Trade in Information Technology

By Abboushi, Suhail | Competition Forum, July 1, 2009 | Go to article overview

Trade in Information Technology


Abboushi, Suhail, Competition Forum


EXECUTIVE SUMMARY

The Information Technology Agreement has been successful in reducing tariffs by all ITA members and increasing trade in IT products. The rise in IT trade was especially strong in Asia whose IT exports grew to more than half of all world IT exports, and China in particular has become the lead IT exporting country in the world. The strong growth in IT trade can be attributed to the nature of IT products and to the impact of IT trade on a country's economic productivity and growth. Countries that have freer IT trade tend to experience more rapid economic development.

Keywords: Information technology, Trade, Tariffs, Information Technology Agreement.

INTRODUCTION - INFORMATION TECHNOLOGY AGREEMENT

International trade was one of the casualties to the global financial crisis of 2009. Japan's exports fell by 50 percent and China's by 17 percent. US exports dropped 30 percent and Germany's by more than a fifth. In the developing countries, it is estimated that 100 million people fell into poverty as a result of the crisis (Brown, 2009). WTO predicted a 10 percent drop in world trade in 2009 aggravating the economies of developing and developed countries alike. One industry that has been especially hurt by the decline in trade is information technology (IT). In India, for example, software exports fell by an astounding 96 percent in the first quarter of 2009 (Computer, 2009). In the United States, IT trade also fell sharply as shown in Table 1. All this is a cause for concern because IT makes up fourteen percent of total world trade, and also because IT trade contributes to trading countries' economic progress.

Fortunately for the information technology industry, and in spite of the sharp decline, the industry did not fall prey to protectionism because it has been protected by the Information Technology Agreement (ITA) which guarantees unprecedented liberalization in IT trade. Twenty three countries signed the agreement in 1996 and implemented it in 1997 for the primary purposes of eliminating national trade barriers (NTBs) and promoting IT globalization and the ensuing economic transformation. In 2007, membership grew to 70 countries who together accounted for 97 percent of world IT trade. To become an ITA member, a country had to eliminate tariffs on all IT products covered in the Agreement.

TRADE IN IT PRODUCTS

Prior to ITA, and in the context of Uruguay Round of GATT negotiations, developed countries reduced tariffs on IT products to an average of 5 percent. After ITA, tariffs dropped to zero. Developing countries, on the other hand, had higher tariffs until ITA was ratified and their IT trade became duty free. This was a departure from their tradition of reluctance to remove trade barriers altogether. For example, and as Table 2 shows, IT products were 7.4 to 19.7 percent of all duty free products in the developed countries but made up 11 to 100 percent of duty free products among developing countries. Said differently, IT products were practically the only duty free products in many developing countries like Costa Rica, Egypt, El Salvador, India, Indonesia and Thailand. This could very well be the impact of ITA which succeeded in removing trade barriers where trade barriers were never removed.

Since the inception of ITA in 1996, world exports of IT products grew by 8.5 percent as measured by nominal dollar values. Using 1996 as a base year, IT exports grew much faster than total manufacture merchandise exports as illustrated in the following numbers:

By 2005, exports of manufactures rose to 186 percent while IT exports rose to 205 percent in spite of the severe decline in IT trade that accompanied the "dot.com" Internet bubble between 2000 and 2003, which resulted in substantial collapse of major players in IT industry worldwide. The non-dollar values of IT exports show larger volumes. Between 1996 and 2005, prices of IT products declined by an average of 6 percent annually when prices of manufactured non-IT products rose by an average of one percent annually. …

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