Indirect Tax, Trade & Diagnostics Singapore Client Alert August 2015 For more information, please contact: Eugene Lim Eugene.Lim@bakermckenzie.com +65 6434 2633 Ken Chia Ken.Chia@bakermckenzie.com +65 6434 2558 Shih Hui Lee Shih.Hui.Lee@bakermckenzie.com +65 6434 2532 Zhixiang Ke Zhixiang.Ke@bakermckenzie.com +65 6434 2624 Thuy Nguyen Thuy.Nguyen@bakermckenzie.com +65 6434 2681 Randeep Singh Randeep.Singh@bakermckenzie.com +60 32299 6476 Baker & McKenzie.Wong & Leow 8 Marina Boulevard #05-01 Marina Bay Financial Centre Tower 1, Singapore 018981 www.bakermckenzie.com WTO Information Technology Agreement Expansion Finalised - Further Tariff Elimination for Trade in 201 IT Products with Value of US$1.3 Trillion Annually Introduction On 24 July 2015, 54 members of the World Trade Organization ("WTO") ("Participants") finalised negotiations to expand the products covered by the 1996 Information Technology Agreement ("ITA 1996"). These negotiations resulted in the Declaration on the Expansion of Trade in Information Technology Products ("ITA Expansion Declaration"). According to the WTO, annual trade in the products covered by the ITA Expansion Declaration is valued at over US$1.3 trillion per year, and accounts for approximately 7% of total global trade today. The text of the ITA Expansion Declaration is available here. Key features of the ITA Expansion Declaration include: 201 new IT products("Covered Products") are eligible for tariff elimination regardless of origin; Participants currently include 54 WTO members; Participants are to submit their draft schedules to modify their existing tariff schedules ("Draft Schedules") by 30 October 2015, for review and approval by 4 December 2015; Customs duties are to be eliminated in four equal phases by 1 July 2016, 1 July 2017, 1 July 2018, and 1 July 2019; Other duties and charges of any kind imposed on or in connection with the importation of the Covered Products are to be eliminated by 1 July 2016; and The implementation of the tariff eliminations and reductions for the Covered Products under the ITA Expansion Declaration is to start when the approved Draft Schedules represent 90% of world trade in the Covered Products. Please see below for further details. Covered Products The 201 Covered Products eligible for tariff elimination under the ITA Expansion Declaration include: (i) Attachment A Products: Products bearing 191 specific Harmonized System ("HS") 2007 subheadings (at 6-digit level), which belong to 65 different HS headings, including, but not limited to, digital cameras, digital multifunction machines and printers, tools for manufacturing printed circuits, smart cards, medical devices, GPS navigation systems, video game consoles; and 2 Client Alert August 2015 (ii) Attachment B Products: 10 groups of products which will enjoy duty-free treatment regardless of their HS classification, including, but not limited to, new generation semiconductors; LED backlights modules; touch screens; portable interactive electronic education devices primarily designed for children; ink cartridges; printed matter which grants the right to access software, data, internet content or telecom services; and certain tools and materials for the manufacture, conveyance or packing of semiconductors, semiconductor wafers or flat panel displays. The Covered Products are to be reviewed and updated with additional products by January 2018 at the latest. Participants 54 WTO members participated in negotiating the ITA Expansion Declaration. The following have confirmed their acceptance of the ITA Expansion Declaration: In Europe: Albania, European Union (with 28 member countries), Iceland, Montenegro, Norway, Switzerland, and Liechtenstein; In Asia Pacific: Australia, China, Hong Kong, Japan, Korea, Malaysia, New Zealand, the Philippines, Singapore, Taiwan, and Thailand; and United States, Canada, Costa Rica, Guatemala, and Israel. However, of the 54 Participants, Turkey, Colombia and Mauritius have yet to confirm their acceptance of the Covered Products. Other WTO members may join the ITA Expansion Declaration at any point in future by notifying their acceptance in writing to the WTO Director-General. MFN Tariff Elimination Tariff elimination is to be implemented on a most-favoured nation (MFN) basis. This means that Participants will eliminate customs duties, and other duties and charges of any kind imposed on or in connection with the importation of all Covered Products from all WTO members, not just those from Participants. Draft Schedules - 30 October 2015 and 4 December 2015 Deadlines To implement the tariff eliminations and reductions for the Covered Products, Participants will be required to modify their existing Schedule of Concessions to the General Agreement on Tariffs and Trade ("GATT") 1994 ("Schedule of Concessions"). The ITA Expansion Declaration requires that by 30 October 2015, each Participant is to share with all other Participants its Draft Schedule for modifying its existing Schedule of Concessions. The Draft Schedule of each Participant is to include the following information: (i) Classification of Attachment A Products at the national tariff line level, where appropriate; (ii) Classification of Attachment B Products at either the national tariff line level or the 6-digit HS level; and (iii) Customs duty rate reductions in four equal phases applicable to each Covered Product beginning in 2016 and concluding in 2019. 3 Client Alert August 2015 The Draft Schedules will be reviewed and approved by the Participants on a consensus basis. This review process is to be completed by no later than 4 December 2015. Implementation - Tariff Elimination in 4 Equal Steps When the approved Draft Schedules represent 90% of world trade in Covered Products, which is likely the case when all Participants' Draft Schedules are approved, 1 the implementation of the tariff eliminations and reductions under the ITA Expansion Declaration will take place as follows: Participants are to eliminate custom duties in four equal annual reduction phases, unless otherwise agreed by the Participants. The first phase is to be effective by 1 July 2016, and the three subsequent phases are to be effective by the same date in 2017, 2018 and 2019 respectively. Duties and charges of any kind imposed on or in connection with the importation of the Covered Products other than customs duties are to be eliminated by 1 July 2016. Products with relatively low customs duties may enjoy immediate elimination of customs duties or accelerated implementation before the above dates. Next Steps Forward From now until 30 October 2015, i.e., when the Participants prepare their Draft Schedules, interested parties may wish to explore opportunities to propose to the governments of the relevant Participants their recommendations regarding the classification of the Covered Products and tariff treatment details. Between 30 October 2015 and 4 December 2015, i.e., before the Draft Schedule of each Participant is to be approved, interested parties should explore opportunities to work with their home governments, which are also the Participants, to propose their comments on the Draft Schedules of other Participants. Participants have also agreed under the ITA Expansion Declaration to intensify consultations concerning non-tariff barriers ("NTBs") in the information technology sector. Thus, interested parties should monitor relevant developments that Participants may have regarding an upgraded work program on NTBs. In addition, they should consider opportunities to highlight NTB issues to the Participants' governments. WTO statistics show that although the average applied MFN tariffs maintained by the Participants on the Covered Products range from 0% to 7.1%, the import duties for certain products in key markets are as high as 35%. As such, importers and users of a large number of Covered Products should expect significant cost reductions following the implementation of the ITA Expansion Declaration. Hence, technology importers and users should start to review whether their imports may be regarded as Covered Products and plan their procurement and distribution strategies accordingly. If you have any questions regarding the above or need any assistance regarding the next steps forward, please do not hesitate to contact us. 1 https://www.wto.org/english/tratop_e/inftec_e/itaintro_e.htm ©2015. All rights reserved. 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