The Bush administration, proclaiming a triumph for its trade policy, said yesterday that China has backed down in a dispute over computer chips about which Washington lodged a complaint with the World Trade Organization.
Beijing agreed to stop giving tax breaks to domestic producers of semiconductors that it doesn't give to companies that export such products to China, U.S. Trade Representative Robert B. Zoellick announced. The dispute was resolved less than four months after it was filed as the first WTO case against China, which joined the organization in late 2001.
"The decision means fair treatment for America's high-tech exporters in a very large but fast-growing market," Zoellick said at a news conference, at which he was joined by representatives of the semiconductor industry.
The announcement had heavy political overtones, as Zoellick stood on a podium with "Real Results" emblazoned on a banner behind him. Those words, which Zoellick used frequently during his remarks, were a reply to the Democratic presidential candidate, Sen. John F. Kerry (D-Mass.). Kerry has attacked the administration for being "asleep at the wheel" in not enforcing trade laws more aggressively and not filing more WTO cases, especially against China's trade practices.
The Kerry campaign dismissed the significance of the settlement announced yesterday. "It's too little, too late," said Phil Singer, a spokesman. "In 2001, 2002 and 2003 the administration's own reports cited China for flagrant violations of the trade rules on semiconductors, but they waited until an election year to file the first WTO case on the issue." By not acting earlier, Singer said, "the administration sent the wrong message to the Chinese, allowing them to continue with unfair trade practices."
Zoellick made no apology for the administration's trade policy. "There have been some that have tried to measure [the toughness of U.S. policy] by the number of cases that have been brought," Zoellick said. "That's not our approach. . . . We have produced real results that have produced increased sales for our companies to China."
The United States is content to negotiate with Beijing but when China balks, the Bush administration isn't afraid to resort to litigation or other such measures, Zoellick said, citing the chip case as an example.
In April, U.S. and Chinese officials agreed on measures that address a number of problems facing U.S. firms that do business in China. The agreement included the acceleration of steps to allow foreign firms to import and export products in China without going through local state trading companies. It also deferred a rule that would have forced some U.S. high-tech companies operating in China to enter joint ventures with Chinese firms and transfer technology to them.
That deal was derided by Democrats as insufficient to stop Chinese practices that cost U.S. jobs.
Yesterday's resolution of the computer-chip dispute came as the potential for another spat with China emerged, concerning the long-running problem of Chinese pirating of U.S. intellectual property. Pfizer Inc. said Wednesday that Beijing withdrew the company's Chinese patent for Viagra.
"It's difficult not to view this case within a pattern of IP infringement," said Richard Mills, a spokesman for Zoellick. "We'll be discussing this and other IP issues with the Chinese." Pfizer has said it will appeal the patent decision, Mills noted.
Also yesterday, Treasury Secretary John W. Snow said China might be asked to participate in discussions of the Group of Seven finance ministers and central bankers in October. The G-7 consists of the United States, Japan, Britain, Germany, France, Canada and Italy. Russia's finance minister attends some of the G-7 economic meetings as a member of the Group of Eight.
Many economists and policy experts have long urged that the G-7 should be recast to include China, since as one of the world's economic powerhouses it exerts major influence on global finance and trade flows. "The discussions are not, to my knowledge, about [China] joining as a member, but rather to attend some of the meetings," Snow said in Portland, Maine, according to Bloomberg News.
At issue in the semiconductor case was Beijing's practice of imposing a 17 percent value-added tax on chips and refunding most of the tax to firms that produce chips domestically, a system aimed at encouraging companies to build high-tech fabrication plants in China.
Chinese officials maintained that the system did not violate WTO rules, and they noted that their country has become a major market for foreign chips, importing about $2 billion worth from the United States last year.
But Zoellick said Chinese officials seemed to recognize that Washington had a strong case, based on the WTO principle of "national treatment," which basically prohibits governments from treating their own firms differently from foreign-owned companies.
Under the agreement, Zoellick said, Beijing will not certify new chip products or makers as eligible for tax refunds, and by April 1 of next year China will stop giving refunds to current beneficiaries of the system.
The outcome is "a big deal that transcends semiconductors," said Franklin J. Vargo, vice president for international economic affairs at the National Association of Manufacturers.
China is now signaling that it won't use similar tax policies to favor domestic producers in other industries, Vargo said. "We also see that China is not going to drag out every WTO case" brought against them, he said. "This could have gone one and a half or two years easily," he said.
In China, the government offered no immediate comment, but local analysts construed the decision to bend to the Bush administration's pressure as an indication of Beijing's desire for smoother relations with Washington ahead of the U.S. presidential election.
"The Chinese government understands that the American people and the business community are focused on the economy, and trade will be the focus of the election," said Zhou Dunren, a researcher at the Shanghai Pudong American Studies Institute.
The decision was also seen in China as reflecting an awareness that by continuing to protect domestic chipmakers with favorable tax policies, Beijing would effectively stymie their development as global competitors and likely end up losing the issue in a full-blown case at the WTO. China entered the world trade body less than three years ago, and its inclusion in the WTO has been embraced by Chinese reformers as a wedge to force local governments to heed the will of the central government for greater openness and trade with the outside world.
"China has to obey the WTO rules because the government is making policies more and more according to those rules," said Sun Zhe, vice president of the American Studies Center at Fudan University in Shanghai.
Correspondent Peter S. Goodman and Special Correspondent Jason Cai contributed to this report from Shanghai.