Speech by USTR Charlene Barshefsky to the FCBA. Re: E-commerce trade initiative. Date: October 23, 2000. Source: USTR.

THE NETWORKED ECONOMY INITIATIVE:
TRADE POLICY ENTERS A NEW ERA

Ambassador Charlene Barshefsky
U.S. Trade Representative

Federal Communications Bar Association
Washington, DC

October 23, 2000

Thank you very much.

We have had a busy year in trade. We have moved from legislation on Africa and the Caribbean, to a Congressional debate on participation in the World Trade Organization, the central question of our trade relationship with China, and very soon the completion of a Free Trade Agreement with Jordan. Altogether, it has been an extraordinary year for trade policy, and any of these topics would give us the material for a full discussion. But today I will take up an entirely different subject: that is, the adjustment of trade policy to the emergence of a new world of science and technology.

TRADE AND THE TECHNOLOGICAL REVOLUTION

At the turn of the next century, it may be that for our great-grandchildren, the prosperity of the 1990s will be a dim memory; the end of the Cold War a subject for high school history classes. What will strike them with great force as the development of mass production, the airplane and the radio a hundred years ago does for us will be the technological revolution: the publication of the human genetic code; the machines rolling across the Martian desert; the wiring of America and the creation of the borderless world of cyberspace.

The historians of the next century will trace profound transformations in society, politics and culture to the microchip, the satellite and the fiber-optic cable: innovation and creativity in the arts; new synergies in scientific inquiry; the expansion of freedom of speech and debate, as political censorship becomes less and less feasible, and citizens find new ways to share ideas across borders.

These changes are also coming to economic life. We see the seeds of the 22nd-century economy in the explosive growth of the Internet, with three million users in 1995 and today reaching half of all American homes; the creation of electronic commerce, valued at $200 billion last year and $700 billion this year; and the basic changes under way in the way we conduct business and trade.

If this reaches its full potential, the networked economy of the new century will make firms and national economies more efficient, as computers enable businesses to cut inventories, provide better and more timely customer service, and meet consumer demand efficiently. It will make trade and international business easier than ever before, enabling not only large firms but small businesses and new entrepreneurs in disadvantaged regions to find customers cheaply and easily. And it will raise living standards as consumers gain new power to compare price and quality among vendors all over the world.

THE POLICY CHALLENGE

Much of this depends, however, on an appropriate framework of policy: one which facilitates creativity and technological progress; one which also enables governments to fulfill their core responsibilities for public safety, consumer protection and national security. Each area of government must respond to a different set of challenges in both of these regards. But trade policy, I think, faces a set of challenges that are especially interesting and in which the consequences of the decisions we make today will be especially great.

American trade policy has sought, generally speaking, to create a world of open markets under the rule of law. This has typically involved policies affecting goods we can see crossing the border: beef, steel, semiconductors, cars, bottles of wine. Our agreements have sought to remove tariffs, or surcharges on goods; eliminate quotas which distort the working of markets and resource allocation; make customs procedures fair, transparent and efficient; or to harmonize technical standards so a semiconductor chip built in Costa Rica and a hard drive assembled in Southeast Asia can operate a computer designed in Northern Virginia.

The development of a networked world adds to these a set of new and in some ways entirely different issues. We face the challenge of anticipating and preventing the creation of new types of barriers, as well as removing those barriers which exist today; we address weightless products that flow instantaneously around the world by wire or satellite beam, as well as visible goods that travel by plane or boat. And we work, in some ways, for higher stakes: the agreements and rules we develop now will be the framework for the world economy of the coming decades. As such they can create incentives for creativity, growth and development; or they can widen technological divides among nations and limit progress everywhere.

Recognizing this fact, and the fluidity of the contemporary environment, the Administration has approached its responsibilities with a few cautionary principles in mind:

The technological world changes rapidly: so we should carefully think through our actions in these early years of e-commerce and the Internet, to ensure that our actions today do not bring unwanted consequences later. The best policies arrive through consensus: while government, in the high-tech field as anywhere else, retains core responsibilities of enforcing laws and protecting consumers, policy will be most effective if it arises effectively through cooperation and discussion among governments, industry and others affected by electronic commerce. The Internet has no natural borders: domestic policies must proceed together with international policies, as the Internet is by definition an international system and policy changes overseas will affect the high-tech economy here and worldwide.

HIGH-TECH TRADE POLICY TO DATE

So we have proceeded deliberately, but also conscious of challenges that will not wait: from the loss of potential opportunities if barriers begin to arise, to the dangers of an emerging international digital divide. And taken as a whole, this has been one of the most productive fields of our trade policy. Looking back over the course of the Administration, we can cite five principal accomplishments.

1. Intellectual Property Rights

First, we have strengthened respect, worldwide, for intellectual property rights. This is central to technological progress. Mark Twain once wrote that a country without intellectual property laws is "just a crab, and cannot travel any way but sideways or backward."

Creative and innovative products that rely on intellectual property protection, such as computer programs and motion pictures, are typically costly to develop but cheap to copy. Ten years ago, few of the world's developing countries even had intellectual property laws -- which both harmed direct American interests and limited their ability to attract investment and technology. Over the past decade, our use of the "Special 301" law and the negotiation of the Uruguay Round's TRIPS [trade-related aspects of intellectual property rights] agreement has helped to ensure that the vast majority of our trading partners have passed modern intellectual property laws and are improving their enforcement of these laws. We are now monitoring WTO [World Trade Organization] members' implementation of their TRIPS Agreement obligations and will enforce these commitments in the most effective way. We also are implementing campaigns against worldwide piracy of new optical media technologies, and end-user piracy of software. And we are working to ensure global ratification of two key treaties concluded in 1998 under the World Intellectual Property Organization covering phonograms and copyright, designed specifically to safeguard intellectual property in the digital age.

2. Information Technology Agreement

Second, we have removed barriers to trade in the high-tech manufactured products, where the keystone is the Information Technology Agreement [ITA] of 1996.

This agreement, building on our earlier Semiconductor Agreement with Japan, has virtually eliminated tariffs on semiconductors, computers, computer equipment, integrated circuits, telecommunications equipment and many related manufactured goods. It now covers 95 percent of world production of these products, $600 billion in world trade, and a quarter of American exports. We are now seeking consensus on expanding this agreement "ITA II" to include more products; and new members of the WTO are joining the current ITA. China is an example; in a country where our exports of integrated circuits have quadrupled since 1997, we have full commitments to eliminate tariffs by 2004. Taiwan, already our fifth largest market in the world for semiconductors, is another.

For high-tech manufacturers, this means ability to sell to wider markets, develop new economies of scale and grow. This is clear in a few statistics: last year, we produced $13 billion in semiconductor manufacturing equipment, and exported $8 billion of it; we likewise export nearly half of all the semiconductor chips we make. For consumers overseas, removal of tariffs is equally important, reducing the cost of equipment and inputs businesses need to make factories more productive, reach the Internet, find customers and work in real time with overseas partners.

2. Basic Telecommunications Agreement

Third, we have opened 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 50-fold increase in capacity by the end of 2001, compared to mid-1999. Future growth prospects are even greater, as in the last five years, traffic flowing over telecom networks has increased 10-fold, and the rate of growth is rising, with Internet traffic now doubling every 100 days.

Again, however, much work lies ahead. We are reviewing implementation of the Agreement very carefully, and have placed a great deal of pressure on Japan and Mexico to ensure that the local dominant carriers, NTT and Telmex, do not attempt to evade their responsibilities. And as with the ITA, we encourage both current and new WTO members to participate in the Basic Telecom Agreement. Again, China's commitments, including ending investment bans, implementing pro-competitive regulatory principles and the immediate opening up of paging and value-added services like the Internet are a case in point.

4. Trade in Services

Fourth, we have begun the work of opening the services industries more generally. This both takes advantage of and helps to develop the telecommunications network worldwide. An open telecom network creates a virtuous cycle: it enables entrepreneurs to market existing services and creates incentives to develop new ones; and the resulting increased demand for services itself sparks greater investment in the network.

Specifically here, with the completion of the Uruguay Round, the WTO's General Agreement on Trade in Services (GATS) created a set of rules and precedents for market access commitments. The agreements in 1997 on Financial Services brought us further, with commitments to market access and national treatment covering 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: from energy services, environmental, audiovisual, express delivery, the professions, private education and training, private health care, 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.

5. Electronic Commerce

Finally, we began the development of rules for electronic commerce and the Internet.

Here, with the foundational commitment we won from the WTO members in 1998 on the principle of "duty-free cyberspace" -- that is, ensuring that electronic transmissions over the Internet remain free from tariffs -- we are moving on to a longer-term work program. Its 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. At the same time, we are working with individual trading partners on a series of related questions for example on privacy issues, where we have worked closely with the European Union to create a model that both protect consumer privacy and prevent unnecessary barriers to transatlantic electronic commerce.

NEXT STEPS: TOWARD THE NETWORKED ECONOMY

To sum up, in the past five years we have laid a foundation in policy and tangible achievement involving intellectual property, open trade in the hardware of information infrastructure, the liberalization of services trade with a focus on telecommunications services, and the principles guiding trade over the Internet. We are now moving on to the second generation of high-tech trade policy, through the "networked world" initiative we will advance in the balance of the year at the WTO, the APEC [Asia-Pacific Economic Cooperation forum] Leaders meeting and elsewhere.

This new initiative will create a lasting set of rules and agreements which help to ensure that the trading system provides for electronic business the same guarantees of freedom, fair competition, respect for intellectual property rights and access to markets that more conventional commerce enjoys. In doing so, it will bring to the world the flexible, sophisticated New Economy principles integrating open and competitive markets, consumer protection and incentives for innovation that have been at the foundation of America's prosperity and growth in the last decade.

It will involve six major features, as follows.

1. General Principles

First, we will seek consensus on a set of general principles that encourage technological advance: technological neutrality, the proper treatment of digital products under WTO rules, and regulatory forbearance.

More specifically, by technology neutrality we mean guarantees that basic WTO concepts of non-discrimination, national treatment and most-favored nation status apply to electronic commerce, and that current agreements on intellectual property, technical standards, services and goods trade, government procurement and so forth do so as well.

The treatment of digital products embodies a similar principle. The WTO, correctly, has not yet reached a conclusion on whether it should classify products delivered in digital form as services, goods, or some new type of product. Whatever the ultimate decision may be, however, it should not place digital products at a disadvantage in comparison to identical physically delivered products: for example, a software program downloaded from a Web site is the same program as one bought on a CD in a store and should be subject to no greater trade restrictions.

Finally, as governments conduct regulatory and oversight policies to meet appropriate social goals, they should also avoid measures that would constitute trade barriers. The first option should thus be market-based self-regulation. This is not always possible: governments will always have to enforce laws and protect consumers. But the rapid pace of change in technology also means that effective pursuit of legitimate government responsibilities depends on working closely with the private sector.

2. Liberalization of Services

The second goal of our networked world initiative is a far more open world for services trade. This includes both liberalization of trade rules for existing services, and ensuring proper treatment of evolving and newly emerging industries.

Through the WTO, as well as some of our regional initiatives, we will seek the broadest possible cross-border market access in services -- building on the financial services and basic telecom agreements, and moving on to the professions, distribution, and much more -- to realize the potential for firms to offer a full range of services over the telecommunications network. And as the Internet speeds the evolution of the services sector through the development of on-line auctions, Web-hosting, remote monitoring and so on, the WTO's services agreement must keep pace, integrating them into existing disciplines, reducing existing trade barriers and preventing the creation of new ones.

3. High-Tech Goods

Third, we will seek to further ease trade in high-tech goods.

This will include continued progress towards elimination of tariffs, encouraging countries to invest in high-tech infrastructure and lower the cost for businesses and consumers of participating in the networked economy. It will involve a program of trade facilitation, ensuring that customs regimes that are able to meet the need to move high-tech products quickly, and enable countries to take advantage of new technologies as they emerge. And it will encourage the use of market-based technical standards, developed by the private sector and adopted internationally, when appropriate, through international standards organizations rather than government imposition, which often tends to favor the interests of large "national champions."

4. Measures to Encourage High-tech Investment

Fourth, encouragement for high-tech investment. The broadband revolution in the United States bringing high-speed Internet access to the general public and with it an array of new services is a phenomenon our trade policies will help foster worldwide. We will propose WTO-disciplined investment and regulatory regimes that encourage development of the broadest range of infrastructure platforms (cable, wireline, fiber-optic, satellite, wireless) to create competition among technologies and services, and deployment of maximum bandwidth -- the keys to lowering costs and finding new and efficient ways to access networks.

5. Intellectual Property in the Digital Era

Fifth, we will work toward the adaptation of intellectual property policies to the 21st century and the digital era. Here, we will encourage robust protection of intellectual property rights through application of IPR [intellectual property rights] agreements, including the TRIPs agreement and the WIPO Treaties, and development of new standards necessary for the on-line environment.

PREVENTING INTERNATIONAL DIGITAL DIVIDES

Finally, as this new policy initiative proceeds, we will complement it with practical work, with special focus on prevention of an international digital divide.

We are, for example, encouraging governments to be early adopters of information technology. This will help spread information technology skills and usage throughout their economies. Examples can include facilitation of trade through greater use of electronic networks for customs clearance, licensing, government procurement and dissemination of regulations.

And we are using technical assistance and capacity-building programs, such as the Internet for Economic Development program and the Leland Initiative in Africa, to 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.

The technological revolution is in its infancy. We have the luck to be present at the creation of something very new; and with that comes with the great responsibility to act with caution, good sense, and vision of what the future can bring.

We have laid a foundation in the past four years. And through the networked economy initiative I have just outlined, we will develop a careful, sustained policy for the information industries that combines access to computers and related goods with low-cost access to telecom services, and support for innovation.

This will be an achievement at the heart of the open, equitable and progressive networked economy of the new century. And it will do more than almost any initiative to reach the central goals of trade policy itself: broadening opportunity, sparking technological progress and raising living standards. We are very lucky to be here as the work begins.

Thank you very much.