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22 February 1996
Background Note on The WTO Negotiations on Basic Telecommunications

The negotiations began in May 1994 and are scheduled to conclude by the end of April 1996. Participation by governments is voluntary and, so far, 48 have joined the process.(1) These represent most major telecommunications markets, but other participants are expected to join the negotiations. The participating governments account for about 90 per cent of global revenue for telecommunications which was valued at US$ 513 billion in 1994 with an annual growth rate of 8 per cent.

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These extended negotiations represent an effort to go beyond what was negotiated in the Uruguay Round schedules of commitments and achieve more far-reaching multilateral progress towards opening markets for basic telecommunications services.

To date, 19 draft offers (covering 33 governments) have been submitted.(2) These are “initial” offers, that is they are the starting positions of negotiators. Most participants have reflected their current regimes, or the status quo, in these initial offers. They are also understood to be “conditional” offers. That means they may be subject to revision, either improvement or subtraction, or even total withdrawal, depending on the quality of offers made by other participants. Finally, they will be converted to legally bound schedules of commitments reflecting the results of the bilateral sessions and the overall outcome of the negotiations.

The coverage of the negotiations

The negotiations are comprehensive in scope, with no basic telecommunications excluded a priori. To maintain this broad scope and because of the rate with which technology was offering new services in the market, negotiators chose not to develop a definitive listing of what constitutes basic telecommunications, but agreed that the negotiations will cover any and all telecommunications services that involve simple transmission (i.e. without adding value). Such services can include international as well as domestic voice telephony, data transmission, telex, telegraph, facsimile, private leased circuits, satellite services, mobile services and video transport services.

Negotiators also agreed that basic telecommunications services provided on an infrastructure-basis, as well as those provided through resale, shall both fall within the scope of negotiations. As a result, in addition to negotiating market access commitments on the cross-border supply of basic telecommunications, negotiators are able to negotiate market access commitments on commercial presence relating to the ability of foreign firms to own and operate telecommunications networks and infrastructure.

Basic services are to be distinguished from value-added or enhanced services -- that is services carried over public telecommunications transport networks which usually employ computer processing applications, many of which are subject to the Uruguay Round commitments already in schedules, and are not included under the purview of the extended negotiations. These include electronic mail, voice mail, on-line information and database retrieval, data processing and electronic data interchange.

Telecommunications negotiations in the Uruguay Round

The Uruguay Round Agreement on Trade in Services (GATS), including its schedules of commitments and sectoral annexes, has already established the framework of rules, rights and obligations for all WTO Members. The schedules, containing market access and national treatment commitments on specific services, are contractual obligations on Members to guarantee specified conditions for foreign service suppliers. One of the annexes permits temporary exemption from the most-favoured-nation (mfn) rule (Article II of GATS) for measures specified by Members -- in other words, it allows discrimination concerning foreign services suppliers. In general, this provision could be used only at the conclusion of the Uruguay Round.

Another annex, which deals specifically with the telecommunications sector, guarantees that suppliers of services included in schedules will have fair and non-discriminatory access to public telecommunications networks and services they need to do business.

The Uruguay Round results in the telecommunications sector included 48 schedules of commitments (counting the EC and its member states as one), most of which were limited to value-added telecommunications; 22 governments included some commitments on basic telecommunications in their final schedules, but the extent of these was narrow. A few schedules listed a commitment on a single basic telecommunications sub-sector, such as facsimile or data transmission services. Included in these were a few commitments on voice telephone services, but limited in almost all instances to mobile or cellular telephony.

The paucity of commitments reflected the fact that, in the closing stages of the Uruguay Round, the participating governments recognized that in the basic telecommunications services sector there were particularly rapid advances underway in regulatory regimes and technology which were leading to greater potential for opening telecommunications markets to competitive supply. Governments also recognized that, given the importance of basic telecommunications not only as a distinct sector of economic activity in itself but also as an important facilitator for other economic activity, this sector should be the subject of extended negotiations. At the end of the Round, therefore, many governments, with the extended negotiations in mind, withdrew offers they had made on basic telecommunications.

The legal basis for the extended negotiations

The Uruguay Round results included the Decision on Negotiations on Basic Telecommunications and the Annex on Negotiations on Basic Telecommunications.

The Decision permitted WTO Members to enter into the negotiations 0“on a voluntary basis with a view to the progressive liberalization of trade”, and it established the Negotiating Group on Basic Telecommunications (NGBT) to oversee the negotiations. It also contains a standstill commitment, which came into effect in April 1994, under which participants are expected not to “apply any measure affecting trade in basic telecommunications in such a manner as would improve its negotiating position and leverage”, but with the proviso that this commitment would not rule out “the pursuit of commercial and governmental arrangements” on basic telecommunications services while the negotiations were under way.

The role of the Annex on Negotiations on Basic Telecommunications is to address a legal technicality related to the negotiations. It provides that mfn treatment, in Article II of the GATS, and the Annex permitting mfn exemptions (see above) would be suspended for basic telecommunications (except those which are now listed in Schedules) until the implementation of the results of the negotiations, or should the negotiations not succeed, when the NGBT issues its final report. At that time, the commitments must be applied on a non-discriminatory (mfn) basis, unless a Member has decided to list an exemption from mfn treatment for any measures (such as domestic reciprocity provisions) related to basic telecommunications.

Therefore, by virtue of this Annex it will be legally possible for Members to list Article II exemptions that were not listed at the conclusion of the Uruguay Round. If the Annex did not exist, such delayed mfn exemption requests could only be made under the waiver provisions of the WTO Agreement.

Given this opportunity to reserve their options on whether to take an mfn exemption on basic telecommunications, participants were able to agree to withdraw, or in some cases to refrain from listing, mfn exemptions on basic services as part of the Uruguay Round results. However, for commitments on basic telecommunications which are already included in schedules, Article II (mfn) and the exemptions Annex apply.

Technical aspects of scheduling commitments

One important role of the meetings has been to discuss and clarify a number of technical issues in a multilateral setting. Understanding such issues properly is essential for consistent and accurate representation of commitments in schedules.

The technical discussions on schedules have focused on an informal "model schedule" on basic telecommunications, which negotiators designed to serve as a guide to help them inscribe their commitments clearly and accurately. The model schedule is based on a standardized format for schedules defined during the Uruguay Round, but includes certain modifications to help describe more precisely the telecommunications service being committed, and illustrations of schedule entries related to market access, national treatment and additional commitments that may be particularly relevant to telecommunications. Since the model schedule left certain issues unresolved, continuing discussion in the NGBT has focused on some of the following issues:

- how the GATS may apply to measures related to international agreements between operators, particularly the accounting rates system. Proposals that participants address these issues by scheduling market access commitments on “termination services” have not so far been found acceptable. Other proposals involve extending a greater degree of transparency to the accounting rates system, by such means as publishing the accounting rates that result from operator-to-operator agreements.

- whether any sector-specific clarifications of modes of delivery are needed. In this context, participants have generally arrived at an understanding that the cross-border and possibly the consumption abroad modes of supply cover not only traditional international operator-to-operator traffic but also call back and calling card services, such that, if a Member restricts such services, relevant limitations must be entered in the schedule.

- whether or not to schedule non-discriminatory limitations on the number of service suppliers as limitations on market access when these are established strictly for technical reasons, i.e., the availability of radio spectrum or frequencies. At present, some participants are indicating frequency availability in their initial offers as a factor limiting the number of service suppliers without limiting the possibility for market access to a specific number of operators, while others indicate binding to specified numbers of market entrants.

Regulatory issues

On regulatory issues, which are regarded by some as key determinants of market access, one objective in the discussion has been to try and arrive at an understanding of the extent to which some concerns might already be adequately addressed by obligations of the GATS, in particular the obligations of Article VI on domestic regulation and the Annex on Telecommunications. Some of these regulatory issues are briefly summarized below:

- Interconnection. This refers to the terms and conditions of interconnection between telecom service suppliers for access to one another's networks or circuits. How interconnection occurs -- whether it is non-discriminatory and cost-based, allowing new entrants to compete on the same terms as each other and as the incumbent supplier -- can clearly influence market access and effective competition. The specification of terms and conditions of interconnection is as relevant in respect of dominant private sector suppliers as it is in the case of state-owned suppliers.

- Competition safeguards. These are safeguards to prevent dominant network operators from abusing market power through anti-competitive behaviour. Some of the issues that have been raised under this rubric include rules against cross-subsidization of competing services from monopoly service revenues, and guarantees of access to information regarding terms and conditions of interconnection and technical standards. General provisions relating to transparency are also considered important by some participants.

- Licensing. The issue that has been raised here is that criteria for licensing service suppliers should be timely, objective and transparent and no more burdensome than necessary. Licensing criteria and procedures should not in themselves constitute barriers to market entry.

- Independence of regulatory bodies. Under monopoly arrangements, regulatory functions often fall under the responsibility of the supplier of services. It has been suggested that the performance of regulatory functions should be independent of the supply of the service.

- Standards and type approval. This has to do with the technical specifications relating to infrastructure and equipment, and the manner in which standards are determined. The concern is to ensure that neither the substance of standards nor procedures relating to their determination and adoption should act as entry barriers.

- Rights of way and planning. New market entrants may wish to supply services either by interconnecting to existing networks or by establishing independent infrastructure. It has been suggested that a commitment to permit the development of independent infrastructure could be meaningless if rights of way for the construction of such infrastructure were refused.

- Universal/public service. A common public policy objective is to ensure that telecommunication services are available to the public at large, regardless of commercial viability. The concern in the negotiations is that universal service obligations are addressed in an equitable manner and do not become an impediment to competition.

- Tariffs and accounting rates. The relationship between costs and prices, and the way in which charges (including international accounting rates) are set for the transmission of telecommunications traffic, are considered vital elements of market access. But views differ as to how far GATS obligations should go in this area. The more competitive the market, the less concern there will be about regulatory authority over pricing -- the market would decide. Where a dominant supplier is operating, a question is whether GATS obligations should be established for cost-oriented and non-discriminatory pricing.

(1)Argentina, Australia, Barbados, Brazil, Canada, Chile, Cuba, Cyprus, Czech Republic, Dominican Republic, Ecuador, Egypt, the European Communities and their Member States (Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, United Kingdom), Hong Kong, Hungary, Iceland, India, Israel, Japan, Korea, Mauritius, Mexico, Morocco, New Zealand, Norway, the Philippines, Poland, Singapore, Slovak Republic, Switzerland, Tunisia, Turkey, the United States and Venezuela.

(2)Australia, Canada, Chile, Czech Republic, European Union, Hong Kong, Hungary, Japan, Korea, Mexico, New Zealand, Norway, Philippines, Singapore, Slovak Republic, Switzerland, Turkey, the United States and Venezuela.