Application of the Montevideo Protocol to Trade in Services in the Mercosur

By means of Law No. 25,623 the Argentine Congress has finally approved the Montevideo Protocol on Trade in Services signed by the governments of Argentina, Uruguay, Paraguayand Brazil on December 15, 1997 (the "Protocol").

In general terms, the purpose of the Protocol is to lift restrictions on the trade in services within the Mercosur, setting joint rules and instruments to ensure their transparency, equilibrium and gradual relaxation of restrictions. Signatories undertake to grant most favored nation status to the other signatories, so that services and service providers from any other country party to the Protocol will be granted treatment no less favorable than that granted to the services and providers of similar services from the other signatory countries or third countries.

The Protocol consists of two parts; the first contains the applicable rules and the second part an schedule detailing the specific commitments entered into by each signatory country. The schedule specifies the sectors, sub-sectors and activities in relation to which each country assumes commitments (e.g., in Argentina, the basic telecommunications sector, transport by land, air and water) and indicates the terms, limitations and conditions on matters of access to markets and national treatment, as well as the terms set by each country to introduce such commitments effectively.

The concept of "provision of services" contained in the Protocol covers production, distribution, marketing, sale and provision of a service; "service providers" are all individuals providing a service, as well as legal persons or forms of commercial presence such as a branch or representative office.

In relation to access to the domestic Mercosur market, signatory countries have agreed not to limit the participation of foreign capital by means of the setting of a maximum percentage to foreign shareholding or limits on the total for individual or aggregate foreign investment.

Regarding anti-trust protection, the Protocol establishes the applicability of the rules of the Anti-Trust Mercosur Protocol to the provision of services by public or private service providers or other entities.

The Protocol contains one explicit exemption regarding the hiring by government agencies of services for official purposes and not for commercial resale nor for their use in the providing of services for commercial sale. However, signatory countries undertake to apply the standard rules on government procurement that may be established for the Mercosur.

It should be noted that Argentina is the first Mercosur member country to ratify the Protocol. At present the remaining countries have submitted the measure to their respective Congresses for urgent approval. In practice, this means that the Protocol will only come into force thirty days after deposit with the Government of the Republic of Uruguay of the third ratification instrument by member states.