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Weekly UpdatesI. INTRODUCTION
In Deal or No Deal: Reinterpreting the FCC's Ownership Rules for a Fair Game, (1) Cindy J. Cho concludes that the Federal Communications Commission (FCC) ought to apply a standard of reciprocity to initial and renewal applications for broadcast licenses by foreign-owned companies in order to deal with the anticompetitive conduct of foreign broadcasters in the U.S. market. (2) This conclusion is premised on a fundamental misunderstanding of U.S. trade commitments and the FCC's implementation of those commitments. The market-opening U.S. trade commitments and FCC orders that Ms. Cho discusses do not apply to broadcasting services or broadcast licenses. In fact, nothing in current U.S. trade commitments or FCC orders precludes application of a reciprocity test to applications from non-U.S. companies for a broadcast license. This Article attempts to set the record straight.
II. THE SCOPE OF SECTION 310
Section 310 of the Communications Act of 1934, (3) as originally enacted and as modified over time, imposes specific ownership restrictions on who may hold certain types of radio licenses, including: (i) broadcast, (ii) common carrier, and (iii) aeronautical en route and aeronautical fixed radio station licenses. (4) Prior to 1934, [section] 310 contained a flat prohibition on the award of these three types of licenses to foreign individuals, foreign governments, foreign companies, and U.S. companies which are more than twenty-percent owned by foreign individuals, foreign governments, or foreign companies.
In 1934, [section] 310 was amended to give the FCC some discretion in allowing up to one hundred percent foreign indirect ownership. (5) The revised [section] 310(b)(4) gives the FCC discretion to allow up to one hundred percent foreign ownership in broadcast and common carrier radio licensees, through a U.S. parent company that has a controlling interest in the licensee. Section 310(b)(4) provides that a company cannot receive a broadcast or common carrier radio license if the company is directly or indirectly controlled by any corporation of which more than twenty-five percent of the capital stock is owned by foreign individuals, foreign governments, and foreign companies, if the FCC determines that the public interest will be served by refusal or revocation of such a license. (6) Thus, under [section] 310(b)(4), the statutory presumption has always been that foreign ownership of a broadcast or common carrier licensee in excess of twenty-five percent is permissible in the absence of an FCC finding to the contrary. In practice, the FCC has exercised its discretion "sparingly," presuming that the twenty-five percent holding company limit should not be waived unless the potential investor can demonstrate that the public interest will not be harmed. (7)
Ms. Cho suggests that the FCC's interpretation of [section] 310 changed in the 1990s, prompted by the 1996 Act, from a focus on national security to economic interests. (8) There was definitely a change in the FCC's approach to foreign ownership in the mid-1990s, but only with respect to common carrier licenses. The FCC's policy on foreign ownership of broadcast licenses did not change. As will be described below, the U.S. trade commitments and the orders that Ms. Cho refers to as evidence of new FCC policies with respect to foreign ownership of broadcast licenses, in fact, are limited in scope to international [section] 214 authorizations, (9) cable landing licenses, and authorizations to exceed the twenty-five percent foreign ownership benchmark in section [section] 310(b)(4) for common carrier radio licenses. (10)
III. U.S. TRADE COMMITMENTS
Ms. Cho refers to U.S. obligations under the North American Free Trade Agreement (NAFTA), obligations in the World Trade Organization (WTO) and other telecommunications agreements with Mexico as supporting the FCC's change in policy toward foreign ownership of broadcast licenses. (11) None of these agreements obligate the United States to allow foreign ownership of broadcast licenses. To the contrary, both the NAFTA and WTO commitments preserve the United States' ability to prohibit foreign ownership of broadcast licenses, and the telecommunications agreements that Ms. Cho refers to do not deal with broadcast licenses at all.
IV. NAFTA COMMITMENTS
NAFTA (12) is one of the first trade agreements to include trade in services. (13) Chapter Eleven establishes obligations relating to investments, which are broadly defined to include branches, subsidiaries, and joint ventures of companies and individuals of one NAFTA party in the territory of another, regardless of the business to be conducted. (14) The NAFTA parties agreed to national treatment for investors of the other NAFTA parties and their investments. This requires each NAFTA party to treat NAFTA investors and their investments "no less favorabl[y] than it accords, in like circumstances, to its own investors [and their investments] with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments." (15) This national treatment obligation would cover the ability to obtain licenses from the FCC to provide telecommunications or broadcasting services in the United States.
Chapter Twelve deals with cross-border provision of services, requiring each NAFTA party to provide national treatment to services provided from the territory of one NAFTA party into the territory of another. (16) Again, this nondiscrimination requirement applies to FCC licensing, such as the grant of [section] 214 licenses.
Chapters Eleven and Twelve each provide that a NAFTA party can exempt certain laws and regulations that do not conform to the national treatment and other obligations contained in the relevant Chapter. (17) Laws and regulations which are listed as a reservation in the annexes to NAFTA are exempt from challenge by other NAFTA parties, and they allow a NAFTA party to maintain those existing or adopt new laws and regulations that vary from the nondiscrimination rules. (18) The United States took such a reservation for telecommunications and broadcasting services, specifically referencing [section] 310(a) and (b) as existing, nonconforming measures. (19)
Ms. Cho refers specifically to Annex VI of NAFTA as evidence of "a level of cooperative reciprocity." (20) Article 1208 of NAFTA creates a mechanism in Annex VI for the NAFTA parties to record commitments to eliminate or phase out discriminatory restrictions that create barriers to cross-border services. In Annex VI, the United States agreed to treat Canadian and Mexican broadcast stations similar to U.S. broadcast stations when deciding whether to grant authority under [section] 325 of the Communications Act (21) to transmit programming to Mexican or Canadian stations for retransmission into the United States. For example, [section] 325 applies in cases where a U.S. station near the United States-Mexico border transmits its local news and weather to a Mexican station on the other side of the border and the Mexican station rebroadcasts that programming. (22) Taken together, nothing in NAFTA changed U.S. law or FCC policy with respect to foreign ownership of telecommunications or broadcast licenses.
V. OTHER TELECOMMUNICATIONS AGREEMENTS
The other telecommunications agreements referred to by Ms. Cho did not cause changes in FCC policy with respect to foreign ownership. Since at least the 1950s, the United States has entered into a series of agreements with Mexico and Canada on the allocation and operation of radio frequencies along their respective borders. These agreements apply to frequencies used for radio and TV broadcasting, satellite transmissions, and other services using radio frequencies which are designed to prevent undue interference between stations in the respective countries. (23) While these agreements certainly "address the importance of cooperation," as Ms. Cho states, (24) they do not have anything to do with foreign ownership of broadcast licenses.
VI. WTO COMMITMENTS
The WTO was created in 1995 as a result of multilateral trade negotiations, commonly referred to as the Uruguay Round. (25) In joining the WTO, a member undertakes commitments under a series of multilateral trade agreements, including the General Agreement on Trade in Services (GATS). (26) The GATS takes a different approach than NAFTA does on how a WTO member undertakes commitments dealing with trade in services. NAFTA assumes that a NAFTA party will provide national treatment and market access to all services and service suppliers of the other NAFTA parties in the absence of a reservation to the contrary. In contrast, WTO members specifically negotiate national treatment and market access commitments on a sector-by-sector basis. Unless a service is included in a member's Schedule of Specific Commitments, the WTO member has no obligation to provide national treatment or market access with respect to that service or service suppliers of other WTO members. (27)
For purposes of this Article, there are two relevant market sectors--telecommunications and audio-visual services. (28) Telecommunications services are broken down into two major subgroups--"basic telecommunications" and "value-added services" and within each subgroup, services are further divided into market subsectors. Basic telecommunications refers to telecommunications transport networks and services, (29) such as fixed and mobile voice telephone services, fixed and mobile data services, private leased circuit services, and satellite services. (30) Value-added telecommunications services are those in which suppliers "add value" to the customer's information by enhancing its form or content or by providing for its storage and retrieval, such as e-mail and voicemail. (31)
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