<DOC>
[107th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:82440.wais]
TELECOMMUNICATIONS AND TRADE PROMOTION AUTHORITY: MEANINGFUL MARKET
ACCESS GOALS FOR TELECOMMUNICATIONS SERVICES IN INTERNATIONAL TRADE
AGREEMENTS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON
COMMERCE, TRADE, AND CONSUMER PROTECTION
of the
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
__________
OCTOBER 9, 2002
__________
Serial No. 107-138
__________
Printed for the use of the Committee on Energy and Commerce
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
__________
U.S. GOVERNMENT PRINTING OFFICE
82-440 WASHINGTON : 2002
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512-1800
Fax: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001
COMMITTEE ON ENERGY AND COMMERCE
W.J. ``BILLY'' TAUZIN, Louisiana, Chairman
MICHAEL BILIRAKIS, Florida JOHN D. DINGELL, Michigan
JOE BARTON, Texas HENRY A. WAXMAN, California
FRED UPTON, Michigan EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida RALPH M. HALL, Texas
PAUL E. GILLMOR, Ohio RICK BOUCHER, Virginia
JAMES C. GREENWOOD, Pennsylvania EDOLPHUS TOWNS, New York
CHRISTOPHER COX, California FRANK PALLONE, Jr., New Jersey
NATHAN DEAL, Georgia SHERROD BROWN, Ohio
RICHARD BURR, North Carolina BART GORDON, Tennessee
ED WHITFIELD, Kentucky PETER DEUTSCH, Florida
GREG GANSKE, Iowa BOBBY L. RUSH, Illinois
CHARLIE NORWOOD, Georgia ANNA G. ESHOO, California
BARBARA CUBIN, Wyoming BART STUPAK, Michigan
JOHN SHIMKUS, Illinois ELIOT L. ENGEL, New York
HEATHER WILSON, New Mexico TOM SAWYER, Ohio
JOHN B. SHADEGG, Arizona ALBERT R. WYNN, Maryland
CHARLES ``CHIP'' PICKERING, GENE GREEN, Texas
Mississippi KAREN McCARTHY, Missouri
VITO FOSSELLA, New York TED STRICKLAND, Ohio
ROY BLUNT, Missouri DIANA DeGETTE, Colorado
TOM DAVIS, Virginia THOMAS M. BARRETT, Wisconsin
ED BRYANT, Tennessee BILL LUTHER, Minnesota
ROBERT L. EHRLICH, Jr., Maryland LOIS CAPPS, California
STEVE BUYER, Indiana MICHAEL F. DOYLE, Pennsylvania
GEORGE RADANOVICH, California CHRISTOPHER JOHN, Louisiana
CHARLES F. BASS, New Hampshire JANE HARMAN, California
JOSEPH R. PITTS, Pennsylvania
MARY BONO, California
GREG WALDEN, Oregon
LEE TERRY, Nebraska
ERNIE FLETCHER, Kentucky
David V. Marventano, Staff Director
James D. Barnette, General Counsel
Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
______
Subcommittee on Commerce, Trade, and Consumer Protection
CLIFF STEARNS, Florida, Chairman
FRED UPTON, Michigan EDOLPHUS TOWNS, New York
NATHAN DEAL, Georgia DIANA DeGETTE, Colorado
Vice Chairman LOIS CAPPS, California
ED WHITFIELD, Kentucky MICHAEL F. DOYLE, Pennsylvania
BARBARA CUBIN, Wyoming CHRISTOPHER JOHN, Louisiana
JOHN SHIMKUS, Illinois JANE HARMAN, California
JOHN B. SHADEGG, Arizona HENRY A. WAXMAN, California
ED BRYANT, Tennessee EDWARD J. MARKEY, Massachusetts
GEORGE RADANOVICH, California BART GORDON, Tennessee
CHARLES F. BASS, New Hampshire PETER DEUTSCH, Florida
JOSEPH R. PITTS, Pennsylvania BOBBY L. RUSH, Illinois
MARY BONO, California ANNA G. ESHOO, California
GREG WALDEN, Oregon JOHN D. DINGELL, Michigan,
LEE TERRY, Nebraska (Ex Officio)
ERNIE FLETCHER, Kentucky
W.J. ``BILLY'' TAUZIN, Louisiana
(Ex Officio)
(ii)
C O N T E N T S
__________
Page
Testimony of:
Darby, Larry F., Darby Associates............................ 20
Harris, Scott Blake, Managing Partner, Harris, Wiltshire &
Grannis, LLP............................................... 15
Liser, Florizelle B., Assistant U.S. Trade Representative for
Industry and Telecommunications, United States Trade
Representative............................................. 4
Sidak, J. Gregory, Weyerhaeuser Fellow in Law and Economics
Emeritus, American Enterprise Institute.................... 9
Waverman, Leonard, Professor of Economics, London Business
School..................................................... 13
Additional material submitted for the record:
Abelson, Donald, Chief, International Bureau, Federal
Communications Commission, prepared statement of........... 38
(iii)
TELECOMMUNICATIONS AND TRADE PROMOTION AUTHORITY: MEANINGFUL MARKET
ACCESS GOALS FOR TELECOMMUNICATIONS SERVICES IN INTERNATIONAL TRADE
AGREEMENTS
----------
WEDNESDAY, OCTOBER 9, 2002
House of Representatives,
Committee on Energy and Commerce,
Subcommittee on Commerce, Trade,
and Consumer Protection,
Washington, DC.
The subcommittee met, pursuant to notice, at 10 a.m., in
room 2322, Rayburn House Office Building, Hon. Cliff Stearns
(chairman) presiding.
Members present: Representatives Stearns, Shimkus, Bryant,
Towns, and Rush.
Staff present: Howard Waltzman, majority counsel; Ramsen
Betfarhad, policy coordinator; Hollyn Kidd, legislative clerk;
Andy Levin, minority counsel; and Brendan Kelsay, minority
professional staff.
Mr. Stearns. Good morning, and welcome, all of you, to our
subcommittee hearing. I welcome our distinguished witnesses to
this hearing on Telecommunications and Trade Promotion
Authority: Meaningful Market Access Goals for
Telecommunications Services in International Trade Agreements.
On March 19, 1997, what was then the Subcommittee on
Telecommunications, Trade, and Consumer Protection held a
hearing entitled ``The WTO Telecom Agreement Results in Next
Steps.'' That hearing was the first one on trade since the
subcommittee had been reconstructed to emphasize this
committee's trade jurisdiction.
So in 1997, we held a hearing that reviewed the first major
telecom agreements to come out of the WTO, and today we are
reviewing how new trade agreements may create new opportunities
for U.S. telecom companies abroad and how such agreements may
create new obligations with respect to telecom in the United
States. This subcommittee has had a strong interest in
provisions affecting telecommunications and international trade
agreements, and, under the recently passed Trade Act, the
Energy and Commerce Committee will play an even stronger role
in how those provisions are crafted.
The Trade Act provides for a substantial consultant role
for Congress in trade negotiations. The legislation establishes
a congressional oversight group with members from the House of
Representatives, to include Chairman Tauzin and Representative
Dingell.
The Trade Act requires the United States Trade
Representative to ``consult closely and on a timely basis with
and keep fully appraised of the negotiations, the congressional
oversight group, and all committees of the House of
Representatives and the Senate, with jurisdiction over laws
that would be affected by a trade agreement resulting from the
negotiations.''
The President must provide written notice to Congress 90
days before initiating negotiations. The President is also
required to consult with the COG before and after submitting
the notice. The President must also provide written notice to
Congress of the President's intention to enter into an
agreement 90 days before entering into such an agreement.
In addition, before entering into such agreement, the
President must consult with the COG and the committee that have
jurisdiction over subject matters affected by the trade
agreement. Consultation must address the nature of the
agreement and the general effect of the agreement on existing
laws.
As a result of the Trade Act, the Energy and Commerce
Committee has an important role to play in the negotiating,
drafting, and implementation of any new trade agreements. As a
committee with jurisdiction over interstate and foreign
communications, the Energy and Commerce Committee will provide
technical expertise to USTR during upcoming trade agreements,
including the pending Singapore Free Trade Agreement.
This hearing today will help us lay the groundwork for the
advice that we will provide to USTR. I hope that we will be
able to explore how best to craft telecommunications provisions
in trade agreements. Should they be broad, leaving domestic
regulatory authorities to fill in the blanks? Or should they be
detailed, locking in rules now that will dictate how domestic
telecommunications markets are regulated?
This hearing will explore these and other issues. I will
conclude by stating that I look forward to continuing this
subcommittee's oversight over trade issues, especially when
those trade issues affect a topic like telecommunication that
is a core jurisdictional responsibility of this committee.
At this point, the distinguished ranking member from New
York, Mr. Towns.
Mr. Towns. Thank you very much, Mr. Chairman. Let me begin
by thanking you for holding this hearing on such an important
part of our economy, particularly with many telecom companies
struggling and some even going out of business.
A public official once said that principles were the most
important thing to have in politics, and that his most
important principle was flexibility. I am strongly in favor of
securing America's interest when we enter into trade
agreements. And while I have no set position on whether the
regulations should be narrowly focused or have a wider scope,
it would seem that flexibility is the key to success.
In 1996, I, along with the majority of my colleagues, voted
for the Telecommunications Act in hopes that there would be
competition in every area of the telecom industry. It is my
opinion that competition in the marketplace should not suffer,
domestically or internationally, due to the rigidity of
international agreements.
Because Congress passes laws, and we have been known from
time to time to correct previously passed provisions, it would
seem logical that agreements should square up with current U.S.
code. Again, I look forward to hearing from the witnesses today
and developing the committee's jurisdiction on this important
issue of regulatory-based trade.
And I yield back the balance of my time, Mr. Chairman.
Mr. Stearns. I thank my colleague.
[Additional statements submitted for the record follow:]
Prepared Statement of Hon. Ed Bryant, a Representative in Congress from
the State of Tennessee
Mr. Chairman, the recent adoption of Trade Promotion Authority
legislation sent a strong signal to the White House that Congress
recognizes the need for the U.S. to be on equal footing with other
nations in the process of trade negotiations.
Our approval of TPA demonstrated Congress' faith in the
Administration to negotiate trade agreements that would yield maximum
benefits for U.S. companies and allow them to compete fairly and
squarely against any and all foreign competitors.
The TPA legislation also reaffirmed the necessity of a close,
cooperative relationship between Congress and the Administration to
jointly consider and develop strategic approaches to enhance U.S. trade
relations, with regard to both cross-cutting, horizontal trade issues
and sector-specific matters.
As the United States' highest law-making body, Congress has a clear
role in ensuring that our trade obligations are fully consistent with,
and supportive of, the laws of our country. The role was reaffirmed,
and indeed mandated in the TPA bill.
It is with that in mind that I applaud today's hearing, which will
examine an important aspect of our negotiations with Singapore-namely,
the telecommunications sector.
Subcommittee members, who have carefully considered
telecommunications policies that profoundly affect our domestic
industry, welcome the opportunity to share our views with the Office of
the U.S. Trade Representative as it proceeds in its efforts to
establish mutually binding trade commitments in this most important
sector.
______
Prepared Statement of Hon. W.J. ``Billy'' Tauzin, Chairman, Committee
on Energy and Commerce
Thank you, Mr. Chairman. I commend you for holding this important
hearing today on a topic that goes to the heart of this committee's
jurisdiction.
More than five years ago, when I chaired the Subcommittee on
Telecommunications, Trade, and Consumer Protection, I held a hearing on
the newly adopted WTO Basic Telecommunications Agreement. We heard
testimony from Ambassador Zoellick's predecessor, Charlene Barshefsky,
and from former FCC Chairman Reed Hundt.
Then, as now, we examined the impact that USTR's trade negotiations
were having on a subject near and dear to the heart of this committee:
telecommunications.
I appreciate USTR's continued willingness to appear before this
committee and educate us about telecommunications provisions in trade
agreements. I am extremely disappointed, however, that the FCC failed
to produce a single witness for this hearing.
When the United States negotiates market access concessions for
telecommunications services, it is a double-edged sword. Successful
negotiations provide greater export opportunities for U.S. service
providers and manufacturers. Given the depressed state of our
telecommunications sector, we could use all the help we could get.
But negotiations also have implications for domestic laws and
regulations. I encourage USTR to expand export opportunities for U.S.
telecommunications companies. But I would discourage USTR from entering
into any agreement that locks in current FCC regulations, or adopts an
otherwise prescriptive regulatory approach that undermines facilities-
based deployment.
The implementation of the 1996 Telecommunications Act has been an
abysmal failure. Rather than encourage investment, innovation, and
facilities-based deployment, the current regulatory regime has caused
companies to hold back billions of dollars of investment. That has
created the slump in the telecommunications manufacturing sector that
has resulted in hundreds of thousands of layoffs.
It is my hope that the FCC expeditiously changes the regulatory
landscape to provide the proper incentives for investment. It should
have been done already, and it better be done soon.
So it is critical that our international negotiations do not have a
negative impact on our opportunity to change the regulatory landscape
in the United States. Market access commitments that apply to
telecommunications services should be broad enough to enable the FCC to
change the current rules. The worst outcome I could imagine would
involve the FCC finally getting around to changing the rules, but for
the USTR to have already bound the United States to a regulatory
framework that discourages facilities-based investment. That simply
must not happen.
I intend to take my position on the COG and this committee's
consultative role with respect to telecommunications provisions in free
trade agreements very seriously. USTR has a statutory responsibility to
consult with us on telecommunications matters, and I have no intention
of letting a bad deal become the framework for telecommunications
policy in this country.
I look forward to hearing testimony from our witnesses today
regarding how telecommunications provisions in trade agreements can be
crafted to achieve market access for exporters while at the same time
preserving the FCC's authority to change domestic telecommunications
regulations. And I once again thank the Chairman for holding this
hearing.
Mr. Stearns. And we welcome the witnesses, Ms. Florizelle
Liser, the Assistant U.S. Trade Representative for Industry and
Telecommunications, United States Trade Representative; Mr.
Gregory Sidak, Weyerhaeuser Fellow in Law and Economics
Emeritus, American Enterprise Institute; Mr. Scott Blake
Harris, Managing Partner, Harris, Wiltshire & Grannis; and Mr.
Larry Darby, Darby Associates; and Mr. Leonard Waverman,
Professor of Economics, London Business School.
And I guess, Mr. Waverman, you have come the furthest. So
is Mr. Waverman here?
Mr. Waverman. He is on the phone.
Mr. Stearns. Oh, you are doing it through telephone. Okay.
Mr. Waverman. Well, it is telecom issues. So I thought I
would----
Mr. Stearns. If we had you down in our other subcommittee,
we would be able to see you, but here we can't. So we welcome
you and want to thank you for contributing through telephone.
So at this point, let me start with you, Madam, and we look
forward to your opening statement.
STATEMENTS OF FLORIZELLE B. LISER, ASSISTANT U.S. TRADE
REPRESENTATIVE FOR INDUSTRY AND TELECOMMUNICATIONS, UNITED
STATES TRADE REPRESENTATIVE; J. GREGORY SIDAK, WEYERHAEUSER
FELLOW IN LAW AND ECONOMICS EMERITUS, AMERICAN ENTERPRISE
INSTITUTE; LEONARD WAVERMAN, PROFESSOR OF ECONOMICS, LONDON
BUSINESS SCHOOL; SCOTT BLAKE HARRIS, MANAGING PARTNER, HARRIS,
WILTSHIRE & GRANNIS, LLP; AND LARRY F. DARBY, DARBY ASSOCIATES
Ms. Liser. Good morning. Thank you, Mr. Chairman and other
members of the committee. My name is Flori Liser. I am the
Assistant U.S. Trade Representative for Industry and
Telecommunications, and I appreciate the opportunity today to
testify on the market access goals----
Mr. Stearns. Can I have you just pull your microphone up a
little closer? That would be helpful. That is perfect. Thanks.
Ms. Liser. Again, I appreciate the opportunity to testify
on market access goals and telecommunications and the proposed
telecom provisions in the Chile and Singapore FTAs.
The telecommunications sector, as you well know, plays an
important role in both the U.S. and the global economy. As many
of you recognize, and Ambassador Zellik has emphasized to us,
this sector has a multiplier effect. That is, openness in the
telecom sector affects many other sectors.
We are not just discussing market access and competitive
environment for telecom service providers but for all sectors
that depend on telecom services to support their own business
operations, including banking, insurance, tourism, and a broad
range of goods manufacturers that trade and do business abroad.
U.S. telecom companies remain global leaders in building
and operating telecommunications networks abroad, and U.S.
telecom companies have invested billions in networks in every
major market in every region of the globe and continue to
expand. Given the importance of the telecom sector and the
significant interest of the telecom companies of the United
States and many other U.S. businesses, our goal, and I believe
yours as well, is to support and enhance market access and
competitive opportunities abroad in this important sector.
In fact, since the late 1980's, there has been broad
support for opening up foreign telecommunications markets
through trade agreements. In 1988, we initiated a series of
bilateral value added agreements that ensured data service
providers the right to serve their multinational customers in
foreign markets.
In 1993, we included in NAFTA a telecom chapter that
granted U.S. operators the right to provide value added
services in Mexico and Canada, and in 1997 we negotiated the
WTO reference paper that ensured fair treatment of telecom
suppliers by foreign regulators and cost-based access to the
network of dominant public telecom suppliers.
As new markets have opened up around the world, and U.S.
telecom companies have entered them, these trade obligations
have been instrumental in improving market access. They have
also proved helpful in addressing specific problems faced by
U.S. suppliers of telecom services.
In order to maximize market opportunities in Chile and
Singapore, the administration last year tabled our initial
telecommunications proposal. With considerable input from
industry, we developed and continue to make changes in this
text. USTR has worked closely with the Federal Communications
Commission, the Department of Commerce, and others to develop
the administration's telecom proposals. In fact, USTR does not
put forward proposed text without the benefit of the FCC's
review to assure its consistency with current FCC policies, as
well as foreseeable changes in those policies.
The United States has the most open competitive telecom
market in the world, and we believe that there is broad support
for using trade agreements to open up foreign markets to U.S.
telecommunications interest. I believe there is also broad
support for trade agreements that are specific and detailed
enough to open up these markets in meaningful and effective
ways, and to address specific problems that our companies face
in those countries and those markets.
A broad spectrum of U.S. telecom interests with whom we
have been working have supported the Singapore and Chile
telecom texts that are most detailed and are more detailed than
the WTO reference paper and that address specific market access
problems that we have in those two countries.
On the other hand, there is a broad consensus that trade
agreements should not be so detailed and prescriptive that they
lock in any particular regulatory regime. We believe we have
taken steps to prevent this, and, instead, to ensure that our
trade agreements are flexible enough to accommodate changes in
domestic telecommunications law, regulation, and policy.
It is important to strike the right balance. Balance is
really the key here. If our trade agreements are too vague,
they will be ineffective in addressing and combatting the trade
barriers that our companies face. By the same token, though, if
our trade agreements are too detailed and prescriptive, then we
run the risk of inappropriately locking in the regulatory
status quo.
The administration's goal is to have agreements in the FTAs
for Chile and Singapore on telecom that are effective but
flexible enough to accommodate changes in law, regulation, and
policy here in the U.S., such as those that are under
consideration by lawmakers and regulators here.
We would welcome the opportunity to work with you and
others to explain our proposal and to make adjustments, as
necessary, to assure the right balance in the Singapore and
Chile text.
That concludes my opening remarks. I would ask that my
entire written statement be included in the record, and would
be pleased to respond to any questions you may have.
[The prepared statement of Florizelle B. Liser follows:]
Prepared Statement of Florizelle B. Liser, Assistant U.S. Trade
Representative for Industry and Telecommunications
Mr. Chairman, Members of the Subcommittee, I am pleased to testify
on our market access goals in international telecommunications. I
appreciate your interest in this key area of trade policy, and I look
forward to working with this committee to ensure that we represent U.S.
interests in the most effective manner possible.
Telecommunications is a critical part of the U.S. and global
economy. Indeed, U.S. telecommunications companies have invested
billions of dollars in networks in every major market and every region
of the globe and they continue to look for new opportunities. Our
overall telecom trade policy goal is to create an open international
market where U.S. companies can compete on even terms with foreign
firms. We believe this will promote global competition, help consumers,
and support U.S. leadership in this area.
Our telecom market is one of the most open in the world, bolstered
by a strong commitment to competition. We seek to ensure that core
aspects of what foreign companies benefit from here are also made
available to our companies abroad, where we have significant trade
interests. We develop these goals through close consultation with other
U.S. agencies. We also seek advice from the Federal Communications
Commission to ensure that our proposals are consistent with current
law. In doing so, we pay particular attention to ensuring that trade
provisions reflect the flexibility we need to take into account our
evolving domestic regime.
I'd like to provide a greater understanding of how trade policy
fits into the overall development of the global telecommunications
market. My testimony will focus on:
<bullet> the history of telecom trade agreements;
<bullet> the current state of play of telecommunications in our
bilateral FTA's; and
<bullet> a look at the coverage of these issues in other agreements
going forward.
historical development
In the 1990's, many countries followed the U.S. lead by embracing
competition in telecommunications markets by liberalizing their markets
and loosening the grip of government-operated monopolies. The approach
was incremental with the first area that typically opened up to
competition being value-added services, where a series of bilateral
agreements were signed in the late 1980's and early 1990's. These were
followed by telecommunications provisions in the NAFTA in 1993 and the
WTO General Agreement of Trade in Services in 1994, responding mainly
to the market needs of value-added service suppliers.
These telecommunications provisions were designed to ensure that
all service suppliers--banks, retailers, insurers etc--would have
access to and use of the public telecommunications networks, in
particular leased lines, on reasonable and non-discriminatory terms.
The NAFTA went further: it required that public telecommunications
services be made available at rates reflecting economic costs. In
addition, for value-added services, which have flourished in a
competitive environment, the NAFTA provided rules to ensure that such
services would remain deregulated.
The WTO basic telecommunications negotiations, which were completed
in 1997, took telecommunications trade disciplines a step further,
through a series of individual commitments by 69 trading partners.
These commitments came into force in February 1998. In addition to
guaranteeing the right of WTO Members' telecommunications suppliers to
operate in these foreign market through market access commitments,
commitments by most major trading partners also included adherence to
binding, detailed regulatory disciplines--the so-called WTO Reference
Paper. These disciplines were designed to address typical ``doing
business'' problems public telecommunications suppliers encountered in
foreign markets--including anticompetitive practices of monopoly
telecommunications providers that impeded effective market access.
In particular, these disciplines sought to ensure that foreign
public telecommunications suppliers would be treated fairly by a
regulator; that rules would be transparent; that allocation of scarce
resources would be based on objective, non-discriminatory criteria;
that interconnection with the dominant public telecommunications
supplier's networks was provided on non-discriminatory, ``cost-
oriented'' rates in an unbundled manner; and that if disputes between
new entrants and the dominant supplier arose, the regulator would be in
a position to arbitrate effectively. It is noteworthy that the U.S.
regime served as the basis for this multilateral effort, and the
disciplines in the Reference Paper closely reflect what Congress had
developed for our domestic market, tracking the 1996 Telecommunications
Act.
current developments
As new markets opened up around the world and U.S.
telecommunications companies entered those markets, the provisions of
existing trade obligations have been instrumental in improving market
access for telecommunications services even in the most closed
countries. We continue to use these trade tools to ensure our
telecommunications suppliers enjoy effective market access despite the
continued presence of dominant suppliers of public telecommunications
services.
For example, these provisions have been of enormous help in
addressing market access problems in markets as diverse as Mexico,
Taiwan, Germany, Canada, and Japan, where U.S. carriers have invested
billions of dollars. In each of these markets, we have successfully
worked to increase competitive opportunities for U.S. suppliers.
<bullet> In Japan, our active intervention in getting the Japanese to
more effectively regulate its dominant supplier NTT has
resulted in significant reductions in interconnection rates,
permitting, for the first time, local competition.
<bullet> In Canada, we opened up a lucrative international market
segment to competition and helped encourage reform of a
universal services program that appeared biased in favor of
national operators and posed a significant burden on other U.S.
carriers in Canada.
<bullet> In Taiwan, we ensured that U.S. submarine cable operators
could sell network capacity freely into that market.
<bullet> In Germany, our efforts have helped U.S. companies gain faster
access to leased lines from the dominant incumbent supplier to
help them better serve their customers, which include business
users and Internet service providers.
<bullet> In Mexico, we helped ensure that domestic long-distance
interconnection rates were reduced to cost-based levels, and
that Telmex could not unilaterally block local competition by
refusing to interconnect with competitors.
In addition to using our trade tools to gain greater market access
for our companies, if we believe that our trading partners are not
abiding by their obligations, we will exercise our right to initiate
dispute settlement under our trade agreements. Recently we initiated
the first telecommunications case in the WTO against Mexico in the area
of international services.
All these actions benefit U.S. telecommunications companies, other
U.S. businesses and U.S. consumers, both here and abroad--through
promoting increased choice of services and suppliers and more
competitive pricing of such services. The dramatic reductions in the
price of international calls for U.S. consumers and businesses is one
example of the kind of benefits our efforts have helped achieve.
Despite these successes, we also have learned the limits of the
trade tools we have at our disposal--preventing us from addressing
pervasive bottlenecks to competition in foreign markets. For example,
restricted access to rights of way, to submarine cable landing
stations, and to other facilities needed by competing carriers when
building networks and interconnecting with the dominant public
telecommunications supplier, have delayed or hindered the network
build-out by U.S. telecommunications suppliers in many countries. In
many countries, government-mandated technical requirements
(particularly in the wireless sector) have precluded U.S. operators and
equipment suppliers from competing effectively in those markets. In
country after country, lack of transparency and the ability of national
champions to tilt rules and decisions in their favor put foreign
competitors at an enormous disadvantage.
The experiences faced by U.S. companies in many markets have
demonstrated that the problems they face are in some cases more complex
than those anticipated by the WTO Reference Paper negotiators, and that
further refinement of trade commitments could help address such issues.
In short, many rules, procedures and practices we take for granted in
the United States are simply absent in many markets. At the same time,
we have fully opened up our market where a core commitment to
competition and recourse to procedures for resolving such problems are
readily available. In international services alone, the number of
authorized carriers increased from 175 in 1997 to 1,600 in
2001,<SUP>1</SUP> and a significant percentage of these new operators
were affiliated with foreign carriers. The obvious question arises: if
foreign carriers are taking advantage of our open market and enjoy such
treatment here, shouldn't U.S. carriers enjoy similar treatment in
those foreign markets? If foreign carriers operating in the U.S. are
ensured access to rights of way and bottleneck facilities controlled by
dominant public telecommunications suppliers, to regulatory
transparency and due process, and freedom to use technologies of their
choice in providing services, shouldn't U.S. carriers enjoy similar
access in foreign markets? Aren't there core disciplines we should try
to seek in markets of interest to us, above and beyond what existing
trade rules provide?
---------------------------------------------------------------------------
\1\ Telegeography, 2001
---------------------------------------------------------------------------
In proposing trade rules there is always a balance between what we
seek to obtain from our trading partners and what we ourselves want to
be held to: if trade commitments are too prescriptive, we may not give
ourselves appropriate flexibility domestically; but if provisions are
too general, they may not allow us to resolve problems in foreign
markets. As a general matter, we seek to incorporate the minimum amount
of detail necessary to address actual problems our companies face in
foreign markets. Nevertheless, our first principle has been to ensure
that nothing the U.S. proposes in a trade agreement is inconsistent
with U.S. law, rule or practice. In fact, we go further, by seeking to
ensure that proposals provide sufficient flexibility to take into
account any foreseeable changes to U.S. laws, FCC rulemakings, and
practices.
To ensure that USTR negotiates trade agreements that are consistent
with U.S. law, rules, and practices, USTR consults relevant federal
agencies that are part of an interagency process, as well as with the
Federal Communications Commission. We do so to ensure that the FTAs
build in sufficient flexibility to accommodate possible changes to U.S.
laws, rules and practices so that such changes would remaining in
compliance with proposed trade obligations. Current U.S. proposals are
consistent with the 1996 Telecom Act and build in flexibility to
provide the FCC with the necessary discretion to make alterations to
its rules. The FCC provides advice to USTR to ensure that any proposals
negotiated by USTR are consistent with U.S. telecommunications laws and
its rules. In addition, USTR has consulted closely with U.S. industry
representatives from the telecommunications sector and has engaged in
extensive discussions with Bell companies, long-distance companies, and
ISPs. USTR has made significant modifications to the language under
negotiation in the FTAs with Chile and Singapore to take into account
concerns that have been raised in this process.
We have been particularly careful to ensure maximum flexibility in
areas subject to legislative, regulatory, and judicial review, such as
unbundling and pricing standards. We have consulted closely with
industry representatives and relevant federal agencies and have sought
advice from the Federal Communications Commission, to ensure that we
grant ourselves the flexibility we require to accommodate a broad range
of possible changes, and still remain in compliance with a trade
commitment.
It is also important to recognize the self-limiting nature of some
of the provisions we have proposed. Provisions that relate to a company
with market power will, ideally, be made obsolete by market forces: as
competition takes root, such provisions will no longer be applicable.
To underscore this, we have proposed explicitly endorsing the concept
of minimum regulation--as markets become competitive, economic
regulation should recede.
Working with the Department of State and the Department of Commerce
we have developed five core goals for the current negotiations with
Singapore and Chile, which build on and expand existing
telecommunications trade disciplines. We also seek advice from the
Federal Communications Commission as to whether our specific proposals
to achieve these goals are consistent with the Communications Act and
implementing regulations. These goals include:
<bullet> ensuring that domestic and foreign users (especially other
suppliers such as banks, manufacturing plants, etc.) enjoy non-
discriminatory access to the public telecommunications network;
<bullet> ensuring transparency and due process in the
telecommunications regulatory regime, particularly relating to
rulemaking and tariffs;
<bullet> ensuring effective regulatory oversight, including meaningful
sanction authority;
<bullet> ensuring meaningful access to networks of dominant providers
of public telecommunications services where such providers
still enjoy market power, to permit the growth of competitive
networks; and
<bullet> ensuring a presumption towards deregulation, where competition
obviates the need for economic regulation.
Singapore is becoming a communications hub for Asia, and a wide
range of U.S. telecommunications suppliers have existing or planned
investments there. Chile is also home to significant U.S. investment.
We see our FTA telecommunications proposals as enhancing U.S.
companies' ability to invest and compete in these markets, bringing
benefits to phone companies, U.S. consumers, and U.S. business, both
here and in those markets. We are confident that the provisions we are
negotiating are consistent with U.S. laws and regulations and provide
adequate flexibility to take into account any foreseeable changes to
U.S. law and FCC regulations.
future trade agreements
While the above-mentioned goals are applicable to the bilateral
FTAs now under negotiation, let me underscore that we are committed to
evaluating appropriate trade disciplines in a bilateral context on a
case-by-case basis, taking into account the nature of each market and
our economic interests at stake. We do not expect that
telecommunications provisions tailored for one market will be exported
wholesale to other markets, or to regional or multilateral agreements.
What is appropriate for relatively well-developed markets like Chile
and Singapore may not be appropriate for another economy. We have not
yet developed proposals for use in broader regional and multilateral
fora. Rest assured that we are committed to a thorough consultative
process as we move forward. Our goal is to provide opportunities abroad
similar to those that foreign companies enjoy here, and to provide both
us and our trading partners the flexibility we both need to develop
effective telecommunications regulatory regimes.
We look forward to working with the Committee--directly and as part
of the Congressional Oversight Group (COG) that was established in the
Trade Act of 2002--to develop trade policy as it relates to
telecommunications. We welcome a strong collaborative role for this
committee and others to ensure that trade agreements submitted to
Congress will enjoy the broadest possible support.
Mr. Stearns. I thank you. And by unanimous consent, so
ordered.
Mr. Sidak?
STATEMENT OF J. GREGORY SIDAK
Mr. Sidak. Thank you, Mr. Chairman. It is hard to comment
definitively on the process by which the Office of the U.S.
Trade Representative sets trade policy concerning
telecommunications services. The reason is that the process is
opaque. Through comments from various carriers, I have a vague
notion of how the USTR process works. My understanding is
incomplete, and so sometimes it is more appropriate for me to
pose questions to the committee rather than speculating.
But, first, why is the USTR's process so secret? There is
not, in that process, something like the notice and comment
process at the FCC. There aren't ex parte rules. And so there
is a kind of absence of transparency there that invites
questions in terms of who does have input in the process of
policy formulation at USTR?
I think there is also a concern based on things I have
heard from carriers that the trade representative and his
deputies are not engaged in the process by which their
subordinates are turning international trade negotiations into
detailed demands about the pricing of unbundled network
elements and that sort of thing.
In my view, it is not appropriate for the Trade
Representative and his deputies to give subordinates who were
never nominated by the President and confirmed by the Senate
the discretion to dictate important trade policies with Japan,
Mexico, and to formulate the template bilateral trade agreement
in the Singapore negotiations that presumably will be used with
other countries as well.
I doubt that the telecom policy of the Bush Administration
and Chairman Powell in 2002 is the same policy of the Clinton
Administration and Chairman Hundt in 1996. And so I do not
understand why the White House and the Department of Commerce
and the FCC failed to give USTR clear instructions or advice on
what constitutes appropriate telecommunications regulatory
principles for the United States to demand of its trading
partners.
In my view, silence is the abdication of responsibility.
Senior administration officials and Chairman Powell should be
concerned that USTR is advancing an interpretation of American
telecommunications regulation that ignores the current policy
direction of the FCC as well as the reversal of certain local
competition rules by the Federal Courts of Appeals.
I wonder whether USTR is aware that from 1996 through 2001
the FCC Record averaged 23,838 pages per year. I question how
much expertise resides within USTR, given the sheer complexity
and volume of telecom regulation that we have seen.
Turning to the substance of USTR policy, I think that it
has a competitor welfare orientation rather than a consumer
welfare orientation, and that probably reflects the fact that
they are interested in helping companies. But I think in the
specific case of the kinds of regulations that USTR has been
trying to export to other countries, it is not really going to
achieve that purpose.
No American carrier will want to invest building a network
in another country, in a less developed country, if it knows
that it will immediately have to share that network at prices
based on long-run average and incremental cost. So it will hold
back from making the investment. That doesn't help American
producers of telecommunications equipment. It certainly doesn't
help the companies that were hoping to build those networks.
And it certainly doesn't help the people in that less developed
country get wired up to the global telecommunications network.
So what is the agenda at USTR? And here I have to
speculate. But I would say that it looks like there may be a
boomerang effect that is intended here.
Section 252(i) of the Communications Act provides, ``A
local exchange carrier shall make available any interconnection
service or network element provided under an agreement approved
under this section to which it is a party to any other
requesting telecommunications carrier upon the same terms and
conditions as those provided in the agreement.''
On the basis of this language, U.S. long distance carriers
may argue that the new bilateral treaty obligations in
something like the Singapore Round also apply to local exchange
carriers in the U.S. So if USTR can insert what would be, in my
view, uncompensatory pricing policies for unbundled network
elements in the bilateral agreement with Singapore, it can
later come back and claim that the FCC and the State regulators
here are treaty bound to impose the same terms on the Bell
companies in the United States.
And so the result is that a career bureaucrat somewhere
below the secretarial or sub-secretarial level in USTR has had
an influence on telecommunications policy domestically, and in
that sense overrides the FCC, Congress, and the Federal courts.
Let me conclude by saying that I think there are several
recommendations that Congress may want to consider. First, I
think it should ask the U.S. Trade Representative himself to
explain the process by which his office has come to impose
detailed telecommunications regulations on our trading
partners.
Next, I think Congress should consider insisting that
Presidential appointees in the executive branch regain control
of that process rather than delegating important policy
decisions to subordinates.
Finally, I think Congress is entitled to expect that the
Chairman of the FCC and the Assistant Secretary at NTIA not be
bystanders in this process and say, implausibly in my view,
that they must defer to USTR's expertise on telecommunications
policy.
Finally, the President should request the advice of his
various Presidential appointees, Senate-confirmed appointees,
on the appropriate substance of U.S. trade policy concerning
telecom services. And then he should direct the U.S. Trade
Representative to make a decision based on that record.
Thank you.
[The prepared statement of J. Gregory Sidak follows:]
Prepared Statement of J. Gregory Sidak, American Enterprise Institute
Thank you, Mr. Chairman, for the invitation to testify before your
committee. I am testifying on my own behalf, and not on behalf of the
American Enterprise Institute, which does not take institutional
positions on specific legislative, executive, judicial, or regulatory
matters. I am also not testifying as a consultant to any entity, public
or private.
I offer for submission into the record a copy of an article that
Dr. Jeffrey Rohlfs and I wrote, which is entitled, ``Exporting
Telecommunications Regulation: The United States-Japan Negotiations on
Interconnection Pricing,'' published this summer in the Harvard
International Law Journal. In my remarks today, however, I will address
a number of issues not discussed in that article.
It is hard to comment definitively on the process by which the
Office of the U.S. Trade Representative sets trade policy concerning
telecommunications services. The process is opaque. Through comments
from various carriers, I have a vague notion of how the USTR process
works. But because my understanding is incomplete, it is sometimes more
appropriate for me to pose questions for the Committee's consideration.
Why is USTR's process so secret? USTR does not have something akin
to the notice and comment process at the FCC when soliciting input from
companies that have economic interests that are antagonistic to one
another. It does not have ex parte rules like those at the FCC. Given
this lack of transparency, it is worth asking why USTR has gained a
reputation for being solicitous to the advice of interexchange carriers
but not that of incumbent local exchange carriers.
There is also concern that the Trade Representative and his
deputies are not engaged in the process by which their subordinates
have turned international trade negotiations into detailed demands
about the pricing of unbundled network elements and the like. It is
inappropriate for the Trade Representative and his deputies to give
subordinates who were never nominated by the President and confirmed by
the Senate the leeway to dictate important trade policies with Japan
and Mexico, and the formation of a template bilateral trade agreement
with Singapore.
I doubt that the telecommunications regulatory policy of the Bush
Administration and Chairman Powell in 2002 is the same as that of the
Clinton Administration and Chairman Hundt in 1996. And so, I do not
understand why the White House, the Department of Commerce, and the FCC
fail to give USTR clear instructions or advice on what constitute
appropriate telecommunications regulatory principles for the United
States to demand of its trading partners. Silence is the abdication of
responsibility. Senior Administration officials and Chairman Powell
should be concerned that USTR is advancing an interpretation of
American telecommunications regulations that ignores the current policy
direction of the FCC as well as the reversal of certain local
competition rules by the federal courts of appeal.
I wonder whether USTR is aware that, from 1996 through 2002, the
FCC Record averaged 23,838 pages per year. I wonder how many persons at
USTR have read the FCC's August 1996 order on interconnection pricing
and unbundling. If, as I suspect, USTR is out of its depth on local
telecommunications regulation, then one must wonder, How and from whom
does USTR supplement its own expertise? For example, to what extent has
USTR relied on the representations made by telecommunications carriers
whose senior executives have pled guilty to securities fraud?
Moving from process to substance, the USTR's negotiating positions
implicitly espouse a competitor-welfare approach to telecommunications
regulation rather than a consumer-welfare approach. It is
understandable that USTR would want to promote the interests of
American companies. But in this case, it is promoting the interests of
a subset of American carriers while ignoring the interests of other
American telecommunications carriers as well as American producers of
telecommunications equipment.
No American carrier will want to invest in building a network in a
less-developed country if it knows that it will immediately have to
lease unbundled network elements to a competitor at a price calculated,
after considerable debate, on the basis of long-run average incremental
cost. The disincentive to investment will not produce any sales of
telecommunications equipment by American producers. How is that outcome
a good trade policy for any constituency in the United States? And it
certainly does not help consumers in the less-developed country.
Congress, the Administration, and the FCC should beware of the USTR
boomerang. Section 252(i) of the Communications Act provides: ``A local
exchange carrier shall make available any interconnection, service, or
network element provided under an agreement approved under this section
to which it is a party to any other requesting telecommunications
carrier upon the same terms and conditions as those provided in the
agreement.'' It will surely be argued, on the basis of section 252(i),
that treaty obligations that the United States undertakes pursuant to a
bilateral agreement' such as the template agreement now being
negotiated with Singapore--apply to domestic carriers as well. In other
words, uncompensatory pricing policies for unbundled network elements
that USTR succeeds in imposing on Singapore will become the new
standard that U.S. competitive local exchange carriers seek to have
imposed by domestic regulators on U.S. incumbent local exchange
carriers. Suddenly, a career bureaucrat in USTR will have overridden
Congress and the FCC and the federal courts. To make matters worse,
judicial review of USTR actions seems difficult if not impossible under
D.C. Circuit precedent.
I doubt that Congress intends to relinquish its ability to
legislate domestic telecommunications policy. Even if it did, there
would be constitutional questions concerning separation of powers and
bicameralism if domestic telecommunications policy were made this way
by the Executive. Congress must not permit this usurpation of its
authority to continue.
Last week, I met with European regulators in Brussels and London.
They do not regard the Telecommunications Act of 1996 as a success, and
they do not want to emulate it. To the contrary, the Europeans have
embarked on a new model of telecommunications regulation that is
motivated by competition law principles. In theory at least, that
approach will maximize the welfare of consumers rather than
competitors. Has USTR considered how its current approach to
telecommunications policy will affect our relations with our European
trading partners?
Let me conclude with several recommendations. Congress should ask
the U.S. Trade Representative to explain the process by which his
office has come to impose detailed telecommunications regulation on
America's trading partners. Congress should insist that presidential
appointees in the Executive Branch regain control of that process
rather than delegating important policy decisions to subordinates.
Finally, Congress is entitled to expect the Chairman of the FCC and the
Assistant Secretary at NTIA not to be bystanders in this matter, saying
implausibly that they must defer to USTR's expertise on
telecommunications policy. The President should request their advice on
the substance of appropriate U.S. trade policy concerning
telecommunications services, and then he should direct the U.S. Trade
Representative to make an informed decision.
Mr. Stearns. I thank the gentleman.
Mr. Waverman, can you hear me?
Mr. Waverman. I certainly can.
Mr. Stearns. Mr. Waverman, and I say to the other
witnesses, we have four votes on the floor, and it seems as
though we have probably about 6, 7 minutes before the first
vote is over, and then we have three 5-minute votes. So, Mr.
Waverman, I would like you to give your opening statement.
And then, Mr. Harris and Mr. Darby, unfortunately, I am
going to have to ask you to wait. This is sort of the
impertinence of Congress by allowing us to go.
But, Mr. Waverman, do you mind going with your opening
statement?
STATEMENT OF LEONARD WAVERMAN
Mr. Waverman. Not at all. I would be delighted, and I thank
you for allowing me to do this and to do it via
telecommunications.
Mr. Stearns. Can you do it in 5 minutes?
Mr. Waverman. I certainly can.
Mr. Stearns. Okay. Thank you.
Mr. Waverman. I wanted to begin by reminding us all of the
WTO agreement and what that accomplished in February 1997--69
countries at that point, and now 84, who account for over 90
percent of world telecom revenue have signed an annex to the
general agreement on trade services.
This annex commits countries to transparent information----
Mr. Stearns. Mr. Waverman, can you bring the mike a little
closer? We are having--we can hear you, but it is a little
garbled, and I don't----
Mr. Waverman. Okay. Actually, it is right against my mouth,
so I can't get any closer.
Mr. Stearns. Okay. All right. Well, sorry. You are doing a
good job. Thanks.
Mr. Waverman. Okay. This annex commits for interconnection
at reasonable and non-discriminatory terms. Countries also
agree to an independent regulator and the prevention of anti-
competitive practices.
Market access to many of the services needed by foreign
users of telecoms is enshrined in the annex. Each country has
specific country commitments which vary. I remind you that the
U.S., in its commitment, has a number of exemptions. For
example, no radio license is available if the operator is more
than 20 percent foreign owned.
In addition, the U.S. submitted a most favored Nation
exemption for one-way satellite transmission of DTH and DBS
television services and digital audio services. And so the
U.S., while it may view itself as using open market access,
does have its own particular view on what market access is.
Now, going forward, should more specific telecom market
opening objectives be included in trade agreements outside the
WTO, as we are discussing in Chile and Singapore? And to what
extent should current U.S. telecom regulation be embedded in
such multilateral agreements?
The answer from my perspective as a foreign telecom expert
is simple: they should not be. That is, it should be broad and
not detailed. Let me explain why. First, other instruments have
been used to open telecom markets for U.S. telecom carriers. I
refer to numerous market opening decisions of the SEC over the
last 15 years.
Second, many countries have allowed foreign ownership even
when continuing to manage access for users--that is, the market
for ownership of firms largely liberalized. For example, take
Brazil.
Finally, to enshrine current U.S. regulatory issues in a
multilateral trade agreement is, in my view, both foolish and
dangerous. I remind you that the U.S. 1996 Telecom Act has as
its core element regulatory control over RBOC access to long
distance markets as an inducement to encourage entry into local
service provision.
Most other countries do not have the 1984 U.S. consent
decree, do not have the split of intra- versus inter-LATA
traffic, and do not and should not have the same regulatory
problems as the U.S. telecoms industry. That is, without
debating the impact of the 1996 Telecom Act, we can agree that
it rests on a certain structure of the industry that other
countries do not have. Nor should they necessarily have this
structure. It would be foolish to impose this structure on
others.
Finally, in following Mr. Sidak's intervention, it would be
dangerous for the U.S. to embed its regulatory regime in
multilateral agreements making domestic telecom regulation in
the U.S. difficult to change. Some countries enter into
multilateral trade agreements in order to prevent future
domestic politicians from eroding domestic liberalization. I
cannot conceive of any reason in the U.S. to tie one's domestic
telecom hands in this way.
Thank you.
[The prepared statement of Leonard Waverman follows:]
Prepared Statement of Leonard Waverman, Professor of Economics, London
Business School
In February 1997, 69 countries (as of 2002, 84 countries)
accounting for over 90% of world telecom revenue signed a ``Telecoms
Services'' Annex to the General Agreement on Trade in Services. This
Annex, now under the World Trade Organisation commits these countries
to transparent information on public telecom, as well as access
including interconnection at reasonable and non-discriminatory terms
and conditions. Countries also agree to basic principles such as an
independent regulator, and the prevention of anti-competitive practices
in telecommunications.
Market access to many of the services needed by foreign users of
telecoms is enshrined in the Annex. Specific country commitments enable
access by foreign firms wishing to sell such services in each country.
These commitments vary. The US, for example, in its' commitments allows
``unrestricted access to a communications carrier radio license for all
operators that are indirectly foreign owned''. No such radio license is
available if the operator is more than 20 per cent foreign owned. The
US also submitted a most favoured nation exemption for one-way
satellite transmission of DTH and DBS television services and digital
audio services.
Going forward, should more specific telecoms market-opening
objectives be included in trade agreements outside the WTO, and if so,
to what extent should current US telecoms regulation be embedded in
such multi-lateral agreements?
The answer from my perspective as a ``foreign'' telecoms expert is
simple--no, my reasoning is as follows.
First, other instruments have been used to open telecoms markets
for US telecoms carriers. I refer to numerous market opening decisions
of the FCC over the last 15 years!
Second, many countries have allowed foreign ownership even when
continuing to manage access for users. That is the market for firms
ownership is largely liberalized.
Finally, to enshrine current US regulatory issues in a multi-
lateral trade agreement is both foolish and dangerous. The US 1996
Telecommunications Act has as its core element regulatory control over
RBOC access to long distance markets as an inducement to encourage
entry into local service provision. Most other countries do not have
the 1984 US Consent Decree, do not have the split of intra- versus
inter-LATA traffic and do not, and should not, have the same regulatory
problems as the US telecoms industry. That is, without debating the
impact of the 1996 Telecoms Act, we can agree that it rests on a
certain structure of the industry that other countries do not have. Nor
should they have this structure. It would be foolish to impose this
structure on others.
It would be dangerous for the US to embed its' regulatory regime in
a multi-lateral agreement making domestic telecoms regulation difficult
to change. Some countries enter into multi-lateral trade agreements in
order to prevent future domestic politicians from eroding domestic
liberalization. I cannot conceive of any reason to tie one's domestic
telecom hands in this way.
Mr. Stearns. Thank you, Mr. Waverman.
We are going to take--recess the subcommittee and come back
after the votes.
And I hope, Mr. Waverman, that you will be available when
we get back.
Mr. Waverman. Okay.
Mr. Stearns. And Mr. Harris and Mr. Darby, we will have
yours when we return.
[Brief recess.]
Mr. Stearns. The hearing will come to order, and we will
continue with our witnesses.
Mr. Harris, thank you for your patience, and we look
forward to your opening statement.
STATEMENT OF SCOTT BLAKE HARRIS
Mr. Harris. Mr. Chairman, committee members, my name is
Scott Blake Harris. Thank you for inviting me to address you
this morning.
I served as first chief of the International Bureau at the
Federal Communications Commission from 1994 to 1996. While I
was at the Commission, the FCC worked closely with USTR, other
executive branch agencies, and this committee, in a coordinated
effort to open closed foreign telecom markets for U.S.
competitors. That effort culminated with the signing of the WTO
agreement on basic telecommunications in 1997.
Simply put, from 1994 to 1997, the centerpiece of the FCC's
international policy was working with USTR and with the
Congress to open foreign telecom markets. The reason for that
was simple: closed foreign markets were costing the U.S.
economy billions of dollars annually. Every U.S. carrier that
handled traffic to or from a foreign market, every consumer
that made an international phone call, and every commercial
enterprise of any kind in the United States that sent voice or
data traffic overseas was being ripped off.
U.S. companies who had employees travel overseas, U.S.
companies with foreign operations, and U.S. citizens on
vacation overseas, were also being ripped off. And all of that
is wholly apart from the lost opportunity costs for American
carriers that were artificially barred from foreign markets,
and importantly for the U.S. hardware manufacturers who would
have sold equipment to those U.S. telecom companies had they
the opportunity to do so.
But USTR, the FCC, and this committee recognize that in the
telecom sector at least it is not simply enough for another
government to agree to open its market. Without regulatory
safeguards and effective regulators, market access commitments
by many foreign governments would have been meaningless.
Without regulatory safeguards, we would have opened our markets
in good faith, as we have, but not all of our trading partners
would, and that wasn't good enough.
But figuring out how to craft regulatory safeguards was no
more easy then than it is today. We had no doubt that the more
specific a regulatory obligation the easier it would be to
enforce if a U.S. carrier was in fact denied entry to a foreign
market.
But equally we had no doubt that the more specific a
regulatory obligation was the easier--the more difficult,
rather, it would be for the U.S. to change its own laws or its
own regulations to take into account our successes and our
failures and changes in technology and changes in market
conditions, which we surely knew were coming.
The simple truth is this: there is an inherent tension
between the need for specificity and the need for flexibility
when negotiating telecom trade agreements. And anyone who tells
you otherwise is simply wrong.
This tension, I might add, was particularly acute during
the WTO negotiations. As you no doubt remember, during part of
those negotiations, the legislation that became the Telecom Act
was being debated. During part of the negotiations, the FCC was
working to implement the Act. How could anyone craft regulatory
safeguards while Congress was debating the legislation and the
FCC was debating how to implement that legislation?
The answer was this: this committee, its staff, the
executive branch agencies, the FCC, worked together day by day
in a coordinated fashion so that the U.S. negotiating position
both reflected existing U.S. policy, existing U.S. law, and
took into account the changes that seemed to be on the horizon.
There would have been no other way to do it and to be coherent.
In my view, the safeguards embedded into the WTO agreement
struck precisely the right balance between specificity and
flexibility. The reference paper which contains those
safeguards is three pages long. My daughter in fourth grade
submits longer written assignments to her teacher. It shouldn't
look like the Telecom Act. It shouldn't look like the FCC
regulations. Trade agreements ought to look like trade
agreements.
And they need not be overly specific, because regulators
work with each other to fill in some of the details after the
fact, as the FCC has worked with foreign regulators since 1997
to work out the details of the commitments that currently
exist.
As highly as I think of the 1997 agreement and the
reference paper, though, it need not be the last word in
telecom agreements. We have learned a lot. U.S. industry has
learned a lot. The U.S. Government has learned a lot about how
other markets work, how they can manipulate markets to keep
U.S. carriers, keep U.S. equipment manufacturers out. We don't
need to tolerate that. We can do better. We should do better.
It is always going to be difficult to come out with the
right balance of specificity and flexibility. The only way to
deal with that, frankly, is on an issue-by-issue basis and
through close coordination between the executive branch, the
Congress, and the FCC. It is not easy, it will never be easy,
but it is worth the effort.
Thank you, sir.
[The prepared statement of Scott Blake Harris follows:]
Prepared Statement of Scott Blake Harris, Managing Partner, Harris,
Wiltshire & Grannis LLP
Good morning, Mr. Chairman and other distinguished members of the
House Subcommittee on Commerce, Trade, and Consumer Protection. Thank
you for inviting me here to address market access goals in
telecommunications trade agreements. My name is Scott Blake Harris. I
am Managing Partner of Harris, Wiltshire & Grannis LLP in Washington,
D.C., and I practice extensively in the area of international
telecommunications law.
From 1994 to 1996, I served as the first Chief of the FCC's
International Bureau, where--at the direction of the Commission--my
staff and I worked closely with USTR, other Executive Branch agencies
and the staff and members of this Subcommittee, to lay the groundwork
for the 1997 WTO Basic Telecom Agreement. I am here today to discuss
the importance of telecommunications trade agreements, and the need to
strike the difficult and sometimes uneasy balance between specificity
with the flexibility. I am speaking for myself, and not on behalf of
any clients of Harris, Wiltshire & Grannis.
U.S. Companies and Consumers Have Benefited Greatly from
Telecommunications Trade Liberalization. At the outset, I would like to
review the importance of well-crafted telecommunications-trade
agreements and the pro-competitive and market access principles they
may include--a history in which this Subcommittee has played an
important role. Just five or so years ago, the world's
telecommunications markets looked radically different than they do
today. Before 1997, most of the world's telephone companies were not
just government-owned, but fused with the postal monopolies and the
government ministries charged with regulating them. And carriers
provided international communications services to one another under a
``tit-for-tat'' basis that kept prices high and innovation low. In
2002, things look very different. U.S. consumers and commercial
enterprises now face a greater array of choices, more innovative
products and services, and substantially lower international calling
rates--which ca be as low as 10 to 20 cents per minute on the most
competitive routes. With this liberalization, U.S. companies have made
significant investments abroad in dozens of countries ranging from
South Africa to Japan, from Denmark to Brazil. They have also greatly
expanded their international service offerings, and also equipment
sales, which reached a record $28 billion in 2001. It was unsurprising,
then, that shortly before the conclusion of the WTO Basic Telecom
Agreement in February 1997, U.S. industry representatives greeted the
U.S. negotiating team with signs and t-shirts emblazoned with the
phrase ``wildly enthusiastic.'' While we all know that the
telecommunications sector today is hardly as robust as we would like,
it would surely be weaker were U.S. service providers and equipment
manufacturers artificially barred from foreign markets.
The WTO Reference Paper Was the Right Approach. In my view, the key
to the success of the WTO Telecom agreement was the ``Reference Paper''
of regulatory principles. Without such a principles, the market access
commitments made by many other nations would have been hollow, even as
we opened our markets to new entrants from overseas. U.S. companies
would have continued to face closed markets abroad, even as the U.S.
opened markets at home.
Some have criticized the Reference Paper as being a misguided
attempt to export the Telecommunications Act of 1996. Whatever one
thinks of the Act six years after its enactment, it seems to me it is
the criticism that is misguided. First, one cannot criticize our trade
negotiators for attempting to negotiate agreements that open foreign
markets by applying to them the same basic principles that apply to the
U.S. market. Foreign competitors will have access to the U.S. market
under those basic principles. Should not U.S. competitors have access,
if possible, to foreign markets on those basic principles? Second, the
criticism is simply wrong as a matter of fact. Negotiators began
discussions on, and drafting of, what would become the WTO Reference
Paper well before there was a Telecommunications Act of 1996. Second,
the WTO Reference Paper was drafted several years by a working group
including, initially, Australia, New Zealand, Japan, Korea, and the
European Union, and joined later by Brazil, Singapore, Chile, Mexico,
and the Philippines. Japan served as the informal chair of the working
group. The WTO Reference Paper should therefore be viewed as a
negotiating victory, as it achieved U.S. negotiating objectives. But it
was also a collaborative effort, meaning that it was never simply an
effort by U.S. negotiators to impose U.S.-centric regulations on other
countries.
The United States Should Advocate Comprehensive, But Not
Excessively Detailed, Principles. With this background in mind, I
believe that as a general rule of thumb, telecommunications trade
agreements--both bilateral and multilateral--must strive to incorporate
a comprehensive set of pro-competitive and market access principles. At
the same time, they should not read like FCC regulations. And there are
many reasons not to negotiate for the equivalent of a regulatory
scheme.
First, FCC regulations are appropriately tailored to the particular
policy objectives and competitive circumstances of the United States.
The policy objectives may, and the market circumstances surely will, be
somewhat different overseas. Second, as the Subcommittee well knows,
FCC regulations can change over time. When the Commission is operating
at its best, it is learning what works and what does not work, and
making changes accordingly. In addition, even the best regulations can
become outmoded as technology changes. But trade agreements, unlike FCC
regulations, cannot easily be revised. WTO Members must wait for a new
round of negotiations--at 7- to 10-year intervals--and even then there
is no guarantee that a document such as the Reference Paper will be
revised, or even supplemented. Thus too much specificity can both give
short shrift to market conditions elsewhere, or lock in unsuccessful or
outmoded regulation. Like the WTO Basic Telecom Agreement and its
Reference Paper, other agreements should seek to establish a general
and comprehensive framework to ensure three things: (1) a stable and
open investment climate; (2) a level playing field for new entrants;
and (3) basic rules permitting competition. These agreements should
also establish a common terminology to allow governments and carriers
to engage more effectively and efficiently with each other.
The WTO Reference Paper and the GATS Annex on Telecommunications
Struck An Appropriate Balance. The WTO Reference Paper and the Annex on
Telecommunications--part of the 1994 General Agreement on Trade in
Services--do an admirable job of balancing the need to be comprehensive
with the need to avoid excessive specificity. And it did so at a time
when our own basic telecommunications laws and regulations were in a
state of flux.
Congress was debating what became the Telecommunications Act of
1996 during much of the WTO telecom negotiations. The FCC was working
to implement the Act during much of the rest of the negotiations. This
left the negotiators with the difficult task of creating a document
that would open foreign markets in a meaningful way, yet would not be
inconsistent with the yet to enacted statute, and the yet to be adopted
regulations. A close collaboration among USTR, other Executive Branch
agencies, the FCC, and Congress allowed the negotiators to complete
this task successfully.
The WTO Reference Paper totaled a mere three pages in length, but
it articulates general principles in six substantive areas:
<bullet> First, it requires the WTO Members adopting it to implement
competitive safeguards, including prevention of anticompetitive
conduct, a ban on cross-subsidization, and a ban on abuse of
competitively sensitive information by carriers with market
power. Yet the Reference Paper provides WTO Members with the
flexibility to implement such safeguards under communications-
specific laws and regulations, or under more traditional
antitrust and competition laws.
<bullet> Second, the Reference Paper requires the WTO Members adopting
it to ensure timely, nondiscriminatory, cost-oriented,
unbundled, and transparent interconnection between carriers
with market power and other carriers, and to do so pursuant to
publicly available procedures. Yet WTO Members were allowed to
condition their acceptance of the Reference Paper to meet their
particular market requirements. For example, in its adoption of
the Reference Paper, the United States exempted rural carriers
from certain interconnection obligations (consistent with the
Telecommunications Act of 1996), and South Africa allowed for
differential pricing in certain of its regions.
<bullet> Third, the Reference Paper allows WTO Members adopting it to
define their own universal service obligations, requiring only
that they be administered in a transparent, non-discriminatory,
competitively neutral, and no-more-burdensome-than-necessary
manner. The Reference Paper also specifies that universal
service obligations will not be regarded as anticompetitive per
se.
<bullet> Fourth, the Reference Paper requires the WTO Members adopting
it to ensure public availability of licensing criteria. But it
does not specify whether those licenses must be issued on an
individual, case-by-case basis, or with ``class licenses'' for
entire classes of carriers.
<bullet> Fifth, the Reference Paper requires the WTO Members adopting
it to establish an independent regulator. But it does not
specify whether that regulator be a government ministry or an
independent commission.
<bullet> Sixth, the Reference Paper requires the WTO Members adopting
it to allocate scarce resources--such as radio spectrum,
numbers, and rights of way--in an objective, timely,
transparent, and non-discriminatory manner. But it does not,
for example, specify whether WTO Members should use auctions,
lotteries, or beauty contests to allocate spectrum.Beyond
substantive principles, the WTO Reference Paper also
established a common terminology, enabling more effective
discussions about the meaning and implementation of the
Reference Paper. Simply put, I believe these principles
provided the critical basis for opening foreign markets without
restricting in any material way the FCC's flexibility in
adopting, or changing, regulations implementing the
Telecommunications Act of 1996.
Likewise, the GATS Annex on Telecommunications ensures use of
public telecommunications transport networks and services on reasonable
and nondiscriminatory terms and conditions. Essentially, the Annex
allows for other services--such as research databases, retail catalogue
phone orders, private communications within a multinational
corporation, and even Internet services--to be offered over the
telecommunications networks of a WTO Member. While the Annex totals
three and a half pages in length, it requires transparency, network
access, and technical cooperation. But the Annex leaves to the
individual WTO Member decisions about how these obligations are to be
implemented, and even in what form.
How the Reference Paper Helps: the Mexico Case. To see how the
reference paper can work, I would like to note the critical role it has
played in the United States' dispute with Mexico on the opening of its
telecommunications market. Although the North American Free Trade
Agreement was signed in 1992 and came into force in 1994, it contains
only rudimentary provisions regarding telecommunications services.
NAFTA did little to spur growth in cross-border telecommunications
services and investment between the United States and Mexico. It was
not until the WTO Basic Telecom Agreement came into force that U.S.
investors were able to enter the Mexican telecommunications market, and
it was only then that calling prices on the U.S.-Mexico route really
started to drop. Yet Mexico's incumbent, Telmex, continues to wield
enormous market power, and the Mexican Government's regulatory
oversight has been incomplete. The Reference Paper, however, forms a
critical basis for the U.S. case against Mexico, currently pending
before the WTO Dispute Settlement Body. The United States has alleged
that the Mexican Government has violated its WTO obligations by: (1)
retaining international traffic rules that favor Telmex and inflate
rates to the detriment of foreign and competitive carriers; (2) failing
to rein in Telmex's anticompetitive practices or ensure timely
resolution of interconnection disputes; and (3) failed to address other
interconnection and access obligations, such as timely resolution of
interconnection disputes. Without the WTO Reference Paper's provisions
on safeguards and interconnection, it would be substantially more
difficult, if not impossible, for the United States to enforce its
rights under the WTO Basic Telecom Agreement.
The WTO Reference Paper and Annex on Telecommunications Should Not
be the Last Word. For all its virtues, the WTO Basic Telecom Agreement
should not be the last word on opening telecommunications markets to
U.S. competitors. Since the GATS and the WTO Basic Telecom Agreement
were concluded, the relevant markets and technologies have changed
substantially. And the United States--both the U.S. Government and the
carriers and equipment manufacturers--have gained experience in
applying and taking advantage of telecommunications trade commitments.
Thus, there may be new commitments which the government and private
sector believe necessary to make sure foreign markets remain open.
Moreover, with certain bilateral agreements, there may be a desire or
need for more extensive provisions based on the interrelationships
between the United States and a particular trading partner.
Coordination and Oversight Are Critical. Even as new trade
agreements may be needed, the inherent tension between specificity and
flexibility will remain. The more specific the commitments, the easier
it is to make a case if U.S. competitors remain frozen out of foreign
markets. But, as noted, specificity carries the risk of rigidity. To
maintain the right balance, there is--as there was during the WTO
negotiations--a critical need for coordination among USTR, other
Executive Branch agencies, the FCC and Congress. But to do their jobs
well, trade negotiators must know what the law and regulations of today
say--and what they may say tomorrow. If they do not, they can
inadvertently draft agreements that limit flexibility. The FCC has
expertise and experience as the U.S. regulator and also consults
extensively with foreign regulators. But it is only through close
consultation with Congress that will allow USTR to ensure compatibility
of trade initiatives with prior legislation and anticipated changes in
legislation, and to ensure consistency with Congress' mandate for
various governmental agencies.
Thank you. I would be happy to answer any questions this
Subcommittee may have.
Mr. Stearns. I thank the gentleman.
Mr. Darby, welcome. Your opening statement?
STATEMENT OF LARRY F. DARBY
Mr. Darby. Thank you, Mr. Chairman, Mr. Bryant. Thank you
for inviting me. I look forward to discussing the questions you
sent to me. They raise a variety of issues, and in the interest
of economy and efficiency I think I will address a few common
themes raised in them.
You first asked me about the detail to be sought in telecom
trade agreements and whether negotiations with our trading
partners should be general, focusing on broad goals and
results, or very specific and reflecting the unique
circumstances of our experience here in the United States.
The second theme focuses on the role of the congressional
oversight group in the overall trade negotiation process. My
response to the first set of questions is to urge you to
promote a results-oriented perspective by emphasizing goals
rather than processes, objectives rather than rules, ends
rather than means. As others have indicated, some balancing is
required, and, of course, we are not indifferent to the means
for achieving a particular end.
I believe our interests are not served by exporting to
others the highly circumstantial and detailed U.S. rules--rules
whose impacts are even more being vigorously debated and
reconsidered here in the United States. You asked about the
extent to which the U.S. Trade Representative should be able to
memorialize U.S. telecom law and regulations in multilateral or
bilateral agreements.
Let me emphasize we should not try to export the details of
our regulatory approach or our specific rules, nor should we
develop negotiating strategies that tilt in that direction. Let
me explain why.
The 1996 Act reflects a unique--our unique
telecommunications regulatory history. It addresses the one-of-
a-kind structure and evolution of U.S. markets. It is a
uniquely American instrument, even though its goals--
investment, universal service, competition, and less
regulation--are being adopted worldwide. FCC and State rules
implementing the Act are even more specifically tailored to the
U.S. institutional context. This uniqueness applies with most
force to the enormous mass of regulations now driving and
constraining investment and competition in local telecom
markets.
My point is simple: to be effective, regulatory
prescriptions must be tailored to the unique circumstances to
which they apply. Applying our tailored to U.S. market rules in
other national environments would serve no clear and good
purpose. More fundamentally, there is no way a priori for
Congress or trade negotiators to predict confidently the
effects of our rules were they to be applied in other nations.
``One size, one kind; our size, our kind'' does not and cannot
fit all.
As you know, the Telecom Act and the rules implementing it
are now being reevaluated by policymakers. Congress is
considering insulating certain markets from the application of
the Act. The Commission is undertaking a major reevaluation of
its interconnection rules and competition investment policy.
Part of the 1996 Act are still being litigated. My conclusion I
think is inescapable. It is premature to attempt to embed these
regulations in international agreement at a time when their
meaning and impact are still being debated here.
Ongoing policy reviews and debates bespeak a lack of
clarity about the meaning of the Act and its impact on
competition, on investment, and on the overall public interest.
There is, then, no principled basis for asking our trading
partners to follow our lead into this unsatisfactory and
ephemeral state--a state Business Week called recently ``the
telecom mess.''
If we cannot clearly warrant and confidently abide the
results here, we should not attempt to transplant them
elsewhere. We should work, instead, to incorporate broad market
opening objectives, to insist that rules be non-discriminatory
with respect to competitors' national origins, insist on
transparent rules, on less government involvement in markets,
and press for independent regulatory bodies and for open
regulatory processes.
As Scott and others have pointed out, these have to be
spelled out with a modest degree of detail. You asked me how we
could ensure proper implementation and enforcement by other
governments of detailed regulatory schemes incorporated in
trade agreements. The short answer is: we can't. The prospect
of an international institution enforcing detailed trade
agreements is not a happy one and summons visions to me of
endless dispute and costly delay.
We should not, by the way, naively assume that we would be
free of pressure to adopt rules foreign to us but favored by
our trading partners. Such a quid pro quo would require us to
import foreign rules that fit our institutions and markets as
poorly as ours fit theirs.
Finally, grafting U.S. regulations onto international
agreements would lock us into rules that we otherwise would
want to change. It would, indeed, be ironic and destructive if
we were to find ourselves bound by agreements incorporating old
U.S. laws and outdated rules, and because of that we were
prevented from tailoring and adapting our policies to new
market and technological realities.
Thank you again for the opportunity to give my views on
these issues, and I will be happy to answer your questions.
[The prepared statement of Larry F. Darby follows:]
Prepared Statement of Larry F. Darby, Darby Associates
Good morning Mr. Chairman and members of the Subcommittee. I
appreciate the opportunity to be here and look forward to sharing my
views with you.
You asked me to address eight questions pertaining to
Telecommunications and Trade Promotion Authority: Meaningful Market
Access Goals for Telecommunications Services in International Trade
Agreements and to do so in a short period of time. Fortunately your
questions raise a few core issues and in the interest of economy and
efficiency, I will address the common themes among them.
The questions relate first to the level of detail or specificity to
be sought in negotiating international agreements for opening up
markets for telecommunications services with our trading partners. You
solicited my views on whether the agreements should be general,
focusing on broad goals and results; or whether they should be very
specific, reflecting the unique circumstances of U.S. markets, history
and experience.
The second theme focuses on the role of Congress and specifically
the Congressional Oversight Group in the overall process--goal setting,
determination of negotiating strategies and development of specific
telecommunications provisions in particular trade agreements. I will
address those in order.
The title of the hearing makes clear your overall focus--the
inclusion in trade agreements of meaningful telecommunications services
market access goals. Consistent with that title, I strongly encourage
you and the Subcommittee to adopt and promote a general results-
oriented perspective by emphasizing goals, rather than processes;
objectives, rather than rules; and ends, rather than means. Of course
some balancing is always required; and, we are not indifferent to means
for achieving particular ends. But, our interests are not served by
exporting to other economies with different institutional frameworks
and market environments, highly circumstantial, quickly changing and
unbearably detailed US rules--rules whose U.S. impacts even now being
vigorously debated.
My preference for focusing on ends rather than means can best be
explained by reference to your question about the extent to which the
U.S. Trade Representative should be able to memorialize current U.S.
telecommunications law or current U.S. telecommunications regulations
in international agreements.
Let me be clear. We should not try to export the details of our
regulatory approach or its rules, nor should we develop negotiating
strategies that would tilt in that direction. There are several reasons
for not doing so.
The Telecommunications Act of 1996 reflects our unique
telecommunications regulatory history. It was driven by and relates to
the very specific structure and evolution of U.S. markets and to the
technological and commercial environment in the U.S. as it existed and
was understood by Congress leading up to February 1996. Each provision
of the 1996 Act has a legislative history borne of over twenty years of
debate in the context of the technological and commercial evolution of
U.S. industry and markets. The Act is a uniquely American instrument,
even though its goals--high levels of investment, universal service,
competition and no more regulation than necessary--are coming to be
adopted worldwide. There are numerous acceptable ways to pursue those
goals and different administrations will quite understandably want to
adopt means tailored to their markets.
Rules implementing the 1996 Act created by the Federal
Communications Commission, other federal agencies and fifty state
regulatory bodies are even more specifically tailored to the unique
regulatory, jurisdictional and judicial context--historical and
prospective--within which they were intended and do now apply. This
``uniqueness'' applies especially to the enormous mass of regulations
now governing the way in which competition is being enabled and
encouraged in local telecommunications markets. Those regulations
reflect the structure of the US market at a single point in time and
would no doubt have been very different had the market structure and
forces on it have been different. As a routine matter even now they are
evolving in response to changing needs, forces and our understanding of
how markets are working.
My point is that regulatory prescriptions should reflect the
circumstances to which they apply and that the best rules those that
are specifically tailored to do so.
Attempting to apply these very specialized, tailored-to-U.S.-market
rules in other national regulatory, policy and commercial environments
would serve no clear and good purpose. But, more to the point, there is
simply no way a priori for Congress or trade negotiators to predict
confidently what overall or specific impact that U.S. rules and
regulations would have should they or similar ones be implemented in
the highly differentiated circumstances prevailing in other countries.
One size/one kind, our size/our kind, does not and cannot fit all.
Moreover, both the Telecom Act itself and the FCC rules
implementing it are now being reconsidered by the Congress and the FCC.
Congress is considering whether to insulate certain markets from the
application of the Act, while the FCC is undertaking a major
reevaluation of several of the rules--particularly the local
interconnection rules--it adopted following passage of the Act. The
meaning of parts of the Act are still being litigated. It would be
premature to attempt to memorialize U.S. regulations in international
agreements at a time when their meaning and impact are still being
questioned and debated here.
In the light of recent experience and data, we are reconsidering
the effect of the rules on sustainable market competition, on
investment, on universal service and on our ability, at some point, to
have the government disengage from heavy hands-on regulation of
intercarrier relations and detailed specification of rates and service
offerings.
Current policy reviews, uncertainties and debates bespeak a lack of
clarity about both the meaning of the Act and its impact on sustainable
competitive processes, investment and the overall public interest.
Under such circumstances there is no principled basis for insisting
that our trading partners follow our lead into the current
unsatisfactory and ephemeral state. If we cannot warrant and abide the
results here, we cannot and should not attempt to transplant them in
the economies of our trading partners.
The fact is that both the Act of 1996 and the rules implementing it
have had unanticipated and unwanted consequences in US markets. While
there is a furious debate over what those are, there is no disagreement
over their existence. Applying the Act and those rules in other markets
overseas would almost certainly have such consequences. Further, there
are good reasons to expect that the results would be even less
satisfactory, since the rules would be applied in countries with
starkly different telecommunications environments than those in this
country.
Rather than try to incorporate in trade agreements and thereby
export specific rules, we should instead work to incorporate broader
more general market opening objectives. For example, we should insist
that rules be nondiscriminatory as to national origins of firms in the
market; we should insist on transparency of rules and rulemaking
processes; we should insist on less, not more governmental involvement;
and, we should press for independent regulatory bodies and open
regulatory processes. These are the kinds of standards we should to
pursue.
The subcommittee has raised an important question about how the
U.S. could ensure that detailed regulatory schemes and obligations,
should they be incorporated in trade agreements, would be properly
implemented and enforced by other governments. The short answer is that
we could not. The prospect of establishing a regime, similar to the
FCC, to enforce detailed agreements is not a happy one and summons
forth visions of endless, and costly, litigation and delay.
Nor, should we naively assume that we would be free of pressure, as
a quid pro quo, to import some regulations from our trading partners--
regulations that fit our institutions and markets as poorly as ours fit
theirs.
Finally, memorializing current U.S. regulations into international
agreements risks locking us into rules that in the long run will not
contribute to healthy competition and growth in our very important
telecommunications sector. It would indeed be ironic if we were to find
ourselves bound by trade agreements incorporating old U.S. laws and
rules and thereby prevented from changing our rules in response to
either a better understanding of their effects, or in response to
changing market and technological conditions. The risk of such a
``lock-in'' is real and serious and, by itself, sufficient to offset
any conceivable advantage.
Turning quickly to the role of Congress, I will make a couple of
observations. Consistent with my preference for incorporating broad
goals rather than detailed regulatory provisions in the agreements, it
seems to me that Congress, and the Congressional Oversight Group in
particular, should limit its activities to formulation of general
objectives to be incorporated in the agreements and to leave
negotiating strategies and tactics to U.S. trade negotiators. The
nature of these negotiations does not allow for effective hands-on
participation by Congress. That said, there is a clear statutory
mandate for Congress to engage in on-going consultations with the USTR
as trade agreements are being negotiated. Given Congress' role as the
primary lawmaker, it is appropriate and necessary for members to have a
voice in U.S. efforts to develop stronger trade relations throughout
the world.
Thank you again for the opportunity give my views on this important
set of questions. I will be happy to answer your questions.
Mr. Stearns. I thank you.
And just before we go, Mr. Waverman, are you also there?
Mr. Waverman. I am here.
Mr. Stearns. Okay. What I hear from all of you are some
nuances of difference here. Some of the questions that come to
mind are the implementation, in a trade agreement, some of the
regulatory process in the United States, and how far do you go
on that.
And, Mr. Waverman, what would be dangerous about embedding
the FCC's current regulatory regime in a multilateral
agreement?
Mr. Waverman. Well, I think the dangers are twofold for
other countries that do not wish to have structural separation
in that way between long distance and local. I think there
would be dangers for them to implement some of those.
Second, I think it is dangerous for the U.S. in the future,
because once this becomes embedded in international agreements,
I think as Mr. Sidak points out as well, it is very difficult
for the U.S. to then change domestic law.
Depending if there is--if there is a great deal of detail
in, let us say, the Chile or Singapore agreement, mimicking the
1996 Telecom Act and sections of it, for example, on how to
price unbundled network elements, then that trade agreement
becomes kind of an albatross around the neck of yourselves if
you wish to change that act. And I think that's an albatross
you don't want.
Mr. Stearns. Okay. Ms. Liser, but you indicated in your
written testimony that, ``Current U.S. proposals are consistent
with the 1996 Telecom Act and build in flexibility to provide
the FCC with the necessary discretion to make alterations to
its rules.''
In light of I think what he is talking about and what some
of the panelists are mentioning, just elaborate on how current
U.S. proposals provide the FCC with the necessary discretion to
change its rules. And in light of the fact that--how does new
technology come into play here? Some of the rules that you set
down for an international agreement have to have some
flexibility for these new technologies. So hopefully you can
just address how you would--elaborate on how the U.S. proposal
would provide FCC this flexibility.
Ms. Liser. We think that essentially, again, we are
striking a careful balance. Obviously, we are looking at the
laws that are now in place. We have made every effort to make
sure that what we have drafted in terms of the text for the
Singapore and Chile FTA telecom text does, in fact, reflect our
laws that are there now.
But, again, we have also drafted, with regard to some of
the elements that are being discussed domestically, provisions
that we believe provide a fair amount of discretion to each of
the parties involved, whether it is the U.S. in terms of the
FCC and how it regulates, as well as Singapore and its
authority or Chile and its authority, to be able to look at the
circumstances and determine.
One example would be, for example, on unbundling. This is
something where, obviously, there's a lot of domestic
discussion about this now. But we have drafted a provision that
essentially says that it is up to the domestic authority to
decide what elements will be unbundled and to whom those
unbundled elements will be provided.
So, again, we are trying to in some senses hold the bar on
the standard at a particular level, but at the same time give
enough room to the domestic authorities to determine how they
want to do it. And we have a number of examples that are like
that.
In terms of the technologies that are evolving, and the
kinds of decisions that people are making, we think that,
again, there is a fair amount of room to allow for the
technologies to evolve and develop, holding the base
commitments there while allowing the industry to go forward. We
are not choosing any particular business models as we go
forward.
Mr. Stearns. The difficulty about this hearing is what we
need is specific examples. It would be great--I mean, what--we
are speaking in sort of general principles here, but it would
be nice to take a specific example.
Mr. Sidak, let me see if I can give you a specific example.
Let us say in Singapore you have a telecommunications company
that is heavily subsidized by the government there. And they
are basically a monopoly, and they want to provide services in
the United States. And the way they are set up is they don't
comply with the FCC--of our FCC regulatory body.
How do you allow a telecommunications company like that to
come in and compete, if they don't ostensibly comply with the
FCC bar and they are sort of subsidized by the Federal--by the
Singapore government and they are a monopoly?
I am sort of stretching here an example just to try and put
you folks on the spot to see if we can get some specific
examples how you would go from general principles to specifics,
and how you would either incorporate the Telecom Act of 1996,
or you would--or not.
Mr. Sidak. Okay.
Mr. Stearns. And I am struggling here. So if it doesn't
make complete sense, I am just trying to get you folks
specifically on record on a specific example. I mean, we could
go to a number of bills, whether it is cross-ownership of--or
spectrum or dealing with caps, media caps, or you could go into
the Tauzin-Dingell bill.
I mean, there are lots of things here that we could talk
about, and I am sure the hearing would take forever if we did
it. But I would like to have some--if my example is not good,
you might be able to give me a better one.
Mr. Sidak. Well, let me take that in pieces.
Mr. Stearns. Yes.
Mr. Sidak. On the question of a subsidy from the foreign
government, I do think that that is a concern under traditional
competition law principles.
Now, in the United States, we don't have a lot of
experience of companies receiving government subsidies, and by
virtue of that subsidy acting anti-competitively against firms
that don't receive the subsidy. But there is a very developed
body of law in the European community on subsidies. It is part
of the EC Treaty.
Mr. Stearns. But the Singapore is not in the EU.
Mr. Sidak. Well, that may be. Of course, that is true, but
my point is there are principles out----
Mr. Stearns. Just existing Federal Trade Commission and
laws that would apply separate from the agreement, which could
be used by American companies.
Mr. Sidak. Well, under NAFTA, there are provisions right
now. Chapter 11 of NAFTA provides a monetary remedy for an
American company that is harmed if it wants to do business in
Mexico or Canada because the government of Canada or Mexico is
favoring some domestic company through either privileges and
immunities that are granted to that company, or explicit
subsidies.
So to the extent that the trade package with Singapore
would model NAFTA, that would be one way of addressing the
question of subsidies.
Mr. Stearns. Would anyone else like to comment? Sure. Mr.
Harris?
Mr. Harris. I would. A couple of things. First, on your
Singapore example. The FCC, under its current rules, has the
ability to condition the entrance into the United States market
of any foreign carrier on competition grounds. If that
entrance----
Mr. Stearns. Even if we have a bilateral agreement?
Mr. Harris. Under existing rules and under the----
Mr. Stearns. So the President negotiates a trade
promotional agreement----
Mr. Harris. [continuing] it takes into account----
Mr. Stearns. And it trumps it.
Mr. Harris. What it says is under those agreements, current
agreements, including the WTO--and they were crafted
specifically this way--it allows the FCC to impose conditions
to ensure that the entrance into the U.S. market of a foreign
carrier is not anti-competitive.
No. 2, the WTO safeguards themselves contain a ban on cross
subsidization. There is one other issue, though, that you need
to deal with, which is not just the foreign carrier entering
the U.S. market, what about U.S. carriers and the equipment
manufacturers they tend to take with them when they go overseas
that wants to get into the Singapore market?
Without some degree of precision, you are not going to
break open the Singapore market. It is not going to be enough
for Singapore to say, ``Okay. We will be good boys; our market
is open. Now deal with SingTel.'' That won't do it. You need
something more.
I don't think anybody up here disagrees with the
fundamental proposition it is not wise for the U.S. Trade
Representative to impose, you know, CFR, Title 47, on foreign
governments. I don't know what is going on over at USTR today.
That is for other people to speak to. But in the old days at
least, no one thought that was a good idea, and there was no
risk of that.
As I said, the reference paper is three pages long. Hard to
make a case that is exporting the Telecom Act. It is hard to
make a case it is exporting the FCC regulatory regime. What it
was exporting, as it should have been, is U.S. basic principles
on competition.
Mr. Stearns. We are going to give each member 10 minutes,
and I am almost all done.
Ms. Liser, an agreement--a Federal trade--a fast track
agreement with Singapore, would that allow FCC to trump it? In
other words, if we found--the FCC found that there was
uncompetitive behavior, would the FCC be able to step in? Is
that your understanding of what the agreement with Singapore
would allow?
Ms. Liser. Well, I think that, as in all trade agreements,
obviously, where returning to Congress we want to make sure
that you are clear about anything that is in there. And our
goal is, obviously, to have agreements that are acceptable to
you.
Mr. Stearns. Yes. But I am just saying, would the FCC, like
Mr. Harris is saying, would that be able to trump a non-
competitive entry into the United States? Would it be
negotiated that way, so that the FCC could trump the agreement?
Just yes or no. If you don't know, I mean, we can find out.
Does that make sense? Do you understand my question? Would
they be able to condition the entry into our markets? I guess
that is--maybe ``trump'' is not the right word. But would they
be able to condition the entry of this non-competitive group
into our market?
Ms. Liser. I think there are a number of--in terms of, for
example, a carrier that is subsidized in Singapore entering the
U.S. market, we have provisions that address those anti-
competitive issues.
Mr. Stearns. Okay.
Ms. Liser. And so I think that the answer is yes.
Mr. Stearns. Okay. I am going to let my ranking member ask
questions. I would just say that, you know, having seen NAFTA
and how it operated in Florida, a lot of our agriculture
interests were unable to handle the dumping, and a lot of them
went out of business.
And there doesn't seem to be any enforcement if a non-
competitor enters the market and for the U.S. people who are--
must comply with the FCC and the Federal Trade Commission and
everything, what are they to do? And I think that's probably
one of the key elements.
So my--the gentleman from New York.
Mr. Towns. Thank you very much, Mr. Chairman. I can
understand, in terms of your struggling, because it is a very
difficult issue. When I think about 1996 when we did the
Telecommunications Act, I remember in terms of how we had
difficulty because things were moving so fast, and finally we
just said, ``We are going to do it and move on and see what
happens here.'' And that is what occurred.
So I would like to sort of ask the question this way. What
should the Congress do to sort of straighten out this? Let me
start with you, Mr. Sidak.
Mr. Sidak. This gets back to the general principles that
the chairman was talking about.
Mr. Towns. But you mentioned some things before that were
not really in our jurisdiction. You know,it is the President, I
mean, in some instances, but the point is that I would like to
know some specific things you feel that the Congress might be
able to do.
Mr. Sidak. Sure. I think that the reason that the
implementation of the Telecom Act has been so controversial
here, and why it is controversial when we try to encourage
other countries to emulate it, is that it is fundamentally in
conflict with the way we approach competition policy. In
antitrust law, we have a consumer welfare standard. Everything
goes to the question of: will the consumer have lower prices,
more higher quality goods, more innovation, and the like?
But the Telecom Act of 1996, because it focuses so much on
the question of, can a firm enter this market, we have
developed what I would call a competitor welfare orientation at
the FCC, certainly, in its interpretation. The Europeans have
rejected that approach. They have decided that they want to go
back and start over with telecom regulation and make clear that
it should be informed by competition law policies. And then, if
it is determined that particular markets are such that
competition law is not sufficient to regulate them, then
sector-specific regulation will be adopted.
Now, let me give you a specific example of how this plays
out. Right now, the FCC has back on remand from the D.C.
Circuit the question of what the impairment standard means. And
that is the second time the FCC has had this question on
remand. It got it on remand in 1999 when the Supreme Court sent
the case back.
In the past, the FCC has had standards that did not have
any explicit consideration of the effect on consumer welfare of
deciding whether to mandate that a particular unbundled network
element has to be offered to competitors, and the subtext is
``at a regulated price.''
I think that if the FCC simply said, ``Okay. We are going
to use an antitrust-style analysis,'' and ask whether or not it
will harm consumer welfare if this particular element is not
made available at a regulated price, you would get much clearer
answers that would be much more coherent. Part of the problem
with the Telecom Act is that it is such an involved statute
that it is difficult to back up and just reason from first
principles, because you are constantly reconciling different
sections of the statute.
So that would be my first recommendation--focus on giving
the FCC the message that a consumer welfare orientation is what
ought to be reflected in unbundling policies.
Mr. Towns. Thank you very much, Mr. Sidak.
Mr. Harris?
Mr. Harris. I don't know whether or not you all should rip
up the Telecom Act. I don't know whether you all should give
direction to the FCC to rip up its implementation of the Act.
The question, it seems to me today, is: what do you tell these
people at the end of the table who have to try to open foreign
markets? Should they implement French telecom policy? Japanese
telecom policy? Chinese telecom policy? That doesn't sound
right to me.
What sounds right to me is that they ought to be
implementing U.S. policy at the principal level to open foreign
markets. And I am not willing to trust the regulators in the EU
to open their markets to U.S. competitors. I am willing to
trust our government to make sure that happens.
Now, how do they do it in a way that makes sense? And what
is your role in that? When you are drafting these trade
agreements, you have to keep in mind the principle everyone has
pointed out, which is that these agreements can constrain what
you are doing in the future. Not that they are prohibited. U.S.
law trumps a trade agreement. But you may have to pay a price,
and that price is, indeed, a constraint.
So you want to draft the trade agreements so they take into
account not only what the law is today, but what is reasonably
foreseeable. And you can't do better than that. It would be
nice if we were omniscient, but we are not. And the only way
they can know what is reasonably foreseeable is through
oversight from you all, and from working with you all. And that
is the way it was done. And if that isn't happening now, the
process has broken down and you need to fix it. And if it is
happening, then the problem may be not as great as it seems.
Mr. Towns. Let me just make certain I understand that. You
are saying keep the Telecommunications Act. I am sorry. Are you
saying keep the Telecommunications Act?
Mr. Harris. I am not addressing the question at all. I
would have to stop practicing law in Washington if I did.
Mr. Towns. Let me ask you that question.
Mr. Harris. I might as well hand you my bar card.
Mr. Towns. Yes or no.
Mr. Harris. By and large, I think the Telecom Act has gone
in the right direction. A lot of consequences were
unanticipated. Whether or not it has been implemented in
exactly the right way is an entirely different question. But
would I rip up the Telecom Act and start from scratch? Would I
say all we care about is competition law, antitrust law, if you
will? No, I think that would be the next thing to insane.
Mr. Towns. Okay. Thank you very much, Mr. Harris.
Mr. Darby?
Mr. Darby. I would like just to put in two cents worth on
the Act. I think the Act could, in principle, be fine tuned and
put us on a different trajectory. But as a practical matter,
seeing what is required in the Congress to agree on those
principles of fine tuning and that trajectory, I am not, you
know, terribly optimistic. You can agree on that.
I think the FCC has significant discretion and probably
enough discretion to get it right. I believe it got it wrong
the first time, and in large measure for reasons that Mr. Sidak
emphasized, in particular the misinterpretation of the
congressional intent to create competition by creating
competitors and protecting competitors, rather than creating
sustainable competitive processes where competitors could grow
in a healthy fashion.
And we basically are now reaping, it seems to me, the
harvest of trying to create a group of competitors and to prop
them up. And the market simply will not sustain, you know,
dozens of competitors in major cities. And I think this
Commission is undergoing a review of those policies, and
certainly has the discretion under the law, you know, to change
that. And I am hopeful they will.
If they don't, it seems to me--and we continue the path
that was created in 1996 and 1997, it seems to me there is a
clear case for congressional--reintroduction of congressional
authority there.
Mr. Towns. All right. Let me thank you for that.
Let me just ask--a comment was made by Mr. Sidak--is it
Liser?
Ms. Liser. Liser. That is correct.
Mr. Towns. Liser. Thank you. Which, you know, it sort of
hit me. I think you said something to the effect that the USTR
procedures, you know, are so secret. I mean, you know, what is
your response to that? I mean, I think that is what he said.
Ms. Liser. Well, I mean, obviously, we believe that we have
a process that is very open, and we have a lot of procedures in
place. We know, for example, that there was a Federal Register
notice that was put out about the Singapore FTA negotiations
back in I believe it was November or December of 2000, seeking
the views of industry and others who may have had views about
it.
And we believe that we have sat down with an incredible
number of industry interests on all sides of the issue in a
very open fashion, anyone who has wanted to meet. We have gone
through the--what is sort of the cleared advisor's process, so
we have advisors who tell us and give us their views on what we
should and shouldn't do. And so we believe that we have
consulted fully, and we have not had a process that is
secretive. I am fairly certain of that.
Mr. Towns. So you actually feel that you have consulted
with the telecommunications folks throughout and gave them----
Ms. Liser. Oh, absolutely.
Mr. Towns. [continuing] an opportunity to----
Ms. Liser. There is no question. There are probably any
number of people in the room right now who could stand up and
tell you about many numerous meetings that they have had with
us as we have gone forward.
And let me just say this much. As we continue to move
forward, we are very open to working with you, other Members of
Congress, the COG, and to continue to work with industry to
fine tune the text as we move forward.
Mr. Towns. All right. Let me ask I guess any of you this I
guess. What would happen if the United States telecom laws or
regulations were substantially modified after a specific trade
agreement was entered into? You know, how would, you know,
results and inconsistencies between U.S. law and its trade
commitments be resolved from a legal standpoint? Or would
binding specific provisions in the agreement tie the hands of
the United States policymakers, the FCC, and everybody else?
I mean, I would like to get a response to that. Do I have
time for that, Mr. Chairman?
Mr. Stearns. Sure.
Mr. Towns. Yes, okay.
Mr. Harris. Let me answer that question a couple of ways.
Let us assume for the sake of argument a clear inconsistency
between U.S. law and its international obligations. It is
beyond question, can't be argued the other way, it just is. In
that case, U.S. telecommunications law determines what happens
in the United States, full stop.
Now, a foreign government can file a trade case against the
United States and perhaps win a penalty against the United
States through the World Trade Organization to compensate it
for our violation through our new law of its--our international
obligations.
Having said that, again, talking about the telecom sector
now, and talking about the agreements I have seen so far--and I
have not been working on the Singapore agreement or the other
one you are all talking about today--those obligations, in my
view, while specific enough to allow us to be pushing to open
foreign markets, are also flexible enough that I haven't heard
about any changes in our laws that it would occur to me would
violate our WTO obligations today.
There is nothing that I know the FCC to be discussing now,
or this Congress to be discussing now, that would, if
implemented, put us in violation of our WTO obligations.
And by the way, that is not an accident. When those things
were drafted, when those things were negotiated, no one assumed
our law or our regulations would be inflexible. We all knew
change was coming at some point, and so folks tried to draft
the language so that one could fairly argue that wherever we
went it would be okay.
We knew we weren't going to monopolize our markets. We knew
we weren't going to have State-owned telephone companies. We
knew we weren't going to do any of the things that were common
around the world. And so the regime that was crafted was to
change that, and I think we have done a hell of a good job
doing it, if you want to know the truth.
Mr. Sidak. I have a slightly different take on that
question. I think that whether or not U.S. law would be trumped
by the agreement would depend on what Congress does after the
agreement has been negotiated. If the Senate ratifies it by
two-thirds, there is a--I am sure there is an answer to that
legal question. I have never looked into it, but whether a
statute is trumped by the treaty or the treaty is trumped by
the statute, there has got to be an answer to that.
If it is some--if the treaty is somehow approved by
bicameral action of Congress that is sent to the President,
then I think you might have a different answer, because then if
there is a--if there is the clear inconsistency that Mr. Harris
was hypothesizing, then I think you may actually have one of
the rarer cases where there has been a repeal by implication,
that the subsequent statute repeals the earlier one to the
contrary.
And if there isn't any explicit congressional action after
the treaty has been negotiated, if it is just done by some kind
of executive order, you might get a different answer, and I am
not sure what the answer to that is.
Mr. Towns. I was thinking suppose there is a change in the
FCC law. What would happen if there is a change in the FCC law?
Mr. Harris. Do you mean if the FCC changed its regulation
subsequent----
Mr. Towns. Right, yes.
Mr. Harris. [continuing] to----
Mr. Towns. Yes.
Mr. Harris. [continuing] and those regulations were clearly
inconsistent with the trade agreement?
Mr. Towns. Right.
Mr. Harris. The FCC regulations would determine what
happens in the United States market again. If they violated our
international obligations, the U.S. could be hauled before the
WTO--again, if it is a WTO obligation, or whatever is set up in
an individual bilateral agreement, it could have to pay
compensation. But if after the fact U.S. law changes and U.S.
implementation of law changes by the FCC, that governs.
Ms. Liser. U.S. law is never trumped by a trade agreement.
It is never trumped by a trade agreement. It could be that, as
Mr. Harris was saying, at some point if there was an
inconsistency you would have to address it. But it is never
trumped by a trade agreement.
And if I could just--on the point of FCC regulation
changing, for example, right now the FCC is considering how to
define or classify broadband services as to whether or not it
is telecommunication services or information services. And
basically, the trade agreements that we are talking about or
the provisions we are looking at would not constrain them in
terms of how they do that.
Mr. Towns. Right. Mr. Waverman?
Mr. Waverman. Yes, sir.
Mr. Towns. Could you hear that?
Mr. Waverman. I did.
Mr. Towns. Could you respond to that as well, please?
Mr. Waverman. Well, I mean, I think legally--I am not a
lawyer, so I will bow to the lawyers.
Mr. Towns. We really want to hear your answer.
Mr. Waverman. But, I mean, but let us look at the actual
process that would occur. All right? That is, the threat of
being taken before the WTO I am sure would constrain future
policymakers in the U.S. from changing things. I mean, it is--
you know, as a foreigner, to hear, you know, people in the room
saying, ``Well, no matter what we do in trade agreements, sure,
we can be taken before the WTO and fined, but it really doesn't
matter because we can change our domestic law in the future.''
I am sure there is--I know this is being webcast, so you
may get some questions tomorrow on that. But, certainly, I
think it is really legalistic to say that that does not
constrain U.S. policy, because obviously the agreement and the
threats of sanctions will force people to think about how you
change the law and whether you should.
Mr. Towns. Thank you very much, Mr. Waverman.
Thank you very much, Mr. Chairman. You have been very
generous.
Mr. Stearns. Thank you.
Mr. Shimkus?
Mr. Shimkus. Thank you, Mr. Chairman.
And maybe I can get my colleague's help. What is the
corporate tax law that we keep having to rewrite because it is
not in compliance with the WTO? Do you know what that is?
Mr. Stearns. Well, let us see. The corporate tax, it must
be a foreign services tax that----
Ms. Liser. This is the FISC issue.
Mr. Stearns. FISC that applies.
Mr. Shimkus. So it is not correct to say that our laws are,
I don't know how you put it, Ms. Liser--that our laws would
never be overturned by Federal--I mean, the WTO.
Mr. Towns. Would never be trumped.
Mr. Shimkus. Would never be trumped. Isn't that correct?
Our laws are trumped when we go into----
Ms. Liser. I think in this particular case we made a choice
to change our law, and basically as we----
Mr. Shimkus. Because WTO would come in and say we are not
in compliance, and then their rulings and tariffs and all that
other stuff would roll in. And the threat of retaliation based
upon a WTO agreement and asked for us to change--is forcing us
to change the law.
Ms. Liser. I think that that is true to some extent, but I
think that the value that you have--again, this balance that we
are trying to strike, you have the U.S. laws. Much of what we
are doing in our trade agreements in the WTO are consistent
with our laws as they stand.
Mr. Shimkus. But this is an example where the WTO has
forced us to change our laws. I mean, we debate it all the
time. We have to bring it up on the floor. And so I just wanted
to clarify that, because trade is a great debate. I am a
trader. I think it creates jobs, it creates wealth, and it--but
we have to go through a lot of gyrations to get there.
In your testimony, Ms.--is it Liser? I am sorry. I was----
Ms. Liser. That is okay. It is Liser.
Mr. Shimkus. Liser. I was fighting prescription drugs
downstairs, so I ran up here. You mentioned that our telecom
market is one of the most open in the world. And, of course, in
the world trade debate, we do have a very open market. So when
we went through trade negotiations, we tried to get lower
tariffs so that we can get our goods into foreign countries.
And the argument is they can get here, but we can't get there.
So if our market is one of the most open in the world,
whose telecom markets are more or as equally open as the United
States, or more open than the United States?
Ms. Liser. You are asking as we go forward in terms of----
Mr. Shimkus. No, right now, even before we go into the
negotiations. Is there any markets that are more open than our
market today? Is there any place we can go right now without a
trade agreement that has as open a market as the United States?
Ms. Liser. We think that by virtue of having the trade
agreements that we have in place that there are a number of
countries around the world where we have addressed a lot of the
market access issues that existed prior to those trade
agreements. So in terms of what we did on the NAFTA, we have
created more open markets in Canada and Mexico. By virtue of
the WTO reference paper, we have pushed the envelope and those
60 or 70 countries that signed on to it now are more open
markets than they had been previously.
So the environment is one that we are continuously pushing
to be more open. We think that what we are doing in Singapore
and Chile will take that a step further.
Mr. Shimkus. But right now, we have probably the most open
market----
Ms. Liser. We do.
Mr. Shimkus. [continuing] for this industry.
Ms. Liser. I would say we do.
Mr. Shimkus. So the argument for trade is to make more
competitive markets overseas for our products.
Ms. Liser. Right. To create a more competitive environment,
not only for our telecom service providers but for all of those
who depend on those--on effective and efficient
telecommunications services in doing their own business.
Mr. Shimkus. What does ``cost-oriented rates'' mean?
Ms. Liser. Well, I think that cost-oriented is the
provision of certain elements of the network at prices that we
consider to be competitive. And we, though, are leaving the
actual methodology for how Singapore or Chile calculates cost-
oriented up to the authorities there, as we are still able to
do here.
Mr. Shimkus. Does that make it difficult to evaluate market
entry opportunities by not being able to understand how you
calculate cost-oriented rates?
Ms. Liser. Here again, you know, we want to have it so that
cost-oriented is a basic principle. But at the same time, we
want to provide essential flexibility to the authorities in
those markets where they know how the market works, they know
how telecom services have evolved in those markets, to
determine what is the best methodology for calculating what is,
in fact, cost-oriented.
Mr. Shimkus. For commodities and for manufacturers, because
we actually look at--you know, tariffs are really the defining
issue, I think, and maybe it is because I am simplistic. Is
tariffs in the communication realm? Is that the holy grail to
reduce tariffs? Or what other factors could be in there that
may--could make this competitive?
Ms. Liser. Well, we think pricing, obviously, is an
important issue. But often what we find as a barrier is whether
or not companies that want to do resale actually have access to
the facilities of the incumbent and whether or not they can get
those and provide them again to their customers. So often what
we are dealing with is not just the pricing issue but the
access issues as well.
Mr. Shimkus. And if I may, chairman, my last question--I
wanted to ask Mr.--is it Sidak?
Mr. Sidak. Sidak.
Mr. Shimkus. The cost-oriented question also.
Mr. Sidak. Well, this is a question that takes 6\1/2\ years
to answer. I don't think we have that much time.
It is too late now.
Mr. Shimkus. That is right.
Mr. Sidak. No. That is the question that the Supreme Court
decided in the Verizon case this year, and it literally has
been debated since August 8--well, even before August 8, 1996.
So I think that it is very hard to get agreement on that. I
mean, I have my own views about what a cost-oriented rate
means, but somebody else will disagree with me.
Mr. Shimkus. It looks like I pushed a hot button here, Mr.
Chairman.
Mr. Harris, you would like to respond?
Mr. Harris. Yes. The current WTO reference paper includes
the obligation for cost-oriented interconnection. At the time,
cost-oriented meant the foreigners couldn't make it up to keep
U.S. companies out of their markets. It didn't mean a lot more
than that.
At the time that language was adopted, the FCC hadn't even
begun to address the question what U.S. law meant on a phrase
similar to that. And that is precisely how it was drafted. We
chose a provision that would allow the FCC the flexibility--
right or wrong, because this was trade, this was not domestic
policy--to fill in the blanks. It allows foreign regulators to
do the same thing, and it doesn't have to be what the FCC does.
By using the phrase, though, it gives our trade negotiators
the ability to go to Mexico and say, ``Define cost-oriented
however you like, but this number is made up. This number is
designed to keep TelMex a monopoly and not to let U.S. carriers
compete.'' And that is what you--if you do that kind of thing,
you give your negotiators something to argue from, you create a
base point but give yourself flexibility, then you have
accomplished something in the trade agreement.
And what the Supreme Court says about cost-oriented in the
United States doesn't really matter. It matters for domestic
policy. It does not matter for what we say in Mexico, in
France, Japan, or what have you.
Mr. Shimkus. Mr. Darby?
Mr. Darby. There is good news and bad news in sort of
requiring cost-oriented rates. The good news I think is what
Scott said is that it takes out sort of blatant discrimination
and monopoly gouging, and so forth. Okay. And it gives the
trade negotiators, you know, some pre, some pri, on which they
can lean.
The bad news is--and I think this is what Mr. Sidak is
saying--is that, you know, we economists have been debating
that for 30 years, on what is the appropriate cost standard, I
mean, going all the way back to when MCI came in and threatened
AT&T, the issue then was, what is the appropriate cost standard
for these rates?
And we are still debating that, and I suspect we will
continue to debate it. So as you tend to narrow, you know, in
very fine terms, you are going to find a substantial amount of
disagreement on the precise cost measure or the precise rate.
All the while you will find a substantial amount of agreement
on the fact that it is better to have cost-based rates than
having them willy nilly, monopoly based, and discriminatory to
gouge somebody.
Mr. Shimkus. Right. And I will end with this. I want to
thank you, because we always hear the moniker ``free and fair
trade.'' It seems like fairness is debating this cost-based
issue. What is the fair cost-based analysis? And open and clear
disclosure shine the line on day, and how we do this really is
antiseptic and--but we don't get that a lot of times.
And if we keep it vague, I am afraid that we will continue
to fight the same debates we fight in other trade deals, that
it is not fair because we have this vague cost-based issue
which is being--protecting an incumbent and not allowing market
access. So I would respectfully hope that we look at how we do
this. I know it is a difficult thing to do.
Thank you, Mr. Chairman. I yield back.
Mr. Stearns. I thank you.
Mr. Rush, we welcome your questions.
Mr. Rush. Thank you, Mr. Chairman. Mr. Chairman, I have a
question for Ms. Liser.
Ms. Liser. It is Liser. That is fine.
Mr. Rush. Liser. I am sorry.
Ms. Liser. That is okay.
Mr. Rush. Ms. Liser, the Telecommunications Act of 1996
generally requires that incumbent telephone companies lease
certain elements of their networks on an unbundled basis,
provided that it is technically feasible to do so. However, the
Congress specifically limited the unbundling requirement to
those network elements that meet a certain standard, the so-
called necessary and impair standard.
And my understanding is that the current Singapore text
requires unbundling of elements at ``any technically feasible
point'' in the network, without regard to the necessary and
impair standard currently established in U.S. law. Is that
correct?
Ms. Liser. No, that actually isn't correct.
Mr. Rush. It is not.
Ms. Liser. It is not at any technically feasible point. And
in addition, one of the things that is most important--and I
might have mentioned it before, but I think it is worth
emphasizing again--is that we have drafted a provision that
also says that it is subject to the discretion of the
regulatory authorities of each party as to which elements are
unbundled and who has access to those unbundled elements.
So it is totally at the discretion of Singapore as well as
the U.S. in determining what gets unbundled and who gets it.
And we think that that is key as an element in terms of the
flexibility that we have drafted into the agreement.
Mr. Rush. So is there an understanding, though, between the
two parties--the U.S. and Singapore--in terms of all
unbundling? I am saying if there is--my point is, if there is
more networks, elements that will be unbundled in one sector
than another sector, is there--is there a process to work that
out, to make sure that is even and balanced between----
Ms. Liser. I think that the basic principle of unbundling
is there. It is something that we already have in our own law
here. It is in the WTO, and it is something that we certainly
would want to see Singapore abide to. In fact, they are already
committed to the WTO principle of bundling and providing at
cost-oriented rates.
But the point is that we wanted to make sure, given sort of
the debate that we see happening here, that there was a certain
amount of flexibility. And we don't know that it will be the
same elements that will be unbundled. In fact, that is really
not the key for us. It is a matter of making sure that, as a
general principle, SingTel will be required to provide
unbundled elements.
Mr. Rush. Mr. Chairman, I have no further questions.
Mr. Stearns. All right.
Mr. Rush. Thank you so much. I yield back.
Mr. Stearns. Any additional questions? Let me just close.
Ms. Liser, let me ask you, can you tell us, will the FTA, the
Singapore FTA, serve sort of as a template for other bilateral
agreements? Or is this just one of a kind? And how about
multilateral agreements?
Ms. Liser. Well, I think that is obviously an important
question a lot of people are asking us, and I think that we
want to assure folks that Singapore is a particular market. It
has evolved in a particular way. Chile is the same way. In this
particular FTA, the Singapore one as well as the Chile, we are
definitely trying to respond to specific issues that we have
seen and specific market access issues that our companies have
raised with us.
So we will not be taking them wholesale and applying them
to any other agreements. The basic principles that we have
there are principles that we are building on from the WTO and
which we are already ourselves committed to. But in terms of
the specifics, which I think is the major issue that people are
concerned about, no, we will not be exporting those wholesale.
Mr. Stearns. So you are saying, no, this will not be a
template for either bilateral or multilateral agreement.
Ms. Liser. That is correct.
Mr. Stearns. Okay. You know, Singapore is a city-state, I
don't know, of about 6 million people. And I understand, for
example, in the area of third generation telephone services
they have a spectrum moratorium, and there is only two
companies. And, obviously, if those two companies came to the
United States, the question is--and they bid for the spectrum
with our competitors, our companies here in the United States--
that is going to be interesting, how to work that out so that
they would be competing and what would be a fair, level playing
field for them. I guess----
Ms. Liser. Right.
Mr. Stearns. [continuing] my final question is what--I am
trying to be specific in this hearing, and that is the
difficulty here. What would you do to address the perceived--
the unbalance between maybe these companies in Singapore that
the government has put a moratorium and there is just two, and
then they come in here to compete, a third generation, how
would you address that?
Ms. Liser. I think that that is one of the areas where we
are looking at in terms of the standards that are being used
and trying to make sure that they are obligated to provide as
much choice as possible in terms of the standards that are----
Mr. Stearns. ``They'' being whom?
Ms. Liser. On the Singapore side. That they are committed
to providing as much choice as is possible with regard to the
selection of the standards that would be used for wireless
telecommunications systems.
Mr. Stearns. Well, to conclude, Mr. Waverman, we will let
you have the last word from London, if there is anything you
would like to add.
Mr. Waverman. Let me just add in the issues of things like
subsidies, we shouldn't lose sight of the fact that in general
trade agreements there are subsidies across multiple sectors
potentially, and that we do have subsidy and countervail as
part of agreements, and that I think we should not get too
specific in a sector like telecom and try to handle every
potential issue, because think of the thousands of sectors of
the economy. If each of them acted like a detailed examination
of that sector, the trade agreements would be billions of pages
long.
So I think we should try to look at the specific issues of
telecoms that are unique to telecom and leave some of the more
general issues to what the trade agreement does overall.
Mr. Stearns. All right. I thank you, and thank you for
joining us from London. I want to thank our witnesses and also
for your patience while we left to vote. And we will need to
keep the record open for additional questions that might occur.
And with that, the subcommittee is adjourned.
[Whereupon, at 12:04 p.m., the subcommittee was adjourned.]
[Additional material submitted for the record follows:]
Prepared Statement of Donald Abelson, Chief, International Bureau,
Federal Communications Commission
Thank you for the opportunity to discuss issues that have been
raised regarding the interaction between domestic telecommunications
policy and U.S. trade policy.
role of the fcc with respect to telecommunications trade policy
The Federal Communications Commission's (FCC or Commission) charge
as mandated by Congress is to implement the Communications Act.
Consistent with the Act's purpose of providing all people of the United
States world-wide communication service at reasonable charges, 47
U.S.C. sec. 151, the Commission's work around international
telecommunications is extensive and multi-faceted. For example, we seek
to serve the public interest by developing policies that foster U.S.
consumer access to a wide range of international telecommunications
services at reasonable prices. Encouraging adoption of pro-competitive
regulatory practices in foreign countries is an important element of
these policies. The FCC works in many ways to encourage the development
of pro-competitive policy in foreign markets. Our own rules for
international calling policies, our dialogues with foreign regulators,
and our provision of technical expertise to Executive Branch agencies
such as the Department of State, the Department of Commerce, and the
U.S Trade Representative (USTR) all serve this purpose.
Because our mandate is solely to implement the Communications Act,
the Commission's work only intersects with telecommunications trade
policy in a very narrow way: We do not develop or implement trade
policy; we do, however, provide technical advice to U.S. trade
officials regarding domestic statutory and regulatory policy. In this
regard, one of the functions of the Commission's International Bureau
is to ``provide advice and technical assistance to U.S. trade officials
in the negotiation and implementation of telecommunications trade
agreements, and consult with other bureaus and offices as
appropriate.'' 47 C.F.R. sec. 0.51(h). Pursuant to this charge, upon
request, we provide technical advice about existing communications law
and regulations.
By law, USTR sets trade policy through an Executive Branch
interagency mechanism; as an independent federal regulatory agency, the
FCC is not included in that mechanism. The trade policy mechanism
includes the staff-level Trade Policy Subcommittee (TPSC) and the high-
level Trade Policy Review Group (TPRG), which are comprised of
representatives from various Executive Branch agencies. The Departments
of Commerce and State, both of which are included in the mechanism,
speak respectively to domestic and international telecommunications
policy, rather than the FCC. Indeed, the Commission's rules for
licensing foreign carriers make clear that it accords deference to the
Executive Branch on matters of trade policy (as well as national
security, foreign policy, and law enforcement).
USTR is in the process of negotiating bilateral Free Trade
Agreements (FTAs) with Singapore and Chile. These agreements are
expected to include chapters on telecommunications. USTR has sought
technical advice from the Commission with respect to whether USTR's
proposals would be consistent with current law, i.e., the
Communications Act and our implementing regulations. This is the same
type of technical advice about the nature and extent of communications
law and our regulations that FCC staff has provided for other
telecommunications trade agreements (such as the Telecoms Annex to the
WTO Services Agreement, the North America Free Trade Agreement, and the
WTO Basic Telecom Agreement). The FCC does not decide what will be in
an agreement and what will be excluded. Nor is USTR under any
obligation to follow the technical advice provided by the FCC. Thus,
decisions about telecommunications trade policy goals and specific
proposals to achieve these goals rest with USTR and with the other
Executive Branch agencies.
fcc technical expertise
In the case of the Singapore and Chile FTAs, USTR has requested two
types of technical advice: First, the USTR General Counsel requested
numerous federal agencies to assist in the identification of areas to
be reviewed for possible conflicts with general trade principles of
market access and most favored nation treatment. Agencies were asked to
identify provisions in existing law or regulations for which USTR would
decide whether it should propose ``reservations'' that would carve out
such areas from the trade obligations.
Second, USTR staff has been consulting with FCC staff about the
USTR proposals for the telecommunications chapters. These consultations
ensure that the USTR does not unintentionally ``over commit'' by
seeking obligations in FTAs that, when applied in the United States,
would establish obligations that go beyond existing law.
conclusion
The Commission has consistently supported enhancing the competitive
prospects of U.S. carriers abroad through its promotion of pro-
competitive regulatory practices. Commission policies recognize that an
efficient and cost-effective global telecommunications marketplace is
essential to a global information economy and will serve the public
interest and benefit consumers. As noted at the outset of these
comments, the FCC has actively engaged in efforts to promote
competition in the global market for telecommunications services.
The decision about which specific market-opening objectives should
be reflected in trade agreements is a matter of trade policy that falls
within the authority and expertise of U.S. trade officials. Thus, the
Executive Branch decides what level of specificity is necessary to
achieve trade objectives. The Commission's objective is that any
proposals contemplated by USTR be informed by the FCC's technical
expertise regarding existing domestic law and policy. If USTR elects to
pursue detailed agreements, it should seek policy guidance from
Executive Branch agencies including those with technical expertise such
as the Department of Commerce (as well as from the FCC) to ensure USTR
is fully informed about the relationship between the detailed proposals
and existing law.
The Commission's role has been to make clear what domestic
obligations are contained respectively in the Communications Act and in
the Commission's rules. Congress in its judgment and expertise has the
authority to adopt changes in domestic telecommunications law. To the
extent that Congress approves any changes in the Communications Act,
the Commission will continue to implement faithfully our governing
statute.
Thank you again for the opportunity to present views on the
relationship between trade policy and domestic telecommunications
policy. We are, of course, available to provide the Subcommittee with
any additional information it may deem useful in addressing these
complex issues.