Elisabetta Righini Issue: Latin America I 1999
Article no.: 2
Topic: Telecommunications Markets’ Liberalisation:A ‘Binding’ Reality
Author: Elisabetta Righini
Title: Lawyer
Organisation: World Trade Group of Clifford Chance, UK
PDF size: 36KB

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Article abstract

The first anniversary of the World Trade Organisation Basic Telecommunications Agreement marked the start of the full internationalisation of the liberalisation process in the area of basic telecommunications services. The Agreement is a fully binding and internationally enforceable commitment granting market access and national treatment. It is the result of 50 years and 7 rounds of trade negotiations under the GATT. The process of negotiations is therefore expected to continue to tackle remaining barriers.


Full Article

On 5 February 1999, the World Trade Organisation (WTO) celebrated the first anniversary of the Basic Telecommunications Agreement (BTA). Its entry into force a year ago, marked the start of the full internationalisation of the liberalisation process in the area of basic telecommunications services. The experience drawn from three years of negotiation of the BTA at the national level in Canada, US and the Scandinavian countries in particular, was transferred to the international scene and matched with the needs of countries aiming to open up their markets. The result of these efforts are a number of fully binding and internationally enforceable commitments granting market access and national treatment undertaken by 75 WTO Members. Their total market share is approximately 93% of the global telecommunications revenue which amounts to an annual sum of US$600 billion. The General Agreement on Trade in Services Government regulations affecting trade in telecommunications services in particular, are subject to the General Agreement on Trade in Services (GATS). The GATS is the framework agreement which rules apply to all measures taken by Members of the WTO. It will affect all trade in services conducted by both ‘central regional or local governments and authorities’, as well as ‘non-government bodies in the exercise of powers delegated by central, regional or local governments or authorities’. Its provisions can be divided into general obligations that apply to all services sectors, and specific obligations for which WTO Members can enter commitments in particular sectors. The Most Favoured Nation (MFN) obligation contained in Article II is the most important of the general obligations. Under the MFN, each Member must grant services and service suppliers of any another WTO Member ‘treatment no less favourable than that it accords to like services and service suppliers of any other country’. MFN treatment must be accorded immediately and unconditionally. No WTO Member may therefore grant preferential (or impose discriminatory) terms of access to telecommunications services or service suppliers from a particular country or group of countries. Article II.2 allows a Member to maintain a measure inconsistent with its MFN obligation if ‘such measure is listed in and meets the conditions of the Annex on Article II Exemptions’. It was necessary to include ‘exemptions’ in the WTO Agreement when it came into force. During the negotiations on basic telecommunications, only nine Member countries listed exceptions in basic telecommunications, which primarily related to differential accounting rates. Accounting rates are in any event not covered in the GATS. However, the US and Brazil listed ‘exceptions’ relating to the protection of specific services, such as satellite telecommunications. Due to the prevalence of monopolies in the basic telecommunications sector and the subsequent introduction of liberalisation and the frequent presence of service suppliers with dominant market positions, particular attention should be given to the GATS general obligations on monopolies and restrictive business practices. On the basis of these norms, each Member in his own territory, must ensure that any monopoly supplier of a service acts in a manner consistent with that Member’s MFN obligation and specific commitments. Each Member must also ensure that the supplier does not abuse its dominant position entering the territory which is outside the scope of its monopoly rights. The WTO Council for Trade in Services can request information concerning the operation of the monopolies. The Council must also be notified of any rights granted to a monopoly in an area where specific commitments have been entered. Each Member is also required to enter into consultations, if the same has been requested by another Member, in order to secure the elimination of business practices restraining competition. Specific Commitment Annexed to the GATS are the ‘Schedules of Specific Commitments’ which contain the market access, national treatment, and additional commitments undertaken by each WTO Member in each service sector. These commitments only apply to service sectors or sub-sectors specifically listed by a Member, and to the extent that limitations have not been extended. In this context, market access can be defined as the right of a service supplier to enter a host-country market in whatever form it chooses, without being subject to basic numerical limitations imposed by government regulation. This implies that for each country Member of the WTO, a positive obligation according to ‘services and service suppliers of any other Member treatment no less favourable than that provided for under the terms, limitations and conditions agreed and specified in its Schedule’; and a negative obligation not to impose quantitative restrictions on services transactions and performance requirements such as, hiring controls, local equity requirements and restrictions on foreign ownership other than those specifically listed in its Schedule. The national treatment clause requires each WTO Member (unless otherwise provided in its Schedule) to accord to ‘services and service suppliers of any other Member … treatment no less favourable than that it accords to its own services and services suppliers’. According to paragraph 2 and 3 of Article XVII, Member countries may meet this requirement by according both ‘formally identical treatment’ and ‘formally different treatment’, the limit being that ‘conditions of competition’ are not modified in favour of services and services suppliers of the Members’ jurisdiction. At the end of the Uruguay Round, the number and level of commitments tabled by governments in basic telecommunications services under the GATS were unsatisfactory. Negotiators wanted to ensure that a sufficiently high proportion of world telecommunications trade would be liberalised at the same time, and that non-signatories (free-riders), automatically benefiting from the commitments under the MFN principle, would not be significant enough in market terms to upset the commercial balance of the agreement. Broad and Open-Ended Definition of Basic Telecommunications A decision to extend the negotiations beyond the end of the round was thus adopted and a Negotiating Group on basic telecommunications was set up as a subsidiary body of the Council for Trade in Services. The new negotiations began in May 1994, with the participation of only 33 WTO Member governments, and were finally and successfully concluded on 15th February 1997. By then, 69 governments had committed themselves to issues relating to market access and national treatment: all the world’s industrialised countries, over 40 developing countries and six of the Central and Eastern European economies in transition. The negotiations relied on a very broad and open-ended definition of basic telecommunications. The commitments thus cover any basic telecommunication transport network and services, both public and private. Furthermore they cover not only cross-border supply of telecommunications but also services provided through the establishment of foreign companies (commercial presence), including the ability to own and operate independent infrastructure. Examples of services covered are voice telephony, packet-switched data transmission, circuit-switched data transmission, telex, telegraph, facsimile and private leased circuits. Other services such as analogue/digital cellular/mobile telephones, mobile data, paging, personal communications, satellite-based mobile services, fixed satellite services, Very Small Aperture Terminal (VSAT), gateway earth-stations, teleconferencing, video transport and trunked radio system services are also covered in these commitments. Reference Paper Additional commitments in the basic telecommunications sector were also drafted during the BTA negotiations in response to a concern about the establishment of a regulatory environment conducive to market entry. These commitments are contained in the Reference Paper and include regulatory principles covering matters such as a number of safeguards relating to competition, interconnection guarantees, transparent licensing processes, universal service and the independence of regulators. The commitments of the participants were annexed to the Fourth Protocol of the GATS to constitute what is commonly defined as the BTA. The BTA entered into force on 5th February 1998 and since then, two countries, Switzerland and Pakistan, have ‘strengthened’ their commitments, while six additional countries (Barbados, Cyprus, Latvia, the Kyrgyz Republic, Suriname and Uganda) have made commitments to ‘open’ their telecommunications markets. At present, 68 of the 75 governments submitting schedules have also included commitments on regulatory disciplines, with 62 of these committing to the Reference Paper in whole or with a few modifications. The Annex on Telecommunications Another WTO instrument that establishes rules on telecommunications is the Annex on Telecommunications. It was drafted during the Uruguay Round in order to accommodate the specificity of the service sector, the Annex consists of seven sections, although its obligations concern ‘measures affecting access to and use of public telecommunications transport network and services’. Telecommunications is both a service in its own right and the basis for the provision of services in other sectors. In light of this, the Annex requires each Member to ensure that all service suppliers seeking to take advantage of scheduled commitments in other service sectors (tourism, air transport, financial services, etc.) are accorded access to and use of public basic telecommunications on a reasonable and non-discriminatory basis. This obligation covers access to leased line, connection of terminal equipment, interconnection between private leased circuits and the use of operating protocols (service supplier’s are free to choose operating protocols in the supply of any service). Financial institutions as well as value-added service suppliers can gain access to basic telecommunications regardless of whether the Member in question has entered a commitment to liberalise basic telecommunications. Yet, the Annex does not imply that Members have to license service suppliers in order to install an infrastructure in their territory outside the scope of any commitments they may have entered into. Nor that they have to establish infrastructure to support the provision of services not offered to the public in general. Assessment Overall, the WTO architecture which regulate basic telecommunications services appears very complex and have been frequently criticised for being ineffective in the sense that very little liberalisation has occurred. In fact, Members only tend to inscribe in their schedules, commitments corresponding to the existing situation a in their countries. Changes in existing legislation have in many cases not occurred. Even worse, critics would say that, in a number of Schedules commitments for particular services have been phased-in, i..e. not to be undertaken before a future date. This means that, while the Schedule is in force, the actual implementation date for the commitment will be on the date specified in the Schedule. For example, a binding commitment to unlimited market access in telecommunications services could be made immediately, but not become effective before the date of the termination of a licence held by a monopoly operator. If all of this holds true, why then has the BTA received praise and how and to what extent is it really able to influence the liberalisation of basic telecommunications services? The first point to note is that, even if the level of liberalisation bound in the Schedules may only mirror what has already been reached at a national level, it is the first time that telecommunications services are regulated at an international, and a multilateral level. Furthermore, it is the first time that commitments to grant market access and national treatment to foreign providers and the enforcement of regulatory principles have been included in international legal obligations, enforceable through binding dispute settlement at the WTO. In the WTO’s first fours years of operation, over 160 disputes have been initiated, some 42 dispute settlement panels established, and 19 cases completed through the 2 levels of review. Yet, none of these concerned telecommunications services. Nonetheless, this represents a strong guarantee to the maintenance of the level of market openness already in place. Recently, the European Union (EU) has warned Japan that its planned measures on interconnection charges and the rights to lay underground cable appear to contravene its WTO commitments. If Japan does not change these measures before their enactment, the EU will be in the position to start dispute settlement proceedings at the WTO. At present, private entities have no direct access to the WTO, and thus, for example, an EU telecommunications supplier would not be able to bring a direct claim against Japan on the subject of interconnection. However, many countries have already introduced in their legal system a mechanism whereby private parties can petition them to act before the WTO. Equally binding are phased in commitments. They represent a guarantee that, at the given date, they will have to be enforced. This sends a clear signal to potential investors determining the direction and the pace of the liberalisation process. Moreover, it is our experience after the first year of operation that governments use the obligations of the GATS and the principle of the Reference Paper as a guide and a model for their telecommunications reforms. The Reference Paper, due to its neutrality, pragmatism and flexibility, is becoming a blueprint for telecommunications regulation around the world. Conclusion The WTO Agreement itself is the result of 50 years and 7 rounds of trade negotiations under the GATT. It is necessary to re-negotiate regulations in all service sectors, including telecommunications services, and they must begin by the year 2000. Thus, in a year’s time there will be a second chance to tackle remaining barriers.