The Bush administration has been signaling for days that it would move against Beijing over its 17 percent value-add tax on imported chips. The trade complaint filed with the World Trade Organization on Thursday (March 18) initiates a 60-day consultation period required under WTO rules.

Domestically produced chips have only a 6 percent VAT, one of several factors fueling China's boom in fab construction.

U.S. Trade Representative Robert Zoellick said the VAT gives preferential tax breaks to chips produced in China, thereby hurting U.S. and other manufacturers. Zoellick said the tax is inconsistent with Chinese trade obligations since joining the WTO in December 2001.

The 17 percent VAT is slated to be reduced in the next three to four years as China adheres to WTO rules governing international commerce. But domestic foundries are taking advantage of this tax differential, U.S. industry groups complain.

"As a WTO member, China must live up to its WTO obligations; it cannot impose measures that discriminate against U.S. products," Zoellick said in announcing the WTO filing. "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.S. technology products, it's wrong, and it's time to pursue a remedy through the WTO."

If consultations fail to resolve the dispute, the government said it can request that a panel be established to consider whether China is acting in accordance with its WTO obligations.

The Semiconductor Industry Association, which lobbied hard for government action against China, praised the U.S. complaint. "The [Bush administration] and the U.S. semiconductor industry believe in resolving this dispute through diplomacy," said SIA President George Scalise. "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."

By: DocMemory
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