2008/SOM1/MAG/WKSP/004 Session: 2 Success of the ITA and Product Coverage Issues Submitted by: USA Workshop on Information Technology / Electronics Industry Lima, Peru 20 February 2008
Success of the ITA and Product Coverage Issues Jason Bernstein APEC Workshop on IT/Electronics Industry Lima Peru, 20 February 2008 Main Themes The ITA has been a success, especially APEC countries Product coverage issues threatening to undermine the ITA Old issues which the ITA addressed years ago The ITA is not the problem-it can be expanded but also must be maintained to be effective
The ITA from 1997-2007 Between 1997-2007, ITA membership has more grown more than 2x, from 29 Members and States to 70 Members and States* Increased coverage of world IT trade from approximately 83 percent to 97 percent. Developing countries now make up the majority of ITA Members Most APEC countries are ITA Members; APEC countries make up 35% of ITA membership APEC countries share of world ITA exports continues to grow- at around 70% in 2006 Industry estimates of value of tariff elimination under the ITA as high as $5 billion annually * Includes Member States of the European Communities World exports of IT products 1996-2006 $ Billion 1600 1400 1200 1000 800 600 400 200 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 a Excluding intra-eu(15) Reproduced with permission from a presentation by K. Michael Finger (Counsellor, Economic Research and Statistics Division, WTO) given on 28-29 May 2007
US import prices of IT products a, 1995-2005 160 140 IT products 120 100 Total merchandise 80 60 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 a Office and telecom equipment (SITC definition) Reproduced with permission from a presentation by K. Michael Finger (Counsellor, Economic Research and Statistics Division, WTO) given on 28-29 May 2007 World trade of IT products by region, 2005 All other regions 1.1% Europe 17.6% North America 16.6% Exports Asia 64.7% All other regions 4.4% North America 22.1% Europe 22.3% Imports Asia 51.2% Reproduced with permission from a presentation by K. Michael Finger (Counsellor, Economic Research and Statistics Division, WTO) given on 28-29 May 2007
Leading exporters of IT products, 1996 and 2005 100% 80% 60% Other countries Malaysia Korea Rep. of Singapore a Hong Kong,China a Japan Mexico Malaysia Taipei Chinese Korea Rep. of Singapore a Hong Kong, China a Japan 40% 20% 0% United States United States EU(15) EU(15) China China 1996 2005 a Includes re-exports Reproduced with permission from a presentation by K. Michael Finger (Counsellor, Economic Research and Statistics Division, WTO) given on 28-29 May 2007 Leading importers of IT products, 1996 and 2005 100% 90% Other countries Other countries 80% 70% 60% 50% 40% 30% 20% 10% 0% Mexico Malaysia Korea Rep. of Japan Singapore a Hong Kong, China a China EU(15) United States Mexico Malaysia Korea Rep. of Taipei Chinese Japan Singapore a Hong Kong, China a China EU(15) United States 1996 2005 a Including imports for re-exports Reproduced with permission from a presentation by K. Michael Finger (Counsellor, Economic Research and Statistics Division, WTO) given on 28-29 May 2007
Basic principles of the ITA Sectoral agreement Not based on a balance of concessions Solely a tariff cutting mechanism All products must be covered All tariffs must be reduced to zero Extended implementation period possible All ODCs must be bound at zero Commitments are on an MFN basis Involves modifications to tariff schedules ITA Product Coverage ITA covered a wide range of IT products: computers, hardware, software, telecommunication equipment, semiconductors, etc. Other products (e.g. televisions) were left for another day HS was not up to date with thinking on many products Software: HS codes for laser discs for reproducing phenomena other than sound or image (8524.31) or for reproducing sound only (8524.32) but not for reproducing sound and image Countries were classifying products differently in the HS Computers and computer hardware normally classified in HS 8471 (ADP( machines and units thereof) Some countries classifying CD-ROM drives as video players or computers with TV tuner cards or other audio and video capabilities ies as televisions under chapter 85 with a duty.
ITA Product Coverage Technology evolving faster than the HS nomenclature How to avoid customs classification divergences affecting tariff treatment for existing ITA products Leave room to cover additional products not already covered (e.g. software for video games consoles, televisions) ITA Product Coverage Eliminate duty difference between products that are covered so choice of classification does not make a difference Define covered products as broadly as possible to ensure that all versions of products are covered Product description, not customs classification, determines tariff treatment for some products
ITA Product Coverage Unique approach to product coverage All products classified in HS headings listed in Attachment A All products specified in Attachment B, whether or not they are included in Attachment A Attachment B is a positive list of specific products covered by the ITA wherever they are classified in the HS Attachment A Multiple HS headings at the 6 digit level to ensure that all ITA products were covered (e.g. computers and telecommunication equipment) Breakouts at the 6 digit level to ensure that certain products were covered where HS codes were not specific enough Computer software 8524 39: Discs for laser reading systems Ex 8524 39 Other: for reproducing representations of instructions, data, sound, and image, recorded in a machine readable binary form, and capable of being manipulated or providing interactivity to a user, by means of an automatic data processing machine
Attachment B Positive list of specific products to be covered wherever they are classified in the HS Many products in Attachment B were already covered under Attachment A but descriptions were broader to ensure that products were covered regardless of classification Example: Computers Attachment A HS 8471: Automatic data processing machines and units thereof; magnetic or optical readers, machines for transcribing data onto data media in coded form and machines for processing such data, not elsewhere specified or included Attachment B Computers: The agreement covers such automatic data processing machines whether or not they are able to receive and process with the assistance of central processing unit telephony signals, television signals, or other analogue or digitally processed audio or video signals.
Attachment B Description rules regardless of customs classification divergences. Computers with TV tuners are covered Don t t care how you do it-create a new subheading or classify products under current duty-free HS headings but is still covered Depends on trade officials to maintain commitments. Can t t rely solely on customs. ITA maintenance issue The EC has implemented measures which have reclassified certain products that were falling within duty-free tariff codes into dutiable codes. These duty-free codes were in the EC s s ITA schedules Measures not just reclassifying certain models of products but all a products on the marketplace based solely on incorporating a certain technology or feature Disagreement on whether these are ITA products. Several rounds of o discussions at the ITA Committee. Almost all EC imports of these products come from APEC countries Many APEC ITA signatories are affected by these measures and have raised concerns
Immediate Concerns Duties as high as 14% being applied to same products which were previously getting duty-free treatment Customs classification, not product descriptions, determining tariff treatment for these products. Biblical interpretation of ITA product descriptions EC arguing that these products have evolved out of the ITA Long-term Concerns Logic can be easily applied to any IT product All IT products incorporate new functions and technologies If ITA product coverage is limited only to the product as it existed at the time the ITA was concluded, every year fewer and fewer ITA products will be eligible for duty-free treatment. Potentially stifles innovation and product development Does not abide by either the letter or spirit of the ITA
Future of the ITA Resolving maintenance issue for existing products Additional products (ITA II and E/E sectoral) HS 2007 transposition issues Customs classification divergences Non-Tariff Barriers Additional Members Conclusion HS nomenclature is never going to keep up with the development of o new products and innovative technologies Work together to find ways to enhance market access opportunities for IT products, not reduce ITA product coverage Current ITA provides ways to add new products to its coverage and resolve customs classification divergences. At the same time,, trade officials must continue to work to ensure that products already covered by the ITA, even technologically- sophisticated versions of the same products, continue to be covered
Gracias! Thank you! Agradisiyki!