China Likely To Stand Defiant Over US Tax Complaint

by Leroy Baker, Tax-News.com, New York

19 March 2004

China is likely to stand defiant in the face of mounting pressure from the United States over allegations that the country's tax system unfairly discriminates against foreign competition, particularly in the semiconductor industry.

Responding to recent reports that the United States is preparing a case against the Chinese government for breaching WTO trade rules, Zhang Qi, a director-general at the Ministry of Information Industry, was nonchalant at the prospect of a looming sino-US trade war. "We've known about their intent for some time. If they want to lodge a complaint, let them go ahead," she told Reuters at a Shanghai microchip conference.

She went on to add: “Last year, we imported more than 80 percent of our semiconductors and I don't see how much more open our market could be."

US semiconductor firms have long complained about China’s VAT regime, which rebates over 80% the tax to domestic firms and not to foreign companies.

“GATT Article III states that a WTO member cannot impose taxes on imported products that are greater than those imposed on domestic products. This discrimination against imported semiconductors through the VAT rebate is a clear violation of China's WTO obligations,” stated George Scalise, president of the US Semiconductor Industry Association.

“We welcome competition from China, but competition must take place on a fair playing field, unencumbered by market barriers that distort investment while discriminating against foreign-made products.” Scalise concluded.

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