IUST: Turkey Does Not Join Expanded ITA After U.S. Objects To Final Schedule

Turkey did not join the expanded Information Technology Agreement (ITA) concluded last week at the World Trade Organization ministerial in Nairobi, after the United States refused to lift objections it had put on Turkey's final offer over the way certain duty phaseouts were structured, according to Geneva sources.

However, Turkey's failure to participate in the expanded ITA is not expected to have any commercial impact because it is part of a customs union with the European Union, which is a member of the revised agreement. Under the customs union, Turkey is required to put in place the same applied tariffs as the EU.

But not joining the expanded ITA means Turkey will not take on any commitments with respect to its “bound tariffs,” which are the maximum tariff levels it enshrines in its WTO schedule. This means that, if Turkey were to leave the customs union with the EU, it could subsequently raise tariffs on any of the 201 products covered under the expanded ITA. Turkey is a member of the original 1996 ITA.

Sources pointed to at least two objections that the U.S. made to Turkey's final ITA tariff offer. The first relates to the fact that some of the tariff lines on which Turkey would have to cut duties under the expanded ITA are not currently bound in its WTO schedule.

Turkey currently binds only 50.3 percent of its tariff lines at the WTO, according to the 2015 World Tariff Profiles published by the WTO and two other international organizations.

Since Turkey does not currently bind some of the tariff lines covered under the expanded ITA, there is no clear “base rate” for Turkey to begin the tariff cuts. As a result, Turkey had pushed for base rates that were viewed as too high by other participants including the United States.

The second U.S. objection to Turkey's offer was that it was requesting phaseouts on a number of products to be backloaded. This means that phaseouts would not be done in the linear fashion, as was the general rule for other ITA expansion participants.

Duties under the expanded ITA would be eliminated either immediately upon entry into force, in three years, five years or seven years. For instance, China placed 40 percent of the 201 covered products in five- and seven-year phaseouts, but did not backload any of these reductions, according to a Geneva source.

Sources said several countries including the U.S., Switzerland and Japan had objected to the high base rates and the backloading of cuts in Turkey's initial tariff offer. But Switzerland and Japan ultimately dropped their objections after Turkey submitted a revised offer on Dec. 11 that made some improvements, according to the Geneva source.

One source said the U.S. declined to back down because it viewed Turkey's offer as setting a bad precedent for other small and less-developed countries to follow when joining the ITA. This created enough of a reason for the U.S. to block Turkey's entry into the ITA, even though the move has no commercial impact because of the customs union with the EU.

This source said ITA participants and support staff from the WTO secretariat ultimately determined that Turkey's absence from the expanded agreement would not cause the membership to dip below the required “critical mass,” which is defined as 90 percent in world trade of the covered products.

The critical mass is needed to ensure that countries do not become “free riders” to the ITA deal. The free rider problem arises from the fact that ITA members extend their tariff cuts on a most-favored nation basis to all WTO members. For this reason, ITA members generally want to ensure a critical mass is reached so that no major producer of IT goods is taking advantage of the benefits of the deal without being a part of it.

Several sources said they did not understand why Turkey was taking such a defensive approach to its tariff schedule in light of the fact that has to lower duties anyway as a result of its customs union with the EU.

One source suggested that Turkey could still join the expanded ITA in the future if it chose to improve its schedule. Several WTO members have already informally expressed an interest in joining the expanded ITA, including Vietnam and some Arab states who are members of the Gulf Cooperation Council.

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