US files complaint with WTO over China chip taxes

The U.S. has filed a complaint with the World Trade Organization (WTO) regarding China’s policy of levying a value-added tax (VAT) on imports of semiconductors, the Office of the U.S. Trade Representative (OTR) announced Thursday.

Semiconductors manufactured by U.S. firms are subject to a 17 per cent tax when sold in China, said Robert Zoellick, the U.S. trade representative, in a statement. The full 17 per cent tax is not levied against products made by Chinese semiconductor vendors. This unfairly favours Chinese companies and violates WTO guidelines, Zoellick said.

“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,” the OTR said in a press release.

An OTR spokeswoman declined to comment on the matter beyond Thursday’s press release. Representatives for Intel Corp. and Texas Instruments Inc. referred inquiries to the Semiconductor Industry Association (SIA). The SIA “strongly supports” the action taken by the OTR Thursday, said SIA President George Scalise in a statement issued Thursday.

“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 said in the statement.

A representative at China’s U.S. embassy did not immediately return a phone call seeking comment. A news item posted on the embassy’s Web site earlier this week quoted a report authored by China’s Ministry of Commerce denouncing what it called “excessively protectionist trade policies” on the part of the U.S., pointing in part to a Bush administration decision in 2002 to levy tariffs on imported steel. Those tariffs were revoked in December 2003 after the WTO declared them illegal.

U.S. firms exported about US$2 billion worth of integrated circuits to China in 2003, the OTR said in its release. China’s tax policy cost the purchasers of those chips an additional US$344 million, it said.

The total market for semiconductors in China comes in at around US$19 billion, making it the third largest market in the world, the OTR said.

The U.S. had attempted to settle the matter through negotiations, but those talks were unsuccessful, the OTR said. A 60-day consultation period now begins as a result of the complaint, and failing those consultations, the U.S. can request that a panel debate the matter.

China joined the WTO in December 2001, and Thursday’s complaint marks the first filed against the country, the OTR said.

China’s decision to implement a separate security protocol in its version of the Wi-Fi standard has left some foreign chip makers unable to comply with a May 1 deadline to make all wireless chips meet that standard. As a result, Chinese Wi-Fi chip makers are expected to have an easier time selling wireless chips to one of the fastest growing IT markets in the world.