China Adds New Wrinkle To ITA Talks With 'Critical Mass' Proposal

Updated NAIROBI, Kenya -- Efforts to conclude an expanded Information Technology Agreement (ITA) here have been further complicated by a Chinese demand for language allowing the deal to be suspended any time its membership slips below a “critical mass” of countries involved in trade in the covered technology goods, according to informed sources.

Specifically, China is seeking a statement outside the ITA ministerial declaration that would allow countries to withdraw their tariff cuts under the deal if the parties at any time represent less than a critical mass, which is defined as 90 percent of trade in the covered products, sources said. One source said the statement would not be legally binding.

China's proposal, which one source said was not new, was discussed at a meeting on Monday (Dec. 14) of ITA ambassadors but was rejected by some participants. Critics of the proposal believe that it would create enormous legal uncertainty as to whether tariff cuts would stay in place in the future.

Despite this new wrinkle, and the fact that China has not submitted a final tariff schedule implementing the draft deal on an expanded ITA product scope reached in July, World Trade Organization Director-General Robert Azevedo said Tuesday (Dec. 15) he was confident that countries could reach a deal here this week.

Azevedo did not mention the additional Chinese demand when asked during the opening press conference for the Dec. 15-18 WTO ministerial conference here what was delaying the ITA deal.

Instead, he cited the fact that Beijing had not yet submitted its final tariff schedule due to some unresolved “technical issues,” noting that some Chinese technical experts arrived late to the ministerial. He said his understanding is that the participants in the ITA expansion talks will be in a position to do a deal shortly, and pointed out that trade negotiations generally tend to go down to the wire.

“That's what always happens, the finale is always very exciting, very difficult, but ultimately the political will is there, we manage to close,” he said. “And I'm quite confident the political will is there at this point.”

But as Tuesday drew to a close in Nairobi, China still had not submitted any revised offer, one senior trade official said.

"China has yet to submit its schedule, which is causing intense frustration among all of the other ITA participants," the official said, adding that China continues to insist on its critical mass proposal despite it being "opposed overwhelmingly" at the Monday meeting.

ITA expansion participants are aiming to wrap up their talks before a press conference on the initiative slated for 3:30 p.m. on Wednesday.

In order to reach that deadline, China would have to submit its offer either during Tuesday night or early Wednesday. But even if China submits a final offer, it will still be have to checked by the other parties and the WTO secretariat, and it is unclear exactly how long this process would take, sources said.

One informed source said late Tuesday that there were new positive signs of progress, but did not provide further details.

Other sources viewed China's critical mass proposal as purely tactical and aimed at giving it additional leverage to force other ITA participants to accept its final tariff offer. For instance, China could agree to drop the critical mass demand if other participants accept its final schedule, one source said.

China claims the proposal is aimed at addressing the free rider problem, which 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.

Some ITA participants are sympathetic to China's efforts to address the free rider issue, but do not consider its proposal as an appropriate way to do so.

The current membership of the expanded ITA reflects a critical mass. But this could change in theory if either patterns of trade significantly change or some members decide to drop out.

The U.S., European Union and other trading partners have put reservations on China's schedule because they believe it does not accurately reflect the goods on which participants agreed to cut tariffs, sources said. Although they had earlier sought to push China to shorten the tariff phaseouts on many of its products, these participants now seem to be raising only issues with the tariff classification.

In its latest offer, China sought phaseouts of five or seven years on roughly 40 percent of the 201 new products that will be added to the ITA, sources said. The informed source said that while some ITA advocates would have preferred quicker phaseouts, they are willing to sacrifice some ambition in order to get a deal done this week.

The source further signaled that failure to close an ITA deal here could lead to drift in the negotiations which have gone on for three years, and a new delay could prompt some parties to pull back on their offers.

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