examination under 
paragraph 4 of the Annex on Article II exempti ons.  He added that as the Services Council was 
mandated to carry out this review, his delegati on thought that it was incumbent upon those who 
thought that the Review should be terminated to  establish that the Council should terminate the 
Review.  However, if there were a number of count ries which had further interest in continuing the 
examination on legitimate grounds than  that should be allowed.  His delegation did not interpret that 
interest by some delegations as an indication of a d esire to continue the examination indefinitely but 
subject to some reasonable limit as to when Memb ers should actually proceed to determine the date 
any further review. 
175. The representative of Bolivia  agreed with the suggestion made by Canada to address the 
outstanding issues at the next meeting and to hold informal consultations on the date of the next 
review. 
176. The representative of Oman  also supported Canada's proposal and asked to be included in any 
future consultation on this issue, as Oman  did not maintain any MFN exemptions. 
177. The Chairperson  restated the mandate of paragraph 4 of the Annex on Article II Exemptions 
which called upon the Council to examine whether the conditions that created a need for the 
exemptions still prevailed and to determine the da te of any future review.  She noted that the 
proposals by Canada to include the review of MFN exemptions as an item on the agenda of the next 
Regular Session of the Services Council and to hold informal consultations on the date of the next 
review had been endorsed by many delegations.  Th erefore, she proposed that the review of MFN 
exemptions be included as an agenda item for the June meeting of the Council for Trade in Service 
and undertook to consult informally with de legations on the date of the next review. 
178. Finally, she said that under this item dele gations had had substantive discussions and 
suggested that the Council take note of all the statements made. 
179. The Council took note . 
__________