WASHINGTON--The Bush administration said today (March 18) that it was filing the first trade case against China before the World Trade Organization (WTO), charging that the Asian nation is using its tax code to discriminate against U.S. chip makers, according to a report from the Associated Press.
The complaint "contends that China is violating WTO rules against discriminatory treatment by providing a preferential tax rate for integrated computer circuits produced in China that is much lower than the tax paid by U.S. and other foreign companies," according to the report.
China imposes a value-added tax (VAT) of 17 percent on sales of all imported and domestically-produced semiconductors and integrated circuits. However, current Chinese government policy provides for a rebate of the VAT burden in excess of 3 percent for certain integrated circuits manufactured in China.
GATT Article III (on "National Treatment") states that a WTO member cannot impose taxes on imported products that are greater than those imposed on domestic products.
This discrimination against imported semiconductors through the VAT rebate is a clear violation of China's WTO obligations, according to the U.S. Semiconductor Industry Association (SIA).
"U.S. manufacturers of semiconductors and other products have a right to compete on a level playing field with Chinese firms," said U.S. Trade Representative Robert Zoellick in the report. "As a WTO member, China must live up to its WTO obligations."
The U.S. notice will begin a 60-day consultation period in which the two countries can seek to resolve the issue through negotiations, according to the report. If that fails, then the administration can proceed with a case before a WTO dispute panel, according to the report.
The U.S. SIA announced its support for the action. The SIA advocates either eliminating completely or reducing the VAT to 3 percent for all semiconductors.
"SIA has been working in cooperation with USTR for more than a year to resolve our problems with China's discriminatory Value Added Tax regime on semiconductors," said George Scalise, president of the SIA, in a statement. "The USTR and the U.S. semiconductor industry believe in resolving this dispute through diplomacy. Once it became clear that continued discussions had not been productive, it became necessary to begin the formal consultation process of the dispute resolution procedures provided for in the WTO," he said.
"U.S. semiconductor manufacturers strongly believe in competition," said Scalise. "The SIA was a leading proponent of China's accession to the WTO and fought for congressional approval of Permanent Normal Trade Relations with China.
"We stand behind those decisions. China has a vibrant and growing microelectronics industry that will be further strengthened, as the U.S. industry was, by vigorous market-based competition. The SIA led the fight to remove barriers to foreign access to the U.S. semiconductor market. We welcome competition from China, but competition must take place on a fair playing field, unencumbered by market barriers that distort investment while discriminating against foreign-made products," Scalise concluded.