Negotiation and the Global Information Economy

Negotiation and the Global Information Economy What role do diplomacy and negotiations play in economic globalization?...

Author: J. P. Singh

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Negotiation and the Global Information Economy

What role do diplomacy and negotiations play in economic globalization? Many argue that great powers shape diplomacy to their advantage, others that, in a “flat world,” diplomacy helps everyone. Going beyond these polarized views, this book explores the conditions under which negotiations matter and the ways in which diplomacy is evolving in the global commercial arena. J. P. Singh argues that where there is a diffusion or decentralization of power among global actors, diplomacy can be effective in allowing the adjustment of positions so that mutual gains will result. In contrast, when there is a concentration of power, outcomes tend to benefit the strong. There will be little alteration in perception of interest, and coercion by strong powers is common. Singh’s book suggests that there are possibilities for transformational problem-solving through multilateral diplomacy. Empirically, the book examines the most important information-age trade issues. j. p. singh is Associate Professor in the Communication, Culture and Technology Program at Georgetown University, and Editor of the Review of Policy Research. He is the author of Leapfrogging Development? The Political Economy of Telecommunications Restructuring (1999) and co-editor of Information Technologies and Global Politics (with James N. Rosenau, 2002).

Negotiation and the Global Information Economy j. p. singh Communication, Culture and Technology Program Georgetown University, Washington, DC

CAMBRIDGE UNIVERSITY PRESS

Cambridge, New York, Melbourne, Madrid, Cape Town, Singapore, São Paulo Cambridge University Press The Edinburgh Building, Cambridge CB2 8RU, UK Published in the United States of America by Cambridge University Press, New York www.cambridge.org Information on this title: www.cambridge.org/9780521515313 © J. P. Singh 2008 This publication is in copyright. Subject to statutory exception and to the provision of relevant collective licensing agreements, no reproduction of any part may take place without the written permission of Cambridge University Press. First published in print format 2008

ISBN-13

978-0-511-48063-8

eBook (NetLibrary)

ISBN-13

978-0-521-51531-3

hardback

ISBN-13

978-0-521-73108-9

paperback

Cambridge University Press has no responsibility for the persistence or accuracy of urls for external or third-party internet websites referred to in this publication, and does not guarantee that any content on such websites is, or will remain, accurate or appropriate.

To Chuck for the conversations

Contents

List of figures

page viii

List of tables

ix

List of acronyms

x

Preface 1 Introduction

xv 1

2 Power, interests, and negotiations

28

3 Services and intellectual property: multilateral framework negotiations

76

4 Cultural industries and telecommunications: multilateral sectoral negotiations

117

5 Infrastructure pricing negotiations: evaluating alternatives when facing a significant market power

179

6 Electronic commerce: reaching agreement when facing market power in Internet governance and data privacy

229

7 Conclusion: power and governance

276

Bibliography

309

Index

347

vii

Figures

1.1 Explaining global outcomes with or without negotiations

page 17

1.2 Variability of cases by diffusion and concentration of power

25

2.1 Negotiation context, process, and outcomes

64

5.1 US settlement deficit, 1986–96

188

5.2 Internet user growth, 1997–2000

211

5.3 Internet domain host growth, 1997–2000

212

viii

Tables

1.1 Negotiation context: four elements of global power configurations

page 9

1.2 Explanatory factors and outcomes in the global information economy

12

1.3 Power configurations and outcomes

19

2.1 Examples of tactics as particular strategies

60

3.1 Factors influencing outcomes in GATS and TRIPS negotiations

79

3.2 General Agreement on Trade in Services: select features

107

3.3 Schedule of specific commitments

108

4.1 Factors influencing outcomes in cultural industry and telecommunications negotiations

129

4.2 Percentage shares of US films in Europe

130

4.3 European public support for film and video, 1994

131

5.1 Factors influencing outcomes in settlement rates and ICAIS

183

5.2 International bandwidth estimates, 1999–2000

211

6.1 Factors influencing outcomes in Internet governance and data privacy negotiations

232

ix

Acronyms

ACTPN AOL APEC ASEAN AT&T AV BATNA BBC BSAC CCIR CCITT ccTLD CEPT CITEL CNC CNIL Cofetel Comsat CORE CPI DCs DG DNRC DTI EBU EC

x

Advisory Committee on Trade Policy and Negotiations (US) America Online Asia-Pacific Economic Cooperation Association of Southeast Asian Nations (formerly) American Telegraph & Telephone (now just a brand name) Audiovisual Best Alternative to a Negotiated Agreement British Broadcasting Corporation British Screen Advisory Council Consultative Committee on International Radio (ITU) Consultative Committee for Telephones and Telegraph (ITU) Country Code Top Level Domain European Conference of Postal and Telecommunications Administrations Inter-American Telecommunications Commission Centre National de la Cinématographie Commission Nationale de l’Informatique et des Libertés Comision Federal de Telecomunicaciones Communications Satellite Corporation Council of Registrars Consumer Price Index Developed Countries Directorate-General Domain Names Rights Coalition Department of Trade and Industry (UK) European Broadcasting Union European Community

List of acronyms

ECJ EEC EMRs EU FCC FERA FISTAV FOIA FTA FTC GAC GATS GATT GBDe GBT GDP GIE GM GNG GNP GNS GSO GSP gTLDs IAB IAHC IANA IBM IBRD ICAIS ICANN IETF IFRB IFWP IIPA INCD INCP

xi

European Court of Justice European Economic Community Exclusive Marketing Rights European Union Federal Communications Commission European Federation of Audiovisual Workers Federation of Audiovisual Workers Union Freedom of Information Act Free Trade Agreement Federal Trade Commission Governmental Advisory Committee General Agreement on Trade in Services General Agreement on Tariffs and Trade Global Dialogue on Electronic Commerce Group on Basic Telecommunications Gross Domestic Product Global Information Economy General Motors Group on Negotiations of Goods (GATT) Gross National Product Group on Negotiations of Services (GATT) Geostationary Orbit Generalized System of Preferences Generic Top-Level Domain Internet Architecture Board Internet Ad Hoc Committee Internet Assigned Numbers Authority International Business Machines International Bank for Reconstruction and Development (World Bank) International Charging Arrangements for Internet Services Internet Corporation for Assigned Names and Numbers Internet Engineering Taskforce International Frequency Registration Board International Forum on White Paper International Intellectual Property Alliance International Network for Cultural Diversity International Network on Cultural Policy

xii

INTA Intelsat IP IPC IPE IPRs IR IRU ISOC ISP ISP/C ITC ITR ITU JTM KDD LDCs Mbps MCI MFN MNCs MoU MPAA MUDs MuSH NAFTA NATO NGBT NGOs NICs NIEO NOI NOIE NPRM NSF NSI NTIA

List of acronyms

International Trademark Association International Telecommunications Satellite Organization Intellectual Property Intellectual Property Committee International Political Economy Intellectual Property Rights International Relations International Radiotelegraphy Union Internet Society Internet Service Provider Internet Service Providers Consortium International Trade Commission (US) International Trade Reporter International Telecommunication Union Jabatan Telekom Malaysia Kokusai Denshin Denwa Least Developed Countries Megabit per second Microwave Communication Inc. Most Favored Nation Multi National Corporations Memorandum of Understanding Motion Picture Association of America Multiuser Dungeons Multi Stakeholders North American Free Trade Agreement North Atlantic Treaty Organization Negotiating Group on Basic Telecommunications Non-Governmental Organizations Newly Industrializing Countries New International Economic Order Notice of Enquiry National Office for Information Economy (Australia) Notice for Proposed Rulemaking (FCC) National Science Foundation Network Systems Inc. National Telecommunications and Information Administration

List of acronyms

NWICO OECD

New World Information and Communication Order Organization for Economic Cooperation and Development Oftel Office of Telecommunications (now Ofcom) ONP Open Network Provision PNR Passenger Name Records POC Policy Oversights Committee PTT Post, Telegraph and Telecommunications Quad US, Japan, EU, and Canada R&D Research and Development RFCs Request for Comments RIAA Recording Industry Association of America RRB Radio Registration Board SG-3 Study Group – 3 (ITU) SKA Sender Keep All SLD Second Level Domain SWIFT Society for Worldwide Interbank Financial Transactions TCP Tariff Components Prices TELMIN Telecommunications Ministers Meeting TLD Top-Level Domain TNC Trade Negotiation Committee (GATT-WTO) TRIMS Trade-Related Investment Measures TRIPS Trade-Related Aspects of Intellectual Property Rights TSA special seat tax (France) TWF Television Without Frontiers UN United Nations UNCTAD United Nations Conference on Trade and Development UNESCO United Nations Educational, Scientific and Cultural Organization UNICE Union of Industrial and Employers’ Confederation in Europe USTR United States Trade Representative WARC World Administrative Radio Conferences (ITU) WATTC Worldwide Administrative Telegraph and Telephone Conference (ITU) WGIG Working Group on Internet Governance WIPO World Intellectual Property Organization

xiii

xiv

WRC WSIS WTAC WTO WTSA

List of acronyms

World Radio Conference World Summit on the Information Society World Telecommunications Advisory Council World Trade Organization World Telecommunications Standardization Assembly

Preface

There is no true word that is not at the same time praxis. Thus, to speak a true word is to transform the world. Paulo Freire1 Pedagogy of the Oppressed

International negotiations are interactive social processes that can be linked to emerging legitimate forms of global governance. This happens when negotiations allow for dialogues and problem solving as opposed to monologues and threats delivered from privileged heights of power. This book explores the possibilities under which negotiations can be genuinely transformative as opposed to merely reflecting actors’ instrumental interests or structural constraints. It might seem odd to quote a radical thinker like Paulo Freire to begin a text that speaks of negotiations as legitimate forms of governance in a global liberal economy. International negotiations are often stereotyped as manipulative exercises and one among the many coercive instruments available to the mighty. Nevertheless, my intent is to highlight the circumstances under which negotiations can be dialogues and help actors not only to operate in the world as they find it, but also transform it through communicative action and self-understandings. From Aristotle’s Nicomachean Ethics to Amartya Sen’s Argumentative Indian, reasoning and deliberation as praxis have been similarly understood. Hedley Bull notes in The Anarchical Society that the herald or the messenger epitomized communication among political communities before the invention of diplomacy. Now, the nature of diplomacy is being transformed through communication technologies themselves. Bull himself was pessimistic about the possibilities of this “loudspeaker diplomacy” but nevertheless understood the importance of context in 1

Freire 2000 (1970), p. 87.

xv

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Preface

interpreting such messages. This book’s interpretations, hermeneutic only in spirit, understand negotiations as communication at two levels. First, diplomacy is understood as a form of communication. Second, the particular negotiations analyzed herein are about information and communication technologies. The book parts company with Hedley Bull in noting the emancipatory possibilities of such commercial diplomacy at both levels. In the last few years, when friends asked me to explain my book in easily understandable terms, I often struggled to find the right words. Eventually, I settled on asking them what they thought determines interactions in world politics: power or talk? Most said both, and the rest were almost evenly divided between “power” and “talk.” The words power and talk are fuzzy and, as many noted, talk often presupposes power or vice versa. The words do not quite correspond to the idea of power configurations and negotiations in this book, but they allowed conversations to start. This book’s argument leans on the answers from the set of people – friends, scholars, colleagues – who speak of power and talk, in various mutations, but it has benefited from all kinds of conversations, including the power or talk ones. This preface acknowledges my gratitude to the many individuals and organizations for their willingness to engage in these conversations with me and offer various types of assistance. I began this book by puzzling over high-technology negotiations in the global information economy (GIE) just as many of these issues were being negotiated. The shape of this “new” economy is the subject of dispute in terms of its emergence, scope, and impact. Long before I wrote the theoretical chapter, the outcome of the 1997 telecommunications accord that came out of the World Trade Organization puzzled me. It was widely touted in policy and media as mutually beneficial to all countries involved, including the developing countries, who at one time had fretted about their inability to participate in such hightechnology negotiations. But they were effective negotiators indeed. Over the course of the past decade, it has been a privilege to connect with GIE negotiations at several levels. This includes speaking with negotiators who were involved, reading scholarship and media accounts analyzing the negotiations, and surrounding myself with colleagues and friends who care about the evolution of the emerging global information economy.

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xvii

Dozens of individuals involved in trade policy and negotiations gave their valuable time for interviews and helped me understand the details, especially the tipping-point, in these negotiations. While not equivalent to ethnography, the minutiae of details in this book on negotiations come from these long interviews with practitioners and frequently from the materials they shared with me. It was both exciting and a privilege to meet these negotiators and other officials. This book shows that negotiations are about strategic behaviors but that they are also about genuine problem solving. Most scholarship so far has been about strategic posturing. We need detailed understandings of problem solving, which emerges from the details in these negotiations. Interviews were conducted with officials in Washington, DC, London, Brussels, Paris, Geneva, Delhi, Canberra, Sydney, Johannesburg, and Cape Town, Bogota, and Montevideo in the 2001–07 period. In Washington officials were interviewed at the Federal Communication Commission, United States Trade Representative’s office, various think tanks and industry associations. In London, I met with officials of the Department of Trade and Industry and the Department of Culture; in Brussels with officials at the European Commission; in Australia with officials at the National Office for the Information Economy (NOIE) and Telstra for the ICAIS case discussed in this book; and in Johannesburg and Cape Town with officials involved with cultural industry moves in UNESCO. In particular I would like to thank Donald Abelson, Kader Aslam, Jean Michel Baer, Susan Binns, Richard Boitin, Anne Carblanc, Ambassador K. M. Chandrashekhar, Philippe Chauve, John Cook, Peter Cowhey, Wendy Cutler, John Dryden, Donna Ghelfi, John Gordon, Francis Gurry, John Hibbard, Timothy Hutton, Tim Kelly, Ambassador Julio Lacarte, Didier Le Bret, Elizabeth Le Hot, Ambassador Felipe Jaramillo, Karen Lee, Elliott Maxwell, Malcolm McKinnon, Xavier Merlin, Isabelle Mirianni, Caroline Morrisson, Todd Nissen, Valerie Panis, Bonnie Richardson, Pascal Rogard, Pierre Sauvé, Katerina Stenou, Richard Thwaites, Graham Vickery, and Irene Wu. Yvon Thiec at Eurocinema in Brussels went out of his way to provide research assistance and useful contacts in Brussels and Paris. I spent summer 2004 as a Visiting Scholar at the World Trade Organization. The summer did not change my theoretical orientation but it helped me fill in the blanks and details on negotiations by observing

xviii

Preface

the workings of this organization at close quarters. In particular, I had a chance to be at the WTO as it headed for the July 2004 Framework of the Doha Round. The experience was invaluable. As Peter Drahos observes, the informal workings of various groupings in the WTO are underappreciated and under-analyzed. Being there helped me understand these processes. I would like to thank Rudolf Adlung, Mireille Cossy, Patrick Low, Hamid Mamdou, Adrian Otten, Martin Roy, Lee Tuthill, and Jayashree Watal at the WTO. I also had the opportunity to go to Belize, Costa Rica, and Uruguay for WTO research projects on services negotiations, and to Bogota for the World Services Congress. This book, in places, draws upon these projects to speak of the way small and developing economies like these participate in the global information economy negotiations. Summer 2007 spent teaching at the Graduate Institute of International Studies in Geneva was also especially helpful in last meeting fact gathering. My thanks to Cedric Du Pont for hosting the summer program. Social Science Research Council’s Program on Information Technology, International Cooperation and Global Security provided a grant to study international negotiations in the global information economy during 2002. The program was housed at Columbia University. The summer spent with twelve scholars working on information technology issues, a few working on one or more of the same cases as I was, was a stimulating experience to say the least. Chapters drawn from this book were presented at numerous conferences and other scholarly forums. The book benefited from the feedback received at the various annual conventions of the American Political Science Association and the International Studies Association. Just about every chapter of this book was presented at one or both of these conferences. Chapter 2 was first presented at the International Political Science Association. Chapter 3 was first given at the Developing Countries and the Trade Negotiation Process Conference at UNCTAD, Geneva, and also appears in John Odell, Editor, Negotiating Trade: Developing Countries in the WTO and NAFTA (Cambridge, 2006). The cultural industry negotiations case discussed in Chapter 4 was presented at several conferences devoted to cultural policy. The following three were especially important in framing the argument: Association of Cultural Economics, International Conference for Cultural Policy Research, and the Conference on Social Theory, Politics and the Arts.

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xix

Several universities and other organizations also invited me to present my findings. Dedicated forums like these were especially helpful in making detailed presentations and receiving specific feedback. I presented my research twice at the Washington Interest in Negotiations group held at the School of Advanced International Studies in Johns Hopkins University. This group brings together international negotiation scholars and a few practitioners. Many of them provided detailed feedback and I would like to thank Terrence Hoppman, Lloyd Jensen, Dean Pruitt, Bert Spector, Lynn Wagner, and Bill Zartman. At Drexel I thank Joel Oesterbach for inviting me to the Science and Technology Policy speaker series. At Duke University, I thank Ken Rogerson for inviting me to present my research at a small conference on international communications held at the De Witt Center of Public Policy. At the East–West Center in Washington, DC, I thank Itty Abraham for inviting me to present my concluding chapter and get feedback just as I was finishing writing it. At American University, I thank Shalini Venturelli and Lou Goodman for inviting me to the International Communication Forum. The ideas on meta-power and democratic governance, discussed in the conclusion, were also presented at a conference in Lucerne organized by the Swiss Federal Institute of Technology and the Comparative Interdisciplinary Studies Section of the International Studies Association. I thank Sai Krishna Felicia-Hensel and Myriam Dunn for inviting me to this conference. I thank Pradeep Chhibber and Steve Weber at the University of California, Berkeley, for inviting me to give a talk at the Center for International Studies. Cases in this book on data privacy and cultural diversity were also presented at a conference at the Naval Postgraduate School organized by Anne Clunan and Harold Trinkunas. I am indebted to Allison Gilwald at the University of Witwatersrand, Johannesburg, for bringing together an eclectic group of technocrats and academics to listen to my ideas and provide feedback a week before Christmas 2006. I am also particularly grateful to scores of officials in the developing and developed worlds who provided insights into the types of conversations that they find to be particularly productive at the global level. Numerous colleagues and practitioners have read through the entire book or chapters, sometimes several iterations of the same chapter(s). Many of them not only provided feedback but also gave me useful contacts, provided encouragement, and kept my faith in scholarship. I extend my deeply felt gratitude to Delia Boylan, Sandra Braman,

xx

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Marc Busch, Derrick Cogburn, Ed Comor, Tyler Cowen, Christina Davis, Patricia Goff, Jeff Hart, Richard Joseph, Robin Mansell, Renee Marlin-Bennett, Chris May, Milton Mueller, Eli Noam, Jim Rosenau, Anne Routon, Nita Rudra, Pierre Sauve, Len Schoppa, Katherine Lawyer Sterling, Debora Spar, Beth Yarborough, Rorden Wilkinson, Gil Winham. John Odell, Susan Sell, and William Zartman provided detailed comments and advice. John Haslam at Cambridge University Press helped me negotiate the review process with his able guidance and sound advice. The comments received from the reviewers were invaluable in strengthening the claims made in this book. Each of the eight cases in this book has spawned an epistemic community of its own. I thank the many scholars who have written extensively on each of these eight cases who made my work, in turn, easier by allowing me to compare and contrast various sets of findings. Failure to cite any piece of important scholarship is a sin of omission on my part. I have tried to be as thorough as possible in consulting the relevant literature on the eight cases studied here. Georgetown University and its Communication, Culture and Technology Program (CCT) provide a creative environment to think about the Global Information Economy in interdisciplinary ways. I thank my colleagues at CCT and also various other forums at Georgetown, especially the Georgetown International Development Faculty Seminar. In particular I would like to thank Jeff Peck for his steadfast support and Diana Owen for useful critiques, especially on my methodology. Several hardworking research assistants dug up reams and reams of research materials for me and also read through the chapters. These include Jehan Agha, Ashley Anderson, Sarah Corwin, Crystal Costa, Alex de Jong, Mindy Glover, Marcus Holmes, and Adam Stiska. Graduate seminars I conduct on international trade policy and international negotiations at Georgetown University and at the School of Advanced International Studies, Johns Hopkins University, helped to clear cobwebs in my thinking and, at times, to present ideas drawn from this volume. Five different competitive grants from Georgetown gave me funding to travel for this research. A faculty research fellowship also freed up time one semester from teaching to dedicate myself to research and writing. On a personal note, I am indebted to many friends and family for supporting me and talking to me about the global information economy. Thanks to David Bass for talking to me about international

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negotiations and for boosting my confidence. Uncle Meji and my mother, thanks for always being there. Thank you Falstaff for sitting with me through countless hours of reading and typing. Most of all, thanks to Chuck Johnson, my partner, for his patience, understanding, research, proofreading, figure-making skills, conversations, love, encouragement and – when I needed it the most – Chai. The conversations acknowledged above fashioned my thinking about power and talk, or power configurations and negotiation processes as they are termed in this book. I hope this book helps to push those conversations further or to start new conversations. There is a great deal we do not know about negotiated interests. This book is merely a start but it owes a huge debt to those who started thinking about these issues long before I did – and to those who continue to talk about them. The normative argument in this book is based on the possibilities of democratic international governance arising from multilateral talks. I hope this book helps to show that we cannot go wrong by talking about or negotiating the global information economy.

1

Introduction

The principal enemy is orthodoxy: to use the same recipe, administer the same therapy, to resolve the most various types of problems; never to admit complexity and try to reduce it as much as possible, while ignoring that things are always more complicated in reality. Albert O. Hirschman “Trespassing: Places and Ideas in the Course of Life.”1

This book explains the international interactions shaping the evolution of information technologies in the market-driven international economy, here termed the global information economy. International negotiations – diplomatic interactions featuring sets of collective problem-solving and individualized posturing among a diverse array of international players – are crucial to the expansion of this economy and to the deployment of technologies associated with it. A focus on negotiations is key to understanding the sociology of international interactions that shape the global information economy. The book also underscores the implications of these interactions for the exercise of power and processes of global governance, especially with respect to states, firms, and international organizations. In introducing an understanding of the global information economy the story can unfold at two levels – the micro-organizational level and the macro international negotiations level. The presence and value of information work, the value added to any commodity by information and knowledge processing, was first recognized explicitly at the organizational level. Plato’s cavemen also processed information and knowledge. Hermes taught them to communicate. In that sense the story is not new but the scope for expanding capitalism and markets through information work was unprecedented: what commercial and industrial revolutions bequeathed, information work helped to deepen, sustain, 1

Hirschman 2001, p. 110.

1

2

Negotiation and the global information economy

and expand. Historical surveys of business reveal the importance of the rise of the managerial class to the expansion and diversification of business since the early part of the nineteenth century.2 What was implicitly recognized and implemented in business was not theorized until the second half of the twentieth century, however.3 Writers especially recognized the rise of business forms that allowed for economic enterprises to become specialized and diverse.4 At the core of these changes was the role of information and communication technologies, as both reflecting and shaping the social and economic circumstances leading to organizational change. In 1962, Machlup wrote of an “information society” in which the rate of growth of the information sector was more than double the rate of growth of the gross national product. Information work here included everything from simple data processing to complex engineering and managerial work. The implication was that this information work was necessary and led the development of products and the sustenance of capitalism. Porat expanded on Machlup’s understanding to devise categories of national income accounts for this information work.5 In this view, sustained and deepened by a multitude of authors, information technologies deployed at the micro-level facilitate positive transformations at the global level.6 While many scholars heralded the advent of an information society, others saw it as nothing more than the way capitalism was replicating itself in new forms of division of labor in the workplace.7 Just as 2

3

4 5 6 7

Chandler 1977. In general, Innis 1950 forcefully argued in Empire and Communication that written media extend administrative control through time, while oral traditions extend it temporally. He presaged medium theory associated with Marshall McLuhan, 1964, that would give rise to notions of the “global village” shaped, not determined, by communication technologies. The exception in the nineteenth century was literature, especially the English Romantics, who contrary to popular belief, joined existing scholarly associations’ debates in science and technology. (See Meltzer et al. 1993.) Beniger 1986: Introduction, provides a nice summary of this early work. Porat 1977. For recent iterations, see Friedman 2005; Weber 2004; Mokyr 2002. See May 2002 for a critical review of these historical arguments and for critical essays underlining the contributions made by scholars such as Walter Benjamin, Jacques Ellul, Karl Polanyi, Harold Innis, and Raymond Williams. May himself takes “a skeptical view” (which is also the subtitle of his book) and notes: “To a large extent the continuity of economic relations in the ‘new economy’ has been supported by the successful expansion of property rights in information and knowledge. Much about the new economy is not new at all” (2002, p. 15).

Introduction

3

Marxists had theorized earlier bouts of imperialism in the nineteenth century as responses to production crises in core capitalist economies, the shift to the so-called service driven knowledge-based economy was similar. For example, the Marxist French regulation school pointed out that new forms of capitalism resulted from its production crises or ruptures, which could only be observed over the long run.8 Even the glittering “enchanted world” of finance must be understood in capitalism’s need for state regulation to avoid production crises. Castells’ three volume work on the information age borrows from the imperialist theses and the need for capitalism to replicate itself to show that the new networked capitalism barely masks the fragmentation of labor and the powerlessness of the “nodes,” while making salient global production, finance and distribution.9 Nevertheless, Castells acknowledges that social movements can challenge this structure through “conscious purposive social action” but this is not a fait accompli.10 Other writers in this genre deploy similar ideas regarding the new economy. Smith locates the information age flexible and lean production in the neo-Fordist crises of specialization in which neither is consumer sovereign, nor class interests reconciled.11 In these analyses the socalled “new economy” is “the ecstatic climax of neoliberalism,” in which work processes change their appearance but not their underlying logic.12 In the field of international relations, while a host of writers noted the links between technology and patterns of dependence and interdependence, Susan Strange was one of the first to provide a conceptual framework that linked governments, markets, and technology in the production of structural constraints within which global politics and actors functioned.13 One of these structures she termed the knowledge structure, which “identifies what knowledge is discovered, how it is stored, and who communicates it by what means to 8 10 11 12

13

Aglietta 1979; Lipietz 1987. 9 Castells 1996, 1997, 1998. Castells 1998, p. 380. Hardt and Negri 2004 outline a similar perspective. Smith 2000. Henwood 2003, p. 229. Information technologies facilitate capitalist production through deepening institutions such as consumption (Comor 2008) or calls for new forms of “infosphere management” where public accountability may be low (McDowell et al. 2007). When referring to the academic disciplines, the terms international relations (or IR), and international political economy (or IPE) are used. Global politics and global economic relations refer to the processes explained by these terms.

4


whom and by what terms.”14 As opposed to the other structures she identified – security, production, and finance – she opined that knowledge structure was heavily dependent on communication technologies and least understood because of its intangibility and diffusion among global actors. The micro-organizational level merely provides the context for thinking about the sociological processes outlined in this book. However, I borrow from the insights of these perspectives to speak of structure and power at the global level. Instead of providing a grand theory of structure wherein the causal logic of transformations remains the same (a` la Marxists) or the structure becomes totally diffused (a` la Strange), this book outlines particular issue-areas within which diffused or concentrated power structure may be found. The second level at which the story of the information economy unfolds, and the central concern of this book, is international negotiations that helped to shape the evolution of information technologies, which developed more or less in tandem with information work outlined above. As early as 1865, the world powers met in Paris to work out arrangements that enshrined more than a century of publicly or privately owned “national monopolies” in telecommunications and, in the twentieth century, broadcasting in most countries, while allowing these monopolies to interconnect, if needed or feasible, for a variety of commercial, political, and social messages.15 In Paris, this monopoly model, albeit with interconnections, was institutionalized at the global level through the International Telegraph Union, a precursor of the International Telecommunication Union, which mostly employed engineers to work out the technical protocols of monopoly interconnections. In Mark Zacher’s words, such global institutionalization paved the way for capitalism to replicate itself, by providing “a mandate for interconnection.”16

14

15

16

Strange 1988, p. 121. Other early works included Gilpin 1962 from a realist security perspective; Levy 1975 and Tyson and Zysman 1983, from liberal internationalist perspectives; and Luke 1989, from a critical perspective. Coincidentally, Walt Whitman wrote the following about the telegraph in 1865: “What whispers are these O lands, running ahead of you, passing under the seas?/Are all nations communing? Is there going to be but one heart of the globe?” Zacher 1996.

Introduction

5

The denouement of the two stories mentioned above – that of businesses expanding and the ability of (negotiated) national monopolies to cater to their needs – resulted in a dramatic collision in the second half of the twentieth century in many countries.17 Information producers were unable or unwilling to supply the services demanded by businesses and societal groups. Just as demands picked up at societal, business, and international levels to break up the national monopolies, businesses in the United States voiced their optimism regarding their competitive advantage either in providing information infrastructures or “services” old and new, that relied heavily on these infrastructures. These services, or intangible products, included: accounting, education, finance, transportation, tourism, film, television, and, since the mid-1990s, electronic commerce.18 As explained in detail in Chapter 3, these businesses began to organize in the United States and then at a global level beginning in the early 1970s to pressure governments to liberalize information and services markets. International negotiations that had buried the hatchet of interactions under the guise of monopoly were now re-opened. However, the outcomes of these negotiations varied from one issue-area to another and, depending on the context, benefited either the powerful or the powerless, or both. To understand what technology hath wrought, we must understand the technologies of information in the context of the sociology of these international interactions. In all circumstances, the process of negotiation itself was not only salient in resolving diplomatic interactions but was also intersubjectively understood by these actors as the modal space within which interactions took place. This is not to dismiss the sound concerns expressed by the radical left and Marxist analysis that underlying the sociology of these interactions is still the (same old) global liberal economy. Ontologically, however, this book is concerned with the possibilities of change through social and discursive engagements underlying international negotiations.19 17

18

19

Enquiries into the monopoly conduct of AT&T in the US can be traced to the 1930s. Studies in the developing world that noted the importance of telecommunications and the inability of national monopolies started in the 1960s. See Singh 1999, 2003, 2004, for a history of these conflicts. Many “old” services, such as radio or television broadcasting, music, and film are also now supplied over new information conduits (microwave, satellite, Internet, “shareware,” podcasts) as digital content. I will return to this theme in the last chapter.

6


I now turn to two puzzles that help to foreshadow the conceptual understanding of negotiation processes outlined in this book. The puzzles frame the research question and argument for the book, which are then described, followed by a summary of the methods that help to situate this book’s contribution.

Power puzzles In negotiations involving power symmetry, such as between the US and the EU, international relations theories expect deadlocks while in cases of asymmetry, such as between the global North and the South, it predicts coercion in which the weak acquiesce.20 The following puzzles, summarized here but analyzed later, suggest otherwise. The first puzzle arises from pressures to start exchanging services at the global level. Just as businesses in the US and subsequently in Western Europe organized to demand liberalization of global services markets through the General Agreement on Tariffs and Trade (GATT), the developing world stood vehemently opposed to opening up its markets in the early 1980s. In doing so, the developing world sought to protect its own national monopolies from the service firms situated in developed countries, and also the privileged role of states in guarding or operating them. Yet by the end of the decade, the developing world discovered benefits from a potential global service liberalization agreement. This agreement, negotiated during the Uruguay Round of trade talks (1986–94), reflected and facilitated not just the changed priorities but also the growing share of services in the trade profile of many developing countries.21 However, at the beginning of these negotiations, the developing countries (and parts of the developed world) were unaware of their services potential. The act of participating in negotiations on services was itself a learning lesson for them and, in turn, contributed further to their service exports. World service exports were estimated at $2.4 trillion in 2005 and grew at 10 percent 20 21

See next chapter for details on these theories. Data on services exports from the developing world in the 1980s are unavailable but services did contribute a majority of their national incomes in this period. The percentage share of GDP for services in 1981 was 48 for lower income, 57 for middle income, 64 for upper middle income, and 66 for industrialized countries. Respectively, the employment shares were 18, 33, 53, and 67 percent. Narlikar 2003, p. 42.

Introduction

7

annually between 2000 and 2005.22 Outsourcing and offshoring practices, through which many developing countries now amass fortunes, are being facilitated, in part, by this global services accord known as the General Agreement on Trade in Services (GATS), signed on April 15, 1994. The developing world went from obstructing to welcoming services liberalization. Prevailing international relations theories, at least in the US, cannot explain this alteration of interests, or this huge reorganization of priorities on the part of the developing world, or the way that this David and Goliath story resulted in a happy ending.23 Here, theories of global power structures predict that preponderant powers tend to carry the day, unless pre-existing institutions constrain preponderant power.24 As Thucydides noted, the strong do what they can and the weak suffer what they must. So, why didn’t they in GATS? Developing countries were active players in services negotiations, not hapless victims. In fact, the US did not get everything it wanted in the GATS framework; in 1989, its Coalition of Services Industries denounced the emerging agreement. Service liberalization thus reveals the process by which negotiations and interest alteration matter in explaining outcomes. The second puzzle, discussed fully in Chapter 6, is taken from a case of power symmetry where IR theory would expect an impasse, or has difficulty in explaining how actors transcend the deadlock. In 1998, the EU and the US deadlocked over the issue of data transfers important for electronic commerce. The Europeans view data privacy as a human right while across the Atlantic data privacy primarily is an issue for the organization that collects the data. In other words, data transfers to enable commerce do not pose much of a problem in the US. The conflict thus featured a fundamental ideological clash between two giants who threatened the future of electronic commerce. Estimates showed that this dispute risked $120 billion worth of trade, making it 22 23

24

World Trade Organization 2006, p. 7. Merchandise exports were $10.1 trillion and also grew at 10 percent annually between 2000 and 2005. I am aware that for many analysts neither liberalization nor service exports from the developing world constitute happy endings. See Jawara and Kwa 2003; Oxfam 2002; Raghavan 2002; Braithwaite and Drahos 2000; Correa 2000. Realists start with the power structure thesis, while liberal institutionalists bring in institutions. Both will be examined in detail later.

8


one of biggest trade conflicts in the history of US–EU trade relations.25 However, the EU and the US found a solution and the negotiated agreement that emerged in 2001 between these two fairly symmetric powers reflected solutions that emerged from problem solving during the negotiations. There are cases discussed in this book in which preponderant power won despite stiff opposition (see Chapter 5), and where co-equal partners remained at loggerheads for a long time (see Chapter 6). There is limited value in IR theory in at least explaining the outcomes in these cases (though it cannot explain why these negotiations were undertaken). Overall then, international relations theories – whether rooted in their understanding of the power structure or international institutions producing cooperative outcomes – can explain only some, not all, of the outcomes in the cases described in this book. The US led the charge in making information economy issues part of the global negotiation agenda but it did not always get its way. An understanding of negotiations coupled with that of power can explain all of the cases described above and those that follow.

The question and argument This primary question asked in this book is: How do varying power configurations determine outcomes in global economic relations? The short answer: via interest formation and negotiations thereof. In other words, power configurations, symmetric or asymmetric, are necessary, but not sufficient, to explain outcomes. This book seeks to provide a theory of negotiated interests within the context of thinking about power configurations and diplomatic interactions that follow, wherein negotiations themselves are intersubjectively shared dynamics. Here, diplomacy is the conduct of official relations among international actors and negotiations are formal techniques for this conduct.26 A corollary question to the one posed above is: What kinds of power configurations and negotiation processes allow for mutual gain? The 25

26

Heisenberg 2005, p. 2. Newman and Bach 2004, p. 402, note that data protection “has arguably been the most prominent public policy issue in the information age.” The distinction between diplomacy and negotiation is well understood in diplomatic history and negotiation literatures. See, for example, Kissinger 1994; Berridge and James 2003.

Introduction

9

Table 1.1 Negotiation context: four elements of global power configurations

Elements Number of issues or sub-issues Number of actors (states, international organizations, NGOs) Number of domestic coalitions∗ Market power of domestic firms∗

Diffusion of power

Concentration of power

Multiple (e.g. several sub-issues within services) Multiple

Singular or framed as singular (e.g. “security”) Bilateral, even in pluralistic contexts (for example, North-South, US–EU) Multiple (with no simple Monolithic or a majority) dominant coalition Competitive; no Monopolistic; incumbency advantage incumbency advantage

∗ Power configurations are defined from the perspective of participant states. Many firms and coalitions, especially during the negotiation process itself, take on international or transnational dimensions, which are discussed as part of the process.

basic argument is that, under a diffusion or decentralization of power in each case, the negotiation process leads to mutual gains; under a concentration of power, the negotiations matter less and the strong get what they want. As a point of entry, the argument locates each case of the global information economy negotiations on a spectrum of power configuration, ranging from concentration to diffusion. The power configuration in each case is distinct and, as subsequent evidence demonstrates, subject to change. Each power configuration or negotiation context is made up of four primary factors discussed in international relations theory (see table 1.1). Diffusion of power refers to scenarios in which negotiations involve multiple actors and issues, two or more coalitions supporting these actors and issues, and, finally, market conditions that do not confer monopolistic power on any actor. Negotiation processes here offer enough wiggle room for negotiators to learn and to problem solve, resulting in mutual gains. Interest alteration, as in the services case mentioned above, can be a facilitating condition toward mutual gains. Concentration of power refers to scenarios with

10


singular or salient issues, bilateral negotiations, monolithic or dominant coalitions, or monopolistic market conditions in which the negotiators’ hands are tied, often resulting in outcomes favored by the strong. Power configurations specify each actor’s material capabilities and initial interests, but in order to derive outcomes from these capabilities, we need to understand the negotiation process, which often also results in interest alteration. The outcomes, the dependent variable in this book, mainly result in mutual (win–win) or distributive (win–lose) gains for negotiating parties. Focusing on the four elements of configurations, rather than specifying them as symmetric or asymmetric, allows for the disaggregation necessary to understand the role of negotiation processes. Power symmetry or asymmetry are at a high level of abstraction and do not allow for measures of power concentration or diffusion as posited in this book. Negotiations are, after all, about combining issues, actors, and coalitions in various ways. Diffusion of power allows for interest alteration through the use of negotiation processes such as strategies and tactics. These processes can make an actor’s non-negotiation alternatives worse off – a situation known in negotiations theory as the best alternative to a negotiated agreement (BATNA). In other words, if the negotiated alternatives are attractive, interest alteration is easier for actors. In the data-privacy negotiations mentioned above, as transatlantic businesses pushed for a negotiated settlement, the non-negotiated alternatives became increasingly worse. This proposition contrasts with a concentration of power in which the strong and the weak are clearly distinct, outcomes always benefit the strong in a hierarchical ordering, and hardly any interest alteration takes place, though coercion is quite common to make states conform. In the pricing negotiations discussed in Chapter 5, the US was able to impose its cost-based pricing schemes on the rest of the world: its BATNA was worse. The power configurations posited here must be distinguished from the revisionist realist theses which allow variance on the degrees of concentration of power while arguing away diffusion of power. Gruber’s states accept negotiated agreements because they cannot return to the status quo pre-negotiation alternative.27 Gruber thus 27

Gruber 2000.

Introduction

11

acknowledges that negotiations can make the BATNA worse, but he does not pay due credence to the other possibility that the negotiated alternatives are better than the status quo ante, as was the case with GATS. Similarly, Drezner asks us to vary the independent variable, globalization, to examine its effect on international coordination.28 However, Drezner’s variation only occurs within the concentration of (market) power. Diffused power as a possibility is mentioned only in passing and then, too, only in the context of a great power concert becoming multipolar.29 Nevertheless, I agree with the revisionist theses that variations in power and its configurations remain the most important point of entry, the necessary condition, in explaining international outcomes. The two elements of the research model – power configurations and negotiation processes – need further details. We will discuss power in terms of a configuration rather than a structure, acknowledging Susan Strange’s contribution to thinking of the structures of the global economy, especially her notion of a knowledge structure, but departing from structural reasoning in accounting for the diffusion of power in this knowledge structure.30 Structure implies rigidity, and change, if any, is marginal. Where the options to global actors are expansive, as in the knowledge structure posed by Strange, then one must wonder about the usefulness of speaking of “structure.” In the context of negotiations, such as those in services pointed out above, there was less of a structure than an array or configuration of interests, issues, and actors. The solutions that emerged reflected the way that the negotiating parties came together, fell apart, got entrenched, talked, argued, jostled, and butted heads. Recently, Palan has pointed out that Strange’s entire conceptualization of structures was “a mere organizing framework, a heuristic typology in place of theory.”31 This book uses the term configuration rather than structure, but in homage to Strange, one of the power configurations it identifies is termed the “diffusion of power” (also the subtitle of one of her books).32 I return to the notion of thinking of power configurations versus structure in the methods discussion. 28 30 32

Drezner 2007, pp. 4–5. 29 Drezner 2007, pp. 218–19. Strange 1988, Chapter 6. 31 Palan 2003, p. 121. Strange 1996. Christina Davis suggested the term concentration of power to me for the other end of the spectrum identified in this book.

Diffusion of power (beginning) to concentration (end of negotiation) Diffusion of power throughout the negotiation

Intellectual property in Uruguay Round (1986–94)

Cultural industries in Uruguay Round (1991–93) and UNESCO (1999–2005)

Diffusion of power (beginning) to strong elements of concentration (end of negotiation in UNESCO)

Diffusion of power throughout the negotiation

Services in Uruguay Round (1986–94)

Telecommunications in WTO (1995–97)

Type of power configuration

Negotiation case study

Pluralistic coalitions, technocratic tactics, problem solving Monolithic coalitions (North-South); unilateral threats from US Pluralistic coalitions, technocratic tactics, problem-solving Monolithic coalitions on each side; singular framing of issue as “cultural exception,” later “cultural diversity”

Key negotiation tactics∗

Table 1.2 Explanatory factors and outcomes in the global information economy

No agreement between US–EU (GATS); win-lose agreement (UNESCO); however, latter seen as weak and unenforceable

Win-win (tailored agreement seen to benefit all)

Win-lose (stringent property rights negotiated and enforced)

Win-win (tailored services agreement seen to benefit all)

Negotiation outcomes

US agenda setter but makes concessions due to EU coalition pressures (1999); WSIS coalition unable to move market incumbent ICANN (2005) EU is agenda-setter but makes key concessions because of joint problem-solving in safe harbor; US agenda-setter for PNR

US versus rest of world coalition-building; delay tactics to stall agreement US versus a coalition from rest of the world

For simplicity, this table focuses only on key negotiation tactics, not umbrella strategies.

Concentration of power with a few elements of diffusion (transnational coalitions)

Data transfers/safe harbor (1998–2001); Passenger Name Records (2001–06), PNR

∗

Concentration of power with a few elements of diffusion (multiple issues, transnational coalitions)

Concentration of power throughout the negotiations

Concentration of power throughout

Internet governance: ICANN: 1998–2000 WSIS: 1998–2005

Telecommunications pricing in Uruguay Round and ITU (1995–97) Internet pricing (1997–2000)

Mutual gains (mutual recognition of regulatory systems with safe harbor provision); US and private industry gains in PNR.

No agreement (US gets its way with unilateral action with which others comply) No agreement (US gets its way by not changing its position on pricing Mutual gains but US wins more (2000); US/ICANN wins (2005)

14


While any type of international interaction in which iterative moves are made to adjust convergent or conflicting interests can be termed negotiations, this book explores those that fall in the diplomatic realm.33 These formal economic negotiations, conducted by professional negotiators and diplomats, are commonly also identified in the media as negotiations or bargaining. This book provides a conceptualization of the negotiation process by developing an in-depth understanding of strategies and tactics that actors pursue in any diplomatic interaction. The book’s contribution lies in noting the role of negotiation processes or conduct such as agenda-setting, framing, coalitionbuilding, trade-offs, linkages, and technocratic and information tactics, among others. For the time being, table 1.2 summarizes the key negotiation tactic practiced in each negotiation discussed in this book in the context of the power configuration for that issue. The book also notes the importance of negotiations themselves as intersubjectively understood mechanisms providing for the global governance of the society of states, firms, and other international actors. Global actors are in varying degrees of dependence and interdependence with each other and the moves they make, including diplomatic ones, do not just carry instrumental meaning in terms of helping to effect their goals, but these instruments themselves have intersubjectively or societally shared and contested meanings regarding their appropriateness. Quite obviously this harkens to constructivist and English School notions of the intersubjectively shared sociological norms, here those of negotiations themselves, at the international level.34 However, in discussions in this book I also part company with these schools. In the traditional understandings of the English School, diplomacy is often posited as an elite, rather secretive realm, whose usefulness for democratic global governance is limited. Hedley Bull, considered to be one of the most prominent English School thinkers, even thought that diplomacy was on the decline in an age where stateto-state diplomacy, which Bull understood to be the proper realm of diplomacy, was overlapped by international institutions and “international technical management” and “political activisation of previously 33 34

Odell 2006, p. 2; Evans et al. 1993. For representative constructivist works, see Finnemore 1996 and Wendt 1999. For English School, see Bull 1977/1995; Buzan 2004; Linklater and Suganami 2006.

Introduction

15

inert masses of people.”35 Similarly, constructivist scholars, especially those following in the tradition of Habermas, have noted that diplomacy is too strategic an encounter for public deliberation and problem solving.36 This book details myriad situations, with varying degrees of openness and transparency, where both strategic conduct and problem solving take place within negotiations. In doing so, negotiations themselves may provide for means of democratic global governance. Susan Strange’s thinking on diplomacy is useful even if insufficiently specified. She outlines the enveloping structures that define a set of options for global actors, the outcomes for which are contested through diplomatic interactions or negotiations involving mostly states and firms.37 Diplomacy is central to her framework as opposed to being an auxiliary or a frequently invoked, but seldom explained, incantation in other theories. She notes that this diplomacy is practiced in three dimensions: state–state, state–firm, firm–firm. While noting, in her rather straightforward way, that “negotiations should be abundantly evident to anyone who has followed the economic and financial news over the past decade,” Strange herself fails to develop a vocabulary of negotiations.38 The “who did what to whom and how” of these diplomatic interactions is missing from this account. Finally, I also depart from understandings of negotiations in international relations theories in which actors seem to be playing out prescripted roles in games in which interactions unfold with the nervous anticipation of a tragedy: prisoner’s dilemma and/or the game of chicken are examples.39 In the dynamic contexts outlined in this book, a few rules are set but the change in the position of one player changes the entire configuration of posturings and players. Yet at the end of the game, it seems there are more winners than losers, hardly the stuff

35

36 37 38 39

Bull 1977/1995, pp. 169–70. Hall 2006, p. 149, writes that most English School writers have followed the lead of the founders like Bull and Martin Wight and do not think of diplomacy as a significant institution of international society, in turn devoting little attention to it. Risse 2000, Farrell 2003. See details in Chapter 7. The case for noticing the role of diplomacy in the unraveling of the knowledge structure is made in most detail in Strange 1991. Strange 1991, p. 44. See Krasner 1991 for illustration. Axelrod 1985 and 1997 provides a bridge in thinking of prisoner’s dilemma in societal contexts.

16


of incarcerated prisoners headed toward tragedy; instead, players posture and play but also change the rules of the game and the way they understand themselves within it.40 François de Callières had a similar image in mind when writing of diplomacy in 1716: To understand the permanent use of diplomacy, and the necessity for continual negotiations we must think of the states of which Europe is composed as being joined together by all kinds of necessary commerce, in such a way that they may be regarded as members of one Republic, and that no considerable change can take place in any one of them without affecting the condition, or disturbing the peace, of all others. The blunder of the smallest of sovereigns may indeed cast an apple of discord among all the greatest powers, because there is no state which does not find it useful to have relations with the lesser states and to seek friends among the different parties of which even the smallest state is composed.41

Writing half a century subsequent to the peace of Westphalia in 1648, de Callières could only speak of sovereign states and may have been optimistic in overstating the extent of interdependence among them. He was nevertheless prescient in according due place to a budding international society in which diplomacy and negotiations would mold the very world in which these instruments performed. I now turn to specifying the methodologies for studying these negotiations.

The plan The methodological challenge in this book is to find the right mixes for explaining both the instrumental as well as constitutive elements of diplomacy; therefore, pluralistic methods are employed. Positivist methods are useful for building general theory but can be inadequate in accounting for transformational politics, especially where such transformations are in intersubjective understandings as in the role of diplomacy or negotiations. Murphy and Tooze note bluntly that “Positivist 40

41

This is probably the reason that superior human intellect always wins over complicated mathematical models or uber-intelligent machines in a chess game. No matter how far the machine can extrapolate for each move, the game can never be prespecified enough. As constructivists have argued, actors play by rules, which are forms of intersubjective understandings or “antecedent conditions” but these rules can be reformulated and reinterpreted. See Kratochwil 1989. de Callières 1716/1963, p. 11. Also quoted in Bull 1977/1995, p. 162.

Introduction

17

Figure 1.1A Interests and outcomes without negotiations Societal Pressures/Power Structure

Actor Interests

Outcomes

Figure 1.1B Interests and outcomes with negotiations Power Configuration

Actor Interests

Negotiation Processes

Outcomes

Figure 1.1 Explaining global outcomes with or without negotiations

IPE knowledge, although claiming a legitimacy derived from following a ‘scientific’ process, denies the possibility that any form of (nonmaterial) intersubjective meaning may be part of the international political economy.”42 On the other hand, historical methods, as employed in constructivist and English School accounts mentioned above, can be rich in details but fuzzy on theoretical formulation.43 This book seeks a combination of positivist and historical methods to bring both analytical rigor and empirical details. With respect to the former, it employs a set of necessary and sufficient conditions, albeit in a less restrictive sense than claimed in positivist research designs, and utilizes formal case study method techniques for empirical substantiation. In employing historical methods, it seeks “mature reflection” of changing intersubjective conceptions and the feedback loops between power configurations and negotiation processes.44 Figure 1.1A illustrates straightforward empiricist claims made in traditional explanations of outcomes. Figure 1.1B brings in the feedback loops. A set of necessary and sufficient conditions is explored in this book to explain particular types of negotiation outcomes. Power configurations are antecedent, and therefore necessary, to explaining the outcome, but by themselves yield indeterminate results. However, necessary conditions cannot be posited as an “only if” condition where one negotiated outcome that cannot be traced to power invalidates 42 43 44

Murphy and Tooze 1991, p. 18. See, for example, Finnemore 2001, for a critique of the English School methods. The term mature reflection is often employed by the English School writers to critique positivist methods. See Little and Williams 2006; Jackson 2000.

18


all theory. As power configurations are variable, necessary conditions need to account for variability, too, as evident in probabilistic or calculus analyses. For example, price is necessary for explaining demand or supply but price itself varies, in turn varying demand or supply.45 Only under increasingly limited situations of concentrations of power, a hierarchical distribution in which the strong are clearly distinguishable from the weak, can we move directly from power configuration to outcomes. Drezner explores precisely this thesis in his latest book (to argue the opposite – that great power concerts are alive and omnipresent).46 The fact that negotiations occur even in a concentration of power must also mean that states expect a negotiated outcome even in cases of preponderant power (see Chapter 5). In the case of diffusion of power, we must specify a set of sufficient conditions for different outcomes. Diffusion of power allows for mutual adjustment or alteration of interests via negotiations. Negotiation tactics and strategies then supply the sufficient conditions for explaining particular outcomes under a diffusion of power. Table 1.3 summarizes the outcomes examined in this book in the context of the power configuration. The variability of “power configuration” also leads to avoiding the term “power structure” in this book. Power is understood in the sense of a configuration specifying a set of options for actors rather than a structure, which is often posited as being limiting. This, however, is not analogous to rejecting the existence of structural power. The notion of a power configuration is analogous to Zartman’s conceptualization of 45

46

See Goertz and Starr 2003 for a full explanation of necessary and sufficient conditions. They distinguish between philosophical analysis that specifies necessary conditions in an “only if” way versus a continuous necessary condition where “‘one counterexample and reject’ philosophy, which most people use for necessary conditions becomes very problematic,” Goertz and Starr 2003, p. 10. This is useful but Goertz and Starr also need to distinguish clearly between the condition and its variability. Just because breathing is necessary to living does not say anything about type or amount of breathing or air quality. Conditions do not vary, but necessary conditions specified as a variable must do so. Notice the variability inherent in the following necessary condition from Zartman 1985, p. 238, cited by Goertz 2003, p. 94: “[D]omestic strength is only a necessary but not a sufficient condition for conciliation, and it alone does not guarantee a ripe moment.” The Zartman hypothesis is itself instructive for this book because domestic strength – the necessary condition – is coupled with negotiations as the sufficient condition. Drezner 2007. See p. 26 and p. 205 for his specification of necessary and sufficient conditions.

Introduction

19

Table 1.3 Power configurations and outcomes

Diffusion of power

Win-Win Agreements

Win-Lose Agreements

No Agreement

∗ Services

∗ Intellectual

∗ Audio-visual

liberalization (Ch. 3) ∗ Telecommunication

Concentration of power

infrastructure (Ch. 4) ∗ Privacy (Ch. 6) ∗ Internet

(Ch. 6)

governance

property (Ch. 3)

(cultural industries) (Ch. 4)

↓↓

← Telecom pricing (Ch. 5) ← Internet pricing (Ch. 5)

Note: Arrows in the matrices highlight the dynamism of some negotiations: intellectual property negotiations started off as diffusion of power but the great powers (US and EU) quickly made it a concentration of power benefiting their interests. In the case of pricing, while there was no agreement, the status quo benefited the great power.

a power structure underlying a negotiation, Strange’s conceptualization of a diffuse knowledge structure in which diplomatic interactions take place, and Hampson’s notion of a prenegotiation context.47 In general, most negotiation theory starts with structure and then brings in negotiation processes to explain outcomes.48 While theorists recognize that in situations in which power is decentralized and diffuse, the notion of a structure is problematic; however, they continue to use the term structure.49 I use the term configuration rather than structure because it carries less theoretical baggage in terms of its connotations. Both terms have the same denotative meaning.50

47 48 49 50

Zartman 2004; Strange 1988, 1991; Stopford and Strange 1991; Hampson 1995. For recent formulations, see Odell 2006; Davis 2003; Zartman and Rubin 2000. As Zartman himself suggested to me, power structures exist but negotiations amend them (based on personal conversation, March 5, 2007). Thanks to Dean Pruitt for suggesting the denotative and connotative meanings of power structure and configuration. Denotation is the literal meaning while connotation is the context-specific meaning. In other words, my quibble here is with “how things are represented rather than with what is represented,” Chandler 2006, p. 124.

20


There is another reason to avoid the connotations of “power structure”: the term configuration helps to specify the constitutive basis of intersubjective understandings in negotiations while not avoiding the instrumental and structural constraints. Starting with instrumental and structural conceptions of power is useful: “This may entail who is empowered versus disempowered (instrumental power)” and “who is constrained in a given situations versus who gets to write the rules (structural power).”51 Power configurations or negotiation contexts in this book take into account the instrumental and structural constraints for actor capabilities and their interests. However, negotiations are interactive processes existing within an international society that change and transform the identities of actors, their goals and interests, and also the meanings of the issues being discussed. Instrumental and structural conceptions of power cannot account for these processes. In the past I have called the transformations of actor and issue identities and interests through interactive circumstances “meta-power,” which in turn redefines the context in which instrumental and structural power operate.52 A meta-power understanding of identity points to agency and transformation. While sharing the context of accounting for intersubjective power, meta-power is thus also distinct from Lukes’s third face of power and Barnett and Duvall’s “productive power.”53 These conceptions of power accord more causal influence to structural factors and posit change and transformation only in the margins. The third face of power for Lukes, for example, produces due obedience in human beings at an intersubjective level. It allows Lukes to answer the following question: “How do the powerful secure the compliance of those they dominate?”54 They do so, according to Lukes, by transforming structural power into a psychological dimension in which either the dominated are victims of a false consciousness or bearers of enlightened and revolutionary resistance. While a full theoretical discussion of various types of power appears in the conclusion, let me note in brief here that this book is not about those who consciously or subconsciously acquiesce or resist, but about those who actively change and transform the conditions of their existence when negotiating within a diffusion of power, or are limited in 51 53

Singh 2002a, p. 6. 52 Singh 2007a and 2002a. Lukes 2005; Barnett and Duvall 2005. 54 Lukes 2005, p. 110.

Introduction

21

doing so by the concentration of power in other issue areas.55 Intersubjective notions are present in all circumstances; structural theorists limit the operations of intersubjectivity to qualify agency, I seek to expand agency by calling attention to intersubjective understandings. The case of the global information economy represents the universal or complete set of cases to study the various types of power configurations and negotiation processes arising from the adoption of information technologies into the global economy, especially at the multilateral level. The global information economy then sits at the expansive edge of the global liberal economy and is representative of its long-run technological dynamics. The choice of this case is, therefore, important. Those who have studied the sociologies of international interaction have tended to ignore economic issue-areas. Buzan notes in the case of the English School that the “sidelining of the economic sector” may be due to “simple disinterest and lack of knowledge about the economy amongst the founding fathers.”56 At the end of this book, I will discuss the importance of multilateral negotiations for global governance. Wilkinson notes that “economic governance is by far the most advanced and comprehensive dimension of emerging global governance.”57 Inasmuch as multilateral economic negotiations are taken to be the most complex of all negotiations, they may also reveal something to us by way of the complexity of global economic governance. The normative claim made in the concluding chapter on the prospects of democratic global governance rests upon the possibilities of multilateral negotiations conducted in a diffusion of power. International negotiations now cover almost every area of the global information economy, spanning various configurations of power. After presenting the detailed explanation of the various contents of power configurations and negotiation processes in the next theoretical chapter, the succeeding four chapters examine the most important 55

56

In making a case for lack of resistance, Lukes highlights James Scott’s epigram in the book Domination and the Arts of Resistance: “When the great lord passes, the wise peasant bows deeply and silently farts.” Lukes notes that Scott’s approach is “oddly monolithic” and he fails to account for “all the unwise peasants” who only bowed and did nothing else (p. 131). His conclusion is that false consciousness, the third dimension of power, produces no movement in their bowels. In underscoring the intersubjective elements of power, I seek to foreground not those who fail to fart in the margins but the other end of the spectrum, namely those who will defecate on the main road. Buzan 2004, p. 20. 57 Wilkinson 2002, p. 6.

22


international negotiations governing the global information economy, followed by a concluding chapter. The cases discussed include services, intellectual property, cultural industries telecommunications, electronic commerce, and infrastructure pricing. Most analysts of the global information economy have focused on one case or the other. To the best of my knowledge, this is the first book to analyze eight cases collectively. This allows for comparison and contrast, yielding insights on varying power configurations and negotiation processes. Each empirical chapter examines pairs of cases picked using J. S. Mill’s method of differences.58 Cases are thus picked according to variations in the explanatory factors, namely particular types of power configurations or negotiation contexts (see table 1.2).59 Chapters 3 and 4 examine cases that are characterized prior to negotiations by diffusion of power. Chapter 3 examines two cases: the General Agreement on Trade in Services (GATS) and Trade-Related Aspects of Intellectual Property Rights (TRIPS). They were technically part of the same multilateral negotiation, the Uruguay Round (1986–94), but the outcomes were different due to the use of particular tactics. They mostly featured the Global North and the South. In GATS, both the North and South won. In TRIPS, the South lost. Chapter 4 also illustrates typical diffusion of power in two sectoral negotiations whose parameters were defined by the GATS framework negotiated during the Uruguay Round (discussed in Chapter 3). It examines cases that are themselves part of rules negotiated earlier, thus providing some similarity in negotiations context. However, the 58

59

Recently, Bennett and George 2005, argued that Mill’s method is impossible to use. In a strict positivist sense, it is impossible to use but not if we are not claiming too much, as in my broad and variable use of necessary and sufficient conditions. Goertz and Starr 2003 critique King, Keohane, and Verba (KKV) 1994 for ignoring the concepts of necessary and sufficient conditions, which they argue would show that cases cannot be picked according to variation in explanatory factors alone. KKV do ignore necessary conditions but the case for not picking according to independent variables may be less compelling. KKV in their discussion of the case study method emphasize that researchers must select cases on the basis of variation in the explanatory factors (i.e., the independent variables). In picking cases by causal variation, rather than merely to increase the number of observations, the method is also mindful here of the critique of KKV by various authors in the Brady and Collier 2004 volume. One of the authors in the Brady and Collier volume, Munck 2004, notes that case studies are more useful for understanding causal heterogeneity than causal homogeneity that comes from increased observations.

Introduction

23

outcomes are different: the audio-visual or cultural industry negotiations result in a no-agreement whereas the telecommunication liberalization negotiations do not.60 The contrasting outcomes among cases in Chapters 3 and 4 help us understand the differences in the dynamics of international negotiation and how diffusion of power works in practice. In each chapter, the case studies show that the underlying power configuration within an issue also changes, accounting for the feedback effect of negotiation processes on power. The movement is most striking in TRIPS, which started off as a diffusion of power and ended with an extreme concentration. Drahos notes that inequalities of bargaining power are quite evident “where the multilateral forum itself houses what are, in effect, bilateral processes.”61 Chapters 5 and 6 examine cases that are characterized prior to negotiations by varying degrees of concentration of power. Chapter 5 presents two cases of concentration of power in infrastructure pricing in which the great power prevails because of its market prowess. In one case, the US made the rest of the world comply with its position in telecommunications pricing; in the other case, the rest of the world was ultimately unsuccessful in trying to make the US comply with an alternative position on Internet pricing. Chapter 6 presents two cases close to a concentration of power but with a few elements of diffusion. Here the US or the EU held preponderant market power but each needed the other side for market expansion or global electronic commerce, which then resulted in agreement outcomes in both cases. The chapter examines negotiations over international rules for the cautionary tale of Internet and electronic commerce: domain name system reform (1997–98) and US–EU data protection negotiation (1997–2000). Two subsequent developments in each case – the World Summit on the Information Society (WSIS) in Internet governance and the US–EU dispute on transfers of airline passenger data – are also studied. In all but Chapter 5, negotiations are crucial to explaining outcomes in the book. The concluding chapter discusses the implications of this book’s argument regarding negotiated interests for broader themes in political 60

61

Technically, no-agreement here represents the MFN exemption that the EU took on audio-visual services at the end of the Uruguay Round on audio-visual services and the US vote against the UNESCO Convention on the Protection and Promotion of Diversity of Cultural Expression in 2004. Drahos 2003, p. 103. Bull 1977, p. 159 made a similar point.

24


enquiry, namely power and international governance. It makes explicit the normative argument in the book that agreements derived from diffusion of power will be more robust than those from a concentration of power and, therefore, might offer some possibilities for democratic global governance. Dynamic global actors involved in negotiation processes face a choice: they can make the process diffuse and ensure stability or they can allow for concentration of power, which produces coercion and instability. Three methodological clarifications regarding case studies are necessary. First, a few may regard this book’s analysis of negotiations led by state actors as reinforcing the notion of an international society of states rather than a world society of various transnational actors. Nevertheless, this book posits state actors as agents rather than as sovereigns.62 To fully comprehend the meaning of state actions in the global information economy, the context of international organizations and transnational firms is especially important. This book, being one of the first to detail multilateral negotiations in the context of global governance, remains cautious in noting the presence of an international society rather than a world society.63 The overlapping of several power configurations in the global information economy suggests neither a demise of the Hobbesian nor the dominance of a Kantian system of global governance. Thus the international society focus is also driven by empirical concerns. Most well-known negotiation issue-areas in the global information economy feature states prominently. This does not rule out the possibility that in the future states may play lesser roles.64 Similarly, while Strange was right in noting that diplomacy is practiced in several dimensions, it is still interstate negotiations that take the forefront and many of the other diplomatic negotiations must be understood within the context of commercial treaties signed by states. She notes, for example, that changes resulting in technology and finance structures, in particular, owe “a good deal to policy decisions of states – especially the US, which initiated both financial deregulation and telephone communication 62 63 64

See Hurrell 2006, p. 199 for this distinction. See Buzan 2004 for arguments supporting a world society understanding of politics mostly in the context of noneconomic issue-areas. A recent Financial Times (September 19, 2007) report, for example, notes that globalization is thriving through business practices rather than interstate trade pacts.

25

Intellectual Property Services

Telecom Infrastructure Culture

Safe Harbor Internet Governance

Pricing

Interest Alteration Coercion

Concentration of Power

Diffusion of Power

Introduction

Figure 1.2 Variability of cases by diffusion and concentration of power

deregulation while giving strong support through the space program to satellite development.”65 Second, it is important to note that each of the cases in this book may encompass more than one negotiation episode and several observations within each negotiation.66 The telecommunications case is made up of three episodes: one during the Uruguay Round, one immediately thereafter under the auspices of the WTO, and its pricing aspects. The cultural industries cases include negotiations at the Uruguay Round, as part of GATT, and subsequently at UNESCO, and also overlaps in the TRIPS negotiations;67 the Internet Governance case also includes two episodes, ICANN and WSIS. Third, cases are picked according to the variability in the power configuration prior to the onset of negotiations. As negotiations proceed, the configurations might themselves change. Figure 1.2 illustrates the power configuration of each case prior to and subsequent to the negotiation process. The beginning point of each arrow specifies the position of the case on the spectrum of power configuration prior to the negotiation while the end point of the arrow points to the position subsequent to the negotiation. The length of the arrow suggests the movement from concentration to diffusion, or vice versa. The intellectual property case, in particular, is striking in starting off as revealing 65 66 67

Strange 1991, p. 43. See Singh 2003 for satellite markets deregulation. This follows the definition of several episodes and observations within each case developed by King, Keohane, and Verba 1994, p. 218. The four episodes of cultural industry and telecommunication are presented in Chapter 4, accounting for the length of this chapter. It is important to present them together, methodologically and empirically (see the introduction and conclusion to Chapter 4).

26


diffused power to becoming quite concentrated at the end of the negotiation. The thin lines at the bottom of the figure show varying degrees of interest alteration or coercion among actors as we move from concentration of power to diffusion of power, or vice versa. In the case of intellectual property, the negotiation context became more and more concentrated and resulted in elements of coercion applied to developing country states. In the case of services, the opposite happened, with increasing degrees of diffusion and interest alteration. Turning now to non-positivist methods, cases discussed in this book draw inspiration from the methods of diplomatic (economic) history.68 Empirical evidence gathered from a detailed study of negotiations and long interviews with negotiators for this book helped to specify the underlying power configurations and negotiation processes. Qualitative evidence for the cases came from published accounts, media reports, and archives at international organizations. One of the contentions in this book is that the elements of negotiation often do not receive scholarly attention. Therefore, interviews with negotiators were necessary to get a deeper understanding of their tactics and strategies. The method is neither reflexive nor ethnographic but it borrows from these approaches in bringing out the context and complexity of negotiation processes. Recently, Friedman argued that an ethnographic approach is necessary to observe the context of any negotiations.69 Friedman attributes Walton and McKersie’s classic insights on labor negotiations to an ethnographic approach.70 More generally, Emerson et al. write: “Reflexivity when applied to the understanding of the members’ worlds, helps us to see those worlds as shaped not by variables or structures that stand above or apart from people but rather as meaning systems negotiated and constructed in and through relationships.”71 In interpreting such meaning systems, details as well as inference are 68

69 70 71

Most works in diplomatic history focus on security relations among states (see, for example, Nicholson 1969; Kissinger 1994). The following, however, can be classified as diplomatic economic history: Gardner 1956; Zartman 1971; Funabashi 1988. See Freymond 2002 for an overview of historical methods in studying diplomacy. Friedman 2004. Economic anthropology itself has increasingly turned toward describing ethnographies of (market) transaction. See Guyer 2004. Walton and McKersie 1965. Emerson et al. 1995, p. 216. I have also argued in the past that reflexivity and positivism can learn from each other (see Singh 2004).

Introduction

27

needed.72 Pluralistic methods, therefore, help us build analytical clarity but methods should not be understood so stringently that they rule out the context-specific meanings that arise from international interactions.73

Summary This book makes theoretical contributions to understanding the dynamism and complexity of multilateral negotiation contexts, processes, and outcomes. As a reminder, power configurations (or negotiation context) are the necessary condition and negotiations processes are specified as the sufficient condition, in which interest alterations can facilitate mutual gains. Negotiation processes can also change the underlying power configuration for these interests (see figure 1.2). This chapter briefly introduced the conceptual and methodological context for understanding the conditions under which negotiation processes and interest alteration lead to joint gains. The next chapter develops the argument in detail. First, I break down the various components of the power configurations, especially recognizing the historical context that led to a diffusion of power in several issue-areas. In the case of information technologies, I show that diffusion of power configurations may be more common than concentrations of power in various cases. The chapter then explains negotiation strategies and tactics that allow for interest alteration and/or joint gains. Finally, I place the argument within the broad rubric of IR theory, especially as related to ideas, interests, and institutions in liberal and constructivist political economy perspectives. 72 73

See Diesing 1991 (Chapter 5, “Hermeneutics: The Interpretation of Texts”) for the role of inference in interpretation. See International Studies Review 2003 for a discussion on the use of pluralistic methods. Buzan 2004, p. 3 also calls for a methodologically pluralist IR.

2

Power, interests, and negotiations

Diplomacy can play no role where foreign policy is conceived as the enforcement of a claim to universal authority, the promotion of the true faith against heretics, or the pursuit of self-regarding interests that take no account of the interests of others. Hedley Bull The Anarchical Society1

International negotiations are molding the global information economy. Traditional international relations analyses paid scant attention to negotiations and more attention to overall power differentials, usually among nation-states, in conceptualizing the global political economy. Scholars also showed that nation-states’ interests could converge around each other without examining negotiations that may be the underlying motivators of such convergence. Analyses of eight important negotiations in this book demonstrate that negotiations matter the most in issues characterized by diffusion of power – referring to scenarios in which negotiations involve multiple actors and issues, two or more domestic coalitions (often transnational in scope) supporting these actors and issues, and, finally, market conditions that do not confer monopolistic power on any actor. In such cases, the negotiation process arbitrates the final outcome, often benefiting all parties, including the weaker powers in the negotiation. These outcomes differ from concentration of power scenarios, traditionally important in many international relations texts, in which a hierarchical distribution of power (either at the global systemic level2 or at the issue-structure level3 ) is hypothesized as the causal variable for the outcome. This book also shows that, under a diffusion of power, negotiating parties’ interests evolve and change during negotiations, which are interactive processes, and thus we cannot posit them as given in explaining global outcomes as we do with theories of power differentials. 1

Bull 1977, p. 164.

28

2

Waltz 1979.

3

Keohane and Nye 1977.


29

How do various power configurations shape particular outcomes? Concentration of power is not dead, but, as many analyses point out, it is overlapped in the current world economy by other types of power structures. James N. Rosenau calls it a “multicentric world” or “distant proximities” to note the way the micro-level and macro-level units come together.4 Hedley Bull’s phrase “new-medievalism” is also often invoked to speak to the complex structures of power and authorities in the world today.5 This book’s main argument is that the incremental pluralism of the world economy – reflected especially in the diffusion of power – makes available attractive alternatives and negotiation tactics to all actors to allow for mutual gains. Often, these gains come about because actors’ interests are altered or reformulated during the negotiation process. Historically, analyses on negotiations belong to one particular global context captured by the term “distribution of power” (herein called concentration of power) that, as Zartman noted almost a generation ago, affixes the weak in a “definitional inferiority.”6 Concentration of power implies a hierarchical distribution of resources and abilities simultaneously across many issue-areas that almost always results in outcomes favorable to those at the top of the hierarchy. In the context of the global information economy, power configurations often vary from one issue to another depending on the issue in question. Diffusion of power scenarios center around dynamic environments in which power resources and abilities, rather than being hierarchically affixed across all issue-areas, change from one issue-area to another with complex mixes of issues, actors, coalitional partners, and market conditions. The contention is not that great powers do not still possess considerable advantages in negotiations. Whether in bilateral or multilateral negotiations, their economic and political muscle can be flexed to affect the outcome in their favor. But, the way they flex their muscle and the particular outcomes affected are still dependent on the negotiation. 4

5 6

Rosenau 1990, p. 2003. He notes that the communications revolution has been a central source of global turbulence due to instant exchange of information and ideas, which has resulted in more porous national boundaries and increased demands being put on world affairs. Bull 1977, pp. 254–66. Weak countries are those with poorer resource distributions compared to others – either in an issue-area or across several, depending on the negotiation. See Zartman 1971, p. ix.

30


For example, even in a concentration of power, the great powers may be acting on the behest of private actors, as is the case of intellectual property negotiations described in this book. In the context of the global information economy in which economies are increasingly interdependent, actors may even have more incentive to negotiate agreements that are mutually beneficial. However, mutual benefits do not mean equal benefits. This book, for example, examines several situations in which the US benefits more in circumstances where it can unilateralize or bilateralize a multilateral negotiation process by making take-it-or-leave-it offers to its weaker counterparts. Power distribution in bilateral negotiations will favor the more powerful actors. During the Uruguay Round of trade negotiations, for example, the US prodded several developing countries along by reminding them that the Round offered them a better outcome than unilateral measures based on the US’s own trade laws. Conversely, at the WTO Ministerial in Cancun ´ in September 2003, the US tried to undercut other countries’ demands by noting that it would rather negotiate bilateral or regional agreements to get better deals for itself. As the World Trade Organization’s multilateral Doha Round of trade negotiations stalled in 2006–07, the US rushed to conclude a series of bilateral agreements, advantageous to itself, with countries in East Asia, the Arab world, and Latin America.7 The technology-led context of the developments analyzed in this book needs to be emphasized. However, this is not a technologically determinist argument; international interactions, after all, shape the evolution of technology in the global marketplace and vice versa. The negotiated rules on telecommunications liberalization affect the way infrastructure and services are provided all over the world. Thus the politics and the sociology of these international interactions precede technology and affect its “roll-out.” In turn, technology can also affect politics: the spread of the global information economy is often cited itself as contributing to the complex interdependence of actors in which a diffusion of power may be detected. The change from analog to digital technologies, in particular, has led to convergence among hitherto separate sectors and has made it easier to send content or digital information around the world.8 These technological changes are in turn 7 8

Marchetti and Roy 2008. Photography, sound recordings, broadcasting, and film, for example, were separate industries. With digitization, they are all reducible to bits and can all be sent through the same media, be it Internet or a microchip.


31

creating global challenges for negotiating the rules that are analyzed in this book. Figure 2.1 captures the interactive international dynamics underlying technology described in this book. The speed at which information technologies have changed patterns of global interdependence has also created challenges for negotiators to govern the impacts of technology at domestic and global levels. Often multiple domestic coalitions, coalescing around the differential impact of technology or various groups in society, can be noticed in any given society. Demands for stringent intellectual property rights enforcement in one part of the world may be met by protests and ethical concerns in other parts of the world. As businesses and societal actors have had to move at “Internet speed,” governments and international organizations are challenged to keep up with technological changes that have an impact on information flows, interconnection, international trade, intellectual property, and crime – to name a few. New communication technologies also present challenges to national sovereignty and culture. For example, while divisive and highly charged cultural industry negotiations consume governments at the WTO and UNESCO, industries continue to merge, multiply, and proliferate globally regardless of the no-agreement outcomes at the WTO or the protectionist outcomes at UNESCO (see Chapter 4). The purpose of this chapter is to explicate the conceptual argument of this book. The next section examines the power configuration or the negotiation context, including issues, actors, domestic and international coalitions, and market conditions. The particular configuration of these four factors posits the possible set of benefits for a particular party prior to a negotiation. If anyone’s best alternative to a negotiated agreement (BATNA) is strong, then it is better to walk away. After theoretically analyzing the negotiation context, we look at the use of particular strategies and tactics in negotiations processes that can often create new and favorable alternatives for all parties in a negotiation. (They can also worsen some alternatives.) Collectively, the chapter illustrates the two parts of the argument. The negotiation context or power configuration supplies the necessary conditions for outcomes, and the negotiation process supplies the sufficient conditions to determine outcomes. The final section of the chapter places the main argument of the book within the broader context of international relations theory. In situating the context of negotiated interests in these theories, the argument borrows, as well as departs, from several extant paradigms

32


in IR and should not be misunderstood as the familiar IR “battle of the isms.”

Power configuration Most analyses of negotiations correctly note that a given power configuration does not help us predict the outcome of a negotiation; it merely provides the context for a negotiation. Keohane and Nye stipulated this in their seminal work Power and Interdependence by noting the difference between structure and process: “The structure of a system refers to the distribution of capabilities among similar units . . . Structure is therefore distinguished from process, which refers to allocative or bargaining behavior within a power structure.”9 Despite this, as noted in Chapter 1, most analysts either continue to focus on “structure,” while negotiation analysts focus on “process.” Furthermore, the focus on process often comes about to the relative neglect of how the power configuration itself may change during negotiations. This book posits that we cannot understand current negotiation processes by referring solely to concentration of power propositions rooted in the historical practices and conditions that privileged states and security.10 We must, therefore, retrace the context in which authoritative allocations mattered, to differentiate current scenarios in which they matter less and less.11 Four political economy factors account for the changing power configurations: number of issues, number of actors, the changing nature of domestic coalitions, and market conditions.

Single actor, salient issue context Our understanding of global political economy finds its genesis in a world where states and their prerogatives for maximizing power 9 10

11

Keohane and Nye 1977, pp. 20–1. This is different from a historicist argument. All I am noting here is that initial conditions underlying hypotheses need to be specified carefully. Sensitivity toward history thus must be distinguished from a search for any kind of underlying laws governing its progression as in historicism. In other words, our histories should inform theory rather than the other way round. As Michael Doyle puts it: “Sometimes a strategy is clear in theory, but ambiguous in practice. Realists face this concern when they assess the balance of power.” Doyle 1997, p. 500.


33

defined the context for the practice of diplomacy and bargaining.12 A state’s overall national economic output and military might defined its strength. The intellectual legacy of this history now lies in analyses that tend to abstract hypotheses solely in terms of nation-states and single issues – even if they go beyond security – in predicting or specifying outcomes. This book does not directly contradict these analyses. It only argues that these types of contexts are now overlapped by other contexts with multiple actors and issues. The story of the rise of free trade in the nineteenth century is apt for illustrating the historical origins of the old argument. Trade in the nineteenth century was tied intimately with state calculations for increasing their capabilities with the goal of dominating or surviving in the international system. If the European states gave in to the arguments of free trade groups, it was because the latter’s interests were consistent with the European states’ quest for power internationally. Both mercantilism and free trade in early modern Europe can be understood in the context of state power. Development of manufacturing and trade followed not just state privilege but also the state’s need for power and wealth, which in turn were tied to its territorial sovereignty.13 In the case of one of the first global businesses, the East India Company, its interests were scarcely different from that of the British Empire.14 12 13 14

As such, this worldview approximates Wendt’s 1999, ch. 6, Hobbesian culture of anarchy. Viner 1948. Rosecrance 1986 is a forceful advocate of the case for European power play defining economic interests. The nineteenth-century European state is the Westphalian territorial state for which military-political calculations are paramount. Trade was never open and free in Europe. Medieval Italian city-states sought to monopolize it, as did Colbert’s France. Trade became freer in the nineteenth century, but a sizable portion of it remained intra-empire trade for European colonial powers. The calculations were always about the international concentration of power. “The trading system’s ability to endure depended in part on the operations of the balance of power – a means of restraining the great powers from seeking too large territorial gains” (Rosecrance 1986, p. 18). Britain’s rise to a leadership or hegemonic position in Europe was based on its industrialization, and later free trade would help it extend its hegemony further. And such calculations extended beyond Britain. The Anglo-French Treaty of Commerce in 1860 allowed Napoleon III to obtain British acquiescence for his territorial ambitions in Austria and Italy. Similarly, the Zollverein with Prussia as its hegemon was perceived by Britain as a political and economic threat. Free trade would counter that influence.

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Old habits die hard. The legacy of the old world is still there. The current system, which began in the 1960s, of giving trading preferences to many developing countries for their products emerged from the imperial preferences that ex-colonial powers granted their former colonies. During the Doha Round’s September 2003 Cancun ´ Ministerial and July 2004 negotiations at the World Trade Organization, a large number of small developing countries, known as the G-90 group, argued that dismantling this system of preferences in favor of free trade would wreak havoc in their economies and only benefit the G-20 group of large developing economies (led by Brazil, China, and India) favoring agricultural liberalization. Such evidence cannot be disputed; but theoretical models that privilege only nation-states and the deduction of their interests from hierarchical power distributions cannot account for all the outcomes in global political economy. Even in the example just stated, it would be hard to predict the outcome of North-South negotiations on trading preferences by using this theoretical model. To some extent, the famous appraisal of the field of International Relations, a quarter of a century back, may still be valid. Stanley Hoffmann tells us that the state-centric security dominant model reflected in practice in what he calls “the relays between the kitchens of power and the academic salon.”15 He notes, “what the scholars offered, the policy-makers wanted . . . Realism, however critical of specific policies, however (and thus self-contradictorily) diverse in its recommendations, precisely provided what was necessary.”16 Instead of explaining state interests, realism here forms state interests.17 As a theoretical model, a self-fulfilling prophecy! Theories in international economic negotiations that still hearken to such analyses tend to assume that a powerful state can easily convert its capabilities into action (actual power/fungibility of power).18 Structural power, therefore, extends across many issue-areas. Strong states can also discipline or socialize weaker states into following their dictates. Inasmuch as even constructivists take the current world system as a given, they, too, assume that strong states can construct what 15 17 18

Hoffman 1977, p. 50. 16 Hoffman 1977, pp. 47–8. Constructivist scholars now increasingly and forcefully make this argument, especially Wendt 1992, 1999. Keohane and Nye 1977, p. 18 explain the concept of actual versus potential power.


35

they can.19 In fact, examples abound in recent history that may very well support these propositions. For example, Steinberg notes that the US made few concessions to developing countries during the Tokyo Round and that, too, only because of cold war constraints and pressure from its State Department.20 It was only in the Uruguay Round of trade talks (1986–94) that developing countries were effectively included in economic negotiations. Until then, great powers used their authority to exclude them, discipline them (President Reagan in Cancun at the North-South Summit in 1983 telling the South to allow international investments or expect nothing), or to make them conform (unilaterally imposed quantitative restrictions to exports from the developing world). The weak, for their part, protested or used confrontational strategies but to not much avail. At best they played great powers against each other to squeeze concessions for themselves or try to find loopholes in the odds against them to make themselves better off.21 The alternatives to weak powers in such power configurations are limited and posit a sort of Catch-22. In a take-it-or-leave-it circumstance, the option of “taking it” is often only slightly better than a “leave it.”22 For stronger powers, however, the alternative to a negotiated agreement may not be that bad. They may make a few marginal gains from making weak powers acquiesce to a negotiation, but they might even gain by following a unilateral strategy. Krasner is right in noting that in a few issue-areas (such as broadcasting or espionage), strong states did not negotiate in earnest in the twentieth century because they had nothing much to gain.23 In the Internet and telecommunications pricing cases ( Chapter 5), the US held considerable market power and could afford to ignore all pressures to change the pricing schemes. 19 21 22

23

Wendt 1999. 20 Steinberg 2002, p. 357. For an example of the former strategy, see Wriggins 1976. For the latter, see Yoffie 1983. The weak have no real choice in this case: they must silently acquiesce or be left out altogether. However, such a prospect may, in fact, make them quite confrontational. See Scott 1987 and 1990 for excellent ethnographies of such weapons of the weak in the context of landlord-peasant relationships. See Lukes 2005, pp. 124–34 for a critique of Scott’s approach as ignoring the constitutive dimension of structural power that produces false consciousness and habits of obedience among the weak. See my critique of Lukes in Chapters 1 and 7. Krasner 1991.

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We can then expect authoritative or concentrated power bargaining to persist under two circumstances. First, it is most likely to be present in negotiation situations of highly asymmetric interdependence, two (or few) actors, and a single issue-area. These types of asymmetries are often present in bilateral negotiations between the US and other countries. Second, authoritative bargaining might also come about in particular issue-areas where one actor holds an inordinate amount of structural power. One form of concentrated power is having command of a large market. China, for example, due to its market size can act as near-monopsonist vis-a-vis multinationals. `

Many actors, multiple issues Negotiations no longer take place in a context defined solely by states and their (authoritative/concentrated) power maximization prerogatives, but in a diffusion of power consisting of many actors in pursuit of many goals and issues and exercising different forms of power. The power of dominant state actors is overlapped and defined by the multiple influences of international organizations, market-oriented actors, transnational or domestic interest groups, and other societal actors. The Uruguay Round (1986–94) of negotiations is a good example here because of the variety and the implications of the various power configurations that formed during the prenegotiation and negotiation phases. First, there were developments in North-South coalitions that were previously not seen in the General Agreement on Tariffs and Trade (GATT).24 In the previous seven rounds of trade talks, the US and Europe had virtually dictated the rules of the multilateral trading system to the rest of the world.25 Coalitions during the Uruguay Round often featured both developed and developing countries together. Second, smaller industrial (G-9) and developing countries (G-20) offered an agenda text (“Swiss-Colombian Text”) that was adopted 24

25

Singh 2000b; Narlikar 2003. The General Agreement on Tariffs and Trade (GATT) is the precursor to the World Trade Organization (WTO) that came into being in January 1995 as a direct result of one of the agreements of the Uruguay Round. Usually named after the place where they were held or launched, these rounds are: Geneva, 1947; Annecy, France 1949; Torquay, England 1951; Geneva (“Dillion”), 1956; Geneva, 1960–2; Geneva (“Kennedy”), 1962–7; Tokyo, 1973–9.


37

for the round in Punta del Este, Uruguay. The text, which was created by a group of moderate developing and developed countries, was a significant step away from agendas that were formed by the Quad (US, Western Europe, Japan, and Canada) and then pushed onto other GATT members. In addition, it included concessions to a group of developing countries, which opposed services negotiations and argued for liberalization of trade in agriculture and textiles. Third, there was alignment of countries on an issue-by-issue basis. The Cairns Group, a group of agriculture exporters including fourteen developed and developing world countries founded in 1987, is one example of issue-specific coalitions. Fourth – and, perhaps most importantly – the interests of all negotiating countries evolved and changed as the Round proceeded (see Chapter 3). Neither the outcome of GATS nor that of TRIPS could be predicted from interests discerned from the power configurations in these issue-areas before the negotiations. There are important implications of this argument. Economic issues are increasingly separate from security affairs, virtually eliminating the possibility of threats of military force in economic disputes.26 Major powers are moving away from authoritative negotiation techniques and toward more pragmatic and cooperative techniques. Even in the so-called unilateral turn in security matters under George W. Bush in the US, the administration has, nevertheless, struck a variety of trade and investment agreements bilaterally, regionally, and multilaterally. Power structures thus need to be examined in specific issue-areas rather than posited ex-ante through calculations about actor (state) power or their position in the global economy. The very fact that negotiations take place even in a concentration of power scenario indicates that states have expectations that a negotiated agreement is possible or will be better than a coerced one.27 Most importantly, given multiple actors and issues, actors may find that they have an increasing number of alternatives available to them. They may no longer face take-it-or-leave-it scenarios. Their alternatives 26

27

However, especially since September 11, 2001, the United States may be striking free trade agreement with states it perceives as moderate “Islamic” states. The FTAs with Morocco, Oman and Qatar, or the FTA talks currently underway with Malaysia, or on-hold one with Dubai may be viewed in this context. Notes Moravcsik: “Few wars are total, few peaces Carthaginian” (1997, p. 524). In situations of interdependence, states are willing to strike deals rather than expend all their resources on a single issue.

38


to a negotiated agreement may not leave them completely stranded. On the other hand, the alternatives available to stronger powers in that issue-structure may not be that attractive.

Political and market conditions A previous section alluded to the importance of coalitions and market conditions in the calculation of country-level interests prior to a negotiation. Both factors deal with pressures that negotiators face regarding their political or market constituencies and, unlike the discussion on types of actors and issues, any of the attributes of the two factors can manifest under either kind of power configuration. The following discussion deals with influence prior to bargaining, keeping in mind that domestic or international coalitions or market conditions might change or evolve as negotiations proceed. Thus, coalitions figure twice in this chapter: once prior to bargaining mostly in the domestic context of interest calculation and then during the negotiations in the international systemic context of interest alteration. Negotiators from democratic as well as non-democratic political systems respond to the direct or indirect pressures from their domestic constituencies.28 A discussion of the various ways in which domestic or international constituencies articulate their trade preferences would warrant a book in itself but would include trade demands made through ongoing political channels as well as specific pressures brought up during the negotiation itself.29 The former processes include formal or constitutional mechanisms of trade constituency representation in any political system (elections, legislative and executive hearings, consultations) and also extra-constitutional mechanisms such as the work of political parties, lobbyists, think tanks, and other political organizations.30 28 29

30

Olson 1993. However, there may not be need for another book here as good scholarship on domestic factors is plentiful. This includes the broader political economy dealing with the intersection of international and domestic factors or specific work in negotiations on the political economy of two-level games. Important works for the broader political economy include: Gourevitch 1986; Rogowski 1989; Keohane and Milner 1996; Milner 1997. For negotiations, see Putnam 1988; Evans et al. 1993; Schoppa 1997; Odell 2000, 2006; Davis 2004. Nevertheless, as I note in Chapter 7, most developing countries are lacking in formal and informal means of domestic consultations in making trade policy. See also Gallagher et al. 2005.


39

Specific pressures brought up before or during a negotiation would include many of the pressures just mentioned but articulated with a specific negotiation in mind, and also include work done by those supporting or opposing a negotiation (the latter including political protests). Sometimes, a trade treaty must be ratified domestically by executive, legislative and, at times, by the judicial authorities, which creates additional pressure.31 Regardless of the type of political pressures, a negotiator’s work can be understood in terms of whether he or she faces heterogeneous or monolithic pressures from domestic constituencies. This is consistent with Putnam’s win-set comprising the set of agreeable alternatives in terms of domestic constituencies that a negotiator may bring home. He notes that “the larger a perceived win-set of a negotiator, the more he can be pushed around by the other Level 1 negotiators.”32 The larger win-sets in turn depend on whether the negotiator faces monolithic or heterogeneous demands at home. A monolithic coalition in favor of a particular position at home may tie a negotiator’s hands and make the best alternative to a negotiated agreement (BATNA) attractive unless the negotiators are able to bring home particular concessions from the other side or make very few concessions themselves. However, inasmuch as Putnam’s win-sets do not vary during a negotiation, holding the underlying power configuration and interests constant, they are not of much value for this book. Instead, I focus on increasing or decreasing alternatives in a dynamic negotiation environment. Certain types of market conditions may also confer negotiating advantages to a particular party. Odell’s work on economic negotiations identifies patterns and formulates hypotheses on the relationship between market conditions and the bargaining process. One of his hypotheses considers market alternatives: “The better the market alternative to a prospective government agreement, as viewed by the negotiator, the lower the odds he will decide to enter a negotiation toward that agreement, and if he does, the higher his resistance point, the harder his claiming behavior, and vice versa.”33 A variation of this hypothesis forms the basis of Drezner’s insight that the large market size in great powers reduces their incentive to negotiate or coordinate their policies with weak states.34

31 33

See various chapters in Evans et al. 1993. Odell 2000, pp. 52–3. 34 Drezner 2007.

32

Putnam 1988.

40


Favorable market conditions, in general, can provide weight to a negotiator’s bargaining position, because if there are alternatives (whether it is the status quo or anticipated changes) that can be obtained in the market, then the cost of no agreement is lower. Using the same reasoning, when monopolistic or monopsonic (power of a country to offer a large market for another country’s product) market conditions are present, then a country’s BATNA is improved (see Chapter 5). In cases of monopolistic competition, there are limited sellers and, therefore, the alternatives of the buyer are decreased. In cases of monopsony, the buyer, or the government acting as the buyer’s agent, can leverage its power in a negotiation by controlling access to the market. Several researchers have shown that each of the four factors above – issues, actors, coalitions, and market conditions – can either raise or lower the BATNA.35 What one actor offers in a negotiation and what guides the actor’s expectations in terms of the outcome are very much contingent upon the BATNA and the set of feasible alternatives to which a negotiator may agree. We can, therefore, hypothesize that the more alternatives available to negotiators, the lower the BATNA. We can also note that a diffusion of power specifies a higher number of alternatives than a concentration of power, including those that arise during the negotiation itself. In such cases, negotiators are likely to settle for a negotiated alternative rather than their BATNA. In a world in which only state actors negotiated, and negotiators held security issues to be dominant, negotiators’ choices would be constrained. In a world in which states, firms, and international organizations negotiate across many issue areas, many alternatives can arise. While states still “represent” these interests, they operate in a pluralistic context often overlapped or even overtaken by other actors. Therefore, the state “centrality” of this book is not the same state centrality posited by traditional IR analyses. Detailed empirical substantiation follows in later chapters but a few examples in abstract from the changed negotiation context or power configuration may be provided. Countries might be able to play off one firm against another. International organizations also provide a more neutral (less hierarchical) means for negotiations, enabling many countries to benefit from or 35

See discussion of this topic in Lax and Sebenius 1986; Odell 1993a, 1997; Raiffa 1982; White and Neale 1991.


41

draw upon several options.36 Illustrations include the consensus-based logic of most international treaties, and the consensus-based decisionmaking processes at the WTO.37 International institutions might also help to tip the balance in favor of an agreement where none was possible earlier because of entrenched domestic constituencies.38 The conclusion (Chapter 7) also notes that negotiations themselves provide a legitimate process of global governance mechanisms in resolving international economic disputes. Weaker actors are also becoming less vulnerable in a world economy characterized by a diffusion of power. Keohane and Nye develop the concept of vulnerability to indicate the possibility of alternatives to any actor in the long run that may decrease the cost of a particular international effect in the short run (sensitivity).39 The concept itself shows that power configurations need to be examined in particular issue-areas and posited similarly across many of them. The availability of alternatives, then, defines the range within which negotiations may be settled as the alternatives affect the lowest or the highest values for a negotiation that an actor may expect, depending on whether the negotiator is a seller, in which case the minimum is important, while the maximum is important for a buyer. It is no accident that the concept of “bargaining power” is related to actors’ alternatives and in essence illustrates the value of the negotiation to each actor, which in turn depends on the actors’ alternatives.40 Related to the concept of alternatives is also that of “reservation price” or the lowest or maximum value that an actor will expect. BATNA is, thus, directly related to reservation prices. Low reservation prices signify an inferior BATNA while high reservation prices signify the opposite. Availability of good alternatives would then raise the reservation price.41 Therefore, what is termed the zone of agreement or the difference among the negotiating parties’ reservation prices is contingent upon each party’s alternatives. 36 37 38 40

41

Sandholtz 1992; Davis 2003. For treaties, see Jackson 1997. For WTO, see Braithwaite and Drahos 2000 and Drahos 2003. Davis 2003. 39 Keohane and Nye 1977. Odell 1993a. More recently, Mansfield and Reinhardt 2003 argue that preferential trade agreements increase the bargaining power of states in multilateral contexts. White and Neale 1991.

42


As decreasing or increasing alternatives ultimately shape the outcomes, the language of alternatives is preferred in this book. Alternatives are not only specified prior to a negotiation but may also arise or change during a negotiation, and accordingly change the negotiation outcomes.42 The so-called Swiss-Colombian text that broke the deadlock and helped to get the Uruguay Round started also helped to explore alternatives and specify choices of actors that were unavailable to them ex-ante. In doing so, the Swiss-Colombian text may have changed negotiation interests. Zartman’s typology of dividing a negotiation into three stages is helpful here: (1) the diagnostics phase sets the stage of negotiations; (2) the formula phase defines the zone within which an agreement may be reached; and (3) the details phase is one in which concessions are traded.43 Alternatives can arise during any phase of the negotiation.44 As alternatives may come about before, during, and after the negotiations, this book specifies alternatives at two points: one prior to bargaining and the other during or after the bargaining process.

Negotiation process The negotiation process includes the overall strategy selection and use of specific tactics that make up a strategy. Tactics and strategies are intimately connected with the alternatives specified by the underlying power configuration. Lax and Sebenius note that alternatives may help dictate the type of tactics that actors choose to employ.45 In general, a higher BATNA might make countries choose hawkish tactics and a low BATNA dovish ones. So far we have focused on alternatives prior to a negotiation but alternatives may also define the actual process itself. In a diffusion of power, more alternatives arise motivating countries to seek conciliatory solutions. This happens, for example, during situations of problem-solving when negotiators try to come up with solutions to irreconcilable positions. When countries lack alternatives, their only strategy might be to acquiesce or confront, but with alternatives they may think that they can reasonably improve the outcome for themselves, and may actually pay more attention to the negotiation 42 44

Lax and Sebenius 1986; Odell 2000. 43 Zartman and Berman 1982. Singh 2006b. 45 Lax and Sebenius 1986.


43

process.46 The fact that a negotiation is occurring also means that the actors place some value on reaching an agreement.47 For example, many countries that were confrontational before the Uruguay Round began, given the past history of their exclusion and the bias of the agendas toward particular countries and issues, followed increasingly pragmatic strategies as the Round actually progressed and as they felt included in the process.48 The way alternatives affect bargaining tactics and strategies will be dependent upon whether the actors perceive the negotiations to be carried out in a concentration or a diffusion of power context. Moravcsik’s observation is apt: Where social power is equitably distributed, the costs and benefits of actions are more likely to be internalized to individuals – for example, through the existence of complex, cross-cutting patterns of mutually beneficial interaction or strong and legitimate domestic political institutions – and the incentive for selective or arbitrary coercion is dampened.49

In a concentration of power, the weaker actor will use any alternatives it has to try to extract concessions. In the example often cited of Malta’s negotiations with NATO 1969–71, Malta played one great power against the other to increase its annual foreign assistance from £5 million to £21 million.50 In a diffusion of power, even though countries have the option of employing hawkish strategies, they may choose conciliatory strategies albeit in a context that favors them immensely (due to the presence of alternatives). The bargains developing countries make in terms of multinational corporations (MNCs) are a good illustration. In a strategic market like China, the competition is intense due to China’s resources and large number of consumers. China, which barely produced 160,000 cars in 1979, was producing 1 million by 1992 and 2.5 million by 1996 and the market was growing exponentially. The yearly battles 46 48

49 50

Walton et al. 1994; Zartman 1987. 47 White and Neale 1991, p. 381. Inclusion may not mean efficiency: expectations of better pay-offs in the future may make actors dig in their heels (Fearon 1998). Or, inability to reach agreement with multiple actors may make them enter into preferential trade agreements with some of them (Mansfield and Reinhardt 2003). Moravcsik 1997, p. 517. Wriggins 1976. Nevertheless, even in this oft-cited scenario, the concentration of power here is less concentrated than it seems at first glance: There are two great powers, not one, allowing Malta to play them against each other.

44


surrounding US approval of China’s MFN status handicapped General Motors, a latecomer in the China market. At one point in 1995, it lost a lucrative contract to Daimler-Benz, perhaps not coincidentally following a public statement by Chancellor Helmut Kohl that Germany was not interested in changing China’s domestic policies. However, the significant point is that neither did GM leave China, nor did the Chinese stop negotiating with them. GM had already begun manufacturing light trucks in China in 1993 and in May 1997, it signed a memorandum of understanding with the Chinese government (in one of the most contested car deals in China) to locate the second-biggest automobile manufacturing facility in China (in Guangzhou). (The other contestants were Bayerische Motoren Werke, Daimler Benz, Honda, and Hyundai.51 ) Of course, the alternatives go beyond cars. For example, Boeing put pressure on the US Congress in 1997 to renew China’s MFN status in the fear that if Washington did not make the deal, a $4 billion order for planes might go to Airbus Industrie consortium.52 The end result is best summarized in the words of a Boeing official: “The Chinese just bought 30 Airbus planes to reward Europe for not pushing human rights.”53 There is a debate in negotiation literature between emphasis placed on macro-strategies and micro-tactics, and the relationship between the two. Odell’s operationalization of value-claiming (hawkish in seeking to claim more of the value for oneself) and value-creating (dovish in creating value for all parties) strategies may in fact be seen as particular tactics deployed by a negotiator.54 Putnam and Zartman, on the other hand, eschew the language of negotiation strategies to detail tactics instead.55 Thus, it would seem that the real substance of the 51 52 53 54

55

The Wall Street Journal, May 20, 1997. The Wall Street Journal, April 20, 1997. Quoted in Business Week, June 16, 1997; “China: The Great Brawl.” Odell 2000. Value-claiming implies efforts at distributive gains in which one party seeks to gain at the expense of the other. Creating implies mutual gains. Strategies here should not be confused with outcomes. Just because a country is following a claiming or creating strategy does not mean that gains would be also win-lose or win-win. Countries reveal several posturings through strategies and tactics and the final outcomes are a sum total of these interactions. Here, Risse’s (2000) position that several types of communicative action (strategic, rule-bound, and truth-seeking) are typical to any international interaction makes an analogous point. Risse’s ideas are taken up later. Putnam 1988; Zartman and Rubin 2000.


45

negotiation lies in particular tactics deployed. Negotiators, when interviewed, talk at length about tactics employed and hardly ever refer to overall strategies.56 Practice, nevertheless, cannot be taken as a substitute for theory, which is always at a higher level of abstraction. Those emphasizing overall negotiation tactics thus fail to show why a particular tactic in one circumstance might sound hawkish and in another dovish. It seems that tactics can take on different auras under different contextual circumstances. Conversely, those examining negotiation strategies make the mistake of listing particular tactics as valuecreating and others as value-claiming when any tactic can be either of the two, depending on the way it is used.57 This book posits that strategies and tactics are in a symbiotic relationship. The availability of good alternatives within or outside a negotiation to countries helps determine whether a negotiator will resort to claiming or creating strategies but the effectiveness of these strategies cannot be understood without looking at specific tactics that make up a strategy. Any of the tactics can also be of the claiming or creating variety. For example, trying to include as many items as possible on a negotiation agenda can be viewed as value-creating or conciliatory toward all parties involved. It can also be seen as value-claiming in a move toward killing the negotiations at the agenda-setting stage by overcrowding it. Either way, strategies and tactics hang together. The meaning of the negotiation process can thus only be understood by paying attention to both strategies and tactics. Nevertheless, while overall strategies are described for the cases used in this book, tactics make up the bulk of the detailed or ethnographic description because they constitute the micro substance of these strategies. In other words, strategies seem to specify the overall ideology of a negotiation while tactics make up the everyday workings of that ideology.

Negotiation strategies Much of the negotiation literature has focused on strategies as the primary indicator of outcomes. There are two issues of importance here: strategy selection and content. The choice of strategy is usually contingent upon the alternatives that actors possess, specified by the negotiation context or power 56

Based on several interviews.

57

See Odell 2000, Appendix.

46


configuration. In general, a good BATNA steers countries toward value-claiming strategies and tactics. Negotiation strategies can be broken down into three categories: value-claiming, value-creating, or mixed.58 Value-claiming strategies, also called distributive or forcing strategies, allow one actor to gain at the expense of the other actor or actors.59 The viewpoint of actors that execute claiming strategies is one of a zero-sum game whereby any gains by the other actor must result in a loss for them. Odell notes: “Failure to cite the other side’s well-being as a reason for negotiating is a sure sign of this strategy, even if the statement of such concern is not taken at face value.”60 Not all actors have the resources to successfully execute claiming strategies, because they must have power to leverage, which usually comes from a power configuration that specifies a good BATNA for a particular party. In bilateral negotiations, powerful countries have historically been in the position to execute these strategies based on resource differentials. It has not been uncommon for the US to protect certain areas of US industry, such as the steel or textile industry, by forcing other countries to limit exports to the US without receiving concessions in return. A monopsonist can also leverage its market to extract concessions from suppliers. However, in a situation approximating perfect competition, this is obviously hard to do. In the context of diffusion of power, where BATNAs for most parties are not that good, negotiators are more likely to select creating strategies. These strategies, also known as integrative or fostering strategies, aim to address mutual interests and reach mutually acceptable solutions.61 Unlike claiming strategies, creating strategies can result in agreements that are win–win. In the negotiations of global rules and norms for electronic commerce, countries worked together to come to mutually acceptable procedures for consumer protection, for example. Even powerful countries will decide to employ value-creating solutions in circumstances in which they might not have in the past because they need support on other issues. Krasner’s thesis that great powers negotiate solutions only when they cannot realize their goals unilaterally can at least be taken as an example of an integrative strategy.62 It is often the case that actors will shift strategies during a negotiation due to changes in alternatives or in cases where the BATNA 58 61

Lax and Sebenius 1986. 59 Walton et al. 1994. Walton et al. 1994. 62 Krasner 1991.

60

Odell 2000, p. 32.


47

is low. Chapter 3 notes the case of services negotiations in which many influential developing countries moved from claiming to a creating strategy as they saw the emergence of a services agreement that could be beneficial to them. Another example involves the move to a value-creating solution because of a retaliatory threat from another country. Chapter 3 also examines intellectual property negotiations in which, lacking good alternatives, most developing countries remained opposed or even hostile to the negotiations. The third type of strategy is mixed strategies. Actors exercising this strategy aim to design an agreement whereby both parties are better off, but claim more benefits for oneself. Common tactics in mixed strategies are the exploitation of similarities that can be addressed for mutual benefit, issue linkage to enlarge or create a zone of agreement, or offering concessions to reach an agreement that would not otherwise be approved.63 At the onset of a negotiation, negotiators need to ask themselves a number of questions regarding their own interests, calculate their alternatives, and take into account the other actor’s interests and alternatives. In asking these questions, negotiators should be able to make an assessment of what strategy is necessary to achieve the desired objective. For example, if the negotiator recognizes that there are viable agreement alternatives based on assessment of interests and the BATNA for both parties is low, then it is more likely that the negotiator will adopt a value-creating strategy. In cases in which there are many known alternatives, negotiators can leverage them in negotiations. In addition, when a negotiator knows the other actors do not have good alternatives then they will be in a better position to claim value. The power configuration is a necessary condition for the choice of a strategy and outcomes but not a sufficient one; the negotiation process itself also shapes strategy choice as it unfolds. Changes in BATNA may also occur during a negotiation process. A key factor is what strategy one party expects the other negotiators will adopt or how they will react to certain strategies. For example, Odell notes that if a negotiator does believe the other negotiator will resist or take advantage of a creating strategy, they are less likely to take that route.64 Dupont finds some preliminary results from negotiation simulations that show that countries adopt strategies that they think their negotiating partners are 63

Odell 2000, p. 137.

64

Odell 2000, pp. 73–4.

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adopting.65 Later, this book provides several examples where, in an environment of mutual trust or distrust, creating or claiming strategies respectively were adopted in tit-for-tat moves. However, the context of mutual distrust or trust noted here also posits the need to amend Odell’s hypothesis. Mutual distrust is more likely to prevail in a concentration of power than a diffusion of power context: with multiple channels of communication and multiple ways of effecting bargains, negotiators may have more certainty on the likely reception of the moves they make rather than engaging in the kind of guesswork that Odell posits. There is thus no need to posit another proposition here: in a diffusion of power context, negotiators are more likely to select creating strategies because of increased interdependence in which there is recognition of mutual interests and an increase in availability of alternatives and tactics. Actors that repeatedly adopt strategies that are claiming in nature are more likely to suffer consequences, such as economic or political retaliation on related or unrelated issues. At this point a caveat is necessary about thinking that multilateral negotiations are more likely to take on the character of diffusion of power and, therefore, more likely to be characterized by value-creating strategies. In actuality, even multilateral negotiations are characterized by all kinds of strategies. Thus, the key to seeing the choice of strategy lies in the BATNA specified by the power configuration and the way that the multilateral negotiation proceeds. Even in scenarios in which there are multiple parties and several issues at stake, coalitional and other tactics might result in an “us versus them” game, in which one issue becomes salient above the rest and one party might have a far superior BATNA compared to the rest.66 Compromise on that particular issue might mean an outcome worse than BATNA and thus countries might dig in their heels and follow claiming strategies. Agricultural issues in the WTO negotiations usually feature countries digging in their heels but a few issues of relevance to the global information economy explored in this volume are similar; intellectual property and audio-visual issues (see Chapters 3 and 4) produced several deadlocks during the Uruguay Round. But, the converse is true as well: concentration of power may not mean value-claiming strategies; Chapter 6 65 66

Dupont et al. 2006. Drahos 2003 notes that several multilateral forums hide bilateral processes that, I argue, are more likely to feature a concentration of power.


49

explores two agreements dealing with data transfer and Internet governance in which several value-creating tactics were involved.

Negotiation tactics Tactics make up the quotidian components of any negotiation. While the particular way a tactic is exercised depends on the overall guise of the negotiation strategy, we can understand negotiations through tactics alone as long as we keep in mind the context in which they are being used. Therefore, it is worth repeating two points about negotiation tactics. First, the same tactics can be classified as being part of value-creating or claiming strategies. Second, availability and effectiveness of negotiation tactics increase in the pluralistic world economy with a diffusion of power. A number of frequently employed tactics, certainly not an exhaustive list, are explored below. The value of the diffusion of power best stands out in the effectiveness and advantages of negotiation tactics. Raiffa’s summation of the Law of the Sea negotiations in the 1970s could very well be used to describe this effectiveness for all types of diffusion of power negotiations involving many parties and many issues. Raiffa notes that “the potential of finding joint win–win situations depends on the exploitation of differences between beliefs, between probabilistic projections, between trade-offs, between discount rates (a special case of intertemporal tradeoffs), between risk preferences.”67 While Law of the Sea negotiations were ideologically confrontational, the negotiations “resulted in more extreme differences, which in turn made it easier to find joint gains – such as those made possible by the graduatedroyalty scheme that eventually won consensus.”68 I now discuss most frequently employed tactics in any negotiation. Apart from noting their operational definition, I also note how their use varies under each power scenario and strategy. Framing A mental short cut conceptualized usually as a powerful set of words or a visual that provides a particular slant to the issue in question. Use of mental heuristics is common during negotiations. Frames provide a way for negotiating parties to conceptualize an issue and 67

Raiffa 1982, p. 286.

68

Raiffa 1982, p. 286.

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convince others to join them. Odell and Sell mention the successful use of framing techniques employed by AIDS activists to highlight a public health crisis and put pressure on pharmaceutical companies.69 This eventually led to the declaration, in November 2001, amending the WTO’s Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement to account for public health emergencies. Framing is particularly useful in agenda-setting and the two strategies often go together. In fact, the public health declaration coincided with the agenda-setting moves in Doha that led to the start of a new round of multilateral negotiations. Agenda-setting A process variable leading to inclusion or exclusion of issues being negotiated. In the macro sense, it refers to the big issues included in any trade round; in the micro sense to issues included or excluded during meetings as the Round progresses as negotiating parties work toward formulas and frameworks. Contrary to a common misperception, agenda-setting also takes place throughout a negotiation and not just at the beginning. It also includes the set of related practices used to include, exclude, or keep the focus on issues. These practices include: use of appealing frames; degrees of technical and institutional capacity/expertise; frequency of participation in meetings; slipping in agendas on adversaries without letting them contest the inclusion of items. Effective agenda-setting allows actors to translate their potential power into results.70 As agendas influence the later stages of negotiations, they are an important phase of the negotiations. Chapter 3 shows that gains of developing and developed countries during the services negotiations for intellectual property issues during the Uruguay Round were chiefly due to each party’s success with agenda-setting. The tactic is seldom used alone. Countries can employ strategies such as coalitions (explained below) to influence the agenda. One caveat is necessary here: agenda-setting in diffusion of power negotiations evens the playing field, allowing most actors a stake in the negotiations at this stage as opposed to concentration of power 69

Odell and Sell 2006.

70

Bennett and Sharpe 1979.


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scenarios in which they are excluded. However, diffusion of power can make agenda-setting hard at times. Raiffa notes that many party, many issue negotiations allow for a “dance of packages . . . Packages change continually: some fuse; others fractionate and come together with shifting coalitions. Likewise, building up a contract issue by issue gets harder and harder to do when parties are added.”71 Steinberg provides a different counterpoint: although developing countries are likely to be influential during the agenda-setting stage, it still remains inherently biased toward great powers who can still exclude them through closed door processes or well-formulated proposals.72 The agenda-setting tactic can be considered value creating or value claiming. For example, negotiators can create an agenda designed to include the interests of as many countries to encourage participation (value creating). Negotiators can also push an agenda that bilateralizes the negotiation, making it an “us versus them” scenario. The US sometimes employs the agenda setting tactic in this manner, because it fares better in a concentration of power scenario. During the Uruguay Round TRIPS negotiations, the US pushed for its agenda with threats of unilateral sanctions via section 301 of the 1974 Trade Act. Walt notes the opposite case of bandwagoning, mostly in security negotiations, whereby weaker states form an alliance to oppose the great power.73 The pricing negotiations discussed in Chapter 5 and World Summit on Information Society negotiations discussed in Chapter 6 feature such bandwagoning. Issue salience Giving importance to one issue over others in the course of a negotiation. This refers to the deliberate importance an actor places on an issue he or she deems important. As such, issue salience must be distinguished from important issues during any negotiation. During the Uruguay Round, maintaining protections for audio-visual or cultural industries were of particular importance to the French (Chapter 4). This led to a no-agreement on this issue between the US and the European Community (which negotiated on behalf of the then twelve Community members).

71

Raiffa 1982, p. 253.

72

Steinberg 2002, pp. 354–56.

73

Walt 1987.

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Venue-shopping The search for a suitable place, organization, or a city for a negotiation to be situated. The choice of a suitable place or an organization is important in trying to skew benefits from possible outcomes or to provide a particular signal to all negotiating parties. The choice of Punta del Este as the place to launch the Uruguay Round was an implicit recognition of the value placed on the inclusion of developing countries in the deliberations (see Chapter 3). In terms of organizations, the Quad countries often build consensus for their position in the OECD before taking the agenda over to the GATT/WTO. The OECD shaped the services agenda of the Uruguay Round in the decade prior to the Round. The choice of GATT for negotiating intellectual property was also important to the US; in doing so, it took the issue out of WIPO that was seen as sympathetic to developing country interests. A broader meaning of venue-shopping is the ability of a few actors to shift the venue for a negotiation to a place or organization most conducive to their interests. Several cases discussed in this book meet this criterion: moving telecommunications liberalization from the ITU to the WTO, moving cultural industry negotiations from the WTO to UNESCO. Trade-offs Compromising on an issue for gains on another issue (related or unrelated to present negotiation), accepting adversary’s position to show good will or increase bargaining power in another area. Issue-linkage Connecting a position on one issue to another issue (related or unrelated to present negotiation), adding an issue to the agenda and prefacing participation on its inclusion, linking issues to broaden coalition and bargaining power, combining issues to worsen others’ BATNA. Several actors and many issues make negotiations complex because of the risk of no-agreement and the risk of complexity. However, several actors and many issues can also allow for many trade-offs and issue-linkages. In a value-creating environment, agreement can then come about through either compromising on one issue for gains in another or vice versa (trade-offs).74 Bringing in potentially related 74

Aggarwal 1998.


53

issues to increase one’s bargaining power (issue-linkage) can be valueclaiming. Agreement may also come about on some issues and not others. Many times if the underlying interests behind issues differ for negotiators, negotiators can effect several trade-offs or issue-linkages, although they were not apparent on the surface. Yoffie argues that in the nineteenth century, British hegemony “was a real and usable threat in bargaining over trade” and issue-linkages were all but impossible for weak states.75 Conybeare also notes the ability of stronger powers to foster linkages in the nineteenth century while the weak were unable to do so.76 But, in the current context (diffusion of power), linkages leading to trade-offs may be becoming common. Odell notes that linkages could be a part of either valueclaiming or value-creating strategies, and could include either linking issues (value-claiming) or delinking an issue when at an impasse (valuecreating).77 Sebenius shows that linkages, although a risky strategy (because of no-agreement), can increase alternatives.78 These alternatives then can lead to, among other things, an increase of bargaining power, the possibility of mutual gains, solidifying coalitions, and strengthening commitments. Again, the Uruguay Round is a good example. The strength of developing countries’ coalitions was through recognition of their common interests or compromise across several issue areas. Davis notes that agriculture liberalization, a concession on the part of countries, could take place during the Uruguay Round because it was linked to gains in other issue-areas.79 Zartman put forward the concept of “issue-coalitions” in the context of trade-offs and linkages.80 Coalitions Containing diverse interests within a single coalition, making defection hard, making side-payments to maintain or increase coalition size, committing technical and institutional capacity toward coalition building, exploiting differences among adversaries while minimizing them with allies, getting important players to join the coalition, dividing adversaries especially moderate players into several coalitions or making them defect, using domestic differences at home and among adversaries effectively to strengthen coalitions. 75 78

Yoffie 1983, p. 29. 76 Conybeare 1985. 77 Odell 2000. Sebenius 1983. 79 Davis 2003, 2004. 80 Zartman 2003, p. 35.

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Issue-specific negotiations, especially those in a multilateral setting, provide countries with the ability to form coalitions and increase their bargaining power.81 For Raiffa, “the interplay among shifting coalitions” is “the fundamental difference between two-party and manyparty” negotiations.82 He notes that the many parties and many issues during the Law of the Sea negotiations led to complex coalitions but also eventually resulted in a search for joint gains through compromises among these coalitions. In the Uruguay Round, negotiations were structured in such a way that coalitions could not be ignored because they often featured developed and developing countries together and inasmuch as the parties stayed focused on issues, they were able to shape the negotiation process. Most weaker countries now favor multilateral forums precisely because forming coalitions increases bargaining power by presenting them with (and allowing them to explore) better alternatives. The types of coalitions in a diffusion of power scenario are different from those in the concentration of power ones, which mostly featured a homogenous North negotiating with a homogenous South. Diffusion of power scenarios in particular posit flat power distributions at the top thus leading to a considerable amount of jostling among great powers. This allows smaller or weaker powers to not only play great powers against each other but also to choose their coalitional partners carefully and align themselves or be asked to align themselves with different great powers. Narlikar calls these “crossover coalitions” and traces their origins to the Uruguay Round.83 Chapters 3–6 provide several examples of crossover and issue-based coalitions after the Uruguay Round. As with agenda-setting, diffusion of power also means that it is hard to predict the character and shape of coalitions ex-ante and makes it complicated to analyze them. Raiffa’s study is instructive here, too. He notes that with many parties in a negotiation, preferences are less well known and it may be hard for one party to predict who their opposing party is.84 It may also be possible for certain parties to reach agreement

81 82 83

Singh 2006b. This essay provides an overview of the coalition formation literature in trade negotiations. Raiffa 1982, p. 255. Hampson 1995, p. 5 writes that “the hallmark of multilateral diplomacy is that it occurs between groups or coalitions.” Narlikar 2003. 84 Raiffa 1982, Part IV.


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with a few parties and exclude others. Thus, subsets of agreement may arise. Finally, multilateral negotiations often take on the character of bilateral negotiations because the actors form two opposing coalitions. As these coalitions form, a diffusion of power becomes a concentration of power. The intellectual property case discussed in Chapter 3 approximates this condition. Nevertheless, despite the reduction of “bargaining space” considerable complexity will remain in the negotiation if the starting point was diffusion of power.85 Technocratic/legalistic Utilizing knowledge to justify terms of an agreement, using the country’s best negotiators, using experts to explore alternatives and base strategies on superior technical knowledge, taking advantage of international rules to force compliance, threatening to file legal complaints in international organizations or courts to achieve gains, seeking comments on new rules and laws to give appearance of openness and compromise. Negotiations are becoming inherently biased toward persuasion.86 The type of persuasion most likely to effect an accommodating response from the other actor is usually one that is based on knowledge and effected by technically competent negotiating teams, often featuring experts trained in international law and economics. In the past, developing countries could sometimes prevail over developed countries because the former sent their best negotiators to these countries while the latter did not.87 Great powers are now consistently better staffed and prepared at negotiations, but so are developing countries: legal and technical experts now increasingly lead developing-country negotiations.88 In such cases, developing countries can explore their alternatives thoroughly and base their strategies on superior technical knowledge. They can often be seen on technical committees drawing up negotiating texts. Negotiators in developing countries are likely to 85 86

87

Hopmann 1996, p. 252: point in noting the properties of multilateral negotiations is extrapolated here to a diffusion of power context. Slaughter 2004. Nye 2002 makes the case for the increasing importance of persuasion in general for great powers. Drezner 2003 makes a case for limited uses of persuasion in a world in which coercive and contractual relationships also matter. Yoffie 1983. 88 Breckenridge 2005; Smith 2006.

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have been educated in the finest educational establishments and, apart from speaking a vocabulary the North understands, they are able to forcefully articulate their strategies and persuade their partners across the table.89 At the endangered-species negotiations in Zimbabwe, one American negotiator could be heard acknowledging that the Americans had learned a lot from three counterparts in Africa (Zimbabwe, Botswana, and Namibia), who, among other things, negotiated hard to export ivory based on economic and ecological grounds.90 Finally, one may note that the spread of liberal ideas in the developing world is particularly important.91 The contribution of US universities and international organizations like the World Bank, IMF, and WTO, of immense importance to the developing world, cannot be denied here. In the context of negotiations, it allows negotiators to speak a common economic language and establish mutual trust. As international norms and rules deepen, and institutional enforcement sets in, most countries now employ legalistic tactics at trade negotiations. Using the legal system to achieve favorable outcomes also can level the playing field, because it is available to all players. More powerful players can no longer cheat the system. The use of WTO dispute-settlement procedures or the courts in the developed countries are examples. When the WTO dispute-resolution mechanism went into force in 1995, many were doubtful about its effectiveness against major powers such as the US and Europe. Skeptics have been proven wrong in many cases. For example, the US lost the first ever case brought to the WTO in which Hong Kong showed that the import restrictions against its woolen shirts were unjustifiable.92 In a case brought by Venezuela and Brazil against restrictive environmental standards in the US, the US lost and agreed to a change in its regulations.93 From January 1, 1995 through June, 2005, a total of 332 distinct cases were brought before the WTO.94 An estimate of the first five years of the process showed that developing countries initiated 89

90 92 94

Raiffa 1982, p. 282 notes that during the Law of the Sea negotiations, Singapore’s Ambassador to the United Nations, Tommy Koh (who was educated at Harvard and Cambridge), played a leading role in bringing the 160 negotiating countries to a compromise on several contentious issues. National Public Radio 1997. 91 Biersteker 1995. The Wall Street Journal October 13, 1995. 93 Winham 1996, p. 646. Data retrieved on June 27, 2005 from www.wto.org/english/tratop_e/ dispu_e/dispu_status_e.htm.


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26 percent of the cases.95 Even though the Panel appointed by the WTO to review cases never reviews many of the complaints because cases are either dropped or settled, it has become a credible threat that both developed and developing countries can deploy.96 Legal arguments may be employed while negotiating an agreement and not just in implementing it. Negotiators regularly acknowledge in interviews that knowing the trade laws of their adversaries often provides them with leverage. During the TRIPS negotiations, India’s TRIPS negotiator cited US laws for compulsory licensing for national security reasons to make her adversaries budge on allowing for compulsory licensing for public health emergencies in developing countries.97 Information tactics/problem solving Production of information and knowledge to build support for a particular position; attempts to arrive at solutions to technical problems through dialogue, deliberation, and brain-storming. Related to technical expertise (above), information tactics here refer not just to technical persuasion at the negotiating table but to information produced at the domestic and international levels to build support for an issue, or problem solving, often involving technical expertise and knowledge.98 Drake and Nicolaides note the use of this tactic during the agenda-setting stage of GATS. The production of knowledge on trade in services served to change the preferences of many developed and developing countries before the Uruguay Round.99 Chapter 4 notes the case of the International Telecommunications Union producing studies that argued against the US case for cost-based pricing. Risse places problem solving outside the realm of negotiations, which he mainly views as strategic action and, following Risse’s lead,

95 96

97

98 99

Delich 2002, p. 76. An important implication of this in the context of this book is that rather than face an adverse ruling, many countries prefer to settle disputes in the WTO by negotiation, too. Busch and Reinhardt 2003; Davis 2006; Smith 2006. Based on interviews. Compulsory licensing allows a country to license a product to its own domestic producers for a particular reason, usually an emergency, in effect infringing the intellectual property protections. Narlikar 2003 notes that intensive research is now common to developing countries while preparing for negotiations. Drake and Nicolaides 1992.

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Farrell does the same.100 For these two authors, legitimate problem solving can only result from deliberative democracy in the public sphere, as argued by Habermas. But inasmuch as a truly representative democracy without any form of exclusion is not possible, we must settle for problem solving from acts of deliberation that are more inclusive than others. Later chapters will show that diffusion of power allows for such problem-solving to take place. The example of the SwissColombian text, mentioned earlier, that broke the deadlock launching the Uruguay Round is one such example. Negotiation scholars take problem-solving during the negotiation process as central in finding a formula that matches interests during a negotiation.101 Direct lobbying Building support with adversaries’ swing groups to expand the opposing win set. Examples include the way transnational companies or domestic groups agree to exchange political assets to prevail over government opposition, the use of reverberation tactics to alter expectations about the agreement in the opposing country, and the way transnational companies directly lobby opposing governments to emphasize necessity for agreement. The fact that one country can influence the domestic configuration of support behind another country’s strategy is now acknowledged.102 The effectiveness of this strategy depends on the commonality of interest, but its origin (in diffusion of power, which allows for such lobbying to take place) cannot be denied. Not only can one country’s domestic actors find common cause with that of another’s, but also the presence of transnational alliances and movements in the world economy today attests to the institutionalization of this strategy at the global level. Transnational companies are often in the position to influence policy in a foreign state due to large corporate presence in that country. Transnational alliances may also weaken the ability of powerful actors while enhancing the ability of those from weaker countries. Odell shows how the Brazilians were able to ignore threats made by 100 101 102

Risse 2000; Farrell 2003. Zartman and Berman 1982. See applications in Hopmann 1996; Wagner 2008. Putnam 1988; Moravcsik 1993.


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the Reagan Administration under Super 301 because IBM and other US firms assured the Brazilians that they were not backing the threat.103 In 1997–98, the Mexican phone operator Telmex worked with its US partner (Sprint) to defeat moves within the US from AT&T and MCI to restrict its market access. Telmex lobbied directly at the US Trade Representative’s Office and the Federal Communication Commission. Brinkmanship/crisis framing Walk-outs, verbal threats, leaving for airport, speaking of crisis within negotiations to force the other side to concede or to bring them back to the negotiating table. These tactics, often practiced in the end-game or during negotiations deadlocks featuring negotiation fatigue, are hard to distinguish as negotiation tactics rather than as negotiation failures. However, careful documentation can indeed show them to be tactics. For example, Wilkinson notes that the World Trade Organization often frames negotiations as crises.104 While his notion of a crisis goes beyond the negotiation context, the fact that the sense of crisis is “manufactured” does lend credence to crises being negotiation tactics. Similarly, to force the other side’s hand, negotiators often deploy brinkmanship. In December 2004, during a particularly sensitive negotiation on allowing Turkey to enter into accession talks with the EU – pre-negotiations to allow for negotiations – Turkey’s Prime Minister Recep Tayyip Erdogan was rumored to have headed for the airport in Brussels. The Financial Times reported it as a “‘get the engines warmed up on the jet, I’m leaving’ tactic.”105 EU negotiators contacted Erdogan on his mobile phone and persuaded him to return: Erdogan’s tactic worked, negotiations proceeded, and Turkey did not need to sign a politically embarrassing agreement that would have resulted in a de facto recognition of Cyprus. USTR Yeutter used a similar tactic at the Punta del Este meetings that launched the Uruguay Round. He noted soon upon landing that he was expected back in Washington in four days.106 His intent was to make the developing countries acquiesce to the inclusion of services on the new trade agenda. The agenda would include services but on “parallel but separate tracks.” In general, Hampson notes that

103 105

Odell 1993b. 104 Wilkinson 2006. Financial Times December 18/December 19, 2004.

106

May 1992.

Forcing the other party to accept losses in one area for meager gains in another Bringing in potentially related issues to increase leverage

Trade-offs

Issue-linkage

Choosing an organization known for promoting particular interests. E.g. use often of OECD to develop an agenda favorable to developed countries

Venue-shopping

Information-tactics & problem-solving Issue-salience

Promoting issues only of value to one party

Powerful term/s deployed to stall or kill a negotiation Attempts to include various items to overcrowd an agenda or only include those that matter to the actor promoting them Production of knowledge that is one-sided

Framing

Agenda-setting

Value-claiming

Type of tactic

Table 2.1 Examples of tactics as particular strategies

Production of knowledge that includes multiple points of view Giving importance to issues of interest to all parties Choosing a “neutral” organization or a place that brings various parties to consensus. E.g. choice of Punta del Este to launch Uruguay Round to bring developing countries on board Accepting adversary’s position to show good-will Bringing in issues to broaden support and gains

Powerful term/s deployed to promote a negotiation or unite disparate interests Inclusion of items to meet the interests of various sides and promote consensus

Value-creating

Using expertise to weaken other side’s claims or building one’s own only Lobbying in another country that discredits or weakens that country’s negotiating Inducing dramatic crises or frames to continue negotiating or to bring parties back to the table Using domestic laws or market size to make other party acquiesce

Technocratic/legalistic

Not used for value-creating, unless used to moderate the other side’s value-claiming stance itself

Building coalitions that increase gains to everyone Uncovering technical knowledge that helps to build consensus Lobbying in another country to build trust in the lobbying country’s position Using crises as reality checks to bring parties to closure on mutually beneficial issues

Notes 1. This table is an illustrative, not an exhaustive, list of the use of the same tactic as value-claiming or value-creating. It attempts to correct mischaracterization in scholarship of a particular tactic as one strategy only. 2. The meaning of each characterization above is influenced by negotiation context. Thus, use of framing tactics to unite negotiating parties to create value might be seen as value-claiming in another context where such framing leads to a coalition of recalcitrant interests. 3. Tactics are quite obviously interrelated, which is why so many of them are practiced in any given negotiation. The sum total of all tactics in a negotiation presents us with the overall strategy being value-claiming or value-creating.

Credible threats

Brinkmanship/crisis framing

Direct lobbying

Building coalitions that weaken the other side

Coalitions

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crises can produce value-claiming in breaking down the negotiations or value-creating in bringing them back to the negotiating table.107 Credible threats Use of sanctions or domestic trade laws, for example on anti-dumping practices, to make the other side acquiesce; using market power (e.g. large market size) to make coercive demands on another party. Threats are credible when backed by an instrument, which if or when used, will result in punitive damages for the negotiating actor suffering from the threat. Under US trade law, Section 301 of the Trade Act of 1974 and amended through the Omnibus Trade and Competitiveness Act of 1988, authorized the USTR to take action against governments violating trade treaties or undertaking “unjustifiable, unreasonable, or discriminatory” measures restricting US commerce.108 In practice, US manufacturers facing import competition now often go to the International Trade Commission in the US to invoke 301 investigations and sanctions to make other countries comply on particular courses of action. During the intellectual property negotiations in the Uruguay Round, 301 threats were also used often to bring countries to agree on IP measures being drafted. They were told that if they did not agree on the multilateral measures, they would face 301 investigations or sanctions. Large markets can also be used to threaten other countries into compliance. In the recent dispute over passenger name records 2001–06 between the US and the EU (see Chapter 6), the US used its large market to require airlines to undertake data transfers, which arguably broke EU privacy laws. Threats, when not perceived as credible, can also backfire. Odell notes the case of an economic threat made by the Reagan administration against Brazil in 1985, which backfired on the US because IBM, which had demanded economic sanctions on Brazil over intellectual property infringements, backed away from the specific form the threat took.109 In summary, two points about the use of tactics need reiteration. First, as table 2.1 shows, the same tactic can be used for value-claiming or creation purposes, depending on the context. However, increasingly more tactics are available to all players, including the weaker ones, in a diffusion of power context. Second, several tactics are practiced in 107 109

Hampson 1995, pp. 73–4. Odell 2000, ch. 6.

108

Destler 1992, p. 440.


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any given negotiation. But, tactics like agenda-setting and coalitionbuilding are present in just about every negotiation. Also, a particular tactic may become more salient than others in a particular negotiation. The list of strategies and tactics above amend the way actors in a negotiation perceive and act upon the issue being negotiated. This occurs via the processes of information production and sharing and via persuasion and learning that are germane to the practices of the strategies and tactics listed above. That these processes then lead to expanding the set of alternatives is not surprising. However, a caveat must be presented here. The negotiation process may also uncover hidden costs and possible losses from a particular negotiation that were not apparent prior to a negotiation. As the next chapter shows, in the negotiations underlying the General Agreement for Trade in Services in the Uruguay Round, the US moved from pushing services on the agenda to ambivalence regarding the shape of the agreement and the strength of US service industries by the late 1980s. Figure 2.1 summarizes the analysis of power configuration and negotiation processes provided in this chapter. It is a detailed version of figure 1.2b from Chapter 1, albeit without the feedback loops. Also, note that BATNA here specifies the position of the national interest prior to the negotiation. One of the contentions of this book is that not only the BATNA, but also the underlying actors’ interests can change due to negotiation processes. IR theory is now inching toward re-examining global power distributions to account for changing interests among actors. I now turn to these developments to situate my theoretical claims.

Power, interests, and negotiations The interplay of power, interests, and negotiations in this book amounts neither to the “material capabilities” usually highlighted in traditional IR theory nor ideas “all the way down,” as Wendt describes constructivist scholarship. Instead, power, interests and ideas are respecified as a set of necessary and sufficient conditions in explaining outcomes.110 Material factors can specify actor capabilities but do not explain the process that translates these capabilities into outcomes. On the other hand, constructivist scholarship explains the world as 110

Wendt 1999.

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Negotiation and the global information economy Context

Process

Outcome

Win-Win

Issues Strategies Actors Coalitions Market Conditions

Improvement or Worsening of Alternatives

BATNA and Other Agreeable Alternatives

Tactics

Win-Lose Lose-Lose No Agreement

Figure 2.1 Negotiation context, process and outcomes

shared ideas to explain the process by which actors “construct” the world. However, beyond insights into alternative ways of constructing the world, constructivist scholarship still does not go far enough in explaining the process or outcomes. This subsection contextualizes the theory of negotiated interests within the scope of these debates. The conclusion takes them up in the context of social science. Power configurations, the material “structures” in IR theory, only specify initial interests or goals by taking into account what actors can or cannot do in a particular context. This has not deterred neorealists from predicting outcomes from capabilities. Waltz’s formulation of structure is the exemplar: states exist in a hierarchical world system or structure, which specifies state interests. Socialization of states and interstate rivalries explain outcomes but both features are derived from structural attributes of the international system.111 International interactions here are barely distinguishable from the behavioral interests that hierarchies specify. Beyond socialization to keep the structure intact, Waltz writes little by way of explaining the process.112 Krasner’s work may be the most relevant for the purposes of this book. According to him, strong states need to negotiate and establish international regimes only when power distribution is symmetric and states need each other: exchange thus occurs at the margins, strong do what they can, and “power needs to be given pride of place.”113 But even at 111

112

113

Waltz 1979. “Structure affects behavior within the system, but it does so indirectly. The effects are produced in two ways: through socialization of the actors and through competition among them” (p. 74). He concludes: “The effect of an organization may predominate over the attributes and the interactions of elements within it” (p. 78). See also critique of Waltz in Buzan, Jones, and Little 1993, in which they argue that structure cannot explain interactions and, more importantly, interactions themselves help to define structure. Krasner 1991, p. 366.


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the margins, Krasner, too, barely explains international interactions. They happen because they need to happen. Using Krasner’s analysis, for example, we would be unable to explain the why, how, and what of the interest adjustment that took place in the examples given in the chapter regarding data transfers between the EU and the US (Chapter 5). Liberal institutionalists go beyond realists in moving from capabilities to outcomes. Institutions are prior structures that not only constrain interests, but also explain the continuation of particular interests.114 The explicit or implicit convergence of expectations embodied in international institutions then helps to specify capabilities and interests.115 Furthermore, following Keohane and Nye, it makes much more sense to speak of structures within particular issues, known as issueareas, rather than across all of them.116 Nevertheless, even though capabilities are specified within issue-areas and institutions are added to the mix, interests stay constant or exogenous and it is not clear how interests lead to outcomes. Liberal institutionalists, by holding interests constant, cannot easily explain why the developing world agreed to services liberalization (Chapter 3). One of the reasons neo-realists and liberal internationalists cannot explain interactions is because they have argued interactions away by holding actor interests constant, allowing only for a few behavioral changes in the margins.117 If interests are specified by structure (systemic or issue-wise) and these interests never change, interactions really cannot explain much beyond a few behavioral possibilities hoisted on top of these interests. Nye gets around this problem by speaking of soft power or the power to persuade and to lead.118 Nevertheless, soft power is merely used to realize existing interests, not to refine, alter, or create them.119

114

115 116 117 119

Keohane thus explains why international cooperation continues even if the strong may not favor it. Goldstein 1993 brings in ideas embodied in institutions to explain the same. Keohane 1984; Milner 1997. Keohane and Nye 1977. The idea of issue-area goes back to Rosenau 1980. See, for example, Ostrom 1998. 118 Nye 1990, 2004. In doing so, Nye overlooks instances where interests do indeed change. If one state persuades another to go along with something that was not in its initial interests, especially in cases where there are no trade-offs or issue-linkages, how can interests be held constant?

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Slaughter’s model of disaggregated and networked states as the institutional form of globalization is a sophisticated reformulation of liberal institutionalism but is ultimately only suggestive in its understanding of the process of international interactions. Take the following quote, for example: “Government networks use both hard and soft power. They can harness the coercive power of national government officials, but they also operate through information, socialization, persuasion, deliberation, and debate.”120 Soft power works only to lubricate existing interests or to mitigate the worst effects of anarchy with no transformative power. And, even though it works in myriad ways – through persuasion, deliberation, and debate – the empirical details, or higher degrees of abstraction necessary to understand patterns, are sketchy as to how exactly this takes place. Slaughter provides a good understanding of structure but a half-hearted one of process. The clearest formulation of changing interests in liberal IR theory, although not in terms of negotiation theory, comes from Moravcsik, who shows that the only way to derive (state) interests is to examine them in their domestic and international societal contexts.121 Moravcsik argues that historical context, socialization, and other identitybased or ideational influences can quite easily be incorporated in a theory of changing liberal interests, which generally reflect distributional pressures applied by domestic and international societal interests. Changing ideas and identities can then be explained through changing distributional pressures. However, apart from Moravcsik, most liberal accounts in practice tend to underplay the contextual epistemic or identity-based influences while overplaying the distributive politics where, unlike Moravcsik’s claims, preferences usually remain constant.122 More importantly, the reduction of cultural influences and context to distributive politics does not explain how the context or influence came into being in the first place. Otherwise, the familiar charge of methodological individualism – in which collective action is erroneously posed as the sum total of individual actions – is warranted. If this is liberalism, it is a type of contextual or cultural liberalism because for most negotiations discussed in this book some 120 121

122

Slaughter 2004, p. 215. Moravcsik 1997. However, as Moravcsik correctly notes, and this book’s evidence confirms, changes in mere positions, strategies, and tactics during a negotiation should not be mistaken for changes in interests. See Deibert 1997, 2002 for applications distinguishing between distributive and epistemic effects.


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understandings among actors have already been established.123 For example, the very fact that the parties are going to negotiate, as opposed to not negotiating (or going to war), is in itself such a social understanding. Inasmuch as negotiations feature group behaviors, a theory accounting for them could not be reduced to methodological individualism.124 Liberal theory needs to go a long way before it can claim that it can incorporate epistemic and socialization ideational effects via merely distributing these effects individually among members.125 Enter constructivism: structures specify the constraints within which states must act but state agency must be understood both with respect to as well as independent of structure, which helps to specify identities or interests that cannot be held constant.126 Katzenstein “analyzes political identities in specific historical contexts” to show how they cannot be held constant.127 In this book, I argue that the historical context of power configurations must be distinguished from interactions. Wendt’s formulation goes a step further: I argue that it is impossible for structures to have effects apart from the attributes and interactions of agents. If that is right, then the challenge of ‘systemic’ theory is not to show that ‘structure’ has more explanatory power than ‘agents’ as if the two were separate, but to show how agents are differently structured by the system to produce different effects.128 123

124

125

126

127

Ruggie 1982 provides just such a notion in speaking of embedded liberalism. Cultural theories of capitalism dating back to Horkheimer and Adorno 1972 and Polanyi 1944 can also provide analogous insights. However, I think Hirschman suggests the most fruitful line of enquiry with his concept of “commensality” whereby he notes the individual and social significance of particular activities such as the taking of a meal: Hirschman 2001. See Chapter 7 for details. While resolving this tricky epistemological issue is beyond the scope of this volume, institutional economics can provide precedent. I briefly review Albert Hirschman’s ideas in Chapter 7 in this context. Also, Kindleberger 1978, pp. 30–1, notes that theories of group behavior need to provide “a system of analysis for interrelationships among the sub-groups within the larger unit.” Moravcsik 1997 is also trying to reformulate and rescue liberal theory from its constructivist critics. This reformulation is useful but cannot be backed up by detailed evidence. The version of constructivism most relevant for this book builds on what Katzenstein, Keohane, and Krasner 1998 termed conventional or sociological constructivism that searches for general theories or patterns. However, it does borrow from critical constructivism in emphasizing deliberation and normative consequences (see Chapter 7). Katzenstein 1996, p. 25. 128 Wendt 1999, p. 12.

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Another 404 pages, including index, follow from this quote in Wendt’s book providing the structural ontology of world politics where states have some agency to exercise different options.129 Nevertheless, the process by which these options could be exercised are argued away earlier. “Readers looking for detailed propositions about the international system, let alone empirical tests, will be disappointed.”130 We are back to square one: traditional IR theorizing argues away interests and interactions, and constructivists like Wendt do not want to get their hands dirty trying to provide any kind of empirical details.131 A disappointment, indeed. Constructivist accounts of co-constitution of configurations and interests (or structure-agency as Wendt labels it) are fascinating, but privilege epistemic over distributional effects in stressing, “ideas all the way down.”132 However, as epistemic effects reside in structures, it is unclear if agents can do much. This puts constructivists in a bind. Unable to trace the actors that carry ideas, Wendt gets out of the straightjacket by noting that his intent is to specify rival ontologies of world politics – the way that certain ideas came to be held as opposed to others – and not to provide empirical details. Others privilege structure over agency. Instead of co-constitution, agency is usually seen as fighting or resisting structure in the margins.133 Furthermore, co-constitution becomes a fuzzy term that obfuscates the delineation 129

130 131

132 133

Chapter 6 on three cultures of anarchy to which I will return in the conclusion of this book is particularly important. Wendt uses this to anchor his ethico-practical stance: in other words, process is presented as a normative ideal rather than as empirically argued social facts. Wendt 1999, p. 6. However, empirical details can be found in Finnemore 1996, who shows how the particulars of the national interest in economic development trickled down from norms developed in international organizations; in the essays collected in Biersteker and Weber 1996, showing how different temporal and spatial contexts provide different conceptions of sovereignty; in Katzenstein 1996, where states’ understanding of their identity and security are informed by domestic and international societal factors; and, in Keck and Sikkink 1998, in showing how global advocacy is constructing new norms for human rights. However, empirical evidence is mostly concentrated on security and human rights aspects and, methodologically in many instances, at the systemic level. Wendt 1999. Examples include gender studies accounts of patriarchal structures (Peterson 1997) and critical accounts of capitalism as everyday life (Cox 1987; Comor 2008). Sell 2003 employs a more sophisticated model of structure-agency in showing instances in which structure or agency count.


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of the process by which structure and agency constitute each other. “Without a theory of domestic preference formation, how can a constructivist specify which feedback processes of socialization matter, let alone when and how they matter?”134 In aiming to incorporate distributive and epistemic influences, liberals privilege the former and constructivists the latter. While pointing us in the right direction by calling attention to both these factors and emphasizing the notion of changing interests, I seek to provide an understanding of the process by which changing or negotiated interests translate into outcomes. Clearly, both liberals and constructivists need empirical details of international interactions before they can start claiming, respectively, that it is distributional politics or ideas all the way down.

Negotiations and interests I now turn to negotiation theories that are concerned empirically with explaining interactions. In the context of this book, negotiation theories posit two questions: Under what power conditions do states pursue particular interests via negotiation strategies and tactics? To what extent do these interactions allow states to reach desired outcomes?135 However, in most negotiations analyses, especially those centered on game theory or formal models, power structures or institutions and state interests are held constant. Zartman and Rubin explore the types of power structures, symmetric versus asymmetric, that allow for agreements, especially those that negotiators can execute efficiently.136 The only thing necessary is to show how negotiation strategies, tactics, and environments help to reach desired goals. While negotiation theories hold negotiation context and interest constant, the level of empirical detail offered in terms of negotiation interactions is enormously instructive in appreciating the process. In fact, the rest of this book owes this debt to negotiation theory in building an understanding of the process of international interactions. Davis, for example, shows how institutional incentives allow for issuelinkages that have led to liberalization of agriculture; states liberalize

134 136

Moravcsik 1997, p. 539. Zartman and Rubin 2000.

135

Odell 2000, 2006; Zartman 1987.

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agriculture because they gain in other issues.137 Or, they allow weak power to effect gains at the World Trade Organization that they would not have otherwise.138 Odell and Sell show how framing and coalitionbuilding allowed public health advocates to successfully challenge a power episteme centered on proprietary drugs backed by powerful pharmaceutical firms.139 There are two sources for bringing in the conditions under which interests might change in negotiations. The first is negotiation theory itself, albeit outside the realm of International Relations theorizing. Where an IR theorist fears to tread, business schools have paved the way and, based on empirical insights, the latter have not shied away from bringing in the notion of changing interests. Lax and Sebenius avoid the language of changing interests but nevertheless acknowledge, “interests are bound up with psychology and culture.”140 Walton and McKersie’s seminal work on negotiation theory similarly showed how labor negotiations and the interests of the actors needed to be understood in historical context.141 Walton and colleagues note that negotiation contexts are always dynamic and that negotiators try to change both the broad terms of their relationship (what they term a “social contract”) and the process of negotiations.142 The second place to notice changing interests is in implicit negotiations analyzed by IR theorists such as those mentioned above. For example, Slaughter notes that government networks “talk.”143 They talk about their interests that are produced through networked interactions. But Slaughter still surrounds herself in the straightjacket of unchanging interests in speaking to the use of hard and soft power, in an instrumental not a transformative sense, in the realization of those interests. In the end, it is not clear if the interests changed or were merely realized. On the other hand, Risse, whose concept of argumentation is similar to Slaughter’s networks talking, shows how interests and alternatives arise as a result of communicative action.144 But, he 137

138 140 142 144

Davis 2003, 2004. Aggarwal 1998 argued for examining the institutional context of negotiations and the role of linkage tactics. This work is discussed in the conclusion. Davis 2006; Smith 2006. 139 Odell and Sell 2006. Lax and Sebenius 1986, p. 86. 141 Walton and McKersie 1965. Walton et al. 1994. 143 Slaughter 2004. Risse 2000. Risse’s thought builds on models of speech acts (Kratochwil 1989) and communicative action (Habermas 1979). Wendt’s constructivist thought builds on a notion of structuration, or structure-agency, as in Giddens 1984.


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places these processes of argumentation outside of negotiations or the diplomatic sphere as opposed to the open deliberations of the public sphere.145 Here it is not clear how negotiations as international interactions would change interests. Farrell, building on Risse, dismisses “traditional negotiation theories” as not specifying changing interests, thus throwing out the baby of negotiation interactions with the bathwater of unchanging interests.146 This delivers us to the impasse in negotiation theory: those that incorporate negotiations into their analyses hold interests constant, those that vary the latter posit that the processes lie outside of negotiations. Both have surrounded themselves with what Rosenau calls “conceptual jails.”147 In showing how interests change during interactions, in this book I seek to get around this particular “prisoner’s dilemma” and provide a much-needed jailbreak. The argument in this book is that a diffusion of power allows for mutual gains through the practice of various negotiation tactics, which also allow for alteration of interests. Mutual gains and interest alteration are related: all four cases of interest alteration in this book also feature mutual gains. The underlying rationale is simple: through problem-solving and deliberation negotiators uncover alternatives that not only reconcile conflicting interests but also allow for mutual benefits. The buy-in through interest alteration is, therefore, made easier.148 In a concentration of power in which the alternatives are often worsened, no one has an incentive to change its interest. Therefore, coercion through threats or sanctions 145

146

147 148

Although Risse goes to lengths to distinguish communicative action as truth-seeking deliberation and argumentation from rationality (strategic interests) or rule-based behavior (constructivism), it is not clear how under levels of varying interests and in various negotiations contexts we would need to consider communicative action as a separate paradigm that cannot be analyzed by negotiation theories. Joint problem-solving in search of mutual gains is common to both public and diplomatic spheres. What Risse does show implicitly is that actors may not reach agreement with well-defined non-variable interests and that is an important point to keep in mind. He also acknowledges that states often indulge in all three types of communicative action in any given situation. Farrell 2003. Chapter 5 will incorporate Farrell’s analysis into negotiation theory in analyzing the same case study, data privacy negotiations, which is the subject of Farrell’s article. Rosenau 1990. Interest alteration is a facilitative rather than a determining condition for mutual gains. In this sense traditional negotiation analyses are not entirely incorrect in positing mutual gains without any interest alteration.

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is often necessary to get to agreement. The intellectual property case was characterized by elements of coercion.

Conclusion Negotiations are about human interactions and, thus, the first claim negotiation theory must make for itself is the changing behavior and interests of actors through successive interactions. Behavioral change without a fundamental change in interests is often made in social science; actors can take a variety of behavioral positions or postures compatible with an underlying interest that remains unchanged. Take the case of actor interests. The formation of actor “interests,” as political scientists tend to call them, or “preferences” as economists do, is a contentious topic precisely because they are taken as given, as they are usually derived from global economic or security power structures or configurations. At times, political scientists take “interests” to be the sum of individual interests making up an actor (e.g., states or societal interests).149 This is myopic. There is no straightforward logic between power configuration or domestic/international constituencies and interest formation. Social environments, like those offered by international negotiations, create as well as limit the articulation of particular interests.150 Interest formation is thus a product of both constraints and opportunities. In neo-classical economics, “preferences” are based on fairly straightforward intrinsic utilities of particular actions for individuals. Recently, institutional economists such as North and Kuran have noted that such intrinsic utility calculations are the result of cognitive and social processes.151 At best, power configurations can only constitute or be reflective of the information base from which calculations of intrinsic utility may be derived. However, such calculations are an inherently social act, 149

150 151

I prefer the term interests over preferences; the former implies political calculations and formation of intersubjective beliefs. Economists usually derive their preferences from underlying resource distributions or market factors; intersubjective phenomena such as changing habits and tastes are confined to long-run or non ceteris paribus conditions. Hart argues that preferences are generally subjective (including false consciousness) while interests are objective. Herein our difference is in semantics rather than substance (based on correspondence, see also Hart 1976). Peterson 2004; Wendt 1999; Katzenstein 1996. North 1994; Kuran 1995, ch. 10.


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even when an individual makes them alone, for example with recourse to a framing device. They are also cognitive processes. These social and cognitive processes help an actor make sense of available information. Most theories of interest formation take note of the condition of bounded rationality in which actor interests are shaped with incomplete information. They could also take note of the processes that allow actors to make sense of that information. We can thus view negotiation processes as the production, dissemination, and disposal of information to actors involved. That they then result in changing the interests of actors should come as no surprise. The prisoners’ dilemma does not exist when the prisoners can communicate with each other. As in Kuran, this study takes interest formation to be a social process rather than an outcome of deductive logic.152 In taking interests as given, international relations theory, therefore, partly annuls the very interactions that it tries to explain.153 Negotiated interests enter at two levels in this book. At the first level, they remain unchanged but their convergence or divergence in the international interactions cannot be described without analyzing the underlying negotiations. At the second level, the negotiation processes themselves create or alter actor interests (the first feedback loop in figure 1.1). At times, the processes alter not only interests but also the underlying power configuration (the second feedback loop in figure 1.1).154 Liberal theorists such as Moravcsik underestimate the influence of feedback loops from negotiation processes to power configurations. As the cases in this book show, actors can manipulate 152

153

154

Kuran’s main point is more nuanced than the summary presented here. His agents falsify their interests to conform to social pressures and conditions. This point would be consistent with the notion of changing interests but not with those who take interests to be given. We could also conjecture that those exercising the social pressure have less of an incentive to falsify interests, great powers in the case of this book. See Kuran 1995. A bolder claim about interest formation may also be made but it is beyond the scope of this book to investigate it fully. We often assume that rational actors who indulge in goal-directed behavior and/or maximization of a utility function maximize interests. Inasmuch as these interests arise from interactions, it is not clear how all interactions must always lead to goal-directed behavior or maximization of utility functions. See Green and Shapiro 1994 and Friedman 1996. Or, if several different types of interests are compatible with rationality, then why speak of the latter at all? Gruber 2000 also acknowledges a change in the underlying power configuration, which worsens their BATNA. He does not vary state interests, thus his states are posited as worse-off from negotiated agreements.

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power configurations to suit or alter their interests. In the case of intellectual property, the US succeeded, over the course of negotiations, in making a diffusion of power more into a concentration of power, which allowed the US to push for a stringent global intellectual property regime (Chapter 3); France and Canada did the same during UNESCO negotiations concerning the Universal Convention on the Protection and Promotion of Cultural Expressions concluded in 2005 (Chapter 4). For instance, in both cases, the US and EU framed the multiple issues on the table at the beginning of the negotiation as one overarching issue as the negotiations proceeded, thus making tradeoffs and linkages difficult. Further, monolithic and powerful coalitions in the US and EU gained momentum and provided little wiggle room for negotiators. This book is foremost about the sociology of international interactions as articulated through negotiations. As such, the conceptualization of negotiated interests is consistent with several sociological insights. Berger and Luckmann show that processes of social construction are not the same as institutions (the outcomes of these processes).155 Socialization, for example, can help to objectify subjective reality – by naming it and thus producing a vocabulary around it – but institutionalization, the feedback loop of figure 1.1, goes a step further by taking that objectification to be regularized interactions and putting in incentives for actors to cooperate with the institution and its vocabulary. To call both international interactions and institutions “shared ideas” does not help to distinguish “subjective” and “objective” “facts” of social reality – or, to use constructivist formulation – structure from agency. As in Berger and Luckmann, all three terms in quotes in the last sentence are understood in the sociological sense.156 Even symbolic interactionism, the sociology of the way people interact with the symbols of cultural life, to which Wendt pays homage, takes a given set of symbols as structure and then proceeds to examine interactions.157 Similarly, in International Relations, Ruggie distinguishes between “consummatory,” or concrete, manifestations of political authority distinct from “instrumental” values of language 155 156

157

Berger and Luckmann 1966. In sociology, society (Weber 1968), collective memory (Halbwachs 1941), and imagination (Appadurai 1996) may be understood as social facts because they reveal regularized patterns and can be verified. See Mead 1965/1934; Blumer 1969.


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used to describe them.158 As Zehfuss notes, “when constructivist analysis starts, some reality has already been made and taken as given.”159 Therefore, the approach taken in this book is situated in the middle ground between constructivist and traditional IR approaches that Zehfuss identifies (though also critiques).160 In the words of Buzan, Jones, and Little, structure “is not a preexisting force that generates units and interactions. Rather it is generated by the interaction and arrangement of the units”;161 all the more reason then to speak of configurations rather than structures. The larger challenge that this argument poses to social sciences will again be taken up in the concluding chapter: a theory of social interaction that posits actors’ interests, which parallel their ontological understanding of the world, prior to the interaction is faulty indeed. We need to pay attention to negotiation theory to see how negotiation tactics allow for the creation as well as alteration of interests to accommodate or to exclude other parties’ interests. Coase inched toward a theory of transaction costs by noting that if markets are so efficient, why do firms exist?162 Williamson substantiated the same in positing the relationship between markets and hierarchies.163 We may inch toward an integrated theory of negotiations – rather than treating the latter as a residual variable – by asking the following: If power or markets are so efficient, then why do negotiations exist? They exist because power and markets provide ample wiggle room for the creation, alteration, and resolution of interests. In a diffusion of power context such interest alteration and negotiation processes lead to mutual gains. 158 160

161 163

Ruggie 1982, p. 381. 159 Zehfuss 2002, p. 10. Several scholars now make toward theoretical syntheses and question the irreconcilability of research programs once posed by Lakatos 1970. See, for example, International Studies Review 2003; Keohane 2001; Wendt 1999. Buzan, Jones, and Little 1993, p. 11. 162 Coase 1937, 1960. Williamson 1983.

3

Services and intellectual property: multilateral framework negotiations

It could be contended in fact that diplomacy as an organized profession owed as much to commercial interests as to political interests . . . The Venetian diplomatic service, which undoubtedly laid the foundations of professional diplomacy, was in its origin a commercial machinery. Harold Nicholson Diplomacy1

Multilateral negotiations are a good starting point for studying the effects of overlapping power configurations in the global information economy. Predominantly a feature of the second half of twentieth century, these negotiations are representative both of globalization processes and the emergent diffusion of power. But multilateralism itself does not mean that a diffusion of power prevails; it is only likely to do so. This chapter examines the underlying empirical circumstances for such a power configuration. Two multilateral negotiations, administered by the World Trade Organization, are examined here that are of utmost importance to the global information economy. The WTO, and its predecessor the General Agreement on Tariffs and Trade (GATT), is widely recognized as the most important international body concerned with economic negotiations. GATT is credited with eight rounds of multilateral trade negotiations starting in 1947; the ninth round called the ‘Doha Development Round’ was formally launched in November 2001 and is on-going. The agreements that emerged from GATT at the conclusion of the Uruguay Round (1986–94) are: the General Agreement on Trade in Services (GATS) and the Trade-Related Aspects of Intellectual Property

1

Nicholson 1969, p. 88. Sir Harold Nicholson’s book Diplomacy is a classic on the origins and transformations of diplomatic practices.

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Services and intellectual property

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Services (TRIPS). Services and intellectual property, and the international agreements governing these issues, are at the core of the global information economy.2 In fact, the negotiations examined in subsequent chapters are either offshoots of these two agreements or must be understood within the context of these two. This chapter provides a focused comparison of the two agreements to explain the difference in outcomes: developing countries made fewer concessions to the North in GATS than TRIPS. North-South issues dominated both negotiations and thus it is fair to analyze them using this context. While the negotiation of GATS became increasingly more diffuse, TRIPS moved in the opposite direction (see figure 1.2). The difference in outcomes for the two new issue areas is intriguing for three reasons. First, this chapter helps to specify the context under which multilateral negotiations are likely to be characterized by a diffusion versus a concentration of power. Second, it shows the negotiation circumstances under which weak powers can effect gains for themselves under particular power configurations. The GATS accord allows for specific and tailored commitments across multiple sub-issues that benefited the developing world. In the TRIPS agreement, the developing world managed to amend only a few things in the margins of the major agenda items that the developed North wanted. Third, negotiations are important for explaining the evolution of the global information economy. The differing outcomes of GATS and TRIPS are hard to predict from the positions the North and South took on each of these issues before the Uruguay Round started. Before the Round began, the services issue was heavily contested by the developing world while there seemed to be widespread support for it in the developed world by 1986. Intellectual property issues were not so heavily debated and there was no unified position among the developed countries on this set of issues. Extrapolating from these positions would indicate that the outcomes for GATS and TRIPS for the developing world might turn out to be opposite of the way they did. What were the outcomes and what difference did the negotiations make? This chapter explains these negotiation outcomes with respect

2

Intellectual property refers to “creations of the human mind” (Watal 2001, p. 1) such as pharmaceutical formulas, a trademark, or an industrial design. Services are intangible products or goods such as banking, tourism, telecommunications services, or professional skills.

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to the best alternative to negotiated agreement (BATNA) that the developing world faced at the beginning and at the end of the Round (summarized in Table 3.1). At the beginning of the negotiations, developing countries did not want to negotiate services issues and felt that they had much to lose from including these on the agenda. The developed world presented more or less a monolithic coalition in support of the agenda. The status quo BATNA was a patchwork of multilateral and bilateral agreements that covered the various services sectors. Many of these agreements protected national monopolies in services whereas the push to include services on the GATT agenda would hasten liberalization in the various sectors. Developing countries were opposed, more or less, to liberalization at that time but by the time GATS came into being, they could walk away with an agreement that did not ask them to make concessions too far beyond their domestic liberalization schedules. Most observers would concur with the following assessment: Differences in national policy orientation, negotiating strength, and sectoral interests have translated into wide differences in commitments across members, sectors, and modes. Although it might be tempting to use the term “imbalance” in this context, member governments with low levels of commitments would probably insist that their schedules are a balanced reflection of the Uruguay Round process and of domestic policy constraints that might preclude liberalization of individual areas.3

The TRIPS process features the opposite of services outcomes. At the beginning of the negotiation, the IP issue was not as contested as the services one and the North did not reveal the kind of unified coalition and monolithic interests as it did when the negotiations progressed. An attractive alternative just before the Uruguay Round that almost went through was the revision of the Paris Convention governed by the World Intellectual Property Organization (WIPO), which would have diluted, rather than strengthened, patent protections. The developing world fared worse at the end of the Round with TRIPS, than if the Paris Convention revision had gone through or if IP had not been negotiated at all. However, in as much as the alternative to TRIPS at the beginning or at the end of the Round was, in fact, unilateral threats and sanctions from the trade laws in the US, then TRIPS, with its international legal backing, might be the better of the two bad alternatives. 3

Adlung et al. 2002, p. 262.


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Table 3.1 Factors influencing outcomes in GATS and TRIPS negotiations

Negotiation context Number of issues Number of actors

Domestic interests in negotiating countries Dominant market condition

BATNA prior to negotiation

Negotiation process Negotiation strategy and tactics

Interest alteration resulting from tactics BATNA at end of negotiation

Outcome

GATS

TRIPS

Many

Single (but many underneath) Almost bilateral (North-South)

Multiple though North-South in the beginning Divided Developed countries: services liberalizing Developing: monopolies

DCs: not too good LDCs: good

Cohesive Developed countries: firms gain from IP protection Developing: firms lose from IP protection DCs moving toward unilateral sanctions on LDC

Mixed motive: Agenda-setting, framing, coalition-building, technocratic Yes

Value-claiming: agenda-setting, coalition-building, unilateral sanction from US No

No agreement might harm service industries in the South, esp. telecom, tourism, construction. Agreement: benefits both developing and developed world

Best alternative is to face unilateral (extra-legal) pressures via US than the somewhat legal order of WTO Agreement: benefits DCs much more than LDCs

Key: DCs = developed countries LDCs = less developed countries

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This chapter explains the differences in outcomes by looking closely at changing sets of interests regarding services and IP among negotiation parties before and, more importantly, during the negotiation process. Interests shape the sets of choices or alternatives that countries make at the negotiating table. Negotiation outcomes that reflect agreement are quite obviously the result of convergent choices and, at times, interests as well. Negotiation theory helps to explain how non-convergent interests are altered to result in agreement outcomes. The differing use of various negotiation tactics explains the differences in outcomes: changing levels of support from domestic constituencies, degree of close attention to agenda-setting by negotiators, and the extent to which developing countries can form various types of coalitions with developed countries on overall or micro agendas. Also, while the intellectual property negotiations were marked by the use of unilateral threats from the developed world, the services negotiations featured joint problem-solving via technocratic tactics.

Intellectual property The September 15–22, 1986 GATT meetings in Punta del Este came at the end of over a decade’s diplomacy spearheaded by the US to make new issues – services, intellectual property and investment – part of the new Round’s agenda, especially after the GATT ministerial in 1982. Broadly, the interests of the North regarding services agreement were for an expansive agenda while the developing world remained opposed to even its inclusion. The service agenda put forth by the North was supported by a broad coalition of industries. The intellectual property agenda was presented in a much narrower sense and, at least until Punta del Este, did not seem to showcase the kind of concerted and explicit inter-industry support that the services agenda did. Until early 1986, the US Trade Representative, the official negotiating arm of the government, was presenting the IP agenda as aiming for an agreement on counterfeit goods; for its part the developing world missed the cues from the wide-ranging IP industries being mobilized in support of this agenda in the North. The developing countries also continued to receive false assurance from the revision of the Paris Convention that had almost gone through in weakening the patent regime. Just as the governments and corporations from the North closed their ranks, the developing world did the same with their governments, civil society actors, and domestic firms. The only departures from the


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somewhat “bilateral” nature of the North-South divide in the IP issues came from a few East Asian countries in the late 1980s and coalitionbuilding with the EC in the early 1990s. In the former case, a few East Asian countries responded to unilateral threats from the US and softened their opposition to a possible IP agreement. In the latter case, that of coalition-building with the EC, a few developing countries were able to institute provisions on time-periods allowed to guard patents, phase-in periods to enforce agreements, and a fee departures on types of licensing allowed for public health emergencies.

Negotiation context The moves toward including intellectual property (and services as well – discussed later) in GATT decision-making began with industry groups in the US as the Tokyo Round of trade talks was progressing (1973–79). At that time, there were existing frameworks governing intellectual property.4 The negotiation context is marked by moves from US firms to build and strengthen the domestic and international coalition in support of intellectual property and to use the trade regulation instruments of the US government to apply to intellectual property. The link between IP and trade had never been made and thus the use of trade measures to enforce IP protections was unclear at first, even in the US. Firms in the US were resting their case on IP infringements and counterfeit products, which resulted in losses in trade for them.5 During the Tokyo Round, famous brand names in the developed countries pushed 4

5

Important agreements included the Paris Convention for the Protection of Industrial Property of 1883 (governing patents and the like), the Berne Convention for the Protection of Literary and Artistic Works, 1886, and the Rome Convention of 1961, the International Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organizations. These treaties were administered by the World Intellectual Property Organization, which was formed in 1967 and became part of the United Nations in 1974. See May 2007 for overview; May and Sell 2006 for historical context. In 1988, the loss to US industry annually from alleged IPR infringements was estimated to be $40 billion (US International Trade Commission, 1988). MFN refers to most-favored nation. In international trade it refers to the principle of non-discrimination against the country concerned. Literally, it means that the exporting country receiving MFN is favored as much as any other exporting country by the importing country. GATT/WTO allowed for automatic MFN to signatories, with a few notable exceptions that came during services negotiations (see later, and also audio-visual negotiations in next chapter).

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the EEC and US to table a code curtailing trade in counterfeit products. An anti-counterfeiting coalition was announced in 1978 led by Levi Strauss and included brand names such as Samsonite, Izod, Chanel, and Gucci. The intellectual property issue was also tied to US negotiations with Hungary over renewal of its MFN and the effort was led by agro-businesses such as Monsanto, FMC, and Stauffer.6 Monsanto’s Jim Enyart was trying to frame IP as a trade related issue.7 Despite these early international overtures, the work of big profile firms such as Pfizer and IBM in GATT’s Advisory Committee on Trade Policy and Negotiations (ACTPN), established by the 1974 trade act in the US, is important.8 This body, chaired by Pfizer’s CEO Edmund T. Pratt, took up the cause of making intellectual property rights, hereafter IPRs, a trade-related issue. Strengthening of the Paris Convention was important to Pfizer while IBM sought to extend the Berne Convention to copyright protection of software. (Significantly, the US Trade Act of 1974 introduced Section 301, which would be amended in 1984 to declare that IPR infringements were trade barriers.) The ACTPN thus worked not only to effect trade legislation in its favor but it did so by making the otherwise arcane issue of IPRs a trade-issue. The ACTPN worked closely with commercial associations in several countries and also with the Pharmaceutical Manufacturers Association and the Chemical Manufacturers Association in the US to strengthen its ranks. The efforts culminated in the formation of the Intellectual Property Committee in March 1986 before the start of the Uruguay Round. IBM Chairman John Opel headed it, with a membership of eleven to fourteen over the Uruguay Round period. The original thirteen members were: Bristol-Myers, Du Pont, FMC Corporation, General Electric, General Motors, Hewlett-Packard, IBM, Johnson & Johnson, Merck, Monsanto, Pfizer, Rockwell International, and Warner Communications. It is significant to note that the patent and copyright interests did not come together automatically in the US. While IPC mostly represented the patent interest, the copyright interests came together in late-1984 to form the International Intellectual Property Alliance (IIPA), which was the umbrella group for associations representing industries producing and distributing audio and visual content. The IIPA was instrumental in getting Section 301 to apply to intellectual property in 1984. The 6

Devereaux 2002, p. 6.

7

Sell 1999, p. 177.

8

Ryan 1998, ch. 4.


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copyright interests, representing films, music and books, were initially skeptical of the need for global rules and felt that Section 301 was enough.9 Meanwhile, the developing countries were not organized enough on intellectual property rights issues to anticipate the moves in the US with any counter-moves. Developing countries argued that with existing international treaties, the need for another one, especially via GATT, was minimal. They noted that IP protections were closely tied to restrictions on transfers of technology that were an important input for economic development and social well-being in general. If anything, the developing countries since 1974, with efforts dating as far back as 1967, were trying to push through a revision of the Paris Convention that would have weakened its provisions.10 The United Nations Conference on Trade and Development (UNCTAD) supported the developing world especially in a 1975 report titled The International Patent System as an Instrument of National Development.11 The revision to the Paris Convention almost went through though it did break down in its final stages in 1981 and 1982 at meetings in Nairobi and Geneva, respectively. Countries like India had, in fact, passed laws that made such copying simple and effective.12 The 1970 Drug Price Control Order set price ceilings on essential drugs and the Indian Patent Act of 1970 disallowed product patents but recognized product processes which, in effect, led to copying of patented drugs from the developed world. However, it is puzzling that just as anti-counterfeiting, later intellectual property rights, coalitions began to pick up steam in the North, the developing countries did not think of a counter-coalition. Watal notes “that the developing world may have been lulled into a certain complacency” due to the support they received from the developed world for diluting the Paris Convention to allow for compulsory licensing from countries such as Canada, Australia, New Zealand, Portugal, Spain, and Turkey (many of whom had compulsory licensing procedures of their own).13 Despite this complacency, at the time of the 1982 GATT ministerial to discuss the possibility of a new multilateral trade round, there was no consensus that intellectual property was a trade related issue, or 9 12

Ryan 1998, p. 107. 10 Sell 1999. 11 May 2007, p. 31. Gallagher 2000, pp. 282–3. 13 Watal 2001, p. 16.

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that it went beyond a few anti-counterfeiting issues. Right before the ministerial in 1982, India’s Prime Minister Indira Gandhi gave a major speech to the WHO in May lambasting the developed countries for trying to take away compulsory licensing provisions. Croome notes that the delay in accepting the agenda on counterfeit goods at the 1982 ministerial, because of minimal support from developed countries and no support from developing countries, allowed for the induction of a much larger agenda on trade in intellectual property later on.14 (Croome regards this as a positive development from the point of view of IP interests and international trade.) Most of the movement toward getting intellectual property on the agenda developed after the 1982 ministerial and close on the heels of the Punta del Este meetings. Two moves originating in the US – strengthening of the intellectual property coalition and use of US trade law and instruments – are particularly important. After coming together in late-1984, the IIPA lobbied successfully to have Section 301 of Trade Act of 1974 apply to intellectual property. In 1985, the USTR asked the private sector to forward its concerns on IP issues. The IIPA submitted a report to the USTR, which noted that the US lost $1.3 billion to piracy of copyrighted works in ten countries.15 A far more significant report came from the economist Jacques Gorlin that was commissioned by IBM’s John Opel.16 This report not only synthesized the thinking about IP as a trade issue but also advanced an agenda for multilateral negotiations through the OECD and GATT, although it acknowledged that WIPO would play a consultative role. By the time of the Gorlin paper, the US government was doggedly pursuing IP issues already. Unilateral and determined moves by the US would later be characterized during the Uruguay Round as offering the developing world a worse outcome than one they could get via the TRIPS instruments. Bilateral consultations led to revisions of IP laws in Hungary, Taiwan and Singapore. Unilateral moves were particularly directed against countries that might oppose the US’s IP agenda. President Reagan himself cited Brazil and Korea as indulging in unfair trade practices under Section 301 in his weekly radio address on September 7, 1985 (coincidentally Brazil’s National Day).17 The agreement resulting from talks with Korea in 1986 is often characterized as a model 14 16

Croome 1999, p. 11. 15 International Intellectual Property Alliance 1985. Gorlin 1985. 17 Odell 2000, ch. 6.


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for TRIPS. The talks with Brazil dragged on for thirty-six months and although there was no agreement, their role in putting pressure on countries like Brazil to agree to put IP on the agenda of the Uruguay Round is undeniable. In 1985, USTR Clayton Yeutter had also created the Assistant USTR for International Investment and Intellectual Property. By spring 1986, Yeutter asked Opel and Pratt to lobby internationally to put IP on the new Round’s agenda. The IPC was formed as a direct result of this request. During the summer of 1986, IPC representatives went to many European capitals and Tokyo to make their case. The IPC travels resulted in a tripartite alliance between the IPC, the European Union of Industrial and Employers’ Confederation (UNICE), and the powerful Japanese federation of industries, the Keidanran. From summer onwards, the efforts to put IP on the agenda of the new Round are inextricably mixed with the politics of services and the efforts by hardline developing countries such as Brazil and India to block the inclusion of such new issues on the Uruguay Round agenda. It is nevertheless interesting that, until April 1986, the goals of the USTR on IP issues remained modest – that of getting an anti-counterfeiting code developed and making it subject to the GATT dispute settlement process.18 In hindsight, like at the ministerial in 1982, the longer it took to put IP on the agenda, the more hardline the stance of the IP coalition in the North became, and the more expansive its agenda. The negotiation context may be summarized as follows in terms of actors, issues, and interests. While the IP negotiations were to be multilateral, it was clear by 1986 that they would be a North-South game, thereby giving the negotiations a bilateral flavor. Also, IP tended to be viewed as a singular issue rather than a set of issues, each with different levels of interests and positions. Finally, a monolithic coalition in support of IPRs was emerging from the North, while the interest of the South was to oppose its inclusion in the new round. While the South may have been misled by the prospect of revision to the Paris convention, its BATNA at the beginning of the Round was to face unilateral pressures and sanctions from the US. As these pressures were just beginning to be applied, it was not clear at that time, how much the South had to fear. Most importantly, the structural forces shaped the need for a negotiated agreement; they did not determine the 18

Watal 2001, pp. 17–18.

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outcome by themselves. From the point of view of the US, its BATNA before the formal negotiations began was unilateral sanctions and a patchwork of bilateral agreements that the US was effecting. Clearly this was inefficient. For the South, sanctions loomed large but they remained complacent given the context of existing IP agreements that guarded their interests and the 1982 revision of the Paris Convention that had almost gone through.

Negotiation process The negotiation process, here analyzed all the way from the ‘prenegotiation negotiations’ to the final conclusion in 1994, included the practice of the following tactics: agenda-setting, coalition-building, trade-offs, and the continuing threat as well as realization of unilateral sanctions from the US.19 Interestingly, these tactics were used at both the micro level of sub-issues within the broad IP agenda as well as at the macro level of the broad North-South confrontation. The overall strategy was value-claiming by both sides, at least until 1989 when the stand-off by the South in refusing to compromise on this issue was broken. After 1989, there was some common problem solving by both sides that may be characterized as mixed-motive. Toward the end of the Round, fissures also developed in the North’s stance that featured the differences in approaches to IP among the Quad powers. As the period analyzed below lasted over a decade, it is divided into four phases corresponding to major mile-markers in the Uruguay Round. From Prepcom to Punta del Este Prepcom meetings took place between January and July 1986 but remained deadlocked. The US blamed this on the GATT Secretariat and for a while flirted with the idea of submitting a draft ministerial declaration to start the new round. Most of the deadlock resulted from opposition to inclusion of services and was broken just before Punta del Este by a moderate coalition of developed and developing countries (these moves are discussed later in the context of services). However, 19

This follows the definition of the timing of the negotiation process introduced in Chapter 2. Trade negotiators had to start dealing with this issue unofficially in 1982, although it was not officially on the agenda until 1986.


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this moderation, and the opposition to hardline countries, was mostly in services; in IP, the interests of the developing countries were similar. Furthermore, the hardline developing countries concentrated on keeping services out of the Round rather than intellectual property. Watal notes that this was a mistake given the push on intellectual property and the US agreement with Korea.20 Intellectual property was included under goods negotiations. Lars Anell, the Swedish Ambassador to GATT, headed the TRIPS group; the appointment of a moderate ambassador in itself was significant and might also have contributed to the developing countries’ not fearing the IP agenda that much. The subject heading for the three paragraphs dealing with IP at the Punta del Este declaration pertained to IPRs including trade in counterfeit goods, which might have led developing countries to believe that only the latter would be negotiated. The language later allowed for a far broader agenda on trade-related IPRs to be brought in.21 In the case of IPRs, the developed countries had slipped in an agenda without the developing countries taking much notice. From Punta del Este to Montreal A mid-term review was planned for Montreal in December 1988. Developing countries’ chief interests were to limit the scope of the services agreement and to try to kill the IP one, even though technically IP was now part of the Round’s agenda. The intellectual property issues, therefore, remained deadlocked. If in services, the relatively open process sought to arrive at the problematique, the latter was presented as a fait accompli to the developing world in IP negotiations. The services discussion began to be characterized and framed by the developed world in terms of jobs and growth; the latter in terms of theft and punishment. On the part of the developed world, the coalition building by the IPC strengthened, its representatives’ governments began to speak with a 20

21

“The TRIPS proposal of the demandeur governments was neither effectively diluted nor countered with other proposals by its opponents”: Watal 2001, p. 20. Croome 1999, Annex; Watal 2001, p. 21. This speaks again to the argument made about agenda-setting in the chapter: agendas evolve and change as negotiations proceed.

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common voice in spite of minor differences, and unilateral moves by the US increased. Developing countries woke up to the expansive way the developed world was defining the Punta del Este agenda and sought to resist it. The first two years of the IP negotiating group were thus spent in trying to define the agenda of the Punta del Este mandate. The IPC got busy in this period in strengthening its ranks and trying to come up with a monolithic position. In November 1986, IPC representatives met with their counterparts at UNICE and Keidanran to start this process. For the next two years, the IPC arranged meetings with between thirty and forty industry associations every six to nine months to review successive drafts of this framework. The 100page position paper, called “Basic Framework of GATT Provisions on Intellectual Property” was presented in June 1988. Throughout this process the IPC worked closely with the US government, especially the US TRIPS negotiator Mike Hathaway and with Mike Kirk of the US patent office. The paper reflected the position of the earlier Gorlin paper on framing a wide-ranging IP treaty via GATT and using its dispute settlement for enforcement. The US pharmaceutical industry did not want to give any grounds on the need for compulsory licensing but adjusted its position in order to get the Japanese and Europeans on board. The final TRIPS agreement reflects the Basic Framework to a great extent. Developed countries were beginning to speak with a common voice and defined an expansive agenda for IPRs. By October/November 1987, the US, Japan, and other developed countries including Switzerland had made it clear that they wanted to use the GATT process to discuss almost all IPRs: copyright, patents, trademarks, designs, geographical indicators, industrial designs, and trade secrets.22 The EC submission in November, focusing on the enforcement of such rights, was largely in concurrence with US’ and IPC’s positions. The differences among developed countries, apart from the one mentioned on compulsory licensing above, were on the omission of designs from the US list, trade secrets from the Japanese list, and geographical indicators from both of them. The latter was an issue dear to the Europeans and they did not fully come on board on blessing the expansive agenda until this issue was included in mid-1988. Another difference between the US and EU was over copyright issues or “neighboring 22

Watal 2001, pp. 22–3.


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rights” related to performers, producers and broadcasters (this would come up later in audio-visual negotiations as part of GNS). Sell notes that the consensus building among developed countries came from following the advice on meetings in enclave committees given in the Gorlin paper.23 This was the IPC strategy, too. Within GATT, the Quad (US, Japan, EC, and Canada) and the “Friends of Intellectual Property” group were key enclaves. The hardline developing countries, led by Brazil and India, felt that they had been misled at Punta del Este. They had expected the discussions to be limited to counterfeit goods or, at the most, to trade issues in IP. While they continued to find common cause against IPR protections, they could not find any sympathetic actors in the North to take their side. They critiqued the “Basic Framework” put forth by the IPC, UNICE, and Keidanran. The very character of the multilateral negotiations was thus reduced to a two-way game with an asymmetric power distribution favoring the North. In several fora, developing countries sought to exclude patents (especially in pharmaceuticals) from the agenda but the gambit did not work. The North refused to recognize the compulsory licensing claims in any great measure. Civil society protests in the developing world, that often featured groups from several countries together, served to spotlight developing countries’ causes in areas such as seeds procurement and cheap pharmaceuticals but they were not able to sway the Northern negotiators. They also pointed out that the Punta del Este declaration, specifically subsections (iv) and (v) of section B, did accord them “Special and Differential Treatment,” in accordance with GATT rules framed in the 1960s. Intellectual property was a make-it-or-break-it issue for India, which faced strong domestic pressure, at times resulting in violent protests, from its farmers and pharmaceutical firms.24 In October 1988, Brazil submitted its position, which sought to limit the agenda of the negotiating group on IP. However, there were developing countries, Korea and ASEAN among them, that explicitly refrained from critiquing the developed country proposals.25 Many of them were under pressure from the US on their IP practices. Concerted pressure on the developing world came from toughening of the US legislation on IP and the pursuit of infringing countries by the USTR. First, the US began to tie with IP protections the granting of 23

Sell 1999, pp. 186–7.

24

Sharma 1994.

25

Croome 1999, p. 114.

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Generalized System of Preferences (GSP), which waived certain tariffs for developing country products. Thus, for example, in 1987, Mexico lost $500 million of GSP benefits, for not caving into pressures from the US on pharmaceuticals.26 Second, in August 1988, the US Congress added bite to Section 301 by passing the Omnibus Trade and Competitiveness Act of 1988 in response to business pressures. The 1988 amendment authorized the USTR to annually list and investigate within thirty days of doing so those countries whose IP practices resulted in unfair access to US firms.27 The USTR began to prepare “priority watch lists” of countries. The inaugural list, coming on the heels of pressure from IIPA, included Korea, Brazil, India, Mexico, China, Saudi Arabia, Taiwan, and Thailand.28 The 301 initiative against Brazil in 1985 was mentioned earlier. The Brazilians amended their copyright law in 1987 and the patent law in 1988. In September 1988, the USTR began to investigate Argentina’s pharmaceutical patent protections. In 1989, Thailand lost GSP benefits after being named on the 301 IP watchlist. The net result of all these moves, however, was that there was no consensus on the IP agenda by the time of the mid-term review. Mike Kirk notes that the first two years had been spent talking in generalities that resembled a “Kabuki dance . . . We would lob principles at the South and they would either sit there and ignore them or occasionally lob an idea back at us.”29 Before the Montreal meeting, the required text describing the future course of action was difficult to frame. The text prepared by Lars Anell was rejected by the US for being too weak and by developing countries as being too strong. Thus, this text along with three others (from Brazil, the US, and Switzerland) was forwarded to Montreal. The meeting ended in deadlock and adjourned over this and, mostly, agricultural issues. However, it was in Montreal that Brazil came around, followed by India, on the IP issue. India had been the major holdout from the South because of the importance of India’s domestic pharmaceuticals industry. Before the Montreal meeting, President Bush called Prime Minister Rajiv Gandhi and pressed upon him the need for India to step out of the way to let the negotiations move forward. If any trade-offs 26 29

Watal 2001, p. 24. 27 Sell 1998, p. 134. Quoted in Devereaux 2002, p. 15.

28

Ryan 1998, p. 78.


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were made at that time, they did not make it to the negotiation floor. Contrary to many published accounts, India’s former TRIPS negotiator notes that she did not speak to, nor was instructed to speak to, the textiles or agriculture negotiators to try to get concessions in these issues as a condition for backing down in IP.30 As far as the latter was concerned, the differences were resolved by the TNC in April 1989 when the TRIPS deadlock was broken with India now playing a key role in the writing of the text. From Montreal to Brussels The next GATT ministerial to bring the Round to a close, before the Fast Track Authority of the US President was to expire, began on December 3, 1990, in Brussels. On IP, the months between April 1989 and December 1990 were marked in agenda-setting terms by reformulation and fine-tuning of mini-agendas and the working of less developed countries within the negotiating group to try to include issues of benefit to them. The shift in stance on IP issues after Montreal when India and Brazil caved in to the IP agenda is significant. For the purposes of this chapter, it is nonetheless important that the developing world was unable to limit the IP agenda or form effective coalitions until 1989. After that, developing countries did make marginal gains by forming coalitions (often with the EC and Japan) on particular issues. The acquiescence of hardline countries like India, Brazil, and Argentina and the silence of others like Korea and ASEAN had a lot to do with their inability to break the monolithic IP coalition ranks of the North, 301 pressures from the US, and also expectations of gains in other areas. After agreeing to the April 1989 text, they worked within the negotiating group to effect gains. A spate of fifteen proposals came in by the end of 1989 as the negotiating group began to meet, the most significant of which was the EC one. It was almost as strong as that of the US and thus signaled, 30

Based on interview with Jayashree Watal at the World Trade Organization, November 5, 2004. She notes that India could have been more savvy about backing down on IP but the Indian team was under instructions from the Government of India “to let the text go.” She contends that while the developed countries did not have to phase out their quotas on textiles until the last day of the ten-year phase-in period of the Agreement on Textiles and Clothing (ATC), the developing countries agreed to the TRIPS phase-in on the first day of the ten-year period.

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again, that Europeans were behind the Americans.31 Fourteen proposals came in from the developing world, too, including those from India and Brazil. The Indian submission, dated July 1989, continued to argue that many IP matters were sovereign or domestic issues though it did agree to discuss the issues at GATT. Brazil’s argued for striking a balance between rights and responsibilities. Many developing countries also stated their preference for lodging the agreement at WIPO.32 The issues on which the developing countries looked for concessions included compulsory licensing, the related issue of patent protection in pharmaceuticals, phase-in periods, and recognition of their needs with respect to development.33 By late 1989, the stage was set for final concessions and trade-offs and, as such, the IP negotiating group was now somewhat ahead of others. “The main issues and proposals had all been explored, the points of difference (numerous by the count of a Secretariat checklist, more than 500 in all) were known, and there was every prospect that a very substantial agreement could emerge from the negotiations.”34 Developing countries preferred to wait for progress in other areas before proceeding in IP. Of particular interest to them were agriculture tariff reductions and the phasing out of the MFA regime in textiles. The deadlock in IP was broken in March 1990 when the US, EC, Japan, and Switzerland submitted texts that could form the basis of a final treaty. A group of fourteen developing countries, with help from UNCTAD, put together the so-called “Talloires text” or W/71 (named after the town near Geneva where they met) to counter the March proposals.35 However, the Latin Americans did not want to be seen as hardliners and did not throw their weight behind this text. The text itself was not detailed enough on its provisions to really counter the 31

32 33

34 35

Another motive was that by strengthening IP protections in commodities such as French wine, the EC might have been looking for concessions by the French on agriculture that had marred the mid-term review and continued to hold the Round back. Watal 2001, p. 28. Croome 1999, pp. 216–17. There are differences among observers on the level of expertise among developing country negotiators. Drahos 1995 notes that developed country negotiators treated their counterparts from the developing world as novices. Watal 2001, p. 32 notes that countries like India had brought in separate expert negotiators for industrial property, copyrights, and layout designs. Of course, the two positions are not mutually exclusive. Croome 1999, pp. 217–18. The fourteen were: Argentina, Brazil, Chile, China, Colombia, Cuba, Egypt, India, Nigeria, Pakistan, Peru, Tanzania, Uruguay, and Zimbabwe.


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other proposals. But, it did yield minor gains by providing the basis for interpreting compliance (Articles 7 and 8 of TRIPS) and sovereign control of anti-competitive practices (Article 40).36 The draft of the TRIPS agreement was drawn up after the Talloires text submission with a group of 10 plus 10 developed and developing countries. As with GNS, the collective brainstorming and participation in meetings seems to have yielded results. Watal notes several issuebased coalitions that led to developing country gains.37 India’s request to merge government use and compulsory licensing in exchange for not putting any restrictions on these measures was supported by the EC, Japan, and Canada and made it into TRIPS.38 This then formed the basis of the now famous Article 31 of TRIPS that in turn was the basis of the compulsory licensing concessions that developing countries received as the Doha Round opened.39 On other issues, the inability of the developed world in agreeing to specific language on copyright (Article 13) and patents (Article 30) also leaves room for interpretation for the developing world. Developing countries also joined in with Commonwealth countries in support of parallel trade measures. By mid-summer 1990, 10 plus 10 put together the five proposals into a 100 page “composite draft text,” which was then edited and dwindled in size by the Brussels meeting. No country was yet committed 36 37

38

39

Watal 2001, p. 32. Watal 2001. An obvious way to build coalitions would be to take advantage of differences among developed countries. The best known differences were: appellations of origin important to wine producers in France; the first to file versus first to invent patent differences between US versus many others; Canada’s compulsory licensing procedures; Japanese resistance to extending copyright protections to software; European protection of moral rights of authors protecting their works from being changed or deformed by others; US recording industries’ push for prohibiting rentals such as those of CDs in Japan (Devereaux 2002, p. 21). Based on interview with Jayashree Watal, World Trade Organization, November 5, 2004. India was told by Canada that US’s own laws allowed for compulsory licensing for government use such as by NASA. US negotiator Mike Kirk had so far argued that the US was not opposed to government use but he did so without using the language of compulsory licensing. Once India understood US law, it was able to argue for allowing for compulsory use whether or no it was for government purposes. US duplicity on this issue was laid bare after the anthrax scare of October 2001, following the discovery that this poisonous substance may have been sent via US mail services. The US government then seriously considered the possibility of issuing compulsory licenses for Cipro that would be needed for counteracting anthrax. See Odell and Sell 2006, pp. 102–3, for the effect this move had on the anti-TRIPS coalition in the Doha round.

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to this text and by the time of the meeting several important issues had not been decided including term-life of patents and phase-in periods. In the meantime, US 301 pressures continued having cited Brazil, China, India, Korea, Mexico, Saudi Arabia, Taiwan, and Thailand on the watch list.40 The Brussels meeting itself fell apart over agriculture and thus neither the outstanding issues nor those requiring high-level trade-offs could be negotiated. From Brussels to Marrakesh The TRIPS negotiations after Brussels were fairly straightforward and essentially completed by December 1991 although developing countries did manage to squeeze a few minor concessions from the North on transition periods and dispute settlement. Issue-based coalitions worked in these cases. The final negotiations in IP took place mostly between September and December 1991, with the last meeting of the TRIPS group taking place on December 18, 1991, when 95 percent of it was deemed negotiated.41 Attempts by developing countries to try to re-open negotiations on issues that had already been negotiated (for example an attempt by the Andean Group on moral rights of authors) did not yield anything. However, developing countries did make a few gains on issues that had not been decided as in the difficult negotiations over transition periods. With help from the EC, the transition period for developing countries on IP protection varied between five and ten years, less than the fifteen originally proposed. The US pharmaceutical industry was unhappy with this outcome.42 The US tried to dilute the leeway in transition periods by seeking pipeline or retroactive protection for products still in the research pipeline. An EC/India proposal countered by offering Exclusive Marketing Rights (EMRs) for five years once the product was introduced.43 The 1991 draft text that came to be known as the ‘Dunkel Draft’, then noted that countries not awarding patents had to institute EMRs for five years. For India, IP had always been a make-it-or-break-it issue. The Dunkel Draft was thoroughly denounced and burned at several street demonstrations.44 40 43

44

Ryan 1998. 41 Croome 1999, p. 276. 42 Devereaux 2002, p. 25. As drugs can have R&D and trial periods of several years before introduction to the market, US firms wanted patent protection while they were still in the pipeline and also after they were introduced in the market. The EMR agreement, while not quite offering pipeline protection, did bar rival drugs from being sold even if they were developed. For example, at a November 1993 protest in Bangalore, India, half a million Indian farmers were addressed by both farm and non-farm organizations from


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By 1991, the coalition for IP was one of the few supporting the Uruguay Round in the US.45 Thus, it was increasingly hard for the US to make any concessions and it played tough. It kept up its 301 pressures on key developing countries. India was named a priority foreign country in April 1991 and Brazil in April 1993. China, not a member of the WTO, conceded to many of the US demands on IPRs in 1991. Thailand amended its patent laws in 1992. The stiff opposition by civil society on IP led India to try to negotiate concessions up till the end-game.46 In December 1993, with Canada’s help, it was agreed that certain TRIPS violation complaints would not be brought to dispute settlement for five years. Apart from this final concession, TRIPS was part of what Dunkel described as “final political trade-offs.”47 Brazil specifically called for decisions in agriculture and textiles.48

Services The agenda for including and liberalizing services trade as part of GATT was initially championed by the US and then taken up by other developed countries. As a new issue of importance to the developed world, it was then lumped in with the intellectual property issue as one of the high-tech “new issues” at the Uruguay Round. But, as the following discussion shows, there were crucial differences. In terms of negotiation context, best approximating a diffusion of power scenario in this book, services negotiations featured multiple issues, actors, and coalitions at the domestic and international levels. Given the diffusion of power, developing countries were able to employ negotiation strategies and tactics – agenda setting and coalition building, in particular – to much effect. Unilateral threats in the form of 301 were absent in this case; they would not have worked given the negotiating context that featured multiple issues and coalitions.49 While at

45 47 49

Brazil, Ethiopia, Indonesia, Korea, Malaysia, Nicaragua, the Philippines, Sri Lanka, Thailand, and Zimbabwe (Brecher and Costello 1994, p. 7). At protests like these, a familiar refrain was “Reject Dunkel, Reject Imperialism” (Tolan 1994, p. 20). Devereaux 2002, p. 24. 46 Watal 2001, pp. 34–5. Quoted in Croome 1999, p. 275. 48 Croome 1999, p. 253. See Odell 2000, ch. 6. He shows that credibility of threats in trade is contingent on support from domestic lobbies especially if they are monolithic in their stance. In services, given the multiple positions of services groups, such threats would not have worked.

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the beginning of the negotiations, the developing countries were vehemently opposed to the inclusion of services on the GATT agenda, they became net supporters of services negotiations by the late 1980s providing evidence of interest alteration through negotiations. This is in contrast to IP where developing countries opposed an IP agreement but gave in to pressures from the North.

Negotiation context The negotiation context in services features multiple issues and multilateral processes from the beginning. The pro-services coalitions in the developed world also differed in their degree of support and affiliation with particular services issues or industries. Nevertheless, services began to be openly discussed in developed countries’ capitals as warranting a place on the GATT agenda as early as the 1970s. Similarly, the coalitions for support for services in the developed world showcased an impressive agenda. The term “trade in services” owes its origins to the OECD, which conceptualized and developed the services agenda first before it became a GATT issue. The “idea” of a global services or information economy, as also the importance of negotiations therein, can also be traced back to Geza Feketekuty, who served with the United States Trade Representative’s office in several capacities for two decades.50 Until the Uruguay Round, there was no umbrella agreement in services, although there were a few agreements, mostly of technical nature, involving particular sectors such as telecommunication, civil aviation, and shipping.51 Most of these agreements legitimized national monopolies while allowing for “interconnection” among them and also allowed for international rules and decision-making procedures to guard for safety and damage control. Whereas in IP, the existing agreements covered a related set of issues over a number of sectors, in services the agreements governed disparate sets of issues in individual sectors. The impetus for services trade in the 1970s came from US industries in banking, finance and software and their moves began to coincide with the US balance of payments and, later, trade deficits. US MNCs began to argue that the country’s competitive advantage lay in service industries. Their moves were aided by the OECD whose Trade 50

See Feketekuty 1988, 1992.

51

Zacher with Sutton 1996.


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Committee began to look into the services issue in 1979 (its report came out in 1987). A host of think-tanks and other institutions (mostly in the US and UK) pitched in to show that trade in services was important and growing. The US government reacted by establishing the Interagency Task Force on Services and the Multilateral Trade Negotiations at the White House. The Department of Commerce as well as the USTR also established offices for services. These agencies raised the services issue at the Tokyo Round. What they achieved was a proposal for GATT’s Consultative Group of 18 (G-18) made up of senior trade officials to look into services and other issues.52 Meanwhile, in 1979, the US Chamber of Commerce was asked by the government to add services barriers to its 1976 list of trade barriers. Foreign governments turned in their own lists after consulting with their firms. All these efforts were important, not just for agencies like the OECD examining this issue but, as Drake and Nicolaides note, they were also a form of issue-framing shaping the services negotiation agenda in the 1980s.53 However, until the GATT ministerial in 1982, the US was far more enthusiastic about this agenda than other developed countries. The hard times of the early 1980s helped to push the services agenda forward. Trade growth was barely one percent, stagflation was high, and with 1982 came the international debt crisis, which plagued the developing world and the world’s financial markets. The Department of Commerce in the US calculated that the services sector accounted for 70 percent of the total employment and 90 percent of growth in employment. Of the total world trade in services of $350 billion, the US accounted for $35 billion.54 Firms such as IBM, American Express, and insurance industries increased their lobbying toward recognition of services as a trade issue. The next step in getting services into GATT was the ministerial in 1982. In 1982, the Coalition of Service Industries came about in the US and the Liberalization of Trade in Services Committee in the UK. At the 1982 meeting in Geneva, which included 82 ministers and 800 official delegates, the USTR brought up the new issues and was especially aggressive on the services issue. The Europeans, in the process of establishing an interservices group, advocated a “go slow” approach. They feared the US advantage in service industries and, 52 54

Croome 1999, p. 2. 53 Drake and Nicolaides 1992, p. 51. Statistics cited in May 1992, p. 2.

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except for Margaret Thatcher’s UK, most of them had no concrete plans for dismantling their service industries, especially the national utility and transportation monopolies. The reaction from the developing world was predictably negative and, unlike on IP issues, cohesive. The relevant coalition to voice its concerns was the Group of 77 led by Brazil and India at GATT. Brazil and India argued that services was not a GATT issue and focused on issues of concern to the developing world – the creeping protectionism in agriculture and textiles – and asked for the implementation of the standstill and rollback agreements on these areas at the Tokyo Round. Given the opposition from the developing world and lack of support from the EC, the issue of services was put off until the meeting of the Contracting Parties in 1984, at which further studies on services would be reviewed. The Brazilian delegation at GATT even floated the idea of convening a UN conference on services, like the UN Conference on the Law of the Sea, outside of the GATT auspices.55 The next big move, the formation of the “Jaramillo Group” for consulting on services built on the existing coalitions in services and began to fracture the G-77 coalition. The Jaramillo Group came about in 1983, when GATT delegates began to meet informally to discuss the services issue and got its name from Felipe Jaramillo, Colombia’s ambassador to GATT, an authority on international trade policy. Jaramillo convened and chaired the group’s sessions, which lasted until 1986. The US was a central player presenting studies and listing barriers in various countries.56 In 1984, it submitted a comprehensive report of the state of trade in services globally which also indicated in detailed statistical tables that the US was not the only beneficiary from services trade.57 Developed countries and a few ASEAN NICs began to come around to the US position. In May 1985, the EC declared its support on the services issue with the EC’s Commissioner for External Affairs, Willy de Clerq, acknowledging that many EC countries had services surpluses. The developing countries did not produce as many studies as the US but did critique them. In 1983, they recruited UNCTAD to their cause. In a 1984 report, it questioned the legality of bringing services into GATT. Arthur Dunkel, the GATT Secretary General, had also appointed a commission in 1983, which came to be known as the 55

Interview, June 2007.

56

May 1992, p. 4.

57

US Government 1984.


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Leutwiler Group, to look into the prospects for the new round. In April 1985, the report by this group that seemed to advocate services liberalization was heavily critiqued by developing countries. In order to break the North-South deadlock, the Swedish trade minister brought together twenty-four other trade ministers in Stockholm in May, attended by Dunkel, where the idea of a two-track approach, one for goods and the other “separate but parallel” one for services, was suggested to jump-start the new round.58 This meeting seemed to end in consensus but subsequent meetings in Geneva broke down again. In July 1985, India presented a paper to GATT questioning new issues, among other things, and easily got the support of twenty-four developing countries (G-24). Issues of textiles and standstill and rollbacks were brought up again. Thus, by 1985, the battle lines on services particularly, and new issues in general, were between the North and the South. The Jaramillo Group itself was deadlocked by late 1985. Meanwhile, the US was working behind the scenes to push for starting the new round, which was in jeopardy mostly over LDC concerns (and differences in agriculture trade among developed countries) by 1984–85. The G-7 meetings and OECD were especially important in this regard. Like it did on intellectual property issues with Korea, the US produced a Free Trade Agreement with Israel in 1985 that its officials began to showcase as a possible services agreement for the future (it served as a model for Canada-US FTA, too). In April 1985, the OECD countries became aggressive in trying to start a new round by asking for a preparatory committee (Prepcom) of senior trade officials to start drafting the agenda for a new round. As the summer of 1985 ended in bitter North-South disputes, the Prepcom was seen as a way of breaking the deadlock and was established on November 28, 1985.

Negotiation process The developing world contentiously and fiercely opposed the inclusion of services in the Uruguay Round. However, developing countries were included in key meetings that led to the inclusion of the services agenda 58

Croome 1999, p. 17. What Sweden suggested was already part of thinking on the subject in international legal journals where the difficulty of applying existing GATT rules to services was acknowledged (Drake and Nicolaides 1992, p. 63).

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and were thus able to shape not only the future mini-agendas but also the shape of the services agreement. As seen below, the services negotiations became more and more characterized by a diffusion of power scenario in which multiple issues, actors and coalitions played a key role. While agenda-setting and coalition building were key tactics in services as well, they took on more of a creating flavor in services and were supplemented by technocratic tactics. Unilateral threats from the developed world in services were almost absent in the case of services. From Prepcom to Punta del Este It was noted earlier that Prepcom meetings took place between January and July 1986 but remained deadlocked, mostly over services issues. As the stalemate at Prepcom ran on, the Swiss Ambassador Pierre-Louis Girard convinced a group of nine (G-9) moderate developed countries (Australia, Austria, Canada, Finland, Iceland, New Zealand, Norway, Sweden, and Switzerland) to draft an agenda which G-9 presented as a draft to Prepcom on June 11, 1986.59 Brazil and India struck back immediately. On June 23, Brazil’s ambassador to GATT Paulo Batista presented an official proposal “W41” to Prepcom signed by ten hardline developing countries including India. The W41 move backfired; it was seen as extremist and the G-10 support itself showed dwindling of developing country ranks. Among other things, it argued for complete rollback and standstill of protectionist measures as a precondition for including services and other new issues in the Round. A direct result of the Brazilian proposal was the explicit defection of twenty moderate developing countries (G-20, including Colombia, Chile, Jamaica, and Korea) that joined ranks with the G-9. The Korean Ambassador, who hosted a dinner for the moderates at his house in Geneva, led the G-20 defection.60 Along with the US, Japan, and the EC – who played mostly observer roles – the G-9 and G-20, led by Switzerland’s Girard and Colombia’s Jaramillo, began to meet in the EFTA offices at Geneva to prepare a proposal that came to be known as the “Café au lait proposal,” after the Swiss-Colombian leadership, and named as such by Arthur Dunkel.61 Because of the EFTA meetings, 59

60 61

G-9 was a sub-part of the dirty dozen, which also included the US, Japan, and the EC. Leaving the other three out of agenda-setting would marginalize power politics and put the G-9 in a neutral light. Oxley 1990 and interview with Felipe Jaramillo, Bogota, June 2007. Interviews.


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the Prepcom had only four short meetings in late June 1986 to discuss the Café au lait proposal, which included services and language on standstill and rollbacks. The language on intellectual property issues in the Swiss-Colombian draft was “ambiguous and general.”62 The proposal by the G-10 hardliners (now only nine because of Argentina’s defection) and a proposal by Argentina that modified the Café au lait proposal were the others discussed at Prepcom but the clear winner seemed to be the Swiss-Colombian draft. However, on the last day of Prepcom meetings (July 31), the EC broke ranks and sided with the hardliners (its motives may have been its own agricultural interests pushed by the French). The EC suggested the two-track approach that would allow India and Brazil to save face. Felipe Jaramillo also proposed this approach to the EC after Ambassador Dubey of India suggested that they would go along with it.63 Dunkel thus forwarded all three proposals to Enrique Iglesias, the Foreign Minister of Uruguay, who would chair the ministerial, with a note indicating that the Café au lait proposal was largely favored. This drew sharp critiques in a series of letters from Brazil and India.64 The winter meetings at Punta del Este, September 15–22, started with USTR Yeutter arriving with a US Cabinet decision that forbade him to accept a two-track proposal. Thus, the negotiations on services at Punta del Este, moderated by Iglesias, were mainly between the US, India, and Brazil. The teams remained deadlocked although the US position had the support of many from the EFTA group. Eventually, Jaramillo proposed a procedural solution, albeit one favoring two tracks: the services talks would be separate as in the EC proposal but conducted by the same officials and the GATT secretariat. In other words, the two tracks, in the language of GATT, would be “a singleundertaking,” although it did not really apply to services. The US accepted this proposal and the Uruguay Round was launched and expected to be concluded in four years. 62 64

Devereaux 2002, p. 14. 63 Interview, Bogota, June 2007. Arthur Dunkel had a hard act to play. Croome 1999 and Devereaux 2002 note that his own interests, especially on public health provision, were broadly sympathetic to the developing world. Even before Punta del Este, he did not want to make pariahs out of the hardline countries (interview with a participating ambassador, June 2004). However, he drew continual ire from the hardliners and, in India’s case, even his effigies were burnt in the streets after the so-called Dunkel Draft on IP was presented in December 1991. See Tolan 1994 for an interesting article on the violent protests in the developing world on seed patents.

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The procedural distinction agreed to at Punta del Este led to the constitution of the Group of Negotiations of Goods (GNG) and the Group of Negotiations on Services (GNS), and the Round as a whole would be directed by the Trade Negotiations Committee (TNC). Arthur Dunkel and his successor Peter Sutherland after July 1993 headed the GNG and TNC, while Felipe Jaramillo headed GNS. In keeping with the Punta del Este declaration, fourteen negotiating groups were appointed for goods and one for services in January 1987. From Punta del Este to Montreal A mid-term review was planned for Montreal in December 1988. As noted above, developing countries’ chief interests were to limit the scope of the services agreement and to try to kill the IP one, even though technically IP was now part of the Round’s agenda. As a result, by 1988 considerable conceptual work had been done in shaping the agenda, and formulas thereof, for services liberalization. Building on the Café au lait precedence, developing countries worked within GNS to effect mini-agendas and build coalitions. A few of them even began to see that a services agreement might benefit them. In services, the relatively open process sought to arrive at the problematique as opposed to pre-packaged agendas in IP negotiations. Thus, the services discussion began to be characterized and framed by the developed world in terms of jobs and growth (and IP in terms of theft and punishment). Compared to the Kabuki dances of the negotiating group on intellectual property, GNS featured ballroom dances. The developing countries had walked out with their major victory at Punta del Este with the two-track mandate. Now they worked within the GNS group to try to define principles. While this continued, the interests of a few business groups changed in the US when they began to fear that they might not gain so much from a far-reaching agreement; on the other hand, the developing countries began to see a few benefits from a services agreement, especially if the agreement could apply toward movement of labor supplies from the South to the North. Thus, the expansive agenda of TRIPS was paralleled by a circumscribed or a tailored one for services, while multiple coalitions featured several alternatives on services. GNS decided in January 1987 to take up five tasks, each of which then offered opportunities to shape mini-agendas: (1) definitions and statistics of trade in services; (2) inclusion of concepts such as national


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treatment, MFN, transparency that may be relevant for services as a whole or for particular sectors; (3) lists of the sectors that would be covered; (4) inventory of existing international agreements; (5) listing measures increasing or obstructing trade in services.65 The “modes of supply” used for delivery came out of examining the first issue. By 1988, it was agreed that services could be supplied through several modes such as movement of consumers, suppliers, commercial organizations, and cross-border flows.66 As these required rights of establishment, developing countries capitalized on this to note that service delivery might entail movement of personnel and sought to include this on the agenda (this later played into sensitive immigration issues in developed countries). The issue of sectoral coverage was difficult: many countries had sacred cows – maritime in the US, audio-visual in the EC, insurance in India.67 It thus became clear that rules would have to be designed to include whole or specific features of sectors. It was also not clear if concessions made would apply to all those making any kind of commitments or only to those making reciprocal commitments. A Swiss proposal touted optional MFN applicable only to a few countries. Given the hostility to services before the Round opened, the willingness of developing countries to work within GNS is significant. Developing countries submitted several papers that helped with technical details on the formulation of principles. Frequent meetings, characterized by collective problem storming, also bred trust: the GNS met twenty-seven times between November 1986 and January 1990 for between three and five days each.68 There were some protests: a few developing countries felt in late 1987 and 1988 that their issues had been ignored with Brazil taking the lead to add they were being rushed into issues that they barely understood.69 In 1987, developing countries also turned to UNCTAD for assistance, which began to 65 66

67 68

69

Table 3.2 lists the main provisions of GATS that can be traced back to these studies. In the final GATS agreement, these modes became: Mode 1, cross-border supply; Mode 2, consumption abroad; Mode 3, commercial presence; Mode 4, presence of natural persons. See table 3.3 for an example of how these were further broken down into types of commitments actually made. Croome 1999, pp. 105–6. Narlikar 2003, p. 98 notes the origins of this process in the pre-Uruguay Round Jaramillo group: “the information exchange and consultation along the Jaramillo track were critical in winning the loyalty of smaller developing countries for the subsequent coalitions that emerged.” Croome 1999, p. 107.

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coordinate its activities with GNS. The UN Centre on Transnational Enterprises also helped the developing world and helped to articulate its concerns about MNCs and need for regulation in services.70 However, by the late 1980s, the developing world also began to shift away from its import-substitution policies of the past toward liberalization. Sectors like telecommunications that were a major part of the GNS exercises were targeted. Thus, they became more willing to see that they could benefit from a services accord.71 The Rajiv Gandhi administration in India and the Sarney and Collor administrations in Brazil were all crafting market opening moves in their services sectors already, especially in telecommunications.72 Meanwhile, a spate of studies about trade in services, often reflecting industry positions or shaping them, had continued to pour out of the developed world. The OECD Trade Committee, which had started working on services, released its report in March 1987. While pushing for services liberalization, it acknowledged that regulation was an essential part of services. Meanwhile, an Office for Technology Assessment study in the US acknowledged that while the country remained competitive in telecommunications and information technologies, its lead was declining in banking, finance, engineering, and construction.73 Maritime and shipping in the US had always articulated a protectionist position. The US Treasury now began to lobby against liberalization of financial services.74 The US submitted its proposal to GNS in 1987, which asked for progressive and phased liberalization and for negotiation of a framework agreement that would allow for specific sectoral agreements to come in later. The proposal was hesitant on applying national treatment to all without reciprocity. Several other proposals followed, all of them arguing for tailoring services liberalization one way or another. By the end of 1988, there were thirty-five proposals to consider. No final agreement could be struck, but there were broad enough agreements on the services agenda and principles for GNS to prepare a draft text for Montreal “which included a fairly large number of open points (‘square brackets’), none of which, however, seemed likely to give great difficulty.”75 At Montreal, these broad principles were honed down further and a negotiating timetable was set for the future. 70 72 74

Drake and Nicolaides 1992, pp. 78–9. 71 Oxley 1990, pp. 108–9. Singh 1999. 73 Drake and Nicolaides 1992, pp. 76–7. Oxley 1990, pp. 186–7. 75 Croome 1999, p. 109.


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From Montreal to Brussels The services coalitions continued evolving as they were before Montreal but with divisions in US service industries becoming entrenched. While developed country interests began to question the services agreement as it was evolving, those of the developing countries moved toward it. The GNS preparedness at the Montreal meeting helped to push its agenda into specific directions until the Brussels meeting. The four modes of supply and trade principles such as national treatment and market access were a fait accompli by now. Issues of sectoral coverage and application of MFN were key agenda items. Developing countries tried to define the agenda for both of these in their favor while building coalitions of support. On one particular issue of importance to them, however, the cross-border movement of unskilled labor, they found little support. As before Montreal, the support for services negotiations continued to decrease in the US and this was tied to the MFN issue, too. With the framework of modes of supply and principles in place, GNS moved toward sectoral testing exercises, involving micro-agendas, in 1989. The sectors were: telecommunications; construction; transportation; tourism; professional services; and financial services. This list was pared down from thirteen sectors and over 100 sub-sectors. In general, these exercises revealed the limits of applying many of the GATS principles carte blanche to sectors covered. Second, specialists from these sectors got involved. In telecommunications, the support of the ITU helped to resolve many technical matters but its involvement also might have allowed developing countries to resist moves toward cost-based pricing that the US wanted (the ITU supported the old pricing regime).76 Coalition-building with developed countries allowed developing countries beneficial outcomes. One of the debates that arose from sectoral exercises, and the fifteen papers that were submitted by countries during autumn 1989 was the scope of sectoral coverage. Here, the US wanted a top-down approach of a negative list requiring countries to list sectors and sub-sectors that were not covered. This position was viewed as extreme by most of the developing countries and many of the developed ones, mainly within the EC. The latter, supported by the developing world, wanted a bottom-up positive list covering only the sectors listed.77 Furthermore, proposals by India and Brazil argued 76

Singh 2002b. Also see Chapter 4.

77

Preeg 1995, p. 104.

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for support of infant industries and transfers of technology. By far the most demanding proposal was that of the US in October 1989, which asked for broad sectoral coverage as well as specific commitments. The proposals from the US, Switzerland, New Zealand, and Korea proposed the name of the framework: the General Agreement on Trade in Services. Subsequent evolution of this issue shows increasing concerns in the developed countries. The fifteen-page draft that GNS put together in November 1989 from these proposals was full of square brackets and major debates continued to flare up. There were crucial sectors or subsectors that the developed world wanted to exclude. One of the most famous of these is the French “cultural exception,” which applied to audio-visual negotiations (see Chapter 4). But support for services in the US was also coming undone. Maritime industries were opposed to giving up their protections, telecommunications and finance did not want to liberalize if others did not, and the airlines were hesitant. Significantly, the Coalition of Service industries changed its position and denounced the services framework coming out of GNS. In July 1990, the USTR announced that the US would need to derogate from MFN in shipping, civil aviation, and basic telecommunications.78 This was followed by USTR Carla Hills’ announcement in November that the US did not agree to unconditional MFN in services. The EC and developing countries were outraged. Ironic, given that a little over three years previously, developing countries did not even want to negotiate services. On July 23, however, Felipe Jaramillo sent over to TNC his own proposed text for an agreement. Even as broad agreement still needed to be struck on sectoral coverage and MFN, the proposed text contained all the elements of the agreement that would finally become GATS. Section One dealt with Scope and Coverage detailing the four modes of supply. Section Two covered General Obligations and Disciplines, which included principles such as MFN, transparency, harmonization of regulations (see table 3.2). Section Three, Specific Commitments, covered market access and national treatment. Table 3.3 shows a sample GATS schedule: countries were required to make “horizontal commitments” that applied to all sectors and vertical commitments, which were sector specific. Section Four was Progressive Liberalization 78

Drake and Nicolaides 1992, p. 87.


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Table 3.2 General Agreement on Trade in Services: select features PART ONE Article I

Scope and definitions. Four modes of supply

PART TWO: GENERAL OBLIGATIONS AND DISCIPLINES Article II Most favored nation. Allowed exemptions for one-time Article III Transparency. Pertaining to publication and disclosure Article IV Increasing participation of developing countries Article V Economic integration. Allowing preferential trade agreements Article VI Domestic regulation. Allows domestic regulation of service delivery Article XIII Government procurement. Exempts government procurement from MFN Article XV Subsidies. Recognizes trade distortions from subsidies PART THREE: SPECIFIC COMMITMENTS Article XVI Market access. Allows restrictions on market access on any of the four modes of supply Article XVII National treatment. Allows restrictions on national treatment on any of the four modes of supply. PART FOUR: PROGRESSIVE LIBERALIZATON Article XIX Negotiation of specific commitments. Successive GATS negotiations to take place in services sectors (this feature enabled telecommunications negotiations discussed in Chapter 4) Article XX Schedule of specific commitments. Lays out the format for specific commitments (see table 3.3) PART FIVE: INSTITUTIONAL PROVISIONS Article Dispute settlement and resolution. Provides recourse to XXIII dispute settlement provisions of WTO

(see table 3.2). In the Jaramillo text, Sections Five and Six, Institutional and Final Provisions, were incomplete. Issues of sectoral coverage and MFN continued to dog the negotiations and, by late 1990, it was clear that there was no time for negotiating specific commitments that the US wanted before the Brussels meeting. India, Brazil, and Egypt had argued that the mandate of GNS was only to negotiate a framework.

Source: www.wto.org.

Limitations on Market Access

Additional Commitments

(3) Commercial presence (4) Presence of natural persons

Limitations on National Treatment

(1) Cross-border (2) Consumption abroad

Sector or Sub-Sector

Modes of supply:

TABLE 3.3 Schedule of specific commitments


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In the Green-Room discussions that followed, LDCs in particular were not willing to move the discussions further until issues such as textiles and agriculture were moved forward.79 Given the disagreements, the draft that Jaramillo forwarded in November 1990 on his own responsibility added to the six sections of the May draft a list of annexes (maritime, inland waterways, road transport, air transport, basic telecommunications, telecommunication services, labor mobility, and audiovisual services). The ministers at Brussels were both impressed as well as stymied by the scope, complexity, and the tentative language. Croome quotes an EC delegate as noting that “the ocean of brackets” made it “well-nigh impossible to distinguish substantive political opinions from mere technicalities.”80 However, negotiations on services in Brussels were moving forward quite smoothly until the protests by 24,000 angry farmers and the agriculture impasse brought the ministerial to a close. From Brussels to Marrakesh The TRIPS negotiations after Brussels were fairly straightforward and essentially completed by December 1991 although developing countries did manage to squeeze a few minor concessions from the North on transition periods and dispute settlement. Issue-based coalitions worked in these cases. The services negotiations dragged on into the early morning of December 15, 1993, the deadline to conform to the twice re-sanctioned Fast Track Authority of the US President for the Uruguay Round from the Congress. The text was then forwarded for the Marrakesh meeting in April 1994. After Brussels, GNS continued to work as it was but the other fourteen negotiating groups were reduced to six; the groups on textiles, agriculture, and TRIPS were of immense importance to LDCs. The MFN issues in 1991–92 and the services sectoral commitment issues in 1992–93 dominated the Round in many ways, apart from discussions on agriculture. MFN discussions took all of 1991 in GNS. The US had softened its stand on MFN in Brussels but was still afraid of according a general obligation with no restrictions, especially as its telecommunications 79

80

Croome 1999, p. 214. Green-Room, taking its name from the color of its walls, refers to a room adjacent to the WTO Director General’s office where small group discussions were possible. Sometimes, it is referred to pejoratively in terms of exclusion and non-transparency of WTO negotiation processes (see Jawara and Kwa 2003). Croome 1999, p. 215.

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and financial sectors were quite open already.81 One set of countries in GNS wanted sectoral agreements on exemptions but others felt it would lead to widespread use of exemptions. The compromise in July was to ask countries to submit lists of activities or measures for which they would seek MFN exemptions rather than entire sectors. However, the MFN issue was kept alive by the US insisting until mid-1992 that it was not ready to give MFN to those countries making weak sectoral offers.82 The TNC reviewed the 440-page Draft Final Act on December 20, 1991, and noted the lack of sectoral commitments in services. In January, a four-track approach toward the Round emerged, with tracks one and two in goods and services, respectively. A March deadline was fixed for making commitments but only forty-seven offers had come in by April. The number increased to fifty-four covering sixty-seven countries by the end of 1992. Sectoral commitment negotiations continued into 1993. In telecommunications, India and Egypt opposed a measure proposed by the US calling for cost-based pricing. The services group did not agree but the US delegation in December 1993 gave in. EC support was crucial here (see Chapter 4). As a result of this and the complicated nature of telecommunications, it was agreed to continue negotiations in basic telecommunications (and also financial services) after the Round closed. The agreement in telecommunications came about in 1997.83 The most hotly contested issue, one that almost broke down the Round at the last minute, was audio-visual. While this was mostly a US-EU issue, both India and Brazil would benefit from trade liberalization in audio-visual. However, India sided with the US on this issue, while Brazil supported the EU. Quite a marked difference from the types of coalitions that came about in TRIPS!

Outcomes and analysis84 The final outcomes for GATS and TRIPS are hard to predict without examining negotiation processes. Above all, the changing interests 81 82 83 84

Croome 1999, pp. 271–2. The most famous MFN exemption in GATS was, of course, the one claimed by EU after the failed audio-visual talks on December 13, 1993. See Chapter 4 and Singh 2002b. Two clarifications are necessary. First, given the importance of TRIPS and GATS for the other chapters that follow, the analysis of these agreements here is somewhat detailed to understand the subsequent chapters. Second, the issue


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of the North and the South, that altered the alternatives available to both parties, explain the two outcomes as well as the differences between them. The “national” interests themselves reflect not only the changing positions of domestic constituencies, as the negotiations evolved, but also the workings of negotiation tactics such as framing, agenda-setting, coalition building, and unilateral threats. Overall, while TRIPS strategies were value-claiming on both sides, GATS negotiations started off as value-claiming but after the Round was launched were marked by mixed motive, and even value-creating, periods. Had the interests of countries, and in some cases those of domestic constituencies, not changed during the negotiation process, the North would have heavily supported GATS and TRIPS might have had a limited scope. Both would have been opposed by the developing world, though services would have garnered much more opposition than intellectual property. In reality, the interest in an expansive GATS, or in its key sectors, seemed to wane among developed countries while the developing world had almost a 180-degree turn in support of GATS. In intellectual property, the North’s interest in an agreement on counterfeit goods changed to one for a TRIPS agreement that covers an array of IP infringements. The South moved from barely being organized to oppose the IP agenda, to explicitly opposing the TRIPS outcomes at the end. It learned its lesson: the opening of the Doha Round was held up until the North made crucial concessions on IP – Paragraph 6 of the Doha health declaration instructed the Council for TRIPS to find a solution for countries with public health emergencies that lacked manufacturing capacities to institute compulsory licensing, a task completed in August 2003 after contentious negotiations in which the US sought assurance that these licenses would not lead to exports to the developed world.85

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of services and TRIPS in the Doha Round of trade negotiations that began in November 2001 will be taken up in other chapters, too. As the GATS framework provided for on-going negotiations, Chapter 4, in fact, deals with the post-Uruguay Round period. Discussions in Chapter 6 on electronic commerce are also relevant to the Doha Round. The text reads as follows: “We recognize that WTO Members with insufficient or no manufacturing capacities in the pharmaceutical sector could face difficulties in making effective use of compulsory licensing under the TRIPS Agreement. We instruct the Council for TRIPS to find an expeditious solution to this problem and to report to the General Council before the end of 2002.” WTO, November 14, 2001. See also Chapter 7 for other issues related to global governance and TRIPS.

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The negotiation contexts predisposed the North to seek to put both new issues on the agenda and the South to oppose them. However, the North’s BATNA was better in TRIPS than in services. This may account for the aggressive use of value-claiming strategies, and tactics thereof, in the TRIPS case. Therefore, the process of TRIPS negotiations cannot be understood by focusing on anything other than the bilateral North-South type negotiation context and process. Before the Uruguay Round opened, the South stood united in its opposition to inclusion of IP but did not expect the expansive IP agenda that would follow after the Punta del Este meetings. Divisions among developing countries after these meetings played into a wide-ranging TRIPS agreement: unilateral threats from the US in the form of Super 301 resulted in the “moderation” or “defection” of a few East Asian and Latin American states and served to further isolate and pressure hardline countries such as India and Brazil. The divisions among domestic and international constituencies in the services case and the lack of consensus on one particular outcome, beyond wanting services liberalization, left both the North and South in search of formulas in the services negotiations. Meanwhile, the existing and somewhat weak patchwork of agreements governing services sectors – many of them sanctifying national monopolies – provided a somewhat weak BATNA to the developed world here. Unilateral threats, like the type used for IP, would not have worked here because no specific solution, to which the other side was to comply, was being proposed. Instead, the developing world was included from the beginning in the negotiations, as in the Jaramillo group and GNS, and worked in a technocratic and problem-solving fashion to effect gains in its favor. Coalition-building overlaps both the negotiation context as well as the process. In the former case, it refers to coalition-building prior to the negotiations. The mobilization of domestic constituencies, and their changing interests, is one of the factors explaining the variability of win-sets during the negotiations. This chapter concentrates on the influence of domestic constituencies, mainly businesses, on negotiations. Before the Uruguay Round started, businesses in services and intellectual property in the North clearly favored strong agreements. The services coalition was quite monolithic while the one on intellectual property was still evolving. Over time, the IP interests strengthened and closed their ranks, but the services interests became divided.


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Among developing countries, the IP interests remained entrenched in their opposition to services but whereas they were hardly mobilized at the beginning of the Round, they presented almost a transnational coalition opposing TRIPS at the end of the Round. The only deviation here was in the marginal gains in a few provisions (such as Article 31) from coalition-building with the EC or Canada that also resulted in flexibilities on transition periods and exclusive marketing rights. A few gains were also made toward the end of the Round, for example by the 10 plus 10 group, by forming issue-based coalitions on technical issues. In services, developing countries’ interests began to reflect the growing importance of services to their economies. In many cases, these services sectors were owned and controlled by the state but market liberalizations were underway as in telecommunications and banking. In other cases, important private sectors already existed such as financial services from the Caribbean, construction from East Asia, and audio-visual content from India or Brazil. This chapter is concerned with explaining the differences in negotiation outcomes, starting with interests of domestic constituencies and transnational coalitions (as in TRIPS) and then building to national interests and their intersection with international negotiation processes. However, the origins of domestic interests themselves are important. In particular, the feedback loop between negotiation processes and the reorganization of domestic interests is not examined here but must be included to understand the overall role of negotiations. An analogy might help: just as market transactions not only reflect but also shape consumer behavior (and interests), international negotiations as political markets or interactions also shape the interests of all actors involved at both international and domestic levels. Empirical analyses of such third image reversed influences, especially as they apply to the first image, are sorely needed. The chapter does examine the way negotiation tactics, a set of interactions at the systemic international level, alter the matrix of alternatives for the negotiating parties in general. Agenda-setting, framing, coalition building, technocratic problem-solving, and unilateral threats are examined in depth. Two types of frames are necessary to get IP and services on the agenda. Prior to the Uruguay Round, US officials and industries spent considerable resources in persuading their negotiating partners that these issues were indeed trade issues. Subsequently, the IP agenda would be framed in terms of “theft” and

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services would be framed in terms of competitiveness and profits. As shown above, both developed and developing countries bought into the services frame but many developing countries continue to resist the theft frame.86 In terms of agenda-setting, this chapter shows that paying close attention to agenda-setting in services before and during the Uruguay Round resulted in inclusion of issues in such a way as to allow later on for concessions favorable to the developing world. In intellectual property, the agenda was not watched so closely allowing the developed world to work toward an expansive TRIPS. Officials as well as scholars now acknowledge the lack of attention paid to the deliberately fuzzy language that allowed for the IP agenda to follow. It may be appropriate then to speak of a negative delayed agenda formation effect: delays in accepting agendas can result in worse outcome if resources are not spent by the opposing side in countering or cutting the agenda. Such resources, as discussed in this chapter, may include paying close attention to the domestic interests of countries pushing the agenda, participation in agenda-setting meetings, and producing technical information supporting a counter-agenda and counter frames. On the other hand, a positive delayed agenda formation effect can be identified for services in general or for IP after 1989 when the developing world did pay close attention to agenda-setting with enormous resource costs incurred. For services, the two-track decision at Punta del Este that set the stage for other concessions on services later on resulted in part from agenda-setting by the developing world. Agenda-setting is an important antecedent for ensuring concessions to oneself in negotiations. But, once an issue is on the agenda, other negotiation tactics must be used: these same tactics may be used to get items on the agenda, too. Coalition-building with important players or around particular issue-areas can effect concessions. Coalitions often require compromises and thinking strategically about one’s interests and linking them with those of the others. Quite obviously, the coalition-building by the US on services and IP paid off for getting these items on the agenda and with other concessions. However, in services the coalition showed divisions in ranks, mostly because of the differing nature of service industries backing national governments but also because coalitional interests changed as the differential impact 86

Odell and Sell 2006 show that by the beginning of the Doha Round the anti-TRIPS coalition successfully reframed the access to medicines issue using the public health frame.


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of the evolving GATS framework began to be assessed by coalitional partners. Developing countries were able to use the divisions in ranks and also the two-track decision to keep building coalitions of support. The two-track decision itself, while an agenda-setting victory, also reveals coalitional influences: the EC defection from the Prepcom meetings and the Jaramillo group were crucial here. Similarly, the other major victory, the inclusion of positive and negative lists as part of GATS resulted from similar processes. In IP, the developing countries were unable to exploit any divisions in the ranks for coalition-building purposes when the Round opened and, as noted above, came under unilateral pressures from the US. These pressures, in fact, served to weaken the developing country coalition and led to the ‘defection’ of several East Asian and Latin American states. Coalition-building around micro issues after 1989 did allow them to effect concessions in phase-in periods and compulsory licensing.87 However, by then the developed world already presented quite a monolithic coalition and thus only minor concessions were possible. Based on the empirical evidence in this chapter, two additional observations about coalition-building can be made. First, moderate coalitions negotiate between extremes to try to break deadlocks, in what may be termed the Café au lait effect.88 That a moderate coalition, the Jaramillo group, developed in services is interesting. Scholars of domestic politics, especially American government, are 87

88

“Given the relatively unified assault by the North against the largely weak and divided South, the achievements of developing countries in maintaining a certain balance between public interest and strengthened protection, were small but surprisingly significant . . . these results would not have been possible without the direct or indirect issue-based support from several developed countries.” Watal 2001, p. 43. I am thankful to social movements theorist Cathy Schneider for noting that this is what social movement theory terms the “positive radical flanks effect” (Haines 1984). However, I prefer the term “Café au lait effect” because it calls attention to an exemplar in negotiation history and also steers clear of any group being termed radical. Social movement theory also uses it to show how groups in the middle always draw the most support. In negotiation histories, the effect is more about breaking deadlocks while the extent to which they draw support is questionable. After all, while inclusion of services on the agenda might be due to the Jaramillo group, the two track decision owes as much to the defection of EC to the developing country hard-line group. I am instructed by the social movement literature, which notes that this effect may be positive or negative. Haines 1984 examines the funding of the civil rights groups from 1957–70 to show that donors gave more to perceived moderate groups because of groups that got characterized as “too far out.”

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used to noticing moderate coalitions develop out of extreme ones to break deadlocks. That it happened in services but not in IP is instructive for lessons on not only how to form moderate coalitions (as in services) but also on how to prevent them (as in IP). The inability of a moderate coalition to form in IP might be seen later in negotiation histories as a bit of an anomaly. It may even be argued that the very reason that Brazil and India caved in in 1989 might be due to the latent “moderation” or “defection” in the developing world ranks, the latter featuring many of the same countries as in the Café au lait group. These East Asian and Latin American developing countries had, by 1989, softened their opposition to IP due to either their own incipient strength in IT industries or due to punitive threats from the US in the form of 301 pressures.89 The Café au lait effect is consistent with the two coalition building sub-hypotheses of this chapter; such coalitions are particularly effective when they include important players or when they form around sub-issue areas. This effect can then be seen as one of the outcome variations specifying a new set of credible alternatives. Second, the interplay between micro (sub-issue) versus macro coalitions is interesting. In either case, important players must lend their support. However, the findings of this chapter only offer preliminary conclusions regarding the choice between macro versus micro coalitions. Quite clearly, the victories in services were due to macro coalitions while those in IP were micro ones. It would seem that micro coalitions are only good for chipping away at the margins. However, macro coalitions also consume enormous resources.90 89

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The incipient pro-TRIPS moves, albeit outside of public health crises, may have come to fruition in the Doha Round. TRIPS observers now point out that even countries like China and India are moving toward strengthening their patent regimes as their domestic software and pharmaceutical industries are increasingly internationalized. However, this evidence is hard to find (Financial Times, August 18, 2004). Brazil in 2000–1 and India in 2005 passed legislation complying with its Uruguay Round TRIPS commitment, albeit with stiff opposition. A survey by MPAA in 2006 did reveal that the Chinese film industry may be interested in enforcing copyright provisions (see www.mpaa.org) (also, see Kantor, November 19, 2004). Interviews by the author in Johannesburg with film industry associations and with the music industry in Dakar revealed similar interests in copyright (interviews, November–December 2006). A policy lesson about macro-coalition building and agenda-setting is then obvious: start early.

4

Cultural industries and telecommunications: multilateral sectoral negotiations

Has cultural botulism yet appeared anywhere in Europe? Is the culture in any of these European countries so flimsily anchored that European consumers must be caged and blinded else their links with their past, like an exploding star vanish? Or is the real game not culture, but commerce? Jack Valenti, Former President Motion Picture Association of America1

The two negotiations examined in this chapter were part of the sectoral talks resulting from the evolving General Agreement on Trade in Services during the Uruguay Round. The previous chapter showed that the GATS agreement enabled countries to make their international commitments primarily based on their domestic liberalization schedules, making the task of services commitments easy. This chapter goes a step further: beginning with the same overarching GATS framework, two sets of negotiations are examined. Both were hard to negotiate – one ended in no-agreement on market liberalization and the other in agreement but after several modifications. However, both were part of the same services framework involving the same set of countries. Both are communication industries, one involving the telecommunication infrastructures and the other cultural industries, or audio-visual in WTO jargon. Both came out of the monopoly model: telecommunications and parts of audio-visual industry such as television and radio broadcasting feature either state monopolies or dominant state firms slated for future liberalization. Furthermore, in a digital age, both are about distributing and selling content and with convergence of technologies, the distinction between the two issues is becoming increasingly hard to maintain.2 Given the many relations between the 1 2

Valenti 1989. See Part IV of Geradin and Luff (2004) that brings together essays on convergence between telecommunications and audio-visual issues at the WTO.

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two issues, it is ironic that agreements are coming about in one sector and not the other. A reference to the sectoral exercises in GATS, for which an initial list was drawn up as early as mid-1989, was made in the previous chapter. By 1990, the broad rubric of a possible services agreement was ready and thus a few sectors were identified for negotiations. Of these, telecommunications and audio-visual were the two that received most attention. When the overall framework was already in place, why were sectoral services negotiations hard? Both sectors were negotiated according to the precepts of GATS. Those participating in the talks had already agreed to make a set of so-called “horizontal” commitments applicable to all sectors that would necessitate MFN on commitments in market access and national treatment in the fours modes of service supply (see Chapter 3 for details). In addition, countries could make, though not required beyond a minimal commitment to a token sector, “vertical” or sectoral commitments, which similarly followed the principle of MFN for market access and national treatment.3 Taken together, the commitments illustrate the positive and negative lists compromise worked out at the Uruguay Round: countries would (positively) list their commitments and also (negatively) list their exemptions. For example, an “unbound” entry under market access for Mode 3 in telecommunications would mean that a country was not bound by any commitments to provide for market access where a commercial presence by a foreign operator was required in the territory. While a commitment, it would effectively rule out any significant liberalization because service provision without commercial presence would be meaningless unless the operator in question was leasing capacity from a domestic provider. Given this context, the “no-agreement” in audiovisual in this book must be understood in the negotiation context of a no-agreement between the US and the EU detailed later, as opposed to the various audio-visual commitments that many countries did make.4

3 4

Technically, the same conduit might serve to convey both telecommunications and audio-visual content. See table 3.3, which presented a sample schedule form for commitments in services. Technically, the EU took an MFN exemption in the audio-visual sector and made commitments in TRIPS, which through its anti-piracy provisions, impacts cultural industries. According to Sauvé (2006, pp. 12–13), fifty-eight countries have made commitments in audio-visual, of which twenty-nine countries made

Cultural industries and telecommunications

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The two negotiations examined here present many similarities, but the differing outcomes are explained by the contrasts in market structure and differences in the negotiation process. In terms of market structure, the audio-visual sector featured state television monopolies domestically in most countries. But Hollywood films and US television programs also dominated these markets. In telecommunications, Europeans and others are still liberalizing their telecommunications markets, domestically and internationally. That means making at least status quo commitments in audio-visual toward liberalization might be easy while trying to secure commitments on telecommunications might be a little harder. The status quo or BATNA in telecommunications was domestic monopolies except for a few countries that were liberalizing. The status quo in audio-visual is a liberalized marketplace for distribution of content and a state-run or heavily subsidized one for its production, especially in Western Europe. Both sectors are fearful of future liberalization but while the telecommunications industry is headed in the direction of liberalization, the broadcast industry – at least in Europe – seems to be enacting legislation that would limit the content from non-European, read American, producers. However, the difference in the direction of the evolving market structures needs reiteration: the telecommunications industry is moving toward liberalization while the audio-visual industry, at least in Europe and led by France, seems to be heading away from further liberalization. In terms of the negotiation process, both feature coalitionbuilding but the ones in telecommunications are issue-specific while those in audio-visual, centered on cultural identity, are highly politicized and visible. The latter feature speaks to the difference in another set of negotiation tactics: the audio-visual negotiations are framed as crucial to the preservation of national identities, the telecommunications negotiations involve highly technocratic exercises. Also both feature venue-shopping: in audio-visual an international coalition tries to take the issues out of the WTO to UNESCO; in telecommunications, the US and others take the issue out of the ITU into the WTO, making the latter “the single most important organization in commitments in motion picture and video production and video services (the subject of this chapter). The most important case of a true “cultural exception” remains NAFTA, where this sector was excluded from any type of agreement due to Canadian and, to a limited extent, Mexican opposition (see Robert 2000, ch. 3).

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telecommunication liberalization.”5 Finally, both sets of negotiations feature trade-offs: the audio-visual deal between the EU and the US is called off at the last minute at the Uruguay Round in exchange for the US taking MFN exemptions in other sectors; the telecommunications trade-offs are intra-sectoral featuring sub-sets of telecommunications industry and a “peace clause” in accounting rates or telecommunications tariffs, which allows this divisive issue to be taken out of the negotiations. In the end-games, the high-stakes game played in audiovisual makes the BATNA, an MFN exemption, an attractive option for the EU. Meanwhile, the negotiations in telecommunications provide further impetus to countries to undertake commitments making their BATNAs unattractive. While most of them make status quo commitments, a few countries go beyond the status quo for entry into each other’s markets or to become global players. The cases examined in this chapter are particularly relevant for two lessons about the overarching arguments made in this book. First, more than any other chapter in this book, the alteration or construction of national and regional interests is most visible in the audio-visual negotiations that are inextricably tied with the evolving regional identity in the EU. Thus, the links between interests and identities, both of which are mutable, can be most clearly seen here.6 The focus on national interests and identities is deliberate in this chapter: it shows that states continue to push for such frames even when negotiating within a regional framework, such as the EU here, or facing sub-national pressures. Germany, for example, finds AV negotiations constitutionally problematic because the issue falls under Lander jurisdiction. Second, ¨ this case shows that just because negotiations are multilateral and characterized by diffusion of power, they do not have to end in agreement. The telecommunication negotiations are left incomplete at the end of the Uruguay Round to be picked up later after the Round ends. The audio-visual negotiations end in a well-known no-agreement between the US and the EU that almost brings the workings of the Uruguay Round to a halt, leading ten years later to the framing of a convention on cultural protections through UNESCO. GATS then only posits a framework, even status quo commitments cannot be taken as granted.7 5 6 7

Braithwaite and Drahos 2000, p. 347. Constructivist conceptualizations such as Katzenstein (1996, 2005) and Wendt (1999) enunciate arguments linking identities and interests. An ongoing concern about GATS is that it makes liberalizations easy in not asking countries to go beyond their domestic liberalization status quo. As such,


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Cultural industries Negotiations in cultural industries often fail to produce an agreement.8 Why? The case analyzed here involves mostly the US and Western Europe, in particular France during the Uruguay Round and France and Canada thereafter. From the late-1940s onwards, Western Europe has (successfully) argued that cultural industries, especially films, needed special protections such as quotas. Around the time of the Uruguay Round of trade talks, from 1986 to 1994, the need for a “cultural exception” supplemented the language of quotas. This resulted in the EU taking the now-famous MFN exemption, a technical opt-out clause from the audio-visual agreement that did come about, which allowed it to preserve its cultural industry policies. The main issue concerned the 51 percent programming quota for television that had come out of a European Commission’s Television Without Frontiers Directive (TWF), which came into force in 1992 just as the Uruguay Round headed to its end-game. In reality, very few states implemented this quota but the EU position was to try to enshrine this quota formally through GATS. In the WTO’s jargon, the EU sought to make a status quo binding. A related issue was the EU position that content restrictions apply to all of the 300-plus channels that were coming about as a result of satellite and cable technologies. The US wanted it restricted to 50 to 70 percent of the channels. Television programs in France, and in many other European states, are subsidized by film box office receipts and levies on blank video-tapes used to record these programs. Given that US films and television programs dominate in Europe, the Motion Picture Association of America (MPAA) also argued that they were subsidizing European television and objected to the agreement sought by the Europeans at the Uruguay Round. The following analysis will explain how coalition-building and issueframing, especially on the European side, resulted in Europeans opting for their BATNA in taking an MFN exemption. Especially important to an understanding of the coalition-building is French officials’ efforts

8

this chapter provides some counterpoint. Even status quo commitments are not easy. A full treatment of this question is beyond the purview of this book but it is important to call attention to it within this book’s context; cultural industries are globalized and the disputes underlying these industries often take place in negotiation venues (see Voon 2007; Goff 2007; Robert 2000).

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in convincing the somewhat reluctant Germans and the British to go along. As a result, Western Europe’s BATNA prior to and at the end of the Round remained the TWF directive. The US BATNA was its market entrenchment in many European markets, but it feared losses in these markets if the TWF initiative created further restrictions.

Negotiation context The audio-visual negotiations came about in a multilateral setting and coalition-building, especially within Western Europe, was important to the negotiation outcome. While Canada and audio-visual content exporters such as India, Brazil, and Hong Kong were key parties, the core of the negotiation concerned the US and the EC.9 Thus the negotiation context discussed below focuses on the somewhat bilateral nature of this negotiation, the dominance of a single issue (quotas), coalition building in Europe, and the market conditions faced by European and US producers. It is first necessary, however, to historically examine quotas in the context of European cultural industries, in general, and the development of the TWF Directive in particular. Historical context Hollywood’s moves to dominate the European market and the latter’s history of protections can be traced back to the 1920s.10 At that time, studios began to put distribution networks in place in Europe, which allowed them to achieve economies of scale in distribution throughout Europe. The British constituting the biggest export market for Hollywood, instituted quotas in films with the Cinematograph Films Act of 1927 (renewed in 1938). The war wiped out the capacity of film producers in Italy and France. Thus, when the GATT agreement was 9

10

The European Union (EU) came into being with the Treaty of Maastricht in 1992, before which it was known as the European Community (EC) between 1985 and 1992 and the European Economic Community (EEC) before 1985. The abbreviations used in this chapter correspond to the period in question. For an excellent history of Hollywood’s export drive from 1920 to 1950, see Jarvie (1992). See Da Grazia (2005) for the way the US has used its cultural products in general to become an “irresistible empire.” However, the US is not alone in this. Katzenstein (2005, ch. 5) discusses the role of cultural products in the diplomacy underlying Germany and Japan. Joseph Nye’s (2004) work on soft power has ignited those who believe cultural diplomacy is important in resolving conflicts. See Schneider 2006.


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being framed, European countries used an infant-industry argument to keep films out of the GATT agenda altogether. However, the US Department of Commerce, as well as the American armed forces in Europe, were fierce defenders of Hollywood’s interests and the film industries in Europe were allowed either to institute import quotas (as in France) or screen time quotas (as in Britain). Nevertheless, audiovisuals was the only service sectoral “good” mentioned (and excepted) in the original 1947 GATT framework (Article IV: “Special Provisions Related to Cinematograph Films”) to allow for such quotas and screen times.11 Summing up successive GATT negotiations, Jarvie notes: “In the fifty years since the GATT was negotiated, film and television issues have not made it beyond the agenda of the various ‘rounds’ of renegotiations (e.g. the Torquay round, the Dillon round, the Tokyo round).”12 Of particular importance also is the Washington Agreement signed on May 26, 1946 between Secretary of State James F. Byrnes and former head of the French Popular Front Government Léon Blum.13 Two pages of this agreement pertained to the film industry and have come to be known as the Blum-Byrnes Agreement. The Agreement established quotas for foreign film coming into France. Initially, in 1946, four weeks per quarter were restricted for French films and raised to five weeks by the Paris Agreement of 1948. During the Uruguay Round, the French and other Europeans sought to build a case for “cultural exception,” by pointing to the early history of GATT and the film quotas. In particular, the French officials often invoke the Blum-Byrnes Agreement, in which Jean Monnet was personally involved, to argue their case in terms of historical precedence.14 When this agreement was framed, this exception implied quotas. Thus, what became a cultural argument for the French was an economic infant industry based argument for the Americans. 11

12 14

Magder 2004, p. 388, notes: “Article IV’s placement just after Article I on Most Favored Nation (MFN) treatment, Article II on the Schedule of Concessions, and Article III on National Treatment, is an indication that it was no afterthought in the drafting of GATT.” Jarvie 1998, p. 40. 13 This paragraph builds on Jeancolas 1992. Based on interviews. Interestingly, the agreement was to be enforced by the Centre National de la Cinématographie (CNC). CNC is responsible for the state aid given to the film industry by a tax on box-office receipts and, from 1984 onwards, via a tax on TV network profits. These taxes on receipts and profits would become an issue during the Uruguay Round.

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The history of the television industry does not involve negotiations or quotas until TWF and is fairly straightforward. Radio emerged as a state enterprise in Europe in the 1920s and when television arrived in 1950s, it too went under state control.15 As such, television market regulation was easier than the commercial film markets. The Television Without Frontiers Directive came about just as the European TV market was being deregulated and liberalized. Television Without Frontiers The audio-visual dispute during the Uruguay Round centered on the 1989 “Television Without Frontiers” (TWF) Directive issued by the European Economic Community. In introducing content quotas for non-European programming, it brought on the ire of US film, broadcasting, and recording industries that immediately began to pressure law-makers in Washington to bring either direct pressure on the Europeans or indirect pressure via the GATT process. The dispute reached the bargaining stage from November 1992 to December 1993 and ended with the Europeans taking the MFN exemption in GATS on audio-visual services (regarded as the “no-agreement” in this chapter). The TWF Directive came after an almost decade-long debate in Europe regarding the liberalization of television while seeking to protect its domestic markets from non-European (primarily US) programming. Initially, the directive brought to the fore several divisions across Western Europe and also within the states themselves on this issue. It is at this time that the connection with the evolving European cultural identity begins to get made.16 In 1982, the Hahn Report advocated the liberalization of European television broadcasting in a step toward European unification and formation of European identity. Subsequently, a 1984 Green Paper sought to remove national barriers to broadcasting through liberalization. The Green Paper was met with opposition from the European Broadcasting Union (EBU), which eventually got the European Parliament (always sympathetic to anti-EEC proposals) to go along. Even member states objected that broadcasting was a cultural issue beyond the scope of the European Economic 15 16

Noam 1991. Of course, the European cultural idea was itself a framing device to help constitute this sense of identity. See Berezin and Schain 2003 for interesting context on this issue.


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Community.17 For these and other reasons, Belgium, Denmark, Italy, Spain, West Germany, and the UK also opposed the directive.18 Opposition also came from local sub-national authorities in countries like West Germany where broadcasting was under the purview of its Lander, thus posing a constitutional obstacle to the German federal ¨ government in taking the lead at the EC level. In particular, Bavaria was a strong objector. The directive was eventually framed in the Commission in 1986 and passed in 1989. This had a lot to do with the leadership of Jacques Delors at the Commission. He was closely aligned with the French position on quotas, which pre-date the directive, and used the quotas issue at the EU level to build European support.19 It is important to understand that there was no pre-existing European consensus around either broadcasting issues or their connection with cultural identities. The image of a united Europe rallying around a common identity is incorrect though the politicization of this directive to try to create a European identity may not be off the mark.20 The rhetoric surrounding formation of European identity through TWF also masked the fact that the television content flows amongst the member states are almost negligible. However, the French government did encourage the establishment and launching of ARTE in 1992, the French-German channel dubbed as “Tele-Maastricht,” after the Treaty of Maastricht that brought about the EU. Nevertheless, countries like the UK, with export-oriented or offensive interests in television and films, were reluctant suitors to the French position. The crucial language in the directive that would lead to the trade dispute with the US had to do with a proposed provision to restrict at least 51 percent of television programming for European content. American film and television industry opposition to the language was swift. It lobbied heavily both within Europe and also with the US Congress. A House Ways and Means Committee resolution denounced the directive. Representatives also called upon the US Trade Representative (USTR), the de facto international negotiator for the US, to institute a formal complaint with GATT in order to protest that the directive violated both MFN and National Treatment principles. Representative Bill Richardson (Democrat-New Mexico) even introduced a legislation 17 20

L’Ecuyer and Rogerson 2000. 18 Noam 1991. 19 Levy 1999. Robert 2000, p. 88, notes that the Canadian Prime Minister Wilson similarly played a Canadian “unity card” in the midst of a constitutional crisis at home.

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proposal to ban the Corporation for Public Broadcasting from buying European programming. The internal European opposition and that from the US led to a watering down of the directive. Instead of automatic quotas, a non-binding language advocating meeting quotas “where practicable and feasible” was introduced. The contention around GATT Article IV now began. Most Western European countries that originally enacted screen quotas began to phase them out beginning with Italy in 1962. The UK phased its quotas out as late as 1985. Countries, however, maintained screen time regulations in some form or another. Americans argued that Article IV only applied to film and not to television. Negotiating parties Technically, the audio-visual negotiations discussed here were part of the Uruguay Round and thus included all the signatories to the GATS framework that formed the backdrop to these talks. WTO and USTR officials note that this point is important.21 According to them, there was an agreement in place from which most countries sought exemptions. Eighteen countries did make commitments in this sector during the Uruguay Round and another eleven did so later as they acceded to or joined the WTO.22 Nevertheless, the sector accounted for the most number of MFN exemptions, 108 exemptions from forty-six countries, and only nine countries have made offers in this sector during the Doha Round of which six already had existing commitments.23 The audio-visual talks during the Uruguay Round hinged around the US and the EU (the latter negotiated as one entity for its fifteen member states). Canada was also an important player. The EU often cited the audio-visual exemption in the Canada-US Free Trade Agreement in 1989 and its refusal to put these issues on the NAFTA agenda in making their case. Toward the end of the talks, Japan also threw its weight around the EU position. The EU position itself needs disaggregation for analysis. The important players were the Commission and the French. Jacques Delors headed the Commission at that time and he undoubtedly played a major role in pushing the TWF Directive on to member states and reflecting the dominance of the French position 21 22 23

Interviews, June 2001–07. Roy 2008. Only three developed countries are included: US, Japan, and New Zealand. Roy 2008.


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in the GATT talks on audio-visual issues. According to Levy, “this point represented a high-water mark of French influence within EU audio-visual policy, and was aided by the conjunction of the Delors Presidency of the Commission and the presence of his mentor, François Mitterrand, in the Elysée Palace.”24 The Commission can thus be viewed as a “policy entrepreneur,” both reflecting as well as shaping the member state views.25 The Commission’s DG-X on Culture, closely allied with the French position, argued explicitly that without quotas US content would flood Europe.26 The major issue in the talks was the 51 percent programming quota. In reality, very few states implemented this quota but the EU position was to try to enshrine this quota formally through GATS. A related issue was the EU position that content restrictions apply to all of the 300-plus channels that were coming about as a result of satellite and cable technologies. The US wanted it restricted to 50 to 70 percent of the channels. Among the other issues, the following two were important: Subsidies: Most production in the EU is government subsidized (see Table 4.3 for support around the time of the negotiations). The US wanted limitations placed on this practice. But, in a contradictory move, the US also sought access to the cultural subsidies that the French government paid domestic producers from the box office receipts. Levies: US production studios also wanted their “fair share” of the levies raised in Europe on sales of blank video and audiotapes. These levies are collected on behalf of, and redistributed to, the artists and 24

25 26

See Ross 1995 for the way Delors centralized the Commission and exercised influence over its matters. The Delors Presidency was thus quite different from that of Jacques Santer, who did not proceed with such centralization. Richardson 1999; Sandholtz 1992. The Commission usually reflects member state competencies and, if they do not agree, the unanimity rule at the European Council level binds them to do so. In the past, the Commission has usually played an entrepreneurial role in those areas where the member states lack competencies. This was the case with intellectual property (TRIPS) and Internet domain name negotiations (ICANN). The role of the DG-Culture in playing an entrepreneurial role is unusual and has to do with the alliance of interests within its staff with the French position and, during the Uruguay Round, the Delors Presidency. I owe the clarification of these points to Derek Beach, University of Southern Denmark.

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studios under the presumption that this work is being taped from the broadcasters (studios in the US have long sought such levies but without success). US studios, while seeking their share in Europe, promised to re-invest it in Europe. According to the Rome Convention on copyright law, the EU recognizes the rights to royalty claims not just of the production studios but also the neighboring rights on artists and writers. Even though the US is a not a signatory, its studios felt entitled to the copyright royalties. The EU countered that not only was the US not a signatory to the convention, but that even the levy did not exist in the US. The latter was also concerned that with the advent of digital copying, the studios would be major losers. Coalitions Prior to the actual bargaining, the main lobbies on the US side included the major film, television and music firms. Of these, the Motion Picture Association of American (MPAA), headed by Jack Valenti, and the Recording Industry Association of America (RIAA) were important. MPAA includes all the major studios, the American Film Marketing Association, and the Motion Pictures Exporters Association. On the European side, the pro- and anti-TWF coalitions mattered. While the anti-TWF coalition was strong prior to 1989, the GATT negotiations in 1993 featured an increasingly strong pro-quota (and, by definition, pro-TWF) lobby. The case of the EBU in opposing quotas was mentioned earlier. Influential national actors included the Bertelsmann Group in Germany, the BBC in the UK, and many other national and local broadcasters. Initially, apart from French government and EU Commission support, only the European Federation of Audiovisual Workers (FERA) and the International Federation of Audiovisual Workers Union (FISTAV) supported the case for quotas. Market conditions Two market conditions, the US share of the EU cultural industry market and the government supported structure of the EU cultural industry, made both sides fairly aggressive in protecting their interests in Europe. The subsidization structure that links cinema and television, especially in France, is of importance here and formed the bulk of US objections to the TWF initiative. Audio-visual exports accounted for the second biggest export item, after commercial aircraft, from the US. In 1993, US films, TV shows


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Table 4.1 Factors influencing outcomes in cultural industry and telecommunications negotiations

Negotiation context Number of issues

Number of actors Domestic interests in negotiating countries Dominant market condition


Negotiation process Negotiation tactics

Interest alteration resulting from tactics

BATNA at end of negotiation

Outcome

Audio-visual

Telecom

Many but issue of culture versus commerce becomes salient Almost bilateral (US–EU) Monolithic (US, France, Canada) and divided US content dominates world markets: EC enacting protectionist legislation Status-quo would leave Hollywood’s share of markets intact

Many

Value-claiming: Framing, coalition-building, venue-switching Not worldwide but some internally within EU

Mixed motive: technocratic/informational, coalition-building, venue-switching Yes. Switching of interest to liberalization from protection Best alternative is for liberalization processes in various countries to move at their own pace

No agreement will allow Europe/France to continue to move toward protecting cultural industries No agreement: benefits EC

Multiple Divided

Monopoly state-owned providers but moving toward liberalization Preserve monopoly practices in basic telecommunications

Agreement: benefits all

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Table 4.2 Percentage shares of US films in Europe

Belgium Denmark Finland France Germany Greece Ireland Italy Luxembourg The Netherlands Portugal Spain Sweden United Kingdom

1989

1991

1993

1994

69.5 63.7 70 55.5 65.7 86 75 63.1 87 75.6 81 73 69.3 84

79.6 83.3 80 58 80.2 88 91.5 58.6 85 92.5 85 69 70.5 84

71.8 74 63 57.1 87.8 – – 68.1 80 89.3 61.2 75.5 72.7 94.2

74.7 66.7 66 60 81.6 82 – 65 84 90 – 72.3 70 –

Source: World Trade Organization (June 15, 1998). Audiovisual Services’ Background Note by the Secretariat. Council for Trade in Services, p. 13.

and videocassettes netted $3.7 billion in Europe, whereas the EU’s exports to the US were $300 million.27 The EU trade deficit with the US in film and television shows reached $6 billion in 1998.28 By any measure, Americans dominate the European market. Table 4.2 shows the US share of the films market in Europe. The low shares are in France and Italy, both countries with a sizable film industry, but still are 58.2 percent and 59.4 percent respectively in 1992 – meaning that the share of the domestic product was far smaller. French films, for instance, only captured 34.5 percent of the market in 1997.29 Importantly, among France’s reluctant partners, Germany and the UK, the US share of the total film market was 82.8 percent and 90.6 percent respectively in 1992. American films also pulled in 69 percent of the audiences in 1991, up from 46 percent in 1980.30 Among television programs, 40 percent of the “telefilms” being shown on European channels were American.31 27 28 30

Associated Press, December 13, 1993. www.CNN.com, November 29, 1999. 29 Lange 1998. Goff 2000, p. 557. 31 Goff 2000, p. 557.


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Table 4.3 European public support for film and video, 1994 (percent)

Germany Austria Belgium Denmark Spain Finland France Greece Ireland Italy Netherlands Portugal Sweden United Kingdom Total EU

Support production

Support distribution

77.54 94.22 96.28 94.17 92.14 85.25 40.47 91.53 100 42.1 98.6 86.12 94.72 100 62.51

10.2 5.78 3.72 2.28 2.93 11.72 6.59 8.47 – 26.32 1.4 6.16 3.73 – 10.59

Source: World Trade Organization (June 15, 1998). Audiovisual Services’ Background Note by the Secretariat. Council for Trade in Services, p. 16.

The European governments’ support for its audio-visual industry through an elaborate system of taxation, levies and subsidies (as also noted above) accounts for the other side of market conditions. Table 4.3 gives the total percentage of support for films and video in Europe for 1994. Almost two-thirds of the film and video industry production is financed through state support, rising to 100 percent in countries such as the UK and Ireland. On the other hand, there is very little support for distribution (the EU total being 10.59 percent). Most distribution channels are local and national. This is an important fact, as American producers possess considerable clout here through their transnational distribution networks, including ones in Europe. In France, a large part of audio-visual programs subsidies in cinema and television come from total cinema revenues, hence the US objection that its cinema receipts were subsidizing the very broadcasting that was crafted as a protectionist measure. The total tax is not broken down by taxes on French, EU or US content. However, Hollywood films continue to dominate box offices in France, contributing a majority

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percentage of the revenue. France levies an 11 percent TSA or “special seat tax” on every ticket sold. Cocq and Messerlin show that the subsidy structure benefits television producers at the expense of films. Between 1986 and 2001, TSA grew by 122 percent but only 36 percent of the tax revenues from broadcasters went to cinema.32 Market conditions conferred advantages on both sides. Americans were already entrenched in the European market. Thus, their main interest in eliminating quotas was to grow even more in this market. They could even find solace in the fact that most national governments in Europe were not implementing the TWF quotas.33 Most of the film and television industry in Europe is supported by the state. Thus, the decided advantage of the European side was to be able to call on the beneficiaries for support. At one point in the GATT talks, on September 23, 1993, for example, 4,000 European film personnel (actors, directors, producers, and writers) took out full-page advertisements in the major European papers in support of the EU position. Thus, arguably, the European side has in many ways a lot more to lose from dismantling the quotas or its public support mechanisms.

Negotiation process The negotiation context defined above (actors, issues, coalitions, and market conditions) resulted in an attractive alternative to not reaching any kind of an agreement both for the Europeans and, arguably, even for the US. The Europeans sought to convince the American side that they should either accept the quotas in the final agreement or let them take the MFN exemption on audio-visual services. Neither alternative was attractive to the Americans in trying to better their position beyond the status quo. However, given the American presence in European markets, the American alternative to a no-agreement was favorable enough in terms of the market share. It would dominate the market regardless of the agreement. In that sense, the Europeans had a lot more at stake in the talks. Enter the agenda-setting tactic centered on cultural identity. It relied on two interrelated points. One was to emphasize the importance of the (“aesthetically superior”) audio-visual industry to European 32

Cocq and Messerlin 2005, p. 30.

33

Levy 1999; L’Ecuyer and Rogerson 2000.


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identity and unity, and the second was increasingly to call attention to the harmful effects of the (“aesthetically inferior”) American industry. France’s former Culture Minister Jack Lang, an important force behind the TWF Directive and the EU’s GATT position, declared: “The soul of France cannot be sold for a few pieces of silver.”34 European officials warned of such phenomena as a “wall to wall Dallas” in Europe, in reference to the popular TV program from the US. France was reportedly fighting a “guerre des images” – a war of images or representations.35 Increasingly vitriolic rhetoric, in reality, was thus window dressing for the hardened EU position on audio-visual. If effective, it would decrease the American market size in Europe. The US negotiators avoided the identity frame in negotiations: in the actual bargaining, the US side used careful language, even being respectful of the cultural identity issue.36 Instead, the US officials focused on other issues.37 However, US domestic interests, especially the MPAA, lambasted the European position (even during the TWF framing exercise) on culture, calling it a mere front for hiding their weaker commercial position and may have escalated the crisis. The quote from Jack Valenti, former President of MPAA, at the beginning of this chapter and the following are illustrative: “The American movie is dominant in the world, not because of patent or formula or subsidy or artificial enticements. We are dominant because what we create here beguiles and entertains viewers on every continent, with an enchantment no other country in the world has been able to duplicate.”38 34 36 37

38

Washington Times, November 24, 1994. 35 Goff 2000, p. 553. Interviews, 2001–05. Mickey Kantor was the USTR during the AV negotiation. The European Union representatives were: Leon Brittan, EU Commissioner for External Relations and Jonathan Scheele, the EU official responsible for negotiating services. Washington Times, November 24, 1993. Upon his death on April 26, 2007, several newspapers quoted Valenti’s colorful language and the impact he had on Hollywood’s global affairs. Noted in The Guardian, April 30, 2007: “During frequent trips to Europe, Valenti would stay at the embassies of US ambassadors while pursuing Hollywood’s own foreign policy ‘with the authority to negotiate on its own terms with governments’ as he grandly defined it. His vociferous insistence on Tinseltown’s rights to unimpeded free trade nearly wrecked world trade talks (GATT) in Geneva in 1993. Accusations of American cultural imperialism merely inspired Valenti to deliver lectures on the priority of freedom of expression.”

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The Europeans countered with careful framing moves that strengthened the coalition in support of the quotas. The critique from the US cultural industry could be further characterized as Hollywood’s will to dominate. The faces people saw in the media speaking for this issue were well known throughout Europe. Goff presents a comprehensive analysis of the way the elite in Europe used the dispute to endow meaning to their borders and thus help create the momentum for a European identity.39 From the negotiation side, this framing exercise, which pointed out threats to European culture, began to serve as a binding glue for the cultural industry lobbies in the EU. The framing exercise helped to build a sense of European identity around culture and the need for quotas, although in practice the so-called European identity played a poor cousin to national identities, which states promoted. In the French case, the two were sometimes confused to be the same.40 The European Commission as well as French officials now regularly espouse the historical links between states and culture in Europe. One of them noted: “The culture is the state. The culture is the soul of the nation.”41 By any measure, the framing of the AV issue as a threat to European identity paid off. As shown earlier, the lobbies for TWF had been weak. By 1992–3, a coalition of AV interests was quite visible in Europe (incidentally the same people who depended on the state for their production costs). As a tactic it also had the additional advantage of putting well-known faces (film stars, directors, and music stars) in front of the public. A case to the point is the advertisements taken out by the 4,000 European film personnel referred to earlier. In the closing days of the talks, French TV and film producers published a paper on what Europe would lose from the agreement. French and Italian producers also held a joint press conference on the issue. It was at this time that Japan joined in favor of the MFN exemption. With powerful domestic lobbies such as the MPAA and RIAA on the US side, their collective voice matched that of the Europeans. Those who participated in the talks regularly note Hollywood’s access to the US government.42 If the Europeans framed the issue as that of identity and culture, the American lobby was consistent in framing it as trade, 39 40 41

Goff 2000. The writings on Paris as the locus of European identity go back to Victor Hugo. Interview, Paris, June 2001. 42 Interviews, July–August 2001.


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not culture. One of them notes: “we were sensitive to the culture issue but a trade barrier is a trade barrier. The way to work through it was through trade promotion and not restriction.”43 In terms of tactics, the Americans also consistently focused on the issues involved as there was no easy resolution to the ideology underlying these issues on the European side.44 This may even have resulted in occasional contradictory moves as the American side demanded a fair share of the subsidies to producers while at the same time trying to argue for their elimination. The preference ordering of these moves (for example, “if not quota elimination, then we want our fair share”) is not quite clear, thus resulting in the contradiction. The Europeans picked on moves like this, evoking the cultural “America wants to rob us” angle. However, American insistence on talking about issues, not ideologies, may have even paid off and cannot be underestimated. One American negotiator notes that they were close to an agreement on an unrestricted digital environment in Europe but Hollywood did not come along as it was fearful of illegal copying and distribution.45 One European negotiator notes that the Europeans also proposed a “standstill” freeze on the level of subsidies but that the Americans studios felt that it was not enough.46 Negotiations on audio-visual continued between USTR Mickey Kantor and the EU’s Leon Brittan well into the final hours of the Uruguay Round but the Americans rejected the close to status quo deal that the EU offered. At 6 a.m. on December 14, just before the deadline for negotiations under the US President’s Fast Track Authority were to expire, Brittan offered to bind the television quota at 49 percent – meaning it would not be increased in the future – and also offered to continue the negotiations later on for box office receipt taxes in France and those on blank video and audio tapes.47 Kantor called President Clinton – it was midnight in Washington DC – and the President called the head of a major studio in Hollywood to let him know the deal the Europeans had offered.48 The President then called back Kantor, who told Brittan that the Americans were rejecting the EU proposal.

43 44 45 47

Interview, July 2001. Lax and Sebenius 1986, pp. 69 and 231–2 suggest avoiding fundamental clashes in interest by focusing on issues instead. Interview, October 2003. 46 Interview, November 2003. Preeg 1995, p. 172. 48 Based on interviews.

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The fact that a deal was almost reached is often missed in analyses of audio-visual negotiations. Coming to terms with one issue and not another reveals that agenda-setting during all stages of the negotiations involves the subtraction or addition of issues.49 Thus, while quotas remained the major issue, issues involving taxes, levies, subsidies, digitization, and multiple broadcast channels might have allowed negotiators to reach side- or mini-agreements. It seems that both sides were interested in the latter but eventually rejected them as insufficient. This would have involved an inevitable “dance of the packages,” in which negotiators play around with various combinations of agreements on several issues that may be agreeable to the parties involved.50 As it happened, the quotas issue in the end carried the day. The Europeans offered to sign an audio-visual agreement only if the quotas issue was addressed in it. Mickey Kantor, instead of signing on something that lobbies in the US opposed, walked away from it and the Europeans took the famous MFN exemption from GATS in audio-visual. A trade-off tactic may have come into play in the end-game. In exchange for the US acquiescence on the cultural exemption, the EU agreed to support Washington’s demand for an eighteen-month exemption from the Uruguay Round obligation to open its markets to Asian financial services (Washington was feeling pressure from banks and insurance firms on allowing foreign competition into the US markets when they were not allowed to enter the foreign markets). The Europeans also withdrew pressure for concessions on the protected maritime market in the US.

UNESCO and the Universal Convention on Cultural Diversity The decade since the Uruguay Round ended has featured a progressive hardening of the European position on cultural industries. This stance has run in parallel with other coalition-building and framing moves. Most importantly, just as the US was able to venue-switch many service negotiations over to the WTO, Canada and France are leading an international coalition to switch the cultural industry issue over to 49 50

Sebenius 1983. The term “dance of the packages” comes from Raiffa 1982, who notes the possibility of combining various types of alternatives to appease negotiating parties in the end-game.


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UNESCO by drafting a Declaration on Cultural Diversity in 2001 and the Convention on the Protection and Promotion of the Diversity of Cultural Expressions, sometimes known as the Universal Convention on Cultural Diversity, in 2005. In doing so, the Canadian and French stance was also hardened by moves to include the liberalization of cultural industries in (failed) negotiations on the Multilateral Agreement on Investment through the OECD from 1995 to 1999.51 This subsection explains these outcomes and moves in terms of the same negotiation tactics outlined earlier: namely continued use of coalition building and framing. It also outlines the importance of the tactic of venue-switching. The GATS 2000 negotiations, now part of the Doha Round of trade talks, were launched in January 2000 in keeping with the in-built mandate of the Uruguay Round. By June 30, 2002, member states submitted “requests” for liberalization in the various service sectors of other member states. In effect, a request asks another member state for a liberalization in a specific sector. These requests do not go through the WTO. Only member states making and receiving requests see them. The period between requests and offers entails bilateral negotiations between members. “Offers” for liberalization were to be tabled by March 31, 2003, when the negotiation process was to become multilateral again. Offers are sent directly to the WTO and twenty-six of them, including one from the EU for its fifteen member states, were received by June 2003. Because of MFN, any commitment offer that a member-state makes to liberalize to another applies to all the member 51

Canada was also concerned after it lost a high-profile case on magazines against the US at the WTO’s newly constituted Dispute Settlement Body. In 1997, the WTO ruled against Canada content regulations on advertising for US magazines sold in Canada (called split-run magazines). Canada had imposed a tax on such magazines arguing that such magazines collected a disproportionate share of advertising. (The similarity between this tax and the French TSA comes to mind.) The WTO treated the periodical as a good and the tax was deemed a protectionist measure. The US made its case in 1996 on the basis of a few Canadian import bans and postal discriminations. The Canadians tried to make a case on the basis of protecting cultural identities but failed. The Canadians also noted that 80 percent of the magazines sold in Canada were of foreign, mostly US, origin and over 450 US titles were available (WTO July 10, 1996). Both the WTO Panel and the Appellate Body found Canada’s measures to be in violation of its GATT commitments (WTO March 14, 1997; WTO June 30, 1997).

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states. Not surprisingly, the EU made no requests or offers in audiovisual services. While it continues to push for telecommunications liberalization, the medium for the content, it deftly tries to keep the actual content or audio-visual issues out of the WTO; the moves to shift the venue to UNESCO must be seen in this context. The Commission’s DG Culture’s institutional capacity has been strengthened and the French, more or less, continue to dominate the debates. The European Trade Commissioner Pascal Lamy, a Frenchman, supported DG Culture in its tasks.52 His appointment as Director General of the WTO starting 2005 does not bode well for keeping the audio-visual issue at the top of the WTO agenda. In terms of market coalitions, the US side has been less aggressive so far in arguing for liberalization, while domestic lobbies in Europe are increasingly mobilized and seeking linkages with other international lobbies. There may be two reasons for the US position.53 Hollywood’s influence in the Bush administration is not that strong. Second, MPAA and RIAA are right now far more concerned with intellectual property piracy issues than with cultural industry liberalization. In fact, in terms of piracy, they may even have common cause with the Europeans. For a while, global merger and acquisitions in cultural industries, especially the French entertainment giant and the Hollywood Studio VivendiUniversal mergers, were seen as another reason that both the US and the Europeans might be muted on this issue but the opposite happened. Vivendi Chief Jean-Marie Messier’s American sympathies were reviled in France and when the merger came apart with financial woes, it was celebrated and Messier was removed from Vivendi in early 2003. Furthermore, European agenda-setting moves listed below are anything but muted. Lobbies within Europe continue to coalesce around keeping cultural industries out of trade negotiations even if individual states such as the UK go along reluctantly with the EU position. The European Broadcasting Union has come round full circle since it opposed moves toward broadcasting liberalization in Europe in the mid-1980s. It is now the most important voice in Europe in trying to preserve broadcasting plurality (read national programming) and, therefore, zealously opposed to international liberalization of cultural industries. EBU is not threatened by the spillovers of national programming in 52

Lamy 2002, ch. 8.

53

Based on interviews, July 2005.


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each other’s markets. As noted earlier, the flows of broadcasting content from one national market to another in Europe are limited. EBU is thus now more concerned with keeping other international, mostly US, programming out of the European market. Meanwhile, the French cinema lobbies, whose officials continue to insist that they were taken by surprise on the audio-visual issue at the Uruguay Round, have strengthened their coalitional ranks. Within France, the powerful organization ARP represents the collective voice of the French actors, directors, and producers. In Brussels, the lobbying organization Eurocinema presents European (mostly French) cinema. Four important moves by Western Europe, one at the WTO and three away from the table, reflecting the evolution of European preferences in cultural industries from cultural exception to cultural diversity, are outlined below in a non-chronological fashion for analytical clarity.

No requests or offers in audio-visual Although nearly half of the total requests in services received by the commission were in audio-visual, the EU categorically now states that it will not make any offers in audio-visual (health, education and social services utilities, along with audio-visual, were the other sectors excluded). By June 2005, of the sixty-one initial offers in services, twenty-six countries made offers in audio-visual. However, the EU did make offers in other sectors including movement of skilled personnel, transport, financial services, telecommunications, postal services, computer services, postal services, distribution, environmental services, construction, news agencies and entertainment, and tourism. Thus, the EU’s cultural industry agenda-setting moves now are about keeping this issue off of the WTO agenda altogether. Lobbying pressures within the EU are so far advocating for the continuation of the MFN exemption and not negotiating at all on audio-visual services. Prior to any requests or offers, the US, Switzerland and Brazil circulated proposals submitted to the WTO to spur debate and possible solutions to setting the agenda away from a trade versus culture issue.54 54

World Trade Organization, “Proposals for the new negotiations” : www.wto.org/english/tratop_e/serv_e/s_propnewnegs_e.htm (accessed October 8, 2003).

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French politicians critiqued Switzerland’s proposal in particular, which would entail drafting a sectoral annex on audio-visual – to, in effect, admit to the special nature of culture while also making for trade liberalization – for being insensitive to European concerns. The US proposal deals mainly with overall subsidies issues while the Brazilian one deals with ways “to promote the progressive liberalization of the sector in a way that creates opportunities of effective market access for exports of developing countries in this sector without affecting the margin of flexibility of governments to achieve their cultural policies objectives as they find appropriate.”55 Interestingly, Brazil had supported the EU moves during the Uruguay Round. At this point, digital transmissions, through multimedia convergence, raise an interesting threat to the EU’s stance on audio-visual; these transmissions make keeping cultural exports out of any territory a moot point. However, the EU’s approach to convergence is to deal with it via existing WTO instruments exclusive of an audio-visual agreement. For example, on the question of piracy of cultural content, both sides of the Atlantic are cooperating and forcing TRIPS plus-type agreements in the bilaterals they strike with other nations, especially developing countries. At the end of 2004, the French cultural minister and the chief executive of MPAA issued a declaration to crack down on piracy and “the threat that it poses to creativity, cultural diversity and, ultimately, consumer choice.”56 In February 2005, the European Commission also tabled a paper at the WTO that sought to address the broader issue of convergence by seeking clarification on the channel of communication, thus pertaining to the WTO’s telecommunications accord, rather than dealing with content issues. “In essence, the EC wanted a definition that allowed it to exclude cultural content, while pursuing its own interests in telecommunications.”57 At the level of the WTO, the EU’s preferred approach is to deal with the AV issue via TRIPS and the telecom accord. Within the EU, the Commission itself looked at UK regulator Oftel’s (now Ofcom’s) experience with regulating cultural content through convergence of technologies and leaning toward treating all pipelines as similar. 55 56

57

WTO 2001b. Kantor 2004 cites a study estimating a $5.4 billion loss to the film industry via piracy, which does not yet include films “a practice that is on the verge of exploding.” Kelsey 2006, p. 21.


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Observers also point out that France is now comfortable with the MFN exemption on audio-visual in the WTO.58 At the domestic level, this allows the French to speak of the so-called cultural exception. In Brussels, it makes the task of DG Trade easier in that it does not have to get into a bureaucratic turf war with DG Culture on this issue.

Strengthening of TWF In the meantime, the EU Commission has put into place several mechanisms to monitor as well as strengthen the TWF directive. In doing so, it brings further clout to its opposition to negotiating this issue at the WTO. TWF was amended in 1997 to include language to allow for at least 10 percent of the programming time to be filled up with content created by independent producers who are not themselves broadcasters.59 There are pressures in Europe to delete the qualifier “where practicable and feasible” around the 51 percent quotas and make the rule binding. A recent report from the Commission on the state of TWF seems to show that most member states are meeting the quota requirements especially among the publicly owned broadcasters.60 In a move to strengthen control over new and independent broadcasters the report notes: Only some of the minority channels in certain Member States are presenting difficulties. In this regard, the Commission would remind the member states concerned of the need for increased control and monitoring of these channels and the importance of ensuring, where practicable and by appropriate means, that these television broadcasters meet the proportions laid down by Articles 4 and 5 of the Directive, in line with the principle of progressive improvement.61

Despite the impetus given to TWF for European programming, it remains a “national” exercise. Cocq and Messerlin point out that only 12 percent of the channels are those of European broadcasters who collect less than 2 percent of total advertising and less than 0.7 percent 58 59 60 61

This paragraph based on interviews with various officials in Paris and Brussels, 2004–07. Directive 89/552/EEC adopted in October 1989 and amended June 1997 by Directive 97/36/EC. Commission of the European Communities, November 8, 2002. Commission of the European Communities, November 8, 2002, p. 41.

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of their revenues.62 Although France remains at the forefront of these issues, it has also found its hand weakening at the EU: “The French want a stricter quota system and the Germans want it abolished on constitutional grounds. British officials say they would rather not have it but can live with it, provided the ‘wherever applicable’ get-out clause is maintained.”63

MAI audio-visual negotiations The Uruguay Round delivered on a weak Agreement on Trade-Related Investment Measures (TRIMs) that would have sought to curtail domestic production, import or export requirements on foreign producers. The rich countries club, the OECD, accounting for 85 percent of the $3 trillion of foreign direct investment in 1996, then sought to produce the Multilateral Agreement on Investment (MAI) through negotiations that lasted between 1995–98.64 Many causes are cited for failure. Most prominent were the withdrawal of US support in the face of a weak agreement, and opposition from labor and environmental groups.65 Sometimes, the French opposition to inclusion of cultural industries is mentioned as well. France’s withdrawal from negotiations in 1998 was specifically attributed to inclusion of cultural industries. Until late 1996, it was unclear whether cultural industries would be excluded from MAI. At this time, France proposed a clause that sought an exception for preserving cultural and linguistic diversity.66 As tabled, the specific clause attached to the May 1997 draft text read: “Nothing in this Agreement shall be construed to prevent any Contracting Party to take any measure to regulate investment of foreign companies and the conditions of activity of these companies, in the framework of policies designed to promote cultural and linguistic diversity.”67 While a few European members may have favored exempting cultural industries from MAI, “the concept of a general clause was not acceptable to some delegations.”68 These members proposed drawing up a list of exceptions 62 64 65 66 67 68

Cocq and Messerlin 2005, p. 23. 63 Financial Times, November 18, 2002. http://portal0.unesco.org/culture/ admin/ev.php?URL_ID=2461& URL_DO=DO_TOPIC&URL_SECTION=-512. (accessed May 1, 2007). The MAI would have had a weak legal basis and, therefore, US and industry support for it became lukewarm. See Graham 2000. See early discussion of these concerns in OECD October 14, 1996. Excerpt attributed to France and cited in Neil 1997. UNCTAD 1999, p. 15.


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which would include cultural industries (a negative list approach) or allowing members to make whatever commitments they wanted in specific aspects of cultural industries (a positive list approach). By then the cultural industries issue featured divisions between DGCulture and DG-Trade in Brussels. DG-Trade was taking the lead in MAI. Nevertheless, an article by Culture Minister Jack Lang in Le Monde in Spring 1998 became “a lightning rod” for French politicians and media.69 Lang played on a popular film title to speak of MAI as a threatening friend. This served to galvanize the cultural industry in France and may account for the French halt on MAI negotiations in spring 1998. At that time, at least, the Canadians were not that concerned with the inclusion of cultural industries in MAI, although Canadian cultural industries and organizations had begun to make assessments of MAI’s implications for themselves.70 While the failure of MAI in general obviated the need for any measures whatsoever, the French and Canadians became concerned about the impending GATS 2000 negotiations that were due to start as per the “built-in” agenda of the Uruguay Round.71 The stage was ripe for moves at the UNESCO.

Developing an international norm on cultural diversity France and Canada joined hands in developing an international norm on “cultural diversity,” which seeks national level protections for cultural industries. The norm strengthened their claims regarding the differential and special nature of cultural industries and link these claims with cultural identity and diversity issues. Canada’s Culture Minister Sheila Copps took the lead in June, 1998, toward establishing the International Network on Cultural Policy (INCP), in which France is a lead player. INCP now brings together culture ministers from fifty-six countries to exchange views on cultural policies. France, along with Canada, took the lead in getting UNESCO to adopt, on November 2, 2001, a Universal Declaration on Cultural Diversity, which recognizes the cultural specificity of cultural industries in particular countries. Interestingly, both the INCP and UNESCO websites also underscore 69 70 71

Based on an interview with former OECD official, May 2007. Based on an interview with former OECD official, May 2007, and Neil 1997. See Sauvé and Stern 2000 for overview.

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the importance of this Declaration to the events of September 11, 2001, even though planning for the Declaration started at least two years before that.72 The UNESCO Declaration notes in the beginning that “culture is at the heart of contemporary debates about identity, social cohesion, and the development of the knowledge-based economy” and “that the process of globalization facilitated by the rapid development of new information and communication technologies, though representing a challenge for cultural diversity, creates the conditions for renewed dialogue among cultures and civilizations.”73 It then defines twelve articles dealing with cultural diversity and setting the agenda away from commercial cultural industry-type considerations. This is apparent in links made in the articles to pluralism, human rights, creativity, and international solidarity. Articles 8 and 9, listed under “Cultural Diversity and Creativity,” are particularly significant in this regard: Article 8 – Cultural goods and services: commodities of a unique kind In the face of present-day economic and technological change, opening up vast prospects for creation and innovation, particular attention must be paid to the diversity of the supply of creative work, to due recognition of the rights of authors and artists and to the specificity of cultural goods and services which, as vectors of identity, values and meaning, must not be treated as mere commodities or consumer goods. Article 9 – Cultural policies as catalysts of creativity While ensuring the free circulation of ideas and works, cultural policies must create conditions conducive to the production and dissemination of diversified cultural goods through cultural industries that have the means to assert themselves at the local and global level. It is for each State, with due regard to international obligations, to define its cultural policy and to implement it through the means it considers fit, whether by operational support or appropriate regulations.74

The Declaration came after considerable framing activity among INCP and EU officials. The frame used now is “cultural diversity” rather than “cultural exception.” On October 26, 1999, the Council of the European Union, in preparation for the Seattle WTO Ministerial, declared that “the Community and the Member States maintain the possibility to preserve and develop their capacity to define 72 73

See www.incp-ripc.org and www.unesco.org/culture/pluralism/diversity. UNESCO 2001, p. 2. 74 UNESCO 2001, pp. 3–4.


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and implement their cultural and audiovisual policies for the purpose of preserving cultural diversity.” This was followed on December 7, 2000 by the Declaration on Cultural Diversity by the Council of Europe. The Cultural Ministers of the International Organization of the Francophonie adopted a similar declaration on June 15, 2001. The INCP Working Group on Cultural Diversity and Globalization met in Lucerne, Switzerland, from September 24–26, 2001, to finalize the plans for framing such an instrument via UNESCO.75 Along the way, the cultural diversity frame began to be linked to the biodiversity frame in an effort to provide international legal rationale to the logic of cultural diversity. INCP meetings were crucial in this regard. INCP made an explicit connection with the 1992 Convention on Biological Diversity framed in Rio de Janeiro. Now moves were afoot to go to the next level of international law to convert the Declaration into an International Convention on Cultural Diversity. At the World Summit on Sustainable Development in Johannesburg, Jacques Chirac, speaking at the Roundtable on “Biodiversity, Cultural Diversity and Ethics” on September 3, 2002, noted: One response which France proposes is for the international community to adopt a world convention on cultural diversity. This would be the counterpart to the Convention on Biological Diversity. It would lend the weight of international law to the principles couched in the declaration just adopted by UNESCO.”

He also noted that, “There is nothing more foreign to the human spirit than evolution towards a uniform civilization, just as there is nothing more hostile to the movement of life than a reduction in biodiversity.”76 At a UNESCO meeting in Istanbul, in November 2002, attended by representatives of 110 countries including seventy-two culture ministers, a declaration was adopted to support an International Convention on Cultural Diversity and to begin work on a draft. The EU/French and INCP then concentrated their efforts toward getting UNESCO to adopt a resolution to begin work on a Universal 75

76

Other declarations regularly cited by INCP include the Communiqué of the Summit of the G-8 in Okinawa, Japan, July 2000; the Declaration of the Summit of the Americas at Québec City, April 2001; the Declaration and Plan of Action of Cartagena de Indias adopted by Organization of American States, July 2002; and the Dakar Declaration on the Promotion of African Caribbean Pacific Cultures and Cultural Industries, June 2003. See INCP, July 2003. Délégation Permanente de la France October 16, 2002, Annex 1.

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Convention on Cultural Diversity at the 32nd General Conference of UNESCO from September 29 to October 17, 2003. The US re-joined UNESCO at the 32nd Conference. This move is viewed alternatively as motivated by societal pressures within the US or as the US response to the crafting of the UNESCO Convention and attempts to shift the focus away from the WTO where the US is a member.77 (The US left UNESCO during the Reagan administration over a previous culture war with the developing countries.) UNESCO is headquartered in Paris. Meanwhile, INCP had already drafted such a Convention, which was presented at its 6th Annual Ministerial Meeting in late 2004.78 Apart from de-linking culture from commercial considerations and linking it with international human rights and bio-diversity conventions, the draft convention courts developing countries by proposing a fund for capacity building of cultural industries in such countries.79 In working toward a UNESCO Convention, a number of international organizations, academics, and think-tanks were courted by a network of INCP, EU, and lobbying groups’ officials. Here developing countries, most of which have content and cultural industry protections in place, were viewed as key players. South Korea is an important example. UNCTAD, in cooperation with UNESCO, convened an Expert Meeting on Audiovisual Services to help bring developing countries on board.80 While not seeking to exempt audiovisual services, the meeting concluded that “a sector specific solution such as an annex, protocol or similar specific instrument could be developed” during the GATS negotiations.81 Conferences sponsored by groups like EBU, FERA, Eurocinema, and BSAC were organized all over Europe to court public and intellectual support. INCP was also instrumental in creating a parallel non-governmental network of international cultural industry workers and artists that in September 2000 coalesced into International Network for Cultural Diversity (www.incd.net). Representatives, who would later form INCD, were at the failed WTO Seattle Ministerial in December 1999, in an effort to bring cultural issues to the meetings and also to organize protests against them. INCD, currently headquartered in the Canadian 77 79

80

Americans for UNESCO 2004; Kelsey 2006. 78 INCP July, 2003. France’s support for cinema in Francophone countries via CNC is already well-known. Recently, CNC is moving toward supporting cinema in non-Francophone countries and in languages other than French. UNCTAD 2002. 81 UNCTAD 2002, p. 1.


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Conference for the Arts, is the leading arts advocacy group in Canada. INCD and INCP annual meetings and agendas run parallel to each other. INCD had drafted an International Convention on Cultural Diversity, which was similar to that of INCP in its aims and philosophy, except that it was more emphatic in keeping audio-visual negotiations out of the WTO. While Canada and France frame INCD as a global network of non-governmental organizations, the imprint of the Canadian and French governments was ubiquitous: “The official side has kept a tight rein on the ‘grass-root’ input through funding its liaison office and various research initiatives, holding the INCD meetings concurrently with its own, and providing consultants or staff that develop themes, suggest speakers, write background papers and summary reports and proselytize.”82 The program for drafting a Convention was presented at the 32nd General Assembly of UNESCO in September–October 2003. UNESCO appointed a fifteen-member independent experts committee to further issues. After several UNESCO meetings and drafting session, a preliminary draft was presented at a UNESCO’s Third Session of the Intergovernmental Meeting of the Experts, May 25–June 4, 2005. The draft was then presented at the 33rd General Assembly in October 2005 and passed with 148 votes in favor and two negative votes from the US and Israel. It is known as the Convention on the Protection and Promotion of Diversity of Cultural Expressions.83 The Preamble to the text starts by “affirming that cultural diversity is a defining characteristic of humanity.” Its thirty-five articles affirm the rights of nations to formulate cultural policies that promote cultural diversity and protect indigenous cultures. Article 20 establishes the relationship to other international treaties: “mutual supportiveness” is mentioned as the underlying principle but the Convention cannot be subordinated to other treaties. In other words, if there were to be a trade versus cultural protection conflict in the future, it would have to be resolved in the spirit of mutual supportiveness without subordinating the UNESCO Convention. However, Article 20.2 then notes something that dilutes the precedence of the Convention and may mean WTO instruments may supersede (if the EU was to make an audio-visual commitment): “Nothing in this Convention shall be interpreted as modifying rights and obligations of the Parties under any other treaties to which they 82

Acheson and Maule 2004, p. 246.

83

UNESCO 2005b.

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are parties.”84 Furthermore, as the Convention’s dispute settlement mechanism is not that strong, offering only a form of arbitration, the WTO dispute settlement process may still favor parties even against those that have not taken a commitment in audio-visual. The French-Canadian efforts at framing a cultural diversity convention depended chiefly on the use of particular negotiation tactics. Moving the venue to UNESCO, framing the issue as cultural diversity and finding support for it through coalition building were important in this regard. In particular, France used its influence with Francophone countries to support its cause: subsidies given by CNC to Francophone countries for their cultural industries – especially cinema – are one example of this. But, multilateral coordination has not ended there. European officials courted several other developing countries. Finally, France has had to coordinate its position within the multilateral EU context. Meanwhile, US pressures did lead to dilution of several provisions in the draft Convention, especially Article 20 on mutual supportiveness of international treaties and salience of obligations under other treaties.85 Nevertheless, it continues to assert that the very framing of the convention is not legitimate and that the Convention is about trade and not culture. In one of the first instances where US officials addressed questions about the Convention, a press briefing held by the State Department in April 2005, officials noted that in as much as non-state actors initially drafted the Convention, it was not legitimate. On June 3, 2005, when the draft – which had then been amended and re-drafted at intergovernmental session – was presented at UNESCO and was being applauded, the American delegation – led by Ambassador Robert Martin – staged a walkout and issued a press release which noted the Convention is not about culture but trade. “Because it is about trade, this convention clearly exceeds the mandate of UNESCO.” It goes on to note the following: “What we have done here in the past week has undermined the spirit of consensus that normally characterizes the work of UNESCO. It will surely weaken UNESCO’s reputation as 84 85

UNESCO 2005b. Based on interviews in Paris and Brussels at French government agencies, the EU, and UNESCO, July 2005. Several groups within INCD now view the draft Convention to be too weak to be either meaningful or enforceable. One UNESCO official summed up many provisions of the Convention as being symbolically, rather than substantively, important.


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a responsible, thoughtful international organization.” Soon after, on June 30, 2005, the US, along with a select group of powerful states, presented a Communication at the WTO’s Council for Trade in Services. The select group included China, Hong Kong, Japan, Mexico, and Taiwan – territories with significant cultural exports. Among other things, they noted: We express great concern over efforts by key participants in the negotiations to create an a priori exclusion for such an important sector . . . We urge all Members to consider carefully the broad economic benefits from including audiovisual commitments in their efforts. Above all, trade in audiovisual services results in cultural exchange, the best way to promote cultural diversity.86

It is not too early to conclude that EU framing on the cultural diversity issue will most likely result in the continuation of the audiovisual exemption. That is not to say that the EU position is absolutely monolithic or that it will not face any opposition.87 A reluctant suitor will be the UK, with sizable cultural industry exports and an affinity toward formal cooperation with US cultural industries. Its Department of Trade and Industry released a ninety-six-page report on its own position on services within the EU context as the EU was framing its offer for the WTO.88 The report notes that while the UK’s audio-visual imports outweigh its exports, the latter are significant: “the UK is the world’s second largest exporter of TV programs;” its music industry has “experienced phenomenal growth.” It goes on to note that the “UK takes a liberalized approach to foreign investment and ownership throughout the audio-visual sectors; although this is not the case 86 87

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WTO 2005. Philosophically, the French state’s legitimacy in arguing for cultural diversity can be questioned. Historically, the state has a dismal record in accepting or promoting multiculturalism and remains uneasy about being seen as a multicultural society itself (Birnbaum, 2001). French officials (based on interviews, 2001–6) dismiss the notion that just because France has domestic problems does not mean that it cannot speak to cultural diversity issues at the international level. There is also a consensus in the French intellectual and political circles historically that the idea of being French is consistent with the idea of being European, and now international and cosmopolitan. Frank 2002 contends that the idea of Europe has always been a tug of war between the French and German nations. Department of Trade and Industry October 2002.

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across the EU or Council of Europe.”89 Significantly, audio-visual was included in the lists for liberalization by the UK. In deference to the French position, one DTI official notes: “You can lock up your culture or promote it. UK’s approach is to promote it.”90 However, the UK subsidizes its film and broadcasting industries heavily and that might tilt the balance in going along with the EU/French position. Furthermore, the EU has sizable offensive interests in sectors such as music and, as pointed out earlier, even France and the US share a common interest in the intellectual property concerns underlying audio-visual. Thus, WTO officials also see the moves on cultural diversity as “delay tactics.”91 Developing countries like India, Brazil, China, Mexico, Taiwan, and the territory of Hong Kong are exporters of cultural goods and remain reluctant to go in with the cultural diversity frame and may account for UNCTAD’s lukewarm support on this issue.92 In the meantime, with ratification from the requisite number of states, the UNESCO Convention entered into force on March 18, 2007.

Telecommunications The WTO telecommunications accord signed on February 15, 1997 formalized the emerging liberalization in telecommunications worldwide. The accord is known as the Fourth Protocol, after the legal protocol used to attach it to the earlier negotiated General Agreement on Trade in Services (GATS) during the Uruguay Round. Signed by sixty-nine countries, including forty less developed countries, it accounted for over 90 percent of the world’s telecommunications revenues.93 Historically, telecommunications sectors were controlled by or operated according to domestic priorities. The new regime, effective since January 1, 1998, allows this sector to be governed by global rules underlying WTO processes. In accordance with the GATS framework, MFN now applies to commitments made for market access 89 90 92 93

Quotes from Department of Trade and Industry October 2002, pp. 23–5. Interview, November 19, 2002. 91 Based on interviews. See Singh 2007b for the position of developing countries in the GATS and UNESCO frameworks. Others joined later. As of July 22, 2008, ninety-nine governments including the European Communities (representing fifteen states as of 1995) had signed on: www.wto.org/english/tratop_e/serv_e/telecom_e/telecom_commit_exempt_ list_e.htm (accessed July 22, 2008). Limited commitments mostly from acceding states, have been made since the GATS 2000, later folded into the Doha Round, started.


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and national treatment in the telecommunications sectors of signatory countries. These commitments allow for cross-national investments in telecommunications (or hasten them given that this process precedes 1997), and trade in basic and many value-added telecommunications services are governed by liberalization norms, both features backed by WTO rules of transparency and MFN.94 Most significantly, sixtythree of the sixty-nine governments also agreed to introduce “regulatory disciplines” to observe the WTO rules. They did so by signing on to a “Reference Paper” in telecommunications that governs regulatory aspects of the sector. Negotiators realized early on that the credibility of the telecommunications liberalization will rest in the hands of the regulatory authorities; the Reference Paper seeks to ensure such safeguards through transparency, regulatory independence, and safeguards against anti-competitive practices of incumbent monopoly providers be they state-run or private carriers. The US industry was “wildly enthusiastic” about this agreement when signed.95 While the agreement in the telecommunications sector may seem to be quite different from audio-visual in terms of the negotiation outcomes, a closer analysis below reveals similarities and reveals the difficulty of reaching agreement. Like AV, negotiators could not reach agreement (in this case, on basic telecommunications services) during the Uruguay Round and agreed to continue the sectoral negotiations thereafter as GATS allows them to do so. A push by the US toward cost-based pricing in international calls was fiercely contested by other countries and kept out of the agreement leading it to take unilateral action (this issue is examined in depth in the next chapter). Ten months before the final agreement, in April 1996, Jeff Lang, the Assistant USTR, walked out of the negotiations because of timid offers from several countries. While such brinkmanship can be viewed as a negotiation tactic, it nevertheless rests on the fact that it was a difficult agreement to effect. The impetus for domestic liberalizations and subsequently global negotiations came from the inability of public-run utilities in most parts of the world to meet demands from users. Technology aided such liberalization by providing opportunities for rival providers to 94

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Basic services leave the content of the message, as sent originally by a user, unchanged during transmission. Valued added services change the content or “add value” to enhance the information. A simple example is voicemail. Once sent, it can be enhanced through distribution channels. Quoted by Sherman 1999, p. 62.

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meet user demands. Even in the US, the private monopoly AT&T was unable to meet user demands in a cost-effective fashion or to accommodate technological change. The historical context below summarizes the monopoly saga in telecommunications. The rest of the negotiation context examines coalitions, emerging market structure, and the issues and actors underlying the telecommunications negotiations at the WTO. The section on negotiation processes then shows the differences in coalition building and the use of technocratic tactics that led to the final agreement in February 1997. Like audio-visual, telecommunications featured nationalistic coalitions. But, in telecommunications their strength was diluted by an internationalist coalition of users and providers that encompassed several countries. Mini-coalitions emerged on other issues that were centered on particular issue-areas and did not always feature the same set of actors. The status quo BATNA in 1994 was that most countries were moving hesitatingly toward liberalization, apart from a few notable exceptions. If bound at that level, the telecommunications accord would have mostly legitimized national monopolies. The telecommunications accord, in fact, pushed countries to legitimize their incipient preferences and hastened the process of liberalization.

Negotiation context This section briefly summarizes the historical entrenchment of telecommunications monopolies and then presents the market structure, coalitions, issues, and actors in the context of this history. On the eve of negotiations, considerable impetus had built up for liberalization but had not been translated effectively into national or global rules. Historical context 96 The impetus for global rules for telecommunications service provision coincided with the breakdown of domestic monopolies in countries and the challenge of new technologies that allowed new entrants. These 96

This subsection is adapted from Singh 2003. The detailed context is necessary for the historical roots of the intersubjective understandings that developed around international telecommunications rules and the way that technology destabilized this compact. The latter is particularly important for assessing technology’s role outlined in Chapter 7.


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moves reflected and shaped pressures by users for telecommunications services that monopolies were unable to provide. The story of global rules that preserved telecommunications monopolies predates the invention of the telephone. The International Telegraph Union, founded in 1865, set up rules and protocols for telegraph messages to be exchanged among countries. But it also accepted and legitimized the position of telecommunications monopolies that, until the late 1970s/early 1980s, dominated communication industries. A tacit agreement at the international level sanctioned this monopoly cartel. It was not long after the invention of the telegraph in 1837 that the need for global rules arose. By the mid-1860s, telegraph cables spanned the Atlantic and the distance between London and Calcutta. Napoleon III called for a conference in Paris in 1865, leading to the birth of the International Telegraph Union (precursor to the present day ITU) to ensure that flows of communication would supplement the freer flows of commerce. It was at this time in Europe that the major powers including Britain, France, Prussia, and Italy, reduced their tariff barriers toward each other. Telegraph’s spread necessitated, and the ITU began to provide, rules for interconnection, equipment standardization, pricing agreements among countries, and a mechanism for decision-making to address all these needs. The latter became even more important after the invention and spread of the telephone after 1876. The emphasis on national sovereignty in Europe directed the shape of everything that the ITU designed. An early understanding was that each nation would own its own monopoly in telecommunications and, depending on national capacity, its own torchbearer for equipment manufacturing. The monopoly rule would later be buffered by the cost calculation of engineers who argued that network benefits could be optimized only if there was a single “natural” monopoly in every nation.97 What the international regime ensured was that these monopolies would be interconnected with each other. The rules of joint provision of services (where two nations were sending messages to each other) and joint ownership (of cables and, later, wireless networks) 97

Cowhey 1990. For Cowhey, the epistemic community of engineers and bureaucrats of the ITU and national authorities in telecommunications held the system in place.

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extended the sovereignty principle to international communications. Bilateral agreements (known as settlements) of division of revenues, usually divided equally between the states involved, were also regularized through the ITU.98 The principles of the telecommunications regime carried over into radio formally inaugurated with the founding of the International Radiotelegraphy Union (IRU) in 1906. Just as the ITU came about a couple of decades after telegraph messages being sent, the IRU developed after radio signals began to be sent in the 1890s and radio broadcasts began in 1900. The basis of radio came from the identification of electromagnetic radiation by James Clark at Cambridge in 1864 and confirmed by the German physicist Heinrich Hertz in 1888. Commercial exploitation of this wireless technology began with Guglielmo Marconi’s efforts in the 1890s when the technology began to be deployed for maritime communications. The eponymous Marconi Company tried to become a global monopoly, supported by the British and Italian governments, through aggressive pursuit of patent suits disallowing stations, using Marconi equipment, from interconnecting with others using different equipment. An ITU conference in 1903 and the founding of the IRU in 1906 both tried to check the power of the Marconi Company. However, it was not until tragedies like the Titanic and stock trading scandals involving Marconi that Britain finally caved in to the interconnection issue at an IRU conference in 1912. The efforts at regime expansion and deepening described above were eventually formalized through organizations, most of them located within the International Telecommunication Union (created in 1932 by merging the old ITU with IRU). The ITU followed the principle of onenation, one-vote. Nonetheless, major powers and users exerted more influence. The rule-making at the ITU develops out of its conventions and administrative conferences. Of these, the World Administrative Radio Conferences (WARC) and World Administrative Telegraph and Telephone Committee (WATTC) are historically important. Telecommunications rules submitted for approval at these conferences came from the International Consultative Committee for Telephones and Telegraph (CCITT) and the International Consultative Committee in International Radio (CCIR) in the ITU. Furthermore, the International

98

Herein lies the historical basis for pricing negotiations discussed in Chapter 5.


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Frequency Registration Board (IFRB), and its successor the Radio Registration Board (RRB), were key for frequency allocation. All of the bodies mentioned in this paragraph were reorganized by the ITU in 1992. Satellite technology would soon pose a challenge to the old regime. The lead taken by the Kennedy Administration in the US toward installing a global satellite system was partially driven by the desire to steal the show from the Soviets who had launched the first satellite in space, Sputnik-1, in 1957. Nonetheless, beyond the impetus provided by the Cold War, another set of satellites developed for commercial uses. Satellites and television broadcasting brought in new concerns in the communications regime, resulting in rule and decision-making procedures that diverged from the old. In Peter Cowhey’s words, satellite technology “was the first challenge to the ITU system.”99 However, the overall character of the regime, centered on state-cartel monopoly provision of services, remained the same. The system of assigning slots to satellites in geostationary orbit (GSO) followed that of the assignment of radio frequencies in organizing the global commons taken up by the ITU. The principle was that of first-come, first-served, though over time, the developing world succeeded in reserving a few spots for itself through successive international agreements. The way the satellite services themselves began to be owned and provided, however, differed from the traditional ITU regime. The US led the effort, in a race to prevent the Soviets from doing anything similar, to develop a global satellite system with the quick passing of the Communications Satellite Act of 1962, which created the Communications Satellite Corporation (Comsat). The next move was to create the International Telecommunications Satellite Organization (Intelsat), a global consortium, in 1964. Despite the fact that the US had a 61 percent share, West European powers succeeded in instituting rules that sought to constrain the US influence. Thus, while country shares weighted Intelsat voting, voting rules required that important motions must be supported by at least 12.5 percent of the votes in addition to those of a country with the highest share of votes. Thus, the US could not carry its resolutions with simple majority voting which it did possess. The 1964 agreement creating Intelsat was an interim agreement and was replaced by permanent agreements in 1969 and 99

Cowhey 1990.

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1973 with more than 100 countries joining in. The shares in Intelsat were owned by national telecommunication monopolies and services were regulated as jointly provided. While the origins of change in monopolies lies in technology, the main impetus came from the remarkable coalition of powerful states and large users who called for a liberalized competitive marketplace in telecommunications. Telecommunications technology by the 1970s had evolved to a point that made the monopoly argument increasingly unsustainable at national or global levels.100 Judicial and Federal Communications Commission (FCC) rulings in the US, starting with 100

The connection between old technology and monopoly was not automatic either: telecommunication firms quite consciously took advantage of certain features of the infrastructure to make the argument about monopoly. Cowhey 1990 emphasizes this in his essay. Mueller’s (1998) excellent study brings detailed historical evidence to bear on how the network externality argument underlying monopoly was socially constructed by AT&T to legitimize and protect its monopoly status. Technology not only suggested alternative interpretations, but early practice actually revealed strong alternatives to monopoly, as Mueller shows. AT&T also jealously guarded its right to provide telephone service, albeit by agreeing not to provide services made available through emerging technologies. The Consent Decree AT&T signed in 1956 is an apt illustration. Congruent to its provisions, AT&T agreed not to provide computer based and data processing services in exchange for a monopoly in telephone service. In hindsight, the decision seems myopic given that AT&T was aware of the potential for these services. However, AT&T was not barred from providing these services to the government (including the defense department), which the corporation calculated would be their major customer for these services (Horwitz 1989, p. 145). Telecommunication histories emphasize the division of services starting with the Kingsbury Commitment of 1913 separating Western Union and AT&T. They could be equally emphatic about the way AT&T sought to keep its hold over institutional users. Its attempts to keep competitors out of this market or allow for large users to set up their own networks were responsible for the anti-trust moves against itself in the 1930s. The anti-trust enquiry was postponed due to the war but re-opened in the 1950s leading to the 1956 Consent Decree. The 1956 decision can then be seen as an illustration of the tendency of corporations to limit their markets with a flawed reasoning. Within a decade, AT&T woke up to its myopia but restrictions on provision of information services continued to exist. AT&T’s 1956 bargain, therefore, strengthened the context for the FCC to look into how it was regulating various forms of information traveling over the same pipeline or wires. This resulted in three successive enquiries by the FCC dealing with computer based services, and the institutionalization (in 1984) and the subsequent lifting (in 1991) of the information services restriction on the Baby Bells by the judiciary. Between 1956 and 1984, AT&T continued its strategy of barring any kind of competitive access to its network.


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the late 1950s, had begun to affirm the rights of potential service providers and large users to own and operate their own networks and interconnect with AT&T’s monopoly network. This task was aided by innovations in telecommunications technology as in, for example, the license obtained by Microwave Communications Inc (MCI) to provide service between St. Louis and Chicago in 1969. MCI argued that its microwave network was different from AT&T’s terrestrial network and, therefore, did not threaten AT&T’s position. There were many other landmark cases. The ‘Hush-a-phone’ decision in 1957 permitted the use of a foreign attachment on the telephone handset to reduce noise and was instrumental in setting the stage for further competition. A broad interpretation of this decision led to the Carterphone decision in 1968, which allowed the interconnection of mobile radio telephone systems with the public switched telephone network. The latter is widely viewed as the beginning of competition in the telecommunications industry.101 On the whole, liberalization of telecommunication resulting from technological changes was played out within individual states. The UK was the first, in 1981, to privatize its monopoly, British Telecom, and introduce duopolistic competition by licensing a second common carrier, Mercury, owned by Cable and Wireless. AT&T was broken up in 1984, introducing competition into long-distance services. Japan began the privatization and competition process in 1985 but the state retained a big oversight role in introducing particular forms of competition in the various service markets. The European Commission began to cajole member-states and move them toward liberalizing their telecommunications. This came on the heels of several important national and European Commission reports and policy initiatives that touted the benefits of liberalization. A “Green Paper” in 1987 urged telecommunications reform and pushed countries toward adding telecommunications to the creation of the EU in 1992. While individual countries started moving toward liberalization and privatization in the 1980s, the marketplace did not become competitive until 1998. Nonetheless, the early European efforts aided the transnational user coalition mentioned above. The developing world, too, was waking up to the importance of telecommunications for national development and several initiatives 101

Schiller 1982, p. 15.

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were underway to prioritize telecommunications and enhance service provision. Such moves included some push given to liberalization of monopoly control.102 Reform coalition By the 1980s, a broad international coalition of large corporate users emerged. It wanted enhanced telecommunication services that monopoly carriers were unable to provide. The coalition itself reflected technology led globalization: in a world of emerging or existing tightly knit markets, telecommunications are key to smooth information flows which are crucial for the markets to work efficiently.103 Three major aspects of globalization (not mutually exclusive) may be presented here which, in turn, necessitated the improvement of telecommunications sectors. First, the coordination of the current complexity of the international division of labor depends on rapid flows of information, making telecommunications a necessity.104 Second, the global economy at present is characterized by intense competition not just in the number of firms operating in any industry but also in the way that the firms create their market shares through product differentiation and flexibility of production.105 Thus firms may create a competitive advantage over others by their use of information technologies. These technologies can help to reduce costs, improve quality, and provide value added and competitive intelligence. These intra-firm tasks, most of which require tremendous coordination, are dependent on information networks. Third, telecommunications are important for the producing firms not just to keep in touch with fluctuations in world demand (or elasticities) but also to keep the distribution channels efficient. Sometimes it is even pointed out that trade is moving the capitalist world toward homogenized consumption patterns, where market shares would depend upon the ability of the firm to deliver the same product with slight differences in different countries at the 102 103

104 105

See Singh 1999 and 2000b for prioritization and liberalization of telecommunications in the developing world. The positing of efficiency here is more than just an academic exercise. Information flows are crucial for any economic transaction to take place and in this sense a well functioning telecommunications infrastructure reduces transaction costs by eliminating the barriers to information flows. Braithwaite and Drahos 2000, ch. 14. Murmann 2003; Kim and Hart 2002; Tyson 1992; Tyson and Zysman 1983. Mody 1989 writes specifically of niche markets.


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same time.106 Gereffi notes that the rise of global commodity chains “are rooted in transnational production systems, which link the economic activities of firms to technological, organizational, and institutional networks that are utilized to develop, manufacture, and market specific commodities.”107 The importance of information technologies for sustaining these networks is self-evident. An estimate in the mid1990s showed that one-third of world trade was in fact intra-firm trade.108 The context of globalization is also important for understanding the preferences of domestic and international organizations and actors in telecommunication restructurings. International actors such as GATT/WTO, ITU, IBRD (significant in the developing world context), transnational enterprises and other international and large users were important interest groups acting upon states to frame liberalization rules. The powerful coalition that arose on behalf of large users (multinational firms) of telecommunications services accounted for a majority of the long-distance telecommunication traffic in the world. These users, most of them using data-based networks for their operations, had found themselves increasingly hamstrung by the inefficient way in which most of the telecommunications monopolies operated. The latter ran as overly bureaucratized government departments, rarely concerned with either expanding or improving the quality of the infrastructures. The irony was that the services were in high demand (facing inelastic demand curves) and thus the government monopolies were often used, in both the developed and developing worlds, as “cash cows.” The large users, located in the developed world, put pressure on their home governments to craft international rules that would provide for a level playing field. In this task, they were aided by several factors. First, neo-liberal or pro-market ideas were on the rise in policy-making, academia, and international organizations. The large users saw their needs best met through a competitive marketplace rather than monopolies. Their calls found easy reception initially in those governments that had already begun to liberalize many sectors of the economy. The cases of Ronald Reagan in the US and 106 108

Friedman 2005, 2000; Ohmae 1990. Aaron 1995.

107

Gereffi 1995, p. 113.

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Margaret Thatcher in the UK are particularly important. Second, the demand for international reform followed the liberalization of domestic telecommunication in key countries such as the US, the UK, and Japan, accounting for nearly two-thirds of the global telecommunications market. These created an important precedent. Third, as telecommunication markets opened up in these countries, competition began to develop among service providers and the preferred national equipment manufacturers, even in countries which had not yet liberalized, who now wanted to get into international territories in search for revenues. These service providers and equipment providers joined the large users in the international coalition for reform. They were aided in their efforts by regional initiatives such as those within the EU toward liberalization. It is important to note that the reform coalition mentioned here, part of the macro services coalition supporting GATS, existed throughout the Uruguay Round and not just during the time the WTO undertook telecommunication negotiations. Telecommunications was in fact a high-priority sector within GATS and was one of the first sectors to be negotiated. During the Uruguay Round, however, only value-added services could be negotiated. The negotiations on basic services later led to the WTO protocol. Market structure The historical evolution of the market structure has been noted above but two points, dealing with the variegation of the market structure, can be summarized here. First, the telecommunication sector features various sub-sectors that can be differentiated by the type of service or the media used. By the early 1990s, traditional basic services such as telephone, telegraph, and facsimile were joined by value-added services such as voicemail, electronic mail and other forms of interactive services (soon to be dominated by the burgeoning Internet). Media used to provide these services include terrestrial cables (copper, coaxial, fiber) and wireless means (microwave, radio, low orbiting and remote satellites). Related issues included interconnection issues among providers and equipment market liberalization, including customer premises equipment and multimedia user devices. However, national monopolies existed not just in telephones historically but also in a related set of equipment providers that Noam calls “political


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telematique.”109 Thus, as telecommunications markets became differentiated due to changes in technology, these monopolies now pushed to be allowed into the new sub-sectors in trying to keep their vertical and horizontal integration intact. The second variegation of market structure deals with the stages of liberalization in the various sub-sectors of telecommunication. Countries used differing formulas for liberalization though; in general, newer (value-added or enhanced) services tended to get liberalized first because either the existing monopolies had not captured these services or other providers sought first to get into these markets. This would approximate the cases of the US and the UK, mentioned above, and also that of many other Western European countries. Countries like Japan had also followed a variant of this model in reserving facilities based competition to a few providers (Type 1) while opening service competition to a larger number of providers (Type II). Meanwhile, most newly industrializing and developing countries featured public monopolies in basic services though a few of them had moved toward allowing competition in other services. By the early 1990s, a few of them also featured partial or full privatization of monopolies in Malaysia (the first country to do so by 1989) followed by South Korea, Sri Lanka, and Mexico. The equipment market, especially in customer premises equipment, was also one of the first to be opened; this was natural as public monopolies gave way to private or market driven arrangements leading to the breakdown of the political telematique. Issues While the major issue on the table for negotiations at GATT/WTO was the liberalization of the telecommunication sector, the discussion above makes clear the complexity of such liberalization involving various types of services and technology. In the GATS language, service provision would be hard unless countries allowed entry to foreign providers covered by Mode 3 or commercial presence commitments.110 Countries undertaking Mode 3 commitments would then have to make market access and national treatment commitments for 109 110

Noam 1989. Technically, foreign providers can provide services without via satellites or by leasing lines but without commercial presence, the utility of providing these services is limited.

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a host of sub-sectors. As mentioned before, these commitments would be meaningless unless there was domestic enforcement via regulatory and dispute settlement instruments. Negotiators, therefore, realized that some provision for independent regulation would need to be made in commitments. Apart from the FCC in the US, very few countries featured independent regulators. Beginning with the early 1980s, most developed and, later on, developing countries began to move toward coming up with an independent regulator as they envisaged privatization and liberalization. In the early 1990s, however, most of them either featured regulators that remained quite in favor of, or beholden to, the former monopoly providers or the regulatory functions had still not been completely divorced from service provision or ministerial ones. The UK’s Oftel and Mexico’s Cofetel provide examples of the former, while the Telecommunication Commission in India or Jabatan Telekom Malaysia (JTM) – both of which were beholden to the ministries of telecommunications – provide examples of the latter.111 Actors GATS telecommunication negotiations feature state actors but they are assisted by a host of international coalitions featuring telecommunication users, service providers, equipment manufacturers, and international organizations. By the early 1990s, the coalition for liberalization included large users and firms desiring market entry for services or equipment. In this task they were aided by pro-liberalization international organizations such as the OECD, IBRD, and GATT itself. (Chapter 3 mentioned the role of the OECD in jump-starting the services liberalization efforts.) Several think-tanks, mostly based in the US or, at times, the UK, also joined in the push for telecommunication reform.112 The anti-liberalization coalition was strong as well: it featured actors fearful of what liberalization might mean for job security to individuals or entrenched market positions of firms. It thus featured trade unions, monopoly providers, related equipment manufacturers, and parts of government ministries. The latter were often torn between

111

112

A vast literature exists on the early stages of telecommunications privatization and liberalization. See Bruce et al. 1988; Aronson and Cowhey 1988; Petrazzini 1995; Levy and Spiller 1996; Singh 1999. This fact is especially important to Drake and Nicolaides 1992. It will be taken up later here as well as part of technocratic and informational tactics.


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pro- and anti-liberalization pressures and their own interests in providing telecommunication services. Furthermore, the reform coalitions often featured domestic and international divisions. As most coalitions lobbied domestically, many of them wanted domestic liberalization for themselves without providing these opportunities to foreign providers. Pre-negotiation BATNAs The title of a book on the existing marketplace in telecommunications in the late 1980s best sums up the state of this sector in various countries prior to the negotiations: The Telecom Mosaic.113 Many countries were considering privatization or liberalization but, apart from those mentioned above, few had made any credible moves toward it. The status quo, therefore, more or less favored monopoly provision while governments tried to get their act together for future liberalization. This process in the EC was delayed in spite of the Green and White papers mentioned above. Similarly, planned privatizations in big developing countries such as Brazil and India were delayed, encountering obstacles from trade unions and entrenched monopolies. Similar opposition halted privatizations in small countries like Costa Rica and Uruguay, in the latter by means of a referendum. The exceptions in the developing world were South Korea and Malaysia in Asia, and Mexico and Argentina in Latin America, all of whom had either introduced privatization or liberalization or both. On the issue of regulation, only the UK featured any effective independent regulation via Oftel, though even it was often seen as beholden to its former monopoly British Telecom. Finally, on the issue of pricing, which relied on historical rather than cost-based trends, most countries around the world remained wedded to the historical formulas that produced ample revenues for the state treasuries.

Negotiation process Three negotiations in telecommunications service provision are important here: value-added or enhanced services liberalization during the Uruguay Round; basic service provision liberalization in the WTO from 1994 to 1997; negotiations on pricing in the GATT/WTO and 113

Bruce et al. 1988.

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ITU.114 The negotiation on pricing is the subject of the next chapter.115 The first is noted briefly below, as it posed no big problems. The basic services negotiations are the most important and are analyzed at length. The negotiations remained quite technocratic, often characterized by joint problem-solving. The coalitions were around specific sub-sectoral issues rather than a macro coalition in opposition to or in support of the macro issue itself, as in the audio-visual negotiation above. Value-added/enhanced service negotiations GATT’s Marrakesh agreement contained commitments from fiftyseven members to liberalize their value-added or enhanced services in the Annex on Telecommunications. Telecommunications was considered by far the most important sector in services for imminent liberalization: these commitments were the first test of the evolving GATS principles. Nevertheless, the Annex covered value-added services only and was a watered down version of the original intent, especially as conveyed in a March 1990 US proposal, for an agreement that would have covered both infrastructure and services. The Europeans and others remained opposed to such a far-reaching demand. Countries agreed to continue the negotiations in basic telecommunications, involving infrastructural issues, after the Uruguay Round closed. In May 1990, telecommunications was one of the nine groups, narrowed down from an initial list of thirteen, within the Group of Negotiation of Services (GNS) chosen for sectoral negotiations. Telecommunications carried the importance of being the “information highways” for the service economy. The sectoral working group was “probably the most active and arguably the most crucial of any of the sectoral working groups.”116 The impetus for a telecommunications agreement came from the US and the UK, countries with the most significant liberalization under way in their domestic economies. Providers from the US were now ready to get into other territories and lobbied the USTR and Congress for market access abroad. Large users in need of

114

115 116

There are also ongoing negotiations in telecommunications as part of the Doha Round but, as mentioned in Chapter 1, the empirical chapters only analyze the negotiations that have concluded. The pricing issue extended beyond the Uruguay Round and involved negotiations and findings at the ITU and is thus better treated separately. Woodrow 1991, p. 338.


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seamless global networks for their information and other enhanced communication needs supported them. The outcome of the Annex on Telecommunications, limited to liberalization of value-added services, represented a compromise between those wanting liberalization and those opposed to it. As a moderate proposal it represented something that came close to the interests of the Europeans, the Japanese, and the South Koreans. In June 1990, even before the sectoral working group began to meet, the US presented its draft sectoral annex to telecommunications to GATT.117 It addressed liberalization of both infrastructure (mode of delivery) and service provision (access and use). Six other proposals flooded in when the working group began to meet. The EC favored its Open Network Provision (ONP) approach, as advocated in its Directive on services earlier for Europe. It would open up telecommunications for service provision. The Japanese and South Korean proposals were similar and in accordance with their domestic laws. Cameroon, Egypt, India, and Nigeria represented the developing country group, and put forward two proposals one for the networks and the other for access and use, in effect trying to “unbundle” the US proposal. A moderate consensus coalition that joined the Europeans, the ASEAN, Japan, and South Korea, and developing countries began to converge around the European position; the eventual annex to be presented at the Brussels meeting in December 1990 would separate access and use from the mode of delivery, in effect liberalizing valueadded but not basic services. It was a victory for the large users but not for the service providers from the US. Users would be allowed to purchase, lease, and attach equipment to networks. They would also be allowed to interconnect their in-house networks and provide a variety of enhanced services. At this point, AT&T and other US providers feared that MFN provisions would allow foreign providers to set up base in the US. They advocated a conditional MFN in mode of delivery. The initial draft sent to Brussels, therefore, appended another proposal from the US that exempted basic services from MFN.118 It is at this

117

118

WTO Communication from the United States, Annex: Access to and Use of Services of Public Telecommunications Transport Services, Uruguay Round Document No. MTN.GNS/W/97, March 1990. GATS was still evolving at that point. The issue of conditional MFN or MFN exemptions had not been resolved, as the last chapter showed.

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point that the issue of “critical mass” that worried US negotiators (as will be observed later in this chapter), began to arise. Both the coalition-building, as noted above, and the various proposals presented to the working group on telecommunications were issuespecific and fairly technocratic. Around twenty-five countries participated in the working group “with a new element added to the service trade negotiations by the more specialized and technically oriented telecommunications policy officials from various countries.”119 In fact, the opposition from the developing world in this case was articulated mostly via the International Telecommunication Union. The ITU had been the body to which developing countries and a number of European countries turned to balance the more pro-trade agenda developing at GATT. The ability of pro-liberalization countries to place the telecommunications agenda at GATT, instead of the ITU, is another example of venue-shopping or switching in this case, stealing the rug from the ITU, which was “more congenial to monopolists.”120 For its part, the ITU is characterized by one observer as “schizophrenic” toward GATT in its “desire to project a positive image in support of the Uruguay Round negotiations” and its “irritation and concern” that the new regime would disrupt the way of doing things at the ITU.121 This issue was resolved through its plenipotentiary WATTC-89 that continued its deliberations until December 1990. The resolution, passed at Melbourne in December, instead of authorizing access and use, left it to the members to offer international services to the public as they wished. Over 100 countries supported it, with the US vetoing it and a few EC states abstaining.122 However, it was a positive development and it, too, allowed large users access and use that would become part of the Annex on Telecommunications later. More significantly, the ITU on the whole overcame its “schizophrenia” after that and became more supportive of the Uruguay Round package. The Annex on Telecommunications, while allowing for access and use of the network, left basic services out. “The approach had the distinct advantage of enhancing the acceptability of the Annex to a broader range of Uruguay Round participants, particularly developing countries, and thus enabled it to offer stronger guarantees on access and use than could otherwise have been achieved.”123 In 119 121

Woodrow 1991, p. 338. 120 Cowhey and Aronson 1989, p. 70. Woodrow 1991. 122 Woodrow 1991, p. 332. 123 Tuthill 1996, p. 94.


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deference to fears from operators that even access and use might allow for de facto liberalization of the network, countries could place restrictions on resale, shared use, equipment standards, inter-operability, and interconnection, and a few other regulatory requirements. Nevertheless, the Annex was “the only service sector for which governments adopted substantive rules and obligations to supplement the GATS framework.”124 Basic services The agreement signed on February 15, 1997 in Geneva concluded nearly three years of efforts which began in May 1994 on liberalizing basic telecommunication under the auspices of NGBT (Negotiating Group on Basic Telecommunications), which was constituted in April 1994 when it was clear that the Uruguay Round would not be able to deal with basic service issues. Council on Services reconstituted NGBT as GBT (Group on Basic Telecommunications) when the earlier deadline of April 1996 had to be extended because of no-agreement. GATT/WTO had never held sectoral talks before and thus these negotiations were “closely watched as a bellwether for the WTO’s ability to conclude sectoral negotiations more broadly.”125 Telecommunications negotiations, like their other service counterparts, involve two tricky issues. The delivery of services requires the presence of foreign operators and, second, given that telecommunications services are consumed by a host of users (such as banking) with their own networks, it is necessary that these users are able to obtain fair access to telecommunications networks. The latter issue was negotiated at the Uruguay Round; the former taken up at the WTO Negotiations on Basic Telecommunications. Signatories made commitments for market access (to operators and users), national treatment and, most important of all, the transparency of regulatory institutions. The latter issue is particularly important because historically the telecommunication industry grew up with a mixture of regulatory privileges and protections, which took on country-specific characteristics over time. Nicolaides notes that “the GATS does not address the central obstacle to effective governance of the global information

124 125

Tuthill 1996, p. 91. Fred C. Bergsten, “Preface” in Petrazzini 1996, p. viii.

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economy: the problem of regulatory fragmentation among national jurisdictions.”126 The Fourth Protocol allowed countries to make market access and national treatment commitments for their telecommunications sectors. While sixty-nine countries signed the accord, fifty-three countries signed the Reference Paper appended to the Protocol. The Reference Paper was perhaps the most important outcome of the negotiations in providing regulatory teeth for the market access and national treatment commitments. Basic telecommunications being variegated, the specific commitments covered market access to a host of sub-sectors. Countries made commitments on four types of voice telephony (itself divided into four segments), data transmission, private leased circuits, four types of mobile telephony, and radio services. Two other issues of importance involved the push by the US toward cost-based pricing principles and, second, the issue of the rights to uplink and downlink from satellite which were important for the US-based satellite operators (such as Motorola) to be able to provide telecommunication services globally. There was no agreement on these issues. The basic telecommunication agreement can be broken down into two phases. The first phase of NGBT negotiations lasted from April 15, 1994 to April 15, 1996 and resulted in no-agreement and full offers from only eleven countries (even though forty-eight made some kind of offer or the other and twenty-eight participated as observers). The second phase lasted from April 15, 1996 to February 15, 1997, featured the reconstituted GBT and concluded an agreement with offers from sixty-nine governments (or fifty-five commitments given that the EU made a single offer). The negotiations, involving bilateral requests and offers, were off to a slow start in 1994, mostly because the EU dragged its heels and the developing world made either no or restrictive offers. The US took the lead in April 1995 in presenting an identical draft request of each and every negotiating country for full market access in all sub-sectors.127 Meanwhile, the European Commission was negotiating on behalf of fifteen member states and, since the mid-1980s, tried to forge a consensus among them toward firming a liberalization

126

Nicolaides 1995, p. 270.

127

Cameron 2004, p. 24.


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schedule.128 Telecommunications liberalization was scheduled for January 1998, but several delays had occurred. While the role of the Commission in forging this consensus is undeniable, on the eve of the negotiations, member states remained divided: Belgium, Ireland, Luxembourg, and France were skeptics; Denmark, Finland, Netherlands, Sweden, and the UK were pro-liberalization; Germany fell inbetween.129 Nevertheless, part of the consensus forging in Brussels came from the involvement of the technocratic officials who indulged in genuine problem-solving. Niemann notes that the impetus lay in the Article 113 Committee, so-named after the Treaty of Rome article empowering it to indulge in trade negotiations. The Committee not only came together with a set of common liberalization values that allowed it to indulge in problem-solving, but these pre-negotiations were “characterized by a lack of politicization pressures that could have countered genuine debates” from the need to satisfy domestic constituencies who were not yet part of the Article 113 Committee Framework.130 The negotiations on the Reference Paper best illustrate the continuation of problem-solving at the NGBT level. From December 1994 onwards, the US began to convene a small group of regulatory officials, called the Room A group, after the WTO room in which they first met. Chaired by the Japanese, whose hospitality and leadership are often acknowledged as crucial to the success in drafting the Reference Paper, the Room A group also included Australia, the EU, Korea, and New Zealand. Brazil, Chile, Mexico, the Philippines, and Singapore also later joined Group A. The process began with the US distributing its own paper, entitled “Procompetitive Regulatory and Other Measures for Effective Market Access in Basic Telecommunications Services.”131 While the language reflected the evolving provisions of the Telecommunications Act of 1996, the negotiation process as it proceeded began to incorporate provisions from other member states. The discussion and, to some degree, the convergence around the language of the EU Interconnection Directive is particularly important. Market incumbents, 128 129

130

When NGBT started, the EU was made up of twelve member states. Austria, Finland and Sweden joined in 1995. Sandholtz 1992; Niemann 2006. The latter helps makes the general point made in this volume that both Risse 2000 and Farrell 2003 fail to consider communicative action in the diplomatic realm. Niemann 2006, p. 479. 131 Sherman 1999, p. 71.

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for example, with essential facilities often hinder interconnection and competitive safeguards; the EU wanted this market power to be based around its own definition of carriers with more than 25 percent market share. While the latter language was not included, the Reference Paper did speak to the ability of major suppliers to affect the terms of interconnection and pricing. Similarly, other major terms employed in the Reference Paper – “timely,” “cost-oriented,” “sufficiently unbundled,” “reasonable,” “unbundled,” “economic feasibility” – reflected the US Telecommunications Act and the EU Interconnection Directive and “at least some of the negotiators hoped that the interpretation of these words, as in the United States and Europe, could be precedents for interpretation in the WTO context.”132 The Reference Paper was ready by October 1995. It was divided into six provisions: competitive safeguards; interconnection; universal service; public availability of licensing criteria; independent regulators; and allocation and use of scarce resources. It reflected the general obligations of GATS such as MFN and transparency in its language. However, in terms of appending it to GATS, it would be difficult to amend GATS to accommodate regulatory scheduling; therefore, member states decided to append the Reference Paper as a set of additional commitments along with those of market access and national treatment. The universal service provision in the Reference Paper owes its origins to developing country concerns while the entire document in general strikes “a balance between two objectives: international market openness and national sovereignty.”133 The burden of defining universal service is left to countries as they deem fit as long as such measures are transparent, non-discriminatory, and “affect competition in a neutral manner.”134 While the main cautions on providing universal service came from the US, developing and least developed countries also acted on their own or through the ITU. A few developed countries had argued that as GATS Article VI covered domestic regulation, a specific reference to universal service was unnecessary. However, least developed countries in particular argued forcefully for their inclusion. Among developing countries, India was important in arguing for inclusion of language that did not deem universal service itself as an uncompetitive measure and also for allowing countries 132

Sherman 1999, p. 80.

133

Blouin 2000, p. 140.

134

Tuthill 1996, p. 90.


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to decide universal service obligations and cost-sharing mechanisms themselves.135 While the discussions on the Reference Paper were ongoing, the US presented its draft offer on market access and national treatment in July 1995. But the USTR Mickey Kantor announced in January 1996 that the US would not sign unless a “critical mass of countries” made offers. While this would include the developed countries, many of whom had made weak offers, the critical mass was assumed to also include many developing countries, which were important to the negotiation process. The market access issues of importance related to foreign ownership of carriers and electromagnetic spectrum and satellite issues.136 On foreign ownership, the FCC interpreted Section 310 (b) of the Communications Act of 1934 as not allowing for any foreign ownership for radio licenses.137 Also, the FCC applied an Effective Competition Opportunities (ECO) test that limited foreign ownership unless reciprocal access existed in the carrier’s home market. The problem-solving nature of the negotiations is evident in the creative way the issue of foreign ownership was resolved with the US agreeing to allow foreign ownership via a US based subsidiary.138 This allowed the US to improve its offers in February and April 1996, permitting foreign ownership of carriers in April, to goad other countries to make improved offers. On the electronic spectrum issue, countries were willing to limit market access on the grounds that the spectrum is a finite resource. In the US case, limitations on foreign ownership, as noted above, applied specifically for radio licenses and thus the issue of foreign ownership needed to be resolved. Other countries overcame their hesitations when it became clear that they would still be able to regulate the spectrum 135

136 137

138

Sherman 1999, p. 84. The universal service clause was heavily debated among telecommunication policy analysts who argued that it was ill-defined in its scope (Fredebeul-Krein and Freytag 1997). Others argued that competition, not universal service regulations, is better at increasing teledensity (see research cited in Petrazzini 1996, pp. 37–8). The spread of mobile telephony in the developing world in the past decade certainly seems to support this case. See also Cameron 2004 for a negotiating history of these issues. Cameron 2004, p. 24. He also notes that the FCC held this position even though the Act notes such prohibitions can only be allowed to serve the public interest. Cameron 2004, p. 26.

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for scarcity in spite of their offers. As for satellites, few countries made offers by 1996 mostly because of the technological neutrality of the negotiations that allowed countries to make offers regardless of the technology being deployed.139 However, by April 1996, the offers from the EU, Canada and Japan vis-a-vis the US were less than forthcoming. Only forty-four countries ` had submitted offers, with only eleven providing any effective market access or adopting the Reference Paper. At that time, the US withdrew its open market access to satellites. This was widely believed to have been at the behest of Motorola. The official reasoning, following the ECO test outlined above, was that if other countries did not open up their satellite markets then foreign competitors could come into the US markets while US firms were shut out of theirs. Other countries saw this as ex-ante protectionism that allowed the US to maintain restrictions before actual protectionism in other markets had been proven. Meanwhile, key developing countries had either not made any offers (as in Indonesia and Malaysia) or had made very restrictive offers (like Singapore and Hong Kong).140 Their hesitance was also tied to the issue of settlement rates or the prices charged for international services that the US wanted to move toward cost-based pricing (see Chapter 5). Nevertheless, developing countries featured prominently in the negotiations, as seen earlier in the discussion on universal service obligations. Although the US, Japan, and the EU accounted for nearly three-quarters of the world’s total revenue, many developing countries did account for a significant portion of revenues and traffic.141 The top ten telecommunications revenue states included Korea, Brazil, Mexico, and Argentina (in that order), followed by Hong Kong, India, South Africa, and Indonesia (in the 11th, 12th, 13th and 15th positions respectively). Hong Kong, Mexico, and Singapore ranked among the top ten countries for international telephone traffic; Korea, Argentina, and India among the top ten for telecommunication investment; Korea, Turkey, Brazil, and India ranked among the top ten in terms of total number of telephone main lines. Furthermore, in terms of total main 139

140 141

This would be threatening to US satellite providers such as Motorola who then sought to become involved in the negotiations by putting pressure on the USTR. Petrazzini 1996, p. 7. This paragraph cites statistics from www.wto.org/wto/services (accessed February 17, 1997).


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lines, the rate of growth in the developing world tended to be higher, 13.8 percent annual average growth rate during the 1990–95 period in the developing world as opposed to 3.5 percent in the developed world at that time. Similarly, telecommunication revenues grew at an average annual rate of 9.7 percent during the 1990–95 period in the developing world, as opposed to 4.2 percent in the developed world.142 On April 30, 1996, the Deputy USTR Jeff Lang, who was leading the US team, walked out of the talks. While satellite issues are often seen as the major reason, negotiators note that even if there had been satellite offers, the US was still concerned that a critical mass of offers in other areas was not forthcoming.143 The WTO then played a key role in extending the talks by another ten months while leaving the implementation date intact for January 1, 1998. The WTO, in fact, made its case on the basis of domestic politics in many countries, which included India and the US with their election campaigns underway, or countries such as Brazil, South Africa, and Thailand with domestic telecommunication legislation in progress.144 The negotiations were restarted in July 1996 and the GBT met monthly thereafter, including informal meetings held at the 1996 WTO Ministerial Meeting in Singapore.145 Issues between the US and the EU dominated the agenda; the main challenge for the European Commission was to make an offer that would lend credibility to its planned liberalization process. As noted before, the skeptic member states were dragging their heels. Nevertheless, the Commission was able to prevail. Not only did the EU make a commitment to provide 100 percent foreign ownership market access by 1998, but it did so for all signatories although that was not the intent of its internal liberalization directives.146 As such, the EU commitment goes beyond the status quo.147 142 144 145

146 147

Figures cited from Singh 2002b. 143 Based on interviews. Petrazzini 1996, p. 8. A “Ministerial Declaration on Trade in Information Technology Products” was also adopted at the December 1996 Singapore Ministerial. Reflecting two years of discussions, mostly among OECD states, this declaration, adopted by twenty-nine current or acceding WTO member states accounting for nearly 83 percent of international trade in IT products, liberalized trade in IT equipment. International Trade Centre 1999, ch. 9. Other developed countries, except for Canada, provided for foreign ownership, too. Those examining the agreement in favorable terms acknowledge this point (interviews at the WTO; Drake in Drake and Noam 1997; Blouin 2000).

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Drake notes: “The GBT deal helps to consolidate pro-liberalization coalitions . . . In Europe, this had also strengthened the position of the European Commission relative to national telecommunications ministries.”148 Aronson notes the key role played by specific US agencies and many developing countries in pushing toward a close.149 Top officials in Washington from the USTR, FCC, and even the President himself would get involved. The November 1996 meeting in Singapore is especially significant in this regard because it involved the developing world. As noted before, one of the obstacles in April 1996 had been limited or no offers from the East Asian countries. FCC Chairman Reed Hundt and USTR Charlene Barshefsky called a special meeting in Singapore involving trade and telecommunication officials, especially from East Asia, to convince them to make credible offers. This brought Malaysia, Indonesia, and Singapore onto the table. Technocratic tactics also marked the way developing countries were brought in to the process. Many developing countries played a leadership role, in turn, convincing others to join in the process. In Peter Cowhey’s words, they became “living-breathing points of reference.”150 Singapore would become a leader in persuading other ASEAN nations, while countries like Korea and Hong Kong led the efforts in terms of designing or accepting regulatory principles. Hong Kong’s Alex Arena was instrumental in designing several regulatory features which developing countries found acceptable. In Latin America, Aronson notes, Peru was an early leader, while Brazil was quite forthcoming even though its domestic legislative battles were not settled as yet. Earlier by April 1996, Venezuela had already made a full offer to open its markets by 2000, while Mexico had come close to offering what its national laws would permit.151 With Mexico, Venezuela, and Peru on board, other Latin American countries joined in.

148 149 150 151

Skeptics still think of it as nothing more than a status quo agreement (Noam in Drake and Noam 1997; Fredebeul-Krein and Freytag 1999). Drake in Drake and Noam 1997, pp. 809–10. This paragraph borrows from Aronson 1998, pp. 16–27. Interview, April 28, 1999. Peter Cowhey was the Chief of the International Communication Bureau of the FCC at that time. Petrazzini 1996, p. 13.


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The February 15, 1997 accord was hailed by the US and the WTO as a major victory. When the accord was signed on February 15, 1997, sixty-nine governments participated with thirty-nine making improved offers over their April 1996 ones and twenty-five making new offers. Ninety-five percent of world trade in telecommunications at an estimated $650 billion would fall under WTO purview beginning January 1, 1998, the date of implementation.152 Most of the signatories agreed to open up their markets one way or the other and adopt some kind of commitment to the regulatory principles (the Reference Paper drafted by NGBT on April 24, 1996). Many analysts dubbed the accord a victory not only for the US, but for other developed countries, their telecom operators, and large users. The accord also makes telecommunications subject to the multilateral dispute settlement process and further rule-making at the WTO. Developing countries fared well. On the issue of settlement rates, they formed a coalition with the EU and thus no agreement could be reached on this issue at the WTO. Second, trade-offs and linkages came into the picture in many ways. The whole notion of “phasing in” successive liberalizations in the markets and taking specific exemptions (negative list) for national treatment and market access in the four modes of delivery for the specific sub-sectors can be seen in this way. Even the EU asked for five years beyond 1998 for phase-ins for member states with less sophisticated telecommunications networks. These were: Greece, Ireland, Luxembourg, Portugal, and Spain. At the other end of the spectrum of development were weak offers from poor Caribbean countries: Dominica, Dominican Republic, Grenada, Jamaica, and Trinidad and Tobago. Together they account for less than 0.15 percent of the world’s telecommunication revenues but all of them, with the exception of the Dominican Republic, were able to delay phasing in their market opening after 2007. It was important for the WTO (and the US) to show numbers “on board” and it did not object. Third, coalitional tactics were obvious in many ways. Countries like Singapore played a key role in convincing major Asian powers. Positions taken by Venezuela, Mexico, Brazil, and Peru may have had a similar effect upon other developing countries. In an indirect way, these countries could also hide behind coalitions in the developed world, the EU in particular, when many contentious issues affecting 152

TechWeb News, February 17, 1997.

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them both came up. Finally, many developing countries showed considerable savvy in presenting their country schedules and in designing the rules themselves. Many of these countries are involved in domestic liberalization and regulatory exercises and this experience would help them at the international level.

Conclusion A comparison of the negotiations in the two issue-areas above reveals important contrasts. While both start from relatively similar starting points, their paths diverge due to the negotiation process. Both are sectoral negotiations under the GATS agreement. Of the two, audio-visual is more liberalized when the negotiations begin, while the telecommunications sector is moving toward it. Hollywood has majority market access in Europe and other places with powerful distribution networks. Telecommunications is dominated by national monopolies in service provision, and – where possible – equipment manufacturing, backed by powerful anti-liberalization trade unions. Both industries, however, feature the idea of “national” projects: telecommunications monopolies are historically posited in terms of national security and strength, while cultural industries are important in terms of national identity. At a first glance, looking at the power configurations alone would mean that it might be easier to reach agreement in audio-visual than in telecommunications. The crucial difference is that while telecommunications features multiple coalitions and actors domestically and internationally, audiovisual features only a coalition of pro-liberalization (offensive) interests from the US and that of protectionist (defensive) interests in Europe; telecommunications features offensive and defensive interests on all sides. Quite obviously, this allows wiggle room to negotiators in telecommunications to use the GATS framework to design an agreement that binds them to a meaningful liberalization. On the other hand, negotiators find their hands tied in audio-visual; they are hardly allowed any slack from their respective coalitions. The difference in coalition-building is only one of the departures in the negotiation process. Technocratic tactics mark telecommunication negotiation, while framing marks audio-visual. The former allows negotiators to indulge in genuine problem-solving involving some fairly engineering-oriented, economic and legal problems. The delegations


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themselves are made up of technically trained officials assisted by organizations such as the ITU. In audio-visual, the framing in terms of national identity politicizes the process. As opposed to the technocratic elite of telecommunications, the audio-visual negotiations are marked by some fairly glamorous personalities including the cultural industry of both the US and Europe. Their official rhetoric is equally colorful. As argued in Chapter 7, the role of meta-power in constructing actor interests is most apparent in the negotiated interactions underlying cultural industries. The idea of tying cultural industries to national (and European) identities itself arose and strengthened during the negotiations analyzed here. In general, the effects of globalization on cultural identity are now at the forefront of international public debates on both identity as well as the political-economic interconnectedness of peoples and their institutions. International negotiations in which cultural identity issues are implicated arouse heated debates and coalitional passions. It is not hard to argue that cultural identity issues reflect the challenges of globalization in the ordinary lives of people everywhere.153 Another negotiation tactic is on display here: venue-switching. The US successfully switches the venue from the ITU to GATT for telecommunications negotiations. As telecommunications itself evolved bypassing entrenched monopolies, one observer notes that the switch to GATT on services negotiations was “the ultimate bypass.”154 Interestingly, though, the ITU became an effective participant in the process helping with many of the problem-solving exercises in the negotiations. As for audio-visual, the French and the Canadians made a “bypass” in cultural industry negotiations by taking the debate to UNESCO, instead of the WTO, especially as they began to meet resistance in other forums such as the OECD and, in the case of the French, within the EU itself. While a move that resulted in international coalition-building and further politicization of the issue, the success is still doubtful. UNESCO lacks the capacity to enforce the 153

154

Everything from Huntington’s famous clash of civilizations thesis to the plethora of books dealing with globalized cultural hybridities are testimonies of such processes. For overviews, see Garc´ıa Canclini 1995; Hannerz 1996; Huntington and Berger 2002; af Malmborg and Strath ˚ 2002; Berezin and Schain 2003; Pieterse 2004; Goff 2007; Voon 2007. G. Russell Pipe quoted in Woodrow 1991, p. 335.

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agreement. Furthermore, with the US rejoining UNESCO, it provides a counterbalance to such moves. A possible objection to comparing the two negotiations above might be that the US and the EU dominated one, while the other features multilateral actors. To some extent this is correct but the US and the EU are major players in telecommunications negotiations as well. Also, in both cases, international organizations are crucial to understanding the shape and scope of the negotiations. In this chapter, the organizations of significance, apart from the WTO, include the ITU, OECD, and UNESCO. Furthermore, transnational networks of civil society, industries, and technical experts were heavily involved. Most significantly, the difference in the outcome is explained here not by the actors and networks involved but by the coalitions (as part of power configurations and negotiation process) and the use of technocratic tactics versus national identity framing.

5

Infrastructure pricing negotiations: evaluating alternatives when facing a significant market power1

A price that blocks exchange among willing exchangers is clearly not an efficiency price, but which of the various prices that do not block it is the efficiency price? An answer sufficient for all purposes at this point is that the efficiency price is the price that would be established if the sellers and buyers became so numerous that no single buyer or seller could manipulate the price. Charles E. Lindblom Politics and Markets2

In an increasingly interconnected global economy, the assumption is too often made that countries will abide by written and unwritten rules backed by a majority of global actors. When we come across cases that go against these established rules, then consideration needs to be given to how the country or coalition was able to pull off such a feat. This chapter discusses two cases where the US did not change its position against pressures from the rest of the world; in both cases the concentration of power, namely market power, advantaged the US in the negotiations. The international telecommunications pricing regime changed very little since multilateral coordination began in the mid nineteenth century until the 1990s (see Chapter 4). The cartel of monopoly carriers and PTTs worked hard to maintain high profits from international calls. Change was only supposed to occur when there was a general consensus in the cartel. In 1997, the US chose to circumvent the system and act unilaterally to reform the accounting rate regime, after failing to implement changes to the pricing regime in the Uruguay Round at the WTO negotiations, discussed in Chapter 4, and in the ITU. There was also an expectation that the rules of multilateral coordination 1 2

Sarah M. Corwin provided research support and co-authored initial drafts of this chapter. Lindblom 1977, p. 41.

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would apply to negotiating change in how the cost of transmitting Internet traffic was shared. Again, the US would choose to act alone to serve its interests, but this time by resisting change. This chapter provides two examples of cases that approximate concentration of power that allow the strong actor (the US) to do what it can at the expense of the rest of the world. When unilaterally selecting the course of settlement rates and Internet pricing, the US fought enormous international pressures and historical precedents that favored consensus. The relevant underlying market conditions enabled the US position. In networked economies, success can often be attributed to incumbency or first mover advantage, in addition to more traditional advantages gained through economic power such as control of market shares.3 Networked industries tend to favor incumbents and first movers because they have already established physical infrastructures and preexisting networks of customers. The larger the network, the more valuable it is.4 With the largest telecommunications network in the world and control over much of the world’s Internet backbone, the US was advantaged in pricing negotiations because of its size and the value foreign carriers received from connecting with its network: the US’s good BATNA based on positive market conditions steered US negotiators toward value-claiming strategies and tactics, which was effective since no multilateral agreement was a good alternative for the US in these cases. The first case examined in this chapter looks at negotiations over reforms of the international accounting rate regime from 1991 to 1999. The international accounting rate regime, which can be traced back to 1865, is an agreed upon set of rules on how countries share revenues for international phone calls. The accounting rate, also known as a settlement rate, is a negotiated fixed rate per minute, which is applied to the imbalance of calls between two carriers. In 1991, US carriers paid out approximately $3.4 billion more in these settlements than it had received.5 The US initiated the reform process in an effort to move to a cost-based system in the context of other procompetitive initiatives in the industry. US firms stood to benefit the most from lower settlement rates; the US had a growing settlement deficit because it has

3

Varian and Shapiro 1998.

4

Noam 2001.

5

FCC 2000.

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considerably more outbound than inbound international traffic.6 Multilateral negotiations over the issue failed during the Uruguay Round (Chapter 4), the WTO’s Fourth Protocol negotiations, and at the International Telecommunication Union (ITU), which led the US to decide to circumvent negotiations altogether by proposing domestic regulation through the FCC Benchmark Order. As a result, the US unilaterally set the maximum range for settlement rates and forced international compliance. There is a causal linkage between the success of the US in instituting change unilaterally, favorable market conditions, and the lack of good alternatives for the rest of the world. Cartel members depended on continued multilateral negotiations and coalitionbuilding, but once the US acted unilaterally they no longer had any good alternatives. The US’s best alternative lay in not honoring the outflow of settlement payments. Other countries gained nothing from a multilateral agreement in this case. The second case concerned a negotiation over proposed cost sharing arrangements for transporting Internet traffic. While US carriers suffered a deficit in payouts for international calls, there was a sizable surplus in transfer payments between US Tier-1 Internet Service Providers (ISPs) and foreign ISPs that accrued to the former. Unlike the negotiated evolution of international telecommunications arrangements, the Internet pricing system had been set by the marketplace. The largest ISPs required foreign ISPs to “self-provide” the lines to access the US networks, using the justification that foreign customers receive greater value from US content than US customers gain from foreign content. Australia and other Asia-Pacific countries led the charge for modifying these arrangements to cost-sharing models and were able to put it on the agenda of the ITU’s World Telecommunications Standardization Assembly (WTSA) in October 2000. At the assembly, all ITU member states, except the US and Greece, adopted a recommendation calling for ISPs to bilaterally negotiate arrangements that enable direct international connections and take into account the need to share the costs of international transmission. Despite the passage of the recommendation, which is non-binding on members, the rest of the world still could not compel the US to comply with it. Even though Australia and 6

Those that initiate more call volumes pay the countries terminating their calls even if the reason for high call volumes happens to be low costs of calls from one country.

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Asia-Pacific countries met success in getting ample recognition for the issue through available tactics and had improving alternatives due to changing market conditions, they were unable to translate these into gains because they could not worsen the alternatives to an agreement for the US. These cases were selected because they exemplify negotiations that approximate concentration of power. Compared with the other cases in this book, they show that alternatives will not always be translated into gains, especially when significant market power provides a good BATNA for one country. Both cases examine how countries will share the cost and revenues for international communications traffic, traditional (voice) and non-traditional (data). However, methodologically, the two cases were linked: the outcome in the settlement rates case linked to the motive for pushing for international charging arrangements for Internet services (ICAIS). While this may bring up the problem of auto-correlation where the outcomes in the two cases may seem to be functionally interdependent, remember that the key causal factor here is US market dominance and not the link that international coalitions sought to make between the two arrangements. Even in terms of the latter, the link was “constructed” rather than given and in that sense methodologically not so problematic (see Chapter 1). Nevertheless, the inequity of how the US argued for accounting rates that were closer to the cost-based model for international phone calls, but would not submit to the same standard for the Internet, makes these negotiations an interesting pair to study. Table 5.1 is a comparison of the variables influencing outcomes in these negotiations. The puzzle that is created by the outcomes in these two cases leads us to ask two questions: (1) Does historic precedence matter in negotiations when facing market powers? (2) How important are market conditions in evaluating alternatives in a negotiation? One of the primary theses of this book is that negotiations make the difference in final outcomes. The two cases below provide evidence of situations where negotiations mattered the least and call attention to concentrations of power. However, at least in the case of telecommunications accounting rates, the US chose the unilateral benchmark option only after the negotiation option had been exhausted. In the case of the Internet, the US resisted the turn to international negotiations


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Table 5.1 Factors influencing outcomes in settlement rates and ICAIS

Negotiation context Number of issues Number of actors Domestic interests in negotiating countries Dominant market condition BATNA prior to negotiation



Outcome

Settlement rates

ICAIS

Single One against many Monolithic

Single Many against one Monolithic

US runs deficits, monopoly power US BATNA good; others gain only if US takes no unilateral action

US monopoly

Mixed motive: involves coalition-building, venue shopping/forum switching, technocratic, informational No

Mixed motive: involves coalition-building, venue shopping/forum switching, technocratic, informational No

No agreement preserves the status quo only if the US doesn’t act unilaterally. No agreement: US employs unilateral solution

No agreement favors US

US BATNA good

No agreement: US declines to ratify international agreement

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as a market solution, arguably beneficial to itself, was already in place.7

International settlement rates In August 1997, the FCC’s Benchmark Order was adopted after years of debate and negotiation over accounting rate reform at the WTO and ITU. The Order aimed to bring down the level of settlement rates by setting caps on the amount US carriers were permitted to pay out to foreign carriers (see the box below for a description of the accounting rate system). By bringing rates closer to cost, the annual increase in settlement payments, which totaled $5.8 billion in 1996, would be brought under control.8 The FCC also estimated that Accounting rate regime The accounting rate system was established as a system of sharing revenues between an originating carrier and the carrier that terminates an international telecommunications call. The accounting rate is considered a fictitious charge in which the carriers divide 50/50; half of the accounting rate becomes the fee for terminating an incoming call and is the settlement rate. The accounting rate has historically been bilaterally negotiated, since the first AT&T and British government undersea telecommunications cable connecting North America and Europe in 1956. Accounting rates are not the same as the collection rate, which is the cost consumers are charged. the reduction in settlement rates would save US consumers $17 billion over the first six years.9 Over 100 foreign governments, regulators and carriers challenged the Order in US courts because they believed the FCC lacked jurisdiction, were dissatisfied with the method used to calculate the benchmarks, and argued that it was an extraterritorial application of US law. The US Court of Appeals 7

8 9

Most negotiations analyzed in this book are for market liberalization or resistance to market liberalization. ICAIS offers the only case where a market driven solution was already in place. Cowhey 2004, p. 62, notes that the payments were about $5 billion in 1998 of a total $10–12 billion market in the international services for the US. Hundt 1997.


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refuted all these arguments as it upheld the Order in its entirety in January 1999. The negotiation over accounting rate reform ending in the unilateral move by the US is counterintuitive not only because negotiations were ongoing in the ITU, but because it went against the longstanding practice of reaching mutually acceptable multilateral agreements regarding international telecommunications. This raises the question of how was the US able to “get away with” unilaterally imposing regulations that would force the rest of the world to lower its settlement rates through the renegotiation of bilateral operating agreements with the US. The scope of the debate that is the focus in this chapter begins with the negotiations of GATS ending in 1994 and WTO Telecom Accord that ended in February 1997 (see Chapters 3 and 4) through the conclusion of a court challenge of the Benchmark Order in January 1999. In order to address the question of how the US “won” the negotiation, it is necessary to examine the rest of the world’s alternatives to accepting the Order and relevant market conditions, including the trend toward competition worldwide and the US’ market power in international telecommunications.

Negotiation context There has been multilateral cooperation on an international telecommunications pricing regime for as long as there has been transborder telecommunications. Since twenty European countries came together to form the ITU in 1865 to facilitate the interconnection of their telegraph networks, countries have discussed and been concerned with revenue division for international transmissions.10 The intergovernmental cartel primarily served to protect the financial interests of national carriers or Post, Telegraph and Telecommunications (PTT) administrations, which held monopolies in almost every country except the US, where the posts and telecommunications were separate monopolies. Because the US telecommunications industry has always been in the hands of private interests, the US abstained from membership until

10

The ITU’s name was changed to International Telecommunication Union in 1934.

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1932 and even after that refrained from applying many of the rules and regulations to its carriers.11 The ITU has always facilitated discussion on revenue division and has prescribed pricing schemes, but arrangements for exchanging international traffic have historically been negotiated bilaterally. While other schemes have existed, the accounting rate method has been the most widespread method for dividing revenues. Under the accounting rate method, carriers enter bilateral negotiations to set a mutually agreeable accounting rate, which is typically divided 50/50 between the carriers. One-half of the accounting rate covers the cost of originating the call. The other half is the fee charged to terminate the incoming call, which is termed the settlement rate. Theoretically, the accounting rate should be set with consideration for the costs of each carrier, but this has not traditionally been the case. In the negotiation discussed below, determining what costs should be reasonably included was a major sticking point. In addition, the countries in the cartel, which had state-run telecommunications, had a strong interest in maintaining the artificially high rates to subsidize telecommunications or other public institutions domestically.12 This was in line with the three general adherence principles of the cartel, including anti-competition, state monopoly defense, and anti-defection.13 The system was designed to protect profits and prevent competition, and the accounting rate system was the incentive for remaining loyal to the cartel by allowing individual states to set the accounting and collection rates above costs. The international settlements issue was integrally linked with the telecommunications liberalization movement, itself a part of the growing liberalization of services. As seen in the last chapter, one of the main challenges of the telecommunications negotiations in the Uruguay Round and at the Fourth Protocol negotiations was getting enough countries to make strong commitments to liberalizing their telecommunications markets. For many countries it was a chicken and egg dilemma because they did not want to make strong commitments to 11

12 13

The ITU operates under the sovereign control principle, giving member states absolute control over their national telecommunications systems, which allows countries to apply rules as they see fit. However, under the liberal regime, countries have been strongly encouraged to comply with international rules. As discussed in the previous chapter, the PTTs were considered cash cows for the treasury boasting high rates of return. Zacher with Sutton 1996, ch. 5.


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open the sector unless other countries were making similar commitments. The coexistence of both competitive markets with those that continue to be controlled by state-run operators or dominant carriers presented a number of problems. First, foreign monopolies could engage in “one-way bypass,” which is a strategy to get around international accounting rates by setting up a foreign carrier in another market, such as the US, that would enable them to carry traffic to its home country at a lower cost than US competitors. They are able to get around the accounting rate system, because settlement out payments are just internal transfers of revenues. Second, state-owned operators or dominant carriers have little incentive to lower accounting rates since under most circumstances they are the recipient of settlement payments and use these revenues to subsidize the development of their infrastructures. Third, the possibility of a monopoly carrier “auctioning off” the incoming traffic in the competitive market to the carrier with the lowest termination charge to take advantage of competition, also known as whipsawing, is a potential problem.14 Fourth, competitive markets are less likely to require regulators to intervene to lower accounting rates, compared to markets controlled by dominant carriers. Non-monopoly carriers suffering large settlement rates and countries planning to introduce competition had the incentive to change or work around the system. By the late 1980s, a number of strategies emerged to circumvent the accounting rate system, including resale, call back, and country direct. If a caller employed any of these methods, the cost would be significantly reduced because they avoid using the public network during the long haul (resale method), dial a special number to get a US dial tone (call back method), or use a local number in a foreign country to place an international call (country direct). The US, which had the largest settlement payment deficit (see figure 5.1) promoted these methods to put “downward pressure on accounting rates and on foreign calling prices, which lessens the US

14

Cave and Waverman 1998 note that regulators have established protection mechanisms to counter-balance the negotiating power of the monopolist. For example, the principle of parallel accounting requires the settlement rate offered to one operator be offered to all operators. In addition, monopolists are required to proportionately distribute their incoming traffic to competing operators.

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In $US millions

$6,000

$4,000

$2,000

1996

1994

1992

1990

1988

1986

$0

Figure 5.1 US settlement deficit, 1986–1996 Data Source: FCC (2000).

traffic imbalance over time.”15 In addition, the US counteracted the threat of whipsawing by requiring uniform accounting rates for all carriers between two countries and requiring return traffic to be proportionately divided relative to outgoing traffic. With the US threatening to reform the accounting rate system, the cartel – those countries that maintained state-run operators – sought to move swiftly to embed the traditional system into ITU regulations at the World Administrative Telegraph and Telephone Conference in 1988 (WATTC-88) held in Melbourne, Australia. However, the US, UK, and Japan, which had implemented regulations that allowed for alternatives to settlement rates, refused to revert back to these rules and moved the body to accept a more laissez faire approach, which allowed for countries entering bilateral agreements to choose whether or not to comply with ITU rules (see Article 9).16 These countries argued they should not be penalized for their efficiencies under the accounting rate system, and it was unfair for the consumers in these countries to continue to subsidize the domestic telecommunications markets for the rest of the world. The post-WATTC-88 era in international telecommunication policy exhibits a major shift away from the cartel toward liberalized international telecommunications. As will be described below, countries that were the beneficiaries of settlement payments opposed the proposed 15 16

FCC 1996a, p. 12. International Telecommunication Regulations finalized at WATTC-88.


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changes during the negotiation. In many respects, it was the long history of the regime that would stand in the way of major reform efforts. Although WATTC-88 was important in discussing the issue, the settlement rates issue rose to the international negotiation agenda formally in 1991, when the ITU agreed to review the issue per the request of the US and its major carriers. The FCC had already been taking steps since 1986 to address its high settlement payments by preventing the whipsawing phenomenon in its International Settlements Policy. After five years of having the policy in place, the US settlement payments deficit increased approximately 140 percent from $1.4 billion in 1986 to $3.4 billion in 1991.17 That same year, only nine small countries paid settlement payments to the US, totaling just under $800,000.18 It was clear that making these small unilateral policy changes would not address the heart of the problem of having unnecessarily high accounting rates. The issue was a singular one, but would eventually be negotiated within the context of the telecommunications sectoral negotiations in the Uruguay Round. These sectoral negotiations that began in 1989 were multilateral exercises, thus making the pricing issue one among many. However, US attempts to move the issue from WATTC at the ITU to GATT was significant in itself, the latter being more marketoriented in its rule-making. Thus, the issue would be explored on a couple of different levels. The first was a question of how competitive markets would coexist with state-run operators or dominant carriers. The US policy against whipsawing partially addressed this issue. However, the state monopolies would have little incentive to lower the accounting rates, while carriers in competitive markets would be pressured to lower the overall collection rates of which the accounting rate is a major percentage. The methodology of how the accounting rate should be calculated was the second part of the issue. If they should be calculated on a cost basis, what costs should be included and how would economic conditions play a part? As described in the section above, the long history of the international telecommunications cartel would play a major role in how this issue would develop and later be negotiated. At the WATTC-88, some 17 18

FCC 2000. FCC 2000. Countries paying US settlement payments in 1991 are Bhutan, Comoros, French Guiana, Guadeloupe, Iraq, Niue, the Republic of Guinea, Sweden, and Wallis & Futuna Islands.

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of the largest market powers (the US, UK, and Japan) made their first steps away from the ITU supported cartel regime towards a more liberalized regime as emerging at GATT. It would be these countries that would lend support to the US position on the basis of principle. The cartel was breaking down, but there continued to be a strong contingency of ITU member states that had strong economic interests in maintaining the high accounting rates. Before formal negotiations at the ITU, the US had a number of avenues available to effect change. As it demonstrated through its 1986 International Settlements Policy, which prevented whipsawing, a unilateral approach would be considered to address inequities resulting from liberalization, although, the US would first try using multilateral forums, including the ITU, WTO, and OECD, to raise its complaints and push for reforms. Three factors influenced the choice of a unilateral or multilateral approach. First, the US was gaining support for its position as more countries liberalized, including many powerful European countries. Second, the US had strong domestic support from all of the major international carriers, especially AT&T, which was the primary advocate from industry. Third, it had very strong market position. For example, during the height of the international settlement rate negotiations in 1997, 39 percent of all international traffic either originated or terminated in the US. According to TeleGeography, 9.2 billion minutes terminated in the US and 22.7 billion minutes originated in the US in 1997.19 On the basis of that statistic alone, the US can command attention, because most countries exchanged a high percentage of their international traffic with the US. According to FCC statistics, thirty-seven of those countries received more than $20 million in settlement payments in 1991, eight received more than $100 million.20 While most countries did not have market power like the US, they had the long history of international coordination in the telecommunications regime on their side. Monopolist carriers and governments had it in their best interests to maintain the high settlement surpluses by stalling any changes to the system. The embeddedness of multilateral decision-making in the ITU gave assurance to most actors when entering negotiations, because they knew that decisions would result from consensus and not powerful states. Members of the ITU could also 19

TeleGeography 1998.

20

FCC 2000.


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take advantage of the non-binding attributes of recommendations if approved. Until provisions are added to treaties, and even once embedded in treaties, there are procedures to opt out of certain provisions that are not in line with their interests. For most of these countries, the best alternative was no agreement (or the status quo). The domestic conditions in these countries varied. As was discussed in Chapter 4, the countries’ position on liberalizing the telecommunications sector was a sensitive issue, since many countries still had a state-run monopoly. In some countries, there was a call for liberalization and in others the domestic coalition was less vocal. But even the ones moving liberalization had not moved toward making pricing cost sensitive at the domestic level, let alone the international one.21 At the outset of the negotiation, therefore, it was not clear that most countries could gain immediately from the US position to move toward cost-based pricing. For most countries, the BATNA was to maintain the high level of settlement rates, because it was a source of income for these countries.22 The BATNA was lowered during the negotiation, however, as many countries, especially in Europe, liberalized or were preparing for liberalization. After the introduction of liberalization in the EU countries the accounting rate system would no longer be in place within the EU. As was evident in many of the comments to the FCC’s Notice for Proposed Rulemaking (NPRM) in early 1997, numerous governments and carriers supported benchmarks and the lowering of settlement rates in principle but not by the chosen method.23 The US’ BATNA was considerably higher. Negotiators were only willing to 21

22 23

In the US historically, the regulators allowed for a pre-set rate of return on cost, leading carriers – in this case AT&T historically – to inflate the cost by installing expensive infrastructure and thus earning high overall returns, a phenomenon known as “gold plating” or the Averch-Johnson hypothesis (1962). The UK moved away from rate of return toward cost based pricing based on price caps that rewarded cost-efficient technologies. The formula used was P = CPI – X. Here the price caps (P) were based on the difference between a consumer price index (CPI) and the factor efficiency (X). The more efficient the factor, the better the rate of return to carriers within a given price cap. After the UK introduced price cap regulation, other developed and developing countries followed suit. It is now the dominant method of price regulation in liberalized telecommunication markets. Including most developing countries and some developed countries that maintain high accounting rates, such as Japan. There is no evidence that there were coalitions supporting an alternative method at the ITU study group level; it was the challenge of reaching consensus that stalled recommendations.

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settle for a substantial reduction in current settlement rates and the US had considered unilateral action to correct the deficit in the 1980s. While one of the underlying goals of the reform negotiations was the development of competitive markets in international telecommunications services, the US was also adamant about the importance of lower rates due to the sky rocketing payout deficit and to provide reasonable international communications prices to US consumers and businesses. There was an inherent conflict between the US and those that desired to keep rates high, which is why reaching an agreement at the multilateral level was such a difficult task. It was a game of chicken: other countries did not expect the US to go alone; the US expected the others to back down.

Negotiation process In the beginning of the pricing negotiation, the American negotiators’ strategy was mixed and the team of negotiators was open to alternative methods for reforming the international settlement rates system. As the negotiation proceeded, the strategy shifted to value claiming tactics. The hardened strategy can be attributed to a change in market conditions, increased pressure domestically, and a general dissatisfaction with the progress being made in international organizations on the issue. Another instance of the fact that the underlying power configuration cannot be taken as constant. Venue shopping was a tactic the US used that allowed it to get the issue heard and attempt to achieve consensus. In addition to the ITU and WTO, the US worked with other OECD countries early on to gain consensus on the need to reform the system with other developed countries. Another tactic employed was using technical studies on the accounting rate system and alternatives to persuade other countries of the inequities of the current system and provide support for its benchmarking proposal. While on the surface this technocratic tactic may appear to be value-creating, the tactic as used here can be characterized as value-claiming because its motive was to present a proposal to make countries agree on a loss of revenues for themselves. Other legalistic tactics used by the US included initiating and following through on domestic regulatory action as an alternative to the agreement. The tactics from the rest of the world varied. The developed world was not organized around this issue. While most developed countries


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recognized the need to reform the system, there was no agreement on how it should be accomplished and the interests were not as vested as the US. The EU would no longer be using the accounting rate system regionally after liberalization; however, some countries’ firms had vested interests in developing countries and thus significant financial losses were at stake. Japan supported reforming the accounting rate system, but took a value claiming strategy as it wanted to protect its interests.24 Developing countries also adopted value-claiming strategies. There was little visible effort on the part of developing countries to accept the need to reform the system; strategies were driven by profits received under the existing system, which they used to further develop their domestic infrastructures. After initially working with other countries in the OECD to study this issue and discuss potential reforms, the US worked the issue in both the Uruguay Round negotiations and within the ITU. Described are the events that most directly reflect strategies and tactics employed and how they impacted the win sets and alternatives. A major component of the US strategy was to control the negotiation agenda and push the pace of the reform process. The US first began to complain in the ITU about its growing settlement deficit in the mid 1980s, shortly after the break-up of AT&T. In the late 1980s, the US focused its discussions in Geneva over the challenges in general when competitive carriers interconnect with monopoly carriers. In July 1990, the FCC began its first concerted effort to put accounting rate reform on the agenda in a NPRM that requested comments from industry on whether or not the Commission should recommend that the US delegation to the ITU seek revision of any language in any existing or proposed recommendations in order to clarify that rates should be cost based and that all countries should exercise their best efforts to minimize costs in providing international telecommunications services.25 In 1991, the FCC adopted a Report and Order to that effect and the US delegation got accounting rate reform put on the agenda at the ITU, in addition to the Uruguay Round.26 The 1991 Report and Order raised awareness in the ITU. These policies marginally reduced US accounting rates, but did not meet the prescribed benchmark ranges. The unilateral policy-making throughout 24 25

Japan had very high accounting rates for a developed country, which was the subject of a long bilateral dispute with the US. FCC 1990. 26 FCC 1991.

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the process thus far had failed. The long history of consensus embedded in the decision-making procedures made it easier for opponents of reform efforts to delay changes. Setbacks were not only occurring at the ITU, but also during the Uruguay Round negotiations until 1993, and then the WTO Telecom Accord from 1994 to 1997. To stall moves, countries either continued to discuss the issue at the ITU or they formed a coalition that often featured the developing countries and the EU together. However, as the US argued, and others began to realize, the accounting rate regime was at odds with the principles of GATS, because it allowed countries to negotiate on a bilateral instead of multilateral basis and provide different deals to different countries. Some argued accounting rates were already covered adequately under GATS, under its interconnection rules and others questioned whether it should be addressed in the agreement at all.27 There was also some question of the necessity for such an agreement in a liberalized market with hopes that there would be less need for regulatory oversight of pricing agreements. The US negotiators made it their position at points during the negotiation that a solution to the accounting rate issue was required as part of the Telecom Accord. They even declared that they would not back a WTO agreement without a solution.28 This linkage tactic on the part of the US failed, but pushed the WTO to continue negotiations on the issue. Nevertheless, the ITU continued to address this issue as well and hoped to find a solution via its Informal Expert Group that was exploring the process. At the December 1996 WTO Ministerial Meeting in Singapore, negotiators were looking for a solution to get around these types of distortions that arise in markets that are not competitive. Negotiators could not consider having different sets of policies for trading with monopolistic systems and competitive systems, because it would be against the GATS non-discrimination principle. Some participants suggested that it was a temporary problem that could be resolved if the liberalization trend in the telecommunications sector continued. Others suggested that the problem might best be corrected by other international organizations that were already in the process of addressing accounting rate reform, such as the ITU.29

27

Cowhey 2004, p. 68.

28

Cowhey 1998.

29

WTO 1996a.


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As the negotiations progressed, five countries elected to take mostfavored nation (MFN) exemptions for accounting rates, allowing them to maintain preferential treatment agreements for accounting rates and exempting them from the non-discriminatory principle.30 Due in part to these exemptions and the bilateral nature of accounting rate agreements, the Negotiating Group on Basic Telecommunications (NGBT) in its final report noted that accounting rates would not be subject to dispute settlements of the WTO and the issue would be raised for further discussion in the next services negotiations in 2000.31 This “gentleman’s agreement,” as it came to be known, to exclude accounting rates from the scope of the Telecom Accord with the understanding that it would be taken up again at the next round of services negotiations, gave countries time to individually and multilaterally reach solutions to reform the accounting rate system. It is questionable whether the accounting rate system, as it stood in 1996, would be able to withstand the scrutiny of a WTO dispute panel if countries challenged bilateral operating arrangements that set the accounting rates. The five countries, as well as others supporting its removal from the WTO agenda, successfully implemented a delay tactic that would buy them time. While the US did not succeed in the WTO forum, the negotiators’ fuse at the ITU was also running short. From 1992 to 1996, the ITU made little progress on reforming the accounting rate system. The International Telegraphy and Telephone Consultative Committee (CCITT) adopted Recommendation D.140 in 1992, calling for carriers to apply three principles when establishing and revising accounting rate agreements: (1) cost-oriented accounting rates for international telephone services, which take into account relevant cost trends; (2) application of cost-oriented accounting rates on a non-discriminatory basis; and (3) administrations should expeditiously implement cost-oriented accounting rates, recognizing that it may have to be done on a scheduled basis where the level of reduction required is significant.32 The recommendation included two annexes that provided guidelines for cost elements that should be accounted for in determining accounting rates. These costs include network elements, such as international 30 32

Turkey, India, Bangladesh, Sri Lanka, and Pakistan. 31 WTO 1996b. In 1993, ITU Telecommunications Standardization Sector (ITU-T) replaced CCITT.

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transmission and switching facilities, as well as financial costs and general overheads. It was the expectation of the CCITT that Recommendation D.140, in combination with declining costs, would lead to a reduction of accounting rates worldwide. From 1992 to 1996, the accounting rates declined only four percent.33 These less than stellar results led the ITU Secretary-General under the recommendation of the World Telecommunications Advisory Council (WTAC) to form an Informal Expert Group to provide independent advice on how to reform the accounting rate system. The group met a number of times between 1996 and 1997 and issued a set of six principles that reiterated the transparency, non-discriminatory, and cost-oriented principles that were included in Recommendation D.140 that was adopted in 1992 as well as charges for the ITU to assist parties in the development of new costing methodologies and identify a range of rates that are likely to evolve given competitive pressures.34 The group was persuaded that the ITU should consider that the need to execute these recommendations was urgent so as to keep up with the rapidly transforming trend toward competition in the market. One of the boldest recommendations of the final report was to call for “an immediate, global reduction in settlement rates of the order of 5 to 10 percent during 1997 followed by a similar reduction in the first half of 1998.”35 Impatient with the progress in the ITU and with a settlement payment deficit continuing to climb, the FCC made incremental policy shifts from 1992 to 1997 to put downward pressure on the settlement rates. In 1992, the FCC first introduced the concept of benchmarking settlement rates as a means of moving toward cost-based levels. At that time, there was no legal force behind the benchmarks and only two of eighty-six countries were within the benchmark ranges. In January 1996, the FCC released the Accounting Rate Policy Statement, which encouraged alternatives to the traditional accounting rate system. The Flexibility Order in November 1996 gave carriers the opportunity to negotiate alternatives for the termination of international calls that more closely track underlying costs in cases where competition existed

33 34 35

ITU Study Group 3 2000. Recommendation D. 140 was originally adopted in 1992, and later revised in 1995, 1998, and 2000. ITU 1997a.


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in both markets. Cowhey argued that most European countries, Australia, New Zealand, Singapore, and Hong Kong were well positioned to take advantage of this alternative by becoming end-to-end carriers and moving toward prices that reflect long-term incremental costs.36 The Flexibility Order was a conciliatory gesture designed to gain support from the US’s allies. The FCC saw its efforts have little impact on driving down settlement rates and only saw the US settlement deficit grow. According to Cowhey, in 1996, US carriers paid $5 billion in settlement charges to other countries, from a total $50 billion market in global telecommunications services of which the US commanded $12 billion.37 The US was the first country to make accounting rates publicly available, as a means of increasing transparency but only a couple of other countries followed the US move.38 Over the first four years of benchmarking, the average settlement rate decreased 29 percent to $0.365 per minute, but it remained significantly above actual costs.39 While the FCC in its policy documents publicly supported a marketbased approach to lowering rates, amidst its frustration it stated in the January 1996 Policy Statement: “If [the FCC does] not see substantial progress toward accounting rate reform, we will take stronger methods to reduce accounting rates.” Less than a year later, the FCC followed through on that threat in a NPRM, which outlined the new benchmark policy and methodology. The US used unilateral threats as part of its tactical arsenal as a means of pushing the international community to reach agreement on a new international policy. The new US policy established benchmarks that govern the settlement rates that US carriers may pay foreign carriers to terminate international traffic originating in the US. The benchmark ranges are calculated based on levels of gross national product (GNP) per capita. For example, the low income (GNP per capita below $726) countries’ benchmark would be initially set at $0.23 per minute compared with $0.15 per minute for upper-income countries (GNP per capita above $8,955). Similar to the levels of the benchmarks, the transition 36 37 38 39

Cowhey 1998, p. 907. Peter Cowhey was the Chief of the International Communication Bureau at the FCC at that time. Cowhey 2004, p. 58. However, there were countries that doubted these figures and noted that AT&T supplied them. FCC 1996b, p. 26.

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schedules range according to economic development, giving the lowest income countries four to five years to achieve rates at or below the benchmarks. The benchmark ranges were determined based on tariff components prices (TCP).40 Through a study, the Commission determined that TCPs were the best indicators to use because they were publicly available and the tariff would be based on the same rate charged by the foreign carrier to its domestic customers. The Commission did not see an economic basis for requiring the US carrier to pay more than domestic customers for the same service. While noting that the tariff prices do not represent the incremental cost, they are a substantial reduction of the current settlement rates charged to US carriers. Strategizing information to its advantage was another tactic employed by the US; the opponents employed the same tactic, but with less success by the other side. The proposed rules as laid out in the December 19, 1996 NPRM “prompted outrage,” according to one media report, from numerous foreign governments, especially developing countries, because of the significant contribution of settlements to their overall foreign earnings, which often subsidizes the development of telecommunications infrastructure or other areas of the economy.41 While even some of those that supported the reform effort to move rates closer to actual costs disagreed with the Commission’s taking a unilateral regulatory approach to the problem and the methodology on calculating benchmarks. For example, Australia – a former US ally in accounting rate reform – noted in its comments that it would not consider such an approach because of its policy preference for market-driven and not administrative means of change in this area. Other former reform advocates, including France Telecom, Deutsche Telekom, and the Japanese government, also favored a multilateral approach using existing fora. The most widely accepted methodological approach being explored throughout the reform process at the ITU was measurements based on level of teledensity and not economic development. While the US negotiators did not outwardly disagree with the teledensity approach for 40

41

TCP covers three service elements, including international transport, international gateway switching, and domestic distribution of traffic. When specific prices are unavailable, TCP element prices are derived from a public tariffed price or international recognized costs. Telecom Markets, January 16, 1997.


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categorization, as there is usually a strong correlation between income levels and telecommunications development, they believed that limiting it to income level provided the lowest common denominator and would minimize disruption during the transition to lower settlement rates. Another concern by both developed and developing countries was the lack of consideration for exchange rates when using the TCP methodology. For example, KDD of Japan noted that the overvaluation of the Yen compared to the US dollar is an example of how it is inherently difficult to translate foreign costs into US dollars. Telefonica, which has large holdings in Latin America, encouraged the use of the World Bank’s Purchasing Power Parity conversion factors rather than exchange rates to correct this problem. These are just a couple of the methodological concerns that were raised in comments to the FCC. Another point of contention was the deficit numbers and statistics being used by the US throughout the negotiation to make its case to the rest of the world. For example, the FCC argued that “roughly 70 percent of the total net settlement payments represented a subsidy by US consumers to foreign carriers” to effectively get across the harm to US consumers. This “subsidy” statistic was disputed as being fabricated by AT&T and other US carriers. Melody claimed that this number is a myth and hides the margin of US monopoly profit. Melody cited former FCC international bureau chief Scott Harris as supporting the subsidy claim, having referred to it as a “settlement rate rip-off.” 42 Governments and telecommunications carriers severely critiqued the US in comments for distorting the settlement rate numbers, because the FCC gave misleading reasons for increased US outpayments. For example, Hongkong Telecom International, Korea, Nepal, Chunghwa Telecom of Taiwan, Thailand, responding to the FCC’s requests for comments claimed the increased outpayments were the result of US supported alternative calling procedures (e.g., callback and refile) that route traffic through the US to take advantage of the lower US rates and, therefore, not solely due to above-cost accounting rates. The major tactic being exercised by these countries was thus attacking the credibility of US claims via alternative information and statistics in hopes of reconsideration by the US of its policy or special consideration. The Flexibility Order can be seen as a concession given as a result of Europeans questioning US authority to implement benchmarks. 42

Melody 2000.

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Other countries asked for special consideration. The Philippine government pleaded for special considerations in its comments to the FCC, because it already had private telecommunications carriers and required an additional opportunity to promote its telephone density and expand its infrastructure. By pleading a special case, the Filipinos hoped to strike a bilateral agreement that would increase the length of the transition period before the rate had to be lowered. Cowhey countered that while the new policy would result in an approximately 3.6 percent reduction of telecommunications service revenues for the Philippines, it was the result of unsound domestic policies and not benchmarks.43 Threats of legal action or non-compliance were also issued as a tactic to block the Benchmark Order. The EU repeatedly issued threats of challenging the US policy in the WTO.44 However, this could be perceived as an empty threat because the earliest the EU could raise the issue was 2000, by which time the desired effect of the benchmarks, competition, or alternative accounting methods would have been achieved. In its comments and individual member country comments, the EU repeatedly supported developing countries, which was not to disparage the US but to protect many of its carriers’ investments in these countries. For example, Cable & Wireless has significant interests in the Caribbean; thus benchmarks would result in a significant loss of revenue.45 There were also a few threats of non-compliance. For example, the Chinese Directorate General of Telecommunication stated in its February 7, 1997, comments to the FCC that “China Telecom will never accept any unilaterally stipulated ‘benchmark’ settlement rates and ‘transition period.’ Also China Telecom will reserve the right to take certain countermeasures provided the FCC insists on doing so.” However, the US did not leave a good alternative to compliance with the Benchmark Order. In situations when a foreign carrier will not bilaterally negotiate a rate at or below benchmarks with the US carriers, the FCC would take diplomatic steps to enlist its foreign counterparts to assist in achieving the goal of cost-based rates, by contacting foreign government officials to encourage compliance. If this fails, US carriers 43 44 45

Cowhey 1998, p. 906. Comments to the FCC, February 7 and April 24, 1997. Telecom Markets 1997.


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have the option of requesting enforcement mechanisms be employed. International carriers will be given notice to comply by the FCC and if they refuse to negotiate, then the FCC could prescribe a rate that complies with the order. Another mechanism to ensure compliance is a condition the FCC put on carriers serving foreign-affiliated markets from the US. As a last ditch tactic to reach a multilateral agreement, a special ITU Study Group 3 focus group was convened in 1998 to study this issue and carry out some of the recommendations of the Informal Expert Group. The focus group made numerous contributions to the reform effort, including developing new remuneration schemes, but none of these proposals adequately addressed changes occurring in a competitive market and the goal of lowering both settlement rates and collection rates from the US point of view. Former FCC International Bureau Chief, Peter Cowhey, argued that the proposals presented at a policy forum in 1998 were created with the goal of suspending the FCC Benchmark Order by offering a better multilateral solution, but failed to account for the new competitive environment.46 One proposal focused on altering the 50/50 division of settlement rates. Another proposal backed an approach to lower settlement rates to be no higher than 0.5 SDR or approximately $0.67 by 1999.47 Market conditions and changes in domestic politics benefited the US’ overall position and alternatives. The erosion of the international cartel began as more countries liberalized. For example, all member states of the EU were required to open their telecommunications markets by 1998. And even the European Union countries officially opposed the US’ unilateral tactics. In addition to its liberalization plans that would make the accounting rate system obsolete in the region, some Europeans also believed that competition driven by the WTO agreement would make benchmarks unnecessary.48

Negotiation outcome One of the main questions in this book is whether the negotiation process mattered. To do so, it is important to determine the effectiveness of tactics on modifying interests and alternatives. In this case, the US’ BATNA remained superior despite the rest of the world’s tactics. 46

Cowhey 1998.

47

Cowhey 1998, p. 909.

48

Cowhey 1998, p. 907.

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The US was able to effectively strategize information to its advantage and force its policy on the rest of the world; however, international cooperation did not prevail. For example, the FCC conducted a study, released with the NPRM, presenting the TCP methodology. In addition, as one of only a couple of countries that collect and publish accounting rates, the US was able to uncover the realities of the current system. The rest of the world’s tactics – coalition-building, venue-shopping at the ITU, alternative informational and technocratic tactics, threats of WTO action and legal suits – did not weaken the US’ alternatives to an international agreement at the end of the day. Following the release of the FCC Benchmark Order on August 18, 1997 – six months after WTO basic telecommunication negotiations closed – over 100 foreign carriers, governments, and regulators challenged the order in US courts. The lead plaintiffs were Cable & Wireless of the United Kingdom, Telstra of Australia, and KDD of Japan. The plaintiffs raised a number of arguments questioning the FCC’s jurisdiction and the methodology in calculating the benchmarks.49 The US DC Circuit Court of Appeals heard the case in September 1998 and issued a decision the following January.50 In the decision the three judges upheld the validity of the order. The primary complaint was that the FCC asserted extraterritorial jurisdiction over foreign carriers and telecommunications services by limiting the settlement rates that foreign carriers may charge US carriers, exceeding the authority of the US Communications Act of 1934 and the ITU Treaty. In response to this argument, Judge Tatel wrote: “The Commission does not exceed its authority simply because a regulatory action has extraterritorial consequences.” Tatel concluded his ruling on this issue by stating that the Order does not violate the ITU Treaty, which clearly gives countries the authority to regulate its telecommunications. There is little indication of interest alteration in this case; the US and rest of the world’s interest remained entrenched. While the UK and Australia were proponents of settlement rate reform, a combination of domestic and developing countries pressures were able to 49

50

Telstra even tried to show that while the US was basing its own settlements deficit on the cost of completing calls, it was disingenuous in not calculating its own costs. Telstra calculated that while the US wanted to be paid 10 cents per minute, its cost was only 4 cents. Based on interviews with Telstra officials, Sydney, May–June 2001. Cable & Wireless v FCC, 334 U.S. App. DC 261 (1999).


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effectively keep the interests of these countries at status quo. Both countries’ major carriers, the UK’s Cable & Wireless and Australia’s Telstra, were among the lead plaintiffs in the court case challenging The Benchmark Order. Cable & Wireless in its numerous comments to the FCC cited that the Benchmark Order would harm developing countries most, not only in their ability to develop the country’s networks, but also the country’s overall social and economic development gained by international access. Its strong economic interests in its developing country subsidiaries weighted Cable & Wireless’ strong position on this issue. The UK’s comments also raised concerns about the impact on developing countries. Telstra’s primary complaint focused on other domestic interests. Telstra charged the order did not go far enough to address other settlement rate issues, including the Internet. This complaint became the subject of the ICAIS negotiation also discussed in this chapter. John Hubbard of Telstra who led the charge noted that the US court decision in 1999 did not completely annul the Australian position. He paraphrased Judge Tatel’s position as: “Yes, you’re right but this isn’t good for the US, therefore you’re wrong.”51 While negotiations over accounting rate reform continued at the ITU and WTO, the rest of the world did not have good alternatives to negotiating accounting rates with the US carriers. The perceived alternatives based on the long history of international coordination in international telecommunications became unraveled by the time the US Circuit Court of Appeals laid down its decision. In addition to the US’ unilateral move, there were many changes impacting the market conditions that were the result of liberalization including the collapse of the cartel and decreasing prices due to competition.

Internet cost-sharing arrangements The negotiation over Internet charging arrangements is largely similar to the debate over telecommunications settlement rates in that market power is relevant to explaining the outcome in both cases but also in bringing in the question of what is equitable and what is economically favorable for one party or the other – which is where the conflict arose. In the telecommunications settlement rates case, the US’ 51

Quoted from interview. Sydney, Australia, June 2001.

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primary interest was to lower settlement rates because it suffered a large settlement deficit, therefore arguing that the current system was inequitable because US consumers were subsidizing the infrastructure development of foreign countries through these settlements. In the negotiation over Internet charging arrangements the table is turned because the US Tier-1 ISPs benefited from the system whereby foreign ISPs generally entered into transiting arrangements and paid for the cost of leased lines for traffic being exchanged between the two countries. Unlike the historical telecommunication settlement rate system, the expense of transiting traffic between two networks is not shared. Most of the world, led by Australia and several other Asia-Pacific countries, argued that these current transit arrangements were inequitable and called for arrangements based on cost sharing principles. The US, though on the defensive, held most of the winning cards because of its significant structural power. Strategies and tactics would fail, because Australia and its allies were unable to worsen the US’ alternatives or improve its own alternatives. In addition, domestic politics in Australia shifted the interest away from the issue and its proponent stance. The negotiation ended in a vote at the ITU’s WTSA conference with the US being one of two countries to vote against a non-binding recommendation to bilaterally negotiated cost sharing agreements. With no legal requirements to implement the recommendation, the US won the day. The inequities resulted from uneven development of Internet infrastructure between developed countries as well as between developed and developing countries. The early concerns with international costs of the Internet arose from studies that examined pricing, though at that time international issues were marginal. The effect of uneven Internet development on the Internet pricing regime was first studied at the OECD in January 1996. The report, entitled Information Infrastructure Convergence and Pricing: The Internet, did not so much address the inequities in how foreign carriers had to pay for 100 percent of the leased lines to access the US networks, but the effect competition has on bringing down access charges for the end user and in the development of the Internet infrastructure in a country. At an OECD-sponsored workshop in June 1996, it was noted in the meeting report that nineteen of the twenty-seven OECD member countries still had monopoly provision of the underlying Internet infrastructure and it was suggested


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that policymakers undertake reforms to create a “greater role for the market in creating price innovation and discipline.”52 There was a general consensus at the workshop that reforms should not take the form of additional regulations. While the main focus at this time was on how to address Internet pricing overall, in one session of the workshop, a representative from a major Singapore ISP underscored the handicap that Asian countries have to deal with relative to the US and that is the cost of leased lines. To that end, he favored the introduction of a financial settlements system. As with the analysis of the telecommunications pricing regime history, why was it necessary to reforming the Internet pricing system? To answer this question, it is necessary to consider how long one country (the US) can impose its first mover advantage on the rest of the world. The following factors contributed to maintaining the status quo of letting Tier-1 providers dictate the direction of the pricing regime. Shapiro and Varian state that first mover advantage is strongest in lock-in markets, such as information industries where scale economies are substantial.53 The way the current pricing regime has been molded follows the development of the Internet in the US. The way the rest of the world interconnects parallels how domestic ISPs do so in the US with the added consideration of how they transmit the traffic to the US. This is also different in comparison to the interconnection of telecommunications networks, because in most instances there is little competition for international traffic; therefore the gateway for transmission is limited. In addition, the accounting rate accounts for a shared burden in providing the link between the two networks. Another major difference is that governments have been cautious about regulating the Internet, including the pricing regime. The FCC has maintained the policy not to regulate the Internet, which includes the pricing arrangements between service providers.54 52 54

OECD 1996. 53 Shapiro and Varian 1999, p. 168. The FCC as a policy has “explicitly refused to regulate most online information services under the rules that apply to telephone companies.” This policy is a result of the FCC’s interpretation of the Telecommunications Act of 1996, which states that it is the policy of the United States “to preserve the vibrant and competitive free market that presently exists for the Internet and other interactive computer services, unfettered by Federal or State regulation” (Werbach 1997, p. i).

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Negotiation context The initial development of the Internet infrastructure was significantly subsidized by governments, especially in the US, and was not originally aimed at profitability.55 This quickly changed after the infrastructure was privatized in 1993.56 Unlike traditional telecommunications, the new pricing schemes were developed based on competitive models, even though the Internet infrastructure is not competitive in every country, and the marketplace drove the pricing regime not regulators. Prior to the privatization of the Internet backbone, the traditional pricing model was a “sender keep all” (SKA) arrangement, in which there would be no transfer of payments. In the early years of network development this model made sense because it ensured network connectivity between small and large service providers. “This model promotes the daisy chaining of unaffiliated networks and delivers global access to sources of information, commerce and entertainment.”57 There was an assumption that there was asymmetry in the amount of each other’s traffic that was carried, though there was no mechanism to meter this. Those that practiced this model entered with the belief that the costs that would be involved in metering traffic and settling accounts outweighed the benefits that would be gained. The large backbone providers, also known as Tier-1 ISPs, because they had begun to bear the burden of building out the infrastructure to handle the increased traffic, later abandoned the pure SKA model. The Tier-1 providers were led by MCI. As Frieden observes, Tier-1 ISPs that have been able to establish favorable economies of scale and scope in both customer base and bandwidth capacity, needed to find additional profit centers to finance further expansion.58 Two major pricing models prevailed: peering and transiting. The former model is similar to the SKA model, though it expects that there is some symmetry in how much traffic is shared. In addition, under the peering model, there is no assumption that it will allow all ISPs to interconnect. Smaller ISPs were required to enter into transiting 55 56

57

See Chapter 6. In 1993, the US Government (National Science Foundation) turned over the management of the Internet domain name system to a private company, Network Solutions, and the Internet backbone system to large telecommunications carriers (Sprint, Ameritech, and Pacific Bell). Frieden 1999, p. 235. 58 Frieden 2001.


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agreements, which would obligate the smaller ISP to pay the larger ISP to interconnect. These charges were mostly flat-rate charges, similar to the “all you can eat” model that ISPs charged consumers. However, in transiting negotiations, the larger ISPs have most of the power because the small ISP has already been denied SKA or private peering arrangements. There have been some arguments made that when large backbones ended peering arrangements with smaller ISPs in exchange for transiting arrangements, that this was an anticompetitive move.59 However, this move would not be subject to antitrust suits, because harm to the consumer was not demonstrated. Foreign ISPs typically connect to US network access points through transiting arrangements, similar to small or medium US ISPs, unless the size of their network and traffic flows are roughly symmetrical to that of the Tier-1 ISPs. The controversy over how foreign ISPs interconnect with the US backbone brings into question the equity of foreign ISPs paying for the entire link between their domestic network and the US backbone. It is commonly argued that Tier-1 ISPs have used, and some would argue abused, their market power by requiring foreign ISPs to provide their own access to the US network and its content. Large telecommunications (primarily US companies) and undersea cable operators have borne the expense of building out the network and leasing the capacity to foreign carriers to reach the US networks. This being said, the cost of leasing lines to reach the US is relatively inexpensive when compared to the high costs in economies that do not have as much competition in the telecommunications services market. It was common practice in many of the economies where the cost of leased lines is high, especially in the Asia-Pacific region, to route Internet traffic via the US networks only to return to the region because it is cheaper than intraregional alternatives. There are many challenges in developing a pricing regime for settling Internet traffic. First, there is no way to have good measurements on who initiated the transmission, which is one reason why traffic has not been traditionally metered. Traffic cannot be measured by the direction and size of the packets because when a user requests a web page, it sends a few packets to the web sites with the request. The amount of packets sent are relatively few compared to those that are returned. Second is a scheme known as “hot potato routing,” in which 59

Kende and Oxman 1999, p. 9.

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an ISP secures a subsidized or underpriced access to a US ISP and as a result it receives global access. Under these arrangements, an ISP loads off traffic cheap to another ISP’s network that will transit traffic over the long haul to the final destination. Because packets are passed from network to network, it is not a simple process to determine what direction the traffic is coming from. The third challenge is in measuring who benefits from the transmission of the traffic flow. For example, when a user requests information from a content provider, it is often the provider itself that benefits from the transmission more than the user. A fourth challenge is that unlike telephony where users pay for a dedicated line for the length of the conversation, the Internet operates on a “best effort” principle, which makes no promises on the availability of bandwidth. A final consideration is accounting for all of the relevant costs, which cannot be measured just by amount of traffic and the cost of transmission. Internet charging arrangements was raised as a major issue by governments before Australia raised it in connection to the court case disputing the Benchmark Order that the FCC issued with respect to telecommunications settlements.60 In the Australian incumbent carrier Telstra’s comments to the FCC, it recommended that the FCC expand its focus to addressing the disparities in current arrangements for exchange of Internet traffic between the US and foreign countries and carriers. Telstra argued that it cost them an additional $9.6 million per year, because it has to pay for 100 percent of the international link between the US and Australia, and 70 percent of the traffic that flows over that link comes from the US. The company estimated that total additional costs add up to a $200 million global subsidy for the US annually and growing.61 The FCC did not address this complaint and later that year Telstra filed a petition in the US Court of Appeals claiming that the FCC’s failure to address the issue effectively permits US carriers to overcharge foreign carriers for international capacity. The appeals court in its ruling stated that the FCC was under no obligation

60 61

The FCC Benchmark case created a maximum range of settlement rates to force rates to be closer to actual cost. In an October 1997 petition to the US Court of Appeals, Telstra was claiming the numbers were $10 million a year deficit for their company and $200 million globally. (Telstra Corporation Limited Comments, International Settlement Rates IB Docket No. 96–261 (filed February 4, 1997)).


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to address Internet services just because it was addressing telephony settlement rates.62 The singular issue to be negotiated was how to make the Internet pricing arrangements more equitable; however, the outcome of the accounting rate negotiation was fresh in the mind of negotiators and would remain a background issue. The US aimed to reframe the issue as a debate over the impact of competition on the cost of leased lines and Internet access, because it was a debate in which it fared much better. It was in the best interest of the US to protect the status quo, with strong support coming from the major Tier-1 ISPs. Since most Tier-1 providers are US companies, any modification to the pricing system that would require a sharing of costs for international Internet traffic would leave them worse off. Australia readily found partners in East Asia to go along with its stance in Internet charging arrangements. In its FCC petition on settlements, Telstra was supported by Japan’s international carrier KDD and Cable and Wireless of the UK with its global network; both of them supported Australia in the Internet issue. Soon, Singapore and South Korea came on board. Asia-Pacific countries all suffered by having such long distances to haul traffic to and from the US and there were perceived inequities in the volume of incoming versus outgoing traffic between their countries and the US. Negotiators for Asia-Pacific nations argued that under the current scheme the US was not paying its fair share and the end users in the Asia-Pacific were underwriting US users’ access to their networks. For example, a 1996 OECD study reported the average rate for 20 hours of dial-up Internet usage in Australia was $51.74 and $53.04 in Japan compared to $20.64 in the US. An OECD analyst that was a party to the negotiations made the linkage between the major opponents of settlement rate reform, including several Asia Pacific countries, and the proponents of ICAIS.63 Their motive was thus in part retribution for the US’ Benchmark Policy. The major actors for Australia include its National Office for Information Economy and the dominant carrier and former monopolist, Telstra. Initially, the ICAIS issue was led by Telstra’s John Hubbard but by late 1999, he was told that he had taken the issue as far as he could. Richard Thwaites, international general manager of Australia’s 62 63

Cable & Wireless v FCC, 334 U.S. App. DC 261 (1999). Interview July 2001 in Paris.

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National Office for Information Economy (NOIE), did state that Australia’s government position was not identical to Telstra’s. The Australian government’s “position is motivated by concern for overall economic outcomes, benefits to Internet users, and by the desire to see inappropriate market behavior corrected before regulatory intervention becomes necessary.”64 Telstra, which the Australian government has a minority stake in, was a primary plaintiff in the court case against the FCC and a primary source of information for both the development of the Australian government position and APEC proceedings.65 NOIE officials note that while Telstra made a strong moral case in the settlements and ICAIS issues, it was not so legally strong.66 Nevertheless, the information and multi-media information industry associations in Australia supported Telstra. Officials note that they would have pushed the case “even if Telstra had thrown in the towel.”67 Similar to the telecommunications settlement case, the US virtually stood alone to defend or impose its market power, as it might be perceived, against the rest of the world albeit, in this case it was the rest of the world trying to make the US comply whereas in the settlements case, it was the opposite case. The US’ market power extended to three major areas of the Internet market: (1) international bandwidth capacity; (2) domain hosts; and (3) Internet users. The US’ establishing its stranglehold on the Internet market relative to the rest of the world was in part a result of its first mover advantage. Because of its role in the development of the Internet, it had a head start in compounding bandwidth, content and users faster than other regions of the world. The tables below provide descriptive statistics for the period of negotiations. In 1999, 46 percent (28,134 Mbps) of all international backbone capacity was linked to the US, 13,258 Mbps of which was between the US and Europe. While the statistics indicate that capacity between the US-Asia-Pacific and US-Europe approximately doubled and tripled between 1999 and 2000, respectively, one of the trends to watch has been the growth rate of intraregional capacity in Europe and Asia-Pacific (see Table 5.2). It should also be noted that US companies, including MCI Worldcom, AT&T, and Sprint, overwhelmingly controlled global backbones. Bandwidth capacity is an important metric, 64 66 67

Daily Report for Executives 2000. 65 National Bandwidth Study 1999. Interview with NOIE officials, Canberra, June 2001. Interview with NOIE officials, Canberra, June 2001.


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Table 5.2 International bandwidth estimates, 1999–2000

US/Canada – Europe US/Canada – Asia/Pacific Europe – Asia/Pacific Europe Intraregional Asia/Pacific Intraregional Total International Bandwidth

1999

2000

Growth rate

13,258 Mbps 5,916 Mbps 152 Mbps 31,918 Mbps 398 Mbps 60,790 Mbps

56,241 Mbps 19,717 Mbps 357 Mbps 176,595 Mbps 3,124 Mbps 293,493 Mbps

324% 233% 135% 453% 685% 383%

Source: TeleGeography (2000a, 2000b). Domestic Bandwidth estimates not included. Numbers are based on mid-year 1999 and 2000 numbers, respectively. Growth rates calculated by author. 120

Users in millions

100 80 60 40 20 0

Rest of the World

APEC (excl. US)

European Union

United States

1997

10.61

23.95

20.92

40.00

1998

19.60

40.10

33.72

60.00

1999

36.95 55.33

70.89 114.51

54.59 82.96

74.10 95.35

2000

Figure 5.2 Internet user growth, 1997–2000 Data Source: ITU. World Telecommunications Indicators 2001.

because its development tends to be based on supply and demand factors. Two related metrics to backbone capacity are the location and growth of domain hosts and users. While market trends show sharp increases in the number of Internet users outside of the US (figure 5.2), it is the location of content that is driving traffic and backbone development (figure 5.3). The location of the top web sites is just another

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100

Hosts in millions

80

60

40

20

0 Rest of the World

APEC (excl. US)

European Union

United States

1997

1.30

3.44

4.65

20.62

1998

1.83

4.64

6.42

30.49

1999

2.80

7.28

8.49

53.18

2000

3.50

11.69

10.48

80.57

Figure 5.3 Internet domain host growth, 1997–2000 Data Source: ITU. World Telecommunications Indicators 2001.

example of the US-centric Internet topology. By 2000, over 75 percent of domain hosts were located in the US, up from 69 percent in 1997. In one survey of the Top 100 most visited web sites, 96 percent were physically hosted out of the US.68 Most of the Top 100 are not only hosted out of the US but are operated by US-based companies. It is also common for companies that are physically located outside the US to locate their server in the US to take advantage of the cheaper leased line rates available. As demonstrated in figures 5.2 and 5.3, during the period since the signing of the WTO Telecom Accord and the end of the ICAIS negotiation, the US had very high growth rates in Internet users, and Internet hosts. The data also show that APEC countries, excluding the US, also had high growth rates of Internet users – greater than the US – but did not experience the same growth in number of Internet hosts, supporting arguments that APEC countries were reliant on the US for Internet content. The significant market advantage the US gained from having strong positions in the Internet market put it in the position of power in this single-issue negotiation. The US advantage provided it with a good BATNA and tied the US’ hands. It was not in the interest of 68

TeleGeography 2000a, p. 15.


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US backbone providers to enter into cost sharing agreements or the US to change its policy of not regulating Internet traffic. In sum, it had the alternative of negotiating or not. Australia and the other Asia-Pacific countries did not have a predetermined solution or outcome. Australia and other Asia Pacific countries had a relatively low BATNA, willing to accept a variety of solutions that would amount to some cost sharing of the international link. However, they did not have good alternatives to an agreement except that swift changes in the market would effect change on its own. At the onset of the negotiations, possible alternatives for convergence of interests were almost non-existent. The US preferred the status quo, because any changes would leave US companies worse off, and the Asia-Pacific countries demanded some change. According to the FCC representative to the Asia-Pacific Economic Cooperation (APEC) forum, there was no solution that would accommodate everyone and remain consistent with the US’ domestic market position.69

Negotiations process The Asia-Pacific coalition initially adopted a value-creating strategy in the negotiation in hopes of reaching an amenable solution, which included initiating proposals that might satisfy the US. As such, this coalition was also the early agenda-setter. After initial negotiations did not result in an agreement, the dispute was elevated to the international forum (ITU), which took the US by surprise. The strategy shift was made as a response to the US’ non-response. The US approached the negotiation with the mindset that there were no solutions that would be able to satisfy all parties. Donald Abelson, FCC International Bureau Chief, argued that the US government strongly opposed the ICAIS initiative and Telstra was trying to prevent competition in the provisioning of Internet services. With the objective to preserve the status quo, the strategy was not to reach an agreement at all and let it be resolved in the marketplace. Delaying an agreement was one of the primary tactics along with informational tactics educating the other parties to gain support for its position. In the end, they were able to abstain from the agreement reached at the international level, which virtually nullified the effort entirely, and with domestic 69

Interview on June 27, 2001 in Washington, DC.

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conditions changing in the countries of the primary disputants (Australia and Singapore), the issue has gone by the wayside. The following is a summary of the negotiation process beginning after the Benchmark Order court decision through WTSA 2000. The focus is placed on events reflecting tactics employed and their impact on alternatives. Australia’s Telstra, then 50.1 percent owned by the government, was the primary agenda setter in the ICAIS case, though other major APEC nations, including Singapore, played strong roles. It first took the issue to the 1998 APEC Telecommunications Ministers Meeting (TELMIN3) that resulted in the creation of the ICAIS taskforce, which would report its findings at TELMIN4, May 24–26, Cancun, Mexico.70 Australia was adamant about holding discussions on Internet pricing in general, bandwidth capacity and telephony settlement rates to be about the inequities of the current transit arrangements. By defining the issue as the cost of the international link and not in terms of ISP or telecommunication provider competition as the US may have wanted, it was able to better its position in the negotiation because most APEC countries would not have fared well in a debate over competitiveness of their telecommunications sectors. Australia was the primary agenda setter because it estimated that it was one of the biggest losers in the current system, estimating a cost as high as $585 million in the 1999/2000 fiscal year.71 One of the main advantages of being the agenda setter is being able to define the problem that needs to be addressed. Often inherent in this is what the agenda setter sees as the proper or possible solution by which to measure possible agreements, as well as control the pace and direction of the negotiation and in which fora discussions would take place. The APEC Telecommunications Working Group launched studies on the issue of ICAIS in September 1998 at which time the APEC Ministers agreed to “study how to create sustainable and equitable financing arrangements for the establishment of these links.”72 The first version of the study that was released at an ICAIS information seminar in March 1999 stated that the Internet did not lend itself to traditional settlements that have been the norm for telecommunications, but it also needed to be recognized that some ISPs bear more of the burden 70 71

WGIG, “Draft WGIG issue paper on International Internet Connections.” Telstra 1999. 72 APEC TEL WG 1998.


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of the cost of infrastructure than others.73 The authors of the study recognized that it was too important to the future of the Internet and global economy to allow the Internet to be continued in its ungoverned state.74 Governments were also able to submit position papers and objectives for the project at the first workshop in Miyasaki, Japan, on March 8, 1999. Australia submitted as its objective its desire to establish consensus among governments, ISPs and other bandwidth providers on an ICAIS model that “do[es] not favour any parties over others by reason of historical developments or market power.” Comparatively, the US background paper for the workshop focused on value of competition in ISPs. The differences in position are maintained throughout the negotiation. Rather than seeking mutually acceptable solutions in negotiations with APEC countries, the FCC used the negotiations in the APEC to educate representatives on the difference between voice traffic and Internet traffic in order to convince them why the type of settlement rate system being proposed would be inappropriate.75 By submitting a rival position for the workshop the US hoped to reframe the debate in terms of the benefits of competitive telecommunications services for Internet growth and affordable prices. This was an important part of the US’ overall strategy. The US background paper stated that competition in telecommunications services creates the necessary condition for Internet growth. Competition allows ISPs to take advantage of lower prices, more choices, and more infrastructure development. In countries where there is little or no competition, the cost of leased lines is unreasonably high and it is often difficult for ISPs to achieve interconnection. With these impediments in mind, the ISP market does exhibit competition in most markets even though the infrastructure is not always competitive. The American and Australian negotiators continued their debate during the second session of APEC workshops arranged to study the ICAIS issue in September 1999. The US warned the Australian chair that the principle of equitableness should not be the focus in this context because it is not a standard that is applied to other industries. US Department of Commerce representative Jonathon Menes urged 73 75

APEC TEL WG 1999. 74 APEC TEL WG 1999, ch. 5. Interview with FCC official on June 27, 2001 in Washington, DC.

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the participants to consider some of the costs that first movers have to incur, including research and development costs. The Australian Chair’s response was that “what we want to see, and what is generally the basis on which we pursue market liberalization, is that we have markets that are working effectively, and where market power is not abused.” 76 In the meantime, APEC was raising the ICAIS issue at the ITU. At the meeting of its Study Group 3 (SG-3) dealing with costs and prices, the issue was hotly debated but a vote did take place on the APEC position. Apart from the US, four other countries – Russia, the UK, Canada, and the Netherlands – opposed the recommendation. The Russians, in fact, noted that the recommendation did not go far enough. After the series of APEC seminars and a debate that began four years prior, the differences between the Americans and Australians were no closer to being resolved. One of the main reasons for this was the disparate economic interests of the two countries, which compelled them to take opposing positions and isolate the US. While Australia was the loudest proponent of ICAIS and opponent of the US, the rest of the world was equally as anxious to end the US “cartel.” As the Telstra spokesman Martin Ratia stated: “The world is pounding on America’s door, and even the most intransigent administration must listen eventually.”77 At the Fourth APEC Ministerial Meeting on Telecommunications and Information Industry in Cancun, Mexico in May 2000, there was a proposal on the table which encouraged the use of measurement tools or traffic flow ratios to determine charging arrangements, and, “when agreeable to both parties,” the sharing of the cost of the international transport link capacity on a 50/50 basis.78 At the close of the meeting, the ministers agreed on a non-binding set of principles for ICAIS. In its final form, the document stated that governments did not need to intervene in these commercial agreements except when necessary to prevent anti-competitive behavior by dominant players or de facto monopolies. In addition, it was agreed that commercially negotiated charging arrangements should reflect the contribution of each network to the transmission, the use by each party of the network resources and the end to end costs of the international

76 78

APEC TEL WG 1999b. APEC TEL WG 2000b.

77

Daily Report for Executives, May 30, 2000.


217

link.79 Both the Australians and the US claimed victory at the close of the meeting, the Australians because there was recognition of the need for charging arrangements that reflect the costs of each party. US Assistant Secretary of Commerce Greg Rohde hailed the outcome because it acknowledged the need for further study of the issue and that language of 50/50 sharing that was in the initial draft that would liken charging arrangements to the international telephony accounting rate was removed.80 However, Australians worried that the Americans had misunderstood the non-binding nature of the resolution; in the absence of domestic law, which was the case with the Internet, they expected the non-binding resolution to have more force.81 Much to the surprise of the US delegation, the Asia-Pacific coalition severely shifted its strategy by elevating it from a regional to an international stage.82 The shift was a necessary tactic to get a step closer to an agreement, which was not achieved during the APEC proceedings. Australians also felt that the US would never come around, given their reaction to Cancun: “No one in the US would break rank. There were four major players [ISPs] in the US and they were solid as a rock.”83 In addition, the shift can be attributed to what the coalition believed were improved alternatives as support for its proposals was building. The Tariff Group for Asia and Oceania submitted a “flash proposal” to be considered at the World Telecommunication Standardization Assembly in September 2000, recommending that “administrations negotiate and agree bilateral commercial arrangements applying to direct international Internet connections” that will justly compensate for the costs incurred by carrying each other’s Internet traffic.84 The use of the term “administrations” was viewed by the US as suggesting an accounting rate type system. In response, Thwaites noted that the term is historical ITU terminology that “we are stuck with for the time being.”85 79 81 82

83 84

85

APEC TEL WG 2000b. 80 Daily Report for Executives, May 30, 2000. Based on interviews. As a result of raising the issue at the ITU, other international and regional groups also began studies on the issue including Organization of American States, through its CITEL forum, the G-8 leaders forum, and in US-Japan bilateral initiatives (NTIA 2000). Interview with John Hubbard, Telstra, Sydney, June 2001. “Administration” is understood to mean any party that is authorized to provide any form of telecommunications services or a recognized operating authority. (ITU 2000.) Daily Report for Executives, May 3, 2000.

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As noted earlier, ITU-T Study Group 3, which studies telecommunication accounting principles, swiftly approved the recommendation in its April 2000 meeting to be included on the agenda without further study even though there was “substantial opposition” from the US. However, there was some dissension within Study Group 3 on the recommendation, including the US, the UK, Russia, Canada, and the Netherlands.86 The US argued that the recommendation was too ambiguous and not practicable and that the approval would send the wrong message to industry that the ITU was attempting to regulate Internet services in the same fashion as traditional telephone services.87 Issues raised by other countries, including the UK and the Netherlands, included the inclusion of elements in addition to traffic flow to be taken into account during bilateral commercial negotiations. An additional advantage of raising the issue to the international level was the expansion of the coalition. The larger the coalition, the more politically risky a “go it alone” strategy was for the US. First, other developing countries from Latin America and Africa were a natural expansion of the coalition, which would enable them to get the votes and strength at the WTSA. Latin American delegations were compelled to approve the recommendation, because they were concerned that with the growth of Internet telephony they would lose revenues from the traditional circuit-switched calls. CITEL, the Inter-American telecommunications Commission – part of the Organization of American States – began discussing the issue at its June–July 2000 meeting at Mexico’s urging, following the Cancun APEC meeting. Second, the Asia-Pacific countries courted the Europeans, which were on the fence at the start of the assembly. Europe had not been an active participant in the ICAIS discussions before WTSA, though companies such as Telefonica of Spain became interested because of their holdings in Latin America. Europeans wanted the language of any WTSA resolution to be “exhortative” rather than “binding.”88 Being able to incorporate both developed and developing countries into the coalition was 86

87 88

Canada opposed because it was to chair and host WTSA but Russia’s position was termed “eccentric” by Australian officials; the Russians opposed because they felt the recommendation did not go far enough in putting pressure on the US. Separately, the Koreans also told the Australians that they were too soft on the Americans. Based on interviews in Australia, May–June 2001. Ibid. Based on interviews with NOIE officials, Canberra, Australia, June 2001.


219

important for its cause because it gave them additional credibility as well as power. When the assembly met in Montreal on October 6, the entire body, except for the US and Greece, approved Recommendation D.50, which recognized that governments need not intervene in private business arrangements, but recommended the bilateral negotiation of commercial arrangements that would compensate for the value of elements such as traffic flow, number of routes, geographical coverage and cost of international transmission.89 The Recommendation noted that: administrations involved in the provision of international Internet connections negotiate and agree to bilateral commercial arrangements enabling direct international Internet connections that take into account the possible need for compensation between them for the value of elements such as traffic flow, number of routes, geographical coverage and cost of international transmission amongst others.90

Negotiation outcome The passage of the recommendation could be read as disconcerting by US negotiators, but in no way had they lost anything because the US was not legally required to implement the recommendation. In a Department of Commerce press release after the meeting, the US indicated that it would not be applying the recommendation in the US and maintained the need for further study.91 The US Deputy Assistant Secretary of State Malcom Lee commented that even though the recommendation was non-binding, it set a “bad precedent” with an upcoming ITU treaty conference in 2002 at which time the recommendation could become binding.92 The first move Australia made after the WTSA was to introduce the issue at the WTO to try to make it part of GATS 2000 that was about to begin. A proposal submitted by Australia noted: “Australia proposes that Members recognize that Internet delivery services, being ‘packetswitched data transmission services,’ are a basic telecommunications 89 90 92

Reasons for Greece’s disapproval of the recommendation are unknown. Quoted in WGIG. 91 NTIA 2000. Some ASEAN ministers in 2002 continued to push for discussions with the private sector on a more fair and equitable ICAIS at the World Summit on the Information Society. However, ICAIS was not a major issue on the agenda at the 2002 ITU Plenipotentiary Conference.

220


service. The Basic Telecommunications Reference Paper should therefore apply to Internet delivery services.”93 Australians began to note that Internet costs were problematic because the Internet was not regulated and that costing arrangements must reflect a balance between the benefits of market competition and regulation that tamed the power of monopoly Tier-1 ISP providers.94 It would take its case to the OECD meetings to try to get the Europeans to support its position more strongly. At a June 2001 OECD workshop on Internet Traffic Exchange, Bill Scott from NOIE argued that “Australia is trying to get the balance right between competition and regulation.”95 However, the Europeans continued to take a mixed view. They acknowledged that high costs from Tier-1 providers could be harmful but mostly for developing countries.96 The GATS negotiations were just starting and would take a long time to play out; the best bet was to get the ITU to do something. The ITU deliberations, however, failed to push the ICAIS issue. At the June 2001 SG-3 meeting, two Rapporteur groups were established, one for delineating D.50 guidelines and the other for studying the traffic patterns that would form the basis of the D.50 guidelines. But, the ICAIS issue had lost steam even in Asia-Pacific as its cable systems developed (see below) and an ITU official interviewed in 2001 noted that “the issue is largely gone off the radar.”97 SG-3 thus added Amendment 1 to recommendation D.50 in June 2004 that moved in favor of commercial arrangements as a way of resolving Internet charging arrangements. Meanwhile, the work on traffic flows continues during the SG-3 new study period from 2005 to 2008. The countries continuing to push for non-commercial arrangements are the 93 94 95

96

97

WTO Council on Trade in Services, 9–12 July 2001. Based on interviews with Australian officials. Scott 2001. A presentation by Don Abelson, Chief of the International Bureau at the FCC, titled “ICAIS: Myths Versus Reality,” argued strongly in favor of commercial arrangements: he argued that competition, not dictates of international organizations, would lead to Internet growth. He also disputed that US Tier 1 ISPs were indulging in anti-competitive practices by noting the number of ways in which US and foreign ISPs can access the Internet. Abelson 2001. This was, for example, reflected in the positions taken by the various UK government agencies. The Department of Trade and Industry did not see the wisdom in ICAIS but the foreign aid agency DFID did push the issue. Based on interviews at ITU, November 2001. Interview at ITU, November 2001.


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least developed countries, especially from Africa, who cannot afford the high prices charged by Tier-1 ISPs. In this respect, the issue became part of debates at the evolving World Summit on the Information Society, where Internet governance would occupy center stage.98 The lack of push for ICAIS from its initial sponsors in the Asia Pacific might be due to the coalition’s improving alternatives throughout the negotiation as the coalition partners increased their own market power. In addition to elevating it to the international stage, infrastructure growth, Internet user growth, and competition slowly improved their alternatives during and after the negotiation. In the Asia Pacific region and worldwide, more international backbones were coming into operation, giving countries alternatives to routing traffic through the US. While there will continue to be a strong necessity to access US networks for content, Asia did not have to continue practices of routing regional traffic through the US. As was seen in Europe, after bandwidth capacity increased more than two-thirds of its international Internet capacity remained in-region.99 TeleGeography reported that 13.5 percent of Asia’s international Internet capacity was in region in 2000, compared to only 6.2 percent in 1999 – a 118 percent increase.100 The value of the Asia-Pacific network is increasing as it accumulates more users and more valuable content. One of the arguments of the Australians was that they were subsidizing US users’ access to Australian content. While its statistic that 70 percent of the traffic was from US users wanting to access Australian content might be inaccurate based on the challenges of determining who requested the traffic, it is a valid point that as foreign content improves, US users will find increasing value in increasing their content. Michael Kende argues that the increased demand for foreign content would result in more leverage in negotiations with US backbones.101 Failure to reach an international agreement in 2000 is then attributable to the market power accrued to the US. Even with the improving market conditions of the Asia Pacific, the value creating tactics of the coalition were ineffective at changing the alternatives 98 100

101

See Chapter 6. 99 Kende 2000, p. 39. Although Asia Pacific countries began to move away from ICAIS, Singapore did propose that ICAIS become part of the Joint Statement on Electronic Commerce at the December 2000 negotiations of the United States-Singapore Free Trade Agreement. Kende 2000, p. 39.

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to agreement for the US. The US entered the negotiation with a very strong market position and political position. The negotiators were unwilling to regulate Internet pricing in any way, which would have been the result of any agreement. The US had strong domestic support for this position. The US negotiators did not recognize the improving alternatives in the Asia Pacific as having a strong impact on the US alternatives. Shortly after the formal negotiation concluded, it became clear that changing domestic conditions in the coalition countries also played a role in their failure to reach an international agreement. The coalition was a key part of the success of advancing the issue as far as it did, but it became immediately clear that the issue would not be carried much past the WTSA. The cause lost the support of its major proponents in Australia and Singapore. Telstra reversed its position in part because of the increase in bandwidth capacity in the region. In addition, it was uncovered that Telstra required domestic carriers to pay for access to Telstra’s networks. According to a FCC representative, the Singaporean government also reversed its position in favor of a marketplace solution.102 Changing preferences in most cases were due to changes in the market conditions domestically and internationally.

Conclusion: evaluating alternatives The outcomes in both of these cases exemplify scenarios approximating traditional concentration of power, but not necessarily for the same reason that strong states have historically been able to effect outcomes in their favor. Discounting a state power play as the primary rationale for the US’ ability to act unilaterally, the outcomes are counterintuitive based on the power that the rest of the world possessed through historic precedence, coalition building, and the availability of multilateral rule making processes in international and regional organizations. The key to explaining the outcome was that despite their power, the rest of the world lacked good alternatives to reaching agreements when negotiating with the US market conditions and changing domestic conditions gave the US good alternatives to no agreement and enabled it to successfully carry out claiming strategies. Interestingly, in the settlements 102

Interview in Washington, DC, June 27, 2001. Telstra was also guilty of forcing similar pricing structures domestically that they opposed at the international level, which damaged their credibility to push for reform.


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case, the US prevailed in its position against the rest of the world and in the ICAIS case the rest of the world could not prevail against the US in its position. While we can find cases of instrumental power in the two negotiations, it was the US’ market advantage or structural power that best explains the outcomes. The beginning of this chapter posed two questions: (1) Does historic precedence matter in negotiations when facing market powers? (2) How important are market conditions in evaluating alternatives in a negotiation? A focus on alternatives in these cases is appropriate, because they are important to understanding the outcomes and, to an extent, why the tactics employed by the US’ opponents were largely ineffective. Before the negotiations began, the alternatives to a negotiated agreement for US opponents were very limited. There is a general assumption that no agreement in the worst-case scenario is the status quo. For opponents of accounting rate reform this would have been a desirable outcome, while the proponents in the Internet case would at least not be worse off. Status quo aside, neither had any good alternatives to reaching an agreement that included the US. The failure in each case was their inability to compel the US to conform to the traditional international decision-making on telecommunications matters – namely, multilateral consensus. Though, just because multilateral negotiations did not result in an agreement, it does not mean that negotiations did not matter at all. In both cases, the negotiation process did influence outcomes. For example, the US worked through multilateral processes for over a decade before the benchmark order. Without paying heed to negotiation processes, we could not explain the timing of the US’ unilateral actions, namely the Benchmark Order. In the ICAIS case, it may have prompted the APEC countries to buffer their Internet backbone networks, thus leading to a change in the underlying configuration of power. Together, the two negotiations also outline the way liberalization, in this case market-based pricing, works in practice. These factors reflect the general claim in Chapters 1 and 2 that even negotiations taking place under a concentration of power need to be taken seriously. Considering possible diplomatic or technical avenues that could be explored after the US’ unilateral actions in both cases, there were very few avenues for repercussion. The FCC had left open a couple of options to renegotiated rates. First, the Flexibility Order allowed US

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carriers to deviate away from the accounting rate method toward alternative methods for pricing and organizing the supply of international services. Second, the Benchmark Order had a clause that would annull the order if a multilateral agreement could be reached prior to January 1, 1998, the day the order entered into force. The first option was an alternative being explored by some of the countries that had already liberalized or were already at or below the benchmark rate. These were not the countries that would be hurt by the Benchmark Order. Considering that the US opposed the current proposals that the ITU Study Group 3 was considering and more than five years of discussion had not resulted in consensus, the second option was not extremely viable. Even without an agreement, the negotiation process was effective for some countries in starting reforms and allowing liberalization to take place; it also unveiled alternatives on how to approach accounting rate reform. There were no immediate diplomatic avenues to be explored in the ICAIS negotiation after WTSA. After failing to compel the US to abide by the recommendation approved by almost all ITU member states, any further diplomatic tactics would be years into the future by which point the issue may be a moot point. Here, again, the negotiation process was effective in allowing market forces to work. According to a US official close to both negotiations, the US will sometimes choose to “go our own way” if multilateral discussions fail to produce the desirable results.103 That is what the US did on the settlement rate issue, and again on the ICAIS issue. Are these options available to the US in negotiations based on traditional notions of state power or are there other power dynamics at work? Acting unilaterally is an option reserved only for a few actors. Exiting a negotiation between two parties is much less severe and is quite common. Consider how often countries walk away from peace tables or regular business negotiations when the deal is not in their best interests. At the multilateral level, this is not as simple or easy a task. As noted previously, there can be severe political consequences for acting out in this way at the international level. The backlash against the US in the ICAIS negotiation was in part because of the anger felt over the FCC’s taking a unilateral action over accounting rates. One of the qualifications for going off on one’s own is having good alternatives to 103

Interview in Washington, DC, June 21, 2001.


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a negotiated agreement. As for the settlement rate case, the US knew from the very beginning that there were two possible routes for reforming the accounting rate system, unilateral actions or working through the ITU. While the ITU route may have been preferable, the unilateral one remained a reasonable option. Again, in the ICAIS case, the no agreement always remained available. In economic negotiations, it takes more than state power to be able to dictate outcomes. It also requires significant market power. The market conditions surrounding these negotiations strongly favored the US’ position. At the climax of the accounting rate negotiation, 39 percent of all international traffic originated or terminated in the US. On a majority of these routes, US incoming traffic accounted for more than 25 percent of total incoming traffic.104 The US also had significant market power in the Internet throughout the ICAIS negotiation, whether measured by bandwidth (46 percent), domain hosts (75 percent), or users (27 percent). Market power arises when a particular actor has the capability of commanding a particular strategic resource, which in this case was the command over the infrastructure, as well as users and content. In those terms, the US network had great value to the international community, value for businesses, governments, and individuals who communicate with people and organizations in the US, as well as those accessing Internet content in the US. The US command over the resource was enhanced by the dependency other countries had on settlement payments from the US as a means of income to subsidize their infrastructure. Concentration of power was established by having economic power, monopoly power and first mover advantage in both international telephony and the Internet. While it may be pointing out the obvious, the US owes part of its power in these cases to its economic power. In addition to having the highest gross domestic product per capita of any large country, the US is a center for international business, which drives demand for international services.105 While monopoly power 104

105

This number is based on a sample of fifty-two countries, for which both US outgoing minutes and total incoming minutes in 1997 for the country were reported in TeleGeography 1999. Only Luxembourg, which had a GDP of US$45,000 in terms of purchasing power parity in 2000, had a greater per capita GDP overall according to OECD 2001.

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in the international market is influenced by the economic power and population size of the US, it was also influenced by the regulatory measures that the government took to liberalize the telecommunications sector. By lowering the cost of international telecommunications, the demand for such services increased, as did carrier revenues. First mover advantage was the third major source of market power. The “hub and spoke” phenomenon was created because the US had a significant head start over all other countries in developing infrastructure, content, and user base. The third layer of the concentration of power analysis is the advantages resulting from it. The primary advantage, as is evident through these negotiations, is the ability to control outcomes. First movers, even more than monopolists, have the ability to dictate the rules of the game because they were established before the other players even came to the table. While changing the rules once everyone is at the table is more challenging, monopolists can accomplish this to a certain degree. For example, the US could only influence settlement rates that were related to its networks and not on the entire international regime. Whether or not it is appropriate, fair, or sensible for the US to go it alone in today’s global economy is not the question to be answered in this chapter. The question for this chapter is what were the sources of alternatives. The US negotiators executed the strategies they did because they represented not only their best alternative to a negotiated agreement, but also their best alternatives in general. Market conditions were the major source of good alternatives for the US. The market conditions variable can be isolated as a primary factor in the outcomes, because it assured dependency of other actors. If the countries were not as dependent on the US for telecommunications infrastructure and payout revenues, they would not have been as compelled to comply with the US’ regulations and would more likely have better alternatives. One of the lessons to be drawn from the international settlement rates case study is that historical precedence is less important than market power as a predictor of outcomes. Part of the reason for this is that continuing practices based on what was done in the past can create complacency. It was the predictability and continuity that prevented change in the international telecommunications regime that drove US


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negotiators to push for change, even if it meant defying the entire world in the process. The multilateral habits of technocratic decision-making, such as those in the ITU, here stood in the way of the US.106 As emphasized by an FCC negotiator in an interview, the current policies that have been in place for nearly 100 years were unsuccessful at bringing telephone service to everyone and it is time to try something else.107 Sometimes history teaches us lessons that things need to be changed; in these cases the markets completed the change technology proposed. Market conditions prevailed over history because countries with significant market power have the necessary incentive to go against it even in the face of adversity. As it turns out, countries are now implicitly and explicitly converging on the US position as they build their own Internet infrastructures, liberalize, and move toward cost-based pricing.108 The second lesson to be drawn from these cases is that incumbency and first mover advantage continue to play important roles in economic negotiations. Incumbents, monopolists, and first movers have a strong role in negotiations, because even in cases of diffused power they still hold a significant amount of leverage based on their market positions and advantage gained from rules designed to maintain or increase their market positions. In the audio-visual case, the US’s BATNA was good based on its strong market presence worldwide. First mover advantage will also be explored further in the next chapter, as the question over how long the US can take advantage of its first mover status in the development of the Internet continues to be asked and addressed. Market conditions, not established regimes, will continue to have increasing influence in international economic negotiations. As stated in the ITU’s Trends in Telecommunications Reform 2000 report, “Market forces, not highly articulated rules and guidelines, may be expected to govern interconnection among developed countries.”109 Through the evaluation of alternatives in both of these cases, we learn that sometimes even apparent alternatives and other advantages will 106

107 108

In the case of services (Chapter 3), telecommunications liberalization (Chapter 4), Internet governance (Chapter 6), technocratic decision-making facilitated adjustment of positions or exploration of new alternatives. Interview in Washington, DC, June 21, 2001. This point will be taken up again in Chapter 7. 109 ITU 2000–01, ch. 8.

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not result in negotiated agreements. In pricing negotiations in particular, there was no agreement that would be mutually beneficial to all parties involved. It was a zero-sum game – in order for one side to win, the other party must lose. These deviant cases were presented in order to give a realistic view of negotiations in the global information economy and under which conditions negotiators expect traditional concentrations of power to determine outcomes.

6

Electronic commerce: reaching agreement when facing market power in Internet governance and data privacy1

The Web is more a social creation than a technical one. I designed it for a social effect – to help people work together – and not as a technical toy. The ultimate goal of the Web is to support and improve our weblike existence in the world . . . We all have to ensure that the society we build with the Web is the sort we intend. When technology evolves quickly, society can find itself left behind, trying to catch up on ethical, legal, and social implications. This has certainly been the case with the World Wide Web. Tim Berners-Lee Weaving the Web (1999)

The last chapter examined cases where the incumbent’s market power led to no-agreements and unilateral action in international negotiations. This chapter examines two cases where market incumbency did allow for agreement: the crucial difference comes from attempts to make the Internet interoperable – the “weblike existence” referred to in the quote above – necessitating global electronic commerce and related data flows. In the previous chapter, interoperability existed; the dispute was over prices. In this chapter, interoperability is emerging and may be facilitated by negotiated global rules. As noted in earlier chapters, negotiated interactions dispose what technologies propose as possible alternatives. Nevertheless, the emerging global rules allow the incumbent to set the priorities. The governing body for assigning domain names was established in 1999 and benefited the US private sector. It was under license from the Department of Commerce, allowing the US to retain direct involvement. In the second set of negotiations on this issue (2003–06), an international coalition challenged US involvement but the latter did not give in. In the case of data privacy laws, the US wanted the EU’s agreement, allowing it to work around its strict data 1

Sarah M. Corwin provided research support and co-authored initial drafts of this chapter.

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privacy laws restricting data flows. Civil society, national governments, and the EU Commission resisted such moves although European business warmed up to the idea. The negotiations ended in 2000 with an agreement that kept EU laws in place but allowed for a safe harbor, whereby data flows could take place. It was deemed a weak agreement. Like other negotiations examined in this book, safe harbor illustrates an alternative that emerged during the negotiations and outside of the initial interests of the parties. Interestingly, since September 11, the fissures between the EU and the US have re-opened on security versus privacy issues. The Europeans are suspicious of US data surveillance practices, while consumer and business groups accuse European data privacy officials of lack of transparency and accountability.2 The last section in this chapter briefly discusses post 9/11 developments. Both negotiation cases examined in this chapter began in 1997 and primarily involved the US and the EU. In the case of reform of the domain name system, the international community obligated themselves to adopt a single regulatory system that would govern the domain name system. The end result was the creation of a non-profit corporation – Internet Corporation for Assigned Names and Numbers or ICANN – and an international dispute resolution body concerned with electronic trademarks and housed at the World Intellectual Property Organization, namely the Uniform Domain-Name Dispute-Resolution Policy (UDRP). At the outset of the negotiation the parties had agreed on a set of principles on how the domain name system should be governed, but no consensus on a solution existed, although the US clearly favored a market-driven approach, enacted and supervised by the US government. US domestic negotiations were as much or more of a challenge than getting the international community on board, and once sufficient consensus was achieved at both levels ICANN emerged.3 Nevertheless, ICANN represented a “delegation strategy,” which allowed the US to protect its interests.4 Since then, the international community has been more active in trying to re-shape Internet governance, as in the proceedings of the World

2 3

4

Farrell 2006. While the entire international community was involved in the negotiation process, it was primarily the EU that was most vocal throughout the process. A number of comments were also received from Australia and Canada. Drezner 2007, p. 92.

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Summit on Information Society1998–2006, but with minimal success in making the ICANN budge from its original mission. The second case analyzed in this chapter was a negotiation over compliance of US companies with the European Union’s 1995 Data Protection Directive. The underlying issue of this negotiation was the fundamental difference between the US’ and EU’s approaches to data privacy. Reaching agreement in this case was difficult, but through creative problem solving, a mixture of information and technocratic tactics, the two sides would reach a mutually acceptable agreement that addressed the basic interests of each side. Taken together, the negotiations in the two cases show that interests changed at the margins allowing the US and the EU to consider alternatives that did not exist at the beginning of the negotiations. Technocratic problem-solving especially allowed for alternatives that were not present originally for negotiators. In the case of domain names, the US gave in to EU pressure for some international organizational accountability in 1999 with the creation of the UDRP. In terms of data privacy, the European Commission allowed for data transfers after it began to believe that the US proposals for a safe harbor did include some government oversight. Table 6.1 summarizes the negotiation context, processes, and outcomes for the two negotiations. While the domain name system and data privacy do not share many common attributes, they have a shared context. First, there is a shared historical context, and, second, incumbency in rule-making plays a role in both cases. Both negotiations seriously began in July 1997, a time when both the US government and the EU were waking up to the realities that must be faced with regards to electronic commerce: a domain name system that was run on US infrastructure and under US management, and a European law that would soon require all third countries to meet adequate data protection standards in order to handle the personal data of Europeans. These would be just two of a longer list of hurdles that would have to be passed to create a favorable environment for global electronic commerce to flourish. Creating a domain name system with global governance was a new issue. Reconciling the differences in data privacy regimes was an old issue revisited. During the first week of July 1997, both the US and the European Commission released frameworks outlining a set of principles that should direct government actions with regards to electronic

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Table 6.1 Factors influencing outcomes in Internet governance and data privacy negotiations

Negotiation context Number of issues

Number of actors

Domestic interests in negotiating countries Dominant market condition




Outcome

ICANN

Data privacy

Two major issues: governance and dispute settlement. Also minor issues Incumbent (US) and rest of the world (mainly EU) Mostly monolithic (97–99) Divided (00–05) US had incumbency advantage but needed global interoperability Possible non-interoperability/ fragmentation of Internet

Single

1997–99: value-creating: transnational coalition-building, technocratic 2003–05: value-claiming: coalition-building, venue-shifting Marginal

1999–2000: coalition-building and mixed motive on both sides 2001–07: US value-claiming and agenda-setting

No agreement might harm electronic commerce and data flows Agreement (1999): benefits US more; No agreement (2005)

No agreement might harm electronic commerce and data flows Agreement: safe harbor

EU–US

Monolithic

EU’s “incumbent” advantage: little incentive to change its legislation No change in data privacy legislation: would delay e-commerce/data flows

Marginal

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commerce. The Clinton Administration’s Framework for Global Electronic Commerce offered not only a domestic approach to electronic commerce, but also an international one.5 Five basic principles summarize the US approach: (1) private sector leadership (self-regulation); (2) minimal government intervention; (3) minimalist, consistent and simple legal environment; (4) recognition of the decentralized nature and tradition of bottom-up governance for the Internet; and (5) consistent governing principles globally to create a predictable environment regardless of jurisdiction.6 The European Ministers adopted a similar set of guidelines during the same week (“Bonn Ministerial Declaration”), mirroring these principles in spirit.7 They saw the government’s role as providing the framework and stimulating new services, while stressing the private sector’s role in “protecting the interests of consumers and in promoting and respecting ethical standards, through properly-functioning systems of self-regulation in compliance with and supported by the legal system.”8 In both the US and European frameworks, there was reference to the necessity for making the governance and rules of the domain name system increasingly global. One of the few areas in which the frameworks diverged was with regards to data privacy. US President Clinton encouraged industry and privacy advocacy groups to work together in developing and adopting codes of conduct, rules and technical solutions to protect privacy on the Internet. The European Ministers continued to advocate a strong government role in the protection of personal data, though agreeing to work through international bodies toward a set of global principles on the free flow of information. The primary principles in the two frameworks were echoed throughout bilateral agreements for years to come, including in a joint statement between the US and the EU signed in December 1997.9 Principles have also been agreed to in regional bodies such as the Asia Pacific Economic Cooperation. The World Trade Organization started working explicitly on electronic commerce issues beginning with a ministerial declaration of the WTO in May 1998.10 5 6

7 9

White House 1997. Mueller and Thompson 2004, p. 63 note that the Clinton administration “favored the predictability and simplicity of global contract-based laws over nationally-based regulation.” This speaks to tactics termed legalistic in this volume. European Commission 1997. 8 European Commission 1997, p. 19. USTR 1997. 10 WTO 1998a, 1998c.

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In the previous chapter, the conclusion emphasized the importance of incumbency or first mover advantage and the role it played in both of those negotiations. The same is true for the negotiations studied in this chapter. Incumbency status gives countries, companies or groups, which already benefit from rules designed to maintain their market share, an enhanced ability to set agendas or choose to exit negotiations. Especially in the case of the Internet, the US has been able to capitalize on its advantage of being the first country to commercially develop the Internet by dictating the rules of the game, whether it is how Internet traffic is exchanged or how the administration of the domain name system is managed. The requirement of interoperability of the domain name system merely necessitated an international agreement here; the difference in outcomes is explained by the presence of multiple coalitions before and during the negotiations and an executive mandate, relative to the economic interests that were paramount in the ICAIS negotiation, which led to persuasion and common problem-solving. The EU also was able to capitalize on its first mover status in instituting an online privacy policy. The EU Data Protection Directive set the standard against which other countries’ privacy policies would be measured by requiring other countries to meet an “adequate” standard of data protection if they were to process the personal data of European citizens. This action, arguably, went against a history of coordinating privacy standards through international organizations, such as the Organization of Economic Co-operation (OECD). But most countries have chosen to adopt the same comprehensive approach to privacy as the Europeans as a means of complying and updating their domestic policies to the current realities of electronic data transfer. Canada, Switzerland, New Zealand, and Hong Kong are a few such examples of this. A couple of the underlying inquiries of this chapter are why the US was unwilling to follow suit and how they convinced the Europeans to agree to something less than a revised policy.

Internet governance The primary issue in Internet governance is over domain names. Who controls the domain name system and its stability is important because without a single addressing standard, networks could not seamlessly interconnect. While the US held a monopoly over the control of the

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system because of its role in the development of the Internet, the international Internet community had, by 1996, come to the conclusion that the time had come to reform how the domain name system was governed. Parties were bound by a mutual interest in the need to maintain a single system, but diverged on how the system should be governed.

Negotiation context Until deliberations began on universalizing the regulation of domain names, the Internet and its governance rested with a patchwork of organizations in the US with varying degrees of affiliation to the government. The incumbent power of the US thus extended to both the early development of the Internet and its governance mechanisms. The need for global interoperability nevertheless made it imperative for the US to engage international actors in Internet diffusion. The early engineering history of the Internet also entailed that various players’ views be taken into account rather than ignored. The Internet, as is commonly known, is a network of networks. The control of the domain name system rested primarily in the hands of two separate groups: Internet Assigned Numbers Authority (IANA) and Network Solutions, Inc. (NSI). IANA, led by the late Jon Postel, had been contracted by the Department of Defense to handle the addressing functions of the network since the early days when the Internet was primarily a means of linking universities and facilitating military communications. There were three guiding principles that Postel followed in his development of the domain name and addressing system in the pre-commercial stages that are relevant to how the agenda for the reform negotiation played itself out: consensus, private sector involvement, and interoperability. Postel always looked to the Internet community as a whole, even when the Internet was primarily a government project, to make decisions on the addressing system.11 11

The engineering oriented culture of the early Internet community is widely acknowledged (Mueller 2002; Mueller and Thompson 2004; Bendrath and Hofmann 2005). “As a result, the internet technical community evolved a culture and institutions of its own around standards organizations such as the Internet Engineering Taskforce (IETF) and its free and open series of standards, known as Request for Comments (RFCs)” (Mueller and Thompson 2004, p. 64).

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Especially as additional applications of the Internet were developed and additional networks were involved, coordination was important to maintain the interoperability of the network. It was important that a single addressing system remained in place and that no two devices hooked to the network had the same IP address. NSI was selected in 1992 through a National Science Foundation (NSF) project solicitation process to provide registration services for second level domains (SLDs),12 and under the arrangement IANA would continue to manage the top-level domain (TLD) system,13 which included making technical decisions on the location of the root name server, as well as determining the qualifications of applicants managing the country code top level domains (ccTLDs) or generic top-level domains (gTLDs), and evaluating proposals for new TLDs.14 A few years later, the government approved the commercialization of NSI’s function, at a time when the number of Internet users was dramatically increasing, as was the number of domain name registrations. Under a modified cooperative agreement, NSI would be allowed to charge subscription fees to domain name registrants, in exchange for reinvesting 30 percent of the fees into Internet infrastructure.15 NSI’s monopoly over the registration of .com, .net, and .org SLDs would become one of the primary concerns during the reform process.16 There was an intermediary negotiation that happened immediately prior to the negotiation that is the subject of this chapter, which was the first attempt at reforming the domain name system and was led by Jon Postel. It sets the stage for the negotiation that succeeded it and direct comparisons can be drawn.17 The International Ad Hoc Committee 12

13

14 16

17

NSF Cooperative Agreement 1993. A second level domain name is the field to the left of the top level. For example, Georgetown is the second level domain name in the www.georgetown.edu address. A top-level domain name, also known as TLD, is the field of the Internet address that is farthest right. Examples of gTLD are .com, .org, .edu, and that of ccTLD are .us, .in, .jp. US House 1997. 15 Network Solutions, 26 September 1997. An SLD under .com might be tata.com or infosys.com. It is also useful to distinguish between the wholesale or “registry” function performed by IANA and the retail or “registrar” functions performed by NSI for users or “registrants”. Klein 2004, p. 184. It can also be compared with the second phase of Internet negotiations 2003–05 where like the pre-negotiation discussed here, the US government would use its incumbency advantage to not accept alternatives that took away its authority to be the lead governmental player.

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was formed by a group of organizations that participated in an Internet regulation workshop sponsored by the OECD in Dublin in June 1996. In this workshop, representatives from the World Intellectual Property Organisation (WIPO), the Internet Society, ITU, IANA (represented by Jon Postel), and others began discussions over how best to reform the domain name system to address concerns about NSI’s monopoly over the most popular TLDs, domain name trademark disputes, expansion of number of TLDs, and management of the system. The International Ad Hoc Committee (IAHC), which was officially formed in November 1996, would work on a short schedule to try and make changes to the domain name system as soon as possible. By mid-December, IAHC released its preliminary recommendations with a one-month public comment period extending until January 17, 1997, with a finalized document to be published on January 31, 1997. After some debate, IAHC declared that there was adequate consensus around a plan and issued a Memorandum of Understanding (gTLDMoU) in April of that year. The MoU would overhaul the structure of the domain name system in the following ways: (1) introduce competition into the registration of SLDs by setting up an additional twentyeight registrars worldwide; (2) create a self-regulatory organization, the Counsel of Registrars (CORE), to administer and manage all gTLDs; and (3) establish seven new TLDs.18 On April 8, the gTLD-MoU was signed by IANA and ISOC, the enabling signatories, and seventy-eight other delegates.19 While successful in reaching an agreement, the MoU would fail in the end to be completely implemented, because IAHC was unable to reach sufficient consensus within the domestic and international communities. There are three primary reasons why the agreement was not implementable. First, the agreement failed to achieve the support of the US government and several key players, including NSI.20 The US government had not formally participated in the IAHC process, because it had been unable to reach domestic consensus on some of the larger issues. The State Department Advisory Committee on International Communications and Information Policy21 was considering proposals on the reform of the TLD system, including proposals that were 18 21

ITU 1999. 19 IAHC 1996. 20 Zittrain 1999, p. 1081; Liu 1999. The advisory committee meetings were open to the public, with meeting notices published in the Federal Register.

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submitted by IANA, the Internet Society (ISOC), ITU, NSI, and the Domain Name Rights Coalition (DNRC),22 but was unable to agree on how to reform the TLD system. Second, the international community was not adequately consulted. The first clear sign that there was not international consensus on the proposal was the inability of the OECD countries to reach an agreement on the IAHC plan in an April 10 meeting.23 In addition, the European Commission did not support the process, because European representatives were excluded from membership.24 The absence of several key actors in joining the gTLDMoU, including the US and UK governments, European Commission, and several large service providers, including IBM and AT&T, highlights IAHC’s failure at achieving international legitimacy.25 Third, coalitions in both the US and EU mobilized against the MoU. The Internet Service Providers Consortium (ISP/C), a transnational trade association that had once supported the process, retracted its support for the plan because its members could not reach consensus. The Open Internet Congress, a coalition of interest groups formed by the Association for Interactive Media, also openly criticized the plan as a “hostile takeover of the Internet.”26 While the IAHC process lacked true consensus among the international community, the US government had received the diplomatic call to reconcile the differences among the domestic and international communities and reform the domain name system to be a truly global entity. The OECD member states agreed on and asked the US government to take the lead in proposing major changes to the existing registry system.27 Reforming the domain name system was a mammoth undertaking, because of the number of issues that needed to be addressed and the number of actors involved. The following is an accounting of the major issues being negotiated and the interests of the actors associated with 22

23 24

25 27

DNRC is a working group of the Association for the Creation and Propagation of Internet Policies, Inc., representing the interests of entrepreneurs, ISPs, small businesses and individuals (www.netpolicy.com). Electronic Commerce and Law Report, April 18, 1997. Indicated in a communication delivered April 17, 1997 from the European Commission to the US State Department. Electronic Commerce and Law Report, April 25, 1997. Elliott Maxwell, Special Advisor for the Digital Economy to the US Secretary of Commerce from 1998 to 2001, noted: “IAHC didn’t have a good pitch for the Europeans” (interview, August 2001). Wales 1997. 26 Electronic Commerce and Law Report, June 20, 1997. Electronic Commerce and Law Report, April 18, 1997.

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each issue. The diversity of these issues and actors created a complex domestic and international situation with diverging interests on the different issues at hand. The first issue, which was partially introduced above, was how to end the NSI monopoly over SLD registrations of .com, .net, and .org, and create a competitive registrar environment. This issue was one of the primary reasons for launching reform efforts and there was strong support during the IAHC process for proposals to create additional registrars. The political coalition that formed IAHC was among the main proponent on this issue and proposed to expand the number of registrars to twenty-eight worldwide. NSI, excluded from membership of the coalition, felt threatened by the initiative to end its monopoly. It was their preferred outcome to maintain property rights in the .com, .net, and .org TLDs while introducing competition into new registries. Other interest groups supporting the plan include smaller ISPs internationally and prospective domain name registration firms in Europe and Asia, because of potential opportunities to enter the US-controlled business.28 Alternative registries that had begun to introduce independent new TLDs were also threatened by the new proposal, because under the rules outlined in the gTLD-MoU their property rights to the TLDs they staked out would be violated. Opposition to the IAHC agreement brought some members of this community into alignment with NSI.29 Domestic groups set up by the US Department of State to review proposals for domain name system reform had been unable to reach consensus prior to the completion of the IAHC process.30 Governance of the domain name system was another major issue during the reform efforts. Under the gTLD-MoU, the governing organization or registry would be co-owned by the competing registrars and operated on a non-profit basis, the Council of Registrars (CORE). The gTLD Policy Oversight Committee (POC) was given oversight authority of CORE and CORE-gTLDs. The POC consisted of representatives from IANA, ISOC, IAB, CORE, ITU, WIPO, and International Trademark Association (INTA). The other major issue that emerged during the IAHC debates and would continue throughout the reform process was intellectual property rights over domain names. Administrative Domain Name Panels would oversee domain name disputes and be administered by WIPO. 28 30

Mueller 2002, ch. 7. 29 Mueller 2002, ch. 7. Electronic Commerce and Law Report, December 6, 1996.

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There would be a waiting period before domain names would be operational to allow trademark holders ample time to raise objections. This issue brought the largest array of interest groups to the table, including trademark holders and civil society groups. Large trademark holders, such as AT&T, believed the plan did not sufficiently represent their interests. While US-based civil liberties groups, such as the DNRC, saw the plan giving in too much to trademark holders’ interests.31 The European Commission raised specific objection to this plan because they believed the ongoing study at WIPO had not been adequately investigated.32 The US’ decision to open up discussions over how to reform the domain name system was not because it lacked alternatives to doing so. Entering the negotiation, the US government was put in the position of a reconciler rather than an aggressor, because at the conclusion of the IAHC process the member states of the OECD all agreed that the best solution was for the US to take the next step. One of the alternatives that existed for the US was the status quo. The US government was under no obligation to take action, though that course was not in sync with its primary interest of internationalizing the management of the domain name system, as articulated in the Administration’s July 1997 report on global electronic commerce. The US decision to work with the domestic and international community to reform the system was made because it was consistent with its best interests. The Europeans lacked the number of alternatives the US had because they were not formally involved prior to the reform movement and were denied representation at the decision-making table in the IAHC process. Thus, any involvement would likely be an improvement. From the standpoint of aligned interests, there was a high likelihood that rules to govern the domain name system would be agreed upon. Strategies would then be formulated to bridge the differences on the details of an agreement.

Negotiation process Entering the negotiation, the overall US strategy was mixed motive: the US clearly had the upper hand in control of the Internet and knew more about its governance than any other party. But it also needed to 31 32

Electronic Commerce and Law Report, May 9, 1997. ITR, April 30, 1997.

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establish an international consensus around interoperability and governance and realized, given the gTLD-MoU precedent, that there were other coalitions in the international community. Paralleling the US and EU moves were those of transnational businesses, international civil society (and many libertarians advocating libertarian Internet principles), and a panoply of interested international organizations such as WIPO and the ITU. It was as if global governance was finally coming of age! The European negotiators were chiefly conciliatory throughout the negotiation and while the value creating tactics may be viewed as secondary to those of the US negotiators, they were equally important in reaching an integrative agreement. They gained from being part of the process, and were able to get a few concessions but, as one observer puts it, “I think [the] EU was asleep, and now it’s dissatisfied.”33 They did employ several tactics that targeted US credibility in order to gain concessions on trademark dispute issues, for example. The Europeans also sought to represent the interests of developing countries that were under-represented in the process. The draw to have broadbased consensus drove their strategy selection. The success of this negotiation, described in detail below, rests on the strategies and tactics adopted by negotiators on both sides of the Atlantic and their success in building consensus among the diverse interest groups domestically. Here coalition building, extending from inviting comments and brain-storming with diverse parties, helped to achieve consensus rather than divide various parties. The US government was key to forging such consensus and the EU more or less went along though it managed to amend a few things by calling attention to US control. The negotiation process studied here focuses only on the formal process that was launched by the US in July 1997 through the ratification of the White Paper in August 1998. In addition to the framework of guiding principles that has already been discussed, the US Department of Commerce published a Notice of Inquiry on July 1, 1997, requesting feedback from the domestic and international community on the appropriate principles by which the department should evaluate proposals on the administration and registration of domain names. Over 430 comments were received, including 33

Interview, Geneva, June 2001. Nevertheless, many Europeans were deeply skeptical of US Internet dominance. The French, in particular, viewed the Internet as an “Anglo-Saxon Trojan Horse” (Eko 2003).

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many of the same organizations that participated in the IAHC process, such as ISOC and IANA, as well as US and European private sector members, domestic consumer interest groups, governments, academia, and private citizens. An overwhelming majority of respondents agreed with the principle that there should be competition in the registration system and the principle of some form of international governance received strong support as well. There was also agreement that the private sector should develop consensus-based self-governing mechanisms for the domain name system, with “input from governments.”34 An area in which there was not initial consensus was trademark infringement issues. The primary result of this phase was agreement upon a set of principles and an array of ideas that propelled the negotiation forward. The US addressed the concerns voiced during the NOI comment process (July–December 1997) and made what it thought was a balanced proposal for domain name system reform in the Green Paper that synthesized the over 430 comments. The negotiation over details on reform began during the second phase of the negotiation in January 1998. After months of reviewing comments and having discussions with the US private sector and the European Commission, the Department of Commerce prescribed ways to improve the technical management of Internet names and addresses in the Green Paper released on January 30, 1998.35 The proposal was based on four principles: stability, competition, private bottom-up coordination, and representation. Specifically, the Department of Commerce proposed that a private, not-for-profit corporation be created to manage and coordinate the functions of the domain name system with the authority to set policy and direct the allocation of IP number blocks, oversee the operation of an authoritative root server system and establishment of new TLDs, as well as coordinate the development of other technical protocol necessary to maintain universal connectivity on the Internet. The US government would gradually transfer the functions of IANA, the root system, and appropriate databases over to the new corporation, with the understanding that the government would participate in policy oversight until it was determined that the system was stable or September 30, 2000, whichever 34 35

DOC 1997b. The draft Green Paper was released on January 30, 1998, but did not officially appear in the Federal Register until February 20, 1998.

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came first. The main disclaimer put on the proposal was that the corporation would be incorporated under US law, though representatives from the different regions of the world would have a seat on the board of directors. The Green Paper also called for a competitive and marketdriven registration services system. The primary concern voiced in over 650 formal comments on the Green Paper received by the Department of Commerce was for the disregard for a system adequately representing the international community. The European Commission was disappointed in the proposed structure of the corporation and the degree of continued US government involvement in the domain name system.36 In both their conversations and comments to the US, the Europeans shed doubt on the credibility of the US in living up to the promises made at the December 1997 US-EU summit, where the two parties agreed to work toward the creation of “a global market-based system of registration, allocation, and governance of Internet domain names which fully reflects the geographically and functionally diverse nature of the Internet.” 37 It was the EU’s position that the Green Paper failed adequately to incorporate the international community into the governance of the domain name system. By doubting the US’ credibility, it was able to gain some concessions that appeared in the White Paper, including the transfer of additional policy-making control over to the corporation and expanding the choice of jurisdiction in disputes to include where the registrar is located. After taking into account the Europeans’ concerns, as well as those of the private sector, Ira Magaziner announced that “sufficient consensus” had been achieved to release a statement of policy.38 While constructing the final statement of policy in August 1998 (White Paper), the US government continued to address concerns so that the final result would be acceptable by both domestic constituents and the international community. Negotiators proposed an exchange of concessions that would appease the international community by increasing their participation in the process and decreasing the US government’s involvement in the corporation, but allowing the corporation to be established in the US to safeguard the system’s stability.

36 38

European Commission 1998a. 37 ITR, November 25, 1998. Electronic Commerce and Law Report, May 20, 1998. Ira Magaziner is quoted as saying that “he believed that the administration has achieved sufficient consensus to move ahead with its plan.”

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The statement of policy (i.e. White Paper) released on June 5, 1998 represented a set of concessions between the Europeans and the US government. The first concession by the US was to transfer more policy-making control over to the corporation than had been originally prescribed in the Green Paper, addressing concerns that the domain name system would remain too US-centric, private-interest driven and left out governments altogether. Pressures from the EU led to the creation of the Governmental Advisory Committee (GAC) that took away from the US government’s insistence that ICANN remain totally private-interest driven, thus providing a role for national governments and international organizations in the governance of the Internet.39 In exchange for this concession, the corporation would be housed in the US and the government would have policy oversight during a two-year transition period. The government also resisted the call to expand the size of the board to incorporate more diverse interests, geographically or otherwise. A second major change was that the shape of competition in the registry market would be left up to the new corporation. Many comments suggested that the registry market is a natural monopoly and competition would create lock-in and switching costs, making competition unsustainable.40 The government’s decision not to prescribe specific rules in this area was due to a lack of consensus. The third major concession made by the US was the balancing of trademark owners’ interests versus non-owners. Under the Green Paper, domain name registrants would have been required to submit any disputes to the jurisdiction of the courts where the registry, registry database, or “A” root server is located. Domestic constituents did not really have an issue with this rule, but it was a major concern for the European Commission and other international respondents. As a solution, the US government expanded the possible choices in jurisdiction and called upon WIPO to assist the new corporation with the development of a dispute resolution mechanism. This was also important to get other international interests on board. “US government could not 39 40

Mueller and Thompson 2004, pp. 79–80. It was under the new system that the difference between registry and registrar was clarified (see note 16 above). A registry is responsible for maintaining TLD zone files, which contain the name of each second level domain to that TLD and each second level domain’s corresponding IP number. Formerly, TLDs could not have more than one registry – which gave NSI a monopoly over the .com, .org, and .net TLDs. A registrar acts as interface between the domain name holder and the registry.

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appease the IP community without turning to an international organization.”41 WIPO was chosen over the ITU because of its expertise in trademark dispute settlement. The process led to the creation of the Uniform Domain-Name Dispute-Resolution Policy (UDRP). It features creative and technical problem-solving that led to the convergence of expectations among four sets of actors: the US, the EU, WIPO itself, and transnational firms. As noted above, in response to European and other international pressures, US officials knocked at WIPO’s door. However, WIPO officials admit that US’ Ira Magaziner and others arrived in Geneva with sincerity and letting WIPO define the agenda.42 WIPO had followed the negotiations closely, it was an important member of the IAHC group, and it had considerable experience in intellectual property dispute resolution, in this case electronic trademarks. Nevertheless, the imprint of US influence is quite clear: WIPO “acted at the request of a single member state (the United States) to produce a report that, by virtue of delegation of de facto control of the domain name registration process from a single government, could be implemented by ICANN as substantive law without the usual airings found in intergovernmental lawmaking of which WIPO is a part.”43 Transnational firms seeking a global body’s involvement for resolving global disputes over their trademarks also favored WIPO. This would later be critiqued as increasing the influence of transnational IP interests over those of member states and civil society in WIPO.44 Marlin-Bennett quotes a former ICANN Board Member who noted that UDRP reflected the wishes of the intellectual property community and was “as one would expect, highly biased toward Intellectual Property protection.”45 Meanwhile, outside of the WIPO processes, no formal comment or approval process followed the issuance of the White Paper, though in order for international rules to emerge the international and domestic community would have to signal agreement and move forward with the implementation process. Following the issuance of the White Paper, both government and supporting coalitions scrambled to arrange meetings to garner support for the policy and begin planning for the implementation stage. The European Commission arranged a meeting in 41 42 43 45

Interview with WIPO official, Geneva, June 2001. Interviews with WIPO officials, June 2001 and November 2002. Graeme Dinwoodie quoted in May 2007, p. 59. 44 Sell 2003. Karl Auerbach quoted in Marlin-Bennett 2004, p. 90.

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Brussels on July 7, 1998, with the European private sector, representatives from member states, and international organizations to participate in a discussion on the policy statement and the implementation of the proposal. At the conclusion of the meeting, the participants decided to “participate in the international process and to represent the legitimate interests of European industry and users in all phases of the current reorganization of the Internet.”46 International industry coalitions also played an important role in building consensus on the paper. For example, the Internet Society, one of the signatories of the gTLD-MoU, sponsored summit-style workshops around the globe in the months that followed the release of the White Paper to first gain support for the paper and then to discuss the details of implementation.47 The presence of strong domestic coalitions played a major role in the development of domestic consensus and thus reaching a final agreement. Coalitions have the ability to bring together a diverse group of interests to support or oppose the domestic position. Without strong coalitions, a negotiator’s job of facilitating domestic consensus is made much more difficult. In the domain name system reform case, consensus began to form in the US on the issues during the IAHC process, but there was not adequate consensus until around the time the statement of policy was released in late spring 1998. At the beginning of the negotiation, there were two major coalitions in the US, those that were supportive of IAHC and those that were seeking alternatives. IANA and ISOC were the primary leaders of the coalition that supported the system outlined in the gTLD-MoU, which completely removed the US government from domain name system governance. The Open Internet Congress is one example of a coalition that formed to counteract the IAHC process. Based on comments on the Green Paper, there was general domestic consensus on all of the major issue areas, except the lack of inclusion of international stakeholders in ICANN. After the White Paper was released, the International Forum on the White Paper (IFWP) was formed with the expressed purpose of building consensus on the rules and decision-making processes it established. IFWP held its first conference in Reston, Virginia on July 1–2, 1998. The participants in that meeting, including representatives from IBM, NSI, AOL, 46 47

European Commission 1998b. Electronic Commerce and Law Report, July 1, 1998.

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DNRC, and ISOC as well as seventy additional organizations and government representatives, reportedly reached “rough consensus” on the basic structure that was outlined in the paper.48 The ability of the coalitions to bridge their differences throughout the process with the urging of the negotiators49 is a testament to the success of the domestic-level negotiation process. The European domestic interests were not nearly as mobilized coming into the negotiation, but as the negotiation progressed, consensus on the principles and details largely paralleled those of the US interest groups. During the first phase, the comments made by European companies focused on the global participation aspect of the regime, which was essential if the system were to be successfully freed from its US roots. There was also support for the self-regulatory system.50 During the second phase, the European comments were critical of the level of US jurisdiction over the proposed corporation and continued government oversight.51 Throughout all phases of the process, and especially in the phase leading up to the White Paper and during the ratification process, coalition building played an important role in building consensus. For example, Prince plc52 hosted a couple of “Internet Executive Summits” in London to discuss the issue and work on building support for a global self-regulatory system. While the summits were EU-centric, participants included some major US actors. As mentioned earlier, the most important coalition-building event in Europe was during the conference in Brussels in July 1998 after the White Paper was released leading to coalition between the European Commission and the private sector. The ability of the European Commission to 48 49

50 51

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Electronic Commerce and Law Report, July 15, 1998. Ira Magaziner during the IFWP workshop threatened the participants that if consensus was not reached, then the government may need to remain involved in the domain name system (Electronic Commerce and Law Report, July 15, 1998). Comments of Prince plc and Directory Corporation: www.ntia.doc.gov/ntiahome/domainname/email/index.html. See, for example, the European Commission’s Comments on March 20, 1998; Eurotel GmbH Internom (of Germany) on March 2, 1998; Mary Pinchet (of the UK) on March 18, 1998. Prince plc, a UK-based company, was very active in the reform process as a victim of the trademark infringement problem, because Prince Sports Equipment (US-based company) claimed that it held the trademark to Prince and therefore the rights to Prince.com. Prince plc prevailed in the dispute (Waelde 1997, pp. 51–2).

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facilitate the coalition building with the domestic sector enabled them to credibly endorse the White Paper in its communication to the European Parliament and the US negotiators. WIPO undertook coalition-building of its own in establishing UDRP. As noted earlier, it managed the expectations of many stakeholders but it also undertook its information gathering and consultations. WIPO: held open meetings on the Web with participants from five continents; sent information about its thinking to more than 400 subscribers to a targeted listserv group; issued three requests for comments (RFCs) each in three languages; and received comments on RFCs from 40 governments, 4 international organizations, 74 professional, industrial, and academic organizations, 181 corporations and law firms, and 183 individuals.53

Despite the fact that the outcome is still critiqued as partial to the intellectual property community, the WIPO consultations were wideranging and may account for the perceived legitimacy of UDRP among its the stake-holders. ICANN adopted WIPO’s recommendations on the creation of UDRP at its August 26, 1999 meeting.54 UDRP went into effect December 1, 1999 and tackles disputes arising out of conflicts regarding gTLDs and ccTLDs. That can lead to cancellation or transfer of domain name if it is found to be done in bad faith or infringing previously held trademarks by another party. WIPO’s UDRP housed in its Arbitration and Mediation Center is considered to be a success story: as of May 5, 2007, it had heard 10,908 cases from parties in 141 countries, of which 10,382 cases pertained to gTLDs and 526 to ccTLDs.55

Negotiation outcome While much of the credit must be left to the private sector for achieving consensus on many of the details, the ability of the government negotiators in forging the domestic and international consensus around ICANN and UDRP should not be minimized. If the negotiators had 53 54 55

Franda 2001, p. 120. WIPO 1999, available at www.wipo2.wipo.int.process1, which also lists the details of the process and the international consultations that WIPO undertook. For details and statistics on UDRP, see www.wipo.int/amc/en/domains/ index.html.

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not adopted these strategies, it is likely that ICANN would not have achieved the level of independence from the US government that it did.56 In addition, the negotiators need to be credited for facilitating much of the consensus domestically, because otherwise it may not have been able to achieve the credibility necessary to have a ratified agreement. This book evaluates each case to consider whether the negotiation process had any effect on the end outcome. The uniqueness of this case lies in the bottom-up approach and the way that the private sector community in cooperation with international organizations instigated the negotiation itself, which commenced during the IAHC negotiation. The coalitions built during that process and the continuing success of those coalitions and others to bring more interests and governments to the negotiating table, resulted not only in consensus but a sense of legitimacy. It is unknown what would have resulted if the gTLDMoU implementation had been fully carried out; however, the outcome in this case was the result of numerous compromises (concessions). Some very traditional claiming tactics of questioning credibility by the Europeans were used to gain some of these concessions. The Europeans also benefited from strong support from major US-based transnational companies in the Internet arena that supported many of the Europeans’ calls for more involvement of the international community in the new corporation and less involvement of the US government.57 These tactics did effectively alter the alternatives of the US, not just because of the pressure coming from both domestic and international actors but from its own actions to develop partnerships with the different interest groups to build consensus. By itself, an open comment process does not signify that the intentions are to have integrative solutions. This was definitely not the case in the international settlement rate negotiation discussed in Chapter 5. In that case, it was more a matter of procedure, because the end result was far from integrative. The US in this case used it as a tool to not only move forward its 56

57

This analysis is primarily based on the framing of the agreement and not on implementation of the agreement. Many critics of ICANN have cited the US government’s failure to “cut the cord” and let the corporation act independently, which would come back to haunt the US in the next phase of negotiations that led to the WSIS process. One such group was Global Business Dialogue on Electronic Commerce (GBDe) bringing together representatives from sixty diverse developing and developing countries. See Mann et al. 2000, p. 165.

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agenda, but to genuinely create a dialogue toward a solution that would satisfy most interests, as in the creation of UDRP. Another direct comparison to the pricing cases is the US’ seeming willingness to negotiate in this case. In those cases, the US negotiators had alternatives that they liked and were willing to take the risk of isolating themselves. While similar alternatives of imposing reform were available here, the US negotiators opted to negotiate because they did not consider the alternative as fulfilling their objectives of building electronic commerce globally and self-regulation of the Internet. Nevertheless, US involvement and dominance of Internet governance became problematic for the US in the process that led to the World Summit on the Information Society (WSIS) in November 2005.

WSIS phase The main purpose of this chapter is to compare the formation of ICANN with the data privacy negotiations. But, the WSIS process needs mentioning, if only to show how the consensus around ICANN came undone with an international coalition demanding changes to Internet governance.58 Here the process resembles the pricing case: despite international efforts, the US did not compromise. The only fallout was the resulting lack of legitimacy of the ICANN arrangement.59 The World Summit on the Information Society began in 1998 as an International Telecommunication Union initiative to examine digital divide issues.60 Quite soon, it became the forum for addressing the grievances of developing countries for being left out of domain name governance and a host of other issues, many of which – spam, child pornography, data privacy, freedom of speech – went far beyond the ICANN mandate. The main demand of the international coalition, to which the EU lent support in mid-2005, was to bring ICANN under the United Nations. The US government and ICANN, supported by business groups worldwide, resisted these moves and without the support of the incumbents, the moves eventually failed. In terms of tactics, 58 59 60

The WSIS process is broader and includes many issues. By 2005, though, the issue of Internet governance was salient. The final chapter will discuss the problems with legitimacy and negotiation compliance associated with great powers imposing their will on others. www.itu.org/wsis.

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the short negotiation history of this case offers an example of circumstances under which venue-switching will not work despite alternative agenda-setting.

Negotiation context The main success of the WSIS initiative was to put state-level control on the agenda of Internet governance at the World Summit on the Information Society. It reflected the concerns of the plurality of stakeholders as the Internet proliferated and their frustration with the US dominance of ICANN. When the WSIS process began in 1998 as a forum to discuss digital divide issues at the International Telecommunication Union, Internet governance was not on the agenda. It emerged in the planning toward the Prepcom meetings for the first of the WSIS summits to be held in Geneva in December 2003. The move was led by influential developing countries such as China, Brazil, India and South Africa. While Internet governance would soon become the most important issue at WSIS, the latter continued to consider a host of other issues including the original issue of digital divide. Senegal led the African countries in asking for special investment but donor countries remained reluctant and preferred existing mechanisms.61 On the issue of Internet governance itself, the US and the EU remained opposed to considering any alternatives to ICANN.

Negotiation process The Geneva WSIS Summit diffused the issue of Internet governance with the appointment of a UN Secretary General’s Working Group on Internet Governance (WGIG) led by Nitin Desai, special advisor to the secretary general on WSIS.62 However, from its inception WGIG faced fierce opposition from ICANN, international business, the US and the EU. Paul Twomey, president and chief executive of ICANN, dismissed most concerns as a misunderstanding of the organization’s role: “We are not the government of the internet. We’re responsible for the plumbing, that’s all.”63 61 63

Financial Times 2003a, p. 4. Financial Times 2003b, p. 7.

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www.wgig.org.

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Cogburn identifies five types of stakeholders in Internet governance: international businesses, developed country governments, developing country governments, international organizations, and non-governmental organizations.64 The forty members of WGIG reflected the multiplicity of interests and diversity with nineteen governmental representatives, twenty-one non-governmental representatives, and eighteen members drawn from developing countries. WGIG presented its report in July 2005 and, even though it represented many areas of divergence, it called for recognition of the multiple stakeholders and a multiple stakeholder forum for Internet governance.65 The terms multiple stakeholders, collaboration and cooperation occur throughout the report and were quickly picked up by the developing world and the media as key frames to characterize Internet governance.66 The frame multiple-stakeholder also represented a move away from the US-led private governance arrangement represented by ICANN. The first casualty in the latter’s support came at the Prepcom meetings in Geneva in late September 2005 for the second WSIS meetings to be held in Tunis in November 2005. In Geneva, the EU threw in its support behind the developing world in calling for a “new cooperation model,” while denying that it marked a major shift in its position. David Hendon, spokesman for the EU negotiation delegation, characterized it as follows: “We want Icann [sic] to operate under international law and be responsible to all governments.”67 The ITU Secretary General Yoshio Utsumi characterized it as “a radical shift of position” in a news conference.68 The ITU had directed the WSIS process and it would benefit from the move toward a UN-led governance arrangement. Given the ITU’s eagerness to play the lead role in international settlements for telecommunications and ICAIS (see Chapter 5), this latest move was no surprise. Secretary General Utsumi also noted: “As the Internet has become an infrastructure for all people, all nations want to have a sense of ownership. And if the headquarters is dominated by one company or one country, then you do not have this sense of ownership. So, many countries are saying 64 66

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Cogburn 2005. 65 WGIG 2005. The multi-stakeholder governance process is sometimes called MuSH. See Mueller et al. 2007 for an interesting analysis of the strengths and weaknesses of MuSH. Financial Times 2005a, p. 3. 68 Agence France-Presse 2005.

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we need democratization or internationalization of the headquarters.” The critique from ICANN was swift. President Paul Twomey, in the colorful language that was becoming his trademark, noted that those who sought to fold ICANN into the UN were “living in a political fantasy land.”69 The Prepcom meetings closed without reaching any consensus and the issue was referred to WSIS in Tunis. Analysts examining the WSIS failure to move authority away from ICANN note that a host of issues and a multiplicity of actors – governmental, inter-governmental, non-governmental, businesses – and the difficulty they found in reaching any kind of consensus overburdened the WSIS process.70 However, going into the Tunis Summit there was a consensus in the WSIS coalition on internationalizing Internet governance. Furthermore, among the host of issues discussed, the authority of allocating Internet domain names stood out. As such, the failure may not be the WSIS or ITU intent but the incumbent power of ICANN, the US and international businesses. Google, for example, was worried that if ICANN lost any of its authority, it would result in fragmentation of domain names taking away from the Internet’s interoperability. ICANN President Twomey’s summation regarding WSIS’ political naiveté may not be that off the mark.71 The Tunis summit ended in mid-November 2005 with the issue of Internet governance getting shelved for further international discussions. While ICANN kept its mandate, the WSIS process succeeded in calling attention to US dominance of Internet domain name allocation and lack of international consultations in the process. The difficulties developing countries face through ICANN, such as slow allocation of multilingual domain names, stood out. In the meantime, ICANN President Twomey noted: “We are pleased that our efforts for continued globalization of ICANN and its mandate is identified as important in 69 70 71

Ashling 2005. See, for example, various reports and papers at www.internetgovernance.org. The WSIS coalition also hoped to draw support from civil society protests within the United States on the ICANN process that critique the role of a private corporation in ruling on public issues. In mid-2005, the Assistant Secretary for Commerce, Michael Gallagher, received almost 6,000 letters from conservative groups asking him to intervene and stop ICANN from approving XXX rated pornographic domain names. Although Paul Twomey had earlier argued that ICANN only ruled on technical matters and not moral ones, it complied with NTIA’s request. This time there were protests from those in favor of freedom of speech. E-commerce Times 2005.

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the outcome and we welcome the acknowledgement that the Internet operations remain independent of day to day politics and political influence.”72 In the short run, the Governmental Advisory Committee or the GAC, itself a result of EU pressures in 1998, is likely to increase its influence within ICANN. In the long run, the slow evolution of ICANN is typical of privatization of international rules with ebbs and flows of governmental influence within these emergent rules.73 With respect to what it called “US unilateralism,” one report noted: “It is inconsistent for the US to warn of ‘governmental intervention’ in the Internet while reserving to its own national government special and exclusive powers.”74

Data privacy and the Internet While reforming the domain name system was a new set of challenges, resolving differences in data privacy regimes was something that had been under discussion for nearly twenty years. There were two reasons for the return of data privacy to the political arena: the potential for electronic commerce that entailed data flows raising privacy concerns and a new set of threats networking technology presented to data security, as well as increased opportunities for protection. After September 11, terrorists’ threats and need for surveillance introduced another set of concerns and debates into data privacy. Europeans have always valued a higher degree of protection than Americans, calling on the state to protect their personal data. The transatlantic trade dispute began over the 1995 EU Data Protection Directive (“the directive”), which sought to protect an individual’s “fundamental” right to privacy with respect to the processing of personal data. The primary concern for negotiators was a clause that prevented the transfer of personal data from the EU to a third country if it is determined that adequate 72 73

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www.icann.org/announcements/announcement-21nov05-2.htm. Mueller and Thompson 2004; Bendrath and Hofmann 2005. Another issue-area increasingly examined by scholars and media is the increasing content regulation of the Internet by national governments beginning with France’s restrictions on Yahoo and an Australian court’s decision to hold Dow Jones responsible for libelous comments published on the Internet. Financial Times 2002b, p. 13. Internet Governance Project 2005. The report warns of alternative root server systems such as ORSN in Europe.

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protection does not exist. And through a September 1997 letter from European President Jacques Santer, the US and European industry groups were notified that current US privacy laws did not provide adequate protection as defined in the directive or the ability for redress if privacy rights were violated.75 There were two overriding concerns in this case. First, as each other’s largest trading partners, both parties had a mutual interest in averting a major trade war that could result if there was a halt of data flow. By one estimate, $170 billion worth of trade was at stake.76 Second was the legal difference between the US and EU approaches to data privacy: who owns personal data.77 Under US law, the collector in most cases owns the data, but in Europe the individual is perceived as the owner of their personal information.78 It was along these lines that the negotiators were divided and neither would compromise. The US would not adjust its policies and the EU would not compromise on the principles of their directive. Before proceeding with a detailed chronology of the negotiation, some historical background of international coordination of data privacy protection and the different approaches employed in Europe and the US will be summarized. Some creative problem-solving leading to mutual recognition of each other’s data privacy efforts and the pressures from transatlantic business groups who wanted the issue resolved broke the impasse on the two sides of the Atlantic. The first challenge to Safe Harbor came after the September 11, 2001 terrorist attacks in a dispute, mostly between the US and the EU, over the former requiring vast swathes of passenger data or passenger name record (PNR) to be turned over to the US Department of Homeland Security. The airlines complied, the EU hedged, and worked out a negotiated compromise with the US in May 2004. However, in a ruling on May 30, 2006, the European Court of Justice ruled on behalf of the European Parliament and member states’ European Data Protection Supervisors (EDPS) and annulled the agreement between 75 77

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ITR, September 24, 1997. 76 Heisenberg 2005, p. 2. This chapter agrees, as shown later, that that this did not mean there was a vast cultural difference between the two approaches. As such it agrees with Bennett 1992, Franda 2001, Heisenberg 2005. For the cultural differences approach, see Venturelli 1999; Farrell 2003. See Venturelli 1999 for the philosophical and intellectual basis of these positions.

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the Council of Europe and the US as overstepping the Council’s competency or jurisdiction.79 The case is discussed briefly after the safe harbor negotiations.

Negotiation context The data privacy regime has historically been a weak regime, because countries have failed to agree on how to translate a set of principles into a common set of rules. The lack of standards has been complicated by the rise in international trade and electronic commerce, because there are additional concerns that differing national regulations of privacy construct trade barriers. The dispute over the directive was particularly heated because the US felt that the directive was an attack on its sovereignty – an imposition of European standards for data protection on US companies. The desire to protect sovereignty on data protection policies created a barrier to the strengthening of the international data privacy regime. The OECD issued the first multilateral set of guidelines for data privacy in 1980. In the Guidelines on the Protection of Privacy and Transborder Flows of Personal Data,80 basic principles for data protection and the free flow of information among countries were outlined. While OECD agreements are non-binding, the objective was for OECD member countries to adopt the principles into national privacy legislation.81 The guidelines recognize that member countries have a “common interest in protecting privacy and individual liberties, and in reconciling fundamental but competing values such as privacy and the free flow of information.” The OECD typically works by consensus and persuasion and the guidelines left it to member states to implement them. It was also recommended that countries avoid creating obstacles to transborder data flows in the name of privacy legislation. Included in the guidelines are eight basic principles for national application, including the limitation on the collection of data, responsibility 79

80 81

The original judgment can be found at: http://curia.europa.eu/jurisp/cgibin/gettext.pl?where=&lang=en&num=79939469C19040317&doc =T&ouvert=T&seance=ARRET. Available at www.oecd.org. “Countries will discuss things here [OECD] that they won’t elsewhere,” noted one OECD official (author interview, June 2001). He referred to the 1980 guidelines as “soft law.”

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for accuracy, purpose specification, use limitation, security safeguards, disclosure, accountability and right of the individual to obtain from the data controller what personal data the controller has and challenge its accuracy.82 The guidelines also included a few basic principles for their international application as they relate to the free flow of data and what accounts for legitimate restrictions. First, member countries should consider the possible implications for the domestic processing and re-export of personal data. Second, reasonable and appropriate steps should be taken to ensure that the transfer of personal data, domestic or transnational, is uninterrupted and secure. Third, countries should only refrain from restricting transborder data flows for certain categories of personal data when the other country does not provide equivalent protection. Lastly, the development of laws, policies and practices in the name of privacy protection should not be made if they would create obstacles to data flows that exceed the necessary requirements for such protection. The adoption of these guidelines as early as 1980, and in setting up some convergence of expectations, speaks against the cultural clash in data privacy as pointed out by a few writers. While OECD member states agreed upon these principles in theory, most countries choose not to act in legislating them into national policies. The US decided that broad legislation adopting these principles was unnecessary and preferred to continue its practice of legislating on a case-by-case basis. In the US, the right to data privacy is not recognized as a human right. The Constitution does not give citizens the right to privacy, though the Supreme Court in its interpretation of the Bill of Rights has given individuals a right of privacy against intrusive government actions.83 Upon the review of US public laws, individual privacy protection is primarily limited to federal government’s handling of personal information.84 In addition to federal agencies, the government has addressed the protection of personal data through regulations on financial transactions, 82

83 84

Marc Rotenberg of Electronic Privacy Information Center notes (Rotenberg 2007) the OECD approach is simple but relevant for the Internet: “Individuals should have the right to limit the use of the personal information they disclose to others and businesses should have a duty to safeguard the data they collect.” Cate 1997, ch. 5. Cate 1997. The primary federal laws protecting privacy include the Freedom of Information Act (FOIA) and Privacy Act.

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telecommunications, student records, and medical records.85 The ad hoc approach is indicative of the US minimizing government involvement in privacy protection and their desire to leave it up to industry to self-regulate. Europeans, who place a higher value on data privacy as a whole, did not immediately take action to legislate on the OECD principles either, but a year later in 1981 the Council of Europe promulgated a convention on the matter. The convention, entitled For the Protection of Individuals with Regard to Automatic Processing of Personal Data, was instituted to encourage European countries to ratify a similar set of principles and enact them into national legislation.86 Between the time when the convention entered into force in 1985 and 1992, when debates over the EU Data Protection Directive were underway, only twelve of the twenty-six member states at the time had ratified the convention by passing national legislation.87 Among those countries with strict data protection laws and directorates was France where such efforts came in response to the student protests and demand starting in 1968. The French Data Protection Act of 1978 led to the 85

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Cate 1997, ch. 6. Financial data protection was first provided for by the Fair Credit Reporting Act of 1970, which established procedures for accuracy of credit reports and gave individuals the right to access their reports and dispute resolution mechanisms. In telecommunications, there is a prohibition against the interception or disclosure of any electronic communication, whether it is a telephone call or e-mail message, as provided primarily by the Electronic Communications Privacy Act of 1986. The Family Education and Privacy Act of 1974 gives parents the right to access their child’s educational records and prohibits their disclosure without consent to third parties. More recent regulations include the protection of children’s privacy online through the Children’s Online Privacy Protection Act of 1998 limiting the collection of information from minors and regulations on the electronic exchange of medical records within the health care system. After the event of September 11, 2001, the so-called US Patriot Act (Public Law 107–56), passed in October 2001 and renewed in March 2006, allowed widespread surveillance powers to the US government to combat terrorism including ordering financial, medical and library records of person suspected of terrorism activities. The Council of Europe is an intergovernmental organization that currently has 43 member states, which aims to protect human rights, encourage the development of Europe’s cultural identity, and seeks solutions to problems facing European society. The convention was an agreement, similar to a treaty, that aims at harmonizing laws of the member states and in this case the convention enters into force once five countries ratify the agreement not only by signing the convention but passing national legislation. (Cate 1997, pp. 34–5; Swire and Litan 1998, p. 24; www.coe.int.) www.coe.int.

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creation of Commission Nationale de l’Informatique et des Libertés (CNIL).88 The European Union Data Protection Directive, the second attempt in Europe to strengthen data protection in Europe, was part of a Unionwide effort to create a common European market (as well as an effort to raise the minimum standard for data protection). Evidence also shows that the “transgovernmental network of data privacy authorities,” which included the national sub-national data protection directorates, was instrumental, mostly through legal and technical advice, in getting the directive framed and passed.89 The directive, which was not approved until 1995, was extraordinarily comprehensive and required all member states to enact the minimum standards for data protection as outlined in the directive into national law. The principles for data protection in the directive are very similar to those outlined in the OECD, including guidelines for data quality, rights of access, security and confidentiality, and notification. And as mentioned earlier, the subject of the negotiation that followed was primarily over the provision requiring third countries to also meet the minimum standards for data protection, and less about the need to protect privacy. Articles 25 and 26 are the relevant provisions that concerned the transfer of personal data to third countries. Under Article 25, member states work in conjunction with the Commission in determining whether or not third countries have adequate levels of protection, and if it is determined that adequate protection does not exist then member states are required to take measures to prevent the transfer of personal data to the third country. The article specifies that adequacy will be assessed in light of the different circumstances and types of data being transferred. Article 26 provides for derogations from Article 25 giving specific controllers the opportunity to comply in the absence of adequate domestic policies. The directive also created the Article 29 Working Party, consisting of members from the data protectorates and the Commission, to provide opinions on new issues (it would play a key role in the PNR negotiations discussed below).

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As such, French public officials are more likely to speak of cultural differences in data protection. One former CNIL official comparing US and European data protection laws noted: “It’s like mythology. It looks comparable but it’s not” (interview, June 2001). Newman 2008, p. 114.

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While both parties entered the negotiation with the understanding that there was a mutual interest in resolving the dispute, there were no clear options on which both could converge. Balancing agreed upon privacy principles and opposing values, with the set of principles that were agreed to on global electronic commerce would result in a negotiation full of conflict. The parties had to weigh the importance of trade flows versus data protection and other sovereign interests. International business supported the former position, whereas European governments, especially those with data protection directorates, supported the latter. One of the main themes of this negotiation was searching for alternative means for complying with the directive, because adjusting US policies through legislation was not possible, given the entrenched position of US laws. The Europeans were adamant in their will to dictate the terms of an agreement because it was the US that was trying to comply with their law. Therefore, it was the primary interest of the European Commission to prevent “leakage,” which would occur if personal data was transferred to the US and companies used it without consent for purposes such as marketing. The status quo was not a good alternative for either the US or the Europeans, because it would require the member states to negotiate individually with each and every controller who wanted to comply with the directive. According to David Aaron, one of the US negotiators, the Europeans’ bottom line was “what they considered a high level of privacy protections for European personal data as provided for by their Directive.”90 For the EU, its worst fear was that a few national data protection authorities would play strong-arm tactics against a few multinationals or, alternatively, that differential treatment would weaken the directive altogether.91 “Our main aim was to defuse the crisis. We didn’t want data protection to be bananas and spaghetti,” noted an EU official in reference to damaging trade wars of the past between the Europeans and the US.92 The US negotiators were in a more defensive position, because it was important to reach an agreement in order to protect US businesses from having to certify with each member state on a case-by-case basis when personal data is transferred to them. The major fear was the importation of European standards or regulation, which would be a 90 91 92

US House Committee on Energy and Commerce 2001. Interview with EU official, June 2001. Interview with EU official, June 2001.

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violation of US sovereignty. To this end, they set a number of parameters on possible alternatives for agreement. First, the US would not negotiate an agreement that would apply the directive in the US. Second, the US would not accept the jurisdiction of European law in the US. Third, the US would not pass new legislation.93

Negotiation process The stalemate in the negotiations arose from a lack of international consensus on data privacy. Specifically, domestic conditions in both the US and Europe worked against the Europeans in their push for more comprehensive US privacy protection. US industry formed coalitions to facilitate domestic consensus and mobilize industry on the need to develop self-regulatory mechanisms. In Europe, the credibility of negotiators was called into question because of the poor implementation records of member states having enacted the directive into national law. European industry was also supportive of the US proposals to self-regulate. The safe harbor agreement resulted from three factors: US and EU exploration of alternatives they had not considered, lobbying by transAtlantic businesses, and the differential compliance on data privacy among EU member states. Farrell’s constructivist analysis privileges the first of these factors to show how persuasion changes “the set of possible actions available to other players.”94 Heisenberg counters that the negotiations were fraught with conflict and hardly revealed the kind of harmonious persuasion that Farrell underlines. Instead, she roots her explanation in differences in EU institutional decisionmaking and the role of interest groups (in this case member states and businesses).95 The two positions should not be taken as mutually exclusive. The following analysis, divided into three phases that track the major turning-points, shows that the convergence on the safe harbor alternative that arose during the negotiations was made easier by divisions among member states and business lobbying. 93 94

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House Committee on Energy and Commerce 2001. Farrell 2003, p. 282. Farrell also dismisses negotiation theory as only serving to analyze strategic behavior. His understanding of negotiation theory is rooted in game theory and not the type of analysis of negotiations offered here that includes persuasion. Heisenberg 2005, pp. 7–9.

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Phase 1: searching for alternatives The first phase of the negotiation can be characterized by an alignment of the different interest groups and early discussions on possible alternatives to US regulation. The beginning of the negotiations can be marked as July 1997, when the European Commission transmitted a policy paper to the White House and related federal agencies on its interpretation of the phrase “adequate protection” as it was used in the directive. In the paper, entitled First Orientations on Transfers of Personal Data to Third Countries – Possible Ways Forward in Assessing Adequacy,96 the EC Data Protection Working Party enumerated how they envisioned the implementation of the directive in certifying other countries that have met the criteria of adequate protection, including the development of a provisional “white list” of third countries which can be “assumed to ensure an adequate level of protection.” The paper informed third countries that they would not only need appropriate policies and regulations in place, but also have enforcement mechanisms. In September 1997, US and European industry groups were served notice by EU President Jacques Santer, indicating that current US privacy laws failed to comply with the principles of the directive, especially in their lack of ability to provide means for redress if privacy rights are violated or impose sanctions on violators.97 In addition, Santer emphasized that while business codes of conduct were an important part of an overall privacy framework, EU officials did not “consider that codes of conduct and technology alone will be enough to ensure effective global protection for personal data.” The European Commission was calling on the US to resolve the conflict by establishing a regulatory body to monitor and referee complaints, something the US considered an imposition of the directive on the US.98 The US campaign for a market driven solution to privacy protection gained momentum at a Trans-Atlantic Business Dialogue (TABD) Conference that November. The TABD, an assembly of CEOs and other business leaders from across the European Union and the US, issued their support for “mutual recognition by governments of industryled, market-driven privacy principles in order to ensure and increase consumer trust in electronic commerce. National privacy protection 96 97

EC Data Protection Working Party, 26 June 1997. ITR, September 24, 1997. 98 ITR, September 24, 1997.

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should allow for differences in protection measures based on national political systems and local cultures, with government regulation only as a last resort.”99 Ira Magaziner welcomed industry’s support, especially from the European business community because it would help the US’ negotiating position while damaging the EU’s credibility.100 The support of European businesses in this situation is not counterintuitive, because they would also bear the costs of compliance and it is also in line with the agreed upon principles for electronic commerce. Taking his cue from the TABD meeting, Magaziner began to call on industry to begin setting up self-regulatory mechanisms for privacy protection. In addition to arranging a series of meetings on this issue, the Department of Commerce supplied industry with a set of draft guidelines to assist companies in their task.101 Shortly thereafter, the European Commission took the defensive by issuing a warning to US companies of the possible repercussions if they failed to deliver adequate protection.102 Even as high-level negotiations continued throughout the spring with the October 24 implementation date quickly approaching, however, the European Commission was beginning to develop criteria on how to evaluate industry self-regulation’s ability to provide a meaningful contribution to the level of data protection in a third country.103 The Working Party gave an alternative interpretation to Article 25, bringing new light to the language of the directive, which included the assessment of “professional rules and security measures” when evaluating the level of adequacy.104 Marking the end of a year of negotiations, the White House convened an Internet privacy summit to which it invited mostly private firms critical of government involvement in privacy issues.105 Online Privacy Alliance, an industry group comprised of approximately fifty companies and business associations, released its proposal one day 99 101 102

103 104 105

TABD, 1997. 100 ITR, November 12, 1997. ITR, February 25, 1998. Stefano Micossi at a Center for Strategic and International Studies forum in Washington, DC on February 25, 1998, said, “Don’t think for one minute that the Directive will go away,” saying that any adverse consequences would be the fault of industry if self-regulatory mechanisms do not provide adequate protection and data flows are interrupted (ITR, March 4, 1998). EC Data Protection Working Party 1998a. EC Data Protection Working Party 1998b. More than 70 privacy advocates drawn from scholarly and technical ranks critiqued the White House. Heisenberg 2005, p. 88.

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before the summit that included guidelines for online privacy policy and a statement on enforcement and self-regulation on June 22, 1998.106 In exchange for their adoption of the guidelines, US industry wanted legal certainty that the Commission and the member states would recognize their self-regulatory mechanisms. That same week, US Ambassador David Aaron, in a meeting with Commission negotiator John Mogg, proposed an alternative that he noted had the support of industry – a safe harbor. The term “safe harbor” came from Ambassador Aaron’s experience on Wall Street, where it refers to exceptions to tax laws as long as the excepting party meets certain conditions.107 Phase 2: Safe harbor principles debate During the second phase of the negotiation, the US government moved forward on drafting principles while industry coalitions continued with the development of self-regulatory mechanisms. During the ongoing negotiations in Brussels in early October 1998, Ambassador Aaron stated that the two sides recognized “significant overlap” in their approaches to privacy, even though the procedures and structures are different.108 On November 4, Aaron in a letter to industry asked for comments on draft safe harbor principles that were based on those outlined in the 1980 OECD guidelines.109 The letter noted that adoption of the safe harbor would only obligate companies to apply the principles to personal data transfer from the EU and not elsewhere. In exchange for their participation, companies would be recognized as in compliance with the directive by all fifteen member states and would have a grace period to implement the principles. The draft safe harbor principles prompted seventy-six formal comments from industry, including the Online Privacy Alliance and BBBOnline, both of which were involved in creating self-regulatory mechanisms, as well as large companies, trade associations, and consumer groups.110 Most of the

106 109 110

ITR, July 8, 1998. 107 Farrell 2003, p. 292. 108 ITR, October 21, 1998. Letter and draft principles available from www.ita.doc.gov/td/ecom/ aaron114.html (accessed April 2001). All comments filed are available from the Department of Commerce web site, at www.ita.doc.gov/td/ecom/com.htm. Heisenberg 2005, p. 91 notes: “Although the term ‘regulatory capture’ is too narrow to apply to the Department of Commerce’s negotiation strategy, the fact that industry groups dominated the process, and that they had a significant role in writing the safe harbor principles, to the detriment of other groups, makes regulatory capture a useful analogy.”

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comments requested more clarifications on procedure, such as how eligibility would be established. The member states rejected the proposal before formally discussing it with the US. In a November 23 press briefing, a Commission spokesperson said that the proposal was deemed “unacceptable” by all fifteen EU member states, noting that their major complaints were over data access and notification.111 At a technical briefing for journalists in December,112 when negotiators from both sides were in serious discussions about the safe harbor proposal, an EU official was posed many questions about what the Commission thought its alternatives were at this time, what were the objectives of the EU, and what the dividing principles were. In response to these questions, the official reaffirmed their hawkish strategy to the negotiations. For example, this attitude is reflected in the following comment: “Maybe they will decide that they have got room for maneuvers on some points but not on others. But they haven’t decided in their own minds yet and they certainly haven’t told us if they have.” The response continues on to confirm that any maneuvering needs to be done by the US without mention of any areas where the EU might concede. In another comment, it was made clear that the EU questions the credibility of a system that is reliant on selfcertification. For the EU, such credibility could only come from the government. Meanwhile, the US continued to improve its self-regulatory mechanisms for privacy protection and domestic consensus developed over the safe harbor principles. In a meeting in March 1999, EU negotiator Mogg commented that he was encouraged by the news that the BBBOnline would begin offering qualifying companies an electronic seal certifying that they would not misuse personal information.113 In April, the Europeans responded positively to a revised safe harbor proposal. EU member states agreed that the new document represented “significant improvements,” though there were continued concerns over some of the language and enforcement.114 For example, the EU was concerned that the US Federal Trade Commission and other federal agencies did not have sufficient enforcement powers. This questioned the credibility of the US negotiators being able to live up to the promises of the agreement. In this case, the US agreed that 111 112 113

ITR, November 25, 1998. http://europa.eu.int/comm./internal_market/en/media/dataprot/backinfo/ euus.htm (accessed February 2001). ITR, March 24, 1999. 114 European Commission 1999a.

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companies self-certifying their compliance would have to notify the Commerce Department. In addition, the US made a proposal that US companies should demonstrate their adherence to the member state data privacy commissioners, but the European negotiators declined their offer. Instead, they requested that every sector create its own selfregulatory regimes for handling European data. Aaron’s response to this request at an industry forum was “this is the kind of extraterritorial over-reaching that Europeans are the first to criticize.”115 Phase 3: reaching an agreement The final year of negotiations was spent negotiating the finer points of the agreement and there were few new areas that were addressed. The US negotiators found themselves in a greater position to gain during this phase, because the credibility of European negotiators had been weakened by lack of domestic consensus.116 In a move to better its negotiating position, the European Commission sent “reasoned opinions” to nine of its member states regarding their failure to implement into national law the measures in the Data Protection Directive.117 While there is no degree of certainty on whether or not the US’ consistently pointing to the poor implementation record increased their opportunity for gain, there is a distinct possibility that it gave the US negotiators leverage when negotiating over the grace period for implementation. The EU negotiators insisted on no more than eight months for implementation, but the US argued for two years based on the fact that more than half of the EU countries had not implemented the directive themselves.118 Asking for two years was a value-claiming move on the part of the US negotiators given the fact that based on comments on the last draft proposal, US industry was only requesting one year. In the final agreement, the Europeans did concede on this point in part by allowing for a one-year grace period. 115 116

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ITR, May 26, 1999. The EU Directive was to go into effect on October 25, 1998 by which date only Belgium, Finland, Greece, Italy, Portugal, and Sweden had complied while the Netherlands, UK and a few other countries were considering self-regulation. Franda 2001, p. 94. Member states included France, Luxembourg, the Netherlands, Germany, the United Kingdom, Ireland, Denmark, Spain, and Austria (European Commission 1999b). ITR, September 15, 1999.

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The final turning point came in January 2000, when Commission officials were invited to Washington, DC. It was here that the Americans persuaded, and the Europeans finally accepted, that safe harbor did come with FTC backing. “American song was Safe Harbor. It took us a while to understand the FTC back-up and it became our anchorpoint and fundamental to our argument.”119 For their part, the US produced examples of case law and memoranda, etc., that showed that FTC could step in if firms were not in compliance. Newman and Bach’s distinction between the EU and US self-regulatory mechanisms helps us to understand the rationale for European reluctance.120 They locate the EU’s self-regulatory mechanisms in the “carrot capacity” of “coordinated self regulation,” whereby the government and EU bureaucracies work closely with industry to implement public policy. Extrapolating from this, it can be argued that the Europeans were looking for instances of such coordination in the US. It took them a while to understand that the US offered a model of the “stick capacity” of “legalistic self-regulation,” in which, “[S]trong federalism, an influential and entrepreneurial judiciary, and powerful regulatory agencies combine for a persistent threat of regulatory intervention by a multitude of public actors.”121 Nevertheless, the other key distinction that the Europeans had formal data protection laws and authorities, while the authority to regulate data in the US is fragmented, is important.

Negotiation outcome A final agreement was reached in March 2000, pending approvals from the member states and a determination from the European Parliament. In the final agreement, US companies were basically given four alternatives for compliance: 1. 2. 3. 4.

participation in a self-regulatory body; self-certification with notice to the Department of Commerce; model contracts with the EU member states data authorities, and financial and health care industries that are covered by US regulatory regimes.122

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Interview with EU official, June 5, 2001. Newman and Bach 2004. 121 Newman and Bach 2004, p. 394. ITR, March 23, 2000. For clarification purposes, the financial services sector is still required to sign up to the safe harbor principles, though they continue

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Considering that the negotiations began with the Europeans unwilling to consider alternative self-regulatory mechanisms, the final agreement represents a major win for the US negotiators. In the final weeks of the negotiations, there were a couple of major breakthroughs that made the finalization possible. One, which has already been mentioned, is the grace period, which the US had fought hard for because industry did not believe that six months was enough time. The second major breakthrough was on the enforcement issue. In an admission of imperfect information, John Mogg said in a conference call with the media following the final negotiations that: “[He] must admit that there was some misconception on our part about how extensive the US legal system for enforcing the [Safe Harbor principles] was.”123 By examining the redlined version of the final agreement, it is clear that the Europeans also conceded in the area of model contracts.124 Model contracts are standard contractual clauses devised by the working party to be included in written agreements with parties transferring data from the EU. While the primary negotiators believed that there was “sufficient consensus” on the safe harbor principles, there was some doubt as to whether the member states and Parliament would approve the agreement that the European Commission negotiated on their behalf. A final vote by Parliament would remain just a formality and its only weight was the “power of consultation.”125 The EU Council of Ministers (representing EU member states) approved the agreement on May 31, but on July 5 Parliament, in a 279–259 vote, rejected the arrangement, asking the Commission to continue negotiations. Since the Parliament had only advisory powers, the Commission made the decision to accept the principles of the safe harbor. However, Fritz Bolkenstein noted the following in a letter to the Acting Secretary of Commerce Robert L. Mallett:126

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to be regulated by US legislation. This was because Congress had recently approved the Financial Modernization Act, which Aaron likened to painting a moving train in trying to assure complete compliance by the sector as it implemented the changes. (ITR, March 16, 2000; European Commission 2000). ITR, March 16, 2000. March 16, 2000 redlined version of the “International Safe Harbor Privacy Principles”: www.ita.doc.gov/td/ecom/redlinedprinciples31600.htm (accessed March 2000). ITR, March 30, 2000; ITR April 6, 2000. Bolkenstein 2000.

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Following the adoption of the Resolution, I informed the Parliament of the Commission’s intention to go ahead with the decision finding that the ‘safe harbor’ provides adequate protection, but I undertook at the same time to write to you, drawing your attention to the Parliament’s Resolution which, you will understand, has considerable political significance within the EU. I explicitly state that, “If the ‘safe harbor’ proves to be as weak in providing remedies for individuals as the Parliament fears, the US must understand that the Commission will insist on re-opening the case in order to seek improvements.” This position reflects the position which the Commission has consistently taken since March. It is now time to let the “safe harbor” go ahead and test its effectiveness on the ground.

In the end, a final agreement was reached because the negotiators were able to find an agreeable alternative and then make the concessions necessary to conclude the negotiations with an agreement. While domestic consensus did emerge in the domain name system case in Europe, it is not generally an easy task due to the structure of governance and the multiplicity of values and cultures that results from bringing together fifteen different countries. Despite the fact that there was an agreement on the privacy directive when it was released, there was no clear consensus as countries struggled to translate it into national code and the different European institutions were at odds on how best to enforce the directive internationally. The Europeans found their credibility damaged by the lack of domestic consensus on the issue.

The passenger name record dispute The PNR dispute, arising from the US requirement to collect passenger data from airlines, highlights the shaky foundation upon which safe harbor was negotiated. In particular, this applied to concerns about safeguards for data in the US and, at the European end, the testy relationship between the Commission and the member states on this issue. However, most airlines are complying with the US requirements to transfer data – this speaks to US market and regulatory coercion in an issue and is counter-intuitive when the European data privacy guidelines are becoming the de facto guidelines internationally.127 127

Newman 2008 notes that over thirty countries in five continents now have EU type rules for data privacy.

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Negotiation context The dispute arose from the US Aviation and Transportation Security Act passed by the Congress on November 19, 2001 after the terrorist attacks of September 11. It authorized the US Customs and Border Protection Bureau to ask airlines to turn over data on thirty-nine pieces of information contained in passports but also other pieces of a passenger’s travel and credit card information, and dietary information. Airlines failing to comply would be fined $5,000 for each passenger and nearly all airlines complied. The dispute between the EU and the US on this issue comes from transfer of data for security reasons when the data were collected for commercial purposes.128 The data privacy directive does not allow such transfers, therefore putting European airlines’ compliance on a shaky legal footing. However, while in the safe harbor case, the incumbents were the EU in being the agenda-setters and enforcing compliance, the roles are reversed in this case. The US government set the agenda on this issue and possessed enormous regulatory capacity and clout to force compliance.129 Furthermore, it had a market advantage in that the airlines are beholden to the US market size. These two factors taken together would make the US threat of levying fines on airlines credible even though polling data and other evidence continue to find that individuals do not like their data being used for security reasons.130 While the Commission sought a negotiated solution, the European Parliament and the data directorates challenged its moves.

Negotiation process As noted, the US was the agenda-setter and incumbent market power in the PNR negotiations. In the case of safe harbor, TABD pressures crossed the EU-US divide and prompted them to keep negotiating. 128 129

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Heisenberg 2005, p. 142. Bach and Newman 2004, p. 832 note that the PNR compliance followed from the US’s regulatory capacity and that “jurisdictions with large markets rely on their institutional resources to make demands on foreign authorities.” Cowhey and Richards 2006 allude to the same. Metzger 2007. Heisenberg 2005, pp. 140–1, cites a CBS/New York Times poll from November 2002, in which nearly two-thirds or 62 percent of the respondents were “not willing” to allow government to monitor their telephones or e-mails for security reasons.

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In the PNR case, the airline compliance and US’s regulatory authority weakened the BATNA for the EU. Even after the ECJ judgment in May 2006 annulled the Commission’s authority to sign an agreement in this regard, the airlines have continued to comply and the Commission has continued to find a legal compromise that would allow it to find a negotiated solution. Formally, the negotiations began in December 2001 with a US-EU bilateral after the passage of the Aviation Act in the US.131 For one year, the US government did not even take the EU objections to data problems seriously but, nevertheless, held off applying any penalties to the airlines until March 2003 in the hope of finding a negotiated solution. The Article 29 Committee gave its opinion three times in the negotiations in October 2002, June 2003, and January 2004. In the first opinion it pointed to the basic underlying legal conflict between the US and EU position, in the second opinion it noted that there may not be a negotiated solution possible, and in the third opinion it reiterated its earlier position. Meanwhile, the Commission negotiator Fritz Bolkenstein was mindful of the difficulties in getting safe harbor passed and noted to the European Parliament in March 2003 that US “unilateral action and threats of penalties is unacceptable.”132 But he also sought to regularize the status quo. (By October 2003, most airlines were complying with the US data transfer requirements.) Bolkenstein tried to buffer his position by noting that even the Article 29 Working Party had noted that “political judgments” would be necessary in reaching agreement. The draft agreement was ready in December 2003, and signed and brought into effect by the Council of Europe in May 2004. The reaction from the European Parliament was swift. It had found the Commission’s stance to be too “accommodationist” toward the US. In March 2004, the Parliament voted 229 to 202 against the PNR agreement. In the safe harbor case, the Commission had let safe harbor stand against the Parliament’s vote. In April 2004, the Parliament supported by data protection directorates and civil society groups voted 276–260 to take the Commission to the ECJ for overstepping its authority. In July 2004, the ECJ stepped in but the agreement would continue to be effective until May 2006 when the ECJ issued its ruling. 131 132

The paragraph relies heavily on Heisenberg 2005, ch. 7. Quoted in Heisenberg 2005, p. 143.

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In the ruling on May 30, 2006 the ECJ found that “neither the Commission decision finding that the data are adequately protected by the United States nor the Council decision approving the conclusion of an agreement on their transfer to that country are founded on an appropriate legal basis.”133 As two European legal analysts pointed out about the ECJ judgment: It is disappointing that in this judgment, the ECJ on the one hand concluded that the collection of PNR data by the airlines falls within the scope of the Community law and on the other hand seemed to accept that if the same data are to be transferred for public security reasons they no longer need the protection of the EC data protection directive.134

For its part, the Commission began to look for a new legal basis for a negotiated agreement with the US. Meanwhile, in July 2006 another scandal erupted as The New York Times reported that the US government had obtained data on international financial transactions by subpoenaing the Society for Worldwide Interbank Financial Transactions (SWIFT). SWIFT stood accused by European data privacy advocates for breaking European law in particular.135 The dispute is unlikely to go away soon, even though a new EUUSA Agreement on PNR was signed on June 28, 2007. It made PNR transfers permissible for law enforcement reasons and the negotiating parties also agreed to keep the details of the negotiations secret for ten years. However, soon after the Agreement was signed, the US government announced changes to not comply with requests (from the EU in this case) for data held by the Department of Homeland Security. Meanwhile, the Article 29 Data Protection Party forwarded its opinion on August 17, 2007, which was skeptical of the Agreement’s provisions, especially its emergency provisions.

Conclusion When Tim Berners-Lee, the inventor of the World Wide Web, wrote the words that begin this chapter, the days of a regulation-free Internet were already over and the dot.com boom was at its height. Companies, 133 135

Quoted in EurActiv.com 2006. 134 Guild and Brouwer 2006, p. 4. Farrell 2006. In the US a few Republicans wanted The New York Times to be charged with espionage.

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investors, and consumers had already recognized it as an invention that could eventually touch every realm of their existence, but governments were just beginning to address some of the legal and societal implications that Berners-Lee was referencing. At the domestic level, this included instituting content regulations, tax moratoriums, and addressing privacy, security and intellectual property concerns. At the international level, it was all of the above listed issues magnified, but at its most basic the challenge for the governments was to ensure the interoperability of the Internet worldwide. The cases examined here dealt with negotiations on interoperability, at the level of Internet governance and data flows. The main question with respect to these two cases is: how do actors reach agreements when possessing significant market incumbency? The last chapter showed that the US used its incumbent advantage to either impose a telecommunications pricing scheme on the world unilaterally or not agree to the Internet pricing scheme that the rest of the world wanted. In both cases, the US needed the rest of the world in terms of interoperability of the network, thus interoperability necessity by itself cannot be taken to be enough for reaching agreement. The crucial difference, as noted earlier, was the stage at which interoperability came into play and the difference in the state of coalitions during the negotiations: international coalitional pressures in the case of domain name registration continue to become divergent while in the case of data privacy, they have allowed for minimal convergence. In terms of interoperability, it affected the creation of international rules; in the case of prices, international rules already existed, negotiators only sought to amend them. The evidence points to the claim that amending rules is sometimes more difficult than creating them if coalitional pressures produce gridlock. The cases in the last chapter showcased cohesive coalitions on either side that allowed for no convergence in positions. In this chapter, due to the absence of a coalition challenging US incumbency in the case of ICANN, the latter could be created the way it was. However, the interoperability requirement did dictate that ICANN cater to international interests and the dispute settlement mechanism was located in a UN body. In the second phase of negotiations on ICANN, however, an international coalition argued for placing domain name registration under UN auspices. It was opposed by the US and international business interests producing a no-agreement.

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In the case of data privacy, clearly divergent interests initially led to gridlock. It was only when the US proposed safe harbor that the possibility of an agreement emerged. Given this alternative, government representatives and consumers in the EU remained opposed to data transfers but a small transatlantic business coalition argued in their favor. Therefore, the EU remained opposed to an agreement with the US and its strategy remained value-claiming, in asking the US to revise its privacy laws, but did become mixed-motive at the end as a result of persuasive efforts by the US to resolve the issue via a safe harbor agreement.136 European fears resurfaced with the PNR agreement, in which the European Commission legalized the post-9/11 status quo of airline compliance with new US data transfer requirements. While Europeans could claim the normative and moral high ground in guarding privacy as a human right, the US could claim de facto status quo of airline compliance. In terms of negotiations processes, both cases exhibit some valueclaiming tactics but also genuine problem-solving. There was significant support in the US, both within and outside the government, for an international solution to the challenge of Internet governance. It worked with the EU and others to agree to direct international elections for ICANN’s board of directors and also agree to placing trademark dispute settlement at WIPO. While such overtures brought international credibility to the process, the US did use its incumbent advantage to create ICANN under US law and although it is a private corporation, the influence of the US Department of Commerce is quite visible in its functioning. In the second phase of these negotiations, during WSIS, the US government’s and ICANN’s domination of the process would be heavily criticized. But, here the concentration of power befitted the US. It did not have to give in. Market incumbents supported the US position in WSIS as well as PNR disputes. As technology evolves, the compact between businesses and governments may either come undone in cases where data rights advocates apply pressure or strengthen in cases where governments themselves request data for security reasons. The safe harbor and PNR disputes point to the limits of the existing data privacy regime, 136

Arguably, data protection in the EU continues to suffer as pressures increase for surveillance and data transfer from across the Atlantic in the post 9/11 era. Farrell 2006.

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which remains weak. As this chapter shows, interoperability requirements clearly require privacy standards that reduce firms’ transaction costs. Google called for a global privacy standard in September 2007 based on “transparency and user choice” in arguing that the US practiced fifty different standards in fifty states, and the EU standards are “complex and inflexible.”137 On the other hand, in practice as in the PNR case above, privacy “negotiations” are for now being settled in the courts and public advocacy forums.138 Google’s decision to buy DoubleClick, the biggest online advertising firm, has raised anti-trust implications in the US and EU and the social network Facebook with 50 million members in December 2007 recently lost a court battle to reveal users’ buying habits on their Facebook pages to their online networks.139 Data privacy advocates are also concerned about increased surveillance and data transfers as technologies such as radio-frequency identification (RFID) technologies use tags that allow devices to collect data about individuals. RFID tags are being used in shopping malls, tool roads, transportation systems, passports, and even being embedded under the human skin. As with the other disputes discussed above, in the European case the legality of collecting or transferring such data is debatable, while the legality of these practices in the US is being debated in many court cases. 137

Schmidt 2007.

138

Financial Times 2007b.

139

Financial Times 2007a.

7

Conclusion: power and governance

The social, political, and cultural consequences of the common meal are extraordinarily varied; moreover, their outcomes can turn out to be positive or negative. The common meal or banquet contributed to the “invention” of democracy in the age of classical Athens, on the one hand; in the Imperial Germany of Heinrich Mann, on the other, commensality could lead to the degradation of human relations in political life. Albert O. Hirschman “Melding the Public and Private Spheres: Taking Commensality Seriously”1

Digital information networks are expanding the scope of the global information economy, but the sociology of international interactions shaping these networks is understudied. Technology is not merely an apparatus, its instruments reflect and shape prior human understandings regarding the problem to be solved and the means for doing so.2 Whatever the technology, we need a historical sociological context for understanding its origins and effects. The Internet stands out as an important conduit facilitating commercial exchanges these days. The telegraph and telephone did the same in a bygone era and, arguably, continue to do so.3 Global rules underlying these media are important: without rules, networks would neither interconnect nor expand. 1 2

3

Hirschman 2001, p. 29. See exposition of these themes in Teich 2006. For cautions regarding the relationship between technology and society, see Winner 1977, 1988, and Benkler 2006. For a more optimistic understanding, see Weber 2004 and Mokyr 2002. The East India Company’s commercial transactions benefited from telegraph transactions that reduced to a few hours the three weeks it took to send a letter by ship between Calcutta and London (Singh 1999, ch. 5). Telegraph still remains a viable means of communication in many developing countries. Western Union discontinued its telegram services in January 2006 after total sales of telegrams fell to 20,000 in 2005 from 20 million in 1929: http://en.wikipedia.org/wiki/Telegraphy (accessed September 28, 2006).

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Shortly after the invention of the telegraph, twenty European states signed a convention in Paris in 1865 “after two and a half months of arduous negotiations” to lay the foundations of what later became the International Telecommunication Union (ITU). There is over a century and a half’s precedence for the ITU’s current efforts to facilitate negotiation in global rules on telecommunications pricing, standards, interconnection protocols, or Internet governance. An elite club of great powers and their technocrats created the foundations of the ITU; global rule making now features a cornucopia of interested groups including states, international organizations, and other intra-state or transnational groups. Negotiation is a “a quintessential manifestation of social interaction”4 and, as detailed in this book, at the core of the evolution of the global information economy. But, is there anything new in the process of these negotiations that we could not understand by reading an account of the Paris negotiations referred to above?5 As noted in Chapter 1, the telephone, like other networks of capitalism, such as transportation (air, water, surface), came with “a mandate for interconnection” facilitated by the principles and norms of free trade in the last 200 years.6 This mandate reflected the international needs as well as historically derived understandings regarding sovereignty, international commerce, and the role of technology. In this sense, the ITU’s negotiations around interconnection protocols and equipment standardization were the technical core of the rules and decision-making procedures underlying these principles and norms. The principles pertained to exchange among nations and the norms were those of free trade. Actors worked within an epistemic context; they did not challenge it. Together, these principles, norms, rules, and decision-making procedures established the liberal regime in telecommunications.7 This book deepens as well as departs from extant reasoning underlying communication regimes at two levels. At one level, actors may not 4 5 6 7

Rubin 2002, p. 258. For this history, Codding 1972; Headrick 1991; Singh 2003. Zacher 1996. The language of norms, rules, and decision-making procedures rather than regimes is used here in heeding Strange’s 1982 warning that regime theory by itself tells us nothing, but its underlying concepts are illustrative. For classic works on regime theory, see Haggard and Simmons 1987; Krasner 1983. For applications to communications, see Cowhey 1990; Krasner 1991; Zacher 1996; Singh 2002b, 2003, 2004; Braman 2004.

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challenge the broad epistemic understanding but the micro-contexts in which it is embedded. In other words, liberal regimes offer actors a wide array of choices, especially in diffusion of power contexts: without studying negotiations, we will not know the underlying rationale for the choices made. For example, if actors do not like the game they are forced to play they try to change the rules of the game, play the game elsewhere, or play a different game altogether.8 The dynamism of power configurations, especially in ways that they change, informs this reasoning. Negotiation theory lends overwhelming support to the idea that once negotiations unfold, the game is not static and can change.9 The underlying power configuration changed in just about every negotiation instance analyzed in this book. Sometimes it became more diffuse, but at other times it also became more concentrated. Zacher’s “mandate for interconnection” then needs to be amended, or at least deepened, by the mandates of power contexts; the relentless march of capitalism is interspersed with all kinds of deviations from the norm. At another level, unlike what Zacher notes, rule-making through negotiations itself challenges existing principles and norms. Existing principles and norms bestow actors with self-understandings, which change when they interact with each other. Such is the stuff of socialization, which accounts for not only behavioral changes but also changes in interests and identities.10 Several negotiators sought to move away from liberal norms in UNESCO cultural diversity negotiations, the ITU WSIS negotiations, and in the two pricing cases discussed in this 8

9

10

We can learn a lot from the complexity of moves by looking at a game of chess. But, we may need to observe interactive video games to learn more. What chess was to the industrial age, video games are to the information age. In many video games, players invent the rules of the game and change the environmental context even as they play it. See, for example, the class of video games known as MUDs (multi-user dungeons). Thomas and Brown 2007, p. 1 write: “In these spaces, cultures and meanings emerge from a complex set of interactions among the participants, rather than as part of a predefined story or narrative arc.” See Zartman and Rubin 2000, p. 37; Underdal 2002, p. 116; Sebenius 2002, p. 244; all in Kremenyuk 2004 who also provides many other instances of this thinking. Spector and Zartman 2003 provide instances of negotiations in implementing regimes. This book concentrates on changing interests that are empirically verifiable in the context of negotiations. Various forms of constructivist and postmodernist scholarship examine changes in identity. For an overview, see Zehfuss 2002.


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book. Scholars even argue that the stringent protections on intellectual property enshrined in TRIPS run counter to the principles of liberalism.11 This book advances a theory of negotiated interests to argue that under varying interactional circumstances, the games that actors play are more dynamic and open-ended than accounted for by our current theories on the constraints imposed by power structures or instances of rebellion or resistance on the margins.12 To examine how power configurations in each issue-area lead to particular outcomes, we not only need to examine how negotiations lead to interest convergence or divergence but also, in situations of diffusion of power, interest alteration or creation as well. Power configurations may also change as negotiations proceed as actors add, delete, or change the underlying mix of issues, actors, coalitions, and in rare circumstances, market conditions. Thus, international interactions produce both continuity and transformation.13 This chapter discusses the implications of negotiated interests for the broad themes in political enquiry, namely power and international governance. Power provides the input for negotiations: the output is governance in the form of negotiated international rules. Thus, power is important for understanding not just actors’ interests but also the shifting identities of actors and the meanings of these interests. Power is often understood in the way that it instrumentally bestows or structurally restricts capabilities, but we need to also understand the way that it transforms understandings. The latter is conceptualized as a form of meta-power. While a fuller exposition of meta-power must await, briefly, meta-power illustrates transformations in identities and interests as a result of international interactions.14 As we will see, the possibilities of transformation cannot be examined solely by recourse 11 12

13

14

Lessig 1999; Weber 2004. The reference to power structures harkens to Waltz 1979 and Wendt 1999. Barnett and Duvall 2005 and Lukes 2005 provide good summaries of the literature on resistance and rebellion in the margins of power. Buzan, Jones, and Little 1993, and Buzan and Little 2000. These authors note that an international system has existed since 3500 bc, when Sumerian city-states began to interact with each other. They distinguish the international system from various structures, intersubjective understandings, and institutions that exist within the international system including the one distinguished by the Westphalian states. The concept of meta-power was first developed in Singh 2002a, in the context of information network understandings. Meta-power calls attention to new

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to an intersubjective conceptualization of power that merely notes the acquiescence and due obedience from weak or marginalized actors.15 Technological change in the context of the international economy is especially important in understanding the transformational aspects of power: Buzan and Little note that communication technologies greatly enhance the “interactional capacity” of the international system, and therefore the possibilities of transformation.16 Taking the distributive and transformational aspects together, negotiations are not merely guides to understanding strategic interests or behavior but also interactive processes of debate, deliberation, problem solving, and argumentation that transform the very interactions, identities, and interests underlying the negotiations. At the level of changing interests, for example, the GATS negotiations are fundamental to understanding the transformation in the thinking regarding the role of services in the evolving global information economy. Similarly, in terms of identity, the negotiations on cultural industries both reflected and catalyzed the evolving debates on cultural identity, first in the EU context and, subsequently, worldwide. Interestingly, these cultural identities were not affixed in national terms. Those opposing US action spoke of European identity and marginalized transnational identities, among other concepts. Most importantly, the centrality of negotiations itself raises the stakes for diplomacy among the interactional possibilities. This book shows that diplomacy, far from being marginalized, may be the chief means of resolving international conflicts, at least in the economic sphere. The implicit normative argument in the book is made explicit in the final section on governance: rules negotiated by a plurality of actors in which interest alteration takes place, and mutual gains are effected, are more stable and democratic than rules that use coercion to make actors comply. In the following analysis, the themes of power and

15 16

intersubjective understandings that arise as result of these network interactions and builds upon concepts of constitutive power (Litfin 2002), epistemic power (Deibert 2002), and meta-technologies and virtual power (Braman 2002). In this sense it must be distinguished from another use of meta-power as merely changing the rules of the game (Krasner 1985, p. 14; Kim and Hart 2002). Lukes 2005; Barnett and Duvall 2005. Buzan and Little 2000, pp. 286–8. Later, they note: “Increases in interaction capacity driven by profound developments in both physical and social technologies were another key element in the transformation from the ancient and classical era to the modern one” (p. 350).


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governance are situated within both the context of the empirical findings of this book as well as the broad conceptualizations informing them in political economy.

Power We need to move beyond instrumental understandings of power to account for its transformative contexts. Instrumentality allows us to understand distributive aspects of negotiations in terms of enhanced or diminished capabilities of actors and their desired or limited strategic courses of action. Structural power, conflated here with instrumentality, can then be understood as a limitation of capability, including the intersubjective sense in which actors are socialized into particular courses of action. However, as noted earlier, we cannot study structural transformations if we merely examine due obedience, subconscious or otherwise, to a structure. Therefore, while capabilities may be enhanced or diminished by interactive contexts, interactions may also change the very nature of the game being played. Detailed below is analysis that first allows us to understand the distributive context of power. Subsequently, I analyze the epistemic and intersubjective contexts, described herein as a form of meta-power. Technology is emphasized as a key causal factor underlying transformation. Details of instrumental and structural contexts highlight the way actors choose strategies given prespecified environments but, in a dynamic context, they may also show how these strategies and the underlying interests might change, at least in limited ways. Power configurations that embody instrumental and structural possibilities therefore provide a good point of entry. They show why the developing world dug in its heels about not putting new issues on the Uruguay Round agenda or why data transfers created one of the biggest trade disputes in the history of US-EU trade relations. A focus on instrumental or structural power need not be static. Fearon notes that “different strategic structures” characterize the different ways in which actors choose their strategies from the underlying environmental contexts.17 He also explains the longevity of negotiations by calling attention to the iterative context of the game, thereby paying attention to its dynamic element, by noting that expectations 17

Fearon 1998.

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of better payoffs in the future makes actors hold out for an agreement. Lake and Powell develop a dynamic strategic choice framework to show that environments specify the alternatives available to actors and the probabilities and payoffs from each course of action.18 Changes in environment are modeled as changes in information or ideas available to actors, the implication being that the context is always bounded by these information constraints. New information will clearly change the strategy as well.19 Dynamic models of strategic intent are sophisticated in their attempt to call attention to the temporal evolution of international interactions, but nevertheless limited in their understanding as a result of two assumptions: change in the environment is almost always exogenous to the system, and actors always act strategically. While Lake and Powell start by making international interactions their unit of analysis, interactions are taken somewhat as given: most actors merely adapt – in the evolutionary sense of the survival of the fittest – to the environment provided to them.20 The environment specifies clear alternatives, and strategic choice is about the best course of action for survival. This model, for example, would explain why the developing world acquiesced to the TRIPS accord during the Uruguay Round and how the developing world acted to use Article 31 of this accord itself at the opening of the Doha Round to revisit their alternatives with another set of strategic intents. Iterative interaction here specifies different payoffs. However, what this model cannot help us understand in the intellectual property case is how the environment itself changed from a diffusion of power that characterized the “strategic structure,” to use Fearon’s words, to one that became a concentration of power. It was moves within the game, that of the Intellectual Property Committee and unilateral threats from the US, for instance, that transformed the environment. In turn, this constrained the alternatives available earlier to the developing world. Second, while Lake and Powell’s model 18

19 20

Lake and Powell 1999. More recently, McKeown 2004 argues for using Bayesian information techniques to model different probabilities of action from a shared context. Models of bounded rationality go back to Simon 1982, and Akerlof 1970. For explicit attention to these models in negotiations, see Odell 2000. Lake and Powell 1999. Kahler 1999 in this volume offers a concise enunciation of the underlying Darwinian context of the analogy of adaptation.


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might have some success in explaining the changing set of alternatives with respect to an underlying strategic interest, it does not explain the circumstances under which the interest itself changes. Thus, it is one thing to specify the alternatives available to actors as a result of their opposition to services liberalization. It is quite another to specify alternatives if the very nature of the game changes allowing them to now specify alternatives that are pro-liberalization. As noted in Chapter 3, the new set of alternatives and the changed interests were due to international interactions at the systemic and domestic levels. Instrumental and structural models are then powerful predictors of outcomes if interests and environments can be taken as given, even when they provide different combinations of the same interest or environment in iterative contexts, but not when they both change.21 The criticism of exogenously specified negotiation context and actor interests does not lead us directly to discursive practices or constructivist models, which will be analyzed momentarily. As noted in Chapters 1 and 2, there is also conceptual precedence within the liberal tradition for noting changing interests or contexts. Moravcsik’s formulation of changing interests provides a useful place to start but it is best prepared to deal with distributive outcomes while the epistemic possibilities are modeled as changes in interests of individual actors and not as collectively derived possibilities. That each developing country came to the negotiation table at the end of the Uruguay Round with an interest in liberalization does not explain how that new understanding was reached in the first place. Working backwards is not much help either: showing how collectively derived interests changed individual interests also does not show how collective interests were shaped. Let me now turn to two other liberal models that allow for changes in the underlying power configuration context. A recent volume begins by noting: “Faced with undesirable payoffs, some actors may attempt 21

Lake and Powell 1999 assert that their model accounts for trade, security, environment, and many other issues. If so, it misses important details. For example, it shows the many ways in which states respond to the security dilemma but does not show us how the security dilemma was produced in the first place, unless they think Hobbes’s perpetual state of war as a human condition was absolutely right. How then can we explain the perpetual peace of Iroquois nations (Crawford 1994)? To take another example, it is not enough to detail the alternatives available to actors as a result of global warming but to show how we produced global warming and the various understandings of this issue within which these alternatives are embedded. See Walsh 2004.

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to modify the bargaining game in which they find themselves.”22 This edited volume notes that the types of goods being negotiated, the institutional context of bargaining, and the individual situation of the actors make up the composition of the bargaining game. The volume’s “individual situation of actors” comes closest to my formulation of “power configuration” in taking into account capabilities derived from power position (the hierarchy of actors), domestic coalitions, and politicians’ beliefs or priorities. (The nature of the good being negotiated will be discussed later in this chapter.) Suffice it for now to say that this volume mostly concentrates on examining the changing institutional contexts and a related set of linkage negotiation tactics.23 This is consistent with my findings, even though there is more to changing contexts than just institutions and linkage tactics. As I show in Chapters 3 to 6 of this book, “the individual situation of actors,” to use Aggarwal’s words, is also subject to change. The recent literature on the increasing formation of preferential trade arrangements (PTAs) suggests another way in which power configurations are subject to change.24 Mansfield and Reinhardt show that PTAs provide states with bargaining leverage and attribute their rise to “participation and undesirable outcomes in GATT/WTO disputes.”25 While I do not explore the various ways in which the PTA and multilateral processes parallel each other, the conclusion that the two processes are parallel is consistent with my argument that states try to improve their BATNA by changing the underlying power configuration (the feedback loop of figure 1.2). In fact, my argument that negotiation processes are themselves important also may help to push the PTA-multilateral research further, in specifying not just the conditions under which PTAs come about but in further accounting for their effects. For example, the safe harbor case illustrates that whether or not the EU possessed bargaining leverage, the presence of the EU as a collective entity did decrease transaction costs for the US. The US did not need to negotiate with different data protection directorates in several countries. On the other hand, as is well known, reaching an agreement with the EU in agriculture during the Doha Round has been held up by the presence of a few protectionist states within the EU. All 22 24 25

Aggarwal 1998, p. 2. 23 See Stein 1999, in Aggarwal 1998. Marchetti and Roy 2008; Fisch 2001; Salazar-Xirinachs et al. 2001; Robert 2000. Mansfield and Reinhardt 2003, p. 854.


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this means is that we need to study the nitty-gritty processes of negotiations and not just mention them in passing. As I have noted elsewhere, “it is quite fashionable in the study of global politics to speak of diplomacy, bargaining, and negotiations without really bothering to explain conceptually and empirically what we mean by these terms.”26 The conceptual suggestion that power configurations can specify a point of entry for our analysis is predicated on two givens: the intersubjective understanding of the issue in question (or the good being negotiated), and the interest of the actors as a result of a given good need to be prespecified. To understand the origins and effects of these understandings, we need to detail the antecedent meta-power or the power of interactional contexts to change the self-understandings of the actors with respect to the issues and environment in question. As shown throughout this book, the negotiations processes can transform the intersubjective understandings informing the identity of actors and issues. Thus, meta-power works at both ends: it specifies actor understandings prior to the negotiation and, second, the understandings are amended as further interactions take place. However, alterations in interests are not the same as a change in a position or tactic.27 There are usually tipping points that can be identified with this change in interests. In the case of the safe harbor negotiations, the EU’s final understanding of the self-regulatory mechanisms in the US allowed it to reconcile its interest in human rights with the commercial interests. The concept of meta-power as used in this book speaks to transformations in intersubjective identities of actors and their interests in the context of the international system. International interactions, especially, as enhanced through communication technologies and expanding spaces for international negotiations, provide the sociology of these transformations in terms of actor identities and their interests. However, the transformative possibilities of these interactions must be distinguished from both the limited and expansive uses of the term “transformation” in speaking of the intersubjective conceptions of power. The possibility of transformation is limited in Steven Lukes’s three faces of power. His first two faces parallel the instrumental and structural conceptions as explained above. But, as noted in Chapter 1, 26 27

Singh 2007a. As Moravcsik 1997 correctly notes, and this book’s evidence confirms, changes in mere positions, strategies, and tactics during a negotiation should not be mistaken for changes in interests.

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the intersubjective dimension is mostly explained in terms of the production of a “false consciousness” that induces due obedience in the subjects that he explains. While his model of this obedience features considerable contestedness, the processes of negotiation that would feature the details of this contestedness, as well its scope, are lacking. In the end, those who resist do so in the margins; transformational possibilities are limited by definition. In an expansive sense, Buzan and Little note that while the interactional capacity of the system that should account for transformations in the modern world has increased, the transformational possibility might still be limited. They, however, agree with Ruggie that the potential for international transformation with information technology enhanced interaction capacity might be in the “economic sectors” where “its most likely effect would take the form of a serious assault on the territorial organization of politics and culture.”28 Again, the thick descriptions of these interactions, as presented in terms of negotiations in this book, are missing. Buzan himself seems to have moved forward to delineate the possibility of a world society of multiple actors as a fundamental transformation from the international society of the interstate system.29 Meta-power locates the transformation in the micro contexts in which actors’ identities and their interests are embedded. In Ruggie’s analysis the fundamental transformation from the medieval city-state system to the Westphalian sovereign state system could be noticed in the trade fairs outside city walls that harkened to new forms of commerce and the need for new forms of organizing authority that would grant the necessary property rights.30 International negotiations may be the trade fairs of the late Westphalian moment. They are not substitutes for international governance but suggestive of new forms of governance in overlapping spheres of authority and power configurations. The term meta speaks to the changing or constitutive sense of power and as such is hardly different from its dictionary meaning. 28 29 30

Buzan and Little 2000, p. 351. Underhill 2000, pp. 4–5 also emphasizes the role of political interactions in global social transformations. Buzan 2004. Ruggie 1993b, p. 155. He notes: “In no sense could the medieval trade fairs have become substitutes for the institutions of feudal rule. Yet the fairs contributed significantly to the demise of feudal authority relations.”


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Intellectually, the conceptualization of meta-power parallels widespread developments in social science that speak to the constitution of society and politics, as opposed to taking them as given as in the many rational choice viewpoints in neo-realist and liberal internationalist IR theories. Wendt’s description of these sociologically situated developments begs for a new conceptualization of power: “They share a cognitive, intersubjective conception of the process in which the identities and interests are endogenous to the interaction, rather than a rationalist behavioral one in which they are exogenous.”31 These intersubjective conceptions are not captured by a structural understandings of power, which is better suited for analyzing effects of these understandings rather than their constitution. Instrumental and structural conceptions arose through liberal and radical political economy. Meta-power calls attention to the constitutive and process side of power, rather than its effects. It usually precedes, but can also parallel, instrumental and structural variants.32 The services example drawn from this book can illustrate the changes in the identity of interests and actors that meta-power helps to capture. The reason developing countries dug in their heels about new issues at the beginning of the Uruguay Round can be traced back to two prior epistemic understandings. First, it reflected the collective efforts of the developing world to be taken seriously and to be included in the international negotiations and not merely forced to accept outcomes negotiated by the developed world. Second, this prior epistemic understanding to some extent meant that developing countries could only change things in the margins and “play by the rules.”33 Reluctance to negotiate or vocal militancy seemed to be the only alternatives to a world that presented the following possibility: take it or leave it. In this sense, the developing world’s representation in the United Nations that led to calls for a New International Economic 31 32

33

Wendt 1992, p. 394. In my first attempt at describing meta-power (Singh, 2002a), I argued that meta-power aptly describes the power-based aspects of the constructivist turn in politics, just as the instrumental and structural variants described the liberal and radical/Marxian ones. However, the argument cannot be pushed too far. Conservative theories (e.g., realism) use notions of structural power and Marx himself had an instrumental conception of technology inasmuch as he outlined its links with progress. That developing countries do not play by the rules is an oft-made incantation in Geneva.

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Order (NIEO) in 1974, or in UNESCO to the New World Information and Communication Order (NWICO), or in the very foundation of UNCTAD in 1964, were themselves antecedent to understanding the interest of the developing world prior to the Uruguay Round. The developing world wanted redistribution of the world’s resources through NIEO; instead, it got participation at institutions like GATT. It could now participate in decision-making processes rather than being presented with the “take it or leave it” fait accompli. Prior to the Uruguay Round, Winham notes that developing countries wanted to change the ideology of the way the game was played and, therefore, the developed world excluded them from GATT negotiations.34 Their very inclusion in the processes of the Uruguay Round must then mean that they had allowed for at least marginal changes in the way the game was to be played. They were now included in the game.35 The developing world’s inclusion in services negotiations resulted in something else: at the beginning of the services negotiations, the developing world stood unanimously opposed to services on the agenda. It opposed moves to view services as trade, which in itself would require a new cognitive and intersubjective understanding. But, as the Round began, it could now shape the evolution of the agenda and, as Chapter 3 shows, the interests of the developing world changed as well. It went from standing in the margins to effecting moves that resulted in a services agreement that it began to view as beneficial. One could even argue, a` la Katzenstein or Wendt, that its very identity changed: relegated to the low technological end of the “product cycle” earlier, the participation in services negotiations would show the developing world that it had vast reserves of high-tech services potential.36 34 35 36

Winham 1986. In a different context, Strange 1988 calls this “being there” or “virtual power,” or the ability to shape outcomes by being included. See Singh 2005a on how Costa Rica changed from seeing its interests in agricultural products to becoming a services economy. COMEX, the international trade ministry, and CINDE, the trade promotion authority, regularly note that participation in international trade talks effectively taught them to become confident of Cost Rica’s future in that regard. Also, see Breckenridge 2005. Tiny Costa Rica’s efforts are matched by many other success stories of services from the developing world. See Cheen 2005 for Malaysia; Stoler 2005 for Mauritius; Sam and Thu 2005 for Vietnam. In other words, services potential is not limited to large economies alone. At the


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The fact that epistemic understandings are usually antecedent to a course of action or can be identified with tipping points is important for empirical verification, especially in distinguishing the epistemic understanding of a course of action from instrumental and structural power. Barnett and Duvall’s concept of “productive power” is similar to that of meta-power developed here in that they locate it in “the constitution of all social subjects with various social powers through systems of knowledge and discursive practices of broad and general social scope.”37 Here productive power coexists and works alongside instrumental and structural variants.38 This co-constitution is hard to verify and limited in application. As Barnett and Duvall themselves note, most instances of new epistemes lie in acts of resistance.39 In one of the essays in the Barnett and Duvall volume, Shaffer’s analysis of the WTO shows how the interpretation of WTO institutional rules excludes discursive or interpretative agency. However, his analysis, while touching on the epistemic possibilities, favors the structuralinstitutional equation by specifying the constraints over possibilities. I am making a wider claim for the working of meta-power: epistemic change does not come from the margins of resistance; it comes from the diffusion of power. This book thus distinguishes between business-as-usual variants of power versus a different meta-power business altogether. When a theorist like Fearon notes that the expectation of better payoffs makes actors stubborn in the short run, he is only prefacing instrumental power.40 But instrumental, structural, and meta-power all count. Actors will dig in their heels, resist, walk, or run in instrumental or structural variants; only the meta-power variant can inform us about

37 38

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sub-national level, many cities such from Bangalore to Bogota are realizing their services potential (Friedman 2005, Singh 2008b). Barnett and Duvall 2005, p. 20. Barnett and Duvall 2005 provide not one but three instrumental variations: they are instrumental in either facilitating or constraining a particular course of action. These are: (i) compulsory power, or the way that A can make B do what it otherwise would not do (privileged by realists); (ii) institutional power, or the power of institutions to facilitate or constrain certain courses of action (privileged by liberal institutionalists); (iii) structural power, that defines who the actors are and what they can or cannot do. My conceptualization of power is simpler in identifying the courses of action: instrumentality versus new epistemic possibilities (meta-power). Barnett and Duvall 2005, pp. 22–3. 40 Fearon 1998.

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the possibilities of transformation in which the meaning of the activity and the actor performing it can be transformed. The meta-power context is understood through interactive negotiations of actors that lead to new epistemic understandings. The technological roots of these understandings provide a related point. Information technologies discussed in this volume are networked technologies. Networks enhance, deepen, and extrapolate international interactions. Held et al. note that whereas various forms of globalization have existed before, the current one is unique in the extensity or size of networks, intensity of flows on these networks, the velocity or speed of interactions, and the global impact of international transactions.41 They single out information technologies as a key variable enhancing all four dimensions of networks. So do a host of other writers: Rosenau’s People Count!; Castells’s three-volume The Information Age: Economy, Society and Culture; Keck and Sikkink’s Activists Beyond Borders; or Buzan and Little’s International Systems in World History.42 The technological basis of meta-power is undeniable. Nevertheless, technology is merely one of the bases of meta-power. Information technologies enhance the interconnectedness of people as well as the meanings and representations that flow across them.43 So does the mere act of human speech and it can be taken as another basis of meta-power. Meta-power in its boldest sense is about various forms of communication and the possibility of “discursive consciousness,” as noted by Giddens, or “consciousness awakening,” as noted by Freire.44 Only through discursive consciousness can we describe the constitutive processes of social phenomena: “‘Consciousness’ in this sense presumes being able to give a coherent account of one’s activities and the reasons for them.”45 Freire goes a step further by situating “consciousness awakening” in dialogic practices through which subjects come to know one another and themselves: “In this theory of action one cannot speak 41 42 43

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Held et al. 1999. Rosenau 2008; Castells 1996, 1997, 1998; Keck and Sikkink 1998; Buzan and Little 2000. Vattimo’s 1993, p. 214, notes on technology and post-modernity are instructive: “[W]hat concerns us in the postmodern age is a transformation of (the notion of) Being as such – and technology, properly conceived, is the key to that transformation.” Giddens 1984, pp. 41–5. 45 Giddens 1984, p. 45.


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of an actor, nor simply of actors, but rather of actors in communication.”46 Taken together, technology and negotiations thereof facilitate the rise of meta-power in human interactions, but especially in those informed by information networks, as actors in communication.

Global governance Power specifies interests and capabilities, and their instrumental and transformational contexts. Governance resolves interests and capabilities. Governance can be informal or formal but must, at some level, deliver on effective resolution of interests to be legitimate. In Rosenau’s words, governance is “a system of rule that is as dependent on intersubjective meanings as on formally sanctioned constitutions and charters.”47 International negotiations can be regarded as forms of global governance, in providing both the spaces and the processes for the resolution of interests. Wilkinson’s idea of “networks of governance” is similar.48 Much too often, we focus on outcomes of negotiations to test for the effectiveness of international governance; this is appropriate, but such effectiveness also needs to take account of the process that leads to the outcomes. Both the input or the negotiation process and the output or negotiation outcomes are important. A similar attention to process is apparent in Keohane’s summation of governance in the context of globalization: “Effective governance is not inevitable. If it occurs, it is more likely to take place through interstate cooperation and transnational networks than through a world state.”49 Andrew Hurrell arrives at a similar conclusion, albeit with an emphasis on diplomacy and negotiations: “Faced with the unavoidable task of negotiating a form of global order that goes beyond pluralism, international society continues to provide the essential political framework through which conflicts of power and values have to be mediated . . . ”50 46 47 49

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Freire 2000, p. 129. For an exposition of Freire as a key information age thinker, see Singh 2008a. Rosenau and Czempiel 1992, p. 4. 48 Wilkinson 2005, p. 5. Keohane 2001, p. 1. Keohane’s governance institutions include “focal points in coordination games” (p. 3) building on Fearon (1998, p. 298), who noted that “regimes deserve greater attention as forums for bargaining rather than primarily as institutions.” Hurrell 2006, p. 192.

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This section evaluates negotiation processes in terms of governance, in particular calling attention to the legitimacy of current governance practices. It thus works backwards: instead of speaking of the effects of governance, it works down from it to see what negotiations processes best account for particular types of governance.

Cooperation versus coercion It is useful to start with the nature of disputes, the objects of governance analyzed in this book, to highlight the processes of cooperation and coercion that were most effective in resolution and also in the implementation of the outcomes.51 I argue here that international cases involving coordination might be easier to resolve and enforce than those involving collaboration.52 Of the eight cases in this book, six presented coordination problems allowing for market access. These were: liberalization for services and telecommunications; pricing for both telecommunications and Internet; Internet governance; and data privacy. While cultural industry negotiations were about market access during the Uruguay Round, and therefore involved coordination, they became under UNESCO a collaborative exercise in changing the principles and norms in which cultural industry negotiations were embedded from liberalizations to protection. In the case of intellectual property, it was always an international public good and, therefore, involved collaboration. Of the six coordination cases, four of them – services, telecommunications, and the two electronic commerce cases – featured cooperative agreements. In all four of these cases, varying degrees of interest alteration took place. The two other cases of coordination dealing with pricing are somewhat hard to analyze. The US undertook unilateral action in the case of pricing. However, this action was market based and, therefore, consistent with the underlying principles and norms of the liberalization regime in place. The sustenance of the pricing rules is not in doubt either; calls to renegotiate the rules and decisionmaking procedures have not surfaced again, at least at the level where 51 52

Fearon 1998 notes that international cooperation entails both negotiations and enforcement. In game theory, coordination games are about distributive or integrative gains (the game of chicken, battle of the sexes) while collaboration games are about controlling for defection (prisoner’s dilemma).


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any effective negotiations took place. Most countries have now moved toward cost-based pricing, either voluntarily or in combination with the “international coercion” from the US’ unilateral action. The only pure collaboration case in this book, TRIPS, was definitely made possible through coercion or threat of unilateral sanctions. It is arguable whether the US and the Intellectual Property Committee would have gotten to TRIPS if they had not changed the underlying power configuration from diffusion to concentration. To avoid defection from TRIPS, a concentration of power making credible threats viable was necessary. There was no automatic buy-in from the developing world for the two underlying norms of the regime: that taking intellectual property meant theft, or that TRIPS was necessary for ensuring intra-firm research and development and economic growth.53 On the principle of theft, developing countries could point at MNCs taking what they wanted to from global commons, which these countries argued were a form of collectively held property rights. In fact, the TRIPS issues at the July 2008 WTO mini-ministerial in Geneva, to jump-start the Doha Round, included developing rules for patented products to reveal biological resources and traditional knowledge, and to link certain products, much as Darjeeling tea, with their geographic origins. Cases continue to arise over MNCs seeking patents on commodities such varieties of Basmati rice or music firms recording folk songs and selling them in world markets. On the economic principle, even some economists remain divided on whether or not stringent intellectual property rights are necessary for economic growth.54 Finally, as opposed to telecommunications or Internet pricing, the implementation of TRIPS presents a varied picture. Additional pressures needed to be applied to make countries enact domestic legislation 53

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Pharmaceutical firms, for example, wanted pipeline protection for their R&D efforts (i.e., other firms could not replicate their formulas during and after the R&D process for a given number of years; see Chapter 3). On the collective goods rationale, see Braithwaite and Drahos 2000; on the economic rationale economists favor technological learning and convergence in general. When it comes to TRIPS, in particular, economists debate the level and scope of intellectual property protections. Some argue against patenting the mathematical formulas underlying computer software. A few people at the World Bank have argued that although globalization is good for the poor, TRIPS can lead to more poverty than economic growth (Dollar and Kraay 2002). Bhagwati has argued that TRIPS is not a trade issue and that it appeared on the GATT/WTO agenda only due to pressures from firms making the WTO into a “glorified collection agency” (Bhagwati 2005).

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to comply with TRIPS provisions. More importantly, renegotiations over TRIPS held up the start of the Doha Round until para. 6 of the Ministerial Declaration could be negotiated to enable deviation from TRIPS in the case of health emergencies.55 The cultural industry case is unique in this volume in featuring both coordination and collaboration processes. While the liberalization negotiations during the Uruguay Round over audio-visual issues featured a coordination game, the ones in UNESCO were about collaboration. However, in the collaboration game at UNESCO, it is not clear if all the countries voluntarily agreed or revealed their true interests. There is increasing evidence that Canada and France strictly controlled the agenda and process of negotiations (see Chapter 4). Many of the major cultural industry producers who signed on to the Convention at UNESCO also joined the US at the WTO to protest a priori exclusion for such an important sector.56 Others who signed on have vigorously championed cultural industry exports and market alliances with the US. These include Univision’s Telenovela sales to the US networks, Johannesburg’s collaboration with Hollywood, and global music industry’s networks in places such as Bamako, Mali, and Dakar, Senegal.57 Kuran would interpret the bandwagoning coalitional moves within UNESCO to be “preference falsification” or “the act of misrepresenting one’s genuine wants under perceived social pressures.”58 Based on this analysis, the following conclusions may be advanced. First, most trade negotiation games are coordination games. This conclusion is consistent with IR scholarship, which doubts that the prisoner’s dilemma-like situation of collaborative games is the modal form of international interaction.59 Slaughter’s thesis that most networked international interactions result in mutual recognition arrangements is similar because these recognitions in effect entail coordination.60 Second, coordination games are more likely to result in cooperation, interest alteration, and voluntary implementation than collaboration games, which are more likely to feature coercion during negotiations of rules as well as their implementation.61 Third, a few countries may 55 59 60 61

WTO 2001b. 56 WTO 2005. 57 Singh 2007b. 58 Kuran 1995, p. 3. Keohane 2001; Fearon 1998; Krasner 1991. Slaughter 2004. Rivoli 2005 offers an interesting story on the manufacture of a T-shirt that in actuality is a political economy of global coordination. However, as shown later, concentration of power does not equal collaboration but it helps actors ensure compliance when it is not voluntarily forthcoming.


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change the nature of the dispute in question from a coordination good to a collaboration one by trying to alter the principles and norms of the regime itself. This was the case in cultural industries, but also the unsuccessful negotiations on Internet governance under the World Summit on the Information Society (WSIS). Taken together, the three conclusions indicate that coordination outcomes are more legitimate, in Max Weber’s sense of due obedience, than collaboration ones.62 A differentiation of negotiation processes in these two types of games is detailed next.

Negotiations as global governance The normative lesson of this book in terms of governance is that negotiations, especially multilateral ones, ward against the emergence of authoritarian governance practices. They do so by reconciling individual interests in interactive social spaces.63 This point is important for conceptual and methodological reasons.

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Similarly, diffusion of power does not equal coordination either. My evidence also suggests that at the level of principles and norms, most regimes feature collaborative aspects under all kinds of power configurations. Thus, negotiating market access rules is about coordination. There is, however, the collaborative context of the Open Source movement, posited by many theorists as both legitimate and feasible. The Open Source movement features collaborative activities of software programmers to design software in the public domain rather than proprietary software like that of Microsoft. It works much like the Internet-based Wiki Encyclopedia in that anyone with knowledge of programming can add to the software codes. Weber 2004 hails it as a new model of property rights in the global commons. Benkler 2006 goes one step further in positing it as the only model that is legitimate for property rights. It is too early to judge the efficacy of Open Source in resolving the prisoner’s dilemma, but the fact that it does take advanced technical skills to contribute limits its generalizability. On the other hand, the fact that the Open Source movement keeps growing also enhances its legitimacy. Inasmuch as Open Source is about changing the principles and norms of property rights, it is also consistent with my argument that all regimes at these levels are collaborative exercises. In fact, Weber himself (2004, p. 225) notes that the process of innovation, mechanisms of norms and governance development, and checks on free riding means that the Open Source model is generalizable. I distinguish interactive social spaces from belligerent ones underlying war or closed ones underlying unilateral action or threats. Crescenzi 2005, for example, seems to conflate issuing of threats in a negotiation and going to war as conflicts. Such thinking is common among theorists who posit diplomacy as strategic posturing alone.

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Conceptually, while interests may be individually determined, the context from which they are derived or the spaces in which they are reconciled, adjusted, or altered are collective entities. Hirschman notes that “goods that seem to be wholly private actually have important collective dimensions.”64 Building on Georg Simmel’s ideas on the sociology of a meal, he notes that the meal serves “as a bridge between the private and public functions of food and drink.” Meal time (translated from the German word Mahlzeit) then connotes the regular practice of “commensality” that “includes friends and family, but excludes irreconcilable enemies.”65 Hirschman is seeking to cojoin the individual and social spheres through the working of commensality. He traces the origins of Athenian democracy to the positive externalities generated by banquets or the partaking of these common meals. International negotiations offer these spaces of commensality offering bridges between the private calculations of interest and the social contexts from which they are derived and which, in turn, are shaped by these interests. Thus, empirically, negotiations are the banquet mealtimes showcasing the alteration, resolution, expression, and at times, the creation of private and social wants.66 Methodologically, negotiation spaces cannot be broken down into individual preferences alone; a banquet is more than the sum of the total number of meals consumed. In trying to resolve the dilemma between methodological individualism, as critiqued in Chapter 1 with respect to Moravcsik, versus seeing all entities as social facts that cannot be reduced to individual wants, what I am suggesting here, a` la Hirschman, is to find focal points where the individual and collective meanings may be understood.67 International negotiations are the focal points between individual interests and collective entities. This also goes back to the familiar notion of embeddedness of social action. Ruggie’s classic article on embedded liberalism is often cited in this regard.68 More recently, building on Granovetter’s ideas regarding social embeddedness, Ingram, Robinson, and Busch have argued that intergovernmental organization “governance depends on 64 66 67 68

Hirschman 2001, p. 17. 65 Hirschman 2001, pp. 18–19. Writing in the context of critical theory, Hardt and Negri 2004 reach a similar conclusion in their analysis of the “multitude.” Buzan, Jones, and Little 1993 have a similar understanding in noting that the state system is more than a sum of its parts. Ruggie 1982. See Chapter 1 for related discussion.


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connections created by joint membership.”69 They show that the performance of international organizations lies in the connections formed among its members; as these connections deepen, so does organizational performance. Media reports and human intuition favor what academics often seem to reject: negotiations are not merely strategic interactions, they are embedded or contextualized interactions that are important not just for their outcomes but also in enhancing the very embeddedness or context in which they are carried out.70 In terms of outcomes, positing them as strategic often leads us to think of only distributive gains and interest maximization. But negotiations offer all kinds of externalities and also, as this book shows, mutual gains. In terms of the importance of embeddedness, breakdown in international negotiations of any sort is often decried in the media. The reluctance of the current Bush administration to negotiate altogether in matters of security and environment, in particular, and opt for unilateral action is an example. If negotiations were merely strategic interactions resulting purely in distributive gains, these concerns would not be raised. Negotiations are not merely war by other means; they also enhance the possibilities of peace and means of democratic international governance. What then are the prospects for democratic international governance through negotiations? In summarizing the “ideal vision” of a global democracy, Keohane includes accountability, participation, and persuasion.71 These criteria are also underscored by a host of other scholars.72 As terms go, “participation” and “persuasion” seem easy to understand. Keohane’s use of “accountability” calls attention to the way authority is delegated from societal to international levels; types of international rules; and the way markets pose constraints for consumers and investors. Thus, while the negotiation processes listed in this book are now assayed against Keohane’s three criteria, Keohane himself is careful to note that his criteria synthesize a wealth 69 70

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Ingram, Robinson, and Busch 2005, p. 828; see also Granovetter 1985. In a similar vein, Spector 2003, p. 55, notes that negotiations are not just about “getting to yes” but also about “getting it done” and thus negotiations are important for regime maintenance and implementation. Keohane 2001. See Wilkinson 2005; Wilkinson and Hughes 2002; Rosenau 2003; Held 1995; Rosenau and Czempiel 1992.

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of conceptualizations and findings on democratic governance.73 They also speak to the conditions for democracy, outlined by Sen, in the habits of “public reasoning” in Western liberal thinking from Mill to Habermas or the “tradition of public discussions” in places like India and China.74 Accountability Coalitions, or the representation of political cleavages, is the appropriate place to begin a discussion of the connections between negotiations and democracy. If negotiations provide for accountability, then we must account for the ways in which they resolve the tensions posed by political cleavages. Two types of accountability in the context of negotiations are visible in the “chains of delegation” that Keohane refers to in the context of accountability. First is the chain that links domestic politics with international ones. Here the idea of two-level games can be used for substantiation, but is ultimately limited, as argued below, in its applicability. Domestic coalitions may limit or expand the alternatives that a negotiator can bring home. If there are two or more domestic coalitions such that no one coalition can command the majority of the population, the “win-set” of alternatives is larger.75 However, as shown in this book, two-level games nonetheless take alternatives and interests as constant. In dynamic contexts, because of the way negotiations themselves alter power configurations, alternatives – and, as a result, win-sets – change as well. These changes may make accountability and, therefore, governance, more flexible, if not easier. A caveat is also necessary in speaking of interest representation at this level: too often it is assumed that a position a negotiator takes internationally reveals one way or the other that there are domestic coalitions or groups that support this negotiator’s position. This does not inform us about the intensity of the support or the ways it was articulated. Interest representation works best when there is a formal 73 75

Keohane 2001. 74 Sen 2005, p. 182. The idea of two-level games and win-sets comes from Putnam 1988. For substantiation of this approach, see Evans et al. 1993. Domestic coalitions reflect economic conditions, the scarce factor finding more of an incentive to coalesce than the abundant one in that scarce factors will coalesce to ask for protections. This is the famous application of the Samuelson-Stolper model to formation of political cleavages (Rogowski 1987, 1989).


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process of interest representation in trade policy-making. Democratic governments are perhaps best suited for such interest aggregation and summation and also making trade-offs. In fact, domestic consultations themselves might even allow for some national-level tradeoffs to be made even before the issue reaches international negotiations.76 At a broader level, recent research suggests that the presence of democratic institutions at home allows for effective participation in international organizations, especially in allowing for liberalization of markets.77 The second way in which we see chains of delegation is in coalitionbuilding at international levels. While domestic coalitions are part of the negotiation context for any state’s interests, coalition-building among states or non-state actors at the international level is the next step toward representing those interests at international levels. Buzan, Little, and Jones describe global politics as “[c]obwebs rather than billiard balls” and the metaphor is equally apt in describing the ways coalitions of state and non-state actors interact in international negotiation spaces.78 Coalition-building is mentioned in the context of accountability and democratic governance. This implies not just that international coalitions exist as forms of interest representation, but that negotiations are helpful in resolving underlying conflicts. For the sake of simplifying the dynamics of international coalition-building, four insights may be drawn from the cases discussed in this book. First, when there are monolithic domestic coalitions commanding majorities in negotiating states, the presence of an international non-state coalition that cuts across countries may help to resolve the issue. Transnational business coalitions performed this function in the case of ICANN during the WSIS negotiations, thus preserving the status quo for domain name 76

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There is still very little known empirically about trade-policy consultations and interest representation in most developing countries. Gallagher et al. 2005 tries to correct this. Priyadarshi 2005 in this volume shows how the Indian pro-agriculture liberalization strategy changed as the commerce ministry consulted with the agricultural ministry. Stoler’s 2005 essay on Mauritius shows how its tourism industry settled on a high-end tourism strategy. Mansfield and Pevehouse 2006; Milner and Kubota 2005. Buzan, Jones, and Little 1993, p. 2. In the economic sphere, but outside of the state context, this comes close to the notion of “private international regimes” which are “created by negotiation and interaction among firms within a particular industry” (Cutler, Haufler and Porter 1999, p. 14).

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registration. During safe harbor negotiations, the transatlantic business groups pressured the EU toward agreeing to the US proposal. In both cases, but for the transnational coalitions, the “domestic” coalitions in these countries were juxtaposed against each other. The second insight, related to the first, is that if there are two hardline coalitions, a moderate coalition can help to break deadlocks, as was seen in the Café au lait coalition in the services negotiations. But here further research is necessary. Why, for example, did a moderate coalition arise in services between hard-line coalitions but not in other cases discussed in this book? The third lesson is that coalitions are context specific. While it may make sense to speak of North-South coalitions in one case, in another issue the divisions may feature Northern and Southern actors on each side. This is important for democratic global governance. Issue-specific disputes may be easier to resolve than those positing vast ideological divides.79 Fourth, while the role and influence of firms has grown, in the international sphere we must still turn to negotiations such as the ones analyzed in this book to determine the importance of these influences. In the example mentioned above, trans-Atlantic business groups coexist and work with international organizations and state actors and not outside of them. Similarly, in a recent study on the ascendance of private authority in the global political economy, Cutler, Haufler, and Porter note both the intersection with other actors and the role of negotiations: “Private firms and industry associations displayed an unprecedented prominence in the Uruguay Round of trade negotiations, the conclusion of the North American Free Trade Agreement, and negotiations over a variety of issues in the European Union.”80 Keohane’s other points regarding accountability are equally apt in terms of negotiated governance. First, he notes that governance, aided by communication technologies, “can begin to generate a public space in which some people communicate with one another about public policy without regard to distance.”81 The discussion regarding negotiations as points of commensality speak to this public space. Negotiations are communication processes and while this is not the 79 80

See Singh 2006b, where I spell out this rationale in detail. Cutler, Haufler, and Porter 1999, p. 16. 81 Keohane 2001, p. 9.


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case everywhere, the cases discussed in this book are doubly so because they are also about communication technologies.82 Second, Keohane notes that markets can produce accountability by imposing additional constraints. The resolution of the opposed coalitions in the two pricing negotiations discussed in Chapter 5 through market means can be understood in this regard even though this claim would be controversial to those opposed to liberalization. Participation Meaningful participation in democratic global governance will be among the like-minded, notes Keohane.83 He quotes Appadurai’s concept of “diasporic public spheres”84 but notes that these public spheres must have sufficient autonomy and authority if they are to be meaningful. In short, he is referring to the wiggle-room offered by negotiation processes. If interests were set in stone and negotiators could not uncover new alternatives, which in some cases alter interests, the processes of negotiations as public spheres of activity would be neither meaningful nor authoritative. Diffusion of power provides for ample wiggle-room for negotiation tactics to make the processes participatory.85 To name a few, agenda-setting can allow for issue-representation; informational and technocratic tactics can suggest possibilities unavailable earlier; issuelinkage and trade-offs can allow for difficult concessions to be made; coalitions can tie the hands of negotiators but equally important, especially in the case of multiple coalitions, they can provide autonomy to negotiators. The case of inclusion may be particularly important. Multilateral negotiations often face a problem in trying to reconcile the conflicting interests of several groups. Expectation of a better payoff in the future allows groups to drag their feet or other states to seek preferential trade agreements that are easier to effect.86 Nevertheless, not only are joint gains possible from including all actors in negotiations – such as those at the WTO – but also the inclusion itself increases the 82 83 86

As noted in Chapter 1, negotiations involving information or communication technologies provide a good test for our theory of negotiated interests. Keohane 2001. 84 Appadurai 1996, p. 22. 85 Singh 2005c. Fearon 1998; Mansfield and Reinhardt 2003; Marchetti and Roy 2008.

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embeddedness of the context of negotiation.87 A lifelong participant in the GATT/WTO processes, Ambassador Julio LaCarte of Uruguay observes that the Uruguay Round was a “turning point for developing countries. They began to show their weight – not a decisive weight but a considerable weight.”88 Nevertheless, critics of the WTO often point to the processes that leave the weaker players out. Examples include the closed “Green Room” meetings, the elite club of US-EU negotiations, and the inability of a few small countries to send delegations to Geneva.89 But the cases in this book show that when included, as in services and telecommunications, developing countries can play an effective role. Developing countries played a sophisticated role in problem solving and making technocratic proposals for services and telecommunications. The oft-made claim that developing country negotiators are generally ill prepared to participate effectively does not carry empirical water.90 Tiny Belize, with a population of 200,000, offered a sophisticated schedule for liberalizing its telecommunications sector as part of its GATS commitments.91 Uruguay and Colombia used their participation in regional trade groups, Mercosur and the Andean Pact respectively, to better their bargaining positions in the Uruguay Round and the Doha Round.92 87

88 89 90

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At face value, large groups will have problems with collective action but remember that the type of collective action in trade involves coordination, which is easier than collaboration. Second, this collective action itself is embedded in collective intersubjective understandings regarding the role of negotiations. Interview, Montevideo, September 2007. Jawara and Kwa 2003; Steinberg 2002. Progressive groups as well as their critics make this claim. But, contrary evidence is easy to find. Drahos 1995 and Sell 2003 argue that developing countries were ill prepared as the IP negotiations proceeded. This may have been the case when the IP negotiations started. However, by the time of the Montreal Ministerial in 1989, countries like Brazil and India sent negotiators well-versed in the international laws of intellectual property. In fact, it is capacity like this that allows select developing countries to play a key role in negotiations. Drahos 2003, p. 93 encourages this leadership role that bestows them with monitoring and analytical capacity for other developing countries. He accords this capacity to larger states but small states can play this role, too. Costa Rica’s early success in dispute settlement on an underwear case against the United States, which started in December 1995, made it a key moral force for other developing countries seeking to do the same (Breckenridge 2005). Singh 2005a. 92 Singh 2008b.


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Appadurai’s notion of “diasporic public spheres” quoted by Keohane is even more meaningful when examined in the context of “global imaginaries” as comprising “communities of sentiment” that cut across territoriality, both objectively in terms of physical space and subjectively in terms of experiencing the world.93 For Appadurai, “imagination has become a collective, social fact.”94 And participation in a “locality is primarily relational and contextual rather than scalar and spatial.”95 Participation at an intersubjective level of global ecumenes is important in the context of this book as global actors perform in localities not entirely defined by states: the spaces of international negotiation and the role of non-state actors then are “diasporic public spheres” also in the way the world is constructed and experienced intersubjectively. I can imagine my identity simultaneously as Indian and international without leaving the neighborhood of Du Pont Circle in Washington, DC. This diminishes neither the importance of the various monuments of power in Washington, DC, nor those of other states, which in Appadurai’s words are “creating various kinds of international spectacle to domesticate difference.”96 The cultural industry negotiations analyzed in this book are an example. Nevertheless, participation in international negotiations and diplomacy must then also include autonomy and authority of public imagination and spheres in both intersubjective and extraterritorial ways. Democratic participation in sociological and anthropological contexts speaks to the concept of commensality outlined above. Both the locality and participation in the partaking of the common meal of international negotiations must be understood in what Castells calls the “space of flows” in international networks along with “space-ofplaces.” British sociologist John Urry similarly points out that “globalization involves replacing the metaphor of society as region with the metaphor of the global conceived as network and as fluid . . . the global presupposes the metaphors of network and flow rather than that of region.”97 93 95 97

Appadurai 1996, p. 10. 94 Appadurai 1996, p. 5. Appadurai 1996, p. 178. 96 Appadurai 1996, p. 39. Quoted in Outhwaite 2006, p. 48, from Urry 2000.

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Persuasion Persuasion for Keohane is free of threats or coercion and based on voluntary cooperation. Keohane notes that persuasion provides the “strongest guarantee of a legitimate process.”98 Keohane goes further in noting that persuasion changes “people’s alternatives independently of their calculations about the strategies of other players” (emphasis in original).99 I agree with the tenor of Keohane’s argument, rooted in liberal theory, but disagree with his notion that bargaining does not allow for persuasion. It is this fallacy that makes him posit persuasion as an ideal type, just as for Risse or Farrell communicative action cannot take place in the diplomatic realm.100 Academics need to indulge in a bit of communicative action themselves – with negotiators. For negotiators, negotiation spaces are neither nondeliberative (in Risse’s sense) nor devoid of persuasion (as in Keohane). Consider the following from former US Trade Representative Robert Zoellick in arguing for resolution to the stalled Doha Round trade talks in late 2006:101 Can the Doha Round be saved? Possibly. To do so, the ministers of key countries need to change their negotiating approach. They need to shift from obstinate posturing to working together as strategic problem-solvers. Helped by Pascal Lamy, the able director-general of the World Trade Organization. Instead of holding back, negotiating with 149 parties across multiple topics requires sharing information, testing creative combinations and assisting one another. The common goal is to open markets and cut subsidies, stretching but not overreaching domestic political support.

It is hard to dismiss this article as posturing. Zoellick is speaking from his own experience as a negotiator. It is not ideologically driven either as the Republican Zoellick praises his former EU adversary Pascal Lamy who rose through the ranks of the Socialist Party in France. Furthermore, instances of genuine persuasion in international negotiations either in this book or outside of it are not hard to find. This book questioned Farrell’s rationale that the safe harbor solution lay 98 99 100

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Keohane 2001, p. 10. The idea can be traced back to Hurd 1999, who equates persuasion with legitimacy. Keohane 2001, p. 10. Risse 2000; Farrrell 2003. See Chapter 1 for my critique of this position. Drezner 2003 distinguishes persuasion from coercion and contracts but allows for the possibility of bargaining in persuasion. Zoellick 2006.


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outside of the diplomatic realm. Recently Arne Niemann has written on the deliberative processes in the Article 113 Committee that met to prepare the telecommunications liberalization schedule for the EU. He notes that the process was full of genuine problem solving in allowing for tailored provisions that applied differentially to member states.102 Negotiations are often analyzed as strategic interactions that lead to distributive zero-sum gains. The normative lesson (in the prescriptive sense) of this book is that negotiations are also deliberative and lead to mutual gains. Especially in cases approximating diffusion of power, negotiators have a choice: they can posture and be strategic about a given interest, or they can deliberate and uncover new alternatives. International negotiation theory has long argued for specifying problem-solving as distinct from the strategic posturing of actors outlined in game theory.103 The normative conclusion of this book rests on its theoretical orientation and empirical evidence. There is not enough evidence at present, either in this book or otherwise, to ascertain whether the sum total of all power configurations in the various issue-areas is diffused or concentrated. But, as noted at the beginning of Chapter 2, there are overlapping power configurations in the global political economy. The necessary and sufficient conditions posited in this book suggest important possibilities. In terms of the necessary condition, power configurations within issues are dynamic and can change. That they can change means that the kinds of understandings reflected in traditional IR scholarship in which global power structures are taken as given, and sometimes constant across all issue-areas, is incorrect. In terms of sufficient conditions, especially as made clear in this chapter, negotiations must be understood as global governance, reflecting as well as enhancing particular intersubjective understandings. The dynamic connection between negotiations and the protean context in which they are embedded has long been understood – and frequently forgotten. In 1716, François de Callières had a similar 102

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Niemann 2006. Hackley, Waters, and Woodside 2006 note that problem solving and collaboration can come from creating “communities of learning” and “common cultures” in negotiation. Du Pont, Beverelli, and Pezard 2006 cite evidence that learning does take place in multilateral negotiations and that trust plays a role. Hopmann 1996, ch. 6.

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notion in mind (see Chapter 1). Lord Butler’s Introduction to Harold Nicholson’s classic work Diplomacy emphasizes the latter’s main point that “the Italian system, instead of basing diplomacy on power, bases power on diplomacy.”104 Notes Nicholson himself: the Italian city states stood outside the main feudal system; they were connected by countless common interests as well as sundered by ferocious rivalries; they were constantly engaged in a competition for power and preoccupied by those combinations and alliances which might render that power predominant. It was thus in Italy during the thirteenth and fourteenth centuries that the diplomatist-statesman arose.105

Quite obviously, multilateralism has been around for a long time, and could even be traced back to the security rivalries or alliances featured in Thucydides’ The Peloponnesian War. What changes is the form of multilateralism, the collective meaning institutionalized among various actors. Ruggie highlights this difference as between nominal and qualitative multilateralism; the latter includes the collective understanding among actors regarding “the principles of ordering.”106 This book argues for diplomacy and negotiations as principles of global governance to situate contemporary multilateralism. Diplomacy understood as a possible instrument for democratic global governance ultimately finds its legitimacy in communication rather than coercion. Delanty summarizes Anthony Giddens’s normative stance in a similar way: “Violence must be tamed not by the state but by communication. In this context the concepts of negotiated power and dialogue move to the centre stage.”107 It was, therefore, important to begin this book, in the Preface, by citing Paulo Freire, whose normative humanistic stance is similarly informed by communication and dialogic action: “I engage in dialogue because I recognize the social and not merely the individualistic character of the process of knowing.”108 Dialogue as communication – as diplomacy – is then not merely an instrument or a method but a way of knowing and constructing the society in which we live. The presence of an international society has of course not deterred dictators or democrats from pursuing actions with little regard to the 104 106 108

Nicholson 1969/1939, p. viii. 105 Nicholson 1969/1939, pp. 12–13. Ruggie 1993b, p. 6. 107 Delanty 1999, p. 168. Quoted by Macedo 2000, p. 17, from Freire and Macedo 1995.


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society in which they were embedded. To Bull, only the cosmopolitan elite cares about the international society and thus the deepening of this society may well take a long time.109 The problem for Bull, and for others grasping the sociological implications of the international system, lies at the cultural level. He writes that “this common intellectual culture exists only at the elite level; its roots are shallow in many societies, and the common diplomatic culture that does exist today is not powerfully reinforced by an international political culture favorable to the workings of the states system.”110 Wendt reaches a similar conclusion: anarchy unfolds in various types of intersubjective understandings, specifying competing notions of culture or structure, but then he notes that “structural change is difficult” and “relatively stable through time.”111 But Wendt holds out hope. The world of realism is embedded in a particular cultural understanding of the world, concerning appropriate actions of state behavior, which unless questioned serve to reify that understanding. Wendt calls for a “reflexive idealism” to understand the other ontologies available to us, reflexive in that it problematizes prior understandings and idealistic in imagining other understandings. Andrew Hurrell posits his position between the old and the new understandings of international society to reach a conclusion parallel to the one in this book on the use and consequences of diplomacy. To him, diplomacy derived its necessity in international society through the use of communication and shared understandings and negotiations to resolve conflicts. However, in the context of global governance, diplomacy may be too intrusive a way to resolve complex problems that demand fundamental changes in societies at the domestic level, therefore losing its legitimacy. Like Paulo Freire and Amartya Sen quoted above, Hurrell cites the Aristotelian notion of praxis in which public reasoning and deliberation inform the legitimacy of democratic and humanizing governance. Despite the difficulties of conducting diplomacy, he concludes: “In a very important sense the ethical claims of international society continue to rest on the contention that it is the only set of globally institutionalized political processes by which norms

109

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Carr 1940 also noted that ideal institutions such as the League of Nations cannot be imposed from above to get world peace. They must evolve from below. Bull 1977, p. 305. 111 Wendt 1999, p. 339.

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and rules can be negotiated on the basis of dialogue and consent rather than simply imposed by the powerful.”112 The power configurations and negotiation processes described in this book seek to deepen the conversations on the possibilities of democratic governance in the world. Bull rightly locates the existence of an international society but then attenuates the possibilities of its existence by positing a limited cosmopolitanism and a bounded diplomatic culture, which is on the decline and giving way to negotiations conducted by political elite or technocratic negotiators.113 In fact, to him negotiations are best conducted in private without competing loyalties interfering with negotiating processes.114 We could have some ground for optimism by broadening rather than limiting the understanding of negotiation processes, especially those conducted in the increasing transparency of the diplomatic realm, as described in this book. On the other hand, Wendt is more concerned with outlining the ontological possibilities in the world or the ways we see the world. Realism is one among the many possibilities. By positing this ontology at the level of a global power structure, Wendt misses the broader processes of change, or agency in his words, at the systemic level and considers changes at subsystemic level as inconsequential to his systemic-level argument. I have argued that the possibility of democratic governance exists in the articulation and representation of negotiated interests in the global political economy. Diffusion of power in particular issue-areas offers such possibilities. It is too early to tell if these micro diffusions at the issue-level amount to a macro diffusion as well in global economic relations. But, the possibilities exist. The option of expanding and deepening the diffusion of power is the normative moral lesson posited by negotiating the global information economy. 112 113

114

Hurrell 2006, p. 213. Winham 1977 notes that international negotiations are becoming more like management processes. This can be taken as deepening the understanding of the usefulness of negotiations. Perhaps, understandings like these lead people like Risse 2000 and Farrell 2003 to conclude that the diplomatic realm is not in the public sphere and secretive.

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Index

Aaron, David, 260, 264 Abelson, Don, 213 accounting rates, 154, 172, 179, 180 Acheson, Keith, 147 Adlung, Rolf, 78 Adorno, Theodor, 67 Africa, see also specific countries, 218–19, 251 agenda-setting defined, 50–51 in Internet pricing, 214 in passenger name records dispute, 270 in services, 113–14 in telecom pricing, 193 in TRIPS, 80, 113–14 Aggarwal, Vinod, 52, 283–84 agriculture, 37, 69, 92, 98, 109, 284 airlines and data privacy, 269–72 Akerlof, George, 282 Andean Pact, 94, 302 APEC, 210, 212, 216 TELMIN, 214 Appadurai, Arjun, 74, 301, 303 Arab world, 30 Argentina, 91, 163 Aristotle, xv, 307 Aronson, Jonathan, 162, 166, 174 ASEAN, 89, 91, 98, 174 Asia, see also specific countries, 30 AT&T, 156–57, 165–69, 184, 190, 199, 210, 238 audio-visual, see cultural industries Australia and Internet pricing, 181, 204, 209, 214, 217 and services, 100 and telecom pricing, 198 and TRIPS, 83

Austria, 100 Axelrod, Robert, 15 Bach, David, 267, 269 bargaining power, see also BATNA, 41 Barnett, Michael, 20, 279–81, 283, 289, 291 Barshefsky, Charlene, 174 basic services, 151, 160–76 BATNA cultural industries and, 119, 121–22 defined, 10 and electronic commerce, 11–18, 267 and pricing, 180, 182–84, 191–92 and reservation prices, 41 and services, 79, 112 and strategies, 46–49 strong or weak, 31, 40 and telecommunications, 119, 152, 163 and TRIPS, 78–79, 86 Belgium, 125, 165–69 Belize, 302 Bendrath, Ralf, 235, 254 Beniger, James, 2 Benkler, Yochai, 276, 295 Bennett, Colin, 255 Berezin, Mabel, 177 Berger, Peter, 74 Bergsten, Fred, 167 Berners-Lee, Tim, 229, 272, 273 Biersteker, Thomas, 68 bilateral negotiations and bilateralism, 29, 36, 46, 48, 51, 55, 84, 85, 89, 122, 186 Birnbaum, Pierre, 149 Blum-Byrnes agreement, 123 Bolkenstein, Fritz, 268

347

348 Botswana, 56 Braithwaite, John, 119, 293 Braman, Sandra, 277, 280 Brazil and cultural industries, 139 dispute-settlement, 56 G-20, 34 and services, 98, 100–1, 103–4 Super 301, 58 and telecommunication, 163 and TRIPS, 84–85, 89–92 and WSIS, 251 brinkmanship, 62 Brittan, Leon, 135–50 Brown, John Seeley, 278 Bruce, Robert, 162, 163 Bull, Hedley, xv, 14, 28–29, 307 Busch, Marc, 296, 297 Bush, George W., 37, 297 Bush, George, 90 Buzan, Barry, 14, 21, 24, 26, 33, 64, 75, 286, 290, 293–99 by-pass, in telecommunications, 187 Cable & Wireless, 200, 202–3, 209 cable, 121 cable, undersea, 207 Café au lait effect, 100–2, 115 Cairns Group, 37 Cameron, Kelly, 165–68, 171 Cameroon, 165–68 Canada and cultural industries, 136–37, 143–48 and Internet pricing, 216 and services, 100 and TRIPS, 83, 93, 95 Caribbean countries, 175, 200 Carr, E. H., 307 Castells, Manuel, 3, 290 Cate, Fred, 257–58 Cave, Martin, 187 CCIR, see ITU CCITT, see ITU Chile, 100, 169 China and cultural industries, 149–50 markets, 36, 43 MFN, 44 and telecom pricing, 200

Index and TRIPS, 90 and WSIS, 251 Chirac, Jacques, 145 CITEL, 218–20 civil society, see also international society, 89, 95, 230, 241, 245 Clinton administration, 233 CNC, 123, 148 coalitions in cultural industries, 9, 128, 134 in data privacy, 261 domestic, 38–39 explained, 55 and global governance, 50, 298 in Internet governance, 237, 246–48, 273–74 in Internet pricing, 217 in services, 27, 96–97, 105–9, 112, 114–15 in telecom pricing, 194 in telecommunications, 158–60, 176 in TRIPS, 27, 81, 83, 85, 91, 112 in Uruguay Round, 37 Coase, R. H., 35, 75 Cocq, Emmanuel, 132, 141–42 Codding, George, 277 Cogburn, Derrick, 252 Colombia, 98, 100, 302 communicative action, 70–71 Comor, Edward, 3, 68 Comsat, 155 concentration of power, see power Constructivism, 9, 14, 16, 17, 63, 67–69, 74 Copps, Sheila, 143 Costa Rica, 163, 288 Council of Europe, 258 Cowhey, Peter, 153, 155, 162, 169, 174, 184, 194, 197, 200–1, 277 Cox, Robert, 68 Crescenzi, Mark, 292–95 Croome, John, 84, 92 cultural exception, 106, 121 cultural industries, see also Hollywood, EU, USA, 22–23, 121–50 Cutler, Clare, 299, 300 Da Grazia, Victoria, 122 data privacy, 7–8, 23, 231 Davis, Christina, 11, 19, 38, 41, 53, 69

Index de Callières, François, 16, 305 Deibert, Ronald, 66, 280 Delors, Jacques, 125–27 democracies, see also global governance, 38–39, 299 Denmark, 125, 166–69 Destler, I. M., 62 diffusion of power, see power digital divide, 251 diplomacy defined, 50–51 history, 26 necessity, 16, 76, 280, 306 realm, 14–15 Doha Round, see WTO Drahos, Peter, 7, 23, 41, 48, 118–294 Drake, William, 57, 97, 174, 252 Drezner, Daniel, 11, 18, 39, 55, 230, 304 Dunkel, Arthur, 94, 98, 100, 103 Dupont, Cédric, 47–48 Duvall, Raymond, 279–81, 283, 289, 291 Egypt, 110, 165–68 Electronic Commerce, see also Internet governance, data privacy, 254, 256, 275 English School, 14, 17, 21 ethnography, 26, 35, 44–45, 74–75 European Broadcasting Union, 124, 128, 138–39, 146 European Commission Article 113 Committee, 169 and cultural industries, 127, 138 and data privacy, 254–56, 258–72 Article 29 Working Party, 259, 271 Data Protection Directive, 254–55, 259 and Internet governance, 238, 245, 247–48 and telecommunications, 157 European Community, see European Union European Court of Justice, 271 European Data Protection Supervisor, 255 European Parliament, 267, 268, 271

349 European Union and cultural industries, 124–36 and electronic commerce, 231–34 history, 122 and Internet governance, 241–44, 250, 252 and services, 110 and telecom pricing, 193, 200–1 and telecommunications, 165, 168, 171 Interconnection Directive, 169–70 and TRIPS, 88, 92–93 Facebook, 275 false consciousness, 286 Farrell, Henry, 58, 71, 169, 230, 235, 255, 261, 264, 272, 280, 304 FCC, 156, 171 accounting rate negotiations, 196–97 Benchmark Order, 181, 184–85, 197 Internet pricing negotiations, 213–15 NPRM, 191, 193, 198 Fearon, James, 281, 289, 294–96, 301 Feketekuty, Geza, 96 financial services, 105 Finland, 100, 166–69 Finnemore, Martha, 14, 17, 68 Fourth Protocol, 164–68 framing, see also agenda-setting crisis, 62 in cultural industries, 119, 134, 144–45 defined, 49–50 in TRIPS, 50 France CNIL, 258 and cultural industries, 122–50 historic trade, 33, 75 and services, 106 and telecom pricing, 198 and telecommunications, 166–69 telegraph, 153 Francophonie, 126, 148 Franda, Marcus, 248, 255 free trade, 33, 75 Freire, Paulo, xv, 290–91, 306 Frieden, Rob, 206 Friedman, Thomas, 159, 289

350 G-20, 34, 36 G-9, 36, 100 G-90, 34 Gallagher, Peter, 38 game theory, 15–16, 73, 292, 294–96 Gandhi, Indira, 84 Gandhi, Rajiv, 90, 104 Garc´ıa Canclini, Néstor, 177 General Agreement on Tariffs and Trade (GATT), see also WTO coalitions, 36–37 ministerials, 80, 83–84, 87, 94, 165–69 names of trade rounds, 36, 76 services liberalization, 6–7 telecommunications negotiations, 164–67 Tokyo Round, 34–35, 81–82 General Agreement on Trade in Services (GATS), see services negotiations Generalized System of Preferences, 90 Gereffi, Gary, 159 Germany, 44, 125, 169 Giddens, Anthony, 70, 290, 306 global governance, 295 accountability, 3, 301 and negotiations, 291, 295 participation, 50, 298 persuasion, 55, 298–308 global information economy core processes, 1–5, 77 defined, 1, 96 globalization, see also global governance, 66, 76, 144, 158–59, 291–95, 303 Goff, Patricia, 121, 130, 133, 134, 177 Google, 275 Gorlin, Jacques, 84, 88 Gourevitch, Peter, 38 Granovetter, Mark, 294, 296 great powers, 43, 55 Greece, 218–19 Green Room, 109, 302 Group of 77, 98 Gruber, Lloyd, 10–11, 73 Habermas, 15, 58, 71, 298 Haggard, Stephan, 277 Hampson, Fen Osler, 62

Index Hardt, Michael, 292, 294 Hart, Jeffrey, 72, 158, 280 Haufler, Virgina, 299, 300 Headrick, Daniel, 277 Heisenberg, Dorothee, 255, 261, 264, 270 Held, David, 290, 297 hermeneutics, xv, 74 Hermes, 1 Hirschman, Albert O., 1, 67, 276, 293, 296 Hobbes, Thomas, 24 Hoffmann, Stanley, 34 Hollywood, 27, 124, 134, 176, 293, 294 Hong Kong, 56, 149–50, 174, 199 Hopmann, Terrence, 55, 58, 305 Horkheimer, Max, 67 Hubbard, John, 203, 209, 217 Hundt, Reed, 184 Hungary, 84 Huntington, Samuel, 177 Hurrell, Andrew, 24, 291, 307 IANA, see Internet governance IBM, 59, 62, 238 IBRD, see World Bank ICAIS, see pricing, Internet ICANN, see Internet governance ideational approaches, 66 identity and culture, 119, 124–25, 144, 177 and interests, 66, 120, 280 IIPA, 82–84 IMF, 56 INCD, 146 INCP, 143–45 India and cultural industries, 150 and services, 98–101, 103–4 and telecommunications, 163, 165–68, 170–73 and TRIPS, 83, 90–92 and WSIS, 251 Indonesia, 172 information tactics defined, 57–58 in Internet pricing, 213, 215 in telecom pricing, 199

Index information technologies, 158, 276, 290–91, 300–1 Ingram, Paul, 296, 297 Innis, Harold, 2 Intellectual Property Committee, 82, 85, 88–89 Intelsat, 155–56 interests alteration, 10, 80, 95–96, 102, 111, 120 calculation, 47 and coalitions, 50, 298 in negotiation, 8, 9, 23, 69, 279–80 and power, 28–69 international bandwidth capacity, 211 international organizations, see also specific organizations, 1, 24, 31, 36, 40 international society, 14, 24, 306 International Telecommunication Union CCIR, 154 CCITT, 154, 195–96 D.140 195 D.50 220–21 history, 4, 153–55 IFRB, 155 and Internet pricing, 213, 220–21 Study Group 3, 201, 216, 218, 220–21 and telecommunications negotiations, 166–69 and telecommunications pricing negotiations, 184–203 WARC, 154 WATTC, 154 WATTC-88, 188–90 WGIG, 251–52 WSIS, 250, 253 WTAC, 196 WTSA, 181, 218–20 Internet governance negotiations, 23, 25, 230–31, 233 CORE, 237, 239 GAC, 244 gTLD-MoU, 237 IAHC, 236–40, 246 IANA, 235–37, 246 ISOC, 238, 246 NSI, 235–37, 239

351 ORSN, 254 and pornography, 253 registries, 239, 244 TLD system, 236 UDRP, 245, 248 and WIPO, 239–40, 244–46 and WSIS, 250 Internet Service Providers (ISPs), 181–82, 204–5 ISP/C, 238 pricing, see pricing Internet Tier-1, 35, 204, 205, 209 Internet users, 212 Ireland, 131, 165–69 issue-linkage tactic, 53 issue-salience tactic, 51 Italy, 122, 153 Jackson, John, 41 Jamaica, 100 Japan and cultural industries, 126, 150 and telecom pricing, 188, 193, 198–99 and telecommunications, 157, 161, 165, 168, 172 and TRIPS, 85, 88, 91 Jaramillo, Felipe, 98–101, 106 Jarvie, Ian, 122, 123 Jawara, Fatoumata, 271, 302 Jeancolas, Jean-Pierre, 123 Jones, Charles, 33, 64, 75, 299 Kahler, Miles, 282 Kant, Immanuel, 24 Kantor, Mickey, 135–36, 171 Katzenstein, Peter, 67, 68, 120, 122 KDD, 198–99, 202, 209 Keck, Margaret, 68, 290 Kelsey, Jane, 140 Kende, Michael, 221 Keohane, Robert, 22, 25, 32, 38, 41, 65, 75, 291–96, 298, 304 Kissinger, Henry, 8, 26 Klein, Hans, 236 Korea, South and services, 100 and telecom pricing, 199 and telecommunications, 161, 163, 165 and TRIPS, 84, 87, 89, 91

352 Krasner, Stephen, 15, 35, 46, 64, 277, 280, 294–96 Kremenyuk, Victor, 278 Kuran, Timur, 72–73, 293, 294 Kwa, Aileen, 271, 302 Lakatos, Imre, 75 Lake, David, 282–83 Lamy, Pascal, 138, 304 Lang, Jack, 133, 143 Lang, Jeff, 151, 173 Latin America, 30, 92, 116, 218–19 Law of the Sea negotiations, 49, 54 Lax, David, 42, 46, 70, 135 learning in negotiations, 63 legalistic tactics, see also technocratic tactics, 57 Lessig, Lawrence, 279 Levy, David, 127, 132 liberal internationalism, 65–67 Lindblom, Charles, 179 linkage, 188 Little, Richard, 64, 75, 279, 286, 293–99 lobbying tactics, 58–59 Luckmann, Thomas, 29, 74 Lukes, Steven, 20, 35, 279, 291 Luxembourg, 165, 169 Machlup, Fritz, 2 Magaziner, Ira, 243, 245, 247, 263 Magder, Ted, 123 MAI, see OECD Malaysia, 161, 163, 172 Mali, 293, 294 Malta, 43 Mansfield, Edward, 41, 284, 299, 301 Marchetti, Juan, 301 Marconi, Guglielmo, 154 market access, 118, 164–68 market conditions conceptualized, 38–40 in cultural industries, 9, 119–20, 132 in data privacy, 270 and efficiency, 35, 75 and interoperability, 229, 235, 273 and power in Internet pricing, 210–13, 225–28

Index and power in telecom pricing, 179–80, 190, 203, 225–28 in services, 79 in telecommunications, 119–20, 161 in TRIPS, 79 Marlin-Bennett, Renée, 245 Marxism, 2–3, 5, 6, 173 May, Chris, 2, 83 MCI, 157 McKersie, Robert, 26, 70 McLuhan, Marshall, 2 Melody, William, 199 Mercosur, 302 Messerlin, Patrick, 120, 132 Messier, Jean-Marie, 138 meta-power, see also power, 20, 177, 279–80, 285–91 methodology, 16–27, 66, 74–75, 305 Mexico and telecommunications, 59, 161–63 and TRIPS, 90 MFN (Most Favored Nation) in audio-visual, 121 defined, 81 exemptions, 126 in pricing, 195 in services, 103, 106–9, 118 in telecommunications, 150–51, 165, 169 Mill, J. S., 18, 22, 298 Milner, Helen, 38, 65, 299 MNCs, see role of firms modes of supply, 103, 118, 161 Mogg, John, 265, 268 Mokyr, Joel, 276 Monnet, Jean, 123 monopolies, 153–54, 156, 176, 185, 187 monopsony, 40, 46 Moravcik, Andrew, 37, 43, 66–67, 69, 73, 285 Motorola, 165–68, 172 MPAA, 116, 121, 128, 133 Mueller, Milton, 156, 233, 235, 252, 254 multilateralism, see also power coordination, 179, 185, 190, 291 failure, 181, 223–24

Index importance, 18, 21, 36–38, 76, 120 multiple stakeholder diplomacy, 252, 253 mutual benefits, 48, 301–2 and negotiations, 291, 295 Murmann, Johann, 158 NAFTA, 126 Namibia, 56 Narlikar, Amrita, 6, 36, 44, 54, 57, 103 national treatment in services, 102, 118 in telecommunications, 165, 168 Neale, M. A., 40, 41 negative list, 105, 118 negotiations defined, 8, 277 as global governance, 291, 295 Negri, Antonio, 292, 294 Nepal, 199 Netherlands, 166–69, 216, 218 New Zealand, 83, 100 Newman, Abraham, 8, 259, 267, 269 NGBT, 160–76 Nicholson, Harold, 26, 76, 306 Nicolaides, Kalypso, 57, 97, 164–67 Niemann, Arne, 169, 305 NIEO (New International Economic Order), 288 Nigeria, 165–68 Noam, Eli, 124, 160, 173–74, 180 NOIE (Australia), 210 non-state actors, see also power, role of firms, international organizations, coalitions, 9 norm creation, 295 North, Douglass, 72 Norway, 100 NSI, see Internet governance NWICO, 288 Nye, Joseph, 32, 41, 65, 122 Odell, John, 19, 38, 39, 41, 44, 46–48, 50, 53, 55, 70, 93, 114 OECD data privacy guidelines, 256–59 and Internet pricing, 204–5, 220 and MAI, 137, 142–43 regime history, 179–80 and services, 96–97, 99

353 and telecom pricing, 190, 193 and telecommunications, 162 and TRIPS, 84 and venue-shopping, 52 Ofcom, 140, 163 Office for Technology Assessment, 104 Ohmae, Kenichi, 159 Olson, Mancur, 38 Online Privacy Alliance, 263 Open Source, 291–95 persuasion, 55, 63 Peterson, M. J., 72 Peterson, V. Spike, 68 Petrazzini, Ben, 162, 172–74 Philippines, 169, 200 PhRMA, 82 Pipe, Russell, 177 Plato, 1 Polanyi, Karl, 67 Portugal, 83 positive lists, 118 Postel, John, 235–36 power, see also meta-power concentration, 9–10, 28–29, 180, 222, 225–26 configurations, 8–20, 42, 279–80, 291 diffusion, 9, 18, 29, 49, 50, 54, 76 instrumental, 223, 280–81, 283 and interests, 28–69 and markets, 35, 200–25 meta-power, 290–91 productive, 20, 289 puzzles, 6–8 soft, 65 structural, 3–4, 11, 18–20, 32, 34, 280–81, 283 virtual, 288 Preeg, Ernest, 105, 135 preferences, see interests preferential trade agreements, see also bilateral negotiations, 284 pricing Internet hot potato routing, 207–8 negotiations case, 119, 181–82, 203 peering, 206–7

354 pricing (cont.) sender keeps all, 206–7 transiting, 206–7 telecommunications, 164 by-pass, 187 call back, 187, 199 cost-based, 165, 180, 186 country direct, 187 gold-plating, 191 negotiation case, 23, 25, 184–203 price caps, 191 resale, 187 tariff component prices, 198, 199 Priyadarshi, Shishir, 299 problem-solving in negotiations, 15, 42, 58, 231, 274, 305 Prussia, 153 public spheres and spaces, 71, 300–3 Putnam, Robert, 39, 44–45, 55, 298–308 radio, 154–55 Raiffa, Howard, 49, 51, 54, 56, 136 Reagan, Ronald, 34–35, 84, 159 realism, 10, 64–65, 306 Reference Paper in telecommunications, 151, 168, 169, 170–5 and Internet pricing, 218–20 Reinhardt, Eric, 41, 284, 301 reservation prices, see also BATNA, 41 RFID, 275 RIAA, 128, 134 Risse, Thomas, 44, 57, 70–71, 169, 304 Rivoli, Petra, 294 Robert, Maryse, 121 Robinson, Jeffrey, 293, 294 Rogowski, Ronald, 38 role of firms in data privacy, 261–63 in general, 1, 7, 14, 24, 36, 40, 57 in Internet governance, 241, 249 in services, 96, 100 in TRIPS, 81–82 role of information, 73 Rosecrance, Richard, 33 Rosenau, James, 29, 71, 290–91, 295, 297 Rotenberg, Marc, 257

Index Roy, Martin, 136–37, 301 Rubin, Jeffrey, 69, 277–78 Ruggie, John Gerard, 29, 67, 74, 286, 294–96, 306 Russia, 216 Ryan, Michael, 82–83 Safe Harbor, see data privacy Sandholtz, Wayne, 127 Santer, Jacques, 255, 262 satellites, 121, 155–56, 165–68, 172, 173 Saudi Arabia, 90 Sauvé, Pierre, 118, 119 Scott, James, 21, 35 Sebenius, James, 42, 46, 53, 70, 135, 278 security issues, 40, 57 Sell, Susan, 50, 68, 70, 82–83, 89, 90, 114, 245 Sen, Amartya, xv, 298 Senegal, 251, 293, 294 services negotiations and Coalition of Service Industries, 7, 106 and GATS commitments, 117–18 in audio-visual, 137–41 telecommunications (Fourth Protocol), 176 GATS features, 106 GNS, 102–9, 164 and liberalization, 7, 22, 65 and world service exports, 3–6 settlement rate, see accounting rates Shapiro, Carl, 180, 205 Sherman, Laura, 151, 170 Sikkink, Kathryn, 68, 290 Simmons, Beth, 277 Simon, Herbert, 282 Singapore, 56, 84, 169 Singh, J. P., 5, 20, 25, 36, 104, 105, 152, 158, 162, 172, 173, 276, 285–92, 294 Slaughter, Anne-Marie, 55, 66, 70, 294, 296 sociological approach, see also identity, interests, 1, 5, 9, 67, 74 to governance, 291, 295 in interest formation, 28–69

Index and intersubjective understandings, 14, 16, 17, 21, 72, 277–79 to negotiation, 277 South Africa, 251, 293, 294 Spain, 83, 125 Special and Differential Treatment, 89 Spector, Bert, 278, 297 Sputnik, 155 Sri Lanka, 161 standstill and rollback, 98, 99, 101 Stein, Arthur, 283–84 Steinberg, Richard, 34–35, 51, 271 Stoler, Andrew, 299 Strange, Susan, 3–4, 11, 15, 19, 24, 277, 288 strategies, see also tactics and BATNA, 46–49 in cultural industry negotiations, 18 detailed, 27, 49, 62 distributive, 46 in Internet governance negotiations, 11–18, 249, 266–67, 274 mixed, 46 in pricing negotiations, 18, 162, 192 in services negotiations, 49 in telecommunications negotiations, 18 in TRIPS negotiations, 49, 84–86, 88 value-claiming, 44–46, 112 value-creating, 44–46 subsidies, 127, 131, 135 Sutherland, Peter, 102 Sweden, 87, 99, 100, 169 SWIFT, 272, 280 Switzerland, 90, 100, 139–40 symbolic interactionism, 74 tactics, see also strategies, and specific types in cultural industry negotiations, 119–20, 176–78 in Internet governance negotiations, 11–18, 241, 267 and participation, 300–2 in pricing negotiations, 18, 162 in services negotiations, 95, 100, 111 in telecommunications negotiations, 119–20, 152, 175–78 in TRIPS negotiations, 10, 80, 86 types, 9, 14, 18, 42, 62, 63

355 Taiwan, 84, 90, 150, 199 technocratic tactics defined, 57 in electronic commerce, 231 in telecom pricing, 192 in telecommunications, 174, 176 technology, see also specific types, 29, 30, 74, 151, 156, 276, 290–91 telecommunications negotiations case, 25, 150–76 telegraph, 153, 276–77 telephone, 153 Television Without Frontiers, 121, 128, 141 Telstra, 202, 208–22 textiles, 46, 91, 92, 294, 296 Thailand, 90, 199 Thatcher, Margaret, 98, 160 Thompson, Dale, 233, 235, 254 threats, see also under United States: threats and unilateral pressures defined, 59–62 of non-compliance, 200 in TRIPS, 81, 293, 296 Thucydides, 7 Thwaites, Richard, 209, 217 TLDs, see Internet governance Tokyo Round, see WTO tourism, 105, 299 trade-off tactics in cultural industries, 120 defined, 53 in telecommunications, 120 in TRIPS, 92–94 Trans-Atlantic Business Dialogue, 262–63 Treaty of Maastricht, 125 TRIMs, 142 TRIPS compulsory licensing, 57 Doha Round, 293 and cultural industries, 140 and Doha health declaration, framing, 50 negotiation case, 22, 95 Turkey, 59, 83 Tuthill, Lee, 166–70 Twomey, Paul, 251, 253 Tyson, Laura, 158

356 UNCTAD, 288 and cultural industries, 146 and services, 98, 103 and TRIPS, 83 UNESCO and communication, 288 cultural diversity case, 25, 74, 135–50 venue-shopping, 52 United Kingdom and cultural industries, 122, 125, 131, 149 hegemony, 33, 53, 75 and Internet pricing, 216, 218 and telecom pricing, 188 and telecommunications, 157, 169 telegraph, 153 United States bilateral negotiations, 37, 51, 99 Congress, 44, 90, 164–68 and cultural industries, 121–36, 138, 146–47 and data privacy, 254–72 and courts, 257–58 Department of Commerce, 245 and electronic commerce, 231–34 in data privacy negotiations, 254–72 in Internet governance negotiations, 233 in WSIS negotiations 249–53 Fast Track Authority, 91, 135–37 Federal Trade Commission, 11–18, 265, 267 and Internet pricing, 119, 204 Section 301, 51, 62, 84 security concerns, 57, 230, 235, 254 in passenger name records dispute, 255, 269–72 and services, 95, 97, 104 and telecommunications, 151–52, 157, 162–76 Act of 1996, 169 and telecommunications pricing, 184–203 and courts, 202–3, 208–9 threats and unilateral pressures in passenger name record dispute, 271 in pricing, 181, 185, 224–25

Index in TRIPS, 85, 88–91, 95 in WSIS, 254 trade acts, 62, 82 and TRIPS, 86 USTR, see also specific names, 59–62, 80, 164–68 universal service, 170–71 Uruguay Round, see also specific negotiation issues agenda-setting, 50 coalitions, 37, 54 confrontations, 43, 48 Punta del Este, 52, 59 Swiss–Colombian Text, 36, 42, 58 Uruguay, 163, 302 Utsumi, Yoshio, 252–53 Valenti, Jack, 79, 133 value-added services, 151, 161, 164–67 Varian, Hal, 180, 205 Vattimo, Gianni, 290 Venezuela, 56 Venturelli, Shalini, 255–56 venue-shopping tactic, defined, 52 in cultural industries, 135–37 in telecommunications, 166–69 in telecom pricing, 189, 192 Voon, Tania, 121 Wagner, Lynn, 58 Walton, Richard, 26, 46, 70 Waltz, Kenneth, 64, 279 WARC, see ITU Watal, Jayashree, 83, 87, 91, 93, 115 Waverman, Len, 187 Weber, Max, 74, 295–96 Weber, Steve, 279, 291–95 Wendt, Alexander, 14, 34, 63, 67, 75, 279, 287, 307 Westphalia, 286 White, S. B., 40, 41 WHO, 84 Wilkinson, Rorden, 21, 59, 291–95, 297 Williamson, Oliver, 35 Winham, Gilbert, 56, 288, 308 Winner, Langdon, 276

Index WIPO and Internet governance, 237, 239–40, 244–46 and TRIPS, 78, 84 UDRP, 245, 248 and venue-shopping, 52 Woodrow, Brian, 164–67, 169, 177 World Bank, 56, 162 World Summit on the Information Society, 23, 25 and Internet pricing, 221 negotiation case, 250 Wriggins, Howard, 35, 43 WTO, see also GATT requests and offers, 137–41 Cancun ´ Ministerial, 30, 34 consensus-based, 41 dispute-settlement, 56–57, 148, 175, 195 Doha Round, 30, 34 and TRIPS, 93, 111, 293

357 and audio-visual, 137–41 and Internet pricing, 218–20 Singapore ministerial, 173, 194 and telecom pricing, 194 and telecommunications negotiations, 176 Uruguay Round, see Uruguay Round Yeutter, Clayton, 59, 85, 101 Yoffie, David, 35, 53, 55, 75 Zacher, Mark, 4, 96, 186, 277 Zartman, William, 18, 26, 29, 42, 44, 53, 69, 74, 278 Zehfuss, Maja, 75, 278 Zimbabwe, 56 Zittrain, Jonathan, 237 Zoellick, Robert, 304 zone of agreement, 41 Zysman, John, 158

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