Information Technology Agreement in Crisis

Consulting Fellow, RIETI

EU to impose tens of billions of yen in new tariffs

Few people seem to be aware that the European Union is about to levy a new tariff, amounting to tens of billions of yen, on imports from electronics makers in Japan and the United States. The EU has eliminated import duties on items such as personal computers (PCs), PC-related devices, cell phones as required under the Information Technology Agreement (ITA), while maintaining high tariffs on that not covered under the agreement, such as televisions, video cameras, home appliances, and audio devices. In recent years, however, the EU has been insisting that, due to the convergence of different technologies generated by technological innovation, some of the items covered under the ITA have evolved into different products from those in the agreement. Thus, it has begun to levy high tariffs on items not subject to the ITA.

Electric appliance store of a decade ago

Imagine you are in a major electric appliance store. You can see all kinds of appliances for sale including TVs, PCs, cell phones, audio devices, and home appliances. Among these products, few, if any, have not seen their functions enhanced or come to have multiple functions, that is, as compared to the products available in 1996 when the ITA was agreed to. Today, we take for granted that we can watch TV programs and listen to music on a PC or cell phone. Many models of washing machine are combined with a dryer, while a microwave often has a built-in oven. If those listed as zero-tariff items under the ITA are de-listed due to the convergence of technologies, as insisted by the EU, almost all such items - PCs, digital cameras, cell phones, etc. - might become subject to import duties, leaving the list empty.

Case 1: LCD monitors for PCs

Liquid crystal display (LCD) monitors for PCs are a leading example of ITA products upon which the EU has begun to levy import duties on the grounds of technological convergence. I wonder if people know that nearly 90% of LCD monitors for PCs currently on the market are equipped with a digital visual interface (DVI) connector. In the case of conventional cathode-ray tube (CRT) monitors, digital signals received from a PC must be converted to analog signals in order to produce images on the screen. In comparison, DVI connectors have enabled the digital-to-digital transmission of signals from the PC and the monitor to generate images. Consequently, LCD monitors for PCs are able to receive digital signals directly, not via a PC, from non-PC external devices, including some of DVD players. Surmising that LCD monitors for PCs are able to play DVDs via a DVI, the EU has been levying a 14% tariff on the import of almost all LCD monitors for PCs, imposing the import duty applicable to non-ITA video monitors to products which should be covered under the ITA.

Case 2: Multifunction digital printers

Another ITA item the EU subjects to an import duty is the multifunction digital printer. While input or output units for PCs are covered under the ITA, photocopying machines are not. Multifunction digital printers broadly range from compact machines for use in the home and small office to large-sized ones for higher volume business use. However, based on features common to all these products, multifunctional digital printers can be defined as PC-related devices that connect to a network to provide functions such as printing, copying, scanning, and faxing. The EU has been disregarding the common characteristics of these machines as network devices and treating almost all such printers as outside the scope of the ITA, and thus subject to a 6% import duty.

Expanding support for efforts toward solving problem

Japan and the U.S., recognizing the weight of the problem, have confirmed their common stance that these import duties should not be allowed. Beginning with a meeting of the ITA Committee in October 2006, the two countries have been urging the EU to remove the import duties on ITA products. Their vigorous efforts, particularly at the World Trade Organization, have gained support from many other signatories to the ITA including Singapore, Thailand, Malaysia, the Philippines, South Korea, Taiwan, and Canada. Support has been expressed not only at a government level; the business communities of Japan, the U.S., Europe, South Korea, India, and Australia also share the stance, announcing a joint position paper in March 2007. At the same time, Japan has been working on the issue through bilateral channels. In December 2006, Akira Amari, minister of economy, trade and industry, sent a letter to EU Trade Commissioner Peter Mandelson, urging an early solution to the problem. Minister Amari also raised the issue during his meeting with Commissioner Mandelson in January 2007.

Blueprint needed for future

Countries and regions party to the ITA, upon conclusion of the agreement, agreed that "each party's trade regime should evolve in a manner that enhances market access opportunities for information technology products" (paragraph 1, Ministerial Declaration on Trade in Information Technology Products). The philosophy the ITA negotiators incorporated into this paragraph has materialized in the form of a remarkable increase in the trade of information and communication technology (ICT) products; the total value of ICT exports exceeded \1.1 trillion in 2003, more than doubling the 1996 amount (UNCTAD, Information Economy Report 2005, at 24). Apart from boosting the trade volume of ICT products, the ITA has made immeasurable contributions to the rapid globalization of the economy, exemplified by, for example, the drastic advances in technical innovations accelerated by the liberalization of trade in IT products, the resulting globalization of supply chains and so forth. It has been 10 years since the ITA was concluded. Whether and how this agreement can continue to contribute to global economic development hinges on the ITA members' ability and willingness to draw a blueprint for the next 10 years by returning to the spirit of those who concluded the agreement.

April 17, 2007

April 17, 2007