IT Services, Software and the WTO Doha Round
Services
- Services account for about 80% of
U.S. employment and GDP.
- Services, including IT services,
create an essential infrastructure for the efficient operation of the economy – a source of competitive advantage for the U.S.
- In 2006, the U.S. exported $413 billion in services, for a surplus of $71 billion, partially offsetting the deficit in trade in goods.
IT Services and Software
- The IT services and software segments of the global IT industry have grown at a CAGR of 11.9% since 1996, compared to only 4.9% for the hardware sector.
- The packaged Software industry:
- The packaged software market in the United States is estimated at nearly $90 billion. The worldwide packaged software industry for all platforms was estimated by IDC at $220 billion in 2005 – just over 6% growth over 2004 revenues. 2006 revenues are expected to be slightly higher at about 7% growth. (IDC)
- The US software industry contributes an important surplus to our nation’s balance of trade. In 2004, the industry contributed a $21.5 billion surplus to the balance of trade. Since 2001, the US trade deficit has deepened at an average annual rate of 24.6% while the U.S.-owned software industry’s annual trade surplus has grown 6.3% per year. (Nathan Associates Inc., based on IDC and Department of Commerce data)
- Foreign sales typically represented between 35% and 60% of revenues for BSA member companies in 2005 and 2006. For at least one BSA member company, that rate was as high as 85%.
- IT services and software now account for two-thirds of the worldwide IT market.
- There is a growing trend for companies to purchase IT services instead of owning and maintaining their own IT infrastructure.
- Benefits: focus on core business to improve quality and customer service; leave complex system design and implementation to the experts; apply leading-edge technology and industry best practices; enhance productivity; increase competitiveness
- U.S. industries that lead in IT investment also lead in productivity growth and in trade surpluses. (Based on research by Catherine Mann, IIE.)
- The IT services and software sectors create high-skill, high-wage jobs.
The WTO and IT Services
- A strong services agreement is essential for a successful Doha Round for U.S. industry, including the IT sector (General Agreement on Trade in Services – GATS).
- Over 62% of the global IT market is outside of the U.S., as are the fastest growing IT markets, so market access is critical to the U.S. IT industry.
- The U.S. IT industry continues to invest billions of dollars each year in innovation to ensure future competitiveness.
- Most countries have not guaranteed full market access for IT services by binding commitments in the WTO GATS and are free to create future trade barriers for these services.
- It is vitally important that the U.S. obtain bound commitments from its trading partners in Computer and Related Services:
- Many countries have targeted IT services and software in their own economic development plans and may be inclined to introduce protectionist measures – we need to preclude this by locking in good market access commitments.
- Some countries currently restrict market access – we need to open these markets.
- WTO rounds take years to negotiate and do not come around often – so it is critical to get the rules right now:
- Uruguay Round was launched in 1986 but did not conclude until 1994.
- Doha Round was launched in 2001 (services negotiations began in 2000 as part of “built-in agenda”).
- Technology moves much faster than trade negotiations. We must anticipate future market access needs for new IT services and design an agreement that is broad enough and flexible enough to ensure market access for evolving IT services, including web hosting, software application hosting, grid computing, on-demand computing and future, innovative IT services.
- This is why the IT industry is pushing for broad, “two-digit-level” commitments (CPC 84) to cover all Computer and Related Services. If, instead, commitments are made by providing a detailed list of specific computer services, there is the risk that the commitments could be interpreted narrowly and quickly become obsolete as technology advances.
- Advanced communication networks, including the Internet, have made possible the electronic delivery of many services, providing easy access to markets around the world for small and medium business that could not otherwise reach these customers.
- Trade in IT services and software lowers the price for these important productivity tools and facilitates their diffusion throughout the U.S. economy, helping to improve competitiveness in more industries and companies.
International Trends in the Telecommunications Industry
- International markets account for over 69 percent of total telecommunications revenue.
- In 2006, international telecom revenue surpassed $2 trillion. This number is expected to reach $3 trillion by the year 2010.
- International growth drivers include broadband deployment, new wireless services, and increased spending on network equipment and support services. Growth rates in each of these areas exceed 10 percent.
- In 2006, international telecom revenue increased the fastest in the Middle East/Africa region, which registered 21.6 percent growth over 2005. The Middle East/Africa, Asia Pacific and Latin America are each expected to increase at double digit rates through 2010.
- U.S. telecom equipment trade increased by 14 percent in 2005 to an all time high of $59.6 billion, exceeding the previous peak of 58.7 billion in 2000.
- U.S. telecom exports increased to $15.8 billion in 2005, its highest level since 2001.
- Globalized production and product development are driving costs down and enhancing efficiencies and productivity in research and development (R&D).
- Telecom manufacturers have developed global supply chains, with R&D, product development, manufacturing, and distribution all taking place in different parts of the globe.
- Such globalization would not have been possible without the ITA, which reduces costs for intermediate inputs. Now, most telecoms manufacturing takes place in parts of Asia. 8 out of 10 U.S. top trading partners are ITA signatories.