China and U.S. reach agreement on high tech products

Stan Alcorn Nov 11, 2014
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China and U.S. reach agreement on high tech products

Stan Alcorn Nov 11, 2014
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United States Trade Representative Michael Froman announced a “breakthrough” in negotiations with China over high tech products Monday night. The agreement could herald the first major tariff-cutting agreement at the World Trade Organization in 17 years, covering an estimated $1 trillion of products ranging from MRI machines to video game consoles. 

The negotiations concerned an update to the Information Technology Agreement, or ITA, signed in the late 1990s, under which countries agreed to cut tariffs to zero for a list of high-tech products. 

“For high tech products, every country wished to be a leader in that,” says Wing Thye Woo, professor of economics at UC Davis and president of the Jeffrey Cheah Institute on Southeast Asia. “So when high tech products started appearing quickly, some countries started putting tariffs on them.

Woo says the ITA didn’t follow the model of other free trade agreements: cut tariffs for the entire sector, with certain products singled out as exceptions. 

“You do not say mackerel is not free trade but salmon is free trade,” says Woo. “All fish is free trade, unless we specify certain fish.”

“This one is the other way around: The following are free trade items, and what is not mentioned is not free trade,” he says.

Signatories of the ITA agreed to cut tariffs only for products that fit into certain categories such as computers and data-storage media. 

China signed on to this agreement when it joined the WTO in 2001. “It had to,” says Woo. “But then the number of high-tech products kind of exploded.”

Efforts to increase the list stalled.

“China was the main opposition on this issue of broadening the Information Technology agreement,” says Gary Hufbauer, senior fellow at the Peterson Institute for International Economics. China had, for instance, maintained tariffs of up to 25 percent to protect its burgeoning semiconductor industry.

The agreement with the United States could un-stick negotiations with the other 54 economies involved in the ITA negotiations. “The presumption is those other countries will agree because they have been negotiating pretty much alongside the United States,” say Hufbauer.

“And I think it foreshadows more agreements on other issues between the US and China,” he says. “It’s really a new day.”

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