Letter from Reps. Tom Bliley, Billy Tauzin, and Mike Oxley to USTR Barshefsky.
Re: government ownership of foreign telecom monopolies.
Date: September 12, 2000.
Source: House Commerce Committee.

September 12, 2000

Ambassador Charlene Barshefsky
United States Trade Representative
600 17th Street, NW
Washington, DC 20508

Dear Ambassador Barshefsky:

As you know, in February 1997, the United States and 68 other countries signed the Basic Telecommunications Agreement (BTA) at the World Trade Organization (WTO). We and our co-signatories committed to opening our respective telecommunications services markets to competition. We strongly supported your efforts to craft a comprehensive agreement, and commended you for your leadership in this area. The BTA will surely be regarded as a landmark achievement; it has proven to be a good deal for the American consumer and American labor.

But one particular problem continues to linger: Foreign government ownership of incumbent telecom monopolies. We had hoped that the Agreement would mark the beginning of the end for foreign government ownership of telecom monopolies. After all, the Agreement explicitly provides that "[t]he decisions of and the procedures used by regulators shall be impartial with respect to all market participants" (emphasis added).

In the end, many of us in Congress supported the Agreement with the expectation that WTO Members would fully privatize their telecom monopolies. A telecom regulator cannot be truly "impartial" if it retains a financial interest in the incumbent telephone company. And we should not pretend otherwise.

But almost four years have passed since we signed the Agreement, and many of our trading partners still hold significant ownership interests in their incumbent monopolists. For example:

• the Japanese government still has a 53 percent stake in NTT;
• the German government controls 58 percent of Deutsche Telekom;
• the French government holds 54 percent of the outstanding shares in France Telecom; and
• the Dutch government still controls 43 percent of its national telecom monopoly KPN.

It is thus apparent that the process of full privatization is taking far too long, and the various bills pending in Congress indicate that the patience of some of our colleagues has run out.

As of this day, we do not include ourselves among those supporting legislation that would bar the Federal Communications Commission (FCC) from licensing or authorizing any carrier which is at least 25 percent owned or controlled by a foreign government. To begin with, we believe that the current regulatory apparatus is sufficient to address the competitive and national security issues that could arise in cases where a foreign government-owned carrier seeks to acquire an American telecommunications carrier.

More importantly, we also assumed that the issue of foreign government ownership would only be a short-term problem. Specifically, we assumed that under the leadership of the United States Trade Representative (USTR) and consistent with the spirit of the Basic Telecom Agreement, the Administration would be urging foreign governments to withdraw their ownership interests in their incumbent telecom monopolies.

However, we are concerned that the Administration is not fulfilling its responsibilities in this area. On September 7, 2000, the Subcommittee on Telecommunications, Trade, and Consumer Protection held an oversight hearing on the issue of foreign government ownership of American telecommunications companies. We and other members of the Subcommittee devoted substantial time at the hearing to the issue of whether, and to what extent, the USTR is urging foreign governments to reduce their ownership interests in incumbent telecom monopolies.

Unfortunately, the comments of the USTR representative at the hearing raised more questions for us than answers. The USTR representative, for example, could not identify a single instance in which USTR had raised the issue of government ownership with our trading partners. This troubles us because it suggests that USTR does not regard government ownership as a priority, notwithstanding the fact that it is inconsistent with our commitments under the BTA.

Moreover, it suggests that USTR is insensitive to the concerns of Congress. The Administration opposes the various bills pending in Congress that would bar the Federal Communications Commission (FCC) from licensing or authorizing any carrier which is at least 25 percent owned or controlled by a foreign government. The Administration could address the concerns of Congress by re-dedicating itself to the cause of full privatization, and pressing our trading partners to remove their ownership interests in their incumbent telecom monopolies. But the comments of the USTR representative at the hearing lead us to believe that the Administration is indifferent to Congress' concerns on the issue of privatization, and moreover, that the Administration may not be fulfilling its responsibility to implement and enforce the Basic Telecom Agreement.

This is a critical moment for the Administration. It often points to the BTA as a landmark achievement, and rightly so. But now is the time for foreign governments to get out of the telecom services business. And now is the time for USTR to see that it is done.

We remain committed to the BTA, and more generally, to the principles of free trade. That is why we hope to join the Administration in making the case that legislation is not necessary to address the issue of foreign government ownership. But our support is dependent upon whether the Administration, and the USTR in particular, can demonstrate that it shares our commitment to full and complete privatization.

Accordingly, pursuant to Rules X and XI of the House of Representatives, please provide responses to the following questions no later than the close of business on September 21, 2000.

1. The Basic Telecom Agreement requires signatories to establish an "impartial" regulatory authority. Does a regulatory authority qualify as "impartial" if the government maintains a controlling interest in the incumbent telecom monopoly? Please provide all records relating to whether a regulatory authority qualifies as "impartial" if the government maintains a controlling interest in the incumbent telecom monopoly, including (but not limited to) any legal opinions addressing this issue.

2. Does USTR believe that government ownership of incumbent telecom monopolies is consistent with the spirit, if not the letter, of the BTA? If not, why not? Please provide all records relating to whether government ownership of incumbent telecom monopolies is consistent with the BTA, including (but not limited to) any legal opinions addressing this issue.

3. In cases where a foreign government maintains an ownership interest in an incumbent telecom monopoly, what has USTR (including the Trade Representative herself, her deputies, and any other USTR employee) communicated, either formally or informally, to each of those governments on the issue of ownership? And what was the response in each instance? For each such communication, please provide the following: (a) the date of each such communication; (b) the participants in each such communication; and (c) a brief summary of each such communication, including (but not limited to) the response to each such communication. In addition, please provide all records relating to each such communication.

4. Does the USTR intend to ask the WTO to include the issue of foreign government ownership in the next round of multilateral trade negotiations? If not, why not?

If you have any questions regarding this letter, please contact Julie Corcoran of the Committee staff at (202) 226-2424. For purposes of responding to the information and records requested in this letter, please refer to the attachment.

Thank you for your consideration, and we look forward to a prompt reply.

Sincerely,

Tom Bliley
Chairman

W.J. "Billy" Tauzin
Chairman Subcommittee on Telecommunications, Trade, and Consumer Protection

Michael G. Oxley
Chairman Subcommittee on Finance and Hazardous Materials

Attachment

ATTACHMENT

Definitions and Instructions:

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