```

[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]

 
  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

                               __________

                          U.S. GOVERNMENT PRINTING OFFICE
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_____________________________________________________________________________
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                    COMMITTEE ON ENERGY AND COMMERCE

               W.J. ``BILLY'' TAUZIN, Louisiana, Chairman

MICHAEL BILIRAKIS, Florida           JOHN D. DINGELL, Michigan
JOE BARTON, Texas                    HENRY A. WAXMAN, California
FRED UPTON, Michigan                 EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida               RALPH M. HALL, Texas
PAUL E. GILLMOR, Ohio                RICK BOUCHER, Virginia
JAMES C. GREENWOOD, Pennsylvania     EDOLPHUS TOWNS, New York
CHRISTOPHER COX, California          FRANK PALLONE, Jr., New Jersey
NATHAN DEAL, Georgia                 SHERROD BROWN, Ohio
RICHARD BURR, North Carolina         BART GORDON, Tennessee
ED WHITFIELD, Kentucky               PETER DEUTSCH, Florida
GREG GANSKE, Iowa                    BOBBY L. RUSH, Illinois
CHARLIE NORWOOD, Georgia             ANNA G. ESHOO, California
BARBARA CUBIN, Wyoming               BART STUPAK, Michigan
JOHN SHIMKUS, Illinois               ELIOT L. ENGEL, New York
HEATHER WILSON, New Mexico           TOM SAWYER, Ohio
JOHN B. SHADEGG, Arizona             ALBERT R. WYNN, Maryland
CHARLES ``CHIP'' PICKERING,          GENE GREEN, Texas
Mississippi                          KAREN McCARTHY, Missouri
VITO FOSSELLA, New York              TED STRICKLAND, Ohio
ROY BLUNT, Missouri                  DIANA DeGETTE, Colorado
TOM DAVIS, Virginia                  THOMAS M. BARRETT, Wisconsin
ED BRYANT, Tennessee                 BILL LUTHER, Minnesota
ROBERT L. EHRLICH, Jr., Maryland     LOIS CAPPS, California
STEVE BUYER, Indiana                 MICHAEL F. DOYLE, Pennsylvania
GEORGE RADANOVICH, California        CHRISTOPHER JOHN, Louisiana
CHARLES F. BASS, New Hampshire       JANE HARMAN, California
JOSEPH R. PITTS, Pennsylvania
MARY BONO, California
GREG WALDEN, Oregon
LEE TERRY, Nebraska
ERNIE FLETCHER, Kentucky

                  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                 EDOLPHUS TOWNS, New York
NATHAN DEAL, Georgia                 DIANA DeGETTE, Colorado
  Vice Chairman                      LOIS CAPPS, California
ED WHITFIELD, Kentucky               MICHAEL F. DOYLE, Pennsylvania
BARBARA CUBIN, Wyoming               CHRISTOPHER JOHN, Louisiana
JOHN SHIMKUS, Illinois               JANE HARMAN, California
JOHN B. SHADEGG, Arizona             HENRY A. WAXMAN, California
ED BRYANT, Tennessee                 EDWARD J. MARKEY, Massachusetts
GEORGE RADANOVICH, California        BART GORDON, Tennessee
CHARLES F. BASS, New Hampshire       PETER DEUTSCH, Florida
JOSEPH R. PITTS, Pennsylvania        BOBBY L. RUSH, Illinois
MARY BONO, California                ANNA G. ESHOO, California
GREG WALDEN, Oregon                  JOHN D. DINGELL, Michigan,
LEE TERRY, Nebraska                    (Ex Officio)
ERNIE FLETCHER, Kentucky
W.J. ``BILLY'' TAUZIN, Louisiana
  (Ex Officio)

                                  (ii)

                            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)

  

  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 congressional 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 competition 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 deployment, 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----
    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 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
 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.
    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?
---------------------------------------------------------------------------
    \1\ Telegeography, 2001
---------------------------------------------------------------------------
    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.
    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 services. 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 long-run 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.
    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 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.
    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 country 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.
    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.
    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 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 well-crafted 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.
    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.
 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 licenses'' 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. 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 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.
    [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 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 hands-on 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.
    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 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.
    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 anti-competitive.
    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?
    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?
    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 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. 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.
    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 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 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?
    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 6\1/2\ 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.
    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 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 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.]
    [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 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.
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