Complainant: United States of America
Respondent: China Third Parties:
Agreements cited: (as cited in request for consultations)
Request for Consultations received:
Mutually Agreed Solution notified:
Services (GATS): Art. XVII
GATT 1994: Art. I, III
18 March 2004
6 October 2005
Summary of the dispute to date back to top
The summary below was up-to-date at 24 February 2010
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 circuits (“IC”).
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 Members.
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 People’s 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 mutually satisfactory solution had been reached to the matter raised by the United States.