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Electronic News, Dec 16, 1996 by Crista Hardie

Singapore--More than a dozen of the major high-tech trading nations struck a deal Friday to eliminate import duties on information technology products by the year 2000.

Building on the endorsement last month by leaders of the Asia-Pacific Economic Cooperation (APEC) Forum in Manila, Philippines (EN, Dec. 2), the Information Technology Agreement (ITA) reached here aims to tear down trade barriers in a global industry that represents as much as $500 billion annually and could reach $800 billion by the end of the decade.

Industry executives last week praised the "extraordinary accomplishment" of acting United States Trade Representative Charlene Barshefsky, who pushed the agreement through at the five-day World Trade Organization ministers' meeting here.

Separately, President Clinton Friday nominated Ms. Barshefsky for permanent appointment as U.S. Trade Representative (USTR), a high-level post she has held on an acting basis since April, when Commerce Secretary Ron Brown was killed in a plane crash and USTR Mickey Kantor was elevated to Commerce Secretary. The president also nominated William Daley, an attorney and brother of Chicago Mayor Richard Daley, for the post of Commerce Secretary, as Mr. Kantor leaves the administration.

Ms. Barshefsky is credited with rallying the "quad" economic powers--the United States, Japan, Canada and the European Union--to establish an agreement that calls for the elimination of import duties on some 300 computer, software, telecommunications and semiconductor products over the next three years. By the end of the week, South Korea, Singapore, Australia, Hong Kong, Iceland, Indonesia, Norway, Switzerland, Taipei and Turkey had also committed to phase out tariffs in stages. All told, the ITA participants are said to represent 80 percent of high-tech trade worldwide.

However, the agreement did not resolve the issue of European or Korean participation in the Semiconductor Council established under the 1996 U.S.-Japan Semiconductor Agreement. According to the Semiconductor Industry Association (SIA), participation requires "expeditious elimination" of semiconductor duties.

Europe is expected to commit to an aggressive program to zero out tariffs by the time the Semiconductor Council meets in March. Meanwhile, additional ITA negotiations will be held in Geneva in January to work out the staging of tariff reductions.

"Having eliminated our tariffs in 1985...it's heartening to see other countries on that path," said Daryl Hatano, SIA's VP of international trade and government affairs.

The ITA, Mr. Hatano said, will have a two-fold benefit for the chip industry: Zero tariffs will lower chip manufacturers' costs and costs for their customers. And lower costs of computers and telecommunications equipment will ostensibly increase purchases of those products, in turn, driving up chip demand.

An estimated 90 percent of world trade is in information technology, whether it's cellular phones, calculators, memory chips or the equipment used to make them.

"The economic aspect is that $80 billion of exports from the U.S. are impacted favorably by the ITA," said George Sollman, chairman of the American Electronics Association (AEA).

"About $5 billion in tariffs are paid on all this stuff that goes outside of the U.S. With this (ITA) in place, our products become 6 percent less expensive, or our products become more competitive. By 2000, that translates to more revenues, which translates to more jobs," he said.

Mr. Sollman, who is also CEO of Centigram Communications, noted the company's business is becoming international in scope and, as a maker of telecommunications equipment, is a direct benefactor of the ITA. "It will allow us to sell more equipment in a number of areas we couldn't before. We just opened an office in Bejing and one in Hong Kong. So we're doing an awful lot in China." With a population of more than a billion people, China is "a marketer's dream. And they are absolutely focused on leveraging U.S. technology there," he said.

"I believe the ITA should have tremendous impact on California's and Silicon Valley's ability to succeed in global marketplace," said Joseph Hedges, international program officer for the San Jose Office of Economic Development. Smaller economies will still protect themselves through licenses and laws limiting foreign access, he noted, "but certainly eliminating tariffs on imports is a step forward."

During the recent recession, international trade was one of the few industries that grew. According to the U.S. Department of Commerce, in 1995, the San Jose metropolitan area--which represents the majority of Silicon Valley in terms of volumes produced--increased exports by $6.9 billion during 1995. That same year, California's exports grew 19 percent, 80 percent of which is attributed to high-tech-related products.

"I applaud the vision of the negotiators," said Eckhard Pfeiffer, president and CEO of Compaq Computer. "Information technology will continue to change our lives, and the Internet's potential as an engine of economic growth must be fueled. Making it more affordable and accessible is a critical goal, and I believe this agreement is a major success in furthering that goal."