US targets China industrial subsidies at WTO

WASHINGTON, Feb 3 (Reuters) The Bush administration, under pressure from Congress to be tougher on trade, will seek to eliminate Chinese government subsidies for steel, computers, clothing and many other industries in a case launched at the World Trade Organisation.

''We are seeking to level the playing field to allow US manufacturers to compete fairly with Chinese firms,'' US Trade Representative Susan Schwab said. ''The subsidies at issue are offered across the spectrum of industry sectors in China.'' Washington began legal action at the WTO ''after our efforts at dialogue failed,'' Schwab told reporters yesterday.

Despite an obligation to abandon a long list of ''prohibited subsidies'' when it joined the WTO in 2001, ''China has taken no action to eliminate them,'' Schwab said.

Although the United States needs China's help in dealing with North Korea and Iran, Schwab said the case had the full backing of the entire U.S. government.

But she also downplayed the case as the type of friction that can occur between ''mature'' trading partners.

Senior Democrats welcomed the action as long overdue and said it needed to be followed by even more cases at the WTO to help rein in the huge U.S. trade deficit, which is expected to have reached a record of about 0 billion in 2006.

A huge chunk of the trade gap -- or about 0 billion -- is with China alone, and many lawmakers and manufacturers believe Chinese government subsidies are to blame.

TARGETING NINE PROGRAMS ''This case represents a step in the right direction, but it must be part of a much more aggressive program to take actions against violations of WTO obligations,'' said Rep. Sander Levin, a Michigan Democrat who chairs the Ways and Means trade subcommittee in the U.S. House of Representatives.

Several U.S. business groups, eager to maintain friendly trade relations with China, echoed Schwab's view that bringing a WTO case was a normal action of trade partners when they cannot resolve disagreements on their own.

''That Washington and Beijing can engage each other frankly on such disputes shows a maturation of the commercial relationship,'' said John Frisbie, president of the U.S.-China Business Council.

U.S. trade officials said the United States was targeting six Chinese export subsidy programs, which potentially cover up to 60 percent of China's exports, and three other programs that they said discriminate against imports by subsidizing Chinese company purchases of domestic goods.

The first step, taken on Friday, was a request for formal consultations under WTO rules. If that fails to resolve the dispute in the next 60 days, the United States can then ask for a WTO panel to hear its complaint.

Ultimately, a decision in Washington's favor would allow the United States to slap duties on Chinese goods if Beijing refuses to remove the subsidies. However, it could take two to three years before the case reaches that point.

The U.S. case avoids an issue -- China's exchange rate policy -- that many lawmakers and manufacturers believe provides Chinese companies the biggest subsidy by undervaluing the yuan against the dollar from 15 to 40 percent.

The Bush administration still believes a bilateral dialogue led by U.S. Treasury Secretary Henry Paulson is the best forum to address the currency issue, Schwab told reporters.

Also, while the United States has confidence in the case it launched on Friday, it is uncertain whether it could win against China's currency policy at the WTO, she said.

But Schwab did warn of another possible case against China for failing to protect U.S. entertainment products and manufactured goods against piracy and counterfeiting.

U.S. companies say they lose billions of dollars annually in the China market because of the theft.

The United States consulted with a number of trading partners before bringing the subsidy case against China. It decided to move ahead even though no others were prepared to join the case yet, Schwab said.

Reuters SBA VP0624