Liberalized Telecommunications Trade in the WTO: Implications for Universal Service Policy

By McLarty, Taunya L. | Federal Communications Law Journal, December 1998 | Go to article overview

Liberalized Telecommunications Trade in the WTO: Implications for Universal Service Policy


McLarty, Taunya L., Federal Communications Law Journal


I. TELECOMMUNICATIONS: A SERVICE SECTOR AND A BACKBONE FOR OTHER SECTORS

The telecommunications market is one of the largest markets in the world, second only to the financial services market. The International Telecommunication Union (ITU) estimated in the mid-1990s that the telecommunications market was worth about $513 billion.(1) Although telecommunications service providers acquire most of their revenue from domestic demand, they are increasingly seeking international returns.(2)

Telecommunications has a "dual role as a distinct sector of economic activity and as the underlying transport means for other ... activities."(3) In addition to financial institutions now transferring $2.3 trillion or more electronically every day, educators, researchers, politicians, and others use electronic means to exchange information.(4) The demand for telecommunications services that transmit voice and data electronically is rapidly escalating because of this interconnectedness.(5)

There has been a significant shift from domestic intrasufficiency to international interdependence in both the demand and supply sides of markets generally.(6) As consumers become more sophisticated in evaluating the world market, businesses have to maintain their comparative advantage in services by globalizing research, manufacturing products with multinational components, and targeting international markets.(7) The telecommunications industry illustrates this phenomenon.

All of these factors--the high demand for telecommunications services, the interconnectedness of telecommunications sector inputs and uses, and international dependence--created the need to avoid piecemeal and segmented telecommunications trade policy.

Some countries have responded unilaterally to the changes in telecommunications by privatizing and deregulating their domestic markets. Through privatization, the government transforms the telecommunications sector from a state owned and operated enterprise into a private enterprise, although the private enterprise can maintain a monopolistic position. Through liberalization, the government allows many enterprises to compete effectively for consumer demand.

However, the most profound impact on the global telecommunications markets will likely come from the concluded multilateral negotiations on basic telecommunications services in the World Trade Organization (WTO)(8) under the auspices of the General Agreement on Trade in Services (GATS).(9) The results of these negotiations could be the driving force behind a wave of countries liberalizing their trade laws to ease the harshness and complexity of providing telecommunications services over national borders.

The February 15, 1997 negotiations on basic telecommunications reached significant commitments. However, these commitments on basic telecommunications cannot be considered outside of the bigger framework of the GATS in the WTO. The conclusion of the GATS in 1994 set the stage for continued negotiations on various service sectors and subsectors. Thus, while the 1997 basic telecommunications commitments specifically addressed the problems faced by those wanting to offer such services, they were annexed to, and became an integral part of, GATS, which is the foundation for all trade in services.

This Article begins in Part II by discussing the significance of the basic telecommunications commitments on liberalization, specifically showing why sector negotiations on telecommunications and even subsector negotiations on basic telecommunications were necessary. Part III outlines a history of the basic telecommunications negotiations in light of the services negotiations under GATS that preceded them. In Part IV, the Article explains how the obligations underlying all WTO trade agreements, namely most-favored-nation (MFN) status, national treatment, market access, and transparency, apply to services, and more narrowly, to the telecommunications services within the negotiations' scope. …

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