ITA-II tentative accord not commercially meaningful

Over 50 developed and developing countries have struck a deal to further free up trade in information technology-related products, but the gains to be delivered by the agreement may have been overstated.

by D. Ravi Kanth

GENEVA: A tentative agreement reached among a core group of developed and developing countries on 18 July to expand the existing Information Technology Agreement (ITA) by adding 201 new tariff lines will not be commercially meaningful, trade envoys told the South-North Development Monitor (SUNS).

The agreement on an ITA-II excludes from the final list of products several big-ticket items such as liquid crystal display (LCD) monitors and various other hardware items used in mobile telephones, the envoys added.

Contrary to the astronomical claims made by the WTO Director-General Roberto Azevedo and the United States Trade Representative Michael Froman that ITA-II will generate a trade turnover of $1 trillion, the actual gains will only be a couple of billion dollars, said a trade envoy familiar with the negotiations.

The original ITA with nil-duty treatment was concluded at the WTO’s first Ministerial Conference, held in Singapore in 1996.

But ITA-II, which was wrapped up at the official level in July due to pressure from a major developed country and the WTO Director-General, omitted what would otherwise constitute core ITA products such as LCD terminals and other state-of-the-art IT products.

Moreover, the agreement was largely based on the bilateral agreement reached between the US and China last year, and some major countries refused to add new items that were not in the US-China agreement.

Consequently, South Korea had to prune its list of products down, leaving out a number of products such as LCD terminals and other items for the sake of a compromise in which Seoul was able to get zero-duty treatment only for lenses used in complex electronics products in the Chinese market.

In a give-and-take compromise, South Korea gave up its demand for LCD terminals, valued at some $10 billion, in return for securing access for an item such as lenses with low turnover of about $0.5 billion. Seoul also secured a concession to place some defensive items such as two medical devices in the ex-out category. The ex-outs refer to a sub-category for a main harmonized tariff line with the specific description of the ITA products.

Consequently, low-end medical devices exported by China to South Korea will get reduced access into the Korean market, while the high-end medical devices from US companies are already covered in the Korea-US bilateral free trade agreement.

Approval

The core group of countries engaged in the ITA-II negotiations needed their capitals to approve the final list of 201 tariff lines by 24 July.

[The EU, as the chair of the final round of the ITA-II negotiations, subsequently called for an ambassadors’ meeting on 24 July to confirm with participants the approval by capitals of the “Declaration on the Expansion of Trade in Information Technology Products” and the list of products.

[Informing the WTO membership about this development at a 27-28 July WTO General Council meeting, the EU said that, out of the 25 participants in the ITA-II negotiations (representing 54 WTO members, counting the 28 EU member states and the EU), 22 participants have already confirmed their acceptance of the Declaration and the list.

[The participants who have accepted the list are: Albania, Australia, Canada, China, Costa Rica, EU, Guatemala, Hong Kong-China, Iceland, Israel, Japan, Malaysia, Montenegro, New Zealand, Norway, Philippines, Singapore, South Korea, Switzerland, Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu (Chinese Taipei), Thailand and the US.

[According to the EU, the remaining three participants (reportedly Mauritius, Turkey and Colombia) are still undergoing the internal domestic procedures for approval but hope to be able to confirm soon.

[The EU said that the Declaration provides for a roadmap which should allow participants to finalize the overall negotiations in time for the Nairobi Ministerial Conference of the WTO in December.

[The negotiations on staging, i.e., timeframe for implementation, will start in September with the objective to finalize them by October, so as to allow every participant to produce draft schedules by 30 October and to verify and approve other participants’ draft schedules by 4 December, it added.

[Under the Declaration, the parties shall apply three-year staging in four equal annual reductions of customs duties, beginning in 2016 and concluding in 2019.]

After sustained negotiations between negotiators from South Korea and China at the EU mission in the week of 13 July, the EU offered a compromise to settle an agreement to include only lenses under the HS-6 classification.

The final deal involved give-and-take as between South Korea and China, said a trade envoy familiar with the negotiations.

Nevertheless, ITA-II will have a systemic effect because of proposed changes, said another participant in the talks.

At a meeting of ITA-II trade envoys on 18 July, the EU Ambassador Angelos Pangratis circulated the final list of 201 tariff lines based on the HS-6 classification that includes several ex-outs.

“During the last few days all sides have demonstrated the necessary leadership and flexibility that allowed for this important outcome,” Pangratis said in a press statement.

Chinese Taipei expressed sharp concern over the final list of products, suggesting that its products of interest have not been taken on board.

But China and South Korea, the two main parties who had been unable to come to an agreement on some dozen core ITA tariff lines for the past nine months, expressed satisfaction on the final list of products, said a participant familiar with the meeting.

The US-China bilateral agreement became the backbone of ITA-II, with other countries merely securing inconsequential gains here and there. From an initial list of some 350-odd items, the final list is pruned down to 201, because of China’s demand to remove many items. (SUNS8066)                            

Third World Economics, Issue No. 598/599, 1-31 August 2015, pp10-11, 25