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Trade in Telecommunication Services

Opening address

Dr Pekka Tarjanne
ITU Secretary-General

Geneva, 16th March 1998

Your Excellencies,

Ladies and Gentlemen,

It gives me great pleasure to welcome you to Geneva for this, the second ITU World Telecommunication Policy Forum. The theme this year is "Trade in Telecommunications Services". I am delighted to be joined at this meeting by two colleagues, Mr Ruggiero and Mr McMillan, who were instrumental in achieving the World Trade Organisation’s basic telecommunication agreement. The agreement, which was concluded in Geneva on 15th February last year, entered into force on 5th February this year. Our purpose here is not to review or to reinvent that agreement, but rather to celebrate and to help to implement it. We are here to learn a new language. Terms like most favoured nation, non-discrimination, national treatment, transparency or market access may not be familiar to telecommunication experts or to those that have not participated in the negotiations. But they soon will be. Likewise trade experts will have to get used to hearing about accounting and settlement rates, SDRs and other telecommunications arcana.

A changed environment

The telecommunications world has changed fundamentally as a result of the basic telecommunications agreement and the General Agreement on Trade in Services (GATS) which preceded it. That change did not take place overnight on the 5th February but rather it has been a much longer, slower process of change that arguably dates back at least to the start of the Uruguay Negotiations in 1986. This Policy Forum is a public and visible celebration of a long-term and largely invisible change. The telecommunications industry now operates, for all intents and purposes, under a trade regime. That has long been the case for telecommunications equipment manufacturing, but it is a relatively new development in services. While the bilateral, correspondent agreements which have, for so long, characterised the international telecommunications sector may continue for some time, they will be overlaid with a multilateral trade agreement which will progressively account for an ever greater share of global telecommunications activities.

Let me offer a few statistics which underline the significance of the new era we are entering:

  • The 72 countries which have now made commitments under the basic telecommunications agreement to progressively liberalise their telecommunication markets collectively account for some 93 per cent, by value, of the global telecommunications market;
  • In 1996, the value of revenue from public international telecommunications traffic was just over ten per cent of a total global market of US 670 billion. As a result of the basic telecommunications agreement, together with other trends towards globalisation, technological change, market liberalisation and foreign ownership, we expect that percentage to increase considerably, perhaps reaching 15-20 per cent by the early years of the next century;
  • As a result of the changes that took place at the start of this year, notably within the 15 Member States of the European Union, some three-quarters of all international telephone traffic is now provided under competitive market conditions compared with just 35 per cent in 1990. As a result of commitments already made, that percentage will increase to a minimum of 85 per cent by the year 2005;
  • Since the start of 1996, more than 35 independent telecommunication regulatory agencies have been established around the world. The majority of those governments which made commitments under the basic telecommunications agreement also agreed to abide by a common set of principles which are incorporated in the Regulatory Reference Paper;
  • Under their commitments to the basic telecommunications agreement, countries have indicated the level of foreign ownership they are willing to permit. This is already bearing fruit as investors around the world have identified the telecommunications sector as a sound investment. Private capital being invested in privatisation opportunities and in infrastructure development now far outweighs public money. In 1997 alone, more than US$ 45 billion was invested in 16 separate privatisations of public telecommunication operators, all of which involved a significant component of foreign capital.

These figures—which relate to the size, scope, degree of competition, regulation and level of investment in the public telecommunications sector—indicate an industry which is healthy and expanding. But the really good news is shrinking prices for consumers. As a result of changes taking place in the industry, the price of an international telephone call in future years should be little different from that of a national call. This is already true on the Internet. The so-called "Death of distance" in international communications will have long-term effects that we can only guess at in the way we live, play, work and do business.

But one thing does not change as a result of these trends. That is the principle of national sovereignty on which the WTO, like the ITU, is founded. As a result of the commitments which WTO Member Countries have made, they have made voluntary concessions to limit their exercise of national sovereignty, for instance by agreeing to be bound by a formal disputes settlement mechanism, However, individual governments have not been pushed further or faster than they wish to move towards market liberalisation. Some country’s commitments under the WTO agreement do not go very far at all. But the point is that they have joined the club. The other members of the club fully understand the difficulties they may be experiencing and are willing to open their own markets to them on a multilateral basis, in line with their own commitments.

The other seven per cent

I would like now to address the concerns of those ITU Member States which have not yet made commitments under the basic telecommunications agreement. Even though they account for only 7 per cent of the global market, they nevertheless number 116 Member States. Many of these are developing countries. Some of them are pursuing their own liberalisation policies without making binding commitments under the WTO process. What does the agreement mean for them?

Their greatest worry, and one which we will probably hear expressed many times at this Forum, concerns the future of their bilateral correspondent relations with their trading partners, under the accounting rate system. Even though the accounting rate system is not specifically addressed by the basic telecommunications agreement, it will be fundamentally affected by it. For some developing countries, the business of terminating international telephone calls is their biggest single source of foreign exchange. Developing countries received around US$ 10 billion from other countries for terminating international calls in 1996, which is a far bigger figure than they paid out for the termination of their own calls. Developing country administrations are understandably wary of tinkering with one of the few elements of the global trading system which appears to work in their favour.

But there are two strong reasons to challenge those views. The first is that the international accounting rate system decidedly does not work in favour of the citizens of developing countries. It means that the charges they pay for international telephone calls are frequently too high. international telephone traffic with other countries is correspondingly lower than it should be. This has a detrimental effect on social and cultural development, particularly for those families that have members living and working outside their home country, as well as on economic development. The second reason is that a system based on revenue-sharing is not sustainable in a competitive marketplace. Those countries that now permit competitive market entry must do so in a manner which is transparent and non-discriminatory and which permits interconnection with the national network on cost-oriented terms. The accounting rate system as it currently stands fails on all three counts. It is not transparent, it is discriminatory and the current level of settlement rates bears little relation to real cost trends. If, as many claim, the costs of terminating traffic are higher in developing countries than in developed ones, then a move towards a cost-oriented system must surely bring significant advantages for them.

The key word is "transition". In the same way that the WTO basic telecommunications agreement took several years to complete, so we can expect that the transition from a revenue-sharing system to a cost-oriented system will also take some time. The ITU is committed to assisting developing countries in achieving that transition. In particular, I can confirm I will take seriously the responsibilities entrusted upon me in the Draft Opinions that you will be considering at this Forum, notably "to make every necessary effort to facilitate the transition to a fully competitive trade in telecommunications regime" and "to respond positively to requests from developing countries for assistance in developing cost accounting systems for international telecommunications". In this respect, the nine Country Case Studies which have been commissioned by the ITU, in conjunction with the Commonwealth Telecommunication Organisation and the World Bank’s InfoDev Programme and which have been made available to all participants in the Forum, represent a considerable body of research and an important step forward.

The ITU and the WTO

To conclude, I wish to make it clear that the World Trade Organisation has our full support and can rely on our full co-operation in the important work it is now carrying out in assisting their Members, who are also ITU Members, in implementing their commitments under the basic telecommunications agreement. To that end, I am glad that Draft Opinion A calls upon me to work towards finalising a co-operation agreement with the WTO. I am glad too that my friend Mr Ruggiero and his colleagues from the WTO are here so that I can personally call upon him, as required in Draft Opinion A, to recognise the urgency which the ITU Membership attaches to this agreement and the need for our two organisations to work together ever more closely in the future. That future begins today.