Original URL: http://www.theregister.co.uk/2004/07/08/china_chip_tax/

China agrees to drop chip tax rebates

WTO intervention avoided

By Tony Smith

Posted in Financial News, 8th July 2004 16:33 GMT

China has bowed to US pressure and agreed to remove a semiconductor sales tax regime said to favour local chip makers over their foreign rivals.

Today, China imposes a 17 per cent tax on the sale of all semiconductor products. However, domestic vendors are able to request an 11 per cent rebate, rising to 14 per cent if the products were also developed locally.

That, says overseas chip makers, amounts to discrimination and as such runs contrary to World Trade Organisation (WTO) rules - even though China didn't join the WTO until December 2001, long after the rebate regime had been put in place. Even so, in March this year, the US submitted a complaint to the WTO, which put in place a period of negotiation, the results of which were announced today. The US complaint was backed by Europe and Japan/

China will end the rebate, but the 17 per cent sales tax will remain, to be applied to all chips sold, irrespective of their country of origin. The country's agreement to drop the rebate, which it claims it had put in place to aid its fledgling chip industry, will be filed with the WTO next week.

The Semiconductor Industry Association (SIA), the US chip makers' club, welcomed China's move, which it said "will assure a level playing field for all competitors", and the country's "continued efforts to bring its trade laws and regulations into compliance with WTO rules".

The concession announced today marks the second time China has bowed to overseas pressure over rules imposed on overseas technology companies. In April, it agreed to drop a requirement that all wireless networking products sold in China support its Wireless Authentication and Privacy Infrastructure (WAPI) specification. Until it agreed to do so, Intel for one had said it would not ship its wirless products in China.

The SIA calculates that China is already the third-largest country market for semiconductors and is projected to become the second-largest country market before 2010. ®

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