Expanded Information Technology Agreement to aid key sectors

Tariffs of up to 25% stand to be eliminated for a range of technology goods after the US and China announced their support for an expansion of the Information Technology Agreement (ITA). Following a 12-month impasse in negotiations, the two countries succeeded in resolving their differences during the Asia-Pacific Economic Cooperation summit in November 2014.

An expanded ITA will result in the elimination of tariffs among participants of up to 25% for newer semiconductors, 8% for medical equipment, and 20% for game consoles. The new agreement is expected to be ratified in a meeting of the World Trade Organization in Geneva later this year.

As major exporters of technology, the US and China both stand to benefit significantly from this new version of the ITA. China was convinced to return to the negotiating table when several key categories, including displays, were removed from the expanded list. Originally signed in 1997, the current ITA's list of products incorporates annual tariff savings estimated to have amounted to $1.6 trillion in 2013.

In the area of multi-component semiconductors-single microchips that perform multiple functions previously handled by two or more semiconductors-removing tariffs will save the global chip industry $150 million to $300 million annually.

For medical devices, the tariff elimination will spur stronger competition among global suppliers of premium medical equipment and local Chinese vendors, resulting in lower prices. With the market for medical hardware in China more open to competition at Tier 1 and 2 medical facilities, where cost is a huge factor, removing tariffs will greatly improve the opportunity for multinational suppliers.

The inclusion of game consoles will be a boon for Sony and Nintendo of Japan and US-based Microsoft, all of which aim to expand the export of their consoles into fresh emerging markets or to increase competitiveness in established territories. While there is no domestic console industry in China, the ITA will support the country indirectly through the potential of higher sales of hardware that is manufactured there.

For displays, China will not eliminate tariffs in the ITA. Instead it will provide important support to domestic panel makers' capacity expansions and will encourage the local LCD supply-chain industry to grow. In December 2013 China announced that import duties for Gen 6-and-smaller LCD glass substrates would increase from 4% to 6% in 2014, while duties for Gen 7-and-larger would remain at 4%. China had also raised tariffs on finished LCD panel imports to 5%, up from 3% in 2012.

Dale Ford, Benjamin Niu, Piers Harding-Rolls, and Vinita Jakhanwalare with IHS Technology