India has been opposing the pact as ITA will only benefit the country when its domestic manufacturing is robust.
Following the collapse of talks to extend the Information Technology Agreement (ITA) on Friday, perhaps India has reason to rejoice.
The World Trade Organization (WTO)-led agreement was aimed at increasing the scope of the 17-year-old trade pact that guarantees zero-tariff and duty-free trade in hundreds of products.
The second phase of the agreement was expected to be worth $1 trillion and add about 200 products to the list.
Before taking the matter to the WTO, China and the US had recently agreed to sign the agreement. India had been opposing the pact, deciding not to become a signatory due to the fact that the ITA would only benefit a country if its domestic manufacturing was robust.
Also, signing the agreement would go against Prime Minister Modi’s ‘Make in India’ push, as it would make importing goods cheaper than manufacturing these in the country. Currently, India imports most of its requirement of electronic items.
To promote manufacturing in India, the government is offering myriad incentives to investors.
If the deal had gone through, India would have been under pressure to sign it sooner or later. Also, it would have had to intensify efforts to promote local manufacturing of electronics to counter the possible fallout of the trade pact (of which the US and China are dominant forces).
“India had joined ITA-I (as the first phase was called), but that had a devastating impact on the domestic electronics hardware sector. So, the government stayed away from ITA-II talks,” said Abhijit Das, head (Centre for WTO Studies), Indian Institute of Foreign Trade.
The deal was stuck because South Korea was apparently miffed with the fact that the US and China had reached an understanding during US President Barack Obama’s recent visit to Beijing. Besides, Korea has concerns against slashing tariffs on its 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 WTO.
For India, the relief might be temporary, as the US and other participating countries are hopeful of sealing the deal next year. “We are not signing the pact. But for now, this (that India is relieved) could be one of the many inferences,” said a government official.
India, along with many other countries, isn’t party to the agreement and, therefore, the pact is not legally binding on it. If ITA-II is clinched, India stands to gain in terms of the fact that all its IT exports will enjoy zero tariff, but the immediate impact will be minimal, as it is hardly exports any IT hardware. According to 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 the pact will mean these countries will be able to export their goods to other member countries at cheaper prices, putting pressure on other countries to become party to the agreement, too.
An official of the Department of Electronics and IT said the ITA would be in India’s interest only if it increased exports and local manufacturing.
“So, it puts pressure (on us) in that in the next two years, we have to develop manufacturing,” he said, adding there were signs of local production picking up. In the long run, India would want to sign the agreement, as it would give local firms access to a huge market, the official said.
The first ITA was signed in 1997, and hasn’t been reviewed since then, despite massive technological innovations.
Pressure to boost local manufacturing was high, due to which India must resist international pressure, said Niju V, heads (electronics and security practice for South and West Asia), Frost & Sullivan. “FTAs (free trade agreements) are playing their role in restricting domestic manufacturing and the CEPAs (comprehensive economic partnership agreements) signed, especially with Japan and Korea, are not beneficial for electronics. So, it will better to not sign ITA-II,” he said.
“China could 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 said, adding given its strong local manufacturing and internal market, China had nothing to lose.
“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 finalise the negotiations this week,” WTO Director General Roberto Azevêdo said in a statement.
It is expected the participants will reconvene next year to try and overcome the hurdles. "Manufacturers urge negotiators to come back to the table as early in the new year to agree to a strong product list to unlock much-needed growth opportunities for manufacturers and their workers," said Linda Dempsey, vice-president (international economic affairs) at the US National Association of Manufacturers.
South Korea, home to top LCD producer LG Display Co Ltd, sought LCD screens be included in the deal, participants said.
However, China, which wanted to foster its own LCD sector, refused, demanding all countries accept the terms it had agreed to with the US last month, after a long-standing stalemate.
Inputs from Reuters