US starts WTO action, says China subsidies illegal

Washington, Feb 3: The United States has started legal action against Chinese subsidies it says violate world trade rules after efforts to resolve the issue bilaterally failed, US Trade Representative Susan Schwab said today.

''The United States believes that China uses its basic tax laws and other tools to encourage exports and to discriminate against imports of a variety of American manufactured goods,'' Schwab said in a statement announcing Washington is seeking consultations with China under World Trade Organization rules.

Consultations are the first step in bringing a legal complaint at the WTO. If those talks fail, the United States could then request a dispute settlement panel to hear its subsidy complaint against China.

The case follows congressional complaints that the Bush administration has not been tough enough in confronting China's government. Many US lawmakers and manufacturers believe subsidies have helped push the expected US trade gap with China to a record high above 230 billion dollars in 2006.

Schwab said China provides subsidies to a wide range of industries, from steel to papers to computers.

''China's subsidies can particularly distort trade conditions for small- and medium-sized American enterprises and their workers,'' Schwab said.

Schwab's statement did not mention Chinese exchange rate policies, which many lawmakers consider a subsidy that gives Chinese companies an unfair price advantage of up to 40 percent. US trade officials have previously questioned their ability to win a case on that issue at the WTO.

The request for WTO consultations begins a lengthy litigation process that could take more than a year to conclude. Last year, the United States, the European Union and Canada filed a joint complaint against China's policy on auto parts tariffs. There has been no ruling yet in that case.

Reuters