Carriers urge Japan access issue on WTO - Government Activity

CommunicationsWeek International, Feb 21, 2000 by Jeremy Scott-Joynt

Japan is running the risk of being taken to the World Trade Organization over its interconnection rates. But the complainant looks set not to be its traditional adversary, the United States, but the European Union.

Following their U.S. competitors' lead, European-based carriers with a presence in Japan are urging the EU to take action to bring down the costs of access to Japanese domestic telecoms networks.

"This game can continue," said a senior European Commission trade official in Brussels. "But we're getting signals from industry that we need to do more, and that could mean Geneva."

The European carrier lobby includes France Telecom. Deutsche Telekom, Telecom Italia, and Cable and Wireless plc, which last year carried through the first 100% takeover of a Japanese carrier by a European company.

"You have to give credit to the EC, who seem to understand the situation very well," said Hartland Paterson, director of legal, regulatory and government affairs at C&W's Japanese operating company, C&W IDC. "They understand that NTT will be wanting business in Europe at some point."

C&W's executive director of global businesses, Stephen Pettit, sits on an EU commission studying all EU-Japan trade relations, including telecoms.

Europe has yet to make a decision on whether to activate the Geneva-based WTO's dispute resolution procedure, in the light of the likely adoption by Japan's Ministry of Posts and Tel corns of a four-year program that will reduce rates by 22.5%. The United States has asked for a 41% cut in the next year, while Europe has not set a target figure.

But the subject is expected to be on the agenda for the General Affairs Council of trade and foreign ministers, meeting on 20 March.

"They've undertaken various work over there [in Japan], but to put it diplomatically we've no been very happy about what they've done," said the EC trade official. "We've three times commented in writing and discussed in follow-up meetings."

No decision can be taken without the consent of the member states, he pointed out; which explains the need to thrash out the issue in the Council of Ministers, made up of elected officials from the 15 member states. "We're not doing this alone," he said.

Discussion of the issue could be held up, though, by EC attempts to come to terms with the collapse of the Seattle WTO meeting in November. Europe has a long list of items it wants on the post-Seattle agenda, and is walking a tightrope between pushing Japan on telecoms and recruiting its support for its wider WTO imperatives.

Japan has insisted, both in public and in bilateral meetings not only with Europe but also with the United States and Canada, that it is working to fulfill the clause in the reference paper that calls for "cost-oriented rates of interconnection." Such commitments are at the heart of the WTO Basic Telecoms Accord, which Japan signed in 1997.

But trade officials in Washington, Brussels and Ottawa are not happy with the latest proposals, explained to the United States in a meeting on 18-19 January.

At the meeting, which took place in Washington DC between U.S. Ambassador Richard Fisher and the director-general of the Ministry of Posts and Telecoms, Sadanori Amano, Japan presented what it called Plan C, following two earlier interconnection plans submitted last summer. One plan suggested by NTT, which almost pushed the United States into threatening WTO action last year, is now off the table.

Plan C called for a phased four-year program of cuts. The model was drawn up by a committee of experts and academics, to meet the LRIC (Long-Run Incremental Cost) standards applied in economies such as the United Kingdom and the United States.

But it has met with significant domestic resistance. Competitive carriers, and the newspapers, have been up in arms at what they perceive as protection of NTT, which is still 53% owned by the Japanese state and remains the dominant force in local connections.

                 Plan C: Japan's interconnection proposals
Japan offers...                      Critics say...
22.5% lowering of headline           "This still leaves the rate way above
interconnection rate                 comparable rates in the U.S. and
                                     Europe."
                                     U.S. Trade Representative (USTR)
Four-year timescale for implem-      "In the fiscal year ending in March
                                     '99,
enting rate reduction                NTT cut rates by 6.8%. The new plan
                                     will only
                                     cut about 5.6% a year." Cable &
                                     Wireless IDC
New LRIC-based interconnection model "Non-traffic sensitive costs are still
                                     built
                                     in." USTR
Model includes 10-year depreciation  "In the U.S and Europe, fiber
                                     depreciation is
period for NTT's network equipment   20-30 years. Why does Japanese fiber
                                     wear out so much more quickly?" C&W
                                     IDC