WORLD TRADE
ORGANIZATIONS/CSS/W/30
18 December 2000
(00-5571)
Council for Trade in Services
Special SessionOriginal:  English
COMMUNICATION FROM THE UNITED STATES
Market Access in Telecommunications and Complementary Services:
the WTO’s Role in Accelerating the Development of a
Globally Networked Economy
The attached communication has been received from the delegation of the United States with
the request that it be circulated to Members of the Council for Trade in Services.
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I. SUMMARY
1. WTO Members seeking to benefit from the growth opportunities provided by an increasingly
“networked” global economy will need to attract exte nsive private investment to build infrastructure
of telecommunications and computer facilities.  Th e WTO and its Member States can play a key role
in stimulating such investment by:
• ensuring market access and national treatment for providers both of network
infrastructure and key service sectors that use this infrastructure;
• implementing Basic Telecom Reference Paper commitments that promotes
competition in basic telecommunications; and,
• consistent with Article VI of the GATS, avoiding unnecessary restrictions on services
offered by competitive suppliers.
2. To achieve this goal the United States proposes, in conjunction with sector-specific
negotiations, a negotiating framework that elicits commitments both in basic and value-addedtelecommunications services, as well as complementary services which could be integrated into
network transactions such as distribution services, express delivery services, computer services,
advertising services, and certain financial services.
II. INTRODUCTION
3. The emergence of electronic networks as a locus of economic transactions provides one of the
most promising sources of growth and efficiency for the global economy.  The new economy is
spreading the benefits of technological innovation and price declines to all participants and facilitating
trading opportunities that were once available only to specialized firms. Given the power of "network
effects" - i.e., the more members the network has, the more valuable it is to each member - a
multilateral institution such as the WTO can play an instrumental role in increasing global welfare byS/CSS/W/30
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setting trade rules that encourage increased investment in, and development and utilization of these
networks.  The key challenge for the WTO is advancing rules and principles that strengthen the global
trading system, thereby bringing increased opportunities and benefits to all.
4. Three trends are making globally linked electronic networks a key feature of the world
economy: the declining cost of computing power, the increasing growth of communications capacity
("bandwidth"), and the continuing expansion of Intern et-based data networks.  As a result of these
converging trends, globally linked networks are emerging as a primary medium of economic activity -
both as a place to transact business and as a vehicle for distributing electronic information and other
digitized products.  The annual value of global electronic commerce is now estimated to be
approaching one trillion dollars and is expected to continue to grow rapidly.  The WTO can help this
trend continue upward and outward, through further liberalization of all activities which are relevant
to electronic commerce.  In order to do so, it must foster a liberalized and competitive tradeenvironment in WTO economies that is conducive to expanding the networks both locally and
globally.
III. ENCOURAGING INVESTMENT IN AND USE OF ELECTRONIC NETWORKS
5. While technological advances are bringing costs down, growth in users and introduction of
new applications puts constant demands on the capacity of networks. As a result, there is a long-termneed for enormous investment in building networks with the capacity and versatility to respond to
market demand.  One of the central roles the WTO can provide is encouraging an environment
conducive to investment in and use of such networks.
6. Two important ways in which Members can help foster investment in the development of
advanced networks is by removing barriers to investment and competition.  One way to promote amore favorable investment climate is reducing monopoly power in the telecommunications sector,
typically characterized by government ownership of the operator.  In the past, governments ensured
investment in networks by building telecommunications infrastructure from government resources,
and recovering capital needs through high prices in an environment of restricted competition.
Mounting evidence
1 indicates that this model is not optimal to the needs of a modern economy. Often
the capital needs of managing a network efficiently have exceeded governments' own resources,
thereby reducing the ability to operate an efficient network.  In an increasingly networked world
economy, the resulting high prices and inefficiencies can have a negative impact on various other
sectors of the economy.
7. Some Members have undertaken measures to corporatize and privatize their
telecommunications operator, which has helped operators tap global capital markets and has generally
improved the overall investment climate. This trend should be continued, but must be pursued inparallel with measures to introduce and then promote competition.  Restrictions on competition and
ongoing protection of incumbent operators have led to inefficiencies that are similar to those prevalent
in a government controlled environment.  Sp ecifically, demand has outpaced what incumbent
suppliers have been able to provide, impeding  the development of innovative technologies and
services such as the Internet and the services that depend on them.  The predictable world of voicetelephony that formerly lent itself to long-term planning by a government or monopoly is being
overturned by surging demand for Internet-based serv ices that have proven to flourish best in a
competitive, rather than in a monopoly environment.   Therefore, while privatization is an important
first step toward a liberalized market, it must be co mbined with viable competition for full benefits of
increased growth and innovation to be realized.  As reflected in the 1997 Basic Telecommunications
                                                     
1E.g. the following World Bank study:
http://wbln0018.worldbank.org/Research/workpapers.nsf/5ade973899c8608685256731006834d5/8357
b3dc2e8f4778852567e000537048?OpenDocumentS/CSS/W/30
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Reference Paper, this requires effective oversight through an independent regulator, because
privatized operators generally occupy a dominant position in the market and have resources and
incentives to engage in anticompetitiv e conduct to maintain such dominance.
IV. THE ROLE OF THE WTO
8. Increased market access, particularly in modes 1 and 3, bound by WTO disciplines, is one of
the most important steps a government can take to create an environment conducive to private
investment.  Full basic and value-added telecommunications commitments are the first step.
V. MARKET ACCESS FOR BASIC TELECOMMUNICATIONS
A. NEW COMMITMENTS TO LIBERALIZE BASIC TELECOMMUNICATIONS
9. The growth and development of the modern networked economy relies upon continued
investment and build-out of the basic telecommunications infrastructure.  In evaluating the value of
liberalization, and its effect on attracting investment, Members must take into account the changingnature of telecommunications networks: increasingly , firms investing in networks seek to provide a
broad range of integrated services, often involving voice, data, and video, through a variety of
narrowband or broadband technologies using wireless (fixed, mobile, terrestrial, and satellite) and
wireline platforms.  Evolving networks can use all these services and technologies in a seamless,
technology neutral manner.  Omission of any one of these services or technologies undermines aninvestment environment, thereby denying a Member’s users the variety of transmission means that are
increasingly linked into a seamless network, each optimized for particular needs.
10. Many Members have not yet taken basic telecom commitments; others have taken
commitments that are partial or phased-in over an extensive time period, and include limitations on
market access ( e.g. number of service suppliers and foreign investment limits). Given the pace of
change in these markets, and the constant need for investment in new technologies and services,
limited commitments have the effect of holding back a members’ potential growth and development.
Some Members (e.g. Singapore, Korea, India) recognized this, and as a result, have unilaterally
liberalized beyond their original basic telecom commitments.  This is a positive sign.  Indeed, binding
further liberalization and the requisite commitments in the WTO is a key goal all members shouldwork towards.
B. R
EGULATION OF BASIC TELECOMMUNICATION SERVICES
11. In addition to market access in basic te lecommunications, meaningful WTO commitments
require full adherence to pro-competitive regulatory principles (the Reference Paper).  This adherence
creates a degree of regulatory certainty that investors seek.  Without this adherence, implemented by
an independent, impartial regulator, investors in al ternative networks have little guarantee that they
can build their networks in competition with incu mbents–putting their investments, and the growth of
a competitive market, at risk.  Without means to ensure competition, users of networks will not enjoy
the price reductions and innovative service and technology offerings that determine an economy’s
ability to fully participate in global networks.  This is particularly true for new entrants offering high-
speed (broadband) connections to the Internet, which requires guaranteed access to telephone
networks subject to “bottleneck” control by incumbents, particularly at the local level, on timely,unbundled, non-discriminatory and cost-oriented terms, as guaranteed by the Reference Paper.
VI. MARKET ACCESS FOR VALUE-ADDED SERVICES
12. Another key factor determining the viability of infrastructure investments is the environment
for services whose growth and development is base d on use of networks. Where Members limit or failS/CSS/W/30
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to guarantee market access for such services, the attractiveness of investing in infrastructure is
diminished; conversely, market access commitments for services enhanced through use of networks
stimulate growth both of the underlying networks and the services that “ride” over them.  This is most
obvious in value-added telecommunications services such as Internet-based services, which provide a
layer of functionality above basic telecom services, and which in turn are the vehicle for deliveringother services.  Lack of  market access for these services undermines one of the key growth
opportunities for telecommunications infrastructure providers, and hence the viability of investment.
Members who have not made commitments to open their market to the full range of value-added
services should do so, to further stimulate investment in the value-added sector, in underlying
networks, and in the broader networked economy, where growth opportunities are interdependent.
A. A
BSENCE OF REGULATION ON VALUE -ADDED SERVICES
13. As explained above, the need for regulating traditional incumbent basic services is derived
from the long history of operators of legacy telephone networks using their control over essential
facilities to the disadvantage of new entrants.  On the other hand, new entrants and the services that
ride over these basic networks, when afforded reasonable access (as guaranteed by the
Telecommunications Annex), have demonstrated remarkable competitive resiliency and little need for
economic regulation.  For example, the general non-regulatory approach to the Internet and othervalue-added services in most countries has been a boon to their responsiveness and growth, thereby
freeing operators from unnecessarily burdensome requirements in providing these services.   This
points to the value of drawing as clear as possible a distinction between basic and value-added
services, and focusing regulatory constraints on the former.  While many countries are struggling to
determine where to draw that line, networks have flourished most where the line is drawn as narrowly
as possible, freeing the broadest possible range of services to develop based on competitive market
forces.  One issue to address, however, is the impact of major suppliers of telephone services
expanding into value-added sectors that rely on network facilities and services, specifically those
facilities and services at the local level.  This may raise the danger of operators extending market
power from those telephone networks  into new competitive networks.
B. C
LASSIFICATION FLEXIBILITY
14. Companies building networks need to know th at trade commitments will ensure that their
networks can develop apace with technology, and will not be limited by categories that, interpreted
narrowly, could be soon rendered obsolete.  The commitments for basic telecom services and
value-added network services are broad enough to  incorporate such change, but Members may find it
useful to explore ways to ensure that commitments  remain relevant to future developments.  For
example, for value-added service commitments to be  meaningful, they must be able to incorporate
technological developments such as the shift towards Internet-based services.  Given the broad
functional descriptions of these services as currently embodied in commitments, and the
Telecommunications Annex guarantee that service suppliers can employ the protocol of their choice
(Article 5 (b) (3)), the United States sees current categories as adequately capturing Internet-based
services2.  This obviates the need for Members to constantly update the nomenclature to take into
account the rapid evolution of services that appear new, which would diminish the predictability and
value of the commitments.  The goal of the WTO should be to maximize trade liberalization and
competition, and reducing the burden of constant updating of services nomenclature serves this goal.
                                                     
2See the October 14,1999 United States submission to the Committee on Trade in Services, on  how
existing services commitments relate to use and furthe r development of the Internet on Internet Services.S/CSS/W/30
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VII. MARKET ACCESS FOR COMPLEMENTARY SERVICES
15. In addition to basic and value-added services, other key services are likely to be integrated
into electronic networks in the near future.  As a result, the market access commitments in
telecommunications infrastructure could be substantially enhanced by market access commitments
with regard to complementary services that could be negotiated on a sectoral basis.  These includedistribution services; computer and related services; advertising services; express delivery services;
and certain financial services.  Such services are some of the most obvious beneficiaries of efficiency
gains and global reach provided by electronic networks, and Members have a deep self-interest in
using market access commitments to promote their growth, which again drives demand for - and
economic viability of - underlying infrastructure.  These issues are also addressed in relevant
sector-specific proposals.
A. D
ISTRIBUTION SERVICES
16. Distribution services are one of the early adopters of efficiency gains inherent in electronic
networks. Whether retail distribution of consumer  goods, wholesale distribution between businesses,
or the establishment of electronic exchanges for either consumers or producers, the growth prospects
for all countries based on better use of information and the ability to quickly reach a broader range of
participants is strong.
B. ADVERTISING SERVICES
17. Advertising services are becoming a key element in the business model of many network
services.  The ability to integrate advertising servic es into these networks is an important element in
their sustainability.  In addition, these services are critical in effectively informing consumers.
C. EXPRESS DELIVERY SERVICES
18. Express delivery services are both a user and driver of electronic networks – using networks
to ensure efficient movement and tracking of freight, and driving broader use of the networks by
being seamlessly integrated into many commercial sites, whose inability to deliver physical products
quickly would undermine one of their key advantages – timeliness.
D. COMPUTER AND RELATED SERVICES
19. As computers become increasingly integrated into seamless networks, computer and related
services are increasingly network-oriented. Growth  of such services thus parallels growth of
networks, and, likewise, network growth is enhanced by broad-based availability of the computer and
related services which support an economy’s computer infrastructure.
E. FINANCIAL SERVICES
20. Financial services have long been pioneers in the use of electronic networks, and will
continue to drive much of the demand for network services. In addition, like express delivery services,some financial services are increasingly being inte grated into network-based services of commercial
suppliers, providing a new level of convenience and efficiency for retail and wholesale customers
alike.  For example, innovative payment systems play an important role in the functioning of
business-to-business networks.S/CSS/W/30
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F. MARKET ACCESS FOR OTHER SERVICES THAT CAN BE DELIVERED ELECTRONICALLY
21. The demand for users of networks is much broader than the sectors identified above, and
market access for any service that can be supplied electronically - i.e., most services - will have the
same effect of stimulating infrastructure investment.  Opening the frontier for the supply of services
on a cross-border basis, where once economically not viable, will provide long-term growthopportunities across a broad range of sub-sectors, from  training, health care, professional services, and
all services related to the supply of digitized content.
VIII.  SUMMARY
22. A trade environment conducive to building and using networks should include:
• Full basic telecommunications commitments
• Full adherence to the Reference Paper on Regulatory Principles for Basic
Telecommunications with a focus on application to major suppliers of those services
• Goal of full privatization of telecommunications operators and networks
• Full value-added service commitments, and focus on ensuring least burdensome
economic regulation for competitive providers of these services
• Full commitments in complementary services  that are increasingly integrated into
network-based transactions including distribution, computer services, express
delivery, advertising, and certain financial services critical to completing electroniccommerce transactions.
• Maximum commitments in all services that can be delivered electronically.
23. Such a package will ensure that the opportunity to build and fully utilize networks is
supported by WTO disciplines, encouraging investment and the broadest possible development ofservices that are flourishing through the efficiencies of networked transactions.  The United States
looks forward to working with other WTO members to develop an integrated approach to obtaining
greater market access in these sectors.
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