A Review To Evaluate The Plausibility of Pakistan’s Accession To Information Technology Agreement

The Information Technology Agreement (ITA) of the World Trade Organization (WTO) aims to eliminate custom duties and reduce non-tariff measures on Information Technology (IT) and electronics related equipment. These include computers, monitors, electronic components, LED lights, software, printed circuit assembly, phones and other similar technologies. The total trade under the ITA products was USD 3.67 trillion in 2019, roughly 19 percent of total global trade. The countries which have acceded to the ITA predominantly include advanced economies with higher per capita income and an established export base for electronics prior to accession. A minority of the countries acceded due to economic diplomacy considerations.

There is inconclusive evidence to suggest ITA as an appropriate avenue to expand a country’s capability in manufacturing and exporting electronics and IT products. Whilst countries that are a signatory to the ITA have increased their IT and electronic products exports, others, which are not signatories, have also increased exports manifold. For example, Tunisia increased its exports of ITA related products by ten times, from USD 440 million in 2001 to USD 4.1 billion in 2019. Regional countries such as India and Bangladesh rely on a cascading tariff structure to increase localization and manufacturing of electronics in their countries. India, which is a signatory to the ITA is facing international disputes in the WTO for adopting policies for localizing manufacturing of electronics, claiming them to be against the ITA protocols.

In Pakistan, imports of ITA related products have risen six-fold between 2003 and 2019, significantly higher than the global average. Pakistan’s imports of ITA related products grew by a Compounded Annual Growth Rate (CAGR) of 13.2 percent during 2003-2019. Pakistan has negligible exports of IT products, but exports of IT services increased by a CAGR of 19.2 percent from USD 204 million in 2010 to USD 995 million in 2019. Growth in IT services in Pakistan signal that signing the ITA is not a necessary condition.

PBC policy recommendations are guided by its Make-in-Pakistan thrust, reviewing policies by their impact on creating jobs, increasing exports, substituting imports of finished goods with locally manufactured products and increasing tax revenues. In alignment with Make-in-Pakistan, The Pakistan Business Council (PBC) advises against Pakistan signing the ITA for the following reasons:

  1. Likely loss of jobs: Pakistan has experienced de-industrialization due to policies that discourage manufacturing and make it easier to import finished products. Allowing across the board zero duty on components and finished, ready-to-sell electronics, will result in closure of existing manufacturing units, and also discourage additional investments in production facilities for electronics. This will lead to a loss of manufacturing jobs, which is an undesirable outcome.
  2. Reduced potential for exports: After analyzing the export data on ITA products of countries, it is evident that signing the ITA is not a necessary condition for improving the production and exports of electronics and IT products. In other words, there is no evidence to support that countries with basic manufacturing capability in electronics, as is the case for Pakistan, receive any special access to the electronics value chain by signing the ITA.
  3. Discouraging import substitution of ready-to-sell ITA products: By disallowing cascading of tariffs under ITA, and removing the advantage for local manufacturing, for example as envisaged in the Mobile Phones Manufacturing Policy, companies such as Samsung may lose interest to invest in smartphone assembling in Pakistan. Not only will this have an adverse impact on the external account, Pakistan will also miss opportunities to acquire technologies in manufacturing electronics by reducing the chances of foreign companies to enter Pakistan.
  4. Loss in tax revenue: The government will lose a significant source of revenue in the form of custom duties by joining the ITA. FBR has estimated revenue loss of PKR 3.5 billion from 105 tariff lines following Pakistan’s accession into the ITA.
  5. No compulsion in joining the ITA: No country is bound to join the ITA, as it is a voluntary agreement. Countries which have an existing export base in the sector gain by joining the ITA, which facilitates entry into new markets.