Trade Policy Staff Committee (TPSC); Request for Comments Concerning Compliance With Telecommunications Trade Agreements

OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE

Trade Policy Staff Committee (TPSC); Request for Comments

Concerning Compliance With Telecommunications Trade Agreements

AGENCY: Office of the United States Trade Representative.

ACTION: Notice of request for public comments.

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SUMMARY: This notice seeks advice on the operation and effectiveness of

the telecommunications trade agreements with Japan, Korea, Taiwan,

Mexico, and Canada through written submissions due January 24, 1997.

The review will conclude March 31, 1997. The review, conducted pursuant

to Section 1377 of the Omnibus Trade and Competitiveness Act of 1988,

must determine whether the above countries are not in compliance with

the terms of such agreements or otherwise deny ``mutually advantageous

market opportunities'' to U.S. products and services within the context

of those agreements.

Specifically, USTR seeks information on:

Whether Japan, Korea, Taiwan, Canada, and Mexico have carried out

their commitments under telecommunications agreements with the United

States;

Whether levels of trade conform with the levels that would be

expected based on these agreements; and

The underlying competitiveness of U.S. providers of telecom

products or services.

DATES: Submissions must be received on or before January 24, 1997.

ADDRESSES: Comments must be submitted to the Executive Secretary, Trade

Policy Staff Committee, Office of the United States Trade

Representative, 600 17th Street, N.W., Washington, D.C. 20506.

FOR FURTHER INFORMATION CONTACT: Jim McGlinchey (202-395-5656), Office

of Industry or Laura Sherman (202-395-3150), Office of the General

Counsel, Office of the U.S. Trade Representative, 600 17th Street, NW,

Washington, D.C. 20508.

SUPPLEMENTARY INFORMATION: Section 1377 of the Omnibus Trade and

Competitiveness Act of 1988 requires the USTR to review annually the

operation and effectiveness of all U.S. trade agreements regarding

telecommunications products and services. The United States has

telecommunications agreements with Japan, Canada, Mexico, Korea and

Taiwan.

Japan

The United States has two telecommunications procurement agreements

with the Government of Japan. The first, the Nippon Telegraph and

Telephone (NTT) agreement, is designed to ensure that the government-

owned, major telecommunications provider in Japan employs open, non-

discriminatory and transparent procedures in procuring

telecommunications products. In 1994, as part of the Framework

discussions with Japan, NTT agreed to improve its procurement

procedures to provide greater transparency and more timely notice to

foreign suppliers. The improved measures are intended to increase

reliance on international standards and to improve the impartiality of

the process by requiring transparent and non-discriminatory selection

criteria and by reducing single-tender sourcing.

The second procurement agreement is the 1994 U.S.-Japan Public

Sector Procurement Agreement on Telecommunications Products and

Services. Under this agreement, Japan introduced procedures addressing:

enhanced participation by foreign suppliers in pre-solicitation

development and specification-drafting for large-scale

telecommunications procurements; transparent and non-discriminatory

award criteria that include greatest overall value for procurement

decisions; decreased sole sourcing; and the establishing of an

effective bid protest mechanism.

The U.S. recently met with Japan to review implementation of the

two procurement agreements. Under both agreements, foreign share

increased slightly, but in both cases there may have been an evasion or

disregard of the

[[Page 66069]]

procurement procedures and a consequent lack of bidding opportunities

for U.S. suppliers in the Japanese telecom market. In both segments of

the Japanese public sector (NTT and non-NTT), market share of foreign

suppliers continues to be lower than expected, given the

competitiveness of the U.S. telecommunications industry in the global

market. NTT and the Government of Japan do not appear to be procuring

telecom equipment and services with the degree of openness and non-

discrimination contemplated in the improved measures.

Specifically, NTT may be applying a non-transparent and

discriminatory selection criteria for its procurement; not covering the

more lucrative contracts under the open procedures but instead treating

such equipment as follow-on procurement to prior contracts; and not

relying on de facto international standards as envisioned in the

agreement.

With respect to the non-NTT public sector procurement agreement,

the U.S. Trade Representative is concerned that Ministries in Japan and

other covered entities may not be following the procedures. Data

supplied by the Government of Japan for the recent implementation

review show that only 16 Ministries, or 14% of covered entities,

reported any telecom purchases for Japan's fiscal year 1995. Only 4

entities from the whole Japanese central and provincial government

reported purchasing telecom products or services from foreign

suppliers. In addition, the Ministry of Post and Telecommunications,

the largest public purchaser of telecom equipment other than NTT,

actually increased its reliance on single-tendering.

The above facts raise concerns about the operation and

effectiveness of these procurement agreements. Accordingly, the U.S.

Trade Representative seeks information regarding any concrete

difficulties that U.S. telecommunications product suppliers and service

providers are encountering in Japan generally and specifically under

the terms of the two Framework telecom procurement agreements.

Specifically, we seek any evidence of problems with purchasing

procedures of NTT and the Government of Japan, sales efforts firms

would undertake if such problems were removed, and any other relevant

information.

Additional U.S.-Japan Telecommunications Trade Agreements: The

United States has a number of additional telecommunications trade

agreements with Japan, including a series of agreements on:

international value-added network services (IVANS) (1990-91); open

procurement of all satellites, except for government research and

development (R&D) satellites (1990); network channel terminating

equipment (NCTE) (1990); cellular and third-party radio systems (1989)

and cellular radio systems (1995).

Mexico and Canada

Several chapters of the North American Free Trade Agreement (NAFTA)

contain market liberalization commitments on telecommunications. In

addition to general principles in the services and investment chapters,

Chapter 13 on telecommunications contains provisions applicable to

equipment approval processes and associated telecommunications

standards issues as well as private networks and enhanced or value-

added telecommunications services. NAFTA also requires tariff

reductions for telecommunications equipment.

As a result of the March 31, 1996 review, the U.S. Trade

Representative determined that Mexico was not in compliance with its

NAFTA telecom obligations, due to Mexico's delay in implementing

procedures for acceptance of test data for product safety requirements

for telecom terminals. Through the Telecommunications Standards

Subcommittee, Canada and the United State obtained Mexican agreement on

the procedures Mexico would adopt to conform to its NAFTA obligations.

But these procedures are not yet in effect.

Korea

The United States has agreements with Korea to address barriers to

U.S. telecom goods and services suppliers in the areas of protection of

intellectual property rights (IPR), type approval of telecom equipment,

transparent standard-setting processes and non-discriminatory access to

the government-owned Korea Telecom's procurement of telecom network and

commodity products.

In 1990, Korea agreed to an MOU on the liberalization of government

procurement practices for telecommunications. In 1991, Korea committed

to permit value-added services to be provided by international value-

added network service operators. In February 1992 as a result of

market-opening trade negotiations with the United States initiated

under the 1988 Trade Act, Korea broadened these commitments to include

non-discriminatory access to the telecom procurement of the government-

owned Korea Telecom; open and transparent standards-setting processes

and mutual recognition of test data for equipment attached to the

public network; equipment approval based on the minimal network harm

standard; accelerated tariff reductions on imported telecommunications

equipment; commitments to liberalize the provision of value-added

services between the U.S. and Korea; and reduced and streamlined

regulation of intracorporate communications.

As a result of the 1993 and 1995 reviews, the United States reached

agreement with Korea on improved access to the procurement by the

government-owned Korea Telecom (KT), particularly with respect to its

procurements of network and commodity products. The 1995 agreement also

contained commitments limiting type approval of telecom equipment to

the network harm standard. In April of 1996, Korea agreed to elaborate

on the 1992 provisions on non-discriminatory access to KT's procurement

and non-discriminatory equipment approval, particularly with respect to

enhanced intellectual property protection and non-discriminatory

technical specifications.

The 1996 review revealed, however, a number of additional market

access barriers in Korea. Due to restrictive Korean Government policies

and practices, the U.S. Trade Representative determined that there was

a lack of mutually advantageous market opportunities for foreign

suppliers of telecom products and services to Korea. Market access

barriers include Korean Government interference with procurement by

private telecommunications services suppliers, lack of liberalization

of foreign investment in telecom service providers, discriminatory and

non-transparent licensing and regulation of telecom service providers,

ineffective competition policies for service providers, high tariffs on

telecommunications and information technology products and

discriminatory customs procedures for such products.

As a result, in July 1996, the U.S. Trade Representative identified

Korea as a ``Priority Foreign Country'' under Section 1374 of the

Omnibus Trade and Competitiveness Act of 1988. The U.S. Trade

Representative announced at that time that she did not intend to use

the maximum one-year period provided under the statute to address U.S.

concerns. Under the statute, the U.S. Trade Representative is

authorized to take appropriate steps, including trade action, if U.S.

concerns are not addressed within the statutory time frame.

[[Page 66070]]

Taiwan

In July 1996, the Office of the U.S. Trade Representative and the

American Institute in Taiwan concluded with their Taiwanese

counterparts an agreement on the licensing and provision of wireless

services through the establishment of a competitive, transparent and

fair wireless market in Taiwan.

Specifically, the Directorate General of Telecommunications (DGT)

and the Taipei Economic and Cultural Representative Office confirmed

that: the telecommunication regulatory function and telecommunications

service provider function have been entirely separated; DGT would

initiate procures to remove the profit cap and draft a new formula for

tariff schedules; interconnection agreements between wireless operators

and Chunghwa Telecom Co. (``CHT'') would be cost-based, transparent,

unbundled and non-discriminatory and the terms of such agreements

publicly available; DGT would not permit cross-subsidization between

CHT's fixed-line and wireless operations; DGT would relax the debt/

equity ratio for wireless bidders and not restrict a bidder from

obtaining all three regional licenses, subject to the policy that an

island-wide licensee is not eligible for a regional license; and DGT

would remove unauthorized spectrum users. DGT also agreed to review

foreign ownership limitations.

Public Comment: Requirements for Submissions

Interested persons are invited to submit written comments on the

operation and effectiveness of the telecommunications trade agreements

with Japan, Korea, Taiwan, Mexico, and Canada.

Comments must be filed on or before January 24, 1997. Comments must

be in English and provided in 15 copies to: Gloria Blue, Executive

Secretary, Trade Policy Staff Committee, Office of the U.S. Trade

Representative, 600 17th Street, NW, Washington, D.C. 20508.

Comments will be open to public inspection, except confidential

business information exempt from public inspection. Confidential

business information must be clearly marked ``BUSINESS CONFIDENTIAL''

in a contrasting color ink at the top of each page on each of 15

copies, and must be accompanied by a nonconfidential summary of the

confidential information. The nonconfidential summary shall be placed

in the file that is open to public inspection.

Federick L. Montgomery,

Chairman, Trade Policy Staff Committee.

[FR Doc. 96-31762 Filed 12-13-96; 8:45 am]

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