India, perhaps, has a reason to rejoice after talks to extend the Information Technology Agreement (ITA) collapsed on Friday. The World Trade Organisation (WTO) led agreement was aimed at increasing the scope of the 17-year old trade pact which guarantees zero-tariff and duty-free trade already on hundreds of products. The second phase of the agreement was expected to be worth $ 1 trillion and added about 200 more products to the list.
Before taking it to the WTO, China and the US had bilaterally agreed to sign it recently. India has been opposing the pact and had decided not to become a signatory to it due to the fact that ITA will only be beneficial to the country when its domestic manufacturing is robust. Signing the agreement will also go against Prime Minister Narendra Modi’s Make in India push as it will make importing goods cheaper than manufacturing them locally. Currently, India imports a majority of its electronic needs and the country is offering myriad incentives to investors in order to promote manufacturing in India.
However, if the deal had gone through, India would have been under pressure to sign it sooner or later. Also, the country would have to intensify its efforts to promote local manufacturing of electronics to counter the possible fallout from the trade pact (of which US-China are the dominant forces).
“India had joined ITA-I (as the first phase is called) but that had devastating impact on domestic electronics hardware industry so the government stayed away from ITA-II talks,” said Abhijit Das, head (Centre for WTO Studies), Indian Institute of Foreign Trade (IIFT). The deal got stuck because South Korea was apparently miffed with the fact that the US and China reached an understanding bilaterally during US President Barack Obama’s recent visit to Beijing. Besides, Korea has issues in slashing the tariffs on their LCD television sets.
“We are disappointed not to be celebrating a deal this week. We missed a big opportunity,” US Ambassador Michael Punke said at the World Trade Organization (WTO).
India and many other countries are not party to the agreement and hence it is not legally binding on them. If ITA-II is clinched India stands to gain in terms of the fact that all its IT exports will enjoy zero tariffs, but the immediate impact will be minimal as it is hardly exports any IT hardware. As per the agreement, all member countries have to slash import duties on their products to zero.
But, the fact that China and Korea are ready to sign will mean that these countries will be able to export their goods to other member countries at a cheaper price, putting pressure on the rest of the world to become a party to it too.
An official of the department of electronics and IT said that ITA in our interest only if we expand exports and local manufacturing in the country. “So, it puts pressure (on us) in the sense that in the next two years we have to develop manufacturing.” There are signs of local production picking up, he noted. The official added that despite the past debacle, India would like to sign the agreement, as it would give local firms access to a huge market.
The first ITA was signed in 1997 and has not been reviewed since despite massive technological innovations and additions in the past 17 years.
The internal pressure to boost local manufacturing is too high which ensures that India must resist international pressure, said Niju V who heads the electronics and security practice for Frost & Sullivan’s South Asia & Middle East. “The FTAs are playing their own role in restricting domestic manufacturing and the CEPAs signed especially with Japan and Korea are not beneficial for electronics too, so it will better to not sign ITA II,” he said. So, in a sense the stalemate over the trade pact is a “respite” for India. “China can play fickle as has been seen with the recent climate change negotiations, so India should chart its own course keeping its realities in mind,” he added. Given its strong local manufacturing as well as internal market, China has nothing to lose. Niju said.
“The participants have significantly reduced the gaps on expanding the coverage of the ITA agreement in recent days, but unfortunately it has not been possible to finalize the negotiations this week,” WTO Director General Roberto Azevedo said in a statement.
Participants are expected to reconvene in 2015 to see if they can overcome the blockage.
“Manufacturers urge negotiators to come back to the table as early as possible in the new year to agree to a strong product list in order to unlock much-needed growth opportunities for manufacturers and their workers,” said Linda Dempsey, vice president of international economic affairs at the U.S. National Association of Manufacturers.
South Korea, home to top LCD producer LG Display Co Ltd, wanted LCD screens included in the deal, participants said.
But China, which wants to foster its own LCD industry, refused, demanding that all countries accept the same terms that it agreed bilaterally with the United States last month after a long-standing stalemate.
Reuters contributed to this story.