World Trade Organization
2 April 2004
MEXICO MEASURES
AFFECTING TELECOMMUNICATIONS SERVICES
[Edited]
On 17 August 2000, the United States requested consultations with Mexico pursuant to Article 4 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (the "DSU") and Article XXIII of the General Agreement on Trade in Services (the "GATS"). This request concerned Mexico's GATS commitments and obligations on basic and value-added telecommunications services.
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This dispute concerns provisions in Mexico's domestic laws and regulations on telecommunications which govern the supply of telecommunication services.
Prior to 1997, long-distance and international telecommunications services in Mexico were supplied on a monopoly basis by Telιfonos de Mιxico, S.A. de C.V. ("Telmex"). Since that date, Mexico has authorized multiple Mexican carriers to provide international services over their networks. Under Mexican laws, the largest carrier of outgoing calls to a particular international market, has the exclusive right to negotiate the terms and conditions for the termination of international calls in Mexico that apply to any carrier between Mexico and that international market. Telmex is presently the largest carrier of outgoing calls for all markets. Currently, there are 27 carriers ("concesionarios" or "concessionaires") allowed to provide long distance services, including two United States-affiliated carriers Avantel (WorldCom) and Alestra (AT/T). Of these 27 long-distance concessionaries 11 are authorized to operate international gateways, allowing them to carry incoming and outgoing international calls. Telmex remains the largest supplier of basic telecommunications services in Mexico, including international outbound traffic.
The Federal Telecommunications Law (the "FTL") of Mexico provides the legal framework for the regulation of telecommunications activities in Mexico. Its purpose is "to govern the use, utilization and exploitation of the radio-electrical spectrum, of the telecommunications networks, and of satellite communication". More broadly, it is intended to "promote efficient development of telecommunications; exercise the authority of the State on these matters to ensure national sovereignty; to promote a healthy competition among the different telecommunications service providers in order to offer better services, diversity and quality for the benefit of the users and to promote an adequate social coverage".
. The "interconnection" of public telecommunications networks with foreign networks is carried out through agreements entered into by the interested parties. Should these require agreement with a foreign government, the concessionaire must request the Secretariat to enter into the appropriate agreement.
. Direct interconnection with foreign public telecommunications networks in order to carry international traffic may only be done by "international gateway operators." These are long-distance service licensees authorized by the Commission "to operate a switching exchange as an international gateway", that is, the exchange is "interconnected to international incoming and outgoing circuits authorised by the Commission to carry international traffic". Traffic is "switched" when it is "carried by means of a temporary connection between two or more circuits between two or more users, allowing the users the full and exclusive use of the connection until it is released."
Each international gateway operator must apply the same "uniform settlement rate" to every long-distance call to or from a given country, regardless of which operator originates or terminates the call. The uniform settlement rate for each country is established, through negotiations with the operators of that country, by the long-distance service licensee having the greatest percentage of outgoing long-distance market share for that country in the previous six months.
Each international gateway operator must also apply the principle of "proportionate return". Under this principle, incoming calls (or associated revenues) from a foreign country must be distributed among international gateway operators in proportion to each international gateway operator's market share in outgoing calls to that country.
Mexico has undertaken specific commitments for telecommunications services under Articles XVI (Market Access), XVII (National Treatment), and Article XVIII (Additional Commitments). Its additional commitments consist of undertakings known as the "reference paper". These commitments are reproduced in Annex B.
The United States requests the Panel to find that:
Mexico's failure to ensure that Telmex provides interconnection to United States basic telecom suppliers on a cross‑border basis on cost‑oriented, reasonable rates, terms and conditions is inconsistent with its obligations under Sections 2.1 and 2.2 of the Reference Paper, as inscribed in Mexico's GATS Schedule of Commitments, .
The United States claims that Mexico's ILD Rules fail to ensure that Telmex provides interconnection to United States basic telecom suppliers on a cross-border basis with cost-oriented, reasonable rates, terms and conditions and that this is inconsistent with its obligations under Sections 2.1 and 2.2 of the Reference Paper, as inscribed in Mexico's GATS Schedule of Commitments. The United States argues that the interconnection obligations in Section 2 of the Reference Paper apply: (i) as legally binding GATS commitments; (ii) because of the specific commitments Mexico has undertaken in its GATS Schedule; and (iii) to the circumstances at issue in this case, namely the interconnection between United States service suppliers and Telmex for the purpose of delivering their basic telecom services from the United States into Mexico.
The United States presents three main claims. First, that Mexico has failed to ensure that its major telecommunications supplier provides interconnection "on terms, conditions and cost-oriented rates that are reasonable", in accordance with Section 2 of its Reference Paper commitments. Second, that Mexico has not maintained appropriate measures to prevent Telmex, a major supplier, from engaging in "anti-competitive practices", in accordance with Section 1 of its Reference Paper commitments. Third, that Mexico has failed to ensure "access to and use of" its public telecommunications transport networks and services, including private leased circuits, on "reasonable and non-discriminatory terms and conditions", in accordance with its obligations under Section 5 of the GATS Annex on Telecommunications.
This case is the first panel proceeding in the WTO to deal solely with trade in services under the GATS. It is also the first WTO panel proceeding to deal with telecommunications services. The Panel is fully aware that the interpretation of the complex layers of GATS Articles, Annexes, Protocols and Schedules with GATS market access commitments, national treatment commitments and additional commitments poses many challenges to WTO Members and WTO dispute settlement bodies. This is especially so in the early years of GATS jurisprudence when the sometimes different approaches used by governments in the drafting of their respective GATS schedules may give rise to divergent understandings and expectations. Just as the interpretation and application of GATT provisions have dynamically evolved in response to the several hundred GATT dispute settlement proceedings since 1948, so the interpretation and clarification of GATS provisions is likely to evolve over time. The diverse backgrounds of the panelists, and the assistance granted by the Secretariat pursuant to Article 27.1 of the DSU, have ensured that this Panel was fully aware of the legal and technical complexity of the regulation of telecommunications services, including their rapid technological evolution and the drafting history of GATS provisions to which both parties to this dispute referred extensively.
This case concerns obligations undertaken by Mexico as part of the GATS. The GATS, which is an integral part of the WTO Agreement, consists of a number of articles in its main body and several annexes, including an Annex on Telecommunications (the "Annex"). Both the main body of the GATS and the Annex are applicable to every WTO Member. In addition, each WTO Member has attached its own schedule to the GATS, in which the Member makes individual specific commitments on market access, national treatment, and any additional commitments the Member may wish to make. These specific commitments are inscribed by service sector and mode of supply of the service, and may be subject to limitations on market access and national treatment.
Special GATS negotiations intended to deepen and widen commitments in basic telecommunications were concluded in 1997. Members participating in these negotiations made commitments, or further commitments, in their schedules on market access or national treatment. Many, including Mexico, also made additional commitments in the form of a "Reference Paper", which contained a set of pro-competitive regulatory principles applicable to the telecommunications sector.
In the light of our findings, we conclude that:
(a) Mexico has not met its GATS commitments under Section 2.2(b) of its Reference Paper since it fails to ensure that a major supplier provides interconnection at cost-oriented rates to United States suppliers for the cross-border supply, on a facilities basis in Mexico, of the basic telecommunications services at issue ;
(b) Mexico has not met its GATS commitments under Section 1.1 of its Reference Paper to maintain "appropriate measures" to prevent anti-competitive practices, since it maintains measures that require anti-competitive practices among competing suppliers which, alone or together, are a major supplier of the services at issue;
(c) Mexico has not met its obligations under Section 5(a) of the GATS Annex on Telecommunications since it fails to ensure access to and use of public telecommunications transport networks and services on reasonable terms to United States service suppliers for the cross-border supply, on a facilities basis in Mexico, of the basic telecommunications services at issue;
(d) Mexico has not met its obligations under Section 5(b) of the GATS Annex on Telecommunications, since it fails to ensure that United States commercial agencies, whose commercial presence Mexico has committed to allow, have access to and use of private leased circuits within or across the border of Mexico, and are permitted to interconnect these circuits to public telecommunications transport networks and services or with circuits of other service suppliers.
The Panel has found that, contrary to claims of the United States :
(e) Mexico has not violated Section 2.2(b) of its Reference Paper, with respect to cross-border supply, on a non-facilities basis in Mexico, of the basic telecommunications services at issue;
(f) Mexico has not violated Section 5(a) of the GATS Annex on Telecommunications, with respect to the cross-border supply, on a non-facilities basis in Mexico, of the basic telecommunications services at issue;
(g) Mexico has not violated Section 5(b) of the GATS Annex on Telecommunications, with respect to the cross-border supply, on a non-facilities basis into Mexico, of the basic telecommunications services at issue.
The Panel notes that, pursuant to Article 12.11 of the DSU, it has taken into account in its findings GATS provisions on differential and more-favourable treatment for developing country Members. In particular, the Panel has examined Mexico's arguments that commitments of such Members have to be interpreted in the light of Article IV of the GATS, paragraph 5 of the preamble to the GATS, and paragraph 5(g) of the Annex on Telecommunications The Panel emphasizes that its findings in no way prevent Mexico from actively pursuing the development objectives referred to in these provisions by extending telecommunications networks and services at affordable prices in a manner consistent with its GATS commitments.
The Panel notes that Article 19 of the DSU provides that "[w]here a panel concludes that a measure is inconsistent with a covered agreement, it shall recommend that the Member concerned bring the measure into conformity with that agreement." Unlike some other covered agreements (e.g. GATT Article XXIII:1 in connection with Article 3.8 of the DSU), the GATS does not require that, in the case of a violation complaint (GATS Article XXIII:1), "nullification or impairment" of treaty benefits has to be claimed by the complaining WTO Member and examined by a Panel. Whereas Article XXIII:1 of the GATT specifically conditions access to WTO dispute settlement procedures on an allegation that a "benefit" or the "attainment of an objective" under that agreement are being "nullified or impaired", the corresponding provision in the GATS (Article XXIII:1) permits access to dispute settlement procedures if a Member "fails to carry out its obligations or specific commitments" under the GATS. In this respect, we note that the Appellate Body in EC Bananas III stated that the panel in that case "erred in extending the scope of the presumption in Article 3.8 of the DSU to claims made under the GATS". Having found that Mexico has violated certain provisions of the GATS, we are therefore bound by Article 19 of the DSU to proceed directly to the recommendation set out in that provision.
We therefore recommend that the Dispute Settlement Body request Mexico to bring its measures into conformity with its obligations under the GATS.