Information Technology Tariffs to Be Ended by 2000

Key countries reached agreement here today on a pact to eliminate tariffs on most products of the world’s $1-trillion information technology industry, a step that should benefit California’s economy while cutting prices and boosting global production of everything from telephones to computers and CD-ROMs.

While some other countries still must also approve the pact, it appears highly likely that the agreement will hold together and that tariffs on most trade in information technology will be cut to zero by the year 2000.

By the time today’s final declaration for a five-day World Trade Organization ministerial meeting was drafted, 28 countries representing nearly 85% of world trade in information technology products had signed onto the deal. That is not quite sufficient to guarantee its implementation.

But enough countries are expected to join in the next few months to make the deal binding.

The United States, the 15-member European Union, Canada and Japan announced their approval Thursday, and 10 more countries joined today.

Conclusion of this Information Technology Agreement during the 128-member WTO conference was a top goal of the U.S. government. President Clinton personally lobbied many Pacific Rim leaders on behalf of the deal during last month’s summit of the Asia-Pacific Economic Cooperation forum in Manila.

The potential effects of the agreement range from more rural villagers getting telephones for the first time, to making it cheaper to buy computers and surf the Internet, to the opening of more attractive overseas markets for Silicon Valley software producers.

Because electronic components used in computers and telecommunications equipment are also covered, many firms should be able to cut costs enough to simultaneously boost profits and reduce prices on finished goods. Such a development would particularly boost California’s economy because of its many high-tech companies and its consumers who buy high-tech products.

Trade officials here called the pact the world’s most important free-trade step since the 1994 Uruguay Round negotiations, which established the WTO. They also said it is the largest trade liberalization agreement ever concluded for what can be considered a single industrial sector.

In order to become binding, the information technology deal must be formally joined no later than March 15 by enough countries that it will cover at least 90% of world trade in information technology products. Another condition, backed by the European Union, requires that in order for the overall pact to come into effect, agreement must be reached on accelerated elimination of tariffs on some products before 2000.

European Trade Commissioner Leon Brittan said at a news conference this morning that he is “very confident” both these conditions will be met.

U.S. trade representative Charlene Barshefsky said that six countries including Malaysia said they intend to join the pact, and that together these countries account for about 6% of information technology trade.

“There is no question this agreement is a full go-ahead,” Barshefsky said.

Global trade in products covered by the agreement was estimated at $500 billion in 1995, including $90 billion in U.S. exports, which have increased about 40% in the past four years despite significant tariff barriers on many items.

The new pact should make the rapidly growing information technology industry grow even faster, thereby hastening the globalization of the world economy.

“The extent of tariff savings, which would be quite hefty, doesn’t begin to measure the ultimate economic benefit of agreements of this sort, because of simply the more rapid growth in trade that tends to accompany tariff reductions,” Barshefsky said.

The pact covers all kinds of computers, semiconductors and almost all telecommunications equipment.

Among items that were subject to last-minute bargaining this week, the United States gave ground to European Union demands and agreed that music CDs and recorded films would not be covered. All computer software, however, is covered, including anything “interactive” in which the user can manipulate what appears on the screen.

This means, for example, that if manufacturers of digital video discs use the new DVD technology to record movies with multiple endings, and offer viewers the opportunity to affect which way the story line develops as they view a film--something expected to become more common in the future--those products would be covered by the agreement, U.S. officials said.

Computer monitors are covered, but televisions are not--with the difference defined according to a measurement of the sharpness of the screen. Digital photocopiers, which can function like fax machines when attached to a telephone line by a modem, are included.

Many products that are not in the agreement might also be more affordable as a result of the deal. Semiconductors and many electronic components, for example, are important items in cars, and lowering their cost through zero tariffs can affect the final product’s price.

In another key item for the WTO conference, significant progress was made toward the group’s goal of concluding by Feb. 15 an accord on liberalization of telecommunications services, Brittan said.