Chinese Vice Commerce Minister and Deputy China International Trade Representative Wang Shouwen attends a news conference on the Shanghai Free Trade Zone, in Beijing, China, August 6, 2019. REUTERS/Jason Lee

BEIJING (Reuters) - China said on Tuesday it will implement a special tax policy in the newly expanded Shanghai Free Trade Zone, in a bid to promote free trade as Beijing’s year-long trade dispute with Washington threatened to escalate into a full-blown economic war.

U.S. President Donald Trump sharply escalated the U.S.-China trade war last week when he threatened 10% tariffs on the remaining $300 billion worth of Chinese goods imported into the United States, starting Sept. 1.

China will also grant crude oil import licenses to qualified companies, the State Council said in a statement on its website, adding that it will provide preferential tax policies for firms operating in artificial intelligence, civil aviation, semiconductor and biopharmaceutical sectors.

The State Council did not elaborate further on the special tax policies, but Deputy Mayor of Shanghai Chen Yin later told a briefing that foreign companies may not be charged customs duties for goods transiting or stored in the zone.

The Shanghai government is working closely with the central government to draft the details, Chen added.

Reuters reported on Monday that China is planning a pilot project to drop all duties and ease procedures at its Shanghai FTZ, citing people familiar, as Beijing looks to position itself as a leader in promoting free trade amid its grinding trade war with Washington.

China has announced various measures over the past year to improve market access as it looks to deflect criticism of its treatment of foreign companies.