For the IT industry, the Information Technology Agreement (ITA) is a confirmation of the fundamentally global nature of the product. Theoretically, the ITA will abolish tariffs and open up free trade in IT goods across the globe, with both the industry and consumers benefitting from cheaper technology.
The ITA is sponsored by the US, and is purported to have the enthusiastic backing of Canada, the EU and the 18-member Asia Pacific Economic Co-operation group (Apec). It aims to remove tariffs on most IT and some telecoms products by 2000, starting with a selected list of goods in 1997.
The designated products, in what would be the biggest free trade deal ever undertaken for a single industry, include semiconductors and integrated circuits, computer hardware and software and telecommunications equipment. Liberalisation would lead to an estimated #180 billion to #300 billion of international trade a year.
The first ministerial conference of the 126-member World Trade Organisation (WTO) was held in December in Singapore. Agreement was reached between the EU and the US on cutting tariffs for IT product. A number of other countries, including Japan, Canada, Korea and Indonesia, are interested in joining the deal.
The more countries that can be persuaded to participate in such a scheme the better. But in the run-up to the conference, a row between the US and the EU was seen by some as a harbinger of just how complex and potentially explosive negotiations on such a deal would inevitably be ? with each nation jockeying for the position best suited to its own home market?s particular needs.
The EU accused the US of jeopardising the future of a deal by its demands that some key IT and telecoms products be left off the free trade list after lobbying by home producers. The list includes capacitors, fibre optic cables, photocopiers and graphic display tubes used in computer monitors.
The US denied the allegations, but in turn has shown annoyance with the EU?s seeming reluctance to put software on the list, particularly on CD-Roms. The EU responded by allowing the removal of duties on computer programs, but balked at the US? demands for recorded films and music to also be included.
Indonesia, meanwhile, has expressed interest in the ITA but wants assurances from the West that it will be given enough time to reduce tariffs. The Philippines is also willing to co-operate on a free trade agreement but wants the list of duty-free IT products extended to include fibre optic cables, loudspeakers and amplifiers, switches and plugs exceeding 1,000 volts, microphones and other computer frames and plastic casings.
For the UK, the ITA is an important step forward towards the government?s real target of the total abolition of tariffs on all goods by 2025. A representative of the DTI says: ?Our aim is for global free trade by that date. We have picked IT for an initial major step forward be-cause it is fundamental to the competitiveness of the UK and all economies, particularly in view of its huge growth so far and its future potential.?
IT products represent a significant slice of the total trade cake for the UK. Annual revenue from exports is #16.6 billion and from imports, #19.2 billion. The US also has much at stake, with #64 billion of IT exports a year and an industry which employs a workforce of 1.8 million people.
The elimination of tariffs, currently running in the UK from 3.7 per cent on computer products and from seven per cent for telecommunications products, would bring significant benefits to the industry.
The Federation of the Electronics Industry (FEI) has been at the fore of lobbying for the removal of tariffs. John Dodd, director of information and communications technology at the FEI, explains: ?It would mean that the UK, which manufactures for international consumption, would become more competitive. It would give us better export opportunities overseas because markets would not be protected against outsiders and our products would be cheaper.?
But while agreeing that the increase in global trade would be highly beneficial, Keith Warburton, executive director of the Personal Computer Association, argues that that same benefit will be wiped out by the very factors influencing the agreement?s success. ?Costs will fall for all participants, not just the UK.?
Warburton also feels that there might be unwelcome repercussions at home. ?It will be taking money out of the government?s pocket, so what is taken out will be replaced by another tax, though it might be a more equitable tax.?
But the industry as a whole believes that besides substantial trade benefits, the ITA would have another important benefit. It would bring to an end the current confusion and ensuing arguments over the classification of products such as the reclassification of CD-Roms from the computer bracket into the 14 per cent tariff bracket of consumer goods and also of Lan equipment from the lower tariff bracket into the telecommunications range.
The rows started in mid-1995 when the EU reclassified Lan cards into telecommunications products with an accompanying hike in duty to 7.5 per cent. This was followed by a decision by the EU?s nomenclature committee to reclassify CD-Rom drives from data processing equipment into consumer electronics, raising tariffs from 3.9 to 14 per cent.
Then in February 1996, the nomenclature committee went a step further and reclassified six main Lan equipment products into the telecommunications band, which outraged manufacturers and suppliers. They accused the EU of jeopardising the steady global progress towards free trade and of hitting the IT industry at a vulnerable period of low margins and uncertain demand.
Following the controversy, the World Customs Organisation ruled that CD-Roms should be reclassified as computer products. But its recommendation is not legally binding and the final decision lies with the EU.
In theory, CD-Roms are still classed as consumer goods, but in practice a dispensation is in operation bringing the product down to the lower computer classification duty. But Dodd says that classification remains a grey area. ?You will get a multimedia PC, for example, and while the industry will call it a computer, Customs and Excise will classify it as a consumer product.?
Paul White, trade and customs consultant for Digital, agrees. The hikes in duty on Lan equipment and multimedia products cost Digital an estimated #16 million to #20 million a year. White says: ?The ITA should present at least a partial solution to some of the classification disputes currently going on due to increasing product convergence.?
But if the ITA is to work, observers say it has to include, at the very least, 90 per cent of the IT market along with the major producers and consumers of IT equipment around the world. Major supp-orters would have to include South Korea, Japan and the likes of Malaysia and Singapore which have already scrapped many of their tariffs on IT.
White says: ?Despite the Uru-guay round of the Gatt talks, tariffs are still significantly higher in the EU than in many other countries, including on products such as chips, which we obviously need to import and which still attract up to 14 per cent duty.
?We also trade in South Africa, Israel, Switzerland and Norway, which have significantly higher rates of duty even than the EU. It is not uncommon to pay duties in the region of 20 to 25 per cent in a number of countries, which makes our products that much more expensive.
?If you are looking at distribution costs overall, you?re talking about 40 per cent of the cost to the customer being made up of duty and distribution. So it?s essential that all of these countries participate.?
A number of telecommunications products are included on the ITA list. But some observers fear that countries will be keen to protect highly lucrative home markets at the expense of competitors, caving into pressure from domestic producers.
Dodd agrees: ?Tele-coms is a particular area of concern to us because it is seen as a negotiating point by some countries wanting to protect their home industries.?
One of the chief proponents against such protectionism would be the UK, a long-time advocate of free trade, which would benefit from such a policy, admits White.
?What the EU and the UK would be seeking to do through the ITA is to redress the balance of trade whereby Asian-Pacific nations tend to export far more IT products than they import and the UK and western nations import more than they export.?
Currently, EC statistics reveal that the EU imports about #70.5 billion of IT products against exports of #41 billion. The US imports #107.6 billion against exports of #64 billion.
The picture shifts dramatically the further east one travels. Japan imports #10.2 billion of IT products against an export revenue of #66 billion; South Korea imports #11.5 billion against #15 billion of exp-orts and the Asian countries? total IT import bill is #33 billion against a #61 billion revenue for exports.
But many observers argue that what is also important is the fact that IT is intended, by its very nature, to be a global entity whose expansion should not be impeded by protectionism. It is only by free trade, proponents argue, that countries can gain access to the techno- logy they need to expand.
Tony Speakman, UK country manager at Claris International, says: ?Protectionism is self-defeating because the country that is supposedly protecting its domestic IT industry against outsiders is also protecting itself against access to the best technology in the world with which to develop and thrive as an economy.?
Speakman also questions whether the IT industry needs to be protected anyway. ?I can understand that there might be an argument for a developing nation wanting to protect industries such as food and transport while it builds its economic infrastructure, but there is no such argument for the IT sector. It is not cash-intensive and it is still relatively easy for anybody with a good idea to set up in business.
?If the idea is good, the business will find buyers from across the globe, whether they have to suffer the higher costs imposed by duties or not: IT simply does not need protectionism.?
Despite the pockets of lobbying discontent in some home markets, the ITA is widely supp-orted in the West, but its succ-ess will finally depend on who is willing to participate. White believes it could still go ahead even if some countries fail to sign up, but that its effectiveness would be limited. Never-theless he remains optimistic. ?It stands a good chance of su-ccess because of the number of countries already showing commitment to it.?
Dodd too, remains hopeful that the current trade-offs will produce the free trade framework that the IT and telecommunications industries in the UK want. ?It?s looking good ? too good for any country to miss,? he says.
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