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WORLD TRADE
ORGANIZATION

WT/DS204/R
2 April 2004

(04-1211)

  Original: English

MEXICO � MEASURES AFFECTING
TELECOMMUNICATIONS SERVICES

Report of the Panel


(Continued)


VII. FINDINGS

A. INTRODUCTION

7.1 The United States presents three main claims. First, that Mexico has failed to ensure that its major telecommunications supplier provides interconnection "on terms, conditions � and cost-oriented rates that are � reasonable", in accordance with Section 2 of its Reference Paper commitments. Second, that Mexico has not maintained appropriate measures to prevent Telmex, a major supplier, from engaging in "anti-competitive practices", in accordance with Section 1 of its Reference Paper commitments. Third, that Mexico has failed to ensure "access to and use of" its public telecommunications transport networks and services, including private leased circuits, on "reasonable and non-discriminatory terms and conditions", in accordance with its obligations under Section 5 of the GATS Annex on Telecommunications.

7.2 This case is the first panel proceeding in the WTO to deal solely with trade in services under the GATS. It is also the first WTO panel proceeding to deal with telecommunications services. The Panel is fully aware that the interpretation of the complex layers of GATS Articles, Annexes, Protocols and Schedules with GATS market access commitments, national treatment commitments and additional commitments poses many challenges to WTO Members and WTO dispute settlement bodies. This is especially so in the early years of GATS jurisprudence when the sometimes different approaches used by governments in the drafting of their respective GATS schedules may give rise to divergent understandings and expectations. Just as the interpretation and application of GATT provisions have dynamically evolved in response to the several hundred GATT dispute settlement proceedings since 1948, so the interpretation and clarification of GATS provisions is likely to evolve over time. The diverse backgrounds of the panelists, and the assistance granted by the Secretariat pursuant to Article 27.1 of the DSU, have ensured that this Panel was fully aware of the legal and technical complexity of the regulation of telecommunications services, including their rapid technological evolution799 and the drafting history of GATS provisions to which both parties to this dispute referred extensively.

7.3 The Panel's legal task is "to examine, in the light of the relevant provisions of the covered agreements cited by the United States in document WT/DS204/3, the matter referred to the DSB by the United States in that document, and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in those agreements". This task requires us, as provided in Article 3.2 of the DSU, "to clarify the existing provisions of those agreements in accordance with customary rules of interpretation of public international law" in order "to preserve the rights and obligations of Members under the covered agreements" and to provide "security and predictability to the multilateral trading system". We have approached our daunting task with the utmost prudence and, in several parts of our findings, have decided to exercise "judicial economy". WTO negotiators sometimes praise the political wisdom of resorting to "constructive ambiguity" as a diplomatic means of enabling consensus on WTO rules.800 The limited legal task of dispute settlement findings is very different. It is to decide on the legal claims, in a particular dispute, based on the "ordinary meaning" of the WTO provisions concerned "in their context" and in light of the "object and purpose" of the agreement. Our legal findings are thus limited to the disputed meaning and scope of certain GATS obligations and commitments of Mexico in the very particular context of this bilateral dispute, and do not go beyond what we consider indispensable for deciding on the legal claims submitted to this Panel. Our focus on telecommunications services may mean that certain elements of our findings in this particular services sector may not be relevant for other services sectors with different legal, economic and technical contexts. Our findings also do not adversely affect the large degree of regulatory autonomy which WTO Members, individually and collectively, retain under the GATS, including the right to modify specific GATS commitments pursuant to the procedures and conditions set out in Article XXI of the GATS.

1. Telecommunications in the WTO

7.4 This case concerns obligations undertaken by Mexico as part of the GATS. The GATS, which is an integral part of the WTO Agreement, consists of a number of articles in its main body and several annexes, including an Annex on Telecommunications (the "Annex"). Both the main body of the GATS and the Annex are applicable to every WTO Member. In addition, each WTO Member has attached its own schedule to the GATS, in which the Member makes individual specific commitments on market access, national treatment, and any additional commitments the Member may wish to make. These specific commitments are inscribed by service sector and mode of supply of the service, and may be subject to limitations on market access and national treatment.

7.5 Special GATS negotiations intended to deepen and widen commitments in basic telecommunications were concluded in 1997. Members participating in these negotiations made commitments, or further commitments, in their schedules on market access or national treatment. Many, including Mexico, also made additional commitments in the form of a "Reference Paper", which contained a set of pro-competitive regulatory principles applicable to the telecommunications sector.

2. Measures at issue in this dispute

7.6 The government measures at issue in these proceedings are:

(a) The "Federal Telecommunications Law" ("FTL") (Ley Federal de Telecomunicaciones) of 18 May 1995.

(b) The "Rules for Long Distance Service" (Reglas del Servicio de Larga Distancia) published by the Secretariat of Communications and Transportation ("SCT") (Secretar�a de Comunicaciones y Transporte) on 21 June 1996.

(c) The International Long Distance Rules ("ILD Rules") (Reglas para prestar el servicio de larga distancia internacional) published by the SCT on 11 December 1996.801

(d) The "Agreement of the SCT establishing the procedure to obtain concessions for the installation, operation or exploitation of interstate public telecommunications networks, pursuant to the Federal Telecommunications Law" (Acuerdo de la SCT por el que se establece el procedimiento para obtener concesi�n para la instalaci�n, operaci�n o explotaci�n de redes p�blicas de telecomunicaciones interestatales, al amparo de la Ley Federal de Telecomunicaciones) published on 4 September 1995.

3. Mexico's legal framework for the regulation of telecommunications services

7.7 The Federal Telecommunications Law (the "FTL") of Mexico provides the legal framework for the regulation of telecommunications activities in Mexico.802 The FTL authorizes the SCT, inter alia, to grant concessions required for "installing, operating or exploiting public telecommunications networks".803 A concession may only be granted to a Mexican individual or company, and any foreign investment therein may not exceed 49%804, except for cellular telephone services.805

7.8 Special rules apply to "comercializadoras" ("commercial agencies").806 A commercial agency is any entity which, "without being the owner or possessor of any transmission media, provides telecommunications services to third parties using the capacity of a public telecommunications network concessionaire."807 A concessionaire of a public telecommunications network may not, without permission of the SCT, have "any direct or indirect interest in the capital" of a commercial agency.808 The establishment and operation of commercial agencies is "subject, without exception, to the respective regulatory provisions".809

7.9 The "interconnection" of public telecommunications networks with foreign networks is carried out through agreements entered into by the interested parties.810 Should these require agreement with a foreign government, the concessionaire must request the SCT to enter into the appropriate agreement.811

7.10 International Long-Distance Rules ("ILD Rules") are issued by the Federal Telecommunications Commission ("Comisi�n Federal de Telecomunicaciones"), a semi-autonomous agency of the Secretariat of Communications and Transportation.812 The ILD Rules serve "to regulate the provision of international long-distance service and establish the terms to be included in agreements for the interconnection of public telecommunications networks with foreign networks."813 International long-distance service is defined as the service whereby all international switched traffic is carried through long-distance exchanges authorized as international gateways".814

7.11 Direct interconnection with foreign public telecommunications networks in order to carry international traffic may only be carried out by "international gateway operators".815 These are long-distance service licensees authorized by the Commission "to operate a switching exchange as an international gateway"816, that is, the exchange is "interconnected to incoming and outgoing circuits authorised by the Commission to carry international traffic".817 Traffic is "switched" when it is "carried by means of a temporary connection between two or more circuits between two or more users, allowing the users the full and exclusive use of the connection until it is released."818

7.12 Each international gateway operator must apply the same "uniform settlement rate" to every long-distance call to or from a given country, regardless of which operator originates or terminates the call.819 The uniform settlement rate for each country is established, through negotiations with the operators of that country, by the long-distance service licensee having the greatest percentage of outgoing long-distance market share for that country in the previous six months.820

7.13 Each international gateway operator must also apply the principle of "proportionate return". Under this principle, incoming calls from a foreign country must be distributed among international gateway operators in proportion to each international gateway operator's market share in outgoing calls to that country.821

4. Rules of interpretation

7.14 The GATS constitutes an integral part of the WTO Agreement. As such, the GATS (including its annexes and schedules of specific commitments that are made an integral part of it under GATS Article XX:3) is one of the "covered agreements" and is therefore subject to the Dispute Settlement Understanding (the "DSU").

7.15 Article 3.2 of the DSU provides that panels are to clarify the provisions of "covered agreements" in accordance with customary rules of interpretation of public international law. In US � Gasoline, the Appellate Body stated that the fundamental rule of treaty interpretation as set out in Articles 31 and 32 of the Vienna Convention on the Law of Treaties (the "Vienna Convention")822 had "attained the status of a rule of customary or general international law" and "forms part of the 'customary rules of interpretation of public international law'".823 Since the commitments provided for in Mexico's Schedule are part of the terms of the treaty, the only rules which may be applied in interpreting the meaning of a commitment are the general rules of interpretation as set out in the Vienna Convention.824

7.16 Article 31(1) of the Vienna Convention requires a treaty interpreter to determine the meaning of a term in accordance with the "ordinary meaning" to be given to the term "in its context", and in light of the "object and purpose" of the treaty. If, after applying the rule of interpretation set out in Article 31(1), it is desirable to confirm the meaning of the term, or the meaning of the treaty term remains ambiguous or obscure or leads to a result that is manifestly absurd or unreasonable, Article 32 allows the treaty interpreter to have recourse to "supplementary means of interpretation, including the preparatory work on the treaty and the circumstances of its conclusion".825

5. Order of analysis of the claims

7.17 The United States has presented its two claims concerning Mexico's Reference Paper commitments first, followed by its claim concerning Section 5 of the Annex on Telecommunications. We have decided to examine these claims in the order presented by the United States since we consider that this order will allow us to analyse the issues in the most efficient manner.

B. WHETHER MEXICO HAS FULFILLED ITS COMMITMENTS UNDER SECTIONS 2.1 AND 2.2 OF THE REFERENCE PAPER

7.18 The United States claims that Mexico has not met its commitment under Sections 2.1 and 2.2 of its Reference Paper with respect to certain basic telecommunications services supplied cross-border into Mexico by facilities-based and non-facilities-based United States suppliers. In particular, the United States claims that Mexico has failed to ensure that Telmex provide interconnection to United States basic telecommunications suppliers on a cross-border basis with cost-based rates and reasonable terms and conditions. Mexico contests this claim, stating that its GATS schedule contains no specific commitments that would trigger the Section 2 commitments in the Reference Paper, and that in any case the Reference Paper provisions on interconnection do not extend to services which originate abroad, or are subject to international accounting rates. Even if interconnection in the sense of the Reference Paper were to apply, Mexico claims that Telmex is not a "major supplier", as specified under Section 2.2, and that, in any case, the terms and conditions of interconnection offered to United States telecommunications suppliers are in fact "reasonable", and the rates are "cost-oriented".

7.19 The basis of this first claim by the United States are Sections 2.1 and 2.2 of the Reference Paper, as incorporated in Mexico's GATS schedule under additional commitments.826 These provisions state, in relevant part:

"2. Interconnection
2.1 This section applies, on the basis of the specific commitments undertaken, to linking with suppliers providing public telecommunications transport networks or services in order to allow the users of one supplier to communicate with users of another supplier and to access services provided by another supplier.
2.2 Interconnection to be ensured
Interconnection with a major supplier will be ensured at any technically feasible point in the network. Such interconnection is provided

(b) in a timely fashion, on terms, conditions (including technical standards and specifications) and cost-oriented rates that are transparent, reasonable, having regard to economic feasibility, and sufficiently unbundled so that the supplier need not pay for network components or facilities that it does not require for the service to be provided; � "827

7.20 In determining whether commitments in Sections 2.1 and 2.2 have been met by Mexico, we shall first examine whether Mexico has undertaken an interconnection commitment with respect to the telecommunications services at issue in this case. In the event that we conclude that Mexico has indeed undertaken an interconnection commitment in respect of the telecommunications services at issue, we will then determine whether, with respect to the services at issue, Mexico has fulfilled any Section 2 interconnection commitment.

1. Whether Mexico has undertaken an interconnection commitment, in Section 2 of its Reference Paper, with respect to the telecommunications services at issue

7.21 Section 2.1 of Mexico's Reference Paper commitment on interconnection specifies that it applies only "on the basis of the specific commitments undertaken" ("respecto de los cuales se contraigan compromisos espec�ficos"). We must first therefore determine what the services at issue are, and through which of the four modes specified in Article I:2 of the GATS they are supplied.828 Only then can we determine whether Mexico has undertaken, with respect to these services, a commitment "on the basis" of which the interconnection commitment in Section 2.2 applies. Finally, in determining whether Mexico has undertaken interconnection commitments with respect to the services and modes of supply at issue, we must examine whether the "linking" of suppliers referred to in Section 2.1 of the Reference Paper covers not only domestic interconnection, but also international interconnection, understood as the linking of suppliers cross-border, including linking which involves traditional "accounting rate" regimes.

(a) What are the services at issue?

7.22 The United States focuses its first claim on the supply of certain basic public telecommunications services829 for which United States suppliers seek to interconnect at the border with Telmex, or other Mexican operators, for termination830 in Mexico, and for which, according to the United States, Mexico has undertaken specific commitments in its schedule. The specific public telecommunications services subject to the claims are voice telephony, circuit-switched data transmission and facsimile services. These services are, according to the United States, of two types depending on how the service is provided. First, there are "facilities-based" services, whereby the service supplier provides the services over its own facilities. Second, there are "non-facilities-based" services (services supplied by "comercializadoras" or "commercial agencies"), whereby the service supplier provides telecommunications services using facilities leased from other operators.831

7.23 We will refer to the public voice telephony, circuit-switched data transmission and facsimile services, both "facilities-based" and by a "commercial agency", that are raised by the United States in its first claim as "the services at issue".832

7.24 The United States' claims regarding the services at issue relate to the GATS mode of supply known as cross-border supply of these services. However, the parties to do not agree that the services at issue are actually being supplied by this mode of supply. Consequently, the Panel must now turn to the issue of whether or not the services at issue are supplied cross-border.

(b) Are the services at issue supplied cross-border?

7.25 The United States contends that their claims regarding the services at issue relate to the cross border supply of these services. According to the United States, these services are supplied from the United States into Mexico, within the meaning of GATS Article I:2(a), which defines what is commonly referred to as "cross-border" trade in services.833 Specifically, facilities-based operators in the territory of the United States deliver traffic consisting of the services at issue from United States customers to the Mexican border where, under Mexican law, the traffic is transferred to Mexican operators, who then terminate the United States operators' traffic, consisting of the services at issue, in Mexico. According to the United States, non-facilities-based operators (commercial agencies) would, if permitted by Mexican regulations, also supply services on a cross-border basis into Mexico.834 Whether a service is facilities-based or non-facilities based, for the supply of cross-border services, is determined, according to the United States, by the use or not of a supplier's own facilities in the market from which the service is supplied.835

7.26 To illustrate the cross-border supply of the services at issue, the United States points to the supply of services by AT&T, WorldCom and Sprint which, as facilities-based operators, "use their own networks in the United States to offer voice telephony, circuit-switched data and facsimile services between the United States and Mexico".836 These operators must link their network at the border to that of a Mexican operator. The United States does not illustrate the current supply of "commercial agency" services from the United States into Mexico, claiming that Mexico maintains measures that prohibit the cross-border supply of this type of service.

7.27 Mexico claims that the services at issue are not supplied cross-border in accordance with the terms of Article I:2(a). According to Mexico, the essential nature of the services at issue is the transmission of customer data. In order to transmit customer data cross-border "from" one Member "into" another Member, the supplier must itself transmit the customer data within the territory of that other Member. Mexico's view is that no country imposes restrictions on the quantity of incoming or outgoing calls, but rather only on services relating to the transmission of the calls, and therefore that the GATS commitments would be meaningless if they related to the calls rather than their transmission. Thus, an operator who simply "hands off" traffic at the border to another operator would not, argues Mexico, be supplying cross-border within the meaning of Article I:2(a). According to Mexico, a hand-off of traffic at the border amounts to a "half-circuit" provision of telecommunications services; only "full-circuit" or "end-to-end" provision by the same operator constitutes cross-border supply within the meaning of Article I:2(a).837

7.28 Mexico's argument that the supplier must itself transmit the customer data within the territory of that other Member implies, in effect, that cross-border supply within the meaning of Article I:2(a) can only occur if the supplier operates, or is present838 in some way, on the other side of the border. Absent this, the supplier would presumably not have the capability to itself transmit there. The issue before us is therefore whether, with respect to the telecommunications services at issue, cross-border supply between two Members under Article I:2(a) occurs only if the supplier itself operates, or is present, on the other side of the border, or if cross-border supply can occur also if a supplier simply "hands off" traffic at the border. We now examine this fundamental issue.

7.29 The scope of the GATS is defined in Article I:1 as covering "measures by Members affecting trade in services". Trade in services is then defined in Article I:2 as "the supply of a service" through any of four modes of supply:

"(a) from the territory of one Member into the territory of any other Member;

(b) in the territory of one Member to the service consumer of any other Member;

(c) by a service supplier of one Member, through commercial presence in the territory of any other Member;

(d) by a service supplier of one Member, through presence of natural persons of a Member in the territory of any other Member."

7.30 Subparagraph (a) describes what is referred to as "cross-border", or "mode 1", supply of trade in services.839 The ordinary meaning of the words of this provision indicate that the service is supplied from the territory of one Member into the territory of another Member. Subparagraph (a) is silent as regards the supplier of the service. The words of this provision do not address the service supplier or specify where the service supplier must operate, or be present in some way, much less imply any degree of presence of the supplier in the territory into which the service is supplied. The silence of subparagraph (a) with respect to the supplier suggests that the place where the supplier itself operates, or is present, is not directly relevant to the definition of cross-border supply.

7.31 We now examine the context of subparagraph (a) to determine whether our interpretation, based on the ordinary meaning of the words of the provision, is correct. Subparagraph (a) is one of four modes of supply which, as indicated above, are listed in Article I:2. If we look at the wording of the other modes of supply, we note that the silence in subparagraph (a) as regards the presence of the supplier of the service is in marked contrast to the modes of supply described in subparagraphs (c) ("commercial presence") and (d) ("presence of natural persons"). In both cases, the presence of the service supplier within the territory where the service is supplied is specifically mentioned. The context provided by subparagraphs (c) and (d) therefore suggests that, where the presence of the service supplier was required to define a particular mode of supply, the drafters of the GATS expressed this clearly.

7.32 Further contextual evidence that cross-border supply of the services at issue does not require the supplier to operate, or be present in some way, on both sides of the border is suggested by the definition of the basic telecommunications services at issue, which are defined in the GATS Annex on Telecommunications. The services at issue are "basic" telecommunications services and involve:

"the real-time transmission of customer-supplied information between two or more points without end-to-end change in the form or content of the customer's information."840 (emphasis added)

7.33 We note that this definition contains two closely linked elements that are relevant to our analysis: the transmission itself, and that which is transmitted � customer-supplied information. In our view, reading the word "transmission" alone as constituting the service, as Mexico does, fails to recognize the close link explicit in this definition. Moreover, the ownership or control of the means of transmission are nowhere addressed in this definition.

7.34 According to the definition, basic telecommunications services are services supplied "between two or more points". The definition nowhere indicates that a single supplier must undertake the transmission between the "points". The words "between two or more points" suggest, in fact, the contrary. Transmission to the various "points" requested by a customer requires ownership of or access to an expansive transmission infrastructure. It would be unreasonable to assume that the definition of telecommunications services applies only where a telecommunications supplier itself owns or controls a complete global infrastructure allowing it to reach every potential "point" requested by its customers. Had WTO Members intended this to be the case, they surely would have made it explicit in the definition.

7.35 We note that most WTO Members, including Mexico, scheduled their basic telecommunications services using the 1991 UN Provisional Central Product Classification ("CPC").841 The CPC references provide more detailed descriptions of the services included in the GATS sectoral listing.842 With respect to the facilities-based telecommunications services at issue, further support for our conclusion that cross-border supply under Article I:2(a) does not require a supplier to operate, or to be present in some way, on both sides of the border, is provided by an examination of the CPC description of "public long distance voice telephone services" (CPC 75212), that is referred to under the item "voice telephone services" in the GATS sectoral list (W/120).843 The CPC description of this service states, in relevant part:

"Switching and transmission services necessary to establish and maintain communications between local calling areas. This service is primarily designed (used) to establish voice communications, but may serve other applications such as text communication (facsimile or teletex) and may be provided on a toll or flat fee basis. This service provides the customer with access to the supplier's and connecting carrier's entire telephone network or, in some instances, to a limited number or exchange areas (WATS service)." (emphasis added)

7.36 This definition makes clear that the service of long-distance telephony consists of giving a customer access to both "the supplier's and connecting operator's entire telephone network" (emphasis added). The definition of voice telephony services thus anticipates interworking of both operating networks in order for the service to be performed. No element of the definition implies or requires "end-to-end" service by one and the same operator. Moreover, when more than one operator is involved, the service supplied to customers includes access to the "entire networks" of both operators. The service supplied is not therefore the simple transmission of a voice message "up to" a connecting operator's network; rather, the service is defined as spanning both operators' networks. It therefore follows that supply of the service involves call completion spanning both operators' networks.

7.37 The CPC definition also specifies that the switching and transmission services supplied are those "necessary to establish and maintain communications" between local calling areas. We note the statement made by the United States on this point that:

"[m]aintaining 'communications' requires active coordination between operators on each side of the border, and is not two discrete services provided by different companies. For example, in order to complete a call, AT&T's switch must communicate with Telmex's switch, which is located within Mexico, not on the border."844

7.38 We observe that basic telecommunications services supplied between Members do require, during the delivery of the service, a high degree of interaction between each other's networks, since the service typically involves a continuous, rapid and often two-way flow of intangible customer and operator data. The interaction results in a seamless service between the originating and terminating segments, which suggests that the service be considered as a single, cross-border service.

7.39 Mexico seeks to draw an analogy with services involving the distribution of tangible products, such as mail, trucking or pipeline services. Mexico argues that these services are similar to the telecommunications services at issue, in that they are not supplied cross-border unless the supplier operates, or is present in some way, on both sides of the border. It is not in the Panel's mandate to make findings on whether, or to what extent, situations regarding the supply of these services fall within the scope of Article I:2(a), and we expressly do not make such findings. We observe, however, that the CPC definition of the "public long distance voice telephone services", one of the basic telecommunications services at issue, provides for an especially high degree of interaction between operators. The CPC definition does not explicitly restrict the scope of these services to those supplied between operators within the same jurisdiction. We infer that the CPC definition foresees an especially high degree of interaction also between operators located in different Members. Because of this high degree of interaction implicit in the definition of the service, we do not agree that these other services mentioned by Mexico provide persuasive evidence of the argument presented by Mexico.

7.40 A basic telecommunications operator, in other words, must typically link with other operators in order to supply a complete service to its customers. Likewise, those other operators will link with it, in order to give their customers a complete service. Public telecommunications networks are in fact often legally obligated to interconnect. In sum, telecommunications services normally involve or require linking with another operator to complete the service, and the operation, or presence in some way, of the supplier on both ends of the service cannot therefore be a necessary element of the definition of cross-border supply.

7.41 If linking with another operator implied that the originating operator were no longer "supplying" the service, an absurd consequence would result. Not only would telecommunications services delivered in this manner not be "supplied" cross-border in the sense of Article I:2(a), they would also not be "supplied" under any of the other modes of supply under the GATS. Nearly all telecommunications services currently supplied across borders would then fall outside the scope of the GATS. Present and future liberalization of this form of international telecommunications trade would not be possible within the WTO, without a new or amended treaty. Such an interpretation would be inconsistent with the fact that the GATS "applies to ... trade in services" (Article I:1), and that "trade in services" is defined comprehensively as the supply of services through four modes of supply.845 The GATS creates a wide-ranging agreement covering all services and modes of supply, in order to allow progressive liberalization of trade in services between Members. This suggests that the supply of basic telecommunications services � the "transmission of customer supplied information" � must include supply by means which involve or require linking to another operator to complete the service.

7.42 More generally, a supplier of services under the GATS is no less a supplier solely because elements of the service are subcontracted to another firm, or are carried out with assets owned by another firm. What counts is the service that the supplier offers and has agreed to supply to a customer. In the case of a basic telecommunications service, whether domestic or international, or supplied cross-border or through commercial presence, the supplier offers its customer the service of completing the customer's communications. Having done so, the supplier is responsible for making any necessary subsidiary arrangements to ensure that the communications are in fact completed. The customer typically pays its supplier the price of the end-to-end service, regardless of whether the supplier contracts with, or uses the assets of, another firm to supply the service.

7.43 Additional evidence, for the view that cross-border supply does not imply the presence of the service supplier in the market into which the service is delivered, is contained in a document entitled "Scheduling of Initial Commitments in Trade in Services: Explanatory Note" (the "Explanatory Note"), issued by the GATT Secretariat as a working document for the Group of Negotiations on Services.846 The Explanatory Note states that the supply of a service through telecommunications is an example of cross-border supply "since the service supplier is not present within the territory of the Member where the service is delivered".847 (emphasis added) We accord substantial interpretative weight to this statement. The Explanatory Note was requested by the Group of Negotiations on Services, and issued in September 1993, during a period of intense drafting of initial commitments to meet the deadline for the completion of schedules in December of that year. During and after that period, the Explanatory Note was heavily relied upon by negotiators to interpret their own and other negotiators' commitments. The Explanatory Note was revised somewhat in 2001 � without however modifying the statement with respect to the presence of cross border suppliers � and was adopted by the Council on Trade in Services as "Guidelines for the scheduling of specific commitments under the General Agreement on Trade in Services (GATS)" (the "Scheduling Guidelines").848 Even though the Explanatory Note and the Scheduling Guidelines each state that they cannot be considered as "authoritative" or "legal" interpretations of the GATS, we find that the source, content, and use by negotiators of the Explanatory Note, together with its later adoption by Members as the Scheduling Guidelines, provides an important element with which to interpret the provisions of the GATS.

7.44 In interpreting the scope of cross border supply in Article I:2(a) of the GATS, we need not decide whether the Explanatory Note provides "context" (as an agreement or instrument made in connection with the conclusion of the GATS) under paragraph 2 of Article 31 of the Vienna Convention, or whether it can be "taken into account", together with the context, as a subsequent agreement or practice under paragraph 3 of the same provision. In any case, we consider that the source, content and use of the Explanatory Note make it part of the "circumstances" of the conclusion of the GATS, within the meaning of Article 32 of the Vienna Convention. We may therefore properly have recourse to the Explanatory Note to confirm our understanding of the ordinary meaning of Article I:2(a) of the GATS.849

7.45 For these reasons, we find that the services at issue, in which United States suppliers link their networks at the border with those of Mexican suppliers for termination within Mexico, without United States' suppliers operating, or being present in some way, in Mexico, are services which are supplied cross-border within the meaning of Article I:2(a) of the GATS.

(c) Has Mexico undertaken commitments on the cross-border supply of the services at issue?

7.46 The United States argues that Mexico, with respect to the cross-border supply of the services at issue, has inscribed in its schedule commitments granting full national treatment and full market access. The one apparent limitation (the "routing restriction"), which Mexico has inscribed in the market access column does not, according to the United States, fall within the defined categories of market access restrictions in Article XVI:2, and therefore does not limit the full market access which Mexico has committed with respect to the cross-border services at issue.

7.47 Mexico initially argues that it cannot have undertaken any cross-border commitments with respect to the supply of the services at issue through the linking of networks of different operators at the border, since the supply of these services in this manner is not within the definition of cross-border trade in services in the sense of Article I:2(a). We have rejected this argument in the previous section.

7.48 Mexico then argues that, even if cross-border supply were understood to include the linking of networks of different operators at the border, Mexico has still undertaken no commitment to allow the cross-border supply of the services at issue, because the limitations Mexico has inscribed in its schedule make it impossible for cross-border supply to take place. In particular, Mexico argues that the routing requirement in its commitments requires a cross-border supplier to link its network with that of a Mexican operator at the border and that this requirement, read together with other restrictions in its schedule, requires a potential cross-border supplier to obtain a "concession". To obtain a concession, Mexico argues, foreign suppliers would have to have both a commercial presence in Mexico and Mexican nationality.

7.49 It remains for us therefore to examine whether, in the light of the limitations inscribed in its schedule, Mexico has made any specific commitments with respect to the cross-border supply of the services at issue and, if so, whether these represent full market access and national treatment commitments, in the sense of Articles XVI and XVII.

(i) Cross-border services in Mexico's Schedule

7.50 We first examine Mexico's Schedule to determine which service sectors Mexico has made subject to cross-border commitments. We will start our analysis by looking at the inscriptions that Mexico has made in the sector column of its schedule, with respect to the services at issue.

aa) Service sectors inscribed in Mexico's Schedule

7.51 Mexico has set out the telecommunications services sectors that are subject to commitments by it by making the following inscription in the service sector column of its schedule:850

"2.C. Telecommunications Services

Telecommunications services supplied by a facilities based public telecommunications network (wire-based and radioelectric) through any existing technological medium, included in subparagraphs (a), � (c), (f), � and (o).

(a) Voice telephony (CPC 75211, 75212)

(c) Circuit-switched data transmission services (CPC 7523*)
(f) Facsimile services (CPC 7521** + 7529**)
(o) Other

�         �

� Commercial agencies3

�          �

3 Agencies which, without owning transmission means, provide third parties with telecommunications services by using capacity leased from a public network concessionaire."

7.52 The services listed in Mexico's Schedule � "voice telephony", "circuit-switched data transmission services", "facsimile services", and "commercial agencies" � appear to cover the services at issue raised by the United States in this case. However, these services are listed under, and are subordinate to, a introductory heading, that describes the listed services as "[t]elecommunications services supplied by a facilities based public telecommunications network (wire-based and radioelectric) through any existing technological medium". We must therefore carry our examination further and determine whether, or to what extent, the introductory heading affects the scope of the individual listed services.

bb) Introductory heading

7.53 The parties interpret differently the introductory heading, and disagree on its implications for the scope of the commitments undertaken. Mexico argues that the introductory heading refers only to "the physical and technical aspects of signal transmission" and "does not define the specific nature of either the services or the supply thereof".851 Mexico implies, therefore, that the introductory heading has little or no effect. The United States takes a different view, maintaining that the introductory heading limits the scope of the sector generally to services of suppliers who, in the market from which the service is supplied, own facilities. Services of suppliers who lease facilities in the market from which the service is supplied are, according to the United States, nonetheless covered by the particular subsector on "commercial agencies".852

7.54 We recall that the introductory heading of Mexico's Schedule covers "[t]elecommunications services supplied by a facilities based public telecommunications network (wire-based and radioelectric) through any existing technological medium". A simple parsing of the terms of the heading indicates that telecommunications services within its scope must have four main attributes: these services must be supplied by: (i) a " telecommunications network", that is; (ii) "public"; (iii) "facilities based"; and (iv) utilises "any existing technological medium". In examining the first two requirements � that the service be supplied by a "telecommunications network" that is "public" � we recall the definition in the GATS Annex on Telecommunications of a "public telecommunications transport network". This is defined in the Annex as the public telecommunications "infrastructure" which permits telecommunications between and among defined network termination points.853 Moreover, the meaning of "public" is revealed in the accompanying definition in the Annex of "public telecommunications transport service", which refers to a service "explicitly or in effect ... required to be offered to the public generally."854 The first two requirements of the introductory heading thus appear to be straightforward, indicating simply that the service supplied is for public use, and is based on some sort of network infrastructure. Likewise, the fourth requirement � that supply be through "any existing technological medium" is straightforward, excluding "new" technologies from the scope of the commitments. The parties do not dispute the claims made by the United States that the services at issue relate to "public" services, transported over a "network", and using "existing" technologies.

7.55 However, the meaning of the third requirement of the introductory heading � that the service be supplied by a "facilities-based" network � is much less clear. The ordinary meaning of the term "facilities", with respect to a telecommunications service, suggests "infrastructure", or the physical elements by means of which the service is supplied. The term "facilities-based", under this interpretation, would on its face suggest that the telecommunications services committed in Mexico's Schedule must be supplied by or through telecommunications "infrastructure". Yet if the term "facilities-based" simply means "infrastructure", then the term would add little or no meaning to Mexico's commitment, since a service supplied by or through a public telecommunications network must, as the Annex on Telecommunications suggests, be ultimately supplied by or through some form of telecommunications infrastructure. The introductory heading in Spanish, which is the authentic language of Mexico's Schedule, uses the term "basada en infraestructura", which gives rise to the same interpretative difficulties.855

7.56 We recognize that, in examining the meaning of the expression "facilities-based" in Mexico's introductory heading, we need to give meaning and effect to all its terms, and not adopt an interpretation that would result in reducing any of its terms to redundancy.856 In seeking to give meaning to the term "facilities-based", we observe that the requirement that the supply of the service be "based" on facilities logically implies that there could in principle exist supply that is not "based" on facilities. This suggests that a "facilities-based" network refers not to the existence of infrastructure (upon which any telecommunication service ultimately has to rely), but to the relationship between the infrastructure and the service. Under this interpretation, the term "facilities-based" in the introductory heading of Mexico's Schedule could plausibly refer to services transported by an operator over its own infrastructure, and not over infrastructure leased from another operator.

7.57 Under this interpretation, a further issue arises as to whether the meaning of "facilities-based" qualifies only those services transported by an operator over its own infrastructure in the market from which the service is supplied, as the United States suggests. Examining the ordinary meaning of the terms in Mexico's Schedule, in their context, the words "facilities-based public telecommunications networks" do not, on their own, suggest any geographical distinction. Mexico has placed this phrase in the column of its schedule entitled "sector", which suggests that the phrase refers to the overall nature of the service, and not to the nature of the service with respect to any particular location of the supplier. Aspects of the supply of the service that relate to the location of the supplier are addressed in GATS by the four modes of supply. In a schedule, the inscriptions that inform the reader concerning the nature of the commitments in relation to the four modes of supply are found in the market access and national treatment columns, not in the sector column. Thus, the inscriptions in the market access and national treatment columns must be used to determine what limitations, if any, may affect the supply of a service based on the location of the supplier or its status (facilities-based or not) in a particular location. We therefore see no reason to read this geographical qualification into the meaning of "facilities-based". Accordingly, we are not convinced by the United States' argument that the phrase "facilities-based public telecommunication networks" found in the sector column of Mexico's Schedule means, in itself, that Mexico's commitments extend to any of the services at issue supplied by a cross-border supplier that uses its own infrastructure (and not leased capacity) in the market from which it is supplying, regardless of how these services are terminated in Mexico.

cc) Supplementary documents used to schedule commitments

7.58 We have arrived at this interpretation of the introductory heading in Mexico's Schedule based on the wording of the heading within the context of the schedule. We now seek confirmation of the meaning of the introductory heading in the light of three important documents used by Members to provide guidance in drawing up their schedules: the Draft Model Schedule, the related Note by the Chairman, and the Scheduling Guidelines. We refer to these documents as the "supplementary documents".

i) Description of the supplementary documents

Draft Model Schedule

7.59 The Draft Model Schedule arose from discussions by negotiators at the close of the Uruguay Round. Once the Negotiating Group on Basic Telecommunications was established in May 1994, the Secretariat was asked to provide a Note on the background on the previous Uruguay Round discussions on basic telecommunications. The resulting Note included the Draft Model Schedule that, after discussion in the Group, was reissued with minor revisions.857 The Draft Model Schedule was specifically intended "to assist participants in the drafting of their offers and final schedules." It contains a list of basic telecommunications sectors based on the standard GATS sectoral classification list (W/120)858, including cross-references to the United Nations CPC, and explanatory notes.859

7.60 The Draft Model Schedule lists the services subsectors, considered as the basic telecommunications services subject to the negotiations, as follows:

"2.C. Telecommunications Services UNCPC

a. Voice telephone services

7521
b. Packet-switched data transmission services 7523**
c. Circuit-switched data transmission services 7523**
d. Telex services 7523**
e. Telegraph services 7522**
f. Facsimile services 7521**+7529**
g. Private leased circuit services 7522**+7523**
o. Other"  

7.61 The "sector or subsector" column of the Draft Model Schedule also lists a number of "categories" into which the services can be further subdivided. The Draft Model Schedule explains:860

"Depending on the services being offered or on the limitations existing in the regulatory regime concerned, the specific commitments on these services [a. through g. and o.] may be subdivided into the categories as noted."

7.62 The listed "categories" are reproduced as follows:861 (emphasis added)

"Local/long distance/international service

� wire-based
� radio-based
on a resale basis
facilities-based
� for public use
� for non-public use"

7.63 We note particularly the use of the terms "on a resale basis" and "facilities-based" as categories by which specific commitments may be subdivided.

The Note by the Chairman

7.64 A Note by the Chairman of the Negotiating Group on Basic Telecom, entitled "Notes for Scheduling Basic Telecom Services Commitments" was issued on 16 January 1997.862 The purpose was "to produce a brief and simple note on assumptions applicable to the scheduling of commitments in basic telecoms."863 Although the Note states that it is "not intended to have any binding legal status", it specifies that its purpose is "to assist delegations in ensuring the transparency of their commitments and to promote a better understanding of the meaning of commitments."864 The Note draws on the Draft Model Schedule, restating its categories and confirming that they are to be used in scheduling commitments. The Note states an important assumption: that, "unless otherwise noted in the sector column" any telecommunications service listed in the sector column "encompasses" or "may be provided" by or through all of the different "categories" of the service.

7.65 The Note by the Chairman was attached to the final Report of the Group on Basic Telecommunications, which was adopted on 15 February 1997.865 The Report states that the Chairman issued a Note "reflecting his understanding of the position reached in discussion of the scheduling of commitments" and that this Note "set out a number of assumptions applicable to the scheduling of commitments and was intended to assist in ensuring the transparency of commitments".866

Scheduling Guidelines

7.66 The Note by the Chairman, together with the Draft Model Schedule, were attached to the "Guidelines for the Scheduling of Specific Commitments under the General Agreement on Trade in Services (GATS)", (the "Scheduling Guidelines") which were adopted by Members in the Council on Trade in Services on 23 March 2001.867 The Scheduling Guidelines were an update of the Explanatory Note issued in 1993 for the Group of Negotiations on Services.868 The objective of the Scheduling Guidelines is "to explain, in a concise manner, how specific commitments should be set out in schedules in order to achieve precision and clarity."

ii) Interpretative value of the supplementary documents

7.67 The Draft Model Schedule and the Note by the Chairman were documents given considerable prominence by Members, since they were attached to the final Report adopted by the Negotiating Group on Basic Telecommunications in 1997.869 Members gave further prominence to these two documents by attaching them to the Scheduling Guidelines adopted by the Council for Trade in Services in 2001. Annex 2 of the Scheduling Guidelines is entitled "List of attached documents relevant for scheduling purposes". (emphasis added) Nonetheless, a footnote to the title of Annex 2 states that "[t]he fact that these documents are annexed to these guidelines should not be interpreted as changing their status." We accept that the footnote means that the attachment of the Draft Model Schedule and the Note by the Chairman to the Scheduling Guidelines should not in itself affect the existing interpretative status of the two documents. However, the footnote does not affect the interpretative status that the Draft Model Schedule and the Note by the Chairman might otherwise have, including the interpretative value derived from being attached to the Report by the Negotiating Group on Basic Telecommunications. Consequently, even if the Draft Model Schedule and the Note by the Chairman cannot be seen as part of the "context" under paragraph 2 of Article 31, nor be "taken into account" under Article 31 � a legal question that we leave open � we find that these documents are, with respect to the GATS Protocol on Telecommunications (to which Mexico's Schedule was attached) an important part of the "circumstances of its conclusion" within the meaning of Article 32 of the Vienna Convention. Under the terms of Article 32, we may therefore use the Draft Model Schedule and the Note by the Chairman to confirm the ordinary meaning, arrived at through the application of Article 31 of the Vienna Convention, of Mexico's GATS commitments on telecommunications services.

7.68 Confirmation of the interpretative value of the supplementary documents is provided by the extensive use in Members' schedules of the categories indicated in the Chairman's Note and Draft Model Schedule. Schedules on occasion indicate even finer distinctions in categories, where needed, to reflect accurately the nature of the services on which Members were undertaking commitments. In some cases, the categories are used to limit the scope of a subsector by distinguishing the categories of services that are being committed. In other cases, the categories are used to specify different levels of commitments for some categories of a subsector, as compared with other categories of the subsector. Typical examples in schedules include commitments that offer greater levels of access for a given service supplied on a facilities basis, or that specify that public telephony remains under monopoly while non-public telephony does not. The categories are often cited in the sector column of schedules, as provided in the Chairman's Note. In some schedules, however, categories are listed in the market access column instead of the sector column. In these cases, the entries nonetheless appear to clarify the category or categories of service to which the market access limitation itself applies. Indeed, for those schedules that use not categories at all, it is only by reference to these understandings that there can be certainty that the commitments "encompass" all of the forms in which the services may be supplied. Because of this extensive use in Members' schedules of principles set out in the Draft Model Schedule and the Note by the Chairman, we consider that substantial interpretative weight can be given to the supplementary documents.

dd) Mexico's cross-border telecommunications commitments

7.69 We now examine the sector column of Mexico's Schedule in the light of the Model Schedule and the Chairman's Note. We recall that the introductory heading in Mexico's Schedule is contained in the column which describes services, and our earlier reasoning that this heading must therefore qualify a type of service. We next observe that the words "facilities based", "public", "wire-based" and "any � technological medium" used in Mexico's Schedule all reflect categories included in the Chairman's Note.870 Mexico appears therefore to have adopted the sectoral approach set out in the Chairman's Note, and can be assumed to have scheduled its commitments according to the assumptions contained in that Note.

7.70 The category "facilities-based" which appears in the Chairman's Note and the Draft Model Schedule is used solely to describe the "facilities-based" supply of a service, and not generally to describe the simple existence of a network infrastructure. As indicated in the Chairman's Note "unless otherwise noted in the sector column", the commitment is presumed to encompass all of the categories cited in the Note. We recall that these categories include "facilities-based" and "on a resale basis". If, as discussed earlier, Mexico's reference to supply by or through "facilities" were understood simply to refer to supply by means of an infrastructure, then the term would be redundant, since any supply of the service is ultimately possible only through a network of physical assets of some operator. In consideration of the categories of the Chairman's Note, however, it becomes apparent that such an interpretation would also make redundant the contrasting categories of supply � "facilities-based" and "by resale". Were this the case, it would not be possible, as provided by the Chairman's Note, for Members to use these categories as a basis for distinguishing between types of supply of basic telecommunications services being committed and those that are not.

7.71 We find therefore that the use of the word "facilities-based" in the phrase "facilities-based public telecommunication network" contained in the introductory heading to Mexico's telecommunications commitments means that Mexico has undertaken commitments for the services at issue supplied only on a facilities basis over such networks � and not by resale or leased capacity. The examination of the supplementary documents thus confirm our interpretation of the ordinary meaning of the terms "facilities-based" in Mexico's Schedule.

7.72 Nonetheless, Mexico's services sector listing does contain a subsector listing for "commercial agencies" ("comercializadoras"), defined as "[a]gencies which, without owning transmission means, provide third parties with telecommunications services by using capacity leased from a public network concessionaire." This subsector listing can be read only as an exception, for the services at issue that are supplied through leased capacity, to the general exclusion of such services expressed in the introductory heading. The separate commitment on supply of telecommunications services through leased capacity has meaning in the context of Mexico's Schedule, since supply in this manner is subject to market access limitations that are somewhat different from those inscribed with respect to facilities-based supply.

(ii) Market access and national treatment commitments for cross-border supply

7.73 We now consider what cross-border commitments Mexico has undertaken with respect to the services listed in the sector column of its schedule. For the services at issue, Mexico has inscribed certain cross-border commitments for market access and national treatment. In the national treatment column of its schedule, Mexico has inscribed "None". This term is a GATS scheduling convention which means "no limitations" � in other words, a full commitment.871 Mexico has therefore undertaken a full national treatment commitment for the cross-border supply of the services at issue.

7.74 With respect to market access for the cross-border supply of the services at issue, Mexico has inscribed the following:

"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)."872

7.75 The words "None, except" appear at the beginning of Mexico's inscription. The words that follow indicate that Mexico intends to grant full market access, subject only to the limitation described. Since Article XVI and scheduling conventions require that the inscription of a limitation must be read to mean that full market access is granted, subject only to any measures specifically inscribed, the inscription of the words "None, except" was not necessary.873

7.76 We now examine what sort of limitation, if any, on market access is achieved by Mexico's inscription that "[i]nternational traffic must be routed through the facilities of an enterprise that has a concession �". Article XX:1(a) sets out the general requirement for Members to "specify" the terms, limitations and conditions on market access for committed sectors in their schedule. "Specifying" requires that an entry describe each measure concisely, indicating the elements that make it inconsistent with Article XVI:2.874

(iii) Mexico's "routing restriction"

7.77 We now examine whether the terms of the "routing restriction" in the market access column of Mexico's Schedule indicate that it comes within the scope of Article XVI:2. This provision contains six categories of measures that restrict market access. These categories differ depending on whether they place limitations on:

(a) the number of service suppliers;

(b) the value of services transactions or assets;

(c) the number of service operations or quantity of service output;

(d) the number of natural persons that may be employed;

(e) the forms of legal entity; or

(f) the participation of foreign capital.875

7.78 Mexico's routing restriction contains three main elements. The first element relates to "international traffic". The second element concerns traffic that "must be routed through the facilities of" an enterprise. The third and final element concerns "an enterprise that has a concession". We assess each of these elements in turn, with respect to their relevance to the six categories of market access measure set out in Article XVI:2.

aa) "International traffic"

7.79 The first element of the routing restriction narrows its scope to "international traffic". This element reflects one of the "categories" contained in the Chairman's Note, and can be contrasted with other categories of local and domestic long-distance service. Since the services at issue are services supplied cross-border, they would necessarily involve traffic that is international in character. Even if "domestic" services were to transit borders, they would do so as international "traffic". Therefore, Mexico has not, through use of this element, placed a substantive limitation on the number of suppliers of scheduled services on a cross-border basis, the quantity of the cross-border services supplied, or on any of the other categories of measure described in Article XVI:2.

bb) "Routed through the facilities"

7.80 The second element requires that international traffic "must be routed through the facilities" of a Mexican concessionaire. The United States argues that the requirement that services supplied cross-border "through the facilities" of a Mexican concessionaire means simply that United States calls must be terminated using the assets or equipment of a Mexican concessionaire, and that these include the use of leased lines and other leased capacity.876 Mexico disagrees, specifying that "through the facilities" means "through an international gateway" of a Mexican concessionaire, which it claims is its meaning in Mexican legislation.

7.81 In examining the meaning of this element of the routing restriction, we note that the ordinary meaning of the term "facilities" (in the Spanish authentic text "instalaciones"), on its own, is very broad. A specialized telecommunications dictionary defines "telecommunications facilities" as follows:

"The aggregate of equipment, such as telephones, teletypewriters, facsimile equipment, cables, and switches, used for various modes of transmission, such as digital data, audio signals, image and video signals."

7.82 The same dictionary defines "transmission facility" as:

"A piece of a telecommunication system through which information is transmitted for example, a multi pair cable, a fiber optic cable, a coaxial cable, or a microwave radio."877

7.83 Neither of these broad definitions makes clear whether supply of the services at issue routed through the "facilities" would include supply using capacity leased to another operator. It is therefore necessary to examine further the meaning of the term "facilities", viewed in its context within Mexico's Schedule.

7.84 We recall that the Chairman's Note provided guidance for Members making commitments in basic telecommunications.878 The use of the word "facilities" in the Note corresponds to a possible category by which a service sector could be narrowed down or refined. The category is referred to as the "facilities-based" supply of a service. We therefore find that the phrase "through the facilities of", placed in the context of the categories of the Chairman's Note, refers not to a requirement simply to use the equipment or physical assets of a Mexican concessionaire, but to supply the service on a facilities-basis, and not through capacity leased to the cross-border supplier.

7.85 We now assess whether this element of the routing restriction introduces a market access restriction in the sense of Article XVI:2, with respect to the cross-border supply of the service. To this end, it is necessary to assess the effect of this element on the relevant services listed by Mexico in its schedule. With respect to services falling under the main sectoral heading, this element would appear to reinforce the inscription in the main sectoral heading that the services committed must be supplied on a facilities-basis. However, this element of the routing restriction also further specifies that the terminating segment of cross-border supply not only may, but must, be supplied on a facilities-basis. This element of the routing restriction means, therefore, that supply of the service by means of one of the categories (over leased capacity) within Mexico is prohibited, and is subject to a zero quota in the sense of Article XVI:2(a), (b) and (c). We note that, while this limitation prohibits services that originate on a facilities basis from being terminated over leased circuits, it does not prevent these services from being supplied when they fall within the facilities-based category with respect to termination.

7.86 With respect to Mexico's commitments falling under the subsector heading of "commercial agencies", this element of the routing restriction would mean that even if the originating segment of the cross-border service is supplied over leased capacity, it is nevertheless restricted only to facilities based supply on the terminating segment within Mexico. Therefore, with respect to the commercial agencies (comercializadoras) services described as a subsector, this routing restriction prohibits the cross-border supply upon termination within Mexico by means of the very "leased capacity" which defines this type of service. While this element of the routing restriction does not expressly prohibit cross-border supply over leased capacity on the originating segment, it means that supply over leased capacity on the terminating segment is prohibited. Therefore, this element of the routing restriction prohibits end-to-end International Simple Resale (ISR), and effectively eliminates the possibility of any cross-border supply of services over leased capacity. In this sense, with respect to cross border services supplied by commercial agencies, the routing restriction falls within the scope of Article XVI:2(a), (b) and (c).

cc) "Enterprise that has a concession"

7.87 The third element requires that the traffic be routed through the facilities of an "enterprise that has a concession". In particular, Mexico argues that the requirement that international traffic be "routed through the facilities" of an enterprise that has a "concession" must be read in conjunction with the use of the term "concession" contained in its market access column for the supply of the services at issue through commercial presence.

7.88 Mexico's Schedule, with respect to the supply of the services at issue through commercial presence reads, in relevant part:

"A concession1 from the SCT is required. Only enterprises established in conformity with Mexican law may obtain such concession.

1 Concession: The granting of title to install, operate or use a facilities-based public telecommunications network.

Direct foreign investment up to 49 percent is permitted in an enterprise set up in accordance with Mexican law." (emphasis added)

7.89 Thus, the "concession" needed to supply the services at issue through commercial presence requires: (a) the establishment of an enterprise; with (b) no more than 49% foreign ownership. For Mexico, the use of the word "concession" has the same meaning in the context of cross-border supply as it does in the context of commercial presence. Therefore, in Mexico's view, a concessionaire entitled to route international traffic into Mexico must be a juridical person of Mexican nationality. Mexico then reasons that the mention of the word "concession" in the routing restriction for cross-border supply "creates commercial presence and nationality requirements to supply basic telecommunications services in Mexico".879 Since a foreign service supplier wishing to supply cross-border can neither have Mexican nationality nor supply through commercial presence, Mexico concludes that its cross-border commitments for the services at issue effectively allow zero access for foreign service suppliers wishing to supply cross-border, and that this constitutes "limitations on the number of service suppliers", as provided for in paragraph (a) of Article XVI:2.880

7.90 Even if we were to accept Mexico's argument that the term "concession" in its cross-border commitments has the same meaning as in its commercial presence commitments, we do not see how the nationality and commercial presence requirements for the concessionaire � the entity which routes the calls transferred to it by United States suppliers at the border � amounts to a commercial presence and a Mexican nationality requirement for a cross-border supplier, effectively preventing any supply by that mode. Accepting Mexico's argument in this regard would require acceptance of Mexico's argument that the same supplier must undertake the transmission of a call on both sides of the border, implying that the supplier operate, or be present in some way, in the market being supplied. The Panel has earlier examined and rejected this interpretation.881 Based on a correct understanding of cross-border supply under Article I:2(a) of the GATS, Mexico's conclusion simply does not follow. The third element of the routing restriction � the concession requirement � does not therefore fall into any of the six categories of market access restrictions contained in Article XVI:2.

7.91 We find overall therefore that the inscription in Mexico's Schedule of the routing requirement prohibits market access for the supply of the services at issue on a non-facilities basis (over capacity leased by an operator) in Mexico, but allows full access for the services at issue supplied on a facilities-basis (not over capacity leased by an operator) in Mexico � subject to routing the traffic through Mexican enterprises that have a "concession".

(d) Do Mexico's specific commitments provide "the basis" for its additional commitment on interconnection?

7.92 Section 2.1 of the Reference Paper stipulates that Mexico's interconnection obligation applies "on the basis of the specific commitments undertaken" ("respecto de los cuales se contraigan compromisos espec�ficos"). The specific commitments referred to in Section 2.1 must refer only to the market access and national treatment commitments undertaken by Mexico, and not Mexico's additional commitments, since otherwise the interconnection provision (itself a specific commitment) would provide the basis for its own application. The United States argues that once any level of commitment is made, Section 2 of the Reference Paper applies fully within the modes of supply in which the commitments have been taken, unless there is an inscription in the schedule explicitly limiting the applicability of the Reference Paper.882 Mexico disagrees and, basing itself on the language of its Reference Paper, states that Section 2 applies only within the bounds of inscribed market access.883

7.93 We recall that Section 2.1 reads:

"2. Interconnection

2.1 This section applies, on the basis of the specific commitments undertaken, to linking with suppliers providing public telecommunications transport networks or services in order to allow the users of one supplier to communicate with users of another supplier and to access services provided by another supplier."884 (emphasis added)

7.94 Section 2.1 requires that the interconnection obligation be "on the basis" of these specific commitments undertaken ("respecto de los cuales se contraigan compromisos espec�ficos"). The wording of this phrase suggests that the specific commitments should in some way "justify" or "provide the scope for" the interconnection obligation. This conclusion is supported by an examination of the phrase in its context. The wording of Section 2 of the Reference Paper as a whole suggests that the purpose of the interconnection obligation is to enable suppliers supplying a basic telecommunications service committed by a Member in its schedule not to be restricted by unduly onerous interconnection terms, conditions and rates imposed by a major supplier. It would not appear to be the purpose of Section 2 to provide the benefits of the interconnection to a supplier in any telecommunications subsector or mode of supply, simply because other subsectors and modes of supply have been committed. It would seem reasonable to conclude, therefore, that the right to interconnect accorded by Section 2.2 should apply where, with respect to a particular subsector and mode of supply, a Member's market access and national treatment commitments specifically accords the right to supply that service. We therefore do not agree with the United States argument that a limitation inscribed in either the market access or the national treatment column cannot limit the applicability of an additional commitment under Article XVIII.

7.95 We have found in previous sections that Mexico has undertaken specific commitments � national treatment and market access � with respect to the supply of services on a facilities basis (not over capacity leased by an operator) in Mexico. We therefore find that these specific commitments form the "basis" on which Section 2.1 of Mexico's Reference Paper applies to the services at issue supplied on a facilities basis in Mexico.

(e) Do Mexico's additional commitments on interconnection apply to suppliers of cross-border services?

7.96 The United States argues that, based on ordinary meaning, the Reference Paper applies to interconnection with a cross-border supplier since, in the wording of Section 2.1, there is a "linking" of basic telecommunications suppliers in order to "allow the users of one supplier to communicate with users of another supplier". That certain provisions in Section 2 may be more relevant to domestic interconnection than to international interconnection is not determinative. In the United States view, there are no important technical differences between international and domestic interconnection, and the underlying reasons for competition disciplines in both cases are the same. Call termination is simply a form of interconnection. According to the United States, even Mexico's own laws and regulations governing such cross-border termination refer to "interconnection" with foreign suppliers.

7.97 The United States further argues that the existence of international "accounting rate" regimes which may apply to certain cases of cross-border interconnection does not mean that cross-border interconnection is excluded from the scope of the Reference Paper. There are no explicit words to this effect. The United States argues that, while early drafts of the Reference Paper specifically provided for transparency in accounting rates, it does not follow that deletion of this discipline from the final version indicates that interconnection under such regimes is excluded from the scope of the Reference Paper. The United States also contends that it is not relevant that accounting rate regimes are temporarily exempt from WTO dispute settlement procedures through an understanding on accounting rates ("Understanding") contained in a 1997 Chairman's Note.885 That exclusion, the United States points out, is non-binding, and was intended solely to provide cover from the MFN obligations in Article II of the GATS, and not commitments contained in the Reference Paper. The United States finally argues that International Telecommunication Union ("ITU") instruments are not relevant to this dispute, since they are separate from the WTO Agreement and, in any case, they do not conflict with Mexico's WTO obligations, and the definition of "accounting rate" in the ITU is consistent with Section 2.1 of the Reference Paper.

7.98 Mexico disagrees and claims that the Reference Paper provisions on interconnection do not apply to the cross-border supply of a service. It argues that Reference Paper commitments are additional commitments undertaken under Article XVIII, and they cannot therefore apply to cross-border interconnection, a market access issue covered by Article XVI. Mexico further argues that Reference Paper commitments are a matter exclusively of domestic regulation, and cannot cover cross-border supply in which the operator is located outside a Member's territory.

7.99 Mexico also argues that the existence of accounting rate regimes governing the cross-border supply of telecommunications services between many countries, and which are inconsistent with Reference Paper obligations, shows that these cross-border services were never intended to be covered by the Reference Paper disciplines on interconnection. In addition, Mexico argues that the negotiating history of the Reference Paper must be used as a supplementary means of interpretation. Although a section containing obligations relating explicitly to accounting rates was contained in early drafts of the Reference Paper, Mexico argues, they were later removed. Mexico also argues that the non-binding Understanding, contained in the 1997 Chair Note, which excludes the application of accounting rates from WTO dispute settlement, is evidence of an intention to exclude cross-border interconnection from the Reference Paper.

7.100 In order to determine whether Mexico's additional commitment on interconnection applies on the basis of its commitment on cross-border supply of the services at issue, we re-examine the terms of Section 2.1 of Mexico's Reference Paper. As already indicated before, Section 2.1 states that the interconnection provisions in Section 2.2 apply to:

"linking with suppliers providing public telecommunications transport networks or services in order to allow the users of one supplier to communicate with users of another supplier and to access services provided by another supplier, on the basis of the specific commitments are undertaken."

7.101 We note that this delimitation of the type of interconnection which falls within the scope of Section 2.2 contains four main elements: (a) a "linking"; (b) with "suppliers of public telecommunications networks and services"; (c) "to allow the users of one supplier to communicate with users of another supplier and to access services provided by another supplier"; and (d) "on the basis of the specific commitments undertaken". We examine the scope of the interconnection provided for in Section 2 in the light of these elements.

(i) Ordinary meaning

7.102 The ordinary meaning of the word "linking" is very broad. The general dictionary meaning of "link" is "a connecting part, whether in material or immaterial sense; a thing (occas. a person) serving to establish or maintain a connexion; a member of a series or succession; a means of connexion or communication." Similarly, the meaning of the verb form of "link" is "to couple or join with", and the phrase "to link up with" includes "by means of transport or system of communication".886 The dictionary meaning of the term link thus suggests that linking can involve any kind of connection between networks. The ordinary meaning of linking is broad and does not, in particular, imply any particular location of the object being linked. This ordinary meaning of link is consistent with the definition provided by a telecom glossary of a link as "a general term used to indicate the existence of communications facilities between two points".887

7.103 Section 2 of Mexico's Reference Paper describes the form of linking to which it applies as that occurring "with suppliers providing public telecommunications transport networks or services". A "public telecommunications transport service"888 is defined in the Annex as:

"a telecommunications transport service required, explicitly or in effect, by a Member to be offered to the public generally. Such services may include, inter alia, telegraph, telephone, telex, and data transmission typically involving the real-time transmission of customer-supplied information between two or more points without any end-to-end change in the form or content of the customer's information."889

7.104 A "public telecommunications transport network"890 is defined in the Annex as "the public telecommunications infrastructure which permits telecommunications between and among defined network termination points".891

7.105 Accordingly, the phrase "suppliers providing public telecommunications transport networks or services " means that, under Section 2, the "linking" is with suppliers of basic telecommunications services that are required to be offered to the public generally.892 Thus there is no obligation to ensure such linking with suppliers that do not provide basic telecommunications services or with suppliers of basic telecommunications services that are not required to offer their services to the public generally. However, neither that provision, nor any other provision of Section 2, makes any reference to the entity that is entitled to be linked to the public telecommunications transport networks or services; no language thus exists that would circumscribe the scope, geographic or otherwise, of the basic telecommunications suppliers to be linked. This provision therefore could not be read to exclude suppliers outside of Mexico from "linking" to public telecommunications transport networks and services in Mexico.

7.106 Section 2 also states that the purpose of the linking is "to allow the users of one supplier to communicate with users of another supplier and to access services provided by another supplier". Allowing the users of one supplier to communicate with users of another supplier should consist, at the very least, of allowing a basic telecommunications supplier who originates a voice telephone call for its customer to interconnect with a supplier of public telecommunications transport networks and services for the purpose of terminating that call with whichever user its customer wishes to communicate with. Again, there is nothing in this wording that suggests that the geographical location of the users that communicate, the services to be accessed, or service suppliers to be linked is relevant, much less circumscribed. Finally, the definition limits the scope of interconnection to situations "on the basis of the specific commitments undertaken". This condition likewise is silent as to the location of the suppliers or the network.

7.107 That the drafters did not explicitly limit the scope of Section 2 by, for example, inserting the word "domestic", must have some meaning. This silence could be seen as an indication that the scope of interconnection under Section 2 is comprehensive and includes international interconnection. However, the fact that there is no hint of any language limiting the geographic location of the network of the supplier seeking to be linked in this Section does not conclude our task of determining the meaning of interconnection under Section 2. Other interpretative elements could, as argued by Mexico, indicate a different result.893

(ii) Context provided by the term "interconnection"

7.108 We note that the "linking" referred to in Section 2.1 falls under the Section 2 heading of "interconnection", and is therefore informed by this term. The verb form "interconnect", in its general dictionary sense, means simply "to be or become mutually connected".894 This suggests that the term "interconnection" is simply a form of linking of suppliers, which does not indicate any distinction with respect to the location of the suppliers being linked. Interconnection is, however, a term which may be given a "special meaning", according to Article 31.4 of the Vienna Convention, "if it is established that the parties so intended." Since the provision is a technical one that appears in a specialized service sector, we are entitled to examine what "special meaning" it may have in the telecommunications context, and whether the "linking" referred to in Section 2.1 is circumscribed by that special meaning. A specialized dictionary meaning of "interconnection" is:

"The linking together of interoperable systems. The linkage used to join two or more communications units, such as systems, networks, links, nodes, equipment, circuits, and devices."895

7.109 We note that this definition makes no distinction with respect to the national or geographic origin of the supplier or the location of the supplier to be linked.

7.110 The term "interconnection" also appears as a technical term with a possible "special meaning" in national laws and regulations. Mexico's Federal Communications Law, for example, although it does not directly define "interconnection", unambiguously uses the term to include cross-border interconnection.896 Article 47 of the law states that "[i]nterconnection of public telecommunications networks with foreign networks shall be carried out through agreements entered into by the interested parties".897 The ILD Rules likewise do not define "interconnection" directly, but again, usage of the term in the Rules makes it clear that it includes interconnection with foreign networks. The introductory clauses of the ILD Rules state that the Federal Telecommunications Commission has the authority to "oversee the efficient interconnection of public telecommunications networks and equipment, including interconnection with foreign networks".898 Likewise, the stated purpose of the ILD Rules is to "regulate the provision of international long-distance service and establish the terms to be included in agreements for the interconnection of public telecommunications networks with foreign networks."899 This confirms that the term "interconnection" is used in Mexico for interconnection between domestic networks, and between domestic and foreign networks.

7.111 We have not been provided evidence of laws or regulations of other Members which offer definitions or usage that indicate that the definition of "interconnection" is inconsistent with the ordinary meaning of the term "linking" in Section 2 of Mexico's Reference paper.900 We note that under EC law, the term "interconnection" is defined comprehensively in a manner that is consistent with the ordinary meaning of the term "linking":

"the physical and logical linking of public communications networks used by the same or a different undertaking in order to allow the users of one undertaking to communicate with users of the same or another undertaking, or to access services provided by another undertaking. Services may be provided by the parties involved or other parties who have access to the network. Interconnection is a specific type of access implemented between public network operators."901

7.112 A "special meaning" of the term "interconnection" in Section 2, inconsistent with the ordinary meaning of this term, is also not evident from an examination of the differences between domestic and international interconnection from commercial, contractual, or technical points of view.

7.113 From a commercial perspective, we disagree with Mexico that international interconnection under a traditional, "joint service" regime is distinctive because the two operators cooperate, and do not compete for the same customers, unlike in domestic interconnection. In a domestic setting, it is true that two operators in the same geographic area and providing the same type of service will usually compete directly for the same customers. In an international setting, two operators may however also compete for the same customers through subsidiaries or services offered in each others' markets. Even if they do not, there is still an incentive for a major supplier to set interconnection rates at anti-competitive rates, and not to provide optimal service to the other supplier in terms of quality and timeliness. Domestic and international interconnection do not therefore differ significantly in this respect.

7.114 From a contractual perspective, we also find that there are no significant differences between the domestic and international interconnection, including through accounting rate arrangements. We cannot accept Mexico's assertion that "most of the provisions of one agreement are either not applicable or can never be a provision in the other agreement."902 From a contractual point of view, domestic and international interconnection, including the accounting rate regime, do not form two distinct regimes that cannot overlap. After reviewing the evidence before it, including copies of standard agreements furnished by Mexico, and the arguments of the parties, the Panel agrees substantially with the statement by the United States that interconnection agreements between suppliers in the same or different countries, including through accounting rate regimes:

"may include a wide variety of rates, terms and conditions concerning such matters as specific services covered by the agreement, the rates applicable to specific services, payment schedules, procedures for dispute resolution, time duration of the agreement, restrictions on assignments of rights, and various network technical considerations. Interconnection arrangements may provide for one-way or two-way traffic flows, with the same or different rates applying in each direction, and two-way traffic flow. Interconnection arrangements may also provide for 'net' payment arrangements under which the two carriers set off their interconnect payments with one carrier remitting the balance to the other carrier."903

7.115 Even Telmex's contractual arrangements with United States suppliers do not adhere fully to the traditional accounting rate regime described by the ITU in which "a net settlement payment is made on the basis of excess traffic minutes, multiplied by half the accounting rate".904 In fact, United States suppliers are charged three different rates depending on the destination zone in Mexico, while a still different rate applies to traffic from Mexico to the United States.

7.116 From a technical perspective, we find that the United States provides convincing evidence that the "mid-point" cross-border link-up, which Mexico argues is particular to international interconnection, arises also in certain situations of domestic interconnection.905 More generally, we consider that technical issues arise under both domestic and international interconnection, including through accounting rate arrangements, and that these are solved in both cases through the use of technical standards and agreements, joint planning and coordination.

7.117 In sum the ordinary meaning, in the heading of Section 2 of Mexico's Reference Paper, of the term "interconnection" � that it does not distinguish between domestic and international interconnection, including through accounting rate regimes � is confirmed by an examination of any "special meaning" that the term "interconnection" may have in telecommunications legislation, or by taking into account potential commercial, contractual or technical differences inherent in international interconnection. We find that any "special meaning" of the term "interconnection" in Section 2 of Mexico's Reference Paper does not justify a restricted interpretation of interconnection, or of the term "linking", which would exclude international interconnection, including accounting rate regimes, from the scope of Section 2 of the Reference Paper.

(iii) Other contextual elements

7.118 We now consider whether any other contextual elements within Mexico's Reference Paper may assist us in our interpretation of the scope of interconnection within Section 2. Mexico argues that certain obligations which arise from the interconnection commitment in Mexico's Reference Paper indicate that international interconnection, including through accounting rate regimes, should be excluded. Section 2.2 requires that interconnection be ensured "at any technically feasible point in the network". However, as already noted, this would not, contrary to Mexico's views, exclude linking to a point in a Mexican concessionaire's network that is located at the border. There is no reason why such a point would not be a "technically feasible point" in a network. Likewise, the requirement in Section 2.2(a) that the interconnection takes place "under non-discriminatory terms � and rates" does not in itself indicate that interconnection is restricted to domestic calls. Further, for the purposes of Section 2, it is just as necessary to ensure the interconnection of a cross-border service supplied "on the basis of the specific commitments", as it is for a supplier who is commercially present in the market.

7.119 The existence of dispute settlement provisions in Section 2.5 does not, in our view, provide contextual evidence that the scope of interconnection is restricted to domestic networks only. Section 2.5 provides for an "independent domestic body", which will "resolve disputes regarding appropriate terms, conditions and rates for interconnection within a reasonable period of time, to the extent that these have not been established previously." The fact that the adjudicating body is "domestic" does not suggest that it would have no jurisdiction over the conditions of linking of a foreign network with a domestic network at the border. Domestic regulations applicable within a Member, and subject to adjudication by the domestic bodies of that Member, can clearly also be applied by that Member at the border.

7.120 A further element that may be taken into account, together with the context, in interpreting the notion of interconnection is "subsequent practice" by WTO Members. Article 31.3(b) of the Vienna Convention requires that the treaty interpreter take into account "any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation". The Appellate Body has defined this concept as a "concordant, common and consistent" sequence of acts or pronouncements which is sufficient to establish a discernible pattern implying the agreement of the parties [to a treaty] regarding its interpretation ". 906 Mexico claims that "all fifty-five WTO Members that inscribed the interconnection commitments in Section 2.2(b) of the Model Reference Paper maintain the traditional joint service accounting rate regime", including the United States. However, maintenance of a "joint service regime" that may be inconsistent with Reference Paper obligations does not necessarily establish that interconnection commitments under Section 2 were meant to exclude coverage of all international interconnection.

(iv) Object and purpose

7.121 A consideration of the object and purpose of the treaty � the GATS � would support the interpretation of "interconnection" derived through an examination of the ordinary meaning of the term in its context. Article I:1 of the GATS provides that the agreement extends to "measures affecting trade in services". Trade in services is defined in Article I:2 to include the cross-border supply of a service "from the territory of one Member into the territory of any other Member". This mode of supply, together with supply through commercial presence, is particularly significant for trade in international telecommunications services. There is no reason to suppose that provisions that ensure interconnection on reasonable terms and conditions for telecommunications services supplied through the commercial presence should not benefit the cross-border supply of the same service, in the absence of clear and specific language to that effect. Since the GATS deals specifically with international trade in services by four modes of supply that are considered comprehensive, it would indeed be unusual for interconnection disciplines not to extend to an obvious and important mode of international supply of telecommunications services � cross border.

(v) Supplementary means � the "Understanding"

7.122 The rules of the Vienna Convention provide that "supplementary means" of interpretation may be applied in two cases.907 First, to confirm the meaning resulting from the application of the primary rules of interpretation � those we have applied up to this point.908 Second, to determine the meaning when the application of the primary rules leaves the meaning "ambiguous or obscure" or leads to a result that is "manifestly absurd or unreasonable". The supplementary means of interpretation include the preparatory work of the treaty and the circumstances of its conclusion.909

7.123 Mexico has presented extensive arguments, based on the preparatory work of the GATS and the circumstances of its conclusion, to show that a reading of the term "interconnection" to include interconnection with foreign suppliers and networks would lead to a result which is "manifestly absurd or unreasonable". Mexico refers specifically to early drafts of the Reference Paper, and to an understanding on accounting rates reached by negotiators. In order to "confirm the meaning" resulting from the application of the primary rules of interpretation, it would therefore be appropriate to examine these supplementary means of interpretation.

7.124 The text cited by Mexico (the "Understanding") is contained in a Report by the Group on Basic Telecommunications made on 15 February 1997, at the close of the negotiations on the Fourth Protocol � the instrument which contained Members' new commitments on basic telecommunications, including Mexico's Reference Paper commitments. The Report, which appended the draft schedules of Members, states:

"7. The Group noted that five countries had taken Article II exemptions in respect of the application of differential accounting rates to services and service suppliers of other Members. In the light of the fact that the accounting rate system established under the International Telecommunications Regulations is the usual method of terminating international traffic and by its nature involves differential rates, and in order to avoid the submission of further such exemptions, it is the understanding of the Group that:

- the application of such accounting rates would not give rise to action by Members under dispute settlement under the WTO; and

- that this understanding will be reviewed not later than the commencement of the further Round of negotiations on Services Commitments due to begin not later than 1 January 2000." (emphasis added)

7.125 The Report was introduced by the Chair of the Group on Basic Telecommunications at the 15 February meeting in the following terms (as reported in a Secretariat note):

"Introducing the revised draft of this report, the Chairman drew attention to a new paragraph dealing with accounting rates systems. It had been noted that some delegations had submitted Article II exemptions with respect to accounting rates systems; though their right to do so was not in question, it would have been undesirable that a large number of other delegations felt it necessary to take similar exemptions on the basis of uncertainty about the interpretation of the issue of accounting rates in these negotiations. In order to avoid such an outcome he suggested that a paragraph be inserted in the Report recording the understanding of the Group that the application of accounting rates under the International Telecommunications Regulations would not give rise to dispute settlement action under the WTO. The Chairman stressed that this was merely an understanding, which could not and was not intended to have binding legal force. It therefore did not take away from Members the rights they have under the Dispute Settlement Understanding; it was merely intended to give Members who had not taken MFN exemptions on accounting rates some degree of reassurance. He also drew attention to the statement in the paragraph that this understanding will be reviewed before the commencement of the next Round of negotiations. Some delegations suggested some other changes, which were incorporated in the Report." (emphasis added)

7.126 In interpreting the Understanding, it is important to note at the outset that it cannot affect directly the scope of Mexico's obligations under Section 2 of the Reference Paper. The Understanding is not, under the WTO Agreement, an agreed interpretation (Article IX:2), or a waiver (Article IX:3), or an amendment (Article X) of a provision, all of which require special rules and procedures. Even according to its own terms, the Understanding is explicitly non-binding, and concerns only procedural rights to dispute settlement, not substantive obligations. Any interpretative value of the Understanding must lie in the guidance it may lend in determining the scope of the interconnection provision in Section 2 of Mexico's Reference Paper.

7.127 The operative clause of the Understanding is that "the application of such accounting rates would not give rise to action by Members under dispute settlement under the WTO" (emphasis added). The term "such accounting rates" refers to an earlier statement in the Understanding that the "accounting rate system established under the International Telecommunications Regulations is the usual method of terminating international traffic and by its nature involves differential rates". The accounting rates referred to in the Understanding can therefore be taken to be those imposed under an accounting rate system: (a) "established under the International Telecommunications Regulations", and; (b) that "involves differential rates". The underlying purpose of the Understanding is "to avoid the submission of [MFN] exemptions", by providing temporarily "some degree of reassurance" for Members to maintain "differential" rates.

7.128 The main interpretative issue arising from the Understanding is whether the non-binding decision to exclude from the scope of WTO dispute settlement "differential" accounting rates "established under the International Telecommunication Regulations" for the purposes of the MFN obligation, implies also an intent to exclude from the substantive scope of the Reference Paper international interconnection � in particular, the international linking of the networks of Mexican and United States suppliers.

7.129 In addressing this issue, we need first to examine what is meant in the Understanding by "differential" accounting rates "established under the International Telecommunication Regulations". The International Telecommunication Regulations are a binding set of rules with treaty status, last revised in 1988, and agreed by ITU members, which include both Mexico and the United States.910 The Regulations are intended to "establish general principles which relate to the provision and operation of international telecommunications services offered to the public as well as to the underlying international telecommunications transport means used to provide such services".911

7.130 The Regulations deal in part with "accounting rates", which are defined as "the rate agreed between administrations in a given relation that is used for the establishment of international accounts." An "administration" includes a "recognized private operating agency".912 A "relation" is defined as the "exchange of traffic between two terminal countries". The principal obligation with respect to accounting rates is set out in Article 6.2:

"6.2 Accounting rates

6.2.1 For each applicable service in a given relation, administrations shall by mutual agreement establish and revise accounting rates to be applied between them, in accordance with the provisions of Appendix I and taking into account relevant CCITT Recommendations and relevant cost trends." [footnote omitted]

7.131 Article 6.2 refers to Appendix I, which sets out in more detail the establishment and settling of accounts. Article 1.1 of the Appendix provides two methods of establishing accounting rates. First, by mutual agreement of administrations, taking into account ITU recommendations and "trends in cost".913 Second, by each administration establishing terminal and transit shares, and adding these together.914

7.132 According to the ITU, the most common system of remuneration historically has been the "accounting rate revenue division procedure".915 This envisages an international call as a single "joint-service", for which the two operators negotiate an agreed "accounting rate". The accounting rate is then divided in half (the "settlement rate") and applied to traffic flows in both directions.916 Since both traffic flows are priced the same, the scheme results overall in a net payment from the operator originating more traffic to the operator originating less traffic, based solely on the difference in volume of traffic in each direction.

7.133 The traditional "accounting rate revenue division procedure" based on a negotiated rate resulted in pricing which, in practice, depended on many factors other than cost, including the dynamics of different bilateral negotiations. When the supplier, public or private, had monopoly rights within a Member's territory, any different pricing of services that occurred on the basis of a Member's territory might also, under GATS Article VIII:1, lead to MFN inconsistencies under GATS Article II. Under Article VIII:1, a Member "shall ensure that any monopoly supplier of service in its territory does not, in the supply of the monopoly service in the relevant market, act in a manner inconsistent with that Member's obligations under Article II [MFN] and specific commitments." This possible inconsistency with the MFN principle was the particular concern that was addressed in the Understanding, which speaks of "differential rates" being inherent in accounting rates.

7.134 Relevant, non-binding recommendations referred to in Article 6.2 of the Regulations are the ITU-T Recommendations D.140 and D.150.917 They deal with methods of compensating administrations for the cost of international telecommunications. At the time of the WTO negotiations on basic telecommunications, Recommendation D.140 already contained the principle of cost-orientation, transparency and non-discrimination. Subsequent to the WTO negotiations, ITU Members modified these Recommendations, adding principles for determining costs, transitional periods for achieving cost oriented rates, and explicit alternatives to the traditional accounting rate procedures between administrations.

7.135 Read together, the Regulations, its Appendix, and the related Recommendations result today in a number of different ways in which operators in different countries can be compensated for international traffic exchanged between them, ranging from traditional methods to more modern alternatives.918 Regardless of whether the traditional or new alternative arrangements are being used, the ITU instruments require that the arrangements be cost-oriented and non-discriminatory.

7.136 We therefore conclude that the accounting rates described in the Understanding should be understood to be limited to: (a) a traditional accounting rate that is not cost-oriented; (b) that can be interpreted as a measure of a Member, or that triggers a Member's obligations under Article VIII on monopolies; and (c) that applies discriminatory rates on the basis of the national origin of the cross-border traffic, and thus may be inconsistent with the MFN principle in Article II.

7.137 Based on this delineation of the "accounting rates" that are within the scope of the Understanding, we can make several observations. First, not all international interconnection pricing was excluded from dispute settlement by the Understanding, only traditional accounting rate regimes with "differential rates". Second, the exclusion was from dispute settlement, not from the substantive obligations of the GATS, including its schedules of commitments. Third, the explicit aim of the exclusion was the MFN obligation under GATS Article II. Other obligations or specific commitments in the GATS, such as Section 2 of Mexico's Reference Paper were not specified. Fourth, not all traditional accounting rate regimes would be MFN inconsistent, even if they were not cost-oriented. In order to demonstrate the MFN inconsistency of a traditional accounting system regime, one would have to show that the rate is either a "measure" of a Member, or that it falls within a Member's obligations under Article VIII:1 on monopolies, and that different rates for different international routes amount to treatment less favourable with respect to one "like service" compared to another "like service". Finally, the existence of the Understanding demonstrates that, even though negotiators considered at length the issue of rates for international interconnection, they chose not to adopt wording that would have expressly excluded certain types of interconnection from the scope of the Reference Paper.

7.138 In sum, the Understanding seeks to exempt a very limited category of measures, temporarily, and on a non-binding basis, from the scope of WTO dispute settlement. Simply because Members wished to shield a certain type of cross-border interconnection from dispute settlement, because of possible MFN inconsistencies (with respect to differential rates), it does not follow that they wished to shield all forms of cross-border interconnection from dispute settlement. The clear intention to do so is not expressed in the Understanding. This suggests that the content and purpose of the Understanding is of limited assistance in interpreting the scope of application of the term "interconnection" in Section 2.1 of Mexico's Reference Paper.

7.139 Before leaving the Understanding, we note that the Understanding could arguably be considered as part of the interpretative "context" under the primary rules of interpretation in Article 31.2 of the Vienna Convention. In that case, the Understanding has to be seen as an instrument made "in connection with the conclusion of the treaty", and "accepted by the other parties as an instrument related to the treaty". Since the Report attaches draft schedules of commitments, including Mexico's Reference Paper commitments, to be appended to the Fourth Protocol, the Understanding might well be viewed as being made "in connection with the conclusion of the treaty". As the Understanding reflects the common view of negotiators on a matter affecting access to WTO dispute settlement on telecommunications matters, it would be difficult for parties to deny that it was an instrument "related to" the Fourth Protocol. However, even if viewed as "context", and not as a "supplementary means" of interpretation under Article 32 of the Vienna Convention, we would arrive at the same interpretative conclusion.

(vi) Supplementary means � other

7.140 In addition to the Understanding, Mexico refers to the drafting history of the Reference Paper. Mexico provides evidence that a transparency requirement with respect to accounting rates existed in earlier drafts of the Reference Paper, but asserts that these references were subsequently deleted, indicating the intention to exclude accounting rates from its scope. However, the opposite argument can equally well be made that negotiators considered, based on the plain meaning of the word "interconnection", that the matter was covered, and that the special provision was no longer needed. The available records of the negotiations simply do not contain sufficient material to permit the Panel to determine the reason for the deletion of the separate provision.919 In the absence of a clear record of the negotiations on this point, which might give firm evidence of the reasons for the deletion, we find it difficult to arrive at the interpretation which Mexico is seeking.920 The introduction and deletion of the specific provision on accounting rate transparency is therefore not helpful in arriving at an interpretation of the scope of the provisions of Mexico's Reference Paper on "interconnection". Mexico argues further that the conscious exclusion from the Reference Paper of accounting rates and termination services is confirmed by the fact that they are "on the table" in the Doha Round of negotiations. The Panel does not however see this as providing the confirmation that Mexico claims. In the Doha Round, the main issue for Members with respect to the Understanding has been whether it should be maintained, and not what its scope might be. With respect to termination services, a proposal by a Member to make specific commitments on these services demonstrates no more than an interest, on the part of one Member, in market access or national treatment commitments for these services. These discussions do not lead to any particular conclusion with respect to the scope of Section 2 of the Reference Paper.

7.141 Finally, consideration must be given to Mexico's argument that the interpretation of "interconnection" in Section 2 of the Reference Paper as including international interconnection leads, under Article 32 of the Vienna Convention, to a result that is "manifestly absurd or unreasonable". Mexico claims that such an interpretation would require all 55 WTO Members who have accepted cost-oriented interconnection to apply these low rates to terminate traffic from all other WTO Members, even from the 89 WTO Member with no cost-oriented pricing commitments because they have not committed to the Reference Paper. Mexico states that this situation would result in a net outflow of payments from countries subject to cost-oriented pricing disciplines, which would lead to operators in those countries to "choose between bankruptcy and refusing to pay".921 This would result in "the complete collapse of the accounting rate regime without a viable replacement, possibly even leading to interruptions in international traffic."922

7.142 We are not convinced by Mexico's argument that a broad interpretation of interconnection would lead in this sense to a result that is "manifestly absurd or unreasonable". First, a large and increasing proportion of all international traffic is routed outside the traditional accounting rate system.923 Second, the "outflows" predicted by Mexico would only occur if those other countries without cost-oriented international interconnection were able to maintain high interconnection charges, and at the same time were high net recipients of incoming calls. Third, traditional accounting rate regime charges are falling quickly, under influences such as the ITU-T D.140 Annex E Benchmarks, the 1997 United States FCC Benchmarks, use of leased lines, and new technology such as voice-over-IP. In sum, Mexico has not demonstrated that a requirement for Members having undertaken Reference Paper commitments to grant international interconnection at cost-oriented pricing to all other WTO Members would lead to results which were "manifestly absurd or unreasonable".

7.143 We find, therefore, that Section 2 of Mexico's Reference Paper applies to the interconnection of cross-border suppliers.

7.144 Since we have already found that Mexico has undertaken market access and national treatment commitments in its schedule with respect to the cross-border supply of the services at issue; and that these commitments can provide the basis for interconnection commitments in Section 2.2(b) of Mexico's Reference Paper; we are able to find overall that Section 2.2(b) of Mexico's Reference Paper applies to United States service suppliers supplying or seeking to supply the services at issue.



799 For instance, some of the telecommunication provisions seem to be technology-specific and may no longer reflect prevailing industry practices.

800 Cf. former WTO Director-General Mike Moore, "A World Without Walls � Freedom, Development, Free Trade and Global Governance", Cambridge, Cambridge University Press, 2003, p. 111.

801 See footnote 25 of this Report.

802 See FTL ("Ley Federal de Telecomunicaciones"), published in the Federal Gazette ("Diario oficial de la Federaci�n") on 7 June 1995, entered into force on 8 June 1995.

803 See FTL, Article 11.

804 See FTL, Article 12. Foreign investment in cellular telephone services may however be greater than 49%, with the permission of the Commission on Foreign Investment.

805 See FTL, Article 12.

806 Also referred to in English language translations of the FTL as "telecommunications service marketing companies".

807 See FTL, Article 52.

808 See FTL, Article 53.

809 See FTL, Article 54.

810 See FTL, Article 47, paragraph 2.

811 See FTL, Article 47, paragraph 4.

812 See Rules for the Provision of International Long-Distance Service To Be Applied by the Licensees of Public Telecommunications Networks Authorized to Provide this Service (Reglas para Prestar el Servicio de Larga Distancia Internacional que deber�n aplicar los Concesionarios de Redes P�blicas de Telecomunicaciones Autorizados para Prestar este Servicio). Issued by the Commission; published in the Federal Gazette on 11 December 1996; entered into force on 12 December 1996.

813 See ILD Rule 1.

814 See ILD Rule 2:XI.

815 See ILD Rules 3, and 6.

816 See ILD Rule 2:VII.

817 See ILD Rule 2:VIII.

818 See ILD Rule 2:XV

819 See ILD Rules 2:XII(a) and (b); and 10.

820 See ILD Rule 13.

821 See ILD Rules 2:XII, 10, 13, 16, 17, and 19.

822 Vienna Convention on the Law of Treaties, done at Vienna, 23 May 1969, 1155 U.N.T.S. 331; (1969) 8 International Legal Materials 679.

823 See Appellate Body Report, US � Gasoline, DSR 1996:I, 3, at 16.

824 See Appellate Body Report, EC � Computer Equipment, paragraph 84. The conclusions of the Appellate Body in that case applied to concessions made by Members in their GATT Schedules. We consider that such conclusions can equally well be applied to commitments made by Members in their GATS schedules.

825 See Appellate Body Report, EC � Computer Equipment, paragraph 86.

826 Mexico has undertaken specific commitments for telecommunications services (Schedule of Specific Commitments) under Articles XVI (Market Access), XVII (National Treatment), and Article XVIII (Additional Commitments). Its additional commitments consist of undertakings known as the "Reference Paper". These commitments are reproduced in Annex B.

827 English translation. The authentic version of Mexico's Schedule is Spanish. It reads:

"2 Interconexi�n

2.1 Esta secci�n es aplicable a la conexi�n con los proveedores de redes p�blicas de telecomunicaciones de transporte o de servicios a fin de permitir a los usuarios de un proveedor comunicarse con los usuarios de otro proveedor y tener acceso a los servicios suministrados por alg�n otro proveedor, respecto de los cuales se contraigan compromisos espec�ficos.

2.2 Interconexi�n a ser garantizada

La interconexi�n con un proveedor principal quedar� asegurada en cualquier punto t�cnicamente factible de la red. Tal interconexi�n se llevar� a cabo:

...

(b) de manera oportuna, en t�rminos, condiciones (incluyendo normas t�cnicas y especificaciones) y tarifas basadas en costos que sean transparentes, razonables, econ�micamente factibles y que sean lo suficientemente desagregadas para que el proveedor no necesite pagar por componentes o recursos de la red que no se requieran para que el servicio sea suministrado; ... "

828 The modes of supply are commonly known as: (a) cross-border supply; (b) consumption abroad; (c) commercial presence; and (d) presence of natural persons. They are also referred to numerically as modes 1, 2, 3 and 4. For the text of Article I:2 of the GATS, see paragraph 7.29.

829 For the definition of basic public telecommunication services, see Section 3(b) of the GATS Annex on Telecommunications, which defines "public telecommunications transport services" as "any telecommunications transport service required, explicitly or in effect, by a Member to be offered to the public generally. Such services may include, inter alia, telegraph, telephone, telex, and data transmission typically involving the real-time transmission of customer-supplied information between two or more points without any end-to-end change in the form or content of the customer's information." This definition is applicable because the Ministerial Decision on Negotiations on Basic Telecommunications (part of the Final Act of the Uruguay Round) specified that "telecommunications transport networks and services" were "basic telecommunications", a term which would encompass both "public telecommunications transport services" and non-public "telecommunications transport services".

830 The word "termination" is used in our findings to refer to one of the forms of "linking" that falls within the scope of the "interconnection". This is supported by the language of Section 2 which states that the section applies to linking "in order to allow the users of one supplier to communicate with users of another supplier".

831 See the United States' first written submission, paragraph 59. These services are listed in Mexico's Schedule under headings 2.C.(a), (c) and (d).

832 The Panel 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 and the CPC).

833 See the United States' first written submission, paragraph 54.

834 See the United States' first written submission, paragraph 57.

835 See the United States' answer to question No. 2(a) of the Panel of 14 March 2003. For question No. 2(a), see footnote 212 of this Report.

836 See the United States' answer to question No. 2(a) of the Panel of 14 March 2003, paragraph 2. For question No. 2(a), see footnote 212 of this Report.

837 See Mexico's answer to question No. 3(a) of the Panel of 19 December 2002, paragraph 56. For question No. 3(a), see footnote 187 of this Report.

838 Mention in this section of the Report of the "presence" of a service supplier, or of a service supplier that is "present", should be understood in the general sense of these terms. The use of the terms "present" and "presence" in this section are not intended to refer specifically to the supply of a service through "commercial presence", in the sense of Article I:2(c).

839 See footnote 828.

840 GATS Annex on Telecommunications, section 3(b). See also footnote 829.

841 United Nations, Statistical Papers, Series M No. 77, Provisional Central Product Classification, 1991.

842 The Scheduling of Initial Commitments in Trade in Services: Explanatory Note, MTN.GNS/W/164 (3 September 1993), paragraph 16, states that "[w]here it is necessary to refine further a sectoral classification, this should be done on the basis of the CPC or other internationally recognized classification".

843 Services Sectoral Classification List, Note by the Secretariat. MTN.GNS/W/120, 10 July 1991. See also footnote 858.

844 See the United States' second oral statement, paragraph 18.

845 The comprehensive coverage of the GATS is also reflected in Article I:3(b) of the GATS which provides that "services" � for the purposes of the Agreement � "includes any services in any sector except services supplied in the exercise of governmental authority". The Preamble to the GATS also refers in expansive terms to the "growing importance" of trade in services for the "world economy", and the desire to establish a multilateral framework of principles and rules for the "expansion" of such trade in order to promote "economic growth" and "development".

846 Scheduling of Initial Commitments in Trade in Services: Explanatory Note. MTN.GNS/W/164 (3 September 1993). We refer to this document as the "Explanatory Note".

847 Ibid., paragraph 19(a).

848 Guidelines for the scheduling of specific commitments under the General Agreement on Trade in Services (GATS), adopted 23 March 2001, S/L/92 (28 March 2001), chart following paragraph 26, and paragraph 28. We refer to this document as the "Scheduling Guidelines". See discussion of the Guidelines in paragraph 7.67.

849 See paragraphs 7.53-7.57.

850 The Spanish language version, which Mexico has designated as the only authentic version, reads:

"2.C. Servicios de Telecomunicaciones
Los servicios de telecomunicaciones, suministrados por una red p�blica de telecomunicaciones basada en infraestructura (al�mbrica y radio‑el�ctrica) a trav�s de cualquier medio tecnol�gico actual, incluidos en las literales a), � c), f), � y o).

(a) Servicios de telefon�a (CCP 75211, 75212)

(c) Servicios de transmisi�n de datos con conmutaci�n de circuitos (CCP 7523**)
(f) Servicios de facs�mil (CCP 7521**+7529**)
(o) Otros

-                      �
-        Comercializadoras 3
-                     �

3 Empresas que, sin ser propietarias o poseedoras de medios de transmisi�n, proporcionan a terceros servicios de telecomunicaciones mediante el uso de capacidad arrendada de un concesionario de redes p�blicas de telecomunicaciones. "

851 See Mexico's answer to question No. 2(c) of the Panel of 14 March 2003, paragraphs 2 and 3 (What does the phrase "by a facilities based public telecommunications network" add to the sector inscription in Mexico's Schedule? Without these words in the sector column, what other forms of supplying services would be allowed?).

852 See the United States' answer to question No. 2(c) of the Panel of 14 March 2003, paragraph 19. For question No. 2(c), see footnote 851 of this Report.

853 See GATS Annex on Telecommunications, Section 3(c).

854 See GATS Annex on Telecommunications, Section 3(b).

855 See Spanish text of the main sector heading reproduced in footnote 850.

856 See Appellate Body Report , US � Gasoline, DSR 1996:I, 3, at 21.

857  Formulated by negotiators during 1993, prior to the conclusion of the Uruguay Round, it was included in a formal document at the outset of the telecom negotiations, as an attachment to Negotiations on Basic Telecommunications, Note by the Secretariat, TS/NGBT/W/1, 2 May 1994. It was slightly revised by the Group and reissued in Draft Model Schedule of Commitments on Basic Telecommunications, Informal Note by the Secretariat, Job. No. 1311, 12 April 1995.

858 Services Sectoral Classification List, Note by the Secretariat. MTN.GNS/W/120, 10 July 1991. Subsectors (h) to (n) of the standard WTO sectoral listing for telecommunications services contained in document W/120 were considered to be "value-added", not "basic", telecommunications services, and therefore omitted. The asterisks appearing against CPC numbers indicate that the listed subsector comprises only part of that CPC code.

859 United Nations, Statistical Papers, Series M, No. 77, Provisional Central Product Classification, 1991.

860 Draft Model Schedule, Footnote b. See footnote 857.

861 Note by the Chairman, 16 January 1997. S/G/W/2/Rev.1. The Note states that a category has to be explicitly mentioned in a Member's sector column in order to have effect.

862 Notes for Scheduling Basic Telecommunications Services Commitments, Note by the Chairman. S/GBT/W/2/Rev.1.

863 Note by the Chairman, 16 January 1997. S/G/W/2/Rev.1, preamble.

864 Note by the Chairman, 16 January 1997. S/G/W/2/Rev.1, preamble.

865 Report of the Group on Basic Telecommunications, S/GBT/4 of 15 February 1997.

866 Report of the Group on Basic Telecommunications, S/GBT/4 of 15 February 1997, paragraph 5.

867 Guidelines for the scheduling of specific commitments under the General Agreement on Trade in Services (GATS), adopted 23 March 2001, S/L/92 (28 March 2001).

868 Scheduling of Initial Commitments in Trade in Services: Explanatory Note. MTN.GNS/W/164 (3 September 1993).

869 Report of the Group on Basic Telecommunications, S/GBT/4 of 15 February 1997.

870 See our previous discussion of the Chairman's Note in paragraphs 7.62-7.68 of this Report.

871 Scheduling of Initial Commitments in Trade in Services: Explanatory Note. MTN.GNS/W/164 (3 September 1993) paragraph 24. See also Guidelines for the scheduling of specific commitments under the General Agreement on Trade in Services (GATS). Adopted 23 March 2001. S/L/92 (28 March 2001), paragraph 42.

872 In Spanish: "1) Ninguna, excepto la siguiente: el tr�fico internacional debe ser enrutado a trav�s de las instalaciones de una empresa con una concesi�n otorgada por la Secretar�a de Comunicaciones y Transportes (SCT)."

873 Scheduling of Initial Commitments in Trade in Services: Explanatory Note, MTN.GNS/W/164 (3 September 1993), paragraph 4.

874 Scheduling of Initial Commitments in Trade in Services: Explanatory Note, MTN.GNS/W/164 (3 September 1993), paragraphs 21 and 25.

875 A summary of the six categories. GATS Article XVI:2 reads in full:

"In sectors where market-access commitments are undertaken, the measures which a Member shall not maintain or adopt either on the basis of a regional subdivision or on the basis of its entire territory, unless otherwise specified in its Schedule, are defined as:

(a) limitations on the number of service suppliers whether in the form of numerical quotas, monopolies, exclusive service suppliers or the requirements of an economic needs test;
(b) limitations on the total value of service transactions or assets in the form of numerical quotas or the requirement of an economic needs test;
(c) limitations on the total number of service operations or on the total quantity of service output expressed in terms of designated numerical units in the form of quotas or the requirement of an economic needs test;
(d) limitations on the total number of natural persons that may be employed in a particular service sector or that a service supplier may employ and who are necessary for, and directly related to, the supply of a specific service in the form of numerical quotas or the requirement of an economic needs test;
(e) measures which restrict or require specific types of legal entity or joint venture through which a service supplier may supply a service; and
(f) limitations on the participation of foreign capital in terms of maximum percentage limit on foreign shareholding or the total value of individual or aggregate foreign investment."

876 See the United States' first written submission, paragraph 57.

877 Newton's Telecom Dictionary, 19th Edition, March 2000.

878 See paragraphs 7.58-7.68 of this Report.

879 See Mexico's answer to question No. 2(a) of the Panel of 19 December 2002, paragraph 35. For question No. 2(a), see footnote 225 of this Report.

880 See Mexico's first written submission, paragraph 145.

881 See paragraphs 7.28-7.45.

882 See the United States answer to question No. 1(c) of the Panel of 19 December 2002, paragraph 7. For question No. 1(c), see footnote 221 of this Report.

883 See Mexico's answer to question No. 1(b) of the Panel of 19 December 2002, paragraphs 14-24. For question No. 1(b), see footnote 232 of this Report.

884 In the authentic Spanish version of Mexico's Schedule:

"2. Interconexi�n

2.1 Esta secci�n es aplicable a la conexi�n con los proveedores de redes p�blicas de telecomunicaciones de transporte o de servicios a fin de permitir a los usuarios de un proveedor comunicarse con los usuarios de otro proveedor y tener acceso a los servicios suministrados por alg�n otro proveedor, respecto de los cuales se contraigan compromisos espec�ficos."

885 See the United States' first oral statement, paragraph 25. See also the United States' second written submission, paragraph 49.

886 The Shorter Oxford English Dictionary, 3rd edition, (Clarendon Press, 1990), Vol. I, page 1219.

887 ANS T1.523-2001, Telecom Glossary 2000; http://www.atis.org/tg2k/.

888 (emphasis added).

889 Annex on Telecommunications, Section 3(b).

890 (emphasis added).

891 Annex on Telecommunications, Section 3(c).

892 Section 3(b) of the Annex on Telecommunications defines "public telecommunications transport service" as "any telecommunications transport service required, explicitly or in effect, by a Member to be offered to the public generally. Such services may include, inter alia, telegraph, telephone, telex, and data transmission typically involving the real-time transmission of customer-supplied information between two or more points without any end-to-end change in the form or content of the customer's information.". Section 3(c) of the Annex on Telecommunications defines "Public telecommunications transport network" as "the public telecommunications infrastructure which permits telecommunications between and among defined network termination points."

893 See Appellate Body Report, US � Carbon Steel, paragraph 104.

894 MerriamWebster Dictionary, Merriam Webster Online, 2003; http://www.webster.com./

895 ANS T1.523-2001, Telecom Glossary 2000; http://www.atis.org/tg2k/.

896 A glossary published by Cofetel, does, however, offer a formal definition of interconnection, in similar terms to Section 2.2(b) of Mexico's Reference Paper: "Physical and logical connection between two public telecommunications networks, that allows the exchange of switched public traffic between the switching central offices of both networks. The interconnection allows the users of one of the networks to interconnect and exchange public switched traffic with the users of the other network and vice versa, or to use the services provided by the other network." English translation. Source: www.cft.gob.mx/html/la_era/glo_pub2de4.html#I.

897 Federal Communications Law, Article 47. (emphasis added)

898 Rules for the Provision of International Long-Distance Service to be Applied by the Licensees of Public Telecommunications Networks Authorized to Provide this Service, Decision No. RES PC 961207 of 4 December 1996 ("ILD Rules"). Preambular clause. (emphasis added)

899 ILD Rules, Rule 1. (emphasis added)

900 See notably, for the United States: "Interconnection is the linking of two networks for the mutual exchange of traffic. This term does not include the transport and termination of traffic. " 47 CFR Ch. 1 �51.5 (10-1-02 Edition) (FCC) [Interconnection regulations implementing ss. 251-252 of the Communications Act of 1934];

901 Article 2 of EC Directive 2002/19/EC (Access Directive) (OJ 2002 L108, p. 33). In this respect, see also the "Commission guidelines on market analysis and the assessment of significant market power under the Community regulatory framework for electronic communications networks and services" (2002/C 165/03), Official Journal of the European Communities 165/6, 11.7.2002. The Panel is aware that the EC Access Directive regulates a common market for telecommunications among EC member States.

902 See Mexico's answer to question No. 8 of the Panel of 19 December 2002. For question No. 8, see footnote 77 of this Report. See also Mexico's answer to question No. 17 of the Panel of 14 March 2003. For question No.17, see footnote 146 of this Report.

903 See United States' answer to question No. 8 of the Panel of 19 December 2002, paragraph 44. For question No. 8, see footnote 77 of this Report.

904 Accounting Rate Reform Undertaken by ITU-T Study Group 3, Communication from the International Telecommunication Union, Informal Note, Council for Trade in Services, Job. no. 2947, 11 May 2000, paragraph 2.

905 See the United States' answer to question No. 8 of the Panel of 19 December 2002, paragraph 47. For question No. 8, see footnote 77 of this Report.

906 See Appellate Body Report, Japan � Alcoholic Beverages II, DSR 1996:I, 97, at 106.

907 Vienna Convention, Article 32, supra, footnote 822.

908 The "primary" rules of interpretation are set out in Article 31, the "supplementary" rules are set out in Article 32.

909 Vienna Convention, Article 32, supra, footnote 822.

910 Forming part of the Final Acts of the World Administrative Telegraph and Telephone Conference, Melbourne, 1988 (WATTC-88).

911 ITR Article 1.1(a).

912 The use of the word "administrations" is systematically footnoted in the ITRs to include "recognized private operating agency(ies)".

913 ITR, Appendix 1, Article 1.1.

914 ITR, Appendix 1, Article 1.2.

915 Accounting Rate Reform Undertaken by ITU-T Study Group 3, Communication from the International Telecommunication Union, Informal Note, Council for Trade in Services, Job. no. 2947, 11 May 2000, paragraph 2. See also Exhibit MEX-59 (which presents Section 8 on "International Interconnection" of ITU Trends in Telecommunications Reform: Interconnection Regulation, 3rd edition, pp. 93-107).

916 This assumes that the traffic does not transit through third countries.

917 The CCITT no longer exists. Its functions have been subsumed by the ITU-T, whose Study Group 3 is responsible for development and revision of ITU-T D Series Recommendations such as D.140 and D.150.

918 ITU Recommendation ITU-T D.150, (06/1999) paragraph 2. Recommendation D.150, which has existed in some form since 1968 was revised in 1999 to reflect the new telecommunication environment. In its present form, Section 2 describes different procedures for remuneration that include modern alternatives to the "accounting rate revenue division procedure". See also, Accounting Rate Reform Undertaken by ITU-T Study Group 3, Communication from the International Telecommunication Union, Informal Note, Council for Trade in Services, Job. no. 2947, 11 May 2000, paragraph 2. See also Exhibit MEX-59 (which presents Section 8 on "International Interconnection" of ITU Trends in Telecommunications Reform: Interconnection Regulation, 3rd edition, pp. 93-107).

919 Available records of the negotiations consist of all documents in the series S/NGBT/1 - 18 and S/NGBT/W1 � W19 and in the series S/GBT/1 � 4, S/GBT/M1 � M9, and S/GBT/W1 � W13.

920 See Appellate Body Report, India � Quantitative Restrictions, paragraph 94.

921 See Mexico's second written submission, paragraph 34.

922 See Mexico's second written submission, paragraph 34.

923 Estimates are that as much as half of all international traffic is outside the traditional accounting rate system. ITU Trends in Telecommunications Reform 2000-2001, Section 8.2 (Exhibit MEX-59).