Internet Service Providers' Association

Advisory 6: South Africa's commitments under the WTO's Basic Telecommunications Agreement

Release date: 15 February 2001
Author: Tracy Cohen

Relevance

As telecommunications issues become increasingly global in their scope, it is important to be aware of international agreements that affect domestic regulation of the sector. Last year, the United States government threatened on behalf of AT&T Global Networks in South Africa, to bring an action at the World Trade Organization ("WTO") in the basis that SA was allegedly contravening its commitments under the WTO instruments to open its markets to competition in certain service sectors.

This advisory unpacks these instruments and sets out what SA's obligations are in that regard.

Introduction

South Africa submitted a final schedule of telecommunication sector commitments under the World Trade Organization's ("WTO") Fourth Protocol to the General Agreement on Trade in Services ("GATS") in February 1998. This agreement is more commonly known as the Basic Telecommunication Agreement or GATS Fourth Protocol, and effectively embodies the WTO Members' efforts to introduce global competition in telecommunications services.

Overview: GATS

The GATS was concluded in Marrakesh on 15 April 1994 as part of the agreement establishing the WTO. As at 30 November 2000, the membership of the WTO was 140. The GATS main text or framework, or Articles of the Agreement are supplemented by Annexes, the Schedules of Specific Commitments and lists of Exemptions from Most Favoured Nation treatment ("MFN" - see below) submitted by Member governments.

Attached to GATS are additional agreements called "Protocols", which deal with the results of subsequent negotiations. Protocols currently in existence pertain to Financial Services, The Movement of Natural Persons; Basic Telecommunications and Maritime Transport Services.

Only national governments can be parties to the GATS. Non-state actors, NGO's, and corporations cannot be a signatory, although governments often act in the WTO on behalf of specific sector and corporate issues.

GATS Obligations - Non-Discrimination Obligations contained in the GATS can be categorized into two groups:

General Obligations:
These apply automatically to all Members, regardless of whether they have made any specific sectoral commitments. These are comprised of:

• Most-favored Nation ("MFN")
  Essentially, MFN requires that any concession extended by one Member to another, must immediately and unconditionally, be extended to all other Members. That is, "treatment no less favourable than that accorded to like services and services suppliers of any other country". In the GATS however, derogations from this 'unconditionality' can occur through certain exemptions, which Members are allowed to 'list' before the agreement came into force. All exemptions are subject to review and should in principle not last longer than 10 years.
• Transparency
  GATS Members are required, to publish all measures of general application and establish national enquiry points to respond to other Member's information requests.

Specific Commitments
These are limited in scope only to that sector or activities where a Member has decided to assume market access and national treatment obligations.

• Market Access
  The granting of market access is a negotiated commitment undertaken by individual Members in specified sectors. It may be made subject to exemptions/limitations, such as the number of services suppliers, service operations or employees in a sector, the value of transactions, the legal form of the service supplier, or the participation of foreign capital. Thus Members are required to refrain from imposing certain types of quantitative restrictions, economic needs test, or local incorporation requirements unless the WTO Member has specifically listed such limitations in its Schedule.
• National Treatment
  This principle demands that a Member treat foreign services and suppliers no less favourably than it treats its own. In this context, the key requirement is to abstain from measures which are liable to modify, the conditions of competition in favour of a Member's own service industry.
  
  The specific commitments, including national treatment, apply only to sectors that have been "scheduled" or "listed" by the Member state, and thus only bind members to the extent that they undertake commitments.

Schedules of Specific Commitments
It is therefore only by reference to a country's schedule, that it can be seen to which services sectors and under what conditions the basic principles of the GATS (market access, national treatment and MFN) apply within that country. In a schedule, a country identifies the service sectors to which it will apply the market access and national treatment obligations of the GATS and any exceptions from those obligations it wishes to maintain.

In nearly all schedules, commitments are split into two sections: First, "horizontal" commitments which stipulate limitations that apply to all of the sectors included in the schedule; these may refer to a particular mode of service supply (see below). Secondly "sectoral" - commitments which apply to trade in services in a particular sector or subsector. For example, business; communication; financial; health; tourism and travel; transport.

In essence, the entries which constitute a legally binding commitment in a Member's schedule indicate the presence or absence of limitations on market access and national treatment in relation to each of the four modes of supply for a listed sector, sub-sector or activity.

Modes of supply
The GATS covers all services and defines them by reference to the "modes of supply" in which services can be carried out; namely:

• services supplied by non residents cross-border into the Member's territory
• services consumed abroad; namely, the freedom for the Member's residents to purchase services in the territory of another Member.
• services requiring a commercial presence, branch, agency, or wholly-owned subsidiary in the consuming country;
• services requiring the presence of foreign people (legally referred to as "natural persons") in the Member's territory, in order to supply a service.

Telecommunications
Contrary to what its name suggests, there is no single basic agreement on telecommunications at the WTO. Three documents comprise the core of trade in telecommunications services and are crucial to interpreting the GATS objectives:

• the Annex on Telecommunications ("the Annex");
• the Fourth Protocol on Basic Communications; ("Fourth Protocol")
• the Reference Paper on Regulatory Principles. ("RP").

Brief consideration to the general obligations and disciplines under the GATS, in relation to telecommunications follows.

GATS and the Annex on Telecommunications

GATS requires the publication of all laws and regulations applicable to the provision of services. A similar provision exists in the Annex, requiring the public availability on tariffs, other terms and conditions of service, specifications of technical interfaces, relevant bodies responsible for standards affecting access and use, and notification, registration or licensing requirements, if any. As most of the relevant government rules and regulations are domestic, these transparency provisions are particularly important. Members who undertook market access commitments also become subject to the requirements relating to domestic regulation of those services. To this end, domestic regulation must be administered in a reasonable, objective and impartial manner and not be more burdensome than necessary. In suggesting a proportionality standard, the GATS acknowledges that the pursuit of national interests will vary across borders and require different approaches, and will often be in contrast to the GATS ideals, for example, protecting a monopoly for a specified period.

Because the provision of telecommunications in most countries was (and in many cases remains) the preserve of the State, GATS specifically prohibits that incumbent from abusing its monopoly position or acting inconsistently with its country's obligations. Provision is also made to counter anti-competitive business practices of other non-exclusive service suppliers. An example in the telecommunications context is where a duopoly in a service sector facilitates price collusion or promotes vertical expansion into other competitive market sectors, for which the duopoly position is used to leverage market share.

It should be noted that the Annex, at the close of the Uruguay round in 1994, only secured commitments to opening value added services and not basic telecommunications services.

The Fourth Protocol and the Regulatory Reference Paper

Following further rounds of negotiations, on 15 February 1997, sixty-nine countries reached consensus on liberalizing trade in basic telecommunications services. It is this agreement that takes the form of the Fourth Protocol. The agreement came into effect on 5 February 1998 and currently has 72 signatories. Its substantive additions to the 1994 Schedule include commitments to open markets in basic telecommunications and satellite services.

Many of the parties to the Protocol have committed over varying time frames, to dismantle state monopoly provision of basic services, open entry to foreign suppliers and adopt pro-competitive regulation in the sector. To assist in the introduction of competition in a market that has structural advantages for dominant players, Members also adopted the "regulatory principles" as set out in the Regulatory Reference Paper ("RP"). This document was used to end a deadlock in negotiations in 1996 to facilitate agreement in providing a guideline for designing market-opening policies. It thus proposes a number of safeguards and "appropriate measures" to prevent the anti-competitive practices of cross subsidization and the withholding of facilities. These are discussed later.

South Africa's Commitments Under The Gats

The GATS was signed by South Africa on 15 April 1994 and ratified by Parliament on 6 April 1995. The country's offer on basic telecommunications became part of its Schedule of Specific Commitments under the Fourth Protocol when it entered into force on 5 February 1998.

1994 Schedule of Commitments under the GATS Annex on Telecommunications

In 1994, SA committed to open its market in value-added or enhanced services, but made no undertakings with regard to basic telecommunications. In the Schedule, SA listed limitations/restrictions on the bypass of SA facilities for routing both domestic and international traffic, including callback and country direct dialing services. SA also listed a limit on local borrowing by South African registered companies with a non-resident shareholding of 25 percent or more.

1997 Schedule of Commitments under the Fourth Protocol

SA's commitment under the 1997 agreement was modeled closely on the new Telecommunications Act, which had been passed a year earlier. In terms of the horizontal listings, SA continued to impose the same restrictions with respect to market access and national treatment, as it had in 1994. The 1997 Schedule however was enlarged to cover facilities based and public switched telecommunications services (PSTN); mobile cellular, including mobile data; and satellite services. Additional commitments were made in respect of paging, personal radio communication services and trunked radio system services. Telkom's monopoly over voice and facilities provision until 31 December 2003 was specified. This is in fact the source of the date for the expiration of the monopoly, which is not mentioned anywhere in the Telecommunications Act. The undertakings in essence were a mirror of the changes to the sector brought about by this Act.

In terms of the PSTN, SA retained its market access limitation on cross border supply by maintaining the prohibition on bypass but committed to the expiration of the monopoly and the feasibility of additional PSTN suppliers by 31 December 2003. SA also undertook to liberalize resale services between 2000 and 2003. The restriction already applying to voice over VANS was listed as a market access limitation. SA also committed to licensing one additional cellular operator within two years of the Protocol's commencement date, with a feasibility study of this licensing to be completed by 31 December 1998. Finally, South Africa's commitments in respect of satellite cover fixed satellite services (FSS) and mobile satellite services (MSS). These commitments parallel those made for the fixed line and PSTN.

In terms of foreign ownership, SA retained its discretion to impose limitations no more restrictive than a 30 percent threshold.

Reference Paper On Regulatory Principles

Perhaps most importantly, SA also adopted in whole, the regulatory reference paper. This is an additional set of undertakings, that every signatory adopted. Structurally, the RP is divided into six sections. The first apply to regulation of "major suppliers", while the remaining four deal with general regulatory issues.

Prevention of anti-competitive practices in telecommunications and safeguards.

Members are required to maintain "appropriate measures" to prevent major suppliers from engaging in or continuing anti-competitive practices, including anti-competitive cross-subsidization; improper use of information obtained from competitors, and withholding technical and commercially relevant information about essential services, which are necessary for them to provide services.

Interconnection

Interconnection is defined in the RP as the "linking with suppliers providing telecommunications transport networks or services in order to allow the users of one supplier to communicate with users of another supplier and to access services provided by another supplier". The RP requires that Interconnection with a major supplier should be provided on request, be equitable and non-discriminatory in terms of quality; provided at technically feasible points in the network; timely and on reasonable terms and conditions, cost-oriented and sufficiently unbundled so that new entrants are not paying for unnecessary network components and facilities. In addition, it requires that both the procedures for interconnection and any concluded agreements of major suppliers must be publicly available. Finally, that parties should have recourse to an independent domestic body to resolve any disputes regarding terms, conditions and rates.

Universal Service

GATS recognises Members rights to regulate services in order to meet divergent national policy objectives. Any Member thus has the right to define the kind of universal service obligation it wishes to maintain. These will not be considered anti-competitive per se, provided they are administered in a transparent, non-discriminatory and competitively neutral manner and are not more burdensome than necessary for the kind of universal service defined by the Member.

Public availability of licensing criteria

The RP requires that the criteria, terms and conditions for licensing, where applicable, must be publicly available. Where a license application is denied, reasons for that denial must be provided on request.

Independent Regulators

The RP requires the establishment of an impartial and independent regulator to license, monitor and enforce obligations and conditions. This body must be "separate from, and not accountable to, any supplier of basic telecommunications services".

Allocation and use of scarce resources

The RP includes commitments to allocate and use frequencies, numbers and rights of way in an objective, timely, transparent and non-discriminatory manner. Cognizant of national security interests, some derogation is allowed in respect of certain spectrum allocations for police or military use.

Conclusion

The commitments under the Fourth Protocol reflect a minimum undertaking. As long as there is compliance with the principle of non-discrimination, SA is free to exceed those commitments and open markets beyond that stated in the Protocol. As a signatory, SA is obligated to implement its Schedule and any violation is subject to determination under the dispute settlement mechanisms of the WTO.

It should be noted that the GATS agreement is a fledgling instrument. Many of the GATS rules are not complete, and are largely untested. Service negotiations, especially in telecommunications have been delayed and are relatively new in the overall multilateral framework. Through the process, many gaps in the instruments will be identified and will need to be addressed. Some of the rules will need to be improved. Certainly, several more rounds of negotiations will be required.

Further telecommunication services negotiations were scheduled to begin last year.

There are a number of criticisms leveled against perceived weaknesses of the Fourth Protocol, most notably its vague language, however, because the agreement has been negotiated as part of a multilateral treaty, the offers and commitments are binding and practically irreversible. Commitments can only be withdrawn or modified after compensation has been agreed upon, and changes or modifications can be made for the first three years of an agreements operation.