The Japanese government has added its voice to that of the European Union in damning China's chip sales tax rebates for local semiconductor makers.

"China is in violation of WTO rules and what we are seeking is a right that is given us under those rules," said Shoichi Nakagawa, Japan's economy and trade minister, in a Financial Times interview.

Nakagawa's comment follows the US government's filing of an official complaint with the WTO over the tax rebates.

The Chinese government last week agreed to discuss the matter with the US. The WTO imposes a two-month negotiation period on warring parties. If the talks prove unsatisfactory, then the case comes before a WTO panel.

Nakagawa said Japan hopes to be involved in the negotiations. If China refuses to allow it to do so, it will consider filing its own WTO complaint, he warned.

Last week, the European Commission expressed support for the US action, and is believed to be keen to join in the discussion, too.

At the heart of the matter 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. China currently imports more than 80 per cent of its semiconductors, and argues that the tax rebates are intended to buoy its small, emerging chip industry, and will be eliminated in due course. ®

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