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Session 8
International Cooperation and Market Access in Telecommunications

Moderator:

W. Bowman Cutter, National Economic Council1

CHARLES WESSNER: For this session I would like to introduce Carlos Primo Braga, who is the senior economist for the telecommunications and information division of The World Bank. He will bring us a unique overview of both the opportunities and the challenges in the revolution in informatics to the developing world.

Next is Don Abelson who is an advisor to Ambassador Michael Kantor on issues such as investments, trading services, and intellectual property rights protection. A number of these issues, as you will recall, were raised in earlier discussions. Mr. Abelson has taken the lead in the administration in resolving U.S.-European Union audiovisual trade issues. He has a unique grasp of some of the complexities that are involved in services trade.

Our final speaker of this session is Randy Lumb who brings a valuable perspective on the basic issues faced by the industry, but he also has a firm and broad grasp of the Washington political and policy environment.

The themes that we will be trying to capture in this session are the opportunities of global cooperation, the opportunities presented by global information infrastructure, and at the same time, some of the difficulties that are associated with access to national markets.

Global Opportunities

Carlos Primo Braga, The World Bank

Today I will focus on global opportunities. I am not going to talk much about cooperation, although the topic of this panel is an interesting one.

1  

Mr. Cutter was unexpectedly detained.



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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings Session 8 International Cooperation and Market Access in Telecommunications Moderator: W. Bowman Cutter, National Economic Council1 CHARLES WESSNER: For this session I would like to introduce Carlos Primo Braga, who is the senior economist for the telecommunications and information division of The World Bank. He will bring us a unique overview of both the opportunities and the challenges in the revolution in informatics to the developing world. Next is Don Abelson who is an advisor to Ambassador Michael Kantor on issues such as investments, trading services, and intellectual property rights protection. A number of these issues, as you will recall, were raised in earlier discussions. Mr. Abelson has taken the lead in the administration in resolving U.S.-European Union audiovisual trade issues. He has a unique grasp of some of the complexities that are involved in services trade. Our final speaker of this session is Randy Lumb who brings a valuable perspective on the basic issues faced by the industry, but he also has a firm and broad grasp of the Washington political and policy environment. The themes that we will be trying to capture in this session are the opportunities of global cooperation, the opportunities presented by global information infrastructure, and at the same time, some of the difficulties that are associated with access to national markets. Global Opportunities Carlos Primo Braga, The World Bank Today I will focus on global opportunities. I am not going to talk much about cooperation, although the topic of this panel is an interesting one. 1   Mr. Cutter was unexpectedly detained.

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings Instead of seeing technological progress as something in which a country or company will have nothing to gain unless it controls the process, cooperation today is very much at the core of the discussion. In the past we had the ''lead dog" approach: the scenery only changes for the lead dog in the sled of technological progress. You had to believe in that to be the top dog or you were lost. More and more we believe that cooperation has an important role in this process. Where do developing countries fit in this scheme of things? My talk today will focus on answering this question. I suggest here that, from the point of view of the world economy and from the point of view of science and technology, what happens in many developing countries will be vital, not only for their own development, but also for the future of the world economy. So I begin my talk with a vision of the future qualified by the obvious caveat: "He who predicts the future is bound to be wrong even when he happens to be right." I present three issues. First, globalization is here to stay, but globalization not only in the sense of an increasing interdependence in terms of trade and investment, but also interdependence in terms of knowledge flows. What is really new in the world economy today are the possibilities that we have to exchange knowledge and information in amounts that were impossible just a few years ago. In this context, there is a kind of discontinuity in the way the world economy can operate. Second, the world economy is becoming more and more knowledge intensive. And knowledge has become a major determinant of how to explore comparative advantage in an effective way. The concept of comparative advantage is probably the only economic concept that is both true and nontrivial. There is no doubt that we have to discuss dynamic comparative advantage, and this is not an easy subject. What I will do is focus on the opportunities generated by international knowledge flows. Consider international trade flows. If we focus on R&D intensity, by 1965, most products that we would characterize as R&D-intensive products were responsible for approximately 11 percent of world trade flows; now they account for roughly 25 percent. So there are a lot of opportunities. The third point that I would like to make is that we are moving into an economic system that is increasingly disciplinarian. Countries that make mistakes pay dearly for those mistakes. The recent experience of Mexico is a good example in this context. So interdependency and its consequences will continue to increase. Countries will have less freedom with respect to policy choice in this global economy. At the core of this global economy are service links. And the services trade is growing very fast. (However, there are many problems with the statistics. I recommend the recent World Bank report called Global Economic Prospects, in which the growth of trade in services is reviewed.) We find significant growth, particularly in the so-called "private services" category which consists of typically knowledge-intensive activities.

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings So information technology is making a difference, and it is changing the way that companies and the world economy operates. And a global information infrastructure is emerging. A major policy issue is how to enhance the penetration of networks and how to provide better communications. These are major issues for developing countries. More and more, the developing countries will be divided among the slow and the fast. Actually, I submit that this will probably be true for all countries. The slow will not be able to connect to the global information infrastructure. The fast will succeed, and they will be able to converge with the industrialized economies. The slow, by not connecting, will face even greater divergence in terms of economic growth and, of course, welfare. A major policy question for an institution such as The World Bank is: What policies promote connectivity to the global information infrastructure and enhance productivity? We believe that the private sector should lead in this process. We believe that competition should be fostered. But we also recognize that the regulatory environment of these economies plays a major role in shaping this process. Accordingly, regulatory reform is high on our agenda. It can be pursued through several avenues. The World Bank, for example, has supported unilateral reforms. Actually, we are initiating a new fund (InfoDev) with the cooperation of governments and the private sector to try to discuss these issues in the capitals of the developing world—about how to connect and how to have a proper regulatory environment. But this may not be enough. You have to explore other avenues. We have, of course, the multilateral avenue, and the General Agreement on Trade and Services [GATS] offers important opportunities, although much remains to be done. The negotiations on basic telecommunications are still in progress, but if you look at the commitments on value-added services made in the context of the GATS negotiations, it is clear that most developing countries have not yet convinced themselves of the importance of being connected in a competitive environment. In Latin America, for example, if we take the "universe" of possible service activities in value-added services that could be offered, only 5.7 percent of these activities were offered by Latin American countries. In South Asia it is 3.3 percent, in East Asia it is 12 percent, and in Eastern Europe, it is 20 percent. What about the highly industrialized countries? They did not fare much better either; they are in the 20-25 percent range. Yet what is clear is that, although the GATS has the potential to bring partners to the table and foster the win-win proposition that we have been talking about, much effort is still required. So I believe that markets will play a much bigger role in shaping the connections of developing countries to the global information infrastructure. The possibilities in terms of social impact are dramatic. For example, in the area of education productivity, growth has been quite slow over time. But now things are changing. We can now explain economies of

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings scale and scope (for example, interactive CDs [compact disks] or the use of the Internet to access resources in the developed economies). The same applies to the health sector. There is an experiment called the Global Health Network run on the Internet; the University of Pittsburgh is very active in this initiative. It is creating databases in epidemiology to allow not only countries to monitor possible outbreaks (like the ebola case), but also to initiate proactive actions in areas such as diabetes. Telecommunications as an enabling technology and computer-mediated networks create possibilities for major changes in social areas. One other point: If we are going to promote market solutions, however, we need to protect intellectual property rights. This is a very tricky issue. In the digital era, you can either be among copyright optimists (those who believe that copyright will take care of everything) or you can be among copyright pessimists (those who assert that copyright is okay, but that there are many problems that require a sui generis approach for protection). Or you can be a radical and say that there is no way that we can use a legal instrument that has evolved in response to eighteenth century technologies in the digital age. And you could suggest, that we have to work with encryption and create new mechanisms to assert property rights. No matter where you stand, the problems are very real, particularly in developing countries. For example, I recently prepared a paper on the impacts of the TRIPS Agreement—the Trade-Related Intellectual Property Rights Agreement—on developing countries. I evaluated it sector by sector. In the area of software and copyright protection, I found that 63 percent of 98 countries would have to change their laws significantly just to cope with the new requirements in the TRIPS Agreement. Can you imagine the many challenges in adopting proper laws and enforcement to promote the information age in the developing world? To sum up, the challenges are great, but the opportunities are also significant. The main issue is how to make the transition feasible and how to help the developing countries benefit from this technological revolution. Thank you. The Need for Market Access Don Abelson, Office of the United States Trade Representative My discussion focuses on how to proceed to cooperate so as to open overseas markets. To understand how one uses GATS, which is an agreement under the World Trade Organization, one has to understand the nature of it; that is, the way the agreement itself is fashioned. Principles and commitments: GATS builds upon the way we constructed the GATT in the late 1940s; that is, an agreement that has principles in it and then an attachment to that agreement of specific commitments. The GATT has a core set

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings of principles as well as tariff commitments (bound tariffs that a country is willing to keep). The way the GATS works is very similar. It has a set of core principles, and each country has made commitments with regard to two aspects of delivering services: market access and national treatment. These two elements are not built into the core text of GATS. The concept is that, with regard to specific service sectors, each country can decide whether or not it will permit foreigners access; and, once a foreigner—a company of a foreign country—is inside their market, whether they will treat it like they treat any other national company. We have heard reference to "value-added networks" or "value-added services," and we have heard commitments taken by some countries when the Uruguay Round was concluded. Indeed, inside the GATS and the commitments by a number of countries, there are some commitments in the area of value-added service. Not enough, but certainly it is a starting point. Basic telephony not covered: The GATS does not cover basic telecommunications services. Only one country, by mistake, made a commitment in basic services, and it is asking if it can get out of it. Other than this one case, there are no commitments taken as a part of the Uruguay Round in the area of basic telecommunications. In fact, when the trade ministers met in Marakesh in April 1994, it was agreed to extend the negotiations on basic telecommunications for two years. That extension will expire in April 1996. This two-year extension is to allow time for the countries to negotiate in the area of basic telecommunications. We have the possibility of cooperation or the potential for friction. The first point I want to make with regard to these negotiations on basic telecommunications is that we do not know exactly which country is the "demandeur" and which countries are the ones that will go along for the ride. Is the United States the "demandeur"? If you look into the history of these negotiations, it can be seen that four years ago the United States was the ''demandeur." At the end of the negotiations in December 1993, however, it was not. If you listen to the presentations of developing countries and the need they have for infrastructure development, and the fact that if they want to be on the fast road in this environment, and that they need this kind of development, then they should be the "demandeurs." Some would have the United States be the demandeur to ensure that overseas markets are open. That is the point on which I would like to focus the remainder of my comments. CLOSED MARKETS Markets overseas are not open, not as open as are U.S. markets. There are only two markets that perhaps match ours: the country to our north and the country in Europe that speaks our mother tongue.

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings There are no other truly open markets in basic telecommunications around the world. We find markets that have traditions of 100-year-old monopolies that have not yet been demonopolized significantly, that have not been privatized to any great extent, and, in which there is only a limited environment to create a competitive framework for that demonopolization and privatization. If a country does not have a framework for a regulatory environment that promotes competition, how are U.S. companies supposed to compete? Clearly the type of deal that we need is one that gives us the same type of opportunities that others find here in the United States. A regulatory mirror? So we use ourselves, once again, as a mirror for what we are looking for overseas. If I could describe that mirror image, this is what I would see in it. I would see a country that has an independent regulator that is not subject to the whims of any particular administration, a regulator that is not inside the industry ministry, and that is not part of a government that has a share of the major telecommunications provider. I have just described Germany for you. I have, to some degree, just described France for you. I have perhaps, to some degree, described Japan for you. I could have described Brazil, I could have described South Africa, India, on down the list. What more important markets could I describe? We need an environment in which there are competitive safeguards. Countries that have had monopoly suppliers for the last 100 years—that is, either demonopolized or not, privatized or not—must make sure that that supplier cannot use that 100-year-long history as a way of preventing new entrants from competing. We have heard every reason and every excuse for not allowing competition in the United States during the past 15-20 years of our process of demonopolization. Just remember the "hush-a-phone" case, which is a classic. That case shows you how creative monopolies can be. The hush-a-phone had to do with a device sold in the 1950s that you put on the end of your phone to keep the conversation quiet. It had nothing to do with unscrewing the mouthpiece and screwing in another piece. It was just a piece of foam rubber. Our own monopoly argued that, in fact, that product had to be safety tested, had to be technically tested, etc. Every argument from monopolies stems from that. They are trying to protect their market position. We need competitive safeguards. Transparency: We need transparency. We need a process by which the foreigners will, in fact, make open the terms of competition to all who need to know the information. Who needs to know? New entrants, new competitors, companies that are entering the market for the first time and need to know exactly what it is, either on the technical side to be connected, or in fact on the accounting-rate side, so that they can figure out what deals are being cut by overseas monopolies to their own favored suppliers.

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings Without these conditions, you will find that there is very little possibility for cooperation on a final agreement, and in fact there will be much friction. I close my comments by talking about the possibilities. I believe that there are tremendous possibilities. I believe that the United States will be very successful with the agreements next year and achieve the types of conditions that I have just outlined. I say this because we are all "demandeurs" in this negotiation. The United States is, key developing countries are, certainly the Europeans are, and, our friends in Japan are. We all want access to this very fast moving high-technology sector. And therefore it makes us all the more eager to figure out how to conclude an agreement. Another reason that I believe that we will be successful is because the terms that I have just described are not new. Each and every country coming to this debate, each and every regulator and company coming to this debate is increasingly aware of the need for just the types of guarantees and disciplines that I have outlined. The problem, of course, is how quickly we can politically put them into place. Thank you. GEORGE KOOPMANN: In the context of the European position on open markets in telecommunications, your remarks are very interesting. But you did not make any comment about the direction of liberalization to date and the fact that there is a commitment to liberalize competition by 1998. I have two concerns that derive from that. The first one is, this seems to be an awful lot to be fighting for over just a three-year period. If the Europeans had no commitments for liberalization I could understand it. But they are already partially liberalized and moving to full liberalization by 1998. If England can get along in the kind of market that is evolving there, it seems to me that there ought to be a basis for a U.S.-European deal. My second point is that my interpretation of the directives is that there is no way that a basic service provider can provide its own equipment uncompetitively. Because AT&T both provides equipment and wants to provide basic services to Europe, how would it handle the directives in Europe if AT&T is able to get into the market under those directives? DON ABELSON: My reference was to commitment on the part of the European Union and its 15-member states to complete a liberalization process by January 1, 1998. The deadline in these negotiations is April of 1996. So there is a gap between one date and the next. That kind of gap is manageable, so that is not an issue. The issue is, what is the liberalization that will take place in Europe? This is an open-ended question. If all that is done in Europe is to make it easier for large companies to compete within the framework of Europe, because of the political need, then in fact you do not have true liberalization.

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings I am saying that if you are going to allow Deutsch Telecom and France Telecom to continue as the behemoths that they are, then there will be less than full competition. In the end, these companies will segment the market in Europe and continue to dominate that market. That would not be the result if there was real competition based on a set of competitive safeguards, transparency, rules on interconnection, and an independent regulator, in which case you would have great competition, and we would not be able to predict the result. One thing we could predict, of course, is that there would be tremendous upheaval, the types of social, political and labor upheaval that we have gone through. So if Europe does not truly liberalize in 1998 but liberalizes on the margins and it looks good on the surface, but underneath it is really not liberalized, how are the United States and/or non-European suppliers going to get into that market? ERHARD KANTZENBACH: I would like to add something to the last comment. You say that we in Europe are limited because of the monopoly and that we are not finalizing liberalization. It is a two-way street. At least under a monopoly we would have public procurement, which we do not have. If we compare the facts, it is not easy for the European telecommunication companies to sell systems and equipment to the United States, because the United States does not have this public procurement, which makes it very difficult to get access to the U.S. market. For the time being, both sides have to learn their lessons. It is too early for the United States to suggest that it is open and that the others are not. My point is only that we have to learn on both sides and not to say the others are making the mistakes. RANDOLPH LUMB: For those of you who are following the debates on Capitol Hill right now in terms of the domestic structure of the U.S. telecommunications industry, the entire issue around the ability to manufacture or the ability to offer competitive long distance services is certainly a reciprocal benefit accruing to the regional Bell operating companies, for allowing those who were offering competitive services today into the local exchange business. So the theory here, at least in the United States, is that you can be vertically integrated anywhere you so choose as long as the marketplace is the regulator of that competition. To address the fact that the German market is open to procurement: One of the things that did not happen in the GATT agreement was that the European Union would not accede to the agreement on government procurement for infrastructure procurement of telecommunications. The United States was willing to open the state, local, and federal government markets and to bind open the monopoly regional Bell operating companies to open in transparent procurement. But it was the Europeans at that particular

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings point who would not bind open their monopoly markets to a fair and equitable GATT-related procurement. If the GATS is successful, and there is a core nucleus of key countries that agree on competition and basic telecommunication services, frankly once those markets for basic telecommunications services become open and competitive, the procurement issue is moot. It follows along as a natural pull through of a competitive marketplace. CARLOS PRIMA BRAGA: Just as a footnote, in the GATS Agreement, there is a commitment to begin negotiations in the procurement area for services in two years' time. It is a different ball game with respect to services vis-à-vis the government procurement plurilateral agreement. SYLVIA OSTRY: Given the definition, the services sector is really not a traditional trade sector. It is domestic deregulation. And the Americans are saying that the Europeans had better deregulate the way we do or you are unfair, and that is perfectly legitimate to say that. But say that to the rest of the world. You can reach an agreement with Europe because they are too big to fight with. But say many of the other countries do not go along. Presumably you will not do national treatment and you will not do MFN. So your alternative is to use 301 and do it bilaterally. I am just trying to find out whether the GATS Agreement on this would collapse because the other countries do not agree. What is your alternative? DON ABELSON: You are right to assume that, should we not get a deal that is deemed by U.S. interests as good enough, we would not reach a successful conclusion to the talks. I do not know what other governments would do. We would make this assessment based on consultations with Congress and with the private sector. We would not make a commitment to others to provide national treatment and access to the U.S. market. In addition, we would not provide MFN treatment in this sector. We would be free to do what we wanted to do bilaterally. So that would be the first step. However, we are guessing what would happen. It is only based on an assumption that there is failure, even though I do not believe that we will fail. This is a very hypothetical framework at this point in this discussion. I hesitate to go into such a hypothetical framework, because without the appropriate conditionals in each and every sentence, it could be misquoted. But, nevertheless, in such a situation we would probably use the type of mechanisms we have at our disposal today, some of which have been mentioned here. GEORGE KOOPMANN: Between these two extremes—301 and the multilateral agreement—there might be scope for the plurally lateral or many-lateral agreements between like-minded countries, which should be open to other coun-

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings tries that could accede to the agreement at a later stage. Do you see any scope for this option, and who would be a possible participating country? DON ABELSON: You describe an option that is somewhere in between doing it one-on-one and doing it with 120 countries, which is what our negotiating framework in Geneva is. To be honest, we need approximately 40 or more key countries in the negotiating room in Geneva, not 120. We need less than the entire universe of the WTO to get the deal. I am convinced that we will eventually have a deal. A deal must include the countries that we have heard about; that is, the developing world as well. Because in the area of infrastructure of telecommunications that we are creating, we are talking about the pipes of the information highway. It is not sufficient to have pipes that go across the Atlantic and the Pacific but then do not go beyond. We need the Asian countries, we need Korea, and we certainly need Australia and New Zealand. We need the subcontinent, key countries in Africa, the Middle East, certainly the emerging countries in East Europe, the former Soviet Union states, and then, of course, Latin America. Without these key emerging markets, we have only codified yesterday's markets and we have not really dealt with tomorrow's markets. I did not mention China and Taiwan, or Chinese Taipei, because they are not members of the WTO and do not participate in the negotiations. But certainly we could meet them too, and the former Soviet Union. Is such a deal possible? Yes, because it is largely in the interests of the countries that are around the table. We all want to be in the fast lane, and this is the negotiation that will create the rules of getting into the fast lane, and that is where the commonality of interest is. An Industry View Randolph Lumb, AT&T At the 1964 World's Fair in New York, the Bell System introduced the first video phone. It was in 1993 that AT&T put it on the market as a commercial product. From 1964 to 1993, the commercialization of that product was somewhat dampened by the fact that there was a regulatory policy within the United States that was very customer-user focused. And the regulation of the Bell System was in place to ensure affordable and universal basic telephone service. The inventions of the Bell Laboratories during that period of time accrued more benefits to companies outside of the Bell System than they did inside of the Bell System. Why was that? It was because of the regulatory framework created to put 20-year depreciation schedules in place for switching technology, in which the tech-

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings nology itself was starting to turn over every decade, then every five years, then every two-and-a-half years, and then every year. But the entire rate structure, the entire cost structure, and the entire capital structure of the Bell System was regulated. And it was regulated for the U.S. user and consumer of telecommunications. Basically what happened a decade ago was that competition was substituted for regulation, because that is basically what happened with the modified final judgment in the divestiture of the Bell System. What were called natural monopolies, or what we know as local exchange companies, were put in a position in which they could only offer basic telephone service and others could offer other types of service. The fascinating thing is that the rates have dropped by 40 percent over that decade. So rate-of-return regulation was substituted by competition. There was disruption of employment, but today there are more companies in the telecommunications business. Currently, there are 650 long distance telephone companies in the United States. You can access them by dialing their access code. Some of them are very highly oriented, some are very general. But there are more companies in the business, and the business is growing at a tremendous rate. When you look at the information technology sector, it is probably the leading sector in terms of employment, invention, and leadership in the United States today. And the telecommunication sector is certainly a prominent part of that. In Europe, they have a different approach. Instead of the consumer, the worker seems to be the most important person. Many of the policies that are associated around the activities of liberalization in Europe are labor-based policies rather than consumer-based policies. This changes the thinking of the government and the regulator when they start to make decisions. In Japan it is producer-based policies. It is very important for NEC, Oki, and Hitachi to be linked with NTT in a very close, almost vertically oriented way. But the policy is different, and therefore the motivation of government and the motivation of liberalization is different. We certainly would like to see a system in which competition is the norm, not the exception, and that comparable or effective market access becomes the test. A government has a sovereign right to develop any market model that it so chooses. If one chooses to have a monopoly government-owned telecommunications system, they have the right to do so. But they should not have the right to have a monopoly in their home market, have access to my competitive market, and be able to use monopoly profits to compete against my stockholders' equity. This is not effective market access and effective competition. So that is why we are concerned about things that are occurring in the marketplace today that are dysfunctional. For example, the German-and the French-owned telecommunication firms are trying to buy into Sprint. We think they

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings ought to have every right in the world to invest their capital in that company. But when it is a government-owned monopoly doing so and U.S. companies do not have an effective opportunity to compete in the investor's markets, then that creates an asymmetry. Congress is trying to get away from exactly this type of asymmetry in terms of what the Bell operating companies, AT&T, MCI, and Sprint are involved in. So why would we, on the one hand, try to dismantle that type of asymmetry, and on the other hand, perpetuate it in the domestic market and the international market? We believe that the GATS Agreement offers an opportunity to bring the most players to the table at one time so as to achieve effective competition in basic telecommunications services. If it requires some sort of a transition period, so be it. But we believe that this is a much more preferred solution to bilateralism or the ad hoc system that exists today. Thank you. ERHARD KANTZENBACH: I just want to assure you that in Germany there will be an open market in 1998. The plans of the Minister of Postal Service are published already, and I am sure we will have a system, too, that is consumer oriented. But let me say one thing. If, in general, we have a monopolized postal service, and in America you have a consumer-oriented market, in that case you would deny the access of the European firm to the American market. This, of course, is a producer-oriented viewpoint, too, because the firms would not do any harm to the American consumer. RANDOLPH LUMB: I have seen European firms be very successful in this market, selling telecommunications equipment, even switching equipment. Let me tell you what disturbs me about the two markets. If you are in Paris and you make a telephone call back to Washington and then if you are in Washington and make a call to Paris, and then you compare the two bills, you will find that the same call costs almost three times as much to originate in Paris as it does to originate in Washington. Why is this? Is the French telephone system so inefficient that they have to pay so much, or is there a huge subsidy in there that is going into the pockets of some sort of a program that is keeping some social program alive, or is it subsidizing some producer who may be in the United States selling against the competitive market? But the fact of the matter is that there is a huge disparity in the prices. I believe that the competition in both markets—and we know that the competition in this market is causing those prices to be what they are—will take the subsidy out and will make everyone probably more fleet of foot in the long run. HANS SCHARRER: To follow up to what Dr. Kantzenbach said, I believe that

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings there is an inadequate recognition in the United States of the changes that are taking place in Europe. It is true that deregulation is still not concluded. You mentioned the United Kingdom, but you could have mentioned other countries in Europe. If you take the German example, there is access to wireless networks, and American companies are part of this process. I do not know of any German company that would be part of an American wireless market. There is a change coming up in cable networks that will be demonopolized within the next years, and a number of countries will compete in this market as well, besides German Telecom. German Telecom is going to be demonopolized; it is going to be privatized. But it is a worker-oriented approach. People who worked for German Telecom went into this company for lifetime employment. Now the company has to cut employment by 80,000 people within a short time, so it is quite natural that they have to take some account of how to manage this. So to that extent there is some social component in it. But this does not rule out that, in the end, this will be a consumer-oriented process that will be different from the American market. But it will be highly competitive and quite in line with what is going on in other countries of Europe. One final thing regarding access in the components market. Mirroring the U.S. market in Europe may very well mean that, instead of public procurement, you will have nonpublic consumption by the private telephone companies. And what will you do if AT&T or some other company does not get into this network? Would you then apply 301 according to the Japanese automobile example? This is the other side of the mirror of course. There is no public procurement in the United States. It is all private buying. And without any transparency. RANDOLPH LUMB: To briefly respond, I believe that Europe is on the right road to liberalization, and 1998 seems to be the date that they say that it will occur. But competition and liberalization are distinctly different. It takes time for competition to become whole. I hope that this move will allow the Europeans to make a commitment to open their markets to competition not only among themselves, but among others, the United States included. In that regard, that would be a foundation of private, commercial companies competing with each other in a global market, not unlike private commercial companies competing with each other between Europe and the United States today. That then says that procurement becomes private and commercial. And if you make a mistake and you buy something incorrectly, then you suffer the consequences of that capital acquisition in the marketplace, not under the protection of a regulator.