http://news.ft.com/servlet/ContentS...y&c=StoryFT&cid=1079419679859&p=1012571727088 US to file WTO complaint against China By Edward Alden in Washington Published: March 16 2004 21:58 | Last Updated: March 17 2004 1:44 The US is set to launch its first World Trade Organisation complaint against China, charging that Beijing is violating global trade rules by offering big tax breaks for domestic semiconductor producers. The case, which US officials said could be filed as early as Wednesday, will mark the end of a two-year honeymoon in which Washington has tried to resolve a series of disputes with China without resorting to the WTO. A combination of election-year pressures on the Bush administration to take a tough stand on China and Beijing's refusal to budge on the tax issue has led Washington to bring the case. At issue is a 17 per cent value-added tax that China imposes on all semiconductors. The Chinese government rebates all but 3 to 6 per cent of that tax for domestic producers but retains the full tax on imports, giving domestic chipmakers a huge advantage in an industry with narrow profit margins. The Chinese tax has become the biggest international trade issue for the $70bn (£39bn, E57bn) US semiconductor industry, which fears the rebate is encouraging semiconductor production in China at the expense of US imports. The US industry had wanted a negotiated solution to the dispute, which would have prevented a long WTO dispute settlement process. But China has refused to relent, arguing it is a critical part of its development strategy. The US industry now hopes that once the case is filed, it will affect investment plans because companies will fear that China will be forced by the WTO to end the tax discrimination. Semiconductors are the second largest US export to China, and US chips are used in a wide variety of Chinese electronics goods shipped around the world. But foreign companies also invested $3.6bn in Chinese semiconductor production between 2000 and 2002, with investment expected to reach $12bn next year and $25bn by 2013. In testimony last month before a US congressional commission, the Semiconductor Industry Association called this "an unprecedented amount of investment that cannot be justified on commercial terms and is likely to lead to severe overcapacity in the industry in future years". The US trade representative's office had originally been planning to hold off the case until after an April 21 meeting in Washington involving the top economic officials from China and the US. But Chinese officials told a senior USTR official who visited Beijing last week there was no chance that China would relent on the issue. Since China joined the WTO in December 2001, the US has been able to resolve several trade disputes with Beijing through negotiation, such as lifting barriers to US cotton and soybean sales and opening China's market for US car finance companies.