The expansion of the Information Technology Agreement
An economic assessment
The first ITA has been concluded as an MFN-based plurilateral agreement at the WTO Ministerial Conference in Singapore in December 1996 and entered into force in the following year. That means even WTO members that are not participating and consequently do not engage in liberalization efforts themselves are beneficiaries of the tariff cuts agreed. In the almost twenty years that have passed since then, the membership of the ITA has increased steeply. The products covered, however, had not changed at all, despite the IT sector having developed rapidly. For this reason, a sub group of ITA... members embarked in 2012 on negotiations for an ITA expansion in terms of product coverage which were concluded successfully in 2015 and finally agreed upon at the 10th Ministerial Conference of the WTO in Nairobi in December 2015. The ITA expansion covers about 9-13% of current world trade with around 90% of trade in these products taking place among ITA members. The ITA expansion has 25 members (including the EU as one member) and cuts tariffs to zero on a list of 201 products. A large part of the tariff liberalizations occur instantaneously upon entry into force, but for some sensitive products, tariff reductions are staged over up to seven years. A detailed product-level analysis using a partial equilibrium model finds that EU exports in 191 of the 201 products may increase by 0.6 to 1.2 billion EUR, whereas imports may increase by 3.5 to 4.5 billion EUR. This analysis, however, ignores indirect effects of this liberalization. Since many of the products are inputs, direct and indirect, to other economic activities, the true economic effect may therefore be significantly underestimated. A computable general equilibrium analysis which takes due account of these indirect effects finds much stronger effects on trade. Total EU exports of goods and services increase by 5.0 to 8.3 billion EUR whereas imports are not affected significantly, resulting also in a positive effect on the EU trade balance. The effect on EU GDP is also positive, though small. Tariff revenue losses related to the liberalization of the 201 products amount to 1.4 to 1.9 billion EUR, depending on the ultimate coverage of the agreement, which is not fully quantifiable in current trade classifications. With a view to the future, it is shown that the EU would benefit from focussing negotiation capital on expanding the ITA in terms of country overage and so as to reduce NTBs.
- Corporate author(s): Directorate-General for Trade (European Commission) Themes: Information technology and telecommunications, Trade – Competition
- Subject: computer equipment, economic consequence, free-trade agreement, information technology, information technology industry, international agreement, tariff barrier, World Trade Organisation