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USTR Targets Telecommunications Trade Barriers

04/03/2013

Annual Report Highlights Local Content Requirements, Other Roadblocks Faced by U.S. Telecom Exporters

Washington, D.C. – Acting United States Trade Representative Demetrios Marantis today outlined the key barriers faced by U.S. telecommunications service and equipment suppliers, and identified specific telecommunications-related issues on which USTR will focus its monitoring and enforcement efforts this year. He did this in his announcement of USTR’s release of the annual Report on the 1377 Review, which also provides information on the operation and effectiveness of telecommunications trade agreements under Section 1377 of the Omnibus Trade and Competitiveness Act of 1988 (1377 Review). The 1377 Review highlights both longstanding and emerging barriers to U.S. telecommunications services and equipment exports, which – when they flow freely – can support jobs here at home. The full report is available here.

“Recent years have witnessed a growing trend among our trading partners to impose localization barriers to trade designed to protect, favor, or stimulate domestic industries, service providers, or intellectual property (IP) at the expense of imported goods, services, or foreign-owned or developed IP – and this trend is evident in the telecommunications sector,” said Ambassador Marantis. “This year’s 1377 Review highlights the concern that U.S. equipment manufacturers may be disadvantaged by the growing use of local content requirements in countries such as Brazil, India, and Indonesia. It also outlines a range of other telecom barriers that USTR has spotted and intends to tackle with increased monitoring and enforcement in the coming year. We know that these annual reviews and the follow-up work we do on the identified issues produce results for job-supporting American telecommunications providers and suppliers.”

Since the release of last year’s 1377 Review, USTR has achieved progress on key issues in Canada, Mexico, and Israel. Canada passed legislation last year allowing, in certain cases, foreign investments of up to 100 percent in its telecommunications sector. Similarly, in Mexico, the Peña Nieto Administration has moved quickly to introduce legislation removing foreign investment limits in the telecommunications sector. For both countries, these measures could spur new entry and increase the competitiveness of the sector—a long-sought goal of U.S. trade policy that would benefit consumers and businesses in the United States and in those countries. In October 2012, the United States and Israel signed a bilateral telecommunications equipment mutual recognition agreement (MRA) that, once implemented, will permit recognized U.S. laboratories to test telecommunications products for conformity with Israeli technical requirements, and vice versa.

In the 2013 1377 Review, new areas of particular concern include developments such as Brazil’s finalization of local content and technology requirements imposed on new mobile wireless licensees, and Pakistan’s institution of a restrictive regime for the termination of international calls into Pakistan, which, although challenged by Pakistani competition authorities, remains in force.

Other issues in this year’s 1377 Review focus on a broad range of concerns, including:

Cross-Border Data Flows and Internet Enabled Trade in Services: the 1377 Review highlights concerns with restrictions on data access and transfers and the effort USTR has made to address restrictions relating to these issues in ongoing trade fora.

Independent and Effective Regulator: the 1377 Review highlights the importance of regulatory impartiality generally as a precondition to meaningful market access, and specific issues encountered in China.

Foreign Investment: foreign investment limits, typically in the form of limits on the percentage of equity a foreign firm can control, were widely cited by commenters as a trade-distortive barrier. This year’s 1377 Review focuses on restrictions in China, and progress in Canada and Mexico.

Competition Issues: the 1377 Review highlights problems that competitive telecommunications carriers are encountering in China, Colombia, and Mexico.

International Termination Rate Issues: the 1377 Review again highlights the concern regarding increases in the rates foreign telecommunication companies charge U.S. carriers to terminate (i.e., deliver) long-distance calls to customers in those countries (the “termination rate”), resulting in higher costs for U.S. carriers and higher prices for U.S. consumers. In addition to the termination rate regime issue in Pakistan, this year’s 1377 Review focuses on problems in El Salvador, Ghana and Jamaica.

Satellite Services Issues: the 1377 Review again highlights impediments U.S. satellite operators face when seeking to serve customers in China and India. These impediments include the requirement to sell satellite capacity exclusively through government-owned suppliers.

Submarine Cable System Issues: the 1377 Review highlights positive steps the Government of India took in 2012 to improve access to India’s submarine cable landing stations, but notes the need for India to consider a methodology to eliminate unjustified costs imposed on suppliers.

Issues Affecting Telecommunications Equipment Trade: in addition to flagging localization concerns in Brazil, India, and Indonesia, the 1377 Review also discusses the use of equipment standards and conformity assessment procedures (including testing requirements) that act as barriers to entry for U.S. telecommunications equipment, including policies in the following countries: China (onerous security requirements, including use of an indigenous encryption algorithm, redundant testing and non-transparent technical requirements), India (onerous security requirements for the importation of telecommunications network equipment), and China, Brazil, Costa Rica and India (mandatory certification requirements and requirements for local testing).

BACKGROUND

Section 1377 of the Omnibus Trade and Competitiveness Act of 1988 requires USTR to review compliance by trade partners with trade agreements regarding telecommunications products and services (mainly, WTO and FTA commitments) by March 31 of each year. International trade agreements, including the WTO’s General Agreement on Trade in Services (GATS) and U.S. free trade agreements, provide rules designed to ensure that companies have reasonable access to telecommunications networks, that competitive conditions are maintained, and that regulators act in a transparent and effective manner. These agreements also address conditions affecting the competitive supply of telecommunications equipment in foreign markets. USTR will continue to use these tools to assist in opening markets to give U.S. companies the ability to supply new and innovative products and services abroad.

In its 1377 Review, USTR identifies the most effective bilateral or multilateral fora to monitor, engage, and seek to resolve these issues, and describes ongoing work.