Introduction

One of the most contentious issues in the negotiations on basic telecommunications services in 1997 was the treatment of ‘accounting rates’ for switched international services (these switched services are primarily cross-border telephone and fax services). This arcane pricing system for interconnection between national carriers nearly sank the negotiation because it masked major issues involving financial flows and competition in international services.

The negotiation cobbled together a package that allowed a trade agreement in 1997 even though there was no general consensus about accounting rates. This package included a tacit understanding between the United States and the European Union that the European Union would be silent while the United States used unilateral regulatory measures to change prevailing practices about accounting rates. In return, the United States would have to risk a possible WTO challenge and the possibility of a diplomatic brouhaha about its actions.

Conflict and protest persist over accounting rates and their Internet descendant, international charging arrangements for Internet traffic exchange. Cross-border service disputes may also spill over into the world of wireless networking. The second part of this chapter briefly explains why it is so politically difficult to get good policy and practice on these issues. The third part of this chapter explains the underlying economic significance of the accounting rate debate. The fourth part of this chapter examines changes in the market for traditional international switched services and the issues for the WTO. And the final part of this chapter examines new forms of market distortion and the policy options for regulatory and trade authorities.