The GATT, General Agreement on Tariffs & Trade, already influences policies towards telecommunications and in future negotiations participants could adopt regulations which favour some countries and companies more than they do others. The issues are discussed here by Dr David Robinson of National Economic Research Associates, NERA. For the first time, services such as banking and telecommunications will be included in the current round of negotiations under the procedures of the General Agreement on Tariffs and Trade, GATT. The negotiations on services are at a very early stage and will last at least until 1990. Chances are slim that the participants will agree on major changes in the international trade law, which at present deals primarily with manufactured goods rather than services. But the negotiations are nonetheless important for the telecommunications industry for reasons which are explored here. The GATT is a legal contract into which the UK and 91 other countries, primarily OECD, Organisation for Economic Co-operation and Development, and developing, countries, have entered. Representatives from these countries meet periodically to decide what the rules for international trade should be. Liberalise Its basic goal is to liberalise trade by reducing tariff and non-tariff barriers. Established in 1947, it was formed partly in reaction to the disastrous protectionist trade policies of the 1920s and with the belief that freer trade would reduce the likelihood of another Depression. GATT consists of 38 articles of understanding laying down the basic principles of trade. When individual governments or the EEC write trade laws, for instance on anti-dumping measures, they must conform with these articles. When countries want new articles of understanding they convene a round, which can last for several years. The eighth round, in Uruguay was launched in September 1986, and will be concluded within four years. In past rounds, GATT dealt mainly with trade in manufactured goods, but ministers of the participating countries have agreed to introduce services to the Uruguay Round. They will not be discussed within the legal framework of GATT, but GATT procedures and practices will apply. GATT rules already apply to telecommunications and related equipment in at least two ways. First, national and EEC trade laws, for example anti-dumping legislation, must conform to the GATT rules. Thus, GATT law provides an over-arching framework for anti-dumping and other trade disputes. Second, when one country believes that another has violated the GATT, the injured party can complain. If the GATT panel upholds the allegations, the injured party can retaliate through increased tariffs, quotas, or non-tariff barriers. Any changes to the GATT will imply changes in national and EEC laws that could affect trade in telecommunications and related equipment. The negotiations over trade in telecommunications services could further affect the prospects for telecoms firms in at least three ways. First, they already influence policies towards telecoms. For instance, the recent EEC Green Paper on the Development of the Common Market for Telecommunications Services and Equipment (June 30, 1987) proposed details of a common EEC position on the international regulatory enviroment, in preparation for the new GATT round (p191). More generally, the GATT negotiations will set precedents for future multilateral agreements. Second, the participants could adopt regulations that favour some countries and companies more than they do others. Regulation concerns, in particular licensing, control of conformity testing and obligatory interface, frequency administration, and general surveillance including pricing and competition principles. Of course, governments are unlikely to accept a legal framework that is inimical to their interests, and some participants may, therefore, refuse to sign the agreements. Third, it is perhaps worth underlining that choices about telecoms services are closely tied to decisions about computers and communications equipment. Thus, f

reer trade in services and in equipment are mutually reinforcing; and failure to liberalise trade in services will restrict trade in equipment. So who stands to win or lose? The GATT negotiators will represent individual governments and organisations such as the EEC. The key players in the negotiations will include Japan, the US, the EEC and the developing countries. In addition there will be a host of special interest groups trying to influence the negotiators. It is from the US that hardest pressure for the introduction of trade in services for at least three reasons. First, the US has the largest and most competitive telecoms industry in the world. Its service providers, ITT, the regional Bell Operating Companies, AT&T and so forth, justifiably view most of the world’s remaining telecoms service markets as comparatively closed. Second, they may view the markets of former European colonies as unfairly sewn up by European companies with grandfather rights. Third, the US Government sees strategic political benefits, in addition to commercial benefits, in gaining access to telecommunications and other service markets around the world. Freer access European and Japanese governments also recognise the importance of freer trade in telecoms services. Their large telecoms firms have more to gain from having freer access to foreign service and equipment markets than they have to lose from carefully opening their own. Moreover, concern is mounting that restrictions on the telecoms industry in some countries, for example West Germany, discourage investment in related industries. The success of Big Bang in the City of London certainly suggests that liberalisation of telecoms markets goes hand in hand with expansion of financial markets.Some of the developing countries are considerably less enthusiastic about the negotiations on services. Indeed, a group of 10, led by India and Brazil, was instrumental in keeping services out of the main framework of the GATT. They argue that the only beneficiaries of introducing services into the negotiations will be the services firms of the rich countries. They also fear that opening their services markets will have undesirable effects on national economic policies and trade structures. (C) NERA. Dr Robinson will conclude his discussion in a future issue