China Agrees to Phase Out Tax on Imported Chips
NYTimes - July 9, 2004
By ELIZABETH BECKER
WASHINGTON, July 8 - The United States said on Thursday that it was dropping its first case against China at the World Trade Organization after settling a dispute with the country over its tax on imported semiconductors.
Under the settlement, China agreed to a gradual elimination of the tax advantage given to its domestic semiconductor industry, which has increased the price of United States imports by 14 percent.
"This is another step toward real results," Robert B. Zoellick, the United States trade representative, said at a news conference here. "China is a voracious consumer of semiconductor chips and this will give us a level playing field."
With the record trade deficit and the outsourcing of American jobs to China growing as significant election-year issues, the administration is casting its trade policy as a success built on practical negotiations and settlements of disagreements.
"With the help of our Chinese colleagues, this problem-solving approach often works," Mr. Zoellick said.
Behind him was a banner with the phrase "real results" repeated again and again in rows, a rebuttal to accusations by Senator John Kerry, the Democratic candidate for president, and his running mate, John Edwards, that the administration's trade policies favor multinational corporations and fail to protect American workers.
Roger Altman, an investment banker and former deputy Treasury secretary under President Bill Clinton who is advising the Kerry campaign, said that the Bush administration's real results were a record trade deficit and the loss of 1.9 million jobs despite the opening of more global markets.
"President Bush's record on trade is dismal," Mr. Altman said. "He is on track to be the first since President Hoover to see net exports go down during his term."
The Chinese agreed to phase out the tax advantage over the next nine months, ending it in April 2005. The United States filed a complaint with the W.T.O. in March, contending that China's value-added tax on imported semiconductors violated international trade rules prohibiting tax policies that favor domestic manufacturers.
The $70 billion semiconductor industry in the United States hailed the settlement, saying it was critical if the United States was to continue to lead the field.
"We're very pleased with these results, absolutely," said George M. Scalise, president of the Semiconductor Industry Association, who attended the news conference along with other industry representatives.
The American semiconductor industry sells $2 billion in chips to China every year, making it the largest foreign supplier. But that is still a small share of the $25 billion Chinese market. Mr. Scalise said he hoped the settlement would mean that foreign competitors would be more competitive and increase their sales in the coming years.
Some Democratic lawmakers said the settlement was vindication of their demands over the last two years that the administration take stronger action against the Chinese on trade issues.
Representative Sander M. Levin, Democrat of Michigan, said the agreement was a "step forward, but much, much more needs to be done."
"We've got a $120 billion trade deficit with China - a 50 percent increase since 2001 when the administration came into office - and it is growing," he said.
Mr. Zoellick said at the news conference that the United States trade deficit was a sign of a dynamic economy, not of poor policy.
"The overall trade deficit, it reflects that the United States is buying more than others do," he said. "The solution is a combination of opening more markets and enforcing trade laws."
As an example of the administration's approach, Mr. Zoellick cited China's agreement in April to abandon a plan to impose its own standard for wireless technology, essentially agreeing to join the rest of the world rather than dividing it up.
The Semiconductor Industry Association applauded that decision as well, which gives it even greater access to China, the world's third-largest semiconductor market.
Several contentious issues remain with China like textile exports, currency controls and labor rights. The administration rejected calls by the A.F.L.-C.I.O. to punish China for the commercial advantage that the group said the country gained by violating workers' rights.
The representatives of the American semiconductor industry said the resolution would help the United States economy. The chip industry employs 255,000 Americans, according to the association, and United States companies have a 50 percent share of the world market. B. Anne Craib, the association's director of international trade, said that a majority of semiconductors were manufactured in the United States, but she could not be more precise.
But like other industrial products, semiconductor chips are increasingly being manufactured overseas, especially for the export market. Eamonn Fingleton, a trade expert based in Tokyo, said that factories in Japan, Taiwan, Singapore and Korea would profit as much from this settlement as those in the United States.
Most trade experts had said that China would be unable to defend the tax before the W.T.O. Indeed, the settlement was reached just days before the United States was prepared to ask the W.T.O. to form a panel to adjudicate the dispute.
Frank Vargo, spokesman for the National Association of Manufacturers, said ending the tax was crucial to ensure that China did not discriminate against other American industries through its tax system.
