US chip industry to take on Beijing

Demands end to 'illegal' Chinese tax rebate

The Semiconductor Industry Association (SIA) will today present evidence to back its claim that Chinese chip makers are receiving state subsidies outlawed by the World Trade Organisation (WTO).

The US-China Economic and Security Review Commission will hear allegations that tax breaks offered by the Chinese government to domestic chip manufacturers are putting US exports under threat, The Times newspaper reports.

Chip sales are taxed at 17 per cent in China, but local manufacturers can claim up to 14 per cent of the levy back. That rebate, introduced in 2000, is tantamount to illegal state aid, the SIA believes.

The rebates are distorting the market against overseas suppliers keen to operate in what is the world's third biggest chip market, the organisation claims. The upshot is a trend to build fabs in the area rather than in the US, Europe or elsewhere in the Far East. It fears that the imbalance could tip the industry into recession. The global chip business is only now coming out of a downturn that has lasted since 2001.

The SIA alleges that since 2000 at least eight fabs have been built in China to avoid the rebate. A further 11 plants are currently under construction.

The SIA's case is being presented to the USCESRC by the US Trade Representative, and may well end in the first major challenge to China since it joined the WTO more than two years ago. ®