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Agreement ends first complaint at WTO
By Dai Yan (China Daily)
Updated: 2004-07-15 00:22
China and the United States Wednesday signed a Memorandum of Understanding on
the value-added tax (VAT) on semiconductors, formally putting an end to the
first complaint China faced at the World Trade Organization (WTO).
A statement by the Ministry of Commerce said China's Ambassador to the WTO
Sun Zhenyu and US Ambassador Linnet Deily inked the agreement in Geneva, the
headquarters of the world trade body, and notified the WTO of the result.
The ministry announced on July 10 that concessions had been reached on the
dispute but no details were released.
Under the agreement, China will adjust its VAT rebate policy on
semiconductors made in China before November 1 this year and implement it by
April next year.
China also promised to drop the tax break given to semiconductors which are
designed locally, produced outside and then imported into China.
The change should be officially announced before September 1 this year and
take effect before October 1.
In turn, the United States will withdraw the complaint from the WTO.
The US complaint, filed on March 18, was the first against China since it
joined the WTO in late 2001.
Under WTO rules for resolving disputes, the US and China must hold
consultations for at least two months before a panel will begin to adjudicate
the complaint.
According to the statement from the Ministry of Commerce, the two sides held
four rounds of consultations on April 27, May 27, June 15 and July 1 to 2. The
European Union, Japan and Mexico joined the talks as third parties.
Despite the agreement, the ministry still claimed in its previous statement
that the US complaint, was "incorrect and not based on reality," as some people
were confusing the concepts of tax rate and tax burden.
The United States had alleged that China collected 17 per cent VAT on
imported semiconductor products, while the rate for domestic companies was only
3 per cent.
Local analysts said the 3 per cent actually means the rate of tax burden,
which refers to the result of actual VAT divided by the total sales of a
company.
Most domestic and foreign semiconductor companies have a tax burden rate
below 3 per cent, so only a few businesses will benefit from the preferential
policy.
The agreement will not divert investment from China's semiconductor industry,
the ministry said, something expected by US semiconductor companies.
China's huge market potential will remain the biggest factor for foreign
investors, even when the VAT rebate policy is adjusted.China's US$19 billion
semiconductor market is the world's third-largest and fastest growing, and
expected to reach US$30 billion by 2006.
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