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China agrees to US chip tax talks

Chance to settled differences before WTO wades in

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China has agreed to discuss a complaint made against the tax rebates it offers local chip makers with US trade representatives.

The move follows the filing of an official protest with the World Trade Organisation (WTO) just over a week ago.

On Friday, seven days after the complaint was filed, China's Ministry of Commerce said the country's WTO delegation would open talks with its American opposite number.

The WTO often encourages both sides in such cases to settle their differences together, and usually grants them 60 days to do so. If the two parties fail to reach and agreement, the case will come before a WTO investigatory panel.

At the heart of the spat is a 17 per cent sales tax China imposed in 2000 on all semiconductors sold in the country. Such taxes are permitted by the WTO. However, China granted local manufacturers the right to claim an 11 per cent rebate on the levy. If they design the chips as well as make them, local manufacturers can claim a 14 per cent rebate. Neither tax break is open to overseas suppliers. China joined the WTO in December 2001, after the taxation policy was enacted.

Such preferential treatment for local firms is a violation of WTO rules against discriminatory treatment, the US government claims. Its stance it backed by the Semiconductor Industry Association (SIA), a trade body which represents US chipmakers. China currently imports over 80 per cent of its semiconductors. ®

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