WASHINGTON –U.S. Trade Representative Robert B. Zoellick announced
today that the United States has filed a case at the World Trade Organization
(WTO) regarding China’s discriminatory tax rebate policy for integrated circuits.
Today’s action begins a 60-day consultation period required under WTO rules.
China provides preferential tax treatment to integrated circuits
produced in China, thereby disadvantaging U.S. and other imports. The United States
believes that this discriminatory tax policy is inconsistent with the national
treatment obligations that China assumed when it joined the WTO in December 2001.
"U.S. manufacturers of semiconductors and other products have a
right to compete on a level playing field with Chinese firms," said Zoellick. "As a WTO
member, China must live up to its WTO obligations; it cannot impose measures that
discriminate against U.S. products. We have been pressing these and other concerns with the
Chinese. These discussions will continue because we prefer compliance rather than
litigation. However, the bottom line is that China is discriminating against key U.Stechnology products, it’s wrong, and it’s time to pursue a remedy through the WTO."
China is a substantial market for U.S. semiconductor producers:
U.S. exports of integrated circuits to China were $2.02 billion in 2003. U.S.
exports of integrated circuits to China are subject to a 17 percent value-added tax (VAT),
costing approximately $344 million. However, China taxes domestic products significantly
less, by allowing firms producing integrated circuits in China to obtain a partial refund
of the 17 percent VAT. As a result of the refund policy, the effective VAT rate on
domestic products can be as low as 3 percent. China also allows for a partial refund of VAT
paid on integrated circuits designed in China but manufactured abroad. We believe
that this policy is also inconsistent with China’s international trade obligations.
China’s integrated circuit market is valued at approximately $19
billion, the world’s third largest. Although imports currently represent approximately 80
percent of China’s market, its semiconductor industry is expanding rapidly, with
substantial investment from foreign firms. The United States believes that China’s current VAT
rebate policy not only discriminates against U.S. products directly, but also
distorts international investment in the integrated circuit sector.
One of the guiding principles of the WTO is that countries and
consumers benefit most when products have fair and equal access to markets without regard
to their national origin. Policies that discriminate against products on the basis
of national origin distort both purchasing and investment decisions to the detriment of
everyone. While WTO rules permit countries to provide certain types of assistance to
domestic industries, they prohibit WTO members from supporting their industries by
discriminating against foreign products.
The United States has repeatedly engaged China regarding its
integrated circuit VAT rebate policy in an attempt to resolve the issue. These efforts
have not succeeded.
This is the first WTO case filed against China by any WTO
Since China joined the WTO in December 2001, the United States has
had a number of concerns regarding China’s WTO implementation. Substantial
progress has been made in areas such as agricultural biotechnology, express delivery,
insurance and auto financing rules without having to go through the WTO dispute
settlement process. In 2002 and 2003, for example, at the request of the United States,
China delayed implementation of stringent biotechnology measures that would have
prevented U.S. soybean exports from entering the market. U.S. exports of soybeans
to China over the past two years were nearly $4 billion, and last month, China
issued permanent safety certificates that will allow trade in soybeans to continue
Today’s action begins a 60-day consultation period. If
consultations fail to resolve the dispute, the United States can request that a panel be established
to consider whether China is acting in accordance with its WTO obligations.