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Sat, Mar 20, 2004 - Page 12 News List

US files first WTO case against China

PROTECTIONISM Frustration with what US companies say is foot-dragging by China in living up to its WTO promises has resulted in the US filing its first complaint

NY TIMES NEWS SERVICE , WASHINGTON

The US filed the first case against China at the WTO on Thursday, contending that Beijing imposes unfair taxes on imported semiconductors.

With China and its trade policies dominating much of the economic debate during this presidential election year, the move was seen as a way for the administration to counter accusations from Democrats that it is not doing enough to protect American workers.

In congressional testimony last week, Robert Zoellick, the US trade representative, warned that the US would take its case against China to the WTO because of the country's tax on semiconductors, which is as much as 14 percent higher on imported computer chips than on those designed or made in China, whether by domestic or foreign companies.

The administration had been pressed to file the case by the US$70 billion semiconductor industry in the US, which has complained that China's value-added tax discriminates against its products.

The commerce secretary, Donald Evans, and Zoellick traveled to China to convey the message that the US was losing its patience with China's refusal to adapt more quickly to WTO rules. But Chinese officials told a senior administration official last week that they would not lift the tax on foreign semiconductors, paving the way for the filing of the case on Thursday.

Foreign imports account for 80 percent of China's integrated circuit market, which is valued at US$19 billion -- the third-largest in the world.

But China's semiconductor industry is growing and US manufacturers have warned that the value-added tax is a protectionist measure to nurture the Chinese industry by discriminating against foreign companies.

In the competitive semiconductor industry, a tax on foreign products can be the difference between winning and losing a sale, said Anne Craib, director of international trade at the Semiconductor Industry Association.

"We're hoping the discussions at the WTO will yield the compromise we couldn't find without taking the decision," Craib said. "This is an immediate problem with China trying to create a closed market to build up its own industry, and that has huge financial implications."

The chip industry employs 255,000 Americans, according to the association, and US companies have a 50 percent share of the world market.

Some Democratic lawmakers said the case filed on Thursday was politically motivated and would fail to answer criticism for the rising trade deficit with China.

"One case brought as a political talking point does not make up for the administration's failure to develop a China trade policy over the past three years," said Representative Sander Levin, the ranking minority member of the House Ways and Means trade subcommittee.

Most trade experts said China would be unable to defend the tax before the WTO.

For Charlene Barshefsky, who was the trade representative during the Clinton administration, the case raised questions about the message China was sending about its commitment to international trade rules.

"This is disturbing," said Barshefsky, who helped negotiate China's entry into the WTO. "I think that China is making a mistake in not moving to settle the semiconductor issue."

US companies are also worried that the tax is being used to persuade foreign companies to shift their plants to China and avoid the extra tax.

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