[Congressional Record Volume 140, Number 76 (Thursday, June 16, 1994)]
[Senate]
[Page S]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                            FORTRESS EUROPE

  Mr. PRESSLER. Mr. President, this morning in the Commerce Committee I 
asked Mickey Kantor, the U.S. Trade Representative, a number of 
questions about what Europe is doing regarding telecommunications trade 
with the United States.
  Only last week, I participated recently in the CEO summit on 
converging technologies held in Brussels and sponsored by the Centre 
for European Policy Studies and the Wall Street Journal Europe.
  All of us participate in symposia. They are usually polite, well-
reasoned exercises in logic and the occasional debate on the merits of 
various views. As a member of the Senate Committee on Commerce, 
Science, and Transportation and its Subcommittee on Communications, I 
found this summit to be a real eye-opener.
  I was horrified--and that is not too strong a word to use--by the 
unremitting resistance of the Europeans to my polite suggestion that 
they need to open up their telecommunications market.
  The purpose of this summit was to bring together Americans and 
Europeans influential in the communications field for an assessment of 
regulatory, technical, and commercial barriers to the development and 
deployment of new communications technologies. In reality, the 
Europeans have little interest in breaking down their commercial 
barriers. As a result of this attitude they will not develop state-of-
the-art telecommunications or provide services their consumers want.
  The Europeans talk a good line about opening up their 
telecommunications market, but to American firms trying to crack 
Fortress Europe, this progress appears to be snail-like in pace.
  United States communications companies are working hard to do 
business in Europe, but I can assure my colleagues that their task is 
not easy. European governments subsidize and protect their major 
corporations through procurement laws, research and development 
funding, as well as training assistance. Many phone companies in Europe 
are frequently owned by the government. The U.S. market may be 
criticized for not being completely open in all sectors, but it is 
still the most open market in the world.
  The failure of the Europeans to open their markets affects not only 
United States communications equipment and service suppliers, it 
affects everyone in the United States who uses a telephone.
  United States long-distance carriers subsidize the European telephone 
companies. That's right United States long-distance carriers--and by 
extension, their ratepayers--subsidize the European telephone 
companies. European nations received approximately $554 million from 
United States carriers in 1993, of which approximately $411 million was 
a subsidy. In 1993, U.S. long distance carriers paid foreign carriers 
approximately $4 billion for terminating international calls. Of this 
figure, $2 billion is a subsidy.

  The United States long distance carriers subsidize the telephone 
companies of many countries, not just the European companies. These 
subsidies are a direct charge to U.S. consumers. It is estimated that 
the average U.S. international caller pays $100 each year due to the 
above-cost accounting subsidies to foreign telephone companies.
  Here's how it works. International carriers negotiate a rate for 
calls placed between two countries. This negotiated rate does not 
reflect the real economic cost of connecting the call nor does it 
reflect the rates charged in the calling country. For example, Deutsche 
Telekom, a government-owned monopoly, could insist in its negotiations 
with any of the 183 U.S. carriers offering service from the United 
States that it will cost $1.18 per minute for calls between the United 
States and Germany. This figure may be far above the real cost. Because 
the U.S. market is so competitive, this rate may be far above the rates 
U.S. carriers charge their customers.
  Yet, Deutsche Telekom can price international calls above the actual 
cost because there is no other carrier in Germany. The German 
collection rate for an international call exceeds the true economic 
cost of the call by 75 percent. In 1993, United States carriers paid 
Deutsche Telekom almost $196 million as settlement for calls placed 
from Germany to the United States. Approximately $146 million of this 
figure represents a pure subsidy.
  It is no wonder that the balance of trade in telecommunications 
services looks so bleak for the United States. In effect, the United 
States is being penalized for running productive, competitive 
telecommunication services companies. United States competition has 
lowered rates, which in turn has increased the number of calls from the 
United States to Europe. But the same call placed in Europe to the 
United States costs much more because there is no competition, and 
consumers are reluctant to pay the higher rates. United States carriers 
and ratepayers, as well as European consumers, are forced to pay the 
price for the lack of competition in the European market.
  The Federal Communications Commission [FCC] has tried to place 
pressure on U.S. carriers to negotiate international rates reflecting 
the actual cost of a telephone call. Realistically, United States 
carriers have little leverage over European monopolies, since rate 
setting is viewed by the European nations as a sovereign right.
  Calling rates between European countries are generally lower. The 
rates the Europeans negotiate with the United States are high and they 
are discriminatory.
  The United States Government has treated international settlements 
and collections as a domestic rather than as a trade issue. This is a 
relatively new problem. Before significant competition existed in the 
United States for carrying international calls, the balance of calls 
between the United States and Europe were about equal. Therefore, the 
settlements were equivalent. Today, the outpayments from the United 
States to Europe, and the rest of the world, should be a concern to the 
U.S. Department of the Treasury because of the increasing outflow of 
billions of dollars for these unnecessary subsidies.
  The Germans claim that they use the United States carrier outpayment 
bonanza for lowering domestic rates in their country. In Armenia, local 
calls are free due to the largesse of the United States outpayment 
subsidy. In these two instances, there is some information provided 
about how the subsidy is used. There is no accountability for these 
funds. In some cases it is claimed that the subsidy is being used to 
improve the communications infrastructure. Yet, in time it has been 
proven that the communications infrastructure actually deteriorated.
  The catch-22 in this situation is that the Europeans perpetuate this 
imbalance by continuing to maintain monopolies and not liberalizing 
their markets. By opening their markets to competition, the cost of 
basic telephone services would be reduced, encouraging more Europeans 
to use the phone for calls outside their countries. Without market 
liberalization, the United States carriers--and United States 
ratepayers--will continue to pay higher settlement costs to European 
companies each year. And the U.S. balance of trade in 
telecommunications figures will continue to look anemic.


                  the problem is not just with europe

  United States international telephone carriers also subsidize many 
Third World and developing countries. The calling rate from Mexico to 
the United States has increased significantly. In 1994, United States 
carriers anticipate they will pay Mexico $800 million and forecast a 
payment in 1995 of $1 billion. Of these figures, 85 percent is expected 
to be a subsidy to Mexico.
  Third World and developing nations keep their rates high because the 
hard currency they receive from U.S. carriers is useful. Like Europe, 
the telephone companies in many developing nations are government-run 
monopolies. As in Europe, U. S. carriers have a difficult time 
encouraging these nations to adopt cost-based rates. Unlike Europe, in 
many instances these countries need assistance in providing basic 
telephone services for economic development.


                   what should the united states do?

  What should we do? Congress should consider appending a requirement 
for the adoption of a telecommunications trade-in-services agreement as 
a condition for the implementation of the GATT agreement. If the 
European Community is unwilling to negotiate, the United States must 
seek bilateral agreements with nations that have made a real effort to 
liberalize their markets.
  Certainly, if Deutsche Telekom and French Telecom wish to purchase 20 
percent of Sprint, the question of market access and accounting rates 
in Germany and France presents itself for review. The United States 
should view this proposed sale as an opportunity to urge these nations 
to adopt cost-based rates and hasten the liberalization of their 
markets.
  To assist developing nations, the United States should consider 
encouraging them to develop cost-based rates. For obvious reasons, the 
European reluctance to move toward cost-based rates should not be 
considered on a par with developing nations. Industrialized nations do 
not need subsidies from U.S. carriers.
  If developing nations adopt rate reductions, perhaps U.S. carriers 
would be able to guarantee financing to compensate these nations for 
their loss of hard currency subsidies. There already are instances of 
countries using the accounting rate outpayment from U.S. carriers as 
collateral on loans from U.S. investment banks. Why not allow the U.S. 
carriers to negotiate financial arrangements with these countries?
  U.S. carriers may prefer offering loan guarantees and credits for 
purchasing U.S. equipment, rather than just paying out ever-increasing 
amounts of subsidies. These incentives would help our domestic balance 
of trade and create jobs in the United States, while assisting in the 
expansion of telecommunications networks in the developing world. Such 
a scheme would also provide greater accountability on the use of these 
subsidies.
  Today I have written to Secretary of the Treasury Lloyd Bentsen, 
Federal Communications Chairman Reed Hundt and Secretary of Commerce 
Ron Brown asking that they give careful attention to this serious trade 
issue. I also asked our U.S. Trade Representative Mickey Kantor about 
his views on this issue during a Senate Commerce Committee hearing 
today.


                   what our companies face in europe

  I would like to turn briefly to another important issue facing U.S. 
firms doing business here, and in Europe. Many European nations have a 
national champion, that is, a major industrial giant that is coddled by 
its home nation. Let's take one example. Siemens, a German firm, is one 
of the world's largest companies. The German Government provides 
training subsidies for Siemens' work force. A senior official of AT&T 
has told me that as a result of this subsidy alone, Siemens has ``the 
best-trained work force in the world.''
  Siemens also controls 85 percent of the German market for telephone 
switches. This may not seem surprising, but what is astounding is the 
price the German Government pays for each telephone switch. The world 
market price for a switch is approximately $130 per line. The German 
telephone company, which is government-owned, pays Siemens $450 per 
line for a switch--$320 above the world market price. Siemens receives 
a nice subsidy from the German Government.
  What happens when Siemens sells switches in the United States? Well, 
I can assure my colleagues that there is no way that any business in 
the United States will purchase a telephone switch for $450 per line. 
Instead, Siemens offers its switches at a cost at or below the world 
price, frequently undercutting U.S. competitors.
  U.S. telecommunications and computer companies are more than able to 
compete with Siemens and other European national champions; France's 
Alcatel, the Netherlands' Philips, Sweden's Ericsson and Italy's 
Olivetti. U.S. companies just need a level playing field.
  Do these U.S. firms get a helping hand from the new GATT agreement? 
No, very frankly, they do not. There are provisions for the protection 
of intellectual property, which are helpful. But U.S. companies have 
difficulty providing equipment to the Europeans due to the European 
Union's discriminatory Buy Europe procurement policy, and the GATT 
agreement provides no relief. Current European Union [EU] policy 
stipulates that EU bids must be accepted if they are less than 3 
percent higher than non-EU offers.
  A framework for a trade-in services agreement to assist U.S. firms 
seeking to provide basic telephone services in Europe is in place, but 
there are no proposals on the negotiating table. The Office of the U.S. 
Trade Representative [USTR] is not optimistic that much will come of 
the July meeting in Geneva on this subject. The Europeans have little 
incentive to negotiate on a telecommunications trade-in-services 
agreement. Some economists predict that if the EU were to open its 
market for these services, 250,000 jobs could be lost in its member 
countries. Job losses would be greatest in those countries with 
government telecommunications monopolies. In the longer term, though, 
jobs are likely to be created by introducing competition into monopoly 
markets.
  The Europeans claim the United States subsidizes its companies 
through massive Department of Defense research and development 
contracts. Although I do not agree with the Clinton administration's 
decision to plow down the road toward a national industrial policy, 
until this administration the United States has not subsidized its 
industries' research and development as extensively as the Europeans 
have. It is a fact also that U.S. subsidiaries of European firms have 
participated in Advanced Research Project Agency research and 
development programs and the National Institute of Standards and 
Technology's Advanced Technology Program.

  The European Union has supported various research and development 
consortia for several years. Examples include the European strategic 
program of research and development in information technology [ESPRIT]; 
research and development in advanced communications technologies for 
Europe [RACE]; and one for semiconductor and computer technologies 
[JESSI].
  Recently the EU announced a $262 million subsidy to Siemens to 
develop a new generation of semiconductors. It should be noted that 
Siemens was the largest single recipient of ESPRIT funds. No U.S. 
corporation has received the level of support from the U.S. Government 
that the European firms receive from their governments. Their argument 
is disingenuous.
  Some say the effect of the GATT loophole exempting precompetitive 
research and development from coverage under the agreement could be 
devastating to U.S. firms. On the other hand, there is evidence that 
the EU's various research consortia have not delivered the benefits 
expected from the investment. Nevertheless, this ``trade-related 
gaffe,'' as it was termed by the Journal of Commerce, could pressure 
the U.S. Government to think it must start matching the Europeans.
  Picking critical technologies has not been a winning strategy for 
Europe, and I would hate to see the U.S. Government get into the 
business of picking business winners and losers. With the Clinton 
administration's creation of and funding for the Flat Panel Display 
Consortium, I fear we are headed down this road. I, and many of my 
colleagues who voted against S. 4, the National Competitiveness Act, do 
not support massive Government subsidies for industry.
  I shall conclude as I see another Senator has come to the floor to 
speak. Let me summarize.
  On investment barriers, at a recent symposium on world economic 
affairs, I was asked by a foreign investor why the United States was so 
closed to investment. I was surprised to hear such a complaint. Apart 
from a prohibition on foreign ownership of more than 20 percent--
foreign board member or government--or 25 percent--holding company with 
foreign participation--for corporations seeking to hold a radio 
license, U.S. foreign ownership standards are liberal. A firm can be 
considered a U.S. company as long as no more than 49 percent of its 
ownership is foreign. Few other countries have such liberal ownership 
rules.

  Let us look at the barriers to U.S. ownership of telecommunications 
operations in Europe. Germany and France do not allow any foreign 
ownership of telecommunications operations in Europe. Germany and 
France do not allow any foreign ownership of telecommunications 
companies at present. Italy does allow some private shareholding; 
Portugal allows 10 percent foreign ownership. While Sweden has no 
specific restrictions in law, the State currently controls its 
telecommunications company. There are other barriers, imposed by both 
the EU and individual member states, which are not well-defined or are 
subjective. Therefore, many U.S. investors and businesses find the 
business climate in Europe chilly.
  In conclusion, this is the first in a series of speeches I hope to 
make on the subject of European barriers to U.S. companies seeking to 
participate in it markets. Many other serious issues bear close 
examination. Take for example restrictive audiovisual and broadcasting 
directives adopted by the EU. Another is the rather capricious approach 
to standards setting which the EU has adopted--seemingly to frustrate 
participation by U.S. computer and electronics industries in the 
European market.
  I plan to discuss these issues in the context of the Senate's 
consideration of legislation implementing the new GATT agreement. I 
believe it also is important for my colleagues on the Senate Committee 
on Commerce, Science and Transportation Committee to take into account 
these international issues as we proceed to rewriting the 
Communications Act for the first time in 60 years.
  I yield the floor.
  Mr. HARKIN. Mr. President, I want to thank Senator Dorgan for his 
tireless work on behalf of the needs of small airports in the Midwest 
that are adversely affected by the limitation of slots at O'Hare. And, 
I want to also thank Senator Ford for his very considerable efforts to 
alleviate this problem.
  Many cities in Iowa are disadvantaged by the structure of the slot 
rules in Chicago. They suffer with limited service that causes 
considerable difficulty for the business and vacation travelers and 
limits the ability of the affected communities to attract conventions.
  The Department of Transportation should move as quickly as possible 
toward providing exemptions for essential air service and to move 
forward with new rules that will greatly increase the ability of 
airlines to fully utilize the O'Hare Airport. Clearly, the ability of 
planes to land and take off at O'Hare has greatly increased since the 
slot rule was put into place. And, that reality should be recognized.


                    faa's advanced automation system

  Mr. ROBB. Mr. President, I rise for the purpose of engaging the 
distinguished subcommittee chairman in a brief colloquy pertaining to 
efforts by the FAA to restructure the Advanced Automation System 
Program.
  Mr. FORD. I would be pleased to engaged my good friend and colleague 
on the committee.
  Mr. ROBB. Mr. President, the FAA's Advanced Automation System has 
faced severe technical and management challenges since the inception of 
the contract in 1998. Paramount among all of the issues presently being 
addressed by FAA in restructuring the AAS program is the safety of the 
flying public. To the greatest extent possible, FAA must take the 
necessary steps needed to restore its credibility with the Congress as 
it relates to the massive cost overruns that have plagued the AAS 
program.
  FAA announced on June 3 a series of major steps to restructure this 
troubled program. These steps included:
  Cancellation of the Area Control Computer Complex [ACCC] and the 
Terminal Advanced Automation System [TAAS];
  Ordering the analysis of the software for the Initial Sector Suite 
System [ISSS]; and
  Reducing the number of towers receiving the Tower Control Computer 
Complex [TCCC].
  Mr. President, inherent throughout FAA's restructuring of the AAS 
program was a greater reliance on off-the-shelf technologies. Within 
the tower automation arena, such an off-the-shelf alternative may be 
available. The system known as the Federal Automated System for Towers, 
or FAST, could provide air traffic controllers with the information 
needed to perform tower duties. I hope the FAA continues to consider 
the FAST technology as an off-the-shelf complement to TCCC.
  Mr. FORD. I thank the Senator from Virginia for his thoughtful 
comments on the AAS program. I agree that the FAA should, to the 
greatest extent possible, implement off-the-shelf technologies in key 
AAS program elements, particularly where such an action could 
potentially bring modernized operations to as many towers as possible.
  Mr. ROBB. I thank the chairman for his kind words and yield the 
floor.


                        the slot-slide provision

  Mr. EXON. Mr. President, I thank the chairman of the Senate Aviation 
Subcommittee for including a provision which I have proposed which is 
critical to the ability of Omaha, NE to secure useful, needed and 
convenient nonstop service to Washington National Airport and the 
Nation's Capital.
  As the manager knows, the operations of National Airport are subject 
to the so-called slot rule which limits the number of operations of the 
airport. Unlike other slot controlled airports, the Secretary of 
Transportation and the Administrator of the Federal Aviation 
Administration have maintained that operations at National Airport are 
controlled not only by a daily slot limit but also by an hourly 
limitation under the National and Dulles Transfer Act.
  The so-called slot-slide provision in the substitute amendment gives 
the Secretary of Transportation limited flexibility with regards to 
that hourly limitation.
  Mr. FORD. I was pleased to work with the Senator from Nebraska on 
this provision. The Senator carefully took into account the concerns of 
the neighbors at National Airport.
  Mr. ROBB. Mr. President, the airport in question is located in the 
Commonwealth of Virginia and constituents of mine have expressed 
concern about the potential impact of this legislation on their 
community. For the purposes of explanation and creating a clear 
legislative history, I would appreciate if the Senators from Nebraska 
and Kentucky would outline the legislative intent with regards to the 
application of the slot slide provision, the circumstances in which the 
Secretary could use his limited discretion under this provision and 
term of the Secretary's discretion.
  Mr. EXON. Mr. President, first and foremost, this provision will not 
increase the total number of slots at National Airport. The authority 
to slide a slot from one time period to another only applies to an air 
carrier currently holding or operating a slot, so that no phantom slots 
could be created under this legislation to effectively increase the 
number of slots at National Airport. Furthermore, the Secretary's 
flexibility in this regard applies to a maximum of two slots per hour. 
As such, in no way would the capacity or safety of National Airport be 
adversely affected.
  For the surrounding community concerned about noise, this provision 
will be most helpful. The Secretary's authority will only apply to a 
circumstance which will enable a carrier to provide service with Stage 
3 aircraft, which is quieter than many of the aircraft currently used 
at National Airport. If this discretion is used, the likely effect will 
to be to lessen the number of operations later at night when families 
in the area are putting their children to bed. For example, using this 
discretion, the Secretary could slide two slots from 9 p.m. to 6 p.m. 
or 7 p.m. for a qualified carrier. In so doing, there would be two 
fewer late night operations and the two earlier operations must use 
quiet jet technology. The net effect under this example is not only to 
reduce noise but to reduce the most disruptive noise to the community. 
The amendment offered by Senators Mikulski, Robb, and Sarbanes locks in 
this assurance by requiring that no net increase in noise result from 
the use of this provision.

  In addition, the Secretary can use this power only in circumstances 
determined by the Secretary to be exceptional. Omaha, NE, for example, 
faces such exceptional circumstances. Presently, Omaha has no nonstop 
air service to National Airport. If two slots could be slid to 
accommodate Omaha's need, a significant package of air service would 
become secure for the people of Nebraska and western Iowa not only to 
National Airport but to points west and southeast of Omaha. This 
package of air service, which hinges on timely access to National 
Airport, would also be a significant factor in Omaha's economic 
development. In addition, exceptional circumstance exists in Omaha's 
case because sliding a slot would give a newer carrier with a limited 
number of slots an opportunity to create jobs in Omaha and Washington 
and provide new, needed and convenient service to the Nation's Capital 
from Omaha.
  As for the term of this provision, it is an interim measure which 
will last until the final regulations for National Airport become 
effective under the review of the high-density rule provided by this 
legislation.
  Mr. FORD. I appreciate the Senator's explanation and concur in his 
interpretation of this section of the substitute amendment. In solves a 
very tricky problem which the Secretary of Transportation faces with a 
win/win solution for the citizens of communities like Omaha and the 
Washington, DC., area.
  Mr. ROBB. I thank the Senators from Nebraska and Kentucky. I am 
satisfied with their explanation. This provision will impose no 
detriment on the citizens of the Commonwealth of Virginia. I also 
appreciate the Senators' efforts on behalf of the Mikulski, Robb, 
Sarbanes amendment.
  The PRESIDING OFFICER. The Senator from Montana is recognized.
  Mr. BAUCUS. Mr. President, I ask unanimous consent to speak as in 
morning business.
  The PRESIDING OFFICER. Without objection, it is so ordered.

                          ____________________