China will no longer tax imported semiconductors at a rate that is much higher than the one it levies on domestically produced chips, the Office of the US Trade Representative (OTR) has announced.
The Chinese government imposes a 17 per cent VAT (value-added tax) on all semiconductors sold within the country. However, chips made by Chinese semiconductor firms are eligible for rebates that bring the effective VAT down to around 3 per cent, the OTR said in a complaint to the World Trade Organization in March.
Starting Thursday, China will stop certifying products and manufacturers for rebate eligibility, the OTR said. By April of next year, current recipients of VAT refunds will no longer receive that assistance, it said.
"Today's agreement ... will ensure that our high-tech firms have full access to one of our fastest growing markets," Robert Zoellick, US trade representative, Robert Zoellick, said.
China is the world's third-largest market for semiconductors, and the country is investing heavily in technology. The total value of the Chinese semiconductor market is about $US19 billion, with US semiconductor firms accounting for about $US2 billion worth of exports in 2003, according to the OTR.
China's tax policy cost US firms an estimated $US344 million more than their Chinese counterparts in 2003, the OTR said in March. The Semiconductor Industry Association praised the decision.
"[The] elimination of the discriminatory features of China's value-added tax [VAT] regime will assure a level playing field for all competitors," president of the US industry group, George Scalise, said.
The US and China previously tangled over a Chinese proposal for a wireless Internet security standard that differed from the one used in the 802.11 standard ratified by the Institute of Electrical and Electronic Engineers.
The Chinese standard, known as Wireless LAN Authentication and Privacy Infrastructure (WAPI), would have required that wireless networking chips made by vendors outside of China adhere to a proprietary security standard.
China dropped the WAPI proposal in April after pressure from the OTR and industry groups.