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                                                                                                                           Asean Affairs September 20, 2013  

Indonesia And Vietnam Would Get A Boost If They Joined The Expanded Information Technology Agreement

By Murray Hiebert (@MurrayHiebert1), Senior Fellow and Deputy Director,
Sumitro Chair for Southeast Asia Studies (@SoutheastAsiaDC), CSIS

Indonesia and Vietnam should seriously consider jumping into the negotiations currently under way to expand the list of products included in the 1996 Information Technology Agreement (ITA). At a time when the economies of both countries are struggling to regain their stellar performance of recent years, global elimination of tariffs on a long list of information and communications technology (ICT) products could spur increased economic growth.

In 1996, 29 members of the World Trade Organization (WTO) signed the ITA under which they pledged to abolish tariffs on eight different ICT categories including computers, semiconductors, and telecommunications equipment. Since that time, ITA membership has grown to 78, with the most recent member being Russia, which joined last week. In the first dozen years of the ITA, global trade in ICT products covered by the agreement rose more than 10 percent each year, reaching $4 trillion in 2008, up from $1.2 trillion in 1996.

Exports of ICT products from developing countries under the ITA jumped threefold to $1.4 trillion in 2010, and their share of global exports of ICT products doubled to 64 percent, according to a 2012 WTO study reviewing the impact of the ICT during its first 15 years. Vietnam’s average annual growth of ICT product exports rose 45 percent between 1996 and 2010, while India’s rose 30 percent and China’s 29 percent, the WTO report found.

In mid-2012, a small group of ITA member economies began meeting in Geneva to develop a product list to be considered for expanded coverage under the ITA. That group has since grown to 26 (with the European Union’s 28 member states counted as a single group), and the negotiations have picked up to the point where a final deal is achievable this year. The goal of the participants has been to complete a new agreement by December when Indonesia hosts the ninth WTO ministerial conference in Bali. Some had hoped to finish the talks in Geneva in July, but they were slowed when China introduced a surprisingly long list of “sensitive” products it wanted taken off the negotiating table.

Four of the larger economies of Southeast Asia—Singapore, Malaysia, Thailand, and the Philippines—have been active in the ITA expansion negotiations. Vietnam and Indonesia are the only ITA members in the region sitting out of the talks.

Vietnam seems to be holding back largely because the 12-country Trans-Pacific Partnership talks, which include the United States and Japan, are preoccupying the country’s limited number of negotiators and officials involved in trade-liberalizing initiatives. Some officials, particularly in the Ministry of Information and Communications, also say they are concerned that the expansion of imported tariff-free products could hurt some Vietnamese companies.

But proponents of expanding the ITA say Vietnam, which has one of the fastest growth rates of smart phones and tablets in the world, will be a major economic beneficiary of expanding the ICT list. “Vietnam is growing as a tech products exporter and it stands to gain nicely from tech tariffs around the world being eliminated,” says John Neuffer, senior vice president of global policy for the Information Technology Industry, an association of leading global innovation companies.

Vietnam’s economic growth has slowed since a credit bubble burst four years ago, prompting double-digit inflation and a series of currency devaluations. An ensuing real estate slump created a large nonperforming loan problem in the country’s banks. But as the government has taken steps to address these problems, Vietnam has witnessed an uptick in recent months in exports, credit expansion, and economic growth.

Vietnamese officials hope completion of the TPP will force the government to begin streamlining state-owned enterprises that have accumulated massive debt over the past decade and attract more foreign investment. Joining the ITA could also help Vietnam boost exports, particularly of ICT products that are already growing by leaps and bounds. “Vietnam has already agreed under its WTO accession to eliminate duties on roughly half the ITA expansion products currently being considered anyway, so this should not be a monumental lift for Hanoi,” says Neuffer.

In Indonesia, some officials argue against joining the expanded ITA because, they assert, the benefits of the original agreement have not been very obvious. But Neuffer points out that Indonesia has been a huge beneficiary of the ITA. The explosion of smart phone usage in Indonesia, for example, has yielded huge economic and social benefits for consumers across the sprawling archipelago. Residents of Jakarta hold the top spot worldwide for Twitter posts, all of which are done on devices covered by the ITA.

A recent op-ed in the Jakarta Post reported that Indonesia’s exports of telecommunications and audiovisual devices have surged 50 percent in the last five years. It said the ICT industry is now one of the largest employers in the country and accounts for fully 6 percent of Indonesia’s gross domestic product.

Indonesia’s economy has begun to slow in recent months as demand for commodities from China and India has weakened. Foreign investment growth has eased and the exodus of foreign funds from the stock market has prompted the Indonesian currency to plunge. An onslaught of new regulations in recent years has raised fears among foreign investors about protectionism and economic nationalism.

Joining the expanded ITA might help Indonesia reverse some of these trends and perceptions. “If Indonesia wants to attract more tech manufacturing, it needs to support ITA expansion,” argues Neuffer. “It shows foreign companies a commitment to free trade and creates an environment where inputs for manufacturing can be obtained duty free.”

The original ITA has served as one of the more effective trade pacts launched in recent decades by expanding world trade, promoting innovation, and boosting economic growth and jobs in developed and developing economies. An expanded ITA is expected to take a good pact and make it even better. If Vietnam and Indonesia join the ongoing ITA expansion talks now, they could help shape the outcome of the agreement, take advantage of tariff cuts on ICT products that would benefit domestic manufacturers and consumers, and help their economies avoid being left behind by competitors in the region who are jumping in with both feet.

Courtesy: This post originally appeared on the Center for Strategic and International Studies, Washington D.C. cogitASIA blog

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