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 20011, and a significant percentage of these new operators were affiliated with foreign carriers. The obvious question arises: if foreign carriers are taking advantage of our open market and enjoy such treatment here, shouldn't U.S. carriers enjoy similar treatment in those foreign markets? If foreign carriers operating in the U.S. are ensured access to rights of way and bottleneck facilities controlled by dominant public telecommunications suppliers, to regulatory transparency and due process, and freedom to use technologies of their choice in providing services, shouldn't U.S. carriers enjoy similar access in foreign markets? Aren't there core disciplines we should try to seek in markets of interest to us, above and beyond what existing trade rules provide?

In proposing trade rules there is always a balance between what we seek to obtain from our trading partners and what we ourselves want to be held to: if trade commitments are too prescriptive, we may not give ourselves appropriate flexibility domestically; but if provisions are too general, they may not allow us to resolve problems in foreign markets. As a general matter, we seek to incorporate the minimum amount of detail necessary to address actual problems our companies face in foreign markets. Nevertheless, our first principle has been to ensure that nothing the U.S. proposes in a trade agreement is inconsistent with U.S. law, rule or practice. In fact, we go further, by seeking to ensure that proposals provide sufficient flexibility to take into account any foreseeable changes to U.S. laws, FCC rulemakings, and practices.

To ensure that USTR negotiates trade agreements that are consistent with U.S. law, rules, and practices, USTR consults relevant federal agencies that are part of an interagency process, as well as with the Federal Communications Commission. We do so to ensure that the FTAs build in sufficient flexibility to accommodate possible changes to U.S. laws, rules and practices so that such changes would remaining in compliance with proposed trade obligations. Current U.S. proposals are consistent with the 1996 Telecom Act and build in flexibility to provide the FCC with the necessary discretion to make alterations to its rules. The FCC provides advice to USTR to ensure that any proposals negotiated by USTR are consistent with U.S. telecommunications laws and its rules. In addition, USTR has consulted closely with U.S. industry representatives from the telecommunications sector and has engaged in extensive discussions with Bell companies, long-distance companies, and ISPs. USTR has made significant modifications to the language under negotiation in the FTAs with Chile and Singapore to take into account concerns that have been raised in this process.

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.