Eliminating Tariffs on Information Technology (IT) Products: Expanded WTO List on the Horizon
July 24, 2015
| Jesse Goldman and Sabrina A. Bandali
On July 24, 2015 the World Trade Organization (WTO) announced that negotiators had agreed on a list of products and draft declaration to expand the product scope of the 1996 Information Technology Agreement (ITA). The proposed "ITA 2" would eliminate tariffs on 20 additional products, including new generation semi-conductors, GPS navigation equipment, video game consoles, software media (e.g., solid state drives) and medical equipment, such as magnetic residence imaging (MRI) machines and Computed Tomography (CT) scanners. According to the WTO, these additional products account for approximately US$1.3 trillion in annual trade.1 ITA 2 eliminates tariffs on information technology products in 54 countries although the benefits will be extended to all 161 WTO members, as discussed below.
Now that the list and draft declaration have been approved by the instructing governments, the terms of the agreement will be formally circulated to WTO members at the WTO General Council meeting on July 28. The negotiators will spend the next several months working out technical details and determining the timetable for tariff elimination. This work will ideally be completed in time for the 10th Ministerial Conference in Nairobi, Kenya, scheduled for December 2015. If all goes according to plan, the ITA 2 could enter into force as early as July 1, 2016, and signatory countries will have the scheduled tariff eliminations in place by that time. This remains to be seen however, because 5 of 54 countries (Taiwan, Colombia, Turkey, Mauritius, and Thailand) failed to sign ITA 2 on July 24, leaving ITA 2 short of the 90 percent of world trade in these products needed to bring it into force for all 161 WTO member countries. It is likely that the 5 hold out countries will agree to ITA 2 by December 2015.
The ITA began as the Ministerial Declaration on Trade in Information Technology Products that was concluded at the Singapore Ministerial Conference in December 1996. From the original 29 signatories in 1996, the number of participating countries or customs territories has grown to 81, including China with the agreement on ITA 2. The ITA requires participants to completely eliminate duties on listed IT products, which the WTO estimates represents approximately 97 percent of world trade in information technology products. It is arguably the WTO's most significant trade liberalization achievement, as the elimination of tariffs benefits all members of the WTO (not only signatories) through the "most-favoured nation" principle which requires that zero-tariffs apply to all covered IT products, even if the goods are exported by WTO members that have not signed the ITA.
Indeed, the ITA has been celebrated as an example of the kind of trade agreement that is a win-win scenario for both industrialized and developing countries alike. As a "general purpose" industry, information technology products contribute to the growth of productivity and innovation in other sectors. In addition, companies in the sector have created globalized supply chains, which have the potential to drive growth in multiple countries as trade in IT goods increases. However, the terms of the ITA have not been revised since their conclusion in 1996, and as such, have been outpaced by the explosion of innovation and development in the IT sector since that time making the existing ITA framework and coverage less than optional.
In the almost 20 years of the ITA existence, there have been several efforts to expand the list of covered technology products, including through talks that ultimately failed in 1997-1998. The ITA itself requires that expansions in the scope of covered products are to be decided by consensus among participants to the ITA which makes the ITA 2 breakthrough all the more remarkable.2 The scope of the ITA has also been disputed through the WTO dispute settlement mechanism, including through a complaint successfully filed by the US, Japan and Taiwan against the European Communities for goods that the EC argued had technologically evolved and therefore fell outside the scope of the ITA.3 A failure to broaden the scope of the ITA and to bring new signatories on board threatened additional disputes between members and risked undermining the ITA itself.
Accordingly, this month's accord is the first time that negotiating parties have reached agreement, even in principle, as to the products that should be added to the ITA. The WTO praised US and Chinese negotiators in November 2014 "for reaching an understanding that paves the way to an expeditious conclusion" of an expanded ITA at the Asia-Pacific Economic Cooperation (APEC) Leaders' Meeting.4 The APEC 2014 meeting paved the way for ITA 2, because the U.S. – China disagreement about the expanded scope of ITA 2 and lengthy phase outs of tariffs advocated by the Chinese to protect its emerging information technology sector seemed insurmountable until recently. One suspects that a combination of China patience until its information technology sector matured and developed "offensive" interests had much to do with the amount of time it took to reach consensus on ITA 2.
This development is a positive step for the WTO's trade liberalization agenda and a significant achievement for sector-specific initiatives.
- WTO, "WTO members move close to deal on ITA expansion" (18 July 2015), online: WTO, https://www.wto.org/english/news_e/news15_e/ita_20jul15_e.htm.
- WTO, Ministerial Declaration on Trade in Information Technology Products, 13 December 1996, WTO Doc. WT/MIN(96)/16, online: WTO, https://www.wto.org/english/docs_e/legal_e/itadec_e.htm, Annex at para. 3.
- European Communities - IT Products (2010), WTO Doc. WT/DS375/R, WT/DS376/R, WT/DS377/R (Panel Report), online: WTO, https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds377_e.htm.
- WTO, "Azevêdo hails breakthrough on WTO's Information Technology Agreement" (11 November 2014), online: WTO, https://www.wto.org/english/news_e/news14_e/ita_11nov14_e.htm.