MFN under the GATS: Article II and the Exemptions

In one line

Every member must treat the services and suppliers of every other member alike, except where it filed an exemption on the day the Agreement began.

In exam wording: Article II:1 of the GATS requires each member to accord immediately and unconditionally to services and service suppliers of any other member treatment no less favourable than that it accords to like services and service suppliers of any other country, and Article II:2 permits a member to maintain a measure inconsistent with that obligation provided it is listed in, and meets the conditions of, the Annex on Article II Exemptions.

Why MFN is a general obligation here and market access is not

Because a discipline that applies only where scheduled would have made the Agreement worthless in the sectors nobody scheduled. MFN, transparency and reasonable administration bind everyone in every sector, so the Agreement has content even where a member has committed nothing.

And because MFN costs a member nothing it has not already given. It does not require any market to be opened; it requires that whatever is open be open to everyone equally.

The obligation

Article II:1, in terms materially identical to Article I:1 of GATT: immediately and unconditionally, treatment no less favourable, to like services and service suppliers, of any other country.

Note any other country, not any other member. An advantage given to a non-member's suppliers must be extended to members.

And note that it applies in every sector, scheduled or not.

The exemptions

Article II:2 with the Annex on Article II Exemptions. A member could list measures inconsistent with Article II:1 at the date of entry into force of the Agreement, and by the Annex's own terms a new exemption may be granted thereafter only by a waiver under Article IX:3 of the Marrakesh Agreement.

The Annex sets three conditions. Exemptions are subject to review by the Council for Trade in Services after five years and at least every five years thereafter, examining whether the conditions creating the need still prevail. They should in principle not exceed a period of ten years. And they are in any event subject to negotiation in subsequent trade liberalising rounds.

The ten year expectation was not honoured. Many exemptions listed in 1994 remain, principally in audiovisual services, in maritime transport, and in the recognition of qualifications and of prudential regimes. The Annex's language is in principle, not shall, which is why nothing followed.

Two sectoral qualifications complete the picture. The Annex on Financial Services and the Annex on Telecommunications contain their own provisions, and the Annex on Negotiations on Maritime Transport Services suspended the application of Article II and its exemption discipline in that sector pending negotiations that were never concluded.