Trade in telecommunications services: 
The WTO agreement and the role of the ITU

by
Pekka Tarjanne
Secretary-General,
International Telecommunication Union (ITU)

(This article appeared in the ICC book, The World Business Agenda for Electronic Commerce, published by ISC. (ICC website - http://www.iccwbo.org/; ICS website - http://www.isyscom.com/).

On 15 February 1997, after nearly 11 years of negotiations, an agreement on trade in basic telecommunication services was reached under the auspices of the World Trade Organization (WTO). What is the significance of the agreement? The International Telecommunication Union (ITU) can help its member countries draw maximum benefit from the deal.

Telecommunications was recognized early in the Uruguay Round negotiations, which began in 1986, as being important not only because it is a distinct sector of economic activity but also because it is a mode of delivery for other services and for goods, both across and within borders. This dual role of telecommunications is defined in a special annex to the GATS (General Agreement on Trade in Services), the Telecommunications Annex, which ensures access to and use of the basic telecommunications network for the provision of all services for which a WTO member has made a market opening commitment.

Securing agreement on the trade-related aspects of telecommunications services – the liberalization of telecommunication markets – was not so evident. When the Uruguay Round began, telecommunications was characterized by monopoly provision of a few basic services, primarily telephone, telegraph, telex and data transmission. 

Telecommunications companies and others had begun to provide so-called “value-added services” which involved a degree of processing in addition to the transmission of a signal. While most countries were to maintain monopolies for the provision of the basic infrastructure and the basic services for some time yet, the provision of value-added services under competitive conditions was beginning to gain acceptance. By the time the Uruguay Round ended in 1993, some 60 countries had made commitments to open telecommunications markets to competition, but only eight had made commitments in basic services.

But even by 1993 the idea of liberalized basic telecommunications markets including, of course, the entry of foreign operators had not matured in most countries. Only a few like the United States, the UK, Japan and Canada were experimenting with limited forms of basic services competition, but the idea had not really gained a large following.

A stitch in time saves 69 A decision was taken therefore at the end of the Uruguay Round to put the part of GATS pertaining to the opening of basic telecommunications markets on hold and to continue negotiations on basic telecommunications. These were defined in the Telecommunications Annex as “the real-time transmission of customer-supplied information between two or more points without any end-to-end change in the form or content of a customer’s information”. By the time agreement was reached on 15 February 1997, some 69 countries had signed on, a significant increase from the eight that had made market opening commitments three years earlier.

What is the significance of this multilateral trade agreement in telecommunications? First of all, it confirms the trend toward opening telecommunication markets around the world. Most of the 69 countries that made commitments in mid-February simply confirmed the status of liberalization of their telecommunication sector; however, they did this in the knowledge that by making such a commitment there would be no going back. Indeed, one of the most important provisions of the GATS requires that subsequent rounds of trade negotiations achieve progressively higher levels of liberalization. Some have anticipated this by phasing-in their commitments to open their basic telecommunications markets at a given date in the future.

Preparing commitments very often involves serious reflection at all levels of government about the long-term implications for a country’s economy. These negotiations helped participating countries understand the vital importance of telecommunications to their long-term development plans. 

The emphasis in the Telecommunication Annex on the dual function of telecommunications and particularly its role as a mode of delivery of other services is no coincidence. Countries planning to diversify their economies, with emphasis on services, recognize the importance for new entrants in these sectors of having easy access to cheap and reliable telecommunications, an objective which can be facilitated under more liberal conditions of delivery of telecommunication services.

Many countries have participated in these negotiations and made market opening commitments. In so doing, they acknowledge that the development of their telecommunication sectors can be achieved more easily with the help of private sector investments, which can only be attracted when the rules, conditions, and risks are known and understood. Having such rules and conditions embodied in an international treaty goes a long way to reassuring the potential investor. 

It was with this in mind that a set of rules establishing regulatory principles for fair competition was developed during the extended negotiations on basic telecommunications. The so-called “Reference Paper”, which most countries have committed themselves to adopt, in whole or in part, defines rules pertaining to anti-competitive safeguards, interconnection, independence of the regulator, licensing, universal service and use of scarce resources like the radio spectrum.

Finally, within the international telecommunications community, there has been much concern about the traditional system of correspondent relationship which uses primarily the accounting rate system for the settlement of international telecommunication traffic accounts. This system has come under pressure because of the alternative means that have been developing, to deliver international traffic. 

The WTO agreement to liberalize basic telecommunication markets will make these alternatives even more attractive and relevant, putting even greater pressure on the accounting rate system. The result may be that countries which depend heavily on receipts from international telecommunication services will see these fall sharply. They will be faced with tough decisions involving structural and price adjustments in their home markets because the lost revenues used to develop their networks may have to be replaced by higher domestic prices and increased reliance on foreign investment.

Understanding the implications In order to understand the implications of this important agreement for the ITU, one must first understand the implications for the countries who have made commitments in the sector.

For many of the 69 countries who are party to the mid-February agreement, and the many others contemplating similar action, the exercise of making a commitment allowed them to review the current status of their telecommunications and to plan an opening of this sector over a period of several years. As these trade negotiations concerned not only telecommunications experts, but also planning, trade, finance, economics, and industrial development officials, they have raised the profile and importance of telecommunications in many countries, where its dual role is now better understood by more than just telecommunication specialists.

Countries wanting, for example, to develop their financial services sector now understand that they cannot do so without modern, well developed telecommunications infrastructure and services. A liberalized market is conducive to development of telecommunications because of the possibility it opens to private investment. The fact that market opening measures are confirmed in a binding international treaty helps to assure foreign and indeed domestic investors that the country is committed to liberalization. 
Not all countries will liberalize at the same pace. As mentioned earlier, many countries have made phased commitments in accordance with the current situation in their telecommunication sectors. Many believe they need more time to develop their networks and widen access to basic telecommunication services before opening their markets to competition. 

This creates problems. Countries that have already liberalized want the others who have signed the agreement to open their markets to operators and service providers from the already-liberalized countries. An indication of this is the recent action of the US Federal Communications Commission (FCC) to liberalize its own markets to WTO members and at the same time to demand equivalent measures from them.

What the ITU can do  The ITU has an important role to play in the liberalization process being undertaken under the auspices of the WTO. The latter is a trade organization, not a specialized telecommunication body. It does not have the technical expertise of the sector. This is in the domain of the ITU. There is within the WTO framework, however, a powerful disputes resolution mechanism through which compliance with WTO commitments can be enforced. Within the ITU, there is an optional protocol on disputes settlement but of very limited scope. Disputes resolution in telecommunications will require the sort of technical expertise that the ITU can and should provide. Therefore, it would seem that the ITU may, in future, have an important role as advisor to the WTO disputes resolution body, providing technical advice and helping to select experts.

There is a proposal to establish, under the WTO Trade in Services Council, a sub-committee to deal with GATS telecommunication implementation issues. Again, the ITU, as the independent expert body responsible for the sector, should have an important advisory role in such a sub-committee, if it is created.

As countries implement their commitments, they will increasingly be seeking the advice of the ITU. Previously, when industrialized countries such as the US, UK, Canada, Australia, New Zealand, and Japan began to reform their telecommunication sectors they had to rely on their own resources to implement and manage the process. They could compare notes within the framework of the OECD, but mainly they had to learn from their own experience. They had the substantial resources that are required.

This is not the case with some of the smaller, emerging economies that are, or will be, embarking on reform. They will in large part have to rely on the resources of others. How to ensure that the advice they get is impartial and is the best for them and their circumstances? The ITU, it would seem, has a very important part to play here to assess the circumstance and to advise, through its own resources or resources recruited for the purpose, the individual countries concerned on the choices available to them.

The ITU will need to develop the expertise, and also a base of information easily accessible to its members, in order to provide them with the elements they need to make the best decisions for themselves from among a multitude of options. The regulatory, policy, accounting, traffic and related databases which the ITU is developing could become a very important tool to assist decision-makers in these countries. In addition, because the ITU membership – 188 Member States and more than 400 Sector Members, mainly private corporations – is much wider than that of the WTO, it can play an important role in broadening and publicizing the WTO agreement, especially in the private sector.

While the WTO commitments are clearly categorized into sectors and sub-sectors, there is in most cases a lack of clear definitions as to which telecommunications services have been committed to liberalization and which have not. It would seem here again that the ITU, of all bodies dealing with telecommunications, is ideally placed to provide expert advice in defining the rapidly evolving field of telecommunication services.

Making adjustments The ITU constitution and the International Telecommunication Regulations (ITR), emphasize the sovereignty of ITU Member States in organizing their telecommunication sectors. For example, they may or may not apply ITU standards (Recommendations). While the GATS “recognizes the right of (WTO) members to regulate and to introduce new regulations on the supply of services within their territories in order to meet national policy objectives”; it also requires that technical standards and licensing requirements “do not constitute unnecessary barriers to trade in services”.

 In the future, therefore, the development and application of standards, within the ITU or elsewhere, will need to take into account this important provision of the GATS. The same will be true of orbital slot and frequency assignment and coordination. The ITU will need to review its process in this area to ensure that it is not in conflict with WTO rules and that the Radio Regulations and the associated procedures cannot be perceived by some as a means to limit market access. 

The impact of the GATS telecommunication agreement will be increasingly felt in the area of international telecommunication account and settlements. The introduction of competition in many countries has put strong pressure on existing bilateral correspondent arrangements which are dominated by accounting rates. As a result, many countries will see their international revenues decrease. They will face tough decisions on what adjustments to make so as to go on developing their networks and provide the necessary services to their populations. The ITU can help in raising awareness about these changes and assist many countries in making the necessary adjustments. 

The Uruguay Round, the GATS, and the new Basic Telecommunication Agreement have introduced a new situation and a powerful new player into the international telecommunication regulatory and policy arena. The promoters of market liberalization in telecommunications have used the WTO process well. They will continue to use it to ensure their objectives are attained. The ITU will need to acknowledge and understand this process. It will need to make certain adjustments but it will, at the same time, need to bring its unique expertise to bear. The ITU, not the WTO, has the required expertise in the sector. The ITU may need to adjust some of its standards setting and coordination activities to ensure that they do not conflict with the new trade rules. Above all, it will have to assist countries that have committed themselves to the WTO process.

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