Late last week, the World Trade Organization (WTO) reached a landmark $1.3 trillion deal that addresses the categorization of 201 information technology products that will be freed from import tariffs. Among the products covered in this agreement are new-generation semi-conductors, GPS navigation systems, medical products which include magnetic resonance imaging machines, machine tools for manufacturing printed circuits, telecommunications satellites and touch screens. Once approved, the agreement will update an Information Technology Agreement that has not been updated for the past 18 years.

According to the WTO, the tentative accord reached by 54 of its members was confirmed as the basis for implementation work to begin. Ministers from the participating members will now work to conclude their implementation plans in time for the WTO’s 10th Ministerial Conference which will be held in Nairobi this December. Five of the total number of countries needed for final signoff has thus-far not signed up.  Those countries include Colombia, Mauritius, Taiwan, Turkey and Thailand. The Director of WTO has indicated to news sources that approval from the remaining countries is due to process delays, and expects the required additional countries to sign-up soon.

This latest categorization is being billed as the first global tariff-cutting in 18 years with the implication that globally-based consumers should eventually benefit in purchases of computers, game consoles, touch-screen devices and other consumer electronics products.  All 161 WTO members are expected to benefit from this agreement, as they will all enjoy duty-free market access in the markets of those members who are eliminating tariffs on these high tech products. According to the WTO, the terms of the agreement will be formally circulated to the full membership at a meeting of the WTO General Council on 28 July.

A published Reuters report indicates that high-tech manufacturers General Electric, Intel, Microsoft, Nintendo and Texas Instruments are among those firms expected to benefit from the free-up tariffs. A U.S. trade representative indicated to Reuters that more than $100 billion in U.S. exports alone would be covered by the updated agreement.

The implication to hi-tech and consumer electronics industry supply chains is significant.

A considerable amount of new products and product categories have been added since these tariffs were originally created 18 years ago, and with over 200 products designated to be free of import tariffs and duty-free trade, the industry as a whole stands to benefit by increased global market access and more streamlined, direct flows to end markets. The notions of offshore and near-shore production as well as new opportunities for push-pull customer fulfillment strategies can well benefit from this development of tariff-free components and products. On the other hand, the competitive landscape of regional brands competing with global brands will magnify.

By our Supply Chain Matters lens, the agreement will have implications to current manufacturing sourcing of high-tech and consumer electronics products since the assumptions concerning added tariff costs will obviously change.  Supply chain strategy teams should therefore plan on a refresh supply chain network design models in light of these tariff-free assumptions to uncover any new opportunities for more efficient or enhanced customer fulfillment focused manufacturing and sourcing of end-products.

Bob Ferrari