07 June 2000

Text: Barshefsky on Trade in Information Technology

U.S. Trade Representative Charlene Barshefsky says Japan appears to continue not to meet its international obligations for achieving competitive interconnection rates and impartial domestic regulation.

In a June 5 speech to the Computer and Communications Industry Association in Washington, Barshefsky rebutted an argument by Japan's monopoly telecommunications service provider NTT against opening to competition.

"NTT's claim that it is in too weak a financial position to absorb competition has no merit -- as its recent earnings reports and global multi-billion dollar acquisition spree demonstrate," Barshefsky said.

She said that after U.S. negotiations with Japan in July her office will decide whether to take action against Japan in the World Trade Organization (WTO).

Barshefsky also outlined a few international goals over the next few years for electronic commerce and other Internet services:

• unimpeded new investment in network capacity and services using the Internet.

• development of regulatory regimes where needed, with a preference for forbearance in favor or market-based self-regulation.

• enforcement of intellectual property rights.

• elimination of tariffs on high-technology products, including completion of a second information technology agreement.

• pioneering adoption by governments of information technology.

• building Internet capacity in developing countries.

Following is the text of Barshefsky's speech:

(Note: In the text "billion" equals 1,000 million and "trillion" equals 1,000,000 million.)

INFORMATION TECHNOLOGY AND TRADE POLICY: A LOOK BACK, A LOOK AHEAD

Ambassador Charlene Barshefsky
U.S. Trade Representative

Computer and Communications Industry Association
Washington, DC

June 5, 2000

Thank you very much, and let me thank Ed Black for inviting me to speak with you this afternoon.

Today I would like to give you a brief look at the place trade policy has in the emerging network economy; the goals we have set at the WTO and in our trade policy generally; and the major initiatives we have under way.

INFORMATION TECHNOLOGY, COMMUNICATIONS AND TRADE

To begin with, the world of information technology, telecommunications and electronic commerce presents trade policy with a unique challenge.

Our goals in these areas are fairly straightforward. We hope to develop a coherent set of trade agreements and principles, accepted worldwide, which ease commerce, to spark demand for new services, and promote technological progress; which help ensure low-cost access to telecommunications and the Internet, enabling developing countries and impoverished regions to gain the full advantages of the networked economy; and prevent the creation of unnecessary new barriers while ensuring strong consumer protection.

But in developing our high-tech trade policies, we are asked to respond to wholly new types of goods and services, new means of conducting trade, and the fact that technological change can at times move much faster than policy development. Trade is not alone in this challenge, of course -- it is equally true of other fields from education to finance, medicine, the military and the arts -- but it nonetheless confronts us with problems we have not faced before. So we begin with some basic principles:

• In a rapidly changing environment, we should carefully think through what actions we take in these early years of e-commerce and the Internet, to ensure that we do not face unwanted consequences later.

• Policy will develop most effectively through cooperative action and discussion by governments, industry and others affected by electronic commerce.

• We must carefully watch, respond to, and when possible help shape policy developed around the world, as the Internet knows no borders and policy changes overseas will have an effect on the worldwide development of the high-tech economy.

THE WORK TO DATE

In the work to date, we see four major accomplishments, which together make up a strong foundation for the years to come.

1. Information Technology Agreement

The first of these is the opening of trade in the hardware essential to a worldwide telecommunications network.

Here the keystone is the Information Technology Agreement [ITA]. This agreement, building on the success of the Semiconductor Agreement with Japan, eliminates all tariffs on semiconductors, computers, computer equipment, integrated circuits, telecommunications equipment and many related manufactured goods - the equipment every business needs to access the Internet, find customers, and make its factories more productive. This covers 95 percent of the world production of these products and $600 billion in trade at the conclusion of the agreement three years ago.

We are now seeking consensus on an expansion of this agreement -- the "ITA II" -- to include even more products. And at the same time, in our negotiations on accession to the WTO, we are asking that new members join the ITA. China is the best-publicized example, where we have full commitments to eliminate tariffs on these products by 2004, but we can also cite other countries which have or will soon join the WTO -- Latvia, Estonia, Georgia, Jordan, Albania and many others.

2. Basic Telecommunications Agreement

The second element is liberalization of trade in telecommunications services.

Here the central achievement is the WTO Agreement on Basic Telecommunications, which came into force in February 1998. This opened up 95 percent of the world telecommunications market to competition, promoting pro-competitive regulatory principles in all participants and covering the vast majority of nearly $1 trillion in telecommunications trade. The results of this agreement are now becoming clear, and they are remarkable.

• Over just two years, the ability of dominant carriers overseas to keep rates artificially high and depress demand for telecommunications services and electronic commerce has sharply eroded, helping cut rates to levels as low as 10 to 20 cents per minute for calls between the United States and some of our most common telephone destinations.

• With the broader market access and increased investor stability provided by WTO commitments, new investment in undersea fiber optic cables may spark a fifty-fold increase in capacity by the end of 2001, compared to mid-1999.

• The growth prospects for this sector are truly extraordinary: in the last five years, traffic flowing over telecom networks has increased ten-fold, and the rate of growth is rising, with Internet traffic now doubling every ten days.

Telecommunications liberalization is also a top priority in our negotiations with Japan. Up to now, Japan does not appear to have met its obligation to ensure cost-oriented interconnection rates and impartial domestic regulation. The phone and Internet access high rates Japanese businesses and citizens now pay -- 2-5 times as much for phone service as other OECD [Organization for Economic Cooperation and Development] countries; 8-10 times as much as Americans for Internet access -- are the consequence. This is an impediment not only to imports of telecom services, but to Japanese growth and competitiveness over the long term.

We have succeeded in increasing use of information technology in large part through policies that continue to reduce costs. Last week, for example, the FCC [Federal Communications Commission] ordered interconnection rate reductions in the U.S. of $3.2 billion. If Japan is to avoid falling further behind in information technology, it should be implementing similar reforms. NTT's claim that it is in too weak a financial position to absorb competition has no merit -- as its recent earnings reports and global multi-billion dollar acquisition spree demonstrate. We will resume our negotiations next month on this issue, and will decide by the end of July whether additional action, including in the WTO, would be appropriate.

3. Trade in Services

Integrally connected to the development of the telecommunications network and telecom services is a more open trading world for services generally. This will both take advantage of and spark further development of the telecommunications network worldwide, as an open telecom network enables entrepreneurs to market services and develop new ones; and as that increased demand sparks greater investment in telecommunications networks worldwide.

With the completion of the Uruguay Round, we made substantial progress, as the WTO's General Agreement on Trade in Services (GATS) took the fundamentally important step of creating a set of rules and set some precedents for market access commitments as well. The agreements in 1997 on Financial Services brought us further, with commitments to market access and national treatment totaling nearly $60 trillion in banking, insurance and securities transactions each year. And this is an accomplishment we can match across dozens of industries through the services negotiations which opened at the WTO in February: energy services, environmental, audiovisual, express delivery, the professions, private education and training, private healthcare, travel and tourism, and other sectors. The electronic services that underpin e-commerce -- advertising, computer and information services, distribution, financial services, telecommunications and other areas -- will also be a major focus of the talks.

4. Electronic Commerce

Finally, electronic commerce and the Internet.

This is a unique challenge to policy, as in a field which has only the goal here is less to remove existing barriers than it is to prevent their emergence in the future. Here, therefore, our most immediate priority is to preserve the principle of "duty-free cyberspace" -- that is, ensuring that electronic transmissions over the Internet remain free from tariffs. This was a commitment the WTO made on a temporary basis in 1998, and we will push for its further extension, with the goal of making it permanent at the earliest possible time.

We are also focusing on a longer-term work program, whose goals include ensuring that our trading partners avoid measures that unduly restrict development of electronic commerce; ensuring that WTO rules do not discriminate against new technologies and methods of trade; according proper application of WTO rules to trade in digital products; and ensuring full protection of intellectual property rights on the Net.

Our colleagues in other agencies are working in parallel with this on equally important questions -- for example on privacy issues, where we made a significant advance last week with agreement on the European Union on measures that will both protect consumer privacy and prevent unnecessary barriers to transatlantic electronic commerce.

NEXT STEPS: THE NETWORK ECONOMY

To sum up, our work over the past five years has helped to lay the policy foundation for an international networked economy: it has helped to ease access to the hardware at the heart of the system; to encourage innovation and low-cost provision of telecom services; to stimulate use of the network by opening services markets; and to ensure that electronic commerce continues to grow free of unnecessary barriers.

What then are the next steps? The answers will take extensive consultation and negotiating, but let me suggest a few conceptual goals.

First, unimpeded new investment in network capacity and services using the Internet. Here the WTO will play a key role in providing the trade framework, addressing not only market access and regulatory issues, but also evolving standards and business models -- where previously distinct services, for example, are converging. As a starting point, ensuring that pro-competitive disciplines such as the WTO Basic Telecommunications Reference Paper are fully implemented and adopted to market development will promote investment in competing networks, thus helping to reduce prices and increase the supply of innovative communications services.

Second, government must partner with the private sector in developing regulatory regimes where needed, with a preference for forbearance in favor or market-based self-regulation. All governments have a right to pursue legitimate domestic objectives through their regulatory systems. The dynamism of electronic commerce, however, has demonstrated that effective pursuit of social goals in this area depends on working closely with the private sector.

Third, enforcement of intellectual property rights [IPR], updated to the digital environment. As is universally recognized, electronic networks provide a revolutionary means for distributing digital products. It also, however, requires us to think about new business models and perhaps new approaches to IPR policy: this is already clear in domestic disputes about transmission of music and will become a much greater international issue quite soon.

Fourth, continue to focus on elimination of tariffs on high-technology products. The evidence that high tariffs on information technology products is harmful to a nation's economic health is compelling. We need to keep pushing to ensure that short-term concerns over revenue losses do not prevent countries from embracing the long-term benefits increased trade in these products will bring, most immediately with the broadening of the existing Information Technology Agreement through the "ITA II."

Fifth, encourage governments to be early adopters of information technology. This will help spread information technology skills and usage throughout their economy. Examples can include facilitation of trade through greater use of electronic networks for customs clearance, licensing, and dissemination of regulations.

Sixth, avoid a global digital divide. This is a basic goal of our capacity-building programs, including the Leland Initiative in Africa and the Internet for Economic Development program, which help developing countries gain expertise in information technology skills, establish Internet service providers, and otherwise take advantage of the opportunities the networked world offers.

CONCLUSION

Let me conclude with one final thought.

These industries, as remarkable as they are, are still in their infancy. Each of us, from our different perspectives, has the privilege of being present at the creation of something very new. And that in turn comes with the great responsibility to act with caution, good sense, and vision of what the future can bring.

A careful, coherent, and sustained trade policy in the information industries -- combining access to computers and related goods with low-cost access to telecom services, support for innovation -- is at the heart of the open, equitable and progressive networked economy we can create in the new century. This in turn will do more than almost any initiative to reach the goals at the heart of trade policy: broadening opportunity, sparking technological progress, raising living standards and reducing poverty.

That is the goal we have set; and we will take the time to get it right.

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