TRADE IN INFORMATION TECHNOLOGY PRODUCTS AND THE WTO AGREEMENTS CURRENT SITUATION AND VIEWS OF EXPORTERS IN DEVELOPING COUNTRIES
ITC INTERNATIONAL TRADE CENTRE UNCTAD CNUCED
GENEVA
1999
ii
ABSTRACT FOR TRADE INFORMATION SERVICES 1999
SITC 76 TRA
INTERNATIONAL TRADE CENTRE UNCTAD/WTO Trade in information technology products and the WTO Agreements: current situation and views of exporters in developing countries Geneva: ITC, 1999. xvi, 199 p. Electronic equipment, computers, software, telecommunications, services, Uruguay Round trade agreements. Market study of information technology (IT) products – reviews trade patterns, technological trends and market opportunities for telecommunication and electronic data processing equipment, semiconductor devices, semiconductor manufacturing equipment and computer software; examines impact of WTO Agreements on IT products, manufacturers and exporters in developing countries and makes recommendations on technical assistance programmes to improve IT market access.
English, French, Spanish
(Free to developing countries)
Palais des Nations, 1211 Geneva, Switzerland
The designations employed and the presentation of material in this publication do not imply the expression of any opinion whatsoever on the part of the International Trade Centre UNCTAD/WTO concerning the legal status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries. Mention of firm names does not imply the endorsement of ITC.
ITC encourages the reprinting and translation of its publications to achieve wider dissemination. Short extracts may be freely reproduced, with due acknowledgement of the source. Permission should be requested for more extensive reproduction or translation. A copy of the reprinted or translated material should be sent to ITC.
ITC/P24.E/PMD/MDS/99-VII
ISBN 92-9137-103-3
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ACKNOWLEDGEMENTS
This study forms part of the activities of the International Trade Centre UNCTAD/WTO (ITC) on the export and market development of technology and engineering products. These activities are being implemented by an ITC team led by Nicolai V. Sëmine, Senior Market Development Officer, and comprising Saul Alanoca, Saeed Chaudhry, Jack Desmet, Derek Lancaster-Gaye, Alexandre Liontas, John Lucas, Ian Taylor, Alena Sindelar, Ronald Sheldon and Ram K. Verma. The study would not have been possible without the enthusiastic and professional contribution of Ram K. Verma, Director, Electronics Research and Development Centre of India. Mr Verma summarized the findings of ITC’s 1997-1998 empirical research into the implications of the WTO Agreements for IT exporters. Ian Taylor, Managing Editor, Espicom Business Intelligence (United Kingdom) carried out the technical editing and updating of the original report. Ben Petrazzini (Strategic Planning Unit, ITU) and David H. Stanger (former Secretary-General, EOTC) contributed chapter 8 and chapter 13 respectively. ITC thanks the UNDP offices in China, India, Malaysia, Pakistan, the Philippines and Thailand for their generous organizational and data support. The major conclusions of this study were compiled and verified during business round tables held in late 1997 and early 1998 in India, Malaysia, Pakistan, the Philippines and Thailand. ITC thanks the national counterparts who provided invaluable information and data on the emerging local IT industries and trade. Among these were Amit Mitra (FICCI) and K.K. Mathur (ITPO) in India; M. Supperamaniam (MITI) and Mohammed Ab Halim (MATRADE) in Malaysia; Siddiq Alvi (EPB) in Pakistan; Edsel Custodio (DTI) and Luis Berrei (BETP) in the Philippines; and Pairash Thajchayapong and Pichet Durongkaveroj (NECTEC) in Thailand. Overall strategic guidance was provided by George Papazafiropoulos, Director, Division of Product and Market Development, Martin Dagata, Director, Division of Technical Cooperation Coordination and Paavo Lindholm, Chief, Market Development Section for Manufactured Products, all of ITC. The study was reviewed by Derby Misurelli, WTO Economic Affairs Officer and Secretary of the WTO Committee of Participants on the Expansion of Trade in Information Technology Products.
iv
Leni G. Sutcliffe edited the study. Desktop publishing was handled by Carmelita Endaya and Isabel Droste Montgomery. Financing for technical assistance in the preparation of this study was provided by the Government of Switzerland.
v
Contents
Acknowledgements
iii
Tables
xi
Figures
xiii
Boxes
xiii
Note
xiv
EXECUTIVE SUMMARY
1
PURPOSE AND SCOPE OF THIS STUDY
6
Scope of the Information Technology Agreement Regional and country coverage Desk and field research Analysis
6 7 7 8
PART ONE: THE WORLD MARKET FOR INFORMATION TECHNOLOGY PRODUCTS
9
CHAPTER 1 THE GLOBAL MARKET: SIZE AND GROWTH TRENDS
10
International trade The global market for IT products
10 12
vi
CHAPTER 2 ELECTRONIC DATA-PROCESSING EQUIPMENT
14
Background International trade in EDP products Market for electronic data-processing products Personal computers Workstations Multi-user servers The EDP industry Trends in technology Business trends in the EDP sector
14 14 16 18 20 21 21 23 25
CHAPTER 3 TRADE IN TELECOMMUNICATIONS EQUIPMENT
26
Background International trade The market for telecommunications equipment The telecommunications equipment industry Business trends in the telecommunications sector
26 26 29 30 32
CHAPTER 4 SEMICONDUCTOR COMPONENTS: INTEGRATED CIRCUITS AND DISCRETE COMPONENTS
33
Background International trade The market for semiconductors The semiconductor industry Technology trends Developments in the semiconductor sector
33 33 35 37 39 39
CHAPTER 5 SEMICONDUCTOR MANUFACTURING EQUIPMENT
41
Background International trade The market for semiconductor manufacturing equipment The semiconductor manufacturing equipment industry Technology trends Developments in the semiconductor manufacturing equipment sector
41 41 41 44 45 45
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CHAPTER 6 SOFTWARE AND SERVICES
47
Background The software and services market and international trade The North American market The European market The Asia-Pacific market Computer software industry Technology trends Latest developments in software and services
47 47 48 49 51 52 54 55
PART TWO: THE WTO AGREEMENTS, RELATED DEVELOPMENTS AND FIELD RESEARCH FINDINGS
57
CHAPTER 7 A BRIEF LOOK AT THE WTO AND ITS AGREEMENTS
58
The World Trade Organization 58 Functions 58 Structure 58 The WTO Agreement 59 Treatment of developing and least developed countries on a different footing 60 General Agreement on Trade in Services 60 BTA and ITA 60
CHAPTER 8 BTA AND ITA: THE COSTS AND BENEFITS OF LIBERALIZATION IN THE INFO-COMMUNICATION INDUSTRY
62
Demand for telecommunications services and IT products Implications of the Agreement on Basic Telecommunications Services Evolution of prices and traffic in liberalized markets Performance of incumbent operators Effects of competition on infrastructure development Implementation challenges Implications of ITA Conclusions
64 66 66 68 70 71 73 77
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CHAPTER 9 THE INFORMATION TECHNOLOGY AGREEMENT
79
The Agreement Membership Product coverage Schedules for tariff reduction Impact analysis of ITA Business and government responses Responses to ITA Latest developments in ITA
80 80 81 82 82 83 86 87
CHAPTER 10 AGREEMENT ON BASIC TELECOMMUNICATIONS SERVICES
89
Objectives of the Agreement Trade in telecommunications services Developed countries Developing countries The telecommunications service industry Impact analysis Policy issues Initial business and government responses to BTA
91 91 93 93 94 95 96 97
CHAPTER 11 FOREIGN DIRECT INVESTMENT IN THE IT SECTOR
100
Direction of FDI flows The role of TNCs in ITA Acquisitions and mergers Major trends in FDI An FDI strategy for developing countries
100 101 104 104 105
CHAPTER 12 WTO AGREEMENT ON TECHNICAL BARRIERS TO TRADE
107
Mandatory and voluntary standards Quality system certification Conformity assessment Impact of standards on international trade in ITA products Technical assistance needs of developing countries in quality management
108 109 112 112 114
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CHAPTER 13 CONFORMITY ASSESSMENT IN THE EUROPEAN UNION
115
The free movement of products EOTC: a focal point for Europe’s conformity assessment services Accreditation EOTC forums TICQA database Promotion and Application of Certification & Testing Helping exporters in developing countries
115 116 117 118 118 119 119
CHAPTER 14 ENVIRONMENTAL ISSUES AND STRATEGIES: ITA PRODUCTS
120
Environmental legislation and framework Implications of existing and evolving policies Business community response
120 122 124
CHAPTER 15 THE WTO AGREEMENT: SUMMARY OF FIELD RESEARCH FINDINGS
125
Summary of views by country/region European Union Japan China India Malaysia Pakistan Philippines Republic of Korea Thailand Summary of views by subject area Markets Industry Investment and trade Technology Research and development Transnational corporations After-sales services International trading environment
126 126 129 130 133 135 137 140 142 144 147 147 147 148 148 149 149 149 150
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PART THREE: STRATEGIC DIRECTIONS FOR IT EXPORTERS
151
CHAPTER 16 IT PRODUCTS: EXPORT OPPORTUNITIES AND CHALLENGES FOR DEVELOPING COUNTRIES
152
IT market opportunities Computer software Contract manufacturing in electronics Telecommunications Semiconductors Emerging applications Investment opportunities Technology trends Pricing trends Globalization and industrial competitiveness in ITA
152 152 152 153 153 153 154 154 154 155
APPENDICES I.
QUESTIONNAIRE ON THE URUGUAY ROUND AGREEMENTS AND THEIR IMPACT ON THE INTERNATIONAL TRADE IN INFORMATION TECHNOLOGY
159
II.
SOURCES OF STATISTICAL AND OTHER INFORMATION
162
III.
DETAILED SITC CODES FOR ITA PRODUCTS
164
IV.
EXPORTS AND IMPORTS OF IT PRODUCTS, BY COUNTRY/AREA, 1993-1997
166
EXPORTS AND IMPORTS OF ITA PRODUCTS, BY PRODUCT AND BY COUNTRY/REGION, 1992-1995
172
AGREEMENT BETWEEN EIAJ AND SIA ON INTERNATIONAL COOPERATION REGARDING SEMICONDUCTORS
176
EXPORTS AND IMPORTS OF ATTACHMENT B PRODUCTS AND THEIR GEOGRAPHICAL DISTRIBUTION
181
TELECOMMUNICATIONS REVENUES OF WTO MEMBERS, 1996
184
IX.
STANDARDIZATION BODIES (ISO MEMBERS)
187
X.
EOTC: SOME BASIC INFORMATION
196
V. VI. VII. VIII.
xi
Tables 1. Information technology products: global exports and imports, 1997 2.
10
Information technology products: geographical distribution of trade, 1997
11
3.
Global market for IT hardware products, 1996, 1998 and 2000
12
4.
Global market for computer software, by product category, 1996 and 2000
13
5.
EDP equipment: global exports, by product category, 1995-1997
15
6.
Exports of EDP products, by country/region and by value, 1995-1997
15
7.
Global imports of EDP products, by product category and by value, 1995-1997
16
8.
Imports of EDP products, by country/region and by value, 1995-1997
16
9.
Global market for EDP products, by product category and by value, 1996 and 2000
17
Regional distribution of the EDP market, by value and as percentage of the total, 1996 and 2000
17
11.
Global market for personal computers, by product category, by quantity and by value, 1996-2000
19
12.
Global market for workstations, by quantity and by value, 1996-2000
21
13.
Global production of EDP hardware, by country/area and by value, 1995-1996
22
14.
Top five PC companies, 1997-1998
22
15.
Main vendors of workstations and their global market shares, 1996
23
16.
Global exports of telecommunications equipment, by product category and by value, 1993-1997
27
17.
Exports of telecommunications equipment, by country/region and by value, 1993-1997
28
18.
Global imports of telecommunications equipment, by product category and by value, 1993-1997
28
Imports of telecommunications equipment, by country/region and by value, 1993-1997
29
20.
Top 10 producers of telecommunications equipment, ranked by revenue, 1995 and 1996
31
21.
Global exports of semiconductors, by product category and by value, 1993-1997
33
22.
Exports of semiconductors, by country/region and by value, 1993-1997
34
23.
Global imports of semiconductors, by product category and by value, 1993-1997
35
10.
19.
xii
24.
Imports of semiconductors, by country/region and by value, 1993-1997
35
25.
Global market for selected semiconductor products, by value, 1998-2001
36
26.
Global market for semiconductors, by region, 1998-2001
37
27.
Leading manufacturers of semiconductors, ranked by revenue, 1997-1998
38
28.
Global capital expenditure in the semiconductor equipment industry, by value and as a percentage of the global output of semiconductors, 1990-1996
42
29.
Global market for semiconductor manufacturing equipment, by category and by value, 1993-1999
43
30.
The market for semiconductor manufacturing equipment, by country/region and by value, 1993-1999
43
Global market for computer software and services, by product category and by value, 1996 and 2000
48
32.
Market for software and services, by region and by value, 1996-2000
48
33.
North American market for software and services, by product category and by value, 1996 and 2000
49
34.
European market for software and services, by product category and by value, 1995-1998
50
35.
Selected European markets for software and services, by country and by value, 1996-1998
51
Asia-Pacific market for software and services, by product category and by value, 1996 and 2000
51
Selected Asia-Pacific markets for software and services, by product category and by value, 1996
52
38.
Key indicators on global telecommunications services, 1993-1996
92
39.
European Union, United States and Japan: shares in telecommunications revenue, 1996 93
40.
FDI inflows and outflows, by value, 1990-1997
101
41.
Outward FDI from the European Union, the United States and Japan, annual average by value, 1980-1994 to 1995-1997
101
42.
World’s leading TNCs in the ITA sector, ranked by assets and sales, 1996 and 1997
102
43.
Japanese TNCs, business collaboration by region and by industrial sector, number of alliances, 1996
103
31.
36. 37.
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Figures 1.
Regional distribution of exports and imports, 1997
12
2.
Global EDP market: percentage share of PCs, workstations and multi-user servers, 1996 and 2000
18
3.
PCs per hundred inhabitants
20
4.
Global export trade in telecommunications equipment, 1992-1996
27
5.
Share of wafers, by size, in installed (1992-1996) and planned capacities (1997-2000) for semiconductors
39
6.
Market share of countries participating in BTA and ITA, February 1997
63
7.
The service and hardware growth spiral in East Asia
65
8.
Evolution of long-distance prices in competitive markets, Asia-Pacific region, 1993-1996, and of international traffic per subscriber line (in minutes), 1990-1995
67
9.
Market shares of international telephone traffic (in minutes) of new entrants
68
10.
Revenue and profit in Telstra before and after competition and revenue per employee in incumbent and selected new operators in Japan
69
11.
Teledensity trends in selected Asia-Pacific markets, 1988-1996
70
12.
Regulation and ownership
72
13.
Trade in telecommunications equipment in developed and developing countries, 1990-1995
76
Boxes 1.
Emerging products/technologies
24
2.
Leading manufacturers of semiconductor manufacturing equipment
44
3.
Ranking of the leading 20 software vendors in 1997
53
4.
Software platforms: status and projections
54
5.
Different forms of international trade in telecommunications services
91
6.
Leaders in the telecommunications sector, 1997
95
7.
EU: conformance directives for the free movement of products
109
8.
Environmental problems and solutions in regard to certain ITA products and processes
123
ITA sector: competitive advantages and disadvantages, by country/area
156
9.
xiv
NOTE
Unless otherwise specified, all references to dollars ($) are to United States dollars. The following acronyms are used: ADB APEC ASEAN ATM BTA CASE CDMA CD CD-ROM CEFTA CEN CENELEC CISC CMP CPE CPU DBS DOS DRAM DTH DVD EAC EAL EBRD EC ECMA EDI
Asian Development Bank Asia-Pacific Economic Cooperation forum Association of South-East Asian Nations Asynchronous transfer mode Agreement on Basic Telecommunications Services Computer aided software engineering Code division multiple access Compact disc Compact disc - read-only memory Central European Free Trade Agreement European Committee for Standardization European Committee for Electrotechnical Standardization Complex instruction set computer Chemical mechanical polish Customer premises equipment Central processing unit Direct broadcast satellite Disk operating systems Dynamic random access memory Direct to home (television) Digital video disk European Accreditation of Certification European Cooperation for Accreditation of Laboratories European Bank for Reconstruction and Development European Community European Computer Manufacturers’Association Electronic data interchange
xv
EDP EEIG EFTA EIAJ EMAS EMC EMI EOTC ESCAP ETSI EU EUROBIT FCC FDI FDMA GATS GATT GDP GII GSM GSP GUI HDD HS IC ICE IDC IEC ILAC IMF I/O ISDN ISO IT ITA ITC ITI ITP ITU JEIDA LAN LDCs
Electronic data processing European Economic Internet Grouping European Free Trade Association Electronics Industry Association of Japan European Eco-Management and Audit Scheme Electromagnetic compatibility Electromagnetic interference European Organisation for Testing and Certification Economic and Social Commission for Asia and the Pacific European Telecommunications Standards Institute European Union European Association of Manufacturers of Business Machines and Data Processing Equipment Federal Communications Commission Foreign direct investment Frequency division multiple access General Agreement on Trade in Services General Agreement on Tariffs and Trade Gross domestic product Global information infrastructure Global System for Mobile communications Generalized System of Preferences Graphical user interface Hard-disk drives Harmonized Commodity Description and Coding System (Harmonized System) Integrated circuit Integrated Circuit Engineering Corporation International Data Corporation International Electrotechnical Commission International Laboratory Accreditation Conference International Monetary Fund Input/output (device) Integrated services digital network International Organization for Standardization Information technology Information Technology Agreement (WTO) International Trade Centre UNCTAD/WTO Information Technology Industry Council (United States) International Trade Practices International Telecommunication Union Japan Electronic Industry Development Association Local area network Least developed countries
xvi
MAI MFN MNC(s) MOS MRA NAFTA NC NECTEC NII OECD PC PCB PCS PTO R&D RDBMS RISC SAPTA SCM SIA SITC SME SME(s) SMPS SPS SRAM TBT TDMA TICQA TRIMs TRIPS TNCs UNCTAD UNDP WAN WIPO WLL WTO Y2K
Multilateral agreement on investment (OECD) Most favoured nation Multinational corporation(s) Metal oxide semiconductor Mutual recognition agreement North American Free Trade Agreement Network computer National Electronics and Computer Technology Center (Thailand) National information infrastructure Organisation for Economic Co-operation and Development Personal computer Printed circuit board Personal communication services Public telecommunications operator Research and development Relational database management system Reduced instruction set computer (chip) South Asian Preferential Trade Agreement Subsidies and Countervailing Measures (WTO Agreement on the Application of) Semiconductor Industry Association Standard International Trade Classification Semiconductor manufacturing equipment Small and medium-sized enterprise(s) Symmetric multiprocessors Sanitary and Phytosanitary Measures (WTO Agreement on) Static random access memory Technical Barriers to Trade (WTO Agreement on) Time division multiple access Testing, Inspection, Calibration and Quality Assurance Trade-Related Investment Measures (WTO Agreement on) Trade-Related Aspects of Intellectual Property Rights (WTO Agreement on) Transnational corporations United Nations Conference on Trade and Development United Nations Development Programme Wide area network World Intellectual Property Organization Wireless local loop World Trade Organization Year 2000
Tables Figures may not add up owing to rounding.
EXECUTIVE SUMMARY
Executive Summary
The World Trade Organization (WTO) Agreements on Information Technology (IT) and Basic Telecommunications Services are expected to provide a springboard for economic growth into the twenty-first century. This study aims to place international trade in IT products in the context of the WTO Agreements. It provides an assessment of the current market situation and an empirical analysis of the implications of the WTO Agreements for the international trade in IT products. The study presents the current perceptions of the WTO Agreements among the IT business community and has the major objective of increasing awareness of evolving market liberalization among technology exporters from developing and transition economies. International exports of IT products in 1997 exceeded the combined world trade in agriculture, automobiles and textiles. Global exports of IT products in 1997 amounted to $681 billion, while imports were valued at $618 billion. In terms of exports, electronic data processing goods accounted for 37%, semiconductors 20% and other components, 20%. The European Union (EU), the United States of America and Japan are the main exporters; EU and the United States are also leading importers. Japan, the Republic of Korea, Singapore, Hong Kong (China), Malaysia, Mexico and Thailand are net exporters, whilst EU, Canada and the United States are net importers. Taiwan Province (China), the Republic of Korea, Singapore, China, Hong Kong (China) and the Philippines among developing nations have emerged as significant players in the international trade in IT products. In 1998, the global market1 for the hardware products falling within the scope of the WTO Information Technology Agreement (ITA) was valued at an 1 The global market is equivalent to the sum of the sale of all goods or services within a specified product sector, comprising all goods or services produced and sold within every individual national market and all goods or services sold across international markets. The value of the global market or individual markets may differ from the value of trade, owing to the inclusion of goods or services produced and sold domestically. Values have been calculated according to the final selling price of the product to the customer.
2
EXECUTIVE SUMMARY
estimated $1,095.95 billion. The market is expected to expand to $1,364 billion by the year 2000. The computer industry will be a major impetus for this growth, with the market for computer software expected to increase to $450 billion by the year 2000, and the market for computer hardware forecast to reach $485 billion. Semiconductors, telecommunications equipment, and semiconductor manufacturing equipment should present market opportunities worth $370 billion, $135 billion, and $38 billion respectively in 2000. The United States, Japan and EU hold more than 80% of the global market and a major share in world production and exports. Companies from these countries/areas dominate the ITA market in semiconductors, telecommunications, computer hardware and software, as well as in semiconductor manufacturing equipment. Transnational corporations (TNCs) hold a large share of the markets, production and investment in this knowledge-intensive sector. Of the leading 100 TNCs in 1997, 22 were in the electronics sector. Among these, eight originated in the United States and EU respectively, and six in Japan. Companies based in the United States dominate the sectors for high-end computers, semiconductors, telecommunications, computer software, and semiconductor manufacturing equipment. The globalization of the IT industry has led to the gradual elimination of wholesalers. The large TNCs, which dominate ITA production, have their own marketing organizations, strategic business alliances and authorized distributors. The role of supermarkets, mail-order houses, IT system integrators and electronic commerce via the Internet is increasing in this intensely competitive market environment. The IT manufacturing industry is expected to continue to relocate to areas where it can operate cost effectively. While developed countries are likely to maintain their core competencies in high-technology areas, developing countries will find opportunities in outsourcing and skills-intensive sectors such as research and development (R & D), software applications and services, repair, maintenance, installation, commissioning and the production of components. Many ASEAN (Association of South-East Asian Nations) and other Asian countries have already geared themselves to take advantage of mass production opportunities. The IT industry is knowledge-intensive and characterized by rapid obsolescence. Product life cycles are short, in some cases less than a year. Companies from the United States, Japan, EU, and some of the more advanced developing countries hold the technological advantage, having invested heavily in R & D to maintain their lead over small and medium-sized enterprises (SMEs). The major companies spend about 8% of their turnover on R & D. The leading
EXECUTIVE SUMMARY
3
companies also maintain their technical superiority through strategic acquisitions or mergers of companies or technologies, which increases their competitiveness. The WTO system, which emerged from the Uruguay Round of trade negotiations conducted between 1986 and 1994, comprises three main legal instruments, all of which have a bearing on the information technology sector. All WTO members are required to implement the rules prescribed by these main Agreements which are listed below: r
General Agreement on Tariffs and Trade (GATT 1994) and its associate Agreements which lay down multilateral rules applicable to trade in goods. Four basic rules are embodied in GATT 1994: the protection of domestic industry through tariffs, the binding of tariffs, the principle of non-discrimination through both the most-favoured-nation (MFN) rule and the national treatment rule.
r
General Agreement on Trade in Services (GATS), which establishes a framework for liberalizing trade in services.
r
Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which lays down uniform standards for intellectual property rights.
The impact of the WTO Agreements on the international trade in information technology products is pronounced. The implications of the TRIPS Agreement for computer software and semiconductors, of the Agreement on Trade-Related Investment Measures (TRIMs) for the proliferation of manufacturing activities, telecommunications services and balanced trade development, and of the Agreement on Technical Barriers to Trade (TBT) for inducing confidence in various certification systems, are significant. The Agreements on Implementation of Article VII of GATT 1994 (Customs Valuation), Subsidies and Countervailing Measures (SCM), Implementation of Article VI of GATT 1994 (Anti-dumping) and the Application of Sanitary and Phytosanitary Measures (SPS) have an impact, as has the plurilateral Agreement on Government Procurement. Since the conclusion of the Uruguay Round further agreements have been negotiated, including the Agreement on Basic Telecommunications Services (BTA) and the Information Technology Agreement (ITA). The principal objective of BTA is to liberalize trade in basic telecommunications services and to enable countries to take advantage of this technology by opening up domestic markets to foreign competition. Embodied in the WTO Ministerial Declaration on Trade in Information Technology Products, ITA went into effect in March 1997. It provides for its participants to eliminate customs duties and other duties and charges on information technology products by the year 2000, on a mostfavoured-nation (MFN) basis.
4
EXECUTIVE SUMMARY
The potential of the opportunities presented by these Agreements is immense. BTA is expected to provide a $1 trillion business opportunity, leading to greater digitalization, cellular mobile telephone services, low earth-orbit satellite communication and value-added services, such as video conferencing, video phones and multimedia applications. The implications of ITA are vast; by eliminating tariffs, an estimated $50 billion - $100 billion could be saved annually, while the market for ITA products will be opened up. During the field research carried out for this study, various concerns emerged among the business community in developing countries over the implications of ITA. These concerns were directed at the added cost of conforming to export and import regulations and the differing documentation and procedural requirements in global markets. The TRIPS Agreement also aroused negative reactions, in that it would not only increase the cost of technology acquisition, but also block re-engineering and the development of applications. National reactions to ITA have been mixed and largely dependent upon a country’ s status as a developed or developing nation, the level to which its trade policy has already evolved and whether it is currently a net importer or exporter of IT products. Even within a particular country or region, reactions may differ. Amongst the areas covered by this study, both ends of the spectrum can be seen. Broadly speaking, reactions in Japan, EU, Singapore and China were largely positive, while in the Republic of Korea, India and Malaysia the response was mixed, often with government and industry taking differing views or with disagreement existing between different industry associations. At the other end of the scale, ITA has aroused a negative response from elements of the business community in Thailand. Local manufacturers and exporters felt that the domestic IT industry is at too early a stage of development to compete effectively under the Agreement and is likely to benefit less from it than competitors from developed nations. The response from some least developed countries (LDCs) indicates that ITA will have little effect as they are hardly involved in the manufacture of ITA products. The main benefit to LDCs will be the reduction in the cost of products, resulting from the integration of global markets. Many developing countries of the Asia-Pacific region expressed the view that the ITA discussions gave them narrow margins for negotiating, and they were concerned that ITA might lead to an unbalanced trade situation. While they agreed that the market would expand, they feared that their infant industries could be swamped by foreign competition which had the inherent strengths of large companies in marketing and technology. Furthermore, recognizing the strong bonds between large corporations and their vendors, companies from developing countries were expecting to encounter increasing difficulty in penetrating such ‘ closed’networks, which have the appearance of cartels.
EXECUTIVE SUMMARY
5
Several of the national IT industry associations visited felt that safeguards such as countervailing and anti-dumping, should be sparingly used and only when there are genuine reasons for them. They should not become a means of protecting local industry; they will, otherwise, prove to be more detrimental than tariffs and quantitative restrictions. Many representatives of business communities from developing countries expressed their reservations on the multilateral agreement on investment (MAI) proposed by members of the Organisation for Economic Co-operation and Development (OECD), which they feel will have severe repercussions on their manufacturing capabilities and competitiveness. The proposed agreement covers rights of establishment, national treatment at both pre- and post-establishment stages, and dispute settlement. An integral part of this study involved field research to collect opinions on the WTO Agreements from business and public-sector representatives through direct interviews with senior executives and government officials from Germany, the United Kingdom and Japan; China, India, Malaysia, Pakistan, the Philippines, the Republic of Korea, Singapore and Thailand. The views of the business community and public-sector representatives in the countries visited are incorporated into this study. These views outline the eventual business avenues for import and export agencies and manufacturers in developing countries to enable them to gain more from the challenges and opportunities presented by the WTO Agreements. For exporters they focus on practical supply-side and marketing advice. For manufacturers, they propose the promotion of R & D, building upon core competencies in terms of clustering sites and expertise, and conforming with international standards and regulatory requirements. This study provides an empirical analysis of the implications of the WTO Agreements for the international trade in IT products, and presents the initial views of the IT business community in developing countries.
PURPOSE AND SCOPE OF THIS STUDY
Purpose and scope of this study
This study provides an empirical analysis of the implications of the WTO Agreements for the international trade in IT products, and presents the views of the IT business community in developing countries. The study has the principal objective of increasing awareness of evolving market liberalization among developing country exporters. It has a threefold purpose: r
To analyse the impact of the WTO Agreements on IT producers and exporters;
r
To summarize the challenges and opportunities available to developing country IT exporters in the current business environment; and
r
To synthesize the initial responses from IT business communities in developing countries to the WTO Agreements and business community recommendations regarding their needs in the process of adjusting to the emerging globalization of the IT sector.
This study forms part of ITC’ s activities on international trade and business development in technology-based products. The study’ s coverage was defined in coordination with the WTO Secretariat to include electronic data processing, telecommunications, semiconductors, semiconductor manufacturing equipment and computer software. For these product groups, the study focuses on the identification of major products, trade patterns, industry trends and evolution, developments in technology, emergence of transnational corporations, and the opportunities these developments offer to developing countries.
Scope of the Information Technology Agreement The IT products covered by this study are as follows: r
2
Electronic data processing equipment (SITC 2 7521, 7522, 7523, 7526, 7527, 7529, 7599); Standard International Trade Classification.
PURPOSE AND SCOPE OF THIS STUDY
7
r
Telecommunications equipment and services (SITC 7641, 7643, 76481, 76491);
r
Semiconductors (SITC 7763, 7764);
r
Other active and passive components (SITC 7711, 7712, 7722, 7723, 7724, 7725, 7731, 7762, 7768, 8984);
r
Scientific instruments and others (SITC 5985, 7648, 7788, 8743, 8744, 8747);
r
Office equipment (SITC 7511, 7512, 7513, 7591, 7633, 7638);
r
Computer software products and services;
r
Semiconductor manufacturing equipment (various SITC from 66591 to 88136).
The following product groups were not covered by ITA and are excluded: consumer electronics, medical electronics, military electronics, and control and instrumentation products. An effort was made to align product codes with the Harmonized System codes identified under Attachments A and B of ITA. The detailed SITC codes for the ITA products covered by this study are provided in appendix III.
Regional and country coverage This study covers global importers and exporters of IT products and provides information on the major national and regional players, including the United States, Japan, Canada, the European Union, the Association of South-East Asian Nations, the Central European Free Trade Agreement (CEFTA), the South Asian Preferential Trade Agreement (SAPTA).
Desk and field research The desk research consisted of the following steps: r
Collection of data from published sources, reports and the Internet;
r
Identification of the individual WTO Agreements with an impact on IT;
r
The preparation of a questionnaire and its distribution to selected trade and industry organizations, government bodies, associations, importers and exporters, to obtain their views and reactions;
r
Identification of international organizations, trade and industry associations, export promotion bodies, government departments and professional institutions. For the field research, the following activities were carried out:
8
PURPOSE AND SCOPE OF THIS STUDY
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In-depth discussions with target groups dealing with the IT industry in international bodies such as IEC, ITU, UNCTAD, UNDP,3 WTO, and the International Organization for Standardization (ISO).
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Research and verification of data collected during desk research among OECD member countries and in the European Union, and in China, India, Malaysia, Pakistan, the Philippines, the Republic of Korea, Singapore and Thailand. Discussions were held with more than 160 senior government officials and business executives in the countries visited.
The ITC team covered the European continent (including the United Kingdom, Belgium, Germany and Switzerland) from April to May 1997, most of the Asia and Pacific region [including China, Hong Kong (China), India, Japan, Malaysia, Pakistan Philippines, Singapore and Thailand from June to July 1997].
Analysis An analysis was carried out on replies to the questionnaire, the information obtained through personal contacts by the ITC team, statistical and other documentary information gathered during the field research, and trade information from various databases. The findings of the analysis as well as the contributions made by organizations like ITU, the European Organisation for Testing and Certification (EOTC) and Thailand’ s National Electronics and Computer Technology Center (NECTEC) are presented in the various chapters of this study. The questionnaire is reproduced in appendix I and the sources of statistical and other information are listed in appendix II.
3 International Electrotechnical Commission; International Telecommunication Union; United Nations Conference on Trade and Development; United Nations Development Programme.
