ITP PACT NETS LESS THAN 90% 'THRESHOLD'

9:06 AM Feb 3, 1997

ITP PACT NETS LESS THAN 90% 'THRESHOLD'
Geneva 1 Feb (Chakravarthi Raghavan) -- Plurilateral "technical" discussions, and some bilateral talks, to finalise the agreement to liberalise trade in Information Technology (IT) products, ended late Friday night, with a few new adherents, but not enough to achieve the 90% product coverage sought, according to trade diplomats.

The participants have to decide by 31 March whether to implement the accord, even if the coverage is less than the threshold set.

In summing up the progress of plurilateral talks Friday, the chairman of the group said that a number of parties to the Ministerial Declaration, and two WTO members wanting to join, have made requests for addition to product coverage.

Consultations on these additional requests, and others on the table, are to be taken up in consultations for review of product coverage beginning 1 October 1997.

These include Australia and Switzerland (which also has sought flexibility to sign and join beyond the deadline, given its legal processes). Australia in particular has sought extension of the pact to cover optical fibres and copper wire (used in some special IT cables).

The plurilateral negotiations for liberalising IT products trade occupied the center stage at the Singapore Ministerial Conference of the WTO culminating in a Ministerial Declaration signed by 14 participants (the 12 member-EU being treated as one).

It provides for elimination by year 2000 of all tariffs (and other charges and border levies), in equally staged tariff reductions beginning 1 July 1997, on IT products specified in two annexes.

While there were a number of participants in the talks before Singapore, and at Singapore, the accord and declaration were signed by Australia, Canada, the EC, Hong Kong, Iceland, Indonesia, Japan, Korea, Norway, Taiwan (as a separate customs territory negotiating entry into the WTO), Singapore, Switzerland, Turkey and the United States.

Since then, New Zealand which could not join the agreement in Singapore (its post-election government was still in the making then), and Costa Rica have agreed to sign on -- with Costa Rica having sought, and got assurances over flexibility for it in the target date.

Malaysia, a big 'player' not yet in the pact but which accounts for nearly 5.5% of the world trade (imports and exports) in this sector, is now expected to join. The trade is mainly in semi-conduct chips, where it imports chips for further processing before export.

Separately, it has also agreed to make an "offer" in basic telecoms.

As a country pushing to establish an Information Technology Super-highway corridor and center (at the planned new Capital Putrajaya project), and trying to attract major US IT firms to locate there, Malaysia is clearly intending to join the two pacts, lest its keeping out send a "wrong signal" to the IT firms.

It is not clear whether Thailand will ultimately decide to join.

Among the other ASEAN members, Indonesia and Singapore are parties to the Singapore agreement.

Mainly, at EC's insistence, the IT accord's threshold for entry was put at adherence by participants representing "approximately 90 percent" of world trade in such products.

The Annex to the Singapore Declaration provides that parties are to meet no later than 1 April 1997 to review the state of acceptances and assess the conclusions to be drawn.

While aiming for "approximately" 90 percent coverage, the Annex provides that in assessing the outcome (and allow entry into force), if the percentage "falls somewhat short" of 90, participants may take into account the extent of the participation of States or separate customs territories representing for them the substantial bulk of their own trade in such products.

These terms seem to provide some flexibility for the major players to go ahead.

The agreement provides for periodic reviews for extending the pact to other IT products. Among other things, such reviews are intended to see whether the coverage could be extended in the light of technological developments and for review and elimination of non-tariff barriers.

The ITP accord, and the Singapore Declaration, provides for an institutional framework for the periodic review and consultations on this which is to be done under auspices of the WTO's Council of Trade in Goods.

There are efforts by the major participants to persuade among others India and Thailand, which participated in the talks before and at Singapore (but did not sign on), and also some of the major Latin American countries.

Except for Costa Rica, none of the members from the Latin American and Caribbean region have joined. Brazil and other leading Latin American countries have shown no willingness to join, though some reports say that Argentina (within the MERCOSUR) is inclined, provided its other Mercosur partners will go along.

While coverage of products mainly traded and exported by them, the US and the EC have joined in excluding electronic consumer products which many developing countries produce for domestic consumption and also export (based on imported inputs mostly) and where they have some comparative advantage because of labour costs in value added.

As one observer noted at Singapore, the drive for liberalisation of IT products trade is like the old GATT liberalisation drives -- when tariff barriers on manufactures were brought down, but not on labour-intensive manufactured exports of developing countries -- textiles and clothing, leather and leather products etc.

Those not parties to the ITP accord will be weighing whether to join or not, in the light of any present or future benefits and obligations.

The accord, to be reflected in country WTO/GATT tariff schedules of participants, means that its benefits will be available to all WTO members, whether or not they are parties.

While those having some small exports in these products, may thus have a "free ride", the other side of the coin would be whether they would be able to be part of the "institutional arrangements" and so try to have some say in extending coverage in the future.

It is a very difficult choice to make - between trade theory and trade practice, and on judgements about present and future costs of unilateral liberalisation of IT inputs they have to import for local production and/or export and binding them in the WTO.

Judged by the 49 years of the functioning of the trading system (the old GATT and the 2-year old new WTO), trade practice is that the leadership of the system, behind the smokescreen of talk of 'free trade', function on the basis of neo-mercantilism -- seeking to break down trade barriers abroad where they have comparative advantage, and drawing up new barriers where they have none or are losing.