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16 March 1998

"Trade in telecommunication services"

Address delivered by Renato Ruggiero, Director-General of the WTO, to the ITU 2nd World Telecommunication Policy Forum in Geneva on 16 March 1998.

I am very grateful that my friend Pekka Tarjanne offered me the opportunity to speak to this year's Policy Forum. The subject you have chosen for the forum has been one of the dominant themes in the work of the WTO over the past three years, and it encompasses so many of the forces which are changing the world around us at unprecedented speed. I am glad that we shall be working together with the ITU, in the very friendly and cooperative atmosphere which Pekka Tarjanne has done so much to foster, in exploring these new fields and promoting the implementation of the WTO Agreement on Basic Telecommunications which came into force last month.

As Dr. Tarjanne has said, there has been a fundamental transformation in the world of telecommunications. Until a few years ago the provision of basic telecommunication services was seen as a natural monopoly, in which it made no sense to envisage the introduction of competition, let alone foreign competition. We now see clearly that within ten years or so there will be very few telecoms monopolies left in the world. A major service sector which previously seemed far removed from trade policy is now fully integrated into the multilateral trading system, as one part of a general agreement covering all services. Of course, it would be nonsense to suggest that all this has happened because of a negotiation in the WTO: that negotiation became possible because there was a general recognition that the old regime was no longer tolerable. The monopolies were breaking down under the pressure of new technologies and the demand of users for better and cheaper services. To that extent the negotiation reflected and codified what was happening in the markets - and that was a good thing: the WTO exists to serve markets. But it is also true that the negotiation expanded and accelerated the liberalization process and that it has changed fundamentally the legal environment in which the industry operates.

It seems clear that the existence of this negotiation focused attention in many governments on the benefits of liberalization and competition. We know many cases in which liberalization plans were brought forward and expanded, and we know that a number of governments which could not meet the negotiating deadline are still planning to make commitments on basic telecoms. Two have done so in the past month. Why should this be? Since it is always possible to liberalize unilaterally, why do it in the form of binding multilateral obligations, enforceable through a formidable dispute settlement process? The answer is that bound commitments in the GATS give assurance that policy will not be changed lightly, and this stability is a powerful inducement to potential foreign investors. Quite explicitly and consciously, governments used this negotiation to subject incumbent suppliers to the stimulus of competition and upgrade national infrastructures.

The case of basic telecoms therefore holds some lessons for other sectors. It suggests that the pressure of users, particularly business users, on inefficient, monopolised or cartelized services, once it is mobilised, can force rapid change. Telecoms was an example of user-generated liberalization. It also suggests that most governments now fully appreciate the benefits in terms of efficiency and growth of open competitive markets, and recognize that it is futile and self-defeating to protect inefficient services, particularly those which form the basic infrastructure of every modern economy: that way you simply tax and handicap the rest of the economy. The same lesson can be drawn from the successful negotiation on financial services which was concluded in December last year.

As these reforms take hold, prices for international communications are going to fall and the volume of international traffic, which has been held down by excessive charges, will rise exponentially. Telecoms services will then begin to play their full part in the process of economic globalization which will reduce inequality and poverty all over the world. Thirty years ago Marshall McLuhan predicted that "electronic interdependence would create the world in the image of a global village"; that is becoming a reality. We are on the verge of a single, borderless global economy. Advances in digital and communications technology are creating the possibility of borderless electronic trade in key services sectors, and are changing the way both goods and services are produced throughout the world. The commitment in the GATS to a process of continuous liberalization will ensure that the financial services, telecoms and transport industries become a single global infrastructure for the world economy.

The concept of globalization seems to cause fear in some quarters - and I can understand that. It certainly does create new challenges, and forces us to rethink the way we have been used to doing business. But I am convinced of the capacity of modern technology to reduce or even eliminate barriers to markets, information and expertise for virtually every country and person in the world. Technology enables us to mobilize the skills of people now excluded by distance from world markets, and this will be overwhelmingly positive. Poverty is receding: for the first time in the history of the world it may even become possible to envisage the elimination of poverty as developing countries are enabled to leap-frog phases of industrial development which in the North have taken decades to accomplish.

I said at the outset that the basic telecoms agreement fundamentally changed the legal environment in which your industry operates. The regulatory principles which nearly all participants in the negotiation have accepted - for example on the prevention of anticompetitive practices, the obligation to provide interconnection on transparent and reasonable terms, the requirement for independent regulatory bodies - are a tremendously important contribution to effective competition. The great task now is to ensure that these commitments, and all the other market access commitments governments have undertaken, are properly implemented. We are grateful for all the work the ITU has done on the implementation of the Agreement in the form of technical cooperation, and we look forward to continued cooperation between our two organizations in this work. The proposal of a cooperation agreement between the ITU and the WTO is now under consideration in the WTO's Council for Trade in Services; I can assure you that I do recognise the importance which the ITU membership attaches to this and - although the ultimate decision rests with the Council - I shall do my best to encourage a favourable decision.