Union rebuffs US phone deal

Date: 14/03/1996

By Fiona McHugh

NEGOTIATORS in the World Trade Organisation telecoms liberalisation talks have launched a final push to wrap up a global deal by the end of April but, despite the recent narrowing of differences, agreement still remains out of reach.

The latest version of the American offer, unveiled last week amid much fanfare and positive press coverage, would grant unrestricted access to local US phone services as well as long-distance and international traffic.

Jeffrey Lang, the US chief negotiator, trumpeted the package as the best deal available, saying that, when it came to opening telephone markets, America, unfortunately, knew no rivals.

He said the offer testified to his country's commitment to roll back existing restrictions on competition at the local level in line with new laws liberalising the domestic telecoms sector signed by President Bill Clinton earlier this month.

But, while American officials congratulated themselves, EU negotiators poured cold water on their enthusiasm, insisting that beneath the offer's inviting surface lay a number of potentially fatal booby-traps.

“Yes, yes, I suppose you could say it is a good offer, but you could also say that it is far from perfect,” said one of the Union's senior negotiators. “There are a number of crucial barriers to phone trade still standing.”

Top of the list of European grievances is the deal's failure to dismantle existing restrictions on entry into the US. While foreign operators would be free to provide phone services and build infrastructure throughout the US, they would not be allowed to operate across the Atlantic on their own.

Control of satellite communications would remain firmly in American hands and the laying of underwater phone wires by foreigners would be strictly forbidden.

What this means in essence is that European companies such as British Telecom or Deutsche Telekom would have to pay a toll to run their services along trans-Atlantic infrastructure or air waves owned by American rivals, if they wanted to do business in the US.

“If our companies cannot get in by air or by sea, then there remains a big, big problem,” said the EU negotiator. “The US would argue that European firms could always come in by connecting to existing American wires, but as far as we are concerned that would not be satisfactory. Our companies want to provide their own facilities.”

Also causing grave concern in EU circles is the US decision to maintain restrictions on the foreign ownership of radio licences. Given the low cost of providing wireless services compared to wired ones, such licences are becoming increasingly precious to phone firms.

But under the latest offer, only companies which are 80&percent; US-owned would be entitled to radio permits.

European phone firms hoping to provide services over the air would have to set up a US-based holding company.

“A company which is 30&percent; European, for instance, would not be allowed to directly hold a licence and that is totally unacceptable. The future is, to a large extent, in mobile communcations - they are cheaper because they do not involve road digging.”

But if the EU is angry, so too is the US. It rebuked the Union in the strongest terms last week for clinging to 'protectionist' foreign ownership rules, saying the bloc's inadequate offer had set a poor example to developing countries.

Lang, giving vent to American frustration with the Union, accused the bloc of intransigence and said its failure to budge on key issues had given others an excuse for inflexibility.

France, Spain, Portugal and Belgium have so far insisted on keeping tight restrictions on foreign investment in their phone industries, while Spain and Portugal have refused to open up their markets to international competition before 2003.

“Publicly, Spain has promised to open its market to other European companies by 1998 and Portugal has agreed to liberalise by 2000, but both are refusing to extend those promises to international firms. Meanwhile, Spanish operators are gobbling up markets in Latin America - it is simply not fair. We feel very strongly about that,” said one US official.

The Commission, keen not to further rankle the US, has tried to prod the four into making concessions, but its efforts have so far been met with hostility.

Despite their differences, however, the two blocs, with a lot of effort and a few more arguments, could probably still reach agreement by the end of April. Less certain, however, are their chances of getting ASEAN countries and Canada on board.

Canada, Japan and Korea each have huge phone markets which they are keeping firmly under lock and key. In each country, overseas competitors may only own approximately 30&percent; of local phone companies, which means outsiders could never exercise control over them.

With the clock ticking away towards the deadline for a deal and a lot of ground still to be covered, Trade Commissioner Sir Leon Brittan has thrown down the gauntlet to Asian governments, challenging them to throw open their phone markets to international competition.

He chastised Japan, South Korea and the South-East Asian countries which attended this month's Asia-Europe summit in Bangkok for dragging their feet in the WTO talks.

“Not one of these nations has yet offered the kind of comprehensive, effective access to this market that we will need to make a success of the negotiations by the April 30 deadline,” he told a group of businessmen in Brussels this week.

Striking a more conciliatory note, he added: “There could be no better way of fleshing out the new Asia-Europe partnership than for all countries to sign up to an ambitious telecoms deal.”

More than half of the countries taking part in the WTO talks have yet to offer any liberalisation measures, while most of those on the table are considered inadequate by both the EU and the US.

Despite these huge obstacles, European officials say they are confident that a substantial accord will be reached before the deadline.

The US has said, however, that it would prefer to settle for an agreement which would partially liberalise basic telecoms rather than see negotiations drag on beyond the April date.

But the EU is vehemently opposed to the US suggestion of a piecemeal approach to world liberalisation, insisting it would be better to delay talks than opt for a partial deal.

American officials argue that unless more governments translate vague promises into formal commitments, it would be better to conclude a limited deal and return to negotiations later this decade rather than go away empty handed.

Washington would be ready to guarantee phone companies from other countries the freedom to offer long-distance and local phone services in its domestic market on a quid pro quo basis. Foreign firms would only be granted authorisation to operate international phone services from inside the US if their home markets were deemed sufficiently open to American operators.

The US has also said it would only make its offer binding if a “critical mass” of other WTO members made similar satisfactory liberalisation offers and appropriate competitive rules were agreed.

The latter would prevent dominant operators from abusing their market position and network ownership to squeeze out new entrants.

America's willingness to go for a nearly-but-not-quite accord can probably be put down to its desire to avoid a repeat performance of last year's WTO financial services negotiations, when it was widely criticised for not participating in the final agreement.