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[Congressional Record Volume 141, Number 88 (Thursday, May 25, 1995)]
[Senate]
[Pages S7492-S7495]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

                FOREIGN OWNERSHIP OF TELECOMMUNICATIONS

  Mr. BYRD. Mr. President, the distinguished Majority Leader has 
indicated that, when the Senate returns from the upcoming recess, it 
will take up S. 652, the ``Telecommunications Competition and 
Deregulation Act of 1995.'' As my colleagues are aware, this is a very 
important piece of legislation dealing with many aspects of the 
complicated, fast-changing marketplace in telecommunications and the 
many competing commercial interests in that marketplace.
  Of great interest is the international marketplace in 
telecommunications equipment and services, which is extremely 
lucrative, and is subject to many of the same kind of barriers to entry 
for American companies that we see in other business sectors. 
Currently, the US Trade Representative, Ambassador Mickey Kantor, has 
initiated a 301 case against the Japanese in the area of automobile 
parts, after years of frustration in trying to gain fair entry into the 
Japanese market--just as the Japanese have access into the American 
market, and the Senate has strongly endorsed this action. Similar 
problems exist in the telecommunications field, and the bill as 
reported from the Commerce Committee includes a provision to protect 
our telecommunications companies from unfair competition. The provision 
requires that reciprocity is needed in the international marketplace, 
and in adjusting the rules for foreign ownership of telecommunications 
services in the U.S., the host countries of those businesses seeking 
market access in the U.S. allow fair and reciprocal access to our 
telecommunications providers in those nations.
  This is a case of fairness, and the Committee has wisely included 
needed leverage for the Administration to prod our trading partners 
into opening their markets.
  Given the highly lucrative nature of the telecommunications 
marketplace, the stakes of gaining market access to foreign markets are 
high. It should be no surprise that securing effective market access to 
many foreign markets, including those of our allies, including France, 
Germany and Japan has been very difficult. Those markets remain 
essentially closed to our companies, dominated as they are by large 
monopolies favored by those governments. In fact, most European markets 
highly restrict competition in basic voice services and infrastructure. 
A study by the Economic Strategy Institute in December of 1994 found 
that ``while the U.S. has encouraged competition in all 
telecommunication sectors except the [[Page S7493]] local exchange, the 
overwhelming majority of nations have discouraged competition and 
maintained a public monopoly that has no incentive to become more 
efficient.'' U.S. firms, as a result of intense competition here in the 
U.S., provide the most advanced and efficient telecommunications 
services in the world, and could certainly compete effectively in other 
markets if given the chance of an open playing
 field. The same study found that ``U.S. firms are blocked from the 
majority of lucrative international opportunities by foreign government 
regulations prohibiting or restricting U.S. participation and 
international regulations which intrinsically discriminate and 
overcharge U.S. firms and consumers.'' This study found that the total 
loss in revenues to U.S. firms, as a result of foreign barriers is 
estimated to be over $100 billion per year between 1992 and the turn of 
the century. These are staggering sums.

  Thus the administration has adopted an aggressive incentives-based 
strategy for foreign countries to open their telecommunications 
services markets to U.S. companies. First, as my colleagues are aware, 
the negotiations which led to the historic revision of the GATT 
agreement and which created the World Trade Organization were unable to 
conclude an agreement on telecommunications services. Thus, separate 
negotiations are underway in Geneva today to secure such an agreement, 
in the context of the Negotiating Group on Basic Telecommunications. In 
the absence of such an agreement, we must rely on our own laws to 
protect our companies and to provide leverage over foreign 
nations to open their markets. To forego our own national leverage 
would do a great disservice to American business and would be 
shortsighted--the result of which would be not only a setback to our 
strategy to open those markets, but pull the rug out from under our 
negotiators in Geneva to secure a favorable international agreement for 
open telecommunications markets. Indeed, tough U.S. reciprocity laws 
are clearly needed by our negotiators to gain an acceptable, effective, 
market opening agreement in Geneva in these so-called GATS [General 
Agreement on Trade in Services] negotiations.
  Second, the bill as reported by the Commerce Committee supports a 
strategy to provide incentives for foreign country market opening by 
conditioning new access to the American market upon a showing of 
reciprocity in the markets of the petitioning foreign companies. 
Current law, that is section 310 of the Communications Act of 1934 
provides that a foreign entity may not obtain a common carrier license 
itself, and may not own more than 25 percent of any corporation which 
owns or controls a common carrier license. This foreign ownership 
limitation has not been very effective and has not prevented foreign 
carriers from entering the U.S. market. The FCC has had the discretion 
of waiving this limitation if it finds that such action does not 
adversely affect the public interest. In addition, the law does not 
prevent some kinds of telecommunications businesses, such as operation 
and construction of modern fiber optic facilities or the resale of 
services in the U.S. by foreign carriers. Nevertheless, maintaining 
restrictions on foreign ownership is generally considered by U.S. 
industry to be useful as one way to raise the issue of unfair foreign 
competition and to maintain leverage abroad. Therefore the 
bill establishes a reciprocal market access standard as a condition for 
the waiver of Section 310(b). It states that the FCC may grant to an 
alien, foreign corporation or foreign government a common carrier 
license that would otherwise violate the restriction in Section 301(b) 
if the FCC finds that there are equivalent market opportunities for 
U.S. companies and citizens in the foreign country of origin of the 
corporation or government.
  Even though Section 310 has not prevented access into our market, the 
existence of the section has been used by foreign countries as an 
excuse to deny U.S. companies access to their markets. The provision in 
S. 652, applying a reciprocity rule, makes it clear that our market 
will be open to others to the same extent that theirs are open to our 
investment. This is as it should be.
  Given the importance of this provision, and the tremendous stakes 
involved in the future telecommunications markets worldwide, a number 
of issues regarding the provision have been raised, including the role 
of the President in reviewing FCC decisions, how the public interest 
standard should be applied, whether our negotiators should have wide 
authority to exercise leverage among telecommunications market 
segments, to what extent Congress should be informed and involved in 
the developing policies which effectively define the American public 
interest, the impacts of the legislation on the ongoing negotiations in 
Geneva for a multilateral agreement, what mechanisms are needed to 
ensure that promises for market access turn into reality by foreign 
nations--after the ink on an international agreement is dry--and 
several other matters.
  In order to clarify and develop a fuller understanding of the 
ramifications of the provision of S. 652, I wrote Ambassador Kantor on 
April 3, 1995, soliciting his views in five areas: First, the impacts 
of the provision on the ongoing telecommunications negotiations in 
Geneva; second, the nature of foreign market behavior that would 
trigger action under the concept of reciprocity in the bill; third, the 
likely reactions of foreign governments to the provision; fourth, the 
most useful role that the United States Trade Representative can play 
in implementing the proposal in the bill; and, fifth, his suggestions 
for any changes which might strengthen the effectiveness of the 
provision. I received a very full reply from Ambassador Kantor on April 
24, 1995, which I ask unanimous consent be printed in the Record at 
this point. I commend the Ambassador for his attention to this matter, 
and am sure that his reply will be useful to the Senate when the bill 
comes to the floor. I hope that the Senate will have a good debate on 
this particular provision, and hope that we will seize this historic 
opportunity to put into place effective reciprocity tools to truly open 
the world's economies to opportunities for American genius and labor.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                                    April 3, 1995.
     Ambassador Mickey Kantor,
     U.S. Trade Representative,
     Washington, DC.
       Dear Mr. Ambassador: The Senate will soon take up S. 652, 
     the Telecommunications Competition and Deregulation Act of 
     1995, to promote competition in the telecommunications 
     industry. I am writing to solicit your views on the revision 
     of foreign ownership provisions, specifically the revision to 
     Section 310(b) of the 1934 Communications Act.
       As you may know, the Commerce Committee's reported bill 
     would allow the FCC to waive current statutory limits on 
     foreign investment in U.S. telecommunications services if the 
     FCC finds that there are ``equivalent market opportunities'' 
     for U.S. companies and citizens in the foreign country where 
     the investor or corporation is situated.
       I would like to have your assessment of the impact of this 
     provision for both enhancing the prospects of U.S. 
     penetration of foreign markets, and for foreign investment in 
     American telecommunications companies and systems.
       Specifically, what impacts and advantages can we anticipate 
     will result from enactment of this provision on the ongoing 
     negotiations in Geneva on Telecommunications which has been 
     established under the GATT, to be incorporated into the 
     General Agreement on Trade in Services?
       Second, which markets in Asia and Europe are now closed to 
     U.S. telecommunications services in such a way that action on 
     the basis of the concept of Reciprocity in the Senate bill is 
     likely? What timeframes for such action, if any, would you 
     contemplate?
       Third, what has been the position of nations whose markets 
     are closed to U.S. telecommunications services in the way of 
     justifying their lack of access, and what likely reactions 
     can we anticipate from those nations as a result of this 
     legislative provision?
       What role do you think can be most usefully played by your 
     office in effectively implementing the provision that has 
     been recommended?
       Lastly, in analyzing the legislation reported from the 
     Senate Commerce Committee, do you have any suggestions as to 
     how the provision might be strengthened to better serve the 
     goal of opening foreign markets to U.S. telecommunications 
     services and products?
       Thank you for your attention to this matter.
           Sincerely,
     Robert C. Byrd.
                                                                    ____

                                               [[Page S7494]]

                                The U.S. Trade Representative,

                                   Washington, DC, April 24, 1995.
     Hon. Robert Byrd,
     U.S. Senate,
     Washington, DC.
       Dear Senator Byrd: This is to respond to your letter of 
     April 3, 1995 regarding S. 652, the ``Telecommunications 
     Competition and Deregulation Act of 1995'' and its proposed 
     revision of Section 310(b) of the Communications Act of 1934. 
     The Departments of Commerce, Justice, State and Treasury have 
     concurred in this response to your letter.
       The Administration and the U.S. telecommunications industry 
     are united in their support for Congressional action to 
     revise the foreign ownership rules under Section 310(b). As 
     Vice President Gore indicated recently to our G-7 partners, 
     the Administration seeks legislation to allow us to open 
     further our common carrier telecommunications market to the 
     firms of countries which open their markets to the American 
     common carrier telecommunications industry. This would 
     contribute greatly to the development of the Global 
     Information Infrastructure (GII).
       As you know, the U.S. leads efforts in the World Trade 
     Organization (WTO) aimed at reaching a market-opening 
     agreement on basic telecom services. The U.S. negotiating 
     team--led by the USTR with representatives from the 
     Departments of Commerce, Justice, State and the Federal 
     Communications Commission--has successfully advanced U.S. 
     objectives at the WTO talks.
       I have attached detailed responses to each of your five 
     questions. By amending the legislation as we suggest, the 
     Congress would provide effective market-opening authority for 
     both multilateral and bilateral negotiations on basic 
     telecommuncations services.
       We stand ready to work with you to develop legislation 
     which can serve our shared interest in a stronger U.S. 
     economy and the development of the Global Information 
     Infrastructure. We would also be pleased to provide your 
     staff with a briefing on the status of major telecom services 
     markets in Asia, Europe and Latin America at their 
     convenience.
           Sincerely,
                                                   Michael Kantor.
       Attachments.
       1. Specifically, what impacts and advantages can we 
     anticipate will result from enactment of this provision on 
     the ongoing negotiations in Geneva on Telecommunications 
     which have been established under the GATT, to be 
     incorporated into the General Agreement on Trade in Services?
       Answer: The U.S. maintains one of the world's most open and 
     competitive markets. Our objective in this negotiation is to 
     obtain firm commitments regarding similar levels of openness 
     in the markets of other important trading partners.
       Legislation providing the Government with effective market-
     opening authority with respect to Section 310(b) could have a 
     powerful positive effect on these talks. Section 310(b) is 
     regarded by foreign companies as a major barrier to market 
     access in the United States. That perception is out of 
     proportion to the actual effect of Section 310(b). Authority 
     to remove this restraint through international negotiations 
     or on the basis of similar levels of openness could lead in 
     turn to the removal of ownership restrictions and monopoly 
     barriers to U.S. companies in key markets abroad.
       U.S. firms are successful global players in the common 
     carrier telecommunications industry. Telecommunications 
     companies in many major developed countries regard access to 
     the U.S. market as a strategic imperative. Legislation 
     providing the Government with effective market-opening 
     authority is essential if we are to level the playing field 
     for U.S. firms. This authority would greatly enhance the 
     prospects for U.S. penetration of foreign markets--markets 
     that now are sanctuaries for our companies' top competitors. 
     At the same time, it would benefit the U.S. economy by 
     greater openness to foreign investment in this growing 
     sector.
       2. Second, which markets in Asia and Europe are now closed 
     to U.S. telecommunications services in such a way that action 
     on the basis of the concept of reciprocity in the Senate bill 
     is likely? What time frames for such action, if any, would 
     you contemplate?
       Answer: Most markets in Europe, Asia and elsewhere have 
     monopoly arrangements which prohibit or restrict both foreign 
     ownership of basic telecommunications infrastructure and 
     provision of basic services. For example, most Member States 
     of the European Union have voice telephone service 
     monopolies, which they plan to maintain at least until 1998. 
     The European Union and its Member States may introduce 
     reciprocity provisions on foreign ownership in the absence of 
     a successful conclusion to the WTO negotiations. In Japan and 
     Canada, foreign ownership of firms that own 
     telecommunications infrastructure is restricted to 33 
     percent.
       Foreign governments remain cautious about allowing 
     competition to firms which remain state-owned or controlled. 
     In the past these companies have been regarded mainly as 
     state-managed sources of employment and demand for domestic 
     high tech goods.
       Our key trading partners are much more likely to open their 
     basic telecom services markets to U.S. companies in return 
     for a balanced market-opening commitment by the U.S. which 
     includes changes to the restrictions on common carrier radio 
     licenses in Section 310(b). Unilateral action by the U.S. to 
     eliminate these Section 310(b) provisions would forfeit 
     leverage vis-a-vis these countries.
       Effective market-opening legislation would reaffirm our 
     commitment to the principles of private investment and 
     competition and would allow us to challenge our key trade 
     partners to embrace fully these principles.
       The WTO negotiations have a deadline of April 30, 1996. We 
     seek market-opening action within that time frame.
       3. Third, what has been the position of nations whose 
     markets are closed to U.S. telecommunications services in the 
     way of justifying their lack of access, and what likely 
     reactions can we anticipate from those nations as a result of 
     their legislative provision?
       Answer: Foreign markets are closed to U.S. firms, in 
     varying degrees, mainly due to the worldwide heritage of 
     natural monopoly in basic telecommunications services. The 
     United States moved first to begin abandoning this approach 
     over twenty years ago. The very successful American result in 
     terms of increased information sector employment, fast-
     growing high-technology industries and better services to 
     consumers and businesses has helped to motivate some key 
     trading partners gradually to abandon monopoly as well. But 
     progress has been incremental at best, with most markets only 
     allowing competition in data and value-added services. Very 
     few trading partners have taken steps to liberalize their 
     basic infrastructure and voice telephone service markets. 
     Even the United Kingdom, which now has one of the most 
     liberal basic telecommunications services markets, still 
     maintains a duopoly on facilities-based international 
     services.
       Some trade partners regard global market access as a 
     strategic imperative for their companies. Since the United 
     States represents about one-quarter of the world telcom 
     services market, we can expect these nations will seek to 
     obtain the benefit of any market-opening steps offered by the 
     U.S. In this way, we hope to negotiate an exchange of market-
     opening commitments in the WTO productively with these trade 
     partners.
       Other significant trade partners which have inefficient 
     telecommunications monopolies are faced with large unmet 
     domestic demand for basic telecommunications services. 
     Nonetheless, they remain cautious about allowing competition. 
     The WOT negotiations offer an opportunity to harmonize and to 
     expedite these parties' transition away from monopoly and 
     towards reliance on private investment and competition.
       4. Fourth, what role do you think can most usefully be 
     played by your office in effectively implementing the 
     proposal that has been recommended?
       Answer: The Federal Communications Commission recently 
     proposed to consider foreign market access in certain 
     decisions affecting foreign-affiliated firms. The role of the 
     Executive Branch as defined by statutory reform of Section 
     310(b) should conform with the view expressed below by the 
     Executive Branch in its recent comments on the FCC's proposed 
     rulemaking. In comments filed on April 11, 1995 by the 
     Commerce Department's National Telecommunications and 
     Information Administration on behalf of the Executive Branch, 
     we stated,
       ``The Commission . . . has authority over the regulation of 
     U.S.-based telecommunications carriers in interstate and 
     foreign commerce, as well as concurrent authority with the 
     Executive Branch to protect competition involving 
     telecommunications carriers by enforcing certain provisions 
     of the antitrust laws. In carrying out its regulatory 
     responsibilities, the Commission may help effectuate the 
     policy goals and initiatives of the Executive Branch and 
     promote U.S. interests in dealing with foreign countries. 
     Accordingly the Commission must accord great deference to the 
     Executive Branch with respect to U.S. national security, 
     foreign relations, the interpretation of international 
     agreements, and trade (as well as direct investment as it 
     relates to international trade policy). The Commission must 
     also continue to take into account the Executive Branch's 
     views and decisions with respect to antitrust and 
     telecommunications and information policies.''
       The Administration plans to work with the Commission to 
     establish a process to take the respective authorities of the 
     Commission and Executive Branch agencies into account in 
     making such determinations.
       5. Lastly, in analyzing the legislation reported from the 
     Senate Commerce Committee, do you have any suggestions as to 
     how the provision might be strengthened to better serve the 
     goal of opening foreign markets to U.S. telecommunications 
     services and products?
       Answer: First, the legislation should provide the Executive 
     Branch with leverage to negotiate greater openness, in 
     conformance with the view expressed by the Executive Branch 
     in its recent comments on the FCC's proposed rulemaking. 
     Otherwise, the legislation reported from the Senate Commerce 
     Committee would make market access factors determinative, in 
     a departure from the FCC's existing public interest standard. 
     Under the existing public interest standard, the government 
     can exercise discretion with respect to foreign investors 
     from otherwise unfriendly nations.
       Second, the bill should provide authority to conform with 
     the obligations of a successful outcome in the WTO 
     negotiations. This would require the U.S. to make any new 
     market-opening commitments on a most-favored-nation (MFN) 
     basis within the framework of the General Agreement on Trade 
     in [[Page S7495]] Services (GATS). In order to provide 
     effective leverage in these talks, legislation to reform 
     Section 310(b) should explicitly provide for the Government 
     to take on such an obligation. If the WTO basic 
     telecommunications services negotiations are not successful, 
     the U.S. will take a most-favored-nation exception for basic 
     telecommunications services under the GATS.
       Third, the bill's market-segment-for-market-segment 
     approach should be dropped to allow market opening generally 
     balanced among telecommunications services markets.
       Fourth and finally, the bill's ``snapback'' provision is a 
     unilateral provision to remove negotiated benefits which 
     would be unacceptable to us if proposed by other nations for 
     themselves. It is unnecessary insofar as the FCC can already 
     condition authorizations and reopen them if the conditions 
     later are not met, consistent with U.S. international 
     obligations.
     

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