Statement of Administration Policy: S. 173 - Telecommunications Research and Manufacturing Competition Act of 1991

(SENT 6/4/91)
(Senate)
(Hollings (D) South Carolina and 25 others)

The Administration strongly supports Bell company entry into manufacturing activities. However, the Administration strongly opposes the bill's domestic content and domestic manufacturing requirements. If S. 173 were presented to the President with these requirements, the President's senior advisers would recommend a veto. The Administration strongly supports the Gramm amendment to strike these requirements.

Removing the restriction created by the AT&T divestiture that prohibits Bell companies from manufacturing telecommunications equipment would promote competition in an important area of our economy. The Administration supports the provisions of S. 173 that authorize Bell company manufacturing because the current restriction:

• No longer serves the competitive purpose for which it was imposed. Equipment is now made independently by many entities, not by one dominant firm.
  
  
• Is anticompetitive in that it prohibits major U.S. telecommunications firms from developing products to meet current and future needs.
  
  
• Directly limits American research and development activity, since product-related research and development is treated as a prohibited manufacturing activity. This limits U.S. international competitiveness.

The domestic content and domestic manufacturing requirements are unacceptable because they would:

• Potentially result in a requirement to compensate our trading partners or face retaliation, if the requirements are held to violate our international obligations.
  
  
• Undercut U.S. trade negotiators who are trying, for example, to bring foreign government-owned telecommunications monopolies under the GATT Government Procurement Code. Absent a new GATT agreement, the EC's huge government procurement market for telecommunications equipment will remain closed to U.S. providers.
  
  
• Give our trading partners — who have begun to liberalize their own markets — an excuse to close the door on American-made goods. This result would be especially damaging in light of the recent dramatic growth in U.S. telecommunications equipment exports. The United States had a $1.3 billion trade surplus in network and transmission equipment in 1990. We, therefore, have a lot to lose in any trade dispute in this area.
  
  
• Force private companies to procure and produce equipment on the basis of government fiat rather than sound economic and technical grounds.
  
  
• Unfairly put the Bell companies at a competitive disadvantage vis-a-vis other domestic and foreign manufacturers not forced to operate under the same restrictions.
  
  
• Risk a net loss of U.S. telecommunications jobs. The requirements would impede the Bell companies' ability to contribute to the ongoing expansion of telecommunications exports and associated export-related employment.
  
  
• Limit consumer choice and increase prices.

The Administration also opposes the bill's blanket prohibition on joint ventures involving more than one Bell company. This restriction is fundamentally inconsistent with the bill's objective of increasing competition. It is also inconsistent with other congressional efforts to reduce potential antitrust liabilities that may deter legitimate and procompetitive research and production joint ventures. Should antitrust issues arise, the Department of Justice will use its authority to ensure compliance with U.S. antitrust law; the blanket prohibition should be deleted from S. 173.

The Administration endorses the objective of S. 173 of guarding against potential cross-subsidization and anticompetitive discrimination by the Bell companies. However, it should be left to the Federal Communications Commission (FCC) to designate any necessary rules to prevent or deter such conduct by the Bell companies. A legislative remedy is not needed, and these provisions should be deleted from the bill.