- The Washington Times - Friday, March 19, 2004

The United States has filed a complaint against China at the World Trade Organization (WTO) that could turn on its head much of the criticism leveled at the international trading regime. The case is both materially and politically significant, affecting the multibillion-dollar U.S. semiconductor industry and all the high quality jobs it creates.

U.S. semiconductor exports to China were $2.45 billion last year, according to the Commerce Department, and China’s semiconductor market is the third-largest in the world, valued at $19 billion.

U.S. officials allege that China is discriminating against U.S. semiconductor exports by putting a value-added tax of 17 percent on semiconducter sales, but rebating its own semiconductor producers for almost all of that amount. The United States is correct in stating that the alleged practice would constitute a violation of WTO rules. If America wins the case, it will prove that existing trade protocols can be leveraged to protect jobs here, even while they do present U.S. producers with global challenges. It would also help bolster American clout at the WTO, which has been hurt by some losses at the trade organization.

“If the facts are as alleged, the U.S. would win,” said Gary Clyde Hufbauer, a trade expert with the Institute for International Economics. Some of the conceivable defenses that China could mount are likely to be seen as a reach at the WTO, Mr. Hufbauer said. China might claim, for example, that semiconductor producers that benefit from a rebate produce a slightly different product from the U.S. export. Trade authorities probably would see through that argument. The case could take up to a year to resolve.

At stake is a critical export market and leading-edge industry for the United States. China is expected to buy some 37 billion semiconductor chips this year and 47 billion next year. About 90 percent of those purchases will be imports, with the United States leading the market. Texas Instruments, IBM, Motorola and Intel all have a large interest in the case.

America’s trade leadership has been bolstered by its patience on this issue with China. U.S. officials have tried for a considerable period to negotiate a resolution to the semiconductor tax with their Chinese counterparts, to no avail. A win for America at the WTO would demonstrate to the American people, and their representatives on the Hill, that the WTO arbitration process can be used to benefit the American worker. Given the recent upsets at the WTO, it is important for this message to be delivered.

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