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Information Technology Agreement (ITA)

07th Oct, 2015

By

Shaheen ViqarDeputy Chief (WTO Wing)

Ministry of Commerce

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Sequence of the Presentation:

• Introduction

• Objectives

• Requirements to join ITA

• Members of ITA

• Beneficiary Countries

• SWOT Analysis

• Benefits of ITA – Global Examples

• Status of Pakistan

• Benefits of joining ITA Club

• Other Benefits

• Current Status

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Introduction

• The Information Technology Agreement (ITA) is a “Ministerial Declaration on trade in information technology products” of Singapore Ministerial Conference held on 9-13 December 1996.

• The ITA is one of the most important international agreements for promotion of information technology.

• ITA is plurilateral agreement which means it is not binding for all WTO members.

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Objective:

The main objective of ITA is to remove all tariffs from IT products inter alia personal computers, telecommunication equipment, software, semi-conductor manufacturing equipment, analytical instruments, semi-conductors and other electronic components.

Requirements for joining the ITA:

Members are required to eliminate tariffs on computers, telecommunication equipment, semiconductors, semiconductor manufacturing machines and other IT-related products.

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Members of ITA:

• To-date, 82 Participants, accounting for 97% of World Trade in Information Technology have acceded to this agreement. These include all developed countries as well as several developing countries such as Singapore, Malaysia, India, Indonesia, Jordan, Korea, Kyrgyz Republic, Mauritius, Oman, Panama, Philippines, Thailand and Turkey etc.

• Pakistan has delayed addressing this issue for nearly 17 years, and has been at a great disadvantage compared to its competitors in this field. In 2001-2002, Pakistan decided to join the ITA but still no decision has been made.

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Beneficiary Countries

India:

• India joined ITA in 1997.

• Its software exports increased from US$ 5 billion in 2000 to US$ 100

billion in 2015.

• The sector has attracted considerable Foreign Direct Investment (FDI)

inflows. Cumulative FDI inflows in computer services (including hardware

and software) from 2000 to 2014 were US$ 30.104 billion, which

accounted for 12.8% of India’s total FDI.

• India aggregated revenues of IT Sector was US$ 130 billion in 2014 and

expected to reach US$ 146 billion in 2015.

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Thailand:

• Thailand participated as a member of ITA in 1996.

• Export and Import value of ITA – 1 products in Thailand has been increasing continuously since 2001.

• In 2011; ITA – 1 export value became US$ 37,278 million; ITA – 1 import value became US$ 35,102 million.

• ICT Workers have increased 37% from 2002 to 424,513 persons in 2010.

• Low tariffs of ICT products encourages greater adoption of ICT

products as well as economy.

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Philippines:

• Philippines acceded to ITA many multinationals established their manufacturing facilities.

• As a result, the country’s electronics exports have been growing rapidly over the years.

• Currently, exports of only electronic items totals approximately US$ 25 billion which exceeds the value of all Pakistani exports.

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SWOT AnalysisStrengths:

• Pakistan has a streamlined government regulatory process and one of the most attractive incentives program for IT investment in the region with zero taxes on IT exports till 2016.

• Pakistan allows 100% repatriation of profits to foreign IT investors.

• Lowest operational cost for software developer and IT services experts.

• Pakistan has more than 15 IT parks with IT-enabled infrastructure with more being planned in future.

• Increasing IT Youth bulge and growing IT literate society.

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Weaknesses:

• There is no need for joining the agreement as those who had already joined the club had captured the whole IT market i.e. 97%.

• Pakistan has no IT related hardware industry.

Opportunities:

• Increase in ICT contribution to GDP.

• Create a competent and vibrant ICT industry.

• Nurture high value adding research, development and innovation activates in ICT segments including cyber security, cloud computing and mobile commerce;

• It is widely accepted that the benefits of IT are mostly related to its usage, not with its production like India and US.

• Expand the scope and coverage of pervasive computing in all spheres of life;

• Become overall globally competitive.

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Threats:

• The Ministry of Industries was apprehensive that without adequate tariff protection, there would be no incentive to set-up IT-related industries in Pakistan.

• FBR has shown reluctance as removal of custom duties and income tax may result in loss of revenue approximately Rs. 8.7 billion annually.

• The ITA annex includes a number of items which are not IT specific but have general or multiples uses like laboratory equipment, machine tools, un-interrupted power supply (UPS), which result into loss of billion rupees on annual basis.

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Benefits of ITA – Global Examples

• The graph shows that trade of IT products around the globe was 100 (indexed) in 1996 which was increased at the level of 260 in 2010, while manufactures excluding IT products trade was 100(indexed) in 1996 and it was increased 220 in 2008 and 210 in 2010.

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• The above graph shows that trade in IT products almost tripled in the last 16 years.

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Source: WTOSource: Reserve Bank of India

The following figure shows leading exporters of IT products by their share in world exports.

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Why Pakistan is reluctant to join ITA?

• There are two main reasons that the Government of Pakistan is reluctant to join ITA;

I. FBR has shown reluctance as removal of duties may result in loss of revenue.

II. Ministry of Industries fears that without adequate tariff protection, there would be no incentive to setup IT related industries in Pakistan

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Are these fears justified?

• Experience of other developing countries shows that because of increased productivity and economic activity created, overall revenue increased several fold. Furthermore, countries that joined the ITA attracted far more investment than those who protected their IT industry.

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Benefits of becoming a member of Global IT Club:

• Increased use of ITA had multiplier effect. • IT capital has a higher return at the aggregate level than other types of capital. • Exports of IT products have been expanding at faster pace than other products.

For example, share of IT products now outweighs that of agriculture or automotive products.

• Developing countries share has already reached more than two-thirds of the total. Only those countries have become part of global value chains (GVCs) which allow unhindered import and export of such parts and equipment.

• Other major benefits have been in various social sectors such as education, environment, agriculture, health.

• Since, Pakistan has stayed out of the global club for information technology products, it has continued to lag behind its competitors in the IT field.

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• As per the USAID report, the customs duty revenue collected on IT products in 2012-13 was PKR 3.4 billion. However, Pakistan can stagger the implementation of the tariff reduction commitment and the consequent revenue impact may be considerable less than the indicated figure over the next 4-5 years since FDI inflows and increased exports are some of the tangible benefits that far outweigh the revenue impact.

• Countries’ experience suggests that trade liberalization in ICT sector resulting from accessing to WTO-ITA has various benefits, not only to the ICT industry but to other sectors of economy, such as;

Increase in ICT contribution on GDP Increase in contribution of ICT Services in trade Nurture high value adding research, development and innovation activates in ICT

segments including cyber security, cloud computing and mobile commerce Create and competent and vibrant ICT industry Become overall globally competitive

Other Benefits:

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Current Status

• Ministry of Commerce has requested Ministry of Information Technology, Ministry of Industries & Production, Federal Board of Revenue and Board of Investment to appraise their decision whether Pakistan has to accede ITA or not.

• As and when reply from main stakeholders will be received, a high level meeting will be arranged to decide whether Pakistan will join ITA or not on the basis of stakeholders stance.

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THANK YOU