USTR – Round 2 and Organizing a Global Effort
Momentum within the high-tech companies in the United States was starting to roll. After the Brussels meeting, Meghan and I briefed ITI members about the reformatted and more ambitious ITA. Not only did the members enthusiastically embrace it, but they wanted to join Meghan and me at our next meeting with Dorothy Dwoskin. She needed to hear that we had taken her instructions to hear that we should get European and Japanese industry support (we had not talked to our Canadian friends yet), and most importantly, that the ICA idea had morphed into the ITA.
Dorothy’s reaction was hardly surprising. She was even more skeptical than previously and imposed two new conditions before she would present the ITA idea to Barshefsky:
She wanted us to gain support from the U.S. semiconductor and telecommunications industry associations, and
She insisted that we get unequivocal support from the European semiconductor industry, specifically EECA.
Given our experience with EECA and the rest of the European semiconductor industry during the Uruguay Round, Meghan and I felt we were facing a steep uphill climb. But first, we decided to tend to matters at home first. The time, we felt, was ripe for significantly expanding the scope of our support in Washington.
The path to expansion seemed obvious. Get the support of industry groups that had supported the U.S. zero-for-zero proposal in the Uruguay Round, and we started with the American Electronics Association (AEA). ITI had a smaller bandwidth of corporate members – AEA (now called AeA after merger with another association in 2008) had somewhere between 2,800 and 3,000 member companies. These included the major computer industry players such as those in ITI, but it was golden in terms of lobbying influence, because more that 80 percent of its members were small-to-midsize businesses. Importantly, the ITA wasn’t simply advocated by a trade association. It was progressively assembled by finding the constituencies whose interests had to be reconciled.
Along with Meghan’s president, Rhett Dawson, we met with the president of AEA, Bill Archey. We didn’t have to push Bill hard – he immediately endorsed the ITA concept. And very importantly, we suggested that we get a broad coalition of associations to band together in what we first called the Information Technology Coalition, or ITAC. He further agreed, with ITI, to co-chair the ITAC and to host an organizing meeting of potential members in his offices. Shortly afterward, we held the first meeting, and brought several new players into the ITAC. The participants included ITI, AEA, CCIA, and EIA (the four we discussed previously) and two new players specifically to address the expanded scope of the ITA – the Semiconductor Industry Association (SIA) and the Telecommunications Industry Association (TIA). Later in our efforts, as the nature of software technology began to merge more closely with hardware technology, we would add the Business Software Alliance (BSA) and the Software Industry Association (SIA). All in all, due to its impressive breadth as well as depth, it was probably the most influential high-tech alliance ever put together by that time in Washington.
It’s important to note. The coalition was not created all at once. It grew as the ITA’s scope grew. And not coincidentally, the ITA’s scope grew as the scope of the IT industry worldwide grew.
At the first meeting of this group, Meghan and I presented the ITA and the progress we had made in development of the concept and the status of our discussions with selected officials inside the Administration. Everyone’s reaction was immediate and enthusiastic. A new coalition named the Information Technology Agreement Coalition (ITAC) was formed and Meghan put forward my name to be chair of the group.
We took a gamble – even at this early stage. The Trilateral Alliance which had been put together in Brussels between ITI, Eurobit, and JEIDA had been a relatively informal “meeting of the minds,” but there was no real structure as an on-going mechanism. It was evident from our meeting with Dwoskin that if USTR would embrace the ITA in the GATT/WTO organizing agenda, and if we had any hope of establishing momentum to support such a USTR effort, the newly-formed ITAC must think outside the box. To represent ourselves as a global industry to government authorities everywhere, ITAC should be a global coalition.
It wasn’t a totally untested idea. We had experimented with it during the Trilateral Alliance meeting. But that was child’s play when you consider what happened next. In essence, we institutionalized the global coalition idea. Very quickly (and largely due to Dwoskin’s requirement of getting European semiconductor industry support), we agreed to have the head of Intel’s office in London serve as my ITAC co-chair. We organized our first real meeting during a conference call between the U.S. associations and similar groups in Europe, Japan, and Canada. Conference calls such as this became ITAC’s modus operandi, with about 50 people routinely participating in the calls. As we look back at what was happening, we find that we were becoming a test case for how to work the issue – The coalition was technologically ahead of the traditional Washington lobbying model in the way that we organized ourselves.
JEIDA participated in every early conference call, but over time, their participation fell off to zero. This, we assumed, was due to time differences between Tokyo and the North American/European offices. But perhaps most importantly, they confirmed for themselves that we were serious about the commitment that we made during the Trilateral meeting in Brussels – we would not ask USTR for reciprocal trade concessions from Japan.
The Canadian group gave us a surprising problem. Their coalition member, who coincidentally was called the Information Technology Association of Canada, or ITAC, threatened to withdraw support unless we changed our name. They even made veiled threats of a trademark infringement case. But after some discussion, they agreed to accept our proposal that we would call ourselves the “ITA Coalition” as long as we never referred to ourselves as “ITAC.” And similarly to Japan, the Canadian element of our coalition remained relatively quiet until the last days of the WTO negotiations.
And then, we broke the “rules” of the way high-tech groups operate in Washington. We actually invited the Administration to participate in our meetings, and they sent representatives of USTR and the Commerce Department to our meetings. This became a brief, but phenomenal, advantage for the coalition.
For those unfamiliar with government level negotiations – whether on trade, environmental, or even political negotiations – the government-to-government process of negotiations is cumbersome and almost unwieldy. During trade talks between the U.S. and EU in the early 1990s, the following was not uncommon: A company or business association would send requests, position statements, or policy recommendations to USTR (or any other U.S. Government agency engaged in cross-border negotiations). This usually involved explaining to the government agency the rationale behind the request for government support. In trade negotiations, assuming USTR was the contact point, USTR would forward the company or association request – assuming the appropriate government agencies agreed with it – to the State Department for forwarding to the U.S. Embassy in Brussels. Typically, this involved interim steps such as encryption in the U.S., decryption in Brussels, translation at times, and transcription. The whole thing was a bulky and tedious process. To get the EU response back all the way to the requesting company or association in Washington, the process was basically reversed.
Inviting USTR and Commerce representatives to attend the coalition meetings was a windfall. Remember – based on our discussions with Dwoskin, Simpson, and Rohde, we had general agreement with USTR, Treasury, and Customs on the concept of the ITA. So we didn’t have to engage in a lot of persuasion early in the lobbying process. By having them attend our meetings, we did two things:
We were able to get expedited answers to their questions. Through their attendance at coalition meetings, they were able to ask questions and get immediate answers from the coalition members. We didn’t have to make appointments to meet them in their offices, hear their questions, and then go back to reply to them (recall that was largely how we started out with Dwoskin). Given the intense business competition among the associations’ members, some might guess that getting consensus answers might have been difficult. Instead USTR found that virtually all coalition members had the same opinions on almost all issues as they came up. Within the high-tech community, issues they faced were generally questions of degree, not overall substance.
It may be a slight overstatement, but Meghan Rainey and I felt that the coalition was becoming something like an informal negotiating arm of the U.S. Government. This only lasted for several months, but remember — the Administration officials at our meeting were not only hearing from our U.S. companies, but also European companies and associations who were coalition members during our conference calls. At times, USTR or Commerce could ask questions to the European corporate representatives on the calls and get instant replies. Frequently, this included opinions that the European firms had about the likely answers that would come from the EU Commission in reply. At times, government people could even float unofficial trial balloons that the EU coalition members might ask the Commission. If an idea tested with the Commission appeared to be too controversial, USTR could always say that it had not been a formal position of the U.S. Government.
Given that the first GATT/WTO ministerial meeting seemed to be advancing us at light speed, cutting time delays was critical. So for a while, the bridge between government and industry worked like a charm. But inevitably, problems arose – the Commission learned that USTR was participating in coalition meetings. They insisted to the EU members of the coalition that this was unacceptable. They insisted that USTR halt its participation in our meetings; otherwise, they would refuse to meet with our industry counterparts in Brussels. In truth, while we had to “un-invite” USTR and Commerce from our meetings, doing so had little effect on the eventual outcome. Meaningful substantive negotiations about the details of the ITA concept were already well under way.
One final note about the organization of the ITA Coalition: Word got out in the U.S. business community about the ITA idea, its substance, our efforts, and the generally positive responses we had from USTR. Eventually, the coalition had more than 100 company names to add to our list of supporters.
While the coalition’s efforts to build this global coalition continued even after the eventual conclusion of negotiations on the ITA idea, we still had the second of Dwoskin’s challenges to address.
Dwoskin’s Other Pre-Condition
While we were building a global coalition, we hadn’t forgotten Dorothy’s other requirement: we had to bring EECA around to support semiconductor tariff elimination through the ITA. As we’ve noted several times here, the EU opposed zero tariffs on semiconductors during the Uruguay Round. While member states had eliminated tariffs on these products in trade among themselves, tariffs on semiconductors imported from outside the EU remained significant after the Uruguay Round. Although the Round reduced tariffs on many semiconductor products, some categories continued to carry substantially higher duties.
There was something unusual at work there. The EU had created an inverted tariff structure. Typically, tariff structures are designed, deliberately or otherwise, to avoid putting domestic manufacturers at a disadvantage by taxing their inputs more heavily than the products they produce. Doing so generally means that manufacturing and assembly costs of downstream products are driven higher. This in turn harms consumers due to higher prices, hence more inflationary pressure. This situation would loom large while the coalition turned its attention to the EU semiconductor tariff rates.
For a moment, step back and look at what was going on. For several decades, the global economy depended greatly on the rise of multinational corporations. By the 1990s, however, a high-tech revolution was taking root with what many described as the evolving Information Age. It hadn’t been long since even organizations like NASA actually employed people they called “computers;” but these were people, not machines. Then, computers, as we began to know them, were enormous machines sometimes requiring large spaces to house them. My own mother was, for a while, a manager of over 100 key punch operators churning out hundreds of thousands punched IBM cards to feed into the data hungry machines. That era disappeared quickly as technology leaped forward, and soon, the era of personal computing began as Apple and IBM personal computers brought computing to households. In the late 1980s and 1990s, information networking took the center stage with the advent of the Internet and while the concept of the World Wide Web was still in its infancy, corporations could already see that networked computing was about to transform commerce even before the Web became ubiquitous. The real “Information Age” was at hand.
That was the marketplace. Businesses worldwide – especially in the more developed economies – raced to seize the initiative. Global supply chains in high-tech products and integrated manufacturing processes within high-tech companies, often on a transnational basis, became the order of the day. Thus, a semiconductor designed in one country could be fabricated in another, assembled in a third, and incorporated into equipment manufactured somewhere else. And while businesses took giant steps forward in making these things happen, the pace of these breathtaking changes was not typical of all countries. Even countries in Europe felt they might be falling behind the United States and Japan, and their companies argued that since semiconductors were a strategic industry that Europe couldn’t afford to lose.
The largest European chip manufacturers were Siemens, Philips, and SGS-Thompson and they, along with other important players like GEC Plessey, Alcatel-associated companies, and Temic/Daimler-Benz, made up the core of the European Electronic Component Manufacturers Association, or EECA. The Commission, during the Round, tried to balance different interests –
European chip manufacturers wanted protection from U.S. and Japanese competition
European downstream electronics companies had an interest in cheaper components
The Commission had its own trade and industrial-policy considerations
Individual member states had their own industrial interests
EECA represented a particularly important part of the semiconductor industry’s position
This was the association whose support for the ITA that Dorothy Dwoskin wanted.
This was the backdrop for the coming together of the ITA Coalition, a global collection of associations and companies. And just as it was with associations in Washington, the ITA Coalition had considerable overlap of members in its organization. One prominent example was Steve Cooney, who had been a senior executive for the National Association of Manufacturers (NAM) in Washington and had recently transferred to the corporate sector by becoming a senior spokesperson for Siemens. As Siemens was a corporate member of several associations that belonged to the ITA Coalition, and since Steve was well known to most of us and his prior support for free trade principles while he was at NAM, we felt that his position in Siemens’ Washington office was important. We asked him if we could get Siemens to support the ITA. He said he was sure that he could. Frankly, we were skeptical.
What Steve knew was that subsequent to the Uruguay Round, Siemens executives did a reassessment of the company’s overall position in terms of global competitiveness. The semiconductor production part felt some benefit initially in terms of its position vis-a-vis the global semiconductor business, especially that of the U.S. Not well known is the fact that even though chip tariffs of the EU were lowered somewhat, the EU had as part of its reaction to the lower tariffs had simultaneously placed certain chip-related products into higher tariff classifications, a point that the U.S. objected to strenuously.
As part of the corporate reassessment, however, the Siemens executive team determined that –
Siemens was a producer of sophisticated telecommunications, industrial electronics, automation, medical equipment, and other IT-sensitive products, and as such the company was a user of semiconductors and the residual tariffs on chips after the Round cut down on the competitiveness of these products.
Like other European firms, some in Siemens felt the benefits of protection exceeded the costs due to networked production, meaning they needed access to the best components, technologies, and suppliers wherever they were located.
In light of these factors, they asked the basic question ”what are we giving up, and what are we getting in return? In other words, they asked if the critical mass offered by the ITA since the major trading countries would agree to tariff elimination and the consequent benefits would be extended on an MFN basis.
It has been observed that instead of asking Siemens to sacrifice protection for one product category, the ITA offered a global reduction in the cost of the entire IT ecosystem. The very globalization that made semiconductor protection attractive during the Uruguay Round was eventually making that same protection increasingly costly to European companies.
As a consequence, Steve told us (though this has never been confirmed officially) the matter went to the Siemens board which decided to support the ITA. It is believed that other companies like Philips went through much the same logic stream. This would be the position that these companies took within EECA, and that in turn, was the message we took to Dorothy Dwoskin.
(One footnote at this point: It was clear from the semiconductor and EECA experience that market conditions don’t change at consistent rates for all companies. This would cause major problems for the ITA Coalition much later in the process with the domestic capacitor and fiber optics industries. But those problems lay far ahead in the future.)
USTR – Rounds 3 and 4: Barshefsky Brought In
With the reassurance from Steve and confirmation from the Intel office in London and IBM’s office in Brussels that we had EECA support, we met with Dorothy Dwoskin who expressed suitable surprise with the breadth and depth of our coalition on a global basis, as well as the EECA endorsement. She in turn set up a meeting for us with Ambassador Charlene Barshefsky (the U.S. Trade Representative) in late August 1996.
The first Trade Representative in President Clinton’s Administration was Mickey Kantor who served in that role until April 1996. He left that position to replace Ron Brown, who had been killed tragically in a plane crash while leading a trade mission to the Balkans. Actually, Kantor was the first senior Administration official who voiced support for the ITA, but it fell on the shoulders of the new U.S. Trade Representative, Charlene Barshefsky to carry the ball to the finish.
The core coalition group who met with Charlene included Meghan Rainey and me as the overall coalition leaders, David Rose of Intel due to that company’s co-chairmanship based in London and the obvious semiconductor importance, Joe Tasker of Compaq for his customs classification expertise, and Steve Cooney.
Charlene said the ITA was innovative and offered a fresh approach to trade negotiations as well as her support, meaning we now had Cabinet-level support for the ITA. In a way, this validated Doug Worth’s initial strategy stressing the need to get USTR on board. We were gratified that she gave lead responsibility for ITA negotiations to Barbara Chattin, who reported to Dorothy Dwoskin and suggested that she be supported by Matt Rohde from Customs and Wendy Silberman from USTR.
Charlene calibrated her ITA endorsement, however, for three key reasons: First, the U.S. trade negotiators would require a detailed list of ITA-covered products that eventually would be called a “product landscape”. Second, she anticipated tough negotiations most likely posed by Sir Leon Brittan, who was Vice President of the European Commission and the European Commissioner for Trade and External Relations. And third, we were proposing tariff elimination on almost a global scale “sectoral” basis, something that was untried in trade negotiations history. In addition to these, she also suggested that we should move aggressively to get other U.S. Government agencies and key members of Congress behind our efforts. Charlene was supportive, but before she would go too far, she was telling us to prove that the ITA could actually be negotiated.
The “Product Landscape”
It might be thought that the industry coalition knew which products were meant to be covered by the ITA. But again, the scope of the IT industry globally was changing on almost a daily basis. Products were being announced at a breakneck speed, and Barshefsky was right to require specificity in our proposed product coverage list. Preparing a “product landscape” might appear to be routine, but it wasn’t. We understood that the GATT/WTO Ministerial meeting would be held in a matter of months and to meet Charlene’s needs, we had to move fast
Four people served as the linchpin of the effort: Matt Rohde and Wendy Silberman We knew Matt well from our work on a number of issues (e.g., the motherboard case, NAFTA, etc.). Wendy was Deputy Assistant U.S. Trade Representative Japan – again, a person with whom industry groups had worked closely during previous trade talks. For the coalition, our working group on developing the product landscape was led by David Rose of Intel and Joe Tasker of Compaq – both of whom were intimately familiar with the ins and outs of customs classification matters, Key to this effort, they knew, was the importance of conforming this list to the relatively new Harmonized System of tariff nomenclature.
During the period leading up to the Ministerial meeting, this work was the most contentious within the IT industry generally. Rose and Tasker spent enormous energy going through product catalogues, brochures, and network data to pull a landscape proposal together. Their greatest surprise came from the Japanese who wanted to define information technology so broadly that it would cover a wide range of consumer goods, including televisions and other appliances. On the U.S. industry side, many television manufacturers wanted to be included in ITA coverage, but significant opposition arose from that segment who wanted protection for developing HDTV. Concerns were also raised by the domestic fiber optic industry who were opposed to their products being included in the landscape. On the other hand, the Telecommunications Industry Association (TIA) argued for their inclusion.
The TIA position won its argument. Rose and Tasker, with support from Rohde and Silberman, accepted the TIA position. That was relatively easy, since it involved seeking consensus among American groups. The Japanese television proposal required more of an international solution. Wendy Silberman and Barbara Chattin stepped in and argued that televisions were not included in the scope of the zero-for-zero Uruguay Round offers and were therefore outside the scope of U.S. negotiating authority.
Product coverage issues continued into the last hours of the ITA negotiations. It was hard, almost grueling and sometimes contentious work, but eventually the landscape became the foundation upon which the ITA was built.
The Brittan Problem
“Brittan” did not mean “Britain.” It referred to Sir Leon Brittan, a forceful figure widely regarded as the chief architect of the European Union’s modern trade policy. A brilliant legal mind, Brittan was elected to the UK Parliament in 1974 and instantly caught the attention of Margaret Thatcher. She rapidly elevated him through the British Cabinet, naming him Home Secretary at an exceptionally young age. Following a high-profile Cabinet resignation in 1986 over the Westland Affair, Thatcher revived his career in late 1988 by dispatching him to Brussels. In the European Commission, Brittan became an immediate and formidable force. As Competition Commissioner, he aggressively enforced anti-cartel laws to build a true European single market.
Later, as Trade Commissioner and Vice President, he was in charge of EU trade policy during the critical phases of the Uruguay Round. During those negotiations, he famously and (some felt) ruthlessly outmaneuvered internal French opposition to ratify the Blair House Accord farm deal with the United States.
For our purposes, Brittan established a legendary, adversarial relationship with U.S. Trade Representative Mickey Kantor. While they locked horns constantly, Brittan’s mastery of high-stakes brinkmanship ultimately saved the Uruguay Round from collapse—but it also proved to American negotiators that he was a world-class opponent. Charlene Barshefsky, who watched these brutal battles firsthand as Kantor’s deputy, was entirely right to view Brittan as a roadblock when it came to the prospects for the ITA. He strongly defended European industrial tariffs, and she knew that getting him to give in on high-tech trade would require unprecedented leverage.
Continue to Section 4: From the ITA Proposal to Global Acceptance →