Non-Tariff Trade Barriers in IT Trade Experience on market research, EIT & DCs WTO Information Technology Symposium October 18 -19, 2004 Geneva Presentation by: Ram K. Verma Executive Director C-DAC, Noida TRADE IN INFORMATION TECHNOLOGY PRODUCTS : VIEWS OF EXPORTERS IN DEVELOPING COUNTRIES
WTO INFORMATION TECHNOLOGY SYMPOSIUM World S cal orld Class U W Make ITA Happen World • stry u Ind sa ge e ket ar Size M 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 TRADE IN INFORMATION TECHNOLOGY PRODUCTS : VIEWS OF EXPORTERS IN DEVELOPING COUNTRIES
ITA - IMPACT Quantifiable Benefits US$ 300 Billion Annually - CEPR, 1996 US$ 100 Billion Annually - ITC Estimates Creation of Global Market Predictable Market and Comparative Advantages Flurry of FDI Towards Developing Countries Production Near Markets Competitive Gains Agenda Expedited - Emergence of a Transparent System Economic Gains Improvement in Productivity and Efficiency Networked Management Systems Competition Negative Impact Difficulty for SMEs Emergence of Technology/Market Monopolies TRADE IN INFORMATION TECHNOLOGY PRODUCTS : VIEWS OF EXPORTERS IN DEVELOPING COUNTRIES
KNOWLEDGE ECONOMY – ENGINE FOR GROWTH Internet users (thousands) by region, 2000 -2002 E-commerce (Billions)-2002 2000 2001 2002 % of Change 2000 -01 % of change 2001 -02 4559 6510 7943 42. 8 22. 0 Western Europe 200 30 Asia 109257 150472 201079 37. 7 33. 6 Europe 110824 143915 166387 29. 9 15. 6 U. S. 6950 70 Latin America & cariberrean 17673 26163 35459 48. 0 35. 5 Asia Pacific 120 26 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 Africa B 2 B B 2 C One billion PC Users by 2010 Worldwide PC Market Segments TRADE IN INFORMATION TECHNOLOGY PRODUCTS : VIEWS OF EXPORTERS IN DEVELOPING COUNTRIES
KNOWLEDGE ECONOMY – NEW PARADIGM SHIFT High Leader (e. g. Dell/ Ebay) (Large established Businesswanting online integrating strategy across key functions) Market Position Challenger (Large successful traditional business transformed with online strategy) - Employees Communication - Manufacturing, SCM, Customer Mgtm, Marketing/ Sales- Integrate Legacy Sys - Integrate on-off line business - Global, multi-market coverage - Internet strategy- Core in their business strategy Pioneer (SME traditional business) (SME- with some form of online initiative) - Little online initiatives - Increasing competitive pressure - Highly innovative; growing market domination - Create web presence- via service provider - Online recognition as core in future success - Limited in house technological expertise Low Explorer - Integrated Internet Strategy with core Business High Clicks On Line Initiatives TRADE IN INFORMATION TECHNOLOGY PRODUCTS : VIEWS OF EXPORTERS IN DEVELOPING COUNTRIES
*NON-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 TRADE IN INFORMATION TECHNOLOGY PRODUCTS : VIEWS OF EXPORTERS IN DEVELOPING COUNTRIES
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 is TV • Connectivity – Digital Radio Vs. soft radio TRADE IN INFORMATION TECHNOLOGY PRODUCTS : VIEWS OF EXPORTERS IN DEVELOPING COUNTRIES
PRODUCT CLASSIFICATION Contd. . … • 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 Descriptions – Marketing Brochure, Purchase Order, Engineering Description, Customs Description, Import License Description. – Inconsistent description Leads to misinterpretation and delays – Adds Costs not Value TRADE IN INFORMATION TECHNOLOGY PRODUCTS : VIEWS OF EXPORTERS IN DEVELOPING COUNTRIES
CUSTOM 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 TRADE IN INFORMATION TECHNOLOGY PRODUCTS : VIEWS OF EXPORTERS IN DEVELOPING COUNTRIES
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 TRADE IN INFORMATION TECHNOLOGY PRODUCTS : VIEWS OF EXPORTERS IN DEVELOPING COUNTRIES
ANTI-DUMPING & COUNTERVAILING MEASURES • Local Industry Protection -Competition from cheap products - Unemployment - Selling products below production costs 17 -38% • Imposition of Countervailing duties • Impact - Dissatisfaction with long drawn investigation process - Non-resolution during the concurrency of the life of the product TRADE IN INFORMATION TECHNOLOGY PRODUCTS : VIEWS OF EXPORTERS IN DEVELOPING COUNTRIES
AGREEMENT 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 TRADE IN INFORMATION TECHNOLOGY PRODUCTS : VIEWS OF EXPORTERS IN DEVELOPING COUNTRIES
TECHNICAL BARRIERS TO TRADE (TBT) - STANDARDS Mandatory Standards Essential Requirements - Human Health, Plant, Animal Life & Envt. Certificate of Conformity Needed From a Designated Agency Directives of Designated Authority Quality System Certification ISO 9001: 2000 - Principles / Guides - Business Process - Prod. , Instn. , Service - Inspection & Test - Design & Quality Systems Conformity Assessment First Party Declaration Second Party Conformity Assessment Certification by Specialized Bodies Self certification TRADE IN INFORMATION TECHNOLOGY PRODUCTS : VIEWS OF EXPORTERS IN DEVELOPING COUNTRIES
AGREEMENT ON TECHNICAL BARRIERS TO TRADE (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 TRADE IN INFORMATION TECHNOLOGY PRODUCTS : VIEWS OF EXPORTERS IN DEVELOPING COUNTRIES
TRADE RELATED INTELLECTUAL PROPERTY RIGHTS (TRIPS) Types of Intellectual Property Rights(Types of Instruments) Industrial Property Subject Matter Main Fields of Application 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 Patents Literary and Copyright and artistic neighboring property rights Original work of authorship and related contributions Software, audiovideo, printing Sui generis protection Original layout designs Micro-electronics industry Integrated circuits Trade secrets Secret business info. All industries TRADE IN INFORMATION TECHNOLOGY PRODUCTS : VIEWS OF EXPORTERS IN DEVELOPING COUNTRIES
IMPACT 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 IN INFORMATION TECHNOLOGY PRODUCTS : VIEWS OF EXPORTERS IN DEVELOPING COUNTRIES
TRADE 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 TRADE IN INFORMATION TECHNOLOGY PRODUCTS : VIEWS OF EXPORTERS IN DEVELOPING COUNTRIES
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 TRADE IN INFORMATION TECHNOLOGY PRODUCTS : VIEWS OF EXPORTERS IN DEVELOPING COUNTRIES
CONCERNS - IT INDUSTRY DEVELOPMENT Market Beneficial to developed countries Contract opportunities scarce Emergence of monopolies / cartels Industry Top 10 producers - 80% production USA dominance in each sector Closure of infant industries Loss of jobs and technical temperament Wastage of investment made Investment Largely amongst USA, EU and Japan Unbalanced industry development Flight of capital TRADE IN INFORMATION TECHNOLOGY PRODUCTS : VIEWS OF EXPORTERS IN DEVELOPING COUNTRIES
CONCERNS - IT INDUSTRY DEVELOPMENT 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 TRADE IN INFORMATION TECHNOLOGY PRODUCTS : VIEWS OF EXPORTERS IN DEVELOPING COUNTRIES
CONCERNS - DC s & EIT Investigation Mechanism Cumbersome and Time Consuming Not Commensurate - Technology Technical Barriers to Trade Procedure Cumbersome Time Consuming & Costly Lack of Availability of Infrastructure Making Exports Difficult ITA Product Coverage Consumer Electronics Software Application Development Intellectual Property Increased Technology Acquisition Cost Rights Dampening Innovation Cumbersome Mailbox System TRADE IN INFORMATION TECHNOLOGY PRODUCTS : VIEWS OF EXPORTERS IN DEVELOPING COUNTRIES
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 TRADE IN INFORMATION TECHNOLOGY PRODUCTS : VIEWS OF EXPORTERS IN DEVELOPING COUNTRIES
Ram K. Verma Executive Director, C-DAC, Noida Tel. : +91 -0120 -2402561 Fax. : +91 -0120 -240256 www. cdacnoida. com E-mail : rkverma@cdacnoida. com
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