CHINA – VALUE-ADDED TAX ON INTEGRATED CIRCUITS
Document: Request for Consultations by the United States
Date: 23 March 2004
Document codes: WT/DS309/1; G/L/675; S/L/160
Complainant: U.S.
Respondent: China
Dispute stage: Consultation
Agreements cited: Art. XVII  Services (GATS)Art. I, III  GATT 1994

CHINA – VALUE-ADDED TAX ON INTEGRATED CIRCUITS

Request for Consultations by the United States

 The following communication, dated 18 Marc h 2004, from the delegation of the United States
to the delegation of China and to the Chairman of the Dispute Settlement Body, is circulated in
accordance with Article 4.4 of the DSU.

 My authorities have instructed me to request consultations with the Government of the
People's Republic of China ("China") pursuant to Articles 1 and 4 of the Understanding on Rules and
Procedures Governing the Settlement of Disputes ("DSU"), Article XXII:1 of the General Agreement
on Tariffs and Trade 1994 ("GATT 1994"), and Article XXII:1 of the General Agreement on Trade in
Services ("GATS") regarding China's value-added tax ("VAT") on integrated circuits ("ICs").

 China provides for a 17 per cent VAT on ICs. However, we understand that enterprises in
China are entitled to a partial refund of the VAT on IC s that they have produced, resulting in a lower
VAT rate on their products. China therefore appear s to be subjecting impor ted ICs to higher taxes
than applied to domestic ICs and to be according less favourable treatment to imported ICs.

 In addition, we understand that China allows for a partial refund of VAT for
domestically-designed ICs that, because of technol ogical limitations, are manufactured outside of
China. China thus appears to be providing fo r more favourable treatment of imports from one
Member than another, and discriminating against services and service suppliers of other Members.

 We understand that China implements its pr eferential tax for domestically-produced or
designed ICs through the following measures:

• Document 18 (24 June 2000), Notice of the State Council Regarding Issuance of Certain
Policies Concerning the Development of th e Software Industry and Integrated Circuit
Industry;

• Document 25 (22 September 2000), Notice of the Ministry of Finance, State Administration of
Taxation, and General Administration of Cust oms on Relevant Tax Policy Issues Concerning
Encouraging the Development of the Software Industry and the Integrated Circuit Industry;

• Document 86 (7 March 2002), Notice of the Ministry of Information Industry Regarding
Issuance of Regulations on Certification of Integrated Circuit Design Enterprises and
Products;

• Document 70 (10 October 2002), Notice of the Ministry of Finance, State Administration of
Taxation Regarding Furthering Tax Policies to Encourage the Development of the Software
Industry and Integrated Circuit Industry;

• Document 140 (25 October 2002), Notice of the Ministry of Finance, State Administration of
Taxation Regarding Tax Policies for Imports of Integrated Circuit Products Domestically
Designed and Fabricated Abroad; and

• Document 1384 (23 December 2003), Notice of the State Administration of Taxation
Regarding Issuance of the Catalogue of Inte grated Circuit Products Enjoying Preferential
Tax (First Batch);

as well as any amendments, related measures, or other implementing measures.

 The United States therefore believes that these me asures 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.

 We look forward to receiving your reply to this request and to fixing a mutually acceptable
date for consultation.