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6 March 1997

The WTO Negotiations on Basic Telecommunications

On 15 February 1997, the
WTO successfully concluded nearly three years of extended negotiations on market access for basic telecommunications services. A total of 71 governments tabled offers by the close of the negotiations and the commitments of 69 of these governments (contained in 55 schedules) are to be annexed to the Fourth Protocol of the General Agreement on Trade in Services. The world's industrialized countries all participated in the deal...
The following is informal background for information purposes only. It should not be cited or quoted as an official document of the WTO.

Over 40 developing countries large and small from virtually every region of the world also took part as did six of the Central and Eastern European economies in transition. The markets of the participants accounted for more than 91 percent of global telecommunications revenues in 1995.

The WTO negotiations on market access for basic telecommunications had resulted in 34 offers (covering 48 governments) by the time they were originally scheduled to end in April 1996. Mid-November 1996 marked the first tangible signs of renewed progress in the negotiations when the European Union, the United States and the Slovak Republic became the first to formally submit revisions of the offers contained in the package achieved in April. In January 1997 momentum began to build as seven more governments submitted revised offers and six governments added completely new offers to the package of results. In February, 17 more new offers were submitted and another 22 governments submitted first-time revisions of their April 1996 offers. This raised to 23 the total number of new offers submitted and to 32 the total number of revisions (covering 46 governments) of the 34 offers tabled in April.

Concerns related to establishing a regulatory environment conducive to market entry were discussed at length during the negotiations. Many participants suggested that regulatory disciplines might be inscribed as additional commitments in schedules (an approach made possible by GATS Article XVIII) as a way of safeguarding the value of the market access commitments undertaken. Participants succeeded in elaborating a set of principles covering matters such as competition safeguards, interconnection guarantees, transparent licensing processes, and the independence of regulators in a commonly negotiated text called the Reference Paper. They also agreed that each would use the text as a tool in deciding what regulatory disciplines to undertake as additional commitments. By the February 1997 deadline, 63 of the 69 governments submitting schedules included commitments on regulatory disciplines, with 57 of these committing to the Reference Paper in whole or with a few modifications. This compares favourably with the April 1996 results, when 44 out of the 48 governments submitting offers included commitments on regulatory disciplines and only 31 of these inscribed the Reference Paper.

On the multilateral level, the results of the telecommunications negotiations are to be extended to all WTO members on a non-discriminatory basis through m.f.n. treatment. However, the legal basis for the negotiations made it possible for each WTO Member to decide individually whether or not to file an m.f.n. exemption on a measure affecting trade in basic telecommunications services. On 15 February, nine governments submitted m.f.n. exemption lists to be annexed to the Protocol. The exemption by the United States relates to one-way satellite transmission of DTH and DBS television services and digital audio services. That of Brazil relates to the distribution of radio or television programming directly to consumers. Argentina's exemption applies to the supply of fixed satellite services by geostationary satellites. One by Turkey relates to two neighbouring countries, with respect to fees for transit land connections and the usage of satellite ground stations. Bangladesh, India, Pakistan, Sri Lanka, and Turkey listed exemptions to permit the Government or the Government-run operator to apply differential measures, such as accounting rates, in bilateral agreements with other operators or countries -- an issue also addressed in the final Report on the Group. An exemption by Antigua and Barbuda enables the Government to extend to nationals of other Caricom-Member countries treatment equal to its own nationals. While m.f.n. exemptions can sometimes be required by legal technicalities, a decision to file one can also depend on whether a participant is satisfied with the quality of commitments made. Without an m.f.n. exemption, a Member must treat the services or service suppliers of every other Member as favourably as those of any other country, Member or not. But even if it files an exemption, a Member may only apply it to unscheduled services or to grant special preferences over and above the market access restrictions indicated in its schedule.

The Protocol, to which the schedules and m.f.n. exemption lists tabled in February will be annexed, is open for acceptance until 30 November 1997. The Protocol and its annexed documents are scheduled to formally enter into force on 1 January 1998. Once in force, the schedules on basic telecommunication services will constitute part of the GATS schedules of services commitments already in force since the Uruguay Round concluded in 1994. In a number of schedules, a Member's commitments for particular services are to be "phased in". For these, while the schedule will formally enter into force on the date of the Protocol as a whole, the actual implementation date for such commitments will be on the date specified in the schedule.

Defining basic telecommunications

At the outset of the negotiations, participants agreed to set aside national differences in how basic telecommunications might be defined domestically and to negotiate on all telecommunications services both public and private that involve end-to-end transmission of customer supplied information (e.g. simply the relay of voice or data from sender to receiver). They also agreed that basic telecommunications services provided over network infrastructure as well as those provided through resale (over private leased circuits) would both fall within the scope of commitments. As a result, market access commitments will cover not only cross-border supply of telecommunications but also services provided through the establishment of foreign firms, or commercial presence, including the ability to own and operate independent telecom network infrastructure. Examples of the services under negotiation were voice telephony, data transmission, telex, telegraph, facsimile, private leased circuit services (i.e. the sale or lease of transmission capacity), fixed and mobile satellite systems and services, cellular telephony, mobile data services, paging, and personal communications systems.

Value-added services, or telecommunications for which suppliers "add value" to the customer's information by enhancing its form or content or by providing for its storage and retrieval were not formally part of the extended negotiations. Nevertheless, a few participants chose to include them in their offers. Examples include on-line data processing, on-line data base storage and retrieval, electronic data interchange, e-mail or voice mail) More commonly liberalized than basic services, value added services are already included in 44 schedules (representing 55 governments) that are in force as a result of the Uruguay Round and the accession of new WTO Members since the end of the Round.

Origins of the negotiations

A set of ministerial decisions related to services was adopted at the Marrakesh Ministerial Meeting which closed the Uruguay Round in April 1994. Included in these was a decision to extend negotiations on trade in basic telecommunications beyond the Uruguay Round. Ministers hoped that through the extension more liberalization could be captured as the negotiations could take into account some of the reforms under way in telecommunications regulatory regimes and rapid advances in technology. The negotiations began in May 1994, initially with the participation of 33 WTO Member governments, under the auspices of a group called the Negotiating Group on Basic Telecommunications (NGBT). The Ministerial Decision directed the negotiations to conclude by 30 April 1996. Participation in the NGBT was voluntary and, by the end of April, 53 WTO Member governments had decided to participate fully in the Group. Another 24 governments (including some in the process of accession to the WTO) requested to participate with observer status. By April, the talks had resulted in offers from 48 governments (contained in 34 offers), but some saw the package as not yet sufficient to successfully complete the talks.

At a meeting on 30 April, WTO Director-General Ruggiero said he wished to preserve the results achieved so far in the negotiations. He suggested attaching the results to a Protocol and the establishment of a one-month period early in 1997 during which participants could re-examine their positions on market access and m.f.n. treatment and modify their attachments to the Protocol. Participants accepted the Director-General's proposal in a Decision adopted 30 April by the Council for Trade in Services. The Decision affirmed the opportunity to negotiate further to try to secure improvements and established 15 February 1997 as the closing date. After April, a new body -- the Group on Basic Telecommunications (GBT) -- was responsible for implementing the further extension of negotiations. This Group agreed to modify the rules on participation in meetings so that all WTO Members had a full voice in its activities and only those governments under accession to the WTO participated, upon request, as observers. The talks resumed in July 1996 and then in the autumn of 1996 participants met monthly and held numerous bilateral negotiations on their market access offers. They also maintained informal contacts at the December 1996 WTO Ministerial Meeting in Singapore and returned to Geneva on 15 January 1997 to prepare to meet the February deadline.


The WTO and Telecommunications

By the time of the signing of the Final Act in Marrakesh in April 1994, 125 countries were participating in the Uruguay Round of Multilateral Trade Negotiations. In addition to representing the biggest package of market access concessions ever negotiated, the Uruguay Round created a new trading system. The deal also lead to the replacement of the GATT Secretariat by the new World Trade Organization (WTO) with a strengthened mandate and a streamlined dispute settlement system.

The WTO is responsible for administering all the agreements concluded within the framework of the Uruguay Round. It is the forum for all future trade negotiations, and administers the new dispute settlement mechanism. In its structure the WTO consists of a Ministerial Conference, mandated to meet once every two years, a General Council that meets more frequently, a Dispute Settlement Body and three subsidiary Councils-- on services, goods and intellectual property rights.

The telecommunications sector in its broader sense includes both services and equipment (i.e., goods). From this perspective, several of the agreements which the WTO oversees are relevant. On the equipment side, the GATT schedules of tariff concessions and developments in Agreement on Technical Barriers to Trade (Standards) are important. Developments that address both telecom goods and services are the expanded coverage of the Government Procurement Code and the new rules on trade related aspects of intellectual property rights. Then, there is the General Agreement on Trade in Services (GATS), which put trade in telecommunications services, both basic and value-added, within the ambit of the new multilateral trading system. All of these agreements taken together, and in particular the GATS, have far-reaching implications for the telecommunications sector.

The Services Agreement

The GATS formally consists of 29 articles, 8 annexes, and 130 schedules of commitments (each WTO Member must submit a schedule) on specific services or service sectors. The articles of the GATS lay out the scope of the Agreement and the general obligations and disciplines to be observed. They also define the specific commitments to be inscribed in schedules and how to go about negotiating them. Finally, there are provisions for dispute settlement and the establishment of the Council for Trade in Services.

General Obligations and Disciplines

One of the most important general obligations of the GATS is most-favoured-nation (m.f.n.) treatment. M.f.n. treatment prohibits Members from discriminating among themselves, or in fact from treating other members less favourably than any other country, member or not. M.f.n. treatment is the cornerstone of multilateralism, without it the WTO would be little more than an overseer of special bilateral and regional trade deals. Another principle, transparency, requires governments to make public their laws, rules and regulations affecting trade in services, so that service suppliers can know the rules under which they can do business. It is a key element in promoting the stability and predictability of the trading system.

The articles on general obligations and principles vary in character. M.f.n., for example, applies to all services and all measures covered by the agreement. Some apply only to the sectors or sub-sectors for which commitments have been taken in schedules, and still others define the exceptions to the GATS which are permitted under specified circumstances. Finally, some articles mandate further negotiations, e.g., the articles on government procurement, subsidies and emergency safeguards. These negotiations are just now beginning.

Certain general obligations of the GATS are of particular relevance to telecommunications. Article VI on domestic regulation sets out some rules of fair play for regulations not directly addressed by commitments entered in the schedules. Article VIII on monopolies and exclusive service providers and Article IX on restrictive business practices are relevant because of the prevalence of monopolies in this sector and, where competition has been introduced, the frequent presence of telecom providers with a dominant market share and the potential to take unfair advantage of their position.

Schedules of Specific Commitments

The schedules of services commitments submitted by each member are considered an integral part of the Agreement. This is the means by which they, like the GATT tariff schedules on goods, are made legally binding commitments to provide specified levels of access to trade in each Member's market. The schedules are the result of intensive negotiations undertaken during the Round. Through successive rounds of negotiations, these commitments are to be progressively expanded and liberalized.

The schedules contain each Member's commitments on market access and national treatment, and can also contain additional commitments. Market access (Article XVI) is defined primarily in terms of quantitative restrictions, but also includes some other forms of limitations such as caps on foreign equity participation. National treatment (Article XVII) is defined as treatment of foreign services or service suppliers that is no less favourable than that granted to domestic services or suppliers. Additional commitments (Article XVIII), create an open-ended possibility to negotiate commitments on measures affecting trade in services that are not expressly captured by market access and national treatment. In the schedules, Members may grant full market access and national treatment or they may enter any limitations they will maintain. Whether full or limited access is granted, Members may not take measures that reduce the level of access inscribed in their schedules.

Many of the leading service sectors included in schedules are considered intensive users of telecommunications services. The sectors most frequently listed in schedules were, in order: tourism, financial services, and business services, followed closely by transport and telecommunications. All schedules of industrialized countries contain commitments on business services, communications, construction and engineering, distribution services, financial services, tourism, and transport.

In the GATS schedules already in force, 67 governments have made commitments on telecommunications services (56 schedules since the EU Member States submit a single schedule). Commitments were made by most countries representing major markets for telecommunications services. However, most of the schedules (44 of them, covering 55 governments) listed mainly value-added or enhanced telecommunications services, since basic telecommunications were subject to the extended negotiations.

The Annex on Telecommunications

Most of the annexes to the GATS concern particular service sectors -- such as air transport, financial services, and telecommunications. One of the annexes permits individual members a one-off chance to exempt certain measures from the m.f.n. obligation (these were inscribed by some members in lists of m.f.n. exemptions which also form part of the Agreement).

The Annex is composed of seven sections, but its core obligations are contained in a section on access to and use of "public telecommunications transport networks and services" (meaning essentially basic public telecommunications). It requires each Member to ensure that all service suppliers seeking to take advantage of scheduled commitments are accorded access to and use of public basic telecommunications, both networks and services, on reasonable and non-discriminatory basis.

Members incur these obligations whether or not they have liberalized or scheduled commitments in the basic telecommunications sector. This is because the Annex addresses access to these services by users rather than the ability to enter markets to sell such services; the latter is addressed in schedules of commitments. As such, the beneficiaries of the disciplines in the Annex will be firms that supply any of the services included in a Member's schedule of commitments; not only be value-added and competing basic telecommunications suppliers, but banking or computer services firms, for example, that wish to take advantage of market access commitments made by WTO Member. The annex obligations strike a fragile balance between the needs of users for fair terms of access and the needs of the regulators and public telecommunications operators to maintain a system that works and that meets public service objectives.