In the new global telecom market, the World Trade Organization is king-the United Nations for global telecom free trade as it were.
For the United States, having rules of the road in a free trade environment and a credible international body to monitor, arbitrate and enforce them represents a sea change of improvement in global commerce.
Without the WTO, free trade in telecom services and products would not-likely could not-exist. With WTO, trade barriers should fade away.
Based in Geneva and created in 1995 as the successor to the half-century-old General Agreement on Tariffs and Trade (GATT), WTO provides a global forum for trade negotiations and dispute settlement. There is an appeals process and other guidelines for the 132 member nations.
Renato Ruggiero, a well-traveled professional diplomat, is director general of WTO. He oversees a staff of 500 and a budget (in 1996) of nearly $100 million.
WTO brings with it other actors, like the World Bank and the International Monetary Fund, to the global telecom stage.
The telecom services free trade pact was signed by 69 countries and was supposed to go into effect Jan. 1. Because some signatories have yet to implement the agreement internally (owing in part to months of delay before a deal was struck Feb. 15 last year), the WTO telecom services agreement will not take force for another four to six weeks.
But everyone involved expects it to happen and a new global telecom order will be born.
Much is at stake. The local telecom services market is valued at more than $600 billion, 14 percent of which is consumed by mobile communications.
On a worldwide scale, the telecom and information technology equipment market is nearly as big, at $500 billion. Tariffs on products are to be phased out by 2000.
“Knowledge is the most essential raw material of the global economy and with the progress we have made … we are clearly laying the foundation for the trading system of the 21st century,” said Ruggiero.
All told, parties to the WTO agreements on telecom services and information technology products represent more than 90 percent of the world market in the two sectors.
That’s why China and Russia, emerging global economic powers, want in so bad. As such, politics go hand in glove with trade at WTO.
In China’s case, the administration says it wants to see more evidence of market-opening gestures before WTO membership is granted. But clearly, in private, the politically charged human rights issue weighs heavily on President Clinton and is a factor in the trade equations since his “constructive engagement” policy-delinking trade and human rights-has not fared well.
In the past, debate over U.S.-China trade relations in Congress has focused on China’s crackdown on democratic dissidents and lack of religious freedoms. That debate, a microcosm of a larger one on globalization, is picking up steam as protectionist Democrats and isolationist Republicans play on fears of voters that the global economy will take away jobs in the United States.
With low-wage labor plentiful in China and in other emerging markets, the fear mongering is not all fiction.
At the same time, China represents the largest potential emerging market for wireless and other U.S. industrial sectors. The business community is ready to go; it wants no part of the political debate.
“I don’t think you can ask the WTO to solve all our political problems,” observed Kay Georgi, a top trade lawyer at Coudert Brothers’ offices in Washington, D.C.
WTO telecom free trade means that U.S. wireless businesses and others can invest without restriction in overseas companies, whose countries are WTO signatories. And vice versa. Previously, there was a foreign ownership cap of 25 percent in the United States.
However, the Federal Communications Commission has reserved the right to block full entry of a WTO member on national security or other grounds deemed critical by the executive branch.
That caveat does not sit well with the 15-member European Commission, which has threatened to take action against the United States once the basic telecom agreement goes into effect.
The extension and limits of WTO’s power are unclear after only two years.
“I think the role of the WTO is evolving,” said Diane Cornell, an official in the International Bureau at the Federal Communications Commission.
At the outset, at least, the United States likes what it sees. Of the 34 cases it has brought before the WTO to date, the United States has won seven and reached favorable settlements in seven others.
“The U.S. has done real well in cases it has brought,” said Coudert’s Georgi.
Though the Clinton administration was angered over the loss of the Kodak film case it brought against Japan and grumbled about taking retaliatory trade action, trade expert Claude Barfield said the United States is not about to do anything to undercut WTO.
“This new [trade] system was one the U.S. demanded,” said Barfield, a resident scholar at the American Enterprise Institute.
How binding is a WTO ruling?
Barfield said that while WTO decisions do not transcend American laws, which are the province of Congress, country that fails to comply with a WTO decision could lead to de facto trade sanctions with WTO’s blessing.
The GATT regime lacked the legal and political stature of the WTO. Under GATT, trade talks and resolution of complaints were drawn out and sometimes concluded without results. Rulings that did materialize were not necessarily binding.
The WTO provides a platform with clear rules, procedures and timetables.
Barfield explained the WTO has a much broader jurisdiction than did GATT and that it is much harder to block a country from bringing grievances against another.
Once telecom services and product free trade accords go into effect, the transfer of foreign capital from one company to another is not automatic. The FCC still reviews foreign telecom transactions with U.S. carriers that change ownership, but it does so on a faster track.
With WTO looking over the shoulder of its members, merely the threat of a complaint can get foot-dragging countries to change their behavior and open markets.
“This is a stick we didn’t have before,” said the FCC’s Cornell.
At present, WTO telecom trade is a mixed bag insofar as identifying winners and losers.
For sure, the United States is benefiting from the new free trade overlay in obvious and less-than-obvious ways.
Tim Logue, a telecom specialist in Coudert Brothers’ Washington, D.C., office, believes the Asian market meltdown could open the door to wireless bargains for American investors in Thailand, Indonesia, the Philippines, South Korea and possibly Japan.
“The dominoes have started to fall. They’re going to fall faster now,” said Logue.
At the same time, financially strapped U.S. wireless startups and established carriers can no longer bet on huge infusions of capital from East Asia to pay for licenses they bought at FCC auctions.
On the other hand, with growth in emerging markets of Asia, Latin America, India, Africa and Eastern Europe tempered by volatile economic and political forces, the United States is looking better every day as the safest haven for foreign investment in the near future.
