10:30 AM Feb 17, 1997

TELECOM LIBERALISATION ACCORD

Geneva 17 Feb (Chakravarthi Raghavan) -- Capping nearly three years of a sectoral services negotiations, some 68 governments agreed Saturday to a global basic telecommunications liberalisation accord, covering about 90% of the world market -- with a revenue in 1995 of $600 billion.

The successful outcome is seen as giving a boost to the WTO's impending resumed negotiations on another sectoral service, in the financial services sector, where too the US pulled out dissatisfied with the range of market access openings offered by other countries, principally the developing countries.

The basic telecom talks collapsed in April 1996, when the US walked out of it dissatisfied with the offers and commitments. The outcome now, with vastly increased market access commitments (including from the EU and Japan) would strengthen the US view that by holding out and playing hard-ball it could get more market access abroad for its enterprises.

The WTO head, Mr. Renato Ruggiero, at a press conference after the end to the negotiations, called it "an important victory" which along with the information technology products agreement would enable people and nations to communicate more easily and understand one another better.

A picture in the Financial Times (with a front page banner headline story picturing the outcome as a "boost to world telecoms") showed a beaming Ruggiero with two mobile phones to his ears in two hands -- and listening or speaking to both simultaneously.

It epitomises the information dilemmas of today -- where technology has increased the North-South divides.

Communication is a two-way affair. There is some concern that in fact the various technological changes taking place, and the telecom liberalisation promoting it, would in fact enable more one-way information from the North to the South, rather than promote a genuine communication.

The protocol on the basic telecom agreement, with the schedules of various countries, will be open for acceptance until 30 November 1997 and will enter into force on 1 January 1998 (after signatory governments ratify or take necessary legal steps), when it will be formally part of the WTO's General Agreement on Trade in Services (GATS), and its benefits will be extended on an MFN basis to all WTO members.

The telecom accord for liberalising the basic telecommunication services is expected to have far reaching efforts on the world economy, and particularly drive for globalization, and with benefits to consumers in the form of cheaper costs for telephones, particularly international.

Argentina on 14 February withdrew its offer of 30 April. While there was no official explanation, trade officials said it had nothing do with the telecom negotiations, but related to Argentine dissatisfaction with the US in disputes relating to Argentine beef and peanuts and textiles and shoes.

EC Commissioner Leon Brittan, said Saturday morning at a press briefing "we can live without Argentina". At the GBT some participants said Argentina, which in terms of telecom revenue was the tenth ranking (with one percent share of the global revenue) was not so important for the talks to collapse.

WTO sources confirmed that late Saturday night, Argentina had put in its schedule of offers, but it was not clear whether it was the original offer or a revised one.

But whether this involved some US concessions is not clear. Some trade sources however said that the USTR Ms. Charelene Barshefsky and the Argentine Foreign Minister had talked over the telephone and that US- Argentina talks on their disputes would be resumed.

The 68 countries that have signed the accord, and affixed their schedules of 'offers' as commitments (54 schedules, with the EC and its 15-members treated as one), have all agreed on applying a competitive framework in domestic regulations, including the establishment of a regulatory authority independent of the operators (domestic monopolies or state enterprises).

Many have done this by incorporating a contents of a draft reference paper (evolved within the Group on Basic Telecommunications where the negotiations were conducted multilaterally) in their schedule as a note; others have adapted that paper and incorporated their own conditions.

In the longer-term perspective, Ruggiero said, the accord would go beyond trade and economics, and make access to knowledge easier and enable all nations -- large and small, rich and poor -- to prepare for challenges of the 21st century.

He saw the agreement as promoting liberalisation, enhancing certainty, security and predictability through a clear set of rules, and particularly valuable at a time when rapid growth and technological development are changing the face of the telecoms industry.

With telecom operations in most countries (including continental Europe, Japan and developing countries) state-owned monopolies, and often with high charges, the opening up of the sector to competition and liberalisation, will over time reduce the costs of communications, an important input cost in production and trade.

The general view is that it will increase access to communications and information in all countries and that developing countries, and particularly their consumers, will benefit through lowering of the costs of international calls as well as improved efficiency of the telecommunications operations in their country.

According to ITU data, the global telecom services revenue stood at a little over $600 billion or 2.1 percent of world GDP in 1995. Of this 601.9 billion revenues, revenue from mobile services is estimated at about $82 billion or 14% of total revenue. Revenue from international services are estimated at $63 billion.

The protagonists of the liberalisation drive have provided mouth-watering estimates of benefits ranging from 'customers being saved 1,000 billion over three years' to the projection of the Washington-based Institute for International Economics (the main neo-liberal think tank pushing free trade accords) has estimated the "welfare" gains at over a trillion (1000 billion) dollars over a 14-year period and the WTO (Ruggiero) estimate that it will result in global income gains of one trillion dollars or four percent of world GDP over the next decade.

Some of these estimates and projections, are based on so many assumptions and variables that it is difficult to agree or disagree with them or even test them.

However, when the Uruguay Round was being negotiated in 1992-1993, and later on when it was concluded (but before entry into force), there were equally mouth-watering projections of welfare gains -- ranging from about 220 billion dollars (World Bank, OECD etc) to a GATT projection (December 1994) of over 500 billion.

But one of the papers presented at a World Bank sponsored meeting in Washington early in 1995, suggested that in fact the gains would be much less - about 40-100 billion range - and the major gains are among the industrialized countries. Other projections since have shown that Africa, particularly the sub-Saharan African countries, and several other developing and least developed countries, have net losses.

Thus, the econometric projections of the telecom accord could over time turn out to be exaggerated. And, while the accord may be good in itself, by projecting such exaggerated benefits the WTO and the neo-liberal free traders raise credibility problems for the WTO and the trading system.

However, when the important role of communications and information for every other sector of economic activity, is taken into account, there could be little quarrel that whether in terms of costs, or improved efficiency through some limited competition to the state monopolies, industry, trade and consumers would benefit.

But whether in fact it will benefit and increase the access to basic telecommunication services -- telephone lines or telegraph connections, particularly in the rural areas of large developing countries where the infrastructural costs of providing such a service could be quite high -- remains to be seen.

But it is somewhat doubtful if the benefits of 'liberalising' the markets (which have undoubtedly occurred), whether in the United States or the UK, and the considerable reductions in costs for users that have come about, would have been possible if the liberalisation had not been preceded by a long period of state monopolies, or private monopolies regulated by the state, which enabled the building of an infrastructure both in terms of telecom services as well as the telecom equipment sectors.

Developing countries that are now liberalising on the one hand have telecommunications systems that are state monopolies, and often inefficient. Their liberalisation -- opening up their markets for foreign investments to bring in the needed capital for expansion of their infrastructure as well as improving efficiency for users -- is really based on hope and faith (in neo-liberalism).

Several of them, particularly the large countries (in size and area, and the various geographic and other problems of infrastructure)m, both in their autonomous liberalisation policies, and in terms of their commitments at the WTO in this area have laid out conditions on the foreign investors -- such as minority holdings, and providing infrastructure to the rural areas etc (not now served) as part of the overall permission to invest and operate in more profitable urban areas and high value added services.

Whether these moves, initiated recently in India, Indonesia and other countries, would result in expansion of the basic services to areas and people not now served by the state monopoly, remains to be seen.

The ITU, which has brought out a report (timed to coincide with the WTO negotiations) promoting the liberalisation, has noted the fears of developing countries that liberalisation and opening up to foreign investment may not spread the benefits to under-served areas.

The ITU report suggests that the developing countries could achieve this objective through joint ventures. But such joint ventures to be able to influence the decisions of the foreign investor would need the State as a majority partner.

A minority foreign ownership, with the rest of the equity held by a number of domestic shareholders would leave the foreign owner free to run the enterprise as it chooses.

But a majority state share in a joint venture runs against WTO dogma about investment liberalisation and performance requirements or conditions set for investors.

If the hopes of developing countries that this telecom liberalisation would enable better services to under-served areas do succeeded, the liberalisation drive may take off. If it does not -- within an appreciable short- to medium-term -- the exaggerated claims being made now will come back to haunt, along with other WTO liberalisation drives.

By all accounts, the liberalisation, improved communications and security and the reduction in communication costs would benefit the world's major Transnational Corporations in their drive to dominate and control markets everywhere -- whether through direct exports, production through their subsidiaries and affiliates and other instruments.

But in many countries, of the North and the South, the globalization drive is also now being seen as benefiting the major TNCs, but accelerating the marginalisation of the majority of the people and affecting the ability of small and medium enterprises within countries.

This is already creating a visible backlash to the neo-liberal economics.

The 1996 December Singapore Ministerial Conference of the WTO brought home to the NGOs, North and South, that the WTO is a non-transparent and undemocratic decision-making institution, where the US and other majors are able to write trade policy rules in the interests of their major TNCs and to the detriment of the majority of peoples in the world, and that they should focus much more on the WTO.

To the extent that the telecom liberalisation gets identified with this process of globalization (and the WTO as promoting and benefiting the TNCs), it may make the WTO even more of a target in this controversy.

While 68 countries have signed the accord, with individual country schedules of commitments in terms of market opening, and particularly for investments by foreigners to compete in their domestic markets, the liberalisation commitments are quite varied.

A significant element is the commitment of various countries over their domestic regulatory framework which is to be conducted in a pro-competitive way. Many of the signatories have included in their schedules, the details that had been set out in a reference paper that was formulated within the Group on Basic Telecommunications (GBT) thus making it their own commitment. A few others have adapted the reference paper to formulate their own commitments.

Among the major commitment under this is regulatory framework is the commitment of countries to establish a regulatory authority that would be independent of their domestic (state or private) operators, and ensure competition in the sector.

All these would mean that any departures would be challenged before the WTO under its dispute settlement procedures and mechanisms.

Even countries like the United States which speak of a fully liberalised domestic market have some limitations -- such as the US limitation on particular domestic markets through radio.

In Canada (a country that is pushing investment rules for freedom to invest for a foreigner anywhere, except on security grounds, and without any equity or other restrictions) in this particular sector has balked at providing for majority foreign ownership.

It has refused to go beyond its agreement with the US in Nafta for a 46 percent foreign ownership.

The US efforts to "persuade" Canada to remove foreign equity restrictions failed. Its efforts in this direction visavis Japan (which has set 25% limitation on foreigners buying into its two major domestic companies) also failed. Japan said it would 'consider' the question, when the US removed restrictions on some radio services.

In retaliation, the US modified its own offer to put in a most-favoured-nation exemption clause on direct-to-home and digital broadcast television and digital audio services, and made clear it was doing so to be able to provide discriminatory access to its market.

US officials made clear that their main target is Canada and Mexico.

The refusal of these two NAFTA partners to allow majority equity has riled some of the US senators and congressmen. The US hopes that Canada would change its view before the year is out.

The audio-visual services themselves were not a part of the telecom negotiations, and is covered (in the WTO) as a separate sub-sector. The European Community made clear that its telecom offer did not cover this sector. But the US has put in an indefinite MFN exemption - a path that Brazil for example has also taken. Several others (Japan, India etc) have made clear in their schedules that the basic telecommunications services excludes the broadcasting services and measures affecting that sector.

The pact leaves unsettled the issue of international accounting rates system, governed by the ITU and, under it, by bilateral agreements.

At one stage in the long negotiations there were efforts (by the US and some others) to use the negotiations to settle the issue by stipulating that the prices charged by countries and their telecommunications systems, for access to various services in their jurisdiction, should be 'cost-based'.

This failed, when several of the participating countries said that the WTO was not a price-fixing mechanism.

The US has initiated some unilateral steps by which its operators would be expected, in their bilateral agreements, to conform to guidelines about the transfers to other countries on such agreements.

While developing countries by maintaining a rate in such transfers to cross-subsidise their other activities have much to lose, the international accounting system currently is also resulting in large payments from the US to other developed countries who maintain high rates domestically.

The new technological developments like the 'call-back' services are eroding these and many believe that the present system of international accounting will soon collapse to be replaced by something else.

But in the interim, unwilling to face a challenge at the WTO, India and some others have put into their schedules an MFN exemption clause under which their bilateral accounting agreements (which have varying settlement rates with different countries) would not be subject to the WTO challenge.

In a statement at the GBT on Saturday, India made clear that its MFN derogation was not in respect of market access or other normal stipulations in the GATS, and no 'unilateral' discriminatory action was envisaged since these questions were the subject of bilateral agreement, and by definition a bilateral agreement could not be a unilateral discriminatory action.

The report adopted by the Group on Basic Telecommunications (GBT) itself makes a reference to this issue and records the understanding that the bilateral accounting agreements would not be subject of the WTO dispute mechanisms. On this understanding, several other countries chose not to put it into their schedules.

But India felt this was not sufficient. India explained in the GBT that its action was a "defensive one" and did not want to be subject to the dispute settlement process in this, and face unnecessary harassment.

The three majors, US, European Community and Japan, between them account for over 75% of the market.

Of these, the US and the UK, within the EU, have already liberalised their telecoms sector, by and large, and opened them for competition, with various charges to users already heavily reduced.

As a result, the welfare gains (in the $1000 billion talked about) would not be much while, in trade theory, those now highly protected markets (like continental Europe and Japan) would benefit.

In continental Europe, most of the countries have state telecom enterprises, which even after being thrown open for competition, privatization, would have dominant state enterprises.

But the welfare benefits to developing countries have to be set off against losses to the revenues of their telecommunication monopolies, and in some cases to the government's revenues.