Issue No. 3
Fall 1999
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The Impact of Regional Trade Pacts on Foreign TV Enterprises in Latin America

By Luiz Guilherme Duarte

In the 1990s, most countries south of the Rio Grande—with the notable exception of Cuba—initiated a liberalization process marked by intense privatization, fall of protectionist barriers and alliance to neighboring countries in regional trade pacts. The North American Free Trade Agreement (NAFTA) in 1994, the Mercado Comun del Sur (Mercosur) in 1991, the Andean Pact in 1988 and even the Free Trade Agreement of the Americas (FTAA) of 1994 were examples of such pacts. In 1994, Brazil proposed setting up a web of free trade agreements with neighboring South American countries. Negotiations have been carried out, jointly, by all Mercosur members to establish FTAs with the other South American countries or sub-regional groups of countries in ten years. In 1996, free trade agreements with Chile and with Bolivia were signed and in the following year, other agreements between Mercosur and Andean Pact members got under way (1999). Not by mere coincidence, Latin America started to grow again in this decade, after several years of stagnation. Commerce among partners intensified and the sudden prospects for growth called attention of American multinationals, eager to secure their existing foothold in a region traditionally used as an extension market to gain the economies of scale necessary to compete with the European and Japanese competitors. Already in 1994, Latin America was the fastest growing U.S. export market, taking almost $90 billion worth of U.S. goods. By the end of the decade, the American Commerce Dept. estimated the region would surpass Europe as a customer for U.S. wares and the recent crisis has not significantly changed expectations that, by 2010, it will surpass Europe and Japan combined (Harbrecht, Smith and DeGeorge, 1994).

Accompanying this liberalization process, the pay television industry flourished as old restrictive laws started to fall or be simply ignored, allowing foreign investment to flow in. In Venezuela, for example, U.S.-sponsored advertising in pay-TV grows exponentially, despite lingering prohibiting laws. American cable industry consultant Paul Kagan estimates that approximately $375 million had already been poured into Latin American cable and satellite companies in the first three years of this decade (DeGeorge, 1993) and the number has dramatically increased since then. From Multiple System Operators (MSOs) like TCI to satellite providers such as DirecTV, not to mention investment firms such as American Express and Chase Manhattan, dozens of American companies entered the race to associate themselves with the largest local players. They rushed to the relatively unexploited Latin American pay-TV market, however, just to find themselves tangled in a jungle of yet-to-be-defined laws, bureaucracies and other idiosyncrasies of the Hispanic and Brazilian cultures.

Thanks to the current economic crisis in Brazil, which spread around the region, many companies have already withdrawn, while others have significantly reduced their investments. But a handful of powerful players remained, convinced that their continued presence—in one way or another—in a few key countries will secure their share of a future unified and prosperous Latin American market. The case of the Venezuelan MSO SuperCable, partially owned by American MSO Adelphia Cable Communications is a good example. Foreign involvement in the enterprise goes well beyond the 20% limit imposed by the government, as another 20% share is owned by Ecuador’s Eljuri Group, whose American backing is not at issue. Eljuri, however, is considered a domestic shareholder, due to the country’s participation in the Andean Pact trade bloc with Venezuela (Dahlson, 1999). This paper reviews the legal environment in which this and other pay-TV companies in the region are striving to secure the American financial backing while lobbying to pass foreign-friendly national regulations, as well as region-wide rules that will impact all members of the trade pacts.

From protectionism to open markets Foreign television companies and general investors in Latin American media have been forced to cope with Latin American governments’ various approach, timing, and vision for the telecommunications sector’s structure. Overall, however, researchers have recognized that the general trend for development of the sector has been advancement in stages. In the case of telephony services, the stages seem to go from state-owned monopoly to private “transitional monopoly,” and finally, to competition (Harbrecht et al., 1994). And, while less studied, advancement of the subscription television services can be divided in stages as well. From the informal period when the “pirates of the Caribbean” were just an annoying social phenomenon (Hoover and Britto, 1990), to the first government attempts to regulate the industry in the early 1990s to the current stage of business consolidation, the sector in various Latin American countries has reached different stages of development.

As it happened in the United States, the early stage was characterized by small local enterprises. In Brazil, for example, one of the pioneer cable plants was run by father José Antonio de Lima in the small countryside town of Santo Anastácio (Sao Paulo), where 250 subscribers started receiving retransmissions of distant over-the-air channels (Duarte, 1996). In the Caribbean, local entrepreneurs took advantage of their proximity to the U.S. territory to “informally” redistribute American TV signals then freely available from the U.S. satellites (Ebanks, 1989). The proliferation of pay-TV plants and the new democratic tones of Latin American governments then led to the recognition of new channels of communication and the second stage of development. Most countries living this stage regulated the sector, sometimes barring and sometimes fostering foreign participation. The entry of foreign strategic investors into a Latin American country that is opening its telecommunications market has traditionally occurred in a pan-regional mode and as a strategic alliance strategy.

Considering the untested waters of Latin American pay-TV markets, new competitors in this regulated market are often consortia of in-country local partners who interrelate in and know the local business environment, and foreign strategic investors, including telecommunications companies with technical and managerial expertise and financial partners. The formation of joint ventures and associations between Latin companies and their foreign partners may be lengthy and complex, particularly when there are multiple parties on both sides of the venture (many times a financial requirement in the case of expensive multichannel ventures). Companies sometimes undergo negotiations with more than one partner before finding the right fit. Before the commencement of competitive services, two or more strategic alliances that would otherwise compete in the opening market may combine to create a larger and more powerful presence in the marketplace.

Illustratively, American satellite company Hughes Electronics sought an association with Brazilian Globo TV before associating itself to Abril TV and finally appropriating all Brazilian operations. The most powerful media conglomerates from Brazil and Mexico decided, on the other hand, to cooperate in a pan-regional satellite distribution system. Sky Network is a holding formed by Brazilian Globo TV, Mexican Televisa, and the two American giants News Corp and TCI. In Venezuela, SuperCable and InterCable gobbled up most of the local firms to control most of the country (Dahlson, 1999).

Strategic alliances, nevertheless, do not reduce the complexity of the process of getting involved in a variety of local markets. There are several legal and administrative steps to consider. As the joint venture company that will operate in the local market is formed, its partners make capital contributions to fund the start-up of operations. In connection with marketing telecommunications services, for example, the parties also must determine whether, and under what circumstances the venture will be entitled to use trademarks, trade names, service marks and logos of the partners. Barbour (1997) emphasizes that the parties should then sign appropriate license agreements. The local partner may negotiate for the licenses to be exclusive in the country where the joint venture operates with respect to telecommunications services provided by the joint venture.

The joint venture company must obtain appropriate import licenses or authorization from the country. The venture must apply to the telecommunication authority for licenses and permits that it needs to render the services contemplated by its business plan. Even if the venture is formed substantially in advance of the opening of competition in basic services, the venture may apply for permits and licenses related to value-added and other services that are already competitive. Also, contracts with third parties, such as floor space leases, equipment leases, supply purchase agreements and employment agreements with key executives of the new venture company will be executed. If the joint venture plans to construct new network facilities, then the venture must also select a contractor and enter into contracts for design, engineering and construction. With the placement of personnel and the commencement of operations, this is also a critical time in a venture for cross-cultural communication and adaptation, in terms of differing national cultures as well as corporate cultures.

Such corporate organization takes place in the midst of several regional and sub-regional trade agreements that have greatly transformed the legal and bureaucratic environments in which firms do business. Most times, these agreements have put down barriers to commerce and facilitated cross-border transactions. In the specific case of a venture between United States and Mexican partners, NAFTA may afford substantial advantages to the joint venture’s procurement of materials and equipment. Effective January 1, 1993, NAFTA eliminated duties on “category A” items, which included substantial categories of United States-manufactured telecommunications infrastructure and consumer equipment. However, in a few cases, they have also made the market structures even more complex for the already perplexed foreign investor.

This is the case, for instance, of trademark regulations within the Andean region. Andean Pact Decision 344 sets out minimum standards for trademark registration and protection in the member states. One would thus expect the member states would have relatively simple and uniform laws for registering and protecting trademarks. This, however, is not the case. Each member country applies its own procedural regulations for implementing Decision 344.

These procedural aspects, in addition to other factors, creates significant variations in trademark practice from country to country (Hasselt and Fernandini, 1996). Until recently, it has been unclear whether Decision 344, or any part of the Andean Pact, is enforceable in Bolivia. Bolivia has assented to Decision No. 7 of the Cartagena Agreement Round (Andean Pact), which establishes that the terms of the Andean Pact are automatically enforceable in all adhering countries, without the need for ratification by the countries’ legislatures. As a result, Bolivia continued to apply its Trademark Law of 1918, and the decisions of the Andean Pact were not carried out in the country.

Although no single application can register a mark in all five member countries, a first-filed application in one member state can be sufficient to exclude anyone else from using the mark in other member countries. It is thus never sufficient to conduct a trademark search merely in the country in which one wants to register the mark. Searches should be conducted in all five member countries. The Paris Convention itself is in force in Bolivia, Colombia and Ecuador, so these countries grant a six-month priority to trademark applications filed in other Paris Convention countries. In Venezuela, the Paris Convention has been approved by Congress, but is not yet enforceable. In Peru, the Paris Convention has been in force only since April 11, 1995, so Paris Convention priorities can be claimed only for applications filed no earlier than that date.

Due to delays in publications and other political and economic factors, the time required to obtain registration of a trademark (if no oppositions are filed) varies from country to country. It may take as little as four months (in Peru), or as much as a few years (in Venezuela), depending on the current situation.

The Andean group, as well as some of its individual members, is currently negotiating with the Mercosur Group (Argentina, Brazil, Paraguay, and Uruguay). The goal is to integrate both blocs into a common market that would encompass most of South America. It is already challenging to design and implement a strategy for dealing with the economic, political and procedural variations of trademark registration in the Andean Pact countries, and these countries share common trademark legislation. One can expect a much greater challenge when one must also take into account the Mercosur states, which have different trademark legislation. continued

Next page: Foreign Investment in Latin America
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Notes and References

Map: Regional Trade Agreements
Map: Pay-TV Liberalization
Chart: Pay-TV Developmental Phases
Chart: From Open Markets to Regional Pacts: A Common History

Copyright 1999 Transnational Broadcasting Studies
TBS is published by the Adham Center for Television Journalism, the American University in Cairo