U.S. service industries face open questions - service industry regulations under the single European market

Business America, Feb 24, 1992 by Linda F. Powers

The European Community is the primary foreign customer of U.S. service producers. Last year it accounted for almost a third of total U.S. exports of business services (which exclude government transactions and investment receipts). U.S. sales of business services to the Community reached an estimated $37.5 billion in 1991, a 6 percent increase over the 1990 figure. (By comparison, 1991 sales to Canada were about $16 billion and, to Japan, about $20 billion.)

As the countdown continues for completion of the EC's Single Internal Market by the end of this year, U.S. service industries generally welcome the elimination of impediments to services trade across boundaries within the Community. At the same time, however, questions continue to rise About the details in specific service sectors.

In some cases, the full consequences for U.S. companies are not clear at this time. In part, this is because EC services legislation is not entirely in place. Either directives await adoption a.,4 is the case, for example, in trucking) or adopted directives have not yet been fully implemented (as in telecommunications, for example).

In addition, multilateral trade negotiations in the Uruguay Round are still under way. These negotiations are aimed at, among other things, developing a set of binding obligations to govern trade and investment in services. U.S. negotiators seek commitments from the Community in a broad range of services activity. As of this writing, completion of those negotiations is still pending.

Following are highlights of some of the questions facing U.S. service producers.

Telecommunications. Three directives form the foundation for the Community's efforts to liberalize the flow of telecommunications services. They deal with 1) open network provision, 2) telecommunications services, and 3) termninal equipment. Taken together, this legislation could introduce greater competition from private "enhanced." or value-added" service providers vis-a-vis national postal and telecommunications monopolies PTTs). Users of telecommunications services would benefit from a wider array of service options, as well as downward pressure on prices.

A major question. though, is the extent to which PTTs will be able to cross-subsidize the provision of their own enhanced services at the expense of private operators. This would the possible through several measures, such as providing access to the basic telecommunications network for a PTT-related enhanced service provider at a cost less than that charged to private sector competitors.

Other concerns relate to terminal equipment and the ability of enterprises to construct their own private networks to serve intra-corporate needs. EC member states require that digital terminal equipment installed on a private network be purchased from a PTT. No such requirements exist in the United States. Also, since the scope of the Community's legislation pertains only to intra-EC services, access to the EC from points outside of it it, not covered.

These concerns, as well as others relate(i to market access for U.S. telecommunications manufacturers, led to the European Community being designated under the 1988 Telecommunications Trade Act. This designation triggered bilateral negotiations to address U.S. concerns. if these negotiations fail to resolve the, issues, the law provides that a recommendation could be made to the President for the imposition of counteractions. The deadline for reaching such a recommendation, twice extended for one year each, cannot be extended beyond Feb. 24, 1992.

Postal, express delivery, and "remail", services. The central issues in this sector, like those in telecommunications services, stem from the scope of monopoly authority granted to the PTTs. How far should this authority extend to the exclusion of private sector "remail" and express delivery companies? (Remail is the private carriage of mail items across national boundaries for deposit in the postal system of either the country of destination or an intermediary country.)

Advocates of greater private sector competition complain that some EC member states adhere to Universal Postal Union measures which disadvantage remail companies. They note, for example, that PTTs compensate each other for inward delivery of each other's mail under a different cost basis than that applied to private companies. Moreover, PTTs can simply refuse to accept mail from remail companies (or assign it a lower delivery priority than mail from other PTTs).

The Commission is expected to issue, a "Green Paper" analyzing these issues and report on the direction of future legislation, if any, it may be contemplating. Some observers believe that a November 1991 merger decision by the Commission may point towards greater private sector competition. That decision sanctioned a joint venture between some PTTs (three of which are in the EC) and a private company for the provision of express and remail services. The Commission conditioned its approval on the PTTs ensuring that companies not party to the joint venture receive access to the postal network under conditions no less favorable than those afforded to the joint-venture party.