China's Ministry of Commerce issued a statement in Beijing on Friday (March 26) saying it had sent a message to the U.S. via the Chinese delegation to the World Trade Organization. Both sides will decide the arrangements of the consultations after negotiations, said the Xinhua News Agency, the official state-owned media outlet that carried the statement.

No further details were immediately available.

The U.S. had requested the meeting last week, when it filed a complaint with the WTO regarding China's 17 percent value-added tax. Semiconductors made in China qualify for an 11 percent rebate of the VAT; chips that are designed as well as made in the country qualify for a higher 14 percent rebate. China imports more than 80 percent of its semiconductors.

Many see the VAT as a backdoor tariff that encourages capital investment in China to avoid the tax. In its complaint, the U.S. said the VAT treats foreign companies differently than domestic concerns, a violation of the WTO's "national treatment" rule that says foreign and domestic enterprises must be equally treated. Prior to the filing, a Chinese official at China's Ministry for Information Industry dismissed the U.S. allegations as misinformed and predicted a challenge in the WTO would probably fail.

The U.S. filing with the WTO is the first made against China since it joined the trade body in December 2001. Semiconductor's represent the second largest U.S. commodity export to China, totaling about $2 billion, according to U.S. government statistics. In 2003, the U.S. government estimated that the VAT cost U.S. manufacturers about $344 million, a figure arrived at by simply multiplying imports by 17 percent. But it's uncertain exactly how much was actually collected because China's application of the VAT is inconsistent, both in collection and reimbursement.

China's chip consumption is expected to reach $37 billion in 2004, an annual increase of 30 percent, according to market research firm Gartner Dataquest. The majority of these chips shouldn't be subject to the VAT because they are put into export products. But as China's domestic electronics market grows, more and more of those chips will be tagged by the VAT.

China's agreement on a meeting comes as U.S. officials are in Beijing to decide the topics and format of next month's Sino-U.S. Joint Commission on Commerce and Trade. It is the 15th meeting of the commission, which will be co-hosted by Chinese Vice Premier Wu Yi, Commerce Secretary Donald Evans and U.S. Trade Representative Robert Zoellick.

The forum has been slated as an opportunity for the two sides to hash out recent trade disputes, which have taken on added importance during the U.S. election year.

Semiconductors are certain to be part of the discussion, as well as China's recent moves to implement a new wireless LAN standard that would force foreign companies to work with Chinese manufacturers to produce compliant base-band processors.

By: DocMemory
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