The World Trade Organization has recently witnessed significant progress with two path-breaking deals – the Trade Facilitation Agreement adopted in November 2014 and an agreement on information technology (ITA), which was finalized on 24 July 2015.
The original ITA was finalized on 13 December 1996, at the first WTO ministerial conference, held in Singapore. It led to the elimination of import duties on products which in 2013 accounted for an estimated US$1.6 trillion in trade. Initially subscribed to by 29 WTO members, the ITA now covers 81 WTO members (including India), which account for approximately 97% of world trade in IT products.
In the recently concluded deal, the ITA seeks to extend duty-free treatment to 201 additional products, including multi-component integrated circuits, GPS navigation systems, medical devices, software media, machine tools for manufacturing printed circuits, telecommunications satellites and touch screens.
The parties to the deal have agreed to reduce customs duties on these products in four equal annual instalments, starting on 1 July 2016 and ending on 1 July 2019. The deal also provides for extended staging of reductions for some sensitive products, which may be carved out in exceptional circumstances.
Under the deal, each participant will submit a draft schedule by 31 October 2015, detailing how it will provide duty-free treatment to the covered products and make the schedule binding under WTO rules. These schedules will be reviewed and approved by the other participants. The ITA will take effect once the draft schedules of participants accounting for approximately 90% of world trade in the covered goods are approved, which is expected to happen in time for the WTO’s 10th ministerial conference, to be held in December 2015.
The participants have also agreed to meet no later than January 2018 to review and consider updating the list of products covered to incorporate additional products and will intensify their discussions on non-tariff barriers in the IT sector.
The latest deal includes the US, China, Japan, Thailand, Korea, Chinese Taipei and other top IT producers. While participation in the ITA is optional, its implementation will benefit all 161 WTO members, as exports from any member will receive duty-free treatment in the participating nations under the WTO’s most favoured nation (MFN) principles. This means that even countries that have not joined the ITA can benefit from the trade opportunities generated by ITA tariff elimination.
WTO Director-General Roberto Azevedo has said that trade in the 201 products is valued at over US$1.3 trillion per year and accounts for about 7% of total global trade. The duty-free import and export of IT goods will make worldwide IT industries more competitive and increase the efficiency of global supply lines. It will support lower prices including in many other and ancillary sectors that use IT products and inputs and will create jobs, fostering GDP growth around the world. Azevedo also stated that the trade covered in the agreement is comparable to annual global trade in iron and steel, textiles and clothing combined.
The 201 products covered in the ITA are the result of technological developments. Import duties on some of the covered products are relatively high in some markets. For instance, in the US duties on certain parts of telephone handsets are at 8.5%, in China 35% duties are applied on video cameras, in the EU 14% tariff applies on DVD recorders, and in Thailand 30% duty applies on certain magnetic cards.
As regards India, the following tariff rates are currently applicable on a sample of the 201 products covered by the ITA: (a) other plates and film, with any side exceeding 255 mm, 10%; (b) duplicating machines, 7.5%; (c) machines and apparatus for the manufacture of boules or wafers, 7.5%; (d) base stations, nil; (e) headphones and earphones, whether or not combined with a microphone, and sets consisting of a microphone and one or more loudspeakers, 10%; (f) television cameras, digital cameras and video camera recorders, 10%; (g) pocket-size radio cassette-players, 10%; (h) air combat simulators and parts thereof, 10%; (i) sheets and plates of polarizing material, 10%; (j) rangefinders, 7.5%.
The full list of goods covered by the ITA is available on the WTO’s website.
India being a leading exporter of IT services stands to gain from the ITA by capitalizing on the reduction of duty tariffs. At the same time Indian producers of products covered under the ITA (e.g. medical devices) may see large-scale competition in the imports of these products coming into India.
The ITA also opens up an opportunity to attract producers of IT hardware products such as semiconductors and other fast moving products to establish a presence in India, since it will facilitate a level playing field to compete with Asian majors by taking advantage of the benefits in the “Make in India” scheme announced by the government.
Sanjay Notani is a partner at Economic Laws Practice. This article is intended for informational purposes and does not constitute a legal opinion or advice.
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