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Stephen Ezell: ITA Expansion Agreement a Victory for Global Innovation Economy

Stephen Ezell Information Technology And Innovation Foundation
November 14, 2014
The United States and China aren’t the only potential victors to emerge this week from an agreement to expand a two-decade-old list of information and communications technology (ICT) products that can be traded duty-free. The global economy stands to benefit from innovation that would be unlocked by an updated Information Technology Agreement (ITA).

The ITA, a multilateral trade agreement initially launched in 1997, eliminates tariffs on trade for several hundred ICT products. The list of ICT products covered had not been updated since the agreement’s 1997 charter, meaning that scores of breakthrough technologies invented since then — including next-generation multicomponent semiconductors, medical devices and GPS-based systems — were missing from the agreement. Many every-day consumer electronic products, such as loudspeakers, DVD players, and printer ink cartridges, also didn’t make it into the initial ITA.

The agreement reached between U.S. and Chinese officials in Beijing would bring approximately 200 additional ICT products under ITA coverage. Next-generation semiconductors would see the tariffs they encounter in global markets of up to 25 percent being reduced to zero, medical devices such as magnetic resonance imaging (MRI) and computed tomography (CT) scanners would see their tariffs drop from 8 percent to zero, and video game consoles would see global tariffs drop from as high as 30 percent to zero. With the list of products to be included in ITA expansion finalized, the agreement will now be brought before the 54 countries involved in negotiations at World Trade Organization (WTO) meetings in Geneva this December. In addition, timelines for countries to complete the removal on tariffs for these products still need to be determined.

The quick completion of these final phases is in the best interests of all partners. As we explained in The Benefits of ITA Expansion for Developing Countries, ITA expansion will not only help boost exports of ICT products and services. The agreement would lower ICT costs, facilitating the diffusion and adoption of affordable ICT products and services, which boosts productivity and economic growth. And lowering the price of key inputs would help countries field more innovative and competitive software, service and manufacturing industries.

Indeed, a compelling attribute of the ITA is that it generates win-win outcomes for all participants. For instance, ITIF estimates that China would see at least $12 billion annually in increased ICT exports (due to increased global demand for ICT products generated through tariff elimination), while the tariffs encountered by Chinese exporters of ICT products would fall by $8 billion. But the United States would also benefit, with ITA expansion increasing U.S. exports by $2.8 billion, boosting revenues of U.S. ICT firms by $10 billion and supporting creation of approximately 60,000 new jobs. More broadly, the global economy benefits, with the first major liberalization of global trade in more than a decade potentially increasing annual global GDP by as much as $190 billion annually.

These benefits further illustrate the fact that countries that elect not to participate in the ITA only hurt themselves. In fact, the Organization for Economic Cooperation and Development (OECD) recently found that countries not participating in the ITA saw their participation in global ICT value chains decline by more than 60 percent from 1996 to 2009. The reason is simple: ICT products are increasingly produced as part of global supply chains, meaning that intermediate components toward a final product are often added by enterprises across a variety of countries as it works its way toward completion. (This explains why China can at once be the world’s leading importer and exporter of ICT products). If a country maintains high tariffs on imported ICT parts, components or even final products, they’ll simply be excluded from global ICT value chains. The message is clear: countries such as India, Mexico, and Brazil that aren’t participating in ITA expansion (or in the latter two countries cases, even the initial ITA) are going to find themselves at a competitive disadvantage in global markets for the production of ICT products.

ITA expansion represents a significant victory for the global innovation economy. And all countries are well-advised to get on board — those that don’t will be increasingly left behind.

Stephen Ezell is a Senior Analyst with the Information Technology and Innovation Foundation.