MFN Exemptions Under the General Agreement on Trade in Services: Grandfathers Striving for Immortality?

Abstract

WTO Members have more leeway under the General Agreement on Trade in Services (GATS) to elude the WTO's basic most favoured nation (MFN) obligation than in merchandise trade under the General Agreement on Tariffs and Trade. In particular, under the Annex on Article II Exemptions, each Member had the one-off opportunity--at the GATS' entry into force in 1995 or, if later, the date of WTO accession--to seek cover for the retention of whatever departures from MFN treatment. Such MFN exemptions are subject to relatively soft disciplines only. The relevant Annex provides that their duration should not exceed 10 years in principle, and that they be subject to negotiation in any subsequent trade round. In addition, the GATS allows for departures from MFN treatment, which are not subject to time constraints, including for Economic Integration Agreements and recognition measures related to standards, certificates and the like. Over 90 WTO Members (counting EC12 as one) have listed MFN exemptions for close to 500 measures in total. This article discusses their role within the structure of the GATS as well as governments' underlying policy intentions: grandfathering clause or active/offensive policy tool? It further traces the sectoral and modal patterns of current exemptions, their use by different groups of Members and the--limited--changes offered in the services negotiations to date. The authors submit that the non-availability of new exemptions, including for measures that had escaped Members' attention at the relevant point in time, could have added to the popularity of potential substitutes (including in the context of Economic Integration Agreements), promoted an excessively broad interpretation of existing exemptions and discouraged governments from rescinding those that had served their initial purpose. A more flexible approach might thus be warranted; possible options are being discussed. Oxford University Press 2009, all rights reserved, Oxford University Press.