Telecoms liberalization accord

A global basic telecoms accord, opening up the telecommunications sectors of about 68 countries of the WTO to greater competition and liberalization, was reached in Geneva on 15 February. The accord is expected to have far reaching effects on the world economy, especially on the globalization drive. Its protagonists have provided attractive estimates of benefits, but there are fears that this move will further widen the North-South gap and enhance the dominance of the TNCs.

by Chakravarthi Raghavan

GENEVA: Capping nearly three years of a sectoral services negotiations, some 68 governments agreed on 15 February, to a global basic telecommunications liberalization 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 resumption of negotiations on another sectoral service, in the financial services sector, where the US too 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 of 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 liberalization promoting it, would in fact, result in 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.

Far reaching effects

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

Argentina on 14 February, withdrew its offer made on 30 April 1996. While there was no official explanation, trade officials said it had nothing do with the telecom negotiations, but was related to Argentine dissatisfaction with the US in disputes relating to Argentine beef, peanuts, textiles and shoes.

EC Commissioner Sir Leon Brittan, said on 15 February morning at a press briefing, "we can live without Argentina". At the Group on Basic Telecommunications (GBT) some participants said Argentina, which in terms of telecom revenue was the tenth ranking (with 1% share of the global revenue), was not so important for the talks to collapse.

WTO sources confirmed that late 15 February 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 acting US Trade Representative Ms Charlene 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 the 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 long-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.

Increasing access to communications

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) as 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 in particular their consumers, will benefit through lowering of the costs of international calls, as well as improved efficiency of the telecommunication operations in their country.

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

The protagonists of the liberalization 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) estimating the "welfare" gains at over a trillion ($1000 billion) dollars over a 14-year period and the WTO (Ruggiero) estimating that it will result in global income gains of one trillion dollars or 4% 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 þ ranging from about $220 billion (World Bank, OECD and so on) 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 benefactors 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 international 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 "liberalizing" 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 liberalization 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 liberalizing, have telecommunications systems that are state monopolies, and often inefficient. Their liberalization - 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).

Conditions on foreign investors

Several of them, particularly the large countries (in size and area, and the various geographic and other problems of infrastructure), 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 and so on (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 liberalization, has noted the fears of developing countries that liberalization 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 majority 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 liberalization and performance requirements or conditions set for investors.

By all accounts, the liberalization, improved communications and security and the reduction in communication costs would benefit the world's major Transnational Corporations (TNCs) 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, while accelerating the marginalization of the majority of the people and affecting the ability of small and medium-sized enterprises within countries.

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

The Singapore Ministerial Conference of the WTO in December 1996 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 dictate trade policy rules in the interests of their major TNCs and to the detriment of the majority of peoples in the world.

To the extent that the telecom liberalization 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 liberalization 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.

Among the major commitments under this 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.

Foreign equity restrictions

Even countries like the US, which speaks of a fully liberalized domestic market has some limitations - such as the limitation on particular domestic markets through radio.

Canada (a country that is pushing investment rules for freedom of foreigners to invest 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% foreign ownership.

The US efforts to "persuade" Canada to remove foreign equity restrictions failed. Its efforts in this direction vis- a-vis 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 (MFN) 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 and so on) 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 15 February, 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 agreements, 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 a 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 would not be much while, in trade theory, those highly protected markets now (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, and 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. (SUNS3925)




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