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Complaint by the United States.
On 18 March 2004, the United States requested
consultations with China concerning China’s preferential value-added tax
(“VAT”) for domestically-produced or designed integrated
The United States claims that, although China
provides for a 17 percent VAT on ICs, enterprises in China are entitled
to a partial refund of the VAT on ICs that they have produced, resulting
in a lower VAT rate on their products. In the US view, China thus
appears to be subjecting imported ICs to higher taxes than applied to
domestically produced ICs and to be according less favourable treatment
to imported ICs.
In addition, the United States claims that
China allows for a partial refund of VAT for domestically-designed ICs
that, because of technological limitations, are manufactured outside of
China. In the US view, China thus appears to be providing for more
favourable treatment of imports from one Member than from others, and
also is discriminating against services and service suppliers of other
The United States considers that these
measures are inconsistent with the obligations of China under Articles I
and III of the GATT 1994, the Protocol on the Accession of the
Republic of China (WT/L/432), and Article XVII of the GATS.
On 26 March 2004, the European Communities
requested to join the consultations. On 31 March 2004, Japan requested
to join the consultations. On 1 April 2004, Mexico and the Separate
Customs Territory of Taiwan, Penghu, Kinmen and Matsu requested to join
the consultations. On 28 April 2004, China informed the DSB that it had
accepted the requests of the European Communities, Japan and Mexico to
join the consultations.
Mutually agreed solution
On 14 July 2004, China and the United States
notified the DSB that they had reached an agreement with respect to the
matter raised by the United States in its request for consultations.
According to the notification, China agreed to amend or revoke the
measures at issue to eliminate the availability of VAT refunds on ICs
produced and sold in China and on ICs designed in China but
manufactured abroad by 1 November 2004 and 1 September 2004
respectively. The effective dates are 1 April 2005 and 1 October 2004
On 5 October 2005, China and the United States informed the DSB that they were in agreement that the terms of the agreement had been successfully implemented, and thus they had agreed that a mutually satisfactory solution had been reached to the matter raised by the United States.
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