4

Most-Favoured-Nation Treatment

1 Introduction
As discussed in Chapter 1, discrimination in matters relating to trade breeds resentment
and poisons the economic and political relations between countries. 1 Moreover,
discrimination makes scant economic sense as, generally speaking, it distorts the market in
favour of goods and services that are more expensive and/or of lower quality. Non-
discrimination is, therefore, a key concept in WTO law and policy. The importance of
eliminating discrimination is highlighted in the Preamble to the WTO Agreement, where
the ‘elimination of discriminatory treatment in international trade relations’ is identified
as one of the two main means by which the objectives of the WTO may be attained. 2
As stated in Chapter 1, there are two main non-discrimination obligations under WTO
law: the most-favoured-nation (MFN) treatment obligation and the national treatment
obligation.3 In simple terms, an MFN treatment obligation relates to whether a country
favours products, services, or service suppliers from some countries over like products,
services, or service suppliers from other countries. An MFN treatment obligation prohibits
a country from discriminating between and among other countries. A national treatment
obligation relates to whether a country favours itself over other countries. A national
treatment obligation prohibits a country from discriminating against other countries. The
national treatment obligation under WTO law will be discussed in Chapter 5 and the MFN
treatment obligation under WTO law is the topic of this chapter. This MFN treatment
obligation applies to trade in goods as well as trade in services. The key provision dealing
with the MFN treatment obligation for measures affecting trade in goods is Article I:1 of the
GATT 1994. The key provision dealing with the MFN treatment obligation for measures
affecting trade in services is Article II:1 of the GATS. Also, the TRIPS Agreement, in Article 4
thereof, provides for an MFN treatment obligation with regard to intellectual property
rights. This chapter discusses in turn the MFN treatment obligations under the GATT 1994
and the GATS and differences between these obligations. The MFN treatment obligation
under the TRIPS Agreement is discussed in Chapter 15.4
With regard to the MFN treatment obligation under Article I:1 of the GATT 1994, the
questions that may arise include the following:
(1) Can Richland, a WTO Member, impose a 10 per cent ad valorem customs duty on
beer from Newland, also a WTO Member, while imposing a 5 per cent ad valorem
customs duty on beer from Oldland, another WTO Member?
(2) Can Richland impose a 10 per cent domestic sales tax on soft drinks from
Newland while imposing a 5 per cent domestic sales tax on mineral water from
Oldland?
 (3) Can Richland impose on soft drinks a labelling requirement to indicate the sugar
content while not imposing such a requirement on fruit juice?
With regard to the MFN treatment obligation under Article II:1 of the GATS, the
following questions may arise:
(1) Can Richland allow doctors from Newland to practise medicine in its territory but
bar doctors from Oldland from doing so?
(2) Can Richland impose strict qualification requirements on nannies from Oldland
while leaving the qualifications of domestic workers from Newland largely
unregulated?
(3) Can Richland impose a 20 per cent domestic tax on English-language courses,
while exempting French-language courses from domestic taxation?

2 Most-Favoured-Nation Treatment under the GATT 1994

Article I of the GATT 1994, entitled ‘General Most-Favoured-Nation Treatment’, states in
paragraph 1:

With respect to customs duties and charges of any kind imposed on or in connection with importation or
exportation or imposed on the international transfer of payments for imports or exports, and with respect to the
method of levying such duties and charges, and with respect to all rules and formalities in connection with
importation and exportation, and with respect to all matters referred to in paragraphs 2 and 4 of Article III, any
advantage, favour, privilege or immunity granted by any [Member] to any product originating in or destined for
any other country shall be accorded immediately and unconditionally to the like product originating in or destined
for the territories of all other [Members].5

The GATT 1994 contains a number of other provisions requiring MFN or MFN-like
treatment, such as: Article III:7 (regarding local content requirements); Article V
(regarding freedom of transit); Article IX:1 (regarding marks of origin); Article XIII:1
(regarding the non-discriminatory administration of quantitative restrictions); and Article
XVII (regarding State trading enterprises). Article XX of the GATT 1994, and in particular
the chapeau of this ‘general exceptions’ provision, also contains an MFN-like obligation.6
The very existence of these MFN-type clauses demonstrates the pervasive character of the
MFN principle of non-discrimination.7 Other multilateral agreements on trade in goods
such as the TBT Agreement, the SPS Agreement, the Agreement on Rules of Origin, the
Agreement on Import Licensing Procedures, and the Agreement on Trade Facilitation
likewise require MFN treatment.8 However, this section is only concerned with the MFN
treatment obligation set out in Article I:1 of the GATT 1994.

2.1 Nature of the MFN Treatment Obligation of Article I:1 of the GATT 1994
As the Appellate Body observed in EC – Tariff Preferences (2004), it is well settled that the
MFN treatment obligation set out in Article I:1 of the GATT 1994 is a ‘cornerstone of the
GATT’ and ‘one of the pillars of the WTO trading system’.9 The importance of the MFN
treatment obligation to the multilateral trading system is undisputed. 10 However, as
discussed in Chapter 10, since the early 1990s there has been a proliferation of customs
unions, free-trade agreements, and other arrangements, which provide for preferential, i.e.
discriminatory, treatment in trade relations between WTO Members. 11 Considering this
proliferation, the 2004 Sutherland Report on The Future of the WTO arrived, not without
some pathos, at the following conclusion:

[N]early five decades after the founding of the GATT, MFN is no longer the rule; it is almost the exception.
Certainly, much trade between the major economies is still conducted on an MFN basis. However, what has been
termed the ‘spaghetti bowl’ of customs unions, common markets, regional and bilateral free trade areas,
preferences and an endless assortment of miscellaneous trade deals has almost reached the point where MFN
treatment is exceptional treatment.12

As discussed in Chapter 10, the situation may not be as dramatic as suggested in the
Sutherland Report.13 While MFN treatment is in practice perhaps less prevalent than one
might expect of ‘one of the pillars of the WTO trading system’, it undoubtedly is, and
remains, a principal obligation for WTO Members. Over 75 per cent of world trade in goods
still occurs on non-preferential MFN terms.14
As the Appellate Body stated in Canada – Autos (2000), Article I:1 of the GATT 1994
prohibits discrimination between like products originating in, or destined for, different
countries.15 In other words, Article I:1 prohibits WTO Member Richland from giving
products from WTO Member Newland treatment less favourable than the treatment it gives
to like products from any other WTO Member or other country. Also, Article I:1 prohibits
Richland from giving products destined for Newland treatment less favourable than the
treatment it gives to like products destined for any other WTO Member or other country.
The principal purpose of the MFN treatment obligation of Article I:1 is to ensure all WTO
Members equality of opportunity to import from, or to export to, other WTO Members (or
any other country). In EC – Bananas III (1997), the Appellate Body stated, with respect to
WTO non-discrimination obligations (such as the obligation set out in Article I:1):

The essence of the non-discrimination obligations is that like products should be treated equally, irrespective of
their origin. As no participant disputes that all bananas are like products, the non-discrimination provisions apply
to all imports of bananas, irrespective of whether and how a Member categorizes or subdivides these imports for
administrative or other reasons.16

In EC – Bananas III (1997), the measure at issue was the import regime for bananas of
the European Communities under which bananas from Latin American countries (‘dollar
bananas’) were treated less favourably than bananas from, broadly speaking, former
European colonies (‘ACP bananas’).
In EC – Seal Products (2014), the Appellate Body again emphasised that the
fundamental purpose of Article I:1 is:

[T]o preserve the equality of competitive opportunities for like imported products from all Members. 17

Article I:1 of the GATT 1994 covers not only ‘in law’, or de jure, discrimination but also
‘in fact’, or de facto, discrimination. In other words, Article I:1 applies not only to ‘origin-
based’ measures (which are discriminatory by definition) but also to measures which, on
their face, appear ‘origin-neutral’ but are in fact discriminatory. A measure may be said to
discriminate in law (or de jure) in a case in which it is clear from reading the text of the law,
regulation, or policy that it treats the product from one WTO Member less favourably than
the like product from another WTO Member or country. For example, if Richland imposed a
customs duty of 10 per cent ad valorem on chocolate from Newland while imposing a
customs duty of 20 per cent ad valorem on chocolate from other WTO Members, the
imposition of the 20 per cent customs duty on other WTO Members constitutes ‘in law’ or
de jure discrimination. However, if the measure at issue does not appear on its face to
discriminate against particular WTO Members, it may still constitute ‘in fact’ or de facto
discrimination if, on reviewing all the facts relating to the application of the measure, it
becomes clear that it treats, in practice or in fact, the product from one WTO Member less
favourably than the like product from another WTO Member or country. For example, if
Richland imposes a customs duty of 10 per cent ad valorem on chocolate made with milk
from cows that spent at least six months per year at an altitude of more than 1,500 metres,
while imposing a customs duty of 20 per cent ad valorem on chocolate made with other
milk, the imposition of the 20 per cent customs duty may well constitute ‘in fact’ or de facto
discrimination. This would be so if, in fact, in Newland, cows spent at least 6 months per
year at an altitude of more than 1,500 metres, while the highest point in Oldland, a major
chocolate producer and exporter, is 300 metres above sea level. 18 The panel in Canada –
Pharmaceutical Patents (2000) noted that:

[D]e facto discrimination is a general term describing the legal conclusion that an ostensibly neutral measure
transgresses a non-discrimination norm because its actual effect is to impose differentially disadvantageous
consequences on certain parties, and because those differential effects are found to be wrong or unjustifiable. 19

While instances of de jure discrimination still occur, ever more sophisticated

legislators and/or regulators of WTO Members are more likely to adopt measures that
constitute de facto discrimination.
In Canada – Autos (2000), the Appellate Body rejected, as the panel had done, Canada’s
argument that Article I:1 does not apply to measures which appear, on their face, to be
‘origin-neutral’ vis-à -vis like products.20 According to the Appellate Body, measures which
appear, on their face, to be ‘origin-neutral’ can still give certain countries more opportunity
to trade than others and can, therefore, be in violation of the non-discrimination obligation
of Article I:1. The measure at issue in Canada – Autos (2000) was a customs duty exemption
accorded by Canada to imports of motor vehicles by certain manufacturers. 21 Formally
speaking, there were no restrictions on the origin of the motor vehicles that were eligible
for this exemption. In practice, however, the manufacturers imported only their own make
of motor vehicle and those of related companies. As a result, only motor vehicles
originating in a small number of countries benefited de facto from the exemption.
In EC – Seal Products (2014), the panel noted that while virtually all Greenlandic seal
products were likely to qualify under the IC exception for access to the EU market, the vast
majority of seal products from Canada and Norway did not meet the IC requirements for
access to the EU market. Therefore, in terms of its design, structure, and expected
operation, the EU Seal Regime, the measure at issue, detrimentally affected the conditions
of competition for Canadian and Norwegian seal products as compared to seal products
originating in Greenland. The panel thus concluded that the measure at issue, although
origin-neutral on its face, was de facto inconsistent with Article I:1. 22
The panel in US – Tuna II (Mexico) (Article 21.5) (2015) noted in the context of Article
I:1 of the GATT 1994 that:

Where a condition attached to an advantage is found to detrimentally modify the competitive opportunities of
imported like products, the fact that the disadvantaged Member could modify its practices so as to conform to the
condition in question in no way changes the fact that the condition has upset the competitive equality that Article
I:1 protects … Article I:1 of the GATT 1994, like Article 2.1 of the TBT Agreement, is concerned with the
conditions of competition as they exist, and not as they might exist if the Member whose like products have
suffered a detrimental impact were to somehow modify its practices. 23

2.2 MFN Treatment Test of Article I:1 of the GATT 1994

Article I:1 of the GATT 1994 sets out a four-tier test of consistency with the MFN treatment
obligation. There are four questions which must be answered to determine whether or not
a measure affecting trade in goods is consistent with the MFN treatment obligation of
Article I:1, namely:
whether the measure at issue is a measure covered by Article I:1;
whether that measure grants an ‘advantage’;
whether the products concerned are ‘like products’; and
whether the advantage at issue is accorded ‘immediately and unconditionally’ to all like
products concerned, irrespective of their origin or destination. 24
Below, each element of this four-tier test of consistency will be discussed in turn.
To date, WTO Members have been found to have acted inconsistently with the MFN
treatment obligation of Article I:1 of the GATT 1994 in seventeen disputes. 25

2.2.1 Measures Covered by Article I:1

The MFN treatment obligation of Article I:1 of the GATT 1994 concerns ‘any advantage,
favour, privilege or immunity’ granted by any Member to any product originating in, or
destined for, any other country with respect to: (1) customs duties; (2) charges of any kind
imposed on or in connection with importation or exportation (e.g. import surcharges,
export duties, customs fees or quality inspection fees); (3) charges imposed on the
international transfer of payments for imports or exports; (4) the method of levying such
duties and charges, such as the method of assessing the base value on which the duty or
charge is levied; (5) all rules and formalities in connection with importation and
exportation; (6) internal taxes or other internal charges (i.e. the matters referred to in
Article III:2 of the GATT 1994); and (7) laws, regulations, and requirements affecting
internal sale, offering for sale, purchase, transportation, distribution, or use of any product
(i.e. the matters referred to in Article III:4 of the GATT 1994).
In brief, the MFN treatment obligation of Article I:1 covers both border measures and
internal measures. The border measures include, in particular, customs duties, other
charges on imports and exports, import and export prohibitions and quotas, tariff quotas,
import licences, and customs formalities. The internal measures include, in particular,
internal taxes on products and internal regulations affecting the sale, distribution, or use of
products. Generally, there has been little debate about the kind of measures covered by
Article I:1.26 Both panels and the Appellate Body have recognised that Article I:1 covers a
broad range of measures.
In Argentina – Financial Services (2016), the panel looked into the meaning of the term
‘rules and formalities in connection with exportation’ and noted that for a measure to be
considered a rule ‘in connection with exportation’, there must be a certain association, link
or logical relationship between the measure and the exports. 27 The panel cautioned,
however, that the broad interpretation it adopted:

[D]oes not mean that any measure that has a hypothetical or remote connection with importation or exportation
can be considered to be covered by Article I:1 of the GATT 1994. 28

In the past, there has been some debate on the applicability of Article I:1 to safeguard
measures, anti-dumping duties, and countervailing duties. With regard to safeguard
measures, the Agreement on Safeguards makes it clear that the MFN treatment obligation
normally applies to safeguard measures. Article 2.2 of the Agreement on Safeguards states:

Safeguard measures shall be applied to a product being imported irrespective of its source.

However, as further discussed in Chapter 9, the Agreement on Safeguards does allow,

under certain conditions, the discriminatory use of safeguard measures. 29
With regard to anti-dumping duties, the Appellate Body observed in EC – Fasteners
(2011) that:

Article VI of the GATT 1994 permits the imposition of anti-dumping duties, which may otherwise be inconsistent
with other provisions of the GATT 1994, such as Article I:1. 30

While this is so, note that Article 9.2 of the Anti-Dumping Agreement provides:

When an anti-dumping duty is imposed in respect of any product, such anti-dumping duty shall be collected in the
appropriate amounts in each case, on a non-discriminatory basis on imports of such product from all sources found
to be dumped and causing injury.31

With regard to countervailing duties, Article 19.3 of the SCM Agreement contains a
very similar provision. As further discussed in Chapters 11 and 12, where the relevant facts
concerning dumping or subsidisation of products of different origins are the same, anti-
dumping duties or countervailing duties should be applied without discrimination. 32
However, it should be noted that the relevant facts concerning dumping or subsidisation of
products from different origins will more often than not differ from one country of origin to
another country of origin.
While Article I:1 of the GATT 1994 covers a broad range of measures, the panel in EC –
Commercial Vessels (2005) made it clear that the scope of application of Article I:1 is not
unlimited. This dispute concerned EC subsidies to support the building of commercial
vessels in the European Union (EU). Korea claimed that these subsidies were inconsistent
with Article I:1. As noted above, Article I:1 applies to ‘all matters referred to in paragraphs
2 and 4 of Article III’. According to Korea, the subsidies at issue were measures within the
meaning of Article III:4 and therefore covered by Article I:1. Having found that the EC
subsidies at issue were covered by Article III:8(b) and that Article III:4 therefore did not
apply,33 the panel turned to the question of whether the subsidies were consequently
outside the scope of the MFN obligation in Article I:1. In replying to this question, the panel
stated:

[T]he phrase ‘matters referred to in …’ in Article I:1 refers to the subject-matter of those provisions in terms of
their substantive legal content. Understood in this sense, it is clear to us that the ‘matters referred to in
paragraphs 2 and 4 of Article III’ cannot be interpreted without regard to limitations that may exist regarding the
scope of the substantive obligations provided for in these paragraphs. If … a particular measure is not subject to
the obligations of Article III, that measure in our view does not form part of the ‘matters referred to’ in Articles
III:2 and 4. Thus, since Article III:8(b) provides that Article III ‘shall not prevent the payment of subsidies
exclusively to domestic producers’, such subsidies are not part of the subject-matter of Article III:4 and cannot be
covered by the expression ‘matters referred to in paragraphs 2 and 4 of Article III’ in Article I:1.34

To the extent that measures covered by Article III:8(b) (i.e. subsidies to domestic
producers) fall outside the scope of application of Article III:2 and 4, these measures also
fall outside the scope of application of Article I:1. The same logic would seem to apply to
laws, regulations, and requirements governing government procurement, which – as
discussed below – are excluded from the scope of application of Article III:4 pursuant to
Article III:8(a).35 Finally, note that, pursuant to Article XXIV:3(a) of the GATT 1994, a
measure that grants an advantage to adjacent countries in order to facilitate frontier traffic,
is not subject to the MFN treatment obligation of Article I:1.

2.2.2 Measure Granting an ‘Advantage’

The second element of the test of consistency with the MFN treatment obligation of Article
I:1 of the GATT 1994 relates to the question of whether the measure at issue grants an
‘advantage’. The text of Article I:1 of the GATT 1994 refers to ‘any advantage, favour,
privilege or immunity granted by any [Member]’. In light of the use of the word ‘any’, it is
not surprising that the term ‘advantage’ has been given a broad meaning in the case law. 36
The panel in EC – Bananas III (1997) considered that a measure granting an ‘advantage’
within the meaning of Article I:1 is a measure that creates ‘more favourable competitive
opportunities’ or affects the commercial relationship between products of different
origins.37 The Appellate Body held in this case:

[T]he Panel found that the procedural and administrative requirements of the activity function rules for importing
third-country and non-traditional ACP bananas differ from, and go significantly beyond, those required for
importing traditional ACP bananas. This is a factual finding. Also, a broad definition has been given to the term
‘advantage’ in Article I:1 of the GATT 1994 by the panel in [US – MFN Footwear (1992)] … For these reasons, we
agree with the Panel that the activity function rules are an ‘advantage’ granted to bananas imported from
traditional ACP States, and not to bananas imported from other Members, within the meaning of Article I:1. 38

In Canada – Autos (2000), the Appellate Body further clarified the meaning of the term
‘advantage’ and thus the scope of the MFN treatment obligation by ruling:
 Article I:1 requires that ‘any advantage, favour, privilege or immunity granted by any Member to any product
originating in or destined for any other country shall be accorded immediately and unconditionally to the like
product originating in or destined for the territories of all other Members.’ [emphasis added] The words of Article
I:1 refer not to some advantages granted ‘with respect to’ the subjects that fall within the defined scope of the
Article, but to ‘any advantage’; not to some products, but to ‘any product’; and not to like products from some
other Members, but to like products originating in or destined for ‘all other’ Members.39

In other words, the term ‘advantage’ in Article I:1 refers to any advantage granted by a
Member to any like product from or for another country.40
By way of example, note that the panel in Colombia – Ports of Entry (2009) found that
Colombian customs regulations on the importation of textiles, apparel, and footwear
required importers of goods arriving from Panama to submit import declarations in
advance, and, accordingly, to pay customs duties and taxes in advance, while importers of
goods from other countries were not required to file import declarations in advance. On
this basis, the panel concluded that the Colombian customs regulations granted an
advantage within the meaning of Article I:1 of the GATT 1994 to the goods from countries
other than Panama.41
In US – Tuna II (Mexico) (2012) and US – Tuna II (Mexico) (Article 21.5) (2015), the
panels found and the participants on appeal acknowledged that access to the dolphin-safe
label constituted an ‘advantage’ on the United States (US) market for tuna products by
virtue of that label’s significant commercial value.42
More recently, in Indonesia – Iron or Steel Products (2018), the panel found the
application of a specific duty on imports of galvalume originating in all but 120 countries
constituted an ‘advantage’ granted to like products of the 120 countries not subject to the
specific duty.43
In Brazil – Taxation (2019), the panel considered that tax reductions accorded to
motor vehicles imported from MERCOSUR members and Mexico, and not other WTO
Members, constituted an advantage as the tax reductions lowered the tax burden for motor
vehicles imported from MERCOSUR members and Mexico, changing the conditions of
competition for motor vehicles imported from other WTO Members.44
The question has arisen whether a Member could offset less advantageous treatment
of a product under certain circumstances with more advantageous treatment of that
product under other circumstances and thus avoid inconsistency with Article I:1. In line
with earlier case law concerning Article III:4, the panel in US – MFN Footwear (1992)
categorically rejected such possibility and ruled that Article I:1 does not permit ‘balancing’
less advantageous treatment with more advantageous treatment.45

2.2.3 ‘Like Products’

The third element of the test of consistency with the MFN treatment obligation of Article I:1
of the GATT 1994 relates to the question of whether the products at issue are ‘like
products’. Article I:1 concerns any product originating in or destined for any other country
and requires that an advantage granted to such products shall be accorded to ‘like
products’ originating in or destined for the territories of all other Members. It is only
between ‘like products’ that the MFN treatment obligation applies and discrimination
within the meaning of Article I:1 of the GATT 1994 is prohibited. Products that are not
‘like’ may be treated differently; different treatment of products that are not ‘like’ will not
constitute discrimination within the meaning of Article I:1. For the application of the MFN
treatment obligation of Article I:1, it is therefore important to be able to determine
whether, for example, a sports utility vehicle (SUV) is ‘like’ a family car; orange juice is
‘like’ tomato juice; a laptop is ‘like’ a tablet computer; pork is ‘like’ beef; or whisky is ‘like’
brandy within the meaning of Article I:1.
The concept of ‘like products’ is used not only in Article I:1 but also in Articles II:2(a),
III:2, III:4, VI:1(a), IX:1, XI:2(c), XIII:1, XVI:4, and XIX:1 of the GATT 1994. Nevertheless, the
concept of ‘like products’ is not defined in the GATT 1994. 46 In its examination of the
concept of ‘like products’ under Article III:4, the Appellate Body in EC – Asbestos (2001)
considered that the dictionary meaning of ‘like’ suggests that ‘like products’ are products
that share a number of identical or similar characteristics. 47 However, as the Appellate Body
already noted in Canada – Aircraft (1999), ‘dictionary meanings leave many interpretive
questions open’.48 With regard to the concept of ‘like products’, there are three questions of
interpretation that need to be resolved: (1) which characteristics or qualities are important
in assessing ‘likeness’; (2) to what degree or extent must products share qualities or
characteristics in order to be ‘like products’; and (3) from whose perspective ‘likeness’
should be judged.49
It is generally accepted that the concept of ‘like products’ has a different scope or
‘width’ in the different contexts in which it is used. In Japan – Alcoholic Beverages II (1996),
the Appellate Body illustrated the possible differences in the scope of the concept of ‘like
products’ in different provisions of the WTO Agreement by evoking the image of an
accordion:

The accordion of ‘likeness’ stretches and squeezes in different places as different provisions of the WTO
Agreement are applied. The width of the accordion in any one of those places must be determined by the
particular provision in which the term ‘like’ is encountered as well as by the context and the circumstances that
prevail in any given case to which that provision may apply.50

In other words, products such as orange juice and tomato juice may be ‘like’ under
one provision of the GATT 1994 and not ‘like’ under another provision.
The meaning of the phrase ‘like products’ in Article I:1 was addressed in a few GATT
working party and panel reports. 51 In Spain – Unroasted Coffee (1981), the panel had to
decide whether various types of unroasted coffee (‘Colombian mild’, ‘other mild’,
‘unwashed Arabica’, ‘Robusta’, and ‘other’) were ‘like products’ within the meaning of
Article I:1. Spain did not apply customs duties to ‘Colombian mild’ and ‘other mild’, while it
imposed a 7 per cent customs duty on the other three types of unroasted coffee. Brazil,
which exported mainly ‘unwashed Arabica’, claimed that the Spanish tariff regime was
inconsistent with Article I:1. In examining whether the various types of unroasted coffee
were ‘like products’ to which the MFN treatment obligation applied, the panel considered:
(1) the physical characteristics of the products; 52 (2) their end use; and (3) tariff regimes of
other Members. The panel found that:

[U]nroasted coffee was mainly, if not exclusively, sold in the form of blends, combining various types of coffee, and
that coffee in its end-use, was universally regarded as a well-defined and single product intended for drinking. 53
 The panel also found that:

[N]o other contracting party applied its tariff régime in respect of unroasted, non-decaffeinated coffee in such a
way that different types of coffee were subject to different tariff rates. 54

On the basis of these findings, the panel in Spain – Unroasted Coffee (1981) concluded
that the different types of unroasted coffee should be considered to be ‘like products’
within the meaning of Article I:1.55
In addition to the physical characteristics of the products, their end use, and the tariff
regimes of other Members (the criteria used by the panel in Spain – Unroasted Coffee
(1981)), a WTO panel examining whether products are ‘like’ within the meaning of Article
I:1 would now definitely also consider consumers’ tastes and habits as well as any other
relevant criterion. Since the case law on ‘likeness’ within the meaning of Article I:1 of the
GATT 1994 is limited, the more extensive case law on ‘likeness’ within the meaning of
Article III of the GATT 1994, discussed in Chapter 5, should be considered carefully, even
though one should be cautious regarding a wholesale transfer of this case law. 56 In the
context of Article III:2, first sentence, and Article III:4 of the GATT 1994, the Appellate Body
has found that the determination of whether products are ‘like products’ is, fundamentally,
‘a determination about the nature and extent of a competitive relationship between and
among products’.57 To make such a determination, a panel examines on a case-by-case basis
all relevant criteria or factors, including: (1) the products’ properties, nature, and quality
(i.e. their physical characteristics); (2) the products’ end uses (i.e. the extent to which
products are capable of performing the same, or similar, functions); (3) consumers’ tastes
and habits, also referred to as consumers’ perceptions and behaviour, in respect of the
products (i.e. the extent to which consumers are willing to use the products to perform
these functions or the extent to which consumers perceive products to be substitutable);
and (4) the products’ tariff classification. It is reasonable to expect that this case law
regarding Article III will inform the interpretation of the concept of ‘like products’ in
Article I:1.
In EC – Seal Products (2014), the Appellate Body held with regard to Articles I:1 and
Article III:4 of GATT 1994 that:

[N]otwithstanding their textual differences, both of these provisions are concerned with ‘prohibiting
discriminatory measures’ and ensuring ‘equality of competitive opportunities’ between products that are in a
competitive relationship.58

It is much debated whether, under current WTO law, a product’s process and
production method (PPM) is relevant in determining whether products are ‘like’ if the PPM
by which a product is made does not affect the physical characteristics of the product. The
traditional view is that such non-product-related processes and production methods (NPR–
PPMs) are not relevant. Consequently, products produced in an environmentally unfriendly
manner cannot be treated less favourably than products produced in an environmentally
friendly manner on the sole basis of the difference in NPR–PPMs. Note, however, in this
respect, the discussion on the concept of ‘likeness’ in Article III:4 in the context of the EC –
Asbestos (2001) dispute.59
 While the determination of whether products are ‘like’ is often a significant challenge,
note that the panels in Colombia – Ports of Entry (2009) and US – Poultry (China) (2010) –
inspired by panel reports in disputes concerning Article III of the GATT 1994 60 –
sidestepped the issue of ‘likeness’ and proceeded on the assumption that there are ‘like’
products concerned.61 Similarly, in Brazil – Taxation (2019), the respondent, Brazil,
provided certain tax reductions to motor vehicles imported from all MERCOSUR Members
and Mexico under the INOVAR-AUTO programme. 62 The panel in this dispute found that the
only relevant factor distinguishing products receiving tax reductions and products not
receiving tax reductions was the country of origin of the imports. 63 Accordingly, the panel
concluded on that basis, and without there being any need for further analysis, that the
relevant products were ‘like products’. Most recently, the panel in Russia – Railway
Equipment (2020) found that the measure at issue used origin as the sole criterium to
distinguish between the railway products to which it did and did not apply, and thus ruled
that the complainant in this case did not need to establish likeness by reference to the
likeness criteria developed in the jurisprudence.64
To date, the Appellate Body has not ruled on this approach for determining ‘likeness’
under Article I:1 of the GATT 1994. However, as discussed below, the Appellate Body has
upheld the origin-base presumption of likeness in the context of Articles II:1 and XVII of the
GATS,65 while also acknowledging the application of this presumption by various panels in
disputes under Articles I:1, III:2, and III:4 of the GATT 1994. 66

2.2.4 Advantage Accorded ‘Immediately and Unconditionally’

The fourth and final element of the test of consistency with the MFN treatment obligation
of Article I:1 relates to the question of whether the advantage granted by the measure at
issue is accorded ‘immediately and unconditionally’ to all like products irrespective of
their origin or destination. Article I:1 of the GATT 1994 requires that any advantage
granted by a WTO Member to imports from, or exports to, any country must be granted
‘immediately and unconditionally’ to imports from, or exports to, all other WTO Members.
There is little debate on the meaning of the requirement to accord an advantage
‘immediately’ to all like products. ‘Immediately’ means ‘without delay, at once, instantly’.
No time should lapse between granting an advantage to a product and according that
advantage to all like products.
More problematic has been the meaning of the requirement to accord an advantage
‘unconditionally’.67 In EC – Seal Products (2014), the Appellate Body clarified this
requirement as follows:

[A]s Article I:1 is concerned, fundamentally, with protecting expectations of equal competitive opportunities for
like imported products from all Members, it does not follow that Article I:1 prohibits a Member from attaching any
conditions to the granting of an ‘advantage’ within the meaning of Article I:1. Instead, it prohibits those conditions
that have a detrimental impact on the competitive opportunities for like imported products from any Member. 68

In US – Tuna II (Mexico) (Article 21.5) (2015), the Appellate Body while adjudicating on
the consistency of the US amended dolphin-safe labelling measure with Articles I:1 and
III:4 of the GATT 1994, referred to its observations in EC – Seal Products (2014) and noted
that the inquiry to be conducted in the dispute at hand under both Articles I:1 and III:4 of
GATT 1994 must focus on the question as to:

[W]hether the amended tuna measure modifies the conditions of competition in the US market to the detriment of
Mexican tuna products vis-à -vis US tuna products or tuna products imported from any other country. 69

Note that in EC – Seal Products (2014), the EU argued that Article I:1 does not prohibit
measures which have a detrimental impact on competitive opportunities for like imported
products if that detrimental impact stems exclusively from a legitimate regulatory
distinction. According to the EU, the legal standard for the MFN-treatment obligation under
Article 2.1 of the TBT Agreement, which was articulated by the Appellate Body in 2012 and
is discussed in Chapter 13, applies equally to claims under Article I:1 of the GATT 1994. 70
The Appellate Body disagreed with the EU and upheld the panel’s finding that the legal
standard for the non-discrimination obligations under Article 2.1 of the TBT Agreement
does not apply equally to claims under Article I:1 of the GATT 1994. 71 In US – Tuna II
(Mexico) (Article 21.5) (2015), the Appellate Body reiterated its observations in EC – Seal
Products (2014) and further stated:

[U]nlike in Article 2.1 of the TBT Agreement, the most-favoured nation obligation in Article I:1 is not expressed in
terms of ‘treatment no less favourable’, but rather through an obligation to extend any ‘advantage’ granted by a
Member to any product originating in or destined for any other country ‘immediately and unconditionally’ to the
‘like product’ originating in or destined for all other countries.72

The Appellate Body added and emphasised, however, that:

These differences notwithstanding, important parallels exist between the non-discrimination provisions
contained in Article 2.1 of the TBT Agreement and Articles I:1 and III:4 of the GATT 1994. Accordingly, in
assessing whether a measure affects competitive conditions under Article I:1 and/or Article III:4 of the GATT
1994, it may be reasonable for a panel to rely on any relevant findings it made in examining that measure’s
detrimental impact under Article 2.1 of the TBT Agreement.73

By way of conclusion, a comment may be made on two uncontroversial but important

aspects of the MFN treatment obligation of Article I:1 of the GATT 1994. A complainant has
to show neither any actual trade effects nor the discriminatory intent of the measure at
issue to be successful in claiming inconsistency with the MFN treatment obligation of
Article I:1. Note in this respect that: (1) the Appellate Body in EC – Seal Products (2014),
ruled that Article I:1 is ‘concerned, fundamentally, with prohibiting discriminatory
measures by requiring … equality of competitive opportunities for like imported products
from all Members’ and for that reason, Article I:1 does not ‘require a demonstration of the
actual trade effects of a specific measure’;74 and (2) the panel in EC – Bananas III (1997)
found that it is the mere fact of creating more favourable competitive opportunities for some
WTO Members only that triggers the inconsistency with the MFN treatment obligation of
Article I:1 of the GATT 1994.75
 2.3 Most-Favoured-Nation Treatment Obligation and the Enabling Clause of the
GATT 1994
An important exception to the MFN treatment obligation of Article I:1 of the GATT 1994,
and arguably the most significant special and differential treatment provision in WTO law,
is the 1979 GATT Decision on Differential and More Favourable Treatment, Reciprocity and
Fuller Participation of Developing Countries, commonly referred to as the ‘Enabling
Clause’.76 The Enabling Clause, which is now an integral part of the GATT 1994, 77 states, in
paragraph 1:

Notwithstanding the provisions of Article I of the General Agreement, [Members] may accord differential and
more favourable treatment to developing countries, without according such treatment to other [Members].

2.3.1 Preferential Tariff Treatment for Developing Countries under the Enabling
Clause
Paragraph 2(a) to (c) of the Enabling Clause provides that the differential and more
favourable treatment referred to in paragraph 1 includes:
(a) Preferential tariff treatment accorded by developed contracting parties to
products originating in developing countries in accordance with the Generalized
System of Preferences;
(b) Differential and more favourable treatment with respect to the provisions of the
General Agreement concerning non-tariff measures governed by the provisions of
instruments multilaterally negotiated under the auspices of the GATT;
(c) Regional or global arrangements entered into amongst less-developed contracting
parties for the mutual reduction or elimination of tariffs and, in accordance with
criteria or conditions which may be prescribed by the CONTRACTING PARTIES, for
the mutual reduction or elimination of non-tariff measures, on products imported
from one another;
On the scope of, and the difference between, paragraphs 2(a), (b), and (c) of the
Enabling Clause, the Appellate Body observed in Brazil – Taxation (2019) that:

Unlike paragraph 2(a), which specifically speaks of ‘[p]referential tariff treatment accorded by developed country
Members to … developing countries’, paragraph 2(b) does not define either the grant or the beneficiary of the
differential and more favourable treatment. Paragraph 2(c), unlike both paragraphs 2(a) and 2(b), provides for
differential and more favourable treatment concerning tariff and non-tariff measures between developing country
Members pursuant to ‘[r]egional or global arrangements’.78

Each of these paragraphs of the Enabling Clause is further discussed below.

With regard to paragraph 2(a), the Appellate Body ruled in EC – Tariff Preferences
(2004) that the Enabling Clause operates as an ‘exception’ to Article I:1 of the GATT 1994. 79
Paragraph 1 of the Enabling Clause explicitly exempts Members from complying with the
obligation contained in Article I:1 for the purposes of providing differential and more
favourable treatment to developing countries. 80 The Enabling Clause authorises developed-
country Members to grant enhanced market access to products from developing countries
extending beyond the access granted to like products from developed countries. 81 The
Enabling Clause thus permits Members to provide ‘differential and more favourable
treatment’ to developing countries in spite of the MFN treatment obligation of Article I:1,
which normally requires that such treatment be extended to all Members ‘immediately and
unconditionally’. What is more, WTO Members are not merely allowed to deviate from
Article I:1 in the pursuit of ‘differential and more favourable treatment’ for developing
countries; they are encouraged to do so.82 Note that most developed-country Members
grant preferential tariff treatment to imports from developing countries under their
respective Generalized System of Preferences (GSP) schemes. The Enabling Clause plays a
vital role in promoting trade as a means of stimulating economic growth and
development.83
With regard to paragraph 2(b) of the Enabling Clause, the Appellate Body clarified in
Brazil – Taxation (2019) the phrase ‘non-tariff measures governed by the provisions of
instruments multilaterally negotiated under the auspices of the GATT’.84 The Appellate
Body noted that:

[P]aragraph 2(b) provides for the adoption of a limited category of differential and more favourable treatment,
namely treatment that concerns ‘non-tariff measures governed by the provisions of instruments multilaterally
negotiated under the auspices of the GATT [as an institution]’. The text of paragraph 2(b) does not, however,
support a reading of that provision as extending to the adoption of differential and more favourable treatment
concerning non-tariff measures governed by ‘provisions of the General Agreement’ itself. Indeed, had it been so,
the latter part of paragraph 2(b) in referring to ‘provisions of instruments multilaterally negotiated under the
auspices of the GATT’ would be deprived of any meaning.85

The Appellate Body clarified that the phrase ‘non-tariff measures governed by the
provisions of instruments multilaterally negotiated under the auspices of the GATT’ in
paragraph 2(b) of the Enabling Clause:

[C]oncerned non-tariff measures taken pursuant to the S&D treatment provisions of the Tokyo Round Codes and
not the provisions of the GATT 1947.86

Further, the Appellate Body noted that with the WTO Agreement coming into effect,
the Tokyo Round Codes were no longer in force and the Enabling Clause was incorporated
as an ‘integral part’ of the GATT 1994.87 In the Appellate Body’s view, the replacement of
the GATT, as an institution, with the WTO, as provided for by Article II:1 of the WTO
Agreement, suggests that following the entry into force of the WTO Agreement, paragraph
2(b) of the Enabling Clause:

[P]rovides for the adoption of a limited category of differential and more favourable treatment, namely treatment
that concerns non-tariff measures governed by provisions of instruments multilaterally negotiated under the
auspices of the WTO.88

Note that, as discussed in Chapter 10, the Appellate Body in Brazil – Taxation (2019)
also clarified the scope of paragraph 2(c) of the Enabling Clause. 89
Before the Enabling Clause can successfully be invoked, certain conditions must be
fulfilled. The deviation from the MFN obligation of Article I:1 is allowed only when, and to
the extent that, the conditions set out in paragraphs 3 and 4 of the Enabling Clause are met.
Paragraph 3 sets out the following substantive conditions:
 Any differential and more favourable treatment provided under this clause:

(a) shall be designed to facilitate and promote the trade of developing countries and
not to raise barriers to or create undue difficulties for the trade of any other
[Members];
(b) shall not constitute an impediment to the reduction or elimination of tariffs and
other restrictions to trade on a most-favoured-nation basis;
(c) shall in the case of such treatment accorded by [developed-country Members] to
developing countries be designed and, if necessary, modified, to respond positively to
the development, financial and trade needs of developing countries. 90
Note that the conditions, which the differential and more favourable treatment under
regional or global arrangements must meet under paragraph 3 of the Enabling Clause are
less demanding and less specific than those set out in Article XXIV of the GATT 1994 for
differential and more favourable treatment under regional trade agreements.
Paragraph 4 of the Enabling Clause sets out the procedural conditions for the
introduction, modification, and withdrawal of a preferential measure for developing
countries. Pursuant to paragraph 4, Members granting preferential tariff treatment to
developing countries must notify the WTO and afford adequate opportunity for prompt
consultations at the request of any interested Member with respect to any difficulty or
matter that may arise. In Brazil – Taxation (2019), the Appellate Body found that:

At a minimum, a notification pursuant to paragraph 4(a) should state under which provision of the Enabling
Clause the differential and more favourable treatment has been adopted so as to put other Members on notice. 91

2.3.2 Additional Preferential Tariff Treatment under the Enabling Clause

In EC – Tariff Preferences (2004), the question arose as to whether the European
Communities could grant additional preferential tariff treatment to certain developing
countries to the exclusion of others. Council Regulation (EC) No. 2501/2001 of 10
December 2001, the EC’s former Generalized System of Preferences Regulation, 92 provided
for five preferential tariff ‘arrangements’, namely: (1) the ‘General Arrangements’; (2)
special incentive arrangements for the protection of labour rights; (3) special incentive
arrangements for the protection of the environment; (4) special arrangements for least-
developed countries; and (5) special arrangements to combat drug production and
trafficking. The General Arrangements, which provide for tariff preferences for all
developing countries, and the special arrangements for least-developed countries, were,
and still are, not problematic. Both arrangements were, and are, justified under the
Enabling Clause: the General Arrangements under paragraph 2(a), discussed above; and
the special arrangements for least-developed countries under paragraph 2(d).
The latter provision states that the Enabling Clause also covers:

[S]pecial treatment of the least developed among the developing countries in the context of any general or specific
measures in favour of developing countries.
 However, questions as to GATT consistency arose with regard to the other preferential
arrangements, i.e. the special incentive arrangements for the protection of labour rights,
the special incentive arrangements for the protection of the environment, and the special
arrangements to combat drug production and trafficking. Only some developing countries
were beneficiaries of these special arrangements. For example, preferences under the
special incentive arrangements for the protection of labour rights and the special incentive
arrangements for the protection of the environment were restricted to those countries that
were ‘determined by the European Communities to comply with certain labour [or]
environmental policy standards’, respectively. Preferences under the special arrangements
to combat drug production and trafficking (known as the ‘Drug Arrangements’) were
provided only to eleven Latin American countries and Pakistan. 93
While India, the complainant in EC – Tariff Preferences (2004), challenged, in its panel
request, the WTO consistency of the Drug Arrangements as well as the special incentive
arrangements for the protection of labour rights and the environment, it later decided to
limit its complaint to the Drug Arrangements. Accordingly, the EC – Tariff Preferences
(2004) dispute, and the rulings in this case, only concerned the WTO consistency of the
Drug Arrangements. However, it is clear that the rulings in this case may also be of
relevance to other special arrangements.
The main substantive issue disputed between India and the European Communities in
EC – Tariff Preferences (2004) was whether the Drug Arrangements were consistent with
paragraph 2(a) of the Enabling Clause, and, in particular, the requirement of non-
discrimination in footnote 3 thereto, quoted above. 94 With regard to paragraph 2(a) and its
footnote, the panel in EC – Tariff Preferences (2004) found that:

[T]he clear intention of the negotiators was to provide GSP equally to all developing countries and to eliminate all
differentiation in preferential treatment to developing countries. 95

As the Drug Arrangements did not provide identical tariff preferences to all developing
countries, the panel concluded that the Drug Arrangements were inconsistent with
paragraph 2(a) of the Enabling Clause and, in particular, the requirement of non-
discrimination in footnote 3 thereto. 96 According to the panel, the term ‘non-
discriminatory’ in footnote 3 requires that identical tariff preferences under GSP schemes
be provided to all developing countries without differentiation. 97
On appeal, the Appellate Body reversed this finding. 98 After a careful examination of
the text and context of footnote 3 to paragraph 2(a) of the Enabling Clause, and the object
and purpose of the WTO Agreement and the Enabling Clause, the Appellate Body came to
the conclusion that:

[T]he term ‘non-discriminatory’ in footnote 3 does not prohibit developed-country Members from granting
different tariffs to products originating in different GSP beneficiaries, provided that such differential tariff
treatment meets the remaining conditions in the Enabling Clause. In granting such differential tariff treatment,
however, preference-granting countries are required, by virtue of the term ‘non-discriminatory’, to ensure that
identical treatment is available to all similarly situated GSP beneficiaries, that is, to all GSP beneficiaries that have
the ‘development, financial and trade needs’ to which the treatment in question is intended to respond.99

In other words, a developed-country Member may grant additional preferential tariff

treatment to some, and not to other, developing-country Members, as long as additional
preferential tariff treatment is available to all similarly situated developing-country
Members. Similarly situated developing-country Members are all those that have the
development, financial and trade needs to which additional preferential tariff treatment is
intended to respond. The determination of whether developing-country Members are
similarly situated must be based on objective criteria. With respect to the Drug
Arrangements of the European Communities, however, the Appellate Body found in EC –
Tariff Preferences (2004) that these arrangements provided for a closed list of twelve
identified beneficiaries and contained no criteria or standards to provide a basis for
distinguishing developing-country Members which are beneficiaries under the Drug
Arrangements from other developing-country Members. 100 The Appellate Body therefore
upheld – albeit for very different reasons – the panel’s conclusion that the European
Communities ‘failed to demonstrate that the Drug Arrangements are justified under
paragraph 2(a) of the Enabling Clause’.101

3 Most-Favoured-Nation Treatment under the GATS

As mentioned above, the MFN treatment obligation is also one of the basic provisions of the
GATS. This section examines: (1) the nature of the MFN treatment obligation provided for
in Article II:1 of the GATS; and (2) the test of consistency with Article II:1.

3.1 Nature of the MFN Treatment Obligation of Article II:1 of the GATS
Article II:1 of the GATS states as follows:

With respect to any measure covered by this Agreement, each Member shall 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. 102

Article II:1 prohibits discrimination between like services and service suppliers from
different countries. In other words, Article II:1 prohibits WTO Member Richland from
giving services and service suppliers from WTO Member Newland treatment less
favourable than the treatment it gives to like services and service suppliers from any other
WTO Members or other country. The principal purpose of the MFN treatment obligation of
Article II:1 of the GATS is to ensure all WTO Members equality of opportunity to supply
services, regardless of the origin of the services or the nationality of the service suppliers.
Article II:1 is supplemented by a number of other MFN or MFN-like provisions found
elsewhere in the GATS. These provisions include: Article VII (regarding recognition of
education or experience obtained); Article VIII (regarding monopolies and exclusive
service suppliers); Article X (regarding future rules on emergency safeguard measures);
Article XII (regarding balance of payments measures); and Article XXI (regarding the
modification of schedules).103 Article XIV of the GATS, and in particular the chapeau of this
‘general exceptions’ provision, also contains an MFN-like obligation.104
The Appellate Body in EC – Bananas III (1997) found that the MFN treatment
obligation of Article II:1 of the GATS applies both to de jure and to de facto discrimination. 105
The Appellate Body came to this conclusion despite the fact that Article II of the GATS,
unlike Article XVII thereof, does not explicitly state that it applies to de facto
discrimination.106 The European Communities had argued in this case that, if the negotiators
of the GATS had wanted Article II:1 to cover also de facto discrimination, they would have
explicitly said so. The Appellate Body disagreed and ruled:

[T]he obligation imposed by Article II is unqualified. The ordinary meaning of this provision does not exclude de
facto discrimination. Moreover, if Article II was not applicable to de facto discrimination, it would not be difficult –
and, indeed, it would be a good deal easier in the case of trade in services, than in the case of trade in goods – to
devise discriminatory measures aimed at circumventing the basic purpose of that Article. 107

An example of de jure discrimination inconsistent with Article II:1 would be a

regulation of WTO Member Richland on content quota for TV broadcasting that gives TV
series produced in Spain (such as Amar en tiempos revueltos)108 preference over TV series
produced in other WTO Members (such as Friends). Such a measure discriminates explicitly
on the basis of the origin of the service and therefore constitutes de jure discrimination. An
example of de facto discrimination inconsistent with Article II:1 may be a regulation of
Richland on content quota for TV broadcasting that gives TV series with a storyline based
on historical events (such as Amar en tiempos revueltos) preference over TV series with a
storyline based on silly everyday events of life (such as Friends). Although this measure
does not distinguish between the services on the basis of national origin, it may de facto
offer less favourable treatment to some WTO Members than to others because they do not,
or are less likely to, make TV series with a storyline based on historical events.109

3.2 MFN Treatment Test of Article II:1 of the GATS

As the Appellate Body found in Canada – Autos (2000), the wording of Article II:1 of the
GATS suggests that the test of consistency with the MFN treatment obligation of this
provision proceeds in three steps.110 There are three questions which need to be answered
to determine whether or not a measure is consistent with the MFN treatment obligation of
Article II:1 of the GATS, namely:
whether the measure at issue falls within the scope of application of Article II:1 of the GATS;
whether the services and service suppliers concerned are ‘like’; and
whether like services and service suppliers are accorded treatment no less favourable.
Below, each element of this three-tier test of consistency will be discussed in turn. 111
To date, WTO Members have been found to have acted inconsistently with the MFN
treatment obligation of Article II:1 of the GATS in three disputes.112

3.2.1 Measure Covered by Article II:1

The first element of the test of consistency with the MFN treatment obligation of Article II:1
of the GATS is whether the measure at issue is covered by, i.e. falls within the scope of
application of, Article II:1 of the GATS. To answer this question, one must assess whether
the measure at issue is a measure to which the GATS applies. Note that some measures to
which the GATS applies are, pursuant to Article II:2, exempt from the MFN treatment
obligation of Article II:1. One must, therefore, also always assess whether the measure at
issue is not one of the measures exempt from the MFN treatment obligation. 113
Article I:1 of the GATS states with regard to the measures to which the obligations of
the GATS apply that:

[T]his Agreement applies to measures by Members affecting trade in services.

Therefore, for the GATS to apply to a measure, that measure must be: (1) a measure by
a Member; and (2) a measure affecting trade in services. 114 A ‘measure by a Member’ is a
very broad concept. Article XXVIII(a) of the GATS defines a ‘measure’ for the purposes of
the GATS to be:

[A]ny measure by a Member, whether in the form of a law, regulation, rule, procedure, decision, administrative
action, or any other form.

Article I:3(a) of the GATS further clarifies that ‘measures by Members’ means
measures taken by central, regional, or local governments and authorities. 115 Measures
taken by non-governmental bodies are also ‘measures by Members’ when they are taken in
the exercise of powers delegated by central, regional, or local governments or authorities. 116
For example, in many WTO Members, the government has delegated the regulation of the
legal or medical profession to the relevant professional association and, consequently, a
measure taken by such association in the exercise of this delegated authority is considered
to fall within the scope of ‘measures by Members’ within the meaning of Article II:1 of the
GATS. In brief, a ‘measure by a Member’ within the meaning of Article II:1 can therefore be
a national parliamentary law as well as municipal decrees or rules adopted by professional
associations.
With regard to the concept of ‘measures affecting trade in services’, note that Article
XXVIII(c) of the GATS gives a number of examples of such measures, including measures in
respect of the purchase, payment, or use of a service and measures in respect of the access
to services which are required to be offered to the public generally. The concept of a
‘measure affecting trade in services’ was clarified by the Appellate Body in Canada – Autos
(2000).117 The measure at issue in that case was an import duty exemption accorded by
Canada to imports of motor vehicles by certain manufacturers. The complainants, the
European Communities and Japan, argued that this measure was inconsistent with Article
II:1 of the GATS as it accorded ‘less favourable treatment’ to certain Members’ services and
service suppliers than to those of other Members. The panel found that the import duty
exemption was indeed inconsistent with Article II:1 of the GATS. In addition to appealing
this finding, Canada challenged, as a threshold matter, the panel’s finding that the measure
at issue fell within the scope of application of Article II:1 of the GATS. According to Canada,
the measure at issue was not a measure ‘affecting trade in services’. The Appellate Body
stated that two key issues must be examined in order to determine whether a measure is
one ‘affecting trade in services’, namely: (1) whether there is ‘trade in services’ in the
sense of Article I:2; and (2) whether the measure at issue ‘affects’ such trade in services
within the meaning of Article I:1.118
 With respect to the question of whether there is ‘trade in services’, note that the GATS
does not define what a ‘service’ is.119 Article I:3(b) of the GATS, however, states that the
term ‘services’ includes:

[A]ny service in any sector except services supplied in the exercise of governmental authority.

‘Services supplied in the exercise of governmental authority’ are defined in Article

I:3(c) of the GATS as any services which are supplied neither on a commercial basis nor in
competition with one or more service suppliers. It is clear that what are ‘services supplied
in the exercise of governmental authority’ differ from WTO Member to WTO Member. For
most WTO Members, police protection and penitentiary services are ‘services supplied in
the exercise of governmental authority’. However, for a growing number of WTO Members,
services that were traditionally considered to be ‘services supplied in the exercise of
governmental authority’, such as primary healthcare, basic education, mail delivery, rail
transport, and garbage disposal, have in recent years been subject to privatisation, and,
consequently, measures affecting such services now fall within the scope of application of
the GATS.120 Services which the government offers on a commercial basis and/or in
competition with one or more (private) service suppliers are not ‘services supplied in the
exercise of governmental authority’ and, therefore, ‘services’ within the meaning of Article
I:3(b).
While the GATS does not define ‘services’, Article I:2 thereof defines ‘trade in services’
as ‘the supply of a service’ in any one of four listed ‘modes of supply’. Article I:2 states:

For the purpose of this Agreement, trade in services is defined as the supply of a service:

(a) from the territory of one Member into the territory of any other Member;
(b) in the territory of one Member to the service consumer of any other Member;
(c) by a service supplier of one Member, through commercial presence in the
territory of any other Member;
(d) by a service supplier of one Member, through presence of natural persons of a
Member in the territory of any other Member.
These four modes of supply of services are commonly referred to as:
‘cross border supply’ (mode 1), such as legal advice given by a lawyer in Richland to a
client in Newland;
‘consumption abroad’ (mode 2), such as medical treatment given by a doctor in Richland to
a patient from Newland who comes to Richland for treatment;
‘commercial presence’ (mode 3), such as financial services supplied in Newland by a bank
from Richland through a branch office established in Newland; 121 and
‘presence of natural persons’ (mode 4), such as the programming services supplied in
Newland by a computer programmer from Richland, who travels to Newland to supply
such services.
Furthermore, Article XXVIII(b) makes clear that the ‘supply of a service’ includes not
only the sale of a service but also its production, distribution, marketing, and delivery.
 Clearly, the concept of ‘trade in services’ within the meaning of Article I:1 is very
broad. The panel in Mexico – Telecoms (2004) clarified the meaning of two of the modes of
supply, namely, ‘cross-border supply’ and ‘commercial presence’. The question in Mexico –
Telecoms (2004) was whether telecommunication services, provided by a US service
provider to consumers in Mexico without operating or being present in Mexico, could be
considered services supplied ‘cross-border’ within the meaning of Article I:2(a) of the
GATS. The panel found that Article I:2(a) does not require the presence of the supplier in
the territory of the country where the service is provided. 122 With regard to ‘commercial
presence’ within the meaning of Article I:2(c), the panel stated:

The definition of services supplied through a commercial presence makes explicit the location of the service
supplier. It provides that a service supplier has a commercial presence – any type of business or professional
establishment – in the territory of any other Member. The definition is silent with respect to any other territorial
requirement (as in cross-border supply under mode 1) or nationality of the service consumer (as in consumption
abroad under mode 2). Supply of a service through commercial presence would therefore not exclude a service
that originates in the territory in which a commercial presence is established (such as Mexico), but is delivered
into the territory of any other Member (such as the United States). 123

With regard to the question of whether the measure at issue affects trade in services
within the meaning of Article I:1, the Appellate Body clarified the term ‘affecting’ in EC –
Bananas III (1997) as follows:

In our view, the use of the term ‘affecting’ reflects the intent of the drafters to give a broad reach to the GATS. The
ordinary meaning of the word ‘affecting’ implies a measure that has ‘an effect on’, which indicates a broad scope
of application. This interpretation is further reinforced by the conclusions of previous panels that the term
‘affecting’ in the context of Article III of the GATT is wider in scope than such terms as ‘regulating’ or
‘governing’.124

For a measure to affect trade in services, the measure need not regulate or govern the
trade in, i.e. the supply of, services. A measure is covered by the GATS if it affects trade in
services, even though the measure may regulate other matters, such as trade in goods. 125 A
measure affects trade in services when the measure bears upon ‘the conditions of
competition in supply of a service’.126
In brief, the concept of ‘measures by Members affecting trade in services’ is, in all
respects, a concept with a broad meaning.127 Consequently, the scope of measures to which
the MFN treatment obligation applies is likewise broad.
As noted above, to answer the question of whether the measure at issue is covered by
Article II:1, it does not suffice to determine whether that measure is a measure to which the
GATS applies. It must also be established whether or not the measure at issue is exempted
from the MFN treatment obligation of Article II:1 of the GATS. Unlike the GATT 1994, the
GATS allows Members to exempt measures from the MFN treatment obligation. Article II:2
of the GATS provides:

A Member may maintain a measure inconsistent with paragraph 1 provided that such a measure is listed in, and
meets the conditions of, the Annex on Article II Exemptions.

Members could list measures in the Annex on Article II Exemptions until the date of
entry into force of the WTO Agreement. For original Members, this meant until 1 January
1995.128 About two-thirds of WTO Members have listed MFN exemptions. In total, Members
have listed over 400 exempted measures. The exempted measures often concern maritime
transport, audiovisual, financial and business services, bilateral investment treaties, and
measures regarding the presence of natural persons. The list of exempted measures that a
particular Member has included in the Annex on Article II Exemptions can be found – and
easily consulted – on the WTO website.129 Note, by way of example, that the EU included in
its list of exempted measures:

Measures granting the benefit of any support programmes (such as Action Plan for Advanced Television Services,
MEDIA or EURIMAGES) to audiovisual works, and suppliers of such works, meeting certain European origin
criteria.130

This allows the EU to give support to, for example, Canadian filmmakers, while
denying such support to US filmmakers.
Paragraph 6 of the Annex on Article II Exemptions states that, in principle, the
exemptions should not exceed ten years. Therefore, one might have expected that most, if
not all, exemptions under Article II:2 would have come to an end by 1 January 2005. 131
However, this did not happen. Relying on the language of paragraph 6 (which states that ‘in
principle’ exemptions ‘should not’ exceed ten years), many Members continue to apply the
exemptions they listed in the Annex on Article II Exemptions.
Pursuant to paragraph 3 of the Annex on Article II Exemptions, all exemptions granted
for a period of more than five years are reviewed by the Council for Trade in Services. As
stated in paragraph 4 of the Annex, the Council examines whether the conditions that
created the need for the exemption still prevail. If the Council concludes that these
conditions are no longer present, the Member concerned would arguably be obliged to
accord MFN treatment in respect of the measure previously exempted from this obligation.
Perhaps not surprisingly,132 the reviews that took place in 2000, 2004–5, 2010–11, and
2016–17 did not result in any finding that a listed exemption was no longer justified. 133 In
the most recent review of 2016–17, Hong Kong, China, expressed its disappointment at ‘the
consistent lack of progress in reducing the number of MFN exemptions over the last two
decades’.134 China, Korea, Oman, and Australia echoed the concerns expressed by Hong
Kong, China.135
Finally, note that, pursuant to Article II:3 of the GATS, a measure that grants
advantages to adjacent countries in order to facilitate trade in services between contiguous
frontier zones is not subject to the MFN treatment obligation of Article II:1. For Article II:3
to apply, it is required, however, that the services concerned are both locally produced and
consumed. An example of such services would be taxi services between Geneva and ‘la
France voisine’ (i.e. neighbouring France).

3.2.2 ‘Like Services and Service Suppliers’

Once it has been established that the measure at issue is covered by Article II:1 of the GATS,
the second element of the three-tier test of consistency with the MFN treatment obligation
of Article II:1 of the GATS comes into play. Namely, it must be determined whether the
services and services suppliers concerned are ‘like services and like service suppliers’. It is
only between ‘like services and service suppliers’ that the MFN treatment obligation
applies and that discrimination within the meaning of Article II:1 of the GATS is prohibited.
Services and service suppliers that are not ‘like’ may be treated differently; different
treatment of services and service suppliers that are not ‘like’ will not constitute
discrimination within the meaning of Article II:1. For the application of the MFN treatment
obligation of Article II:1, it is therefore important to be able to determine whether, for
example, movie actors are ‘like’ stage actors, whether the distribution of books is ‘like’ the
distribution of e-books; whether doctors with a German medical degree are ‘like’ doctors
with a Chinese medical degree; whether Internet gambling is ‘like’ casino gambling; and
whether a 500-partner law firm is ‘like’ a sole legal practitioner.
As noted above, the concept of ‘services’ includes pursuant to Article I:3(c) of the
GATS ‘any service in any sector except services supplied in the exercise of governmental
authority’, and the concept of ‘service supplier’ is defined in Article XXVIII(g) as ‘any
person who supplies a service’, including natural and legal persons.136
With regard to the determination of ‘likeness’ of services and service suppliers under
Article II:1 of the GATS, the Appellate Body noted in Argentina – Financial Services (2016):

While Article II:1 refers to ‘treatment no less favourable’, we note that Article II:3 refers to ‘advantages’. An
‘advantage’ is ‘[t]he fact or state of being in a better position with respect to another’. Being in a better position as
compared to another is closely related to the concept of competition. This suggests that, also in the context of
Article II of the GATS, the determination of ‘likeness’ of services and service suppliers must focus on the
competitive relationship of the services and service suppliers at issue. 137

The Appellate Body further stated that the ‘likeness’ of services and service suppliers
under Article II:1 of the GATS can only be determined on a case-by-case basis, taking into
account the specific circumstances of the particular case.
The panels in EC – Bananas III (1997) and Canada – Autos (2000) found that, to the
extent that service suppliers provide ‘like services’, they are ‘like service suppliers’.138
However, the question arises as to whether this is always the case, or whether, for example,
the size of the service suppliers, their assets, and the nature and extent of their expertise
must also be taken into account when deciding whether service suppliers providing ‘like
services’ are ‘like service suppliers’.139 In addressing the question of whether in
determining ‘likeness’ under Article II:1 of the GATS a panel has to examine, and make
findings on, the ‘likeness’ of both the services and the service suppliers concerned, the
Appellate Body clarified in Argentina – Financial Services (2016):

In our view, the reference to ‘services and service suppliers’ indicates that considerations relating to both the
service and the service supplier are relevant for determining ‘likeness’ under Articles II:1 and XVII:1 of the GATS.
The assessment of likeness of services should not be undertaken in isolation from considerations relating to the
service suppliers, and, conversely, the assessment of likeness of service suppliers should not be undertaken in
isolation from considerations relating to the likeness of the services they provide. We see the phrase ‘like services
and service suppliers’ as an integrated element for the likeness analysis under Articles II:1 and XVII:1,
respectively. Accordingly, separate findings with respect to the ‘likeness’ of services, on the one hand, and the
‘likeness’ of service suppliers, on the other hand, are not required … In any event, in a holistic analysis of
‘likeness’, considerations relating to both the service and the service supplier will be relevant, albeit to varying
degrees, depending on the circumstances of each case.140
 Further, the Appellate Body also provided guidance on how a panel should proceed to
determine the ‘likeness’ of services and service suppliers in the particular context of
Article II:1 of the GATS. It noted:

[W]e consider that the analysis of ‘likeness’ serves the same purpose in the context of both trade in goods and
trade in services, namely, to determine whether the products or services and service suppliers, respectively, are in
a competitive relationship with each other. Thus, to the extent that the criteria for assessing ‘likeness’
traditionally employed as analytical tools in the context of trade in goods are relevant for assessing the
competitive relationship of services and service suppliers, these criteria may be employed also in assessing
‘likeness’ in the context of trade in services, provided that they are adapted as appropriate to account for the
specific characteristics of trade in services.141

In Argentina – Financial Services (2016), the Appellate Body clarified that the following
could be relevant for determining ‘likeness’ under the GATS: (1) characteristics of services
and service suppliers; (2) consumers’ preferences in respect of services and service
suppliers; and (3) tariff classification and description of services under, for instance, the UN
Central Product Classification (CPC). 142 As in the context of trade in goods, however, these
criteria for analysing ‘likeness’ of services and service suppliers are ‘simply tools to assist
in the task of examining the relevant evidence’.143 They are neither a treaty-mandated nor a
closed list of criteria.144
While the Appellate Body suggested that the criteria employed for assessing likeness
in the context of trade in goods are also suitable in case of trade in services, it noted that
‘what is being compared for likeness is different in the context of trade in goods and trade
in services’. Where Articles II:1 and XVII:1 of the GATS refer to ‘like services and service
suppliers’, Articles I:1, III:2, and III:4 of the GATT 1994, refer to ‘like products’ only and do
not include a reference to ‘like producers’.145 Further, as defined in Article I:2 of GATS,
different modes of supply exist only in trade in services and not in trade in goods, and,
accordingly, the analysis of ‘likeness’ of services and service suppliers may require
additional considerations of whether or how this analysis is affected by the mode(s) of
service supply.146
With regard to the presumption of likeness in the context of trade in services, the
Appellate Body ruled in Argentina – Financial Services (2016) that such presumption can be
validly made only in cases where a measure provides for a distinction based exclusively on
origin.147 In such cases, the complainant is not required to establish ‘likeness’ on the basis of
the relevant criteria as discussed above. 148 However, the Appellate Body cautioned that the
scope of this presumption under the GATS is more limited than it is under the GATT 1994,
and involves greater complexity.

3.2.3 Treatment No Less Favourable

The third and final element of the test of consistency with the MFN treatment obligation of
Article II:1 of the GATS relates to the treatment accorded to ‘like services and service
suppliers’. A WTO Member must accord, immediately and unconditionally, to services and
service suppliers of any given WTO Member ‘treatment no less favourable’ than the
treatment it accords to ‘like services and service suppliers’ of any other country. Article II
of the GATS does not provide any guidance as to the meaning of the concept of ‘treatment
no less favourable’. However, as discussed below, Article XVII of the GATS on the national
treatment obligation contains guidance on the meaning of the concept of ‘treatment no less
favourable’.149 Article XVII:3 states:

Formally identical or formally different treatment shall be considered to be less favourable if it modifies the
conditions of competition in favour of services or service suppliers of the Member compared to the like services or
service suppliers of any other Member.

In the context of Article XVII, a measure thus accords ‘less favourable treatment’ if it
modifies the conditions of competition in favour of the domestic service or service supplier.
As the Appellate Body cautioned in EC – Bananas III (1997), it should not be assumed that,
in interpreting Article II:1, and in particular the concept of ‘treatment no less favourable’,
the guidance of Article XVII equally applies to Article II:1. However, as noted above, the
Appellate Body has already concluded that the concept of ‘treatment no less favourable’ in
Article II:1 and Article XVII of the GATS should be interpreted to include both de facto as
well as de jure discrimination although only Article XVII states so explicitly. 150 Moreover,
note that the panel in EC – Bananas III (Article 21.5 – Ecuador) (1999) found that the EC
import licensing measures were inconsistent with the MFN treatment obligation of Article
II:1, because Ecuador, the complainant, had shown that:

[Its] service suppliers do not have opportunities to obtain access to import licences on terms equal to those
enjoyed by service suppliers of EC/ACP origin under the revised regime and carried on from the previous
regime.151

Note also that the Appellate Body stated in EC – Bananas III (1997) that it saw no
specific authority in Article II:1 of the GATS for the proposition, advanced by the European
Communities, that the ‘aims and effects’ of a measure are relevant in determining whether
that measure is inconsistent with the MFN treatment obligation of Article II:1. 152 The
Appellate Body rejected the EC’s argument that its licensing procedure, one of the
measures at issue, was not inconsistent with Article II:1 because this measure ‘pursued
entirely legitimate policies’ and ‘was not inherently discriminatory in design or effect’.153
In Argentina – Financial Services (2016), Argentina, the respondent, argued that
Panama had not established a prima facie case that services and service suppliers of non-
cooperative countries receive less favourable treatment, since Panama itself enjoyed
‘cooperative country status for tax transparency purposes’ and thus received MFN
treatment.154 According to Argentina, the treatment of services and service suppliers of the
complainant should be compared with the treatment accorded to ‘the services and service
suppliers that are the subject of the complaint’.155 Panama contended that Articles II and
XVII refer to the treatment accorded to any other Member.156 Agreeing with Panama, the
panel ruled that:

[T]he submission of claims under Article II:1 of the GATS does not require that the alleged less favourable
treatment that is the subject of the complaint must refer to the complainant party in this dispute, i.e. Panama. 157

The panel further considered that regulatory aspects, and in particular the regulatory
framework in which service suppliers operate and services are offered, must be taken into
account to determine whether a measure accords treatment less favourable under Article
II:1 of the GATS. In coming to this conclusion, the panel placed much importance on the fact
that the GATS refers to both services and service suppliers (while the GATT 1994 refers
only to products (and not to producers)).158
The Appellate Body disagreed and reversed this finding of the panel. The Appellate
Body observed that the GATS provides certain flexibilities to Members when they
undertake their GATS commitments and qualify their obligations by exceptions or other
derogations contained in the GATS and its annexes. The Appellate Body referred in this
regard to Article XX of the GATS, pursuant to which a Member may limit its market access
and national treatment commitments to the service sectors or subsectors, and to the modes
of supply, that it wishes to liberalise and inscribe in its Services Schedule. 159
The Appellate Body also referred to the general and security exceptions from
obligations under Article XIV and Article XVbis of the GATS, discussed in Chapter 8, and
deviations from obligations provided for in various annexes to GATS, such as paragraph
2(a) of the Annex on Financial Services, also discussed in Chapter 8.160 The Appellate Body
stated in Argentina – Financial Services (2016):

Through these flexibilities and exceptions, the GATS seeks to strike a balance between a Member’s obligations
assumed under the Agreement and that Member’s right to pursue national policy objective … Where a measure is
inconsistent with the non-discrimination provisions, regulatory aspects or concerns that could potentially justify
such a measure are more appropriately addressed in the context of the relevant exceptions. Addressing them in
the context of the non-discrimination provisions would upset the existing balance under the GATS. 161

The Appellate Body thus ruled that the legal standard of ‘treatment no less favourable’
in Articles II:1 and XVII involves an assessment of whether the measure modifies the
conditions of competition in favour of the services or service suppliers of any other
Member.162 The Appellate Body specifically noted that:

[T]his legal standard does not contemplate a separate step of analysis regarding whether the ‘regulatory aspects’
relating to service suppliers could ‘convert’ the measure’s detrimental impact on the conditions of competition
into ‘treatment no less favourable’.163

However, this does not mean that the ‘regulatory aspects’ are totally irrelevant in the
assessment of whether the measure at issue accords ‘treatment no less favourable’. As the
Appellate Body stated in Argentina – Financial Services (2016):

Such assessment must begin with a careful scrutiny of the measure, including consideration of the design,
structure and expected operation of the measure at issue. In such assessment, to the extent that evidence relating
to the regulatory aspects has a bearing on conditions of competition, it might be taken into account, subject to the
particular circumstances of a case, and as an integral part of a panel’s analysis of whether the measure at issue
modifies the conditions of competition to the detriment of like services or service suppliers of any other
Member.164

3.3 Deviations from the Most-Favoured-Nation Treatment Obligation under the

GATS
In addition to the exemptions from the MFN-treatment obligation under Article II:2 165 and
the exceptions from this obligation under Articles V, XIV, and XIVbis,166 two other deviations
from the MFN treatment obligation under Article II:1 of the GATS must be briefly
mentioned as part of this chapter, namely: (1) the ‘LDC services waiver’; and (2) Article VII
of the GATS regarding recognition of diplomas and certificates.
First, the GATS does not have a provision equivalent to the Enabling Clause of the
GATT 1994, discussed above.167 However, the Ministerial Conference in Geneva in
December 2011 adopted the ‘LDC services waiver’, which was subsequently
‘operationalised’ at the Bali Ministerial Conference in 2013 and extended in time at the
Nairobi Ministerial Conference in 2015.168 Under this temporary waiver, the obligations
under Article II:1 of the GATS are waived, allowing WTO Members to grant preferential
treatment to services and service suppliers from least-developed-country Members. 169 The
preferential treatment covered by the ‘LDC services waiver’ takes the form of, for example,
waiving fees for business and employment visas for services suppliers from least-
developed countries, and extending the duration of their authorised stay in the markets of
preference granting Members.170
Second, pursuant to Article VII of the GATS, entitled ‘Recognition’, a Member may
recognise the education or experience obtained, requirements met, or licences or
certificates granted in a particular country. Such recognition may be based upon an
agreement or arrangements with the country concerned or may be accorded
autonomously. In either case, such recognition, when it benefits the services or service
suppliers of one or some WTO Members but not the like services or service suppliers of
other WTO Members, will be consistent with the MFN treatment obligation if it meets the
requirements of Article VII. Article VII:2, first sentence, requires a WTO Member, which has
negotiated a recognition agreement or arrangement with another Member, to afford
‘adequate opportunity’ for other interested Members to negotiate their accession to such
an agreement or arrangement or to negotiate a comparable one with it. Article VII:2,
second sentence, provides that a WTO Member, which accords recognition autonomously,
must afford ‘adequate opportunity’ for any other Member to demonstrate that education,
experience, licences or certifications obtained, or requirements met in that other Member’s
territory should be recognised. Moreover, Article VII:3 states:

A Member shall not accord recognition in a manner which would constitute a means of discrimination between
countries in the application of its standards or criteria for the authorization, licensing or certification of services
suppliers, or a disguised restriction on trade in services.

Recognition under Article VII is further discussed in Chapter 7.171

4 Summary
There are two main rules of non-discrimination in WTO law: the most-favoured-nation
(MFN) treatment obligation, discussed in this chapter, and the national treatment
obligation, discussed in Chapter 5. In simple terms, an MFN treatment obligation relates to
whether a country favours products, services, or service suppliers from some countries
over like products, services, or service suppliers from other countries. An MFN treatment
obligation prohibits a country from discriminating between other countries. The MFN
treatment obligation under WTO law applies to trade in goods as well as trade in services.
The key provision that deals with the MFN treatment obligation for measures affecting
trade in goods is Article I:1 of the GATT 1994. The key provision that deals with the MFN
treatment obligation for measures affecting trade in services is Article II:1 of the GATS. The
MFN treatment obligation under the TRIPS Agreement is set out in Article 4 thereof and is
discussed in Chapter 15.
Article I:1 of the GATT 1994 prohibits discrimination between like products
originating in, or destined for, different countries. The principal purpose of the MFN
treatment obligation of Article I:1 is to ensure that all WTO Members are afforded equality
of opportunity to import from, or to export to, other WTO Members. The MFN treatment
obligation of Article I:1 prohibits de jure as well as de facto discrimination. There are four
questions which must be answered to determine whether or not a measure affecting trade
in goods is consistent with the MFN treatment obligation of Article I:1, namely: (1) whether
the measure at issue is a measure covered by Article I:1; (2) whether that measure grants
an ‘advantage’; (3) whether the products concerned are ‘like products’; and (4) whether
the advantage at issue is accorded ‘immediately and unconditionally’ to all like products
concerned irrespective of their origin or destination. Apart from the exceptions from the
MFN treatment obligations under Articles XX, XXI, and XXIV, discussed in other chapters, an
important exception and arguably the most significant special and differential treatment
provision in WTO law is the Enabling Clause of the GATT 1994. The Enabling Clause allows,
under certain conditions, developed-country Members to grant preferential tariff
treatment to imports of like products from developing countries. This exception therefore
allows Members to deviate from the basic MFN treatment obligation of Article I:1 of the
GATT 1994 in order to promote the economic development of developing-country
Members. Under specific conditions, the Enabling Clause also allows developed-country
Members to grant additional preferential tariff treatment to some developing countries to
the exclusion of others.
Article II:1 of the GATS prohibits discrimination between like services and service
suppliers from different countries. The principal purpose of the MFN treatment obligation
of Article II:1 is to ensure that all WTO Members are afforded equality of opportunity to
supply services, regardless of the origin of the services or the nationality of the service
suppliers. The MFN treatment obligation of Article II:1 prohibits de jure as well as de facto
discrimination. There are three questions which must be answered to determine whether
or not a measure is consistent with the MFN treatment obligation of Article II:1 of the
GATS, namely: (1) whether the measure at issue is covered by Article II:1; (2) whether the
services and service suppliers concerned are ‘like’; and (3) whether like services and
service suppliers are accorded treatment no less favourable.

Further Reading

Adlung, R. and Carzaniga, A. ‘MFN Exemptions Under the General Agreement on Trade in Services: Grandfathers Striving
for Immortality?’, Journal of International Economic Law, 12(2) (2009), 357–92.

Delimatsis, P. and Hoekman, B. ‘National Tax Regulation, Voluntary International Standards, and the GATS: Argentina–
Financial Services’, World Trade Review, 17(2) (2018), 265–90.
Ehring, L. ‘De Facto Discrimination in WTO Law: National and Most-Favoured-Nation Treatment – or Equal Treatment’,
Journal of World Trade, 36(5) (2002), 921–77.
Gowa, J. and Hicks, R. ‘The Most-Favored Nation Rule in Principle and Practice: Discrimination in the GATT’, Review of
International Organizations, 7 (2012), 247–66.
Hoekman, B. and Mavroidis, P. C. ‘MFN Clubs and Scheduling Additional Commitments in the GATT: Learning from the
GATS’, Robert Schuman Centre for Advanced Studies Research Paper No. RSCAS 2016/06 (January 2016).
Johnston, A. M. and Trebilcock, M. J. ‘Fragmentation in International Trade Law: Insights from the Global Investment
Regime’, World Trade Review, 12(4) (2013), 621–52.

McRae, D. ‘MFN in the GATT and the WTO’, Asian Journal of WTO & International Health Law and Policy, 7(1) (2012), 1–24.
Megersa, K. ‘The Diplomatic Impacts of Most Favoured Nation Tariff Changes by Major Economies’, K4D Helpdesk Report
794 (Brighton, UK: Institute of Development Studies, 2020).
Mitchell, A. D., Heaton, D., and Henckels, C. ‘Non-Discrimination and the Role of Regulatory Purpose in International Trade
and Investment Law’, Journal of International Economic Law, 20(2) (June 2017), 431–35.
Shekhar, S. ‘Mercantalist Concerns in US GSP Law: Termination of GSP Benefits to India’, Global Trade and Customs
Journal, 14(7) (2019), 391–97.
1
See Chapter 1, Section 2.3.1.
2
See Chapter 2, Section 3.1.
3
See Chapter 1, Section 3.3.1.
4
See Chapter 15.
5
Paragraphs 2, 3, and 4 of Article I of the GATT 1994 deal with so-called colonial preferences and allow the
continuation of such preferences, albeit within certain limits. While important and controversial when the GATT 1947
was negotiated, these colonial preferences are now of very little significance and will therefore not be discussed.
6
See Chapter 8, Section 2.4.1.
7
See Appellate Body Report, Canada – Autos (2000), para. 82.
8
See Chapter 13 (TBT); Chapter 14 (SPS); Chapter 6, Section 2.8.3 (RoO); and Chapter 7, Section 2.3.3 (Import
licensing). In the Agreement on Trade Facilitation, see, e.g. Articles 1.1.1, 3.9(d), 4.3, 5.1(d), 5.3.2, 7.4.2, and 7.7.2(b)(i).
9
See Appellate Body Report, EC – Tariff Preferences (2004), para. 101 (quoting Appellate Body Report, Canada – Autos
(2000), para. 69).
10
In US – Section 211 Appropriations Act (2002), para. 297, the Appellate Body stated that ‘most-favoured-nation
treatment in Article I of the GATT 1994 has been both central and essential to assuring the success of a global rules-
based system for trade in goods’.
11
See Chapter 10, Sections 1–4.
12
Sutherland Report, para. 60.
13
See Chapter 10, Section 2.
14
See www.wto.org/english/news_e/spra_e/spra301_e.htm. Intra-EU trade is not taken into consideration in this
calculation. See Chapter 10, Section 2.
15
See Appellate Body Report, Canada – Autos (2000), para. 84.
16
See Appellate Body Report, EC – Bananas III (1997), para. 190.
17
See Appellate Body Reports, EC – Seal Products (2014), para. 5.87.
18
It is assumed here that chocolate made with milk from highland cows is ‘like’ chocolate made with milk from
lowland cows. See Section 2.2.3.
19
See Panel Report, Canada – Pharmaceutical Patents (2000), para. 7.101. Note that Canada – Pharmaceutical Patents
concerned the national treatment obligation under Article III:4 of the GATT and not the MFN treatment obligation
under Article I:1 thereof. However, this does not affect the relevance of the panel statement quoted.
20
See Appellate Body Report, Canada – Autos (2000), para. 78. See also already GATT Panel Report, EEC – Imports of
Beef (1981), paras. 4.2 and 4.3, concerning EC regulations, making the suspension of an import levy on beef
conditional on the production of a certificate of authenticity. These regulations were found to be de facto
discriminatory.
21
This exemption was granted to car manufacturers when their production of motor vehicles in Canada reached a
minimum amount of Canadian value added (CVA) and a certain production-to-sales ratio in Canada.
22
See Appellate Body Reports, EC – Seal Products (2014), para. 5.95.
23
See Panel Report, US – Tuna II (Mexico) (Article 21.5) (2015), para. 7.450. Note that the Appellate Body reversed the
panel’s findings due to failure by the panel to conduct a holistic assessment of how the various labelling conditions,
taken together, adversely affect the conditions of competition for Mexican tuna products in the US Market as
compared to like US and other tuna products. See Appellate Body Report, US – Tuna II (Mexico) (Art 21.5) (2015), para.
7.280.
24
See, e.g. Appellate Body Reports, EC – Seal Products (2014), para. 5.57. Note that the panel in Indonesia – Autos
(1998) set out a three-tier, rather than a four-tier, test of consistency with the MFN treatment obligation. Under the
panel’s test, the first and second questions were merged. See Panel Report, Indonesia – Autos (1998), para. 14.138.
25
See EC – Bananas III (1997); Indonesia – Autos (1998); EC – Bananas III (Article 21.5 – Ecuador) (1999); Canada –
Autos (2000); US – Certain EC Products (2001); EC – Tariff Preferences (2004); EC – Bananas III (Article 21.5 – Ecuador
II) (2008); EC – Bananas III (Article 21.5 – US) (2008); Colombia – Ports of Entry (2009); US – Poultry (China) (2010); EU
– Footwear (China) (2012); EC – Seal Products (2014); US – Tuna II (Mexico) (Article 21.5) (2015); Brazil – Taxation
(2019); Indonesia – Iron or Steel Products (2018); US – Tuna II (Mexico) (Article 21.5 – Mexico II) (2018); and Russia –
Railway Equipment (2020). The panel reports in India – Iron and Steel Products (-) and EU – Energy Package (-) are
under appeal. Note that in EU – Energy Package (-), the panel found only one of the measures at issue to contravene
Article I:1 of the GATT 1994.
26
See, e.g. Panel Reports, Brazil – Taxation (2019), para. 7.1026, regarding tax reductions under the INOVAR-AUTO
programme, which the panel found to be ‘matters referred to in paragraphs 2 and 4 of Article III’ and thus falling
within the scope of Article I:1.
27
See Panel Report, Argentina – Financial Services (2016), para. 7.984.
28
See ibid., para. 7.995.
29
See Chapter 9, Sections 1–3. The panel in India – Iron and Steel Products (-) noted that a discriminatory application
of a safeguard measure is only tenable provided that the safeguard measure at issue has not been found to be
inconsistent with the obligations in Article XIX of the GATT 1994 and the disciplines of the Agreement on Safeguards.
See Panel Report, India – Iron and Steel Products (-), para. 7.427. This panel report is under appeal.
30
See Appellate Body Report, EC – Fasteners (2011), para. 392.
31
Emphasis added.
32
See Chapter 11, Sections 7.2–7.3.
33
See Panel Report, EC – Commercial Vessels (2005), para. 7.75. On Article III:8(b) of the GATT 1994, see Section 2.2.1.
34
See ibid., para. 7.83.
35
See Chapter 5, Section 2.1.4. Note, however, that Article IV:1 of the plurilateral Agreement on Government
Procurement, as revised in 2012, imposes on those WTO Members which are a party to this Agreement an MFN
treatment obligation with regard to laws, regulations and requirements governing government procurement. On
measures regarding government procurement and the plurilateral Agreement on Government Procurement, see
Chapter 7, Sections 3.4 and 5.4.
36
See Panel Report, Belgium – Family Allowances (allocations familiales) (1952), para. 3; GATT Panel Report, US –
Customs User Fee (1988), para. 122; GATT Panel Report, US – MFN Footwear (1992), para. 6.9; and Panel Report,
Colombia – Ports of Entry (2009), paras. 7.340 and 7.345. Note, however, that the panel in US – Anti-Dumping and
Countervailing Duties (China) (2011) found that China had failed to establish the existence of an ‘advantage’ within the
meaning of Article I:1, and therefore rejected China’s claim of inconsistency with the MFN treatment obligation of
Article I:1. See Panel Report, US – Anti-Dumping and Countervailing Duties (China) (2011), paras. 14.150–14.182. See
also Panel Report, EU – Energy Package (-), paras. 7.584 and 7.587, where the panel found that Russia, the
complainant, had failed to establish that two of the measures at issue, namely the unbundling measure and the
upstream pipeline network measure granted an ‘advantage’ to imported natural gas of non-EU origin and therefore
rejected Russia’s claim of inconsistency with Article I:1. This panel report is under appeal.
37
See Panel Report, EC – Bananas III (Guatemala and Honduras) (1997), para. 7.239. See also Panel Report, Colombia –
Ports of Entry (2009), para. 7.341; and Panel Report, US – Poultry (China) (2010), para. 7.415. The panel in US – Poultry
(China) (2010) found that, when a measure creates market access opportunities and affects the commercial
relationship between products of different origins, that measure grants an ‘advantage’ within the meaning of Article
I:1 of the GATT 1994. See Panel Report, US – Poultry (China) (2010), para. 7.417. At issue in this case was the
opportunity to export poultry products to the US. This opportunity was considered to be a ‘very favourable market
opportunity and not having such an opportunity would mean a serious competitive disadvantage’. See ibid., para.
7.416.
38
See Appellate Body Report, EC – Bananas III (1997), para. 206.
39
See Appellate Body Report, Canada – Autos (2000), para. 79. See also Appellate Body Reports, EC – Seal Products
(2014), para. 5.86.
40
Note that the MFN treatment obligation of Article I:1 of the GATT 1994 clearly concerns not only advantages
granted to other WTO Members, but also advantages granted to non-WTO Members. However, now that the
membership of the WTO is nearly universal and trade between WTO Members comprises 97 per cent of all
international trade, this particular aspect of the MFN treatment obligation is now of little significance.
41
See Panel Report, Colombia – Ports of Entry (2009), para. 7.352.
42
See Panel Report, US – Tuna II (Mexico) (2012), paras. 7.289 and 7.291; Panel Report, US – Tuna II (Mexico) (Article
21.5) (2015), para. 7.424; and Appellate Body Report, US – Tuna II (Mexico) (Article 21.5) (2015), para. 7.236.
43
See Panel Report, Indonesia – Iron or Steel Products (2018), para. 7.44. On appeal, Indonesia claimed that the panel
had erred in concluding that the complainants had properly raised a claim under Article I:1 of the GATT 1994 ‘against
the specific duty as a stand-alone measure’. The Appellate Body rejected this claim of error and since Indonesia did
not otherwise challenge the panel’s finding of inconsistency with Article I:1, the Appellate Body upheld this finding by
the panel. See Appellate Body Report, Indonesia – Iron or Steel Products (2018), para. 6.10.
44
See Panel Reports, Brazil – Taxation (2019), paras. 7.1042 and 7.1043.
45
See GATT Panel Report, US – MFN Footwear (1992), para. 6.10. The panel in US – Section 337 Tariff Act (1989)
rejected a similar ‘balancing’ argument in the context of the national treatment obligation in Article III:4. See GATT
Panel Report, US – Section 337 Tariff Act (1989), para. 5.14.
46
Note that the concept of ‘like product’ is also used in the Anti-Dumping Agreement, the SCM Agreement the
Agreement on Safeguards and the TBT Agreement, and that this concept is defined in the first two of these
agreements. See Chapter 11, Section 3.1 and Chapter 12, Section 5.1.1, respectively.
47
See Appellate Body Report, EC – Asbestos (2001), para. 91. The reference to ‘similar’ as a synonym of ‘like’ also
echoes the language of the French version of Article III:4, ‘produits similaires’, and the Spanish version, ‘productos
similares’. See ibid. On the Appellate Body’s analysis of the concept of ‘like products’ in EC – Asbestos (2001), see
Chapter 5, Section 2.2.2.
48
See Appellate Body Report, Canada – Aircraft (1999), para. 153. See also Appellate Body Report, EC – Asbestos
(2001), para. 92.
49
See Appellate Body Report, EC – Asbestos (2001), para. 92.
50
See Appellate Body Report, Japan – Alcoholic Beverages II (1996), para. 114.
51
See, e.g. Working Party Report, Australian Subsidy on Ammonium Sulphate (1950), para. 8; and GATT Panel Report,
EEC – Animal Feed Proteins (1978), para. 4.2. See also GATT Panel Report, Japan – SPF Dimension Lumber (1989), paras.
5.13 and 5.14.
52
These physical characteristics included the organoleptic properties (i.e. the taste, smell, aroma, etc.) of the different
types of coffee. The panel found that the differences between the different kinds of coffee in organoleptic properties
(differences mainly resulting from geographical factors, cultivation methods, the processing of the beans and the
genetic factor) were insufficient to consider that the different types of coffee were not ‘like products’. See GATT Panel
Report, Spain – Unroasted Coffee (1981), para. 4.6.
53
See ibid., para. 4.7.
54
See ibid., para. 4.8.
55
See ibid., paras. 4.6–4.9.
56
On the meaning of ‘like products’ in Article III of the GATT 1994, see Chapter 5, Sections 2.1.5 and 2.2.2.
57
See Appellate Body Report, EC – Asbestos (2001), para. 99. See also Appellate Body Reports, Philippines – Distilled
Spirits (2012), para. 170.
58
See Appellate Body Reports, EC – Seal Products (2014), para. 5.82. Most recently, the panel in EU – Energy Packaging
(-) applied for the determination of likeness under Article I:1 the analytical framework of the Appellate Body for the
determination of likeness under Article III:4. The question in this dispute was whether liquefied natural gas (LNG) and
natural gas are like products. See Panel Report, EU – Energy Package (-), para. 7.854. This report is under appeal.
59
See Chapter 5, Section 2.4.2.
60
See Panel Reports, Colombia – Ports of Entry (2009), para. 7.357; and US – Poultry (China) (2010), paras. 7.431–
7.432.
61
See ibid.
62
See Panel Reports, Brazil – Taxation (2019), para. 7.1033.
63
See ibid., para. 7.1035.
64
See Panel Report, Russia – Railway Equipment (2020), paras. 7.897–7.898. See also Panel Report, India – Iron and
Steel Products (-), para. 7.419, where the panel found that the measure at issue distinguished the subject products
solely based on origin, these products could be considered ‘like’ within the meaning of Article I:1. This panel report is
under appeal.
65
See Appellate Body Report, Argentina – Financial Services (2016), paras. 6.32 and 6.38: discussed at Chapter 5,
Section 3.2.3.
66
With regard to Article I:1 of the GATT 1994, see Panel Reports, Colombia – Ports of Entry (2009), paras. 7.355–7.356;
US – Poultry (China) (2010), paras. 7.424–7.432. With regard to Articles III:2 and III:4, see Chapter 5, Sections 2.2–2.4.
67
See in this respect, on the one hand Panel Report, Indonesia – Autos (1998), para. 14.143–14.144; Panel Report,
Canada – Autos (2000), para. 10.29; Colombia – Ports of Entry (2009), paras. 7.362–7.366; and in US – Poultry (China)
(2010), paras. 7.437–7.440, but on the other hand Panel Report, EC – Tariff Preferences (2004), para. 7.59.
68
See Appellate Body Reports, EC – Seal Products (2014), para. 5.88.
69
See Appellate Body Report, US – Tuna II (Mexico) (Article 21.5) (2015), para. 7.338.
70
See Chapter 13.
71
See Appellate Body Reports, EC – Seal Products (2014), para. 5.94. For a discussion of the main arguments made by
the EU and their rejection by the Appellate Body, see ibid., paras. 5.84–5.93 and 5.118–5.129.
72
See Appellate Body Report, US – Tuna II (Mexico) (Article 21.5) (2015), para. 7.277.
73
See ibid., para. 7.278.
74
See Appellate Body Reports, EC – Seal Products (2014), para. 5.82. Emphasis added. See also ibid., para. 5.87.
75
See Panel Report, EC – Bananas III (Mexico) (1997), para. 7.239.
76
GATT Document L/4903, dated 28 November 1979, BISD 26S/203. The Enabling Clause was adopted by the GATT
Contracting Parties in the context of the Tokyo Round of Multilateral Trade Negotiations. Note that the Enabling
Clause replaced, and expanded, a 1971 Waiver Decision on the Generalized System of Preferences, GATT Document
L/3545, dated 25 June 1971, BISD 18S/24. This Waiver Decision was in turn adopted to give effect to the Agreed
Conclusions of the UNCTAD Special Committee on Preferences, adopted in 1970. These Agreed Conclusions
recognised in para. I:2 that preferential tariff treatment accorded under a generalised scheme of preferences was key
for developing countries ‘(a) to increase their export earnings; (b) to promote their industrialization; and (c) to
accelerate their rates of economic growth’.
77
The Enabling Clause is one of the ‘other decisions of the CONTRACTING PARTIES’ within the meaning of para. 1(b)
(iv) of Annex 1A incorporating the GATT 1994 into the WTO Agreement. See Appellate Body Report, EC – Tariff
Preferences (2004), para. 90 and fn. 192.
78
See Appellate Body Report, Brazil – Taxation (2019), para. 5.380.
79
See Appellate Body Report, EC – Tariff Preferences (2004), para. 99. On this point, the Appellate Body upheld the
finding of the panel; see Panel Report, EC – Tariff Preferences (2004), para. 7.53. The European Communities argued in
EC – Tariff Preferences (2004) that the Enabling Clause, reflecting the fundamental objective of assisting developing-
country Members, is not an exception to Article I:1 of the GATT 1994 but exists ‘side-by-side and on an equal level’
with Article I:1. The Appellate Body disagreed and ruled that: ‘characterising the Enabling Clause as an exception, in
our view, does not undermine the importance of the Enabling Clause within the overall framework of the covered
agreements and as a “positive effort” to enhance economic development of developing-country Members. Nor does it
“discourag[e]” developed countries from adopting measures in favour of developing countries under the Enabling
Clause.’ See Appellate Body Report, EC – Tariff Preferences (2004), para. 95.
80
See ibid., para. 90.
81
See ibid., para. 106.
82
See ibid., para. 111.
83
See ibid., para. 106. Note, however, that the Sutherland Report is very critical of the functioning of the GSP in
practice. See ibid., paras. 88–102.
84
Recall that para. 2(b) of the Enabling Clause provides that the provisions of para. 1 apply to: ‘[d]ifferential and more
favourable treatment with respect to the provisions of the General Agreement concerning non-tariff measures
governed by the provisions of instruments multilaterally negotiated under the auspices of the GATT’.
85
See Appellate Body Reports, Brazil – Taxation (2019), para. 5.407.
86
See ibid., paras. 5.408, 5.409, and 5.412.
87
See ibid., para. 5.413.
88
See ibid., para. 5.413. Emphasis added.
89
See Section 2.3.1.
90
On para. 2(a) and (b) of the Enabling Clause, see Sections 2.3.1–2.3.2.
91
See Appellate Body Report, Brazil – Taxation (2019), para. 5.428.
92
OJ 2001 No. L346/1.
93
See Appellate Body Report, EC – Tariff Preferences (2004), para. 3. Preferences under the Drug Arrangements were
provided to Bolivia, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Nicaragua, Pakistan, Panama,
Peru, and Venezuela.
94
The requirement of non-discrimination is derived from the words ‘non-discriminatory preferences’ in fn. 3. See
Section 2.3.
95
See Panel Report, EC – Tariff Preferences (2004), para. 7.144.
96
See ibid., para. 7.177.
97
See ibid., paras. 7.161 and 7.176.
98
See Appellate Body Report, EC – Tariff Preferences (2004), para. 174.
99
See ibid., para. 173.
100
See ibid., paras. 187 and 188.
101
See ibid., para. 189. On 27 June 2005, the EC adopted Council Regulation (EC) No. 980/2005, replacing Council
Regulation (EC) No. 221/2003 and establishing a new scheme of preferential tariff arrangements. The preferential
tariff arrangements were reduced from five to three: (1) the ‘General Arrangements’; (2) the ‘special incentive
arrangement for sustainable development and good governance’ (GSP+); (3) the ‘Everything But Arms’ (EBA)
arrangement. While the ‘General Arrangements’ provided tariff preferences for all developing countries, the GSP+ was
available only to developing countries that have ratified and implemented a number of international conventions set
out in Annex 3 to the Regulation. The GSP+ system replaced the Drug Arrangements (and the special incentive
arrangements referred to above) so as to comply with the Appellate Body’s ruling in EC – Tariff Preferences (2004). It
applied to ‘vulnerable’ countries meeting a set of objective criteria set out in Articles 9 and 10 of the Regulation.
102
Note, however, that, as discussed below, under Article II:2 of the GATS certain measures may be exempted from the
MFN treatment obligation of Article II:1. See Section 3.2.1.
103
See also Article 5(a) of the GATS Annex on Telecommunications and the Preamble to the GATS Understanding on
Commitments in Financial Services.
104
See Chapter 8, Section 3.3.
105
With respect to the concepts of de jure and de facto discrimination, see Section 2.1.
106
See Section 3.2.3.
107
See Appellate Body Report, EC – Bananas III (1997), para. 233. See also Appellate Body Report, Argentina –
Financial Services (2016), para. 6.105.
108
Translation: ‘To love in troubled times’.
109
It is assumed here that TV series with a storyline based on historical events and TV series with a storyline based on
silly everyday events of life are ‘like’ services. For the discussion on the concept of ‘likeness’ of services and service
suppliers under Article II:2 of the GATS, see Section 3.2.2.
110
See Appellate Body Report, Canada – Autos (2000), paras. 170–1. See also Panel Report, Argentina – Financial
Services (2016), para. 7.149.
111
See Sections 3.2–3.3.
112
See EC – Bananas III (1997); EC – Bananas III (Article 21.5 – Ecuador) (1999); and EC – Bananas III (US) (Article 22.6
– EC) (1999). There was no finding of inconsistency in Canada – Autos (2000); and Argentina – Financial Services
(2016). In each of these cases the Appellate Body reversed the panel’s finding of inconsistency. Most recently, in EU –
Energy Package (-), the panel did not make any finding of inconsistency in respect of Russia’s claims under the GATS.
This panel report is under appeal.
113
See Annex on Article II Exemptions.
114
Certain annexes to the GATS apply to specific measures affecting trade in services. The Annex on Financial Services,
for example, introduces in para. 2(a) the concepts of ‘measures affecting supply of financial services’ and ‘prudential
regulation’. However, in Argentina – Financial Services (2016), the Appellate Body found that: ‘an interpretation of
paragraph 2(a) … supports the view that paragraph 2(a) does not impose specific restrictions on the types of
“measures affecting the supply of financial services” that fall within its scope, provided that such measures fulfil all of
the requirements of paragraph 2(a)’. See Appellate Body Report, Argentina – Financial Services (2016), para. 6.272.
115
See Chapter 3, Section 2.2.2.
116
See ibid.
117
Note that in Canada – Autos (2000), the Appellate Body reversed the panel because it had failed to examine whether
the measure at issue was one ‘affecting trade in services’. See Appellate Body Report, Canada – Autos (2000), para.
167.
118
See ibid., para. 155. Note that the Appellate Body eventually reversed the panel’s conclusion that the import duty
exemption was inconsistent with the requirements of Article II:1 of the GATS because the panel failed to substantiate
its conclusion. See ibid., paras. 182–3.
119
While the concept of ‘services’ is not defined, the concept of ‘service supplier’ is. Article XXVIII(g) of the GATS
defines ‘service supplier’ as ‘any person who supplies a service’ and Article XXVIII(j) further specifies that such
person can be either a natural or a juridical person. See also Article XXVIII (k), (l), (m), and (n) of the GATS.
120
Note also that many measures affecting services in the air transport sector do not fall within the scope of
application of the GATS. See GATS Annex on Air Transport Services, para. 2.
121
Note that, pursuant to Article XXVIII(d) of the GATS, ‘commercial presence’ means any type of business or
professional establishment, including through the constitution, acquisition or maintenance of a juridical person, or the
creation or maintenance of a branch or a representative office, within the territory of a Member for the purpose of
supplying a service.
122
The panel noted that the words of Article I:2(a) do not address the service supplier or specify where the services
supplier must operate, or be present in some way, much less imply any degree of presence of the supplier in the
territory into which the service is supplied. See Panel Report, Mexico – Telecoms (2004), para. 7.30.
123
See ibid., para. 7.375.
124
See Appellate Body Report, EC – Bananas III (1997), para. 220.
125
See Panel Reports, EC – Bananas III (1997), para. 7.285.
126
See ibid., para. 7.281. Regarding the question of whether measures adopted by regional and local governments and
authorities can ‘affect the supply of a service’, see Panel Report, US – Gambling (2005), para. 6.252. With regard to the
function of the term ‘affecting’ in the context of Article I:1 of the GATS, see Appellate Body Report, US – FSC (Article
21.5 – EC) (2002), para. 209.
127
Note that pursuant to the GATS Annex on Movement of Natural Persons Supplying Services under the Agreement,
measures regarding citizenship, residence or employment on a permanent basis do not fall within the scope of
application of the GATS in spite of the fact that such measures likely affect mode 4 trade in services.
128
For WTO Members that have acceded to the WTO pursuant to Article XII of the WTO Agreement after 1 January
1995, exemptions from the MFN treatment obligation of Article II:1 of the GATS were part of their accession
negotiations and needed to be agreed on before accession. After the WTO Agreement has entered into force for a
particular Member, that Member can only exempt a measure from the application of the MFN obligation under Article
II:1 by obtaining a waiver from the MFN obligation pursuant to Article IX:3 of the WTO Agreement (see para. 2 of the
Annex on Article II Exemptions). On waivers, see Chapter 2, Section 4.1.4.
129
See www.wto.org.
130
See European Communities and Their Member States, Final List of Article II (MFN) Exemptions, GATS/EL/31, 15
April 1994.
131
This is so at least for original Members. For Members that acceded to the WTO pursuant to Article XII of the WTO
Agreement, the date on which the ten-year period expires will be later than 1 January 2005.
132
Note that, in practice, the Council on Trade in Services makes its decisions by consensus, and a finding that an
exemption is no longer justified would thus require the consent of the Member that listed the exemption. On WTO
decision-making, see Chapter 2, Section 5.
133
See S/C/M/44, dated 21 June 2000; S/C/M/76, dated 4 February 2005; S/C/M/78, dated 17 May 2005; S/C/M/79,
dated 16 August 2005; S/C/M/105, dated 6 June 2011; S/C/M/132, dated 28 August 2017. The next review will take
place in the second half of 2022. See S/C/M/132, dated 28 August 2017.
134
See S/C/M/132, dated 28 August 2017, para. 8.10.
135
See ibid., paras. 8.13, 8.14, 8.16, and 8.18 for statements made by China, Korea, Oman, and Australia, respectively.
136
See Section 3.2.1 and fn. 120.
137
See Appellate Body Report, Argentina – Financial Services (2016), para. 6.24.
138
See Panel Report, EC – Bananas III (1997), para. 7.322; and Panel Report, Canada – Autos (2000), para. 10.248.
139
See in this regard the statement regarding ‘likeness’ under Article XVII:1 of the GATS made by the panel in China –
Electronic Payment Services (2012), para. 7.705.
140
See Appellate Body Report, Argentina – Financial Services (2016), para. 6.29.
141
See ibid., para. 6.31.
142
See ibid., para. 6.32.
143
See ibid. See also Appellate Body Report, EC – Asbestos, para. 102: Chapter 5, Section 2.2.2.
144
See Appellate Body Report, Argentina – Financial Services (2016), para. 6.32.
145
See ibid., para. 6.27.
146
See ibid., para. 6.33.
147
In Argentina – Financial Services (2016), the panel found that the differing treatment of services and service
suppliers from cooperative countries as opposed to services and service suppliers from non-cooperative countries
inherent in the eight measures at issue was origin-related and that the services and service suppliers of cooperative
and non-cooperative countries could therefore be presumed to be ‘like’. The Appellate Body, however, disagreed with
the panel’s finding of ‘likeness’ because the panel did not find that the measures at issue made a distinction based
exclusively on origin. See Appellate Body Report, Argentina – Financial Services (2016), paras. 6.60–6.61 and 6.70.
148
See ibid., paras. 6.38–6.41.
149
See Chapter 5, Section 3.2.4. See Appellate Body Report, EC – Bananas III (1997), para. 234. See also Appellate Body
Report, Argentina – Financial Services (2016), para. 6.105.
150
See Panel Report, EC – Bananas III (Article 21.5 – Ecuador) (1999), para. 6.133.
151
Ibid. The Appellate Body came to the same finding regarding the national treatment obligation of Article XVII:1 of
the GATS. See Chapter 5, Section 3.2.4.
152
See Appellate Body Report, EC – Bananas III (1997), para. 240.
153
See Panel Report, Argentina – Financial Services (2016), para. 7.189.
154
See ibid., para. 7.190. In Argentina – Financial Services (2016), Panama challenged certain financial, taxation, foreign
exchange, and registration measures adopted by Argentina, which each distinguished between ‘countries cooperating
for tax transparency purposes’ (cooperative countries) and ‘countries not cooperating for tax transparency purposes’
(non-cooperative countries). To be granted ‘cooperative status, a country had to either (i) sign with Argentina an
agreement with a broad information exchange clause, or (ii) initiate with Argentina the negotiations necessary for
concluding such an agreement. For many years, Panama was classified as a non-cooperative country. Following the
establishment of the panel, Panama was included in the list of cooperative countries, even though it did not fulfil the
conditions to be granted ‘cooperative status’. Note that before the panel, Argentina stated that the ‘cooperative status’
granted to Panama was being reconsidered, but that, when the panel report was circulated, Panama was still granted
‘cooperative status’. See Appellate Body Report, Argentina – Financial Services (2016), paras. 5.3–5.4.
155
See ibid., para. 7.190.
156
See ibid., para. 7.191.
157
See ibid., para. 7.196.
158
See Appellate Body Report, Argentina – Financial Services (2016), para. 6.110.
159
See ibid., para. 6.112.
160
See ibid., para. 6.113.
161
See ibid., paras. 6.114–6.115.
162
See ibid., para. 6.111.
163
Ibid. The Appellate Body referred here to the panel’s finding in para. 7.514 of the Panel Report.
164
See ibid., para. 6.127.
165
See Section 3.2.1.
166
See Sections 1, 4, and 5; Chapter 4, Sections 3.1 and 3.2.4 (exceptions under Article V); Chapter 8, Sections 2.3.2,
2.3.4, and 3 (exceptions under Article XIV); and Chapter 8, Section 4 (exceptions under Article XIVbis).
167
See Section 2.3.1.
168
See Geneva Ministerial Conference, Preferential Treatment to Services and Service Suppliers of Least Developed
Countries, Decision of 17 December 2011, WT/L/847, dated 19 December 2011; Bali Ministerial Conference,
Operationalization of the Waiver Concerning Preferential Treatment to Services and Service Suppliers of Least-Developed
Countries, Decision of 7 December 2013, WT/MIN(13)/43, WT/L/918, dated 11 December 2013; and Nairobi Ministerial
Conference, Implementation of Preferential Treatment in favour of Services and Service Suppliers of Least Developed
Countries and Increasing LDC Participation in Services Trade, Decision of 19 December 2015, WT/MIN(15)/48,
WT/L/847, dated 21 December 2015.
169
The waiver was originally granted for fifteen years, to 2026, but was extended at the Nairobi Ministerial Conference
to 2030. At the meeting of the Council for Trade in Services, held on 6 October 2017, the Chairman took note of
notifications from twenty-four WTO Members in respect of the LDC services waiver. See Note by the Secretariat,
Report of the Meeting Held on 6 October 2017, Council for Trade in Services, S/ C/ M/133, dated 6 November 2017,
para. 2.1. Note that as of October 2019, 51 WTO members – both developed and developing countries – have notified
preferences under the Services Waiver.
170
See ibid.
171
See Chapter 7, Section 5.5.