discussion WTO and Non-WTO Investment

discussion

1. WTO and Non-WTO Investment

20. 
    As discussed in the NPRM, the Commission determined in 1997, in the Foreign Participation Order, to distinguish between WTO and non-WTO Member investment in exercising our discretion under section 310(b)(4) to allow foreign investment in the controlling U.S.-organized parent companies of U.S. common carrier and aeronautical licensees in excess of the 25 percent benchmark.¹ Under these policies, the Commission denies a section 310(b)(4) petition that does not contain the required ECO showing, in the absence of countervailing public interest considerations.² The Commission concluded in the Foreign Participation Order that its goals of increasing competition in the U.S. telecommunications service market and opening foreign telecommunications service markets would continue to be served by opening the U.S. market to investors from non-WTO Member countries only to the extent that the investors’ home markets are open to U.S. investors.³ In the First Report and Order in this proceeding, we applied our existing section 310(b)(4) policies, including our treatment of non-WTO Member investment, to petitions for declaratory ruling by the class of common carrier licensees subject to section 310(b)(3) forbearance.⁴
    
21. 
    The NPRM sought comment on whether there is a continuing policy basis for retaining the distinction between WTO and non-WTO Member investment in its current form, modifying our application of the distinction, or eliminating the distinction.⁵ AT&T asserts that continuation of the distinction between WTO and non-WTO Member investment is necessary to maintain market-opening incentives in non-WTO Member countries.⁶ However, SIA argues that the burdens associated with the current WTO and non-WTO distinction far outweigh any purported benefits.⁷ Other commenters either did not address the issue at all; or did not directly address the issue while appearing to assume that the distinction would remain.⁸ USTR supports the Commission eliminating, in this proceeding, the distinction between WTO and non-WTO Member investment in our treatment of foreign ownership in common carrier licensees and the controlling U.S. parents of common carrier and aeronautical licensees under section 310 of the Act, provided that the Executive Branch agencies, and, in particular, USTR, continue to receive notice of applications and retain the ability to file comments in opposition to applications where trade policy issues are implicated.⁹ USTR states that the current practice imposes a non-trivial burden on applicants by requiring them to demonstrate whether foreign investors are from a WTO Member or non-WTO Member.
    
22. 
    In deciding to treat WTO and non-WTO investment alike, we find, first, that the policy of distinguishing between WTO and non-WTO Member investment plays a less relevant role today in promoting competition in the U.S. telecommunications service market or in opening foreign markets to U.S. investors than when it was adopted.¹⁰ There are now 158 countries that are Members of the WTO (in addition to the European Union which is itself a WTO signatory), up from 132 countries in 1998 when the WTO Basic Telecommunications Agreement went into effect.¹¹ There also are 25 WTO Observer countries that are in the process of joining, or acceding to, the WTO.¹² Although approximately one-fifth of all countries are WTO Observer countries or other non-WTO countries that have not opened up their markets pursuant to WTO accords, the WTO Observer and non-WTO Member countries collectively represent only about one percent of the world’s gross domestic product.¹³ We find these circumstances persuasive in refuting the argument that applying the ECO requirement, as a general rule, to foreign investment from non-WTO Member countries remains necessary to promote effective competition in the global market for communications services and to encourage foreign market opportunities for U.S. carriers.¹⁴ Significantly, the USTR supports eliminating our policy of distinguishing between WTO and non-WTO Member investment, so long as we retain our long-standing policy of deferring to the Executive Branch on matters relating to trade policy.
    
23. 
    Second, we find that our current policy – which requires licensees to calculate non-WTO Member investment in their controlling U.S. parents to ensure that it does not exceed 25 percent unless the licensee is able to make an ECO showing for the relevant non-WTO Member countries¹⁵ – imposes significant costs and burdens on U.S. common carrier and aeronautical licensees and their U.S. parent companies. The costs and burdens of calculating non-WTO Member investment also extend to common carrier licensees subject to the section 310(b)(3) forbearance approach we adopted in the First Report and Order in this proceeding.¹⁶ Industry commenters state that U.S. companies face significant difficulties and costs in attempting to determine the citizenship and principal places of business of investors, which often hold their interests indirectly through multiple investment vehicles and holding companies.¹⁷ It also has been our experience, in reviewing section 310(b)(4) petitions, that in many cases it is not possible for companies to quantify with confidence their non-WTO Member investment, particularly where the company is publicly traded or is owned in whole or in part by other publicly traded companies. SIA comments that eliminating the distinction would significantly reduce the burden of preparing section 310(b)(4) filings.¹⁸ SIA notes that the burden of quantifying non-WTO Member investment is made even more difficult, if not impossible, when the Commission requires filers to identify even minute non-WTO investments.¹⁹ We agree that eliminating the distinction will significantly reduce the burdens associated with filing petitions for declaratory ruling, particularly for publicly traded companies or companies that are owned in whole or in part by other publicly traded companies.
    
24. 
    We also find that eliminating the distinction between WTO and non-WTO Member investment for purposes of our section 310(b) public interest reviews will not pose a risk of harm to competition in the U.S. market. Our experience since the Foreign Participation Order confirms the Commission’s finding in that order that, because common carrier wireless markets are, “for the most part, wholly domestic, there is no possibility of leveraging foreign bottlenecks in order to create advantages for some competitors in U.S. markets.”²⁰ And, we note that no commenter has argued that applying an open entry standard to non-WTO Member investment in U.S. common carrier and aeronautical licensees, as we apply it to WTO Member investment, will result in anticompetitive effects in the U.S. market.²¹
    
25. 
    While AT&T takes the view that maintaining the distinction between WTO and non-WTO investment “remains necessary to encourage non-WTO Member countries to open their telecommunications markets,”²² AT&T has also “recognized the potential benefits of aligning the market entry rules applicable to U.S. domestic wireless and wireline carriers, as well as of reducing the administrative burdens for applicants and Commission staff resulting from the current approach.”²³ Moreover, as noted above, even collectively the non-WTO and WTO Observer countries represent only about one percent of global GDP. We find particularly compelling the views of USTR on this trade question, which confirm our concern about the need to focus Commission resources on the most pressing international competitive concerns,²⁴ particularly in light of the costs and delays associated with continuing to maintain this distinction and the associated disincentives for needed investment in the increasingly important wireless broadband sector of our economy. In this regard, we note that eliminating the distinction between WTO and non-WTO Member investment for purposes of our section 310(b) public interest reviews will also reduce administrative costs and burdens associated with staff review of information that we find is no longer necessary to fulfill our statutory obligations under section 310(b). SIA also asserts that eliminating the distinction would not raise national security or law enforcement concerns because Executive Branch agencies would continue to review foreign investment.²⁵ We agree.
    
26. 
    On balance, we find that the costs of maintaining the distinction between WTO and non-WTO Member investment in common carrier and aeronautical licensees outweigh any remaining benefits and therefore eliminate the distinction. Accordingly, we will treat non-WTO Member investment in common carrier licensees subject to section 310(b)(3) forbearance, and in the controlling U.S. parents of common carrier and aeronautical radio station licensees subject to section 310(b)(4), under the “open entry standard” we have applied to WTO Member investment. Moreover, as discussed in Section IV.B, we will continue to coordinate with the relevant Executive Branch agencies all petitions for declaratory ruling and license applications where the applicant has foreign ownership exceeding the limits in section 310(b)(3) and/or section 310(b)(4). We will also continue to accord deference to the agencies’ views on matters related to national security, law enforcement, foreign policy, and trade policy that may be raised by a particular transaction.²⁶ We do not adopt any change in policy that affects the Commission’s ability to condition or disallow foreign investment that may pose a risk of harm to important national policies.
    
27. 
    The NPRM also sought comment on ways to reduce the costs and burdens of the Commission’s policy on non-WTO investment.²⁷ Because we have determined to treat all foreign investment similarly by eliminating the distinction between WTO and non-WTO Member investment in common carrier and aeronautical licensees, we do not need to consider in this section the various questions raised in the NPRM on this issue.²⁸
    

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