According to the US-Taiwan Business Council, Taiwan's semiconductor industry will benefit from the recent agreement by China to eliminate preferential tax rebates on domestic semiconductor production.

In what had been criticized as a violation of China's World Trade Organization (WTO) commitments, China had been granting rebates on the 17% value-added-tax (VAT) for semiconductor products designed and manufactured domestically. This discriminatory VAT policy pressured companies into using Chinese chip manufacturers in order to lower costs and boost competitiveness.

According to the trade deal reached last week, China will not provide new rebates for semiconductor products or manufacturers nor for products designed in China, and no manufacturers will receive any rebates after April 2005. The deal removes a key reason for foreign companies to switch semiconductor manufacturing to China, allowing Taiwan companies to retake orders that had been shifted to Chinese foundries.

Taiwan's semiconductor industry earned over US$24 billion in revenue in 2003, approximately US$14 billion of which was attributed to chipmaking, according to the Taiwan Semiconductor Industry Association (TSIA). Taiwan is also home to the world's largest semiconductor foundries, Taiwan Semiconductor Manufacturing Co., Ltd. (TSMC) and United Microelectronics Corp. (UMC), as well some of the world's leading DRAM manufacturers, including Nanya Technology, Powerchip Semiconductor, and ProMOS Technologies.

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