China Relents on Chip VAT
In a victory for US-based chip makers, China has agreed
to cease preferential VAT rebates for Chinese chip makers.
Beginning in April 2005, the 17% tax on foreign chips
will be removed. Chinese makers currently pay only 3%.
The US government argued that the system amounted to
giving preferential access to the Chinese market to China-based
manufacturers, which are a violation of WTO principles.
Later the EU and Japan joined in the case against China.
China's chip manufacturing business is a US$25 billion
business, and is growing at 25% a year. Several major
ventures in the past year, mainly in the Shanghai
region, have been targeted at this growing market.
The US trade representative, Robert Zoellick, said that
the agreement came sooner than expected. The US was planning
on bringing the issue in front of a WTO trade panel next
month.
Currently, most of the chips are used in exports to Europe,
North America and Japan. The future growth, though, will
be in China's domestic market as the consumer market picks
up speed. The agreement means that manufacturers outside
China will be able to participate in this next wave of
growth without being discriminated against by higher tax
duties.
Other disputes have centered on Chinese accusations against
Corning for dumping glass fiber in China, just to cite
a recent example. All signs are that the Chinese are pushing
for the best deals they can get within the context of
the WTO framework and rules.
Trade relations between the US and China have become
heated in the past year, especially as the US is heading
for a presidential election. Some media critics, especially
Lou Dobbs of CNN, have turned to attacking "foreigners"
and "foreign companies" for taking away "American
jobs" in a largely successful effort to boost their
ratings.
This is in spite of the fact that in a networked world
economy, all talk of "foreign" and "domestic"
are largely meaningless.
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