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Sat, Jul 10, 2004 - Page 12 News List

US drops WTO chip suit against China

SETTLEMENT Beijing has agreed to gradually eliminate the tax advantage enjoyed by its semiconductor industry over the next nine months, further opening its market

NY TIMES NEWS SERVICE , WASHINGTON

The US said on Thursday that it was dropping its first case against China at the WTO after settling a dispute with the country over its tax on imported semiconductors.

Under the settlement, China agreed to gradually eliminate the tax advantage given to its domestic semiconductor industry, which has increased the price of US imports by 14 percent.

"This is another step toward real results," said Robert Zoellick, the U.S. trade representative, at a news conference in Washington.

"China is a voracious consumer of semiconductor chips and this will give us a level playing field," he said.

With the record trade deficit and the outsourcing of American jobs to China growing as significant election-year issues, the administration is casting its trade policy as a success built on practical negotiations and settlements of disagreements.

"With the help of our Chinese colleagues, this problem-solving approach often works," Zoellick said.

The Chinese agreed to phase out the tax advantage over the next nine months, ending it next April.

The US filed a complaint with the WTO in March, contending that China's value-added tax on imported chips violated international trade rules prohibiting tax policies that favor domestic manufacturers.

Officials with the US$70 billion semiconductor industry in the US hailed the settlement, saying it was critical if the US was to continue to lead the field.

"We're very pleased with these results, absolutely," said George Scalise, president of the Semiconductor Industry Association, who attended the news conference along with other industry representatives.

The American semiconductor industry sells US$2 billion in chips to China every year, making it the largest foreign supplier. But that is still a small share of the US$25 billion Chinese market. Scalise said he hoped the settlement would mean that foreign competitors would be more competitive and increase their sales in the coming years.

Some Democratic lawmakers said the settlement was vindication of their demands over the last two years that the administration take stronger action against the Chinese on trade issues.

Representative Sander Levin, a Democrat, said the agreement was a "step forward, but much, much more needs to be done."

"We've got a US$120 billion trade deficit with China -- a 50 percent increase since 2001 when the administration came into office -- and it is growing," he said.

But Zoellick said at the news conference that the US trade deficit was a sign of a dynamic economy, not of poor policy.

"The overall trade deficit -- it reflects that the United States is buying more than others do," he said. "The solution is a combination of opening more markets and enforcing trade laws."

As an example of the administration's approach, Zoellick cited China's agreement last April to abandon a plan to impose its own standard for wireless technology, essentially agreeing to join the rest of the world.

The association applauded that decision as well, which gives it even greater access to China, the world's third-largest semiconductor market.

Several contentious issues remain with China such as textile exports, currency controls and labor rights. The administration rejected calls by the AFL-CIO to punish China for the commercial advantage that the group said the country gained by violating workers' rights.

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