ITRN 603

1. ITRN 603 US v. Mexico (DS204) - Measures Affecting Telecommunications Services Presented by: Al-Zahra Hamideddin Pius Kimeu Sonia Karim

2. Table of Contents -Mexico's International Telecommunications -Federal Telecommunications Law (FTL) of Mexico -Case Background - WTO Agreements Involved -US arguments while consulting with Mexico -US arguments to the DSB -Decision by the panel -Stand of Mexico -Mexican Implementation and Reforms -Implications - Proposals

3. Mexico's International Telecommunications - Federal Telecommunications Law (FTL) of Mexico- Case Background- WTO Agreements Involved Al-Zahra Hamideddin

4. Mexico's International Telecommunications • Prior to 1997, long-distance telecoms services in Mexico were supplied on a monopoly basis. • Following 1997- Mexico has authorized multiple Mexican carriers to provide international services over their networks. • The largest carrier of outgoing calls has the right to negotiate the terms for the termination of international calls in Mexico. Currently Telmex is the largest carrier. • There are 27 carriers 2 of which are U.S. carriers (WorldCom & AT&T)

5. Mexico's International Telecomm Regulations • Mexico prohibits U.S. carriers to lease lines • Require U.S. carriers to connect with Mexican telecommunications providers to complete calls from the U.S. to Mexico- interconnection. • Telmex has the authority to negotiate the rate for connecting calls into Mexico • The elimination of all competition within Mexico for international interconnection resulted in rates above the rates charged in countries with a competitive telecommunications market.

6. How Calls Connect • U.S. carriers must connect into that country's telecommunications network. This is done by: • Interconnecting with a foreign carrier and paying the carrier for assistance in running the call • Leasing a telephone line

7. Federal Telecommunications Law (FTL) of Mexico • Provides the legal framework for the regulation of telecommunications activities in Mexico. • Purpose is "to govern the use, utilization and exploitation of the radio-electrical spectrum, of the telecommunications networks, and of satellite communication".

8. Complainant / Respondent • Complainant- U.S • Third parties- Australia, Brazil, Canada, EU, Guatemala, Honduras, India, Japan, and Nicaragua • Respondent- Mexico

9. Case Background • October 2000 & January 2001 U.S. held formal WTO consultations with Mexico. These consultations achieved significant progress with respect to Mexico's domestic telecom market. Consultations did not resolve the dispute. • November 10, 2000 U.S. filed a request for the establishment of a panel and an additional request for consultations- which was held on January 16, 2001.

10. Case Background cont. • Mexico reduced domestic interconnection rates and established methods to regulate Telmex. However, Mexico, failed to address U.S. concerns with Mexico's anti-competitive International Long Distance Rules.  • February 13, 2002 the United States requested a WTO panel to address the outstanding international long-distance issues- the panel was established on April 17, 2002 • On April 2, 2004 The panel released its final report, siding with the U.S.

11. WTO Agreements Involved • Of Mexico’s Reference Paper commitments the following were involved: • Sections 1.1 (Prevention of anti-competitive practices in telecommunications) • Section 2.1, 2.2, 2.4, & 2.5 (Interconnection) • Section 5 ( Independent Regulators)

12. WTO Agreements Involved • Under GATS • Article VI:1 & VI:5- Domestic Regulation  • Article VI:5 • Article XVI: Market Access  • Article XVII: National Treatment  • Article XVIII: Additional Commitments  • Section 5 of the GATS Annex on Telecommunications.

13. Arguments US arguments while consulting with Mexico US arguments to the DSB Decision by the panel Stand of Mexico By: Pius Kimeu

14. US Argument While Consulting with Mexico • Mexico enacted and maintained bad laws and regulations • Mexico failed to enact legislation required for ensuring market access • Mexico failed to enforce regulation to ensure compliance with market access • Mexico failed to control its major supplier “Telmex” from engaging in activity that restricts Mexico's market access • Mexico failed to administer measures of general application governing basic and value-added telecommunication services

15. US Argument to the DSB Mexico measures failed to ensure that Telmex provides interconnection to US cross-border basic telecom suppliers on reasonable rates, terms and conditions; Mexico measures failed to ensure US basic telecom suppliers reasonable and non-discriminatory access to and use of public telecom networks and services; Mexico measures did not provide national treatment to US-owned commercial agencies Mexico measures did not prevent Telmex from engaging in anti-competitive practices.

16. Decision by Panel with Respect to Cross Border Services • Mexico had not violated Section 2.2(b) of its Reference Paper, • Mexico had not violated Section 5(a) of the GATS Annex on Telecommunications • Mexico had not violated Section 5(b) of the GATS Annex on Telecommunications

17. Decision by Panel contd. • Mexico failed to ensure interconnection at cost oriented rates • Mexico failed to maintain appropriate measures to prevent anticompetitive practices. • Mexico failed to ensure reasonable and non- discriminatory access to and use of telecommunication networks • The DSB should request Mexico to bring its measures into conformity with its obligations under GATS

18. Reaction from Mexico • Mexico announced that on August 12th 2005, it had published its new resale regulations allowing for the commercial resale of long distance services originating in Mexico • Therefore Mexico claimed that it had fully complied with the DSB recommendations.

19. Mexican Implementation and Reforms- Implications- Proposals Sonia Karim

20. Implementation Timeline • 1 June 2004: the DSB adopted the Panel Report • 1 June 2004: Mexico and the US reached an agreement on the former’s compliance with the recommendations of the panel report • 31 August 2005: Mexico announced that it had published its new resale regulations, thereby complying with the DSB’s recommendations. The US expressed its satisfaction with these changes

21. Mexico-US Telecom Reform Agreement • Revision of International Long Distance Rules (ILD Rules) allowing for competitive commercial negotiation of international settlement rates. • Regulations (Reglamentos) authorizing the issuance of permits for the resale of int’l long-distance public switched telecom services. • Prohibition of International Simple Resale (ISR) will continue.

22. Telecom Reform in Mexico: 2003 • Reforms in the telecom industry key aspect of President Fox’s economic development plan. • Replace the Federal Telecommunications Law of 1995 • Give the national regulator, COFETEL, the authority to regulate the industry • Provide incentives for facilities-based competition • Resolve problems with interconnection fees charged by Telmex • Encourage foreign investments (currently, foreigners can own only up to 49 percent of a service provider)

23. Implications for Mexico Telecom • WTO ruling an opportunity to implement necessary reforms. • Sector grew three times more than overall economy during 2002-2004 downturn, • Market value of the industry est. at $32 billion by end of 2006. • Market still dominated by Telmex, but strong competition from Alestra, Avantel, Telefonica, Axtel, Maxcom, and Satmex. • Dynamic mobile sector dominated by Telcel and MoviStar. • Introduction of new technologies such as Voice Over Internet Protocol (VoIP) to capture market share.

24. Competition in Mobile Telephony

25. Implications for US Telecom • Increased access for US companies and affiliates • Concerns about high termination fees • High costs being passed to US consumers

26. Implications for Global Telecom • Reflects the fact that telecom services are important components of development. • Strengthened US resolve to pursue cases against others such as Australia, China, India, etc.

27. Proposals • Adopt measures to prevent a wide variety anti-competitive conduct on the part of all market participation, including price-fixing, market-sharing arrangements and other cartel practices. • Allow new competitors to set prices for their services and freely negotiate commercial agreements for international and domestic services. • Require that interconnection rates for international and domestic termination charged by the major supplier are based on a costing methodology that only looks at the costs of providing the specific service and does not include costs associated with providing universal service or achieving other social goals.

28. References Gartner. “Political Disputes Will Hold Back Mexico’s Telecom Markets” http://www.gartnerweb.com US Commercial Service (Mexico) “Wireless Communications” Market Research, http://www.buyusa.gov/mexico/en/240.pdf USTR, “Results of the 2006 (Section 137) Review” • “Comments on Review of Compliance with Telecom Trade Agreements” • “Reply Comments on Review of Compliance w/ Telecom Trade Agreements” http://www.ustr.gov/Trade_Sectors/Telecom-E-commerce/Section_1377/Section_Index.html WTO. “Mexico: Measures Affecting Telecommunications Services” Dispute D204 http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds204_e.htm Lessons and regulations from the U.S. Mexico panel reporthttp://www.wto.org/english/tratop_e/serv_e/telecom_e/workshop_dec04_e/us_mexico_case.doc

29. References contd. • (2004, March 12). U.S. Wins Telecommunications Case against Mexico in WTO. Retrieved April 12, 2006 from United States Trade Representative Web site: http://www.ustr.gov/Document_Library/Press_Releases/2004/March/US_Wins_Telecommunications_Case_against_Mexico_in_WTO.html • (2004, April 2). MEXICO – MEASURES AFFECTING TELECOMMUNICATIONS SERVICES. Retrieved April 10, 2006 from World Trade Organization Web site:http://www.internationaltraderelations.com/WTO.Mexico%20Telecom%20Case%20(Panel%202004).htm • (2005, May 31 ). World Trade Organization- Council for Trade in Services Special Session. Retrieved April 15, 2006 from United States Trade Representative Web site: http://www.ustr.gov/assets/Trade_Sectors/Services/2005_Revised_US_Services_Offer/asset_upload_file77_7760.pdf • (2005, November 15). Dispute Settlement Update. Retrieved April 15, 2006 from United States Trade Representative Web site: http://www.ustr.gov/assets/Trade_Agreements/Monitoring_Enforcement/Dispute_Settlement/asset_upload_file343_5697.pdf • URUGUAY ROUND AGREEMENT Annex 1B: General Agreement on Trade in Services. Retrieved April 15, 2006 from Wold Trade Organization Web site: http://www.wto.org/English/docs_e/legal_e/26-gats_02_e.htm • URUGUAY ROUND AGREEMENT General Agreement on Trade in Services. Retrieved April 16, 2006 from Wold Trade Organization Web site: http://www.wto.org/English/docs_e/legal_e/26-gats_01_e.htm