July 9, 2004 – Avoiding a potentially lengthy dispute with the WTO, China has agreed to lift the rebate it offers domestic chipmakers as part of its value-added tax (VAT) policy for ICs, effective April 2005. Effective immediately, China will not certify any new semiconductor products or manufacturers for eligibility for the refund.

Under the new agreement, the VAT rate will be 17% across the board for semiconductors regardless of origin. China’s current policy subjects imports to a 17% tax; US IC companies, who exported $2.02 billion worth of product to China in 2003, pay as much as 5x as local manufacturers, who received rebates that effectively cut the VAT to as little as 3%, according to the US Trade Representative office.