EU And Japan Support Action Against China In WTO Dispute

by Ulrika Lomas, Tax-News.com, Brussels

02 April 2004

The European Union and Japan will support the United States in its case against China at the WTO concerning tax breaks given to Chinese chip manufacturers, said to harm foreign competition.

“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," EU spokeswoman Arancha Gonzalez was reported by the International Herald Tribune as saying this week.

At the heart of the issue is a rebate given to Chinese semiconductor manufacturers on a large proportion of the 17% VAT (Value Added Tax) paid by firms. The US claims this unfairly discriminates against foreign imports. Under World Trade Organization rules, third countries can declare that they have an interest in trade disputes and submit their own opinions on the issues at stake.

Speaking to reporters following a recent cabinet meeting, Japanese Trade Minister Shoichi Nakagawa explained that Japan “is also interested in the tax policy issue and has concerns.”

“While discussing the matter with China, we want to take part in the case,” he added.

However, it is the United States that claims it has the most to lose from the ongoing tax dispute, and according to its complaint, the tax on chips cost US exporters $344 million last year.

“We welcome competition from China,” says US industry group the Semiconductor Industry Association, “but competition must take place on a fair playing field, unencumbered by market barriers that distort investment while discriminating against foreign-made products.”

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