- The Washington Times - Thursday, September 7, 2000

This morning, members of Congress will be deciding whether the United States should go to war with the Germany and Japan. No, it's not 1941 again, and World War II is not about to be refought. But today's debate in the House Commerce Committee's Telecommunications Subcommittee may still set the United States on a course of war with these counties over trade policy.

Trade wars do not involve guns, tanks, battleships and fighter planes, but they can inflict serious damage on the world's economy by restricting global investment opportunities, blocking trade lanes, and fracturing multinational treaties and alliances. Trade wars can cripple a nation by escalating prices, destroying import and export industries, and restricting consumer choices and opportunities.

The potential for such economic calamity now looms as members of Congress and officials from the European Union (EU) spar over telecommunications trade and investment policy. The dispute stems from an amendment to the Commerce, Justice, State and Judiciary (CJSJ) appropriations bill offered by Sen. Ernest Hollings, South Carolina Democrat, ranking member of the Senate Commerce Committee. The amendment would prohibit the Federal Communications Commission (FCC) from expending funds "to grant a license, permit or operating authority" to any corporation in which a foreign government has more than a 25 percent direct or indirect ownership interest.

The Hollings amendment was prompted by congressional concern over the attempt by German communications giant Deutsche Telekom AG to acquire the American cellular company Voice Stream Wireless in a deal valued at more than $50 billion. The amendment would sabotage this deal by prohibiting FCC officials from reviewing and approving the merger on the grounds that a global company that is partially owned by a government shouldn't have the right to invest in an American corporation. (The German government holds about 58 percent of Deutsche Telekom, although its ownership stake in the firm is rapidly declining.)

EU officials have responded by threatening to withdraw from the World Trade Organization (WTO) if the Hollings amendment becomes law. Even if the EU doesn't take this radical step, other retaliatory efforts will likely follow if the issue is not settled soon. The EU has already indicated it might reject the recently proposed marriage of American communications giants America Online and Time Warner.

Worse, the Hollings effort might foreclose investments by other international communications carriers, such as Nippon Telegraph & Telephone (NTT) of Japan, which is currently seeking approval of a deal with Verio, an American Internet services company. If the NTT-Verio deal is derailed by the Hollings protectionist push, it might encourage retaliation by the Japanese government as well.

Today's House Commerce Committee hearing will provide a good indication of which direction Congress will go next in this debacle. If they are smart, lawmakers will realize this game of political brinkmanship between U.S. and EU officials has gone too far and that, if tensions escalate into a full-blown trade war, the consequences would be disastrous for consumers on both sides of the Atlantic.

Both sides must be willing to compromise to avoid a trade war. German officials must reaffirm their commitment to divest themselves of Deutsche Telekom holdings as rapidly as possible. American policy-makers concerned about "unfair investment" need to realize there is nothing to fear from a foreign communications company investing in a domestic company, even when the foreign carrier is partially owned by a foreign government.

In fact, if anyone has a legitimate gripe about this deal, it's German taxpayers. They are essentially subsidizing Deutsche Telekom's global investments and helping drive down communications prices for American consumers. (Thank you, Mr. and Mrs. German Taxpayer, for my cheaper cellphone bills.) Moreover, Deutsche Telekom won't be taking Voice Stream's cellular assets back to Germany with them. The cellular system they're looking to buy can only serve American consumers. So there are no sinister motives behind the firm's investments here.

Sen. John McCain, Arizona Republican, is leading an effort in the Senate to strip the Hollings language out of the CJSJ appropriations bill to head off a trade war. This effort could be vital to keeping the peace between the United States and the EU. In the future, though, such disputes should be dealt with by working through institutions such as the WTO and multilateral accords. Unilateral brinkmanship does not serve anyone's best interests.



Adam D. Thierer is the Alex C. Walker Fellow in Economic Policy at the Heritage Foundation.

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