SICE-WTO- Mexico - WT/DS204/R

WORLD TRADE
ORGANIZATION

WT/DS204/R
2 April 2004

(04-1211)

Original: English

MEXICO � MEASURES AFFECTING
TELECOMMUNICATIONS SERVICES

Report of the Panel

(Continued)

3. Application of Sections 5(e), 5(f) and 5(g) of the Annex

4.361 Mexico contends that, even if the Annex were to apply to this dispute, the United States has failed to present a prima facie case under Section 5 of the Annex, because it has not attempted to establish the requisite elements for a challenge under that provision.⁶⁸⁴ Mexico submits that although the United States acknowledges that the obligation in Section 5(a) must be applied through paragraphs 5(b) through 5(f)⁶⁸⁵, it interprets Sections 5(a) and 5(b) in isolation. Mexico claims that one cannot demonstrate a violation of Section 5 without adducing evidence sufficient to raise a presumption that the measures at issue are inconsistent with paragraphs (e) and (f) of Section 5, as follows:

"(e) Each Member shall ensure that no condition is imposed on access to and use of public telecommunications transport networks and services other than as necessary:

(i) to safeguard the public service responsibilities of the suppliers of public telecommunications transport networks and services, in particular their ability to make their networks or services available to the public generally;
(ii) to protect the technical integrity of public telecommunications transport networks or services: or
(iii) to ensure that services suppliers of any other Member do not supply services unless permitted pursuant to commitments in the Member's Schedule.
�
(f) Provided that they satisfy the criteria set out in paragraph (e), conditions for access to and use of public telecommunications transport networks and services may include:

(i) restrictions on resale or shared use of such services;
(ii) a requirement to use specified technical interfaces, including interface protocols, for inter-connection with such networks and services;
(iii) requirements, where necessary, for the inter-operability of such services and to encourage the achievement of the goals set out in paragraph 7(a);
(iv) type approval of terminal or other equipment with interfaces with the network and technical requirements relating to the attachment of such equipment to such networks;
(v) restrictions on inter-connection of private leased or owned circuits with such networks or services or with circuits leased or owned by another service supplier; or
(vi) notification, registration and licensing."⁶⁸⁶

4.362 Mexico submits that since the general obligation in Section 5(a) is required to be applied through paragraphs (e) and (f), the United States cannot establish a violation of paragraphs (a) and (b) of Section 5 without also demonstrating that Mexico's measures are not permitted by paragraphs (e) and (f). According to Mexico, these paragraphs are part of the same provision and must be read together to determine the meaning of a Member's obligation under Section 5.⁶⁸⁷ Mexico contends that in EC � Hormones⁶⁸⁸, the Appellate Body found that a general rule-exception relationship between Articles 3.1 and 3.3 of the Agreement on the Application of Sanitary and Phytosanitary Measures did not exist, bringing to the complainant the burden of proof to establish a case of inconsistency with both Articles 3.1 and 3.3. In Mexico's view, since there is no general rule-exception relationship between Section 5(a) and 5(b) of the Annex, the United States, as complaining party, has the burden of establishing a case of inconsistency with all four provisions.⁶⁸⁹ Mexico claims that even if the obligations in Section 5(a) and (b) of the Annex were found to apply to the measures at issue, those measures are consistent with Mexico's rights and obligations under paragraph (e), (f) and (g) of Section 5 of the Annex.⁶⁹⁰ Mexico further submits that its restrictions on access to and use of public telecommunication transport networks and services are no more than necessary to ensure that foreign suppliers of facilities-based and non-facilities-based telecommunications transport services do not illegally bypass the accounting rate regime contrary to the clear intention of the limitations on market access set forth in Mexico's Schedule. Mexico recalls the definition of "necessary" as interpreted by the Appellate Body in the context of paragraph (d) of Article XX of the GATT 1994.⁶⁹¹

4.363 The United States contends that it does not consider Sections 5(e) and 5(f) necessary to establish a claim under Section 5(a) and 5(b) of the Annex and considers that Mexico's conditions on access and use are not justified by Section 5(e) and 5(f). As an example, the United States refers to Mexico's argument that its restriction on resale are consistent with Section 5(e) as necessary to enforce the limitations on market access inscribed in its Schedule⁶⁹², which, according to the United States is not accurate, since Mexico's Schedule authorizes cross-border suppliers to provide basic telecommunications services, subject only to the limitation that they route traffic through the facilities of a concessionaire.⁶⁹³

4.364 According to the United States, Sections 5(e) and 5(f) are not elements of a prima facie claim under Sections 5(a) or (b) of the Annex. It disagrees with the analogy to Articles 3.1 and 3.3 of the Agreement on the Application of Sanitary and Phytosanitary Measures. In the United States' view, the Mexican assertion that "there is no general rule-exception relationship" between Sections 5(a)-(b) and 5(e)-(f) of the Annex⁶⁹⁴, has no support. The United States points out that, like Section 5(f), Article XX of the GATT includes a list of measures that may fall within the scope of the provision (Articles XX(a)-(j)). It further points out that like Section 5(e), Article XX(d) requires that to fall within the scope of the provision, a measure must be deemed "necessary" to achieve a particular goal. The United States claims that, in the context of Article XX(d), the Appellate Body has expressly found that the burden of satisfying the "necessity" test falls on the Member invoking the provision.⁶⁹⁵

4.365 Mexico submits that the obligations in Section 5(a) and 5(b) are qualified in an important manner by Section 5(e) and 5(f), constraining the rights of users under Section 5(a) and (b). According to Mexico, it is incorrect to argue that it has to provide unconditional access to and use of Mexico's PTTNS and to allow the use, and interconnection with the public networks, of private leased lines facilities-based and non-facilities-based suppliers from the United States. It further submits that paragraphs 5(e) and 5(f) are not of the nature of exceptions or affirmative defences, but key substantive provisions that define the rights of regulators to restrict the access to and use of public telecommunications transport networks and services. In Mexico's view, the United States has the burden of establishing that the terms and conditions on access and use maintained by Mexico exceed or go beyond Mexico's rights as a regulator.⁶⁹⁶

4.366 The United States submits that in any event, while Mexico may have imposed conditions on access to and use of public telecommunications transport networks and services that fall within the meaning of Section 5(f), those conditions are "other than as necessary" to satisfy the criteria in Sections 5(e)(i)-(iii). According to the United States, since the conditions do not "satisfy the criteria set out in Section 5(e)", Mexico is not permitted to maintain those conditions, pursuant to Section 5(f).⁶⁹⁷

4.367 According to the United States, three conditions are inconsistent with Sections 5(a) or 5(b) of the Annex and not necessary to achieve the goals listed in Section 5(e)(i)-(iii); first, under ILD Rule 13, Mexico conditions United States suppliers' access to and use of public telecommunications networks and services on negotiating exclusively with Telmex⁶⁹⁸; second, the refusal to make private leased circuits available to United States facilities-based suppliers, United States non-facilities-based suppliers ("commercial agencies") and locally-established commercial agencies for the supply of scheduled voice telephone services⁶⁹⁹; and third, to limit the authority to interconnect private leased circuits to international port operators. The United States claims that even if United States facilities-based suppliers, United States non-facilities-based suppliers ("commercial agencies") and locally-established commercial agencies were granted access to and use of private leased circuits from Mexican suppliers, ILD Rule 3 prohibits them from interconnecting those leased circuits with foreign public networks and services. The United States recalls that Rule 3 limits the authority to interconnect private leased circuits to an international port operator, which must be a Mexican entity.⁷⁰⁰ In the United States' view, each of these three conditions is "other than as necessary" to satisfy the criteria of Section 5(e)(i)-(iii). The United States considers that the Panel does not need to define precisely what degree of "necessity" is required here.⁷⁰¹

4.368 Mexico contends that even if the obligations in Sections 5(a) and (b) of the Annex were found to apply to the measures at issue, those measures are consistent with Mexico's rights and obligations under paragraph (g) of Section 5.⁷⁰²

4.369 The conditions or restrictions applied by Mexico on access to or use of public telecommunications networks and services by foreign suppliers of facilities-based and non-facilities-based basic telecommunications are "necessary" to enforcing the limitations on market access specifically inscribed in Mexico's Schedule. Mexico's ban of ISR is consistent with Mexico's level of development and "place[s] reasonable conditions on access to and use of public telecommunications transport networks and services necessary to strengthen its domestic telecommunications infrastructure and service capability and to increase its participation in international trade telecommunications services" within the meaning of paragraph (g) of Section 5 of the Annex. These measures are integral conditions to the limitations specified in Mexico's Schedule.⁷⁰³

4.370 The United States contends that Section 5(g) explicitly requires that any conditions restricting access to and use of private leased circuits, as in Mexico, "shall be specified in the Member' s Schedule." However, Mexico specified no such condition prohibiting the use of private lines in its Schedule. Mexico's inclusion of a routing restriction under mode 1 does not provide a basis for Mexico to prohibit the use of private leased circuits. As long as the circuit is leased from a concessionaire, it is consistent with the requirement to route international traffic through the facilities of a concessionaire. For this reason alone, Mexico cannot rely on Section 5(g). Even if Mexico had included such a condition in its Schedule, there is no basis to conclude that the prohibition on the use of private leased circuits in Mexico otherwise satisfies the criteria of Section 5(g). Mexico's assertion that this restriction is "necessary to strengthen its domestic telecommunications infrastructure and service capacity and to increase its participation in international trade in telecommunications services" is unsupported, and cannot substitute for evidence and cannot form the basis for the factual findings that would be necessary to justify Mexico's invocation of this subparagraph.⁷⁰⁴

V. ARGUMENTS OF THE THIRD PARTIES

5.1 From the third parties in these proceedings, i.e. Australia, Brazil, Canada, Cuba, the European Communities, Guatemala, Honduras, India, Japan and Nicaragua, only Australia, Brazil, the European Communities and Japan filed their comments within the deadline and presented Oral Statements during the third party session.

A. AUSTRALIA

1. Informal Understanding on Accounting Rates

5.2 Australia recalls that this dispute raises the issue of the informal Understanding on Accounting Rates (informal Understanding) which has been in place since the 1996 Negotiations on Basic Telecommunications, and is reflected in the Report of the Group on Basic Telecommunications of 15 February 1997.⁷⁰⁵

5.3 In Australia's view, as the informal Understanding was never affirmed by the Council for Trade in Services or the General Council, and so did not become a formal Understanding, it therefore does not present a legal barrier to disputes being taken by WTO Members in respect of the application of accounting rates.⁷⁰⁶

5.4 Furthermore, Australia contends that even if the moratorium did at any time present a legal barrier to such disputes, then that legal barrier no longer exists as it expired on 1 January 2000, in accordance with the clear intention of the WTO Members as reflected in the informal Understanding.⁷⁰⁷

2. Scope of "interconnection" in Section 2 of the Reference Paper

5.5 Australia submits that this dispute raises the issue of the scope of the term "interconnection" as used in section 2 of the Reference Paper.⁷⁰⁸ Australia recalls that the scope of "interconnection" has important implications for the application of the obligations in the mentioned section of the Reference Paper.⁷⁰⁹

5.6 In view of the above, Australia contends that the issue at stake is whether the term "interconnection" should be understood as applying only to interconnection within the borders of a Member that has inscribed the Reference Paper in its Schedule of Commitments (in-country interconnection), or whether it also applies to the interconnection of public telecommunications networks within such a Member's borders with telecommunications networks external to that Member's borders (international interconnection)⁷¹⁰; and whether "interconnection" as used in section 2 of the Reference Paper covers accounting rates.⁷¹¹

5.7 Australia states that, as the Reference Paper does not explicitly restrict interconnection to in-country interconnection then, in principle, the Reference Paper obligations relating to interconnection apply to international interconnection.⁷¹²

3. Interconnection and accounting rates

5.8 Australia notes that in its view, "accounting rates" are specific sets of arrangements for the pricing of a subset of interconnection arrangements. Australia considers that, as the Reference Paper applies to international interconnection, these pricing arrangements must be consistent with the Reference Paper obligations with respect to interconnection.⁷¹³

5.9 Australia notes that underpinning the informal Understanding on Accounting Rates is the assumption of Members that interconnection obligations under the Reference Paper would apply to international interconnection and, in the absence of the Understanding, give rise to disputes.⁷¹⁴

4. Meaning of "cost-oriented" rates in section 2.2(b) of the Reference Paper

5.10 Australia considers that the Reference Paper provides a framework for the competitive supply of telecommunications services in markets where there is a major supplier that can affect the terms of participation through control over essential facilities or by use of its market position.⁷¹⁵

5.11 In Australia's view, a main concern is to develop greater clarity concerning, and acceptance of, interconnection obligations, and particularly in relation to the requirement stated in paragraph 2.2 of the Reference Paper.⁷¹⁶

5.12 Australia further points out that the Reference Paper does not elaborate on what is meant by "cost-oriented rates". Australia submits that any interpretation of "cost-oriented rates" should be consistent with these criteria of transparency, reasonableness, economic feasibility and unbundled elements. Australia submits that the Panel must form a view of the meaning of "cost-oriented rates" that is consistent with these criteria so that the Reference Paper promotes telecommunications competition (and through that, trade in telecommunications services). Australia's view is that an interpretation of "cost-oriented rates" that is too broad would undermine the effect of the Reference Paper as a whole, and is clearly contrary to its intent.⁷¹⁷

5.13 According to Australia, recommendations of the ITU provide some guidance on relevant cost components in the development of cost-based rates. In addition, Australia submits that the Panel should, in its interpretation of "cost-oriented rates", consider the application of dynamic costing models for interconnection in GATS Member countries that are encouraging the competitive supply of telecommunications networks and services.⁷¹⁸

B. BRAZIL

1. Introduction

5.14 According to Brazil, to analyse this dispute the Panel should take into account the scope and reach of the specific commitments of market access and national treatment undertaken by Mexico. Brazil considers that, for that purpose, the Panel should analyse Mexico's commitments in light of the national treatment discipline of the GATS as set out in its Article XVII and as qualified by footnote 15 of the GATS. Brazil submits that in conducting this analysis the Panel should take into account the applicability of the national treatment discipline in relation to the four modes of supply of services, as defined in GATS Article I:2(a) to (d), particularly as regards "mode 1".⁷¹⁹ ⁷²⁰

5.15 Brazil states that the Panel should consider whether the national treatment discipline applies individually to each mode of supply or whether it applies across all modes noting that, for the purposes of the application of the GATS Annex on Basic Telecommunications, the disciplines of "non-discrimination" contained in Article II (Most-Favoured Nation) and Article XVII (National Treatment) of the Agreement are qualified by the concept of "like circumstances", as set out in footnote 15 of the GATS.⁷²¹

5.16 Brazil submits that it can be inferred from Article XVII.1 and footnote 15 that the meaning and the scope of the national treatment obligation lies in the definition of likeness. Brazil considers that this determination can only be made in relation to each mode of supply and not "across modes". Under Brazil's view, the scope of the national treatment obligation is given much more legal certainty by the interpretation that it applies for and within each mode of supply individually, with likeness being defined on the basis of the concept of "like circumstances".⁷²²

5.17 According to Brazil it seems inconsistent to compare with the same common reference different categories of service suppliers and the services they supply, because in that thinking a full National Treatment in mode 3 would be necessary to grant full national treatment in modes 1, 2 and 4, since they would be "like" services suppliers.⁷²³

2. Scope and reach of specific commitments

5.18 Brazil submits that, in the first column of its Schedule of Specific Commitments, Mexico, confined the definition of "Telecommunication Services" to those services "supplied by a facilities-based public telecommunications network (wire-based and radioelectric) through any existing technological medium". Accordingly, Brazil states that one could conclude that Mexico has not committed to ensure the rights and obligations established in the GATS to suppliers that are not "facilities-based".⁷²⁴

5.19 However, Brazil argues that under subsector "o � Other" of its Schedule of Specific Commitments, Mexico undertook commitments regarding "commercial agencies", which according to Mexico's are those "which, without owning transmission means, provide third parties with telecommunication services by using capacity leased from a public network concessionaire". According to Brazil this definition seems equal to the one provided by the United States in paragraph 24 of its submission. Brazil submits that the supply of basic telecom services over leased capacity is referred to in the industry as "resale".⁷²⁵

5.20 According to Brazil, although Mexico's definition of "Telecommunications services" would suggest that its commitments were applicable exclusively to "facilities-based suppliers", Mexico undertook specific commitments for "commercial agencies/resale". In this regard, Brazil notes that commitments under mode 1 for "facilities based suppliers" are the same as those undertaken for "private-leased circuits".⁷²⁶

5.21 Brazil contends that Mexico's specific commitments regarding "commercial agencies" read, for mode 1, in the market access column "none, except as indicated in 2.C.1". Brazil recalls that in 2.C.1, for mode 1, the Schedule reads: "none, except the following: international traffic must be routed through the facilities of an enterprise that has a concession granted by the "Ministry of Communications and Transport (SCT)". Therefore, under Brazil's point of view, the limitation inscribed in 2.C.1 is equally valid for the market access column in mode 1 for "commercial agencies". Brazil recalls that in the National Treatment column, for mode 1, is written "none" for "commercial agencies".⁷²⁷

3. Non-discrimination and the concept of "like circumstances"

5.22 Brazil submits that one of the main objectives of the GATS is the achievement of progressively higher levels of liberalization and one of the main ways of accomplishing that goal is the elimination of all discrimination between services and services suppliers of the Parties to the Agreement. According to Brazil, that seems to be the basic rationale behind Articles II ("Most-Favoured Nation")and XVII ("National Treatment").⁷²⁸

5.23 According to Brazil, footnote 15 of the GATS goes one step further and establishes that: the term "non-discriminatory" is understood to refer to most-favoured-nation and national treatment as defined in the Agreement, as well as to reflect sector-specific usage of the term to mean "terms and conditions no less favourable than those accorded to any other user of like public telecommunications transport networks or services under like circumstances".⁷²⁹

5.24 In Brazil's view, it can be inferred from Article XVII.1 and footnote 15 that the meaning and the scope of the national treatment obligation lies in the definition of "like services and service suppliers" and "under like circumstances". According to Brazil, there is nothing in the language of Article XVII and of footnote 15 suggesting that the mode of supply is a consideration in defining the "likeness" of a service or of a service supplier. However, Brazil recalls that GATS' commitments are inscribed in national schedules by mode of supply, which allows for the perception that the whole architecture of the Agreement stems from the clear separation between the four modes, as defined in Article I of the GATS. Brazil submits that even when full commitments are entered in all four modes in a given sector or subsector, the extent to which services and services suppliers operating in different modes can be considered "like" remains unclear. Therefore it is not evident, for Brazil, how national treatment should apply to them. According to Brazil, the same situation arises in regard to the interpretation of Mexico's commitments.⁷³⁰

5.25 In view of the above, Brazil contend that two possible interpretations should be considered. The first interpretation borrows from one of the approaches identified in the "jurisprudence" on trade in goods, which is to define likeness in terms of the essential characteristics of the products. In a services context this would perhaps mean that services and/or service suppliers would be considered "like" on the basis of the nature of the economic activity being performed regardless of the territorial presence of the supplier and the consumer. Under this point of view all service suppliers operating in the same sector would be considered "like service suppliers" and all the services supplied in the same sector would be considered "like services". In this case, if all services suppliers are "like" services suppliers, the only possible way of defining the national treatment obligation is to compare the treatment granted to all foreign services suppliers altogether regarding the treatment granted to national services suppliers based in their home country. Brazil states that, if the determination of likeness is independent of the mode of supply, it follows that national treatment applies across modes in relation to a same common reference: national services suppliers in their home country.⁷³¹

5.26 Brazil further points out that in the second possible interpretation, the definition of "like services and service suppliers" would be based on a comparison of the service suppliers that operate under like circumstances, as mentioned in footnote 15 of GATS. Brazil considers that this logic follows the other approach to likeness identified in jurisprudence on trade in goods, which is to define it on the basis of the "aims and effects" or of the regulatory objective being pursued by a certain measure affecting the product or its producers. Brazil notes that in this connection, services and/or service suppliers would be considered "like" only if they are subject to the same regulatory framework. According to Brazil, in this interpretation, likeness becomes a function of the mode of supply, being defined only within each mode individually. Brazil states that in this possible interpretation, if one assumes that there are four categories of services suppliers, it seems inconsistent to compare those services suppliers and the services they supply with the same common reference.⁷³²

5.27 Brazil submits that the question to be answered seems to be: is Mexico under the obligation of granting foreign services and service suppliers the same treatment it accords Mexican services and services suppliers in mode 1 ‑ for instance, the same treatment Mexico would grant to Mexican service suppliers based outside the territory of Mexico ‑ or is Mexico under the obligation of granting foreign services and service suppliers the same treatment it accords to Mexican services and service suppliers based in the Mexican territory? According to Brazil, if this question is not given an answer, it seems to be impossible to judge any claimed violation of Mexican commitments, including as regards, for instance, Mexico's obligations under paragraphs 5(a) and 5(b) of the Annex on Telecommunications in relation to the supply of scheduled telecommunication services in mode 1.⁷³³

5.28 Brazil contends that the legal uncertainty regarding the scope of the national treatment obligation seems to be greatly reduced by the interpretation that this basic obligation applies for and within each mode of supply individually, with "likeness" being defined on the basis of the concept of "like" circumstances. Brazil submits that this interpretation would be much more in conformity with the four-mode logic that constitutes the very foundation of the GATS. Brazil considers that this logic implies that services and services suppliers operating through different modes cannot always be treated as "perfect substitutes" because, in reality, they will be subject to different regulatory frameworks. Brazil recalls that this approach is in keeping with the "principle of equality" (from which flows the concept of like circumstances), according to which the same treatment must be accorded to persons under the same condition and similarly situated.⁷³⁴

C. EUROPEAN COMMUNITIES

5.29 The European Communities recalls that the United States' claims, in its first written submission to this Panel, are based exclusively on alleged violations of Mexico's additional commitments on Telecommunications under Article XVIII of the GATS as incorporated via the Fourth Protocol to the GATS and based on the Reference Paper (Sections 1.1, 2.1 and 2.2); and alleged violations of the Sections 5(a) and 5(b) of the GATS Annex on Telecommunications.⁷³⁵

5.30 The European Communities notes that the request for the establishment of the Panel and therefore the Panel's terms of reference also include Article XVII of the GATS. The European Communities recall that the original request for the establishment of a panel in this case also alleged violation of Article VI:1, VI:5, XVI:1, XVI:2, XVII:1, XVII:2 and XVII:3 of the GATS as well as many other provisions of the Reference Paper and the Annex on Telecommunications. Under the European Communities point of view these additional claims now seem to have been abandoned.⁷³⁶

5.31 Under the European Communities' view, a correct analysis of Mexico's obligations has to start by considering the relevant specific commitments of Mexico.⁷³⁷

1. Interpretation of Mexico's specific commitment under mode 1

5.32 The European Communities recalls that the relevant commitment in telecommunications services under mode 1 and the limitations column contains the following:

"(1) None, except the following:
International traffic must be routed through the facilities of an enterprise that has a concession granted by the Ministry of Communications and Transport."⁷³⁸

5.33 According to the European Communities, this commitment is rendered obligatory and must therefore be read in the light of Article XVI of the GATS.⁷³⁹

5.34 The European Communities further points out that the basic obligation expressed in Article XVI:1 is to "accord services and service suppliers of any other Member treatment no less favourable than that provided for under the terms, limitations and conditions agreed and specified in its Schedule", and that Article XVI:2 provides an exhaustive list of measures that Members shall not maintain or adopt unless otherwise specified in its schedule. The European Communities submits that these are various kinds of quantitative limitations and restrictions on the types of legal entity or joint venture (and foreign participation therein) that may be used to supply the service. According to the European Communities a Member is not restricted under Article XVI:1 from regulating the supply of services on its territory in any way other than through the measures specified in Article XVI:2. The European Communities clearly states that there are other obligations under the GATS that the Member has to respect.⁷⁴⁰

5.35 The European Communities submits that the "exception" to the commitment on telecommunication services under mode 1 inscribed by Mexico in its Schedule is pointless since the measure that is specified (an obligation to route international traffic through the facilities of an enterprise that has a concession granted by the Ministry of Communications and Transport) is not a measure of the kind listed in Article XVI:2.⁷⁴¹

5.36 The European Communities recalls that the measure mentioned in the "exception" is regulatory in nature and is expressed to apply to all international traffic (whether foreign service supply or a foreign service supplier is involved or not).⁷⁴²

5.37 The European Communities notes that it is in fact precisely because the supply of telecommunication services is so susceptible to being affected, and even rendered impossible, by regulatory measures that the adoption of additional commitments concerning telecommunications services was so important and that the Reference Paper was a central element in the negotiations on basic telecommunications.⁷⁴³

5.38 According to the European Communities, Mexico relies to a great extent in its first written submission on the contention that additional commitments under Article XVIII of the GATS can only cover measures that are not subject to scheduling under Articles XVI and XVII of the GATS. The European Communities agree with this approach.⁷⁴⁴

5.39 However, under the European Communities' point of view the correct conclusion for this case is the opposite of that which Mexico submits. According to the European Communities the "exception" on which Mexico seeks to rely should be included as a limitation to any additional commitments made on regulatory measures.⁷⁴⁵

5.40 In the European Communities' view the "exception" to the commitment in Mexico's Schedule has no legal effect since it was not necessary for the purpose of allowing Mexico to maintain the measure described. According to the European Communities the "exception" to the specific commitment can only be read as an additional information to the reader about the legal situation in Mexico. The European Communities contends that the United States is correct in basing its claim only on the additional commitments of Mexico, which do not include the exception on which Mexico relies.⁷⁴⁶

5.41 The European Communities note that the "exception" inserted by Mexico in its Schedule of Commitments refers to the obligation to route traffic through the facilities of an enterprise that has a concession granted by the Ministry of Communications and Transport. According to the European Communities this obligation does not exclude foreign telecommunications suppliers from supplying services in a cross-border manner provided that those suppliers reach an agreement with a Mexican enterprise, which has been granted a concession, to terminate its traffic within Mexico.⁷⁴⁷

5.42 With regard to Brazil's concern based on the interpretation of Mexico's Schedule of Specific Commitments⁷⁴⁸, the European Communities contends that the condition in the Spanish language is that the service has to be provided "por", which in context means through or over a public telecommunication network, not limiting the concession to facilities based suppliers.⁷⁴⁹

2. Mexico's commitments under mode 3

5.43 In the European Communities' view, the two sentences of the statement in Mexico's Schedule referring to permits for the establishment of commercial agencies under mode 3 cannot be read in combination as making the coming into effect of the entire commitment subject to the discretion of Mexico.⁷⁵⁰ According to the European Communities a consistent reading is that the regulations will be issued before permits are granted so as to ensure that no commercial agencies will be allowed to have "acquired rights" to operate without respecting the regulations.⁷⁵¹

5.44 The European Communities considers that this position is supported by the explanatory note containing Guidelines for the Scheduling of Commitments (MTN.GNS/W/164/Add.1) which specifies under Point 8 that "according to the agreed scheduling procedures, schedules should not contain general references to laws and regulations as it is understood that such references would not have legal implications under the GATS". Thus, limitations to scheduled commitments must be set out explicitly in the schedule and not incorporated by reference to national regulations.⁷⁵²

5.45 The European Communities considers that Mexico's commitments for market access for commercial agencies are in force subject to the limitations legitimately included in the Schedule.⁷⁵³

5.46 The European Communities recalls that, on the relationship between specific commitments and additional commitments, there is no basis for holding that additional commitments cannot prevail over specific commitments, as argued by Mexico in paragraphs 211 and 212 of its first written submission. According to the European Communities there is no limitation of this kind in Article XVIII of the GATS.⁷⁵⁴

5.47 The European Communities contends that the Annex on Telecommunications is an integral part of the GATS (Article XXIX) and as such, restrictions listed as "limitations" to specific commitments cannot derogate from GATS obligations except as specifically provided. In the European Communities' view this is why the Annex on Telecommunications contains language expressly stating that it does not require the authorization of services other than as provided for in its Schedule.⁷⁵⁵

3. Application of the interconnection rules contained in the Reference Paper

5.48 The European Communities disagrees with Mexico's view that the obligations on interconnection contained in the Reference Paper do not apply to termination of international calls under the accounting rate system.⁷⁵⁶

5.49 According to the European Communities the term "interconnection", as used in Section 2 of the Reference Paper, interpreted in accordance to Article 31 of the Vienna Convention appears to relate to all modes of linking two operators. In the European Communities view the wording of Section 2.1 of the Reference Paper which defines "interconnection" supports this idea.⁷⁵⁷

5.50 The European Communities contends that the very object and purpose of the GATS is the liberalisation of international trade in services. In the European Communities view it is difficult to maintain that an interpretation of the Reference Paper should be limited to enhancement of "national" competition to the detriment of "international" one.⁷⁵⁸

5.51 The European Communities contends that the negotiations which led to the final Reference Paper were conducted on the assumption that termination of international calls under the accounting rate system is not fundamentally different from domestic interconnection, and it tends to suggest that accounting rates may indeed be considered as a form of "international interconnection".⁷⁵⁹

5.52 In this regard, the European Communities believes that the ordinary meaning of the term "interconnection" covers both national and international linking.⁷⁶⁰

5.53 The European Communities adds in reply to a question from the Panel that the opening words of Section 2.1 of the Reference Paper ("This section applies, on the basis of the specific commitments undertaken ... ") means that Section 2 of the Reference Paper only applies to the extent that there are specific commitments and cannot be used to require market access where this does not result from the specific commitments. According to the European Communities, the additional commitment is intended to facilitate the effective exploitation of market access to which a Member has committed itself in its Schedule. The European Communities is of the view that Mexico has committed to provide market access under mode 1 and must therefore ensure that the major supplier provides interconnection in accordance with Section 2.⁷⁶¹

4. Rates relating to termination of international calls

5.54 In the European Communities' view, Telmex should be obliged to provide cost-oriented interconnection, taking into consideration Mexico's commitments. Due to the ample divergence between "costs" and "rates", the European Communities considers that it is upon Mexico to provide the Panel with proof of those costs that would justify Mexico's rates.⁷⁶²

5.55 As regard Japan's argument that the Spanish term "basadas en costos", which has been included in Mexico's additional commitments, requires a stricter adherence to costs than the term "cost oriented", the European Communities submits that the additional commitments introduced through the Fourth Protocol to GATS, were based on a common Reference Paper to ensure that identical obligations were undertaken by all except where expressly intended otherwise.⁷⁶³ The European Communities submits that the term "cost-oriented" in English and "basadas en el costo" in Spanish were intended to be equivalent. It points out that the European Communities' additional commitments which are authentic in all three WTO languages uses the term "cost-oriented" in English and "basadas en el costo" in Spanish.⁷⁶⁴ Since the additional commitments of the European Communities are an integral part of the GATS and were accepted by all parties to the Fourth Protocol, it is clear that the two terms were intended to be equivalent. According to the European Communities a different interpretation would vary the scope of WTO Members' obligations depending on the choice of authentic language for additional commitments.⁷⁶⁵

5.56 The European Communities further points out the fact that cost-orientation has been discussed extensively in the ITU, and some guidance can be found in ITU-T Recommendation D.140, entitled "Accounting Rate Principles for the International Telephone Service", and ITU-T Recommendation D.150 entitled "New System for Accounting in International telephony".⁷⁶⁶ It notes that commercially, contractually and technically, both accounting rates and interconnection can cover many different situations: where two operators' networks connect physically at a given point that they own together, where two operators' network connect physically at a given point that is owned by either of them of by a third party, where two operators own jointly a link between their respective networks.⁷⁶⁷

5.57 The European Communities notes that the Reference Paper does not contain the detail of the ITU Recommendations and does not specify which cost standard should be applied. In the European Communities view, national authorities have discretion as to the choice of cost standard, provided that it properly reflects the cost of interconnection and is applied in a transparent, consistent and non-discriminatory way.⁷⁶⁸

5. The meaning of "reasonable"

5.58 The European Communities contends that the interpretation of the term "reasonable" as linked to conditions of competition is not appropriate. According to the European Communities the interpretation should be in line with the negotiating history of the Reference Paper, according to which this term it is normally used to refer to "a reasonable rate of return of the capital employed".⁷⁶⁹

5.59 In answer to a question from the Panel, the European Communities added that the requirement of reasonableness is to be understood as a discipline on the model used by national authorities to calculate the 'real' cost of interconnection. It recalls that there are several models (bottom-up or top-down models, looking at historical or current costs, in a fully-distributed or stand alone manner, among other). The European Communities considers that the Reference Paper does not mandate the use of one particular model, but the model chosen must reflect economic reality so that if the model fails to reflect reality, the resulting interconnection prices cannot be regarded as reasonable.⁷⁷⁰

5.60 In the European Communities' view, the expression 'having regard to economic feasibility' must be understood as a general qualification of (or limitation on) the obligation for major suppliers to provide interconnection on: (1) terms; (2) conditions; and (3) cost-oriented rates which are (a) transparent and (b) reasonable. It confirms that rates must be oriented towards, not 'equal to' or 'identical to', actual cost and that operators are allowed a reasonable rate of return on investment and provides a safeguard to ensure that major suppliers do not have to meet demands that could be excessively expensive, bearing in mind the revenues to be generated by the interconnection agreement. The European Communities submits that the ambiguity in the drafting of the different language versions of the text should be resolved in a manner that makes them consistent with one another, and which acknowledges that economic feasibility is a general qualification of (or limitation on) the obligation for major suppliers to provide interconnection on reasonable and transparent terms, conditions and rates.⁷⁷¹

6. Requirements of Section 1

5.61 According to the European Communities, Mexico is clearly right that Section 1 imposes an obligation of means, not of result.⁷⁷² Section 1 requires Mexico to maintain appropriate measures for the purpose of preventing major suppliers from engaging in or continuing anti-competitive practices and does not require Mexico to open all its telecommunication markets. In view of the above, the European Communities contends that if Mexico chooses not to allow competition between telecommunication operators on a certain matter, there is no scope for anti-competitive practices relating to that matter. In that regard, the European Communities points out that it is not possible to restrict competition where competition is not allowed.⁷⁷³

5.62 In view of the above, the European Communities contends that one matter that could constitute an anti-competitive practice would be the negotiation by the major supplier of an accounting rate that restricts competition by other suppliers, because it would be unprofitable for them and this must be the subject of competitive safeguards.⁷⁷⁴

5.63 The European Communities submits that one anti-competitive practice that the United States seems to be complaining of is the fixing of pricing and the high level thereof. However, it argues the fixing of a uniform price cannot be an anti‑competitive practice since uniform prices are required by law. In its view, the same goes for the revenue sharing system ("proportional return") since this is also mandated by law.⁷⁷⁵

5.64 The European Communities submits that Section 1 of the reference paper does create obligations in sectors that are not covered by specific commitments.⁷⁷⁶

7. Applicability of the Annex on Telecommunications

5.65 The European Communities recalls it shares the United States view that the GATS Annex on Telecommunications was meant to benefit not only non-telecom providers, and providers of value-added telecommunications, but also providers of basic telecommunications. The European Communities considers that to restrict the scope of the Annex to non-telecom providers would fail to give effect to one of the two distinct roles of the telecommunications sector.⁷⁷⁷

5.66 The European Communities furthers point out that the GATS Annex on Telecommunications was never meant to provide wider market access obligations for WTO Members than those established in their Schedules as regards basic telecommunications.⁷⁷⁸

5.67 According to the European Communities even though the Annex on Telecommunications does not create market access commitments that are not contained in the Schedules, it is intended to facilitate the exploitation of market access commitments that are contained in the Schedules.⁷⁷⁹ The European Communities also recalled that the obligations contained in the Annex only relate to "public telecommunications transport networks and services", which means "any telecommunications transport service required, explicitly or in effect, by a Member to be offered to the public generally".⁷⁸⁰

8. The notion of likeness

5.68 With respect of the notion of likeness, the European Communities asserts that footnote 15 relates only to the meaning of the term non-discriminatory in the Annex on Telecommunications and is not relevant to the interpretation of "like services and service suppliers" as they appear in Articles II and XVII of the GATS. In the European Communities' view, footnote 15 cannot in the absence of a clear textual indication to the contrary, be relevant to the interpretation of "like services and service suppliers," especially since this must have the same meaning for all service sectors. The European Communities further points out that the existing case-law (Canada � Autos⁷⁸¹) clearly suggests that the notion of "like services and service suppliers" requires a comparison of the activity involved and that the mode of supply is irrelevant.⁷⁸²

D. JAPAN

1. Validity for an action by the United States

5.69 Japan contends that the Panel should first determine whether it is proper for the United States to use the dispute settlement procedure under the DSU to object to "interconnection" rates charged by Telmex based on the accounting rate system.⁷⁸³

5.70 Japan submits that the "Group" addressed the subject of matters that may not give rise to an action before a panel in its report dated 15 February 1997, which includes the application of the accounting rate system.⁷⁸⁴

5.71 Japan further points out that the position of the "Group" as to whether accounting rates could give rise to an action by Members under the DSU is further addressed in the report dated 10 March 1997, where the Chairman stressed that the report was merely an understanding, which could not and was not intended to have binding legal force and did not take away from Members the rights they have under the DSU.⁷⁸⁵

5.72 Japan considers that the "understanding" of the "Group" concerning the proper scope and treatment of "accounting rates" is not entirely clear. In Japan's view it is not clear whether the "rates" described in Section 2.2(b) of the Reference Paper in fact cover accounting rates, and are thus capable of being disputed under the DSU mechanism.⁷⁸⁶

5.73 According to Japan, given the lack of clarity concerning the proper scope and treatment of accounting rates, the panel needs to determine whether it is proper for the United States to bring before the panel its objections concerning the accounting rates negotiated by Telmex.⁷⁸⁷

2. The term "cost oriented"

5.74 According to Japan, the meaning of the term "basadas en costos", as used in Mexico's Reference Paper, does not automatically apply to the term "cost-oriented" that appears in the Reference Paper of other Members. Japan asserts that in its submission the United States provides its interpretation of the term "basadas en costos", as used in the context of Mexico's Reference Paper. Japan further points out that in the course of its submission, the United States at times appears to use the terms "basadas en costos", "cost based" and "cost-oriented" interchangeably, and implies that these terms have equivalent meanings.⁷⁸⁸

5.75 Japan submits that if the meaning of "basadas en costos" is based upon the term's alleged English language equivalent, "based in cost", such meaning in Japan's view cannot automatically be applied to the term "cost oriented" that appears in the Reference Papers which are attached to the Schedules of specific commitments of other Members, which chose English to be authentic.⁷⁸⁹

3. The term "cost-based"

5.76 Japan submits that in the English language Reference Paper of many Members, the English language equivalent of the term "basadas en costos" appears as "cost-oriented". Japan points out that the term "cost-oriented" is not defined in any Member's Reference Paper, and its meaning is not addressed in any other part of the WTO Agreement or in the report of any panel or Appellate Body. Japan considers that "cost-oriented" rates has an ordinary meaning that is less specific, and therefore less constraining, than "cost-based" rates, "cost-equivalent" rates, or rates calculated by application of the total element long run incremental costs adopted in the United States.⁷⁹⁰

5.77 In Japan's view the term "cost-oriented" must basically be interpreted in accordance with its ordinary meaning as stipulated under Article 31(1) of the Vienna Convention. Japan further points out that the determination of whether interconnection rates are "cost-oriented" cannot be limited to an examination of only the specific manner in which interconnection rates are established.⁷⁹¹

5.78 According to Japan the implementation of an interconnection rate system that meets the general principles of the Reference Paper is left to the discretion of each Member's government.⁷⁹²

5.79 Japan notes that, according to the negotiating history of the Reference Paper, Members were not only unable to agree on an exact definition of "cost", but also avoided closely binding themselves to the term by using the expression "cost-oriented" rather than "cost-based".⁷⁹³

5.80 Japan considers that Members adopted the term "cost-oriented" during the Negotiations on Basic Telecommunications ("NBT") on account of its ambiguity.⁷⁹⁴

4. Election of a uniform accounting rate and proportionate return system

5.81 Japan submits that the Spanish term "razonables, econ�micamente factibles" grants Mexico additional flexibility in determining interconnection rates. According to Japan, in the absence of any argument concerning the inapplicability of the qualification created by the term "econ�micamente factibles", the panel has insufficient information before it to find that the interconnection rates imposed by Mexico are not "razonables".⁷⁹⁵

5.82 Japan recalls that following the conclusion of the negotiations on basic telecommunications, a number of Members liberalized aspects of their accounting rate systems. However, many Members (including Japan and the United States), continue to maintain pre-existing accounting rate systems for settling interconnection rates with carriers from certain countries. Japan points out that it applies such pre-existing system only to non-WTO Member carriers while the United States applies it to carriers with market power, either WTO-Member or non-Member. According to Japan, these systems are similar to Mexico's accounting rate system presently under discussion.⁷⁹⁶

5.83 In Japan's view it is hard to determine that Mexico is acting unreasonably per se insofar as it elects to maintain a uniform accounting rate and proportionate return system similar to that which continues to be used by many Members (including the United States) to settle rates with certain countries. According to Japan, the United States has to provide a compelling argument that the mere maintenance of a uniform accounting rate and proportionate return system triggers a violation of Section 2.2(b) of the Reference Paper. Nevertheless, Japan notes its strong concern with Mexico's indiscriminate practice of applying uniform accounting rate and proportionate return system in determining accounting rates with carriers from every country, regardless of whether the country in question possesses multiple carriers or has a competitive environment.⁷⁹⁷

VI. INTERIM REVIEW

6.1 On 10 July 2003, pursuant to Article 15.1 of the DSU, the Panel issued the draft descriptive part of its Report. As agreed, on 25 July 2003 both parties commented on the draft descriptive part. The Panel issued its Interim Report on 21 November 2003. On 15 December 2003, pursuant to Article 15.2 of the DSU, the United States and Mexico provided comments and requested the revision and clarification of certain aspects of the Interim Report. None of the parties requested that the Panel hold a further meeting with the parties. In the absence of a meeting and further to paragraph 16 of the Panel's Working Procedures⁷⁹⁸, the parties were given until 15 January 2004 to submit further written comments on the other party's Interim Review comments. Only the United States filed further comments on that date.

6.2 Following the comments of the parties, the Panel has reviewed the claims, arguments and evidence submitted by the parties during the panel process. Where it considered it appropriate to ensure clarity and avoid misunderstandings, the Panel has revised the findings section of its Report, including the correction of typographical and editorial mistakes. It is important to note that in the findings section of a Report, a panel cannot be expected to refer to all the statements and arguments of the parties. Failure to do so does not therefore imply that the Panel has ignored statements or arguments of the parties. Taking into consideration this last statement, the Panel has addressed the following comments raised by the parties.

6.3 Generally, the United States' comments concern some additions or deletions to the text of the findings as a matter of clarity. The United States notes that it disagrees with the Panel's conclusion that Mexico's Schedule allows Mexico to prohibit market access for the cross-border supply of the services at issue into Mexico over capacity leased by the supplier (i.e., on a non-facilities basis) in Mexico. However, the United States states that it would not repeat its arguments in this respect in the comments provided to the Panel on the Interim Report.

6.4 On the other side, Mexico's comments refer to precise aspects of the Interim Report, including the identification of some evidence, the clarification of some definitions and the identification of the services at issue. Mexico submits that the review of all these aspects will help to clarify its position on certain issues.

6.5 Mexico notes in its submission dated 15 December 2003 that in paragraph 7.6 of the Interim Report (which has been deleted in this Report) and corresponding footnote the Panel identifies the services at issue in this dispute as "certain basic public telecommunications services" referring to a definition contained in paragraph 7.32 of the Interim Report to describe them. According to Mexico, the text quoted in paragraph 7.32 is from the definition of "Public telecommunications transport services" in Article 3(b) of the Annex on Telecommunications. Mexico further states that it understands that the Ministerial Decision on Negotiations on Basic Telecommunications refers to "basic telecommunications" as "telecommunications transport networks and services", but states that the latter term is not defined in the GATS Annex on Telecommunications. According to Mexico, Article 3 of the Annex on Telecommunications sets out two distinct definitions for the terms "Public telecommunications transport service" and "Public telecommunications transport network". Mexico states that it has argued that the services at issue in this dispute are transmission or transport services of customer-supplied information or data. In particular, Mexico requests that the Panel clarifies its definition of "basic public telecommunications services" and its description of the nature of the services at issue. The United States alleges in its submission dated 15 January 2004 that it is not necessary for the Panel to provide a precise definition of the broad term "basic public telecommunications services." According to the United States, in order to resolve the dispute, the Panel needs only define the specific services to which the claims relate and the services subject to Mexico's commitments. In consideration of these comments, the Panel modified footnotes 745 and 753 (footnotes 829 and 840 of this Report) to clarify the link between "basic public telecommunications services" and the definition of the term "public telecommunications transport services".

6.6 With regard to paragraph 7.11 (paragraph 7.10 of this Report) Mexico disagrees with the translation of ILD Rule 2:XI and requests it to be modified. It also requests to add a sentence at the end of paragraph 7.11 (paragraph 7.10 of this Report) in order to include a reference to ILD Rule 2:VIII according to its own translation. The United States asserts that Mexico has not previously disputed the English-language copy of the ILD Rules provided to the Panel by the United States in Exhibit US-1 and that the same translation of ILD Rule 2:XI was provided in paragraph 2.8 of the draft descriptive part and was not contested by Mexico. The United States submits that it considers accurate its own translation of the ILD Rules and that it does not consider accurate the translation offered by Mexico. The Panel declines to amend the translation of ILD Rule 2:XI as requested by Mexico because the text conforms with the translation provided by the WTO Secretariat of the ILD Rules (annexed to the Report) and does not appear, in substance, to differ from the modification proposed by Mexico. As regards Mexico's request to add a sentence at the end of paragraph 7.11 (paragraph 7.10 of this Report), the Panel considers the additional language suggested by Mexico to refer to a matter already addressed in paragraph 7.12 (paragraph 7.11 of this Report).

6.7 Mexico considers that in paragraphs 7.23-7.25 (paragraphs 7.22-7.23 and 7.26 of this Report), the Panel has summarised the arguments of the United States on what constitutes the service at issue and the manner in which they are provided, but has not summarised the arguments of Mexico. Mexico requests the Panel to summarise in paragraphs 7.23 to 7.25 (paragraphs 7.22-7.23 and 7.26 of this Report), its description of the precise nature of the services at issue and the manner in which those services are supplied. Mexico also requests the Panel to clarify its description of the nature of the services at issue and to make a finding on whether the services at issue constitute transport and transmission services. The United States submits that beyond identifying the service sectors at issue as including voice telephony, circuit-switched data transmission and facsimile services, the Panel also engaged in a detailed review of the definition of those services sectors according to, among other things, the Central Product Classification codes included in the sector column of Mexico's Schedule. According to the United States it is incorrect to suggest that the Panel has not directly addressed Mexico's argument that the services at issue were only transmission and transport as it is rejected in paragraph 7.36 of the Interim Report. In the United States' view, the Panel's discussion extends beyond paragraphs 7.23-7.25 (paragraph 7.22-7.23 and 7.26 of this Report) to include the discussion culminating in paragraph 7.46 (paragraph 7.45 of this Report). The United States also submits that although paragraph 7.46 (paragraph 7.45 of this Report) already provides a concise description of the services at issue, the Panel may consider providing a precise definition of the "services at issue", at the end of that section. In view of Mexico's concerns, the Panel has modified the discussion of "services at issue" to clarify that this term on its own focuses on the service sectors, and not on the modes of supply raised in the United States' claim.

6.8 Mexico submits that it did not make the argument referred by the Panel in paragraph 7.27 of the Interim Report. According to Mexico, it argued that in order for a United States-based supplier to supply services from the United States territory into the Mexican territory, it must supply telecom transport services over the whole of the "full circuit" without having a commercial presence within the meaning of GATS Article XXVIII(d). Mexico further submits that it also explained how a full circuit regime does not require commercial presence within the meaning of the GATS. Mexico requests the Panel to replace the fourth sentence of paragraph 7.27 of the Interim Report and to add a new sentence after the third sentence of the same paragraph. As regards Mexico's allegation, the United States considers that it is entirely reasonable for the Panel to have understood that under Mexico's interpretation, a foreign service supplier must "operate" in some sense in a foreign territory to provide scheduled services via the cross-border mode of supply. According to the United States, the Panel may clarify this by moving the fourth sentence of paragraph 7.27 of the Interim Report and making it the first sentence of paragraph 7.28 of the Interim Report, including some new editing. The United States suggests that it may be helpful for the Panel to adopt a uniform formulation such as "operates in some fashion, or is located" when it uses the word "present", "presence", "operate" or "located" in diverse paragraphs of the Interim Report. The United States submits that Mexico's assertion that the Panel did not address the argument made by Mexico is not accurate, since the Panel did in fact address and reject the relevance of Mexico's argument at paragraph 7.39 of the Interim Report. For all these reasons the United States asks the Panel to reject Mexico's request to add an additional sentence to paragraph 7.27 of the Interim Report. The Panel has amended the text of paragraphs 7.27 and 7.28 of the Interim Report to clarify Mexico's argument and adopted a uniform formulation regarding the word "present", "presence" etc., accompanied by an explanatory footnote, to clarify that the terms were not intended to refer to "commercial presence".

6.9 In relation to paragraph 7.28 of the Interim Report, Mexico submits that the issue before the Panel was whether the services provided by United States-based suppliers in the circumstances of this dispute cross the border into Mexico, and not whether cross-border "occurs only if the supplier itself operates, or is present, in the territory of both Members". Mexico requests that paragraph 7.28 of the Interim Report be accordingly replaced. In reference to the Mexico's comments, the United States submits that the reason the Panel addressed the question of whether "cross‑border 'occurs only if the supplier itself operates, or is present, in the territory of both Members'" is because Mexico made that argument. The United States requests that the Panel rejects the replacement text proposed by Mexico for paragraph 7.28 of the Interim Report. In consideration of Mexico's comments, the Panel modified the wording of paragraph 7.28 of the Interim Report to define in more precise wording the "issue before the Panel" referred to in the paragraph.

6.10 Mexico, for the same reasons explained in its comments on paragraph 7.27 of the Interim Report, requests that the Panel clarifies whether by using the word "present" in paragraphs 7.28, 7.32, and 7.35 of the Interim Report, and the word "presence" in paragraphs 7.39, 7.40 and 7.88 of the Interim Report (paragraphs 7.39, 7.40 and 7.90 of this Report), it meant "commercially present" and "commercial presence" within the meaning of the GATS. Regarding the use of these terms, the United States refers the Panel to its discussion regarding Mexico's comments on paragraph 7.27 of the Interim Report. The approach taken by the Panel to address the question posed by Mexico is described above in the paragraph dealing with Mexico's initial comment regarding the use of these terms in paragraph 7.27 of the Interim Report.

6.11 As regards paragraph 7.36 of the Interim Report, the United States requests the Panel to rectify a typographical error when referring to "telephony services". The Panel notes that the term "telephony" does not appear in W/120 or the CPC. However, it is used in the translation of Mexico's scheduled service commitments, in the ITU contexts, and by the parties to this dispute. The Panel considers appropriate the suggested modification. For clarification, the Panel also added a footnote to paragraph 7.45 (paragraph 7.43 of this Report) stating that it considers the terms "telephony" and "voice telephony" (as used in the English translations of Mexico's Schedule and the claims by the United States) to be equivalent to the terms "telephone services" and "voice telephone services" (as used in the GATS sectoral classification the CPC).

6.12 Mexico submits that the Panel refers to "communications services supplied between Members" in paragraph 7.38 of the Interim Report. Since, according to Mexico, the United States has limited its challenge to "certain basic public telecommunications services", Mexico requests that the Panel clarifies what is meant by the terms "communications services" and make additional findings on whether and how such services are supplied by United States-based suppliers on a cross-border basis from the United States into Mexico. According to the United States, the Panel's reference to "communications services" is equivalent to "telecommunications services," but suggests that the Panel may clarify it. With respect to Mexico's comments on the interpretation of the services at issue in this dispute, the United States recalls its discussion regarding Mexico's comments on paragraphs 7.23-7.25 (paragraphs 7.22-7.23 and 7.26 of this Report). To address Mexico's concern, the Panel modified the first sentence of paragraph 7.38 of the Interim Report, replacing the word "communications" with "basic telecommunications".

6.13 Mexico also notes that in paragraph 7.39 of the Interim Report the Panel states that "the CPC definition of the basic telecommunications services at issue provides for an especially high degree of interaction between operators on each side of the border". Mexico requests that the Panel identifies the specific definition to which it refers. Mexico requests that the Panel clarifies its statement in the fourth sentence of the paragraph and explain the legal basis for that statement. With respect to Mexico's comment that it "fails to see which CPC definition provides for interaction between operators 'on each side of the border'," the United States finds entirely clear that the CPC definition to which the Panel refers is CPC 75212 and that the Panel is applying the definition to the specific facts of the dispute. The Panel addressed Mexico's concern by amending paragraph 7.39 of the Interim Report to specify more precisely the reasoning that leads us to consider that the CPC definition foresees an especially high degree of interaction also between operators located in different Members.

6.14 As regards paragraph 7.41 of the Interim Report (paragraph 7.41 of this Report), Mexico recalls that the Panel states that "�all telecommunications traffic currently crossing borders would then fall outside the scope of the GATS". Mexico understands from this statement that the Panel is of the view that "telecommunications traffic currently crossing borders" is within the scope of the GATS. Mexico requests that the Panel clarifies what is meant by "traffic" and the legal basis for referring to that term. The United States considers that Mexico's comments speak to its arguments about the interpretation of the services at issue in this dispute. Therefore, the United States refers the Panel to its discussion regarding Mexico's comments on paragraphs 7.23-7.25 (paragraphs 7.22-7.23 and 7.26 of this Report). Regarding Mexico's comment on the term "traffic", the United States maintains that the Panel's reference to "telecommunications traffic currently crossing borders" is clear but suggests that the Panel could amend it to refer to "telecommunications services currently crossing borders." To address Mexico's concern the Panel had modified the third sentence of paragraph 7.41 of the Interim Report (paragraph 7.41 of this Report) to refer telecommunications "services".

6.15 Mexico contends that paragraph 7.44 of the Interim Report implies that under Mexico's arguments, the cross-border supply of basic telecommunications services would not be technically feasible. According to Mexico this is not the argument it made. Mexico states that it did not argue that the cross-border supply of basic telecommunications services required commercial presence, but rather explained how cross-border supply could occur in a "full-circuit" regime. Under Mexico's arguments, cross-border trade in telecommunications transport service is technically feasible and does not require "commercial presence" within the meaning of the GATS. For these reasons, Mexico requests that the Panel modifies paragraph 7.44. In the United States' view, the first sentence of this paragraph expresses the Panel's conclusion that the examples and definition of "cross-border" supply asserted by Mexico would virtually exclude from the cross‑border supply of facilities-based services all situations in which the supplier does not have a commercial presence. According to the United States, it was quite reasonable for the Panel to conclude that the examples of a "full-circuit" regime cited by Mexico usually would only occur through commercial presence and suggests that the Panel rejects Mexico's proposed modifications. In view of Mexico's comments, the Panel deleted paragraph 7.44, since the reasoning in that paragraph relied to a large extent on a supposition that Mexico's argument did imply that commercial presence was virtually necessary to conduct cross-border supply on a facilities basis.

6.16 As regards paragraph 7.45 (paragraph 7.43 of this Report) Mexico requests the Panel to add a sentence at the beginning, in order to better reflect its position. The United States notes that Mexico provides no citation to an earlier submission in which it raised the argument "that there is a relevant distinction between services supplied 'through' the use of telecommunications transport service and telecommunications transport service itself," and believes that Mexico has not previously made this argument. Moreover, despite Mexico's attempt to introduce the argument, the purported distinction is not relevant to the purpose of the quotation, which is to explain that the Explanatory Note supports the view that cross‑border supply does not imply the presence of the service supplier in the market where the service is delivered. For these two reasons, the United States asks the Panel to reject Mexico's comment and proposed text. The Panel declined Mexico's request because it considers that the proposed addition is not directly related to the rest of paragraph 7.45 (paragraph 7.43 of this Report).

6.17 Mexico claims that the Panel refers to the "services at issue" in paragraph 7.46 of this Report without further explanation and concludes that they are supplied cross-border within the meaning of the GATS. Mexico requests that the Panel clarify what is the precise nature of the services at issue and explain how they are supplied cross-border. According to the United States, Mexico's comments reiterate its arguments about the interpretation of the services at issue in this dispute and therefore refers the Panel to its discussion regarding Mexico's comments on paragraphs 7.23-7.25 (paragraphs 7.22-7.23 and 7.26 of this Report). Regarding Mexico's comments, the Panel notes that it has already clarified what is meant by the "services at issue". And that paragraph 7.46 of this Report is a conclusion intended to summarise the preceding analysis rather than to repeat it.

6.18 Mexico submits that the Panel statement in paragraph 7.48 (paragraph 7.47 of this Report) does not accurately reflect Mexico's arguments. Mexico refers to its arguments summarized at paragraphs 63 to 76 of its second written submission, where it explained its view that in order to ascertain the nature of Mexico's mode 1 commitments, it is first necessary to define the services at issue. According to Mexico, in order to determine whether its market access commitments allow the cross-border supply of such services into Mexico, the Panel had to determine whether Mexico's Schedule permits public transmission or transport services provided by United States suppliers to cross the border into Mexico. Mexico argues that it has not inscribed specific commitments that allow such trade, because of the limitations inscribed in its Schedule. Mexico recalls that it argued that by inscribing commercial presence and nationality requirements in its mode 1 column, Mexico has prevented the suppliers of other WTO Members (both facilities-based and non-facilities-based) from supplying telecommunications transport services cross-border into Mexico. Referring the Panel to its discussion regarding Mexico's comments on paragraphs 7.23-7.25 (paragraphs 7.22-7.23 and 7.26 of this Report), the United States states that, in paragraphs 7.48-7.49 (paragraphs 7.47-7.48 of this Report), the Panel has accurately summarised Mexico's arguments on the definition of the services at issue and whether those services can be provided on a cross-border basis. The Panel declined to amend the paragraph on the basis of Mexico's comment because it considered that paragraphs 7.48-7.49 (paragraphs 7.47-7.48 of this Report) together do reflect, in summary, the points that Mexico explains above.

6.19 Mexico submits that the Panel's statement in paragraph 7.49 (paragraph 7.48 of this Report) does not accurately reflect Mexico's arguments. According to Mexico, its argument that the limitations inscribed in its Schedule make it impossible for cross-border supply to take place must be read in conjunction with its submissions on the nature of the services at issue. Mexico also notes that, as drafted, the first sentence of paragraph 7.49 (paragraph 7.48 of this Report) suggests that Mexico has argued that it did not undertake any commitment in respect of basic telecommunications. Mexico submits that, on the contrary, it has argued that it has scheduled a "standstill" under mode 1. In Mexico's view, this constituted a commitment, but did not accord market access to suppliers for cross-border supply. Mexico further submits that it inscribed commitments under mode 3. Mexico requests that the first and second sentence of paragraph 7.49 (paragraph 7.48 of this Report) be appropriately modified. According to the United States, Mexico asserts that the Panel has mischaracterized Mexico's argument by stating that it "did not undertake any commitment in respect of basic telecommunications." The United States notes that Mexico did in fact make this argument and considers that the Panel has accurately summarised Mexico's arguments. In view of Mexico's concern, the Panel modified the first sentence of paragraph 7.49 (paragraph 7.48 of this Report) to more clearly state the Panel's understanding of Mexico's arguments.

6.20 As regards paragraphs 7.51-7.61 (paragraphs 7.58-7.68 of this Report), the United States submits that in several places in this section the reader could be left with the mistaken impression that the Panel has used the Model Schedule and Chairman's Note in a manner other than to confirm the ordinary meaning of a term, as provided for in the customary rules of interpretation of public international law reflected in the Vienna Convention on the Law of Treaties. The United States particularly recalls that the use of the words "interpret" and "interpretative" in paragraphs 7.51, 7.57, and 7.61 of the Interim Report may lead to this mistaken impression. The United States further submits that the Panel has correctly stated its approach in paragraphs 7.15-7.17 (paragraphs 7.14-7.16 of this Report). In order to avoid any potential mistaken impressions, the United States suggests that the Panel more precisely indicates that these documents are simply being used to confirm the ordinary meaning of the terms employed. In view of the United States' comments, the Panel considered it appropriate to modify the section concerned to identify more clearly its application of the rules of interpretation of the Vienna Convention on the Law of Treaties to the Model Schedule and the Chairman's Note with regard to Mexico's commitments on the services at issue.

6.21 The United States, in connection with the preceding comment, suggests modifications to the first sentence of paragraph 7.61 (paragraph 7.67 of this Report). According to the United States, the second sentence of paragraph 7.61 (paragraph 7.68 of this Report) appears to address exclusively the interpretation of schedules which are not at issue in this dispute. Accordingly, it suggests that the sentence be omitted from the final report. As regards the first sentence of paragraph 7.61, the Panel changed the wording but did not use the formulation specified by the United States. On the second suggestion, the Panel disagrees with the United Sates. The Panel declined the modification requested by the United States because it considers it to be sufficiently clear that, in citing an example of a schedule without categories, the Panel is simply illustrating the importance of the implications of the Model Schedule and the Chairman's Note, and not indicating how the Panel would rule with respect to such a schedule.

6.22 With regard to paragraph 7.77 (paragraph 7.79 of this Report) Mexico requests that the Panel clarifies whether it is the "international traffic" or the transportation or transmission of such traffic that is supplied cross-border. According to the United States, Mexico's comment essentially repeats its arguments about the interpretation of the services at issue in this dispute, and its insistence that those services are not provided on a cross‑border basis. The United States refers the Panel to its responses to Mexico's comments on paragraphs 7.23-7.25 (paragraphs 7.22-7.23 and 7.26 of this Report) and 7.27 of the Interim Report. According to the United States, further clarification of those issues is neither required nor appropriate in this paragraph. The Panel declines Mexico's request because it considers the relevance of Mexico's requested clarification to be unclear but believes that it appears to make a link with Mexico's previously rejected definition of cross-border supply.

6.23 Mexico also requests that the Panel clarifies what is meant by the term "cross-border service suppliers" in the last sentence of paragraph 7.77 (paragraph 7.79 of this Report). The United States believes the meaning of the quoted phrase in the final sentence is sufficiently clear, but suggests the Panel to consider changing the term to "suppliers of scheduled services on a cross-border basis". Although the Panel considers the meaning of the phrase to be clear, the Panel accepts the suggestion made by the United States to modify this term in paragraph 7.77 (paragraph 7.79 of this Report).

6.24 Mexico requests that in paragraph 7.88 (paragraph 7.90 of this Report) the Panel clarifies what is meant by the terms "potential cross-border supplier" and the "supply of services by [the cross-border] mode". The Panel considers the meaning of the phrases concerned to be sufficiently clear in their context and, thus, declines Mexico's request for clarification. However, the Panel notes that the word "potential", was meant simply to indicate that no cross-border supply into Mexico is actually permitted. To avoid any misunderstanding, the Panel has deleted the word "potential".

6.25 Mexico requests the Panel to add a new sentence to paragraph 7.108 (paragraph 7.110 of this Report) in order to fully reflect Mexico's position on the use of ILD Rules to define "interconnection". The United States considers Mexico's suggested text misplaced in a paragraph that describes the conclusions of the Panel rather than the arguments of the Parties. The United States therefore requests that the Panel rejects Mexico's proposed text. The Panel considers the paragraph concerned to contain the reasoning of the Panel, not the arguments of the parties and, therefore, declines the modification requested by Mexico.

6.26 With regard to paragraph 7.111 (paragraph 7.113 of this Report) Mexico requests the Panel to clarify how competition occurs in the context of an international setting and to explain what constitutes the "services offered in each others' market". The United States believes that the meaning of the quoted sentences is sufficiently clear. The Panel does not consider the point referred to by Mexico to be unclear and, thus, declines to amend the paragraph concerned.

6.27 Mexico notes that its comment on paragraph 4.54 of the descriptive part of the Report released on 6 June 2003 (paragraph 4.56 of this Report) pointed out that, in response to a specific request from the Panel for a list of the differences between accounting rate agreements and domestic interconnection agreements, Mexico had submitted copies of standard agreements and asked the Panel to reproduce the list of the important differences identified by Mexico. Mexico claims that this comment is not reflected in the Interim Report. Mexico further notes that at paragraph 7.112 (paragraph 7.114 of this Report), the Panel states that, "[a]fter reviewing the evidence," it agrees with the United States that there are no significant differences between accounting rate and domestic interconnection agreements. However, Mexico submits that it is not aware that the United States submitted any evidence in response to the pertinent question of the Panel. For these reasons, Mexico requests that the Panel identifies the evidence on which it relied in making the finding in paragraph 7.112 (paragraph 7.114 of this Report), and that it modifies paragraph 7.112 (paragraph 7.114 of this Report) to accurately reflect Mexico's position by listing the differences between the two types of contracts identified by Mexico. With respect to Mexico's request regarding the phrase "[a]fter reviewing the evidence," the United States observes that it is within the Panel's discretion to have found that arguments raised by the United States demonstrated that Mexico's arguments and evidence lacked relevance and probative value. As regards the descriptive part, the Panel had not accepted Mexico's suggestion made earlier because it considered that the paragraph concerned adequately summarised Mexico's submission. However, in view of the importance Mexico has attached to this point, the Panel has included a new sentence to paragraph 4.56 of this Report listing the differences between accounting rate agreements and domestic interconnection agreements described by Mexico. With regard to the contested phrase the Panel agrees to clarify it, in its own language, to avoid any misinterpretation. The Panel also accepted a United States' suggestion to insert a citation of the specific source of the United States' statements in paragraph 7.112 (paragraph 7.114 of this Report).

6.28 With regard to paragraph 7.114 (paragraph 7.116 of this Report) Mexico submits that the Panel considers only the evidence provided by the United States. Mexico suggests this paragraph to be amended to fully reflect Mexico's position by adding a new sentence after the first one. The United States considers Mexico's suggested text to be misplaced since the paragraph provides the findings of the Panel rather than a recitation of arguments of the parties. The Panel declines Mexico's request because paragraph 7.114 (paragraph 7.116 of this Report) contains the Panel's reasoning, and sets out what the Panel considers are the relevant arguments for arriving at its conclusion.

6.29 According to Mexico, in paragraph 7.117 (paragraph 7.119 of this Report) the Panel does not deal with the evidence submitted by Mexico that the current contractual arrangements lowering the accounting rate have been implemented by Mexican and United States' carriers notwithstanding that the United States' FCC has refused to approve them and still officially lists the United States-Mexico accounting rate as US$0.38 (equating to a US$0.19 settlement rate). In Mexico's view, this evidence verifies that, to enforce an accounting rate arrangement, a domestic body would need jurisdiction over parties beyond its border. Mexico requests that the Panel adds a new sentence at the end of paragraph 4.67 of the Interim Report. According to the United States, Mexico raises an argument, with respect to the position of the United States' FCC on United States-Mexico accounting rates, that Mexico did not make during the Panel proceedings. The United States considers Mexico's suggested text misplaced in a paragraph that describes the conclusions of the Panel rather than the arguments of the parties. The United States therefore urges the Panel to reject Mexico's proposed text. The Panel declines Mexico's request to insert Mexico's proposed sentence, because paragraph 7.117 (paragraph 7.119 of this Report) contains the Panel's reasoning, and sets out what the Panel considers are relevant arguments for arriving at its conclusion.

6.30 As regards paragraph 7.118 (paragraph 7.120 of this Report), the United States requests the Panel to add a footnote referencing the paragraphs to which the final sentence of the paragraph refers. In view of the United States' request, the Panel decided to delete "as discussed later in this section", since the subsequent discussions do not address the issue alluded to in exactly the same context as in this paragraph and because it considers that the conclusion in this paragraph stands on its own.

6.31 Mexico requests that the Panel clarifies, in paragraph 7.119 (paragraph 7.121 of this Report), how telecommunications transport services are actually supplied cross border and explain what is the nature of the services that cross the border. According to the United States, Mexico's comments again speak to its arguments about the interpretation of the services at issue, and its insistence that those services are not provided on a cross-border basis. The United States sees no justification for further discussion of those issues in this paragraph. The Panel declines the clarification requested by Mexico with respect to this paragraph and notes that it has already dealt with the matter regarding the "services at issue", above.

6.32 With regard to paragraph 7.138 (paragraph 7.140 of this Report), Mexico submits that in paragraph 170 of its first written submission, it did argue that accounting rates and termination services were consciously excluded from the Reference Paper which is confirmed by the fact that they are "on the table" in the Doha Round of negotiations. Mexico requests that the Panel clarify how this argument was taken into account or respond to this argument. The United States notes that the argument cited by Mexico is only one of many put before the Panel on this issue, and as such, it would not be appropriate to single it out in this paragraph. The Panel reviewed the arguments and decided to insert additional text at the end of paragraph 7.138 (paragraph 7.140 of this Report) to reflect Mexico's argument and how it was taken into account.

6.33 Mexico requests that the Panel identifies the evidence on which it relied in reaching the conclusion in paragraph 7.140 (paragraph 7.142 of this Report) that "many of the 55 WTO Members which have committed to cost-oriented interconnection are unlikely to apply traditional accounting rate arrangements to a significant portion of their international traffic�.". According to Mexico, it submitted reports from the United States' FCC that establish that United States' carriers have accounting rate arrangements with virtually every country, and that in 2001 a majority of international calls to and from the United States were made through "traditional settlement". The United States notes that support for the Panel's conclusion may be found in paragraph 38 and footnote 25 of the United States' oral statement of 13 March 2003 and paragraph 48 and footnote 51 of the United States' submission of 30 April 2003. The Panel's findings already demonstrate that it does not agree with Mexico regarding the significance of the submissions it cites. However, to accommodate Mexico's concerns, the second sentence of paragraph 7.140 (paragraph 7.142 of this Report) is modified and a footnote is added to identify the evidence on which we relied to reach our conclusion.

6.34 Mexico submits that paragraph 7.149 (paragraph 7.151 of this Report), is ambiguous in that it does not clearly define what is the service supplied by the United States suppliers and under what mode. Mexico requests that the Panel clarifies: the definition of the "services at issue" and the relevant mode of supply; whether the "Mexican operators" referred to in the paragraph are also "suppliers" of such "service" or "services"; what is meant by the term "termination of the service"; whether the United States suppliers "terminate" the "service" or "services" in question; and what is meant by the term "outgoing services". According to the United States, Mexico's comments repeat its arguments about the interpretation of the services at issue in this dispute and its insistence that those services are not provided on a cross‑border basis. Regarding Mexico's references to the Panel's use of the terms "termination of the service" and "outgoing services", the United States submits that the Panel is not employing those terms to further define the services at issue in this dispute. The United States further submits that the Panel is properly using those terms to define the relevant market, for the purpose of determining whether Telmex is a "major supplier". With respect to the definition of the "services at issue" the Panel notes that it has already addressed the matter, above. As to whether the "Mexican operators" referred to in the paragraph are also "suppliers" of such "service" or "services", the Panel does not consider this distinction to be relevant. With regard to what is meant by the term "termination of the service", the Panel considers it appropriate to add a footnote to paragraph 7.23 (paragraph 7.22 of this Report) to clarify that the term is used in our findings to refer to forms of "linking" that falls within the scope of "interconnection". As to whether the United States suppliers "terminate" the "service" or "services", the Panel considers its reasoning makes clear that suppliers do not need to "terminate" services to be "supplying" them. As regards what is meant by the term "outgoing services" the Panel has changed the term to "outgoing traffic".

6.35 Mexico argues that, in paragraph 7.150 (paragraph 7.152 of this Report), the Panel refers to the market for "termination services" and to domestic and international "communication". In the light of Mexico's arguments on the meaning of "termination services" Mexico requests that the Panel clarifies and makes additional findings on what it means when it refers to "termination services", whether "termination services" are "basic telecommunications services" or a service sector at issue in this dispute, the mode of supply of such services, and whether United States or Mexican suppliers provide such services. Mexico also requests that the Panel clarifies whether a "communication" is a service at issue in this dispute. The United States submits that with respect to Mexico's comments regarding the Panel's use of the term "termination services," the Panel is not employing this term to further define the services at issue in this dispute � that is, the services to which the United States' claims relate and the services subject to Mexico's commitments. Rather, the United States reads the paragraph as using that term to properly define the relevant market for the purposes of determining whether Telmex is a "major supplier." The Panel does not accept the inferences made by Mexico with respect to the Panel's use of the term "termination services". However for clarification, the Panel is replacing "termination services" with "termination", to emphasise that the Panel is not using that term to refer in any way to services at issue in this dispute, but rather to define the relevant market for the purposes of determining whether Telmex is a "major supplier". To address the second concern, the Panel is replacing the term "communication" with "telecommunications service".

6.36 With regard to paragraph 7.154 (paragraph 7.156 of this Report), Mexico requests a new sentence to be added to the paragraph in order to reflect Mexico's position. The United States submits that Mexico's request is not necessary or accurate. According to the United States, the decisions by the CFC were provided by the United States at Exhibits US-20 and US-21. The United States notes that the CFC's decisions relied in part on the restrictive provisions in the ILD Rules discussed at length by the Panel. The Panel accepts Mexico's point and has added the suggested sentence to the paragraph in order to reflect Mexico's argument on these points.

6.37 Mexico submits that the Panel concludes in paragraph 7.157 (paragraph 7.159 of this Report) that Telmex is a "major supplier", with respect to the "services at issue" in that it has the ability to materially affect the price of termination of calls from the United States into Mexico. Mexico requests that the Panel clarify what is meant by the "services at issue" and whether the "termination of calls" is a service at issue in this dispute. The United States submits that the Panel has already adequately described the services at issue in this dispute, as well as the "relevant market" in which Telmex is a major supplier. The Panel's conclusion in paragraph 7.157 (paragraph 7.159 of this Report) speaks to the definition of the relevant market and whether Telmex is a major supplier in that market. To clarify this point, the United States suggests that the Panel amends paragraph 7.157 (paragraph 7.159 of this Report) by adding in the first sentence the phrase "termination of". The Panel accepts the suggestion made by the United States.

6.38 With regard to paragraph 7.200 (paragraph 7.202 of this Report) the United States asks the Panel to note that it has presented evidence of the difference between the aggregated component prices and the rates charged to United States suppliers for each of the three individual "zones" in Mexico. The Panel amended the text to make clear that it is aware that the United States presented evidence of the difference between the aggregated component prices and the rates charged to United States suppliers for each of the three individual zones.

6.39 Mexico refers to paragraphs 7.206-7.208 (paragraphs 7.208-7.210 of this Report) and 7.324-7.326 (paragraphs 7.326-7.328 of this Report) and claims that the Panel has adopted the United States characterisation of settlement rates as "access charges" or "termination rates." Therefore, Mexico considers that it is especially important that the Panel set forth the factual nature of settlement charges as described by Mexico in paragraph 29 of its first written submission. Mexico also requests an addition at the end of paragraph 7.206 (paragraph 7.208 of this Report) to ensure that Mexico's arguments are fully and accurately presented. The United States submits that Mexico's suggested text is misplaced and inappropriate in paragraphs 7.206-7.208 (paragraphs 7.208-7.210 of this Report). Therefore the United States urges the Panel to reject Mexico's proposed text. The Panel considers that the arguments of the parties on differences between settlement rates and termination rates do not belong to this section and makes no change to the text of the paragraph.

6.40 With regard to paragraph 7.210 (paragraph 7.212 of this Report), the United States submits that the paragraph contains a lengthy statement from the United States, but does not provide the specific source of the statement. The Panel accepts the United States request and inserts the indicated reference in a footnote.

6.41 According to Mexico, in paragraph 7.214 (paragraph 7.216 of this Report), in arriving at its finding that "interconnection rates charged by Telmex to United States suppliers of the services at issue are not cost-oriented", the Panel did not address facts and arguments presented by Mexico. According to Mexico there is a widespread practice, both in domestic and international contexts, of using target rates to determine whether rates are acceptable, and the United States stated that "WTO Members do not have explicit requirements for settlement rates to be cost-based." Mexico also contends that the United States agreed with it that Members "can reasonably rely on competitive market dynamics to yield cost-based settlement rates". The United States submits that Mexico is inaccurately quoting the United States. According to the United States, it did not state that "WTO Members do not have explicit requirements for settlement rates to be cost-based." Nor did it agree that currently in Mexico, Members "can reasonably rely on competitive market dynamics to yield cost-based settlement rates," which is what Mexico is presumably implying. The Panel declines to make any amendments on the basis of Mexico's comments because the quotes appear to be inaccurate or out of context; even if true, they are not relevant to argument presented in this paragraph.

6.42 According to Mexico its settlement rates with the United States are consistent with the target rate recommended by ITU Study Group 3 for Mexico. According to the United States, Mexico incorrectly states that the Panel did not address Mexico's argument that its settlement rates with the United States are consistent with the target rate recommended by ITU Study Group 3 for Mexico. The Panel believes that is has adequately addressed Mexico's arguments and notes that, in any case, ITU "target rates" are just that, and are not, themselves, cost oriented rates.

6.43 Mexico submits that its settlement rates are also sufficiently below the benchmark rate for Mexico set by the United States' FCC to establish, under the FCC's own guidelines, that there is "meaningful economic competition" in Mexico. Moreover, the application by the United States of its benchmarks policy to WTO Members is inconsistent with a belief that the Fourth Protocol applies to accounting rates. The United States submits that relevant United States' arguments are included at paragraph 36 of the United States' answers of 27 March 2003, and at footnote 42 of its second written submission of 5 February 2003. The Panel notes that it does not accept the implications of Mexico's arguments and notes, further, that the FCC benchmark rates are not, and are not claimed to be, "cost oriented" rates.

6.44 Mexico claims that the United States compares ISR rates from the United States to various countries with the United States-Mexico accounting rates, rather than comparing the United States accounting rates with those countries to the United States-Mexico accounting rates. The United States submits that relevant United States' arguments in this regard are included at paragraph 34 of the United States' answers of 27 March 2003, and at paragraph 121 of its first written submission and at Exhibit US‑5. The Panel considers that Mexico's argument is not relevant since the United States' accounting rates are not subject to any claims in this dispute. Furthermore, the Panel is of the view that the United States uses ISR rates not as a substitute for accounting rates, but as a proxy for illustrating what costs may be.

6.45 With regard to paragraph 7.225 (paragraph 7.227 of this Report), Mexico requests that the Panel clarifies what is meant by the "services at issue" and whether the "termination � of the services at issue" means the "termination of calls". The United States submits that, as noted above in the United States' responses to Mexico's comments concerning paragraphs 7.149, 7.150 and 7.157 (paragraphs 7.151, 7.152 and 7.159 of this Report), the Panel's statements at paragraph 7.225 (paragraph 7.227 of this Report) speak to the definition of the relevant market, and whether Telmex is a "major supplier" in that market. To clarify this point, the United States suggests that the Panel amend the first sentence of paragraph 7.225 (paragraph 7.227 of this Report). The Panel declines Mexico's request because it notes that the issue of "services at issue" and "termination" have already been adequately addressed in response Mexico's comments above.

6.46 Mexico requests the Panel to clarify in paragraph 7.226 (paragraph 7.228 of this Report) of the Interim Report that under the Panel's finding, individual gateway operators other than Telmex are not, themselves, "major supplier[s]" within the meaning of Section 1 of Mexico's Reference Paper. The United States submits that the additional language requested is inappropriate and requests that the Panel reject the modification requested by Mexico. According to the United States, the parties have made no arguments and presented no evidence regarding whether Mexican gateway operators other than Telmex are, "viewed individually or together," "major suppliers". The Panel declines Mexico's request because the Panel does not consider it necessary or relevant to make such a finding as to whether the other suppliers are not "major suppliers".

6.47 According to Mexico, in paragraphs 7.237-7.243 (paragraphs 7.239-7.245 of this Report), the Panel sets out its reasoning that leads to its conclusion that practices required under Mexico's law can be "anti-competitive practices" within the meaning of Section 1 of Mexico's Reference Paper. Mexico submits that the Panel reasoning is incomplete. In Mexico's view, Section 1.1 of Mexico's Reference Paper is aimed at anti-competitive "practices" by major suppliers, not "measures" implemented by a WTO Member, otherwise the language of Section 1 would have gone further to prohibit Members from introducing or maintaining "anti-competitive measures". According to the United States, the Panel has included Mexico's argument in paragraph 4.257 of the Interim Report. The United States' rebuttal to Mexico's argument is included in paragraph 66 of the United States' comments on 30 April 2003 on Mexico's answers. The United States also notes that the Panel addressed at length the relationship between "measures" and "practices" at paragraphs 7.237-7.243 (paragraphs 7.239-7.245 of this Report). In view of Mexico's concerns, the Panel has added a sentence after the first sentence of paragraph 7.239 (paragraph 7.241 of this Report) to better reflect that Mexico's argument was taken into account.

6.48 According to Mexico, important legal context is provided by Article VIII:5 of the GATS. This provision imposes disciplines in situations where a WTO Member authorises or establishes a small number of service suppliers and substantially prevents competition among those suppliers in its territory. Mexico submits that the Panel's interpretation of Section 1 of Mexico's Reference Paper must take into account this GATS provision so as not to undermine its meaning. In the United States' view, the Panel addressed Mexico's argument, and the United States rebuttal thereto, in paragraphs 4.260-4.261 of the Interim Report. Having re-examined the submission containing the argument referred to by Mexico, the Panel declines to accept Mexico's request because the Panel considers the argument to be recorded as adequately as possible in the paragraphs cited by the United States.

6.49 In Mexico's view, there is no basis in the text of Section 1 of Mexico's Reference Paper to make important and complicated distinctions between permissible and impermissible anti-competitive "measures" or to judge the legitimacy of a WTO Member's internal policies in circumstances where no agreed-upon benchmarks exist. According to the United States, the Panel addressed Mexico's argument at paragraphs 4.257 of the Interim Report, 7.228-7.236, and 7.263-7.267 (paragraphs 7.230-7.238 and 7.265-7.269 of this Report). As addressed in paragraphs 7.233-7.234 (paragraphs 7.235-7.236 of this Report), there are international agreements on certain types of anti‑competitive practices that should be prohibited, including in particular price‑fixing cartels. The Panel declines Mexico's request, noting that it has already addressed Mexico's argument at paragraph 7.263-7.267 (paragraphs 7.265-7.269 of this Report).

6.50 According to Mexico, at paragraphs 7.237-7.243 (paragraphs 7.239-7.245 of this Report), the Panel sets out its reasoning that leads to its conclusion that practices required under Mexico's law could be "anti-competitive practices" within the meaning of Section 1 of Mexico's Reference Paper. At paragraphs 7.255-7.262 (paragraphs 7.257-7.264 of this Report), the Panel sets out its reasoning that leads to its conclusions that the uniform settlement rate and proportionate return system under the ILD Rules require practices by a major supplier, Telmex, that are "anti-competitive" within the meaning of Section 1 of Mexico's Reference Paper. In Mexico's view, it has presented detailed arguments that the measures at issue had "pro-competitive" effects and were aimed at legitimate policy objectives. Mexico submits that although the Panel Report identifies some of these arguments, the Panel does not explain how Section 1 of Mexico's Reference Paper prohibits measures that have pro-competitive effects and legitimate policy objectives where, at the same time, they also have some anti-competitive effects. Mexico further submits that the Panel refers only to "horizontal practices such as price-fixing among competitors" and "market sharing arrangements", private actions that do not have the pro-competitive effects and legitimate policy objectives of Mexico's measures. Mexico's argument that its measures are distinguishable from such private actions and are not "anti-competitive practices" within the meaning of Section 1 and its argument that all government regulatory measures have some anti-competitive effects have not been addressed by the Panel. The United States contends that although Mexico asserts that the Panel ignored its arguments that the ILD Rules have "pro‑competitive effects," the Panel in fact demonstrates that it considered this argument at paragraphs 7.221, 7.239, 7.256, 7.259 and 7.261 (paragraphs 7.223, 7.241, 7.258, 7.261 and 7.263 of this Report). In paragraph 7.259 (paragraph 7.261 of this Report), the Panel expressly evaluated Mexico's assertions, concluding that Mexico failed to provide evidence or well‑founded reasons to support its assertions. Moreover, as noted above, the Panel addressed, in paragraphs 7.237-7.243 (paragraphs 7.239-7.245 of this Report) of the Interim Report, whether practices required under a Member's laws can be "anti‑competitive practices" within the meaning of Section 1.1 of Mexico's Reference Paper. The Panel does not accept Mexico's request, noting that it has dealt with Mexico's arguments, as pointed out in the United States' comments, in paragraphs 7.221, 7.239, 7.256, 7.259 and especially 7.261 (paragraphs 7.223, 7.241, 7.258, 7.261 and 7.263 of this Report). The Panel confirms that its deliberations took fully into account the points and arguments identified by Mexico in its comments on the reasoning of this particular conclusion. However, the Panel declines Mexico's request because, as noted at the outset of this section, a panel cannot be expected to restate all of the statements and arguments of the parties in the findings section of a Report.

6.51 According to the United States, in paragraph 7.240 (paragraph 7.242 of this Report), the Panel discusses cross‑subsidisation as an illustrative example of an anti‑competitive practice listed in Section 1.2 of the Reference Paper. The United States notes that the language of Section 1.2 of the Reference Paper does not explicitly refer to cross‑subsidisation per se, but rather anti‑competitive cross‑subsidisation. To conform to the phrasing used in the Reference Paper, the United States suggests the text to be amended. The Panel notes the United States' comment and has modified the text to reflect the concern raised.

6.52 With regard to paragraphs 7.272-7.286 (paragraphs 7.274-7.288 of this Report) , Mexico submits that the Panel sets out its reasoning that leads to its conclusion that the Annex applies to measures of a Member that affect access to and use of public telecommunications transport networks and services by basic telecommunications suppliers of any other Member. According to Mexico, the Panel's summary of Mexico's argument is incomplete. In Mexico's view, the Panel does not identify nor respond to Mexico's argument that the service at issue is not a "telephone call" or any other customer-supplied information or data, but, rather, is telecommunications transport networks or services that involve the transport or transmission of information or data between two or more points. As such, Mexican suppliers of telecommunications transport networks and services cannot transmit other telecommunications transport networks or services and cannot, therefore, constitute a mode of delivery for those services. Mexico requests that the Panel incorporate this argument in paragraph 7.274 (paragraph 7.276 of this Report) and make additional findings on the nature of the services at issue. In particular, Mexico requests that the Panel clarifies what constitutes the "supply of basic telecommunications services" and "international supply of basic telecommunications services". The United States submits that Mexico's comments repeat comments on the interpretation of the services at issue in this dispute and recalls its responses to Mexico's comments on paragraphs 7.23-7.25 (paragraphs 7.22-7.23 and 7.26 of this Report). The United States maintains the issues raised here require no further development at this point in the report. The Panel declines Mexico's request, noting that Mexico's comments essentially relate to arguments and conclusions concerning the services at issue in this dispute that are already addressed earlier in this is section.

6.53 With regard to paragraph 7.317 (paragraph 7.319 of this Report), Mexico fails to see how paragraph 7.178 of the Interim Report cited in footnote 924 (footnote 1023 of this Report) is relevant to the Panel's statement and requests that the Panel clarifies this. The United States submits that with respect to Mexico's comments regarding footnote 924 (footnote 1023 of this Report), the Panel may have intended to refer to paragraph 7.40 in this Report or one of the surrounding paragraphs. The Panel has reviewed the reference and corrected footnote 924 (footnote 1023 of this Report) to refer to paragraphs 7.40-7.45 of this Report.

6.54 Mexico also submits that the quoted statement in paragraph 7.317 (paragraph 7.319 of this Report) does not clearly describe the nature of the "basic telecommunications services" at issue and how foreign suppliers actually supply such services into Mexico. Thus, Mexico requests that the Panel clarifies and makes additional finding on: what "services" require suppliers to link their networks to those of other suppliers; whether the "services at issue" are the transport or transmission of information or data between two or more points; how Mexican suppliers can transmit "transport and transmission" services of other suppliers; and whether United States suppliers supply "transport and transmission services" into and within Mexico. According to the United States, Mexico's comments repeats those on the interpretation of the services at issue in this dispute and recalls its responses to Mexico's comments on paragraphs 7.23-7.25 (paragraphs 7.22-7.23 and 7.26 of this Report). The United States maintains the issues raised here have been amply addressed and require no further development at this point in the Report. The Panel notes that Mexico's comments relate to arguments and findings that have already been addressed earlier in this section.

6.55 As regards paragraph 7.322 (paragraph 7.324 of this Report), the United States considers that it would be helpful for the Panel to include a cross‑reference to the paragraphs it has in mind when it refers, at the beginning of the third sentence of this paragraph, to "our earlier analysis." The United States also suggests that the third sentence of paragraph 7.322 (paragraph 7.324 of this Report) should be re-arranged in harmony to paragraph 7.304 (paragraph 7.306 of this Report). The Panel accepts the United States suggestions and adds a footnote cross-referencing paragraph 7.304 (paragraph 7.306 of this Report). It also modifies the paragraph as suggested by the United States.

6.56 As regards paragraph 7.369 (paragraph 7.371 of this Report), Mexico requests that the Panel clarifies and notes the fact that Mexico has issued regulations for the establishment and operation of commercial agencies for pay-telephone public services. The United States notes that Mexico's argument is reflected in paragraph 4.323 of the Interim Report. If Mexico's request is accepted by the Panel then the United States requests that the Panel also note the United States' observation that the service suppliers at issue in the United States' claim under Section 5(b) of the Annex on Telecommunications are locally-established commercial agencies offering international telecommunications services over private circuits leased from a Mexican concessionaire. Noting that pay phone services are not subject to the claims made by the United States in this dispute, the Panel does not consider it necessary to include in the Panel's findings the argument identified by Mexico on this point.

To continue with: VII. FINDINGS

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684 See Mexico's first written submission, paragraph 247.

685 Mexico refers to paragraph 249 of the United States' first written submission. See Mexico's first written submission, paragraph 250.

686 See Mexico's first written submission, paragraph 251.

687 See Mexico's first written submission, paragraph 253.

688 Mexico refers to paragraph 104 of the Appellate Body Report, EC � Hormones. See Mexico's first written submission, paragraph 256.

689 See Mexico's first written submission, paragraph 256.

690 See Mexico's first written submission, paragraph 258.

691 Mexico refers to paragraph 161 of the Appellate Body Report, Korea � Various Measures on Beef. See Mexico's first written submission, paragraphs 261-262. For a detailed discussion of the routing requirement in Mexico's specific commitments, see Section IV.A.3(c)(ii) of this Report.

692 The United States refers to Mexico's first written submission, paragraph 264. See the United States' first oral statement, paragraph 49.

693 See the United States' first oral statement, paragraph 49.

694 The United States refers to paragraph 256 of Mexico's first written submission. See the United States' answer to question No. 26 of the Panel of 19 Dec 2002, paragraph 109 ("Is it necessary to consider Section 5 (e) and (f) to establish a claim under Section 5 (a) and (b)? Please explain").

695 The United States refers to paragraph 157 of the Appellate Body Report, Korea � Various Measures on Beef. See the United States' answer to question No. 26 of the Panel of 19 December 2002, paragraph 109. For question No. 26, see footnote 694 of this Report.

696 See Mexico's answer to question No. 26 of the Panel of 19 December 2002, paragraph 322. For question No. 26, see footnote 694 of this Report.

697 See the United States' second written submission, paragraph 109.

698 See the United States' second written submission, paragraph 110.

699 See the United States' second written submission, paragraph 111.

700 See the United States' second written submission, paragraph 112.

701 See the United States' second written submission, paragraph 113.

702 See Mexico's first written submission, paragraph 258.

703 See Mexico's first written submission, paragraphs 264-265.

704 See United States' second submission, paragraphs 124-125.

705 See Australia's third party submission, paragraph 3.

706 See Australia's third party submission, paragraph 4.

707 See Australia's third party submission, paragraph 5.

708 See Australia's third party submission, paragraph 6.

709 See Australia's third party submission, paragraph 7.

710 See Australia's third party submission, paragraph 6.a.

711 See Australia's third party submission, paragraph 6.b.

712 See Australia's third party submission, paragraph 8.

713 See Australia's third party submission, paragraph 9.

714 See Australia's third party submission, paragraph 10.

715 See Australia's third party submission, paragraph 11.

716 See Australia's third party submission, paragraph 12.

717 See Australia's third party submission, paragraph 13.

718 See Australia's third party submission, paragraph 14 where it refers to the recognition of the role of the ITU by the GATS Annex on Telecommunications.

719 See Brazil's third party submission, paragraph 3.

720 See Brazil's oral statement, paragraphs 5-6.

721 See Brazil's third party submission, paragraph 3.

722 See Brazil's oral statement, paragraph 11.

723 See Brazil's oral statement, paragraph 18.

724 See Brazil's third party submission, paragraph 5 where it refers to Mexico's Schedule of Specific Commitments.

725 See Brazil's third party submission, paragraph 6 where it refers to the definition provided in the WTO web page.

726 See Brazil's third party submission, paragraph 7.

727 See Brazil's third party submission, paragraph 8 where it refers to footnote 2 in Mexico's Schedule of Specific Commitments.

728 See Brazil's third party submission, paragraph 15.

729 See Brazil's third party submission, paragraph 16.

730 See Brazil's third party submission, paragraph 17.

731 See Brazil's third party submission, paragraph 19.

732 See Brazil's third party submission, paragraph 20.

733 See Brazil's third party submission, paragraph 21.

734 See Brazil's third party submission, paragraph 22 where it refers to Black's Law Dictionary definition of equality.

735 See European Communities' third party submission, paragraph 5.

736 See European Communities' third party submission, paragraph 6.

737 See European Communities' third party submission, paragraph 7.

738 See European Communities' third party submission, paragraph 8.

739 See European Communities' third party submission, paragraph 9.

740 See European Communities' third party submission, paragraph 10.

741 See European Communities' third party submission, paragraph 12.

742 See European Communities' third party submission, paragraph 13.

743 See European Communities' third party submission, paragraph 14.

744 See European Communities' third party submission, paragraph 15.

745 See European Communities' third party submission, paragraph 16.

746 See European Communities' third party submission, paragraph 17.

747 See European Communities' third party submission, paragraph 18.

748 See Brazil's third party submission paragraph 5.

749 See European Communities' oral statement, paragraphs 5 and 7.

750 See European Communities' third party submission, paragraph 19 where it refers to paragraphs 265 and 294 of the United States' first written submission.

751 See European Communities' third party submission, paragraphs 20-23.

752 See European Communities' replies to questions from the Panel, paragraph 14.

753 See European Communities' third party submission, paragraph 24.

754 See European Communities' third party submission, paragraph 25.

755 See European Communities' third party submission, paragraph 28 where it refers to Section 2(c)(I) of the Annex on Telecommunications of the GATS.

756 See European Communities' third party submission, paragraph 29 where it refers to paragraph 37 and heading IV.A.3 of the United States first written submission.

757 See European Communities' third party submission, paragraphs 30-31.

758 See European Communities' third party submission, paragraph 32.

759 See European Communities' third party submission, paragraph 34.

760 See European Communities' third party submission, paragraph 35.

761 See European Communities' replies to questions from the Panel, paragraphs 3-4.

762 See European Communities' third party submission, paragraphs 38-39.

763 See European Communities' oral statement, paragraph 5 where it refers to paragraph 5 of Brazil's third party written submission.

764 See document GATS/SC/31/Suppl.3.

765 See European Communities' oral statement, paragraph 10.

766 See European Communities' oral statement, paragraph 16.

767 See European Communities' replies to questions from the Panel, paragraphs 22-28.

768 See European Communities' oral statement, paragraph 23.

769 See European Communities' third party submission, paragraphs 40-42.

770 See European Communities' replies to questions from the Panel, paragraphs 31-33.

771 See European Communities' replies to questions from the Panel, paragraphs 34-39.

772 See European Communities' third party submission, paragraph 48.

773 See European Communities' third party submission, paragraph 49.

774 See European Communities' third party submission, paragraph 52.

775 See European Communities' third party submission, paragraph 53.

776 See European Communities' third party submission, paragraph 56.

777 See European Communities' third party submission, paragraph 58.

778 See European Communities' third party submission, paragraph 59.

779 See European Communities' third party submission, paragraph 60.

780 See European Communities' third party submission, paragraphs 62-63.

781 See Panel Report, Canada � Autos.

782 See European Communities' oral statement, paragraphs 28- 29.

783 See Japan's third party submission, paragraph 5.

784 See Japan's third party submission, paragraph 6 where it refers to the Report of the Group on Basic Telecommunications of 15 February 1997, S/GBT/4.

785 See Japan's third party submission, paragraph 7 where it refers to the Report of the Group on Basic Telecommunications of 10 March 1997, S/GBT/M/9.

786 See Japan's third party submission, paragraph 9.

787 See Japan's third party submission, paragraph 10.

788 See Japan's third party submission, paragraphs 12-13.

789 See Japan's third party submission, paragraph 14.

790 See Japan's third party submission, paragraph 15.

791 See Japan's third party submission, paragraph 16 where it refers to the Vienna Convention on the Law of Treaties.

792 See Japan's third party submission, paragraph 18.

793 See Japan's third party submission, paragraph 21.

794 See Japan's third party submission, paragraph 22.

795 See Japan's third party submission, paragraph 24.

796 See Japan's third party submission, paragraph 26.

797 See Japan's third party submission, paragraph 27.

798 Paragraph 16 of the Panel's Working Procedures reads as follows: "Following issuance of the Interim Report, the parties shall have no less than 7 days to submit written requests to review precise aspects of the Interim Report and to request a further meeting with the Panel. The right to request such a meeting must be exercised no later than at that time. Following receipt of any written requests for review, in cases where no further meeting with the Panel is requested, the parties shall have the opportunity within a time-period to be specified by the Panel to submit written comments on the other parties' written requests for review. Such comments shall be strictly limited to referencing the other parties' written requests for review."

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