As trade negotiators start to move on the potential expansion of products to be covered by the Information Technology Agreement, Intel's Greg Slater blogged about the significant economic benefits that an expansion would hold for the U.S. and global economies. Greg's blogs are all posted on the Intel Policy Blog.
Government officials have in hand a major boost for our global economy that will help America’s technology industry reach consumers never before imagined.
Earlier this week, I participated in a memorable event at the World Trade Organization (WTO) in Geneva, Switzerland. The WTO hosted a symposium at which a number of presenters from various governments, academia and industry espoused the significant impact that the Information Technology Agreement (ITA) has had in developing our global information economy over the last 15 years since its launch in late 1996. As WTO Director General Pascal Lamy remarked in his keynote address, by removing tariffs on ICT products sold in many countries the ITA has empowered people and helped bridge the digital divide.
The symposium presenters also strongly encouraged WTO members to promptly expand the product scope and membership of the now outdated ITA to create an additional $190 billion in global GDP. Many WTO members already have committed to working on such an expansion, providing a potential building block for further trade liberalization efforts at the WTO level. Indeed, after the symposium, officials representing many of the 74 signatories to the ITA agreed they would start informal consultations on what products to add to the ITA.
The ITA has been a real engine of economic growth for all of its signatories. The data are clear and convincing. By eliminating tariffs on a range of ICT products, the ITA has:
- Significantly increased the demand for and dissemination of those ICT products across the world. One study found that for every $1 drop in price for ICT, there is an increase of 1.5% in demand. From 1996 when the ITA was finalized to 2008, total globe trade in ICT products increased more than 10% annually, from $1.2 trillion to $4.0 trillion, caused in large part by trade liberalization efforts like the ITA. As the world’s largest producers of ICT goods and services, U.S. technology firms have benefitted tremendously from that increase in ICT trade.
- The increased demand has led to a significant increase in use of ICT across a variety of industries, which has resulted in immense gains in productivity in both developing and developed countries. For example, ICT was responsible for 75% of U.S. productivity growth from 1995 to 2002, and 44% from 2000 to 2006. Most ICT products covered by the ITA are known as general purpose technologies that touch all industries in making them more efficient.
- The greater use of ICT has enabled more innovation in both manufacturing and service firms. In the EU, for instance, 32% of companies report being active innovators, with ICT enabling about 50% of those firms’ product innovations and 75% of their process innovations. A WTO report on the ITA’s benefits that was released at the symposium notes that the widespread use of ICT in sectors as diverse as retail and financial services has created more organizational innovation and new business models. Moreover, by lowering the price of key ICT inputs, the ITA has facilitated the development of booming ICT software and services industries in many developing countries such as India, Malaysia and the Philippines.
- The enhanced productivity and greater innovation from increased use of ICT also has resulted in overall employment gains. Firms which are most ITC-intensive are 25 to 30% more likely to grow in terms of employment. One study found that “intensive users of ICT” grew jobs at a rate of 5.1% from 2001 to 2009 even as overall employment shrank 0.5 percent during that period.
In brief, as the World Bank found in 2007, firms that use more ICT enjoy greater sales, stronger employment growth, higher productivity, and more innovation. The ITA has enabled all of those benefits. (Unless otherwise noted, references to all data cited above can be found in a recent ITIF study.)
In contrast, high tariffs on ICT products decrease their demand and reduce the associated productivity gains. Tariffs also shield inefficient domestic ICT firms from competition, leading to higher prices and less ICT investment and innovation — including in downstream industries. Tariffs on ICT products affect all economic sectors because they all depend on such products.
The ITA, one of the most successful WTO agreements, is now 15 years old and has never been revised. Many ICT products were invented after 1997, such as multichip integrated circuits and DVD players; other core products like DRAMs and consumer products like video cameras were not originally included in the ITA. These products are subject to tariffs today. It is estimated that expansion of the ITA would remove tariffs on an additional $800 billion in global ICT trade benefitting consumers and businesses alike; add $190 billion to the global GDP benefitting many economies; and support the creation of 60,000 new jobs in the U.S. alone.
It is time to claim these significant additional economic benefits. At Intel we have tremendous optimism for the future, and an expanded ITA supports our company’s mission to “create and extend computing technology to connect and enrich the lives of every person on earth.”
This article was originally posted on the Intel Policy Blog on May 18, 2012.