Is America Exporting Misguided Telecommunications Policy? The U.S.-Japan Telecom Trade Negotiations and Beyond

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Global telecommunications markets have traditionallybeen closed to foreign trade and investment.Recent World Trade Organization negotiationsresulted in a Basic Telecommunicationsagreement that sought to construct a multilateralframework to reverse that trend and begin openingtelecom markets worldwide. Regrettably, this newWTO framework is quite ambiguous and open topro-regulatory interpretations by member states.

In fact, during recent bilateral trade negotiationswith Japan, U.S. government officials adopted theposition that the new framework allowed them todemand that the Japanese government adopt veryspecific regulatory provisions regarding telecom networkinterconnection and pricing policies. TheOffice of the U.S. Trade Representative argued thatJapanese officials should require their domestic telecomproviders to share their networks with rivals at agenerously discounted price to encourage greaterresale competition.

Those interconnection and line-sharing ruleswere borrowed directly from the U.S.Telecommunications Act of 1996, a piece of legislationthat remains the subject of intensedebate within the United States. Good evidencenow exists that those rules generally retard net-workinvestment and innovation by encouraginginfrastructure sharing over facilities-basedinvestment. Consequently, the USTR has generatedresentment on the part of Japan and othertrading partners as it has attempted to forcethem to adopt heavy-handed telecommunicationsmandates that have very little to do withlegitimate free-trade policy.

The USTR must discontinue efforts to imposeAmerican telecommunications regulations onother countries as part of free-trade negotiationsand should instead focus on reforming or eliminatingthe most serious barriers to foreign directinvestment both here and abroad.

Motohiro Tsuchiya and Adam D. Thierer

Motohiro Tsuchiya is associate professor, Center for Global Communications, International University of Japan. He was a visiting scholar at the University of Maryland and George Washington University during 2001 and 2002. Adam Thierer is director of telecommunications studies at the Cato Institute.