China has agreed to discussions with the United States over a US complaint about its tax system for domestic chipmakers, the Chinese Commerce Ministry said.

China expressed its willingness to talk about the sensitive issue in a letter conveyed to the United States on Friday via the Chinese representatives to the World Trade Organization (WTO), the ministry said in a statement.

China has "accepted the US demand and agreed to hold discussions on the issue of drawing back the semiconductor value-added tax," the ministry said.

It said the time and place for discussions was still to be decided.

The US complaint, filed on March 18, was the first against China since it joined the WTO in late 2001. The complaint says a tax break for domestically manufactured semiconductors gives them an unfair advantage over imports.

China responded that it was puzzled by the United States complaint at a time when the two countries had held several rounds of talks on the issue. And the talks have made some progress.

The announcement was made after frequent contacts between Chinese and the US sides in recent days.

A US delegation headed by Commerce Under-secretary Grant Aldonas and Deputy Trade Representative Josette Sheeran Shiner arrived in China on Thursday to talk about trade-related issues with Chinese officials.

But no information about the talks has been released.

China levies a 17 percent value-added tax on imported chips. Domestic producers also are subject to the tax but qualify for rebates of as much as 14 percent. Some US manufacturers claim that is discriminatory to foreign firms.

China and the United States will have 60 days for consultation and, according to WTO rules, a further dispute settlement procedure will be launched if the two sides fail to reach an agreement within the 60-day time limit.

China's central bank Governor Zhou Xiaochuan also discussed relaxing Chinese foreign exchange controls with US Treasury Secretary John Snow in Washington on Friday.

Zhou discussed Sino-US technical co-operation to improve financial markets, China's banking system reform, and relaxation of foreign exchange controls in capital accounts.

Vice-Premier Wu Yi is expected to go to Washington next month April for the first round of talks with the United States trade representative and commerce secretary under a new joint commission on trade aimed at smoothing Chinese-United States trade ties.

(China Daily March 29, 2004)