The US is prepared to take legal action against China if it does not change tax policies that are blocking sales of US semiconductors in the Chinese market, a US official said on Thursday.
Deputy Assistant US Trade Representative Charles Freeman said the Bush administration was "actively preparing a case" to take to the WTO if the US cannot work out a solution with China in the next few months.
"I think we're going to give it one last shot bilaterally before we go to dispute settlement," he told the US-China Economic and Security Review Commission, a blue-ribbon panel charged with making recommendations to Congress.
The case would be the first the US has brought against China since Beijing's entry into the WTO in December 2001. Freeman said US officials would press the issue in a number of bilateral meetings between now and late April, when the high-level US-China Joint Commission on Commerce and Trade meets in Washington.
US semiconductor companies complain that China's practice of rebating more than 80 percent of its value-added tax (VAT) on semiconductors to domestic firms puts foreign suppliers at a huge disadvantage in the Chinese market.
"The semiconductor industry is a tremendously competitive business -- a fraction of a percent can make the difference in winning or losing a sale," said Anne Craib, trade policy director for the Semiconductor Industry Association.
Several members of the US-China Economic and Security Review Commission have pressed the Bush administration to take WTO action against China on a wide range of fronts.
"If we are going to be successful in bringing China into compliance with its WTO obligations, it is increasingly obvious we are going to have to bring a series of cases," said Commission vice chairman Richard D'Amato.
The Bush administration has preferred to try to resolve trade disputes directly with China, rather than bringing WTO cases which can take years to reach a resolution.
Freeman said the US was frustrated with high levels of illegal copying and counterfeiting of US goods in the Chinese market.
However, he said there was no strong industry support for bringing a WTO case against Beijing for those intellectual property rights violations.
Patricia Sheikh, a top trade official for the US Agriculture Department, said the US resolved a dispute threatening US$2 billion in soybean exports shipped each year to China without going to the WTO.
But it is carefully monitoring China's implementation of other farm trade commitments and will bring action at the world trade court if necessary, she said.
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