First-ever action against China at the WTO challenges Chinese tax policies.
March 18, 2004: 2:12 PM EST
WASHINGTON (Reuters) - The United States became the first country on Thursday to bring action against China at the World Trade Organization, in a case challenging Chinese tax policies that Washington believes are an unfair barrier to semiconductor imports.
"U.S. manufacturers of semiconductors and other products have a right to compete on a level playing field with Chinese firms," U.S. Trade Represent Robert Zoellick said in a statement. "As a WTO member, China must live up to its WTO obligations. It cannot impose measures that discriminate against U.S. products."
The action follows criticism from Democratic presidential candidate John Kerry and other Democrats that the White House has not done enough to enforce the commitments Beijing made when it joined the WTO in December 2001.
American semiconductor companies complain that China gives its domestic producers an unfair advantage in the $19 billion Chinese semiconductor market, by providing substantial rebates on a 17 percent value-added tax.
Last year, U.S. companies exported $2.02 billion worth of semiconductors to China and paid about $344 million in value-added taxes.
However, Chinese semiconductor companies, which receive a rebate of about 80 percent on the tax, faced an effective rate as low as three percent, U.S. trade officials said.
Jerry Jasinowski, president of the National Association of Manufacturers, said the implications of the case went far beyond semiconductors. "It's about making sure China doesn't discriminate against any U.S. manufactured goods. If we don't draw the line here, the same thing will happen to a growing range of exports," he said in statement.
Zoellick defended the administration's handling of trade issues with China, which ran a record $124 billion trade surplus with the United States last year.
The United States has made substantial progress on disputes with China in areas such as agricultural biotechnology, express delivery, insurance and auto financing, without having to go to the WTO, he said.
"These (bilateral) discussions will continue because we prefer compliance rather than litigation. However, the bottom line is that China is discriminating against key U.S. technology products. It's wrong, and it's time to pursue a remedy through the WTO," he said.
Assistant U.S. Trade Representative Chris Padilla said Chinese officials told the United States "quite clearly" last week they had no intention of changing the rebate program.
Washington's action formally begins a 60-day period for the two countries to try to resolve the issue bilaterally. However, countries typically do not initiate action at the WTO until attempts to negotiate a resolution have failed.
Padilla, in remarks to a group of trade lobbyists and reporters, said China and the United States have already "had a long dialogue about this."
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