10:38 AM Feb 11, 1997

TELECOM TALKS 'LOOKING GOOD', SAYS GBT CHAIRMAN

Geneva, 10 Feb (Chakravarthi Raghavan) -- The chances of concluding a services sectoral agreement for liberalizing basic telecommunications at the WTO, is "looking quite good" and "much more positive", Mr. Neil McMillan, the British official chairing the Group on Basic Telecommunications (GBT) said Monday, citing 'new' offers from nine countries and 'revisions' of earlier offers from 16 others.

While the ever-optimistic McMillan used some new words of assessment, the WTO Director-General Mr. Renato Ruggiero, gave a pep talk to the GBT on the benefits of liberalization, of the talks having come "a long way" (since April 1996 suspension), of the negative impact to the WTO and its credibility if the negotiations do not end in an agreement, and the need of "further improvements" and the hope of some further new offers.

More objective observers said that while an agreement would be a positive element for the trading system, its benefits need not be 'oversold' -- with the actual outcome tested against these claims to be found wanting. Any loss of credibility for the WTO would be a self-created one.

Among the nine who have tabled new "offers" are Malaysia, Indonesia and South Africa. Others in this category are Bolivia, Bulgaria, Ghana, Grenada.

The talks, due to end 15 February, has some 43 participants (53 governments, counting the 15-member EC as one), who the WTO says account for 91% of the $600-billion "global market" for telecommunications revenues. The $600 billion represents 2.1% of world GDP.

McMillan who has been chairing these talks (and its predecessor plurilateral talks), that were "suspended" last April when the US declined to join), and WTO officials at every news briefing (after a GBT meet) have been throwing at the media the numbers of "offers" and "revisions" in a way that it is difficult to make any assessments, without looking at the detailed country schedules.

Last April, when the plurilateral talks (continued after Marrakesh) were 'suspended' because of the US position, with the offers on the table 'frozen' at the EC's instance, and for renewal of the, McMillan and officials also spoke of the 'offers' on the table accounting for 90% of the market coverage.

The four Quad members (Canada, EC, Japan, US) plus Australia together account for 77% of the market.

While developing countries individually account for lower shares of global telecom activity, some of them are still key players, ranking in the top ten -- Korea, Brazil, Mexico, Argentina (in terms of global telecom revenue), Hong Kong, Singapore and Mexico (in terms of international telephone traffic), and Argentina, Korea and India in terms of investment.

But all these figures and rankings that the WTO has been spewing, for the unwary, could be quite misleading.

To put these figures in perspective, the $600 billion "market" (or 2.1% of world GDP) in 1995 (WTO computations based on ITU data) is not really "traded" as trade officials admit.

The (traded) international services account for $63 billion or 10% of the total revenue. Mobile services account for about $82 billion or nearly 14%.

In terms of telephone lines, average annual growth rate in the industrial world has been 3.5% between 1990-1995, that in the developing world 13.8%. In terms of revenues, average annual growth in the industrial world over the same period has been 4.2%, that in the developing world about 9.7%.

But the mere percentage comparisons could be misleading, since developing countries start from a low base, and have a long way to go to provide such basic services to their people. And the liberalization focus is on the services catering to their rich and upper middle classes.

And if one is not careful, the percentage growths could also be as misleading as those that used to be provided by the centrally planned economies in the old days.

And, however the 'market' and its share by those who have put 'offers' (new and or revised) are computed, it would not mean that the $600 billion market is now "liberalized" -- not even among the majors who have put forward their revised offers.

Even if the US market is in fact fully liberalised, without huge investments, no developing country can hope to participate, compete and benefit from the trade in that market. They won't be exporting telecom services to the US market. Their gains will be in terms of 'welfare gains' of their own liberalisation - a trade theory that is becoming a dogma.

And any benefits the developing countries are getting through the international system of accounting on international calls -- revenues which in theory they could use for expanding and cross-subsidising domestic services, but which many telecom administrations don't do or are unable to do, their earnings being grabbed to meet the budget deficits -- is now going to be eroded by separate independent action by the US Federal Communications Commission.

And when developing countries make "offers" opening their markets to foreign investors, the foreign investors want to get the high-value added end of the market (mobile phones and other such services), and have no interest in the provision of expanding the reach in the developing world of the basic telephone and telegraphy services to the rural areas and remote regions.

US officials have been critical, and privately pressuring, many of the participants with offers, over their limitations against majority ownership of their telecom companies.

Canada, with the EC, wants an investment agreement in the WTO, providing full establishment and national treatment and other rights (save for security exceptions) for foreign capital under a multilateral investment agreement.

But, in the telecom services talks, it has been saying that politically it is not feasible for Canada to allow majority foreign ownership in its telecom sector and companies!

Mexico, which like Canada is a NAFTA partner of the US, has also set limitations in its offer on majority ownership in its telecom enterprises.

Several developing countries in their offers have also set limitations on majority ownership.

The Canadian restrictions is said to be critical for the US.

Trade officials said that bilateral talks are continuing this week between the US and Canada, as also the US and other partners.

The US so far has been publicly reticent in assessing the offers now on the table, and whether these would provide the "critical mass" that it claims it needs to join an agreement.

Without the US, the attempt at a WTO agreement would fail, and as McMillan has been repeatedly stressing, a new opportunity may not come until the next round of services talks.

But the view that without an accord, there will be 'disaster' may be as exaggerated as other claims in terms of the industry, and the world economy, though it will be for WTO and national trade officials who have 'invested' so much of their time and energy on this.

The EU has tentatively scheduled a meeting of its Council of Minister end of this week -- their okay would be needed for any agreement.

Some of the technical issues, trade officials said, have been or are being cleared up.

The EC has said it was presenting an offer with a clear definition that would allow for liberalising the basic telecom sector to 'transport' audio-visual images, but not to "offer" them to consumers. The EC wants to exclude "broadcasting", as a cultural exception. Its original "offer" would have resulted in excluding all telecom services with a video component.

The EC has now formulated, and reportedly has the agreement of the US, on what would be 'transport' of the video component that would be allowed, and what would be 'broadcast' and made available to consumers that would be excluded.

While there is much talk of 'internet' and 'multi-media' obliterating all such differences, in terms of a mass market, the technology and its full adaptation is said to be still some years away, according to some trade officials, who say the issue can be tackled later.

Some other outstanding technical issues have also been reportedly cleared.

But an outstanding issue, and one raised by the US, is how to treat the future commercial affiliates of the two inter-government satellite organizations (Intelsat and Inmarsat).

The US has in the earlier meetings raised its concern that in future, affiliates of Intelsat and Inmarsat may compete "unfairly" with US enterprises.

The US negotiators advised the GBT Monday that they were looking to solutions which would be acceptable to its trading partners. The solution was not spelt out at the GBT.