FTAA.ecom/inf/147 June 5, 2002 Latin America / Trade, Tariffs and Competitiveness (Part III of III)

1
Exports of Goods per Capita vs Tariffs for
Selected Countries 1999
sources WTO and Global Competitiveness Report
2000
2
IV. What is the Impact of Trade Barriers?

• Increases costs to consumers and business
• Information Technology use is limited
• Stalls growth of e-commerce
• Lack of new technology inhibits productivity
  gains
• Deters growth of national competitiveness
• Limits demand for higher paying jobs
• Increases demand for Gray/Black market products

Source "Emerging Digital Economy", USG DOC and
ITA Coalition
3
Worldwide IT Tariff Rates 113 Countries - 1999
Very High IT tariff countries
Surinam
55
9 of countries
India
40
7 of countries
Thailand
Very High gt 19
40
15-19
Brazil
34
Moderate 10 - 14
18 of countries
Very Low tariffs 0 - 4
Kenya
31
45 of countries
Malawi
30
Low tariffs 5 - 9
Azerbaijan
25
Mexico non-Nafta
20
21 of countries
Senegal
20
Source www.ita.doc.gov
Tanzania
20
4
Latin America IT Tariffs for Hardware -
2000 maximum rates for hardware
Chile-Canada FTA means effective IT tariffs are
zero. Mexico tariffs are for trade with
non-NAFTA countries. IN late 2001, Mexico
announced their intent to eliminate IT tariffs
source for tariffs www.ita.doc.gov
5
What is the Impact of Non-Tariff Barriers?

• Trade barriers elude fixed definitions
• government laws, regulations, policies, or
  practices
• protect domestic products from foreign
  competition
• artificially stimulate exports of particular
  domestic products
• Trade barriers negatively affect imports
• add costs to imports not imposed on goods
  produced locally
• Difficult to estimate the impact of trade
  barriers
• warehouse storage
• delayed deliveries
• lost sale opportunities
• costly paper work
• But the costs are real

Sources USTR, Non-Tariff Barriers 2000 Report
and anecdotal information from the IT industry
6
Non-Tariff Barriers

• Complex import procedures
• Import licenses
• Spare parts import restrictions
• Rework restrictions
• Performance requirements
• Standards, testing, labeling, certification
• Import container
• Customs administration
• Pre-Shipment inspection
• Intellectual property - lack of effective
  protection
• E-commerce - lack of legal framework

Sources CSPP Draft Report on Latin America
Trade Heritage Foundation/Wall Street Journal,
Index of Economic Freedom USTR,
Non-Tariff Barriers 2000 Report
7
V. Information Technology Agreement (ITA)

• Negotiated in 1996 as optional WTO agreement
• Eliminated tariffs on products and parts by 2000
• computer hardware
• semiconductors
• semiconductor manufacturing equipment
• software
• telecommunications equipment
• Some countries will phase-in reductions
• Costa Rica, Indonesia, India, Korea, Malaysia,
  Taiwan, Thailand
• Membership is continuing to increase
• now 55 countries
• China is joining ITA - will phase-in tariff
  elimination

8
ITA Member Countries
Europe Albania Georgia
Norway Croatia Iceland
Poland Czech Rep. Latvia
Romania Estonia Liechtenstein Slovak
Rep. EU-15 Lithuania
Switzerland
Middle East Israel Jordan
North America Canada United States
Asia Australia Hong Kong India
Indonesia Japan Korea Kyrgyz Rep.
Macau Malaysia New Zealand
Philippines Singapore Taiwan
Thailand Turkey
Central America Costa Rica El Salvador
Panama
Africa Mauritius (not to scale)
South America none
China has agreed to join ITA. Mexico has
announced elimination of IT tariffs
Source www.wto.org and www.ita.doc.gov
9
Development of the Internet and E-commerce
Depends on Growth of Communications
Technologies..........
WTO Basic Telecom Agreement
Argentina
Yes
Brazil
Yes
Bolivia
Yes
Chile
Yes
Colombia
Yes
Ecuador
Yes
Mexico
Yes
Peru
Yes
Paraguay
Yes
Uruguay
Yes
Venezuela
Yes
Worldwide
75 countries
Source www.wto.org and www.ita.doc.gov
10
.......and Information Technologies
WTO Basic Telecom Agreement
ITA
Argentina
Yes
No
Brazil
Yes
No
Bolivia
Yes
No
Chile
Yes
No
Colombia
Yes
No
Ecuador
Yes
No
Mexico
Yes
No
Peru
Yes
No
Paraguay
Yes
No
Uruguay
Yes
No
Venezuela
Yes
No
Worldwide
75 countries
52 countries
Source www.wto.org and www.ita.doc.gov
11

VI. What are the Potential Benefits of Lowering
IT Tariffs?

• Increases a nation's competitiveness
• Offsets tariff loss by increased economic
  activity
• Reduces cost of IT to consumers and business
• Expands demand for higher paying jobs
• Encourages increased use of e-commerce
• Diffuses use of IT throughout economy
• Simplifies custom procedures

Source "Emerging Digital Economy", USG DOC and
ITA Coalition
12
E-commerce and IT industries contribute to
fundamentally altering a country's economy
Worker Productivity
GDP Growth
Employment and Wages
Inflation
Source "Emerging Digital Economy", USG DOC
13
Digital Economy Creates Demand for High Skilled
Workers....

• 1. Communications and Network Services
• 2. Customer Support
• 3. Data Management
• 4. Information Systems Security
• 5. Policy, Planning, and Management
• 6. Software Engineering, Application
• 7. Software Engineering, Systems
• 8. Systems Administration
• 9. Systems Analysis
• 10. Web Development

Source USG, Office of Personnel Management
14
VII. Econometric Studies - Country Specific

• Brazil
• Federacao das Industries do Rio de Janeiro
  (Firjan)
• developed by Eliezer Batista - a leading
  Brazilian economist
• presented to President Cardoso and several
  cabinet ministers
• Firjan study written up in VEJA - September 2000
• LCM Consultores Associados
• "Technologia da Informacao e Competitidade"
• developed by Lourdemir Carvalho - respected
  economist
• report published September 2000
• favorable reviewed by several government
  ministries in 2000
• Argentina
• Fundacion de Investigaciones Economicas
  Latinoamericanas
• "Apertura Comercial en el Sector Informatico"
• FIEL - prominent think tank - study done in
  spring 2001

15
Firjan "Why Brazil is Losing the Technology Race"

• Education level lags the rest of Latin America
• Workforce is unprepared and lack needed skills
• Exports of Manufactured Goods
• declined in 1990's as a percent of total exports
• PC's are expensive
• Brazil has very high IT tariffs ( gt 30)
• Tariffs plus other taxes adds 100 to cost of
  PC's
• Internet use is low - only 25 users per 1000
  population
• Conclusion for Brazil
• eliminating IT tariffs would increase PC use by
  50 in 3 yrs.

16
Brazil "Information Technology and
Competitiveness" LCM Consultores Associados

• Eliminating IT tariffs in 5 years
• reduce cost of IT products to consumers and
  businesses
• average 8
• as high as 23
• increase productivity
• generates USD 7.4 billion of value-added exports
• offset loss of tariffs with increased tax
  revenue
• gain RS 250 in tax revenue for every RS 100 lost
  in tariffs
• fuel growth of the economy
• add 22b to GDP
• reduce gray market sales
• IDC current illegal sales is 50 - 75 of total
  market
• increase lost tax revenue of 600m USD

17
FIEL Commercial Opening in the IT Sector

• Quantification of the advantages gained by
  reducing tariffs in Argentina
• Liberalizing IT market will generate economic
  gains
• increase use of PCs and e-commerce
• increase productivity - personal and national
• improve competitiveness of products made in the
  country
• increase export of value-added goods
• Argentina is a country that counts on the
  importance of human capital (measured in years of
  education average).
• " However, this is not seem sufficiently
  complemented by the use of new technologies from
  the more industrialized countries "
• Conclusion
• IT tariff elimination would significantly add to
  GDP growth

18
UN Human
Development Report 2001 Making New
Technologies Work for Human Development
"IT offers the potential for
developing countries to expand
exports, create good jobs and
diversify their economies. "