Massive Cuts in Tech Tariffs Are Coming

The World Trade Organization is going to make its first major round of tariff reductions in more than 17 years, and guess where it’s going to be?

That’s right… technology.

This week, President Obama and Chinese President Xi Jinping made major progress on the two-year long negotiations to expand the International Telecommunications Agreement (ITA).

Back in 2012, the U.S. approached the WTO with a proposal calling for an expansion of the list of products that are covered under the ITA. The Agreement allows participant nations to completely eliminate duties on the Information Technologies it covers. There are currently 70 nations participating in the agreement.

Because it was drafted in 1997, it’s missing some products that are crucial to the U.S. tech sector.

The products covered under the original 1997 agreement include: computers, electric amplifiers and repeaters, flat panel displays, networking equipment, monitors, optical disc storage units, proximity sensors, pagers, plotters/drawing/drafting machines, printed circuit assemblies for external interfaces, projectors, storage devices, multimedia hardware/software for computers, set top boxes, ATMs, telephone parts, cash registers, speakers, digital cameras, antennae, and so forth.

Under the proposed expansion, a whole new set of important technologies are going to be free from tariffs. In order for the expansion to take place, however, it needs support from all of the participant nations.

China and the U.S. have been at a standstill in negotiations since last year. According to White House officials, “disagreements among the parties” caused negotiations to be suspended, and this week’s meetings represented a breakthrough in the process.

The next full set of meetings is now scheduled for December in Geneva. A press release from the White House this week regarded this as a critical step toward amending the ITA.

Who Will Benefit?

By expanding the coverage of the ITA, the United States tech sector will be able to export more goods without costly tariffs, thereby increasing revenues from overseas trade.

Among a list of 200 new product tariffs that will fall under the ITA, some are of special importance to the United States tech sector. For example, all of the following tariffs will be reduced to zero:

• Next generation semiconductors — tariffs currently up to 25%
• Magnetic Resonance Imaging (MRI) machines — tariffs currently up to 8%
• Computed Tomography (CT) scanners — tariffs currently up to 8%
• Global Positioning System (GPS) devices — tariffs currently up to 8%
• Printed matter/cards to download software and games — tariffs currently up to 10%
• Printer ink cartridges — tariffs currently up to 25%
• Static converters and inductors — tariffs currently up to 10%
• Loudspeakers — tariffs currently up to 30%
• Software media, such as solid state drives — tariffs currently up to 30%
• Video game consoles — tariffs currently up to 30%

Even this limited selection of tariff reductions represents a broad swath of the American tech sector.

Public companies like GPS manufacturer Garmin (NASDAQ: GRMN), printer and general tech company Hewlett-Packard (NYSE: HPQ), General Electric (NYSE: GE), and software and video game company Microsoft (NASDAQ: MSFT) will benefit from the amendment.

One company worth noting in particular is open MRI maker Fonar Corp. (NASDAQ: FONR). While the tariff listed above isn’t the highest of the bunch, MRI machines and CT scanners are by far the most expensive pieces of technology included in the list.

A high-end MRI machine generally runs around $3 million per unit, so an 8% tariff would tack some $240,000 onto the base price of export.

Fonar has been selling its Upright MRI scanners in the EU since 2002, and in 2005, it began selling in Germany, Europe’s largest medical device market. Just three weeks ago, the company announced it had sold its fifth multi-position MRI in Germany.

Even without access to the tariff data or the exact price of these particular machines, it’s easy to see how substantial the savings will be without any tariffs at all.

Trade in high-ticket items like these precision medical machines stands to benefit the most from the elimination of tariffs, so when the cuts come, look for a surge in the international trade of medtech.

Good Investing,

Tim Conneally

 @TimConneally on Twitter

For the last seven years, Tim Conneally has covered the world of mobile and wireless technology, enterprise software, network hardware, and next generation consumer technology. Tim has previously written for long-running software news outlet Betanews and for financial media powerhouse Forbes.