Columbia International Affairs Online: Working Papers

CIAO DATE: 12/2013

Is the Information Technology Agreement Facilitating Latecomer Manufacturing and Innovation? India's Experience

Dieter Ernst

November 2013

East-West Center


A defining characteristic of today's international trading system is that plurilateral trade agreements like the Information Technology Agreement (ITA) are gaining in importance relative to the gridlocked Doha round of multilateral trade negotiations. These more selective trade agreements pose new and so far little understood challenges for the governance of the international trading system, especially with regard to the distribution of liberalization gains among participants which differ in their stage of development, their institutions, and their resources and capabilities. The paper examines India's experience with ITA. Initially, the main concern was to attract inward FDI and to facilitate the growth of its then still nascent IT services industry. For electronics manufacturing however, the analysis shows that gains from trade liberalization were overshadowed by substantial costs - with rising electronics imports inflating the country's current account deficit to unsustainable record highs, while eroding domestic electronic manufacturing and innovation. To improve reciprocity in the distribution of gains from ITA, the paper suggests that latecomers like India deserve, under certain conditions, special and differentiated treatment. In turn, these countries need to agree to reforms that reduce investment barriers in their domestic industries, such as restrictive regulations and discrimination against foreign direct investment.