U.S.-CHILE AND U.S.-SINGAPORE FREE TRADE AGREEMENTS:

BENEFITS TO THE HIGH-TECH SECTOR AND TO

GLOBAL ELECTRONIC COMMERCE

Statement of Michelle O’Neill

Deputy Assistant Secretary for Information Technology Industries

U.S. Department of Commerce

before the

Energy and Commerce Committee

Subcommittee on Commerce, Trade and Consumer Protection

May 8, 2003

Mr. Chairman, Congresswoman Schakowsky, and Members of this Subcommittee:

Thank you for inviting me to testify today on the benefits to the high-tech sector and to global electronic commerce of the U.S.-Singapore and the U.S.-Chile Free Trade Agreements (FTAs). I welcome the opportunity to talk with you today about how these Agreements represent breakthroughs in the facilitation of global electronic trade.

Introduction

Despite the downturn in the high-tech sector and the burst of the dotcom bubble, information and communications technologies (ICTs) and electronic commerce remain important parts of our economic growth and continue to revolutionize the way we do business, the way we govern and the way we live.

Technology is a key driver making our economy more efficient, productive, competitive and integrated, and experts predict that this will continue in the coming decades. In fact, private market research firms predict continued growth in the value of global electronic commerce transactions over the next few years. Most project that the value of electronic trade in goods and services will reach somewhere between $3 and $9 trillion by 2005.

This growth has been fueled by substantial increases in the number of people online in 2002, with the total number reaching approximately 655 million or one-tenth of the world’s population. (UNCTAD E-Commerce and Development Report 2002)

As a result of the current weakness in U.S. business and consumer spending on ICTs, foreign markets have become even more important to the U.S. high-tech sector. The U.S. software industry continues to dominate both pre-packaged and custom software markets; and the U.S. IT industry is a strong performer, highly regarded for technological leadership, innovation, and for the product quality and reliability.

In order to facilitate growth in electronic commerce and expand sales of U.S. ICT products and services in the coming years, it will be necessary to work diligently on the trade front to reduce barriers to U.S. exports of high-tech products and services, and to maintain a barrier-free environment for electronic commerce.

The U.S.-Singapore and U.S.-Chile FTAs represent ground-breaking progress towards reaching these goals.

Snapshot of Information and Communication Technologies and Electronic Commerce in Singapore

Singapore is a regional hub for electronic commerce transactions, and has one of the most advanced information and communications infrastructures in the world. This has been facilitated by the small size of the country, the high national income and the government’s commitment to develop the country into a global ICT capital by 2010. Singapore’s telecommunications services market will exceed $3.8 billion in end-user spending in 2003. Virtually every home in Singapore has a fixed telephone line. Mobile phone penetration reached an all-time high of 78.6 percent in January 2003.

There are more than two million Internet subscribers in Singapore, and every school and public library is equipped with personal computers with broadband access. U.S. telecommunications exports to Singapore reached over $238 million in 2002.

Total electronic commerce revenues in Singapore should reach $8.3 billion in 2003, with the United States as the single largest country source for their overseas electronic commerce revenue. Typical electronic commerce transactions in Singapore range from business-to-business order processing, invoicing and payment to business-to-consumer online shopping and Internet banking and trading.

Singapore is a leader in the area of electronic government, with 44 percent of its citizens regularly using government services online. Last year, Accenture ranked Singapore number two in terms of overall maturity in online government services – the United States ranked number three.

Benefits of the U.S.-Singapore FTA for Electronic Commerce

Singapore and the U.S. were able to agree to provisions on electronic commerce that reflect the issue’s importance in global trade, and the principle of avoiding barriers that impede the use of electronic commerce, which were the principal negotiating objectives in the area of electronic commerce set out in the Trade Act of 2002.

The Agreement establishes explicit guarantees that the principle of non-discrimination applies to products delivered electronically (software, music, video, text), thus providing fair treatment to U.S. firms delivering products via the Internet. This reflects the development of products traded electronically and the need for predictability in how digital products are treated in terms of trade.

The U.S.-Singapore FTA also prohibits charging customs duties on digital products delivered electronically, such as digital downloads of music, videos, software or text. This makes permanent the moratorium on placing duties on online transactions that is now only voluntary or temporary in the World Trade Organization (WTO).

Another major benefit is that for digital products delivered on hard media (such as DVD or CD), customs duties will be based on the value of the media (e.g., the disk), not on the value of the movie, music or software contained on the disk. This will set a useful precedent in the global arena, even though Singapore will not impose tariffs on either the media or content.

The electronic commerce text also makes a number of commitments permanent and enforceable, that are now only voluntary or temporary in the World Trade Organization (WTO), and it affirms that any commitments made related to services in this Agreement also extend to the electronic delivery of such services delivered over the Internet. This sets a very good precedent for services liberalization efforts in the WTO and in other FTAs.

The U.S.-Singapore FTA will make it easier for U.S. companies to compete in electronic government bid processes, as well, as both the Government Procurement and Electronic Commerce Chapters prevent discriminatory practices related to digital products.

U.S. industry has indicated a strong support for the Electronic Commerce Chapter in the U.S.-Singapore FTA, as they believe that it will set a model for negotiating objectives on electronic commerce in the WTO, and will establish internationally accepted mechanisms for how their goals on electronic commerce can be achieved on a global level. In particular, U.S. industry has expressed its approval that the concept of digital products is without prejudice to the ongoing WTO classification debate.

Alongside the negotiations on electronic commerce, we also completed the U.S.-Singapore Joint Statement on Electronic Commerce, which was signed by Secretary of Commerce Evans and Singapore Minister for Trade, George Yeo on May 5, 2003 in Washington, D.C.

The Joint Statement embodies the U.S. Government’s policy priorities in the area of electronic commerce and demonstrates a clear commitment by both Parties to abide by the stated general principles, which includes an agreement to allow the private sector to take the lead in establishing and developing electronic business practices.

As a corollary to this point, the Parties have made a commitment as governments to avoid imposing unnecessary regulations and restrictions on electronic commerce, and when it is necessary for them to take action, they have promised that their measures will be transparent, minimal, nondiscriminatory and predictable.

In addition, the Joint Statement provides for future interaction between the United States and Singapore via video conference, seminars, bilateral meetings and discussions on the sidelines of multilateral events, with the goal of increasing cooperation on the issues laid out in the agreement.

We consider this statement as a key tool in our efforts to eliminate potential impediments to electronic commerce, including cooperation on removing unnecessary regulatory barriers, securing networks, increasing consumer trust and strengthening IPR protections.

Benefits of the U.S.-Singapore FTA for the High-Tech Sector

By locking in zero tariffs on all U.S. products entering Singapore, the U.S.-Singapore FTA will benefit U.S. exports of ICTs. The U.S.-Singapore FTA also provides for a high-level of intellectual property rights protection, provisions relating to anti-competitive behavior and an innovative dispute settlement mechanism applying to all core obligations of the Agreement, which will make it easier for high-tech companies to conduct trade with Singapore.

In addition, a full range of commitments on telecommunications services in the U.S.-Singapore FTA provide for open markets, consistent with the regulatory regimes of the U.S. and Singapore. The Agreement guarantees reasonable and non-discriminatory access to the network by users, thus preventing local firms from having preferential or “first right” of access to telecommunications networks.

Under the Agreement, U.S. phone companies obtained the right to interconnect with networks in a timely fashion, on terms, conditions and cost-oriented rates that are transparent and reasonable, and U.S. firms were granted non-discriminatory access to buildings that contain equipment necessary for interconnection and submarine cable equipment when they seek to build a physical network.

U.S. firms also obtained the right to lease lines at reasonable rates and on non-discriminatory terms, and to resell telecommunications services of Singaporean suppliers in order to build a customer base. Both Parties agreed to open rule-making procedures of telecommunications regulatory authority, publish interconnections agreements and service rates, and when competition emerges in a telecommunications services area, deregulate that area.

The Agreement includes the specification that companies, not governments, make technology choices, particularly for mobile wireless services, thus allowing firms to compete on the basis of technology and innovation, not on government-mandated standards.

U.S. telecommunications service suppliers will enjoy fair and non-discriminatory treatment and the right to invest and establish a local services presence. Regulatory authorities under the agreement must use open and transparent administrative procedures, consult with interested parties before issuing regulations, provide advance notice and comment periods for proposed rules, and publish all regulations. In addition, U.S. firms will now have the right to own equity stakes in entities that may be created if Singapore chooses to privatize certain government-owned services.

U.S. industry is supportive of the final Telecommunications Chapter in the U.S.-Singapore FTA. The Industry Sector Advisory Committee 13 in its Report to Congress on the U.S.-Singapore FTA, called the benefits to companies in the Telecommunications Chapter “notable”, and are fully satisfied with its provisions.

Snapshot of Information and Communications Technologies and Electronic Commerce in Chile

Chile is a leader in telecommunications liberalization and competition in Latin America. It was the first country in the region to initiate privatization in the mid-1970s, and by 1989 all state-owned telephone companies were sold. During the 1990s the telecommunications sector grew at an impressive average rate of 20 percent per year. U.S. telecommunications equipment exports to Chile exceeded $260 million in 2000. At the beginning of last year, Chile’s main line and mobile phone density outpaced its neighbors at over 25 percent and 30 percent, respectively.

Chile is also among the leaders in the Latin American region in terms of electronic commerce transactions. Chile has an Internet penetration rate of 21 percent, the highest number in Latin America, and is expected to reach 30 percent by next year. Electronic commerce sales in Chile reached $2.5 billion in 2002, up 75 percent from 2001. The Santiago Chamber of Commerce anticipates that electronic commerce sales for 2003 will rise another 70 percent in 2003.

Chile has demonstrated a great interest in integrating its government services into the digital economy. Since December 2001, all ministries and other government organizations are required to buy supplies over the Internet. Agencies are able to purchase goods and services online through the government's procurement site www.compraschile.cl, which processes about 1.4m transactions and saves the Government of Chile approximately $200 million annually.

Benefits of the U.S.-Chile FTA for Electronic Commerce

The benefits of the U.S.-Chile FTA are very similar to those provided by the U.S.-Singapore FTA. The Chile Agreement also contains a section on future areas of cooperation between the United States and Chile. This text specifies that the Parties will work together to overcome obstacles encountered by small and medium-sized businesses in the use of electronic commerce; share information on regulations, laws and programs in areas such as data privacy, consumer confidence and cyber-security; maintain cross-border flows of information; encourage the development of self-regulatory methods by the private sector; and, actively participate in international fora to promote electronic commerce.

We look forward to working with Chile on both a bilateral and multilateral level, including in the WTO and in the Asia Pacific Economic Cooperation (APEC) forum, on these issues. We are particularly pleased with Chile’s commitment to work with us on maintaining trans-border data flows, as we consider this to be essential to the future growth of electronic commerce.

As in the U.S.-Singapore FTA, the U.S.-Chile FTA will also make it easier for U.S. companies to compete in electronic government bid processes, as both the Government Procurement and Electronic Commerce Chapters prevent discriminatory practices related to digital products. In addition, both sides committed to future work on electronic government issues.

U.S. industry is equally supportive of the U.S.-Chile FTA Electronic Commerce Chapter, as the U.S.-Singapore FTA. In addition, they believe that the cooperation language related to the cross-border information flows is important, and that it should be included in future FTAs.

Benefits of U.S.-Chile FTA for the High-Tech Sector

Under the U.S.-Chile FTA, all tariffs on U.S. ICT products entering Chile will be reduced to zero, which will be beneficial to U.S. hardware and software exporters who were previously assessed a six percent tariff on their products.

While the key elements of the Telecommunications Chapter are similar to those in the U.S.-Singapore FTA, the completion of the Chapter in the U.S.-Chile FTA is significant because it binds two of the most open and advanced telecommunications markets in the world to a set of progressive rules and regulations that build upon NAFTA Chapter 13, the GATS Telecommunications Annex, and the WTO Reference Paper to form a comprehensive provision. In addition, the commitments for deregulation of information services and reasonable access to leased lines are stronger in the U.S.-Chile FTA, and U.S. industry will benefit additionally from a commitment to allow access to the market for local basic services—this is a commitment Chile does not currently have under the WTO.

U.S. industry has expressed to USG officials appreciation for concluding a WTO-plus Agreement on telecommunications that will hopefully move forward our agenda in the WTO and in other multilateral trade discussions. U.S. industry has, in particular, demonstrated support for the provisions on licensing and transparency.

Conclusion

The completion of the U.S.-Singapore and U.S.-Chile FTAs represents a ground-breaking first step towards establishing a trade rules regime for electronic commerce that will prevent the erection of barriers to this new type of trade. The environment for electronic commerce trade is currently free of unnecessary restrictions, and with the passage of these Agreements, we will be one step closer to maintaining a global commitment to continued openness in this space.

The U.S. high-tech sector has a lot to gain from these FTAs, as well. Provisions relating to intellectual property rights protection, anti-competitive behavior, transparency, government procurement and dispute settlement will make the Singapore and Chile markets more predictable for U.S. ICT and content exporters, particularly small and medium-sized enterprises. In addition, zero tariffs will also allow U.S. suppliers of ICTs to better compete with domestic suppliers. Finally, telecom service providers stand to gain much through commitments that ensure open markets, non-discriminatory network access, timely and cost-oriented interconnection, the ability to lease lines at reasonable rates and resell services, a transparent regulatory environment, and industry-led standards setting.

Thank you Mr. Chairman. I would be pleased to respond to any questions.