US Trade Representative Robert Zoellick is requesting formal consultations with China under the World Trade Organization’s (WTO) dispute settlement procedures due to what the US says is China’s ‘discriminatory’ Value Added Tax (VAT) on semiconductors.
China imposes a VAT of 17% on sales of all imported semiconductors and integrated circuits. However, current Chinese government policy provides a rebate of the VAT burden in excess of 3% for certain integrated circuits manufactured in China.
This, according to the US Semiconductor Industry Association (SIA), runs contrary to GATT Article III (on ‘National Treatment’) which states that a WTO member cannot impose taxes on imported products that are greater than those imposed on domestic products.
According to the SIA, this discrimination against imported semiconductors through the VAT rebate is a clear violation of China’s WTO obligations. SIA advocates either eliminating completely or reducing the VAT to 3% for all semiconductors.
‘US semiconductor manufacturers strongly believe in competition,’ said George Scalise, president of the SIA.
‘The SIA was a leading proponent of China’s accession to the WTO and fought for congressional approval of Permanent Normal Trade Relations with China. We stand behind those decisions. China has a vibrant and growing microelectronics industry that will be further strengthened, as the US industry was, by vigorous market-based competition,’ he added.
‘The SIA led the fight to remove barriers to foreign access to the US semiconductor market. 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 concluded.