Market Access Report: Information Technology
June 02, 2003 | BY
clpstaff &clp articles &Driven by strong government support and robust market demand, China's IT industry has reportedly grown by 20% annually over the past decade. Public spending…
Driven by strong government support and robust market demand, China's IT industry has reportedly grown by 20% annually over the past decade. Public spending in the IT sector is expected to be US$120 billion between 2001 and 2005, which will increase the IT industry's share of China's GDP from 5.8% to 7% and generate about 20 million new jobs. While foreign investors play a significant role in this sector, domestic players are increasingly distinguishing themselves, as is evidenced by the recent restructuring of China Telecom, the impending launch of 3G services by a consortium of eight domestic companies, and the intense competition between Beijing and Shanghai to become China's equivalent to Silicon Valley.
As a result of its WTO accession, China committed to 60 WTO and GATT ancillary agreements, a number of which directly or indirectly affect its IT industry. Under the Information Technology Agreement (ITA), China must gradually eliminate tariffs on key IT products. The Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPs) mandates that China amend its legislation to bring it into full compliance with TRIPs. China also must adhere to the Basic Telecom Agreement (BTA), which obliges the country to provide market access and national treatment in all aspects of telecom services and to introduce greater transparency in its telecom licensing regime.
Tariffs
Until very recently, China's major trading partners had reportedly blocked China's accession to the ITA due to the country's refusal to alter its end-use certificate system whereby 15 IT products could qualify for ITA preferential tariff rates only after they were determined to be products imported exclusively for manufacturing IT products and were issued an end-use certificate by the Ministry of Information Industry (MII). China's trade partners were concerned that the MII, viewed by foreign firms as a major market participant and as partial to China's telecoms equipment manufacturers, would place higher tariffs on the imported IT products at issue. The Chinese government reportedly proposed a compromise in February 2003 to transfer authority for end-use certificate issuance from the MII to the General Administration of Customs.
China's accession to the ITA was finally approved on April 24 2003. China's average tariffs on ITA products were reduced from 12.5% in 2001 to 3.4% in 2002, and tariffs on 83% of all ITA products (mostly finished products) have been eliminated as of January 1 2003. By January 1 2005, tariffs on all 251 products covered by the ITA, including computers, telecom equipments and semiconductors, will be eliminated.
Technical Barriers
China committed that within one year of WTO accession products imported to China would no longer be subject to multiple technical conformity assessments. Six months after its accession, China introduced a new safety licence system requiring manufacturers and importers of 132 products related to health, environment and national security to be subject to the unified China Compulsory Certification (CCC) system, which replaced the previously overlapping Great Wall and the China Commodity Inspection Bureaus schemes. Under the CCC scheme, suppliers of most imported goods, especially electronic appliances, are no longer required to undergo dual certification procedures. However, overlapping certification remains for cellular phones and certain other telecom products.
Intellectual Property Rights (IPR)
In compliance with TRIPs, China has made significant revisions to patent, copyright and trademark legislation, and has new legislation on software and layout design for integrated circuits. Still, enforcement remains weak in many parts of China due to local protectionism, lack of resources, and inability by some enforcement officials to take effective enforcement measures.
Telecom and Computer Services
Upon WTO accession, China was obliged to and did begin a phased introduction of foreign participation in its telecom sector, albeit subject to certain service and geographic region limitations. In 2008, foreign investors will be allowed to own up to 49%, 49% and 50% respectively of a company engaged in fixed-line, mobile and value-added telecom services nationwide.
China's most recently amended Foreign Investment Guidance Catalogue classifies the manufacture of certain advanced telecom equipment and the establishment of research and development (R&D) centres as encouraged projects. However, ostensibly for national security reasons, the manufacture of satellite navigation receivers remains restricted. Additionally, the manufacture of ISDN and backup telecom networks equipment was dropped from the encouraged category, which presumably reflects China's strengthened domestic manufacturing capacity and its intention to encourage localization of these IT products.
The revised Investment Catalogue also reflects China's commitment to computer-related services by allowing foreign firms to provide hardware installation, software implementation, and data processing. To date, IBM, Microsoft and Oracle have all opened R&D centres in China to carry out computer and software-related business.
Conclusion
As recently stated by a senior officer of the country's State Development & Reform Commission, the country should "use foreign capital, but not be used by foreign capital" in developing China's IT industry. China watchers anticipate that the country will honour its WTO commitments so long as its top leadership continues to view such commitments as supporting domestic growth. Recent reforms in the IT sector have indeed met this test and it is widely believed that continuing market liberalization will one day allow foreign IT firms to fully explore the enormous potential of a rational, market-driven economy.
By Mitch Dudek, Beth Bunnell & Steve Guangyu Yu, Jones Day, Shanghai
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