Building China's Information Technology Industry: Tariff Policy and China's Accession to the WTO

A major issue that remains open both with respect to China's participation in the ITA and its accession to the WTO is the speed of tariff liberalization that China will commit to in these negotiations. We argue in this paper that, at least with respect to information technology ("IT")(1) industries, rapid elimination of tariffs and other barriers to trade are in China's own self-interest because recent changes in the structure and competitive dynamics of IT industries now demand open markets. Tariffs and other trade restrictions are incompatible with the new competitive dynamics for IT. Countries that continue to pursue policies of promoting "national champions" behind protected national boundaries will experience slower growth of IT activities while their domestic IT industries will be technological laggards compared to competitive IT industries operating in open markets. The first two sections of this paper set forth our analysis of the new environment for IT activity world wide and how this has affected policies in both developed and developing countries. We then discuss the implications of these changes for Chinese trade policy, especially in the context of negotiations regarding China's participation in the ITA and its accession to the WTO.