Order Code RS20319
Updated January 10, 2001
CRS Report for Congress
Received through the CRS Web
Telecommunications Services Trade
And the WTO Agreement
Bernard A. Gelb
Specialist in Industry Economics
Resources, Science, and Industry Division
Summary
World telecommunications services trade is growing and evolving very rapidly,
appearing to corroborate expectations that the 1997 international agreement to liberalize
trade in basic telecommunications services would greatly increase world trade in those
services. While the agreement, under the auspices of the World Trade Organization
(WTO), faces many obstacles to full effectiveness, it is expected to benefit the highly
competitive U.S. telecommunications industries and facilitate world economic growth.
Congress, as always, is concerned that trading partners adhere to their commitments.
Essentially no bills in the 106th Congress directly related to this issue, however. This
report will be updated as events warrant.
Context. The WTO Agreement on Basic Telecommunications Services, which
concluded nearly three years of negotiations, occurred in a context of developments on
several fronts — statutory, institutional, technological, economic, and structural. It
appears to have spurred and to have been spurred by such developments.
Statutory and Institutional. The Agreement was one event in a sequence of
developments in international trade and U.S. law. The North American Free Trade
Agreement, which included some liberalization of trade in enhanced telecommunications
between Canada, Mexico, and the United States, went into effect January 1, 1994. The
Uruguay Round Final Act entered into force January 1, 1995, after nearly a decade of
multilateral negotiations to expand world trade under the auspices of the General
Agreement on Tariffs and Trade (GATT). It established the World Trade Organization,
which replaced GATT.1 The U.S. Telecommunications Act of 1996, (P.L. 104-104),
which aims to promote greater competition in U.S. telecommunications by removing
1See CRS Report 98-928, The World Trade Organization: Background and Issues, by Lenore
Sek.
Congressional Research Service ˜ The Library of Congress

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regulatory barriers was enacted February 8, 1996.2 In another regional arena, European
Union telecommunications markets opened to competition on January 1, 1998. In
November 1997, the U.S. Federal Communications Commission liberalized its policy of
restricting entry of foreign firms in U.S. non-broadcasting telecommunications with an
"open entry" standard for firms from WTO member countries.3
The WTO basic telecommunications agreement built upon the Annex on
Telecommunications, part of the General Agreement on Trade in Services (GATS), itself
a component of the Uruguay Round Final Act. The Annex requires WTO members to
ensure that all service suppliers seeking to take advantage of scheduled commitments have
reasonable and non-discriminatory access to and the use of public basic
telecommunications networks and services. Basic telecommunications was one of several
issue areas upon which only partial agreement was reached in time for the Final Act.
Further negotiations were to be completed by April 30, 1996. While some progress was
made, it was deemed insufficient by some country participants but promising enough to
justify extending the negotiations. The agreement was reached February 15, 1997, and
went into effect February 5, 1998; it now encompasses 75 countries. Another round of
negotiations on telecommunications was expected take place in 2000 as part of a new
round of WTO negotiations.
The statutory and institutional arena also has seen a widespread trend for countries
to liberalize and/or at least partly privatize their telecommunications markets. A number
of countries have completed or begun a process of converting state-controlled
organizations to privately owned market-oriented firms through private investment.
Liberalization has included allowing more than one supplier of a particular type or
category of product or service, and/or within particular geographic areas.
Technological, Economic, and Structural Developments. The above-described
factors have interacted with or have been at least partly driven by technological, economic,
and structural changes in telecommunications and in related industries. For example,
digital technologies make it possible to distribute voice, data, and video on the same
communications channel, and thus to transmit more information per cable and portion of
spectrum. Wireless transmission improvements and higher productivity in installing
undersea fiber-optic cable have lowered the cost per circuit. Such developments enable
telecommunications providers such as telephone and cable television companies to expand
their capabilities to become generic multi-faceted information providers, and compete in
many markets once considered to be monopolistic. International “call back” and "refile"
services enable telephone callers from high-cost countries to effectively originate calls from
lower-cost countries and be billed at the lower rates; this has tended to hold down
international rates. The technological advances, moreover, are very rapid.
Structurally, telecommunications has become globalized and increasingly linked
across international borders. Many telecommunications firms are joining forces —
through mergers, acquisitions, equity sharing, marketing arrangements, and other
2See CRS Report 96-223, The Telecommunications Act of 1996 (P.L. 104-104): A Brief Overview,
by Angele A. Gilroy.
3U.S. Federal Communications Commission. News. "Commission Liberalizes Foreign
Participation in the U.S. Telecommunications Market." November 25, 1997.

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combinations — to position themselves better for future market growth by offering a range
of services, and, increasingly, functionally integrated international service. This globalized
merger and acquisition trend has involved a number of telecommunications firms of
different countries, and continues to do so at a rapid pace.
Both a major cause and a major consequence of the above developments has been
rapid growth in world telecommunications services, including international trade in such
services. Data compiled by the International Telecommunication Union (ITU) show that
world revenue from telecommunication services of all types doubled between 1990 and
1999 (table 1). Revenue in 1999 from mobile service was 17 times its 1990 level; 1999
revenue from a grouping of services (including leased circuits, data communications, telex,
and telegraph) was four times its 1990 level; and international telephone traffic minutes
tripled over the period.
Table 1: World Telecommunications Services
Indicator
1990
1993
1995
1997
1999
billions of U.S. dollars1
Total telecommunications service revenue
396
491
615
702
792
Telephone service2
356
410
497
500
480
(International3)
(33)
(46)
(53)
(54)
(58)
Mobile service
11
33
75
129
192
Other4
29
48
43
73
120
millions
Number of main lines
520
606
691
792
905
Mobile cellular subscribers
11
34
91
214
472
International telephone traffic minutes
33,378
48,273
61,307
78,576
78,576
1 Current dollars, converted using annual average exchange rates.
2 Installation, subscription, and local, trunk, and international call charges for fixed telephone
service.
3 Retail revenue.
4 Includes leased circuits, data communications, telex, telegraph, and other telecom-related revenue.
Source: International Telecommunications Union. Key Global Telecom Indicators.
The Agreement. The agreement covers basic telecommunications services only.
Participants agreed at the start of the talks to disregard differences in how countries might
define “basic” telecommunications, and to negotiate on all public and private
telecommunications services that involve the simple transmission of customer-supplied
information (voice or data) from sender to receiver. Whereas the Annex on
telecommunications addresses access to existing services and networks by users, the basic
telecommunications agreement addresses the ability to enter telecommunications markets
and sell services.
The specific types of services covered in the negotiations include voice telephone,
data transmission, telex, telegraph, facsimile, private leased circuit services, fixed and
mobile satellite systems, cellular telephone, mobile data services, paging, and personal
communication services. Broadcasting is not included. So-called value added services,
in which suppliers enhance the form, content, or retrievability of customers’ information,
were not formally covered by the negotiations. But a few participants chose to include

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them in their offers. Enhanced services include on-line data processing, data base storage
and retrieval, and electronic data interchange.4
Three Basic Elements. The agreement, which will be enforceable internationally
through the WTO’s procedures for dispute resolution and/or through individual country
actions (as specified by the agreement), has three basic elements. One gives companies
of a signatory country access to the telecommunications markets — local, long distance,
and international — of other signatory countries through any means of network
technology, by installing and using their own facilities, through purchase and/or resale of
existing network capacity, and through interconnections. Because basic telecom services
provided over network infrastructure and through resale over private leased circuits were
agreed to be covered, market access commitments will cover services provided through
the establishment of foreign firms or commercial presence, including the ability to own and
operate independent telecommunications network infrastructure.
Secondly, the agreement provides that companies of one country can acquire and/or
hold significant ownership or control of telecommunications services and/or facilities in
other participating countries. This is partly implied in market access commitments that
permit the establishment of foreign firms and the ownership and operation of
telecommunications network infrastructure.
Thirdly, participants agreed to establish a framework of fair competition comprised
of a set of regulatory principles in a “Reference Paper” based upon the U.S.
Telecommunications Act of 1996. The regulatory principles define and prohibit anti-
competitive practices such as discrimination and nontransparency, especially with respect
to interconnections, licensing criteria, and universal service. Each country is required to
have an independent and impartial regulatory body.
Overarching Aspects. In general, the results of the basic telecom agreement are
extended to all WTO members on a non-discriminatory basis through the “most-favored-
nation” (MFN) principle.5 However, at the end of the negotiations, many participants
exercised their right to file MFN exemptions for certain telecom services.6
General descriptions of the elements of the basic telecommunications agreement mask
the wide differences in the present openness of individual country telecom markets, in the
degrees to which individual countries have agreed to the numerous aspects of the
agreement, and in the scopes of such commitments. Some countries, albeit a minority,
made no commitments whatsoever with respect to some individual aspects of the
agreement. Details of individual country commitments can be found at the Internet web
4There are numerous exceptions in which countries have specified later dates for, or the phasing
in of, implementation of commitments applying to one or more services or concepts.
5Under MFN, any concessions, privileges, or immunities granted to one country (the “most
favored”) are extended to all countries that are accorded MFN treatment. For more discussion of
MFN and U.S. MFN policy, see CRS Issue Brief IB93107, Normal Trade Relations (Most-
Favored-Nation) Policy of the United States, by Vladimir N. Pregelj.
6The United States filed an MFN exception for one-way satellite transmission of direct to home
satellite, direct broadcast satellite, and digital audio transmission services.

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sites of the WTO and of the Office of the U.S. Trade Representative
([http://www.wto.org] and [http://www.ustr.gov], respectively).
Implementation. Translation of the agreement into actual increased openness of
telecom markets and lower rates for services faces a variety of hurdles. One is the difficult
institutional and legal transition to a competitive environment by many countries that now
have a single supplier of telecom services and no independent regulatory body (called for
in the WTO agreement’s regulatory principles). Two other hurdles are (a) the large
amounts of capital relative to domestic resources that some countries will require to put
modern telecommunications infrastructures in place, and (b) the corresponding technical
assistance and support that some countries will require. It may well be a number of years
before the agreement’s terms are fully implemented and the goals realized.
Congressional Oversight. As a rule, trade agreements have not needed
congressional action unless Congress mandated they be approved in legislation or they
required changes in U.S. law. Legislation approving or implementing the agreement is
necessary in those cases. Congress acknowledged that the U.S. would participate in
extended telecommunications negotiations in the Uruguay Round implementing legislation,
where it set forth the U.S. negotiating objective for these talks. Congress did not
expressly require that any resulting agreement be legislatively approved, however, and
most observers believe that the basic telecommunications services agreement does not
require implementing legislation. The agreement has entered into force essentially without
objection as an executive agreement.
Some Members of Congress initially were apprehensive about foreign investment in
U.S. telecommunications, particularly regarding broadcasting. The agreement does not
cover broadcasting, however, and congressional concern seems to have eased in this
respect and others. Only one bill (S. 376) in the 106th Congress appeared to relate to
international telecommunications services; this aims to promote competition in satellite
communications by requiring the (U.S.) Communications Satellite Corporation to advocate
pro-competitive privatization in its role as signatory to the International
Telecommunications Satellite Organization. Hearings were held March 25, 1999.
Impact. The WTO basic telecommunications services agreement is expected to
increase world trade in telecommunications services and facilitate economic growth in
general. Freer trade should result in improved products and services, lower prices,
additional investment, and a better allocation of productive resources in the world
economy. Inasmuch as the countries committing to full competition by 2005 accounted
for 89% of world telecommunication service revenues in 1995 (ITU data), liberalization
is to be applied to a very broad base of activity.
Data suggest that the potential benefits of telecommunications trade liberalization
may be greater in relative terms for emerging economies than for developed ones.7
However, the U.S. telecommunications industry and U.S. economy (with one of the most
advanced telecommunications infrastructures) should benefit greatly in absolute terms; this
7The ITU reports that international telephone traffic per subscriber grew faster between 1990 and
1995 in countries with more than one service provider than in “monopoly” countries, but the
difference was greater among developing economies than among developed economies.

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country accounted for 28% of world telecommunications services revenues in 1995. The
highly competitive U.S. telecommunications services industry should be able to greatly
increase its presence in other countries’ telecommunications markets. Similarly, the
competitive U.S. telecommunications equipment manufacturers should be able to boost
sales considerably with the expected growth in world telecommunications services.
Increased competition resulting from telecom trade liberalization is driving down
settlement rates charged by foreign telephone carriers to complete international calls,
lowering the prices of such calls to consumers and businesses. Foreign settlement rates
have tended to be much higher than U.S. rates, and many more calls originate in the United
States than abroad, accounting for much of the U.S. trade deficit in telecom services (table
2). Probably indicative of the above-noted effects of greater competition, revenue from
international telephone service increased 9% between 1995 and 1999 while total
international telephone traffic minutes rose 61% (table 1), and the U.S. trade deficit in
telecom services have decreased in recent years (table 2)8 in both absolute and relative
terms.
Table 2: U.S. Trade in Services (millions of dollars)
Telecommunications Services
Total Private Services
Year
Exports
Imports
Balance
Exports
Imports
Balance
1986
1,827
3,253
-1,426
77,205
66,419
10,786
1989
2,519
5,172
-2,653
118,081
87,001
31,080
1993
2,785
6,365
-3,580
172,031
111,259
60,772
1995
3,228
7,305
-4,077
204,229
133,355
70,874
1996
3,301
8,290
-4,989
221,120
137,081
84,039
1997
3,918
8,346
-4,428
239,444
152,042
87,402
1998
5,538
7,687
-2,149
244,099
167,607
76,492
1999
4,460
6,766
-2,306
254,665
174,825
79,840
1 First three quarters at an annual rate.
Source: U.S. Department of Commerce. Bureau of Economic Analysis. Survey of Current
Business, October 1999, October 2000.
8There are moves to "reform" the settlement rate system. In August 1997, the U.S. Federal
Communications Commission established a (reduced) tariff scale (to be phased in) that U.S.
carriers are obliged to follow. This unilateral move, unpopular with many countries, prompted the
ITU to propose an interim cap on settlement rates.

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