U.S.-China ITA Breakthrough May Reduce Tariffs on High-Tech Products

Perkins Coie

On November 10, United States Trade Representative Michael Froman announced a major breakthrough in negotiations with China to eliminate tariffs on information technology products by expanding the scope of the International Technology Agreement (ITA). The ITA could reduce or eliminate tariffs on high-tech products such as medical imaging equipment, GPS devices, video game consoles, prepaid cards, computer software, solid-state storage devices, and next-generation semiconductors.

The ITA first entered into force in 1997 under the World Trade Organization (WTO). Since that time, trade in the goods covered by the ITA has increased from just over $1 trillion to more than $4 trillion annually. Talks aimed at expanding the scope of the ITA have been underway since 2012, with the goal of including more than 200 products that have been developed over the past two decades.

In July 2013, negotiations stalled due to disagreement over the scope of products covered by the ITA.  China sought to exclude a broader scope of items from the negotiations. The high-tech industry, both in the United States and worldwide, urged China to restart the talks with a better offer that included more product lines. (See July 2013 letter from a coalition of 35 U.S.-based industry associations; October 2013 letter from 34 semiconductor industry executives; December 2013 letter from a global group of 41 high-tech industry associations.)

While specifics of this week’s U.S.-China agreement have yet to be announced, official statements suggest that China has agreed to drop from its sensitive products list a number of items that are of particular commercial significance to U.S. companies, such as next-generation semiconductors and medical imaging equipment. The details will become clear when China submits its new tariff offer to ITA members. After that, a pact among the participating countries could be approved expeditiously. China’s offer must be submitted at least two weeks prior to the next negotiating round. The date of the next round is not yet public, but is rumored to be slated for early to mid-December.

The 54 countries participating in the ITA expansion negotiations represent 90 percent of world trade in high-tech products. If concluded, the new ITA scope would allow the WTO to eliminate tariffs on various high-tech products for the first time in 17 years. Tariffs from 8 percent to as high as 30 percent currently apply to products included in the negotiations, such as medical imaging equipment, GPS devices, video game consoles, prepaid cards, computer software, solid-state storage devices, and next-generation semiconductors. The new ITA would also allow manufacturers to ship components and finished products to other countries without having to pay customs duties on covered items.

The Information Technology and Innovation Foundation, a Washington, D.C.-based technology industry think tank, estimates that the expanded ITA would cover an additional $800 billion or more in annual technology trade, a 20 percent increase over current coverage.  A White House press release touted the deal as allowing “substantial expansion of ‘Made in America’ ITA exports to growing markets without the imposition of burdensome tariffs,” supporting up to 60,000 “well-paying U.S. manufacturing and technology jobs.”

China almost certainly will negotiate a transition period for eliminating various tariffs, and the details of that transition period have not yet been settled. It may take years for tariffs to be eliminated or reduced. 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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