The United States and China have settled a trade dispute over China's value-added tax on semiconductors after the U.S. government a complaint with the WTO in March about the 17% tax on U.S. chip exports to China.

Trade officials said the VAT issue was resolved after several rounds of discussions between negotiators and legal experts. The officials said the trade deal will ensure "full market access and national [domestic] treatment for U.S. integrated circuits in China." Under terms of the deal China has agreed to stop certifying any new semiconductor products or manufacturers for eligibility for VAT refunds, and by April 1, 2005, China will also end its practice of providing VAT refunds on Chinese-produced chips to manufacturers currently receiving the tax break.

According to U.S. estimates, the tax cost U.S. chip makers exporting to China five times as much in taxes as local China manufacturers.

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