The Indian Position

India embarked on the road to telecom liberalisation, with the dual goals of
promoting efficiency through competition, establishment of world class
telecommunications networks and maximising universal access to
telecommunications services. Similar changes in most other countries around the
world resulted in the need for a central monitor or global regime.

The Global Regime

Despite
the inherent weakness of its structure, GATT was an amazingly successful
agreement. The limitations of GATT had long been recognised when preparations
began for the 1994 Uruguay round of multilateral trade negotiations. The Uruguay
round of talks resulted in signing of the "Marrakesh Protocol to the
General Agreement on Tariffs and Trade 1994" which codified the entity
known as the World Trade Organization (WTO).

The greatest strength of the WTO is its ‘dispute resolution mechanism’.
This allows small and/or developing economies the opportunity to obtain a fair
hearing without being subject to threats of linkage or reprisal. This in turn
makes the refusal of any major nation to abide by a WTO ruling politically
unacceptable, and brings some degree of parity to international trade for the
first time in history. Another strength of the WTO is the fact that it
encompasses intellectual property rights under its "Agreement on
Trade-Related Aspects of Intellectual Property Rights (TRIPS)". These
rights were not addressed under GATT.

WTO in Perspective

The WTO, headquartered in Geneva, Switzerland, is the only international body
dealing with the rules of trade between nations. At its heart are the WTO
agreements, the legal ground-rules for international commerce and for trade
policy. The agreements have three main objectives–that of helping trade flow
as freely as possible, achieving further liberalisation gradually through
negotiation, and setting up an impartial means of settling disputes.

The main functions of WTO are administering ITO trade agreements, providing a
forum for trade negotiations, handling trade disputes, monitoring national trade
policies, providing technical assistance and training to developing countries,
and encouraging co-operation with other international organisations.

WTO and Telecommunications

At the WTO, under the General Agreement on Trade in Services (GATS), the
deregulation of the $600 billion

global telecommunications services market was sought to be achieved.

For this purpose the telecommunications services were divided
into:

• Basic
  telecommunications services that include voice telephone, facsimile and
  paging.

• Value added
  services that include on-line data processing, on-line data storage, e-mail
  and voice mail.

There are two main agreements under the WTO regime that
pertain to telecommunications:

On 15 February 1997, sixty nine WTO member countries reached
an agreement on basic telecommunications (The Basic Telecom Agreement) that
created new opportunities for telecommunication operators and equipment vendors
world-wide. It focused on basic telecommunications, including traditional
telephony, data transmission, and telex and fax services carried over wire,
fibre, radio and satellite. Prior GAT agreements addressed value-added services
and equipment but the WTO accord was particularly important for international
long-distance operators.

This agreement had three key implications:

• Increased
  opportunity for operators to integrate and control their international
  marketing and operations

• Improved trade
  dispute resolution procedures and enforcement mechanisms to support market
  access

• Reduced
  profitability for some telecom operators as accounting rate reform is
  accelerated

According to the GATS, the following obligations were to be
imposed. However, each country could reserve some of the obligations:

• Most-favoured
  nation principle: The idea was to give all countries equal treatment and
  thus lower the possibility of retaliatory action.

• Market access:
  Markets must be liberalised and foreign capital should not be restricted.

• National
  treatment: Countries should treat foreigners the same as
  
  citizens with regards to the service industry.

The agreement also emphasised that the developed countries
must implement it by 1 January 1998, but the developing countries could put the
implementation off to 2001-2006.

The second agreement impacting telecommunicaitons was the
Information Technology Agreement (ITA). Signed in Singapore on 13 December 1996,
the ITA outlined a process of equal rate reductions of customs duties from 1997
through 2000. Products covered by the ITA totalled roughly $500 billion worth of
global trade in 1995. As of 1997, the ITA represented the only global agreement
on a sector in which participating governments agreed to eliminate all duties on
a uniform list of products.

The agreement mentioned six categories of products including
telecommunications equipment, such as telephone sets, fax machines, modems,
pagers and more.

The ITA staged rules to eliminate duties on the product list
in four equal steps, or by 25 percent each. The deadlines were set for 1 July
1997, 1 January 1998, 1999 and 2000. In certain exceptional cases, several
countries requested extensions for duty reductions on various products with no
deadline extending beyond 2005.

The ITA and GBT agreements were expected to create a new era
in the telecom industry–one that would be based on substantially liberalised
markets for telecom services, globally accepted and pro-competitive regulatory
principles, the elimination of import duties on IT products for the major
markets of the world, and substantial relaxation in many countries of
foreign-ownership restrictions of telecom operators. From these agreements, the
participating countries expected to gain not only a better infrastructure and
economy, but also an improved quality of life on all fronts--from the workplace
to the home.

India’s Present Position vis-à-vis WTO

Within the WTO, India is committed to ensuring that the
sectors in which the developing countries enjoy a comparative advantage are
adequately opened up to international trade. And also, the Special and
Differential Treatment Provisions for developing countries under the different
WTO agreements are translated into specific enforceable dispensations in order
that developing countries are facilitated in their developmental efforts.

India signed the Information Technology Agreement (ITA) of
the WTO in Geneva on 26 March 1997, undertaking to reduce its import duties on
217 items to zero, between 2000 and 2005–in a phased manner. India is
complying with its obligations to implement the ITA. Despite a back end date of
2005, tariffs in India are being phased out as promised.

In a final schedule filed on March 25 by India in Geneva, it
agreed to reduce duty on 95 tariff lines to zero level by 2000. Duties on
capital goods were brought down to zero level in the first phase.

India was among the 27 countries to file a schedule for the
purpose. Duty on another four tariff lines would be brought down to zero level
by year 2003 and on two tariff lines by year 2004. Duty on the remaining 116
tariff lines, which would include computers, peripherals and computer systems
will touch zero in 2005. This will include duty on telecommunication equipment
such as switching and transmission apparatus. The annual staging of tariff
reductions has been done carefully, keeping in view the interest of the domestic
industry wherever relevant, as well as to enhance the competitiveness of the
domestic IT industry.

WTO–The Response from Other Countries and a Look at
China’s Participation

Although other participating countries are granting market
access, they have not committed to implementing the agreement until after 2000.
Argentina, Mexico, Singapore, Ireland, Portugal, Greece and even Canada will not
open markets for certain services until late 2000 or beyond. Others have
excluded particular market segments, such as exclusion of infrastructure-based
public-switched services by Brazil and Hong Kong, or the controversial exclusion
of international services by Canada. Also, many countries have excluded their
most significant companies from foreign ownership. France excludes France
Telecom, Italy excludes STET and Japan limits foreign ownership of NTT and KDD
to a maximum of 20 percent.

Advantage China?

After the Sino-American Agreement on China entering WTO was
signed, there was a lot of hue and cry, but it has been a mixed deal for China.
The WTO agreement was favourable for the Chinese telecom operating industry,
enabling it to set up modern enterprise systems with clear property rights,
distinguished rights and responsibilities, introduce advanced technologies and
equipment, seek suitable enterprise organisation form for self development and
look for development and growth in competition.

After the entry of WTO, the domestic market will offer big
opportunities to Chinese telecom operators. In addition, Chinese telecom
operators can also step into the international market by providing surrounding
WTO member states with telecom services according to WTO service and trade
provisions.

The intervention in national long distance and local telecom
as well as mobile communication fields by trans-national telecom companies on a
large scale is restricted to some degree. Competition will occur in value-added
services such as paging and Internet. On the telecommunications equipment
manufacturing front, the main international telecom manufactures such as
Motorola, Nokia, Ericsson, Siemens, Alcatal, Nortel and NEC have already entered
the Chinese

market and all have built up joint-venture enterprises with China and started
localised production. Foreign firms will get greater access to China's telecom
market on access to the WTO.

The Road Ahead for India

At a time when the WTO Basic Agreement on Telecommunications
is creating more liberalised, competitive telecommunications markets world-wide,
India will soon find itself in a growing minority if the issue of TRAI's
regulatory strength in the marketplace remains unclear. In a similar vein, DoT
has been corporatised. This includes separating the operator from the licensor
and the policy maker. In addition, plans are being made to open up the long
distance domestic telephony arena to private operators, allowing competition to
come in. International telephony is slated to be opened up by 2004.

US control on exports to India of leading edge technologies,
including information technology, which can have both detrimental and beneficial
effects, are unlikely to survive globalisation of the communications sector. As
far as liberalisation in the basic telecom services sector is concerned, it has
allowed competition in basic services. The WTO regime provides for one new
operator in addition to the actual monopoly to provide long distance service.
However, India submitted a MFN Exception List to allow the Government to apply
differential measures such as accounting rates.

From a long-term view, India’s telecom operating industry
will eventually be fully opened, and compete with foreign telecom operators
entering the Indian telecom market. This is a real challenge. With India’s
entry into the WTO regime, foreign capital is bound to enter the long distance
and local telecom fields, and Indian telecom operators will face severe
challenges in this field.

International long distance telecom service carriers
(including ocean cable and satellite communication) have actually co-operated
with foreign companies, but the charges on the Indian side are too high. These
would have to be reduced. Owing to the abundant foreign capital that the larger
Indian firms and the MNCs would have, most of the medium and small operators
will face the risk of being acquired or eliminated.

The ISP Internet value-added services are very difficult to
restrict. Though you can restrict it inside the Indian territory, it can operate
through overseas sites to provide services to customers inside India and compete
with services from the Indian side. Problems such as too many manufactures,
workers, small scale and low profit industries commonly exist in the production
of switches, mobile communication products, optical fibre or communication
terminal products in the Indian telecom manufacturing industry. Some of these
enterprises are at the edge of bankruptcy or operate with debts.

With India committed towards the WTO regime, the Indian
telecom manufacturing industry will have to face consolidation and re-organisation.

Due to the sharp reduction in tariff and cancellation of
non-tariff barriers, foreign companies may build facilities by themselves and
avoid transferring technologies to India. This will challenge enterprises that
lived on part assembling, with no innovative ability. What India and other
developing nations would gain from the agreement is the removal of entry
restrictions for technical personnel from developing to developed nations. For a
country like India, which has infrastructure and technical manpower, investment
flow will also be much smoother.

What India can offer the world is the knowledge of and
experience in liberalising telecom services. It can go forth with much
confidence. It has nothing to lose if it can drive home the point that--India
believes more in action than in words. That is what it has done by being one of
the first nations to open up the entire basic services sector on such a huge
scale.

The article is written under the guidance of Professor V
Sridhar, by Yogesh Grover, Debashish Chakrabarty, Rahul
Jain, Dinesh Singh and Puneet Satyawadi, all second year MBA
students at IIM Lucknow.

Effects of WTO on the Indian Industry

The agreements that were signed under the aegis of WTO meant that the
following conditions had to be met:

Competitive Safeguards

Major suppliers could no longer engage in anti-competitive practices.

Interconnection

Major suppliers must provide interconnection under the following terms:

• At any
  technically feasible point in their networks

• Under
  non-discriminatory terms and conditions

• At
  cost-oriented, unbundled rates

• At points in
  addition to existing network transfer points

• Subject to
  reasonable construction charges

• Interconnection
  procedures and agreements to be publicly available

Universal Service

Members may make exceptions to achieve universal service
objectives, provided they are transparent, non-discriminatory and competitively
neutral.

Licensing Criteria

Terms and conditions and the period of time normally required
to reach decisions concerning licenses will be made publicly available.

Independent Regulator

The regulatory body will be separate from and not accountable
to any supplier of basic telecom services.

Scarce Resources

Any procedures for allocating scarce resources, such as the
radio spectrum, will be carried out in an objective, timely, transparent and
non-discriminatory manner.