EU Says US Foreign Ownership Limits Violate WTO

BRUSSELS (07/26/2000) - Proposed U.S. legislation that would prohibit certain foreign telecommunications companies from acquiring U.S. businesses is illegal under international trade rules, the European Commission said Wednesday.

"This would clearly violate U.S. commitments in the World Trade Organization (WTO) and would affect very substantial interests of European companies, " European Trade Commissioner Pascal Lamy wrote in a letter to U.S. Trade Representative Charlene Barshefsky. The letter was sent on Monday, and IDG News Service obtained a copy of it.

At issue is an amendment to the appropriations bill for the U.S. Federal Communications Commission (FCC) that would prevent the FCC from granting telecommunications licenses to any foreign carrier that is more than 25 percent owned by a foreign government. The amendment was proposed by U.S. Senator Ernest "Fritz" Hollings, a Democrat from South Carolina.

If approved, the amendment could have a significant effect on plans by Germany's Deutsche Telekom AG to buy VoiceStream Wireless Corp. The German government currently owns 59 percent of Deutsche Telekom.

The EU contends that, under the 1996 WTO Agreement on Basic Telecom Services, the U.S. has the right to restrict only those takeovers that would give a foreign company with government participation over 25 percent a direct control over a telecom license.

"The authorized restriction is only on direct ownership, but in the case of Deutsche Telekom, the ownership would be indirect because it would take place through VoiceStream," said a Commission official who asked not to be identified.

A look at the table outlining the commitments made by the U.S. to the Basic Telecom Services Agreement, supplied to IDG News Service by the office of the U.S.Trade Representative, seems to confirm that interpretation of the U.S. commitments. The table reveals that there are no restrictions on indirect ownership of telecom licenses, but several on direct ownership.

It will undoubtedly be left to lawyers to determine the definition of direct and indirect if the Hollings amendment is approved. The Hollings proposal was put forward amid growing concerns that EU-based communications companies can make inroads into the competitively open U.S. market, while the EU market is not open, so U.S. companies cannot make inroads there.

Lamy denied that is the case in his letter. "As you know, there is a very high level of competition in the EU market, and at least comparable to that of the U.S. I would also like to draw your attention in particular to the significant level of presence of U.S. companies in the EU market," he wrote.

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