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Europe backs US protest over China chip tax

'Systemic interest'

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The European Commission is to back US government moves to stop China giving tax breaks to local chip makers.

"We have a systemic interest in that it may be chips today but tomorrow [may] apply to other products where we do have an interest," an EC spokeswoman said, the International Herald Tribune reports.

China this week said it will enter negotiations with the US, in response to an official complaint made by the US government to the World Trade Organisation. The backing of the EC will add more weight to the US's argument.

This centres on 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 importers. 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 more than 80 per cent of its semiconductors.

Europe's chief chip maker, Infineon, is less affected than others, since it maintains a plant in China. Products from that facility qualify for the 11 per cent rebate. ®

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