Explanatory Memorandum to COM(2005)538-2 - Acceptance of the Agreement on Duty-Free Treatment of Multi-Chip Integrated Circuits (MCPs)

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dossier COM(2005)538-2 - Acceptance of the Agreement on Duty-Free Treatment of Multi-Chip Integrated Circuits (MCPs).
source COM(2005)538 EN
date 28-10-2005
Multi-chip integrated circuits, or “multi-chip packages” (MCPs) are a relatively new category of assembled semiconductors that did not exist at the time the tariff-cutting mechanism of the ITA (the WTO Agreement on Information Technologies) was concluded in 1996. If MCPs had existed at the time the ITA was negotiated, it is most likely that they would have been incorporated into the ITA at zero duty.

In 2004, the major producers of semiconductors based in the EU and elsewhere requested that their respective home jurisdictions, which are grouped together in the Government/Authorities Meeting on Semiconductors (GAMS), grant MCPs the same treatment as other products covered by the ITA. The EU, Japan, Korea, the United States and Chinese Taipei as the five GAMS members endorsed this initiative at the 2004 GAMS meeting. The GAMS members were able to successfully conclude negotiations on an Agreement on Duty-Free Treatment of Multi-Chip Integrated Circuits (the “Agreement”) on 15 September 2005 in Seoul.

The Council had adopted negotiating directives for this Agreement in spring 2005.

In substance, the draft Agreement envisages that all GAMS members reduce to zero the rate of all customs duties and charges applied to MCPs, as defined in the 2007 Harmonised System (HS) of the World Customs Organisation.

The draft Agreement would only reduce applied duties and charges on MCPs, whilst leaving the bound rates unchanged. Importantly, the draft Agreement expressly authorises the Parties, when negotiating a multilateral tariff reduction agreement under the auspices of the WTO, to claim credit as part of their overall balance of concessions when also binding tariffs on MCPs at zero level.

The agreement is expected to enter into force between four GAMS members on 1 January 2006, assuming that domestic ratification procedures can be completed swiftly. Japan already applies in practice zero-level duties and charges on MCPs and is therefore effectively in compliance with the terms of the Agreement. Due to the length of the ratification procedure in Japan, she is expected to join the Agreement in the course of 2006.

For the ratification process, the GAMS members have agreed on a two-step procedure. In a first step, the Agreement would be adopted - subject to later acceptance - by all five GAMS members. Then, once all instruments of adoption have been received by the designated depositary, the agreement would be open to acceptance. The corresponding Commission proposals for two Council decisions are contained hereinafter.

It is envisaged that the Agreement can at a later stage be extended to other jurisdictions manufacturing MCPs, such as China, Hong-Kong, India, Malaysia, and Singapore.