Liberalized Telecommunications Trade in the WTO: Implications for Universal Service Policy.

Author:McLarty, Taunya L.
Position:World Trade Organization

    The telecommunications market is one of the largest markets in the world, second only to the financial services market. The International Telecommunication Union (ITU) estimated in the mid-1990s that the telecommunications market was worth about $513 billion.(1) Although telecommunications service providers acquire most of their revenue from domestic demand, they are increasingly seeking international returns.(2)

    Telecommunications has a "dual role as a distinct sector of economic activity and as the underlying transport means for other ... activities."(3) In addition to financial institutions now transferring $2.3 trillion or more electronically every day, educators, researchers, politicians, and others use electronic means to exchange information.(4) The demand for telecommunications services that transmit voice and data electronically is rapidly escalating because of this interconnectedness.(5)

    There has been a significant shift from domestic intrasufficiency to international interdependence in both the demand and supply sides of markets generally.(6) As consumers become more sophisticated in evaluating the world market, businesses have to maintain their comparative advantage in services by globalizing research, manufacturing products with multinational components, and targeting international markets.(7) The telecommunications industry illustrates this phenomenon.

    All of these factors--the high demand for telecommunications services, the interconnectedness of telecommunications sector inputs and uses, and international dependence--created the need to avoid piecemeal and segmented telecommunications trade policy.

    Some countries have responded unilaterally to the changes in telecommunications by privatizing and deregulating their domestic markets. Through privatization, the government transforms the telecommunications sector from a state owned and operated enterprise into a private enterprise, although the private enterprise can maintain a monopolistic position. Through liberalization, the government allows many enterprises to compete effectively for consumer demand.

    However, the most profound impact on the global telecommunications markets will likely come from the concluded multilateral negotiations on basic telecommunications services in the World Trade Organization (WTO)(8) under the auspices of the General Agreement on Trade in Services (GATS).(9) The results of these negotiations could be the driving force behind a wave of countries liberalizing their trade laws to ease the harshness and complexity of providing telecommunications services over national borders.

    The February 15, 1997 negotiations on basic telecommunications reached significant commitments. However, these commitments on basic telecommunications cannot be considered outside of the bigger framework of the GATS in the WTO. The conclusion of the GATS in 1994 set the stage for continued negotiations on various service sectors and subsectors. Thus, while the 1997 basic telecommunications commitments specifically addressed the problems faced by those wanting to offer such services, they were annexed to, and became an integral part of, GATS, which is the foundation for all trade in services.

    This Article begins in Part II by discussing the significance of the basic telecommunications commitments on liberalization, specifically showing why sector negotiations on telecommunications and even subsector negotiations on basic telecommunications were necessary. Part III outlines a history of the basic telecommunications negotiations in light of the services negotiations under GATS that preceded them. In Part IV, the Article explains how the obligations underlying all WTO trade agreements, namely most-favored-nation (MFN) status, national treatment, market access, and transparency, apply to services, and more narrowly, to the telecommunications services within the negotiations' scope. Part V specifically focuses on the resulting commitments of the basic telecommunications negotiations that the WTO Members included in their service schedules. In conclusion, Part VI addresses the potential benefits of full implementation of the recent commitments to liberalize trade in basic telecommunications services.


    While countries may have a variety of competing social and economic goals underlying their domestic policy for various services,(10) the Parties to the multilateral negotiations on trade in services put the underlying objectives of all of the WTO agreements in the forefront of the discussions. These objectives include nondiscrimination among all Members, market access, and transparency of laws and regulations. Keeping uniform objectives in all of the WTO agreements will move the multilateral trading system away from sectoralization toward a higher level of uniformity for trade rules. However, there are multiple reasons that services, generally, and telecommunications and its subsectors, specifically, needed ongoing flexibility in negotiations.

    1. Services Versus Goods

      Because services have received special treatment under domestic laws and are inherently different from goods, the negotiations for services in the WTO under GATS have taken a somewhat more varied approach than that taken for goods under the General Agreement on Tariffs and Trade (GATT).(11) However, the underlying objectives have been consistent.

      Opening markets for a pair of shoes, for instance, mostly involves those tariff and non-tariff barriers faced by the exporter at the border of the destination country. Telecommunications equipment is treated in the same way; telephones made in Taiwan can be exported to the United States basically like the shoes. However, trade in telecommunications services is the transmission of an electrical signal that does not stop at national boundaries and that must be received, routed, and terminated within the foreign country in order to be successful. Negotiating open markets for trade in services is more complex for various reasons. Services are less fungible than goods because they often necessitate person-to-person contact. Also, the supply of services often requires an underlying infrastructure whereby the supplier and recipient of the services can communicate. The supplier must be given access to the foreign recipient by the foreign country's regulators, who often impose technical and quality-based licensing barriers.

    2. Telecommunications as Distinct from Other Services

      The telecommunications sector needed separate negotiations from other service sectors because it has unique attributes as a backbone for other services and as a service itself.(12)

      Telecommunications infrastructures, as the backbone for other sectors, can have important economic, societal, and national security implications. Telecommunications infrastructures are as significant to the competitiveness of services today as the railroads were to manufacturing during the industrial age. Telecommunications infrastructures are also key to the maintenance of a technologically advanced military; thus, the national security implications of trade in telecommunications are higher than in many other services. Additionally, the importance of telecommunications infrastructures is compounded by technology upgrades that affect the reliability and scope of their use.(13)

      As a service sector under GATS, telecommunications needed special commitments in an annex to GATS. The provision of some services may involve only two individuals with little involvement necessitated from others. For instance, an architect can sell to a foreign buyer the blueprints for building a house.

      Providing telecommunications services, however, usually requires much more interaction with other private sector individuals and government officials. For instance, in the supply of telecommunications services, the supplier might have to construct or obtain access to an international communications network for its client.(14) In the event that the service provider has its own network, it must buy from product suppliers the necessary infrastructure components, such as integrated circuits, cable wires, and radio and satellite-based equipment.(15) The voice and nonvoice information is then sent over such a backbone network, which can be an interconnection of various modes, including mobile radio,(16) cellular, personal communications systems (PCS), paging,(17) satellite,(18) wireline,(19) and fixed wireless.(20) To provide such a network of services, the supplier, unlike an individual exporter of goods, has to adapt its corporate face to respond to the inherent multinational demand. Supplier alliances that have become the most competitive are those that cross borders, combine multiple types of services, and interconnect the many modes of transmission.(21) The potential benefits of such diversified alliances are diminished substantially, though, if these suppliers are unable to enter a foreign market and access the domestic infrastructures that are already in place and that reach the consumers.

      The most significant roadblock to such access is that many of the domestic telecommunications infrastructures are owned and operated by governments. This is usually not the case with market access for goods, as governments are not traditionally dominant suppliers of goods as they are for certain services. Additionally, governments have a significant impact on service markets through their role as regulator of telecommunications services.

    3. The Uniqueness of Basic Telecommunications Services

      The obligations of GATS and the Annex on Telecommunications apply only to those telecommunications sectors that the WTO Members incorporated in their Schedules. Mostly, the Schedules contained what is commonly referred to as "enhanced telecommunications services." The Members were not ready in 1994 to...

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