China And US Reach Agreement On Semiconductor Tax

by Glen Shapiro, LawAndTax-News.com, New York

12 July 2004

It emerged last week that the United States and China have resolved a tax dispute over discriminatory levels of value-added tax (VAT) imposed by the Chinese government on semiconductors manufactured in the United States.

Under the disputed regime, China imposed a VAT rate of 17% on sales of all imported and domestically produced semiconductors, but rebated the amount of the VAT burden in excess of 3% for semiconductors produced in China.

The US government had already filed a case against China before the World Trade Organisation on the issue, and if Thursday's deadline had not been met, would have taken the next step, namely bringing the matter before a WTO dispute resolution panel.

Welcoming the resolution of the trade dispute, US Trade Representative, Robert Zoellick explained that:

"We have been steadfast in insisting that China needs to play by the rules of international trade and we have not hesitated to use the full range of tools at our disposal to make that happen."

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