Talk is cheap.

• Author: Beltz, Cynthia

While diplomats bicker over telecom trade rules, new technologies are shattering protectionist barriers.

"Dial the world. Talk forever. Never Pay Long-Distance." This is the sales pitch for Digiphone, a software package that lets personal computer users talk to people across the country or around the world for the price of a local call. The software bypasses the long-distance telephone network by converting voices into digitized data that can be transmitted over the Internet to another computer or telephone. With software firms like Digiphone and VocalTec, a European businessman who travels regularly to U.S. cities could maintain a relatively inexpensive dial-up Internet access account in the United States that would allow him to make calls back to Europe at a fraction of the usual cost. On the flip side, American business travelers in Europe could call the United States for a third of the normal charge by dialing up the Internet through a pan-European access provider such as EUnet or Pipex.

Such possibilities were the subject of the first annual Internet telephony conference, Dialing the Net. Held in London last April, the meeting highlighted Internet entrepreneurs who are creating new markets that are intrinsically borderless. It illustrated how new technology and consumer demand are transforming telecommunications, overcoming barriers to competition, and undermining old monopolies.

In Geneva, meanwhile, trade negotiators from 53 countries were talking about opening the $500 billion telecommunications market to competition. After countless hours of negotiations under the auspices of the World Trade Organization, they failed to reach an agreement by the April 30 deadline. The United States refused to sign because a "critical mass of countries" had not agreed to match its offer to open the U.S. market. A complete collapse of the negotiations was narrowly avoided by extending the deadline until February 15, 1997, with talks to resume in July.

With or without a WTO agreement on telecommunications next year, the global information society will continue to emerge, monopolies will be broken up, and American firms will continue to play a dominant role in the process. The fact that the WTO has been forced to the sidelines in one of the most dynamic and important growth industries suggests that Republicans and Democrats alike have exaggerated the organization's importance. Pat Buchanan and Ross Perot have told us we should fear an all-powerful WTO inimical to U.S. interests, while the Clinton administration has acted as if the WTO were the only force working in favor of a more open trading system. But in this case, technology and market trends are proving to be far more powerful.

The real loser in the telecommunications talks is the WTO. It was created by the 1993 Uruguay Round of the General Agreement on Tariffs and Trade to carry on the work of opening world markets and to provide a mechanism for peacefully resolving international trade disputes. But the failure of the telecommunications talks has raised new questions about the WTO's ability to handle this mission. Three key sets of negotiations left over from the Uruguay Round (telecommunications, financial services, and maritime services) have either failed or been postponed in the past year. And the world trading community is holding the United States, the main architect and proponent of the WTO, responsible for the setbacks.

In the telecommunications talks, the U.S. government claimed the right to refuse licenses to foreign-owned companies that want to operate international services out of the United States but whose home countries do not provide "equivalent competitive opportunities." Trade officials have argued that if the United States opens its market unilaterally and removes the remaining foreign ownership restrictions in telecommunications, it will lose the leverage needed to open foreign markets. They have also indicated that the insistence on tit-for-tat market opening is part of a broader shift in U.S. trade policy toward bilateral reciprocity. The United States, according to acting U.S. Trade Representative Charlene Barshefsky, has "made the decision that trade agreements must be reciprocal in character.... We expect foreign markets to be as open to our goods and services as ours is to them."

Sounds fair. But the "let them in only to the extent they let you in" position is based on a zero-sum logic that conflicts with our own experience in telecommunications. It exaggerates the role of government while underestimating the far more powerful roles that technology and consumer demand are playing in breaking down barriers to competition.

The U.S. experience is instructive because it demonstrates both the benefits of unilateral liberalization and the rapid breakdown of monopoly once a breach in the wall of protection occurs. For more than a century, the telecommunications industry was controlled by monopolies that limited competition at the national and international levels. The system started to crumble with the court-ordered breakup of AT&T in the 1980s, which touched off a revolution in innovation and competition. The changes...