The World Trade Organization (WTO) handed the IT industry a bit of holiday cheer and set the stage for a multi-year rollout of tariff reductions.
The WTO agreed to remove tariffs from an additional 201 IT products during its December 2015 Tenth Ministerial Conference in Nairobi, Kenya. The agreement, an expansion of the 1996 Information Technology Agreement and is the result of negotiations between 53 WTO member countries that began in 2012 and continued this past summer, expand the list of IT products covered. The deal now includes: a new generation of semiconductors; GPS navigation systems; tools for manufacturing printed circuits; telecommunications satellites; touch screens; and some state-of-the-art medical products.
"The original WTO Information Technology Agreement — or ITA — was agreed in 1996. It was an innovative agreement, boosting trade in an important emerging sector. Since 1996 exports in products covered by that agreement have more than tripled in value. But, of course, since then new products and technologies have continued to emerge at a phenomenal rate, and this sector has continued to evolve," said director-general Roberto Azevêdo in a prepared statement.
"Trade in the products covered by the agreement is valued at approximately $1.3 trillion each year. This is larger than global trade in automotive products. Or, to take another example, it is larger than global trade in textiles, clothing, iron and steel combined. In fact, this deal will eliminate tariffs on approximately 10% of global trade," Azevêdo added.
The latest deal calls for 65% of tariffs to be lifted in 2016, according to the WTO. The aim is to reach 100% tariff removal over the next seven years.
Eliminating tariffs on these products will support lower prices, create jobs and help boost GDP growth globally, stated Azevêdo. Reuters reported that the deal is expected to give a $190 billion boost to the world economy.
What the ITA does now, as it has done in the past, is level the trading ground. As Azevêdo points out, some IT products have been subject to "very high tariffs" in some markets, as high as 30 and 35% for magnetic cards and video cameras, much higher than the 9 percent average. "With this agreement, tariffs will be reduced to zero — and legally locked-in at zero," he stated, adding that all 161 WTO member countries will benefit from exporting the listed 201 products duty-free to these markets.
While the exact effect of the updated ITA deal has yet to be analyzed, the expectation is that it will increase electronics trade between East Asia, Europe and North America, according to an article posted by The Market Mogul. In the US, exports worth $100 billion a year in products were noted to be affected by the negotiation talks, the article stated. The deal is expected to also lead to openings of new markets, particularly China, one of the signers of the latest deal; China is known to charge the highest levies on such IT goods, and tariffs on semiconductors, for instance, have been as high as 25% in some countries, The Market Mogul article.
How will this affect individual electronics companies? Although the duty-free exports may hit government's revenue stream, a key way countries generate money, companies that don't have to pay these duties may welcome this agreement. We can only hope that the savings and benefits individual companies gain from international trade deals like this will be distributed across the supply chain, and also benefit suppliers as well as consumers.
What do you think of the WTO ITA agreement? How will help or hurt or your company?