U.S. Accuses China of Hampering Trade
Under pressure to more aggressively address a growing trade imbalance and protect U.S. chip makers, the Bush administration Thursday filed the first World Trade Organization complaint against China.
The complaint alleges that China’s tax policies violate global trade rules by penalizing foreign semiconductor producers.
China is “discriminating against key U.S. technology products,” U.S. Trade Representative Robert B. Zoellick said. “It’s wrong and it’s time to pursue a remedy through the WTO.”
U.S. exporters, organized labor and lawmakers have been pressing Washington for new measures to stem a record trade deficit with China that critics say is based in part on Beijing’s unfair economic practices. Thursday’s WTO filing -- the first made by any nation against China since it joined the Geneva-based trade group in 2001 -- may prompt other countries to lodge similar complaints.
But the filing risks an escalation of trade tensions with China, which could retaliate with its own curbs on U.S. products. Trade between the U.S. and China was $180.8 billion in 2003, up from $75.4 billion in 1997, and despite its allegedly discriminatory tax policies, China is the fastest-growing market for U.S. chips and other technology products.
China’s Ministry of Commerce is considering its response to the U.S. action, the ministry’s spokesman in Beijing said.
At issue is a 17% value-added tax that China levies on semiconductors. Since 2000, chips produced in China have been eligible for rebates of up to 14%. U.S. chip industry executives say the rebate policy is part of an aggressive attempt by the Asian country to quickly become a major player in semiconductors.
The Chinese government insists that its tax policies don’t violate WTO rules. The semiconductor case “is based on a misunderstanding,” said Zhang Qi, director of the Ministry of Information Industry’s electronic products division.
If U.S. companies make chips in China, he said, they also get the rebate.
“It’s not right for the U.S. to file it [the complaint] to the WTO,” said Yao Weiqun, associate president of the Shanghai WTO Affairs Consultation Center. “The dispute can be solved by negotiation between the industry associations on both sides. China is a developing country. We need time.”
The Bush administration’s decision to launch a costly and time-consuming WTO complaint reflects increasing dissatisfaction with China’s progress in removing barriers to imports, particularly in sensitive areas such as high-tech products and agricultural goods.
Last year the U.S. trade deficit with China reached a record $124 billion -- the largest ever with any country.
Under global trade rules, the two governments have 60 days to resolve the chip-tax issue, after which the U.S. government can ask a WTO panel to rule on the dispute. U.S. Commerce Undersecretary Grant Aldonas is traveling to Beijing next week, and top officials from the two countries are slated to attend a meeting next month in Washington of the U.S.-China Joint Commission on Commerce and Trade.
The U.S. trade representative’s office filed the case in Geneva after U.S. officials who visited Beijing last week came away convinced that the Chinese government wasn’t prepared to negotiate a diplomatic solution, said George Scalise, president of the Semiconductor Industry Assn., a U.S. trade group that pressed for the WTO action.
“We ran out of time” to continue negotiations, he said. “We’d gone about as long as we could without doing something to nudge it forward to the next step.”
Pressure for action on China has also come from Democratic presidential candidate Sen. John F. Kerry of Massachusetts, who has attacked the Bush administration for what he calls a failure to protect American workers from unfair trade practices.
In addition, American exporters have accused China of keeping its currency artificially weak to make its products cheaper in global markets.
And on Tuesday, the AFL-CIO filed a petition asking the U.S. government to impose steep penalties against China, alleging that the country’s repression of labor has given its companies an unfair trade advantage by artificially depressing wages and production costs.
Last year the Bush administration agreed to impose restrictions on the importing of Chinese-made bras, dressing gowns and knit fabric.
The China market is a huge prize for global semiconductor manufacturers. China, with its fast-growing consumer society and huge base of export-oriented factories, is the world’s third-largest semiconductor market -- representing $2 billion in sales for U.S. firms last year.
China imports 80% of its chips because its domestic semiconductor industry is still small although rapidly growing. Chips are the second-largest American export to China, according to the Semiconductor Industry Assn.
U.S. firms contend that Chinese investment incentives for the domestic semiconductor industry, which include low-interest loans and cheap land, are encouraging a rapid influx of foreign funds and technology that could create a global chip glut and depress prices.
The U.S. government also is unhappy with China’s development of technical standards that put it at odds with global standards. U.S. technology executives say the China-only standards give local producers an unfair advantage, create unnecessary costs and force foreign firms to divulge sensitive technology or team up with Chinese firms.
U.S. officials have urged China to repeal a proposed encryption standard for wireless communications products set to take effect June 1. Some foreign technology firms, including Intel Corp. and Nokia Corp., have said they would be forced to stop shipping wireless products to China after May because of the proposed Chinese standard.
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Times staff writer Terril Yue Jones in San Francisco contributed to this report, and Bloomberg News was used in compiling it.
