A US complaint over tax breaks for chipmakers in China, which the Financial Times reported may be submitted to the WTO this week, is groundless, a Chinese government official said.
"It's based on a misunderstanding," Zhang Qi (
The action, which follows protests by a US industry group whose members include Intel Corp and Micron Technology Inc, would be the first against China in the global trade body.
China's chip market, the world's fastest-growing, will expand 30 percent to US$38 billion this year, according to Gartner Inc.
The Chinese government imposes a 17 percent value-added tax on semiconductors and integrated circuits. According to the US Semiconductor Industry Association, companies that make chips in China get 14 percentage points of that tax refunded to them, giving them an unfair advantage over overseas chipmakers.
US Trade Representative Robert Zoellick last week told members of Congress "we're going to bring a case" unless China removes the tax.
"We could well be the first country to bring a WTO case against China," Zoellick told the Senate Finance Committee a week ago.
Ministry of Information Industry official Zhang declined to comment on whether China may alter the tax, saying this was a matter for the State Council, or Cabinet.
The tax isn't unfair to overseas companies because many chips designed in China are manufactured overseas in places such as the US, Taiwan and Singapore before being imported back into China. These chips are subject to the same tariffs, she said.
China's semiconductor manufacturing capacity was able to meet only 17 percent of demand last year, with the rest coming from imports, according to Zhang.
She forecast China's share of global chip production will more than triple to 10 percent by 2007, from less than 3 percent last year.
Chinese chipmakers including Semiconductor International Manufacturing Corp (
Grace hasn't benefited from the tax breaks because all of its chips are exported, to customers such as Sunnyvale, California-based Silicon Storage Technology Inc, Grace chairman Winston Wang (
Semiconductor Manufacturing, whose customers include Dallas-based Texas Instruments Inc, also exports most of its production.
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