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82–440PS 2002

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

2

COMMITTEE ON ENERGY AND COMMERCE

W.J. ‘‘BILLY’’ TAUZIN, Louisiana, Chairman

MICHAEL BILIRAKIS, Florida

JOE BARTON, Texas

FRED UPTON, Michigan

CLIFF STEARNS, Florida

PAUL E. GILLMOR, Ohio

JAMES C. GREENWOOD, Pennsylvania

CHRISTOPHER COX, California

NATHAN DEAL, Georgia

RICHARD BURR, North Carolina

ED WHITFIELD, Kentucky

GREG GANSKE, Iowa

CHARLIE NORWOOD, Georgia

BARBARA CUBIN, Wyoming

JOHN SHIMKUS, Illinois

HEATHER WILSON, New Mexico

JOHN B. SHADEGG, Arizona

CHARLES ‘‘CHIP’’ PICKERING, Mississippi

VITO FOSSELLA, New York

ROY BLUNT, Missouri

TOM DAVIS, Virginia

ED BRYANT, Tennessee

ROBERT L. EHRLICH, Jr., Maryland

STEVE BUYER, Indiana

GEORGE RADANOVICH, California

CHARLES F. BASS, New Hampshire

JOSEPH R. PITTS, Pennsylvania

MARY BONO, California

GREG WALDEN, Oregon

LEE TERRY, Nebraska

ERNIE FLETCHER, Kentucky

JOHN D. DINGELL, Michigan

HENRY A. WAXMAN, California

EDWARD J. MARKEY, Massachusetts

RALPH M. HALL, Texas

RICK BOUCHER, Virginia

EDOLPHUS TOWNS, New York

FRANK PALLONE, Jr., New Jersey

SHERROD BROWN, Ohio

BART GORDON, Tennessee

PETER DEUTSCH, Florida

BOBBY L. RUSH, Illinois

ANNA G. ESHOO, California

BART STUPAK, Michigan

ELIOT L. ENGEL, New York

TOM SAWYER, Ohio

ALBERT R. WYNN, Maryland

GENE GREEN, Texas

KAREN MCCARTHY, Missouri

TED STRICKLAND, Ohio

DIANA DEGETTE, Colorado

THOMAS M. BARRETT, Wisconsin

BILL LUTHER, Minnesota

LOIS CAPPS, California

MICHAEL F. DOYLE, Pennsylvania

CHRISTOPHER JOHN, Louisiana

JANE HARMAN, California

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

NATHAN DEAL, Georgia

Vice Chairman

ED WHITFIELD, Kentucky

BARBARA CUBIN, Wyoming

JOHN SHIMKUS, Illinois

JOHN B. SHADEGG, Arizona

ED BRYANT, Tennessee

GEORGE RADANOVICH, California

CHARLES F. BASS, New Hampshire

JOSEPH R. PITTS, Pennsylvania

MARY BONO, California

GREG WALDEN, Oregon

LEE TERRY, Nebraska

ERNIE FLETCHER, Kentucky

W.J. ‘‘BILLY’’ TAUZIN, Louisiana

(Ex Officio)

EDOLPHUS TOWNS, New York

DIANA DEGETTE, Colorado

LOIS CAPPS, California

MICHAEL F. DOYLE, Pennsylvania

CHRISTOPHER JOHN, Louisiana

JANE HARMAN, California

HENRY A. WAXMAN, California

EDWARD J. MARKEY, Massachusetts

BART GORDON, Tennessee

PETER DEUTSCH, Florida

BOBBY L. RUSH, Illinois

ANNA G. ESHOO, California

JOHN D. DINGELL, Michigan,

(Ex Officio)

(II)

3

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)

(1)

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 congresVerDate 11-MAY-2000 11:12 Dec 06, 2002 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 82440.TXT HCOM1 PsN: HCOM1
2

sional 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 comVerDate 11-MAY-2000 11:12 Dec 06, 2002 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 82440.TXT HCOM1 PsN: HCOM1
3

petition 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 deployVerDate 11-MAY-2000 11:12 Dec 06, 2002 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6621 82440.TXT HCOM1 PsN: HCOM1
4

ment, 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——

5

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

6

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:

• the history of telecom trade agreements;

• the current state of play of telecommunications in our bilateral FTA’s; and

7

• 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.

• 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.

• 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.

• In Taiwan, we ensured that U.S. submarine cable operators could sell network capacity freely into that market.

• 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.

• 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.

8

1Telegeography, 2001

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 2001,1 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?

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.

9

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:

• ensuring that domestic and foreign users (especially other suppliers such as

banks, manufacturing plants, etc.) enjoy non-discriminatory access to the public

telecommunications network; • ensuring transparency and due process in the telecommunications regulatory regime, particularly relating to rulemaking and tariffs; • ensuring effective regulatory oversight, including meaningful sanction authority; • 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 • 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 servVerDate 11-MAY-2000 11:12 Dec 06, 2002 Jkt 000000 PO 00000 Frm 00013 Fmt 6633 Sfmt 6602 82440.TXT HCOM1 PsN: HCOM1
10

ices. 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 longrun 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.

11

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

12

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.

13

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 counVerDate 11-MAY-2000 11:12 Dec 06, 2002 Jkt 000000 PO 00000 Frm 00017 Fmt 6633 Sfmt 6602 82440.TXT HCOM1 PsN: HCOM1
14

try 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.

15

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.

16

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

17

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 wellcrafted 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.

18

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:

• 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.

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• 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. • 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. • 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 li- censes’’ for entire classes of carriers. • 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. • 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.

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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

21

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.

22

[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

23

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 handson 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.

24

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

25

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.

26

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 anticompetitive.

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?

27

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?

28

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

29

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.

30

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.

31

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

32

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

33

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?

34

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 61⁄2 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.

35

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

36

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

37

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.]

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[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

39

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.