TRADE IN INFORMATION TECHNOLOGYPRODUCTS AND THE WTO AGREEMENTS

CURRENT SITUATION AND VIEWS OF EXPORTERSIN DEVELOPING COUNTRIES

ITC INTERNATIONAL TRADE CENTRE

UNCTAD CNUCED

GENEVA1999

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ABSTRACT FOR TRADE INFORMATION SERVICES

1999 SITC 76TRA

INTERNATIONAL TRADE CENTRE UNCTAD/WTOTrade in information technology products and the WTO Agreements: current situationand 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 informationtechnology (IT) products – reviews trade patterns, technological trends andmarket opportunities for telecommunication and electronic data processingequipment, semiconductor devices, semiconductor manufacturing equipmentand computer software; examines impact of WTO Agreements on IT products,manufacturers and exporters in developing countries and makesrecommendations on technical assistance programmes to improve IT marketaccess.

English, French, Spanish (Free to developing countries)

Palais des Nations, 1211 Geneva, Switzerland

The designations employed and the presentation of material in this publication donot imply the expression of any opinion whatsoever on the part of the InternationalTrade 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 orboundaries.

Mention of firm names does not imply the endorsement of ITC.

ITC encourages the reprinting and translation of its publications to achieve widerdissemination. Short extracts may be freely reproduced, with due acknowledgement ofthe source. Permission should be requested for more extensive reproduction ortranslation. 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

ACKNOWLEDGEMENTS

This study forms part of the activities of the International Trade CentreUNCTAD/WTO (ITC) on the export and market development of technology andengineering products. These activities are being implemented by an ITC team led byNicolai V. Sëmine, Senior Market Development Officer, and comprising Saul Alanoca,Saeed Chaudhry, Jack Desmet, Derek Lancaster-Gaye, Alexandre Liontas, JohnLucas, Ian Taylor, Alena Sindelar, Ronald Sheldon and Ram K. Verma.

The study would not have been possible without the enthusiastic and professionalcontribution of Ram K. Verma, Director, Electronics Research and DevelopmentCentre of India. Mr Verma summarized the findings of ITC’s 1997-1998 empiricalresearch 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 (formerSecretary-General, EOTC) contributed chapter 8 and chapter 13 respectively.

ITC thanks the UNDP offices in China, India, Malaysia, Pakistan, the Philippinesand Thailand for their generous organizational and data support.

The major conclusions of this study were compiled and verified during businessround tables held in late 1997 and early 1998 in India, Malaysia, Pakistan, thePhilippines and Thailand. ITC thanks the national counterparts who providedinvaluable information and data on the emerging local IT industries and trade. Amongthese were Amit Mitra (FICCI) and K.K. Mathur (ITPO) in India; M. Supperamaniam(MITI) and Mohammed Ab Halim (MATRADE) in Malaysia; Siddiq Alvi (EPB) inPakistan; Edsel Custodio (DTI) and Luis Berrei (BETP) in the Philippines; and PairashThajchayapong 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 ofTechnical Cooperation Coordination and Paavo Lindholm, Chief, Market Development Section for Manufactured Products, all of ITC. The study was reviewed by DerbyMisurelli, WTO Economic Affairs Officer and Secretary of the WTO Committee ofParticipants on the Expansion of Trade in Information Technology Products.

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Leni G. Sutcliffe edited the study. Desktop publishing was handled by CarmelitaEndaya and Isabel Droste Montgomery.

Financing for technical assistance in the preparation of this study was provided bythe Government of Switzerland.

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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 6Regional and country coverage 7Desk and field research 7Analysis 8

PART ONE: THE WORLD MARKET FOR INFORMATIONTECHNOLOGY PRODUCTS 9

CHAPTER 1THE GLOBAL MARKET: SIZE AND GROWTH TRENDS 10

International trade 10The global market for IT products 12

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CHAPTER 2ELECTRONIC DATA-PROCESSING EQUIPMENT 14

Background 14International trade in EDP products 14Market for electronic data-processing products 16

Personal computers 18Workstations 20Multi-user servers 21

The EDP industry 21Trends in technology 23Business trends in the EDP sector 25

CHAPTER 3TRADE IN TELECOMMUNICATIONS EQUIPMENT 26

Background 26International trade 26The market for telecommunications equipment 29The telecommunications equipment industry 30Business trends in the telecommunications sector 32

CHAPTER 4SEMICONDUCTOR COMPONENTS: INTEGRATED CIRCUITS AND DISCRETE COMPONENTS 33

Background 33International trade 33The market for semiconductors 35The semiconductor industry 37Technology trends 39Developments in the semiconductor sector 39

CHAPTER 5SEMICONDUCTOR MANUFACTURING EQUIPMENT 41

Background 41International trade 41The market for semiconductor manufacturing equipment 41The semiconductor manufacturing equipment industry 44Technology trends 45Developments in the semiconductor manufacturing equipment sector 45

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CHAPTER 6SOFTWARE AND SERVICES 47

Background 47The software and services market and international trade 47

The North American market 48The European market 49The Asia-Pacific market 51

Computer software industry 52Technology trends 54Latest developments in software and services 55

PART TWO: THE WTO AGREEMENTS, RELATEDDEVELOPMENTS AND FIELD RESEARCH FINDINGS 57

CHAPTER 7A BRIEF LOOK AT THE WTO AND ITS AGREEMENTS 58

The World Trade Organization 58Functions 58Structure 58

The WTO Agreement 59Treatment of developing and least developed countries on a different footing 60General Agreement on Trade in Services 60BTA and ITA 60

CHAPTER 8BTA AND ITA: THE COSTS AND BENEFITS OF LIBERALIZATION IN THE INFO-COMMUNICATION INDUSTRY 62

Demand for telecommunications services and IT products 64Impli ca tions of the Agree ment on Basic Tele com mu ni ca tions Serv ices 66

Evolution of prices and traffic in liberalized markets 66Performance of incumbent operators 68Effects of competition on infrastructure development 70Implementation challenges 71

Implications of ITA 73Conclusions 77

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CHAPTER 9THE INFORMATION TECHNOLOGY AGREEMENT 79

The Agreement 80Membership 80

Product coverage 81Schedules for tariff reduction 82

Impact analysis of ITA 82Business and government responses 83Responses to ITA 86Latest developments in ITA 87

CHAPTER 10AGREEMENT ON BASIC TELECOMMUNICATIONS SERVICES 89

Objectives of the Agreement 91Trade in telecommunications services 91Developed countries 93Developing countries 93The telecommunications service industry 94Impact analysis 95Policy issues 96Initial business and government responses to BTA 97

CHAPTER 11FOREIGN DIRECT INVESTMENT IN THE IT SECTOR 100

Direction of FDI flows 100The role of TNCs in ITA 101Acquisitions and mergers 104Major trends in FDI 104An FDI strategy for developing countries 105

CHAPTER 12WTO AGREEMENT ON TECHNICAL BARRIERS TO TRADE 107

Mandatory and voluntary standards 108Quality system certification 109Conformity assessment 112Impact of standards on international trade in ITA products 112Technical assistance needs of developing countries in quality management 114

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CHAPTER 13CONFORMITY ASSESSMENT IN THE EUROPEAN UNION 115

The free movement of products 115EOTC: a focal point for Europe’s conformity assessment services 116

Accreditation 117EOTC forums 118TICQA database 118Promotion and Application of Certification & Testing 119

Helping exporters in developing countries 119

CHAPTER 14ENVIRONMENTAL ISSUES AND STRATEGIES: ITA PRODUCTS 120

Environmental legislation and framework 120Implications of existing and evolving policies 122

Business community response 124

CHAPTER 15THE WTO AGREEMENT: SUMMARY OF FIELD RESEARCH FINDINGS 125

Summary of views by country/region 126European Union 126Japan 129China 130India 133Malaysia 135Pakistan 137Philippines 140Republic of Korea 142Thailand 144

Summary of views by subject area 147Markets 147Industry 147Investment and trade 148Technology 148Research and development 149Transnational corporations 149After-sales services 149International trading environment 150

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PART THREE: STRATEGIC DIRECTIONS FOR IT EXPORTERS 151

CHAPTER 16IT PRODUCTS: EXPORT OPPORTUNITIES AND CHALLENGES FOR DEVELOPING COUNTRIES 152

IT market opportunities 152Computer software 152Contract manufacturing in electronics 152Telecommunications 153Semiconductors 153Emerging applications 153

Investment opportunities 154Technology trends 154Pricing trends 154Globalization and industrial competitiveness in ITA 155

APPENDICES

I. QUESTIONNAIRE ON THE URUGUAY ROUND AGREEMENTS ANDTHEIR IMPACT ON THE INTERNATIONAL TRADE IN INFORMATIONTECHNOLOGY 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

V. EXPORTS AND IMPORTS OF ITA PRODUCTS, BY PRODUCTAND BY COUNTRY/REGION, 1992-1995 172

VI. AGREEMENT BETWEEN EIAJ AND SIA ON INTERNATIONALCOOPERATION REGARDING SEMICONDUCTORS 176

VII. EXPORTS AND IMPORTS OF ATTACHMENT B PRODUCTS ANDTHEIR GEOGRAPHICAL DISTRIBUTION 181

VIII. TELECOMMUNICATIONS REVENUES OF WTO MEMBERS, 1996 184

IX. STANDARDIZATION BODIES (ISO MEMBERS) 187

X. EOTC: SOME BASIC INFORMATION 196

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Tables 1. Information technology products: global exports and imports, 1997 10

2. 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

10. 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 quantityand 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

19. 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

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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

31. 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

36. Asia-Pacific market for software and services, by product category and by value, 1996 and 2000 51

37. 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 telecommunicationsrevenue, 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

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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 developingcountries, 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

9. ITA sector: competitive advantages and disadvantages, by country/area 156

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NOTE

Unless otherwise specified, all references to dollars ($) are to United Statesdollars.

The following acronyms are used:

ADB Asian Development BankAPEC Asia-Pacific Economic Cooperation forumASEAN Association of South-East Asian NationsATM Asynchronous transfer modeBTA Agreement on Basic Telecommunications ServicesCASE Computer aided software engineeringCDMA Code division multiple accessCD Compact discCD-ROM Compact disc - read-only memoryCEFTA Central European Free Trade AgreementCEN European Committee for StandardizationCENELEC European Committee for Electrotechnical StandardizationCISC Complex instruction set computerCMP Chemical mechanical polishCPE Customer premises equipmentCPU Central processing unitDBS Direct broadcast satelliteDOS Disk operating systemsDRAM Dynamic random access memoryDTH Direct to home (television)DVD Digital video diskEAC European Accreditation of CertificationEAL European Cooperation for Accreditation of LaboratoriesEBRD European Bank for Reconstruction and DevelopmentEC European CommunityECMA European Computer Manufacturers’ AssociationEDI Electronic data interchange

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EDP Electronic data processingEEIG European Economic Internet GroupingEFTA European Free Trade AssociationEIAJ Electronics Industry Association of JapanEMAS European Eco-Management and Audit SchemeEMC Electromagnetic compatibilityEMI Electromagnetic interferenceEOTC European Organisation for Testing and CertificationESCAP Economic and Social Commission for Asia and the PacificETSI European Telecommunications Standards InstituteEU European UnionEUROBIT European Association of Manufacturers of Business Machines

and Data Processing EquipmentFCC Federal Communications CommissionFDI Foreign direct investmentFDMA Frequency division multiple accessGATS General Agreement on Trade in ServicesGATT General Agreement on Tariffs and TradeGDP Gross domestic productGII Global information infrastructureGSM Global System for Mobile communicationsGSP Generalized System of Preferences GUI Graphical user interfaceHDD Hard- disk drivesHS Harmonized Commodity Description and Coding System (Harmonized System)IC Integrated circuitICE Integrated Circuit Engineering CorporationIDC International Data CorporationIEC International Electrotechnical CommissionILAC International Laboratory Accreditation ConferenceIMF International Monetary FundI/O Input/output (device)ISDN Integrated services digital networkISO International Organization for StandardizationIT Information technologyITA Information Technology Agreement (WTO)ITC International Trade Centre UNCTAD/WTOITI Information Technology Industry Council (United States)ITP International Trade PracticesITU International Telecommunication UnionJEIDA Japan Electronic Industry Development AssociationLAN Local area networkLDCs Least developed countries

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MAI Multilateral agreement on investment (OECD)MFN Most favoured nationMNC(s) Multinational corporation(s)MOS Metal oxide semiconductorMRA Mutual recognition agreementNAFTA North American Free Trade AgreementNC Network computerNECTEC National Electronics and Computer Technology Center (Thailand)NII National information infrastructureOECD Organisation for Economic Co-operation and DevelopmentPC Personal computerPCB Printed circuit boardPCS Personal communication servicesPTO Public telecommunications operatorR & D Research and developmentRDBMS Relational database management systemRISC Reduced instruction set computer (chip)SAPTA South Asian Preferential Trade AgreementSCM Subsidies and Countervailing Measures (WTO Agreement on

the Application of)SIA Semiconductor Industry AssociationSITC Standard International Trade ClassificationSME Semiconductor manufacturing equipmentSME(s) Small and medium-sized enterprise(s)SMPS Sym met ric mul ti proc es sorsSPS Sanitary and Phytosanitary Measures (WTO Agreement on)SRAM Static random access memoryTBT Technical Barriers to Trade (WTO Agreement on)TDMA Time division multiple accessTICQA Testing, Inspection, Calibration and Quality AssuranceTRIMs Trade-Related Investment Measures (WTO Agreement on)TRIPS Trade-Related Aspects of Intellectual Property Rights

(WTO Agreement on)TNCs Transnational corporationsUNCTAD United Nations Conference on Trade and DevelopmentUNDP United Nations Development Programme WAN Wide area networkWIPO World Intellectual Property OrganizationWLL Wireless local loopWTO World Trade OrganizationY2K Year 2000

TablesFigures may not add up owing to rounding.

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Executive Summary

The World Trade Organization (WTO) Agreements on InformationTechnology (IT) and Basic Telecommunications Services are expected to providea 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 empiricalanalysis of the implications of the WTO Agreements for the international trade inIT products. The study presents the current perceptions of the WTO Agreementsamong the IT business community and has the major objective of increasingawareness of evolving market liberalization among technology exporters fromdeveloping and transition economies.

International exports of IT products in 1997 exceeded the combined worldtrade in agriculture, automobiles and textiles. Global exports of IT products in1997 amounted to $681 billion, while imports were valued at $618 billion. In terms of exports, electronic data processing goods accounted for 37%, semiconductors20% and other components, 20%.

The European Union (EU), the United States of America and Japan are themain exporters; EU and the United States are also leading importers. Japan, theRepublic of Korea, Singapore, Hong Kong (China), Malaysia, Mexico and Thailandare 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 significantplayers in the international trade in IT products.

In 1998, the global market1 for the hardware products falling within thescope of the WTO Information Technology Agreement (ITA) was valued at an

EXECUTIVE SUMMARY

1 The global market is equivalent to the sum of the sale of all goods or services within a specifiedproduct sector, comprising all goods or services produced and sold within every individual nationalmarket and all goods or services sold across international markets. The value of the global market orindividual markets may differ from the value of trade, owing to the inclusion of goods or servicesproduced and sold domestically. Values have been calculated according to the final selling price ofthe product to the customer.

estimated $1,095.95 billion. The market is expected to expand to $1,364 billionby 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 bythe year 2000, and the market for computer hardware forecast to reach $485billion. Semiconductors, telecommunications equipment, and semiconductormanufacturing equipment should present market opportunities worth $370billion, $135 billion, and $38 billion respectively in 2000.

The United States, Japan and EU hold more than 80% of the global marketand a major share in world production and exports. Companies from thesecountries/areas dominate the ITA market in semiconductors,telecommunications, computer hardware and software, as well as insemiconductor manufacturing equipment.

Transnational corporations (TNCs) hold a large share of the markets,production and investment in this knowledge-intensive sector. Of the leading100 TNCs in 1997, 22 were in the electronics sector. Among these, eightoriginated in the United States and EU respectively, and six in Japan.Companies based in the United States dominate the sectors for high-endcomputers, semiconductors, telecommunications, computer software, andsemiconductor manufacturing equipment.

The globalization of the IT industry has led to the gradual elimination ofwholesalers. The large TNCs, which dominate ITA production, have their ownmarketing organizations, strategic business alliances and authorizeddistributors. The role of supermarkets, mail-order houses, IT systemintegrators and electronic commerce via the Internet is increasing in thisintensely competitive market environment.

The IT manufacturing industry is expected to continue to relocate to areaswhere it can operate cost effectively. While developed countries are likely tomaintain their core competencies in high-technology areas, developing countries will find opportunities in outsourcing and skills-intensive sectors such asresearch 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 Asiancountries have already geared themselves to take advantage of mass productionopportunities.

The IT industry is knowledge-intensive and characterized by rapidobsolescence. Product life cycles are short, in some cases less than a year.Companies from the United States, Japan, EU, and some of the more advanceddeveloping 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

2 EXECUTIVE SUMMARY

companies also maintain their technical superiority through strategicacquisitions or mergers of companies or technologies, which increases theircompetitiveness.

The WTO system, which emerged from the Uruguay Round of tradenegotiations conducted between 1986 and 1994, comprises three main legalinstruments, all of which have a bearing on the information technology sector. All WTO members are required to implement the rules prescribed by these mainAgreements which are listed below:

r General Agreement on Tariffs and Trade (GATT 1994) and its associateAgreements which lay down multilateral rules applicable to trade in goods.Four basic rules are embodied in GATT 1994: the protection of domesticindustry through tariffs, the binding of tariffs, the principle ofnon-discrimination through both the most-favoured-nation (MFN) rule andthe national treatment rule.

r General Agreement on Trade in Services (GATS), which establishes aframework 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 ininformation technology products is pronounced. The implications of the TRIPSAgreement for computer software and semiconductors, of the Agreement onTrade-Related Investment Measures (TRIMs) for the proliferation ofmanufacturing activities, telecommunications services and balanced tradedevelopment, and of the Agreement on Technical Barriers to Trade (TBT) forinducing confidence in various certification systems, are significant. TheAgreements on Implementation of Article VII of GATT 1994 (CustomsValuation), Subsidies and Countervailing Measures (SCM), Implementation ofArticle VI of GATT 1994 (Anti-dumping) and the Application of Sanitary andPhytosanitary Measures (SPS) have an impact, as has the plurilateral Agreement on Government Procurement.

Since the conclusion of the Uruguay Round further agreements have beennegotiated, including the Agreement on Basic Telecommunications Services(BTA) and the Information Technology Agreement (ITA). The principal objectiveof BTA is to liberalize trade in basic telecommunications services and to enablecountries to take advantage of this technology by opening up domestic marketsto foreign competition. Embodied in the WTO Ministerial Declaration on Tradein Information Technology Products, ITA went into effect in March 1997. Itprovides for its participants to eliminate customs duties and other duties andcharges on information technology products by the year 2000, on a most-favoured-nation (MFN) basis.

EXECUTIVE SUMMARY 3

The potential of the opportunities presented by these Agreements isimmense. BTA is expected to provide a $1 trillion business opportunity, leadingto greater digitalization, cellular mobile telephone services, low earth-orbitsatellite communication and value-added services, such as video conferencing,video phones and multimedia applications. The implications of ITA are vast; byeliminating tariffs, an estimated $50 billion - $100 billion could be savedannually, while the market for ITA products will be opened up.

During the field research carried out for this study, various concernsemerged among the business community in developing countries over theimplications of ITA. These concerns were directed at the added cost ofconforming to export and import regulations and the differing documentationand procedural requirements in global markets. The TRIPS Agreement alsoaroused negative reactions, in that it would not only increase the cost oftechnology acquisition, but also block re-engineering and the development ofapplications.

National reactions to ITA have been mixed and largely dependent upon acountry’s status as a developed or developing nation, the level to which its tradepolicy has already evolved and whether it is currently a net importer or exporterof 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 largelypositive, while in the Republic of Korea, India and Malaysia the response wasmixed, often with government and industry taking differing views or withdisagreement existing between different industry associations. At the other endof the scale, ITA has aroused a negative response from elements of the businesscommunity in Thailand. Local manufacturers and exporters felt that thedomestic IT industry is at too early a stage of development to compete effectivelyunder the Agreement and is likely to benefit less from it than competitors fromdeveloped nations.

The response from some least developed countries (LDCs) indicates thatITA will have little effect as they are hardly involved in the manufacture of ITAproducts. 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 wereconcerned that ITA might lead to an unbalanced trade situation. While theyagreed that the market would expand, they feared that their infant industriescould be swamped by foreign competition which had the inherent strengths oflarge companies in marketing and technology. Furthermore, recognizing thestrong bonds between large corporations and their vendors, companies fromdeveloping countries were expecting to encounter increasing difficulty inpenetrating such ‘closed’ networks, which have the appearance of cartels.

4 EXECUTIVE SUMMARY

Several of the national IT industry associations visited felt that safeguardssuch as countervailing and anti-dumping, should be sparingly used and onlywhen there are genuine reasons for them. They should not become a means ofprotecting local industry; they will, otherwise, prove to be more detrimental than tariffs and quantitative restrictions.

Many representatives of business communities from developing countriesexpressed their reservations on the multilateral agreement on investment (MAI)proposed by members of the Organisation for Economic Co-operation andDevelopment (OECD), which they feel will have severe repercussions on theirmanufacturing capabilities and competitiveness. The proposed agreementcovers rights of establishment, national treatment at both pre- andpost-establishment stages, and dispute settlement.

An integral part of this study involved field research to collect opinions onthe WTO Agreements from business and public-sector representatives throughdirect interviews with senior executives and government officials from Germany,the United Kingdom and Japan; China, India, Malaysia, Pakistan, thePhilippines, the Republic of Korea, Singapore and Thailand.

The views of the business community and public-sector representatives inthe countries visited are incorporated into this study. These views outline theeventual business avenues for import and export agencies and manufacturers indeveloping countries to enable them to gain more from the challenges andopportunities presented by the WTO Agreements. For exporters they focus onpractical supply-side and marketing advice. For manufacturers, they proposethe promotion of R & D, building upon core competencies in terms of clusteringsites and expertise, and conforming with international standards and regulatoryrequirements.

This study provides an empirical analysis of the implications of the WTOAgreements for the international trade in IT products, and presents the initialviews of the IT business community in developing countries.

EXECUTIVE SUMMARY 5

Purpose and scope of this study

This study provides an empirical analysis of the implications of the WTOAgreements for the international trade in IT products, and presents the views ofthe IT business community in developing countries. The study has the principalobjective of increasing awareness of evolving market liberalization amongdeveloping 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 developingcountry IT exporters in the current business environment; and

r To synthesize the initial responses from IT business communities indeveloping countries to the WTO Agreements and business communityrecommendations regarding their needs in the process of adjusting to theemerging globalization of the IT sector.

This study forms part of ITC’s activi ties on inter na tional trade and busi nessdevel op ment in technology- based prod ucts. The study’s coverage was defined incoor di na tion with the WTO Secre tariat to include elec tronic data proc essing,tele com mu ni ca tions, semi con duc tors, semi con ductor manu fac turing equip mentand computer soft ware. For these product groups, the study focuses on theiden ti fi ca tion of major prod ucts, trade patterns, industry trends and evolu tion,devel op ments in tech nology, emer gence of tran sna tional corpo ra tions, and theoppor tu ni ties these devel op ments offer to devel oping coun tries.

Scope of the Information Technology AgreementThe IT products covered by this study are as follows:

r Electronic data processing equipment (SITC2 7521, 7522, 7523, 7526,7527, 7529, 7599);

PURPOSE AND SCOPE OF THIS STUDY

2 Standard International Trade Classification.

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 to88136).

The following product groups were not covered by ITA and are excluded:consumer electronics, medical electronics, military electronics, and control andinstrumentation products. An effort was made to align product codes with theHarmonized System codes identified under Attachments A and B of ITA. Thedetailed SITC codes for the ITA products covered by this study are provided inappendix III.

Regional and country coverageThis study covers global importers and exporters of IT products and

provides information on the major national and regional players, including theUnited States, Japan, Canada, the European Union, the Association ofSouth-East Asian Nations, the Central European Free Trade Agreement(CEFTA), the South Asian Preferential Trade Agreement (SAPTA).

Desk and field researchThe 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 andindustry organizations, government bodies, associations, importers andexporters, to obtain their views and reactions;

r Identification of international organizations, trade and industryassociations, export promotion bodies, government departments andprofessional institutions.

For the field research, the following activities were carried out:

PURPOSE AND SCOPE OF THIS STUDY 7

r In-depth discussions with target groups dealing with the IT industry ininternational bodies such as IEC, ITU, UNCTAD, UNDP,3 WTO, and theInternational Organization for Standardization (ISO).

r Research and verification of data collected during desk research amongOECD member countries and in the European Union, and in China, India,Malaysia, Pakistan, the Philippines, the Republic of Korea, Singapore andThailand. Discussions were held with more than 160 senior governmentofficials and business executives in the countries visited.

The ITC team covered the European continent (including the UnitedKingdom, Belgium, Germany and Switzerland) from April to May 1997, most ofthe Asia and Pacific region [including China, Hong Kong (China), India, Japan,Malaysia, Pakistan Philippines, Singapore and Thailand from June to July1997].

AnalysisAn analysis was carried out on replies to the questionnaire, the information

obtained through personal contacts by the ITC team, statistical and otherdocumentary information gathered during the field research, and tradeinformation from various databases. The findings of the analysis as well as thecontributions made by organizations like ITU, the European Organisation forTesting and Certification (EOTC) and Thailand’s National Electronics andComputer Technology Center (NECTEC) are presented in the various chapters of this study. The questionnaire is reproduced in appendix I and the sources ofstatistical and other information are listed in appendix II.

8 PURPOSE AND SCOPE OF THIS STUDY

3 International Electrotechnical Commission; International Telecommunication Union; UnitedNations Conference on Trade and Development; United Nations Development Programme.