Opportunities for industry and challenges for public policy in newest free trade deal

Free trade with Central and South America will create more opportunities for Canadian telecom companies, lure new competitors to our domestic market, and at the same time, cause concerns for domestic policy, according to experts reviewing the recently released draft agreement of the Free Trade Area of the Americas (FTAA). Released earlier this month, the 435-page document is still a work in progress, with parentheses around virtually every sentence, indicating areas where agreement still needs to be reached. But a close reading of the paper shows where the countries of the western hemisphere want to head and what horse trading may go on as talks continue for the next three or four years. People on both sides of the free trade issue concede that Canada's share of the international market could increase with the emergence of a hemispheric free trade zone. Canadians invest nearly $47 billion in the non-NAFTA countries of the Americas, and the FTAA is expected to lead to the development of stable and secure investment rules to encourage more foreign investment in the region. "With the specific view of a telecommunications company which has investments in Latin America, the outlook is much more sanguine in terms of the investor rights that would be conferred and access to international arbitration mechanisms," Marc Lee of the Canadian Center for Policy Alternatives says. Peter Burn is VP corporate affairs for Bell Canada International, which has been shifting its focus of late from the Asian market in favour of Latin America. He believes the big winners in this agreement - as in previous free trade agreements - will be smaller countries seeking access to the lucrative North American market. "We see South American countries as gaining access to the North American markets as the primary, long run economic winners. And those are our customers," says Burn. "So more traffic, more phone calls, more income, more customers. The indirect benefits could be quite substantial over time in terms of higher income customers." Burn doesn't expect the final text of the FTAA will have any significant impact on BCI directly, which is already bidding for and winning licences to operate in other countries. Most of the nations in Latin America have been liberalizing their telecom industries even without the legal requirements of a free trade pact. However, the agreement could be a boon to equipment manufacturers such as beleaguered Nortel Networks Corp. An FTAA would make it possible for Canadian manufacturers to build its equipment in Brazil for the Mexican market, for example, by lowering tariffs on foreign goods. Mexican tariffs of 14 per cent currently make such an idea prohibitively expensive. Canadian companies also see an opportunity in helping the region modernize newly privatized but antiquated telecom infrastructure. In the area of services, including telecom services, the FTAA will give participating countries incentives to reach rules on access for services that improve upon those negotiated at the World Trade Organization. Foreign ownership an issue Where Canada is considered vulnerable in these negotiations is in the area of foreign ownership. Clause 7.3 of the Services section of the FTAA paper specifically prohibits "limitations on the participation of foreign capital in terms of maximum percentage limit on foreign share holding or the total value of individual or aggregate foreign investments." The CCPA's Lee says the topic is a natural for discussions. "I'm sure it would be on the table. The Americans in particular would be interested in prying open that. To the extent that'll happen depends on the resolve of Canadian negotiators." Daniel Roseman of Ottawa's Roseman Associates recalls that former Industry minister John Manley talked about dumping the restrictions only in return for other concessions. It isn't clear if Canada would ask for telecommunications concessions or compromises in other industry sectors. Even the recent recommendations of the National Broadband Task Force that ownership limits be reviewed do not give Roseman optimism. "The minister of Industry has undertaken to review and report back to cabinet. That doesn't mean he will change anything," he notes. "Even if he changes things, how much will he change it? There are a number of questions, a number of stages that need to be worked through on that level." Ottawa lawyer Leslie Milton, who specializes in international trade law, wonders how the federal government will proceed as talks continue, noting that foreign ownership has always been seen as an important bargaining chip. "We had always assumed that Canada was holding it in reserve and it would be something they would give up if they were getting something good in return," she tells Network Letter. "I think a lot of us thought the good in return would be something probably from the European Union and the U.S. or both of them. Of course recently with the Broadband Task Force report we've seen other motivations for Canada perhaps loosening those restrictions." What would Canada ask for in return? In the area of telecom, a prime target could be the Federal Communications Commission in the United States. Bell Canada, for one, had many complaints about the 20 months needed to get a decision on its application for non-dominant status (NL, March 8/00). "Those might be the sort of things where we might try to get some improvements in the way the Americans operate," Roseman speculates. But that could be a two-way street, Lee fears. "The CRTC could be a target and the whole regulatory regime around telecommunications," he suggests. "Some of that comes down to last minute stuff that gets stuck in annexes in the back as opposed to the actual text, so it's pretty difficult to say what that would be right now. The potential would definitely be there." There is also the possibility the Chrétien government would offer up ownership concessions in return for being allowed to continue to safeguard cultural industries. (For more on the concerns of the cultural community, see the July 12 edition of Canadian NEW MEDIA.) Lee isn't hopeful about prospects for future talks. "My own take is whether you like free trade or you don't like it, or whether you like these agreements or not, our negotiators have done an awful job, all the way back to the Canada-U.S. free trade agreement," he says. "I guess the causes for optimism wouldn't be too great." Burn maintains the FTAA talks are only following natural currents. Trade liberalization discussions began with the General Agreement on Tariffs and Trade (GATT). Later multinational deals resulted in the Canada-U.S. Free Trade Agreement (FTA), the North American Free Trade Agreement (NAFTA) which added Mexico to the FTA, and the WTO. Canada was also a signatory to the WTO's Agreement on Basic Telecommunications Services. "Countries don't negotiate cataclysmic changes. Trade barriers are generally removed and eliminated on an incremental basis," he notes. "We've been having the GATT negotiations since 1947. This is another step in a 50-odd year process in various forms." How detailed the final provisions of the FTAA will be is anybody's guess. It is usual that a regional agreement adds more than a wider pact and experts consulted by Network Letter disagree on the likelihood of that occurring in this case. "The idea would be to negotiate a WTO Plus for the FTAA," Roseman says. "What could be done that goes beyond what had been negotiated in the millennium round?" But Milton isn't so sure that's what will happen. She cites the pervasiveness of the earlier agreement. "I guess there's two things at play here. First of all, the GATT was really a groundbreaking agreement and other agreements are kind of catching up," she explains. "The second is Canada and the US and Mexico as well are all parties to the WTO. Their level of commitment varies somewhat under that agreement."

Opportunities for industry and challenges for public policy in newest free trade deal

News | 07/30/2001 4:00 am EDT

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