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New Study Shows ITA Bridging Digital Divide

Posted by John Neuffer, President & CEO on May 22, 2017 11:30:00 AM

As the Information Technology Agreement (ITA) turns 20 this year, a think tank in Washington, D.C. today released an important new report on the wide-ranging economic benefits of this pioneering trade pact to developing countries. Co-authored by Stephen Ezell and John Wu of the Information Technology and Innovation Foundation (ITIF), the study does a deep dive on the impact joining the ITA would have on six economies in various stages of economic development – Argentina, Cambodia, Chile, Kenya, Pakistan, and South Africa.

[DOWNLOAD THE ITIF REPORT]

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The conclusions of this 60-page analysis are as unambiguous as they are compelling. Chief among those conclusions is that tech products are critical drivers of growth in developing economies. By eliminating tariffs on transformational technologies through participation in the ITA, the six countries under review stand to significantly spur the adoption and consumption of these products, which in turn would expand economic growth. Argentina, Cambodia, Kenya, and Pakistan, for example, would see increases in GDP ranging from 1% to 1.5% over a 10-year period as a result of joining the ITA.

Ezell and Wu underscore the important signal a government sends in deciding to join the ITA. It is a move that represents not only a concrete commitment to free trade, but also a willingness to put policies in place that will attract companies contemplating investments in the tech sector and ultimately speed the modernization of an economy.

Then, of course, by making a developing economy more attractive to foreign investment and helping it to more effectively plug into the global supply chains, ITA participation also facilitates the creation of not only more tech sector jobs, but also jobs in sectors that rely on tech products to grow and innovate.

In addition, lending weight to the idea that services trade follows goods trade, the report demonstrates the expansion of trade in tech goods for developing economies participating in the ITA helps them to significantly expand exports in tech services. As examples, tech services exports as a percentage of total services exports currently come in at an impressive 70 percent for the Philippines, nearly 50 percent for Costa Rica, and roughly 30 percent for China. The availability and affordability of innovative tech products through tariff elimination is a chief driver of this phenomenon.

Ezell and Wu also convincingly refute the concern of governments in some developing countries that it’s not worth joining the ITA because the resulting tariff elimination would be too big a hit to state coffers. To be sure, cutting tariffs does deplete an existing source of tax revenue. But ITIF’s report shows “this perspective is flawed, since tariff revenues forgone from joining the ITA could be substituted by tax revenues from other sources generated through ICT-fueled economic growth.” Bottom line, forsaken tech tariffs may generate a revenue loss in the short-term, but this is far outweighed by the long-term benefits derived from better access to transformative technologies that grow the GDP and improve standards of living.

It is worth highlighting that joining the ITA is a meaningful and tangible step that governments can take towards achieving the UN’s 2030 Sustainable Development Goals. Greater deployment of ICT in a nation’s economy can positively impact all those goals, from expanding access to the Internet and empowering women to environmental protection and improving health.

The release of the report comes at a good time. The World Trade Organization (WTO) is hosting a June 27-28 symposium in Geneva to mark the 20th anniversary of the ITA. With Director-General Roberto Azevêdo and the WTO putting much focus on bridging the digital divide and promoting growth and prosperity through expanding e-commerce, this new ITIF report provides a mountain of facts and figures to show just how important participation in the ITA is to advancing these important goals. This ITIF report will surely be much discussed at the ITA’s upcoming birthday party in Geneva next month.

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Topics: trade, ITA