TRADE IN INFORMATION TECHNOLOGY PRODUCTS : VIEWS OF EXPORTERS IN DEVELOPING COUNTRIES Presentation by: Ram K. Verma Executive Director C-DAC, Noida Non-Tariff

TRADE IN INFORMATION TECHNOLOGY PRODUCTS : VIEWS OF EXPORTERS IN DEVELOPING COUNTRIES

Presentation by:

Ram K. VermaExecutive Director

C-DAC, Noida

Non-Tariff Trade

Barriers in IT TradeExperience on market research, EIT &

DCs

WTO Information Technology SymposiumOctober 18-19, 2004 Geneva


World Scale Industry

World Size Market

Wor

ldC

lass

Usage

Make

ITAHappen

WTO INFORMATION TECHNOLOGY SYMPOSIUM

• 63 members endorses the ITA

– Encourage other Countries to participate

• Duty reduced to zero by the year 2000 with extended 2005

• Lower costs to importer and consumers

• Encourage other initiatives intended to ensure smooth delivery of goods to customers


ITA - IMPACTITA - IMPACT

Quantifiable US$ 300 Billion Annually - CEPR, 1996Benefits US$ 100 Billion Annually - ITC Estimates

Creation of Predictable Market and Comparative Global Market Advantages Flurry of FDI Towards Developing Countries Production Near Markets Competitive Gains

Agenda Expedited - Emergence of a Transparent System

Economic Improvement in Productivity and EfficiencyGains Networked Management Systems Competition

Negative Difficulty for SMEsImpact Emergence of Technology/Market Monopolies


KNOWLEDGE ECONOMY – ENGINE FOR GROWTHKNOWLEDGE ECONOMY – ENGINE FOR GROWTH

E-commerce (Billions)-2002

B2B B2C

Western Europe

200 30

U.S. 6950 70

Asia Pacific 120 26

0

100

200

300

2003 2005

Worldwide PC Market Segments

USA

N. America

W. Europe

E. Europe

Asia Pacific

L. American

M/E. Africa

Internet users (thousands) by region, 2000-20022000 2001 2002 % of

Change 2000-01

% of change 2001-02

Africa 4559 6510 7943 42.8 22.0

Asia 109257 150472

201079

37.7 33.6

Europe 110824 143915

166387

29.9 15.6

Latin America & cariberrean

17673 26163 35459 48.0 35.5

North America 136971 156823

170200

14.5 8.5

Oceania 8248 9141 10500 10.8 14.9

Developing Countries

93161 135717

189882

45.7 39.9

Developed Countries

294371 357307

401686

21.4 12.4

World 387531 493024

591567

27.2 20.0

Worldwide PC Market Segments

One billion PC Users by

2010


Challenger(Large established Business- wanting online integrating strategy across key functions)

- Employees Communication - Manufacturing, SCM, Customer Mgtm, Marketing/ Sales- Integrate Legacy Sys

High

Low

High Clicks

On Line Initiatives

Market Positio

n

Explorer(SME traditional business)

- Little online initiatives

- Increasing competitive pressure

- Create web presence- via service provider

- Limited in house technological expertise

Leader (e.g. Dell/ Ebay)

(Large successful traditional business transformed with online strategy)

- Global, multi-market coverage

- Integrate on-off line business

- Internet strategy- Core in their business strategy

Pioneer(SME- with some form of online initiative)

- Highly innovative; growing market domination

- Online recognition as core in future success

- Integrated Internet Strategy with core Business

KNOWLEDGE ECONOMY – NEW PARADIGM SHIFTKNOWLEDGE ECONOMY – NEW PARADIGM SHIFT


*NON-TARIFF BARRIERS TO TRADENON-TARIFF BARRIERS TO TRADE

•Product Classifications-ITA

•Custom Valuation

•Import Licensing

•Countervailing Measures and Anti Dumping

•Technical Barriers to Trade(TBT)

•Trade Related Aspect of Intellectual Property Rights

•Trade Related Investment Measures

•Government Procurement

•Special Arrangements - ITA + ABT


PRODUCT CLASSIFICATION

Interpretation of Harmonized System (HS):

• Integrated circuits

• DSPs

• Passive components, Capacitors, resistors, coils, SMPS

Expansion of Trade Products:

• Application Software (ERP, Finacle, etc.) as against standard products like Windows XP Professional

• Convergence - TV is Multimedia PC

Multimedia PC is TV

• Connectivity – Digital Radio Vs. soft radio


• Impact on Tariff– Customs Appraisal

– Buyers Interpretation may be different from Sellers Description

– Classification Interpretation not consistent in all Countries• Datacom Equipment

– Results in Delays if there is a Discrepancy• License must be amended

• Goods remain in Storage ($)

PRODUCT CLASSIFICATION

Contd..…

• Product Descriptions– Marketing Brochure, Purchase Order, Engineering

Description, Customs Description, Import License Description.

– Inconsistent description Leads to misinterpretation and delays

– Adds Costs not Value


CUSTOM VALUATIONCUSTOM VALUATION

• Customs Valuation Code

• Tariff Reforms and Simplification - Reduced illegal / grey market

• Transaction Value - Puts burden on customs authority

• Under Invoicing and Transfer Pricing - loss of revenue

• Custom audit – for just in time delivery

• Online / offline procedure:– Seller may make partial shipment

– Delay in release while Import License is matched to other Customs Documents

– No Customs release if license does not match

– Storage Charges incurred While License is Corrected

– Adds Cost not Value


IMPORT LICENSING

• Required by some Countries prior to Import - Advanced license- EPCG License - Special license

• May be reviewed by many Government Departments Prior to Approval– Administrative Burden– Adds to Delivery Time– Clerical Errors Delay Delivery

• Developed countries under technology embargo - export licensing (for e.g. Supercomputers, Switches, Storage Boxes)

• No value seen by Importer or Exporter


ANTI-DUMPING & COUNTERVAILING MEASURES

• Local Industry Protection

-Competition from cheap products

- Unemployment

- Selling products below production costs

• Imposition of Countervailing duties

• Impact

- Dissatisfaction with long drawn investigation process

- Non-resolution during the concurrency of the life of the product

17-38%17-38%


AGREEMENT ON TECHNICAL BARRIERS TO TRADEAGREEMENT ON TECHNICAL BARRIERS TO TRADE

Impact of Standards on IT Trade

• More than 60% NTBs arise out of standards & technical regulations

• Costly and time consuming(life cycle : 12 - 18 months)

• Restrictive - third party certification

• Over specification - protectionist attitude

• Lack of infrastructure

• Interpretation of regulations - lack of clarity

• Mutual acceptance of certification - lack of confidence

• Multiplicity of certificates - market access difficult


Mandatory Standards Essential Requirements - Human

Health, Plant, Animal Life & Envt.Certificate of Conformity Needed From a Designated AgencyDirectives of Designated

Authority

Quality System ISO 9001:2000Certification - Principles / Guides

- Business Process- Prod., Instn., Service- Inspection & Test- Design & Quality Systems

Conformity Assessment First Party DeclarationSecond Party Conformity

AssessmentCertification by Specialized BodiesSelf certification

TECHNICAL BARRIERS TO TRADE (TBT) - TECHNICAL BARRIERS TO TRADE (TBT) - STANDARDSSTANDARDS


AGREEMENT ON TECHNICAL BARRIERS TO TRADE AGREEMENT ON TECHNICAL BARRIERS TO TRADE (TBT)(TBT)

Basic Principles :

• Removing Obstacles to Trade such as Redundant Testing

& Certification

• Harmonization of Standards by Aligning to ISO / IEC

• Establish Mutual Confidence in Each other’s Certification

• Transparency and Non Discriminatory Treatment

• Solutions :• One Step Assessment for World Wide Recognition

• Uniform Accreditation System

• Concluding Bilateral/Multilateral Mutual Recognition

Agreements

• Establishing International Recognition System


Types of Intellectual Property Rights(Types of

Instruments)

Subject MatterMain Fields of

Application

Industrial Property

Patents New, non-obvious inventions- industry

Manufacturing

Utility Models

Functional Designs Manufacturing

Industrial Designs

Ornamental Designs Electronics, motor-cars etc..

Trademarks Science and symbols to separate identity

All industries

Geographical indicators

Place of origin - indicative of quality and other characteristics

Agriculture and food

Literary and artistic property

Copyright and neighboring rights

Original work of authorship and related contributions

Software, audio-video,printing

Sui generis protection

Integrated circuits Original layout

designs

Micro-electronics industry

Trade secrets Secret business info.

All industries

TRADE RELATED INTELLECTUAL PROPERTY RIGHTS TRADE RELATED INTELLECTUAL PROPERTY RIGHTS (TRIPS)(TRIPS)


IMPACT OF TRIPSIMPACT OF TRIPS

• Those with capacity to pay can drive market benefits

• Private Property leading to dampening of innovative

attitude

• Lack of availability

• Intellectual i.e. Information derived from investment

in human

capital.

• Uniformity, Homogeneity, Standardization to enable

widest

reach.

• Focus on primary productivity (diversity as material

only).

• Tendency towards monopolization

• Lack of infrastructure leads to denial


TRADE RELATED INVESTMENT MEASURESTRADE RELATED INVESTMENT MEASURES[

• Inter Linkages between three Regions (US, Europe,

Japan) accounts

for more than 80% of FDI

• Companies should be Moving Operations to Asian

Countries based on

comparative advatages of low wages, lower

investments……

• Asia being used as Mass Production Hub with a

controlled technology

as cheap as 6% assembling cost

• High Tech Necessitates Venture Capital - Concentration

in USA

• Human capital being deployed by large corporations turn

out product

& services with benefits accruing to Headquarters –

transfer pricing

• Facilitates Positive Relation Between Home Country

- Exports and Imports

• Source of Capital, Technology and Intangibles


GOVT. PROCUREMENT GOVT. PROCUREMENT

• Sound Engineering Principles– SCM Level 5 – PSP– Software Engineering Methodologies –

Euro Methods

• Local Presence– Traceability– Liability Insurance

• Concessions– Public Sector Organizations – Locally registered companies


CONCERNS - IT INDUSTRY DEVELOPMENTCONCERNS - IT INDUSTRY DEVELOPMENT

Market Beneficial to developed countries

Contract opportunities scarceEmergence of monopolies / cartels

Industry Top 10 producers - 80% production USA dominance in each sectorClosure of infant industriesLoss of jobs and technical

temperamentWastage of investment made

Investment Largely amongst USA, EU and JapanUnbalanced industry development Flight of capital


Technology High Rate of Obsolescence

High Cost of Technology Development

Product Life Cycle Short

Large TNCs Held Technology Edge

Technology Closely Guarded

Transfer of Technology Costly and

Restricted

Role of TNCs Major Share - Market,

Production, Investment

Aggressive Marketing Strategies

TNCs Largely From USA, Japan & EU

Profit Motive Driven

CONCERNS - IT INDUSTRY DEVELOPMENTCONCERNS - IT INDUSTRY DEVELOPMENT


CONCERNS - DC s & EITCONCERNS - DC s & EIT

Investigation Cumbersome and Time ConsumingMechanism Not Commensurate - Technology

Technical Barriers Procedure Cumbersome to Trade Time Consuming & Costly

Lack of Availability of Infrastructure

Making Exports Difficult

ITA Product Consumer ElectronicsCoverage Software Application Development

Intellectual Property Increased Technology Acquisition CostRights Dampening Innovation

Cumbersome Mailbox System


TO SUM UP…TO SUM UP…

• Increasing openness of markets worldwide

• Enhanced product coverage to include IT

applications

• Facilitate integration of SMEs with MNCs

• Rapid technological innovation - Facilitate

R&D

• Venture capital fund

• Handle International Affairs in Both Anti-

dumping and Patent Protection Issues

Ram K. VermaRam K. VermaExecutive Director, C-DAC, Executive Director, C-DAC,

NoidaNoida

Tel.: +91-0120-2402561Tel.: +91-0120-2402561

Fax.:+91-0120-240256Fax.:+91-0120-240256

www.cdacnoida.comwww.cdacnoida.com

E-mail : [email protected] : [email protected]