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The Windfall of ITA Expansion for China

As trade ministers from the Asia-Pacific Economic Cooperation (APEC) economies get snuggled into their plane seats en route to their trade conclave in Qingdao, China this weekend, there is increasing focus on whether Beijing can really help deliver a big trade win for APEC via a breakthrough in the stalled negotiations to expand the World Trade Organization’s (WTO) Information Technology Agreement (ITA). ITA is an agreement that would make cutting-edge technologies cheaper and more available to consumers across the globe.

As host of APEC, China has many reasons to press for strong outcomes in Qingdao.  A breakthrough in the ITA negotiations would give China the opportunity to claim a two-fold victory in the global trade arena – a win for the WTO as a trade liberalizing institution and a win for APEC as a regional body with concrete deliverables. It may also improve China’s chances of participating in the Trade in Services Agreement negotiations, which it very much wants to do.  China’s foot-dragging on ITA expansion has raised many questions on the international stage about its ability to play a constructive role in plurilateral and multilateral trade negotiations. 

Beyond these broader benefits, China’s economy will benefit wildly from an ITA expansion as this would eliminate tariffs on a broad swath of tech products and parts. Let’s not forget that China is not only the largest trading economy in the world, but also the biggest exporter and importer of tech parts and components.

Last month, the Information Technology & Innovation Foundation published a superb research paper spelling out in great detail the myriad benefits China would reap from a big expansion of ITA-covered products.  Some of the key findings of that paper are: 

  • ICT accounts for approximately 20 percent of Chinese GDP growth; while ICT production is important for economies, ICT usage (i.e., consumption) is even more important.
  • The ITA has played a catalytic role in expanding global two-way trade in ICT products to over $5 trillion annually.
  • China has been a key beneficiary of the ITA as its share of global exports of ICT products has increased from 2.2 percent in 1996 to 30 percent in 2012.
  • ITA expansion will result in an $8 billion reduction in tariffs incurred by exporters of ICT goods from China.
  • Increased global demand for ICT products induced by ITA tariff elimination will increase China’s exports of ICT goods by $12 billion annually.
  • China’s foregone $6.4 billion in tariff collections from ICT products now under consideration for ITA coverage will be more than made up for by these gains.

These compelling facts illustrate why China should seriously commit to ITA expansion.  Narrow, short-term, protectionist interests, however, are preventing the more visionary figures in China’s leadership—those who want China to more fully integrate itself in the global economy—from getting their way.  Perhaps the obligations of leadership that come with hosting APEC will shift this dynamic and China will do the right thing, for the sake of global consumers and its own economy, on ITA expansion this weekend.

Public Policy Tags: Trade & Investment