International Trade Law News

Last week, the U.S. filed a case with the World Trade Organization alleging that China has imposed a discriminatory tax rebate for integrated circuits produced in China.

U.S. exports of integrated circuits to China, which are subject to a 17% value-added tax (VAT), valued $2.02 billion in 2003. The U.S. contends that China taxes domestically produced integrated circuits at a rate which is significantly lower than the rate foreign producers pay since China offers a refund on integrated circuits that are domestically produced. Specifically, the U.S. notes that the VAT paid by Chinese producers may be as low as 3% in some cases once the allegedly discriminatory refund is assessed. The U.S. contends that this refund is inconsistent with the national treatment obligations that China assumed when it joined the WTO in December 2001.

This action is the first to be filed against China since it joined the WTO. In making the decision to bring the action, the U.S. Trade Representative (USTR) noted that China has made “substantial progress” in areas such as agricultural biotechnology but contended that the U.S. had repeatedly engaged China on the integrated circuit VAT without resolving the dispute over the allegedly discriminatory tax.

Under WTO dispute settlement procedures, filing the case commences a 60-day “consultation” period. If no resolution is reached within sixty days, the U.S. can request the establishment of a panel to determine whether China is acting in accordance with its WTO obligations.