WASHINGTON, March 19 (UPI) -- In the latest sign that the U.S.-China trade issue is not only heating up but nearing the boiling point, the Bush administration on Thursday filed a trade complaint to the World Trade Organization against China, claiming that China levies unfair taxes on imported semiconductors. With hostility and frustration against Chinese trade policies growing, is the trade honeymoon over?
U.S. Commerce Undersecretary Grant Aldonas told reporters Wednesday that the United States might even cancel an April trade meeting with China if China does not address counterfeiting of intellectual property and the semiconductor tax. After all, China has had two years to adjust to WTO rules, Frank Vargo, the National Association of Manufacturers' vice president for International Economic Relations pointed out while commenting on the semiconductor issue.
China's semiconductor tax is only one way the country violates trade rules business associations said, and added it won't be the last.
"This case isn't about semiconductors, as important a product as they are," said Jerry Jasinowski, president of the National Association of Manufacturers. "It's about making sure that China doesn't discriminate against any U.S. manufactured goods. If we don't draw the line here, the same thing will happen to a growing range of our exports."
Vargo said that China seems to be trying to compel foreign companies to transfer production and technology to China.
"They can't do that any more," he said, "and this case is necessary to establish that point firmly - they have got to follow the rules."
According to WTO rules, a WTO member cannot impose taxes on imported products that are greater than those placed on domestic products according to the SIA. But in violation, China levies a 17 percent tax on semiconductors but refunds up to 3 percent of the tax to suppliers whose chips are made in China. Commerce Secretary Donald Evans and U.S. Trade Representative Robert Zoellick traveled to China recently to try and convince officials to lift the tax, but were unsuccessful.
Ironically, the Semiconductor Industry Association was one of the strongest advocates for China to join the World Trade Organization.
"The SIA was a leading proponent of China's accession to the WTO and fought for congressional approval of Permanent Normal Trade Relations with China. We stand behind those decisions. China has a vibrant and growing microelectronics industry that will be further strengthened, as the U.S. industry was, by vigorous market-based competition. The SIA led the fight to remove barriers to foreign access to the U.S. semiconductor market. We welcome competition from China, but competition must take place on a fair playing field, unencumbered by market barriers that distort investment while discriminating against foreign-made products," said George Scalise president of the SIA.
Thursday's complaint wasn't the first filed this week by U.S. interests. The AFL-CIO on Tuesday filed its own trade complaint with the U.S. trade representative, asking the U.S. government to impose tariffs on Chinese imports, claiming China violates workers' rights to achieve lower labor costs. 770,000 U.S. jobs were moved to China between 1992 and 2001, the petition claims. Over the last decade, the U.S. trade deficit with China has reached a record $124 billion in 2003.
"China prevents workers from joining unions and bargaining collectively, denies its citizens safe working conditions, provides no minimum wage and uses forced labor. As a result, Chinese workers' wages are between 47 percent and 86 percent lower than they should be, which in turn reduces the price of Chinese manufactured goods by 11 percent to 44 percent. If China did not violate workers' rights, the price of Chinese manufactured goods would increase by 12 percent to 77 percent, according to the petition," said a statement on the AFL-CIO Web site.
And, a group of industry groups and unions organized under the industry-formed Fair Currency Alliance plans to file a complaint against China for tying its currency to the U.S. dollar. China said recently it does not plan to revalue its currency citing that such a move would create too much volatility.
China's new wireless encryption law is yet another source of friction. The new law, which was announced Dec. 1, prohibits electronic equipment that does not include a Wired Authentication and Privacy Infrastructure (WAPI) encryption algorithm developed by and solely possessed by Chinese companies. Chinese law requires that chipmakers have to partner up with Chinese companies to obtain the WAPI technology. Some companies fear it is a ploy to get chipmakers to hand over their technology, or to force chipmakers to pay excessively high fees for the WAPI algorithm.
China has also long tolerated blatant piracy of movies, software and other intellectual property. According to the 2003 Global Software Piracy Study by the Business Software Alliance, China's software piracy rate was 92 percent in 2002. The U.S. also has a $124 billion trade deficit with China. In 1991, it was about $12.6 billion, according to the U.S. Department of Commerce.
But the increasing pressure may strain U.S.-China relations and lead to China imposing its own restrictions on U.S. products.
But in the last few weeks there has been one promising development. Last Sunday, China reversed a long-standing policy and changed its constitution to recognize private property, which may lead to better enforcement of intellectual property, one step in the right direction. Maybe there's hope for this marriage after all.