K.AVINASH KUMAR SECTION-B, I.B R.

NO-1226110212

TOPIC: ANALYSIS ON INFORMATION TECHNOLOGY AGREEMENT OF WTO

ABSTRACT
The increasing share of IT products leads to the Informational technology agreement between countries and this agreement signed in 1996 is a unique trade agreement. At initial negotiation, it included less than 10 countries but now it includes 71 countries and recently Kuwait signed on the ITA.ITA is one of the factors for rising trade of IT products in international trade. The main impacts of ITA on developing countries and it will help to promote the use and production of information and communication technology products in developing countries. The current challenges faced by the ITA like not covering certain IT products, not covering products that have both IT and non IT uses and the issue of non tariff measures should be solved in future. The proposal of EU on negotiations on non tariff barriers and expansion of product coverage and membership may lead to structural changes in the agreement.

NEED FOR INFORMATION TECHNOLOGY AGREEMENT;

Developing countries face numerous constraints to providing ICT access to their population for taking advantage of the benefits of this general purpose technology. The most serious constraint is the limited affordability of ICT goods and services due to the low income levels of the people in developing countries. To the extent that a non-competitive business environment and limited ICT infrastructure add to the problem, there is the need for creating a more competitive environment and attracting substantial foreign and domestic investments for ICT infrastructure provision. But in most developing countries, government budgets are meager and private investment is limited and is often deterred by outdated legislation and policies that block investment in new and converging technologies like ICT. The ITA aims at addressing some of these issues through liberalizing the trade in ICT goods and services.(2)

ORIGIN OF INFORMATION TECHNOLOGY AGREEMENT OF WTO;

The Information technology agreement was formally concluded at the Singapore Ministerial Conference in December 1996. At that time 29 countries including the 15 EC member countries or separate customs territories signed the declaration. However, it was still unclear at that time whether the provisions of the Declaration would come into effect, as the Declaration stipulated that participants representing approximately 90 percent of world trade would have to notify their acceptance of the ITA by 1 April 1997. The original 29 signatories did not reach this 90 percent trade coverage criteria, as they collectively only accounted for 83 percent of world trade in information technology (IT) products. However, in the ensuing months after the Singapore Ministerial and leading up to 1 April 1997, a number of other countries expressed an interest in becoming participants in the ITA and notified their acceptance. Thus, the 90 percent criteria had been met and the ITA entered into force with the first staged reduction in tariffs occurring on 1 July 1997.Now 71 countries are signed on ITA of WTO and they account for 97 percent of trade.(3)

BASIC PRINICIPLES OF THE ITA;

The ITA is solely a tariff cutting mechanism. While the Declaration provides for the review of non-tariff barriers (NTBs), there are no binding commitments concerning NTBs. There are three basic principles that one must abide by to become an ITA participant: They are

1) All products listed in the Declaration must be covered, 2) All must be reduced to a zero tariff level, and 3) All other duties and charges (ODCs) must be bound at zero. There are no exceptions to product coverage, however for sensitive items; it is possible to have an extended implementation period. The commitments undertaken under the ITA in the WTO are on an MFN basis, and therefore benefits accrue to all other WTO Members.(3)

EFFECTIVENESS OF ITA;
Various indicators could be used to assess its effectiveness such as the number of countries that signed the ITA and the extent to which it has promoted the demand for ICT goods at the global level and across different countries. Given that demand could be met either through trade or through local production, the issue at hand could be analyzed by examining the growth in ICT use, especially, in developing countries. As the ITA has been fully implemented in a phased manner and full tariff reduction by developing countries has been effective only by 2005, the empirical evidence is only indicative. To begin with it may be noted that so far only 63 countries have signed the ITA, although it was only 29 in 1997. Thus with respect to the number of countries joining the ITA, the picture is not very encouraging. Now, we shall explore to what extent trade liberalization, as implemented under the ITA, has resulted in an increased demand for ICT goods by analyzing the growth in world trade in ITA goods. Further, we shall also explore the relative vibrancy of the ICT sector of developing countries that joined the ITA vis-vis the ICT sector of those developing countries that did not sign the ITA. Since the latter group of countries is highly heterogeneous with wide variation in their levels of development, it may Be instructive to compare the performance of developing ITA members non-ITA developing countries with comparable levels of development. Due to the difficulty in obtaining comparable production data across different countries, we shall approach this issue by analyzing the export and import of select ICT goods by these countries. Finally, we shall reflect on the available evidence of ICT use in developing countries. After observing the data it is evident that the developing ITA members as a group performed better compared to the developed ITA members in terms of exports and imports of all the three major product groups. The only exception is in the exports of components where the average growth rate recorded by the developed ITA members is higher than the developing ITA members. But when we compare the performance of developing ITA members with the developing non-ITA countries there is not much room for

cheer. In all, the exports and imports by developing non-ITA countries are found to be much higher than their counterparts who joined the ITA.(2)

IMPACT OF ITA ON GLOBAL TRADE;

Has the ITA made a difference for global trade in technology products and for countries that are members? Theory and practical experience tell us that reducing tariffs leads to more trade, and that trade should grow more for the countries that cut tariffs the most. In fact, empirical evidence of the ITA has been difficult to ascertain. A key issue is that the tariff reductions took place in the context of dramatic increases in global trade in IT products associated with the technology boom up to 2000 and subsequent crash. It is difficult to parse out the changes in trade due to changes in tariffs alone. Looking at just growth in trade, the share of IT products by the end of 2005 was 19 percent, excluding intra EU trade. It was a significant amount, compared to agricultural products (8.4%) and automotive products (7.2). The world exports of IT Products have risen from $600 billion in 1996 to more than $1500 billion in 2006. Growth of export in IT products has been more than growth of export in manufacture. Computers, semi conductors and telecom are approximately 80% of world export of IT products. However, is this growth in trade due to the ITA or due to the way in which the technology itself and reductions in transportation costs allowed the fragmentation of the supply chain in IT production, which would increase the amount of trade? Moreover, given the high elasticity of investment demand for IT products, rising GDP alone would have increased trade in IT products. In principle, the ITA should promote the use and production of information and communication technology products (ICT) in developing countries. But with noncompetitive environments; poor infrastructure, institutions, human capital and policies; the ITA can help, but alone may not be enough. We could not find significant change in the world demand for ITA products after the agreement. Moreover, he determined that some non ITA-members were superior export and import performers in ITA products compared with ITA-members. An alternative econometric approach finds that being a member of the ITA is statistically associated with imports of IT products, controlling for domestic expenditures on IT. In addition, given that many IT products are intermediates in the supply chain of other IT products, being a member of the ITA should reduce tariffs on imported intermediates and thereby increase the competitiveness of IT exports. Indeed, econometric evidence suggests that being a member of the ITA may play this role. (1)

IMPACTS OF ITA ON DEVELOPING COUNTRIES;

Present unequal access to ICT notwithstanding, there is a general consensus, based on empirical evidence across the world, among academics, policy makers, NGOs and multilateral organizations that developing countries could benefit from the new technology as much as the developed countries. Hence the series of policy initiatives and institutional interventions undertaken in the recent past by developing countries and other stakeholders to harness ICT for development are Steps in the right direction. While the diffusion of ICT is crucial to the socioeconomic transformation and building up of competitiveness in the developing world, the present approach appears to consider developing countries as passive adopters. The present approach towards ICT use without due attention to ICT production perpetuates the technological dependence of LDCs on developed countries. Such an approach negates the income, employment and export earning Opportunities offered by this new general purpose technology. The theoretical case for trade and investment liberalization as envisaged under the ITA is elegant. However, preliminary empirical evidence suggests that the returns to trade liberalization have, at best, been modes. Surprisingly, a select set of developing countries who are not members of ITA are found performing better than their counterparts in the ITA, both in terms of exports and imports of ITA goods. No wonder, while developing countries are eager to join the WTO and harness the new technology for development, they are not equally keen on signing the ITA. Hence, if the available evidence is any indication, trade liberalization as envisaged under the ITA, per se, may not enable developing countries to enjoy the fruits of ICT revolution.Developing ITA members could gain much from the ITA and it could become attractive to others if trade liberalization is complemented with built in provision for capacity building, which is currently missing in the ITA.Unlike the earlier general-purpose technologies wherein Western countries held monopoly, several countries in the developing world have gained substantial capabilities in ICT. Yet it is vital to scale up these innovative capabilities and institutionalize a strategic southern system of innovation for reaping economies of scale and scope as well as mutual learning and risk sharing. It is well known that primary commodity producing countries have not benefited from globalization and free trade. Hence, there is a great need for giving impetus to the problem of commodity problematique by developing new avenues of income and employment such as IT enabled services (ITES) and Business Process

Outsourcing (BPO) and other New Economy business opportunities related to ICT. Some countries like India and China have made significant progress in reaping this new opportunity.

CURRENT CHALLENGES OF ITA;

One of the current challenges of ITA is extend ITA it has run into difficulties on four interrelated fronts: coverage, convergence, commitments, and non-tariff-measures. On coverage, the ITA does not cover certain IT products that some participants wanted to include at the time of the negotiations, such as consumer electronics. As well, DRAMs, the focus of much dispute before and after the agreement, were not included. The second issue is convergence: The ITA does not cover some products that have both IT and non-IT uses, such as TVs for multimedia applications, cameras and speakers for video teleconferencing, or other appliances used increasingly in computing and Internet applications. Keeping spirit of ITA coverage alive is tough because technology convergence is merging the third- rail culture issue into the technology domain. The convergence issue is related to the third key concern of commitments. In ITA1, the methodology for scheduling commitments in the ITA attachments does not accommodate the rapid evolution of IT products even though the language of the agreement was Supposed to bind the signatories to such evolution. 28 For example, suppose the capability of a product currently scheduled changes to allow a wider range of functions. E.g. set-top boxes that now have a communications function, but did not when duty-free treatment was scheduled. Does the duty-free commitment carry to the scheduled product or to the functionality of the product, which may not have received duty-free treatment? Thus technological convergence and coverage are merging to impact commitments. Finally, participants have been focusing on non-tariff issues that have come to reduce the benefits of the ITA tariff cuts, including for example, different national safety standards and import licensing requirements.(1)

FUTURE PROSPECTIVES OF ITA;

Recently in the meeting of the ITA committee European Union reiterated its proposal for a review of the ITA, which would cover negotiations on non-tariff barriers and expansion of product coverage and membership. Other countries are favor to the proposal of E.U and The Committee continued discussions on differences of view between participants on the tariff classification of some ITA products. The ITA going to more beneficial to developed countries.

REFERENCES;
i. Catherine l Mann, Brandeis university, xuepeng liu,Kennesaw state university, The information technology agreement;sui generis or stepping stone?, published by WTOHEI and centre for economic policy research, September 2007,Geneva,Switzerland ii. K.J.Joseph,Govindan parayial,Trade liberalization and digital divide; An analysis of the information technology agreement of WTO,idi583,working papers,esocialsciences.com iii. iv. v. http://www.wto.org/english/tratop_e/inftec_e/inftec_e.htm http://tcc.export.gov/trade_agreements/exporters-guides/list_all_guides/exp_005385;asp http://www.tradeforum.org/news/fullstory.php/aid/23_business_views_on_WTO_agreem ents_for_information technology.html vi. http://commerce.nic.wtoita.2htm