Explanatory Memorandum to COM(2016)122 - Conclusion of an agreement in the form of a Declaration on the expansion of Trade in Information Technology Products (ITA) - Main contents
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This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2016)122 - Conclusion of an agreement in the form of a Declaration on the expansion of Trade in Information Technology Products (ITA). |
|---|---|
| source | COM(2016)122  |
| date | 08-03-2016 |
The 'Ministerial Declaration on Trade in Information Technology Products', known as the Information Technology Agreement (ITA), was concluded by 29 WTO Member States at the Singapore Ministerial Conference in 1996 1 . The ITA entered into force in the European Union in 1997 2 .Today, the ITA counts 82 participants, or half of WTO Members, and covers 97% of trade in this sector.
The ITA requires that each participant eliminates and binds customs duties at zero on a Most Favoured Nation basis for all information technology (IT) products covered. The ITA covers about 200 tariff lines, including computers, telephones, but also inputs, components and machinery for the production of IT goods. The duty free treatment given by the ITA participants has played an important role in the enormous development and expansion of trade that the IT sector has experienced over the close to 20 years of application of the ITA. Trade in the sector has quadrupled. However, during this time span technological progress has changed the IT sector beyond recognition, while the coverage of the ITA remained the same.
The above-mentioned ITA Ministerial Declaration establishes in paragraph 3 of the Annex that participants “shall meet periodically under the auspices of the Council on Trade in Goods to review the product coverage specified in the Attachments, with a view to agreeing, by consensus, whether in the light of technological developments, experience in applying the tariff concessions, or changes to the HS nomenclature, the Attachments should be modified to incorporate additional products, and to consult on non-tariff barriers to trade in information technology products. Such consultations shall be without prejudice to rights and obligations under the WTO Agreement”.
In May 2012, several countries proposed to expand the product coverage of the ITA. On 24 July 2015, the text of the 'Declaration on the Expansion of Trade on Information Technology Products' was agreed, with a view to bind and eliminate customs duties on an additional list of 201 IT products.
Subsequently, in accordance with paragraph 5 therein, the participants agreed on the staging commitments for each product listed in document G/MA/W/117. There are currently 25 participating members (or 53 counting EU MS) in the expansion of the ITA, which cover 90% of trade in the items on the list. Annual trade in these 201 products is valued at over USD 1.3 trillion per year, and accounts for approximately 10% of total global trade today.
The agreement in the form of a Declaration on the Expansion of the ITA (and the schedules containing the staging commitments of the participants) was adopted by the Ministers of the participant countries on 16 December 2015 ("Ministerial Declaration on the Expansion of Trade in Information Technology Products"), during the 10th WTO Ministerial Conference in Nairobi.
The Declaration on the Expansion of the ITA will enter into force in the European Union once it is accepted. The objective of this proposal is the approval by the European Union of the agreement in the form of a Declaration on the Expansion of the ITA.
2. LEGAL BASIS
The objective of the ITA expansion is to eliminate duties on IT goods not included in the original ITA. Therefore the ITA expansion covers matters that fall under the common commercial policy. The legal basis of this proposal is Article 207 i of the Treaty on the Functioning of the European Union (TFEU) in conjunction with point (v) of Article 218(6)(a) thereof.
The proposal falls under the exclusive competence of the Union. As a result, the principle of subsidiarity does not apply.
3. RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS
• Stakeholder consultations
Before the start of the negotiations DG Enterprise conducted an SME survey on the expansion of the ITA. The survey was conducted via an established DG Enterprise SME network and its aim was to gauge the response of SMEs involved in production and/or sales of ICT products to the likely removal of tariffs on a series of products as a result of an expansion of the ITA. A questionnaire was submitted together with a semantic list of products.
The majority of companies replied that the elimination of customs duties on the ICT goods on the list would have an effect on the company activity. The majority also replied that lower import prices would mean increased profitability and/or allow the company to better compete in the EU market. Some companies also replied that they would be more competitive on their export market, but others thought that lower import prices for products similar to those produced by the company would increase domestic competition.
• Collection and use of expertise
During the negotiations the Commission kept in close touch with EU industry associations in the sectors covered, such as Digital Europe, the European Semiconductor Industry Association (ESIA) and individual EU-based companies. These associations provided the Commission with valuable information on which IT related products were priorities, and which ones sensitive for EU industry. Member States also regularly provided the Commission with this type of information, coming from national industry associations and individual companies.
• Impact assessment
An economic assessment was made by an external company before the negotiations started. This assessment can be consulted at the following link trade.ec.europa.eu/doclib/docs/2011/april . The authors assessed the trade and economic impacts of extending the product coverage of the ITA based on a defined list of products proposed by the Commission. The estimation of changes in EU trade flows covered (EUR 55 billion more exports covered per year, and EUR 40 billion more imports) was well below the final outcome (see figures below). However, on the basis of these figures the consultants found that European exports and imports would both increase and that by lowering the price of these new ITA products and increasing consumption, extending the scope of the ITA product list will benefit EU companies and improve their possibility for doing business. They also found that extending the ITA to cover more products will benefit consumers of these products since they will face lower prices and a wider set of products to choose from. Combining all these benefits in one single number, they found that there is a welfare gain for the EU economy of around EUR 45 million from eliminating tariffs on the extended list of products. Consumer welfare would increase by EUR 520 million (consumer surplus). As covered exports and imports ended up significantly higher than the estimations, economic effects can also be expected to be larger in reality.
With the final results of the negotiations now known, the Commission has made its own in-house assessment, of which the following three elements are the most important findings:
• EUR 74-150 billion of EU exports are covered by the agreement. This is admittedly a wide range, but this is on account of ex-outs which do not allow assessing with certainty how much of the affected tariff lines will actually be liberalized.
• EU exporters will save EUR 0.8-2.1 billion in duty payments upon their extra EU exports
• As the products under negotiation are crucial intermediates in many EU exports significant value chain effects can be expected. A general equilibrium simulation points to overall exports of goods that may increase by about 0.7% to 1.4% of their baseline value. In terms of current extra EU exports of goods, this amounts to EUR 12-24 billion.
The Commission will also issue its findings in a short report to the Council, which will be presented independently from the memorandum.
In total the European Union is expected to lose EUR 1.5 billion in duties on IT goods. However, this loss will be spread out over a total of 7 years. Most low duties will be eliminated at entry into force, representing 25% of duty value. After 3 years more than 60% of duty will have been phased out, while 30% will only be eliminated after 7 years.