"Wildly Enthusiastic" About the First Multilateral Agreement on Trade in Telecommunications Services.

• Author: Sherman, Laura B.

1. INTRODUCTION

   Traditionally, telecommunications services have been provided by national monopolies. In a sign that monopolies are a thing of the past, the World Trade Organization's (WTO)(1) Fourth Protocol to the General Agreement on Trade in Services (WTO Basic Telecom Agreement or Basic Telecom Agreement)(2) entered into force on February 5, 1998. The Basic Telecom Agreement was concluded on February 15, 1997, with sixty-nine WTO Members(3) agreeing to open to foreign competition for the first time some or all of their basic telecommunications services markets. These sixty-nine Members represent over 90 percent of the world's basic telecommunications revenues. Telecommunications services is a huge and growing market, with 1997 revenues expected to exceed $725 billion.(4) A telecom trade agreement came after two unsuccessful attempts to negotiate multilateral commitments on basic telecommunications under the auspices of the WTO. It was an achievement warmly welcomed by consumers and suppliers of basic telecommunications services.(5) In fact, many in U.S. industry declared themselves to be "wildly enthusiastic."(6)

   This Article describes the results of the negotiations on basic telecommunications, the history of the negotiations, the difficult issues that negotiators faced, and how those issues were resolved.

2. THE RESULTS OF THE NEGOTIATIONS

   The results of the negotiations can be measured in a number of ways. The most obvious is the quantity and quality of commitments made by the countries involved. Sixty-nine countries made commitments to open their markets for some or all basic telecommunications services to foreign competition.(7) Fifty-two countries guaranteed access to their markets for international services and facilities, with five more countries open for selected international services. In almost all of those countries, international services have been provided by a monopoly that will face competition for the first time.(8) Fifty-six countries agreed to open markets for all or selected services provided by satellites.

   Not only have monopolies ended for the first time in many countries, but the competitors providing basic telecom services can be 100 percent owned by foreigners in forty-four countries. Another twelve countries agreed to allow foreign ownership or control of certain basic telecom services, while thirteen countries guaranteed to allow some degree of foreign ownership in their basic telecom services markets.

   To make these commitments of market access and foreign ownership and control fully realizable, fifty-three countries agreed to adopt as binding commitments the "Reference Paper," a set of procompetitive regulatory principles.(9) For the first time in a multilateral setting, countries agreed to abide by competition rules.

   The second way to measure the achievement of these negotiations is by the size of the markets that will be open to competition. In this respect, the results are particularly impressive. Prior to implementation of the results of these negotiations, only 17 percent of the top twenty telecom markets were open to competition.(10) As of the date of entry into force of the WTO Basic Telecom Agreement, 92 percent of major markets are covered by commitments to remove restrictions on competition and foreign entry.(11) Consumers will also benefit. The Clinton Administration estimates that the average cost of international phone calls will drop by 80 percent--from one dollar per minute on average to twenty cents per minute over the next several years.(12)

3. THE HISTORY

   1. The GATS

      There is actually no free-standing WTO Basic Telecom Agreement, but a series of commitments that compose part of the General Agreement on Trade in Services (GATS),(13) one of the trade agreements included within the WTO Agreement.(14) The GATS establishes binding multilateral rules covering treatment of foreign services and service suppliers and government regulation of trade in services. The GATS combines elements of both trade and investment agreements. As described below, some of the substantive obligations of the GATS apply automatically to all WTO Members; other obligations only apply in the event that a Member undertakes specific sectoral commitments. These sectoral commitments are included in a Member's individual Schedule of Commitments, which is annexed to the GATS.(15) Thus, the extent of a WTO Member's obligations can only be established by reference to the text of the GATS and the Member's Schedule.

   2. Negotiations over Basic Telecommunications Services

      Basic telecommunications was one of the four service sectors left unresolved by the Uruguay Round.(16) As with financial services,(17) the stumbling block was the "free-rider" problem, created by the structure of the GATS itself. The GATS requires that WTO Members provide "Most-Favoured-Nation" treatment (MFN)(18) to like services and service suppliers from other WTO Members, regardless of the commitments undertaken by any individual Member. This obligation precludes a WTO Member from discriminating among services or service suppliers of other Members. It means that a Member that commits to open its market for a certain service cannot close its market on a selective basis to like services or service suppliers from any WTO Member.

      The other essential obligations envisioned by the GATS are "market access"(19) and "national treatment."(20) The application of these obligations is subject to negotiation on a sector-by-sector basis and is contained in individual Schedules of Commitments.(21) As a result, not all WTO Members have the same level of commitments with respect to market access or national treatment.

      The automatic application of the MFN principle creates imbalance in those service sectors where many countries are unwilling to make market access commitments. It was apparent in mid-1992 that there would be a lack of market access and national treatment commitments in the basic telecommunications sector.(22) Only a few WTO Members, including the United States, were willing to make market access commitments in basic telecommunications services as part of the Uruguay Round of negotiations. The scope of commitments was limited. A few WTO Members undertook commitments only in a single subsector, such as facsimile services, or only through limited technological means, such as cellular telephone services.(23) As a result, Members of the services negotiating group began to discuss the possibility of extending negotiations in this sector beyond the general deadline of December 1993.(24)

4. THE NEGOTIATING GROUP ON BASIC TELECOMMUNICATIONS

   At the conclusion of the Uruguay Round, trade ministers agreed to extend the period of negotiations regarding commitments in basic telecommunications.(25) The Decision on Negotiations on Basic Telecommunications established a "Negotiating Group on Basic Telecommunications" (NGBT) to carry out comprehensive negotiations on basic telecommunications, with a final report to the Council for Trade in Services(26) due on April 30, 1996. The Ministerial Decision on Negotiations stated that "[n]egotiations shall be entered into on a voluntary basis with a view to the progressive liberalization of trade in telecommunications transport networks and services" and that they "shall be comprehensive in scope, with no basic telecommunications excluded a priori."(27) At the same time, negotiators suspended application of the MFN principle in this sector.(28) This meant that during the period of negotiations and until new commitments entered into force, WTO Members were not bound to provide MFN treatment in the basic telecommunications sector. Even more important, WTO Members retained the ability to take an MFN exemption at the conclusion of the negotiations, if that Member considered that the overall set of market access commitments remained insufficient.(29) During the negotiating period, Members agreed to observe a "standstill," and not to take any measures in telecommunications services that would improve their negotiating position.(30)

   The NGBT began work in May 1994 with seventeen WTO Members participating.(31) Negotiators viewed the process as one that should lead to radical departures from existing telecommunications services regimes--the provision of these services on a competitive basis.(32) Issues to be addressed included scheduling, competitive safeguards, use of frequencies, accounting rates, and regulatory issues such as the maintenance of an independent regulator.(33) As one of the first items of business, the negotiators agreed that they lacked sufficient information about the telecommunications services markets of Members needed to develop requests for market access. In July 1994, the Secretariat of the WTO distributed a questionnaire to "explore each government's regulatory environment regarding the supply of basic telecommunications networks and services."(34)

   1. Scheduling Issues

      Negotiators focused on scheduling issues in the early stages of the negotiations. These included questions relating to how to schedule services such as call-back or country direct;(35) whether accounting rates(36) are "measures" of Members for purposes of the GATS;(37) and whether a "public interest" test must be scheduled as a market access limitation.(38) Negotiators agreed on the fundamental principle of a "positive list" approach to scheduling.(39) This means that a participant need only list those services of categories in which it is making a commitment. In the telecommunications sector, it was necessary to distinguish between subsectors--such as international, long-distance, or local-voice telecommunications services--and technologies, such as cellular services.(40) Negotiators concluded that it was not necessary to schedule specific ways of offering a particular type of telecommunications service, such as call-back.(41) If a Member committed to allow international service to be provided, it was not necessary to...