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Information
and Communications Technology: By Edited By Janell Jenkins Advisors This paper was
researched and written to fulfill the M.A. project requirement for
completing the Monterey Institute of International Studies’ Master of
Arts in Commercial Diplomacy. It was not commissioned by any government or
other organization. The views and analysis presented are those of the
student alone. Names of people, corporations, businesses and governments
are used only as examples in fictitious sample correspondence, statements,
etc. in order to depict a realistic, albeit fictional, scenario. This does
not represent any knowledge of these examples, nor does it in any way
represent an endorsement by an individual, corporation, business or
government. TABLE
OF CONTENTS
(i)
Tariff Barriers Implications (ii)
Information Technology Agreement Prognosis SCENARIO For the purpose of this
project, I will assume a role of the President of CommanDa[1]
and will act as an adviser to the Minister of Communications and
Informatization, Mr. Reiman. The
purpose of this project is a reduction of tariff barriers on Information
and Communications Technology (ICT) equipment imports and exports, as a
step towards a gradual liberalization of the ICT trade. It is expected that ICT trade liberalization will promote
development of the Russian ICT sector, by attracting foreign and domestic
investment into technological production and R&D, and a creation of
the fair competition environment in Russia’s domestic market.
Furthermore, any legislative changes made towards tariff
liberalization on the domestic front should be consistent with
international trade rules, as Russia is preparing to enter the World Trade
Organization (WTO). An
implementation strategy of ICT sector trade tariff liberalization is
proposed in this project.
TERMINOLOGY ITA
- Information Technology Agreement Tariff
barriers – tariffs, duties, tariff quotas, tariff exemptions Information
and Communications Technology (ICT) Product Categories[2]:
EXECUTIVE
SUMMARY Vision
The
vision that the government put forth is the further growth of the ICT
sector and ICT trade, as well as the utilization of assets that the
Russian Federation (RF) has to promote such growth, which are the large
potential market and highly developed R&D and scientific sector.
However, it is recognized that in order to promote growth, an
extensive investment into the communications infrastructure is needed. The
most important goals of the government’s vision in developing the ICT
sector are: Ø
Development of infrastructure
and connectivity rate growth, which will create a more level-playing field
through the dissemination of information; Ø
Creation of opportunities to
export high-tech intensive products and services; Ø
Further expansion of the ICT
trade and industry and flows of capital investment; Ø
Reduction of engineering
brain-drain through stimulation of efficient applications within Russia,
limiting the stimulus for emigration; Ø
Becoming a leading player in
the global ICT market and Russia’s integration into the global
information society. However,
there are still issues that stand in the way of the implementation of this
vision. One that has not gained adequate attention, but will have a
considerable impact on further development of the ICT sector, is tariff
reform. As the ICT sector has the potential to become one of the key
elements in the Russian economy, a revised strategy is necessary. Current Reality
While
the growth of the ICT sector in Russia has been tremendous, indicating a
strong future development potential, there are still some differences
between current and envisioned reality.
One
positive trend is that the ICT sector has been enjoying considerable
growth. In 2001, the ICT market in Russia grew by 18 percent[i],
contributing to a long list of indicators for Russia’s economic revival.
The 2001 projected revenues of the total market of ICT in Russia,
including hardware, software, ICT services, data communication services,
and voice telecommunications, amounted to $12.553
billion. This figure is
forecasted to reach $20.0
billion by 2005[ii].
Taking into account Russia’s improving economy, growing
purchasing power, and interest and openness to current foreign affairs,
conditions for enlargement of Russia’s ICT market appear to be
favorable. However,
some components are lacking for ICT sector growth and investment
attraction . Most critical
are: Ø
Engineering management
know-how, leading to difficulties Russian engineers face with
translation of ideas to implementation.
Therefore, the lack of know-how results in inefficient production.
Experience that Russia has up to date comes from production of
military equipment, which was bulky and inefficient.
Now the RF is faced with the task of how to manage efficient
utilization of production, utilize scientific resources and produce
sophisticated products that will be able to compete with global
technological developments. Ø
Sophistication of Russian
production is not yet up to world quality standards.
In order to overcome these production inefficiencies Russia has to
become more integrated into the world trade market and supply parts and
components that are globally competitive.
As mentioned before, to boost quality of production, considerable
investment into the ICT sector is needed.
Furthermore, another need is the supply of parts and components at
low cost for domestic assembly, which is a recent trend in the Russian
market. However, in order for
Russian producers to be able to make competitive products, they need to
bring in parts and components from abroad, at the lowest cost possible.
Therefore,
tariff reform appears to be necessary, for the following reasons: Ø
The RF will not be able to export successfully without getting
cost-competitive inputs for domestic assembly;
Ø
If the RF is able to implement these changes it will be able to
attract foreign direct investment (FDI) for infrastructure and increase
production of competitive products; Ø
Removal of import barriers is a way to overcome shortcomings on the
management side, which will enable the RF to become a producer of
sophisticated high-tech products; Ø
Furthermore, since customs collections are very inefficient and
result in corruption and bribery, it is feasible to cut duty in order to
eliminate corruption. However,
there is a concern about how this reform will benefit not only ICT-intensive
regions, but also small provinces. In
this regard, it should be realized that the benefit comes from the RF
intellectual potential of its people, who are only lacking the
“translation” of their knowledge to world standards.
In order to overcome this hurdle, people need: 1)
A functioning telecommunications system; 2)
A new-components-based information system; 3)
The ability to produce these components. The
best way to overcome this “translation gap” is to bring foreign
specialists into the country for purposes of education on their know-how.
Reform of the ICT sector, using foreign expertise, will be more
efficient, economic, and timely, in regard to the development of domestic
production. Furthermore, it
will allow Russia to utilize its information technology to achieve
international competitiveness in the industry.
Recent
Progress It
is important to note, that tremendous progress has already been made. The
government of the RF has initiated and completed a number of adjustments
to boost investment and trade opportunities for the Russian Information
and Communication Technology (ICT) industries, such as revisions to the
Customs Code addressing technical barriers, the approval of a “National
Technology Base” Program which includes guidelines for structure and
financing. In addition to
legislative undertakings: Ø
Educational standards are consistently kept high, which gives
Russia a competitive advantage in the engineering labor force; Ø
Russian R&D capability is rated highest by world standards. In
addition, the government has developed fundamental policies for launching
the Russian ICT sector global integration program such as: Ø
Closing the innovation gap and implementing science-based
regulatory requirements, so external market access is regularly gained; Ø
Timely accession to the international trading system within the WTO
context; Ø
Expansion of the Internet/Communications infrastructure in the most
cost-effective and time-efficient way to cover vast territories of the RF
by enhancing market access for computer and telecommunication products and
bringing down the price of products; and, Ø
Attraction of capital investment into the ICT sector, by taking a
non-differentiating approach of sources of investment.
Therefore,
the only problem that remains is to develop an efficient production chain. What Is the Solution?
The
underlying concept is to follow the global trend of specialization.
Therefore, the RF should specialize in what it does best: domestic
production with high-tech applications. In
order to achieve this, the RF needs to remove additional barriers to
investment and trade, bring in know-how, and increase efficiency and
therefore exports. To achieve
this, the RF requires imported inputs for domestic productions at the
lowest cost possible, so it can produce quality products which are price
competitive and enhanced by domestic high-tech applications.
This is not to imply that protection will be completely eliminated
and can be further maintained by other means, primarily the exchange rate,
among others. However, it is
critical for Russia to obtain the needed know-how and to attract
investment – one critical approach is the elimination of trade tariff
barriers. Suggested
actions in institutional and legislative areas of importance for launching
ICT sector liberalization reform that the Ministry of Communications and
Informatization (The Ministry) may use to stimulate urgently needed
capital investment into the ICT sector to assist further development, are
identified in the following order: Ø
Action1: Initiation of a draft
legislation for the ITA accession with tariff reduction schedules by 2010; Ø
Action
2: Amendment of the Strategy
of Formation of Tariff Offers for Market Access For Goods In the Framework
of Russia’s WTO accession process, within a framework of the ICT
sector liberalization; Ø
Action
3: Amendment of Decree No 366
“On Tariff Reduction” to include reductions of telecommunications
equipment; Ø
Action
4: Creation of a “Russian ICT Sector Global Integration Program” Task
Force, for implementation of a consolidated Program; Ø
Action
5: Creation of a committee within a “Russian ICT Sector Global
Integration Program” Task Force for high-technology export promotion
within the Ministry of Communications and Informatization; Ø
Action
6: The draft legislation for
“Creation of Special Economic Zones”, and evaluation of a category of
products destined for such zones to be exempt from duties; Ø
Action
7: Drafting a legislation on
“Investment Insurance and Financial Stimulation” to cover concerns of
the investors into the R&D facilities. It is proposed that the above actions to address tariff liberalization should be regarded as an important part of the “Russian ICT Global Integration Program”, which is recommended to become a centerpiece of President Putin’s campaign in 2004. This implies the need to increase the civil awareness and enhance a public vision on the importance and criticality of the ICT sector development for the benefit of every citizen. It is common logic that the longer the action is postponed, the slower the transformation of Russia is going to be towards becoming a competitive player in the global ICT market. Concrete suggestions to enhance a dynamic upward transformation of the Russian ICT sector and its global integration are the ultimate goals of this project. ISSUE An
outstanding issue is the establishment of sound import and export policies
aimed at liberalizing the ICT market. The
most recent Russian legislative development, which is the adoption on 1
July 2002 of the President’s Decree N366 in the area of tariffs
reductions, excluded a considerable number of ICT equipment assembly
parts. Furthermore, action is needed for amending the Strategy of
Formation of Tariff Offers for Market Access for Goods in the Framework of
Russia’s WTO accession process, which sets as a goal the initiation
of tariff reductions on ICT products for 3-4 years following Russia’s
accession to the WTO. An
alternative approach, the Information Technology Agreement (ITA)
accession, should be considered. BACKGROUND INTRODUCTION:
Transition Towards an Information Technology Society International Experience International
experience illustrates that every nation finds a unique approach to
transform itself and become a part of a global information society,
depending on its political, socio-economic, and cultural conditions.
Developed
nations and many developing nations have acknowledged advantages that come
with the ability to create and disseminate information and communication
technologies. They realized
that the movement towards an information society is a way to a harmonious
global society. Precisely
this concept was captured in the Okinawa Charter Of Global Information
Society[iii],
which was signed by the G-8, inter
alia, President Putin, July 2002, in Okinawa, and laid the foundation
for the transformation of the RF to a globally acknowledged information
society. Following
this summit, the signatory countries started to develop programs towards
an information technology sector development.
Every State is developing a distinct program to contribute to the
creation of a more transparent and advanced global information system[iv],
based on the individually applicable internal conditions of information
technology sectors, such as the level of development of telecommunications
infrastructure, the stage of the information technology industry,
legislative and legal structure, and the political situation. Analysis of a variety of programs and conceptual framework is
helpful in the identification of key ingredients for success of the
information society, such as: ·
The information society program must address the needs of and find
a balance between the government, society, entrepreneurship and the
individual. If harmony is
found on the national level, it will translate to a harmonious entrance
into the global information society, led by a government that is willing
and able to address and protect the interests of its society; ·
The aforementioned conceptual framework should not exclude anyone
from the information society because it would create a situation where
within a nation there is a separation between individuals who have access
to information and those who do not. In
overview, there remains a clear and continuous imbalance in the world’s
access to information technologies. Russia,
among others, is unfortunately faced with a need to ‘catch-up’ with
developed countries in order to become an equal player in the information
society. Russia’s Approach For
Russia the completion of a pre-industrial phase of modernization and
transformation to a post-industrial information society[v] is a condition not only for
survival and prosperity but an illustration of its independence in the
contemporary world. Russia’s
main goal in its transformation to the information society should be the
development of a civil society and democratic traditions through leveling
out inequality among its citizens in access to information.
Free access to global information is directly related to basic
human rights and the individual rights of information access, and is an
obligation by the government to make information available to the public.
The
evolution of the information technology sector should be seen and already
is seen by some, as a necessary condition for sustainable development and
Russia’s reintegration into the world economy.
In this regard, a number of legal base documents were recently
adopted, such as “A Law of Informatization” that addressed the need
for increasing distribution of information in the RF; “The Doctrine of
Information Security of the RF” that deals with security of internet
information transfer; and “Conceptual Framework of the Unified
Information Space of The RF” that focuses on a common network for
information sharing[vi],
and a number of others. These
and other documents led to the creation of the doctrine entitled,
“Conceptual Framework of Forming an Information Society in the RF”
approved by the Connectivity and Informatization Commission of the RF in
May 1999. In addition, specific programs were approved, such as a
conceptual strategic framework for transformation of Moscow, Saint
Petersburg, and Ekaterinburg into the information society; a ‘white
book’ of information technologies, “Informatization and Russia 2001”
and a conceptual framework of a program “Electronic Russia” for
2002-2010 were published. All
these initiatives came following a realization by the Russian
Administration that a constructive approach is required in order to
minimize a gap between Russia and the already developed world in the
information technology sector through utilization of its potential in the
sector and effective dissemination of information technology products. The
information technology segment is among a few that can contribute to
Russia’s overall share of high-tech productions valued in the world
market. At the same time, it
is the most commercial sector that is not directly related to strategic
production, such as military or nuclear, and therefore has the most
potential for clear-cut commercial utilization in relation to trade and
development. Products and related services which could be
beneficially traded and are already available within Russia today, are, inter alia, new technological materials such as fiber optics,
software and related services, and many others. While the integration of the ICT segment into the world
market is clearly possible, it is baffling to accept the continuous lack
of such integration, especially when recognizing its contribution to the
entire ICT sector’s sustainable development in Russia and the rise of
the domestic information technology industry. Having
potential translates into having prestige and security.
For Russia, in its transformation into an information society, this
potential lies in having available the industry with an already solid base
but with the need for a further boost.
A fit approach for Russia is making the information technology
industry more competitive, through trade liberalization and transparent
investment policy, which will eventually result in a highly desired
empowerment, achieved through becoming an equal partner in the world
information society. Overview
of Tariff Barriers Since
the mid-1990s Russia has not had quantitative barriers to trade in place
and tariffs are the only trade barriers. Tariffs are imposed on both
imports and exports. The level of import tariffs throughout the second
half of the 1990s was less than 30 percent for most goods. The tariff
rates structure was extremely complicated until early 2002, when Russia
undertook a major effort to unify tariffs. Currently, commodities are
divided into four subgroups with marginal tariff rates of 5, 10, 15, and
20 percent, respectively[vii].
However, as provided by Goscomstat, collection has been poor and in
1999 the amount actually collected was about half of what should have been
amassed. However,
Russia is still distant from ICT sector liberalization, based on tariffs
that it retains concerning trade of ICT goods.
Of concern are considerably high tariffs and duties on ICT
equipment. While the
Government has lowered tariffs in 2002, varying now from 5 to 20 percent,
major burden lies on imported components that are considered competitive
with products made in Russia. Major
types of components that carry a burden of high import duties[viii]
are reviewed in the following table: TABLE
1.
Source:
BISNIS Average
tariffs on imported ICT goods remain high, about 15 percent.
Furthermore, importers are required to pay on average 20 percent
VAT, and while it is eventually reimbursed, reimbursements are made with
considerable delays. While
these tariff barriers continue to be in place, there is a significant
manufacturing potential in Russia that is not being utilized due to lack
of competitiveness. It may be determined from commercial and economic indicators
that Russia has a clear potential of increasing its ICT trade with, inter
alia, the U.S. and establishing its firm position in the global ICT
market. However, Russia’s
ultimate goal of becoming globally competitive is not sufficient without
identification of a clear and consistent policy framework that underlies
economic and commercial trends. As
there is still a significant number of domestic policies that contribute
to ICT market regulations, they need to be examined and modified in order
to back the plan of the ICT sector transformation towards a more liberal
and developed sector, providing significant gains for Russia’s economic
growth. RF
Customs Code On January 1, 2001, the Russian
government unification of import duty rates on 11,032 commodities[ix]
took effect in Russia, based on government resolution no. 886 signed on 1
December 2000. The new import tariff structure standardizes and unifies
Russian customs tariffs into four base rates of 5 percent, 10 percent, 15
percent, and 20 percent. It also lowers the maximum tariff rate ceiling by
10 percent, from 30 percent to 20 percent.
These changes were aimed at
liberalization of imports of modern technologies and machinery into the RF,
countering illegal practices at customs and improving the effectiveness of
customs payment collection[x]. While
this is a positive trend in the duties reduction, there are continuous
concerns about future improvements, related not only to tariff barriers,
but also non-tariff customs barriers closely associated with movement of
ICT goods across the border. Russia’s WTO Accession “Russia
must learn of how to protect its market within the frame of the WTO so no
sectors are injured …” Maxim Medvedkov, 16
October 2002 Significantly high tariff
barriers that exist in Russia have become a timely issue in the context of
the Putin Administration’s serious attempts at Russia’s membership in
the WTO , which was put as one of the priority issue of the Putin’s
Administration. As a result of Russia’s
current WTO accession process, most of Russia’s domestic trade-related
policies are being redesigned to fit the rules of the WTO.
Improving and bringing domestic legislation into compliance with
international norms and WTO provisions is a major goal in the creation of
a framework for foreign trade in goods. In
the WTO Working Group’s most recent report on Russia’s accession
posted on 28 November 2002, it was expected that “the
RF would guarantee that no restrictions would be maintained on the right
to trade in goods except as would be consistent with WTO provisions and
that all laws and regulations relating to trading rights would be applied
in a manner consistent with relevant WTO obligations[xi]”.
Specifically, the RF is expected to confirm that no restrictions
would be maintained on the rights of individuals and enterprises,
including those with foreign participation, to import and export goods
into the customs territory of the RF except as would be consistent with
provisions of the WTO Agreement. As this standard pertains to tariff and
non-tariff barriers, RF should ensure that any laws and regulations
relating to the right to trade in goods would not restrict imports of
goods and should not discriminate against imported goods in violation of
the non-discriminatory provisions under Article III:4 of GATT 1994.
Specifically in relation to tariff-barriers, it is expected from
Russia that “any associated fees, taxes and charges should also be
limited to the approximate cost of services rendered and their application
should not lead to discrimination in favor of like domestic products.”[xii]
This will be applied to domestic products of the ICT equipment as
soon as Russia is a member of the WTO.
However, as of today, there is
still considerable work that needs to be done with the WTO.
A brief view from the RF perspective on tariff barriers
implications is provided in the following section. (i)
Tariffs Barriers Implications - WTO
In
joining the WTO, countries commit to reduce and lock in, or “bind”,
their tariffs. “Binding” a tariff is a legal commitment not to raise
it above a specific rate. A
member can raise tariffs above bound rates only by payment of compensation
to those WTO members affected.[xiii]
Regarding tariffs on ICT equipment, Russia must first reduce its
tariffs, before it locks them. Concerning Russia’s accession and tariffs regarding ICT, RF
has an opportunity to take an alternative approach: negotiation of tariff
schedules under general accession or through the ITA agreement and then,
upon its accession, harmonization of this schedule to the WTO schedules.
ITA is a sectoral initiative, under which tariffs on information
technology products gradually are reduced to zero[xiv].
(ii)
Information Technology Agreement Prognosis “The
impact of [the] world’s citizens should not be underestimated. The computers, semiconductors, telecoms hardware and computer
software that are included in the ITA are the conduit for the delivery of
information. By making such
products more affordable, we move one step closer to the vision of a
telephone in every village of the world.
The ramifications of such achievement to the health [and] education
of those in the poorest countries are obvious.” Mr.
Renato Ruggiero, WTO Director General (1997)[xv] The
ITA is usually seen as a tool to bring a country’s ICT sector in line
with international standards, as related primarily to tariff barriers, and
furthermore, to technical requirements.
ITA is one of the sectoral agreements that emerged with the
creation of the WTO and as it is not mandatory, countries that apply for
WTO membership are encouraged to consider the ITA in application to their
ICT trade. As of March 2000,
51 states have signed the agreement.
All together these states account for 93 percent of the $ 680
billion[xvi]
annual world trade in information technology products.
Benefits
that emerge from accession to the ITA and a commitment to phase out
tariffs are extensive. This
step is usually considered as the demonstration of a country’s
commitment to integration into the global communications society, and,
moreover, illustrates a will to becoming increasingly transparent and
adhering to WTO rules. Timely
accession and liberalization commitments made in the context of WTO are
likely to allay investors’ fears and make a country more attractive to
global capital. [1]A
fictitious non-profit consulting agency, ComanDa, which will provide
the government of the RF with services of commercial (trade)
diplomacy, targeting development of the commercial sector in Russia
and attraction of foreign direct investment. This body will consist of
highly qualified professionals with commercial diplomacy training, who
will provide solutions for the government on commercial issues that
arise with Russian market integration into the world economy. Interests of domestic industries, as well as those of foreign
stakeholders will be addressed. The
board of this organization will consist of government officials, who
will oversee the work of ComanDa, and supply the team with issues of
concern that require close evaluation and solutions.
[2] ICT may refer to a wide variety of products related to consumer electronics. For the purpose of this project, focus will be maintained on products related to information and communications equipment. The project will not address consumer electronics. Source: ITA, www.wto.org [i]
“Russia: The Country of
Vast Expanses”, publication of RIA Novosti on order of the Economic
Development and Trade Ministry of the RF, limited publication. [ii]
Ernst and Young, www.ey.com [iii]
M.S. Vershynin, “Political
Communications in Information Society”, Izdatelstvo Michaylova,
2001. [iv]
IBID. [v]
IBID. [vi]
IBID. [viii]
Maria Chernobrovkina, “Customs Procedures for Importing Electronic
Components into Russia”, 10 September 2002, www.bisnis.doc.gov [ix]
James Stamps, “Russia’s WTO Accession: Many Hurdles Remain”,
International Economic Review, July/August 2001, www.usitc.gov. [x]
Maria Chernobrovkina, “Customs Procedures for Importing Electronic
Components into Russia”, 10 September 2002, www.bisnis.doc.gov. [xi]
Draft Report of The Working
Party On the Accession Of The RF to the World Trade Organization,
Inside U.S. Trade, 19 November 2002. [xii]
IBID. [xiii]
“Tariffs: More Bindings and Closer to Zero,” http://www.wto.org/english/thewto_whatis_e/tif_e/agrm2.htm [xiv]IBID [xv]
Elimination of Tariffs On Computer Products By the Year 2000
Agreed”, March 1997, No. 17, Information Technology Edition.
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