U.S., China Resolve Semiconductor Tax Dispute

By John S. McClenahen By this time next year, U.S. integrated circuits are expected to have full access and national treatment in China's semiconductor market. That's the prospective bottom line on a tax-dispute settlement agreement announced July 8 by U.S. Trade Representative Robert B. Zoellick. From now on, China will not make any new semiconductor products or manufacturers eligible for refunds of its value-added tax (VAT). Nor will China offer VAT refunds that favor semiconductors that are designed in China. And by April 2005, China pledges to stop refunding VAT on Chinese-produced semiconductors to those now eligible to receive the tax refunds. Under China's tax policy, U.S. exporters of integrated circuits to China have paid up to five times as much tax as local Chinese manufacturers, Zoellick figures. The announced settlement relatively quickly resolves the first case the U.S. has brought against China under World Trade Organization (WTO) rules. And that's a point that Frank Vargo, vice president for international economic affairs at the Washington, D.C.-based National Association of Manufacturers, considers "really" important. States Vargo: "It means China is not going to litigate every single trade issue in the . . . WTO and is willing to settle them bilaterally. China could have insisted on a full WTO dispute settlement process and delayed things two years or more even though they knew they were wrong, and it is to their credit that they did not go that route."

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