On December 12, 2014, negotiations in Geneva to expand the list of products covered under the World Trade Organization (WTO) Information Technology Agreement (ITA) broke down due to China’s refusal to offer minor concessions to Korea and Taiwan in return for keeping LCD panels out of the ITA. The talks, which were previously stalled for more than a year, reached a major breakthrough last month after the United States and China agreed to eliminate tariffs on additional high-technology products under the ITA. The U.S/China deal was expected to set the stage for a formal agreement to be concluded by all participating WTO members before the end of the year, but it remains unclear whether an agreement will be reached and, if so, the breadth of the products covered by the agreement. The expanded ITA has the potential to be the first major tariff-cutting agreement at the WTO in 17 years and could provide substantial economic benefits to the high-tech industries and consumers of such products.
The ITA is a plurilateral trade agreement that obligates participants to eliminate tariffs on a specific list of information technology and telecommunications products, such as computers, telecommunications equipment, semiconductors, software, scientific instruments, as well as most of the parts and accessories of these products. The initial ITA was reached in 1996 by 29 participants, including the United States, EU, Japan and others. Today, the number of participants has grown to 52, representing 80 WTO member states, which account for approximately 97 percent of world trade in the covered information technology products. In 2013, the total amount of import duties eliminated under the ITA was estimated at $1.6 trillion. The benefit of duty-free treatment extends to imports from all WTO members, regardless of whether the member is a signatory to the agreement, in accordance with the WTO’s most-favored-nation rules.
Since the ITA went into force in 1997, global trade of products covered by the ITA has more than tripled, soaring to more than $4 trillion in annual trade. Despite new technological advancements, however, no new products have been added to the original product coverage in the ITA. As a result, many advanced information technology products are not covered by the ITA and are subject to significant barriers to entry in several major markets. In 2012, new efforts were launched by participating WTO members to expand the products covered by the ITA, but talks were halted in late 2013 due to China’s unwillingness at that time to extend the elimination of tariffs to certain sensitive high-tech products.
An expanded ITA could eliminate tariffs on more than 200 additional high-technology products, including certain medical equipment, GPS devices, video game consoles, computer software and next-generation semiconductors. The Office of the United States Trade Representative (USTR) identified the following products that could be covered and the size of the tariff reduction under an expanded ITA:
- Next generation semiconductors – Tariffs up to 25 percent reduced to zero.
- Magnetic Resonance Imaging (MRI) machines -- Tariffs up to 8 percent reduced to zero.
- Computed Tomography (CT) scanners – Tariffs up to 8 percent reduced to zero.
- Global Positioning System (GPS) devices - Tariffs up to 8 percent reduced to zero.
- Printed matter/cards to download software and games – Tariffs up to 10 percent reduced to zero.
- Printer ink cartridges – Tariffs up to 25 percent reduced to zero.
- Static converters and inductors – Tariffs up to 10 percent reduced to zero.
- Loudspeakers – Tariffs up to 30 percent reduced to zero.
- Software media, such as solid state drives - Tariffs up to 30 percent reduced to zero.
- Video game consoles – Tariffs up to 30 percent reduced to zero.
- An expanded ITA would also eliminate import duties on a range of additional technology products including high-tech medical devices, video cameras, and an array of high-tech information and communications technology testing instruments.
Although the U.S./China deal revived the ITA negotiations and helped bring a final agreement within reach, additional concessions must still be made for a final agreement to be ratified by all parties. It is unclear when negotiations will reconvene or what the next steps will be, but what is clear is that an expanded ITA could provide substantial economic benefits to the industries and users of high-tech products.